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goeasy Ltd. Reports Results for the Third Quarter Ended September 30, 2017 and Provides Updated Outlook

Record Loan Book Growth, Revenue and Earnings

MISSISSAUGA, Ontario, Nov. 01, 2017 (GLOBE NEWSWIRE) -- 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 third quarter ended September 30, 2017 and provided updated targets for future periods.

Results for the Third Quarter Ended September 30, 2017

Revenue for the third quarter of 2017 increased to $103.7 million, an increase of 18.1% from $87.8 million in the third quarter of 2016. Total same store sales growth in the quarter was 21.3%. The growth was driven by the expansion of easyfinancial and the related growth of its consumer loans receivable portfolio which reached $473.1 million by quarter's end, up 37.6% from September 30, 2016.

During the quarter, the Company generated record levels of new customer acquisition, loan originations and loan book growth.  The strong growth was fueled by the continued maturation of the Company’s retail branch network, the increased penetration of risk adjusted rate loans to more credit worthy borrowers, the Company’s expansion into Quebec and the ongoing enhancements to the Company’s digital properties.  Additionally, strong growth in the quarter was supported by an increased investment in advertising which led to record new customer additions.  Loan originations in the quarter reached $157.6 million, an increase of 55.9% compared with the third quarter of 2016.  The growth of the loan book in the quarter was $47.7 million compared to $17.5 million in the third quarter of 2016, an increase of 172.7%.

Operating income for the three-month period ended September 30, 2017 was $23.9 million, an increase of $6.2 million or 34.8% when compared to the normalized operating income in the third quarter of 2016. The 2016 results have been normalized to exclude $5.3 million in transaction advisory costs. Net income for the quarter was $11.6 million, up $2.8 million or 31.4% from the normalized net income of $8.8 million in the third quarter of 2016. Diluted earnings per share for the quarter was $0.81, an increase of $0.45 from the reported diluted earnings per share of $0.36 in the third quarter of 2016 and up $0.17 or 26.6% from the normalized diluted earnings per share of $0.64 in the third quarter of 2016.

“Our record results in the quarter demonstrate our ability to consistently achieve our ambitious growth objectives,” said David Ingram, goeasy's President and Chief Executive Officer. “These results were not only driven by the increased level of customer acquisition and loan originations, but also by continued strong credit performance of our consumer loans receivable portfolio.  Our ongoing investments in credit analytics, underwriting and collections are having the desired effect.  Net charge-offs as a percentage of the average gross consumer loans receivable on an annualized basis were 13.1% in the quarter, down from 15.4% in the third quarter of 2016.”

Other highlights for the third quarter of 2017 include:

easyfinancial

  • Revenue increased by 32.4% to $69.7 million from $52.6 million in the third quarter of 2016.
  • Gross loan originations increased by 55.9% to a record of $157.6 million from $101.1 million in the third quarter of 2016.
  • Net customer growth of 9,095, up from 2,698 in the third quarter of 2016, an increase of 337%.
  • Loans funded through online acquisition in the third quarter increased by 65% year over year.
  • Delinquency rates on the final Saturday of the quarter reduced to a record low of 4.5% from 6.0% on the final Saturday of the third quarter of 2016.
  • Operating margin for the third quarter of 2017 increased from 39.9% to 40.4%.
  • Cash generated from easyfinancial customer payments was $118.3 million in the third quarter of 2017 compared to $89.0 million in the third quarter of 2016.

easyhome

  • Same store revenue increased 3.0%.
  • The operating margin for easyhome for the third quarter of 2017 was 16.4%, up from the 14.4% reported for the same period in 2016.

Overall

  • Record net income and earnings per share.
  • 30th consecutive quarter of same store sales growth.
  • Operating margin was 23.1% for the quarter, up from the normalized operating margin of 20.2% in the third quarter of 2016.
  • The Company's return on equity was 21.3% in the current quarter.

