Operator: Good day, and thank you for standing by. Welcome to the goeasy's Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers ' presentation, there will be a question-and-answer session. To ask a question, [Operator instructions].

Please be advised that today's conference is being recorded. If you require any further assistance, [Operator instructions]. I would now like to hand the conference over to Farhan Ali Khan. Sir, please begin. Farhan

Ali Khan: Thank you, Operator.

And good morning, everyone. My name is Farhan Ali Khan, the company's Senior Vice President and Chief Corporate Development Officer. And thank you for joining us to discuss goeasy Ltd. results for the fourth quarter and full year ended December 31, 2021. The news release, which was issued yesterday after the close of market is available on GlobeNewswire and on the goeasy website.

Today, Jason Mullins, goeasy's President and Chief Executive Officer, will review the results for the 4th quarter and provide an outlook for the business. Hal Khouri, the company's Chief Financial Officer, will also provide an overview of our capital and liquidity position. Jason Appel, the company's Chief Risk Officer is also on the call. After the prepared remarks, we will then open the lines for questions from investors. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company's investor website and supplemented by a quarterly earnings presentation.

For those dialing in directly by phone, the presentation can also be found directly on our investor site. All shareholders, analysts, and portfolio managers are welcome to ask questions over the phone after management has finished the prepared remarks. The operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to this call and to use management's comments and responses to questions at any coverage. However, we would ask that to do not quote callers unless that individual has granted their consent.

Today's discussion may contain forward-looking statements. I'm not going to read the full statement, but I will direct you to the caution regarding forward-looking statements included in the MD&A. I will now turn the call over to Jason Mullins.

Jason Mullins: Thanks, Farhan. And welcome to the call, everyone.

Today, I will spend some time briefly discussing our strategy and the long-term performance of our business before reviewing the highlights of the fourth quarter and full year. I will then take a few minutes to talk about our balance sheet and funding capacity, following which we are excited to update you on our outlook for the future, our key initiatives for this year, and the new three-year forecast we published yesterday. First, I want to thank our team for their perseverance over the last several months as the latest wave of the pandemic disrupted everyone's holiday season plans and requiring juggling between in-office and remote work. I truly appreciate the perseverance. Let's start by taking a brief look back at how we got here.

From 2001 to 2009, goeasy experienced its first major cycle of growth, driven by the expansion of our consumer leasing business, easy home. We developed a single household name brand brought in a range of top-quality products, introduced competitive pricing and payment plans, and built a network of stores coast-to-coast to provide Canadians with easy and convenient access to everyday household furnishings and electronics. As we could see the business would soon reach a state of maturity, as we approached more than 80% of the market share, we pivoted and develop the business model that would fuel our next cycle of growth. In 2006, we introduced consumer lending that began testing a single priced, unsecured installment loan through a new brand, easyfinancial. The thesis at the time was simple.

To offer consumers a better alternative to pay their loans through a product with a more affordable repayment schedule. And more importantly, one that would help them rebuild their credit. After several years of testing and refinement, we began to scale this new business. From 2010 to 2016, we worked tirelessly to develop a network of [Indiscernible] branches, develop a sophistication and credit risk management and data analytics, build the platform and infrastructure, and create a brand known for providing non-prime Canadians a second chance at access to credit. The simplicity of a single-channel, single-product and single interest rate allowed us to scale quickly and capture some of the talent and market share left behind after the departure of Wells Fargo and HSBC finance from non-prime lending in Canada.

This year, in 2021, mark the 5th year of our third cycle as will grow. In 2017, we began to execute on our current strategy to diversify our range of loan products so that we can become the one-stop full team provider for all forms of credit for a non-prime consumer, to expand our channels of distribution so that our customers can get access to credit in the most convenient manner possible whenever and wherever they are, expanding the geographies in which we operate, and to help our customers improve their credit and financial well-being by bringing down their cost of borrowing and gradually lowering their interest rate through our products and our pricing as we aim to help them graduate back to Prime. Our current strategy and this current cycle, has produced our greatest period of growth yet. This long history and track record of consistent performance highlights the organization’s ability to adapt and evolve to changing market conditions, competitive dynamics and consumers trends. Since the beginning of that first cycle of growth in 2001, we have compounded revenue growth at 13%, compounded normalized net income at 32%, and compounded the normalized earnings per share at 26%, producing total shareholder return of over 13,500%.

A 20 plus year history to be incredibly proud of. Given the last five years that growth rate has only accelerated. Since 2016, we have grown the consumer loan portfolio organically and through acquisitions from $370 million to over $2 billion. Revenue was compounded at 19%. Normalized net income has grown at a compound rate of 39%.

A normalized earnings per share has grown at a compound rate of 34%. We're even more proud that we have now served over 1.1 million Canadians, with over 300,000 active customers today. And then over the recent five-year period, we have reduced the weighted average interest rate for our customers from over 46% down to 33%, with over 60% of them improving their credit score. And one in three graduating back to Prime within 12 months of borrowing from us. And as I will speak to you shortly, we are just getting started.

I'll now turn to our quarterly results. With the effects of the pandemic on consumer borrowing and repayment behavior largely behind us, the fourth-quarter highlighted the true accelerated growth capability of our multi-product and multi-channel non-prime lending platform. During the quarter, we invested nearly $8 million in marketing and advertising across a range of media platforms. The strength of our campaign combined with seasonal demand resulted in a record number of applications for credit at over $300,000 in the quarter, up more than 50% from 2020. Quarterly loan originations surpassed $0.5 billion for the first time in our history at $507 million, which led to organic growth in the loan portfolio of a record $134 million, more than a 100% increase from the fourth quarter of last year.

This led to finishing the year with over $2 billion in consumer loans. All our products and channels contributed during the quarter. Applications for credit captured digitally through our web and mobile platforms or that of our digital partners, accounted for 51% of all volume. 29% of all the new customers we acquired in the quarter originated through point-of-sale financing with positive growth in every vertical, including retail, power, sports, health care, and home improvement. Meanwhile, our auto financing business has performed exceptionally well, scaling to 5% of all new customers acquired during the quarter.

Through the use of graduating our borrowers to lower tier pricing and lower priced products, we continue to bring down the weighted average interest rate for our customers. During the quarter, the weighted average interest rate on the portfolio declined to 33.3% down from 37.8% last year. Combined with ancillary revenue sources the total portfolio yield finished within our forecasted range at 41.4%. Total revenue in the quarter was a record $234 billion, up 35% over the same period of 2020. Complementing the robust demand, credit performance has also made an orderly return to optimal levels.

