goeasy Ltd. (GSY.TO) Q3 2026 Earnings Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to the goeasy Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference call over to James Obright, Senior Vice President of Investor Relations and Capital Markets. Please go ahead, sir.

James Obright: Thank you, operator, and good morning, everyone. Thank you for joining us to discuss goeasy Limited's results for the third quarter ended December 30, 2026. Our Q3 news release, which was issued yesterday is available on SEDAR+ and on the goeasy website. On today's call, Patrick Ens, goeasy's Chief Executive Officer, will provide an update on our third quarter performance and recent developments and an outlook for the business. Felix Wu, our Chief Financial Officer, will provide an overview of our Q3 2026 financial results as well as our liquidity position. Also joining us on the call today is Mark Snyder, goeasy's Chief Credit Risk and Data Officer. After the prepared remarks, we will open the lines for questions from our research analysts. The operator will poll for questions and will provide instructions at the appropriate time. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company website and supplemented by a quarterly earnings presentation, which will be referred to by our speakers today. For those dialing in by phone, the presentation can be found in the Investor Relations section of the company website. As noted on Slides 2 and 3, forward-looking statements will be made on this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that goeasy uses non-IFRS financial measures and metrics to arrive at adjusted results. Please refer to our Q3 MD&A for further details on the risks, assumptions and non-IFRS measures. Management evaluates performance on both a reported and an adjusted basis and considers both useful for assessing underlying business performance. These are more fully described in the appendix. With that, I will now turn the call over to Patrick Ens.