Nine Months Results

For the first nine months of 2017, goeasy achieved revenues of $296.6 million, up 15.8% compared with $256.2 million in the first nine months of 2016. Operating income for the period was $62.9 million compared with $45.3 million in the first nine months of 2016, an increase of $17.6 million or 38.8%. The results for the first nine months of 2016 included a $3.0 million gain on the sale of an investment and $6.4 million in transaction advisory costs. Excluding these items from the 2016 results, normalized operating income increased $14.2 million or 29.2%. Net income for the first nine months of 2017 was $30.8 million and diluted earnings per share was $2.17. On a normalized basis, net income in the first nine months of 2016 was $24.8 million and diluted earnings per share was $1.78, increases of 24.0% and 21.9%, respectively.

Outlook

The outlook for 2017 has improved. The ending easyfinancial gross consumer loans receivable target has been increased to $500 to $520 million (from $475 to $500 million) while the easyfinancial operating margin target has been increased to a range of 37% to 40% (from 35% to 37%).  The Company expects easyfinancial’s revenue yield to remain at 60% to 62% for 2017 but has reduced its loan loss rate target to 13% to 15% (from 14% to 16%). The Company's targets for new easyfinancial locations during 2017 is 27 to 32 locations. Finally, given the strong growth of the consumer loans receivable portfolio, the Company's revenue growth target has been increased to a range of 15% to 17% (from 10% to 12%).

The Company has also provided 3 year targets for 2018 through 2020, including increasing the loan portfolio target in 2019 by $100 million.

  2018 2019 2020
       
New easyfinancial locations 20 - 30
openings
10 - 20
openings
10 - 20
Openings
       
Gross consumer loans receivable portfolio at year end $700 - $750
million
$875 - $950
million
$1.0 - $1.1
billion
       
easyfinancial total revenue yield 54% - 56% 49% - 51% 46% - 48%
       
Net charge-offs as a percentage of average gross consumer loans receivable 12% - 14% 11% - 13% 10% - 12%
       
easyfinancial operating margin 38% - 40% 40%+ 40%+
       
Total revenue growth 16% - 18% 14% - 16% 10% - 12%
       
Return on Equity 18% - 20% 20%+ 20%+
       

The achievement of these targets by the Company, however, is predicated on a number of factors, including the pace of expansion of easyfinancial.

"The significant progress made by goeasy over the past few years has positioned the Company to be the leading non-prime lender for everyday Canadians. We remain unwavering in our commitment to provide our customers with the opportunity to achieve better financial outcomes and the ability to graduate towards prime credit,” said Mr. Ingram.  “We are better positioned than ever before to capture a greater share of the $165 billion non-prime consumer credit market. The recently announced debt financing provides us with both sufficient capital to fund our growth over the next several quarters and a long-term structure that will enable further access to debt capital as required. The strength and experience of our team, coupled with our expanded product range and the investments we have made in credit risk and technology, will help fuel our loan growth while expanding EPS over the next several years.”

Update on IFRS 9

The Company will be required to adopt a new accounting standard, IFRS 9, Financial Instruments [“IFRS 9”], beginning on or after January 1, 2018.  IFRS 9 introduces a new expected loss impairment model which will replace the existing incurred loss impairment model under IAS 39. 

It is important to note that the adoption of IFRS 9 in 2018 will not impact the credit performance (including the net charge-off rate) of the Company’s consumer loans receivable portfolio which will be driven by borrowers’ credit profiles and behaviours.  The Company will continue to write off customer balances that are delinquent greater than 90 days and so the net charge-off rate as a percentage of the average gross consumer loans receivable will not be affected.  Likewise, the cash flows used in and generated by the Company’s consumer loans receivable portfolio will not be impacted by the adoption of IFRS 9 as the periodic increase in the allowance for loan losses as a result of growth in the consumer loans receivable is a non-cash item.