The net charge-off rate for the fourth quarter was 9.6% at the midpoint of our targeted range, resulting in optimized volume and risks dynamics. With credit performance now at a new steady state, our loan loss provision also remains flat at 7.87% versus 7.83% in the prior quarter, which we believe reflects the new structural credit risk of the portfolio and the overall economic environment. Operating income for the fourth quarter was a record $79.6 million, up 30% from $61.3 million in the fourth quarter of 2020, despite the greater investment in advertising and higher provision expense related to the much larger loan book growth, we continue to experience the benefits of operating leverage. Total company operating margin quarter was 34%, down just slightly from 35.4% in the fourth quarter of last year. After adjusting for items related to the recent acquisition of LendCare, we reported record adjusted operating income of $86.4 million, up 41% compared to the $61.3 million in the fourth quarter of 2020.

Adjusted operating margin for the fourth quarter was 36.8%, up from 35.4% of the prior year, highlighting the ongoing benefits of scale and the prudent management of operating expenses. Net income in the fourth quarter was $50 million compared to $48.9 million in the same period of 2020, which resulted in diluted earnings per share of $2.90. After adjusting for non-recurring items in both comparable periods, adjusted net income was a record $47.6 million up 36% from $35 million in 2020, while adjusted diluted per share -- diluted earnings per share was a record $2.76, up 23% from $2.24 in the fourth quarter of 2020. While 2021 didn't go exactly the way everyone had hoped due to the lingering pandemic, it certainly finished on a high note for our business. The accelerated expansion of our point-of-sale channel through the investment in LendCare, the new rapidly growing automotive financing division [Indiscernible] financial websites, improvements to our products and pricing, major enhancements to our technology infrastructure, and incredible grit and perseverance shown by our front-line team to take care of our customers were just some of the highlights from another productive year.

With a record 68% of our management positions filled by internal promotions and a record employee engagement score of 84%, without a doubt, it is our people and our culture that we're at the center of our success yet again. During the year we committed to learning more about each other and how we could contribute to social causes in our communities. We ran our first-ever workforce demographics survey, which validated the tremendous diversity and inclusion within our organization. We were thrilled to find that our workforce is made up of team members with 78 different countries. And we believe this incredible diversity producers the unity of talent from different backgrounds and experiences that create a culture of creativity and innovation.

In support of our black colleagues in 2021, we signed the BlackNorth Initiative pledge, demonstrating our commitment to equity and opportunity for members of the black community in corporate Canada. In response to the extra challenges our team face before that partnership with the Canadian Mental Health Association, an increased access to Mental Health specific practitioners through our virtual healthcare provider. We also made great strides in strengthening our senior leadership team with the appointment of Jackie Foo as Chief Operating Officer for our easyfinancial G-Home operations, while also elevating Sabrina Anzini and Farhan Ali Khan to C-suite roles. Lastly, consistent with our values, we've made a meaningful impact in the communities in which our employees work and live. During the year, we donated over $0.5 million to charities and causes that serve others in need, our biggest year of donations to date.

We've always rallied around our value of investing in our communities and operating with a purpose beyond a profit, and our ability to get back to meaningful causes in 2021 was a testament to that. We are privileged that the hard work of our team and the culture we have continued to cultivate did not go unnoticed, as goeasy was certified as a great place to work in Canada, renamed as one of Canada's most admired corporate cultures for the second time, I placed on the TSX 30 lifts for the second time, breaking number 7 overall for total shareholder return. For the full-year, we funded nearly $1.6 billion loan originations, up 54% Revenue for the full year was $827 million, up 27%. After adjusting for the acquisition-related expenses, operating income for the full year was $317 million compared with $216 million in 2020 an increase of 46%. During the year, we also recorded before tax fair value gain on our investments of a $150 million.

Total net income for 2021 was $245 million up nearly 80%. After adjusting for the one-time acquisition expenses and the gains on our investments, adjusted net income for the full year was $175 million and adjusted diluted earnings per share was $10.43 increases of 49% and 38%, respectively. Based on the 2021 adjusted earnings, the increasing level of cash flow produced by the business, and the confidence that our continued growth of access to capital going forward, the board of directors has approved an increase to the annual dividend from $2.64% per year -- $2.64 cents per year to $3.54 cents per share, an increase of 38%. This marks the 8th consecutive year of an increase in the dividend to shareholders. I will now pass it over to Hal to discuss our balance sheet in capital position before providing some comments on our outlook.

Hal Khouri: Thanks, Jason. The fourth-quarter in recent weeks of 2022 have been a highly productive period in developing our target capital structure. Diversifying our funding relationships, and utilizing our excess capital capacity in a manner that will generate long-term returns for shareholders. Free cash flow from operations before the net growth of the consumer loan portfolio in the fourth quarter was $59.5 million, up 45% from $41 million in the fourth quarter of 2020. Approximately $25 million of our free cash was used for dividend payments and the purchase of capital and lease assets with a balance of $35 million allocated toward funding our record quarter of $134 million are up in organic loan growth, the balance of which was funded through available credit facilities.

We also elected to use an additional $62 million of our available capital in the fourth quarter, and an additional $18 million in early January to opportunistically repurchase our shares at a level we feel is below their intrinsic value. Since November, we've used $80 million of our capital to repurchase approximately 444,000 shares. As Jason highlighted earlier, the performance of our business, rising earnings, and access to capital have led to lifting our annual dividend 38% to $3.64 cents per share. It is important to note that both our dividend policy and share repurchases are done on the basis that they can be sustained through future periods of economic stress. At year end, our net debt to net capitalization was 65% comfortably below our targeted leverage level of 70%.

Subsequent to quarter-end, we also announced enhancements to our secured revolving credit facility and securitization warehouse. On the warehouse, we indicated the facility and increased the size from 600 million to 900 million of total capacity, while adding several marquee banks. On the revolving credit facility, we extended the term, reduced the limit slightly, improved the flexibility and reduced the interest rate by 75 basis points when taking drop tight the Canadian bankers’ acceptance rate, and a 125 basis points when taking drop type of the bank prime rate. Between the two facilities, we are fortunate to have participation from 5 of the 6 major Canadian banks, and total capacity of nearly $1.2 billion, a testament to their confidence in our business. Based on the cash at hand, at the end of the quarter in the borrowing capacity under our recently amended credit facilities, we have approximately $978 million in total funding capacity, which is sufficient to fund our organic growth forecast for approximately three years through the fourth quarter of 2024.

