A N N U A L
R E P O R T
2 0 2 1
2021 presented another year of challenges, but with
a team of over 2,300 strong, goeasy had the most
successful year in our 31-year history.
Collectively we worked to keep moving the business forward, while delivering on our
promise to customers. The resilience of both our team and our business was tested
yet again, but our unwavering commitment to our employees, our customers and our
communities, combined with strong execution, led to a record year of growth and
financial performance.
Despite the backdrop, goeasy continued to make
progress in building Canada’s leading non-prime
consumer finance business. With over three decades
of experience in serving the non-prime consumer and
a strong purpose-driven vision, the company has a
clear strategy to become the leading provider in the
market. During the year we expanded our product
range and channels of distribution, increased our
geographic footprint, and focused on the financial
wellness of our customers. In addition, we completed
our largest acquisition to date, acquiring LendCare,
one of Canada’s leading providers of point-of-sale
in the retail, powersports, healthcare
financing
and home
In addition
to accelerating the execution of our strategy, the
investment has unlocked significant synergies
through a wider range of products and the opportunity
to serve a large combined customer base.
improvement
industries.
2
Product Range
Geographic Diversification
We continue to diversify our range of
lending products as we aim to become a
one-stop provider for all forms of credit
to non-prime consumers.
In 2021, the
acquisition of LendCare added several new
product categories through which we can
offer financing. During the year we also
launched our automotive financing program
through both a direct to consumer offer and
a fully national dealer network. Under the
easyfinancial and LendCare brands, we now
offer unsecured loans, home equity loans,
automotive financing, powersports financing,
healthcare financing, home
improvement
financing and general retail financing.
Canada continues to provide substantial
runway for growth. We ended 2021 with 294
easyfinancial branch locations, which we plan
to expand to between 300 and 350 locations
over the next few years. The primary focus of
our retail expansion will be in the province of
Quebec, which represents a large untapped
market opportunity, as well as in key urban
markets such as Toronto and Vancouver
where the population per branch is the largest.
We are also focused on adding new dealers
and merchants to our network so that all our
point-of-sale financing verticals are available
coast-to-coast.
Best place ever to get help when no other avenues open
up. I want to thank Sachi so much for her help in getting
me my loan. It surely helped me get back on my feet. I
would strongly recommend easyfinancial to everyone I
come in contact with. As we all know banks turn us
down, but our need for help is still there. Thank you
again for all your assistance Sachi.
Susan Lomonte
Channel Expansion
Financial Wellness
Opportunity Ahead
We also continue to expand our channels of
distribution so our customers can get access
to the credit they need in the most convenient
manner possible, whenever and wherever
they are. During the year we launched a new
easyfinancial website to improve the digital
experience for consumers, while adding 27
more branches to our retail network. With the
integration of LendCare, we also welcomed
over 4,000 merchants to our point-of-sale
financing channel. Throughout the year we
then added several hundred new automotive
dealerships to our network along with new
marquee powersports partners such as
Hisun, Segway and Massimo Motor.
Core to our purpose as an organization is
helping our customers improve their credit
and financial wellbeing by bringing down their
cost of borrowing through our products, as
we help them graduate back to prime lending
rates. Over the last 5 years we have brought
down our weighted average interest rate from
over 46% to less than 33%. With 72%1 of our
customers stating they have been denied
credit by banks or other traditional lenders,
our focus is not only to provide them with the
lending products they need today, but the tools
to improve their financial health for tomorrow.
We are extremely proud of the ways in which
we continue to deliver against our vision and
remain committed to building meaningful
relationships with our customers as we invest
in the tools and technology that will help drive
progress on their path to a better tomorrow.
2021 was a significant year
in the
Company’s history as we crossed $2
billion in consumer loans. While it took
nearly 13 years to reach the first $1 billion
in 2019, we are proud to have doubled the
business within two and a half years. With
only 1% share of the non-prime market
today, we plan to expand our consumer
loan portfolio by 75%, to approximately
$3.5 billion by the end of 2024, as we
increase our share of the nearly $200
billion non-prime consumer credit market
and become
largest non-prime
consumer lender in Canada.
the
About goeasy
goeasy is one of Canada’s leading non-prime consumer lenders
offering a full suite of leasing and lending products under its
easyfinancial, easyhome and LendCare brands. With a network of
over 400 stores and branches, more than 4,000 merchant partners
and a robust digital lending platform, goeasy has spent the past 31
years helping over 1.1 million Canadians on their path to a better
tomorrow. Our track record of success and growth comes from our
team of over 2,300 employees nationwide, who develop deep and
trusted relationships with our customers.
1 Source: goeasy non-prime benchmark survey (2021)
3
31
YEARS
OF LEASING
AND LENDING
EXPERIENCE
1.1M+
CANADIANS
SERVED
$7.7B $2.0B
TOTAL LOAN
ORIGINATIONS
CONSUMER LOAN
PORTFOLIO
WITHIN 12 MONTHS OF BORROWING FROM US
60% 1IN3
OF OUR
CUSTOMERS
IMPROVE THEIR
CREDIT SCORE1
OF OUR
CUSTOMERS
GRADUATE TO
PRIME CREDIT2
4
1 As measured by an increase in TransUnion Risk Score within 12 months of borrowing from us.
2 Prime credit is defined as opening a trade with a prime bank lender within 12 months of borrowing from us.
5
A history
in the making
2001
• David Ingram
appointed CEO and
company returns
to profitability
2006
• easyfinancial
launches
2015
• Corporate
name changed
to goeasy ltd.
1990
2001
2003
2006
2011
2015
2016
• easyhome
is born,
consolidated
from 6 brands
2003
• 1st easyfinancial
stand alone
branch opens
• Centralized credit
adjudication
introduced
2011
• Risk adjusted
interest
rate loans
launched
2016
0
9
9
1
D
E
D
N
U
O
F
I
S
E
S
R
P
R
E
T
N
E
O
T
R
6
6
" Our long history of evolving our business model in order
to capture new opportunities has formed the basis of our
growth-minded culture, and conspired to deliver compound
earnings growth of nearly 30% for more than 20 years.
While our past has given us plenty to be proud of, it is our
future potential that excites and drives us"
JASON MULLINS
President & CEO
2019
• $1 Billion loan
portfolio milestone
• Strategic partnership &
investment in PayBright
• Recapitalized the business
with C$728 Million in
financing
• Reached $1 Billion
market capitalization
2021
• $2 Billion loan
portfolio milestone
• Completed strategic
acquisition of LendCare
• Completed $173M equity
offering & US$320M senior
unsecured notes issuance
• Strategic investment &
partnership with Brim
• Launched automotive
financing
2017
• Expanded into Quebec
• Secured lending
product launched
• Recapitalized
the business with
C$530 million
in financing
2017
2018
2019
2020
2021
2022
• Next generation
proprietary online
loan application
launched
2018
• goeasy and
PayBright launched
e-commerce platform
• Launch of soft
credit inquiry
• Launch of banking
models for credit
adjudication
• Established $200M
revolving securitization
warehouse facility
2020
D
N
O
Y
E
B
D
N
A
2
2
0
2
7
7
Annual
Revenue
(In dollar millions)
$826.7
.
9
2
5
6
$
.
4
9
0
6
$
15.9%
CAGR
SINCE 2011
.
3
4
0
3
$
.
2
9
5
2
$
.
3
8
8
1
$
.
7
9
9
1
$
.
8
8
1
2
$
.
2
6
0
5
$
.
7
1
0
4
$
.
5
7
4
3
$
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
8
Note: CAGR = Compound Annual Growth Rate
Annual
Net Income
(In dollar millions)
Reported
Net Income
38.2%
CAGR
SINCE 2011
.
6
9
$
1
1
0
2
.
1
1
1
$
2
1
0
2
.
2
4
1
$
3
1
0
2
.
7
9
1
$
4
1
0
2
.
7
3
2
$
5
1
0
2
.
0
1
3
$
6
1
0
2
.
1
6
3
$
7
1
0
2
Adjusted
Net Income1
33.6%
CAGR
SINCE 2011
.
6
9
$
1
1
0
2
.
5
0
1
$
2
1
0
2
.
2
4
1
$
3
1
0
2
.
6
8
1
$
4
1
0
2
.
7
3
2
$
5
1
0
2
.
2
3
3
$
6
1
0
2
.
2
2
4
$
7
1
0
2
$244.9
.
5
6
3
1
$
0
2
0
2
1
2
0
2
$174.8
.
6
7
1
1
$
.
3
4
6
$
9
1
0
2
.
3
0
8
$
.
1
3
5
$
8
1
0
2
.
1
3
5
$
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
1 Adjusted net income is a non-IFRS measure. It is not determined in accordance with IFRS, does not have standardized meanings and may not be comparable to similar financial measures presented
by other companies. Refer to 1) “Key Performance Indicators and Non-IFRS Measures” section on page 50 of the Company’s Management's Discussion and Analysis (MD&A, available on www.sedar.com)
year ended December 31, 2021 for FY 21 and FY 20 metrics, 2) “Key Performance Indicators and Non-IFRS Measures” section on page 39 of the Company’s MD&A year ended December 31, 2019 for FY
19 metric, 3) “Key Performance Indicators and Non-IFRS Measures” section on page 51 of the Company’s MD&A year ended December 31, 2018 for FY 18 and FY 17 metrics, 4) “Key Performance Indica-
tors and Non-IFRS Measures” section on page 35 of the Company’s MD&A year ended December 31, 2016 for FY 16 and FY 15 metrics, 5) “Key Performance Indicators and Non-IFRS Measures” section
on page 29 of the Company’s MD&A year ended December 31, 2014 for FY 14 and FY 13 metrics, and 6) “Key Performance Indicators and Non-IFRS Measures” section on page 20 of the Company’s MD&A
year ended December 31, 2012 for FY 12 and FY 11 metrics
9
Annual EPS
33.6%
CAGR
SINCE 2011
.
1
8
0
$
1
1
0
2
.
2
9
0
$
2
1
0
2
.
5
1
1
$
3
1
0
2
29.1%
CAGR
SINCE 2011
.
1
8
0
$
1
1
0
2
.
7
8
0
$
2
1
0
2
.
5
1
1
$
3
1
0
2
2
4
1
$
.
4
1
0
2
4
3
1
$
.
4
1
0
2
$14.62
.
6
7
8
$
0
2
0
2
1
2
0
2
$10.43
7
5
7
$
.
Reported
Diluted EPS
.
7
1
4
$
9
1
0
2
.
7
1
5
$
.
6
5
3
$
8
1
0
2
.
6
5
3
$
9
6
1
$
.
5
1
0
2
3
2
2
$
.
6
1
0
2
.
6
5
2
$
7
1
0
2
Adjusted
Diluted EPS1
.
7
9
2
$
8
3
2
$
.
9
6
1
$
.
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
1 Adjusted diluted EPS is a non-IFRS ratio. It is not determined in accordance with IFRS, does not have standardized meanings and may not be comparable to similar financial measures presented by other
companies. Refer to 1) “Key Performance Indicators and Non-IFRS Measures” section on page 50 of the Company’s MD&A year ended December 31, 2021 for FY 21 and FY 20 metrics, 2) “Key Performance
Indicators and Non-IFRS Measures” section on page 39 of the Company’s MD&A year ended December 31, 2019 for FY 19 metric, 3) “Key Performance Indicators and Non-IFRS Measures” section on page
51 of the Company’s MD&A year ended December 31, 2018 for FY 18 and FY 17 metrics, 4) “Key Performance Indicators and Non-IFRS Measures” section on page 35 of the Company’s MD&A year ended
December 31, 2016 for FY 16 and FY 15 metrics, 5) “Key Performance Indicators and Non-IFRS Measures” section on page 29 of the Company’s MD&A year ended December 31, 2014 for FY 14 and FY 13
metrics, and 6) “Key Performance Indicators and Non-IFRS Measures” section on page 20 of the Company’s MD&A year ended December 31, 2012 for FY 12 and FY 11 metrics
10
10
Financial Summary
(in $000s except per share amounts, store counts, employee counts,
percentages and ratios)
2021
2020
2019
2018
2017
INCOME STATEMENT
Revenue
Operating income
Net income
Diluted earnings per share
BALANCE SHEET
Cash
826,722
281,003
244,943
14.62
652,922
216,436
136,505
8.76
609,383
168,793
64,349
4.17
506,191
119,717
53,124
3.56
102,479
93,053
46,341
100,188
Gross consumer loans receivable
2,030,339
1,246,840
1,110,633
401,728
87,393
36,132
2.56
109,370
526,546
54,318
749,615
449,178
228,244
16.6%
21.8%
21.8%
42,158
2.97
17.0%
19.8%
-
-
0.60
0.72
47,182
2,596,153
1,552,679
789,913
26.6%
34.0%
38.3%
7.1%
33.1%
33.1%
174,759
117,646
10.43
36.7%
26.2%
50.7%
35.3%
0.65
2.64
7.57
36.1%
31.1%
38.3%
33.0%
0.64
1.80
833,779
51,618
49,384
48,696
1,501,916
1,318,622
1,055,676
887,749
443,512
854,768
332,421
691,062
301,529
20.4%
27.7%
27.7%
80,315
5.17
20.2%
25.3%
-
-
0.71
1.24
26.0%
23.7%
23.7%
53,124
3.56
21.8%
21.8%
-
-
0.66
0.90
Lease assets
Total assets
External debt3
Shareholders’ equity
FINANCIAL METRICS
Revenue growth
Operating margin
Adjusted operating margin1
Adjusted net income2
Adjusted diluted earnings per share1
Return on equity
Adjusted return on equity1
Return on tangible common equity1,5
Adjusted return on tangible common equity1,5
Net debt to net capitalization3
Annual dividend per share
OPERATING METRICS
Same store revenue growth4
Gross loan originations
12.1%
6.3%
19.5%
1,594,480
1,033,130
1,095,375
25.7%
922,550
307,233
18.3%
579,494
156,029
Growth in gross consumer loans receivable
783,499
136,207
276,854
Net charge-offs as a percentage of
average gross consumer loans receivable
Free cash flows from operations before net growth in gross
consumer loans receivable2
8.8%
10.0%
13.3%
12.7%
13.6%
260,104
210,619
120,985
95,689
66,636
OPERATIONS
Total store count:
easyfinancial
easyhome
easyfinancial branch openings
Employees
294
158
27
2,394
266
161
12
256
163
15
241
165
23
228
171
22
2,024
2,024
1,821
1,729
Notes:
1 These are non-IFRS ratios. Refer to 1) “Key Performance Indicators and Non-IFRS Measures” section on page 50 of the Company’s MD&A year ended December 31, 2021 for FY 21 and FY 20 metrics, 2) “Key
Performance Indicators and Non-IFRS Measures” section on page 39 of the Company’s MD&A year ended December 31, 2019 for FY 19 metric, and 3) “Key Performance Indicators and Non-IFRS Measures”
section on page 51 of the Company’s MD&A year ended December 31, 2018 for FY 18 and FY 17 metrics
2 These are non-IFRS measures. Refer to 1) “Key Performance Indicators and Non-IFRS Measures” section on page 50 of the Company’s MD&A year ended December 31, 2021 for FY 21 and FY 20 metrics,
2) “Key Performance Indicators and Non-IFRS Measures” section on page 39 of the Company’s MD&A year ended December 31, 2019 for FY 19 metric, and 3) “Key Performance Indicators and Non-IFRS
Measures” section on page 51 of the Company’s MD&A year ended December 31, 2018 for FY 18 and FY 17 metrics
3 This is a capital management measure. Refer to 1) “Financial Condition” section on page 61 of the Company’s MD&A year ended December 31, 2021 for FY 21 and FY 20 metrics, 2) “Financial Condition” section on page
45 of the Company’s MD&A year ended December 31, 2019 for FY 19 metric, and 3) “Financial Condition” section on page 56 of the Company’s MD&A year ended December 31, 2018 for FY 18 and FY 17 metrics
4 This is a supplementary financial measure. Refer to 1) “Key Performance Indicators and Non-IFRS Measures” section on page 50 of the Company’s MD&A year ended December 31, 2021 for FY 21 and FY 20
metrics, 2) “Key Performance Indicators and Non-IFRS Measures” section on page 39 of the Company’s MD&A year ended December 31, 2019 for FY 19 metric, and 3) “Key Performance Indicators and Non-
IFRS Measures” section on page 51 of the Company’s MD&A year ended December 31, 2018 for FY 18 and FY 17 metrics
5 Comparable reported and adjusted return on tangible common equity financial measures for the years 2017 to 2019 were not published
Note: Non-IFRS ratios, non-IRFS measures, capital management measures and supplementary financial measures are not determined in accordance with IFRS, do not have standardized meanings and may
not be comparable to similar financial measures presented by other companies
11
2021
Highlights
$1.6B
ANNUAL LOAN
ORIGINATIONS
$4.0M
AVERAGE LOAN
BOOK PER BRANCH1
62.8%
TOTAL LOAN
BOOK GROWTH
8.8%
NET CHARGE
OFF RATE
12
1 Average loan book per branch is a suppementary financial measure. It is not determined in accordance with IFRS, does not have standardized meanings and may not be comparable to similar
financial measures presented by other companies. It is calculated as gross consumer loans receivable held by easyfinancial branch locations divided by number of total easyfinancial branch locations.
26.6%
TOTAL REVENUE
GROWTH
66.9%
DILUTED EPS
GROWTH
37.8%
ADJUSTED DILUTED
EPS GROWTH2
79.4%
NET INCOME
GROWTH
48.5%
ADJUSTED NET
INCOME GROWTH2
36.7%
RETURN ON
EQUITY
2 Adjusted net income is a non-IFRS measure, and adjusted diluted EPS is a non-IFRS ratio
13
Our Customers
Providing non-prime Canadians
with access to credit, in an honest and
transparent manner, while striving to improve
their credit and financial health, is
at the core of our vision for better tomorrows.
The goeasy customer truly reflects the average Canadian. While our customers may
have a non-prime credit score, making getting approved by a traditional bank more
difficult, they truly resemble the typical hard-working consumer that relies on credit
for everyday household needs and to finance large ticket purchases such as cars,
recreational vehicles, healthcare expenses or home improvements. Nearly 70%1 of
non-prime Canadians have applied and been denied credit by traditional banks. For
these consumers, goeasy plays a critical role in the financial system, not only providing
access to credit, but resources that help them rebuild their credit for the future.
They work in a wide variety of industry sectors including manufacturing, retail, financial
services, healthcare, technology, and the public sector jobs. The average profile of the
customer is an age of 43, supporting 1.9 dependents, with individual income of $53,000
per year, residing at their current place of residence for 4 years and working with their
current employer for 3.8 years. Non-prime Canadians, however, carry 55% less total
consumer debt than the typical prime consumer, due primarily to a lower level of home
ownership, at approximately 20% versus the Canadian home ownership rate of ~66%.
Having served more than 1.1 million customers, we have come to know that behind every
loan there is a powerful story. It is the stories of these everyday Canadians that motivate
us to serve our customers with respect, to make accessing credit simple and convenient,
and to help put them on the path towards improving their credit and a better tomorrow.
With a reputation for building meaningful relationships with our customers, our team
of knowledgeable front-line representatives work diligently to ensure borrowers
understand the details of their loans and the steps that can be taken to ensure they
experience an improvement in their credit. With tools like Credit Optimizer that can
provide a personalized plan to help rebuild credit, and hundreds of free financial
education articles and videos, our goal is to help consumers reduce their cost of
borrowing and graduate back to prime lending rates.
From the first time I walked into easyfinancial,
I felt understood. A staff member walked me
through my credit score and loan options. I was
able to find a better place to live and my credit
score has since improved by 100 points. I finally
feel financially stable and ready for the future.
M.R. - LANGDON, ALBERTA
14
1 Source: goeasy non-prime benchmark survey (2021)
43AVERAGE
CUSTOMER AGE
1.9AVERAGE NUMBER
OF DEPENDENTS
$53KAVERAGE
INDIVIDUAL INCOME
3.8AVERAGE YEARS AT
CURRENT EMPLOYER
4.0AVERAGE YEARS
AT CURRENT RESIDENCE
583MEDIAN
CREDIT SCORE1
1 Based on credit scores obtained by TransUnion
* Source: goeasy customer loan data December 2021
15
In 2006, easyfinancial, goeasy’s non-prime consumer
lending division began operating with the goal
of bridging the gap between traditional financial
institutions and costly payday lenders.
goeasy’s consumer lending segment provides
non-prime credit to Canadians and operates
through the easyfinancial and LendCare
brands following the 2021 acquisition of this
leading point-of-sale financing provider.
Through a full suite of both secured and
unsecured loans, we offer consumers loans
up to $75,000 with rates between 9.9% -
46.9%, which are fixed payment instalment
products. All payments made by borrowers
are reported to credit reporting agencies,
which in turn helps our customers rebuild
their credit and graduate to lower rates
through the products we offer or by securing
prime lending rates through the banks.
We offer our products and services through an
omnichannel business model, that includes a
retail branch network of over 294 locations
nationally, a digital platform and indirect
lending partnerships
including financing
at over 4,000 merchants. Through our
extensive distribution channels, we can reach
Canadians whenever they need access to
credit, wherever they may be. The distribution
network coupled with a wide range of
products that includes personal loans, home
equity loans, powersports, automotive, retail,
healthcare and home improvement verticals.
positions us as one of Canada’s leading
consumer finance companies.
LendCare, acquired by goeasy in 2021, is the
Company’s point-of-sale operating segment
the powersports,
in
offering financing
automotive, retail, healthcare and home
improvement verticals. With over 4,000
merchant partners across Canada, LendCare
offers its partners high approval rates and a
best-in-class financing experience powered
by its leading edge technology platform that
provides real time customer verification
and online instant credit decisions to help
businesses grow their sales volume.
$2.03B
TOTAL CONSUMER
LOAN PORTFOLIO
Includes easyhome
lending loan book
$676M
REVENUE
294
LOCATIONS
$325M
OPERATING
INCOME
274K
ACTIVE
CUSTOMERS
16
Canada’s largest lease-to-own retailer, has been in
operation since 1990 and offers customers brand
name household furniture, appliances and electronics
through flexible lease agreements.
Through our 158 locations, which includes
34 franchise stores or through our digital
platform, Canadians turn to easyhome as an
alternative to purchasing or financing their
goods from traditional retailers. With no down
payment or credit check required, we offer
a variety of solutions that help customers
get access to the goods they need, with the
flexibility to terminate their lease at any
time without penalty. The consumer’s lease
payments are reported to the credit reporting
agencies, enabling customers to build and
establish their credit. easyhome is also proud
to offer unsecured lending products powered
by easyfinancial. This has enabled our stores
to diversify their product offering and meet
their customers' broader financial needs. In
2021, easyhome had its strongest year in the
Company’s history.
Excellent customer service. The team at the
Yorkgate store is awesome. They have
great product knowledge. I will purchase from
the store in the future and recommend
them anytime
Sabrina - North York, ON
$70M $150M
REVENUE
EASYHOME LENDING
LOAN BOOK
158
LOCATIONS
120 WITH LENDING
$37M
OPERATING
INCOME
38K
ACTIVE
CUSTOMERS
17
ESG Strategy
Committed to positive impact
for our customers, communities
and the world around us.
As a proud Canadian company, our purpose extends beyond profit as we strive to create
a positive impact for our customers, employees, communities and shareholders. We
are proud to be a socially responsible organization that is committed to putting our
customers first and improving the lives of those around us. Providing better tomorrows
is not just something we say. It guides how our teams operate, the decisions we make
and how we establish the values and policies that govern our organization's behaviours
and create long term value for all stakeholders.
18
Environment
Social
Through a variety of programs, we are
demonstrating our commitment to building
a more sustainable environment as we look
to protect our planet and create a world for
generations to come.
SUSTAINABLE PAPER POLICIES
In an effort to reduce our paper consumption,
we have worked to eliminate paper-based
billing and statements as we aim to reduce
our environmental impact. Furthermore,
we have invested heavily in multiple digital
platforms including an Enterprise Resource
Platform (ERP) in 2019, a Human Resources
Information System (HRIS) in 2020 and a new
intranet portal that will be launched in the
back half of 2022. We have also embarked
on a multi-year initiative to implement a new
back-end financial services platform which
will help support our ambition of working to
eliminate all paper-based processes for both
our employees and our customers.
For the paper that we do use including
printed posters and brochures across our
retail network, we have partnered with
PrintReleaf, a global platform that uses
technology to measure our paper footprint
based on our cumulative printing. PrintReleaf
then calculates how many trees have been
harvested to produce the paper used and
automatically reforests them at sustainable
reforestation sites around the world.
Since January 2021 through our certification
with PrintReleaf, we are proud to have
supported
reforestation
of over 740 trees to help make a positive
environmental impact on a global level.
environmental
ENERGY AND EMISSION REDUCTION
We continue to take steps to reduce our
carbon footprint and energy consumption
through programs that include upgrading our
design standards to include LED lighting at all
new store and branch locations. In addition,
in 2020 we began the process of retrofitting
our existing retail network to LED. We have
also implemented companywide recycling
programs for plastics, glass and electronics in
an effort to protect the world around us and
limit our environmental impact.
Our vision of helping everyday Canadians
achieve better tomorrows has created a
deep sense of purpose for our employees
and our company. Throughout 2021, our
team continued to prioritize the needs of our
customers as they helped them navigate
the uncertainty of COVID-19, while ensuring
we never wavered from our commitment
of providing the access to credit they
need today, with the support and tools to
achieve financial stability for the future. Our
commitment to providing better tomorrows
also extends beyond our customers, to our
employees and our communities. In the
second year of a global pandemic, a year in
which we experienced an increased focus on
social issues and environmental instability,
our commitment to having a positive
impact on our employees and communities
continues to grow stronger.
improve
OUR CUSTOMERS
Improving financial health
Helping our customers
their
financial health is core to our vision, as we
know that transparency, education and the
right tools can create meaningful change to
the ways our customers both understand and
manage their finances. In our direct lending
channels, our team of financial services
representatives takes the time to walk our
customers through their credit report to
help them better understand the steps to
improve their credit score. In addition, our
loans are designed to further support our
customers journey toward financial health.
By progressively offering our customers
lower rates of interest for on-time payments
and reporting each payment to their credit
file, we aim to help our customers reduce
their cost of borrowing and put them on a
journey back to qualifying for credit from a
traditional bank.
Transparency
We know that our customers put their
trust in us and in turn, we treat them with
the respect and integrity they deserve. We
build strong personal relationships with
our customers and take the time to ensure
they understand the terms of their loan in a
clear and simple manner. On all unsecured
direct-to-consumer loans, we offer a 10-
day cooling off period for customers. If they
are not happy with their decision to take out
I was stuck in a constant cycle of debt because I didn’t
have enough financial education. After being declined
at the bank, I decided to get an easyfinancial loan to
consolidate my debt so I could finally pay it off and
feel secure. They walked me through my credit history,
explaining everything to me that could negatively impact
my score, which has since improved quite a bit.
I’m thankful and feeling optimistic about my
financial future.
B.P. – VANCOUVER, BC.
an unsecured personal loan for any reason,
they can return the funds within 10 days
without any penalty and any payments or
interest accrued will be refunded.
Canadian Lenders Association
As we advocate for our consumers and for
innovation within our industry, we have been
active members in the Canadian Lenders
Association (CLA) for over 6 years. As one
of the founding members of the CLA, we
have worked closely with other lenders,
services providers, and regulators to ensure
consumers have fair access to credit in
a transparent and responsible manner.
With over 250 member companies across
Canada, the CLA represents companies that
participate in the small business, consumer,
home equity, mortgage, automotive and buy-
now-pay-later industries. With the largest
representation of Canadian lenders, the CLA
has emerged as one of the most influential
bodies in the industry representing the
interests of consumers. Together, members
help ensure Canada remains a place of
innovation and advancement in consumer
credit and education, aiming to help the lives
of consumers and business coast-to-coast.
19
Our people and culture
are the fabric of goeasy
and the most important
contributors to our
long-standing success.
20
OUR EMPLOYEES
Through investments in our team, we have
worked hard to deliberately build a world
class culture that promotes an inclusive
environment where our team members can
learn, innovate, grow their careers, and bring
their whole selves to work. Throughout the
pandemic, our focus continued to be on
protecting and supporting our employees,
which included a commitment to no workforce
reduction, adding income protection benefits
and pivoting to remote work when necessary
for the health and safety of our teams.
Employee Well Being
Protecting our employee’s health and well-
being has always been a key priority for our
leadership teams, but during the past two
years, we have significantly enhanced the
programs we offer our employees. Not only did
we implement a variety of health and wellness
protocols to help keep our employees and
customers safe, but we also identified many
ways we could better support our employees
mental well-being. In 2021, we added over
$150,000 to our investment in mental health
support including expanded access to mental
health practitioners, companywide mental
health breaks, and a relationship with the
Canadian Mental Health Association to help
our employees remain resilient in light of the
new realities we are facing.
We also continue to invest heavily in our
overall employee benefits and recognition
programs, which includes competitive base
pay, monthly bonus plans, and a variety of
quarterly and annual incentives including
our annual President’s and Chairman’s
Trip, a weeklong trip awarded to our top
performers to a tropical destination. We also
offer our employees maternity and paternity
top up benefits, RRSP matching, a sabbatical
program awarded to employees at specific
tenure milestones, virtual medical access, a
employee loan program offered at favourable
rates, company matched charitable donations,
an annual $10,000 scholarship awarded to
the child of an employee, tuition assistance
programs and access to free financial literacy
tools through McGill university.
A Commitment to Diversity
At goeasy, we believe in the strength of
diversity. We have committed to cultivating
and preserving a work culture where we
celebrate inclusiveness and where everyone
feels seen and heard, so they can truly
fulfil their potential. In 2021, we formed our
Diversity, Equity and Inclusion Council so
we could solicit employees input and take
a more active role in developing cultural
programs that would encourage the diversity
of talent, cultures, and experiences.
In 2021, we also completed our first ever
Workforce Demographic Survey that identified
employees from over 75 different countries of
origin. The survey also identified that goeasy
has above average Canadian representation
of members of the LGBTQ2+ community,
members of the Black community, other
visible minorities, and Indigenous people. This
information along with several other data points,
helps us ensure our employees, programs and
policies use inclusive and mindful language
and our employee experience meets the needs
of our diverse talent.
We also have several Employee Resource
Groups designed
to promote diversity,
including our Afro-Canadian Development
and Empowerment employee resource group,
which was founded in 2020 and has since
supported the development of programs
including the
and
celebration of Black History Month. In 2021 the
Company also signed the Black North Initiative,
solidifying our commitment to supporting our
Black colleagues and to help remove anti-Black
systemic barriers negatively affecting the lives
of Black Canadians in corporate Canada.
learning opportunities,
Our Women in Leadership (WIL) resource
group which was created in 2015, continues
to support the growth and development
of our female colleagues through learning
and development, mentorship, social and
community engagement and giving programs
to support and uplift women’s causes through
volunteering and donations. In 2019, we
proudly achieved gender-based pay equity.
Today, 52% of all management positions
are held by females, 54% of all internal
promotions in 2021 were filled by women,
and we increased female representation in
C-suite positions to 27%, while 43% of non-
executive board positions are held by females.
As we continue to support the advancement
and career growth of our female employees
at goeasy, we were honoured to place on the
2022 Report on Business Women Lead Here
list, an annual editorial benchmark to identify
best-in-class executive gender diversity in
corporate Canada.
