goeasy - Q3 2026 Earnings Call - DEFI TECHNOLOGIES INC

Explicit Guidance:

• FY2026 Q4 (ending Dec 31, 2026): Ending gross consumer loans receivable expected between $4.6B and $4.8B; Yield on consumer loans expected between 27% and 28.5%; Net charge-offs expected between 14.5% and 16%.
• FY2027 Outlook: No specific financial guidance (revenue, earnings, balance sheet) provided for 2027; management expects to share the finalized 2027 plan and broader blueprint in the New Year.

Business-Segment Outlook:

• Portfolio Mix: Continued structural shift away from merchant-originated loans toward direct-to-consumer (Easy Financial) unsecured and secured portfolios; merchant-originated share expected to decline further, while Easy Financial channels (unsecured personal loans, secured home equity, easy home lending) remain the primary growth engine.
• Loan Origination Strategy: Growth in 2026 remainder is constrained to segments where underwriting is "value additive and accretive"; no planned re-expansion into merchant-originated segments in the near term due to lack of profitable growth opportunities at current risk levels.
• Credit Performance: Net charge-offs expected to remain stable in Q4 relative to Q3 (midpoint ~15%) due to elevated delinquencies; long-term trajectory expects further decline in charge-offs as the portfolio mix shifts toward the lower-risk Easy Financial business and the LendCare (merchant) portfolio cures.
• Allowance for Credit Losses (ACL): ACL rate anticipated to fluctuate quarter-over-quarter based on portfolio mix and macroeconomic outlook; expected to remain representative of current loss rates (approx. 10.6% as of Q3) rather than historical pre-2025 rates for auto/power sports.

Market and Competitive Outlook:

• Demand Trends: Consumer insolvency levels showing "slight moderation" in Q3, though macro backdrop remains uncertain; Canadian consumer resilience noted despite elevated unemployment (6.7%) and inflation (>3%).
• Pricing and Yield: Yield expected to trend upward over the long term due to mix shift toward higher-yielding direct-to-consumer products, though Q4 yield is projected to land near Q3 levels.
• Interest Rates: 89% of gross loans carried rates at or below the 35% APR cap (up from 87.9% in Q2); future yield management impacted by the statutory cap on unsecured lending rates.
• Delinquency Monitoring: 1-30 days past due balances increased slightly in Q3; management expects to manage these down over time via enhanced collections and credit risk models.

Macro / Industry Outlook:

• Economic Environment: Operating in an "uncertain macroeconomic backdrop" with elevated unemployment and inflation; Bank of Canada rate hike on Oct 28 is acknowledged as a headwind.
• Regulatory Impact: Compliance with the 35% maximum allowable interest rate for loans written after Jan 1, 2025, is a structural constraint on yield and product pricing.
• Credit Risk Model (IFRS 9): Macroeconomic outlook incorporated into IFRS 9 models; unfavorable changes in macro assumptions contributed to the increase in ACL rate in Q3.

Strategic Initiatives:

• Six-Point Plan: Execution continues with focus on stabilizing balance sheet, strengthening operations, and growing direct-to-consumer portfolio; 2026 viewed as a year of "strengthening capabilities."
• Leadership & Structure: New Chief Credit Risk and Data Officer (Mark Snyder) integrating credit risk, analytics, and data science to optimize risk-adjusted returns and loss trajectories.
• Funding & Liquidity: Revolving securitization warehouse renewed and right-sized to $910M (down from $1.12B) with a 35 bps rate reduction; ability to draw restored subject to conditions (funds drawn beyond $612M outstanding require newly originated assets until revolver terms are reset).
• Revolver Restructuring: Active discussions with banking syndicate to extend and amend covenants for the facility maturing in July 2027; goal is to finalize updates within the next few months.
• Capital Allocation: Dividends and share repurchases remain suspended indefinitely to preserve liquidity and comply with covenants.
• 2027 Planning: Development of the 2027 strategic blueprint underway; focus will be on "profitable growth" where lending opportunities exceed hurdle rates.

Risks and Headwinds to Outlook:

• Credit Loss Volatility: Elevated delinquency rates (specifically 1-30 days past due) and potential macroeconomic deterioration could prevent further improvement in charge-off rates.
• Capital Constraints: Elevated leverage (debt-to-adjusted tangible equity ratio at 5.02x) and restrictive covenants limit capacity for growth and capital deployment until 2027 facility terms are amended.
• Regulatory Caps: The 35% APR cap limits the ability to price higher-risk unsecured lending products to fully offset potential losses.
• Remediation Timeline: Material weakness related to IFRS 9/LendCare controls remains unresolved and is expected to continue throughout the remainder of fiscal 2026; full remediation requires sustained control testing.
• Macroeconomic Sensitivity: Future loss rates and delinquency management pace are dependent on the broader economic environment, which is currently a net headwind.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic regarding execution of the six-point plan; management expresses confidence in the "path forward" and the resilience of the direct-to-consumer model.
• Hedges: Repeated emphasis on "profitable lending" as the sole driver for growth; no guidance on absolute loan book size for 2027 due to uncertainty in unlocking profitable growth in all segments.
• Strategic Shift: Explicit pivot from balance sheet expansion at any cost to disciplined capital allocation focused on risk-adjusted margins.

Miscellaneous:

• IFRS 9 Material Weakness: Remediation efforts are now in the "validation and control testing phase" with expectations to continue through FY2026; no date set for removal of the weakness.
• Operating Expenses: 2026 focus on cost containment; 2027 outlook emphasizes technology investment and automation to improve efficiency rather than just cost cutting.
• Liquidity Position: Cash balance increased by $179.7M in Q3; total liquidity (cash + unused capacity) stands at $1.23B as of Q3 2026.