Inclusive of these amendments, are fully-drawn weighted-average cost of borrowing reduced to 4.2% with incremental draws on the senior secured revolving credit facility bearing a rate of approximately 2.75%, and incremental draws on the securitization facility bearing a rate of approximately 2.37% prior to interest rate swaps. We also estimate that once our existing and available sources of capital are fully utilized, we could continue to grow the loan portfolio by approximately $200 million per year solely from internal cash flows. With that as a backdrop, I would like to talk about interest rates for a moment. As everyone knows, we are entering a period during which rates are expected to rise; however, there are four distinct reasons why goeasy remains sheltered from rising rates having an impact on the cost of blowing on our drawn debt balances. First and most significant of the effective mix shift.

Much like our consumer loan portfolio is shifting towards lower price consumer loans, so too is our debt stack. We expect that nearly all the funding to support our three-year organic growth plan going forward will be from lower cost secured funding facilities. As a result of the shift in mix, even if the rates on those facilities were to rise, they are still projected to remain below our current drawn costs with debt of 4.9% in the quarter for some time. Secondly, all the draws we have made to-date on the securitization warehouse and those we will make in the future have interest rate swap agreements put in place to hedge the interest rate risk and fix the rate going forward. As a result, the impact on rising rates only affects incremental securitization draws, resulting in a much slower and gradual impact on the overall cost of borrowing.

Third, as noted earlier, the rate charged on our secured revolving credit facility was recently reduced with the amendment, we announced the January. As a result, we have secured a greater degree of buffer before rising rates effector actual total cost of borrowing. Lastly, our 2019 unsecured nil became eligible for early redemption this past November at a premium level that we will reduce further this coming November. Those notes were priced at a coupon of 5.375%. However, subsequently in 2021, we were successful in issuing an additional note at a 400 basis points lower with a coupon rate of 4.375%.

As a result, we believe there is an opportunity if we were to refinance the 2019 notes to reduce the new coupon rate, even amidst a rising rate environment. Altogether, we estimate the interest rates to rise by nearly 200 basis points before we experience an impact that the current cost of borrowing on our drawn debt balances. Turning briefly to the management of our investments, in November 2021 we entered into a 7-month total return swap agreement, to substantially hedge our market exposure related to an additional 75,000 contingent shares related to the equity we hold in Affirm. The swap effectively results in the economic value of this hedged portion of our contingent equity being settled in cash at maturity for $163 U.S. per share, net of applicable fees.

Prior to the fourth quarter, we had previously entered into a nine-month total return swap agreement to substantially hedge our market exposure related to 100,000 contingent shares related to the equity held in Affirm with those shares being settled in cash at maturity for $110.35 U.S. per share, net of applicable fees. To date, we have substantially hedged our market exposure related to $175,000 of the $468,000 or nearly 40% of the total contingent shares held in Affirm. As such, the value of our hedging arrangements exceeds any impact from the recent reduction in Affirm's share price, minimizing the net exposure. Furthermore, we are optimistic that the portion of the contingent share s we have assumed will best in 2022, will improve as the performance of Affirm Canada formerly PayBright unfolds.

So with nearly $1 billion in total liquidity at highly diversified capital structure that is providing shelter from the impact of rising rates, we are in an excellent position to fund the ambitious growth plans get published. With that, I'll pass the call back over to Jason.

Jason Mullins: Thanks, Hal. As we continue to execute on the four pillars of our strategy, we have never been more excited about the future of our business. In our release yesterday evening, we provided a new updated outlook, which contains a forecast for the next three years.

Note that due to recently introduced IFRS disclosure requirements, we have made some small amendments to the KPIs we typically provide, including moving from adjusted operating margin to reported margin, although the main commercial drivers of the business continue to be provided. Altogether, the forecast is consistent with or better than our previous forecast provided last year. We expect to organically grow the loan portfolio by roughly 75% to approximately $3.5 billion in 2024, driven by the growth and execution of our current suite of products and channels. Our outlook, which contemplate a broadly stable, competitive, and economic environment provides a range of guidance to account for unanticipated headwinds on one end or the benefit of our initiatives performing better than planned on the other. We also remain on a quest to reduce the cost of borrowing for our customers by optimizing for an 8% to 10% return on receivables that in turn produces over a 20% return on equity.

We can deliver attractive long-term earnings growth and shareholder return while concurrently passing along rate reductions to our customers and expanding their relationship with us. Over that next three-year period, our strategy will bring down the weighted average interest rate we charge our customers to below 30%, while the total yield with the ancillary revenues gradually declines to approximately 35%. The constructive economic backdrop and the strength of our risk management and analytics practice results in a stable outlook for credit performance. We expect the annualized net charge-off rate of our portfolio to oscillate between 8.5% and 10.5% throughout 2022 and '23, gradually declining in the outer period. Excluding any new investments or additional share repurchases, the strength of our internal cash generation will also lead to a gradual de -levering of our balance sheet while the business continues to reap the benefits of scale and the operating margin and corresponding profitability expand.

To drive this growth, we will continue to invest in our business. During the year we plan to spend approximately 3.5% of our revenues on marketing and advertising through the launch of a new TV and visual video campaign. We also plan to invest approximately $30 million of capital into real estate and technology, including our digital at point-of-sale platforms, core lending solution, and data infrastructure. In 2022 we will be focused on driving sustained growth through three key strategic growth initiatives. To-date, we have assembled a powerful lending business with multiple products and acquisition channels.

However, we have not yet fully monetized the power of this platform. Today, many of our customers not only fail to be presented offers for loan products they are eligible for but many of them would not even be fully aware of the wide range of borrowing options available. Moreover, the cross-selling activity that is done uses a basic approach of email marketing and phone-based selling. Therein lies the tremendous opportunity. We think of our business as a lending ecosystem for non-prime Canadians.

