Go Easy Limited, a leading consumer lender in Canada, serves clients with non-prime credit scores who are unable to access everyday financial products from major banks. Jason, the CEO of the company, outlines their business model which includes providing personal loans and automotive financing through various channels such as a branch network, a digital platform, and partnerships with 10,000 merchants. Go Easy primarily raises funds from capital markets as they are a non-bank lender, relying on a mix of debt and equity financing, while maintaining competitive interest rates for their customers despite rising borrowing costs.

Jason is stepping down as CEO but will remain on the board and aid in finding his successor. He shares insights into the ongoing CEO search, the company's succession planning, and future prospects for Go Easy, emphasizing the importance of fresh perspectives and talent to continue the company's growth trajectory. He discusses balancing risk and regulatory changes, particularly the Canadian government's interest rate caps, stressing the need for profitable lending that doesn't shut out vulnerable borrowers.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. non-prime [nɑn praɪm] - (adjective) - Referring to borrowers who have low credit scores and do not qualify for traditional credit products. - Synonyms: (subprime, lower-tier, risky)

Go Easy Limited, which is one of Canada's leading consumer lenders, focused on lending to clients with non prime credit scores.

2. trajectory [trəˈdʒɛktəri] - (noun) - The path, progression, or line of development over time of something. - Synonyms: (path, course, progression)

We've gone through such a massive trajectory of change.

3. succession planning [səkˈsɛʃən ˈplænɪŋ] - (noun) - The process of identifying and preparing suitable employees, through mentoring and training for taking over crucial roles within the organization - Synonyms: (transition planning, leadership development, executive preparation)

We're in a fortunate spot where a CEO transition is occurring when the business is doing well, when I'm in a position to be able to stick around and help with the succession planning and the appointment of a new person, being able to stay on the board and help provide guidance and support to that person

4. operating leverage [ˈɑːpəˌreɪtɪŋ ˈlɛvrɪdʒ] - (noun) - The degree to which a firm or project can increase operating income by increasing revenue, due to fixed costs in the business structure. - Synonyms: (financial leverage, fixed cost coverage, scaling advantage)

But what we found is that as our business has grown, we've been able to extract so much operating leverage.

5. interim ceo [ˈɪntərɪm siː-iː-oʊ] - (noun) - A temporary chief executive officer appointed to manage company affairs for a limited time until a permanent CEO is hired. - Synonyms: (temporary CEO, acting CEO, provisional CEO)

Is there a possibility that you could have an interim ceo appointed?

6. commensurate [kəˈmenʃərɪt] - (adjective) - Corresponding in size or degree; in proportion. - Synonyms: (proportionate, equivalent, corresponding)

The price of a loan is commensurate with the risk of the loan.

7. macro-economic environment [ˈmækroʊ ˌɛkəˈnɑːmɪk ɪnˌvaɪrənˈmɛnt] - (noun) - The overall economic environment that influences the operation of businesses in the context of economy-wide phenomena like GDP growth rate, inflation, and unemployment rate. - Synonyms: (economic landscape, global economic conditions, economic climate)

I think the other thing that's happened though, since that regulatory announcement in 2023, is that a combination of the difficult macroeconomic environment.

8. economic downturn [ˌɛkəˈnɑːmɪk ˈdaʊntɜrn] - (noun) - A period when the economy of a country experiences a decline and reduced activity; recession. - Synonyms: (recession, slump, depression)

So they just perform much more resilient during economic downturn than I think most people assume they will.

9. unsecured notes [ˌʌnsiˈkjʊrd noʊts] - (noun) - Debt securities that are not backed by collateral, posing a higher risk for lenders but potentially offering higher returns. - Synonyms: (debentures, unsecured bonds, credit notes)

And then the other half is through issuing unsecured notes in the bond market.

10. consumer credit [kənˈsjuːmər ˈkrɛdɪt] - (noun) - Loans and credit granted to individuals to purchase goods and services, reflecting the ability to borrow in return for future repayment. - Synonyms: (retail credit, personal credit, borrowing)

Everyone knows how consumer credit works.

