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goeasy Ltd. Reports Record Results for the Fourth Quarter and Announces Enhancements to Credit Facility

Loan Portfolio up 58%
Record Quarterly Earnings Per Share of $1.02
Credit Facility Interest Rate Reduced by 150 bps
Dividend Increase of 38% to $1.24 Per Share

MISSISSAUGA, Ontario, Feb. 13, 2019 (GLOBE NEWSWIRE) -- goeasy Ltd. (TSX: GSY), (“goeasy” or the “Company”), a leading full-service provider of goods and alternative financial services, announced its results for the fourth quarter ended December 31, 2018. The Company also announced that on February 12, 2019 it completed an amendment to its pre-existing senior secured revolving credit facility (the “Credit Facility”) to increase the amount available to be borrowed thereunder, extend the maturity date and reduce the cost of borrowing. The Company has also declared a 38% increase in its annual dividend from $0.90 to $1.24 per share.

Fourth Quarter Results

Revenue for the fourth quarter of 2018 increased to $138 million, representing growth of 29% over the same period in 2017. The increase was driven by the growth of the easyfinancial consumer loan portfolio, which reached $834 million, up 58% from $527 million as at December 31, 2017.

During the quarter the Company generated a record $265 million of loan originations, up 50% from the $176 million in the fourth quarter of 2017. The increased originations led to growth in the loan portfolio of $84.2 million, up 57% from the $53.5 million in the same period of 2017. The net charge-off rate in the quarter was in line with expectations at 13.1%, up slightly from 12.8% in the fourth quarter of 2017 and at the midpoint of the Company’s guided range of 12% to 14% for 2018.

Operating income grew to $35.1 million, up 44% from $24.5 million in the fourth quarter of 2017, while operating margin expanded to a record 25.4%, up from 22.8%.

Net income for the quarter was $15.9 million, up 39.5% from an adjusted $11.4 million in 2017, which resulted in diluted earnings per share of $1.02, up 29% from an adjusted $0.79 in 2017. The 2017 results are adjusted to remove the impact of a one-time $8.2 million before tax refinancing charge occurring in the fourth quarter of 2017. Furthermore, in 2018 the Company adopted IFRS 9, which served to increase the size of the provision for future credit losses. The Company estimates that adjusted net income and adjusted diluted earnings per share for the fourth quarter of 2017 would have been $9.0 million and $0.64, respectively, if the allowance for credit losses was calculated on the same IFRS 9 basis as the current quarter (and excluding the impact of the refinancing charge). On this basis, adjusted net income for the fourth quarter of 2018 increased 76.2% and adjusted diluted earnings per share increased 59.4%.  

“We had a strong and productive fourth quarter, rounding out another record year for the Company,” said Jason Mullins, goeasy’s President and Chief Executive Officer. “Our brand awareness reached an all-time high of 84%, which leads the industry for non-prime lenders. Loan application volume and loan originations in the quarter elevated to record levels, with more than 62% of all advances funded to new customers. The combination of strong revenue growth, increased scale and stable credit performance resulted in the easyfinancial operating margin expanding to 40%, the highest level of the year and at the high-end of our guided range,” Mr. Mullins continued, “I am also proud that for the full year we achieved all our stated targets, while producing record revenue and earnings. Diluted earnings per share for the full year was $3.56, an increase of 45% versus the $2.46 in 2017, after adjusting for the one-time refinancing charge and the impact of IFRS 9. I want to thank the entire goeasy team for the passion they demonstrate daily to take great care of our customers and congratulate them on an outstanding year.”

Other Key Quarterly Highlights

easyfinancial

  • Total application volume increased 26%
  • Revenue grew to $103 million, up 41% from $73 million
  • Secured loan portfolio grew to $52.9 million, up from $8.5 million
  • 62.5% of net loan advances in the quarter were issued to new customers, up from 59%
  • Record aided brand awareness of 84%, up 10% and highest in the industry
  • Average loan book per branch improved to $2.9 million from $2.0 million, an increase of 45%
  • The delinquency rate on the final Saturday of the quarter was 5.2%, consistent with the 5.3% reported in the same period of 2017             

easyhome

  • Same store revenue increased 7.1%, compared to 0.1%
  • Consumer lending portfolio within easyhome leasing stores increased to $21.8 million from $5.3 million
  • Revenue of $2.9 million from consumer lending, versus $0.6 million
  • Operating margin of 14.8% for the quarter, an increase from the 14.3% reported in 2017
  • Operating income of $5.2 million in the quarter compared with $4.9 million

