goeasy Ltd.
TSX : GSY

goeasy Ltd.

August 01, 2017 17:04 ET

goeasy Ltd. Reports Results for the Second Quarter ended June 30, 2017

Record Revenues, Originations and Loan Book Growth in the Quarter

MISSISSAUGA, ONTARIO--(Marketwired - Aug. 1, 2017) - goeasy Ltd. (TSX:GSY), ("goeasy" or the "Company"), a leading full-service provider of goods and alternative financial services that improve the lives of everyday Canadians, today announced its results for the second quarter ended June 30, 2017.

Revenue for the second quarter of 2017 increased to $98.2 million, an increase of 14.1% from $86.1 million in the second quarter of 2016. Total same store sales growth in the quarter was 16.6%. The growth was driven by the expansion of easyfinancial and the related growth of its consumer loans receivable portfolio which reached $425.3 million by quarter's end, up 30.4% from June 30, 2016. Loan book growth in the second quarter of 2017 was a record of $38.3 million compared with $22.0 million in 2016, an increase of 73.6%.

Operating income for the three month period ended June 30, 2017 was $18.6 million, an increase of $2.9 million or 18.2% when compared to the normalized operating income in the second quarter of 2016. The 2016 results have been normalized to exclude a $3.0 million gain on the sale of an investment and $0.6 million in transaction advisory costs. Net income for the quarter was $8.9 million, up $0.5 million or 6.4% from the normalized net income of $8.4 million in the second quarter of 2016. Diluted earnings per share for the quarter was $0.63, down $0.12 from the reported diluted earnings per share of $0.75 in the second quarter of 2016 and up $0.03 or 5.0% from the normalized diluted earnings per share of $0.60 in the second quarter of 2016.

"We are delighted with the results and the disciplined execution made against our strategic imperatives," said David Ingram, goeasy's President and Chief Executive Officer. "During the quarter, we successfully launched easyfinancial into the province of Quebec, began offering our lending services directly through select easyhome stores and increased the availability of our risk adjusted interest rate loans to our most credit-worthy customers. Taken in combination with a $1.8 million increase in advertising spend during the quarter, these new initiatives contributed to the record loan book growth for the quarter. Reinforcing these results was our lowest ever delinquency rates which provides optimism in our outlook for earnings growth."

Mr. Ingram continued, "The completion of a convertible debt offering for gross proceeds of $53 million will ensure that we can fuel consumer demand and grow unencumbered throughout 2017. As such, we are confident that we will finish the year at the upper end of our guided range for the closing loan book of $475 to $500 million by year's end."

Other highlights for the second quarter of 2017 include:

easyfinancial

  • Revenue increased by 26.2% to $63.6 million from $50.4 million in the second quarter of 2016.
  • Gross loan originations increased by 41.6% to a record of $139.4 million from $98.5 million in the second quarter of 2016.
  • New customer growth of 8,000 was significantly greater than the prior record quarter of 6,800.
  • Delinquency rates on the final Saturday of the quarter reduced to a record low of 4.8% from 6.0% on the final Saturday of the second quarter of 2016.
  • Net charge-offs as a percentage of the average gross consumer loans receivable on an annualized basis were 14.7% compared to 15.2% for the second quarter of 2016.
  • Operating margin for the second quarter of 2017 decreased from 36.7% to 33.6% due to the drag associated with the implementation of strategic initiatives, $1.8 million in additional advertising expenditures and $1.0 million in additional provisions for future charge-offs driven by the strong loan book growth during the quarter.
  • Cash generated from easyfinancial customer payments was $109.7 million in the second quarter of 2017 compared to $86.4 million in the second quarter of 2016.

easyhome

  • Same store revenue increased 1.4%.
  • Organic quarterly portfolio reduction of $179,000 was the lowest for the second quarter since 2013
  • The operating margin for easyhome for the second quarter of 2017 was 15.3%, up from the 12.9% reported for the same period in 2016.

Overall

  • 29th consecutive quarter of same store sales growth.
  • Operating margin was 18.9% for the quarter, up from the normalized operating margin of 18.3% in the second quarter of 2016.
  • The Company's return on equity was 17.1% in the current quarter.