Jason Mullins on goeasy’s Growth Strategy, Future

Good afternoon, Jason. Thanks for being here. Thanks for having me. Heard you've had a busy day. We did. We did. Flew in this morning. And how many investor meetings did you say you had? About a dozen maybe or so. A dozen. Okay. So he's practiced his pitch and now he's going to tell us all about it. So Jason is the CEO of Go Easy Limited, which is one of Canada's leading consumer lenders, focused on lending to clients with non prime credit scores. You've been with the company for 14 years? About six years as CEO. CEO.

For those in the audience who aren't as familiar with go easy, could you give us a sense of your business model and the size of the market that you serve? Yeah, happy to. So go easy is one of Canada's leading providers of credit to non prime Canadians. Of the 32 million Canadians that have an active credit file, about 9 million have credit scores that would prevent them from getting access to everyday financial products from their major banks. So we provide them a wide range of lending products, from personal loans to automotive financing. We do it through a branch network, a digital platform, and through a network of 10,000 merchant partners when they're purchasing goods and services. And we're helping finance those transactions.

And so this is a bit of a pivot, but it's probably important for those listening in here to know that you announced in July that you'll be leaving go easy for a new opportunity. You're planning to stay on the board of the company and you're also helping with the search for a success. But can you give us an update on that CEO search? Yeah, happy to. So I'll step down from the role officially at the end of the year. We're actively in the search for the next CEO of the company, both internal and external. I'd say we're right in the midst of that search. So well on our way and making good progress. Goal is to try to have someone appointed to fully take on the position at the end of the year.

But we've also got a very good management team and a very good board. We're one of the few companies, I imagine, where both myself and the former CEO are both on the board to provide extra support and guidance to the management team and whoever that new CEO is that we appoint. So we're also in a good spot where with that quality of management board and good business performance, we're also not in a major rush. We need to take our time and find the right candidate. So is there a possibility that you could have an interim ceo appointed? Yeah, I think if we get another month or so out, probably around the time we release our third quarter earnings in November, we'll probably have a good spot to be in where we can announce what that interim plan looks like. That way, as investors wonder about what does it look like? If we don't have someone appointed, they can kind of rest assured we've got a very good plan to appoint other management or board in a capacity that will keep the business performing at a high level.

Can you talk at all about your own plans after the company, after leaving? Go easy. I know you'll be staying on the board, obviously. Yeah. I'm moving on to pursue managing and running a new company, a smaller company in the us market, different subsector of financial services. I enjoy building businesses and want to go try and tackle some new challenges and new problems to solve, but very, very happy with where the company's at and what we've achieved as an organization. Feel like the business is in about as good a spot as possible to be able to hand the reins over to someone new. I think it also is important to be perpetually bringing in new talent, new perspective, new experiences as an organization scales.

We've gone through such a massive trajectory of change that the business today is very different than the one I took over and the one that our former CEO board chair built many years ago. So it's in a great spot for a new person to take the mantle. And I'm really excited to be part of the board and to be able to provide that person ongoing support and advice for many years to come. Obviously a testament to you. The share price has done very well over time, and when you announced your departure, it did take a dip that day. It's come back a bit, but, yeah. Can you just talk a little bit about how you find a replacement when you're still sitting in the seat yourself? Yeah, I think it's. We're in a fortunate spot where a CEO transition is occurring when the business is doing well, when I'm in a position to be able to stick around and help with the succession planning and the appointment of a new person, being able to stay on the board and help provide guidance and support to that person.

So initially, the change in the leadership mantle always comes with a state of disruption and uncertainty, and it affects the capital markets. But I think that as investors have kind of digested and understood the business is performing well. It's not a matter of drama or change in strategy or direction that I'll continue to be involved I think people have become much more settled and I think the markets understand we have a very strong management team that can carry us forward. So it's a bittersweet reality for me in that I've been 14 years of the company and six years as the CEO, and so feel very attached to and proud of what has been built, but also recognize that there's always an opportunity to start a new chapter and bring in some fresh eyes, fresh perspective that can help us continue this trajectory for generations to come.