Overall

  • 35th consecutive quarter of same store sales growth
  • 70th consecutive quarter of positive net income
  • Total same store revenue growth of 28.5%, up from 20%
  • Compound annual revenue growth of 13% and net income growth of 29% since 2001
  • Return on equity of 23% in the quarter, up from an adjusted 20.1%
  • Net external debt to net capitalization of 66% as at December 31, 2018, below the Company’s target leverage ratio of 70%
  • Repurchased 398,452 shares in the quarter at a weighted average price of $37.61 under the Company’s Normal Course Issuer Bid             

Full Year Results

For the full year, the Company funded $923 million in loan originations, up 59% from the $579 million in 2017. The consumer loan portfolio grew $307 million, up 97% from $156 million in 2017. The growth in the consumer loan portfolio produced record revenues of $506.1 million, up 26% compared with $401.7 million in 2017. Operating income for 2018 was $119.7 million up 37% from $87.4 million in 2017.

Net income for the full year was $53.1 million, up 26% from an adjusted $42.2 million in 2017, which resulted in diluted earnings per share of $3.56, up 20% from an adjusted $2.97 in 2017. The 2017 results are adjusted to reflect removing a one-time $8.2 million before tax charge associated with the refinancing completed on November 1, 2017. Furthermore, in 2018 the Company adopted IFRS 9, which served to increase the size of the provision for future credit losses. The Company estimates that net income and diluted earnings per share for the full year of 2017 would have been $34.6 million and $2.46, respectively, if the allowance for credit losses was calculated on the same IFRS 9 basis as the current year. On this basis, net income for the full year of 2018 increased 53.4% and diluted earnings per share increased 44.7%.

Due to the strong growth experienced by the Company, it increased its loan book, revenue growth and return on equity targets mid-year.  The Company achieved all its original and revised targets for 2018 as follows:

  2018 Original Targets 2018 Revised Targets 2018 Actual
Gross Loan Receivable Portfolio at Year End $700M - $750M $825M - $875M $833.8M
easyfinancial Total Revenue Yield 54% - 56% 54% - 56% 54.2%
New easyfinancial Locations 20 - 30 20 - 30 23
Net Charge-offs as a Percentage of Average Gross Consumer Loans Receivable 12% - 14% 12% - 14% 12.7%
easyfinancial Operating Margin 38% - 40% 38% - 40% 38.5%
Total Revenue Growth 16% - 18% 26% - 28% 26.0%
Return on Equity 18%-20% 21%+ 21.80%
       

Enhancements to Credit Facility

The Company is pleased to announce that on February 12, 2019 it completed an amendment to its pre-existing senior secured revolving credit facility provided by a syndicate of banks (the “Credit Facility”).

The amendment extended the maturity date to February 2022 (from October 2020) and increased the maximum principal amount available from C$174.5 million to C$189.5 million.

The interest rate on advances from the Credit Facility was also reduced from the previous rate of Canadian Bankers’ Acceptance rate (“BA”) plus 450 bps or the lender’s prime rate (“Prime”) plus 350 bps, to BA plus 325 bps (reduced 125 bps) or Prime plus 200 bps (reduced 150 bps). Based on the current BA rate of approximately 2.0% and Prime Rate of 3.95% as of February 12, 2019, the interest rate on the principal amount drawn would be 5.25% or 5.95%, at the option of the Company.

The Company intends to use borrowings under the Credit Facility to expand its consumer loan portfolio.

Balance Sheet and Liquidity

Total assets were $1.06 billion as at December 31, 2018, an increase of 41% from $749.6 million as at December 31, 2017, driven by the growth in the consumer loan portfolio and the additional cash on hand to fund future growth.

Cash provided by operating activities before the net issuance of consumer loans receivable and purchase of lease assets was $232 million in 2018, an increase of 30% from $179 million in 2017.

During the year, the Company issued US$150 million of notes payable due on November 1, 2022, which generated net proceeds of C$203 million. The issuance of the notes payable was at a premium to par resulting in an attractive interest rate (excluding the effect of financing charges) of 6.17%. On October 10, 2018, the Company also closed its offering of 920,000 common shares, at a price of $50.50 per common share for aggregate net proceeds of $44.3 million.

Based on the cash on hand at the end of the year and the borrowing capacity under the Company’s amended revolving credit facility, the Company had approximately $290 million in funding capacity, which will allow it to achieve its targets for the growth of its consumer loan portfolio through to the third quarter of 2020. The Company has historically been able to obtain the additional financing required to fund the growth of its business at steadily lower costs of borrowing and increasing rates of leverage.  However, the Company also estimates that once its existing and available sources of capital are fully utilized, the Company can continue to grow its loan portfolio by approximately $150 million per year solely from internal cash flows.