Patrick Ens: Thank you, James, and welcome to everyone listening today. Before we get started, I want to take a moment to acknowledge that we are here together on November 11, Remembrance Day. It is a day to pause and reflect on the courage and sacrifice of those who served. Out of respects, we are going to make sure that we wrap up this call before 11:00 a.m., so that all of us have a chance to join in the moment of silence. With that in mind, let me turn to our results. goeasy remains focused on being a leading provider of credit to Canadians with non-prime credit scores. Canadians with non-prime credit scores continue to comprise a meaningful portion of the Canadian population and nearly 10 million individuals who are underserved by traditional financial institutions in Canada. These are everyday working Canadians who, like others, need access to credit to live their lives. There is a compelling market opportunity with a meaningful gap between demand and available credit options for these customers. To successfully serve this market well requires commitment, discipline and ingenuity. We have been building our capabilities as a lending business now for 20 years. 2026 has been and will continue to be a year of focusing on strengthening our capabilities. We are solidifying our foundation through our 6-point plan. On this call today, we will discuss our progress against this plan, how we are rebalancing the portfolio towards personal loans originated through the direct-to-consumer easyfinancial brand, strengthening our operations and leadership team, and improving our balance sheet and liquidity position. We continue to methodically execute against our plan and have made tangible progress on each of the 6 points. The significant improvement in balance sheet health achieved through a contraction of the loan book in Q2 enabled us to return to growth within the direct-to-consumer easyfinancial portfolio in Q3. The year isn't over, and we continue to remain focused on strong execution. We are also operating with an uncertain macroeconomic backdrop. Unemployment remains elevated at 6.7%, up 30 basis points quarter-on-quarter and well above post-COVID lows. Inflation is elevated and has been above the Bank of Canada's target levels, now at 3% or higher for each month in Q3, ultimately leading to a rate hike on October 28, the first in over 3 years. That said, we observed a slight moderation in consumer insolvency levels across Canada and within our portfolio in Q3. The Canadian consumer remains resilient through challenging times. As an organization, we will continue to adapt to market conditions. In Q3, we met our target guidance for the quarter on ending loan book, revenue yield and loss rates. And before we wrap, I'll come back to how we are thinking about our outlook for the remainder of the year, considering the evolving market we are operating in. Let's turn to an update on the business. Starting with key financial developments, goeasy produced an adjusted diluted loss per share of $0.94 in the third quarter. This is down sequentially from adjusted diluted earnings per share of $1.02 in Q2 2026. Turning to our loan book. Consistent with our plans, we ramped up direct-to-consumer originations in Q3. After accounting for elevated but improving levels of net charge-offs, these higher levels of direct-to-consumer originations in Q3 did not fully offset gross principal repayments. As a result, our gross consumer loans receivable contracted by $124 million or 2.5% on a quarter-over-quarter basis. Our quarter end balance was $4.88 billion. We saw modest growth in direct-to-consumer unsecured loan balances, while the merchant-originated portfolio continued to decline, as expected. Continued strength in cash provided by operations before net principal written at $607 million in the third quarter allowed us to further strengthen our balance sheet. Elevated charge-offs in our merchant-originated LendCare business are declining but continue to impact financial performance. The overall net charge-off rate came in at 15.2%, a 150 basis point improvement relative to the second quarter despite the impact of a contraction in gross loans receivable. Relative to Q2, delinquencies or gross consumer loans past due increased by 70 basis points. Loan balances from 1 to 30 days past due increased modestly from 6.1% to 6.3% and those greater than 30 days past due increased from 5.8% to 6.3%. Total allowance for credit losses on gross consumer loans increased by $16.7 million to $516.3 million in the quarter. Recall that in Q2, we had a $41.6 million reduction in ACL. The provision increase in Q3 as compared to the reduction in Q2 was a major contributor to the quarter-over-quarter reduction in earnings. The rate of allowance for expected credit losses moved up from 9.99% for Q2 to 10.59% for Q3. This quarter marked another step forward in one of the core areas of focus in our 6-point plan, the prudent management of our liquidity. Given the significant progress we made in the second quarter, in Q3, we were able to resume growth in our direct-to-consumer unsecured and secured portfolios. We continue to maintain a restrictive approach to credit in the merchant-originated loan portfolio. While we resumed growth in direct-to-consumer, we also continue to build our cash position, which increased by $179.7 million. With slightly higher accrued interest payable and slightly lower shareholders' equity, our debt to adjusted tangible equity ratio, which excludes our cash balance, increased marginally to 5.02x from 4.95x in Q2. The calculation of that ratio looks at total debt without accounting for cash, so it does not fully reflect the improvement in our leverage position this quarter. On September 29, we renewed our revolving securitization warehouse facility and restored our ability to make additional draws on the facility, subject to certain conditions. This renewal completed with the same group of lenders was another important milestone as we continue to strengthen our funding position. And finally, on the people front, in September, we welcomed Mark Snyder as our Chief Credit Risk and Data Officer. Mark brings more than 20 years of highly relevant experience in consumer credit. With Mark's deep expertise, we are bringing credit risk, analytics, and data science functions together under one leader. This new structure will further strengthen goeasy's risk management, analytics, and capital allocation capabilities. Mark will collaborate with our Chief Operations Officer, Lynne Oddie, to support disciplined growth, stronger organizational performance and better customer experiences as well as more effective integration and optimization across business units under our 6-point plan. As I mentioned at the start of the call, actual Q3 performance was consistent with the outlook we shared last quarter across all three measures. Ending gross consumer loans receivable of $4.9 billion came in at the midpoint of our $4.8 billion to $5 billion outlook range. Total yield on consumer loans came in at 27.7%, near the top end of our 26.5% to 28% range and net charge-offs at 15.2% came in at the midpoint of our 14.5% to 16% outlook. These results are a direct reflection of our successful execution against our plan. Consistent with the first 2 points of our 6-point plan, we are continuing to see a mix shift in our gross loans receivable as we reduce our merchant originations and focus on growing our direct-to-consumer originations. The share of merchant-originated loans in our portfolio has been managed down nearly 10 percentage points year-over-year and now sits at 36.7% at the end of Q3. At the same time, direct-to-consumer lending easyfinancial channels, including unsecured personal loans, secured home equity loans, and easyhome lending grew $72 million this quarter. It now makes up 63.3% of our total portfolio from 53.6% in Q3 2025. We expect this mix shift to continue. Direct-to-consumer unsecured and secured originations remain our primary focus. As you can see on Slide 9, quarter-over-quarter weighted average interest rates on originations remained stable across both our direct-to-consumer unsecured and secured and our merchants originated secured loans. At quarter end, 89% of total gross consumer loans receivable carried an interest rate at or below the 35% APR maximum allowable interest rate for loans written after January 1, 2025. This was up 110 basis points from 87.9% as of June 30. In Q3, credit performance in our direct-to-consumer secured product continued in line with expectations. Annualized net charge-offs on direct-to-consumer unsecured loans was 15.7%, down from 17% in Q2 2026. The decrease was primarily driven by two factors. The denominator impact of an increasing loan book and moderation in consumer insolvency rates. In our merchant-originated loan portfolios, net charge-offs fell 150 basis points to 19.1% in the quarter from 20.6% in Q2, in line with our expectations. I will now turn the call over to our CFO, Felix Wu, for a discussion of our third quarter financial performance. Felix?