Six Months Results

For the first half of 2017, goeasy achieved revenues of $192.9 million, up 14.5% compared with $168.4 million in the first half of 2016. Operating income for the period was $39.0 million compared with $32.9 million in the first six months of 2016, an increase of $6.1 million or 18.6%. The results for the first six months of 2016 included a $3.0 million gain on the sale of an investment and $1.1 million in transaction advisory costs. Excluding these items from the 2016 results, normalized operating income, increased $8.0 million or 26.0%. Net income for the first half of 2017 was $19.2 million and diluted earnings per share was $1.36. On a normalized basis, net income in the first half of 2016 was $16.0 million and diluted earnings per share was $1.14, increases of 20.0% and 19.3%, respectively.

Balance Sheet and Liquidity

Total assets were $578.9 million as at June 30, 2017, an increase of 26.1% from $459.2 million as at June 30, 2016 and driven by the $98.7 million growth in the gross consumer loans receivable portfolio. As at June 30, 2017, the Company had $64.8 million in cash and committed facilities available to support future growth.

goeasy currently has a long-term funding structure that was originally put in place in 2014 and has been expanded and enhanced on several occasions since that time. The Company's current credit facilities consist of a $280 million term loan provided by a syndicate of U.S. based private debt funds, a $20 million revolving operating facility provided by a large Canadian bank and a $53 million convertible unsecured subordinated debenture. Details of the terms of these facilities are disclosed in the company's financial filings. goeasy does not fund any of its consumer loans receivable or its operations from customer deposits.

The Company completed the offering of convertible unsecured subordinated debentures due July 31, 2022 for aggregate gross proceeds of $53 million during the second quarter of 2017. These funds will be utilized to continue the strong growth of easyfinancial. The offering was a positive first step towards achieving the Company's objective of diversifying its funding sources and optimizing its capital structure at attractive levels.

Outlook

The Company reconfirmed its stated targets for 2017 including growing the loan book to the upper end of the guided range for the closing loan book of $475 to $500 million by year's end, opening between 20 and 30 new easyfinancial locations in the year, achieving revenue growth of 10% to 12% and achieving an operating margin for easyfinancial of 35% to 37% while maintaining loan loss rates within it targeted range of 14% to 16%. The achievement of these targets will enable the Company to deliver its targeted return on equity of 18% to 19% for 2017.

Additionally, the Company is preparing for the launch of its secured lending product in the third quarter of 2017 which represents a natural and progressive extension of its customer offerings. These installment loans will provide customers with access to larger loan sizes and lower interest rates while reducing the Company's risk, as these loans will be secured by real estate. The reduced yield achieved from this type of product will be offset by lower credit losses and costs to administer.

The secured lending product will be offered to qualified borrowers who own and reside within their home and are looking for lower cost forms of financing. Loan sizes will range from $15,000 to $25,000 with rates starting from 19.99% and terms of up to 10 years. All loans will require periodic instalment payments of both principal and interest.

Eligibility for the secured lending product will be consistent with the Company's existing methodology that incorporates a proprietary credit score using proprietary scoring algorithms as well as an assessment of the customer's ability to be able to afford and repay the loan. Lending decisions will therefore be made based on the creditworthiness of the borrower while the secured nature of the product will result in lower loss rates, helping to reduce the interest rate charged to the customer.

Normal Course Issuer Bid and Dividend

On June 22, 2016, the Company renewed its Normal Course Issuer Bid allowing it to purchase for cancellation up to 986,105 Common Shares. During the three month period ended June 30, 2017, the Company purchased and cancelled 85,388 of its common shares and to-date the Company has purchased and cancelled 179,888 of its common shares under this normal course issuer bid which expired on June 26, 2017.

On June 22, 2017, the Company renewed its Normal Course Issuer Bid for a further 12 months allowing it to purchase for cancellation up to an additional 300,000 commons shares.

The Board of Directors has approved a quarterly dividend of $0.18 per share payable on October 13, 2017 to the holders of common shares of record as at the close of business on September 29, 2017.