The Company has established a project team for the transition to IFRS 9 which includes senior stakeholders from the Company’s Risk and Finance groups with senior executive oversight.  The Company’s current allowance for loan losses, as determined under IAS 39, as a percentage of the ending gross consumer loans receivable equals approximately 6.1%.  The Company’s project team estimates that implementing the requirements of IFRS would result in an increase to this percentage of between 2.5% and 3.5%, assuming the composition and credit performance of the Company’s consumer loans receivable portfolio as at September 30, 2017.  This increase in the allowance for loan losses is not indicative of a change in the expected recovery value of underlying loans receivable after charge-offs but rather a function of extending the allowance for loan losses to provide for expected future losses for a period greater than the five months currently provided for.

Once IFRS 9 is implemented, beginning with the first quarter of 2018, the Company anticipates that this implementation will have a modestly adverse impact on retained earnings and the carrying value of net consumer loans receivable recorded on our balance sheet and a modestly adverse non-cash impact on its net income.

The Company is on track to finalize its analytical and systems work and complete the implementation of IFRS 9 within the required timeframe. 

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.  All figures reported above with respect to the estimated impact of the adoption of IFRS 9 are highly preliminary and are subject to change and adjustment as the Corporation's transition to IFRS 9 is completed.  Accordingly, investors are cautioned not to place undue reliance on the foregoing guidance.   The outlook and estimates of the expected impacts of IFRS 9 provided in this news release constitute forward-looking statements within the meaning of applicable securities laws, are based on a number of assumptions and are subject to a number of risks and uncertainties. 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. 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.

For further information contact:

/EIN News/ -- David Ingram
President and Chief Executive Officer
(905) 272-2788

         -or-

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

goeasy Ltd.        
         
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION    
(Unaudited)        
(expressed in thousands of Canadian dollars)        
         
    As At As At  
    September 30, December 31,  
    2017 2016  
         
ASSETS         
Cash     22,368   24,928  
Amounts receivable      13,025   7,857  
Prepaid expenses     4,175   1,909  
Consumer loans receivable     458,914   354,499  
Lease assets     50,900   55,288  
Property and equipment     15,917   16,103  
Deferred tax assets     2,453   6,856  
Intangible assets     16,034   14,312  
Goodwill     21,310   21,310  
TOTAL ASSETS     605,096   503,062  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Liabilities        
Accounts payable and accrued liabilities     38,679   31,879  
Income taxes payable     9,083   2,874  
Dividends payable     2,421   1,666  
Deferred lease inducements     1,172   1,506  
Unearned revenue     5,662   5,204  
Provisions     442   608  
Term loan     276,614   263,294  
Convertible debentures     46,937   -   
TOTAL LIABILITIES     381,010   307,031  
         
Shareholders' equity        
Share capital     85,307   82,598  
Contributed surplus     13,894   9,943  
Accumulated other comprehensive income     902   880  
Retained earnings     123,983   102,610  
TOTAL SHAREHOLDERS' EQUITY     224,086   196,031  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     605,096   503,062  
         


goeasy Ltd.              
               
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME      
(Unaudited)              
(expressed in thousands of Canadian dollars except earnings per share)        
               
      Three Months Ended Nine Months Ended  
      September 30, September 30, September 30, September 30,  
      2017 2016 2017 2016  
               
REVENUE              
Interest income       46,011     35,776   126,064   101,305    
Lease revenue       32,224     33,825   98,609   104,017    
Other       25,475     18,187   71,965   50,889    
        103,710     87,788   296,638   256,211    
               
Other income       -      -    -    3,000    
               
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION            
Salaries and benefits       26,355     22,761   75,970   68,543    
Stock-based compensation       1,764     1,134   4,096   3,133    
Advertising and promotion       3,930     2,595   13,794   9,215    
Bad debts       17,729     14,037   49,019   39,732    
Occupancy       8,352     8,334   24,968   24,543    
Other expenses       8,940     7,656   27,092   21,402    
Transaction advisory costs       -      5,308   -    6,382    
        67,070     61,825   194,939   172,950    
               