Felix Wu: Thank you, Patrick, and good morning, everyone. Before recapping our third quarter financial performance, I want to provide an update on the LendCare-specific material weakness related to IFRS 9 that we identified at year-end. Since the beginning of 2026, we have updated LendCare's charge-off and collection policies and operational procedures. We have implemented an enhanced controls designed to ensure that collection practices are appropriately reflected in the estimation of expected credit losses and that loan delinquency status is accurately reflected in our IFRS 9 disclosures. We have also strengthened management oversight and approval over the modeling and quarterly estimation of the allowance for expected credit losses, including the allowance for interest receivable. In addition, we delivered internal and external IFRS 9 training to accounting, finance, and risk personnel, including a risk-led workshop covering internal risk scoring, IFRS 9 staging logic and collection practices. We are continuing our remediation efforts, which include a focus on monitoring and testing the operational effectiveness of the remediated controls. This is expected to continue throughout the remainder of fiscal 2026. We have made substantial progress, but the material weakness has not yet been fully remediated and will not be considered addressed until the applicable controls have operated for a sufficient period and management has concluded through testing that they are operating effectively. Turning to an overview of our Q3 financial performance. Many of the themes from Q1 and Q2 of this year continued, albeit on a moderating basis. The year-over-year reduction in gross loans receivable contributed to lower revenue. Elevated bad debt expenses, including an increase in allowances for credit losses this quarter weighed on profitability. These results are consistent with where we expected to be at this stage in our recovery journey, but we recognize the work remaining to reestablish goeasy's record of strong credit performance and returns that will reinforce confidence among shareholders and other stakeholders. As you can see on Slide 12, we tightened credit measures in the merchant-originated loan portfolio and curtailed loan originations in Q3 relative to the prior year. However, as planned, with the improvement in our liquidity position following Q2, we increased origination activity, predominantly in our direct-to-consumer portfolio by 108.6% relative to Q2 and ahead of Q1 levels. The continued moderation in loan originations impacted gross consumer loans receivable, which ended the quarter at $4.88 billion, a decrease of $569 million or approximately 10% from $5.45 billion at Q3 2025 quarter end. Reflecting the continued reduction in our merchant-originated portfolio, 56.7% of total gross consumer loans receivable at quarter end was unsecured, up from 52.2% in Q3 2025, and up slightly from 55.4% as of Q2 this year. The expected reduction in gross loans receivable, coupled with a lower total yield compared to the prior year led to an 18.2% year-over-year decline in quarterly revenue to $372 million. The total yield on our consumer loan portfolio was down 370 basis points relative to Q3 2025, and 60 basis points relative to Q2. Year-over-year, yields faced downward pressure on three fronts. First, the impact of higher charge-offs and gross consumer loans receivable and higher bad debt expenses on interest receivable. Second, credit tightening in merchant-originated loan originations and a moderate reduction in direct-to-consumer originations, coupled with a higher proportion of larger dollar value loans resulting in a decline in commissions and fees, lowering yields on certain ancillary products. And third, the continued impact of the lower maximum allowable rate of interest on unsecured lending products. Turning to costs. As you can see on Slide 14, other operating expenses in Q3 were $84.5 million, down 12.2% compared to last year. The decrease was mainly driven by a onetime reduction in compensation expenses, both salaries and benefits and share-based compensation. Underwriting and collection and marketing expenses were also lower year-over-year with lower year-over-year marketing reflecting lower origination activity. The efficiency ratio for Q3 was 25.1%, a decrease from 23.4% in the same period of 2025, but improved from 25.5% in Q2 despite the decline in revenue. The quarter-over-quarter improvement was driven by the onetime reduction in compensation expenses, which more than offset the increased marketing expenses. We continue to evaluate and identify opportunities to improve effectiveness and operational efficiency across all areas with a particular focus on credit, underwriting, and collection practices. On both a reported and an adjusted basis, Q3 operating income was down year-over-year. The decrease in adjusted operating income was primarily driven by lower consumer loans receivable, elevated credit losses and lower total yield on consumer loans, including ancillary products, which lowered revenue. Operating income decreased quarter-over-quarter due primarily to the net change in allowance for credit losses. goeasy generated adjusted diluted loss per share of $0.94 in the quarter. That figure backs out the impact of the amortization of intangibles and fair value changes on prepayment options related to our notes payable. Starting on the next slide, we move into a discussion of our credit and underwriting performance in the quarter. As in prior quarters, so far in 2026, the year-over-year increase in net charge-offs was primarily driven by higher charge-offs in our merchant-originated auto and powersports loan portfolio. Patrick already covered net charge-off trends for the direct-to-consumer secured, unsecured and merchant-originated portfolios on Slide 9. For the whole business, we delivered a 150 basis point quarter-over-quarter improvement to 15.2%, resulting from better credit risk performance in the merchant-originated automotive and powersports loan portfolios and lower charge-offs in the direct-to-consumer portfolio. Notably, the rate improved despite negative impacts from the denominator effect resulting from a decrease in average gross loans receivable. We are seeing a meaningful shift in the composition of our gross consumer loans receivable past due or delinquencies. If you look at Slide 17, total delinquent loans at the end of the third quarter represented 12.6% of the total, a decrease of 240 basis points compared to Q3 2025. Gross consumer loans receivable that were 1 to 30 days past due as of the end of the third quarter increased by 100 basis points compared to Q3 last year. This was driven by elevated credit risk performance and an increased focus on cash collections. Gross consumer loans receivables that were over 30 days past due as of the end of Q3 decreased by 340 basis points compared to Q3 last year, primarily driven by charge-offs recognized in the fourth quarter of 2025 to the third quarter of 2026, related to certain delinquent merchant-originated auto and powersports loans. Gross consumer loans receivables that were past due at the end of Q3 increased by 70 basis points from 11.9% as of the end of Q2, primarily driven by an increased focus on cash collections. Looking at our allowance for credit losses, as you can see on Slide 18, we ended the quarter with total allowance for credit losses at $516.3 million, up from $451.7 million in Q3 2025. Net change in allowance for credit losses on gross consumer loans was $16.7 million compared to $45.0 million in Q3 2025. The rate of allowance for expected credit losses increased from 9.9% as of Q2 2026 to 10.59% for Q3 2026, driven primarily by expected higher credit losses in the merchant-originated automotive and powersports loan portfolio, unfavorable changes in the macroeconomic outlook incorporated into the company's IFRS 9 expected credit loss model, and slightly higher expected credit losses in the unsecured lending product. Flipping to Slide 19, you can see that cash provided by operating activities before net principal written in Q3 2026 was $606.8 million, down from $623 million in Q3 2025. As we have demonstrated since first introducing this metric earlier this year, we have significant control over the pace and volume of originations, the biggest use of cash in our business. We have been successful in using this lever to manage our originations to bolster our liquidity and restore some financial flexibility relative to earlier this year. As Patrick noted in his earlier remarks, we benefited from continued strong cash generation in the quarter to make further progress toward restoring our balance sheet health. As with Q2, we ended Q3 with nothing drawn under our $550 million revolving credit facility. We added $179.7 million to our cash balance in the quarter while also directing funds towards growing our direct-to-consumer receivables again. On September 29, we renewed our securitization warehouse, working with the same group of lenders. With the renewal, we rightsized the facility from $1.12 billion to $910 million to better align with our anticipated funding needs and to reduce the cost of unused funding availability. We also lowered the interest rate by 35 basis points. We restored our ability to make draws on the facility, subject to certain conditions. As of September 30, liquidity represented by cash on hand plus unused contractual borrowing capacity was $1.23 billion. With the renewal of the securitization warehouse addressed, we have initiated conversations with the lenders under our revolving credit facility, which matures July 2027. These discussions center on the extension of the facility as well as amendments to the financial covenants and other terms to help support ongoing covenant compliance in the coming quarters and through the extended terms of the facility. As noted, we do not currently have any amounts drawn on our revolving credit facility, and we do not anticipate any draws in the near-term given our current liquidity position. We continue to benefit from low and mostly fixed or hedged interest costs in the near-term. At quarter end, 85% of our drawn debt was unsecured. The average blended coupon interest rate in our debt was 6.8% at the end of Q3, up only 20 basis points from this time last year. Our capital allocation priorities remain consistent with the first 2 quarters of 2026. Dividends and share repurchases are suspended indefinitely as we continue to prudently manage our liquidity and in compliance with our credit facility covenants, which restrict such activity. With that, I will turn the call back to Patrick for our outlook and concluding comments.