A one-stop shop where they can get access to all their borrowing needs from a single trusted provider. In 2022, we will begin to develop a self-serve digital portal through a mobile app that will give prospects and customers alike access to easily see the wide variety of financial services available, and dynamically provide them with loan offers tailored to their credit profile and borrowing needs. We hope to launch version 1.0 by end of this year and then begin our journey towards the end state where non-prime borrowers never have to apply for credit again. By way of investments in data, decisioning and digital, consumers will simply download our app, provide some basic information and consent, then begin to instantly preview the credit products they are eligible for. We think this digital portal will extract maximum value from our full-suite financial services institution and dramatically improve the customer experience for our consumers.

Secondly, we will continue to invest in our auto finance program through both the dealership and direct-to-consumer channels. We believe we can be the number one non-prime, non-bank auto lender in Canada. Over the course of the year, we plan to scale from approximately 1,400 dealer partners today to over 2200 by year-end while continuing to scale up our direct-to-consumer offering through auto finance advertising, and enhancements to our digital approval process. Lastly, we will be working on several initiatives to scale our point-of - sale lending business through our LendCare brand, from enabling consumers to pre -qualify for purchase financing on our partners websites, to integrating directly into the sales platforms of our merchants, to developing a full-spectrum solution in partnership with other Prime lenders, we anticipate a meaningful lift in originations from financing everyday large ticket purchases for our customers. We are already experiencing a positive start to the year.

During the first quarter, we expect to grow the consumer loan portfolio between $80 and $100 million during the quarter, nearly tripled the growth in the first quarter of 2021. On the revenue side, we expect the total yield generated on the consumer loan portfolio to decline to between 38.5% and 39.5% driven in part by fewer days in the quarter, while the net charge-off rates should remain at the midpoint of our targeted range, finishing between 9% and 10% in the quarter. As we reflect on our business, we are proud of our achievements, but far more excited about our future. As meaningful as the recent $2 billion milestone was, it only suggests that we have now just captured 1% of the market share for non-prime credit in Canada with future opportunities abroad expanding our market even further. Yet none of this would be possible without the incredible team that works through day-in and day-out, providing honest and responsible financial products that helped with non-prime Canadians on the path to a better tomorrow.

We are truly just getting started. With those comments complete, we will now open the call for questions.

Operator: Thank you. [Operator instructions] Please stand by while we compile the Q&A roster. Our first question comes from Ricardo Conceicao with BMO Capital.

Your line is open.

Ricardo Conceicao: Thank you, and good morning. Jason, on the integration of LendCare, could you provide an update on the launch across some of the marketing campaigns as well as what origination benefits have you seen to date as it relates to merging both underwriting models back in November?

Jason Mullins: Yeah, absolutely. So as we mentioned last quarter, all of the call it, back-office integration that we needed to complete primarily in the finance department is pretty much now done. And then on the key initiatives, the point-of-sale platform integration got completed at the beginning of the fourth quarter.

We've already seen several million of originations coming through the second-look financing that's now being offered by plugging in the former easyfinancial credit model and then behind the LendCare platform. As of now, that is done. We're still only gradually rolling it out to the merchants in the verticals. We're doing it in a testing and cautious manner like we normally would, but it's going well and we're already seeing some good lift. We also launched our first cross-sell campaign this past fourth quarter as well, where we went and looked at LendCare customers that would qualify for easyfinancial loans and launched an offer to those customers.

Again, doing it in a small controlled way in which we could test and learn. Again, also saw several million of origination's produced off that first campaign. So doing well and we are quite optimistic about the contribution of those tactics on the business going forward.

Ricardo Conceicao: Okay. Great.

I'd like to read the topic of accelerating inflation. So first on, on loan growth, how sensitive are your underwriting models to the writing cost of living? And the second perspective on credit losses, how do you think about the impact of rising inflation on the non-prime borrower’s ability to repay?

Hal Khouri: That's a great question. I'll make a couple of comments and then Jason, [Indiscernible] can chime in as well. So first of all, when we do an evaluation of a consumer for credit, we calculate an affordability algorithm. And so we're able to adjust the tax income ratio or payment to income ratios based on the changing environments.

We have models that's based on the individual's credit, based on the individual's income, allows for different levels or different thresholds of the payment that we provide and the product we provide relative to their current debt and their current income. So at the moment, it's something that we're looking carefully at, but thus far, debt-to-income ratios have remained quite stable. And in fact, the average income of our consumers over time has actually been rising. So for the consumer set that were specifically looking loans for, that ratio has actually improved slightly as a result of higher average incomes. As it relates to the impact just longer term, we believe that our current guidance, the range we provided accounts for being able to weather through headwinds related to inflation to a certain level.

If you look at the current Bank of Canada outlook today, expect inflation will remain elevated. But by the end of the year, I'll begin to drift back down to around 3%, which should then intersect with approximately where wage growth will be. And as long as you get to the point where inflation on wage growth neutralized, then the generally speaking, the average Canadian is in good shape. I think it's also important to note that for several years up until only just recently, wage growth did exceed inflation. And so the recent spike of inflation is really, at the moment, only a temporary matter, provided that it does decline gradually over the next year or so, as supply chain opens back up with economic reopening at rising rates start to begin to help correct inflation, and then we think we've got a comfortable range to manage credit risk.

If of course inflation does run much higher all the way through this year and into next year and beyond, then that's where -- as we see it that unfold, we have the ability to adjust our credit tolerance. We can do that either by changing the debt to income threshold that we allow so that consumers have more remaining income for those other discretionary expenses, or we can do that by adjusting the actual credit floors that we're using to determine which customers we accept. So that's kind of how we think about it, we believe it's adequately accounted for to a degree today. We then provided the outlook

Jason Mullins: for the economy does trend the way it's been recently forecasted will be an excellent shape. But we're also confident that if it goes the other direction and its prolonged, we can make the appropriate adjustments.

Hal Khouri: What kind of exchanged [Indiscernible] or comment, I would add to with Jason Mullins incentives is because of the vast majority of our customers are not owners at their homes or vendors of their homes. They tend to be somewhat in somebody from the impacts inflation as it relates to interest rate risk, which is really the predominant concern that what would typically have from lenders and rising rate environments. The good thing about the goeasy customer, is the majority of the debt that they hold is fixed rate, it is not tied to movements in interest rates. Therefore, while upward inflation movements, but typically result in a higher cost for the borrower because lenders will be moving their rates up on things like their mortgages. The vast majority of our customer base will largely be shielded from that impact.