Forward-Looking Statements

This press release includes forward-looking statements about goeasy, including, but not limited to, its business operations, strategy and expected financial performance and condition. Forward-looking statements include, but are not limited to, those with respect to the estimated number of new locations to be opened, targets for growth of the consumer loans receivable portfolio, annual revenue growth targets, strategic initiatives, new product offerings and new delivery channels, anticipated cost savings, planned capital expenditures, anticipated capital requirements, liquidity of the Company, plans and references to future operations and results and critical accounting estimates. In certain cases, forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions, and/or can be identified by the use of words such as 'expects', 'anticipates', 'intends', 'plans', 'believes', 'budgeted', 'estimates', 'forecasts', 'targets' or negative versions thereof and similar expressions, and/or state that certain actions, events or results 'may', 'could', 'would', 'might' or 'will' be taken, occur or be achieved.

Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations and business prospects and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company's operations, economic factors and the industry generally, as well as those factors referred to in the Company's December 31, 2016 Management Discussion and Analysis in the section entitled "Risk Factors". There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those expressed or implied by forward-looking statements made by the Company, due to, but not limited to, important factors such as the Company's ability to enter into new lease and/or financing agreements, collect on existing lease and/or financing agreements, open new locations on favourable terms, purchase products which appeal to customers at a competitive rate, respond to changes in legislation, react to uncertainties related to regulatory action, raise capital under favourable terms, manage the impact of litigation (including shareholder litigation), control costs at all levels of the organization and maintain and enhance the system of internal controls. The Company cautions that the foregoing list is not exhaustive.

The reader is cautioned to consider these and other factors carefully and not place undue reliance on forward-looking statements, which may not be appropriate for other purposes. The Company is under no obligation (and expressly disclaims any such obligation) to update or alter the forward-looking statements whether as a result of new information, future events or otherwise, unless required by law.

About goeasy

As at June 30, 2017, the Company operated 215 easyfinancial locations (including 43 kiosks located within easyhome stores) and 173 easyhome stores (including 28 franchises and 2 consolidated franchise locations).

goeasy Ltd. is a leading full-service provider of goods and alternative financial services that improve the lives of everyday Canadians. Today, goeasy Ltd. serves its customers through two key operating divisions, easyfinancial and easyhome. easyfinancial is a non-prime consumer lender that bridges the gap between traditional financial institutions and costly payday lenders. It is supported by a strong central credit adjudication process and industry leading risk analytics. easyfinancial also operates an indirect lending channel, offering loan products to consumers at the point-of-sale of third party merchants. easyhome is Canada's largest lease-to-own company, offering brand-name household furniture, appliances and electronics to consumers under weekly or monthly leasing agreements through both corporate and franchise stores. Both operating divisions of goeasy Ltd. offer the highest level of customer service and enable customers to transact through a national store and branch network and through its online and mobile eCommerce enabled platforms.

goeasy Ltd. is listed on the TSX under the symbol 'GSY'. For more information, visit www.goeasy.com.