Patrick Ens: Thank you, Felix. With our Q3 results, we are introducing a Q4 2026 outlook, including updated expectations for gross consumer loans receivable at December 31, 2026. For the fourth quarter, we now expect ending loans receivable between $4.6 billion and $4.8 billion. Yield on consumer loans is expected to land between 27% and 28.5% and net charge-offs are expected to be between 14.5% and 16%. On gross consumer loans receivable, we have updated our year-end outlook to reflect lower expectations for indirect channel merchant originations as well as the anticipated impacts of current conditions on direct-to-consumer originations for the remainder of 2026. We have been deliberate in executing against our 6-point plan since it was announced in March and have made significant progress. At the same time, we know there is still work to do. We are already at work writing the plan for 2027 and beyond. We know you are all eager for more details on our longer-term forward plan. Here's what I can tell you. We see a compelling market opportunity providing credit to Canadians with non-prime credit scores. We believe goeasy is uniquely positioned to win in this market by focusing on what we do best and where we have the greatest opportunity to create long-term value, keeping our customer at the center of what we do, leveraging our 20 years of non-prime lending experience and national retail branch network, building value in our established easyfinancial brand, investing in technology to be more efficient and maintaining discipline in our execution, risk management and capital allocation. We are going to complete the important strategic work to finalize our 2027 plan and the broader blueprint that will define goeasy's next chapter, and we expect to share more details with you in the new year. With that, I would like to turn the call back to the operator and then open the lines to questions from analysts.