Future Outlook

The Company has provided updated 3-year targets for 2019 through 2021. The periods of 2019 and 2020 remain unchanged.

The Company continues to pursue a long-term strategy of expanding its product range and increasing the use of risk-based pricing offers, which increase the average loan size and extend the life of its customer relationships. As such, the total yield earned on its consumer loan portfolio will gradually decline, while net charge-off rates moderate and operating margins expand, resulting in an increase to return on equity.

  2019 Targets 2020 Targets 2021 Targets
Gross Loan Receivable Portfolio at Year End $1.1B - $1.2B $1.3B - $1.4B $1.5B - $1.7B
easyfinancial Total Revenue Yield 49% - 51% 46% - 48% 43% - 45%
New easyfinancial Locations 10 - 20 10 - 20 10 – 20
Net Charge-offs as a Percentage of Average Gross Consumer Loans Receivable 11.5% - 13.5% 11% - 13% 11% - 13%
easyfinancial Operating Margin 42% - 44% 44% - 46% 45% - 47%
Total Revenue Growth 20% - 22% 14 - 16% 10% - 12%
Return on Equity 24%+ 26%+ 26%+
       

“As we turn the page to 2019, we are well positioned to benefit from the scale and investments that we have made in the business,” said Mr. Mullins. “While our corporate strategy remains unchanged, we will increase our focus on driving product and channel expansion and enhancing the customer experience. Key initiatives for 2019 will include reducing friction in the loan origination process, investing in our indirect lending and point-of-sale finance channel, and making transformative enhancements to our credit and analytics capabilities including testing new data sources and machine learning algorithms. The enhancements to our credit facility, which included an increase to the borrowing capacity, a term extension and a substantial rate reduction, demonstrates the confidence of our lenders in our executing on our business strategy. With this amendment our average interest rate reduces from 7.18% in the fourth quarter of 2018 to 6.76% upon fully utilizing the revolver and provides even greater certainty of future liquidity. We remain confident in achieving our targets for 2019 and in surpassing the $1 billion milestone, while we aim to capture an even greater share of the $186 billion non-prime credit market in Canada.”

Dividend

Based on its 2018 earnings and the Company’s confidence in its continued growth and access to capital going forward, the Board of Directors has approved an increase to the annual dividend from $0.90 per share to $1.24 per share, an increase of 38%.  2018 marks the 5th consecutive year of an increase in the dividend to shareholders. As such, the Board of Directors has approved a quarterly dividend of $0.31 per share payable on April 12, 2019 to the holders of common shares of record as at the close of business on March 29, 2019.

Forward-Looking Statements

All figures reported above with respect to outlook are targets established by the Company and are subject to change as plans and business conditions vary. Accordingly, investors are cautioned not to place undue reliance on the foregoing guidance. Actual results may differ materially.

This press release includes forward-looking statements about goeasy, including, but not limited to, its business operations, strategy, expected financial performance and condition, 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 most recent Annual Information Form and Management Discussion and Analysis, as available on www.sedar.com, 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

goeasy Ltd. offers leasing and lending services in the alternative financial services market and provides everyday Canadians a path to a better tomorrow, today. goeasy Ltd. serves its customers through two key operating divisions, easyfinancial and easyhome. easyfinancial is a non-prime consumer lending business that bridges the gap between traditional financial institutions and costly payday loans. easyfinancial offers a range of unsecured and secured personal instalment loans supported by a strong central credit adjudication process and industry leading risk analytics. 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 an omni channel model that includes over 400 stores and branches across Canada and digital eCommerce enabled platforms.

goeasy Ltd.’s. common shares are listed for trading on the TSX under the trading symbol “GSY” and goeasy’s convertible debentures are traded on the TSX under the trading symbol “GSY-DB”.  goeasy is rated BB- with a stable trend from S&P and Ba3 with a stable trend from Moody’s. For more information, visit www.goeasy.com.

For further information contact:

David Ingram
Executive Chairman of the Board
(905) 272-2788

Jason Mullins
President & Chief Executive Officer
(905) 272-2788

       
goeasy Ltd.      
       