89%
OF EMPLOYEES BELIEVE
GOEASY VALUES
DIVERSITY OF CULTURAL
BACKGROUNDS, PERSONAL
STYLES, AND LIFESTYLES
91%
OF EMPLOYEES BELIEVE
EVERYONE CAN SUCCEED
TO THEIR FULL POTENTIAL
NO MATTER WHO
THEY ARE
21
Engagement & Flexible Work
Keeping our talented team highly engaged
is critical to driving the performance,
change and innovation we need to offer our
customers a superior experience and to
ensure we can deliver on our vision.
For the past 7 years, we have conducted an
annual survey to benchmark the satisfaction
and engagement of our employees. This
survey obtains a pulse on our team, but
more importantly, helps expose ways for
us to improve the employee experience.
We also provide all team members the
chance to evaluate their leadership, so as
our supervisors and management team
seek ways to grow and develop, we can
hear directly from our team. In 2021, we
were proud that our engagement score
was 84%, the highest level since we began
tracking in 2015. Through the survey, we
used the feedback from our teams to craft
and establish new policies and programs,
including our hybrid working model for
corporate office roles, which allows teams in
certain functions to work flexibly in a remote
location for a portion of their time. This model
ensures that we can preserve the benefits of
collaboration and personal relationships that
are strengthened from being together.
Talent Development & Career Management
Core to our culture is a strong focus on
talent development and career management
that is supported by a variety of training
programs. In 2015 we launched “goforum” a
developmental program designed to provide
career and life experiences to our top talent.
Participants
in the program work and
collaborate with people in other departments
to solve real business issues, participate
in external courses, receive personal
career coaching, psychometric and 360
assessments, and learn from senior leaders
who participate in the program as sponsors.
We also have several programs including
our Branch Manager in Training and our
Regional Manager in Training programs
that are designed to grow employees
within our organization and support their
career advancement. In early 2020, we also
partnered with LinkedIn learning to offer
all our employees free unlimited access to
industry leading learning and development
programs with rich content that we are able
to assign, push, and track to completion. We
also focus on providing compliance training
to our employees on corruption, antitrust
violations and conflicts of interest which is
followed by a risk assessment and an audit.
68%
OF PROMOTION
OPPORTUNITIES
GO TO EXISTING
EMPLOYEES
6,900+
LINKEDIN LEARNING
HOURS COMPLETED IN
2021
22
Our Award
Winning Culture
As we continue to build our high performance culture and focus on providing our
employees with an unparalleled employee experience, we are proud to have received
numerous awards for culture and performance, including the Achievers Top 50 Most
Engaged Workplaces in North America, the Digital Finance Institute’s Canada’s Top 50
FinTech Companies, Canada’s Top Growing Companies from the Globe and Mail and
Greater Toronto's Top Employers Award.
In 2021, we were honored to receive 4 additional awards including placing on the
Globe and Mail’s third-annual Women Lead Here List recognizing gender diversity in
leadership positions and ranking on the prestigious TSX30 for shareholder return for
the second time. We are also proud to have been certified as a Great Place to Work®
which is based on direct feedback from employees, provided as part of an extensive
and anonymous survey about their workplace experience and received Waterstone
Human Capital Canada’s Most Admired Cultures award for the second time.
23
Giving back to
create better
tomorrows for
our communities
24
Local Giving
In 2021, goeasy made a meaningful
difference in many communities across
Canada, stepping up to help those affected
by COVID-19 as well as donating to social
causes that are close to the hearts of our
employees. Recognizing the need to support
our communities at their most significant
time of need, the Company collectively
raised and donated a record $550,000 to
support important causes including BGC
Canada, Black Opportunity Fund, Pflag
Canada, Indian Residential School Survivors
the Mississauga Food Bank,
Society,
Mariam Society and Red Cross Canada. In
addition, the Company donated over 19,400
pounds of food to the Mississauga Food
Bank during the 2021 Thanksgiving season
and gifted 1,100 new toys to BGCs and other
organizations across the country during
Christmas 2021.
As our employees share the same passion
for giving back as our organization, we
support their ability to give back to their
own charitable interests by providing each
employee with 3 paid volunteer days a year.
In addition, our annual DK Johnson award
provides $10,000 to a select employee
each year that can be used to support
a local community initiative. Since the
program launch, we have supported the
Saskatchewan Critical
Incident Stress
(CISM) Network, Janeway
Management
Children's Health and Rehabilitation Centre
in St. John’s, Newfoundland and Operation
Friendship
in Edmonton, Alberta. We
are extremely proud to offer this unique
award to our employees as we give them
the opportunity to create meaningful and
lasting change for the people and projects
that enrich our communities coast-to-coast.
OUR COMMUNITIES
With a retail footprint that serves over
90% of Canadians, our connection to these
communities is defined by more than our
physical locations.
It is driven by our over 2,300 employees that
create close relationships with our customers
and feel personally committed and motivated
to the causes that matter most to them.
Corporate Partnerships
Since 2002, goeasy has been heavily invested in
building a strong partnership with BGC Canada
(formerly Boys and Girls Clubs of Canada) to
help the clubs with their mission of providing
safe, supportive places where children and
youth can experience new opportunities. To
date, we have donated over $3.8M that has
gone to support education, physical activity and
health and wellness programs. But perhaps
one of our most significant commitments to the
clubs has been our easybites program which
began in 2014 as an ambitious $2.5 million, 10-
year initiative to build functioning kitchens in all
100 BGCs across Canada. By the end of 2021,
goeasy had completed 60 kitchens to help feed
today’s youth while providing opportunities
to learn how to prepare healthy meals that
encourage the development of healthy habits
and life skills. With today’s fears around food
insecurity mounting, the importance of this
program has taken on a different meaning, and
we are extremely proud to continue to play a
critical role in making a difference in the lives
of Canadian families within our communities.
Our Corporate Social Responsibility efforts
also extend globally, as we support charitable
endeavours in developing countries through
our partnership with Habitat for Humanity’s
Global Village program. Since 2015, we
have taken over 125 goeasy employees
to Nicaragua, India, Guatemala, Cambodia
and Bolivia, where we have helped build 27
homes and 18 smokeless stoves for a total of
45 housing solutions for families in extreme
poverty. This incredible hands-on experience
reminds us of how much we can contribute,
not only within our local communities, but
across the globe. In 2021, while we couldn’t
travel abroad, our teams still rallied behind
the important mission helping to reduce
poverty in developing countries by raising
$43,000 for the construction of 4 housing
solutions in Malawi, Africa.
$4.35M
RAISED FOR
CHARITIES
TO DATE
$80K+
IN EMPLOYEE
FUNDRAISING
IN 2021
$470K+
IN CORPORATE
DONATIONS
IN 2021
25
Developing and
implementing strong
governance practices across
goeasy is essential to the safe,
sustainable and effective
operation of the organization.
Through a series of management practices and organizational controls, goeasy aims
to ensure the highest standards of compliance and to safely protect the assets and
reputation of the organization and its stakeholders.
26 ETHICAL BUSINESS CONDUCT
(the “Code”)
The Board has adopted a written code
of business conduct
for
the Company’s directors, officers and
employees that sets out the Board’s
expectations for the conduct of such
persons in their dealings on behalf of the
Company. The Board has also established
an
independent confidential hotline to
encourage employees, directors and
officers to raise concerns regarding matters
addressed by the Code on a confidential
basis, free from discrimination, retaliation
or harassment.
ENTERPRISE RISK MANAGEMENT
goeasy has adopted an enterprise risk
management
(“ERM”) frmework across
all lines of business to identify, monitor
impede
and manage risks that would
the Company from achieving its strategic
objectives. goeasy sets target scores for
enterprise risk categories on a yearly
basis, using a scale of likelihood and
impact. Residual risk scores are reviewed
and assessed on a quarterly basis. Risks
that score outside of the accepted risk
targets are highlighted and mitigation
plans are put in place to address the risk
accordingly. goeasy also has a number of
internal governance committees that meet
on regular frequencies to review business
operations and make recommendations
regarding strategic and operational direction
of the firm. These management committees
include, but are not limited to; Credit Risk
Committee, Risk Oversight Committee,
Disclosure Committee, Architecture Review
Board, Executive Committee.
BOARD COMPOSITION & DIVERSITY
goeasy believes in the benefits of diversity,
both on the Board and at the executive level.
The Company has committed to a board
that is diverse in experience, perspective,
education, race, gender and national origin.
Through the Company’s policy of supporting
and promoting diversity, it looks to identify
and select board members based not only
on the qualifications, personal qualities,
business background and experience of
the candidates, but also the composition of
the group of nominees to bring together a
board that will support goeasy in achieving
the highest
level of compliance and
performance for its shareholders.
BOARD COMMITTEES TO ENSURE
ADEQUATE OVERSIGHT
The Company’s Board has established three
Committees to assist with its responsibilities,
including; the Audit Committee, the Corporate
Governance, Nominating and Risk Committee,
and the Human Resources Committee. The
Audit Committee oversees the accounting and
financial reporting practices of the Company
and assists the Board in its oversight role
with respect to the quality and integrity of
financial information and the effectiveness
of the Company’s risk management, internal
controls and regulatory compliance practices.
The Corporate Governance, Nominating
and Risk Committee assists the Board
in establishing and maintaining a sound
system of corporate governance through
a process of continuing assessment and
enhancement, and has overall responsibility
the Company’s Risk Management
of
Framework, which includes matters such
as Environmental Social and Governance
(“ESG”) and information security. The Human
Resources Committee of the Board has the
mandate to establish and implement the
Company’s executive compensation policies
and monitor its compensation practices, with
the objective that executive compensation be
competitive and fair. The Human Resources
Committee is also responsible for reviewing
and approving all officers’ compensation and
equity-based incentive plans. The Committee
annually reviews its compensation practices
by comparing them to surveys of relevant
competitors.
STRENGTHENING CYBERSECURITY
The Company’s Chief Information Officer
responsible
is
(“CIO”) oversees and
for all cybersecurity and
information
technology risk matters. Specifically, the
CIO is responsible for implementing and
managing the enterprise cybersecurity and
information technology risk program. This
entails identifying, evaluating, sustaining,
monitoring and reporting on legal and
regulatory, IT, and cybersecurity risk that
hinder or help regulatory compliance and
the stated enterprise risk tolerance. The
Information Security
Vice President of
& IT Risk Management (CISO) ensures
the establishment and maintenance of
the cybersecurity and IT risk program,
applications,
technologies,
associated
infrastructure and digital ecosystem in
which we operate. The Vice President of
Information Security & IT Risk Management
(CISO) works diligently with all relevant
stakeholders to secure all of the company’s
information assets, appropriately enforce
established security policies/standards,
identify areas of concern, and implement
appropriate changes as required. goeasy
also has cyber insurance coverage to help
mitigate against certain potential losses
associated with cyberattacks.
43%
NON-EXECUTIVE
BOARD FEMALE
MEMBERS
53%
FEMALE
MANAGEMENT
ROLES
78%
INDEPENDENT
BOARD MEMBERS
93%
OF BOARD MEMBER
COMPENSATION IN
DEFERRED SHARE
UNITS1
1 Excludes salaried executive board of directors
Governance27 Message from
Executive Chairman
of the Board
2021 was a year of significant
achievements, most notably the milestone
of our loan book achieving $2.03B, an
increase of 63% from 2020.
28
David Ingram
Executive Chairman of the Board
The management team once again proved
their ability to execute in the face of the
onslaught from COVID-related challenges
and showed tenacity in their drive to expand
our channels of distribution, expand the
number of consumer product choices,
the balance sheet, and
strengthening
delivering record financial results. These
included revenues of $827 million up
27%, adjusted net income of $175 million
up 49% and adjusted diluted earnings
per share of $10.43 up 38%. Our future is
informed by a history of 47 consecutive
quarters of same store revenue growth
and 82 consecutive quarters of positive
net income, a journey that drives a talented
team to keep succeeding. In addition to
the operational performance, our balance
sheet was enhanced with $600 million of
additional liquidity thanks to the launch of
our inaugural securitization warehouse. The
enhanced funding package provides total
forward liquidity of approximately $978
million at year end 2021 to fund our loan
book growth through 2024.
Managing With Intent
The Board of Directors are cheerleaders
for the Company's mission to "provide
everyday Canadians a path to a better
tomorrow, today". As such, we encourage
and ensure resources are available to build
goeasy into a one stop provider for all forms
of credit for the roughly 8 million Canadian
non-prime consumers. From our first loan
in 2006 until 2016, we had only one fixed
rate loan product. Today with the benefit
of launching risk rate adjusted loans in
2016, the partnership with PayBright in
2019 and the acquisition of LendCare in
2021, we now have 7 different forms of
consumer finance products. Our product
suite includes unsecured, home equity,
improvement, healthcare,
auto, home
retail and powersports financing. As a
result of widening our credit box, we have
been able to reduce the weighted average
interest rate we charge from over 46% to
33% in less than 5 years. We are inspired
by the opportunity to provide responsible
and transparent financial products that
will allow all Canadians and newly arrived
immigrants the chance for financial access
and a model that leads to cheaper credit.
Managing Our Capital
repeated
the
We have deliberately
importance of the deployment of capital.
Our loan portfolio now generates annual
free cash flow of approximately $300
million before net growth. The highest
marginal return on our cash is funding
loan book growth with an ROE that has
historically exceeded 20%, and so meeting
consumer demand is our first priority.
Next is providing capital to expand our
channel development such as new retail
stores and digital capacity, and funding
our strategic initiatives for growth. After
these basic needs is being prepared and
opportunistic for acquiring new assets. In
the past we have successfully navigated
this with investments in rental companies,
equity participation in private companies
such as PayBright that provide commercial
arrangements, and in 2021 the purchase
of LendCare. We had been interested in
LendCare as a potential investment since
2017 and were convinced that the timing
and the financial terms were consistent
with our goals and strategy to provide
more everyday Canadians with financial
access. The Board was very supportive of
the transaction and we are pleased to see
the deal is on track to exceed the forecasted
10% EPS accretion in 2022, and 15% in
2023. It is a testament to Jason's continued
growth, completing his third year as a CEO,
and the maturation of his management
team, including the addition of Ali Metel as
President of LendCare. The Board has full
confidence in future equity investments and
larger scale acquisitions.
of 13,510% and a TSX ranking that placed
the Company tops for all 27 financial
stocks. Our model has proven its strength
and its resiliency and more recently,
Jason and his team have demonstrated
that in 2022 they are prepared for the
biggest year of growth in our history. In
2019 and 2021 our loan book grew at a
just over $300 million each year, and in
2022 the goal is to double that to nearly
$600 million. This level of performance
can only be achieved with the tireless
efforts of our 2,300 team members who
ensure the very best service for our
customers and make themselves part
of every community we serve coast-to-
coast across Canada.
I also want to thank our shareholders for
their continued support and the effort
that many make to communicate their
ideas, counsel and engagement in our
strategy and vision.
On behalf of the Board of Directors, we
wish to express our excitement for the
future and the direction that we are
collectively headed. It is still very early
days for the ambitious growth journey
that lies ahead.
David Ingram
Executive Chairman of the Board
In Closing
We have come a very long way during
the last 21 years of my involvement
with the Company. In that time we have
encountered many headwinds, including
the global financial crisis of 2008, the
Alberta oil price crash of 2015 and
recently the incredible difficult impacts
from the COVID-19 pandemic. Despite all
those challenges, we have been able to
generate an EPS CAGR of nearly 30%, a
total shareholder return at January 2022
29
DAVID INGRAM
EXECUTIVE CHAIRMAN
2021 Letter
to Shareholders
If 2020 was a year of resilience and battle testing the business
through one of the most difficult periods in our lives, 2021 will
be remembered as a year during which we accelerated the
development of our lending platform, readying the business
for a period of the most significant growth in our history.
30
Jason Mullins
President & CEO
business, while preserving the history
and DNA of the company. Maintaining the
dynamic duality of preserving our core
values, while having a relentless and
concurrent drive for progress, change and
innovation, is key to our success.
Throughout the year, demand for credit grew
gradually, as the effects of the pandemic
and associated economic closures slowly
diminished. By the time we exited 2021,
Canadians appeared to make the transition
to endemic life, and consumer borrowing
and spending returned to more typical
levels. In total we received a record number
of loan applications at over 1 million during
the year and welcomed nearly 150,000
customers through the doors of our
branches and stores. Loan originations
topped $1.6 billion, with record organic
loan growth of $340 million and a year-end
consumer loan portfolio of $2.03 billion.
The launch of a new easyfinancial website
and the continued investment in both
digital and traditional marketing channels,
helped produce a record level of brand
awareness for easyfinancial at 88%.
Complementing our investments in digital,
we added an additional 27 branches
during the year, primarily related to
building our presence in Quebec, bringing
our total national retail footprint to 291
easyfinancial branches and 158 corporate
and franchise easyhome stores. Today
over 90% of the Canadian population is
within 50 km of a branch.
in
Representation
local communities
across Canada adds credibility to our brand
and helps us establish more meaningful
relationships with our customers, making
the retail footprint a core element of our
business model.
to
Furthermore, our data continues
demonstrate that a retail footprint in highly
trafficked
target
consumers routinely travel, is a key source of
customer acquisition.
locations, where our
We also made our largest investment to date
in 2021, when we acquired LendCare and
welcomed over 200 new team members
and over 4,000 merchant partners to the
family. The LendCare business
goeasy
accelerated our growth
in point-of-sale
finance across several major verticals,
including: powersports, home improvement,
healthcare and retail. LendCare’s founders,
Ali Metel and Mark Schell, concurrently joined
our leadership team and run this division of
the Company. The transaction has also proven
to be more than purely an acceleration of
our strategy. Equally important, it has been
a significant learning experience to develop
and stretch the organization’s capabilities
in acquisitions and integration. Welcoming
a
into goeasy
has required us to develop and enhance
processes for governance, organizational
structure, centralization, systems and cultural
integration. The lessons learned through
this experience will prove invaluable for
completing acquisitions in the future.
fast-growing business
Despite another series of pandemic related
challenges, our team continued to show up
every day for our customers and produced
another record year for the Company.
It is with great pride that we commit
ourselves to serving the 8.2 million
Canadians that depend on us for access to
financial products that enable their lives.
Whether
they are seeking a more
convenient way to pay for a major life
purchase, or need to resolve a financial
emergency, Canadians have come to rely
on us for responsible financial solutions
is
and a customer experience
rooted in meaningful relationships. While
connecting with our customers at their
time of need can be a tall task, it is an
important one. One that takes empathy,
passion, perseverance, and can make a
real difference in their lives.
that
Review of 2021
2021 was a highly
productive year during
which we made great
progress on our strategic
pillars and produced
record growth, revenue,
and earnings. We also
completed the acquisition
of LendCare, which has
accelerated our expansion
plans and delivered above
forecast accretion.
As I enter my fourth year as CEO, my tenure
has been filled with both challenges and
achievements, yet I am just as enthused
about our future as when I started. While
the past three years have forced us to be
nimble and adapt our plans in response to
a rapidly evolving world, I am privileged to
be building a purpose-driven company with
incredible people. The leadership team I
work with is passionately inspired by our
vision and the potential for the future. With
a senior management team that averages
over 8 years of tenure, we have a diverse
and talented group that can scale the
31
During the year, we entered the automotive
financing market with the launch of a
direct to consumer offering, supplemented
by a dealer channel program leveraging
the
infrastructure of LendCare. After
approximately one full year of lending, we
firmly believe we can be the number one
non-bank, non-prime automotive financing
provider in Canada.
At 31% of the non-prime credit market,
automotive financing is a $58 billion
market opportunity, and the largest single
product category in our industry.
As most of our customers regularly finance
their vehicles, an automotive loan product
is a natural extension of our offering and
provides them with additional value.
We also made great progress toward
helping our consumers reduce their cost of
borrowing and improve their credit.
DAVID INGRAM
EXECUTIVE CHAIRMAN
levels. Access
to Canada, decreasing
Canadians. However, during 2020, there
was a 45% decrease in new immigrants
this
coming
segment of the labour pool to historically
low
to government
assistance also meant many workers
opted out of entering the job market.
Further, as restrictions eased and the
economy began to reopen, job postings
quickly spiked to above pre-pandemic
levels, creating even greater competition
for talent. As at the time of this letter, the
unemployment rate in Canada has fallen
to 5.3%, the lowest level on record since
formal tracking began in 1976.
Despite the challenging labour market
and another year of having to forego many
of our staple incentives and corporate
events for virtual substitutes, the strength
of our culture, our focus on employee
experience, and
internal development
programs helped produce a year of record
results. In 2021, goeasy was certified as
a Great Place to Work in Canada, while
also being renamed as one of Canada’s
Most Admired Corporate Cultures by
Waterstone Human Capital.
Our team’s commitment to the vision
was reaffirmed in our 2021 employee
engagement survey, which revealed a
score of 84%, our highest rating ever.
through
Furthermore, over 68% of all management
positions were filled
internal
promotions in 2021, a sign that we are
cultivating the next generation of leaders
that will carry our Company forward for
years to come.
to
also
continued
diligently
We
manage and allocate our capital, while
strengthening our balance sheet
in
preparation for future growth. Over the
past year, the finance and treasury teams
launched, and subsequently upsized, our
inaugural securitization warehouse and
enhanced our revolving credit facility. With
participation from 5 of the 6 major banks
in Canada between the two facilities,
they provide combined capacity close to
$1.2 billion and reduced our fully drawn
weighted average cost of borrowing to
4.2%. The new capital structure also helps
hedge against a rising rate environment
– timely in the current conditions. The
material shift in our funding to lower cost
secured sources, combined with the fixed
rate nature of our unsecured notes and
the hedging we implement on each draw
on our securitization facility, conspires
to reduce the impact of an increase in
rates. The strength and diversification
of our balance sheet ensures we remain
well capitalized to achieve our long-term
growth objectives.
Over the last five years, we have steadily
reduced the weighted average interest
rate charged to our customers from over
46% to less than 33% today.
Furthermore, over 60% of our customers
continue to experience an increase in
their credit score and 1 out of every 3 of
them are successful in graduating back
to prime credit within the first year of
borrowing from easyfinancial. Should a
customer need to borrow from us longer,
the number that open a prime credit trade
continues to climb to over 50% after three
years as a customer.
in
those
Notwithstanding the successes, we also
faced our share of challenges. As well
published, it has been a difficult period
for recruiting and retaining frontline
talent and
technical and
specialized high-skill roles. During the
year, we lost some good team members
who chose permanent remote work, or a
higher base wage, over the opportunity
available at goeasy. We believe, over
time, we have performed exceptionally
well in the market at attracting and
retaining the best talent, yet the effects
the Canadian
of
workforce have been noticeable. A
tight labour market meant even the
best organizations had to respond and
react to the challenging conditions. At
goeasy we are proud that approximately
20% of our workforce is staffed by new
the pandemic on
32
As
the year wound down, we also
experienced another opportunity to allocate
toward repurchasing our own
capital
shares. Since the equity market correction
began in November, we have allocated over
$110 million of capital to repurchase nearly
700,000 shares, essentially reacquiring
nearly half the stock we originally issued
to execute the LendCare acquisition. While
share repurchases serve to temporarily
increase our leverage position, they are
highly accretive to the future earnings per
share of the Company. Furthermore, we
continue to run the business with a more
conservative level of leverage than our peer
group, with a net debt to net capitalization
ratio less than 70%, relative to our peer
average of 80%. Additionally, our book
equity is sufficient to cover nearly 4 years of
cumulative annualized credit losses.
For the full year, we generated record
revenue of $827 million, up 27%, compared
with $653 million in 2020. Excluding the
effects of the adjusting items related to
the acquisition of LendCare and fair value
gains on our investments, adjusted net
income for the full year was $175 million,
up 49% from $118 million in 2020; while
adjusted diluted earnings per share was
$10.43, up 38% from $7.57 in 2020.
The financial performance, which
led
to strong returns for shareholders, also
resulted in goeasy ranking on the TSX30 list
for the second time over the past three years.
Environment
MARKET & COMPETITIVE LANDSCAPE
Prior to the pandemic, of the 29 million
Canadians with an active credit file,
approximately 9.4 million had credit scores
less than 720 and were deemed to be non-
prime in 2019, according to TransUnion.
Collectively, these Canadians held debt
balances of approximately $230 billion in
credit, excluding any primary residential
mortgages, and the market was growing
at a CAGR of approximately 4%. In 2020,
the non-prime market shrank to 8.4
million Canadians, with their total credit
balances declining to $196 billion, due an
improvement in consumers credit scores
and a reduction in debt levels. In 2021
we saw that trend continue, with the total
number of non-prime consumers declining
slightly to 8.2 million, while total debt
balances fell to $186 billion. Meanwhile in
the prime lending market, total balances
continued to grow, topping $661 billion in
2021, growth of nearly 5%. While the slower
balance growth in non-prime presented
headwinds to our consumer loan portfolio
in 2021, they are also evidence that the
average non-prime Canadian experienced
an
their finances
throughout the pandemic, highlighting the
significant growth opportunity available as
the market corrects and normal borrowing
behaviour returns.
improvement
to
unchanged, with
Our competitive landscape has remained
largely
Fairstone,
remaining our largest and most comparable
competitor. As our product range has
evolved, we also now compete with a range
of new lenders unique to each product
vertical. Lastly, the remaining large payday
loan chains continue to try and transform
their consumer loan offering to compete for
certain segments of our customer base. Our
competitive point of differentiation clearly
continues to be the wider range of products
and services we have developed and the
hyper focus on improving our customers
long term financial wellness.
REGULATORY LANDSCAPE
non-bank
framework
regulatory
the
for
Canada’s
governing
consumer
lending industry is well established and
has remained largely stable for over four
decades. Section 347 of the Criminal Code
regulates the entire lending market, setting
the maximum effective annual rate of
interest that can be charged at 60%. On a
nominal basis, the maximum allowable
annual percentage rate (APR) most familiar
to consumers on standard credit products
is an interest rate of approximately 47%. On
a periodic basis, industry consultations are
done to evaluate the appropriateness of the
allowable rate. In the past, these consultative
processes
significant
complexity and unintended consequences
that can affect access to credit for millions
of hard-working Canadians. As such, we
believe the regulations are widely viewed
as appropriate. Notwithstanding the general
stability, we have long been on a journey to
reduce the weighted average interest rate
for our customers. From 2017 to the present,
revealed
have
the weighted average interest rate on our
portfolio has reduced from approximately
46% to less than 33% today, with our loan
products starting at rates as low as 9.9%.
Furthermore, our existing strategy
is
expected to result in a further reduction in
the weighted average interest rate charged to
our borrowers to below 30% within the next
few years. By widening the range of products
and rates we charge, we have been able to
attract more near-prime consumers and
extend the life of our customer relationships
by providing a path for consumers to receive
an interest rate reduction in reward for
positive payment performance. As a result,
we believe we are well positioned to adapt,
should a change in the allowable rate of
interest ever occur.
Furthermore, we have been working directly
with provincial and federal regulators for many
years, both independently and through the
Canadian Lenders Association. Throughout
the legislative and regulatory process, we are
regularly consulted to provide guidance and
feedback on how laws can be crafted to best
protect consumers, without restricting their
access to credit and disrupting the efficacy of
the market. These consultations have helped
us develop excellent working relationships at
all levels of government.
ECONOMIC LANDSCAPE
For nearly ten years, we have published
3-year commercial forecasts for investors.
These projections are built with the same
consistent philosophy each year. Based
on the products and initiatives in market,
we develop a bottom up projection of
originations that our data and research
suggest is reasonable and achievable. We
then stress the model with more ambitious
and more conservative cases, which in effect
account for a variety of potential tailwinds
and headwinds, including the potential for
a degree of economic turbulence. In our
modelling, we anticipate a downside case in
which more challenging conditions influence
lending activity and credit performance. As
such, we only adjust the ranges provided
in our forecast if we experience extreme
economic conditions, or the product and
credit mix evolve materially different than
anticipated. This approach has served us
well, and we have consistently achieved or
exceeded our forecasts.
33
the economic outlook, we can make pro-
active credit adjustments in advance of
economic expansions or contractions.
As we have communicated in the past,
non-prime consumers and the businesses
lending to this category of borrowers are
also incredibly resilient. In my letter from
our 2019 annual report and shareholder
updates that we provided in December
of 2018 and March of 2020 (which can be
found in the news release section of our
investor website at
(https://investors.
goeasy.com/news-releases), we carefully
lay out critical points of consideration
that explain why non-prime consumers
experience a more moderate degree of
change in default rates during an economic
downturn than prime borrowers, and why
non-prime consumer lending businesses
are well equipped to navigate through
downturns. These include;
• Lower levels of debt –
non-prime Canadians have 55% less
debt than prime consumers
• Less exposure to rising interest rates
due to lower home ownership –
only 20% of goeasy borrowers own
their homes, compared to over 65% of
the overall population
• A higher propensity to purchase
credit insurance –
more than 50% of our portfolio today
carries incremental insurance for
unemployment risk with a third-party
provider of credit insurance
• Secured loans –
the portion of our portfolio secured
by hard assets, such as real estate
or automotive and recreational
vehicles, has increased to over 33%
of the portfolio
• Diverse industry sectors –
our customers work in a wide
variety of industry sectors including
manufacturing, retail, financial
services, healthcare, technology, and
public sector jobs – with no significant
industry specific concentration risk
• Government support –
Canada’s standard unemployment
insurance program covers
approximately two thirds of an
average consumers after-tax income
• Business model under stress –
due to the risk adjusted margins
and variable nature of many
operating expenses, net charge
offs can more than double before
compromising profitability
• Cash flow generation –
if new lending activity was slowed
and we were to hold the portfolio
flat, the business generates nearly
$300 million of free cash, while in
a run-off scenario with reasonable
cost reductions, the business
produces over $3.1 billion of gross
cash and enough free net cash flow
to extinguish all external debt in
approximately 15 months
In examining the economic backdrop
exiting 2021 and entering 2022, there are
both a series of tailwinds and headwinds
facing the consumer. On one hand, we are
experiencing strong economic growth in
tandem with a general labour shortage,
resulting in extremely low unemployment.
As mentioned earlier, at the time of this
letter, unemployment is at an all-time low
of 5.3%. This bodes well for our customers,
as obtaining employment or pursuing a
new career is perhaps easier now than
in generations. Furthermore, consumers
appear ready, willing, and able to return
to their typical borrowing and spending
behaviours, as COVID restrictions have all
but vanished and most people are anxious
to live their lives again. On the other hand,
excess money supply from government
stimulus, strong consumer demand and
severe supply chain challenges have
resulted in higher levels of inflation, which
have exceeded the level of wage growth
for several months running, which in the
long term can put pressure on consumer
cash flows.
To carefully navigate economic conditions,
we utilize a series of credit risk related
management
tools. First, we employ
several custom proprietary credit scores
that allow us to increase or decrease the
level of credit risk we accept by lowering
or increasing our credit tolerance.
Our models, which have been developed
and refined over 10 years, are statistically
2x more predictive at projecting loss risk
than a generic credit score.
Secondly, our underwriting process
includes an affordability component,
driven by either a debt-to-income or
payment-to-income ratio, varying by
product. Through adjusting these ratios,
and the size of loan we are willing to
issue a customer, we can effectively
left with
ensure that a borrower
additional discretionary income to absorb
higher everyday living expenses. Given
that our portfolio liquidates at a rate of
approximately 45% per annum, we can
affect the underlying composition quickly
with credit or underwriting related
modifications, impacting nearly 50% of
our portfolio within just 12 months of
lending activity. By carefully monitoring
is
34
growth and shareholder return, while
concurrently passing along rate reductions
to our customers and expanding their
relationship with us.
Over the next 3-year period, our strategy
will bring down the weighted average
interest rate we charge our customers to
below 30%.
The resiliency of our business model and
strength of our risk management and
analytics practice, provides confidence in
our ability to carefully manage overall credit
performance within a projected range.