Operator: [Operator Instructions] Your first question is from John Aiken from Jefferies.

John Aiken: When we're looking at originations moving forward, what's the biggest constraint? Is it the actual cash that you're generating through the business or is it actually your leverage ratios?

Patrick Ens: John, Patrick here. Thank you for the question. So we had a very successful execution in Q2 in restoring some balance sheet strength and liquidity. And really, that unlocks our growth journey in the direct-to-consumer space in easyfinancial. And so our focus has been on pursuing resilient profitable growth in our easyfinancial direct-to-consumer business. Given current market conditions, we had a modestly contracted credit position in our direct-to-consumer business compared to where we would have been, say, in late 2025. So really for us, the binding constraint is just ensuring that the underwriting we're doing is going to be value additive and accretive to the business long term. We don't have any current liquidity constraints from a growth perspective.

John Aiken: And one more, if I may. When we're taking a look at your guidance for yields, it's implying some measured stability and potentially an uptick. Can you unpack this and talk about the drivers that you're seeing for the next quarter that could potentially be supportive to yield?

Patrick Ens: Yes, John. Quarter-over-quarter, the shift in yield is fairly modest. However, as you might recall from our 6-point plan, our strategy has been to shift the portfolio towards the higher-yielding direct-to-consumer business. So over time, we do expect yield to continue to improve on a top line basis. Quarter-over-quarter, there's only so much mix shift that occurs -- there's the trends in losses and delinquencies that also play into the yield factor. So we see modest improvements potentially here in Q4. But that's really just truing up that in Q3, we came in closer to the top end of the range, right? So our updated range reflects the most recent yield performance. But longer term, we would expect to see continued improvements as we execute on the portfolio mix shift.

Operator: Your next question is from Gary Ho from Desjardins.

Gary Ho: My first question is just on the charge-off. So improved 150 basis points sequentially, yet the Q4 range has a midpoint that's essentially flat. What is holding that rate at this level? And how much is LendCare versus more kind of easyfinancial unsecured? And when should we expect the next step down?

Patrick Ens: Gary, thank you for the question. So yes, as you noticed, we saw a substantial improvement in loss rates Q1 into Q2 and then 150 basis points Q2 into Q3, which was right in line with our expectations and quite a significant drop. What we are now guiding towards for Q4 is consistency relative to Q3, and that's on the back of higher delinquency rates on our portfolio. So we're continuing to work hard at managing down credit losses over time. Given the environment that we're in and the uptick in delinquencies we saw there at the end of Q3, we're projecting more stability into Q4. However, our long-term strategy remains the same, which is to focus on managing down credit losses over time. And we expect that to occur both as the LendCare portfolio cures, but as the shift in mix weighs more heavily in favor of the easyfinancial direct-to-consumer business. Specifically, within the easyfinancial business, we were quite pleased to see the downward movement in Q3. That was partially supported by the loan book expansion, but also a modest decline in consumer insolvencies in Q3 relative to Q2. And the longer-term trajectory on that piece is still to be seen as the macroeconomic environment plays out.

Gary Ho: Okay. Got it. And then my second question, just on the allowance rate that rose 60 basis points and unsecured is cited as a driver. I think it's the first time this year. Can you split out the $25.6 million ACL rate impact between LendCare, unsecured, and the macro overlay?

Patrick Ens: Gary, we don't split out the factors exactly in our disclosures. Largely, we're managing the provision rate to an overall portfolio level. What I can tell you within there is that the factors described by Felix were intended to be representative of the factors that drove that increase. So all three of the factors you described had some impact on the increase, and there wasn't necessarily one that would have been the majority of it. So all three were contributing factors.

Gary Ho: Perfect. And then just last one, maybe for Mark, welcome. Kind of what -- just wondering kind of what stood out in your first 2 months? And did your review influence this quarter's higher allowance rate? What changes to the provisioning or credit models should we expect looking out as you kind of dig through the book provisions and the models here?