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION    
(expressed in thousands of Canadian dollars)      
       
       
    As At As At
    December 31, December 31,
    2018 2017
       
ASSETS      
Cash   100,188 109,370
Amounts receivable   15,450 14,422
Prepaid expenses   3,835 3,545
Consumer loans receivable   782,864 513,425
Lease assets   51,618 54,318
Property and equipment   21,283 15,941
Derivative financial asset   35,094 -
Deferred tax assets   9,445 2,121
Intangible assets   14,589 15,163
Goodwill   21,310 21,310
TOTAL ASSETS   1,055,676 749,615
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Liabilities      
Accounts payable and accrued liabilities   45,103 43,071
Income taxes payable   7,499 9,445
Dividends payable   3,247 2,426
Deferred lease inducements   1,234 1,294
Unearned revenue   6,002 4,819
Convertible debentures   40,581 47,985
Notes payable   650,481 401,193
Derivative financial liability   - 11,138
TOTAL LIABILITIES   754,147 521,371
       
Shareholders' equity      
Share capital   138,090 85,874
Contributed surplus   16,105 15,305
Accumulated other comprehensive income   3,624 141
Retained earnings   143,710 126,924
TOTAL SHAREHOLDERS' EQUITY   301,529 228,244
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   1,055,676 749,615
       


goeasy Ltd.          
           
CONSOLIDATED STATEMENTS OF INCOME          
(expressed in thousands of Canadian dollars except earnings per share)        
           
           
    Three Months Ended Year Ended
    December 31, December 31, December 31, December 31,
    2018 2017 2018   2017
           
REVENUE          
Interest income     73,834 48,407   255,997   172,315
Lease revenue     29,437 30,784   119,745   125,111
Commissions earned     31,486 24,883   117,000   91,353
Charges and fees     3,403 3,170   13,449   12,949
      138,160 107,244   506,191   401,728
           
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION        
Salaries and benefits     29,183 26,696   114,522   102,666
Stock-based compensation     1,755 1,527   6,836   5,623
Advertising and promotion     6,203 5,014   19,145   16,654
Bad debts     34,186 18,807   118,980   67,826
Occupancy     8,807 8,132   34,665   33,100
Technology costs     2,826 2,896   11,118   10,688
Other expenses     7,409 6,270   29,205   25,570
      90,369 69,342   334,471   262,127
           
DEPRECIATION AND AMORTIZATION          
Depreciation of lease assets     9,944 10,240   40,088   41,221
Depreciation of property and equipment     1,249 1,658   5,719   5,702
Amortization of intangible assets     1,492 1,554   6,196   5,285
      12,685 13,452   52,003   52,208
           
Total operating expenses     103,054 82,794   386,474   314,335
           
Operating income     35,106 24,450   119,717   87,393
           
Finance costs          
Interest expenses and amortisation of deferred financing charges   12,811 8,774   45,800   28,642
Refinancing cost     -  8,198   -    8,198
      12,811   16,972   45,800     36,840
           
           
Income before income taxes     22,295 7,478   73,917   50,553
           
Income tax expense (recovery)          
Current     3,753 1,779   24,354   10,854
Deferred     2,655 333   (3,561 ) 3,567
      6,408 2,112   20,793   14,421
           
Net income     15,887 5,366   53,124   36,132
           
Basic earnings per share     1.07 0.39   3.78   2.67
Diluted earnings per share     1.02 0.38   3.56   2.56
           


Segmented Reporting          
             
      Three Months Ended December 31, 2018
             
Revenue          
  Interest   71,814 2,020 -   73,834
  Lease revenue   - 29,437 -   29,437
  Commissions earned   29,594 1,892 -   31,486
  Charges and fees   1,878 1,525 -   3,403
      103,286 34,874 -   138,160
Total operating expenses before        
depreciation and amortization 60,032 19,482 10,855   90,369
Depreciation and amortization 1,965 10,238 482   12,685
Operating income (loss)   41,289 5,154 (11,337 ) 35,106
Finance costs          
  Interest expense and amortization of deferred financing charges       12,811
Income before income taxes         22,295
Income taxes         6,408
             
Net Income         15,887
             
Diluted earnings per share         1.02
             
             
      Three Months Ended December 31, 2017
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
             
Revenue          
  Interest   48,005 401 -   48,406
  Lease revenue   - 30,784 -   30,784
  Commissions earned   23,581 1,302 -   24,883
  Charges and fees   1,645 1,526 -   3,171
      73,231 34,013 -   107,244
Total operating expenses before        
depreciation and amortization 42,549 18,194 8,599   69,342
Depreciation and amortization 2,068 10,955 429   13,452
Operating income (loss)   28,614 4,864 (9,028 ) 24,450
Finance costs          
  Interest expense and amortization of deferred financing charges       8,774
  Refinancing costs         8,198
            16,972
Income before income taxes         7,478
Income taxes         2,112
             