Barring any significant degradation in the
environment, we expect the annualized net
charge off rate of our portfolio to oscillate
between 8.5% and 10.5%, gradually declining
in outer years.
The strength of our internal cash generation
will also lead to a gradual de-levering of
our balance sheet, while the business
continues to reap the benefits of scale, and
the operating margin and corresponding
profitability expand.
To produce the growth, we will continue to
invest in the business. During the coming
year we plan to spend approximately
3.5% of our revenues on marketing and
advertising, including through the launch
of a new TV and digital video campaign.
We also plan to invest approximately
$30 million of capital into real estate and
technology, including our digital and point-
of-sale platforms, core lending solution
and data infrastructure.
To date we have assembled a powerful
lending business with multiple products
and acquisition channels. However, we have
not yet fully monetized the potential of the
platform. Today, many of our customers are
not aware of the wide range of borrowing
options available or presented offers for loan
products they are eligible for. Moreover, the
cross-selling activity that is done today, uses
a basic approach of email marketing and
phone-based selling. Despite these gaps,
we have initial data that the propensity for
customers to obtain other lending products
from us is very high. In the last few weeks,
I have hosted several dinners with some
of our customers and they unanimously
indicated they prefer to deal with one lender
they trust, rather than have credit products
from multiple institutions. Therein lies a
tremendous opportunity. We think of our
business as a lending eco-system for non-
prime Canadians. A one-stop shop where
they can get access to all their borrowing
needs from a single trusted provider. While
non-prime lenders have typically offered
a narrow product selection, banks aim to
use a wide range of services to capture a
greater share of the consumers wallet and
maximize lifetime value.
In 2022 we will begin to develop a disruptive
self-serve digital portal that will give
prospects and customers alike, access
to easily see the wide variety of financial
services available, and dynamically
provide them with loan offers tailored to
their credit profile and borrowing needs.
Moreover, the data from research analysis
done by TransUnion on several past
recessionary periods, combined with our
own experience in Alberta in 2015, proves
that the degree of increase in credit losses is
more moderate for the non-prime segment
than it is for prime borrowers.
risk of
Notwithstanding
future
the
economic deterioration, to date in 2022, the
conditions have proven to be constructive,
as we have experienced strong consumer
demand and stable credit performance,
with our current outlook remaining
unchanged. As such, we feel confident in
the attainability of our forecast.
Outlook
2022 stands to prove the
true growth potential
of our multi-product,
multi-channel business
model, as we march
toward becoming the
number one full suite
financial institution for
non-prime Canadians. A
one-stop source for all
their borrowing needs.
A lender that aims to
provide everyday credit
products in a responsible
and transparent manner,
complemented by a
greater purpose... to help
our customers improve
their financial health.
As we continue to execute on the four pillars
of our strategy, we have never been more
excited about the future of our business. By
2024, we expect to organically grow the loan
portfolio by roughly 75%, to approximately
$3.5 billion, driven by the execution of our
current suite of products and channels. We
also remain on a quest to reduce the cost of
borrowing for our customers.
By optimizing for an 8% to 10% pre-
tax return on receivables that in turn
produces over a 20% return on equity, we
can deliver attractive long-term earnings
35
We have already begun to set up a new
dedicated digital team to develop our mobile
app and we hope to design and launch
version 1.0 by end of this year, then begin
our journey toward the end-state… where
non-prime borrowers never have to apply
for credit again. By way of investments in
data, decisioning and digital, consumers
will simply download our app, provide some
basic information and consent, then begin
to instantly preview the credit products
they are eligible for. We think this digital
portal will extract maximum value from
our full-suite financial services institution
and dramatically improve the customer
experience for non-prime Canadians.
Secondly, we will continue to invest in
scaling our automotive finance program.
Through both the indirect dealership and
direct to consumer channels, we believe
we can be the number one non-prime,
non-bank auto lender in Canada. Over the
course of the year we plan to scale from
approximately 1,400 dealer partners, to
over 2,200 by year-end, while continuing
to improve our direct to consumer offering
through automotive specific advertising and
enhancements to our digital process. We will
also explore working with new digital online
car retailers so we can reverse integrate
and showcase vehicles to our customers
that they have been screened and pre-
approved to purchase, removing the friction
from the typical car buying experience.
important activities we spend considerable
time on. An abundance of opportunity is, as
they say, a good problem to have.
It is both an honour and a privilege to lead
our organization and the incredible team at
goeasy. I am truly surrounded by some of
the most talented and passionate people
I have ever met and am grateful for how
they consistently rise to every challenge.
The credit for our success is owed to the
over 2,300 team members that show up
daily for our cause and our customers.
Together, we are on a mission to be the
largest and best performing non-prime
consumer lender in Canada.
And we are truly just getting started!
Sincerely,
Jason Mullins
President & CEO
Lastly, we will be working on several
initiatives to scale our point-of-sale lending
business through our LendCare brand.
From enabling consumers to pre-qualify
for financing on our partners’ web sites, to
integrating directly into the sales systems
of our merchants, to developing a true full
spectrum solution in partnership with other
prime lenders, we anticipate a meaningful
lift in originations from financing everyday
large ticket purchases for our consumers.
In addition, several financing verticals such
as healthcare, home improvement and
general-purpose retail are still in their early
stages of development and present great
expansion potential.
In closing, we are proud of our achievements,
but far more excited about the future.
As meaningful as the $2 billion consumer
loan milestone was, it suggests we have
only captured just 1% of the market share for
non-prime credit in Canada.
When I reflect on the future, we are
surrounded by possibilities. In fact, deciding
what opportunities to pursue and not
pursue, while prioritizing where we focus
our time and resources, is one of the mort
36
Table of
Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations ....................................... 39
Caution Regarding Forward-Looking Statements .......................................................................................................... 39
Overview of the Business ...................................................................................................................................................... 40
Corporate Strategy .................................................................................................................................................................. 42
Outlook ........................................................................................................................................................................................ 44
Analysis of Results for the Year Ended December 31, 2021 ....................................................................................... 46
Selected Annual Information ................................................................................................................................................ 55
Analysis of Results for the Three Months Ended December 31, 2021...................................................................... 56
Selected Quarterly Information ........................................................................................................................................... 63
Portfolio Analysis ..................................................................................................................................................................... 64
Key Performance Indicators and Non-IFRS Measures .................................................................................................. 71
Financial Condition .................................................................................................................................................................. 79
Liquidity and Capital Resources .......................................................................................................................................... 80
Outstanding Shares and Dividends ..................................................................................................................................... 82
Commitments, Guarantees and Contingencies ............................................................................................................... 83
Risk Factors ............................................................................................................................................................................... 83
Critical Accounting Estimates .............................................................................................................................................. 90
Changes in Accounting Policy and Disclosures ............................................................................................................... 90
Internal Controls ...................................................................................................................................................................... 91
Management’s Responsibility for Financial Reporting .................................................................................................. 92
Independent Auditor’s Report .......................................................................................................................................... 93
Audited Consolidated Financial Statements ................................................................................................................... 96
Corporate Information ..................................................................................................................................................... 140
37
Management’s
discussion and
analysis of financial
condition and results
of operations
Year ended
December 31, 2021
38
Management’s discussion and analysis of financial
condition and results of operations
Date: February 16, 2022
The following Management’s Discussion and Analysis (“MD&A”) presents an analysis of the consolidated financial condition of goeasy
Ltd. and its subsidiaries (collectively referred to as “goeasy” or the “Company”) as at December 31, 2021 compared to December
31, 2020, and the consolidated results of operations for the three-month period and year ended December 31, 2021 compared with
the corresponding periods of 2020. This MD&A should be read in conjunction with the Company’s audited consolidated financial
statements and the related notes for the year ended December 31, 2021. The financial information presented herein has been prepared
in accordance with International Financial Reporting Standards (“IFRS”), unless otherwise noted. All dollar amounts are in thousands
of Canadian dollars unless otherwise indicated.
This MD&A is the responsibility of management. The Board of Directors has approved this MD&A after receiving the recommendations
of the Company’s Audit Committee, which is comprised exclusively of independent directors, and the Company’s Disclosure Committee.
This MD&A refers to certain financial measures that are not determined in accordance with IFRS. Although these measures do not have
standardized meanings and may not be comparable to similar measures presented by other companies, these measures are defined
herein or can be determined by reference to our consolidated financial statements. The Company discusses these measures because
it believes that they facilitate the understanding of the results of its operations and financial position.
Additional information is contained in the Company’s filings with Canadian securities regulators, including the Company’s Annual
Information Form. These filings are available on SEDAR at www.sedar.com and on the Company’s website at www.goeasy.com (https://
investors.goeasy.com/).
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This MD&A includes forward-looking statements about goeasy, including, but not limited to, its business operations, strategy and expected
financial performance and condition. Forward-looking statements include, but are not limited to, those with respect to the estimated
number of new locations to be opened, forecasts for growth of the consumer loans receivable, annual revenue growth forecasts, strategic
initiatives, new product offerings and new delivery channels, anticipated cost savings, planned capital expenditures, anticipated capital
requirements and the Company’s ability to secure sufficient capital, liquidity of goeasy, plans and references to future operations and
results, critical accounting estimates, expected lower charge off rates on loans with real estate collateral and the benefits resulting
from such lower rates, the size and characteristics of the Canadian non-prime lending market and the continued development of the
type and size of competitors in the market. In certain cases, forward-looking 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 “expect”, “continue”, “anticipate”, “intend”, “aim”,
“plan”, “believe”, “budget”, “estimate”, “forecast”, “foresee”, “target” 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 goeasy’s
operations, economic factors and the industry generally. 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 goeasy. Some important factors that could cause actual results to differ materially from those expressed in the forward-
looking statements include, but are not limited to, goeasy’s ability to enter into new lease and/or financing agreements, collect on
existing lease and/or financing agreements, open new locations on favorable terms, secure new franchised locations, offer products
which appeal to customers at a competitive rate, respond to changes in legislation, react to uncertainties related to regulatory
action, raise capital under favorable terms, compete, 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.
goeasy cautions that the foregoing list is not exhaustive. These and other factors could cause actual results to differ materially from
our expectations expressed in the forward-looking statements, and further details and descriptions of these and other factors are
disclosed in this MD&A, including under the section entitled “Risk Factors”.
The reader is cautioned to consider these, and other factors carefully and not to 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.
39
Overview of the Business
goeasy Ltd. is a Canadian company headquartered in Mississauga, Ontario, that provides non-prime leasing and lending services through
its easyhome, easyfinancial and LendCare brands. Supported by more than 2,300 employees, the Company offers a wide variety of financial
products and services including lease-to-own merchandise, unsecured and secured instalment loans. goeasy aspires to help put non-
prime consumers on a path to a better financial future, by helping them rebuild their credit and graduate back to prime lending. Customers
can transact seamlessly through an omni-channel model that includes an online and mobile platform, over 400 locations across Canada,
and point-of-sale financing offered in the retail, power sports, automotive, home improvement and healthcare verticals, through more than
4,000 merchants across Canada. Throughout the Company’s history, it has acquired and organically served over 1.1 million Canadians and
originated over $7.7 billion in loans, with one in three easyfinancial customers graduating to prime credit and 60% increasing their credit
score within 12 months of borrowing.
With 31 years of leasing and lending experience, goeasy has developed a deep understanding of the non-prime Canadian consumer. Of the
29.6 million Canadians with an active credit file as at December 31, 2021, 8.2 million had credit scores less than 720 and are deemed to be
non-prime, down from 8.4 million in 2020 due to the upward migration of consumer credit scores as a result of the pandemic. Collectively,
these Canadians carry $186 billion in credit balances, down from $196 billion in 2020, and represent the Company’s target market. These
consumers, many of which are unable to access credit from banks and traditional financial institutions, turn to goeasy to avoid the high
cost of payday loans. By graduating customers to progressively lower rates of interest, goeasy is uniquely positioned to deliver against its
vision of providing everyday Canadians a path to a better tomorrow, today.
goeasy funds its business through a combination of equity and debt instruments. goeasy’s common shares (“Common Shares”) are listed
for trading on the Toronto Stock Exchange (“TSX”) under the trading symbol “GSY”. The Company has been able to consistently secure
additional capital at increasingly lower rates in order to continue fueling the growth of its business and has sufficient capital and borrowing
capacity to meet its growth plans through the fourth quarter of 2023 based on the Company’s organic growth assumptions. goeasy is rated
BB- with a stable trend from S&P, and Ba3 with a stable trend from Moody’s.
Accredited by the Better Business Bureau, goeasy is the proud recipient of several awards in recognition of its exceptional culture and
continued business growth including Waterstone Canada’s Most Admired Corporate Cultures, Glassdoor Top CEO Award, Achievers Top
50 Most Engaged Workplaces in North America, Greater Toronto Top Employers Award, the Digital Finance Institute’s Canada’s Top 50
FinTech Companies, ranking on the TSX30 and placing on the Report on Business ranking of Canada’s Top Growing Companies and has
been certified as a Great Place to Work®. The Company is represented by a diverse group of team members from over 75 nationalities who
believe strongly in giving back to communities in which it operates. To date, goeasy has raised and donated over $4.35 million to support
its long-standing partnerships with BGC Canada, Habitat for Humanity and many other local charities.
OVERVIEW OF EASYFINANCIAL
In 2006, easyfinancial, the Company’s non-prime consumer lending division began operating with the goal of bridging the gap between
traditional financial institutions and costly payday lenders. The Company’s consumer lending segment is a leading provider of non-prime
credit in Canada and operates through the easyfinancial and LendCare brands (through an acquisition completed in 2021 discussed further
in detail below).
Historically, consumer demand for non-prime loans in Canada was satisfied by the consumer-lending arms of several large, international
financial institutions. Since 2009, many of the largest branch-based participants in this market (including Wells Fargo, HSBC Finance
and CitiFinancial) have either closed their operations or dramatically reduced their size due to changes in banking regulations related
to risk adjusted capital requirements. Today, traditional financial institutions are generally unwilling or unable to offer credit solutions to
consumers that are deemed to be a higher credit risk due to the consumer’s financial situation or less-than-perfect credit history. For this
reason, demand in this market is met by a variety of industry participants who offer diverse products including auto lending, credit cards,
installment loans, retail finance programs, small business lending and real estate secured lending. Generally, industry participants have
tended to focus on a single product rather than providing consumers with a broad integrated suite of financial products and services. As a
result, easyfinancial is one of a small number of coast-to-coast non-prime lenders with a history of success.
The business model of easyfinancial is based on lending out capital in the form of unsecured and secured consumer credit primarily to
non-prime borrowers who are generally unable to access credit from traditional sources such as major banks. The company originates
loans up to $50,000 with rates between 9.9% - 46.9%, which are fixed payment instalment products. All payments made by borrowers
are reported to credit reporting agencies to help customers rebuild their credit. easyfinancial also offers a number of optional ancillary
products including a customer protection program that provides creditor insurance, a home and auto benefits product which provides
roadside assistance, a gap insurance product which covers buyer and lender from any shortfall in case of total loss insurance claim,
warranty coverage on select products which are financed, and a credit monitoring and optimization tool that helps customers understand
the steps to take to rebuild their credit and improve their financial outcomes.
40
The Company charges its customers interest on the money it lends and also receives a commission for the optional ancillary products it offers
through third party providers. The interest, additional commissions and various fees, collectively produce the total portfolio yield the Company
generates on its loan book. The Company’s total portfolio yield relative to its cost of capital and loan losses is a key driver of profitability.
As a lender, the Company expects to incur credit losses related to those customers who are unable to repay their loans. Given the higher
risk nature of the non-prime borrower, the credit losses are reflective of the higher rate of interest it charges. The Company’s proprietary
credit models allow it to set the level of risk it is willing to accept. The Company could take less credit risk and reduce its loan losses, but
it would come at the expense of profitable volume. Likewise, the Company could accept more risk to drive greater growth and profitability,
but it would come with higher losses and have downstream impacts on the cost and ability to access capital. Ultimately, the Company’s
objective is to optimize profitability and operating margins by striking the right balance between origination velocity (the applicants it
approves) and the loss rate of the portfolio.
The Company offers its products and services through an omnichannel business model, including a retail branch network, digital
platform and indirect lending partnerships. The Company had 294 easyfinancial locations (including 5 kiosks within easyhome stores
and 3 operations centres) in 10 Canadian provinces as of December 31, 2021. In addition to its retail branch network, customers can also
transact online which remains a critical source of new customer acquisition and accounts for 41% of the Company’s application volume.
The Company also originates loans through its point-of-sale channel that includes hundreds of retail and merchant partnerships. Through
its partnership with PayBright developed in 2019, Canada’s leading provider of instant point-of-sale financing, the Company is able to offer
its non-prime instalment loan product through the PayBright platform at the point-of-sale, a partnership which continued with Affirm Inc.’s
acquisition of PayBright in 2020.
On April 30, 2021, the Company completed the acquisition of 100% of the outstanding equity of LendCare Holdings Inc. (“LendCare”), a
Canadian point-of-sale consumer finance and technology company founded in 2004. LendCare is a technology enabled, non-bank consumer
lender that provides a full spectrum point-of-sale solution to enable its merchant partners’ customers to finance the purchase of good
and services. Through its proprietary origination software, LendCare specializes in financing consumer purchases in the powersports,
automotive, retail, healthcare, and home improvement verticals. LendCare also offers ancillary products, including credit life, disability,
loss of employment and gap insurance, and warranty coverage. The acquisition of LendCare has accelerated the Company’s expansion
into the point-of-sale financing channel and provided a complementary near-prime product range, improves and diversifies the Company’s
credit profile, further expanding goeasy across the credit spectrum and increasing the weighted average credit score of its borrowers.
Although the Company leverages multiple acquisition channels to attract new customers, approximately 71% of loans are managed at
local branches. Through its many years of experience in non-prime lending, the Company believes that an omnichannel model optimizes
loan performance and profitability, while providing a high-touch and personalized customer experience. The customer loyalty developed
through these direct personal relationships extends the length of the customer relationship and improves the repayment of loans which
ultimately leads to lower charge offs and higher lifetime value.
In addition to its unique omnichannel model, the Company also differentiates itself through its customer experience and specifically the
journey of providing customers a path to improving their credit and graduating back to prime borrowing. This is done through the Company’s
broad product range which provides customers with progressively lower interest rates, access to credit rebuilding products such as its
creditplus starter loan, free financial education and tools and services that help them better understand and manage their credit scores.
Whether a customer is looking to establish, repair, build or strengthen their credit profile by borrowing funds or using the equity in their home
to secure a larger loan at a lower rate, easyfinancial can provide a lending solution that best serves their individual needs.
Through its many years of experience and a disciplined approach to growth and managing risk, easyfinancial has demonstrated a history
of stable and consistent credit performance. Since implementing centralized credit adjudication in 2011, the Company has successfully
managed annualized net charge off rates within its stated targeted range. Lending decisions are made using proprietary custom scoring
models, which combine machine learning and advanced analytical tools to optimize the balance between loan volume and credit losses.
These models have been developed and refined over time by leveraging the accumulation of extensive customer application, demographic,
borrowing, repayment and consumer banking data that determines a customer’s creditworthiness, lending limit and interest rate. These
models improve the accuracy of predicting default risk for the non-prime customer when compared to a traditional credit score. Credit risk
is further enhanced by industry-leading underwriting practices that include pre-qualification, credit adjudication, affordability calculations,
centralized loan verification, and repayment by the customer via electronic pre-authorized debit directly from the customer’s bank account
on the day they receive their regularly schedule income. The Company also requires supporting documentation for all of its successful
applicants who take out a direct to consumer loan. Through the Company’s proprietary custom scoring models, coupled with the personal
relationships its employees develop with customers at its branch locations, the Company believes it has found an optimal balance between
growth and prudent risk management and underwriting.
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OVERVIEW OF EASYHOME
easyhome, is Canada’s largest lease-to-own Company and has been in operation since 1990 offering customers brand name household
furniture, appliances and electronics through flexible lease agreements. In 2021, easyhome accounted for 18% of consolidated revenue
(2020 – 22%) and leasing revenue accounted for 80% of easyhome revenue (2020 – 84%).
Through its 158 locations which includes 34 franchise stores or through its eCommerce platform, Canadians turn to easyhome as an
alternative to purchasing or financing their goods. With no down payment or credit check required, easyhome offers a flexible solution that
helps consumers get access to the goods they need, with the flexibility to terminate their lease at any time without penalty.
In 2017, easyhome began offering unsecured lending products in almost 100 easyhome locations. As at December 31, 2021, there are
120 easyhome locations offering lending products. This expansion allowed the Company to further increase its distribution footprint for
its financial services products by leveraging its existing real estate and employee base. This transition has enabled easyhome stores to
diversify its product offering and meet the broader financial needs of its customers.
In 2019, easyhome began reporting customer’s lease payments to the credit reporting agencies as a way to further enhance its vision of
providing its customers with a path to a better tomorrow. With every on-time lease payment, easyhome customers can now build their
credit and ultimately use the easyhome transaction as a stair step into other financial products and services that easyfinancial offers.
REPORTABLE OPERATING SEGMENTS
For management reporting purposes, the Company has two reportable operating segments:
•
The easyfinancial operating segment lends out capital in the form of unsecured and secured consumer loans to non-prime
borrowers. easyfinancial’s product offering consists of unsecured and real estate secured installment loans. The LendCare
operating segment specializes in financing consumer purchases in the powersports, automotive, retail, healthcare, and
home improvement categories. The majority of LendCare loans are secured by personal property or a Notice of Security
Interest. The Company aggregates operations of easyfinancial and LendCare into one reportable operating segment called
easyfinancial, on the basis of their similar economic characteristics, customer profile, nature of products, and regulatory
environment. This aggregation most accurately reflects the nature and financial results of the business activities in which
the Company engages, and the broader economic and regulatory environment in which it operates.
The Company’s chief operating decision maker (“CODM”), which has been determined by the Company to be the Chief
Executive Officer, utilizes the same key performance indicators to allocate resources and assess the performance of the
operating segments. The CODM uses several metrics to evaluate the performance of the operating segments, including but
not limited to, the volume of consumer loan originations and the risk-adjusted margin of the businesses (comprising the
yield on the consumer loan portfolios net of the annualized loss rates). These key financial and performance indicators,
which are used to assess results, manage trends and allocate resources to each of the operating segments, have been, and
are expected to remain, similar. In addition, the Company will gradually centralize and share some of the common functions
such as finance and certain aspects of human resources and information technology.
The customers served by the easyfinancial and LendCare operating segments are Canadian consumers, the majority of
whom are classified as non-prime borrowers and seeking alternative financial solutions to those of a traditional bank. These
consumers actively use a wide range of financial products and will migrate across the products offered in each segment.
Furthermore, the nature of products sold by each of the operating segments and the distribution methods of those products
are similar. Both the easyfinancial and LendCare operating segments offer unsecured and secured instalment loans, which
are offered through a retail network of branches or merchant partnerships, complemented by an online digital platform. In
addition, both operating segments are subject to the same federal and provincial legislations and regulations applicable to
the consumer lending industry.
•
The easyhome reportable operating segment provides leasing services for household furniture, appliances and electronics
and unsecured lending products to retail consumers.
Corporate Strategy
The Company has developed a strategy based on four key strategic pillars. These priorities have remained consistent since 2017
and continue in the Company’s strategic initiatives, as it furthers its vision of helping the non-prime customer access responsible
financial products on their journey to improved credit, lower rates and a better tomorrow.
The Company’s four strategic pillars include focusing on developing a wide range of credit products, expanding its channels and
points of distribution, diversifying its geographic footprint and lastly, focusing on improving the customer’s financial wellness
through its products, pricing, ancillary tools and services and customer relationships.
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PRODUCT RANGE
The Company’s objective is to build a full suite of non-prime consumer credit products, which currently includes unsecured and secured
lending products at various risk adjusted interest rates and a broad suite of value-add ancillary services. As of December 31, 2021, the
Company offers traditional unsecured instalment loans, home equity secured instalment loans, automotive vehicle financing, and loans
to finance the purchase of retail goods, powersports and recreational vehicles, home improvement and healthcare products and services.
The Company will continue to expand and grow the products it offers with the goal of providing non-prime consumers with the same type
of choices and options available to prime consumers through a traditional bank. As the Company brings new products to market, it will
explore existing conventional products as well as develop new forms of credit that meet the unique needs of its customers and can provide
meaningful improvements to their financial health. Future products may include credit cards, lines of credit and additional products for
credit establishment, including cash secured credit.
CHANNEL EXPANSION
The Company operates 3 distinct and complementary distribution and acquisition channels including 411 retail lending outlets (291
easyfinancial branches and 120 easyhome stores where loans are offered as of December 31, 2021), its online platform and point-of-sale
financing available through approximately 4,000 dealerships and merchant partners. Based on the dollar volume of originations from 2021,
the retail branch channel represented 24.8% of application volume and 57.2% of loan originations, online represented 53.8% of application
volume and 26.4% of originations and point-of-sale financing represented 21.4% of applications and 16.3% of originations. 70.8% of loan
originations were funded and/or serviced in a branch location, 22.5% were funded and/or serviced through a point-of-sale channel, with
the remainder serviced in the Company’s national shared services centre. Expanding its channels of distribution is a key strategic priority,
as the Company seeks new ways to make credit accessible in a convenient manner for its customers. The Company will continue to pursue
new opportunities that include expanding its retail network, developing a more dynamic and personalized digital experience supported by
mobile, adding new automotive and powersports dealerships, adding new merchant partnerships and seeking new third-party lending and
referral partnerships. The point-of-sale market continues to be an attractive opportunity as consumers gravitate to spreading payments
over time through a buy now, pay later model. This opportunity and the lack of supply for second look financing in Canada was key in
prompting the Company’s 2019 partnership with PayBright, now Affirm, and its acquisition of LendCare.
GEOGRAPHIC DIVERSIFICATION
Canada continues to provide a substantial runway for growth for many years to come for goeasy with over 8.2 million non-prime Canadians
facing limited options for credit. The market is vast and underserved, providing adequate room for expansion. While the Company finished
2021 with 294 easyfinancial locations, it estimates its retail footprint for easyfinancial will expand to support between 300 and 325 locations
across Canada in the coming years. The Company will continue to incrementally add locations in select markets as it works toward expanding
its footprint. In particular, retail branch expansion will be focused on the province of Quebec, which represents a large market opportunity, and
completing our footprint in key urban markets such as Toronto and Vancouver. The Company also remains focused on adding new dealer and
merchant partners across Canada to increase the distribution of its products and make them more accessible to all Canadians.
The Company also believes there is significant opportunity to consider international markets where the easyfinancial business model can
be replicated. The two markets the Company believes are the most attractive are the United States and the United Kingdom. In the United
States it is estimated that there are over 100 million non-prime consumers and in the United Kingdom it is estimated that there are over 12
million non-prime consumers. The consumers in these markets utilize credit products such as those offered by the Company. The Company
remains active in exploring potential acquisition opportunities within the domestic Canadian financial services industry, as well as in these
international markets.
FINANCIAL WELLNESS
The Company competes on a unique point of differentiation which is a focus on its customers’ financial wellness and more specifically,
the journey of providing customers a path to improve their credit and graduate back to prime borrowing rates. With 8.2 million
non-prime Canadians, of which 69% have been denied credit by banks and other financial institutions, goeasy plays an extremely
important role in the financial ecosystem. By providing access to credit and a second chance for its customers, the Company serves
as a key steppingstone in helping them rebuild their credit through products that report each payment to the credit reporting
agencies. The Company is proud to have helped over 60% of its customers improve their credit score while 1 in 3 customers have
graduated to prime lending. The Company is also focused on providing its consumers a path to reducing their cost of borrowing, by
progressively offering its customers with on-time payments access to products with lower rates of interest. Between 2017 and 2021,
the company has reduced the weighted average interest charged on its loans from 46% to 33.5%.
The Company has always set itself apart from the competition by seeing beyond the initial transaction with the customer and
instead, focusing on building one to one personalized relationships that are based on trust and respect for every customer’s unique
situation. The Company is proud to provide a free financial literacy center for all Canadians that includes hundreds of articles and
tools to help its customers better understand and manage their personal finances.
As the Company continues to evolve, ensuring its suite of products and services are designed to meet its customer’s needs across
the entire credit spectrum is critically important. Whether a customer is establishing credit as a new Canadian or repairing damaged credit
as a result of a life event, goeasy’s laddered suite of products ensures every customer has access to honest and responsible lending.
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Outlook
The discussion in this section is qualified in its entirety by the cautionary language regarding forward-looking statements found in the
“Caution Regarding Forward-Looking Statements” of this MD&A.
UPDATE ON 2021 FORECASTS
Notwithstanding, the continued impact of COVID-19, the Company experienced strong commercial performance throughout 2021, including
record high adjusted operating income, adjusted net income, and adjusted diluted earnings per share. The Company’s financial position was
enhanced by the earnings contribution from LendCare and strong organic growth in the Company’s consumer loan portfolio. Furthermore,
the Company remained well capitalized throughout the year, with approximately $978 million in total liquidity and funding capacity as at
February 16, 2022, along with a conservative level of financial leverage. The business is well positioned to withstand economic volatility
and financial stress.
The Company’s 2021 forecasts, assumptions and risk factors were disclosed in its December 31, 2020 MD&A. The Company’s forecasts
did not contemplate the acquisition of LendCare and consequently, the Company revised these forecasts in its June 30, 2021 MD&A. The
Company’s actual performance against its revised forecast for fiscal 2021 is as follows:
Gross consumer loans receivable at year-end
$2.03 billion
$1.95 - $2.05 billion
Consistent with forecast
ACTUAL RESULTS
FOR 2021
UPDATED FORECASTS
FOR 2021
OUTCOME
New easyfinancial locations opened
during the year
Total yield on consumer loans (including ancillary
products) 1
Total Company revenue growth
Net charge offs as a percentage of average gross
consumer loans receivable
Total Company operating margin
(actual/adjusted1,2)
Return on equity (actual/adjusted1,2)
Free cash flows from operations before net growth
in gross consumer loans receivable2
27
42.1%
26.6%
8.8%
34.0%/38.3%
36.7%/26.2%
$260 million
20 – 25
Above forecast
40% - 42%
Consistent with forecast
24% - 27%
Consistent with forecast
8.5% - 10.5%
Consistent with forecast
35% +
22% +
$190 million -
$230 million
Consistent with forecast
Consistent with forecast
Above forecast3
Net debt to net capitalization1
65%
64% - 66%
Consistent with forecast
1 Total yield on consumer loans (including ancillary products), adjusted total Company operating margin and adjusted return on equity are non-IFRS ratios, net debt to net capitalization is a
capital management measure and free cash flows from operations before net growth in gross consumer loans receivable is a non-IFRS measure. Non-IFRS measures, non-IFRS ratios and capital
management measures are not determined in accordance with IFRS, do not have standardized meanings and may not be comparable to similar financial measures presented by other companies.
See description in sections “Portfolio Analysis”, “Key Performance Indicators and Non-IFRS Measures” and “Financial Condition”.
2 During 2021, the Company incurred adjusting items that were outside of its normal business activities and are significant in amount and scope, which management believes are not reflective of
underlying business performance. These adjusting items include LendCare Acquisition transaction costs and integration costs, day one loan loss provision on the acquired LendCare loan book,
amortization of intangible assets acquired through the Acquisition and the realized and unrealized fair value gains on investments during the year. These adjusting items are discussed in the “Key
Performance Indicators and Non-IFRS Measures” section.
3 Free cash flows from operations before net growth in gross consumer loans receivable was higher than forecast due to slightly higher earnings and non-cash expenses such as bad debt expense
than forecasted.