Mark Snyder: Thank you for the question. Yes, still settling in here 2 months into my tenure, but early observations has been good to see both the depth and breadth of data we have across the organization, which gives us a strong foundation for analytics and decisioning. My early priorities are around bringing additional granularity and sophistication to our decisioning frameworks to further optimize our risk-adjusted returns. And more specifically, how do we extract further value from both credit bureau and banking transaction data, to your point, in terms of continuing to improve the loss trajectory and overall credit performance on the portfolio.

Operator: Your next question is from Jaeme Gloyn from National Bank.

Jaeme Gloyn: Yes. Just first one, I just wanted to follow on the allowance for credit loss rates at 10.6%. How should we be thinking about that in terms of the overall company loss rate that you're managing towards? So it's 16%, let's say, this quarter. Like help me square that delta between the two? And why wouldn't that narrow? Like, let's say, why wouldn't the provisioning rate continue to increase closer to that overall company charge-off rate?

Patrick Ens: Thank you for the question. So maybe I'll pass that one over to Felix.

Felix Wu: Yes. Thanks, Jaeme. I would say that when we think about the allowance first and compared to the overall loss rate, some of the -- one of the biggest differences that we have is the forecast or outlook. The allowance is only sort of estimated credit losses for the loan portfolio as represented at the balance sheet date, sort of the Q3 and close where our loss forecast and overall loss rate guidance will reflect new originations, changing mix, growth on that side. All things being steady and constant through the years at normal growth rates, you would see a relative stability if all of the asset mix is consistent as well as the growth rates over that time. You are seeing an impact of those two factors this quarter and over the last couple of quarters is the dynamic changing of the mix as well as the curing and different loss rate performance of those two. And as well, sort of the third factor, I would say, is relative volatility in the macroeconomic environment, which is a tough one, and we continue to monitor on that side.

Jaeme Gloyn: Okay. So if I just dig in a little bit here, normal conditions, we would expect the unsecured easyfinancial loans to have a higher loss rate than secured auto and powersports loans under normal conditions, let's say, pre-Q4 2025. So does the provisioning rate today reflect the current auto and powersports loss rates around 20% or does it reflect a normal condition loss rate? And so as the mix shifts towards more easyfinancial, we should expect to see that provisioning rate continue to tick higher?

Felix Wu: Yes. Thanks, Jaeme, for that. I would say that every quarter, we reassess the allowance and we reassess it based on the mix of the portfolio at that time as well as the overall credit risk performance that we foresee and as we digest all the inputs from the actual loan portfolio. So I would say to your specific question, the allowance would not reflect the credit performance on the auto or powersports book from the pre-2025 level. It would be much more representative of current loss and credit risk performance. Now we will continue every quarter to reassess sort of that outlook and that performance of those portfolios over time, and that's why you can see those fluctuations quarter-over-quarter.

Jaeme Gloyn: Understood. Second question then is on the facilities covenants. There was some language in there around covenant relaxation as part of the extension. Can you share some more details on how you see covenants evolving in this next round of negotiations? Will we see these extended for a period of time? Like what can you share at this point in terms of how those covenants will persist or change, I guess?

Patrick Ens: Jaeme, back to Patrick here. So the current arrangement that we have with the support of our banking syndicate was set up in the March time frame, of course, when there's a greater degree of uncertainty around the performance of the business. And with the execution against our plan, I think we've added a ton of certainty towards the performance of our business and demonstrated that we've got a path forward to returning to stronger credit performance and returns. So given the change in our kind of funding needs, company performance and confidence around future funding performance, we see an opportunity, of course, with the support of our banking syndicate to just right size the terms of that to the current conditions. And those are publicly available documents. So you can see in there a variety of the, I guess, restrictions on capital use that exists in there that would be important for us to work through with the banking syndicate. And I couldn't give you direction on this is specifically what we expect to change. We just expect to engage in a constructive discussion around our funding needs and performance today and how that's different than it was back in March.

Felix Wu: If we go back to March of that time frame, we did have a little over $300 million outstanding on the revolving credit facility. We've been able to demonstrate that we can manage and strengthen the overall health and liquidity of this business given the high cash generation ability. We generated $607 million of cash from our operations this quarter. We right now, just to emphasize, have 0 outstanding on that credit facility right now, and we increased our overall cash levels. So as Patrick alluded, sort of better stability in terms of certainty in terms of our performance and in terms of our liquidity and overall balance sheet health much stronger. And so we're eager to work with our bank funding partners on that side.

Jaeme Gloyn: Yes. Okay. And just to clarify, you mentioned there's conditions to tap into the warehouse facility, the securitization facility. What are those conditions? And could you tap into it today?