Net Income         5,366
             
Diluted earnings per share         0.38
             
             
      Year Ended December 31, 2018
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
             
Revenue          
  Interest   250,622 5,375 -   255,997
  Lease revenue   - 119,745 -   119,745
  Commissions earned   110,423 6,577 -   117,000
  Charges and fees   7,280 6,169 -   13,449
      368,325 137,866 -   506,191
Total operating expenses before        
depreciation and amortization 218,138 74,215 42,118   334,471
Depreciation and amortization 8,333 42,104 1,566   52,003
Operating income (loss)   141,854 21,547 (43,684 ) 119,717
Finance costs          
  Interest expense and amortization of deferred financing charges       45,800
Income before income taxes         73,917
Income taxes         20,793
             
Net Income         53,124
             
Diluted earnings per share         3.56
             
             
      Year Ended December 31, 2017
($ in 000's except earnings per share) easyfinancial easyhome Corporate Total
             
Revenue          
  Interest   171,667 648 -   172,315
  Lease revenue   - 125,111 -   125,111
  Commissions earned   86,598 4,755 -   91,353
  Charges and fees   6,203 6,746 -   12,949
      264,468 137,260 -   401,728
Total operating expenses before        
depreciation and amortization 154,559 72,570 34,998   262,127
Depreciation and amortization 7,255 43,808 1,145   52,208
Operating income (loss)   102,654 20,882 (36,143 ) 87,393
Finance costs          
  Interest expense and amortization of deferred financing charges       28,642
  Refinancing costs         8,198
            36,840
Income before income taxes         50,553
Income taxes         14,421
             
Net Income         36,132
             
Diluted earnings per share         2.56


Summary of Financial Results and Key Performance Indicators        
         
($ in 000’s except earnings per share and percentages) Three Months Ended Variance Variance
December 31, 2018 December 31, 2017 $ / bps % change
Summary Financial Results        
Revenue 138,160   107,244   30,916   28.8 %
Operating expenses before depreciation and amortization 90,369   69,342   21,027   30.3 %
EBITDA 37,847   27,662   10,185   36.8 %
EBITDA margin 27.4 % 25.8 % 160 bps   6.2 %
Depreciation and amortization expense 12,685   13,452   (767 ) (5.7 %)
Operating income 35,106   24,450   10,656   43.6 %
Operating margin 25.4 % 22.8 % 260 bps   11.4 %
Interest expense and amortization of deferred financing charges 12,811   8,774   4,037   46.0 %
Refinancing costs -   8,198   (8,198 ) (100.0 %)
PTPP income 56,481   26,285   30,196   114.9 %
Effective income tax rate 28.7 % 28.2 % 50 bps   1.8 %
Net income 15,887   5,366   10,521   196.1 %
Diluted earnings per share 1.02   0.38   0.64   168.4 %
Return on Equity 23.0 % 9.5 % 1,350 bps   142.1 %
         
Adjusted (Normalized) Financial Results      
Adjusted net income 15,887   11,392   4,495   39.5 %
Adjusted earnings per share 1.02   0.79   0.23   29.1 %
Adjusted return on equity 23.0 % 20.1 % 290 bps   14.4 %
         
Key Performance Indicators  
Same store revenue growth (overall) 28.5 % 20.0 % 850 bps   42.5 %
Same store revenue growth (easyhome) 7.1 % 0.1 % 700 bps   7000.0 %
         
Segment Financials        
easyfinancial revenue 103,286   73,231   30,055   41.0 %
easyfinancial operating margin 40.0 % 39.1 % 90 bps   2.3 %
easyhome revenue 34,874   34,013   861   2.5 %
easyhome operating margin 14.8 % 14.3 % 50 bps   3.5 %
         
Portfolio Indicators        
Gross consumer loans receivable 833,779   526,546   307,233   58.3 %
Growth in consumer loans receivable 84,198   53,483   30,715   57.4 %
Gross loan originations 264,996   176,383   88,613   50.2 %
Total yield on consumer loans (including ancillary products) 52.7 % 58.4 % (570 bps)   (9.8 %)
Net charge offs as a percentage of average gross consumer loans receivable 13.1 % 12.8 % 30 bps   2.3 %
Potential monthly lease revenue 9,141   9,481   (340 ) (3.6 %)
         

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