THREE YEAR FORECASTS
The Company continues to pursue a long-term strategy that includes expanding its product range, developing its channels of distribution
and leveraging risk-based pricing to reduce the cost of borrowing for its consumers and extend the life of its customer relationships. As
such, the total yield earned on its consumer loan portfolio will gradually decline, while net charge off rates remain stable and operating
margins expand.
The Company’s strong financial position, combined with favorable trends in the Canadian economic environment, provides a positive
environment for the organization to continue its long track record of growth. The Company has provided a new 3-year forecast for the
years 2022 through 2024. The periods of 2022 and 2023 have been updated to reflect the most recent outlook.
44
The forecasts outlined below contemplate the Company’s expected domestic organic growth plan and do not include the impact of any
future mergers or acquisitions, or the associated gains or losses associated with its investments.
FORECASTS FOR 2022
FORECASTS FOR 2023
FORECASTS FOR 2024
Gross consumer loans receivable at year end
$2.4 - $2.6 billion
$2.9 - $3.1 billion
$3.4 - $3.6 billion
New easyfinancial locations to be opened during
the year
15 - 20
10 - 15
5
Total Company revenue
$0.97 - $1.00 billion
$1.10 - $1.14 billion
$1.24 - $1.28 billion
Total yield on consumer loans (including ancillary
products)1
Net charge offs as a percentage of average gross
consumer loans receivable
36.5% - 38.5%
35.0% - 37.0%
34.0% - 36.0%
8.5% - 10.5%
8.0% - 10.0%
8.0% - 10.0%
Total Company operating margin
Return on equity
35% +
22% +
36% +
22% +
37% +
22% +
1 Total yield on consumer loans (including ancillary products) is a non-IFRS ratio. Non-IFRS ratios are not determined in accordance with IFRS, do not have standardized meanings and may not be
comparable to similar financial measures presented by other companies. See description in section “Portfolio Analysis”.
These forecasts are inherently subject to material assumptions used to develop such forward-looking statements and risks factors as identified below.
KEY ASSUMPTIONS
In formulating the guidance provided above, the Company makes a series of assumptions, which include, but are not limited to:
Environment Conditions
• Gradual improvement and stability in the economy.
• Continued growing demand for non-prime credit.
• The effects of the COVID-19 pandemic will continue to subside through 2022.
goeasy Locations
• The new store opening plan occurs as per the Company’s stated targets.
• Continued investment in new branches, new growth opportunities and increased marketing will drive increased customer originations.
Portfolio Growth
• The Company executes on growth initiatives outlined in its strategic plan, including expansion of loan products, geographic
expansion across Canada, and increased penetration of its risk adjusted products, indirect point of-sale, secured lending products
and easyhome lending products.
• Continued growth of the consumer loans receivable portfolio, driven by new delivery channels, further geographical expansion and
continued growth of the Company’s existing lending products.
• Stable revenue generated by the Company’s easyhome business, coupled with growth of consumer lending at easyhome.
Liquidity & Funding
• The Company continues to be able to access growth capital at a reasonable cost.
Revenue Yield
• The Company expects the yield to moderate over the outlook period, due to a shift in product mix, increased use of risk adjusted
pricing within the portfolio, growth in indirect point-of-sale financing, secured lending products and increased lending activity in
provinces where loans have a lower interest rate.
• The effective yield earned on the sale of ancillary products reduces as the average loan size increases.
• Yield and loss rates of risk adjusted and secured lending products are as estimated in the Company’s budget and strategic plan.
Credit Performance
• Net charge off rates for the existing products remain at current levels, while net charge off rates for risk adjusted and secured
lending products continue to perform in line with the Company’s forecast.
• The mixture of customers acquired through each of the Company’s acquisition channels and the mixture of new and existing
borrowers are as estimated in the Company’s forecast.
Investment Performance
• The fair value of Investments are assumed to remain static, as no forecast is made on changes in carrying value of the investment portfolio.
Mergers and Acquisitions
• No mergers and acquisitions were contemplated in the forecasts.
45
KEY RISK FACTORS
These forecasts are inherently subject to risks as identified in the following, as well as those risks, which are referred to in the section
entitled “Risk Factors” as described in this MD&A.
Environmental & Market Conditions
• Impact of COVID-19 pandemic
The Company’s business has been impacted by the COVID-19 pandemic, which has created significant societal and economic
disruptions. The COVID-19 pandemic has had, and will continue to have, a broad impact across industries and the economy, including
effects on consumer confidence, global financial markets, regional and international travel, supply chain distribution of various
products for many industries, government and private sector operations, the price of consumer goods, country-wide lockdowns in
various regions of the world, and numerous other impacts on daily life and commerce.
With the active vaccination campaigns during the year, Canada saw improvements in containing outbreaks of the COVID-19 pandemic
and the economy reopened at a different pace across the country. Lighter control measures led to partial economic recovery.
However, towards the end of 2021, the emergence of new variants, including the Omicron variant, have led the Canadian government,
and governments around the world, to re-institute measures to combat the spread of COVID-19, including, but not limited to: the
implementation of travel bans, border closings, mandated capacity limits and closures, self-imposed quarantine periods and social
and physical distancing policies, which have contributed to the material disruption to businesses globally, resulting in continued
economic uncertainty.
The ever-changing and rapidly-evolving effects of COVID-19, the duration, extent and severity of which are currently unknown, on
investors, businesses, the economy, society and the financial markets could, among other things, add volatility to the global stock
markets, change interest rate environments, and increase delinquencies and defaults. With the stricter control measures back in
place, the Company will continue to remain vigilant in its efforts to mitigate the impact of COVID-19 related risks to the Company. The
COVID-19 virus, and the measures to prevent its spread, may continue to contribute to a higher level of uncertainty with respect to
management’s judgements and estimates.
• Uncertainty around overall consumer demand during times of business disruption.
• Increased levels of unemployment or economic instability.
• Business conditions are within acceptable parameters with respect to consumer demand, competition and margins.
Real Estate
• The Company’s ability to renew existing leases and secure new locations.
Access to Capital & Funding
• Continued access to reasonably priced capital and funding.
Regulatory Environment
• Changes to regulations governing the products offered by the Company.
Credit Performance
• Material increase of net charge off rates.
Merchant Partnerships and Point-of-Sale Channel
• The Company’s ability to continue to secure and maintain merchant partnerships and point-of-sale channel.
Analysis of Results for the Year Ended December 31, 2021
FINANCIAL HIGHLIGHTS AND ACCOMPLISHMENTS
• On January 1, 2021, PayBright sold 100% of its shares to Affirm Holdings Inc. (“Affirm”), including the Company’s minority equity
interest in PayBright. Under the terms of the sale transaction, on January 1, 2021, the Company received total consideration, which
was valued at that time, as follows:
• Cash of $23.0 million, excluding one-time expenses and closing adjustments and including $2.1 million held in escrow;
• Equity in Affirm with a value of $21.5 million; and
• Contingent equity in Affirm with a value of $15.4 million, subject to revenue performance achieved in 2021 and 2022.
Subsequent to the closing of the sale transaction, Affirm completed an initial public offering and its shares now trade on the Nasdaq Global
Select Market under the symbol “AFRM”. The equity consideration received by the Company was subject to customary lock-up agreements in
connection with Affirm’s initial public offering. Subsequent to Affirm’s initial public offering, the Company entered into a 6-month total return
swap ("TRS") agreement to substantively hedge its market exposure related to its equity in Affirm which represents the non-contingent
portion of the equity consideration received, pursuant to the sale of its investment in PayBright. The TRS effectively results in the economic
value of the Company’s non-contingent shares in Affirm being settled in cash at maturity for USD$108.87, net of applicable fees.
46
In August 2021, the lock-up period for the non-contingent portion of the equity investment in Affirm ended and the Company sold all non-
contingent Affirm shares with a total consideration of $54.6 million and realized a fair value gain of $33.0 million under Other income in the
consolidated statement of income. Concurrently, the TRS related to the non-contingent portion of the equity in Affirm was settled in August
2021 for $33.3 million, which was recognized as a realized fair value gain under Other income in the consolidated statement of income.
In September 2021, the Company entered into a 9-month TRS agreement to partially hedge its market exposure related to 100,000 contingent
shares of Affirm. This TRS effectively results in the economic value of the hedged portion of the Company’s contingent equity in Affirm being
settled in cash at maturity for USD$110.35 per share, net of applicable fees. This TRS does not meet the criteria for hedge accounting.
In November 2021, the Company entered into a 7-month TRS agreement to partially hedge its market exposure related to an additional
75,000 contingent shares of Affirm. This TRS effectively results in the economic value of the hedged portion of the Company’s contingent
equity in Affirm being settled in cash at maturity for USD$163.00 per share, net of applicable fees. This TRS does not meet the criteria for
hedge accounting.
The fair value of investment in Affirm as at December 31, 2021 of $53.5 million resulted in a before-tax unrealized fair value gain for the
period of $42.0 million for the year. Included in the Derivative financial assets is the change in fair value of the above 9-month and 7-month
TRS related to the contingent portion of the equity in Affirm for the year ended December 31, 2021 amounting to $7.0 million, which was
recognized as an unrealized fair value gain under Other income in the consolidated statement of income.
• In 2021, the Company invested $10.5 million to acquire a minority equity interest in Brim Financial Inc. (“Brim”), a Canadian fintech
company and globally certified credit card issuer.
• On April 30, 2021 (“Acquisition Date”), through its newly created wholly-owned subsidiary, 2830844 Ontario Inc., the Company
acquired 100% of the outstanding equity of LendCare, a Canadian point-of-sale consumer finance and technology company, from
LendCare’s founders and CIVC Partners for consideration of $324.8 million, of which $313.0 million was paid in cash and $11.8
million was paid in the Company’s common shares (the “Acquisition”). The $11.8 million fair value of the 81,400 common shares
issued as consideration was calculated with reference to the closing price of the Company’s common shares on the Acquisition Date.
The Company determined the fair value of the identifiable net assets and liabilities, goodwill and intangible assets acquired of
LendCare at the date of acquisition as follows :
Total identifiable net assets acquired
Intangible assets
Goodwill
Deferred tax liabilities
Total purchase consideration transferred
Purchase consideration
Cash
Common shares
Total consideration
Analysis of cash flows on Acquisition
Transaction costs of the Acquisition (included in cash flows from operating activities)
Cash used in Acquisition, net of cash acquired (included in cash flows from investing activities)
Issuance of notes payable, net of financing charges (included in cash flows from financing activities)
Issuance of common shares, net of issuance costs (included in cash flows from financing activities)
Payment of notes payable (included in cash flows from financing activities)
Net cash flow on Acquisition
AMOUNT
71,212
134,186
159,613
(40,229)
324,782
312,945
11,837
324,782
(9,341)
(281,041)
391,516
164,812
(243,567)
22,379
The goodwill of $159.6 million largely reflects the synergies of combining and streamlining the Company’s current business
with LendCare’s operations. Goodwill is not deductible for income tax purposes.
47
• In connection with the Acquisition, on April 16, 2021, the Company closed its bought deal equity offering of 1,404,265 subscription
receipts of the Company (“Subscription Receipts”) (including 183,165 Subscription Receipts issued pursuant to the exercise in full
by the syndicate of underwriters of the over-allotment option granted by the Company), at a price of $122.85 per Subscription
Receipt, for gross aggregate proceeds of $172.5 million (the “Offering”). The Subscription Receipts issued pursuant to the Offering
commenced trading on the TSX on April 16, 2021 under the ticker symbol GSY.R. As a result of the completion of the Acquisition on
April 30, 2021, each of the 1,404,265 outstanding Subscription Receipts were automatically exchanged for one common share of the
Company. The Subscription Receipts were delisted from the TSX after the close of market on April 30, 2021.
As share consideration for the acquisition of LendCare, the Company issued 81,400 common shares to LendCare’s founders valued
at $11.8 million, calculated with reference to the closing price of the Company’s common shares on the Acquisition Date.
• On April 29, 2021, the Company closed its offering of US$320 million of 4.375% senior unsecured notes maturing on May 1, 2026
(“2026 Notes”) with interest payable semi-annually on May 1 and November 1 of each year and commencing on November 1, 2021.
Concurrently with the offering, the Company entered into a cross currency swap agreement to fix the foreign exchange rate for the
proceeds from the offering and for all required payments of principal and interest under these 2026 Notes at a fixed exchange rate
of USD1.000 = CAD1.2501, effectively hedging the obligation at $400 million with a Canadian dollar interest rate of 4.818%.
• In September 2021, the Company increased its revolving securitization warehouse facility to $600 million, from its prior $200 million
capacity. The revolving securitization warehouse facility continues to be structured and underwritten by National Bank Financial
Markets (“NBFM”) under a new three-year agreement, which incorporates favourable key modifications, including improvements
to eligibility criteria and advance rates. The interest on advances are payable at the rate of 1-month Canadian Dollar Offered Rate
(“CDOR”) plus 185 bps, an improvement of 110 bps. The Company continued utilizing an interest rate swap agreement to generate fixed
rate payments on the amounts drawn and mitigate the impact of interest rate volatility. Proceeds from the revolving securitization
warehouse facility will be used for general corporate purposes, including funding growth of its consumer loan portfolio, originated
by both its easyfinancial Services Inc. and LendCare subsidiaries.
In January 2022, the Company further increased its revolving securitization warehouse facility from $600 million to $900 million. The
revolving securitization warehouse facility continues to be underwritten by NBFM, with the addition of new lenders to the syndicate.
The facility matures on December 7, 2023 and continues to bear interest on advances payable at the rate equal to 1-month CDOR
plus 185 bps.
• In January 2022, the Company amended its revolving credit facility agreement. The amendments reduced the maximum principal
amount available from $310 million to $270 million, with the maturity extended to January 27, 2025 and increased the accordion
feature from $75 million to $100 million. The amendments also include key modifications including improved advance rates, less
restrictive covenants, and a broader syndicate of banks. On lender’s prime rate (“Prime”) advances, the interest rate payable has
been reduced by 125 bps, from the previous rate of Prime plus 200 bps to Prime plus 75 bps. On draws elected to be taken utilizing
the Canadian Bankers’ Acceptance (“BA”) rate, the interest rate payable has been reduced by 75 bps from the previous rate of BA
plus 300 bps to BA plus 225 bps.
• As at December 31, 2021, the Company had a cash position of $102.5 million which includes $13.3 million of net restricted
cash related to its cross-currency and total return swap contracts, and $27.6 million in restricted cash related to its revolving
securitization warehouse facility and secured borrowings reserve. As at December 31, 2021, the Company has borrowing
capacities of $305 million under its revolving securitization warehouse facility and $310 million under its revolving credit facility.
The cash position of $102.5 million and total borrowing capacities of $615 million represented $717.5 million in total liquidity
as at December 31, 2021. The Company also has the ability to exercise the accordion feature under its revolving credit facility to
add an additional $75 million in borrowing capacity. The current total liquidity, excluding future enhancements or diversification
of funding sources, provide adequate growth capital for the Company to execute its organic growth plan and meet its forecast
through the fourth quarter of 2023.
The expansion of the revolving securitization warehouse facility by $300 million and the reduction of the revolving credit facility
by $40 million brings the total liquidity to $977.5 million as at February 16, 2022. The current total liquidity, excluding further
enhancements or diversification of funding sources, provide adequate growth capital for the Company to execute its organic growth
plan and meet its forecast through the fourth quarter of 2024.
• Gross consumer loans receivable increased from $1.25 billion as at December 31, 2020 to $2.03 billion as at December 31, 2021,
an increase of $783.5 million, or 62.8%. The growth was fueled by i) the $444.5 million of acquired gross consumer loans receivable
from the acquisition of LendCare; ii) increased originations from the Company’s point-of-sale channel; iii) increased originations of
unsecured loans and real estate secured loans; iv) the maturation of the Company’s retail branch network and further geographical
expansion; v) lending in the Company’s easyhome stores; vi) growth of the Company’s auto lending program and vii) ongoing
enhancements to the Company’s digital properties.
48
• Net charge offs in the year as a percentage of the average gross consumer loans receivable on an annualized basis were 8.8%, 120
bps lower compared to the same period of 2020 of 10.0%. The change in the net charge off rate was due to the combined effect of
improved product and credit mix of the portfolio, inclusive of the acquisition of LendCare, which has a higher proportion of secured
loans resulting in a lower net charge offs and the improvement in the payment performance of the Company’s gross consumer
loan portfolio related to macro-economic conditions related to the COVID-19 pandemic. Net charge offs were below the Company’s
targeted level due to the significant reduction in consumer expenses caused by economic closures and the increased degree of
federal financial support available to customers during the COVID-19 pandemic.
• During the year, the net change in allowance for future credit losses increased by $15.5 million due to the day one loan loss provision
of $14.3 million related to the acquired LendCare loan book, coupled with higher level of loan book growth, when compared to
the comparable period of 2020. The provision rate for the year decreased to 7.87% from 10.08% in 2020, primarily due to the
improved credit performance of the Company’s gross consumer loan portfolio driven by the Company’s proactive series of credit
model enhancements and underwriting adjustments in recent years to improve the long-term credit quality of the portfolio, and the
acquisition of the LendCare loan book, which has a lower provision rate.
• easyfinancial reported record operating income and operating margin in 2021. easyfinancial operating income was $324.8 million,
compared with $242.6 million in 2020, an increase of $82.2 million, or 33.9%. The improved operating income was driven by the
continued organic growth in the Company’s loan book, the continued improvement in the credit and payment performance of
the Company’s gross consumer loan portfolio related to macro-economic conditions related to the COVID-19 pandemic and the
acquisition of LendCare. As a result, easyfinancial revenue increased by $166.4 million, partially offset by an increase of $45.6 million
in bad debt expense and $38.6 million of incremental expenditures due to the acquisition of LendCare. easyfinancial’s operating
margin for the year was 48.0%, compared to 47.6% reported in 2020.
• easyhome reported record operating income and operating margin in 2021. easyhome’s operating income was $36.9 million,
compared with $31.0 million in 2020, an increase of $5.8 million, or 18.7% driven by an increase in the leasing rate and improved
product mix change and the growth of consumer lending within the easyhome stores. easyhome’s operating margin for the year was
24.5%, an increase from the 21.7% reported in 2020.
• Total Company operating income in 2021 was a record $281.0 million, up $64.6 million, or 29.8%, when compared to 2020. The
Company also reported a record operating margin for the year of 34.0%, up from the 33.1% reported in 2020. During 2021, the
Company incurred adjusting items that were outside of its normal business activities and are significant in amount and scope, which
management believes are not reflective of underlying business performance. These adjusting items include LendCare Acquisition
transaction costs and integration costs, day one loan loss provision on the acquired LendCare loan book, amortization of intangible
assets acquired through the Acquisition and the realized and unrealized fair value gains on investments during the year. These
adjusting items are discussed in the “Key Performance Indicators and Non-IFRS Measures” section. Excluding the effects of these
adjusting items, the Company reported a record adjusted operating income1 for the year of $316.7 million, up $100.2 million, or
46.3%, when compared to 2020. The Company also reported a record adjusted operating margin1 of 38.3% for the year, up from the
33.1% reported in 2020. The increase in operating margin was mainly driven by the higher revenue during the year associated with
the larger consumer loan portfolio, partially offset by higher operating expenses.
• goeasy achieved record reported and adjusted net income1 and reported and adjusted diluted earnings per share1 in 2021. The Company’s
net income for 2021 was $244.9 million, or $14.62 per share on a diluted basis, up 79.4% and 66.9%, respectively, against the $136.5
million, or $8.76 per share on a diluted basis reported in 2020. Excluding the effects of the adjusting items discussed in “Key Performance
Indicators and Non-IFRS Measures” section, the adjusted net income for 2021 was $174.8 million, or $10.43 per share on a diluted basis.
On this basis, adjusted net income and adjusted diluted earnings per share increased by 48.5% and 37.8%, respectively.
• goeasy achieved record reported return on equity of 36.7% in 2021, compared to 36.1% in 2020. Adjusted return on equity1 during
the year was 26.2%, down from 31.1% in 2020. The decline in adjusted return on equity was primarily related to the higher level of
shareholders’ equity resulting from the $172.5 million bought deal equity offering related to the LendCare Acquisition, partially offset
by the increased earnings produced by the larger consumer loan portfolio.
• goeasy achieved record reported return on tangible common equity1 of 50.7% in 2021, compared to 38.3% in 2020. Adjusted return
on tangible common equity1 during the year was 35.3%, up from 33.0% in 2020. The increase in adjusted return on tangible common
equity1 was driven by the increased earnings produced by the larger consumer loan portfolio.
• In consideration of the improved earnings achieved in 2021, and the Company's confidence in its continued growth and access to capital
going forward, the Board of Directors approved a 38% increase to the annual dividend from $2.64 per share to $3.64 per share in 2022.
1 Adjusted operating income and adjusted net income are non-IFRS measures. Adjusted operating margin, adjusted diluted earnings per share, adjusted return on equity and reported and
adjusted tangible common equity are non-IFRS ratios. Non-IFRS measures and non-IFRS ratios are not determined in accordance with IFRS, do not have standardized meanings and may not be
comparable to similar financial measures presented by other companies. See descriptions in section “Key Performance Indicators and Non-IFRS Measures”.
49
SUMMARY OF FINANCIAL RESULTS AND KEY PERFORMANCE INDICATORS
YEAR ENDED
December 31,
2021
December 31,
2020
VARIANCE
$ / BPS
VARIANCE
% CHANGE
($ in 000’s except earnings per share and percentages)
Summary Financial Results
Revenue
Operating expenses before depreciation and amortization2
EBITDA1
EBITDA margin1
Depreciation and amortization expense2
Operating income
Operating margin
Other income2,3
Finance costs2
Effective income tax rate
Net income
Diluted earnings per share
Return on assets
Return on equity
Return on tangible common equity1
Adjusted Financial Results1,2,3
Adjusted operating income
Adjusted operating margin
Adjusted net income
Adjusted diluted earnings per share
Adjusted return on assets
Adjusted return on equity
Adjusted return on tangible common equity
Key Performance Indicators
Same store revenue growth (overall)1
Same store revenue growth (easyhome)1
Segment Financials
easyfinancial revenue
easyfinancial operating margin
easyhome revenue
easyhome operating margin
Portfolio Indicators
Gross consumer loans receivable
Growth in consumer loans receivable4
Gross loan originations
826,722
466,833
438,921
53.1%
78,886
281,003
34.0%
114,876
79,025
22.7%
244,943
14.62
11.5%
36.7%
50.7%
316,652
38.3%
174,759
10.43
8.2%
26.2%
35.3%
12.1%
6.0%
676,351
48.0%
150,371
24.5%
652,922
371,763
267,129
40.9%
64,723
216,436
33.1%
21,740
54,992
25.5%
136,505
8.76
9.8%
36.1%
38.3%
216,436
33.1%
117,646
7.57
8.5%
31.1%
33.0%
6.3%
4.5%
509,904
47.6%
143,018
21.7%
2,030,339
1,246,840
783,499
136,207
1,594,480
1,033,130
173,800
95,070
171,792
1,220 bps
14,163
64,567
90 bps
93,136
24,033
(280 bps)
108,438
5.86
170 bps
60 bps
1,240 bps
100,216
520 bps
57,113
2.86
(30 bps)
(490 bps)
230 bps
580 bps
150 bps
166,447
40 bps
7,353
280 bps
783,499
647,292
561,350
26.6%
25.6%
64.3%
29.8%
21.9%
29.8%
2.7%
428.4%
43.7%
(11.0%)
79.4%
66.9%
17.3%
1.7%
32.4%
46.3%
15.7%
48.5%
37.8%
(3.5%)
(15.8%)
7.0%
92.1%
33.3%
32.6%
0.8%
5.1%
12.9%
62.8%
475.2%
54.3%
(7.5%)
Total yield on consumer loans (including ancillary products)1
42.1%
45.5%
(340 bps)
Net charge offs as a percentage of average gross
consumer loans receivable
Free cash flows from operations before net growth in
gross consumer loans receivable1
Potential monthly lease revenue1
8.8%
10.0%
(120 bps)
(12.0%)
260,104
8,193
210,619
8,461
49,485
(268)
23.5%
(3.2%)
1 EBITDA, adjusted operating income, adjusted net income and free cash flows from operations before net growth in gross consumer loans receivable are non-IFRS measures. EBITDA margin,
adjusted operating margin, adjusted diluted earnings per share, adjusted return on equity, adjusted return on asset, reported and adjusted return on tangible common equity and total yield
on consumer loans (including ancillary products) are non-IFRS ratios. Same store revenue growth (overall), same store revenue growth (easyhome) and potential monthly lease revenue are
supplementary financial measures. Non-IFRS measures, non-IFRS ratios and supplemental financial measures are not determined in accordance with IFRS, do not have standardized meanings
and may not be comparable to similar financial measures presented by other companies. See description in sections “Portfolio Analysis”, “Key Performance Indicators and Non-IFRS Measures”
and “Financial Condition”.
50
2 During the year ended December 31, 2021, the Company had a total of $77.5 million before-tax ($70.2 million after-tax) adjusting items which include:
Adjusting items related to the LendCare Acquisition
• Transaction costs of $9.3 million before-tax ($8.9 million after-tax) which include advisory and consulting costs, legal costs, and other direct transaction costs related to the acquisition of
•
LendCare reported under Operating expenses before depreciation and amortization amounting to $7.6 million which are non tax-deductible and loan commitment fees related to the acquisition
of LendCare reported under Finance costs amounting to $1.7 million before-tax ($1.3 million after-tax);
Integration costs related to advisory and consulting costs, employee incentives, representation and warranty insurance cost, and other integration costs related to the acquisition of LendCare
and the write off of certain software as a result of the integration with LendCare. Integration costs amounting to $5.0 million before-tax ($3.7 million after-tax) were reported under Operating
expenses before depreciation and amortization;
• Bad debt expense related to the day one loan loss provision on the acquired loan portfolio from LendCare amounting to $14.3 million before-tax ($10.5 million after-tax); and
•
Amortization of $131 million intangible asset related to the acquisition of LendCare with an estimated useful life of ten years amounting to $8.7 million before-tax ($6.4 million after-tax).
Adjusting item related to other income
• Realized and unrealized fair value gains mainly on investments in Affirm and TRS amounting to $114.9 million before-tax ($99.7 million after-tax).
3 During the year ended December 31, 2020, the Company’s adjusting item included:
• Unrealized fair value gain on investment in PayBright amounting to $21.7 million before-tax ($18.9 million after-tax).
4 Growth in consumer loans receivable during the year includes gross loans purchased through the LendCare Acquisition amounting to $444.5 million.
LOCATIONS SUMMARY
easyfinancial
Kiosks (in store)
Stand-alone locations
Operations Centers
Total easyfinancial locations
easyhome
Corporately owned stores
Franchise stores
Total easyhome stores
Corporate
Corporate office
LOCATIONS AS AT
DECEMBER 31, 2020
LOCATIONS
OPENED/ACQUIRED
IN THE YEAR1
LOCATIONS CLOSED
IN THE YEAR
CONVERSIONS
LOCATIONS AS AT
DECEMBER 31, 2021
14
251
1
266
126
35
161
1
1
1
26
2
29
-
-
-
-
-
(1)
-
-
(1)
(2)
(1)
(3)
-
-
(9)
9
-
-
-
-
-
-
-
5
286
3
294
124
34
158
1
1
Total corporate office
1 Includes locations acquired through the acquisition of LendCare.
SUMMARY OF FINANCIAL RESULTS BY REPORTING SEGMENT
($ IN 000'S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL1
EASYHOME
CORPORATE
TOTAL
YEAR ENDED DECEMBER 31, 2021
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
Total operating expenses before depreciation and amortization
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Depreciation of right-of-use assets
Operating income (loss)
Other Income
Finance costs
Interest expense and amortization of deferred financing charges
Interest expense on lease liabilities
Income before income taxes
Income taxes
Net income
Diluted earnings per share
512,810
-
152,485
11,056
676,351
323,381
18,553
9,666
28,219
324,751
22,828
112,371
11,249
3,923
150,371
-
-
-
-
-
68,706
74,746
37,115
7,689
44,804
36,861
5,011
852
5,863
(80,609)
535,638
112,371
163,734
14,979
826,722
466,833
60,679
18,207
78,886
281,003
114,876
75,910
3,115
79,025
316,854
71,911
244,943
14.62
1 LendCare’s financial results are reported under the easyfinancial reportable operating segment. For additional details, please refer to “Overview of the Business” section.
51
($ IN 000'S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
YEAR ENDED DECEMBER 31, 2020
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
392,450
-
109,246
8,208
509,904
17,133
112,796
8,667
4,422
143,018
-
-
-
-
-
409,583
112,796
117,913
12,630
652,922
Total operating expenses before depreciation and amortization
251,897
67,261
52,605
371,763
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Depreciation of right-of-use assets
Operating income (loss)
Other Income
Finance costs
Interest expense and amortization of deferred financing charges
Interest expense on lease liabilities
Income before income taxes
Income taxes
Net income
Diluted earnings per share
PORTFOLIO PERFORMANCE
7,665
7,753
15,418
242,589
37,209
7,489
44,698
31,059
3,666
941
4,607
(57,212)
48,540
16,183
64,723
216,436
21,740
52,248
2,744
54,992
183,184
46,679
136,505
8.76
Consumer Loans Receivable
The gross consumer loans receivable portfolio increased from $1.25 billion as at December 31, 2020 to $2.03 billion as at December 31, 2021, an
increase of $783.5 million, or 62.8%. Loan originations for the year were $1.59 billion, up 54.3% from 2020. The growth was fueled by i) the $444.5
million of acquired gross consumer loans receivable from the acquisition of LendCare; ii) increased originations from the Company’s point-of-sale
channel; iii) increased originations of unsecured loans and real estate secured loans; iv) the maturation of the Company’s retail branch network and
further geographical expansion; v) lending in the Company’s easyhome stores; vi) growth of the Company’s auto lending program and vii) ongoing
enhancements to the Company’s digital properties.
The total annualized yield, including loan interest, fees and ancillary products, realized by the Company on its average consumer loans receivable
was 42.1% in the year, down 340 bps from 2020. The total annualized yield decreased due to i) the acquisition of LendCare, which finances consumer
purchases in powersports, automotive, home improvement, healthcare and retail categories which carry lower rates of interests; ii) the increased
penetration of risk adjusted interest rate and real estate secured loans, which also have larger loan sizes and longer amortization periods; iii)
increased lending activity in provinces where loans have a lower interest rate; iv) a higher proportion of larger dollar loans which have reduced
pricing on certain ancillary products; and v) a modest reduction in penetration rates on ancillary products.
Bad debt expense increased to $182.0 million for the year from $135.0 million in 2020, an increase of $47.1 million, or 34.9%. The following table
details the components of bad debt expense:
($ IN 000’S)
DECEMBER 31, 2021
DECEMBER 31, 2020
YEAR ENDED
Provision required due to net charge offs
Impact of loan book growth
Day one loan loss provision on the acquired LendCare loans
Impact of change in provision rate in the year
Net change in allowance for credit losses
Bad debt expense
52
147,998
24,739
14,252
(4,905)
34,086
182,084
116,429
13,699
-
4,870
18,569
134,998
Bad debt expense increased by $47.1 million due to three factors:
(i) Net charge offs increased from $116.4 million in 2020, to $148.0 million in the year, an increase of $31.6 million. Net charge
offs in the year as a percentage of the average gross consumer loans receivable on an annualized basis were 8.8%, compared
to 10.0% in 2020. The decrease in the rate of net charge offs was primarily due to the improved product and credit mix of
the portfolio, inclusive of the acquisition of LendCare, which has a higher proportion of secured loans resulting in a lower
net charge offs and the improvement in the payment performance of the Company’s gross consumer loan portfolio related
to macro-economic conditions caused by the COVID-19 pandemic, such as reduced consumer spending and government
financial subsidies.