And one of the largest components

Jason Mullins: of customers expenses is their rent or mortgage payments. So it's another piece of what we feel pretty good about having an appropriate buffer in place as inflation remains high but we also have the capability to [Indiscernible] loans pretty quickly if we see that ratio getting out of hand.

Ricardo Conceicao: And how would the average debt to income ratio for your customers compared to the Canadian average, for example?

Hal Khouri: If you look at their total debt levels becomes -- only 20% of our customers are homeowners versus close to 70% for the Canadian average. Our customers on average carry about a third less total debt as a ratio to their income. So as Jason said, that lack of homeownership just means less mortgage liability and less mortgage debt.

And again, that is also the particular liability that's often most sensitive to changing rates. And so they're a little bit sheltered from that particular impact.

Ricardo Conceicao: Great. Last question from me on capital deployment. Could you remind us of the strategic benefit you'd be looking for in a potential international target?

Jason Mullins: Sure.

As we talked about now for a couple of years, we think acquisitions are going to be an important part of our growth plan going forward. I think the first and most important thing to note is that we've got a really great organic plan in front of us, vis -a - vis, the forecast we shared last night. And so, for us, an opportunity has to meet a very high standard of strategic fit and financial accretion for it to make sense. We're not interested in putting the organic growth plan that we have at risk. It can really only make sense if it's an excellent sense.

In terms of the type of business we're looking for, much like what we did with LendCare last year. It's a business that fits in line with our plan to offer a range of financial products to non-prime borrowers. We would be looking for a business where there's not yet been the full investment made into widening the product range and expanding the channels of distribution. So for us, it's about really looking for something that's right down the fairway of non-prime consumer lending, where we can bring all the expertise that we've developed over the years with our business here in Canada to bear by helping build the competency and data and analytics, winding the range of products, expanding channels of distribution, and then really focusing on that customer centric message about helping them bring down the cost of borrowing and helping them graduate back to Prime. So it's really a business that has the underlying platform that allows us to layer that strategy on top of it.

Ricardo Conceicao: Thank you very much.

Operator: Thank you. Our next question comes from Stephen Boland, with Raymond James. Your line is open.

Stephen Boland: Thanks, guys.

Let me just start with, I guess when you -- your '24 guidance, I noticed that there is a -- I guess on March, a slowdown in the number of physical locations or physical stores. I'm just curious if that is implying there's like a physical saturation that you have or is this a structural shift to other channels and you don't need more stores? I'm just curious if that's -- are things going more online and that's what your thoughts are, you don't need more stores?

Jason Mullins: No. In fact, the outlook we have for openings over the next three years is very much in line with our plan all along. We had always thought that there would be the capacity for between 300 and 350 retail branches in Canada. And at that point, we would have branches essentially in every community throughout Canada, giving well over 90% of the population easy, convenient access to a branch.

So we're really just finishing building out that infrastructure. As far as the additional growth in the business is concerned, yes, for sure. Some of that comes from new products and new channels as we noted earlier. But more importantly, I think, is to think about the fact that today our average loan book per branch is only $4 million. If you compare that to the books of our competitor Fairstone, or the loan books of the incumbents on our space I referenced earlier, Wells Fargo and HSBC finance, they would have an average loan book per branch of approximately $10 million.

So a lot of the growth going forward, even though we're not going to be necessarily adding net new branches will be the process of the maturity cycle that are existing network will go through. And by just that measure alone, you can see how we believe the business have the capacity to more than double before we reach anything close to the average levels per branch of the competitors in the incumbents that are in our market.

Stephen Boland: That's good color. And I guess the second question now that you've started to roll out the auto lending products, you're saying it's accelerated. Can you talk about trends in credit repo? Any color on the credit side of that business?

Jason Mullins: Generally speaking, the credit in the automotive space that we've seen has performed very well.

Lot rates are below -- at or below our current portfolio average, given the secured nature. We focused on primarily a more near-prime like customer with our auto loan offering, so I think we've been very prudent about managing the credit risk associated growth in auto. Over the last eight months that we've scaled that program up, largely through our partnerships and our investments with LendCare, we've seen really steady, consistent growth and really steady consistent credit performance. So our model, which is to try to keep testing and learning and gradually growing the business so that as you see performance of loans in the various historical vantages trend, you can get a sense of how they're doing relative to your expectations, it's the same approach we've taken here. And I think as we mentioned in the past, LendCare had been doing testing in the automotive market for a number of years prior to the acquisition.

So we were in a fortunate position where the jump off point for getting into that business and really beginning to invest and all financing, we already had a subset of data we could use, and leverage in terms of establishing pricing and credit tolerance. So that's kind of how we approach them and we're very happy with how it's turned out.

Stephen Boland: Okay. That's great. Thanks, Jason.

Operator: Thank you. Our next question comes from Gary Ho, with Desjardins Capital. Your line is open.

Gary Ho: Great. Thanks.

And good morning. Meets first question, Jason. If noticed, this last week there was transaction in the Canadian point-of-sale base with finance it. I just want to see your thoughts on it just given the space. And it sounds like you want to accelerate your growth there.

I think these guys are more prime or near-prime. Do you see the base heating up in terms of deal activity? What's throwing to your desk today?

Jason Mullins: No. No real change on our outlook related to the competitive environment. To be honest, finance it as you referenced. It is a business focus exclusively on Prime and almost exclusively on home improvement.

So they really only occupy one [Indiscernible] in a different credit segment of the market that we're specifically focused on. And so that transaction we don't think changes the landscape really for us at all. Obviously, we remained focused predominantly on near-prime and non-prime borrowers. And in that particular segment, the competitive landscape hasn't changed much. Certain verticals are a little more competitive than others.

Auto for example, is one in which there are more market participants. However, we believe we've engineered a program that each individual vertical that relative to the others offering those products is highly competitive. And I think the other thing I would say is that we really have a fairly significant leading position now in non-prime lending. So we certainly have more scale and are a profitable business. That's not only always the case for some of the other companies that we're competing against, which makes it a little bit more difficult for them at times.

Gary Ho: Got it. Okay. And then, we haven't got a recent update just on your potential product launches. I know you did your auto loan a couple of quarters back. You always have something in the hopper.

Just wondering what's in the pipeline? What are you guys testing in the background, and what could be coming to market over the next couple of years?

Jason Mullins: Yes. Sure. So first of all, I would reiterate that our three-year forecast is not predicated on the launch of any net new products. It's really built on the basis of the products and channels that we have today. The testing and the learning that we've already done.