goeasy Ltd.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(expressed in thousands of Canadian dollars)
As At As At
June 30, December 31,
2017 2016
ASSETS
Cash 44,828 24,928
Amounts receivable 13,410 7,857
Prepaid expenses 3,243 1,909
Consumer loans receivable 409,644 354,499
Lease assets 53,189 55,288
Property and equipment 15,963 16,103
Deferred tax assets 2,369 6,856
Intangible assets 14,905 14,312
Goodwill 21,310 21,310
TOTAL ASSETS 578,861 503,062
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities 32,545 31,879
Income taxes payable 2,689 2,874
Dividends payable 2,399 1,666
Deferred lease inducements 1,282 1,506
Unearned revenue 5,411 5,204
Provisions 436 608
Term loan 276,132 263,294
Convertible debentures 46,110 -
TOTAL LIABILITIES 367,004 307,031
Shareholders' equity
Share capital 83,748 82,598
Contributed surplus 12,457 9,943
Accumulated other comprehensive income 853 880
Retained earnings 114,799 102,610
TOTAL SHAREHOLDERS' EQUITY 211,857 196,031
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 578,861 503,062
goeasy Ltd.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(expressed in thousands of Canadian dollars except earnings per share)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2017 2016 2017 2016
REVENUE
Interest income 41,451 33,974 80,053 65,529
Lease revenue 33,027 34,244 66,385 70,192
Other 23,737 17,880 46,490 32,702
98,215 86,098 192,928 168,423
Other income - 3,000 - 3,000
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION
Salaries and benefits 25,793 23,326 49,615 45,782
Stock-based compensation 1,266 992 2,332 1,999
Advertising and promotion 5,964 4,135 9,864 6,620
Bad debts 17,173 13,315 31,290 25,695
Occupancy 8,304 8,230 16,616 16,209
Other expenses 8,317 6,761 18,152 13,746
Transaction advisory costs - 597 - 1,074
66,817 57,356 127,869 111,125
DEPRECIATION AND AMORTIZATION
Depreciation of lease assets 10,220 11,141 20,942 22,587
Depreciation of property and equipment 1,331 1,426 2,655 2,809
Amortization of intangible assets 1,241 1,031 2,443 2,005
12,792 13,598 26,040 27,401
Total operating expenses 79,609 70,954 153,909 138,526
Operating income 18,606 18,144 39,019 32,897
Finance costs 6,578 5,114 12,403 9,935
Income before income taxes 12,028 13,030 26,616 22,962
Income tax expense (recovery)
Current (1,310 ) 3,574 4,137 7,227
Deferred 4,448 (1,067 ) 3,319 (2,040 )
3,138 2,507 7,456 5,187
Net income 8,890 10,523 19,160 17,775
Basic earnings per share 0.66 0.77 1.42 1.30
Diluted earnings per share 0.63 0.75 1.36 1.27
Segmented Reporting
Three Months Ended June 30, 2017
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
Revenue 63,642 34,573 - 98,215
Total operating expenses before depreciation and amortization 40,559 18,464 7,794 66,817
Depreciation and amortization 1,727 10,822 243 12,792
Operating income (loss) 21,356 5,287 (8,037 ) 18,606
Finance costs 6,578
Income before income taxes 12,028
Income taxes 3,138
Net income 8,890
Diluted earnings per share 0.63
Three Months Ended June 30, 2016
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
Revenue 50,426 35,672 - 86,098
Other income - - 3,000 3,000
Total operating expenses before depreciation and amortization and transaction advisory costs 30,300 19,260 7,199 56,759
Transaction advisory costs - - 597 597
Depreciation and amortization 1,607 11,825 166 13,598
Operating income (loss) 18,519 4,587 (4,962 ) 18,144
Finance costs 5,114
Income before income taxes 13,030
Income taxes 2,507
Net income 10,523
Diluted earnings per share 0.75
Six Months Ended June 30, 2017
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
Revenue 123,663 69,265 - 192,928
Total operating expenses before depreciation and amortization 74,349 36,663 16,857 127,869
Depreciation and amortization 3,415 22,147 478 26,040
Operating income (loss) 45,899 10,455 (17,335 ) 39,019
Finance costs 12,403
Income before income taxes 26,616
Income taxes 7,456
Net income 19,160
Diluted earnings per share 1.36
Six Months Ended June 30, 2016
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
Revenue 95,429 72,994 - 168,423
Other income - - 3,000 3,000
Total operating expenses before depreciation and amortization and transaction advisory costs 58,060 38,095 13,896 110,051
Transaction advisory costs - - 1,074 1,074
Depreciation and amortization 3,152 23,921 328 27,401
Operating income (loss) 34,217 10,978 (12,298 ) 32,897
Finance costs 9,935
Income before income taxes 22,962
Income taxes 5,187
Net income 17,775
Diluted earnings per share 1.27

Contact Information

  • David Ingram
    President and Chief Executive Officer
    (905) 272-2788

    Steve Goertz
    Executive Vice President and Chief Financial Officer
    (905) 272-2788