(ii) The acquisition of LendCare increased the bad debt provision expense by $14.3 million related to the acquired loan book of
$444.5 million. Excluding the acquired loan book, the Company’s loan portfolio increased in 2021 by $339.0 million, resulting
in a provision expense of $24.7 million, compared to the loan book growth of $136.2 million in 2020 which, resulted in a higher
provision expense of $13.7 million.
(iii) The impact of provision rate changes in the year resulted in bad debt expense decreasing by $9.8 million, when compared
to 2020. In the prior year, the provision rate increased from 9.64% to 10.08% which resulted in a $4.9 million increase in
bad debt expense. During the year, the provision rate decreased from 10.08% to 7.87% primarily due to the improved credit
performance of the Company’s gross consumer loan portfolio driven by the Company’s proactive series of credit model
enhancements and underwriting adjustments in recent years to improve the long-term credit quality of the portfolio, and the
acquisition of the LendCare loan book, which is predominately secured loans and carries a lower provision rate.
easyhome Leasing Portfolio
The leasing portfolio, as measured by potential monthly lease revenue as at December 31, 2021, was $8.2 million, down from the $8.5 million
reported as at December 31, 2020. The decrease was due to lower lease agreements, partially offset by an increase in the average leasing rate, due
in part to changes in product mix, and selected pricing adjustments. The growth of consumer lending within the easyhome stores contributed to the
overall increase in revenues.
Revenue
Revenue for the year was $826.7 million, compared to $652.9 million in 2020, an increase of $173.8 million, or 26.6%. Overall
same store sales growth for 2021 was 12.1%. Revenue growth was driven mainly by the revenue contribution of LendCare and
the growth of the Company’s consumer loan portfolio.
easyfinancial – Revenue in 2021 was $676.4 million, an increase of $166.4 million, or 32.6%, compared to 2020. The components
of the increased revenue include:
(i) Interest income increased by $120.4 million, or 30.7% driven by the 62.8% growth in the loan portfolio which includes the
acquired loan portfolio from LendCare, partially offset by lower interest yields;
(ii) Commissions earned from sales of ancillary products and services increased by $43.2million, or 39.6%, due to the larger
consumer loan portfolio and lower claims costs associated with the Company’s Loan Protection Program in the year; and
(iii) Charges and fees increased by $2.8 million.
easyhome – Revenue for 2021 was $150.4 million, an increase of $7.4 million, or 5.1%, compared to 2020. Lending revenue within
the easyhome stores increased by $8.4 million, compared to 2020. Traditional leasing revenue for the year decreased by $1.1
million, compared to 2020. The components of easyhome revenue include:
(i) Interest revenue increased by $5.7 million due to the growth of consumer loans receivable related to the easyhome business;
(ii) Lease revenue was lower by $0.4 million due to a smaller lease portfolio;
(iii) Commissions earned on the sale of ancillary products at easyhome increased by $2.6 million. The increase is due to higher
revenues associated with the Company’s Loan Protection Program; and
(iv) Charges and fees decreased by $0.5 million primarily due to a decline in reinstatement fees.
Total Operating Expenses before Depreciation and Amortization
Total operating expenses before depreciation and amortization for the year were $466.8 million, an increase of $95.1 million, or
25.6% from 2020. The increase in operating expenses before depreciation and amortization was mainly driven by the LendCare
Acquisition transaction and integration costs and the operating expense contribution of LendCare.
53
easyfinancial – Total operating expenses before depreciation and amortization were $323.4 million in the year, an increase of $71.5 million, or
28.4% from 2020. Key drivers include:
(i) Bad debt expense increased by $45.6 million in the year, when compared to 2020, driven by an increase of $29.9 million in net charge offs
associated with the larger portfolio, coupled with the day one loan loss provision expense of $14.3 million related to the acquired LendCare
loan book;
(ii) A $3.2 million increase in advertising and marketing spend; and
(iii) Other operating expenses increased by $22.7 million in the year driven by the acquisition of LendCare resulting in increased costs to
operate and manage the growing loan portfolio, merchant and branch network. Overall branch count increased from 266 as at December
31, 2020 to 294 as at December 31, 2021.
easyhome – Total operating expenses before depreciation and amortization were $68.7 million in the year, which was $1.4 million higher than 2020.
Key drivers include:
(i) A $1.5 million increase in bad debt due to a larger loan portfolio; and
(ii) A $0.8 million increase in advertising, distribution and store admin cost;
(iii) Partially offset by a $0.9 million decrease in store costs.
Corporate – Total operating expenses before depreciation and amortization for the year were $74.7 million which includes LendCare Acquisition
transaction and integration costs of $7.6 million and $5.0 million, respectively. Excluding the transaction and integration costs, operating expenses before
depreciation and amortization for 2021 were $62.1 million, compared to $52.6 million in 2020, an increase of $9.5 million, or 18.1%. The increase was
primarily due to increased infrastructure and technology costs associated with the business expansion. Excluding the transaction and integration costs,
corporate expenses before depreciation and amortization represented 7.5% of revenue in 2021, compared to 8.1% of revenue in 2020.
Depreciation and Amortization
Depreciation and amortization for the year was $78.9 million, an increase of $14.2 million from 2020. Overall, depreciation and amortization
represented 9.5% of revenue for 2021, a decline from 9.9% reported in 2020.
easyfinancial – Total depreciation and amortization was $28.2 million for the year. This included $9.7 million of right-of-use asset depreciation,
$1.9 million higher than the $7.8 million reported in 2020. Depreciation of property and equipment and intangibles in 2021 was $18.6 million, $10.9
million higher than 2020, driven mainly by the $8.7 million amortization of intangible assets acquired through the acquisition of LendCare .
easyhome – Total depreciation and amortization expense was $44.8 million for the year. Depreciation and amortization of lease assets, property
and equipment and intangibles was $37.1 million in the year, flat compared with $37.2 million in 2020. easyhome’s depreciation and amortization
of lease assets, property and equipment and intangibles expressed as a percentage of easyhome revenue for 2021 was 24.7%, down from the
26.0% reported in 2020. The rate reduction was due to a smaller lease asset base against a revenue base with an increasing proportion being
generated from consumer lending.
Corporate – Depreciation and amortization was $5.9 million for the year, an increase of $1.3 million from 2020. The increase was mainly due to
higher amortization of intangible assets and depreciation of property and equipment, primarily driven by new software additions and leasehold
improvements recognized over the past 12 months.
Operating Income (Income before Finance Costs and Income Taxes)
Operating income for the year was $281.0 million, up $64.6 million, or 29.8%, when compared to 2020. The Company’s operating margin for the year
was 34.0%, up from the 33.1% reported in 2020. Excluding the effects of the adjusting items discussed in “Key Performance Indicators and Non-
IFRS Measures”, the Company reported an adjusted operating income of $316.7 million, up $100.2 million, or 46.3%, when compared to 2020. The
increase in operating margin was mainly driven by higher revenue during the year associated with the larger consumer loan portfolio, partially offset
by higher operating expenses. The Company also reported an adjusted operating margin of 38.3% for the year, up from the 33.1% reported in 2020.
easyfinancial – Operating income was $324.8 million for the year, compared with $242.6 million in 2020, an increase of $82.2 million, or 33.9%. The
improvement in operating income was driven by a $166.4 million increase in revenue related to continued growth in the Company’s consumer loan
portfolio including the loans acquired through the acquisition of LendCare, partially offset by i) a $45.6 million increase in bad debt expense driven
by the day one loan loss provision on the acquired LendCare loan book coupled with increased charge offs associated with the larger portfolio; ii) a
$12.8 million increase in depreciation and amortization mainly related to LendCare intangible assets; and iii) a $25.8 million increase in incremental
expenditures to support the growing customer base, enhance the product offering and expand the retail footprint. Operating margin in the year was
48.0%, compared with 47.6% reported in 2020.
easyhome – Operating income was $36.9 million for the year, an increase of $5.8 million, or 18.7%, when compared to 2020. The increase
was mainly due the growth of consumer lending within the easyhome stores, a higher leasing rate and a shift in product mix. Operating
margin for the year was 24.5%, an increase from the 21.7% reported in 2020.
54
Other Income
During the year, the Company recognized total fair value before-tax gains of $114.9 million mainly related to i) the realized fair value
gains from the sale of the non-contingent portion of the Company’s equity investments in Affirm of $33.0 million and the settlement of the
related TRS of $33.3 million; and ii) the unrealized fair value gains of $41.6 million on Investments mainly on the contingent portion of the
Company’s equity investments in Affirm and the unrealized fair value gains on the related TRS of $7.0 million.
Finance Costs
Finance costs for the year were $79.0 million, an increase of $24.0 million from 2020. The increase was mainly driven by financing
expenses related to the Acquisition, the issuance of 2026 Notes related to the Acquisition and higher borrowing levels to fund the growth of
the Company’s lending business partially offset by the strong free cash flows from operations before net growth in gross consumer loans
receivable, which grew 23.5% from 2020. The increase was partially offset by the lower cost of borrowing. In 2021, the Company utilized its
revolving securitization warehouse facility, which bears lower interest rate. The average blended coupon interest rate on drawn balances
for the Company’s debt as at December 31, 2021, was 4.9%, down from 5.2% as at December 31, 2020.
Income Tax Expense
The effective income tax rate for the year was 22.7%, lower than the 25.5% reported in 2020, driven by the higher fair value gains on
Investments, which are taxed at a lower capital gains effective rate, partially offset by the effect of the transaction costs related to the
Acquisition, which were non-deductible.
Net Income and EPS
The Company’s net income for the year was $244.9 million, or $14.62 per share on a diluted basis, up 79.4% and 66.9%, respectively,
against the $136.5 million, or $8.76 per share on a diluted basis reported in 2020. Excluding the effects of the adjusting items discussed
in “Key Performance Indicators and Non-IFRS Measures” section, the adjusted net income for the year was $174.8 million, or $10.43 per
share on a diluted basis, an increase of 48.5% and 37.8%, respectively, over the prior year.
Selected Annual Information
($ IN 000’S EXCEPT PERCENTAGES AND PER SHARE AMOUNTS)
20214
2020
2019
2018
20175
Gross Consumer Loans Receivable
2,030,339
1,246,840
1,110,633
833,779
526,546
Revenue
Net income
Adjusted net income1
Return on assets2
Adjusted return on assets1,2
Return on equity
Adjusted return on equity1
Return on tangible common equity1,3
Adjusted return on tangible common equity1,3
Net income as a percentage of revenue
Adjusted net income as a percentage of revenue1
Dividends declared on Common Shares
Cash dividends declared per common share
Earnings per share
Basic
Diluted
Adjusted diluted1
826,722
244,943
174,759
652,922
136,505
117,646
11.5%
8.2%
36.7%
26.2%
50.7%
35.3%
29.6%
21.1%
42.3
2.64
15.12
14.62
10.43
9.8%
8.5%
36.1%
31.1%
38.3%
33.0%
20.9%
18.0%
26.1
1.80
9.21
8.76
7.57
609,383
506,191
401,728
64,349
80,315
5.5%
6.8%
20.2%
25.3%
-
-
10.6%
13.2%
17.9
1.24
4.40
4.17
5.17
53,124
53,124
6.1%
6.1%
21.8%
21.8%
-
-
10.5%
10.5%
12.5
0.90
3.78
3.56
3.56
36,132
42,158
-
-
17.0%
19.8%
-
-
9.0%
10.5%
9.7
0.72
2.67
2.56
2.97
1 Adjusted net income is a non-IFRS measure. Adjusted diluted earnings per share, adjusted return on equity, adjusted return on asset and reported and adjusted return on tangible common
equity are non-IFRS ratios. See description in section “Key Performance Indicators and Non-IFRS Measures”. Please refer to page 42 of the December 31, 2020 MD&A, page 39 of the December
31, 2019 MD&A, page 51 of the December 31, 2018 MD&A, and page 39 of the December 31, 2017 MD&A, for the respective “Key Performance Indicators and Non-IFRS Measures” section for those
years. These MD&As are available on www.sedar.com.
2 Comparable reported and adjusted return on assets financial measures for the year 2017 was not published.
3 Comparable reported and adjusted return on tangible common equity financial measures for the years 2017 to 2019 were not published.
4 Selected annual information for the year ended December 31, 2021 include financial information related to LendCare.
5 Prepared under IAS 39 rather than IFRS 9.
55
Key financial measures for each of the last five years are summarized in the table above and include the gross consumer loans receivable, revenue,
net income, earnings per share, return on asset, return on equity, return on tangible common equity and net income as a percentage of revenue over
this timeframe. Revenue growth over this time frame was primarily related to growth of the gross consumer loans receivable. The larger revenue
base together with lower operating expenses and finance costs, increased the Company’s adjusted net income and adjusted diluted earnings per
share while the increased scale of the business resulted in adjusted net income as a percentage of revenue also increasing over the presented time
horizon. Lastly, adjusted return on assets, adjusted return on equity and adjusted return on tangible common equity have generally been rising due
to the increasing earnings generated by the business. Adjusted return on assets and adjusted return on equity have declined in the most recent year
due to the higher level of assets and shareholders’ equity related to the acquisition of LendCare.
ASSETS AND LIABILITIES
($ IN 000’S)
Total assets
Consumer loans receivable, net
Cash
Total liabilities
Notes payable
Revolving securitization warehouse facility
Secured borrowings
Revolving credit facility
Convertible debentures
AS AT
DECEMBER 31,
2021
AS AT
DECEMBER 31,
2020
AS AT
DECEMBER 31,
2019
AS AT
DECEMBER 31,
2018
AS AT
DECEMBER 31,
2017
2,596,153
1,899,631
102,479
1,806,240
1,085,906
292,814
173,959
-
-
1,501,916
1,152,378
93,053
1,058,404
689,410
-
-
198,339
-
1,318,622
1,040,552
46,341
986,201
701,549
-
-
112,563
40,656
1,055,676
782,864
100,188
754,147
650,481
-
-
-
749,615
513,425
109,370
521,371
401,193
-
-
-
40,581
47,985
Total assets have been increasing due primarily to the organic growth of the Company’s consumer loans receivable and the acquisition of LendCare.
The Company finances the growth of its consumer loans receivable through a combination of debt, common shares and retained earnings. In 2017,
the Company issued $53 million in Debentures and repaid the previous credit facility by issuing US$325 million 7.875% senior unsecured notes
with a maturity date of November 1, 2022 (“2022 Notes”) and securing a $110 million revolving line of credit from a syndicate of banks. In 2018, the
Company issued a second US$150 million tranche of 2022 Notes and increased the borrowing limit under its revolving line of credit to $174.5 million.
In 2019, the Company issued US$550 million 5.375% senior unsecured notes with a maturity date of December 1, 2024 (“2024 Notes”) and repaid
the 2022 Notes and increased the borrowing limit under its revolving line of credit to $310 million. In 2020, the Company redeemed all unconverted
Debentures as at July 31, 2020 and established a new $200 million Revolving Securitization Warehouse Facility. In 2021, the Company further
increased the Revolving Securitization Warehouse Facility to $600 million, acquired secured borrowing facilities from the acquisition of LendCare
and issued US$320 million of 2026 Notes. All of the Company’s credit facilities are as described in the notes to the Company’s consolidated financial
statements for the year ended December 31, 2021.
In January 2022, the Company increased its revolving securitization warehouse facility from $600 million to $900 million and reduced the maximum
principal amount available on its revolving credit facility from $310 million to $270 million.
At the end of 2021, the Company’s ratio of net debt (net of surplus cash on hand) to net capitalization was 65%; a level that is conservative against
several of the Company’s peers and below the Company’s desired position of less than, or equal to, 70%.
Analysis of Results for the Three Months Ended December 31, 2021
FOURTH QUARTER HIGHLIGHTS
• The Company reported record revenue during the three-month period ended December 31, 2021 of $234.4 million, up from $173.2
million reported in the comparable period of 2020, an increase of $61.2 million, or 35.3%. The increase was primarily driven by the
revenue contribution of LendCare and the growth of the Company’s consumer loan portfolio.
• Gross consumer loans receivable increased from $1.25 billion as at December 31, 2020 to $2.03 billion as at December 31, 2021,
an increase of $783.5 million, or 62.8%. The growth was fueled by i) the $444.5 million of acquired gross consumer loans receivable
from the acquisition of LendCare; ii) increased originations from the Company’s point-of-sale channel; iii) increased originations of
unsecured loans and real estate secured loans; iv) the maturation of the Company’s retail branch network and further geographical
expansion; v) lending in the Company’s easyhome stores; vi) growth of the Company’s auto lending program and vii) ongoing
enhancements to the Company’s digital properties.
56
• Net charge offs in the quarter as a percentage of the average gross consumer loans receivable on an annualized basis were
9.6%, 60 bps higher, compared to 9.0% for the same period of 2020. The change in the net charge off rate was primarily due to
the significant degree of federal financial support available to customers during the COVID-19 pandemic in 2020. Net charge-offs
remain below pre-COVID levels in 2019 by approximately 370 bps, due to the improved product and credit mix of the portfolio,
inclusive of the acquisition of LendCare.
• During the quarter, the net change in allowance for credit losses increased by $4.2 million due to a higher level of loan book
growth, when compared to the comparable period of 2020. The provision rate for the three-month period ended December 31,
2021 increased slightly to 7.87% from 7.83% in the third quarter of 2021 primarily due to uncertainty surrounding the impact of
COVID-19.
• easyfinancial reported operating income for the three-month period ended December 31, 2021 of $87.6 million, compared with
$67.2 million for the comparable period in 2020, an increase of $20.4 million, or 30.4%. The improved operating income was driven
by the continued organic growth in the Company’s loan book, the continued improvement in the credit and payment performance
of the Company’s gross consumer loan portfolio related to macro-economic conditions related to the COVID-19 pandemic and
the acquisition of LendCare. As a result, easyfinancial revenue increased by $59.5 million, partially offset by an increase of $23.2
million in bad debt expense and $15.9 million of incremental expenditures associated with the acquisition of LendCare to support
the growing customer base, enhance the product offering, and expand the retail footprint. easyfinancial’s operating margin in the
quarter was 44.7%, compared to 49.2% in the comparable period of 2020.
• easyhome’s operating income was $8.5 million, compared with $8.7 million, a decrease of $0.2 million, or 2.5%, when compared to
the comparable period of 2020. The decrease was mainly driven by higher operating expenses, partially offset by higher revenue.
Operating margin for the three-month period ended December 31, 2021 was 22.0%, a decrease from the 23.6% reported in the
comparable period of 2020.
• Total Company operating income for the three-month period ended December 31, 2021 was $79.6 million, up $18.4 million,
or 29.9%, when compared to the comparable period of 2020. The Company also reported an operating margin of 34.0% in the
quarter, down from the 35.4% reported in the comparable period of 2020. During the three-month period ended December 31,
2021, the Company incurred adjusting items that are outside of its normal business activities and are significant in amount
and scope, which management believes are not reflective of underlying business performance. These adjusting items include
LendCare Acquisition integration costs, amortization of intangible assets acquired through the Acquisition and the realized and
unrealized fair value gain on investments during the period. These adjusting items are discussed in “Key Performance Indicators
and Non-IFRS Measures” section. Excluding the effects of the adjusting items discussed in Key Performance Indicators and Non-
IFRS Measures, the Company reported adjusted operating income1 for the three-month period ended December 31, 2021 of $86.4
million, up $25.1 million, or 40.9%, from the comparable period of 2020. The increase in operating margin was mainly driven
by the higher revenue during the period associated with the larger consumer loan portfolio, partially offset by higher operating
expenses. The Company also reported an adjusted operating margin1 of 36.8% in the quarter, up from the 35.4% reported in the
comparable period of 2020.
• The three-month period ended December 31, 2021 was the 82nd consecutive quarter of positive net income and diluted earnings
per share. The Company’s net income for the three-month period ended December 31, 2021 was $50.0 million, or $2.90 per share
on a diluted basis, up 2.1% and down 7.6%, respectively, compared to the $48.9 million, or $3.14 per share on a diluted basis
reported in the same period of 2020. Excluding the effects of the adjusting items discussed in Key Performance Indicators and Non-
IFRS Measures, goeasy achieved record adjusted net income1 and adjusted diluted earnings per share1 during the three-month
period ended December 31, 2021. The Company achieved a record adjusted net income1 and adjusted diluted earnings per share1
during the three-month period ended December 31, 2021 of $47.6 million and $2.76 per share on a diluted basis, respectively. On
this basis, adjusted net income1 and adjusted diluted earnings per share1 increased by 36.1% and 23.2%, respectively.
• goeasy reported return on equity of 25.0% in the three-month period ended December 31, 2021, down from 45.8% reported in the
comparable period of 2020. Adjusted return on equity1 for the three-month period ended December 31, 2021 was 23.9%, down
from 32.8% in the comparable period of 2020. The decline in adjusted return on equity was primarily related to the higher level of
shareholders’ equity resulting from the $172.5 million bought deal equity offering related to the LendCare acquisition.
• goeasy reported return on tangible common equity1 of 39.8% in the three-month period ended December 31, 2021, compared
to 48.2% in the comparable period of 2020. Adjusted return on tangible common equity1 during the three-month period ended
December 31, 2021 was 36.2%, up from 34.5% in the comparable period of 2020. The increase in adjusted return on tangible
common equity was driven by the increased earnings produced by the larger consumer loan portfolio.
1 Adjusted operating income and adjusted net income are non-IFRS measures. Adjusted operating margin, adjusted diluted earnings per share, adjusted return on equity and reported and adjusted tangible
common equity are non-IFRS ratios. See descriptions in section “Key Performance Indicators and Non-IFRS Measures”.
57
SUMMARY OF FINANCIAL RESULTS AND KEY PERFORMANCE INDICATORS
THREE MONTHS ENDED
($ IN 000’S EXCEPT EARNINGS PER SHARE AND PERCENTAGES)
December 31,
2021
December 31,
2020
VARIANCE
$ / BPS
VARIANCE
% CHANGE
Summary Financial Results
Revenue
Operating expenses before depreciation and amortization 2
EBITDA1
EBITDA margin1
Depreciation and amortization expense2
Operating income
Operating margin
Other income2,3
Finance costs
Effective income tax rate
Net income
Diluted earnings per share
Return on assets
Return on equity
Return on tangible common equity1
Adjusted Financial Results1,2,3
Adjusted operating income
Adjusted operating margin
Adjusted net income
Adjusted diluted earnings per share
Adjusted return on assets
Adjusted return on equity
Adjusted return on tangible common equity
Key Performance Indicators
Same store revenue growth (overall) 1
Same store revenue growth (easyhome) 1
Segment Financials
easyfinancial revenue
easyfinancial operating margin
easyhome revenue
easyhome operating margin
Portfolio Indicators
Gross consumer loans receivable
Growth in consumer loans receivable
Gross loan originations
Total yield on consumer loans (including ancillary products)1
Net charge offs as a percentage of average gross
consumer loans receivable
Free cash flows from operations before net growth in
gross consumer loans receivable1
Potential monthly lease revenue1
61,211
37,946
15,419
35.3%
39.9%
18.1%
(620 bps)
(12.6%)
234,430
133,136
100,508
42.9%
21,665
79,629
34.0%
8,371
22,281
24.0%
49,961
2.90
7.9%
25.0%
39.8%
86,353
36.8%
47,644
2.76
7.5%
23.9%
36.2%
13.4%
5.6%
173,219
95,190
85,089
49.1%
16,752
61,277
35.4%
16,040
13,343
23.5%
48,911
3.14
13.6%
45.8%
48.2%
61,277
35.4%
34,996
2.24
9.8%
32.8%
34.5%
4.2%
4.4%
196,015
136,523
44.7%
38,415
22.0%
49.2%
36,696
23.6%
2,030,339
1,246,840
133,623
506,853
41.4%
64,039
334,102
46.6%
4,913
18,352
(140 bps)
(7,669)
8,938
50 bps
1,050
(0.24)
(570 bps)
(2,080 bps)
(840 bps)
25,076
140 bps
12,648
0.52
(230 bps)
(890 bps)
170 bps
920 bps
120 bps
59,492
(450 bps)
1,719
(160 bps)
783,499
69,584
172,751
(520 bps)
9.6%
9.0%
60 bps
59,452
8,193
40,980
8,461
18,472
(268)
29.3%
29.9%
(4.0%)
(47.8%)
67.0%
2.1%
2.1%
(7.6%)
(41.9%)
(45.4%)
(17.4%)
40.9%
4.0%
36.1%
23.2%
(23.5%)
(27.1%)
4.9%
219.0%
27.3%
43.6%
(9.1%)
4.7%
(6.8%)
62.8%
108.7%
51.7%
(11.2%)
6.7%
45.1%
(3.2%)
1 EBITDA, adjusted operating income, adjusted net income and free cash flows from operations before net growth in gross consumer loans receivable are non-IFRS measures. EBITDA margin, adjusted operating margin,
adjusted diluted earnings per share, adjusted return on equity, adjusted return on asset, reported and adjusted return on tangible common equity and total yield on consumer loans (including ancillary products) are non-
IFRS ratios. Same store revenue growth (overall), same store revenue growth (easyhome) and potential monthly lease revenue are supplementary financial measures. See description in sections “Portfolio Analysis”, “Key
Performance Indicators and Non-IFRS Measures” and “Financial Condition”.
58
2 During the three-month period ended December 31, 2021, the Company had a total of $1.6 million before-tax ($2.3 million after-tax) of adjusting items which include:
Adjusting items related to the LendCare Acquisition
•
Integration costs related to advisory and consulting costs, employee incentives, representation and warranty insurance cost, and other integration costs related to the acquisition of LendCare and the write off of certain
software as a result of the integration with LendCare. Integration costs amounting to $3.4 million before-tax ($2.5 million after-tax) were reported under Operating expenses before depreciation and amortization; and
• Amortization of $131 million intangible asset related to the acquisition of LendCare with an estimated useful life of ten years amounting to $3.3 million before-tax ($2.4 million after-tax).
Adjusting item related to other income
• Unrealized fair value gains mainly on investments in Affirm and TRS amounting to $8.4 million before-tax ($7.3 million after-tax).
3 During the fourth quarter of 2020, the Company’s adjusting item included:
• Unrealized fair value gain on investment in PayBright amounting to $16.0 million before-tax ($13.9 million after-tax).
LOCATIONS SUMMARY
easyfinancial
Kiosks (in store)
Stand-alone locations
Operations Centers
Total easyfinancial locations
easyhome
Corporately owned stores
Franchise stores
Total easyhome stores
Corporate
Corporate office
Total corporate office
LOCATIONS AS AT
SEPTEMBER 30,
2021
LOCATIONS
OPENED/ACQUIRED
IN THE YEAR
LOCATIONS
CLOSED
DURING PERIOD
CONVERSIONS
LOCATIONS AS AT
DECEMBER 31, 2021
6
279
3
288
124
34
158
1
1
-
6
-
6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
1
-
-
-
-
-
-
-
5
286
3
294
124
34
158
1
1
SUMMARY OF FINANCIAL RESULTS BY REPORTING SEGMENT
($ IN 000'S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL1
EASYHOME
CORPORATE
TOTAL
THREE MONTHS ENDED DECEMBER 31, 2021
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
149,004
-
42,676
4,335
196,015
6,525
27,663
3,234
993
38,415
-
-
-
-
-
155,529
27,663
45,910
5,328
234,430
Total operating expenses before depreciation and amortization
99,597
18,563
14,976
133,136
6,130
2,645
8,775
87,643
9,463
1,939
11,402
8,450
1,281
207
1,488
(16,464)
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Depreciation of right-of-use assets
Operating income (loss)
Other Income
Finance costs
Interest expense and amortization of deferred financing charges
Interest expense on lease liabilities
Income before income taxes
Income taxes
Net income
Diluted earnings per share
1 LendCare’s financial results are reported under the easyfinancial reportable operating segment. For additional details, please refer to “Overview of the Business” section.
16,874
4,791
21,665
79,629
8,371
21,460
821
22,281
65,719
15,758
49,961
2.90
59
($ IN 000'S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
THREE MONTHS ENDED DECEMBER 31, 2020
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
101,967
-
32,461
2,095
136,523
4,817
28,564
2,286
1,029
36,696
-
-
-
-
-
106,784
28,564
34,747
3,124
173,219
Total operating expenses before depreciation and amortization
65,053
16,833
13,304
95,190
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Depreciation of right-of-use assets
Operating income (loss)
Other Income
Finance costs
Interest expense and amortization of deferred financing charges
Interest expense on lease liabilities
Income before income taxes
Income taxes
Net income
Diluted earnings per share
PORTFOLIO PERFORMANCE
2,181
2,062
4,243
67,227
9,306
1,894
11,200
8,663
1,076
233
1,309
(14,613)
12,563
4,189
16,752
61,277
16,040
12,624
719
13,343
63,974
15,063
48,911
3.14
Consumer Loans Receivable
Loan originations in the quarter were $506.9 million, up 51.7% compared to the origination volume in the comparable period of 2020. The consumer
loan portfolio grew by $133.6 million during the quarter, compared to growth of $64.0 million in the comparable period of 2020. Gross consumer loans
receivable increased from $1.25 billion as at December 31, 2020 to $2.03 billion as at December 31, 2021, an increase of $783.5 million, or 62.8%. The
growth was fueled by i) the $444.5 million of acquired gross consumer loans receivable from the acquisition of LendCare; ii) increased originations
from the Company’s point-of-sale channel; iii) increased originations of unsecured loans and real estate secured loans; iv) the maturation of the
Company’s retail branch network and further geographical expansion; v) lending in the Company’s easyhome stores; vi) growth of the Company’s
auto lending program and vii) ongoing enhancements to the Company’s digital properties.
The total annualized yield, including loan interest, fees and ancillary products, realized by the Company on its average consumer loans receivable was
41.4% in the three-month period ended December 31, 2021, down 520 bps from the comparable period of 2020. The total annualized yield decreased due
to i) the acquisition of LendCare, which finances consumer purchases in powersports, automotive, home improvement, healthcare and retail categories
which carry lower rates of interests; ii) the increased penetration of risk adjusted interest rate and real estate secured, which also have larger loan sizes
and longer amortization periods; iii) increased lending activity in provinces where loans have a lower interest rate; iv) a higher proportion of larger dollar
loans which have reduced pricing on certain ancillary products; and v) a modest reduction in penetration rates on ancillary products.
Bad debt expense increased to $58.6 million for the quarter from $34.5 million during the comparable period of 2020, an increase of $24.1 million,
or 70.0%. The following table details the components of bad debt expense.
($ IN 000’S)
Provision required due to net charge offs
Impact of loan book growth
Impact of change in provision rate during the period
Net change in allowance for credit losses
Bad debt expense
60
THREE MONTHS ENDED
DECEMBER 31, 2021
DECEMBER 31, 2020
47,399
10,301
940
11,241
58,640
27,481
6,425
587
7,012
34,493
Bad debt expense increased by $24.1 million due to the following factors:
(i) Net charge offs increased from $27.5 million in the fourth quarter of 2020, to $47.4 million in the current quarter, an increase of
$19.9 million. Net charge offs in the quarter as a percentage of the average gross consumer loans receivable on an annualized
basis were 9.6%, up by 60 bps as compared to 9.0% reported in the fourth quarter of 2020. The increase in net charge offs in
the three-month period ended December 31, 2021, compared to the same period of 2020, was primarily due to the significant
degree of federal financial support available to customers during the COVID-19 pandemic in 2020. Net charge offs remain to be
below the Company’s targeted level due to the significant reduction in consumer expenses caused by economic closures and the
increased degree of federal financial support available to customers during the COVID-19 pandemic.