It's our confidence in the ability to achieve the forecast from the suites of the offerings that we have at the moment is very high. In terms of potential new products though, we will start to do some research and analysis on the possibility for introducing occurred products in the future, we think there is in the medium-term, the possibility for a secured card, whereby a consumer that both the lower current credit tolerance level today, can obtain access to a secured credit card in order to build credit. If you take a look at a major credit card brand like Capital One, they have a very large and robust secured card program, and they use it as really a feeder source for consumers that are students, new Canadians, or just have blemished credit and they're able to get access to a secured card onto the payment history and then gradually graduate them up. So that's a product that when we look at the fact that we have tens and hundreds of thousands of applicants but unfortunately, we still have to decline for credit. There's a really big opportunity there.

In a longer term, we think there is the possibility for the opportunity for just in general purpose non-prime card. Once we get to the point where we build out the infrastructure, the platform, the brand, and we've got a big user base, that is a possibility as well. The good news is that the largest peer in our competitive space, OneMain in the U.S., launched a general purpose credit card product to their base that's very similar to ours, last year, and so far, it has gone well, but we're able to just sit back and monitor and look at what they've done, how they do it, how it performs before we have to make those kinds of decisions. So right now, we're very happy with the product range that we have. It does all the lifting in terms of fueling the growth forecast, but over the next couple of years we're certainly going to be continuing to do the market research on what potential products we might add in the future.

Gary Ho: My next question, you've been pretty aggressive with your buyback in Q4. You also mentioned also subpar into one as well. So looking at how do you think about your NCIB skimming where the share price is trading today.

Hal Khouri: Hey, Gary. It's Hal here.

So as per strategic sort of plan, where we feel that the share price has been depressed given market conditions, we'll continue to evaluate the market to determine whether a share buyback would be appropriate. We felt that given where the share price was going through November, through January, we felt that was a great investment on our part, given the intrinsic value there. With our leverage continuing to naturally reduce with the great cash flow is coming through the business, we feel that first and foremost, continuing to use our capital and deploy that capital for the growth of the overall loan book would be number 1, the product diversification categories that Jason referenced earlier as well. Number 2, and then where our leverage position is quite nicely, currently at 65% net cap relative to our target of 70%. We feel that there's still room there to continue to be active in the market around share buybacks.

Jason Mullins: We're in a fortunate position where even if you take the forecast that we've provided, which as noted earlier, accounts for 75% increase in the loan book. As Hal said, the business will continue to still naturally de -lever. And so for us, it's really about figuring out as we accumulate that extra capital capacity, and survey the opportunity for potential acquisition investments in the event there's a great opportunity, then that's clearly where we would like to use the capital because that's going to be strategic things that really do fuel the long-term growth for business. But in the meantime, and then the interim, when the share price is at a level, we think is below its value than that [Indiscernible] that we can use that extra capacity on our balance sheet to opportunistically buy shares, and that'll be the approach going forward.

Gary Ho: Okay.

Copy. And then if I can just sneak one more in to how just -- numbers question. There was a $3.4 million integration cost that was removed from the calculate in your adjusted number. First, what did that pertain to, I think there was some reference to software write-off? And then second, did that all flow-through in the corporate segment?

Hal Khouri: Yes. Sure, Gary.

So we had planned through the course of our LendCare integration, our Auto and POS platforms that we had on the easyfinancial side to merge and integrate to create synergies as part of our synergization with LendCare. So effectively, what you're seeing is the write-down on those particular assets as we integrate with the LendCare platforms.

Jason Mullins: As noted earlier, Gary, we're essentially done the main pieces now, so we tried to get to completing all those major projects in 2021. So POS platform is integrated, the auto platform is now integrated. So those are now mostly completed, and you won't really see any other material integration costs going forward.

Hal Khouri: Yeah, you'll really just in terms of the adjustments, be really just seeing the amortization on our intangible asset as part of the initial acquisition flow through the P&L on an adjusted basis.

Gary Ho: And sorry, how did that $3.4 million all flow through to corporate or something that came through on the easyfinancial side?

Hal Khouri: No, that's in the corporate segment.

Gary Ho: Okay. Because if I do back that out your corporate adjusted income would have been negative $13 million, which is pretty low versus last number of quarters. Any comments there?

Hal Khouri: Yeah.

So we actually at year-end, we have accruals that we put in place. And one of those accruals would be around compensation around our incentive program. So we made an adjustment in the fourth quarter that actually improve our overall profitability, lowered expenses. But you should see that normalize in Q1 back to a more recent level.

Gary Ho: And can you quantify that by any chance?

Hal Khouri: Yes.

So it was in around the range of $4 million in the aggregate around those overall accruals, but I just referenced.

Jason Mullins: Thank you. A corporate -- the corporate bucket was probably like in the $17 million range per quarter. That's kind of where you can expect it to start off this year, some more consistent with those second, third quarter. And then total salaries and benefits was running in the low $40 million range in the second and third quarter.

That's about where you'll expect those dot line to pick up as well. So it's similar to what you would have seen in Q3 is about what you'll see in terms of jumping off point beginning this year or a little higher.

Gary Ho: Perfect. Okay. Thanks for the additional color.

Jason Mullins: Sure.

Operator: Thank you. And next question comes from Jaeme Gloyn from National Bank, your line is open. Jaeme Gloyn : Thanks. First one, and haul for you, and I just want to clarify, you made a comment around that interest rate sensitivity and at 200 basis point increase before funding costs are impacted.

Just correct me if I'm wrong or provide more clarity. So the funding cost as it stands today versus a fully drawn funding cost. Let's say, over the course of the next 2 or 3 years that fully drawn funding costs because we'll stand at 200 basis point increase before it reaches the cost if that we are facing today. That the right way to understand it?

Hal Khouri: Yeah. That's right, Jaeme.

So basically, if you look the -- as you put it a fully drawn rates that we're at currently in around the high 4% range with the work that we've done to improve and optimize our debt stack, our incremental draws will be on our revolving credit facilities. And those just kind of given the rates that we've been able to establish will give us a nice natural buffer relative to the rates on our high yield notes that are proportionately taking up a higher component of our overall debt stack. So you'll see that just naturally as a product of the overall mix of a debt stack or overall cost of funds continuing to improve and notwithstanding a rising rate environment in that regard. And then just lastly, just to know that we continue to swap out and hedge any incremental draws that we take on our securitization facility as part of the normal course
Jaeme Gloyn : Right. And it does not factor in a redemption of the high yield notes that are outstanding today that wouldn't, I guess, would clearly be attractive to redeem in November of this year?