So, back to go easy itself. Can you talk us through the company's financing model? How do you pay for the loans that you give out to clients? Yeah, so we're a non bank lender. We don't take consumer deposits. We raise all of our funding through capital markets, their debt and equity. Basically the business is funded by about 70% debt, 30% equity. In the past, as we've grown, that equity has had to come from both cash flow and issuing new equity. Today we're in a spot where the business generates a ton of free cash flow. So we're not active issuers of new equity. Today it's all funded through free cash flow. On the debt side of the business, we really borrow from two sources.

One is secured debt facilities provided by a syndicate of major banks. All of the major canadian banks are members of one of our credit facilities. So that represents about half the debt stack, and then the other half is through issuing unsecured notes in the bond market, predominantly to us and some canadian investors. So 70% debt, 30% equity. Based on the unit economics and the economic profile of the loans that we issue, we generally get to an after tax return on receivables of about six to 7%, which means we're generating about 20% to 25% return on equity. And so during the credit cycle, the rate hiking cycle, how did your both your financing fare as well as your loans to your clients? Yeah, so we were obviously subject to a rise in rates and that did have an effect on our borrowing costs. Having said that, we've always employed a strategy to hedge any interest rate risk and any currency risk.

So anytime we've issued debt in the past, if it's been us denominated, we've always hedged the currency. And anytime we've taken drawings or done any financing on the debt side, we've hedged the interest rate risk. So the effect of the rising rates on our cost of borrowing was much more slow, subtle and gradual as we replenished and turned over our debt stack. That of course does have some level of effect on unit economics. But what we found is that as our business has grown, we've been able to extract so much operating leverage that our efficiency ratio improvements have led to allowing us to sustain and or still grow margins, despite a little bit of pressure from the rising cost of capital. In terms of the interest that you were charging consumers at that time, did you dramatically raise them at all during that rate hiking cycle? And how did your consumer, how did your clients fair?

Yeah, so, like every company you have to make this decision around, when your input costs, particularly your funding costs, and your cost of borrowing, rise, how are you going to handle that on the lending side to your customer? We took the approach of holding rates to customers, and in fact, we continued to reduce the average rate we charged our customers. We felt that that would just instantly make us even more competitive in the marketplace, which it proved to do. That also led to an acceleration of growth, because we were now on the price side of the ledger, instantly more competitive. That accelerated growth only helped contribute to that operating leverage dynamic, which helped, again, more than compensate for rising funding costs.

So we've obviously done some level of pricing optimization. Certain segments of borrowers have to face price increases, but the vast majority in the portfolio as a whole has continued to see average prices that we charge come down. Interesting. And how did, we talked about this when we were doing the planning call, and it was really interesting to hear that your customers actually maybe didn't struggle as much as one might have thought during the credit, the rate hike cycle that we've seen. Can you talk about why that is?

Yeah, I think there's this conception that a lower credit score customer is going to struggle more during a period of economic stress, and that a better credit quality customer is going to perform better. And although it's counterintuitive, it's actually quite the inverse. There's a few reasons for that. The non prime customer that we serve has half the level of debt to household income that the prime borrower does, and that's simply a function of less access to credit. They also only have about, only about 20% own a home. The majority, 80%, are renters, unlike the canadian household homeownership rate, which is about 65%. So again, interest rates fluctuations in real estate markets don't have the same adverse effects.

They're not dealing with that mortgage situation. They're not dealing with the mortgage pressure that everybody's familiar with exists in Canada. The customers also tend to have more unemployment insurance coverage to help make payments in the event of unemployment. And this is also a customer who has a very average canadian income profile at around 60,000. Individual income widely distributed across all major industry sectors. There's no real concentration, and so they're generally able to get re employed fairly quickly and find new income. So they just perform much more resilient during economic downturn than I think most people assume they will. That's really interesting. The canadian government has, you know, this has been in the works for a few years now, but they plan to lower the maximum interest rate that can be charged, which used to be 47% on an APR basis. It's going to drop to a maximum of 35% in the new year.

I know you guys have always been, you've been opposed to this change, you know, broadly making the argument that it'll. It will cut off access to credit for some borrowers. But you've also said that most of your own maximum, or your average lending rate is actually lower than that. Now, can you talk about how this change will affect your business model, your company's business model, and the industry more broadly? Yeah. Yeah. So today our average rate of interest is about 29%. And so with the change in the maximum allowable rate, there's a fairly minimal impact on our business. Minor subset of our loans are offered currently at rates above 35. So as we weigh that into the portfolio, make other pricing adjustments, the portfolio runs off. It generally is fairly limited impact on our business.