(ii) The company recorded an increase of $4.2 million in provision expense, due to a higher level of loan book growth, when
compared to the comparable period of 2020. During the quarter, the Company slightly increased its provision rate for future
credit losses from 7.83% to 7.87%, primarily due to increased uncertainty surrounding the impact of COVID-19.
easyhome Leasing Portfolio
The leasing portfolio as measured by potential monthly lease revenue as at December 31, 2021 was $8.2 million, down from $8.5 million
reported as at December 31, 2020. The decrease was due to lower lease agreements, partially offset by an increase in the average leasing
rate, due in part to changes in product mix, and selected pricing adjustments. The growth of consumer lending within the easyhome stores
contributed to the overall increase in revenues.
Revenue
Revenue for the three-month period ended December 31, 2021 was $234.4 million, compared to $173.2 million in the comparable
period of 2020, an increase of $61.2 million, or 35.3%. Overall, revenue growth was driven mainly by the revenue contribution of LendCare
and growth of the Company’s consumer loan portfolio. Same store sales growth for the quarter was 13.4%.
easyfinancial – Revenue for the three-month period ended December 31, 2021 was $196.0 million, an increase of $59.5 million, when
compared to the comparable period of 2020. The components of the increased revenue include:
(i) Interest income increased by $47.0 million, or 46.1%, driven by growth in the loan portfolio, which includes the acquired gross
consumer loans receivable from LendCare, offset by lower interest yields;
(ii) Commissions earned on the sale of ancillary products and services increased by $10.2 million, or 31.5%, due to the larger consumer
loan portfolio and lower claims costs associated with the Company’s Loan Protection Program in the quarter; and
(iii) Charges and fees increased by $2.2 million.
easyhome – Revenue for the three-month period ended December 31, 2021 was $38.4 million, an increase of $1.7 million, when compared
to the comparable period of 2020. Lending revenue within the easyhome stores increased by $2.7 million in the current quarter, when
compared to the same quarter of 2020. Traditional leasing revenue including fees for the current quarter was $1.0 million lower compared
to the same quarter of 2020. The components of easyhome revenue include:
(i) Interest income increased by $1.7 million due to the growth of the consumer loans receivable related to the easyhome business;
(ii) Lease revenue decreased by $0.9 million due to a lower lease portfolio;
(iii) Commissions earned on the sale of ancillary products at easyhome increased by $0.9 million. The increase is due to higher revenues
associated with the Company’s Loan Protection Program; and
(iv) Charges and fees were flat.
Total Operating Expenses before Depreciation and Amortization
Total operating expenses before depreciation and amortization were $133.1 million for the three-month period ended December 31, 2021, an
increase of $37.9 million, or 39.9% from the comparable period in 2020. The increase in operating expenses before depreciation and amortization
was mainly driven by the LendCare Acquisition integration costs, the operating expense contribution of LendCare, higher bad debt expense in the
easyfinancial and easyhome business and higher expenses in the Corporate segment.
easyfinancial – Total operating expenses before depreciation and amortization were $99.6 million for the three-month period ended December
31, 2021, an increase of $34.5 million, or 53.1% from the comparable period of 2020. Key drivers include:
(i) Bad debt expense increased by $23.2 million in the current quarter, when compared to the comparable period in 2020, driven by
the higher net charge offs and provision expense related to the higher loan portfolio in the quarter; and
(ii) Other operating expenses increased by $11.3 million for the fourth quarter of 2021 driven by the acquisition of LendCare resulting
in increased costs to operate and manage the growing loan portfolio and the merchant and branch networks. Overall branch count
increased from 266 as at December 31, 2020 to 294 as at December 31, 2021.
61
easyhome – Total operating expenses before depreciation and amortization were $18.6 million for the three-month period ended December 31,
2021, which was $1.7 million, or 10.3% higher than the comparable period of 2020. Key drivers include:
(i) A $0.9 million increase in bad debt due to a larger loan portfolio; and
(ii) A $0.8 million increase in total compensation costs, and distribution costs.
Corporate – Total operating expenses before depreciation and amortization for the fourth quarter of 2021 were $15.0 million, which includes
LendCare Acquisition integration costs of $3.4 million. Excluding the integration costs, operating expenses before depreciation and amortization
for the fourth quarter of 2021 were $11.6 million compared to $13.3 million for the comparable period in 2020, a decrease of $1.7 million, or
12.8%. The decrease was primarily due to lower compensation costs partially offset by higher technology costs. Excluding the integration costs,
corporate expenses before depreciation and amortization represented 4.9% of revenue in the fourth quarter of 2021, compared to 7.7% of
revenue in the same quarter of 2020.
Depreciation and Amortization
Depreciation and amortization for the three-month period ended December 31, 2021 was $21.7 million, an increase of $4.9 million, or 29.3% from
the comparable period in 2020. Overall, depreciation and amortization represented 9.2% of revenue for the three-month period ended December
31, 2021, compared to 9.7% reported in the comparable period of 2020.
easyfinancial – Total depreciation and amortization was $8.8 million in the fourth quarter of 2021. This included $2.6 million of right-of-use asset
depreciation. Depreciation of property and equipment and intangibles in the three-month period ended December 31, 2021 was $6.1 million, $3.9
million higher than the $2.2 million reported in the comparable period of 2020, driven mainly by the $3.3 million amortization of intangible assets
acquired through the acquisition of LendCare.
easyhome – Depreciation and amortization was $11.4 million in the fourth quarter of 2021, flat from the comparable period in 2020. easyhome’s
depreciation and amortization of lease assets, property and equipment, and intangibles expressed as a percentage of easyhome revenue for the
current quarter was 24.6%, down from the 25.4% reported in the same period of 2020. The rate reduction was due to a smaller lease asset base
against a revenue base with an increasing proportion generated from consumer lending.
Corporate – Depreciation and amortization was $1.5 million in the three-month period ended December 31, 2021, an increase of $0.2 million from
the same period in 2020. The increase was mainly due to higher amortization of intangible assets and depreciation of property and equipment,
primarily driven by new software additions and leasehold improvements recognized over the past 12 months.
Operating Income (Income before Finance Costs and Income Taxes)
Operating income for the three-month period ended December 31, 2021 was $79.6 million, up $18.4 million, or 29.9%, when compared to the
comparable period of 2020. The Company’s operating margin for the quarter was 34.0%, up from the 35.4% reported in the fourth quarter of 2020.
Excluding the effects of the adjusting items discussed in “Key Performance Indicators and Non-IFRS Measures” section, the Company reported
adjusted operating income for the three-month period ended December 31, 2021 of $86.4 million, up $25.1 million, or 40.9%. The increase in operating
margin was mainly driven by the higher revenue during the period associated with the larger consumer loan portfolio, partially offset by higher
operating expenses. The Company also reported adjusted operating margin of 36.8%, up from the 35.4% reported in the comparable period of 2020.
easyfinancial – Operating income for the three-month period ended December 31, 2021 was $87.6 million, compared with $67.2 million for the
comparable period in 2020, an increase of $20.4 million, or 30.4%. The improved operating income was driven by a $59.5 million increase in
revenue related to the continued growth of the Company’s consumer loan portfolio, including revenue contribution from the acquired LendCare
portfolio, partially offset by an increase of $23.2 million in bad debt expense and $15.9 million of incremental expenditures to support the
growing customer base, enhance the product offering and expand the retail footprint. easyfinancial’s operating margin in the quarter was 44.7%,
compared to 49.2% reported in the comparable period of 2020.
easyhome – Operating income for the three-month period ended December 31, 2021 was $8.5 million, a decrease of $0.2 million, or 2.5%, when
compared to the comparable period of 2020. The decrease was mainly driven by higher operating expense partially offset by higher revenue.
Operating margin for the three-month period ended December 31, 2021 was 22.0%, a decrease from the 23.6% reported in the comparable
period of 2020.
Other Income
During the three-month period ended December 31, 2021, the Company recognized total unrealized fair value before-tax gains of $8.4 million
mainly due to the unrealized fair value gains of $0.3 million on Investments mainly on the contingent portion of the Company’s equity investments
in Affirm and the unrealized fair value gains on the related TRS of $8.1 million.
Finance Costs
Finance costs for the three-month period ended December 31, 2021 were $22.3 million, an increase of $8.9 million from the same period of 2020.
The increase was mainly driven by the higher borrowing levels to fund the growth of the Company’s lending business partially offset by the strong
free cash flows from operations before net growth in gross consumer loans receivable, which grew 45.1% from the same period of 2020. The
increase was partially offset by the lower cost of borrowing. In 2021, the Company utilized its revolving securitization warehouse facility, which
bears lower interest rate. The average blended coupon interest rate on drawn balances for the Company’s debt as at December 31, 2021, was
4.9%, down from 5.2% as at December 31, 2020.
62
Income Tax Expense
The effective income tax rate for the three-month period ended December 31, 2021 was 24.0%, which was slightly higher than the 23.5% reported
in the comparable period of 2020, driven by the lower fair value gains on Investments, which are taxed at a lower capital gains effective rate.
Net Income and EPS
The Company’s net income for the three-month period ended December 31, 2021 was $50.0 million, or $2.90 per share on a diluted basis, up 2.1%
and down 7.6%, respectively, against the $48.9 million, or $3.14 per share on a diluted basis reported in the same period of 2020. Excluding the
effects of the adjusting items discussed in “Key Performance Indicators and Non-IFRS Measures” section, goeasy achieved record adjusted net
income and adjusted diluted earnings per share during the three-month period ended December 31, 2021. Adjusted net income during the three-
month period ended December 31, 2021 was $47.6 million, or $2.76 per share on a diluted basis, an increase of 36.1% and 23.2%, respectively,
from the comparable period in 2020.
Selected Quarterly Information
($ IN MILLIONS EXCEPT PERCENTAGES
AND PER SHARE AMOUNTS)
DECEMBER
20213
SEPTEMBER
20213
JUNE
20213
MARCH
2021
DECEMBER
2020
SEPTEMBER
2020
JUNE
2020
MARCH
2020
DECEMBER
2019
Gross consumer loans
receivable
Revenue
Net income
Adjusted net income2
Return on assets
Adjusted return on assets2
Return on equity
Adjusted return on equity2
Return on tangible
common equity2,4
Adjusted return on
tangible common equity2,4
Net income as a percentage of
revenue
Adjusted net income as a
percentage of revenue2
Earnings per share1
Basic
Diluted
Adjusted diluted2
2,030.3
1,896.7
1,795.8
1,277.3
1,246.8
1,182.8
1,134.5
1,166.1
1,110.6
234.4
219.8
202.4
170.2
173.2
161.8
150.7
167.2
165.5
50.0
47.6
7.9%
7.5%
25.0%
23.9%
63.5
46.7
10.3%
7.6%
32.7%
24.0%
19.5
43.7
3.8%
8.6%
12.0%
26.9%
39.8%
52.3%
16.8%
36.2%
37.1%
34.8%
112.0
36.7
28.8%
9.4%
90.1%
29.5%
-
-
48.9
35.0
13.6%
9.8%
45.8%
32.8%
33.1
31.6
9.7%
9.3%
32.5
29.1
9.4%
8.4%
22.0
22.0
6.4%
6.4%
34.7%
37.0%
25.8%
33.1%
33.1%
25.8%
48.2%
36.7%
39.4%
34.5%
35.1%
35.2%
-
-
6.7
22.6
2.1%
7.1%
8.0%
27.0%
-
-
21.3%
28.9%
9.6%
65.8%
28.2%
20.5%
21.6%
13.1%
4.0%
20.3%
21.2%
21.6%
21.6%
20.2%
19.5%
19.3%
13.1%
13.7%
3.00
2.90
2.76
3.79
3.66
2.70
1.20
1.16
2.61
7.41
7.14
2.34
3.24
3.14
2.24
2.20
2.09
2.00
2.25
2.11
1.89
1.50
1.41
1.41
0.46
0.46
1.45
1 Quarterly earnings per share are not additive and may not equal the annual earnings per share reported. This is due to the effect of stock issued or repurchased during the period on the basic
weighted average number of Common Shares (as defined herein) outstanding together with the effects of rounding.
2 Adjusted net income is a non-IFRS measure. Adjusted diluted earnings per share, adjusted return on equity, adjusted return on asset and reported and adjusted return on tangible common equity
are non-IFRS ratios. See descriptions in “Key Performance Indicators and Non-IFRS Measures” section. Please refer to page 37 of the September 30, 2021 MD&A, page 39 of the June 30, 2021 MD&A,
page 25 of the March 31, 2021 MD&A, page 42 of the December 31, 2020 MD&A, page 33 of the September 30, 2020 MD&A, page 31 of the June 30, 2020 MD&A, page 22 of the March 31, 2020 MD&A,
and page 39 of the December 31, 2019 MD&A, for the respective “Key Performance Indicators and Non-IFRS Measures” section for those periods. These MD&As are available on www.sedar.com.
3 During the second quarter of 2021, the Company acquired LendCare. The selected quarterly information for the periods beginning June 30, 2021 include financial information related to LendCare.
4 Comparable reported and adjusted return on tangible common equity financial measures for the three-months periods ended March 31, 2021, March 31, 2020 and December 31, 2019 were not
published.
Key financial measures for each of the last nine quarters are summarized in the table above and include the gross consumer loans
receivable, revenue, net income, earnings per share, return on assets, return on equity, return on tangible common equity, and net
income as a percentage of revenue over this timeframe. Revenue growth over this time frame was primarily related to the growth
of the gross consumer loans receivable. The larger revenue base together with lower relative operating expenses and finance costs,
increased the Company’s adjusted net income and adjusted earnings per share, while the increased scale of the business resulted in
adjusted net income as a percentage of revenue increasing over the presented time horizon. Lastly, adjusted return on assets, adjusted
return on equity and adjusted return on tangible common equity have increased in prior quarters due to the increasing earnings
generated by the business, declining in the most recent quarters due to the higher level of assets and shareholders’ equity due to the
acquisition of LendCare in 2021.
63
Portfolio Analysis
The Company generates its revenue from portfolios of consumer loans receivable and lease agreements. To a large extent, the Company’s
financial results for a period are determined by the performance of these portfolios, and the make-up of these portfolios at the end of a
period are a significant indicator of future financial results.
The Company measures the performance of its portfolios during a period and their make-up at the end of a period using a number of
key performance indicators as described in more detail below. Several of these key performance indicators are not measurements in
accordance with IFRS and should not be considered as an alternative to net income or any other measure of performance under IFRS. The
discussion in this section refers to certain financial measures that are not determined in accordance with IFRS. Although these measures
do not have standardized meanings and may not be comparable to similar measures presented by other companies, these measures are
defined herein or can be determined by reference to the Company’s consolidated financial statements. The Company discusses these
measures because it believes they facilitate the understanding of the results of its operations and financial position.
CONSUMER LOANS RECEIVABLE
Loan Originations and Net Principal Written
Gross loan originations is the value of all consumer loans receivable advanced to the Company’s customers during the period where new credit
underwritings have been performed. Included in gross loan originations are loans to new customers and new loans to existing customers,
a portion of which may be applied to eliminate a prior borrowing. When the Company extends additional credit to an existing customer, a
centralized credit analysis or full credit underwriting is performed using up-to-date information. Additionally, the loan repayment history of
that customer throughout their relationship with the Company is considered in the credit decision. As a result, the quality of the credit decision
made when evaluating an existing or prior customer is improved and has historically resulted in better performance. No additional credit is
extended to a customer whose loan is delinquent.
Net principal written is a non-IFRS measure and captures the Company’s gross loan originations during a period, excluding the portion of the
originations that has been used to eliminate the prior borrowings, where applicable. The Company uses net principal written, among other
measures, to assess the operating performance of its leasing business. Non-IFRS measures are not determined in accordance with IFRS, do
not have standardized meanings and may not be comparable to similar financial measures presented by other companies.
The gross loan originations and net principal written during the period were as follows:
($ IN 000’S)
Gross loan originations
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
506,853
334,102
1,594,480
1,033,130
Loan originations to new customers
215,939
109,378
693,774
345,588
Loan originations to existing customers
Less: Proceeds applied to repay existing loans
Net advance to existing customers
Net principal written
290,914
(152,153)
138,761
354,700
224,724
900,706
687,542
(121,246)
(486,627)
103,478
212,856
414,079
1,107,853
(373,293)
314,249
659,837
64
Gross Consumer Loans Receivable
The measure the Company uses to describe the size of its lending portfolio is gross consumer loans receivable. Gross consumer loans
receivable reflects the period-end balance of the portfolio before provisioning for potential future charge offs. Growth in gross consumer
loans receivable is driven by several factors including an increased number of customers and an increased loan value per customer. The
changes in the gross consumer loans receivable during the periods were as follows:
($ IN 000’S)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Opening gross consumer loans receivable
1,896,716
1,182,801
1,246,840
1,110,633
Gross loan originations
Gross loan purchased
Gross principal payments and other adjustments
Gross charge offs before recoveries
Net growth in gross consumer loans receivable
during the period
506,853
-
(321,412)
(51,818)
334,102
-
(240,170)
(29,893)
1,594,480
444,520
(1,093,566)
(161,935)
1,033,130
31,275
(801,400)
(126,798)
133,623
64,039
783,499
136,207
Ending gross consumer loans receivable
2,030,339
1,246,840
2,030,339
1,246,840
The scheduled principal repayment of the gross consumer loans receivable are as follows:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2021
DECEMBER 31, 2020
0 – 6 months
6 – 12 months
12 – 24 months
24 – 36 months
36 – 48 months
48 – 60 months
60 months+
220,383
160,914
351,028
408,762
332,049
229,782
327,421
10.9%
7.9%
17.3%
20.1%
16.4%
11.3%
16.1%
184,553
144,341
300,560
289,065
181,866
62,361
84,094
14.8%
11.6%
24.1%
23.2%
14.6%
5.0%
6.7%
Gross consumer loans receivable
2,030,339
100.0%
1,246,840
100.0%
Gross consumer loans receivable with principal repayment of beyond 60 months increased by 940 bps, compared to 2020, primarily due
to the inclusion of the LendCare portfolio and the shift in product mix towards a higher proportion of secured loans, both of which have
longer payment terms.
A breakdown of the gross consumer loans receivable categorized by the contractual time to maturity is as follows:
DECEMBER 31, 2021
DECEMBER 31, 2020
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
0 – 1 year
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
5 years +
60,319
155,957
347,331
501,830
473,096
491,806
3.0%
7.7%
17.1%
24.7%
23.3%
24.2%
48,561
142,958
321,683
381,055
209,994
142,589
Gross consumer loans receivable
2,030,339
100.0%
1,246,840
3.9%
11.5%
25.8%
30.6%
16.8%
11.4%
100.0%
Gross consumer loans receivable with contractual time to maturity of beyond 5 years increased by 1,280 bps, compared to 2020, primarily
due to the inclusion of the LendCare portfolio and the shift in product mix towards a higher proportion of secured loans, both of which have
longer payment terms.
65
Loans are originated and serviced by both the easyfinancial and easyhome reporting segments. A breakdown of the gross consumer loans
receivable between these segments is as follows:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2021
DECEMBER 31, 2020
Gross consumer loans receivable, easyfinancial
Gross consumer loans receivable, easyhome
Gross consumer loans receivable
1,960,517
69,822
2,030,339
96.6%
3.4%
100.0%
1,196,498
50,342
1,246,840
96.0%
4.0%
100.0%
Financial Revenue and Net Financial Income
Financial revenue, a non-IFRS measure, is generated by both the easyfinancial and easyhome reporting segments. Financial revenue
includes interest and various other ancillary fees generated by the Company’s gross consumer loans receivable. Financial revenue is
calculated as total Company revenue less the leasing revenue from the easyhome reporting segment.
Net financial income is a non-IFRS measure that details the profitability of the Company’s gross consumer loans receivable before any
costs to originate or administer. Net financial income is calculated by deducting interest expense, amortization of deferred financing
charges and bad debt expense from financial revenue. Net financial income is impacted by the size of the gross consumer loans receivable,
the portfolio yield, the amount and cost of the Company’s debt, the Company’s leverage ratio and the bad debt expense incurred in the
period. The Company uses net financial income, among other measures, to assess the operating performance of its loan portfolio. Non-
IFRS measures are not determined in accordance with IFRS, do not have standardized meanings and may not be comparable to similar
financial measures presented by other companies.
($ IN 000’S)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Total Company revenue
Less: Leasing revenue
Financial revenue
Less: Interest expenses and amortization of
deferred financing charges
Less: Bad debt expense
Net financial income
234,430
(29,456)
204,974
(21,460)
(58,640)
124,874
173,219
(30,470)
142,749
(12,624)
(34,493)
826,722
(119,585)
707,137
652,922
(120,677)
532,245
(75,910)
(52,248)
(182,084)
(134,998)
95,632
449,143
344,999
Total Yield on Consumer Loans as a Percentage of Average Gross Consumer Loans Receivable
Total yield on consumer loans as a percentage of average gross consumer loans receivable is a non-IFRS measure ratio and is calculated as
the financial revenue generated, including revenue generated on the sale of ancillary products, on the Company’s consumer loans receivable
divided by the average of the month-end loan balances for the indicated period. For interim periods, the rate is annualized. The Company uses
total yield on consumer loans as a percentage of average gross consumer loans receivable, among other measures, to assess the operating
performance of its loan portfolio.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Total Company revenue
Less: Leasing revenue
Financial revenue
Multiplied by number of periods in year
Divided by average gross consumer loans
receivable
Total yield on consumer loans as a percentage
of average gross consumer loans receivable
(annualized)
234,430
(29,456)
204,974
X 4/1
173,219
(30,470)
142,749
X 4/1
826,722
(119,585)
707,137
X 4/4
652,922
(120,677)
532,245
X 4/4
1,982,680
1,225,737
1,680,328
1,169,001
41.4%
46.6%
42.1%
45.5%
66
Bad Debt Expense as a Percentage of Financial Revenue
The Company’s bad debt expense as a percentage of financial revenue is a non-IFRS measure ratio and is the amount that its allowance
for future credit losses must be increased, after considering net charge offs, such that the balance of the allowance for credit losses at
each statement of financial position date is appropriate under IFRS. Operationally, this will require a larger provision to be taken when new
consumer loans receivables are originated or purchased. The Company uses bad debt expense as a percentage of financial revenue, among
other measures, to assess the operating performance of its loan portfolio. Non-IFRS ratios are not determined in accordance with IFRS, do
not have standardized meanings and may not be comparable to similar financial measures presented by other companies. An analysis of the
Company’s bad debt expense for the periods is as follows:
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Net charge offs
Net charge in allowance for credit losses
Bad debt expense
Total Company revenue
Less: Leasing revenue
Financial revenue
Bad debt expense as a percentage of Financial
Revenue
Net Charge offs
47,399
11,241
58,640
234,430
(29,456)
204,974
27,481
7,012
34,493
173,219
(30,470)
142,749
147,998
34,086
182,084
826,722
(119,585)
707,137
116,429
18,569
134,998
652,922
(120,677)
532,245
28.6%
24.2%
25.7%
25.4%
In addition to loan originations, the consumer loans receivable during a period is impacted by charge offs. Unsecured customer loan balances
that are delinquent greater than 90 days and secured customer loan balances that are delinquent greater than 180 days are charged off.
In addition, customer loan balances are charged off upon notification that the customer is bankrupt following a detailed review of the filing.
Subsequent collections of previously charged off accounts are netted with gross charge offs during a period to arrive at net charge offs.
Average gross consumer loans receivable has been calculated based on the average of the month-end loan balances for the indicated period.
This metric is a measure of the collection performance of the easyfinancial consumer loans receivable. For interim periods, the rate is annualized.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Net charge offs against allowance
Multiplied by number of periods in year
Divided by average gross consumer loans
receivable
Net charge offs as a percentage of average gross
consumer loans receivable (annualized)
Allowance for Credit Losses
47,399
X 4/1
27,481
X 4/1
147,998
X 4/4
116,429
X 4/4
1,982,680
1,225,737
1,680,328
1,169,001
9.6%
9.0%
8.8%
10.0%
The allowance for expected credit losses is a provision that is reported on the Company’s balance sheet that is netted against the
gross consumer loans receivable to arrive at the net consumer loans receivable. The allowance for expected credit losses provides for
credit losses that are expected to transpire in future periods. Customer loans for which we have received a notification of bankruptcy,
unsecured customer loan balances that are delinquent greater than 90 days and secured customer loan balances that are delinquent
greater than 180 days are charged off against the allowance for loan losses.
THREE MONTHS ENDED
YEAR ENDED
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
Allowance for credit losses, beginning of period
Net charge offs against allowance
Bad debt expense
Allowance for credit losses, end of period
Allowance for credit losses as a percentage of
the ending gross consumer loans receivable
148,521
(47,399)
58,640
159,762
7.87%
118,664
(27,481)
34,493
125,676
10.08%
125,676
(147,998)
182,084
159,762
107,107
(116,429)
134,998
125,676
7.87%
10.08%
67
IFRS 9 requires that Forward Looking Indicators (FLIs) be considered when determining the allowance for credit losses. Historically, the four
key macroeconomic variables contributing to credit risk and losses within the Company’s loan portfolio have been: unemployment rates,
inflation rates, gross domestic product (“GDP”) growth, and the price of oil. Analysis performed by the Company determined that a forecasted
increase in the rate of unemployment, rate of inflation, a decrease in the expected future price of oil from the current rates or a decrease in
the rate of GDP growth has historically tended to increase the charge offs experienced by the Company. Conversely a forecasted decrease
in the rate of unemployment, rate of inflation, an increase in the expected future price of oil from the current rates or an increase in the GDP
growth rate has historically tended to decrease the charge offs experienced by the Company. Over the past several years the Company has
operated in a relatively stable Canadian economic environment with moderate movements in economic variables. However, as a result of the
turbulent economic environment brought on by the COVID-19 pandemic, management identified the need to incorporate additional data and
methodological approaches into the Company’s forward-looking scenario modelling. Therefore, additional factors have been incorporated in
assessing the economic impact of the COVID-19 pandemic on the Company’s consumer loan portfolio.
In calculating the allowance for credit losses, internally developed models were used which factor in credit risk related parameters including the
probability of default, the exposure at default, the loss given default, and other relevant risk factors. As part of the process, the Company employed
distinct forecast scenarios for the period as at December 31, 2020, derived from the FLI forecasts produced by five large Canadian banks, which include
neutral, optimistic and pessimistic forecast scenarios. For the period as at December 31, 2021, the Company enhanced the methodology by employing
five distinct forecast scenarios, derived from the FLI forecasts produced by Moody’s Analytics, which include neutral, moderately optimistic, extremely
optimistic, moderately pessimistic and extremely pessimistic forecast scenarios. These scenarios use a combination of four inter-related macroeconomic
variables including unemployment rates, GDP, inflation rates, and oil prices and are utilized to determine the probability weighted allowance. Judgment is
then applied to the recommended probability weightings to these scenarios to determine a probability weighted allowance for credit losses.
The following table shows the key macroeconomic variables used in the determination of the probability weighted allowance during the
forecast periods as at December 31, 2021 and December 31, 2020, respectively.
12-MONTH
FORWARD-LOOKING
MACROECONOMIC
VARIABLES
(AVERAGE ANNUAL)
Unemployment rate1
GDP Growth2
Inflation Growth3
Oil Prices4
DECEMBER 31, 2021
DECEMBER 31, 2020
NEUTRAL
FORECAST
SCENARIO
MODERATELY
OPTIMISTIC
FORECAST
SCENARIO
EXTREMELY
OPTIMISTIC
FORECAST
SCENARIO
MODERATELY
PESSIMISTIC
FORECAST
SCENARIO
EXTREMELY
PESSIMISTIC
FORECAST
SCENARIO
NEUTRAL
FORECAST
SCENARIO
OPTIMISTIC
FORECAST
SCENARIO
PESSIMISTIC
FORECAST
SCENARIO
5.81%
3.78%
3.07%
$67.34
5.02%
6.36%
3.64%
4.33%
9.03%
4.14%
$69.02
$72.75
8.04%
9.45%
(2.18%)
(6.91%)
2.38%
$42.25
1.79%
7.51%
5.91%
1.52%
7.30%
6.55%
1.05%
11.41%
(2.90%)
2.03%
$31.33
$38.69
$49.91
$55.04
1 An average of the projected monthly unemployment rates over the next 12-month forecast period.
2 A projected year-over-year GDP growth rate.
3 A projected year-over-year inflation growth rate.
4 An average of the projected monthly oil prices over the next 12-month forecast period.
The assignment of the probability weighting for the various scenarios using these variables involves management judgment through a robust
internal review and analysis by management to arrive at a collective view on the likelihood of each scenario, particularly in light of the current
COVID-19 pandemic circumstance. If management were to assign 100% probability to the extremely pessimistic scenario forecast, the allowance
for credit losses would have been $24.7 million (December 31, 2020 - $14.0 million under 100% pessimistic scenario forecast) higher than the
reported allowance for credit losses as at December 31, 2021. Note the sensitivity above does not consider the migration of exposure and/or
changes in credit risk that would have occurred in the loan portfolio due to risk mitigation actions or other factors.
Aging of the Gross Consumer Loans receivable
An aging analysis of the gross consumer loans receivable at the end of the periods was as follows:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2021
DECEMBER 31, 2020
Current
Days past due
1 - 30 days
31 - 44 days
45 - 60 days
61 - 90 days
91 - 120 days
121 - 150 days
151 - 180 days
Gross consumer loans receivable
68
1,909,110
94.1%
1,191,176
95.6%
71,505
14,417
12,358
14,966
3,350
2,792
1,841
121,229
2,030,339
3.5%
0.7%
0.6%
0.7%
0.2%
0.1%
0.1%
5.9%
100.0%
34,880
7,645
5,503
7,258
231
83
63
55,664
1,246,840
2.8%
0.6%
0.4%
0.6%
0.0%
0.0%
0.0%
4.4%
100.0%
A large portion of the Company’s consumer loans receivable operates on a bi-weekly rather than monthly repayment cycle. As such, the
aging analysis between different fiscal periods may not be comparable depending upon the day of the week on which the fiscal period
ends. An alternate aging analysis prepared as of the last Saturday of the fiscal periods often presents a more relevant comparison.
Aging analysis of the consumer loans receivable as of the last Saturday of the periods was as follows:
Current
Days past due
1 - 30 days
31 - 44 days
45 - 60 days
61 - 90 days
91 - 120 days
121 - 150 days
151 - 180 days
SATURDAY,
DECEMBER 25, 2021
SATURDAY,
DECEMBER 26, 2020
% OF TOTAL
% OF TOTAL
93.8%
94.9%
3.7%
0.7%
0.7%
0.7%
0.2%
0.1%
0.1%
6.2%
3.5%
0.5%
0.5%
0.6%
0.0%
0.0%
0.0%
5.1%
Gross consumer loans receivable
100.0%
100.0%
Consumer loans receivable that are considered past due as of the last Saturday of December 2021 was 6.2%, which was 110 bps higher
than the last Saturday of December 2020, primarily due to the inclusion of the LendCare portfolio, which has a longer period prior to charge
off, at six months post initial delinquency, compared to the existing easyfinancial unsecured loan portfolio, where loans are charged off
three months after the initial delinquency. In addition, during the prior year comparison period, there was a significant degree of federal
financial support available to customers during COVID-19 pandemic together with higher loan protection insurance claims, which served
to reduce the delinquency.