Hal Khouri: That's right.

So that'd be another opportunity and we'll keep a close eye on the rate environments to unwind that with the premium on the call option. Unwinding our hedge, we've got some tax adjustments that we'd have to take in, deferred finance costs adjustments. So we'll look at that relative to the cost of calling that 2019 no early, relative to the rate environment. But we do think that there's going to be an opportunity there as we look at the rates and the outlook through the balance of the year. Jaeme Gloyn : Got it.

Great. For Jason [Indiscernible] just is there any color you can provide around the performance of the core subprime unsecured borrower relative to the more secured or higher-quality risk-adjusted borrower, whether it's within the goeasy platform or the LendCare channel? Can you talk about some of the -- how those borrowers have performed recently? As we've seen a little bit higher inflation rates, and well maybe even a little bit on the interest rate side as well, how those borrowers have performed. Are there any differences in the credit performance?

Jason Mullins: There's a little bit of a difference, only because your secured borrowers clearly well at overall, generally prioritize you for payment, repayment before they want unsecured borrowers. One of the benefits of having a more diversified portfolio in terms of security with the additional LendCare and our expansion of our own home equity product is, as we've emerged out from the pandemic and customers have returned to, they're what we called pre -pandemic behaviors. We aren't really seeing any material change in the way in which our secured borrowers are performing.

We are, however, as you would expect to see some normalization of behavior from your unsecured followers. But I would say because of the structural changes we've made to the underlined loan portfolio over the past couple of years, both before the pandemic began and certainly throughout the pandemic where we modified our underwriting, we're now carrying a less risky, unsecured book, than we did two years ago to well, that the market has certainly return to normal behaviors on the part of unsecured borrowers, much like they were before the pandemic. We're not seeing the same degree of that impact on our overall portfolio, because proportionately there are fewer other plans compared to secured. And secondly, the underlying credit mix of those customers is better over the last couple of years since we've made changes to the book. So I would say that while the market has normalized, we've seen a bit of a disproportionate benefit in the overall credit quality of our book.

Certainly, on the secured side for reasons which I mentioned before, but also on the unsecured, because of some of the adjustments we've made, including the continued movement of risk-adjusted pricing, which tends to attract a better overall credit quality customer, even on the unsecured side.

Hal Khouri: Just add to that, Jaeme, to put it another way. If you will recall, the guidance we had provided before -- just before we did the LendCare acquisition, was that the easyfinancial book was at the time, as you know as largely unsecured, obvious the home equity portfolio was about 10% of the book. We had guided the loss rate range of between 10.5 to 12.5. So call it a mid-point of maybe 11th for that business.

There has been no change to our null performance or outlook of that segment in that part of the book. So well, as Jason said, credit has now normalized in the last couple of quarters. You can see that for the total portfolio, we're expecting stability both in the first quarter and the balance of this year at these levels. And we're seeing that stability in both the secured side and the new Dow run rate of the unsecured top portion as well. Jaeme Gloyn : Okay.

That's helpful color. Last one. Jason Mullins, you talked about the outlook for the auto portfolio and becoming the number one non-bank player in that market. I suppose that's more than just a 2022 target. But within that, can you talk about where you sit today? What's the size of that market now? And I guess, how do you plan or what's the strategy to grow from the 1,400 dealers to 2,000 dealers that's more of a strategy?

Jason Mullins: Yes.

Sure. So I guess the first thing I would say is if you look at the approximately $200 billion non-prime credit market, albeit it came down a little bit through the pandemics around $185 billion or so. If you look at that market and unpack it, and categorize it into four categories installment loans, lines of credit, credit cards, and auto financing. Auto financing would be the largest category amongst those four. It would represent over $50 billion of the $185 billion marketplace.

So if you think about the business today, the vast majority of our portfolio, nearly the whole $2 billion is essentially in the smaller segment of that market. The installment loan category. And yet auto represents this large of significant portion of that non-prime credit market. So loan enough breaking out exactly the proportion of the portfolio, it is a reasonable sized portfolio today. In fact, we think relative to where we are, relative to some of the other lenders within the non-prime market, we're probably at or soon surpassing some of the smaller players.

So we've done quite a good job in the last eight months. And so the outlook for us is we think that given the brands, the scale of the business, the platform, the cost of capital, we can definitely be the number one non-bank, non-prime player. For us, that means that was inside the window on the three-year forecast we provided but beyond, scaling the Auto loan portfolio, north of $1 billion in consumer loan balances. That's the level we would need to see that Auto business grow to before we'd be in the position of approaching number 1 in the industry. So clearly, a very significant opportunity for growth over the long term.

Jaeme Gloyn : Great, thanks for that color. That was it for me.

Jason Mullins: Okay. Thanks, Jaeme. Operator, is there any other short questions in the queue?

Hal Khouri: Close it down, Jason.

Jason Mullins: Maybe technical difficulties. We'll call in and see if we can get it sorted. We'll give it another minute. If the Operator doesn't reconnect to queue up the next question, we'll wrap the call and certainly invite anyone on the line that does have follow-up questions to reach out to us directly through Farhan. I will give another quick minute here and see if the Operator reconnects.

Otherwise, we'll wrap up.

Operator: Thank you. Our next question comes from Marcel McLean from TD Securities. Your line is open.

Marcel McLean: Thanks for taking my question.

I was worrying about [Indiscernible] on here. In terms of the loan growth forecast you guys have provided, it looks like you are going to grow above $0.5 billion a year [Indiscernible] next three years, which would imply about 70% growth over where we are today. A few questions on that. It looks like you're looking to open up fewer amount of stores this year than you did last year and over the next few years. Just wondering where the growth is coming from, how you break it down between the new auto product, your traditional [Indiscernible] product, and your other products.

And secondly, if you're expecting the average credit score of your consumer to remain relatively stable or is that going to change at all?

Jason Mullins: Yeah. Sure. So we don't provide the specific and exact breakout of the product level. But what I can do is maybe bucket that a little bit for you. So today, about 30% to 35% of our portfolio is secured.