Felix Wu: Yes. Jaeme, and we disclosed that in our press release as well as published the document for transparency. But just to recap on that side, we can access the securitization warehouse going forward. As of September 29, there was $612 million in outstanding balance. We can pay that down and then redraw up to $612 million if we were to exceed beyond the present or the funded drawn amount as of September 29, we would need to use newly originated assets to fund those incremental funding amounts. That is until we renegotiate the revolving credit facility and then provide the new financial plan. After that, that restriction would be removed upon approval by the banking syndicate.

Operator: Your next question is from Bart Dziarski from RBC Capital Markets.

Bart Dziarski: Maybe, Patrick, I wanted to ask around the updated consumer loans receivable outlook. I think you touched on it in your prepared remarks, but can you give us a bit more detail of what drive -- what drove, sorry, the lower outlook? And then just an early read into how we should be thinking about that balance in 2027. Should we expect some moderate declines? Or do you think it could be stable off the Q4 '26 levels?

Patrick Ens: Thank you for the question. So I just want to also acknowledge that as you pointed out, we have updated our year-end guidance twice. So our expectations have evolved as the year has evolved. And really, that's just reflective of the approach we're taking as a management team to evaluate lending opportunities where our driving force on how much lending to do is really dictated by our estimation of the available profitable lending to be done. So in Q3, we were very happy to return to lending or increasing originations in our direct-to-consumer easyfinancial business. That said, we didn't return to all the segments we had been in the past, given current market conditions were indicative of some potential strain in some of our marginal credit segments. Earlier in the year, we had also expected there may be opportunities to re-expand in the merchant-originated segments. And ultimately, we're not pursuing those at this time as our estimation of our ability to unlock profitable growth there isn't today matched with that growth plan. So really, our Q3 growth and our Q4 growth is representative of where we see the profitable lending for the remainder of the year. And we're going to carry that approach into '27, even though we're not providing forward-looking guidance on the loan book today, the approach isn't going to change. It's all about allocating capital appropriately to the right lending opportunities that exceed our hurdle rates.

Bart Dziarski: Got it. That's helpful. And then for Felix, just on the internal controls update, so I appreciate that in the prepared remarks. What are the remaining steps in the process that you're working on to clear this item? And should we expect that in '27, we can move past this internal controls item?

Felix Wu: Yes. Thanks for the question, Bart. I share your eagerness in getting past this material weakness, and there's a lot of effort and progress in the organization in terms of those remediation efforts. I would say we are moving into the phase of control testing and demonstrating sustainable positive results in our control test. And so it's moved much more out of the implementation design phase and much further into the validation and control testing phase. And so we need to demonstrate as an organization and it's cross-functional that we can deliver on those consistent results to ensure that there's sustainability on those remediation efforts.

Operator: Your next question is from Ryan Shelley from Bank of America.

Ryan Shelley: One first one here on operating expenses. I guess my question is around as the book, at least in the short-term continues to shrink a bit. Do you guys have any additional levers on operating expenses you're looking at to try and kind of right size the business for this moment in time or for the short- to medium-term future?

Patrick Ens: Ryan, thank you for the question. As we have highlighted earlier on in the year, there was going to be a focus around operating cost containment in 2026. How I would expect to see that evolve in '27 and beyond is a much greater focus on the investment required to really unlock the power of technology to support our automation journey going forward, and we'll certainly have more to share on that in the future. But yes, the organization has been and will be focused on not just removing costs from the business where they may no longer be necessary as we shrink, but finding ways to run the existing processes that will persist in a more efficient and effective manner. And although we haven't yet quantified that for the external market yet, we do see quite meaningful opportunity there.

Ryan Shelley: Got it. And then just one last kind of minor detail. I'm not sure if you can disclose this or not, but you mentioned you're in talks with your banking syndicate already on a renewal of the revolver. Is there any time line or rough time line that investors can expect on when we could see that potentially renewed? Any color there would be helpful.

Patrick Ens: Yes. Thank you, Ryan. Felix, why don't you take that one?

Felix Wu: Ryan, can you just quickly repeat?

Ryan Shelley: Yes, absolutely. Just on the revolver, it sounds like conversations have begun with your banking syndicate around a potential renewal and resetting of covenants. Is there any rough time line investors can expect on that, whether it's early next year or kind of closer to the facility due date.

Felix Wu: Yes. No, thanks, Ryan. Yes, we're having active discussions with the banking syndicate. As a reminder, the revolver credit facility matures in July of 2027. Our goal is to address this sooner, much sooner than the actual maturity date. And so -- and we've communicated that and are working with our banking syndicate on that side. So we hope to sort of have updates over the next few months.

Operator: Your next question is from Graham Ryding from TD Securities.