Consumer Loans receivable by Geography
At the end of the periods, the Company’s gross consumer loans receivable were allocated among the following geographic regions:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2021
DECEMBER 31, 2020
Newfoundland & Labrador
Nova Scotia
Prince Edward Island
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Territories
65,514
104,654
13,395
93,522
243,865
762,981
86,681
99,365
329,465
210,611
20,286
3.2%
5.2%
0.7%
4.6%
12.0%
37.6%
4.3%
4.9%
16.2%
10.4%
0.9%
43,672
66,665
10,285
56,735
109,180
529,909
51,995
62,672
172,627
130,233
12,867
3.5%
5.4%
0.8%
4.6%
8.8%
42.5%
4.2%
5.0%
13.8%
10.4%
1.0%
Gross consumer loans receivable
2,030,339
100.0%
1,246,840
100.0%
Consumer Loans receivable by Loan Type
At the end of the periods, the Company’s consumer loans receivable was allocated among the following loan types:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2021
DECEMBER 31, 2020
Unsecured Instalment Loans
Secured Instalment Loans1
Gross consumer loans receivable
1,364,696
665,643
2,030,339
67.2%
32.8%
100.0%
1,091,562
155,278
1,246,840
87.5%
12.5%
100.0%
1 Secured instalment loans include loans secured by real estate, personal property or a Notice of Security Interest.
69
LEASING PORTFOLIO ANALYSIS
Potential Monthly Leasing Revenue
Potential monthly leasing revenue is a supplementary financial measure. The Company measures its leasing portfolio and the performance of
its easyhome business through potential monthly lease revenue. Potential monthly lease revenue reflects the lease revenue that the Company’s
portfolio of leased merchandise would generate in a month providing it collected all lease payments contractually due in that period, but excludes
revenue generated by certain ancillary products. Potential monthly leasing revenue is an important indicator of the future revenue generating
potential of the Company’s lease portfolio. Potential monthly leasing revenue is calculated as the number of lease agreements outstanding multiplied
by the average required monthly lease payment per agreement. Growth in potential monthly lease revenue is driven by several factors including an
increased number of customers, an increased number of leased assets per customer as well as an increase in the average price of the leased items.
Potential monthly lease revenue is calculated as follows:
Total number of lease agreements
Multiplied by the average required monthly lease
payment per agreement
Potential monthly lease revenue ($ in 000’s)
DECEMBER 31,2021
DECEMBER 31, 2020
79,776
102.70
8,193
85,946
98.45
8,461
The change in the potential monthly lease revenue during the periods was as follows:
THREE MONTHS ENDED
YEAR ENDED
($ IN 000’S)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
Opening potential monthly lease revenue
Decrease due to store closures or sales during the period
Increase (decrease) due to ongoing operations
Net change
Ending potential monthly lease revenue
8,160
(27)
60
33
8,193
8,256
(6)
211
205
8,461
8,461
(49)
(219)
(268)
8,193
8,643
(52)
(130)
(182)
8,461
Potential Monthly Lease Revenue by Product Category
At the end of the periods, the Company’s leasing portfolio as measured by potential monthly lease revenue was allocated among the following
product categories:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2021
DECEMBER 31, 2020
Furniture
Electronics
Appliances
Computers
Potential monthly lease revenue
3,380
2,656
1,140
1,017
8,193
41.3%
32.4%
13.9%
12.4%
100.0%
3,624
2,666
1,150
1,021
8,461
42.8%
31.5%
13.6%
12.1%
100.0%
Potential Monthly Lease Revenue by Geography
At the end of the periods, the Company’s leasing portfolio as measured by potential monthly lease revenue was allocated among the
following geographic regions:
($ IN 000’S EXCEPT PERCENTAGES)
Newfoundland & Labrador
Nova Scotia
Prince Edward Island
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Potential monthly lease revenue
70
DECEMBER 31, 2021
DECEMBER 31, 2020
$
% OF TOTAL
$
% OF TOTAL
699
810
140
648
586
2,571
234
383
1,244
878
8,193
8.4%
9.9%
1.7%
7.9%
7.2%
31.4%
2.9%
4.7%
15.2%
10.7%
100.0%
685
847
148
702
592
2,706
245
398
1,252
886
8,461
8.1%
10.0%
1.7%
8.3%
7.0%
32.0%
2.9%
4.7%
14.8%
10.5%
100.0%
Leasing Charge offs as a Percentage of Leasing Revenue
The Company’s leasing charge offs as a percentage of leasing revenue is a non-IFRS measure ratio. When easyhome enters into a leasing
transaction with a customer, a sale is not recorded as the Company retains ownership of the related asset under the lease. Instead, the
Company recognizes its leasing revenue over the term of the lease as payments are received from the customer. Periodically, the lease
agreement is terminated by the customer or by the Company prior to the anticipated end date of the lease and the assets are returned
by the customer to the Company. In some instances, the Company is unable to regain possession of the assets which are then charged
off. Net charge offs (charge offs less subsequent recoveries of previously charged off assets) are included in the depreciation of lease
assets expense for financial reporting purposes. easyhome leasing revenue is a non-IFRS measure and is calculated as the total Company
revenue less financial revenue. The Company uses leasing charge offs as a percentage of leasing revenue, among other measures, to
assess the operating performance of its leasing portfolio. Non-IFRS ratios are not determined in accordance with IFRS, do not have
standardized meanings and may not be comparable to similar financial measures presented by other companies.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Depreciation of lease assets
Less: Lease asset amortization excluding net
charge offs
Net charge offs
Total Company revenue
Less: Financial revenue
Leasing revenue
Net charge offs as a percentage
of leasing revenue
9,157
(8,291)
866
234,430
(204,974)
29,456
8,980
35,844
35,770
(8,252)
728
173,219
(142,749)
30,470
(32,831)
3,013
826,722
(707,137)
119,585
(32,843)
2,927
652,922
(532,245)
120,677
2.9%
2.4%
2.5%
2.4%
Key Performance Indicators and Non-IFRS Measures
In addition to the reported financial results under IFRS and the metrics described in the Portfolio Analysis section of this MD&A, the
Company also measures the success of its strategy using a number of key performance indicators as described in more detail below.
Several of these key performance indicators are not measurements in accordance with IFRS and should not be considered as an alternative
to net income or any other measure of performance under IFRS.
The discussion in this section refers to certain financial measures that are not determined in accordance with IFRS. Although these
measures do not have standardized meanings and may not be comparable to similar measures presented by other companies, these
measures are defined herein or can be determined by reference to the Company’s consolidated financial statements. The Company
discusses these measures because it believes that they facilitate the understanding of the results of its operations and financial position.
Several non-IFRS measures that are used throughout this discussion are defined as follows:
SAME STORE REVENUE GROWTH
Same store revenue growth is a supplementary financial measure which shows the revenue growth for all stores that have been open for
a minimum of 15 months. To calculate same store revenue growth for a period, the revenue for that period is compared to the same period
in the prior year excluding the revenues related to opened and closed stores or kiosks during the period. Same store revenue growth is
influenced by both the Company’s product offerings as well as the number of stores which have been open for a 12-month to 36-month
time frame, as these stores tend to be in the strongest period of growth at this time.
For the three-month period and year ended December 31, 2021, the Company experienced a higher level of same store revenue growth
rate compared to the same periods of 2020. During 2020, the Company experienced a lower level of loan growth due to a lower level of
demand caused by the COVID-19 pandemic. In addition, the Company experienced higher than usual loan protection insurance claim costs
in 2020, which served to reduce the net commissions earned on this program, associated with higher unemployment rates as a result of
the COVID-19 pandemic. The lower level of loan growth resulted in lower levels of same store revenue growth. Subsequently, in 2021, the
Company has seen an improved level of demand and loan growth, leading to higher growth in same store revenue.
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
Same store revenue growth (overall)
Same store revenue growth (easyhome)
13.4%
5.6%
4.2%
4.4%
12.1%
6.0%
6.3%
4.5%
71
ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
At various times, net income and diluted earnings per share may be affected by adjusting items that have occurred in the period and impact
the comparability of these measures with other periods. Adjusting items include items that are outside of normal business activities and
are significant in amount and scope, which management believes are not reflective of underlying business performance. Adjusted net
income and adjusted diluted earnings per share are non-IFRS measures. The Company defines: i) adjusted net income as net income
excluding such adjusting items; and ii) adjusted diluted earnings per share as diluted earnings per share excluding such adjusting items.
The Company believes that adjusted net income and adjusted diluted earnings per share are important measures of the profitability of
operations adjusted for the effects of adjusting items.
Items used to calculate adjusted net income and earnings per share for the three-month period and year ended December 31, 2021 and
2020 include those indicated in the chart below:
($ IN 000'S EXCEPT EARNINGS PER SHARE)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Net income as stated
Impact of adjusting items
Operating expenses before depreciation
and amortization
Transaction costs1
Integration costs2
Bad debts
Day one loan loss provision on the acquired
loans3
Amortization of intangible assets
Amortization of intangible assets acquired
through the Acquisition4
Other income5
Finance costs
Transaction costs1
Total pre-tax impact of adjusting items
Income tax impact of above adjusting items
After-tax impact of adjusting items
Adjusted net income
After-tax impact of Debentures
Fully diluted adjusted net income
Weighted average number of
diluted shares outstanding
Diluted earnings per share as stated
Per share impact of normalized items
Adjusted diluted earnings per share
49,961
48,911
244,943
136,505
-
3,447
-
3,277
(8,371)
-
(1,647)
(670)
(2,317)
47,644
-
47,644
-
-
-
-
(16,040)
-
(16,040)
2,125
(13,915)
34,996
-
34,996
7,615
5,047
14,252
8,735
(114,876)
1,726
(77,501)
7,317
(70,184)
174,759
-
174,759
-
-
-
-
(21,740)
-
(21,740)
2,881
(18,859)
117,646
1,586
119,232
17,233
15,589
16,757
15,757
2.90
(0.14)
2.76
3.14
(0.90)
2.24
14.62
(4.19)
10.43
8.76
(1.19)
7.57
Adjusting items related to the LendCare Acquisition
1 Transaction costs including advisory and consulting costs, legal costs, and other direct transaction costs related to the acquisition of LendCare reported under Operating expenses before depreciation and
amortization and loan commitment fees related to the acquisition of LendCare reported under Finance costs.
2 Integration costs related to advisory and consulting costs, employee incentives, representation and warranty insurance cost, other integration-related costs related to the acquisition of LendCare and the
write off of certain software as a result of the integration with LendCare. Integration costs were reported under Operating expenses before depreciation and amortization.
3 Bad debt expense related to the day one loan loss provision on the acquired loan portfolio from LendCare.
4 Amortization of $131 million intangible asset related to the acquisition of LendCare with an estimated useful life of ten years.
Adjusting item related to other income
5 For the three-month period and year ended December 31, 2021, realized and unrealized fair value gains mainly related to investments in Affirm and TRS. For the three-month period and year ended
December 31, 2020, unrealized fair value gains mainly related to investments in PayBright.
72
ADJUSTED NET INCOME AS A PERCENTAGE OF REVENUE
Adjusted net income as a percentage of revenue is a non-IFRS measure ratio. The Company believes that adjusted net income as a
percentage of revenue is an important measure of the profitability of the Company’s operations. The Company defines adjusted net income
as net income excluding adjusting items.
THREE MONTHS ENDED
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021
DECEMBER 31, 2021
(ADJUSTED)
DECEMBER 31, 2020
DECEMBER 31, 2020
(ADJUSTED)
Net income as stated
After-tax impact of adjusting items1
Adjusted net income
Divided by revenue
Net income as a percentage of revenue
49,961
-
49,961
234,430
21.3%
49,961
(2,317)
47,644
234,430
20.3%
48,911
-
48,911
173,219
28.2%
48,911
(13,915)
34,996
173,219
20.2%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
YEAR ENDED
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021
DECEMBER 31, 2021
(ADJUSTED)
DECEMBER 31, 2020
DECEMBER 31, 2020
(ADJUSTED)
Net income as stated
After-tax impact of adjusting items1
Adjusted net income
Divided by revenue
Net income as a percentage of revenue
244,943
-
244,943
826,722
29.6%
244,943
(70,184)
174,759
826,722
21.1%
136,505
-
136,505
652,922
20.9%
136,505
(18,859)
117,646
652,922
18.0%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
ADJUSTED OPERATING MARGIN
Adjusted operating margin is a non-IFRS measure. The Company defines adjusted operating margin as adjusted operating income divided by
revenue for the Company as a whole and for its reporting segments: easyfinancial and easyhome. The Company defines adjusted operating income
as operating income excluding adjusting items. The Company believes adjusted operating margin is an important measure of the profitability of its
operations, which in turn assists it in assessing the Company’s ability to generate cash to pay interest on its debt and to pay dividends.
THREE MONTHS ENDED
DECEMBER 31, 2021
DECEMBER 31, 2021
(ADJUSTED)
DECEMBER 31, 2020
($ IN 000’S EXCEPT PERCENTAGES)
easyfinancial
Operating income
Divided by revenue
easyfinancial operating margin
easyhome
Operating income
Divided by revenue
easyhome operating margin
Total
Operating income
87,643
196,015
44.7%
8,450
38,415
22.0%
87,643
196,015
44.7%
8,450
38,415
22.0%
79,629
79,629
67,227
136,523
49.2%
8,663
36,696
23.6%
61,277
-
-
61,277
173,219
35.4%
73
Operating expenses before depreciation and amortization
Integration costs1
Amortization of intangible assets
Amortization of intangible assets acquired through the Acquisition1
Adjusted operating income
Divided by revenue
-
-
79,629
234,430
Total operating margin
34.0%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
3,447
3,277
86,353
234,430
36.8%
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, 2021
(ADJUSTED)
DECEMBER 31, 2020
easyfinancial
Operating income
Divided by revenue
easyfinancial operating margin
easyhome
Operating income
Divided by revenue
easyhome operating margin
Total
Operating income
324,751
676,351
48.0%
36,861
150,371
24.5%
324,751
676,351
48.0%
36,861
150,371
24.5%
242,589
509,904
47.6%
31,059
143,018
21.7%
281,003
281,003
216,436
Operating expenses before depreciation and amortization
Transaction costs1
Integration costs1
Bad debts
Day one loan loss provision on the acquired loans1
Amortization of intangible assets
Amortization of intangible assets acquired through the Acquisition1
Adjusted operating income
Divided by revenue
-
-
-
-
281,003
826,722
Total operating margin
34.0%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
7,615
5,047
14,252
8,735
316,652
826,722
38.3%
-
-
-
-
216,436
652,922
33.1%
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (“EBITDA”) AND EBITDA MARGIN
EBITDA is a non-IFRS measure and EBITDA margin is a non-IFRS measure ratio. The Company defines EBITDA as earnings before interest,
taxes, depreciation and amortization, excluding depreciation of leased assets. EBITDA margin is calculated as EBITDA divided by revenue.
The Company uses EBITDA and EBITDA margin, among other measures, to assess the operating performance of its ongoing businesses.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021
DECEMBER 31, 2020
DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Net income as stated
Finance cost
Income tax expense
Depreciation and amortization, excluding
depreciation of lease assets
EBITDA
Divided by revenue
EBITDA margin
49,961
22,281
15,758
12,508
100,508
234,430
42.9%
48,911
13,343
15,063
7,772
85,089
173,219
49.1%
244,943
79,025
71,911
43,042
438,921
826,722
53.1%
136,505
54,992
46,679
28,953
267,129
652,922
40.9%
74
FREE CASH FLOWS FROM OPERATIONS BEFORE NET GROWTH IN GROSS CONSUMER LOANS RECEIVABLE
Free cash flows from operations before net growth in gross consumer loans receivable is a non-IFRS measure. The Company defines
Free cash flows from operations before net growth in gross consumer loans receivable as cash provided by (used in) operating activities
if the Company has not invested in the growth of the consumer loans receivable and the loan portfolio had remained static. The Company
believes Free cash flows from operations before net growth in gross consumer loans receivable is an important performance indicator
to assess the cash generating ability of its existing loan portfolio.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2021
DECEMBER 31, 2020
DECEMBER 31, 2021 DECEMBER 31, 2020
Cash provided by (used in) operating activities
(74,171)
(23,059)
(78,875)
74,412
THREE MONTHS ENDED
YEAR ENDED
Net growth in gross consumer loans receivable
during the period
Less: Gross loans purchased1
Adjusted net growth in gross consumer loans
receivable during the period
Free cash flows from operations before net
growth in gross consumer loans receivable
133,623
-
133,623
59,452
1 Gross loans purchased during the second quarter of 2021 through the acquisition of LendCare.
RETURN ON ASSETS
64,039
-
64,039
40,980
783,499
(444,520)
338,979
260,104
136,207
-
136,207
210,619
Adjusted return on assets is a non-IFRS measure ratio. The Company defines adjusted return on assets as annualized adjusted net income
in the period divided by average total assets for the period. The Company defines adjusted net income as net income excluding adjusting
items. The Company believes adjusted return on assets is an important measure of how total assets are utilized in the business.
($ IN 000’S EXCEPT PERCENTAGES)
Net income as stated
After-tax impact of adjusting items1
Adjusted net income
Multiplied by number of periods in year
Divided by average total assets for the period
Return on assets
THREE MONTHS ENDED
DECEMBER 31,
2021
DECEMBER 31,
2021
(ADJUSTED)
DECEMBER 31,
2020
DECEMBER 31,
2020
(ADJUSTED)
49,961
-
49,961
X 4
2,533,945
7.9%
49,961
(2,317)
47,644
X 4
2,533,945
7.5%
48,911
-
48,911
X 4
1,434,596
13.6%
48,911
(13,915)
34,996
X 4
1,434,596
9.8%
1For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
($ IN 000’S EXCEPT PERCENTAGES)
Net income as stated
After-tax impact of adjusting items1
Adjusted net income
Divided by average total assets for the period
Return on assets
YEAR ENDED
DECEMBER 31,
2021
DECEMBER 31,
2021
(ADJUSTED)
DECEMBER 31,
2020
DECEMBER 31,
2020
(ADJUSTED)
244,943
-
244,943
2,126,594
11.5%
244,943
(70,184)
174,759
2,126,594
8.2%
136,505
-
136,505
1,389,540
9.8%
136,505
(18,859)
117,646
1,389,540
8.5%
1For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
75
RETURN ON EQUITY
Adjusted return on equity is a non-IFRS measure ratio. The Company defines adjusted return on equity as annualized adjusted net income in
the period, divided by average shareholders’ equity for the period. The Company defines adjusted net income as net income excluding adjusting
items. The Company believes adjusted return on equity is an important measure of how shareholders’ invested capital is utilized in the business.
($ IN 000’S EXCEPT PERCENTAGES)
Net income as stated
After-tax impact of adjusting items1
Adjusted net income
Multiplied by number of periods in year
Divided by average shareholders’ equity for the
period
Return on equity
THREE MONTHS ENDED
DECEMBER 31,
2021
DECEMBER 31,
2021
(ADJUSTED)
DECEMBER 31,
2020
DECEMBER 31,
2020
(ADJUSTED)
49,961
-
49,961
X 4
798,620
25.0%
49,961
(2,317)
47,644
X 4
798,620
23.9%
48,911
-
48,911
X 4
426,868
45.8%
48,911
(13,915)
34,996
X 4
426,868
32.8%
1For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
($ IN 000’S EXCEPT PERCENTAGES)
Net income as stated
After-tax impact of adjusting items1
Adjusted net income
Divided by average shareholders’ equity for the
period
Return on equity
YEAR ENDED
DECEMBER 31,
2021
DECEMBER 31,
2021
(ADJUSTED)
DECEMBER 31,
2020
DECEMBER 31,
2020
(ADJUSTED)
244,943
-
244,943
667,962
36.7%
244,943
(70,184)
174,759
667,962
26.2%
136,505
-
136,505
377,842
36.1%
136,505
(18,859)
117,646
377,842
31.1%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
76
RETURN ON TANGIBLE COMMON EQUITY
Reported and adjusted return on tangible common equity are non-IFRS measure ratios. The Company defines return on tangible common
equity as net income, adjusted for the after-tax amortization of acquisition-related intangible assets, which are treated as adjusting items, as a
percentage of average tangible common equity. Tangible common equity is calculated as shareholders’ equity for the period, less goodwill and
acquisition-related intangible assets, net of related deferred tax liabilities. Adjusted net income before after-tax amortization of intangible assets
excludes the impact of adjusting items. The Company believes return on tangible common equity is an important measure of how shareholders’
invested tangible capital is utilized in the business.
($ IN 000’S EXCEPT PERCENTAGES)
Net income as stated
Amortization of acquired intangible assets
Income tax impact of the above item
Net income before amortization of acquired
intangible assets, net of income tax
Impact of adjusting items1
Operating expenses before depreciation
and amortization
Integration costs
Other income
Total pre-tax impact of adjusting items
Income tax impact of above adjusting items
After-tax impact of adjusting items
Adjusted net income
Multiplied by number of periods in year
Average shareholders’ equity
Average goodwill
Average acquired intangible assets2
Average related deferred tax liabilities
Divided by average tangible common equity
Return on tangible common equity
THREE MONTHS ENDED
DECEMBER 31,
2021
DECEMBER 31,
2021
(ADJUSTED)
DECEMBER 31,
2020
DECEMBER 31,
2020
(ADJUSTED)
49,961
3,277
(868)
52,370
-
-
-
-
-
52,370
X 4
798,620
(180,923)
(123,904)
32,835
526,628
39.8%
49,961
3,277
(868)
52,370
3,447
(8,371)
(4,924)
198
(4,726)
47,644
X 4
798,620
(180,923)
(123,904)
32,835
526,628
36.2%
48,911
48,911
-
-
-
-
48,911
48,911
-
-
-
-
-
48,911
X 4
426,868
(21,310)
-
-
405,558
48.2%
-
(16,040)
(16,040)
2,125
(13,915)
34,996
X 4
426,868
(21,310)
-
-
405,558
34.5%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
2 Excludes intangible assets relating to software.
77
($ IN 000’S EXCEPT PERCENTAGES)
Net income as stated
Amortization of acquired intangible assets
Income tax impact of the above item
Net income before amortization of acquired
intangible assets, net of income tax
Impact of adjusting items1
Operating expenses before depreciation
and amortization
Transaction costs
Integration costs
Bad debts
Day one loan loss provision on the acquired
loans
Other income
Finance costs
Transaction costs
Total pre-tax impact of adjusting items
Income tax impact of above adjusting items
After-tax impact of adjusting items
Adjusted net income
Average shareholders’ equity
Average goodwill
Average acquired intangible assets2
Average related deferred tax liabilities
Divided by average tangible common equity
Return on tangible common equity
YEAR ENDED
DECEMBER 31,
2021
DECEMBER 31,
2021
(ADJUSTED)
DECEMBER 31,
2020
DECEMBER 31,
2020
(ADJUSTED)
244,943
8,735
(2,314)
244,943
8,735
(2,314)
136,505
136,505
-
-
-
-
251,364
251,364
136,505
136,505
-
-
-
-
-
-
-
-
251,364
667,962
(116,860)
(75,325)
19,961
495,738
50.7%
7,615
5,047
14,252
(114,876)
1,726
(86,236)
9,631
(76,605)
174,759
667,962
(116,860)
(75,325)
19,961
495,738
35.3%
-
-
-
-
-
-
-
-
136,505
377,842
(21,310)
-
-
356,532
38.3%
-
-
-
(21,740)
-
(21,740)
2,881
(18,859)
117,646
377,842
(21,310)
-
-
356,532
33.0%
1 For explanation of adjusting items, refer to the corresponding “Adjusting Net Income and Adjusting Diluted Earnings Per Share” section.
2 Excludes intangible assets relating to software.
78
Financial Condition
The following table provides a summary of certain information with respect to the Company’s capitalization and financial position as at
December 31, 2021 and 2020.
($ IN 000’S, EXCEPT FOR RATIOS)
Consumer loans receivable, net
Cash
Amounts receivable
Prepaid expenses
Investment
Lease assets
Property and equipment, net
Deferred tax assets, net
Derivative financial assets
Intangible assets, net
Right-of-use assets, net
Goodwill
Total assets
Revolving securitization warehouse facility
Secured borrowings
Notes payable
Revolving credit facility
External debt
Accounts payable and accrued liabilities
Income taxes payable
Dividends payable
Unearned revenue
Accrued interest
Deferred tax liabilities, net
Derivative financial liabilities
Lease liabilities
Total liabilities
Shareholders’ equity
Total capitalization (external debt plus total
shareholders’ equity)
Capital management measures
External debt to shareholders’ equity1
Net debt to net capitalization2
External debt to EBITDA3
DECEMBER 31, 2021
DECEMBER 31, 2020
1,899,631
102,479
20,769
8,018
64,441
47,182
35,285
-
20,634
159,651
57,140
180,923
2,596,153
292,814
173,959
1,085,906
-
1,552,679
57,134
27,859
10,692
11,354
8,135
38,648
34,132
65,607
1,806,240
789,913
2,342,592
1.97
0.65
3.54
1,152,378
93,053
9,779
13,005
56,040
49,384
31,322
4,066
-
25,244
46,335
21,310
1,501,916
-
-
689,410
198,339
887,749
46,065
13,897
6,661
10,622
2,598
-
36,910
53,902
1,058,404
443,512
1,331,261
2.00
0.64
3.32
1 External debt to shareholders’ equity is a capital management measure that the Company uses to assess the ability of its net assets to cover outstanding debts. It is calculated as external debt
divided by shareholders’ equity.
2 Net debt to net capitalization is a leverage metric the Company uses to ensure it is operating within its target leverage range. Net debt is calculated as external debt less cash. Net debt to net
capitalization is net debt divided by the sum of net debt and shareholders’ equity.
3 External debt to EBITDA is a capital management measure that the Company uses to assess the ability of the Company’s EBITDA to cover its outstanding debts. It is calculated as external debt
divided by EBITDA.
79
Total assets were $2.6 billion as at December 31, 2021, an increase of $1.1 billion or 72.0% compared to December 31, 2020. The increase was
related primarily to i) the acquired loan portfolio from LendCare of $444.5 million; ii) intangible assets recognized and goodwill arising from
the Acquisition amounting to $134.2 million and $159.6 million, respectively; iii) a $302.8 million increase in net consumer loans receivable
excluding the loans acquired through the Acquisition; iv) the increase in cash of $9.4 million; and iv) the increase in investments of $8.4
million mainly due to the new equity investments in Affirm and Brim, partially offset by the disposal of an equity investment in PayBright.
The $1.1 billion of growth in total assets was primarily financed by i) a $664.6 million increase in external debt which includes the new US$320 million 2026
Notes to fund the Acquisition; and ii) a $346.4 million increase in total shareholder’s equity, which was driven by the $172.5 million bought deal equity offering
related to the Acquisition, 81,400 common shares issued to LendCare’s founders valued at $11.8 million and earnings generated by the Company, partially
offset by share buybacks under the Company’s Normal Course Issuer Bid (“NCIB”) and dividends paid. While the Company has continued to pay a dividend
to its shareholders, a large portion of the Company’s earnings over the prior year have been retained to fund the growth of its consumer lending business.
Liquidity and Capital Resources
CASH FLOW REVIEW
The table below provides a summary of cash flow components for the three-month period and year ended December 31, 2021 and 2020.
($ IN 000’S)
DECEMBER 31, 2021 DECEMBER 31, 2020 DECEMBER 31, 2021 DECEMBER 31, 2020
THREE MONTHS ENDED
YEAR ENDED
Cash provided by operating activities before
net issuance of consumer loans receivable and
purchase of lease assets
Net issuance of consumer loans receivable
Purchase of lease assets
Cash (used in) provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Net (decrease) increase in cash for the period
115,882
(178,198)
(11,855)
(74,171)
(8,475)
60,440
(22,206)
74,822
(85,873)
(12,008)
(23,059)
(8,659)
85,294
53,576
439,573
(484,817)
(33,631)
(78,875)
(210,635)
298,936
9,426
357,690
(246,824)
(36,454)
74,412
(28,673)
973
46,712
The Company provides loans to non-prime borrowers. The Company obtains capital and funding which is treated as cash flows from
financing activities and then advances funds to borrowers as loans which are treated as cash used in operating activities. When borrowers
make loan payments this generates cash flow from operating activities and income over time. As such when the Company is growing its
portfolio of consumer loans it will tend to use cash in operating activities.
Cash Flow Analysis for the Three Months Ended December 31, 2021
Cash used in operating activities for the three-month period ended December 31, 2021 was $74.2 million, compared with $23.1 million
in the same period of 2020. Included in cash used in operating activities for the three-month period ended December 31, 2021 were: i) a
net investment of consumer loans receivable amounting to $178.2 million; and ii) the purchase of lease assets of $11.9 million. If the net
issuance of consumer loans receivable and the purchase of lease assets were treated as cash flows from investing activities, the cash
flows generated by operating activities would have been $115.9 million for the three months ended December 31, 2021, up $41.1 million
from the same period of 2020. The increase was driven by increased earnings, favorable changes in working capital and higher non-cash
expenses such as bad debt expense and depreciation and amortization.
During the three-month period ended December 31, 2021, cash used in investing activities was $8.5 million, slightly lower compared to
$8.7 million in the same period of 2020.
During the three-month period ended December 31, 2021, the Company generated $60.4 million in cash flow from financing activities,
down $24.9 million from $85.3 million of cash generated in the same period of 2020. During the three-month period ended December 31,
2021, the Company received advances of $169.9 million from its revolving securitized warehouse facility and $79.9 million received from
advances against its revolving credit facility. These cash inflows were partially offset by the repayment of $95.0 million of advances on its
revolving credit facility, $62.3 million of repurchases of common shares through the Company’s NCIB, the repayment of $17.6 million of
advances from secured borrowings, the payment of $10.6 million of dividends, and the payment of $5.0 million of lease liabilities. During
the fourth quarter of 2020, the Company received net proceeds of $100 million received from advances against the revolving credit facility.
These cash inflows were partially offset by the $6.7 million of dividends paid, $5.5 million of shares repurchased under the Company’s
NCIB and $4.3 million of lease liabilities paid.
80
Cash Flow Analysis for the Year Ended December 31, 2021
Cash used in operating activities during the year was $78.9 million, compared to $74.4 million of cash generated by operating activities in
the same period of 2020. Included in cash provided by operating activities for the year ended December 31, 2021 were: i) a net investment
of $484.8 million to increase the gross consumer loans receivable portfolio and ii) the purchase of $33.6 million of lease assets. If the net
issuance of consumer loans receivable and the purchase of lease assets were treated as cash flows from investing activities, the cash
flows generated by operating activities would have been $439.6 million for the year, up from $357.7 million in the same period of 2020. The
increase was due to increased earnings, favorable changes in working capital partially offset by higher non-cash expenses such as bad
debt expense and depreciation and amortization partially offset by higher non-cash other income related to fair value gains on Investments.
During the year, the Company used $210.6 million in investing activities, up $182.0 million compared to $28.7 million in the prior year. This
is mainly due to cash used in the Acquisition of $281.0 million and the purchase of equity investments mainly in Brim of $11.3 million,
partially offset by $109.2 million of proceeds from the sales of equity investments in PayBright and Affirm.
During the year, the Company generated $298.9 million in cash flow from financing activities. During the year, the Company issued 2026
Notes and raised $172.5 million bought deal equity offering to fund the Acquisition, received $372.6 million from advances against its
revolving securitization warehouse facility, received $154.8 million from advances against its revolving credit facility, and $67.1 million in
advances from secured borrowings. These cash inflows were partially offset by repayment of $355.0 million of advances on its revolving
credit facility, a $243.6 million repayment of acquired notes payable, $80.0 million repayment of advances from the revolving securitization
warehouse facility, $62.3 million of repurchases of common shares through NCIB, a $60.4 million repayment of secured borrowings, paid
$37.5 million of dividends and payment of $18.9 million of lease liabilities. In 2020, the Company generated $1 million in cash flow from
financing activities. During the prior year, the Company received net proceeds of $85 million from advances against its revolving credit
facility. These cash inflows were partially offset by $42.4 million of shares repurchased under the Company’s NCIB, $23.9 million of
dividends paid, payments of $16.8 million of lease liabilities and $2.4 million used to redeem Debentures.