And that really represents home equity loans, power sports lending, automotive financing, and home improvement lending. With the unsecured loan and retail point of sale finance, and healthcare point of sale finance falling into the unsecured bucket. Clearly the unsecured loans, the straightforward unsecured loan is the largest product today as that's been the one that we historically built the business on. That proportion of secured volume, we would expect to grow from about 30% to 35% today to between 40% to 50% over the three years of this plan. So clearly that would mean that there has to be good quality growth in all the categories, including unsecured lending.

But we will see a little bit of a shift towards more secured product, whether that be auto, power sports, home equity, et cetera. So hopefully that helps provide a little bit of clarity and explanation. As it relates to the average credit quality of the customer, we think the average credit score will be mostly stable with a little bit of an increase. Clearly, the products that we're migrating into often will attract and result in us retaining a slightly more near-prime customer. So that would result in the average score gradually climbing over that period.

Marcel McLean: Okay. Thanks. And then secondly, in terms of your new initiatives, how do you see the split of your originations coming in and how that's going to ship over the next three years from your in-person and online channels and point-of-sale, etc. How is that going to -- I presume that the online channel and point-of-sale have the lowest customer acquisition cost. Can you give some more details there?

Jason Mullins: Yes.

So we don't expect the mix of application volume to shift meaningfully over those three years. Online, which represents about half the application volume and point-of-sale, which represents a third of the application volume. And then the balance coming from sheer walk-in traffic to our retail outlets. We think that that volume and that mix is pretty steady and pretty stable. It has been now for a few quarters and we think it will be pretty consistent going forward.

Clearly, as the economy is now reopened again and, there's less COVID restrictions, we anticipate a little bit of a resurgence in volume coming through the retail channel and just consumers walking into our retail outlets but on the flip side, given the number of new merchants and dealerships we're going to add through point-of-sale and auto, and given the investments we're making in digital, that will largely offset that, and I think all the channels will deliver pretty proportionate volume.

Marcel McLean: Okay. And then lastly for me, just on the higher charge-off ratio we saw. It did come in at the bottom end of your range you had provided for us the last quarter, but still a known civil step-up quarter-over-quarter. Just wondering what was different about this quarter that caused that pretty big jump? And what can you offer that would give us confidence that we're not going to see this continue to rise materially from here because right now, we're sort of at the midpoint recent.

This is sort of a steady-state, but in -- what caused the jump from last quarter that does not going to continue to rise from here?

Jason Mullins: Yes. So if you recall back in about the early-to-mid part of the summer, we started to make it clear that as a result of the excellent distribution of vaccinations, as a result of the reopening of the various industries within the economy, that was going to start to result in borrowing behavior returning to normal and credit performance returning to normal. And if you think about it, because our charge-off rates are such that they charge-off in the 90 day to 180 day window. Then it's the fourth quarter when that normalization really, actually starts to be public within the portfolio. And so that's how the performance over the year unfolded.

And it's right in line with our expectations, and where we anticipated it to be. If you look at our charge-off rate in the fourth quarter, 9.6%, our guidance for Q1 is between 9% and 10% and our guidance for the full year is between 8.5% and 10.5%. So we're providing a forecast that we think is -- that we're very confident in. And we think is a clear indication, that all the metrics we're seeing around delinquency, payment performance, mix of the book are all coming right in line with what we have engineered and optimized to be the ideal mix and the ideal relationship between volume and losses. I would also note that essentially my earlier remarks, we've been providing these forecasts since the third quarter of 2012.

So just coming on 10 years of providing these forecasts, and pretty much all of those forecasts we've delivered on, and that's really because we believe that the range, we provided is very reasonable, properly accounts for any headwinds or tailwinds being captured within the range. And then, equally because as Jason spoke to earlier, the credit models that we use and the affordability calculations that we use, give us the ability to make adjustments dynamically. If we see a trend that we're uncomfortable with and the quality of the applicants and the delinquency we can very quickly make adjustments so that in the then subsequent quarters, we start to see a shift in the mix of the book, and that helps us ensure that we travel within the range in a stable manner.

Marcel McLean: Okay, thanks. That's it for me.

Thank you very much.

Jason Mullins: No problem.

Operator: Thank you. Our next question comes from Brian Joseph from Empyrean Capital Partners. Your line is open.

Brian Joseph : Hi guys. Trudeau mentioned in his mandate, potentially changing the rate of interest. Any thoughts on what could happen there?

Jason Mullins: Yeah. I'll make a couple of comments.

Hal Khouri: Yes.

Sure. Make a couple of comments. What the government has done is suggested that they're going to run a consultation on the non-prime lending market and interest rates and payday loans over the last several decades, we've seen similar type consultations done at the federal and the provincial level. And so at this point, we do expect the consultation to get done. But much like in the past, we think that once they unpack and really understand the significant role that non-prime lending plays in the financial system, much like those past instances, it's unlikely to result in a change.

We think the probability of there being a changes is low, if there is a change, we think it's more likely to be in the payday loan market. The payday loan market is the market I think regulators have a greater concern over and certainly a product that is much less helpful for the borrower, more expensive, doesn't help them rebuild credit,

Jason Mullins: whereas the product category that we're in serves a very meaningful purpose, not only provides access to critical financial products but helps people rebuild and establish credit. We're not sure when the consultation will come, expected to come at some point likely this year. We think they will be looking carefully at input from consumers and from industry, and if it trends the way it has in the past, we don't anticipate a change. Having said that, our business is in excellent position today.

Our average interest rate has trended down for the last five years as highlighted earlier. The weighted average interest rate today sits well below where the current rate cap is in Canada. Our strategy and our model is intended to continue to drive that rate down. So while we'll certainly be advocating for our customers and advocating on behalf of non-prime Canadians to try to make access to credit as open as free as possible. Our business is in excellent shape to be able to evolve and adapt.

So that's how we think about it today. Brian Joseph : Very helpful. Thank you and kudos on the great quarter.

Jason Mullins: No problem.

Operator: Thank you.

And I'm showing no further questions from our phone line. I'd now like to turn the conference back over to Jason Mullins for any closing remarks.

Jason Mullins: Great. Well, thanks, everyone for joining today's call. If there's no more questions, then have an excellent day and we look forward to updating you again at the next quarter.

Have a fantastic day, everyone. Bye now.

Operator: Thank you. This does conclude today's conference call. Thank you for your participation and you may now disconnect.

Everyone, have a wonderful day.