Graham Ryding: You demonstrated that you're able to start growing the sort of unsecured or easyfinancial part of your business this quarter. Looking into 2027, do you think you have the ability to grow the overall portfolio with a focus on the unsecured side as the LendCare portfolio continues to sort of run down?

Patrick Ens: Graham, thanks for the question and certainly understand the desire to get greater visibility into what the overall loan book growth could look like for next year. Although we haven't yet reached a point we're ready to provide guidance on that, let me just reiterate what I can say. The focus is going to be on pursuing profitable growth, where we see the greatest opportunity for that today is on the easyfinancial direct-to-consumer unsecured and secured side. So I would expect to see us to continue to lean into that opportunity. And really, the addition of some of the talent we've added to the team, people like Mark, people like Lynne are intended to address expanding the potential opportunities for the overall company. But the growth will focus where we see the greatest profitability opportunities. At the same time, we still have leverage that is probably elevated compared to where we need to get to longer term. So we're taking all of that into consideration as we work through our 2027 plans and beyond and look forward to sharing more in the new year.

Graham Ryding: Understood. And then when we just think about -- I think previously, you've talked about a lending margin or a yield less a loss rate. What would be a reasonable sort of target over the medium term in order to sort of get the business back to a high teens or 20% plus ROE? What's a reasonable lending margin that you think you would need to target?

Patrick Ens: So Graham, internally, we often looked at our kind of revenue yields less loss rates. And there's an interplay there between our overall operating expense base and our cost of financing. So our focus is on all four aspects of the equation to both expand our revenue yield through the mix shift to the direct-to-consumer business to improve our loss rates to become more efficient. And ultimately, that should lead to reducing our cost of capital over time. So without putting a specific number on it, it's substantially wider than what we would be reporting today, if you were to take the, call it, 27.7% and subtract the 15%. It's far enough north of that, that we have quite a bit of work to do, and we'll remain very focused on expanding that number.

Operator: Your next question is from Stephen Boland from Raymond James.

Stephen Boland: I guess I'm going to follow-up on the path to profitability. And Patrick, you mentioned a number of things, profitable lending. So a lower secured book, lower charges in the unsecured, maybe higher growth in the unsecured. What do you think is the main driver to getting back into profitability? Because I think we'd all agree that maybe the market is not pricing in a profitable Q4 with the guidance you provided. But I guess the market is also looking at when does that stabilization in profit happen aside from allowance releases. Is this something that can be achievable in '27? And I know you don't want to give guidance, but what is the path to profitability here? What do you think the main driver is?

Patrick Ens: Thanks for the question, Stephen. So a couple of things to note, just Q2 to Q3, looking at the performance of the business, excluding the impacts of the allowance, I think you'll see a notable improvement and closer to, call it, breakeven for that quarter. So obviously, that needs to occur for us to be returning to profitability on a consistent basis. The primary driver that we discussed internally, the highest leverage item is expanding what we would refer to as risk-adjusted margin, which is top line revenue yield minus credit loss rates. So that's where our focus is. If you think about that being in the 12% range, there's more percentage points to add to that than you could subtract from efficiency. If your operating expenses are 9% of your assets, there's only so much you can improve from there. There is space we can improve from there, but there's more on the risk-adjusted margin. So that's really where the focus has been and why you hear me always going back to growth will be a function of where we see profitable and resilient lending.

Stephen Boland: Okay. And listen, we all look at the past due table, I apologize if you mentioned this in your remarks. It's still elevated. There has been improvements, but 1 to 30, 30 to 90. The 180 bucket, obviously, has been written off. Is there further concern here about the aging of that past due numbers? How confident are you on resolution beyond your charge-off guidance?

Patrick Ens: Certainly, yes. We have good visibility into our expectations for Q4, and that's what feeds into our guidance. So despite the increase in delinquency levels, we are projecting, call it, relatively stable losses into Q4. The team here is hard at work at identifying ways to improve losses long term as well as managing that down will continue to be a focus. The pace and degree at which we can manage that down will potentially be aided or not by the macroeconomic environment, which I think has been more of a headwind than a tailwind for us recently. So only time will tell on exactly how that journey will play out. Just given the timing here, and we don't want to run into the 11:00 hour, I'm just going to quickly close this out. So as we wrap up the call, there are a couple of key points I want to leave you with. We continue to execute well against our 6-point plan as we close out the year. We strengthened our balance sheet. Credit performance has improved and our direct-to-consumer channel is growing as a proportion of our total portfolio. We're very pleased with the progress we've made so far this year. At the same time, we know we have more work to do. We have a talented and motivated team that is focused on meaningfully moving the dial, and we look forward to bringing you along with us. Thank you so much for joining.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.