DEPRECIATION AND AMORTIZATION              
Depreciation of lease assets       10,039     10,854   30,981   33,441    
Depreciation of property and equipment       1,389     1,592   4,044   4,401    
Amortization of intangible assets       1,288     1,073   3,731   3,078    
        12,716     13,519   38,756   40,920    
               
Total operating expenses       79,786     75,344   233,695   213,870    
               
Operating income       23,924     12,444   62,943   45,341    
               
Finance costs       7,465     5,411   19,868   15,346    
               
Income before income taxes       16,459     7,033   43,075   29,995    
               
Income tax expense (recovery)              
Current       4,938     2,090   9,075   9,317    
Deferred       (85 )   11   3,234   (2,029 )  
        4,853     2,101   12,309   7,288    
               
Net income       11,606     4,932   30,766   22,707    
               
Basic earnings per share       0.86     0.37   2.28   1.67    
Diluted earnings per share       0.81     0.36   2.17   1.63    
               


Segmented Reporting            
             
    Three Months Ended September 30, 2017  
($ in 000's except earnings per share)    easyfinancial easyhome Corporate Total  
             
Revenue    69,728 33,982 -   103,710  
             
Total operating expenses before            
  depreciation and amortization   39,815 17,713 9,542   67,070  
Depreciation and amortization   1,772 10,706 238   12,716  
             
Operating income (loss)    28,141 5,563 (9,780 ) 23,924  
Finance costs       7,465   7,465  
             
Income before income taxes   28,141 5,563 (17,245 ) 16,459  
Income taxes         4,853  
             
Net income         11,606  
             
Diluted earnings per share         0.81  
             
             
    Three Months Ended September 30, 2016  
($ in 000's except earnings per share)    easyfinancial easyhome Corporate Total  
             
Revenue    52,648 35,140 -   87,788  
             
Total operating expenses before             
  depreciation and amortization and            
  transaction advisory costs   30,011 18,369 8,137   56,517  
Transaction advisory costs   - - 5,308   5,308  
Depreciation and amortization   1,652 11,705 162   13,519  
             
Operating income (loss)    20,985 5,066 (13,607 ) 12,444  
Finance costs       5,411   5,411  
             
Income before income taxes   20,985 5,066 (19,018 ) 7,033  
Income taxes         2,101  
             
Net income         4,932  
             
Diluted earnings per share         0.36  
             
             
    Nine Months Ended September 30, 2017  
($ in 000's except earnings per share)    easyfinancial easyhome Corporate Total  
             
Revenue    193,391 103,247 -   296,638  
             
Total operating expenses before            
  depreciation and amortization   114,164 54,376 26,399   194,939  
Depreciation and amortization   5,187 32,853 716   38,756  
             
Operating income (loss)    74,040 16,018 (27,115 ) 62,943  
Finance costs       19,868   19,868  
             
Income before income taxes   74,040 16,018 (46,983 ) 43,075  
Income taxes         12,309  
             
Net income         30,766  
             
Diluted earnings per share         2.17  
             
             
    Nine Months Ended September 30, 2016  
($ in 000's except earnings per share)    easyfinancial easyhome Corporate Total  
             
Revenue    148,077 108,134 -   256,211  
Other income   - - 3,000   3,000  
             
Total operating expenses before             
  depreciation and amortization and            
  transaction advisory costs   88,071 56,464 22,033   166,568  
Transaction advisory costs   - - 6,382   6,382  
Depreciation and amortization   4,804 35,626 490   40,920  
             
Operating income (loss)    55,202 16,044 (25,905 ) 45,341  
Finance costs       15,346   15,346  
             
Income before income taxes   55,202 16,044 (41,251 ) 29,995  
Income taxes         7,288  
             
Net income         22,707  
             
Diluted earnings per share         1.63  
             



 

Distribution channels: Consumer Goods


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