We still chose to advocate for the customer and for the industry and try to encourage regulators to rethink changing and stepping down that maximal allowable rate. Everyone knows how consumer credit works. The price of a loan is commensurate with the risk of the loan. It's no different with an insurance product. And so that means if you regulate what someone can charge, the reality is that businesses aren't going to issue loans that are not profitable to do so. And then the byproduct of that is a bunch of customers that previously were able to qualify for traditional financial products from licensed regulated organizations get pushed out of that market, and they have to turn to more expensive products like payday loans. They have to turn to illegal lending sources. It has a very significant series of unintended consequences. It's nice to think that simply lowering the maximum allowable rate will mean everybody will still get a loan at a cheaper price. But just practically and mechanically, that's not how the business model works.

So we were very vocal about this was not going to be good for Canadians at large. There would be several million consumers who will lose that access, even though for us and our business, we generally serve a better credit quality customer than those affected. And the average rate's much lower, so we're not expecting to experience much impact. When these changes were first announced, your stock did take a bit of a hit as well in reaction to that. Has it just been a matter of sort of telling investors that's getting that story across to investors? Yeah, it's mostly been just education, walking people through the composition of our portfolio, walking them through the proportion of borrowers that we're no longer to transact with, explaining how the credit risk and pricing relationship works, showcasing that there's a runoff portfolio that takes some time to wind down as the new product ramps up. So mostly an education factor.

I think the other thing that's happened though, since that regulatory announcement in 2023, is that a combination of the difficult macroeconomic environment, inflation rate hike cycle, and this pending regulatory reform has put so much pressure on smaller scale companies that we've seen almost no new entrants. Many of the smaller subscale companies have struggled or left the market. And so we've also seen accelerated rate of growth as the demand has moved toward those select few companies that have a meaningful level of scale. So in reality, we've actually seen, for those of us that have scale, more demand and more growth. That accelerated growth, of course, helps produce future sustainable earnings for shareholders.

You guys have tapped the bond market a couple of times this year. What's the experience been like with the markets? And any thoughts on raising more in the near future? Yeah, so we'll be ongoing issuers of bonds going back to the debt and capital stack. About half of our debt comes from the bond market and those unsecured notes. So as a result, we're constantly issuing somewhere between 300 and 600 million canadian new issuances every twelve months. Effectively, the response has been great. We've last several deals have all been well oversubscribed to the level of need that we've had. So the demand has been strong.

I think stepping back, looking bigger picture and longer term, as we have de risked the business brought down the weighted average rate we charge our customers as our loss ratios have continued to decline as people have seen us navigate through economic headwinds, and that the loss ratio of this business is able to stay very stable and consistent and predictable. All of that means every time we look to raise new capital, there's just a bigger number of investors and more demand to be able to take up our needs. You've talked in the past about M and A outside of Canada. Can you talk about your thoughts on that? Now, I know you're obviously trying to find somebody to take over your job. At the same time, what are you thinking about that kind of thing right now?

Yeah. So we're still, we still see M and A has been, still see it as a big part of our growth strategy in the future. Obviously, there's a period of time right now where we're focused on a CEO transition as the priority. Inevitably, that means we want to get through that, but it doesn't change the long term plan strategy, which is acquisitions and potentially outside of Canada are still appealing. I think the thing we always remind people is that when your business is growing at such a robust rate on an organic basis, to make the math work on an acquisition, it's just a very high bar. It's a very high hurdle rate. So something has to be such an excellent strategic fit, excellent financial fit that allows us to be very disciplined, very choosy and selective. And so to date, we've not seen anything outside of Canada in particular that we've been excited enough about and gotten to the finish line over. But as the next few years unfold and we get the CEO change settled, we'll be right back to thinking about acquisition. Well, thank you, Jason. I know you've told your story a lot today and really appreciate you coming here and sharing it with us. Thanks very much for your time. I appreciate it. Thanks so much. Thanks, everyone.

Finance, Business, Education, Go Easy Limited, Non-Prime Lending, Ceo Transition, Bloomberg Live