CAPITAL AND FUNDING RESOURCES
goeasy funds its business through a combination of equity and debt instruments. goeasy’s Common Shares are listed for trading on the
TSX under the trading symbol “GSY”. goeasy is rated BB- with a stable trend from S&P and Ba3 with a stable trend from Moody’s.
On March 22, 2021, goeasy’s common shares were added by Dow Jones to the S&P/TSX Composite Index. The Company’s inclusion in the
benchmark Canadian index reflects the value that has been created for the Company’s shareholders over the years.
As at December 31, 2021, the Company’s external debt consisted of US$550 million of 2024 Notes with net carrying value of $687.0 million,
US$320 million of 2026 Notes with net carrying value of $398.9 million, $174.0 million of secured borrowings, and $295 million drawn
against the Company’s revolving securitization warehouse facility. As at December 31, 2021, no amount was drawn against the Company’s
revolving credit facility leaving $310 million of borrowing capacity.
Borrowings under the 2024 Notes bore a US$ coupon rate of 5.375%. Through a cross-currency swap agreement arranged concurrently
with the US$550 million offering of the 2024 Notes in November 2019, the Company hedged the risk of changes in the foreign exchange
rate for all required payments of principal and interest, effectively hedging the obligation at $728.3 million with a Canadian dollar interest
rate of 5.65%. These 2024 Notes mature on December 1, 2024.
Borrowings under the 2026 Notes bore a US$ coupon rate of 4.375%. Through a cross-currency swap agreement arranged concurrently
with the US$320 million offering of the 2026 Notes in April 2021, the Company hedged the risk of changes in the foreign exchange rate for
all required payments of principal and interest, effectively hedging the obligation at $400 million with a Canadian dollar interest rate of
4.818%. These 2026 Notes mature on May 1, 2026.
The Company has two secured borrowing facilities as follows:
• A $105 million annual securitization facility, which bears an interest at the Government of Canada Bonds (“GOCB”) rate (with a floor
rate of 0.95%) plus 395 bps. The loan sale agreement to sell loans into the facility expired on July 31, 2021. The balance of the loans
that were sold into the facility will amortize down based on their contractual time to maturity; and
• An $85 million annual securitization facility, which bears an interest at GOCB (with a floor rate of 0.25%) plus 325 bps. In addition
to the securitization loan facility, there is a $6 million accumulation loan agreement which advances 85% of the face value of the
consumer loans for up to a 90-day period bearing an interest rate at BA plus 400 bps. The loan sale agreement to sell loans into the
facility expired on November 30, 2021. The balance of the loans that were sold into the facility will amortize down based on their
contractual time to maturity.
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Borrowings under the Company’s revolving securitization warehouse facility bear interest at the rate of 1-month CDOR plus 185 bps,
maturing December 7, 2023. Concurrent with the establishment of the revolving securitization warehouse facility, the Company entered
into an interest rate swap as a cash flow hedge to protect against the risk of changes in the variability of future interest rates by paying a
fixed rate and receiving the variable rate equivalent to 1-month CDOR.
The average blended coupon interest rate for the Company’s debt as at December 31, 2021, was 4.9% down from 5.2% as at December 31, 2020.
As at December 31, 2021, the Company had a cash position of $102.5 million which includes $13.3 million of net restricted cash related
to its cross-currency and total return swap contracts and $27.6 million in restricted cash related to its revolving securitization warehouse
facility and secured borrowings reserve. As at December 31, 2021, the Company has borrowing capacities of $305.0 million under its
revolving securitization warehouse facility and $310.0 million under its revolving credit facility. The cash position of $102.5 million and
total borrowing capacities of $615.0 million represented $717.5 million in total liquidity as at December 31, 2021. The Company also has
the ability to exercise the accordion feature under its revolving credit facility to add an additional $75.0 million in borrowing capacity.
The current total liquidity, excluding future enhancements or diversification of funding sources, provide adequate growth capital for the
Company to execute its organic growth plan and meet its forecast through the fourth quarter of 2023.
The expansion of the revolving securitization warehouse facility by $300 million and the reduction of the revolving credit facility by $40
million in January 2022 brings the total liquidity to $977.5 million as at February 16, 2022. The current total liquidity, excluding further
enhancements or diversification of funding sources, provide adequate growth capital for the Company to execute its organic growth plan
and meet its forecast through the fourth quarter of 2024.
Outstanding Shares and Dividends
As at February 16, 2022, there were 16,095,693 Common Shares, 287,466 deferred share units, 476,830 options, 246,695 restricted share
units, and no warrants outstanding.
NORMAL COURSE ISSUER BID
On December 14, 2021, the Company announced the acceptance by the TSX of the Company’s Notice of Intention to Make an NCIB (the “2021 NCIB”).
Pursuant to the 2021 NCIB, the Company proposed to purchase, from time to time, if considered advisable, up to an aggregate of 1,243,781 Common
Shares being approximately 10% of goeasy’s public float as of December 7, 2021. As at December 7, 2021, goeasy had 16,254,135 Common Shares
issued and outstanding, and the average daily trading volume for the six months prior to November 30, 2021, was 62,825. Under the 2021 NCIB, daily
purchases will be limited to 15,706 Common Shares, representing 25% of the average daily trading volume, other than block purchase exemptions.
The purchases were permitted to commence on December 21, 2021, and will terminate on December 20, 2022, or on such earlier date as the
Company may complete its purchases pursuant to the 2021 NCIB. The 2021 NCIB will be conducted through the facilities of the TSX or alternative
trading systems, if eligible, and will conform to their regulations. Purchases under the 2021 NCIB will be made by means of open market transaction
or other such means as a security regulatory authority may permit, including pre-arranged crosses, exempt offers and private agreements under
an issuer bid exemption order issued by a securities regulatory authority. The price that goeasy will pay for any Common Shares will be the market
price of such shares at the time of acquisition, unless otherwise permitted under applicable rules.
On December 16, 2020, the Company announced the acceptance by the TSX of the Company’s Notice of Intention to Make an NCIB (the “2020 NCIB”).
Pursuant to the 2020 NCIB, the Company proposed to purchase, from time to time, if considered advisable, up to an aggregate of 1,079,703 Common
Shares being approximately 10% of goeasy’s public float as of December 9, 2020. As at December 9, 2020, goeasy had 14,801,169 Common Shares
issued and outstanding, and the average daily trading volume for the six months prior to November 30, 2020, was 83,554. Under the 2020 NCIB, daily
purchases were limited to 20,888 Common Shares, representing 25% of the average daily trading volume, other than block purchase exemptions. The
2020 NCIB was permitted to commence on December 21, 2020 and the 2020 NCIB terminated on December 20, 2021. The purchases made by goeasy
pursuant to the 2020 NCIB were effected through the facilities of the TSX, as well as alternative trading systems, and in accordance with the rules of
the TSX. The price that the Company paid for any Common Shares was the market price of such shares at the time of acquisition. The Company did not
purchase any Common Shares other than by open-market purchases. Under the 2020 NCIB, the Company completed the purchase for cancellation
through the facilities of the TSX of 333,315 Common Shares at a weighted average price of $186.86 per Common Share for a total cost of $62.3 million.
On December 18, 2019, the Company announced the acceptance by the TSX of the Company’s Notice of Intention to Make an NCIB (the
“2019 NCIB”). Pursuant to the 2019 NCIB, the Company proposed to purchase, from time to time, if considered advisable, up to an aggregate
of 1,038,269 Common Shares being approximately 10% of goeasy’s public float as of December 9, 2019. As at December 9, 2019, goeasy
had 14,346,709 Common Shares issued and outstanding, and the average daily trading volume for the six months prior to November 30,
2019, was 36,081. Under the 2019 NCIB, daily purchases were limited to 9,020 Common Shares, representing 25% of the average daily
trading volume, other than block purchase exemptions. The 2019 NCIB was permitted to commence on December 20, 2019 and the 2019
NCIB terminated on December 19, 2020. The purchases made by goeasy pursuant to the 2019 NCIB were effected through the facilities
of the TSX, as well as alternative trading systems, and in accordance with the rules of the TSX. The price that the Company paid for any
Common Shares was the market price of such shares at the time of acquisition. The Company did not purchase any Common Shares other
than by open-market purchases. Under the 2019 NCIB, the Company completed the purchase for cancellation through the facilities of the
TSX of 767,855 Common Shares at a weighted average price of $55.18 per Common Share for a total cost of $42.4 million.
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On March 23, 2020, TSX provided a temporary relief for its participating organizations for NCIB purchases. From March 23, 2020 to December
31, 2020 (“Effective Period”), TSX modified the volume of purchases condition in TSX Rule 6-101 of the TSX Rule Book, subsection (a) of
“normal course issuer bid”, so that the amount of NCIB purchases must not exceed 50% of the average daily trading volume of the listed
securities of that class. During the Effective Period, the Company’s daily purchases under the 2019 NCIB was limited to 18,040 Common
Shares, representing 50% of the average daily trading volume, other than block purchase exemptions.
DIVIDENDS
During the quarter ended December 31, 2021, the Company declared a $0.66 per share quarterly dividend on outstanding Common
Shares. This dividend was paid on January 14, 2022.
The Company reviews its dividend distribution policy on a regular basis, evaluating its financial position, profitability, cash flow and other
factors the Board of Directors considers relevant. However, no dividends can be declared in the event there is a default of a loan facility,
or where such payment would lead to a default.
On February 17, 2021, the Company increased the dividend rate by 46.7% from $0.45 to $0.66 per share per quarter. 2021 marks the
17th consecutive year of paying a dividend to shareholders and the 7th consecutive year of an increase in the dividend to shareholders.
In February 2020, the Company was added to the S&P/TSX Canadian Dividend Aristocrats Index with a 42% compound annual growth
rate in the dividend over the prior 5 years.
The following table sets forth the quarterly dividends paid by the Company in the fourth quarter of the years indicated:
2021
2020
2019
2018
2017
2016
2015
Dividend per share
Percentage increase
$0.660
46.7%
$0.450
45.2%
$0.310
37.8%
$ 0.225
$ 0.180
$ 0.125
$ 0.100
25.0%
44.0%
25.0%
17.6%
Commitments, Guarantees and Contingencies
COMMITMENTS
The Company is committed to software maintenance, development and licensing service agreements, and operating leases for premises
and vehicles. Some of the Company’s lease contracts for premises include extension options. Management exercises significant judgement
in determining whether these extension options are reasonably certain to be exercised. As at December 31, 2021, no extension option for
lease contracts for premises is expected to be exercised.
The undiscounted potential future lease payments for operating leases for premises and vehicles and the estimated operating costs
related to technology commitments required for the next five years and thereafter are as follows:
($ IN 000’S)
Premises
Vehicles
Technology commitments
Total contractual obligations
CONTINGENCIES
WITHIN 1 YEAR
AFTER 1 YEAR, BUT NOT
MORE THAN 5 YEARS
MORE THAN 5 YEARS
21,210
710
19,939
41,859
45,212
1,358
23,095
69,665
4,400
45
-
4,445
The Company was involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not
expected to have a material adverse effect on the Company’s financial position, financial performance or cash flows.
The Company has agreed to indemnify its directors and officers and particular employees in accordance with the Company’s policies. The
Company maintains insurance policies that may provide coverage against certain claims.
Risk Factors
OVERVIEW
The Company is exposed to a variety of commercial, operational, financial and regulatory risks. The Company’s overall risk management program focuses
on the unpredictability of financial and economic markets and seeks to minimize potential adverse effects on the Company’s financial performance.
The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Corporate Governance,
Nominating and Risk Committee of the Board reviews the Company’s risk management policies on an annual basis.
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STRATEGIC RISK
Strategic risk is the risk from changes in the business environment, fundamental changes in demand for the Company’s products or services,
improper implementation of decisions, execution of the Company’s strategy or inadequate responsiveness to changes in the business environment,
including changes in the competitive and regulatory landscapes.
The Company’s growth strategy is focused on easyfinancial. The Company’s ability to increase its customer and revenue base is contingent, in part,
on its ability to secure additional locations for easyfinancial, to grow its consumer loans receivable portfolio, to access customers through new
delivery channels, to secure and maintain merchant partnerships, to successfully develop and launch new products to meet evolving customer
demands, to secure growth financing at a reasonable cost, to maintain profitability levels within the mature easyhome business and to execute with
efficiency and effectiveness.
The impact of poor execution by management or an inadequate response to changes in the business environment could have a material adverse
effect on the Company’s financial condition, liquidity and results of operations.
MARKET RISK
Macroeconomic Conditions
Certain changes in macroeconomic conditions, many of which are beyond the Company’s control, can have a negative impact on its customers and
its performance. The Company’s primary customer segment is the non-prime consumer. These cash and credit constrained customers are affected
by adverse macroeconomic conditions such as higher unemployment rates or costs of living, which can lower collection rates and result in higher
charge off rates and adversely affect the Company’s performance, financial condition and liquidity. The Company can neither predict the impact
current economic conditions will have on its future results, nor predict when the economic environment will change.
There can be no assurance that economic conditions will remain favorable for the Company’s business or that demand for loans or default rates by
customers will remain at current levels. Reduced demand for loans would negatively impact the Company’s growth and revenues, while increased
default rates by customers may inhibit the Company’s access to capital, hinder the growth of the loan portfolio attributable to its products and
negatively impact its profitability. Either such result could have a material adverse effect on the Company’s business, prospects, results of operations,
financial condition or cash flows.
COVID-19 Pandemic
The Company’s business has been impacted by the COVID-19 pandemic, which has created significant societal and economic disruptions. The
COVID-19 pandemic has had, and will continue to have, a broad impact across industries and the economy, including effects on consumer confidence,
global financial markets, regional and international travel, supply chain distribution of various products for many industries, government and private
sector operations, the price of consumer goods, country-wide lockdowns in various regions of the world, and numerous other impacts on daily life
and commerce.
With the active vaccination campaigns during the year, Canada saw improvements in containing outbreaks of the COVID-19 pandemic and the
economy reopened at a different pace across the country. Lighter control measures led to partial economic recovery. However, towards the end
of 2021, the emergence of new variants, including the Omicron variant, have led the Canadian government, and governments around the world, to
re-institute measures to combat the spread of COVID-19, including, but not limited to: the implementation of travel bans, border closings, mandated
capacity limits and closures, self-imposed quarantine periods and social and physical distancing policies, which have contributed to the material
disruption to businesses globally, resulting in continued economic uncertainty.
The ever-changing and rapidly-evolving effects of COVID-19, the duration, extent and severity of which are currently unknown, on investors,
businesses, the economy, society and the financial markets could, among other things, add volatility to the global stock markets, change interest
rate environments, and increase delinquencies and defaults. With the stricter control measures back in place, the Company will continue to remain
vigilant in its efforts to mitigate the impact of COVID-19 related risks to the Company. The COVID-19 virus, and the measures to prevent its spread,
may continue to contribute to a higher level of uncertainty with respect to management’s judgements and estimates.
Interest Rate Risk
Interest rate risk measures the Company’s risk of financial loss due to adverse movements in interest rates.
As at December 31, 2021, the revolving credit facility has a variable interest rate at either the BA rate plus 300 bps or the Prime plus 200 bps, at the
option of the Company. Subsequent to December 31, 2021, the Company announced an amendment to the credit facility resulting in a reduction to
the variable interest rate to BA rate plus 225 bps or the Prime plus 75 bps, at the option of the Company. The Company does not hedge interest rates
on the revolving credit facility. Accordingly, future changes in interest rates will affect the amount of interest expense payable by the Company to the
extent that draws are made on the variable rate revolving credit facility. As at December 31, 2021, the Company’s has no drawn amount against its
revolving credit facility.
The revolving securitization warehouse facility has a variable interest rate at 1-month CDOR plus 185 bps. The Company entered into an interest rate
swap agreement as a cash flow hedge to protect itself against the variability of future interest payments by paying a fixed rate based on the weighted
average life of the securitized loans and receiving variable rate equivalent to 1-month CDOR. As such, each drawn taken on the facility has a hedge
implemented that results in interest rates becoming fixed for the duration of that draw.
As at December 31, 2021, 100% of the Company’s drawn debt balances effectively bear fixed rates due to the type of debt and the aforementioned
interest rate swap agreements.
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Foreign Currency Risk
The 2024 Notes and 2026 Notes are US$ denominated. In connection with the offering of these notes, the Company entered into cross-
currency swaps to hedge the risk of changes in foreign exchange rates for the obligations of the notes and for all required payments of
principal and interest.
The Company sources some of its merchandise out of the U.S. and, as such, its Canadian operations have some U.S. denominated cash and
payable balances. As a result, the Company has both foreign exchange transaction and translation risk. Although the Company has U.S.
dollar denominated purchases, it has historically been able to price its lease transactions to compensate for the impact of foreign currency
fluctuations on its purchases. However, in periods of rapid change in the Canadian to U.S. dollar exchange rate, the Company may not be able
to pass on such changes in the cost of purchased products to its customers, which may negatively impact its financial performance.
Competition
The Company estimates the size of the Canadian market for non-prime consumer lending, excluding mortgages, is approximately $186
billion. This demand is currently being met by a wide variety of industry participants that offer diverse products, including auto lending, credit
cards, installment loans, retail finance programs, small business lending and real estate secured lending. Generally, industry participants
have tended to focus on a single product offering rather than providing consumers with multiple alternatives. As a result, the suppliers to the
marketplace are quite diverse.
Competition in the non-prime consumer lending market is based primarily on access, flexibility and cost (interest rates). Consumers are
generally able to transition between the different types of lending products that are available in the marketplace to satisfy their need for
these different characteristics. The Company expects the competition for non-prime consumer lending in Canada will continue to shift for the
foreseeable future. While traditional financial institutions are likely to decrease their risk tolerance and move farther away from non-prime
lending, regional financial institutions such as credit unions, payday lenders, marketplace lenders and online lenders are expected to continue
their expansion into the non-prime market.
The Company also faces direct competition in the Canadian market from other merchandise leasing companies. Other factors that may
adversely affect the performance of the leasing business are increased sales of used furniture and electronics online and at retail stores
that offer a non-prime point-of-sale purchase financing option. Additional competitors, both domestic and international, may emerge since
barriers to entry are relatively low.
The Company may be unable to compete effectively with new and existing competitors, which could adversely affect its revenues and results
of operations. In addition, investments required to adjust to changing market conditions may adversely affect the Company’s business and
financial performance.
CREDIT RISK
Credit risk is the risk of loss that arises when a customer or counterparty fails to pay an amount owing to the Company.
The maximum exposure to credit risk is represented by the carrying amount of the amounts receivable, consumer loans receivable and lease assets
with customers under merchandise lease agreements. The Company makes consumer loans and leases products to thousands of customers
pursuant to policies and procedures that are intended to ensure that there is no concentration of credit risk with any particular individual, company
or other entity, although the Company is subject to a higher level of credit risk due to the credit constrained nature of many of the Company’s
customers and in circumstances where its policies and procedures are not complied with.
The credit risk on the Company’s consumer loans receivable made in accordance with policies and procedures is impacted by both the Company’s
credit policies and the lending practices which are overseen by the Company’s Credit Committee comprised of members of senior management.
Credit quality of the customer is assessed using proprietary credit scorecards and individual credit limits are defined in accordance with this
assessment. The Company evaluates the concentration of risk with respect to customer loans receivable as low, as its customers are located
in several jurisdictions and operate independently. The Company develops underwriting models based on the historical performance of groups
of customer loans, which guide its lending decisions. To the extent that such historical data used to develop its underwriting models is not
representative or predictive of current loan book performance, the Company could suffer increased loan losses.
The Company maintains an allowance for credit losses as prescribed by IFRS 9 and as described fully in the notes to the Company’s consolidated
financial statements for the year ended December 31, 2021. The process for establishing an allowance for loan losses is critical to the Company’s
results of operations and financial conditions and is based on historical data, the underlying health and quality of the consumer loan portfolio at a
point in time, and forward-looking indicators. To the extent that such inputs used to develop its allowance for credit losses are not representative
or predictive of current loan book performance, the Company could suffer increased loan losses above and beyond those provided for on its
consolidated financial statements.
The Company cannot guarantee that delinquency and loss levels will correspond with the historical levels experienced, and there is a risk that
delinquency and loss rates could increase significantly and have a material adverse effect on the financial results of the Company.
The credit risk related to lease assets with customer’s results from the possibility of customer default with respect to agreed upon payments or
in not returning the lease assets. The Company has a standard collection process in place in the event of payment default, which includes the
recovery of the lease asset if satisfactory payment terms cannot be worked out with the customer, as the Company maintains ownership of the
lease assets until payment options are exercised.
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For amounts receivable from third parties, the risk relates to the possibility of default on amounts owing to the Company. The Company deals with
credible companies, performs ongoing credit evaluations of counterparties and consumers and creates an allowance for uncollectible amounts
when determined to be appropriate.
The Company has established a Credit Committee and created processes and procedures to identify, measure, monitor and mitigate significant
credit risks. However, to the extent that such risks go unidentified or are not adequately or expeditiously addressed by senior management, the
Company and its financial performance could be adversely affected.
LIQUIDITY AND FUNDING RISK
Liquidity Risk
The Company has been funded through various sources, including the revolving credit facility, the revolving securitization warehouse facility, the
2024 Notes and 2026 Notes, and public market equity offerings. The availability of additional financing will depend on a variety of factors, including
the availability of credit to the financial services industry and the Company’s financial performance and credit ratings.
The Company has publicly stated that it intends to significantly expand its consumer lending business. To achieve this goal, the Company may
require additional funds which can be obtained through various sources, including debt or equity financing. There can be no assurance, however, that
additional funding will be available when needed or will be available on terms favorable to the Company. The inability to access adequate sources
of financing, or to do so on favorable terms, may adversely affect the Company’s capital structure and ability to fund operational requirements and
satisfy financial obligations. If additional funds are raised by issuing equity securities, shareholders may incur dilution.
Liquidity risk is the risk that the Company’s financial condition is adversely affected by an inability to meet funding obligations and support the
Company’s business growth. The Company manages its capital to maintain its ability to continue as a going concern and to provide adequate returns
to shareholders by way of share appreciation and dividends. The Company’s capital structure consists of external debt and shareholders’ equity,
which comprises issued capital, contributed surplus and retained earnings.
All of the Company’s debt facilities must be renewed on a periodic basis. These facilities contain restrictions on the Company’s ability to, among other
things, pay dividends, sell or transfer assets, incur additional debt, repay other debt, make certain investments or acquisitions, repurchase or redeem
shares and engage in alternate business activities. The facilities also contain a number of covenants that require the Company to maintain certain
specified financial ratios. Failure to meet any of these covenants could result in an event of default under these facilities which could, in turn, allow
the lenders to declare all amounts outstanding to be immediately due and payable. In such a case, the financial condition, liquidity and results of the
Company’s operations could materially suffer.
The Company has been successful in renewing and expanding its credit facilities in the past to meet the needs of its growing consumer lending
business. If the Company is unable to renew these facilities on acceptable terms when they become due, there could be a material adverse effect on
the Company’s financial condition, liquidity and results of operations.
Debt Service
The Company’s ability to make scheduled payments on, or refinance its debt obligations, depends on its financial condition and operating
performance, which are subject to a number of factors beyond its control. The Company may be unable to maintain a level of cash flows from
operating activities sufficient to permit it to repay the principal and interest on its indebtedness.
If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity problems
and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, reduce its growth
plans, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be able to obtain such alternative
measures on commercially reasonable terms, or at all and, even if successful, those alternative actions may not allow it to meet its scheduled debt
service obligations. The Company’s credit agreements restrict its ability to dispose of assets and use the proceeds from those dispositions and may
also restrict its ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. The Company may not be able to
consummate any such dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.
The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on commercially reasonable
terms or at all would materially and adversely affect its business, results of operations and financial condition. Failure to meet its debt obligations
could result in default under its lending agreements. In the event of such default, the holders of such indebtedness could elect to declare all of
the funds borrowed thereunder to be immediately due and payable, together with accrued and unpaid interest, and the Company could, among
other remedies that may be available, be forced into bankruptcy, insolvency or liquidation. If the Company’s operating performance declines, it may
need to seek waivers from the holders of such indebtedness to avoid being in default under the instruments governing such indebtedness. If the
Company breaches its covenants under its indebtedness, it may not be able to obtain a waiver from the holders of such indebtedness on terms
acceptable to the Company or at all. If this occurs, the Company would be in default under such indebtedness, and the holders of such indebtedness
could exercise their rights as described above and the Company could, among other remedies that may be available, be forced into bankruptcy,
insolvency or liquidation. A default under the agreements governing certain of the Company’s existing or future indebtedness and the remedies
sought by the holders of such indebtedness could make the Company unable to pay principal or interest on the debt.
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Debt Covenants
The agreements governing the Company’s credit facilities contain restrictive covenants that may limit its discretion with respect to certain business
matters. These covenants may place significant restrictions on, among other things, the Company’s ability to create liens or other encumbrances,
to pay distributions or make certain other payments, investments, loans and guarantees, and to sell or otherwise dispose of assets. In addition, the
agreements governing the Company’s credit facilities may contain financial covenants that require it to meet certain financial ratios and financial
condition tests.
If the Company fails to maintain the requisite financial ratios under the agreement governing its credit facilities, it will be unable to draw any
amounts under the revolving credit facility until such default is waived or cured as required. In addition, such a failure could constitute an event of
default under the Company’s lending agreements entitling the lenders to accelerate the outstanding indebtedness thereunder unless such event
of default is cured as required by the agreement. The Company’s ability to comply with these covenants in future periods will depend on its ongoing
financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many
of which are beyond its control.
The restrictions in the agreements governing the Company’s credit facilities may prevent the Company from taking actions that it believes would
be in the best interest of its business and may make it difficult for it to execute its business strategy successfully or effectively compete with
companies that are not similarly restricted. The Company may also incur future debt obligations that might subject it to additional restrictive
covenants that could affect its financial and operational flexibility.
The Company’s ability to comply with the covenants and restrictions contained in the agreement governing the Company’s credit facilities may
be affected by economic, financial and industry conditions beyond its control. The breach of any of these covenants or restrictions could result in
a default under the agreements that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable
(including terminating any outstanding hedging arrangements), together with accrued and unpaid interest, or cause cross-defaults under the
Company’s other debts. If the Company is unable to repay its secured debt, lenders could proceed against the collateral securing the debt. This could
have serious consequences to the Company’s financial condition and results of operations and could cause it to become bankrupt or insolvent.
Credit Ratings
The Company received credit ratings in connection with the issuance of its 2024 Notes and 2026 Notes. Any credit ratings applied to the 2024
Notes and 2026 Notes are an assessment of the Company’s ability to pay its obligations. The Company is under no obligation to maintain any credit
rating with credit rating agencies and there is no assurance that any credit rating assigned to the 2024 Notes and 2026 Notes will remain in effect
for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering, withdrawal or
failure to maintain any credit ratings applied to the 2024 Notes and 2026 Notes may have an adverse effect on the market price or value and the
liquidity of the 2024 Notes and 2026 Notes and, in addition, any such action could make it more difficult or more expensive for the Company to
obtain additional debt financing in the future.
OPERATIONAL RISK
Operational risk, which is inherent in all business activities, is the potential for loss as a result of external events, human behaviour
(including error and fraud, non-compliance with mandated policies and procedures or other inappropriate behaviour) or inadequacy, or
the failure of processes, procedures or controls. The impact may include financial loss, loss of reputation, loss of competitive position or
regulatory and civil penalties. While operational risk cannot be eliminated, the Company takes reasonable steps to mitigate this risk by
putting in place a system of oversight, policies, procedures and internal controls.
Dependence on Key Personnel
One of the significant limiting factors in the Company’s performance and expansion plans will be the hiring and retention of the best people
for the job. Over the past few years, the Company has strengthened its hiring competencies and training programs.
In particular, the Company is dependent upon the abilities, experiences and efforts of its senior management team and other key employees.
The loss of these individuals without adequate replacement could have a material adverse impact on its business and operations.
As a consequence of its growth strategy and relatively high employee turnover at the store and branch level, the Company requires a growing
number of qualified managers and other store or branch personnel to successfully operate its expanding branch and store network. There is
competition for such personnel, and there can be no assurances that the Company will be successful in attracting and retaining the personnel
it may require. If the Company is unable to attract and retain qualified personnel or its costs to do so increase dramatically, its operations
would be materially adversely affected.
Outsource Risk
The Company outsources certain business functions to third-party service providers, which increases its operational complexity and
decreases its control. The Company relies on these service providers to provide a high level of service and support, which subjects it to
risks associated with inadequate or untimely service. In addition, if these outsourcing arrangements were not renewed or were terminated
or the services provided to the Company were otherwise disrupted, the Company would have to obtain these services from an alternative
provider. The Company may be unable to replace, or be delayed in replacing, these sources and there is a risk that it would be unable to
enter into a similar agreement with an alternate provider on terms that it considers favorable or in a timely manner. In the future, the
Company may outsource additional business functions. If any of these or other risks relating to outsourcing were realized, the Company’s
financial position, liquidity and results of operations could be adversely affected.
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Fraud Risk
Employee error and employee and customer misconduct could subject the Company to financial losses or regulatory sanctions and seriously
harm the Company’s reputation. Misconduct by its employees could include hiding unauthorized activities, improper or unauthorized
activities on behalf of customers or improper use of confidential information. It is not always possible to prevent employee error and
misconduct, and the precautions the Company takes to prevent and detect this activity may not be effective in all cases. Employee error
could also subject the Company to financial claims for negligence.
If the Company’s internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured, exceeds applicable
insurance limits or if insurance coverage is denied or not available, it could have a material adverse effect on the Company’s business,
financial condition and results of operations.
Technology Risk
The Company is dependent upon the successful and uninterrupted functioning of its computer, internet and data processing systems. The failure
of these systems could interrupt operations or materially impact the Company’s ability to enter into new lease or lending transactions and service
or collect customer accounts. Although the Company has extensive information technology security and disaster recovery plans, such a failure,
if sustained, could have a material adverse effect on the Company’s financial condition, liquidity and results of operations.
Breach of Information Security
The Company’s operations rely heavily on the secure processing, storage and transmission of confidential and sensitive customer and other
information through its information technology network. Other risks include the Company’s use of third-party vendors with access to its network
that may increase the risk of a cyber security breach. Third-party breaches or inadequate levels of cyber security expertise and safeguards may
expose the Company, directly or indirectly, to security breaches.
A breach, unauthorized access, computer virus, or other form of malicious attack on the Company’s information security may result in the compromise
of confidential and/or sensitive customer or employee information, destruction or corruption of data, reputational harm affecting customer and
investor confidence, and a disruption in the management of customer relationships or the inability to originate, process and service the Company’s
leasing or lending portfolios which could have a material adverse effect on the Company’s financial condition, liquidity and results of operations.
To mitigate the risk of an information security breach, the Company regularly assesses such risks, has a disaster recovery plan in place and
has implemented reasonable controls over unauthorized access. The store network and corporate administrative offices, including centralized
operations, takes reasonable measures to protect the security of its information systems (including against cyber-attacks). The Chief Information
Officer of the Company oversees information security. However, such a cyber-attack or data breach could have a material adverse effect on the
Company and its financial condition, liquidity and results of operations.
Privacy, Information Security, and Data Protection Regulations
The Company is subject to various privacy and information security laws and takes reasonable measures to ensure compliance with all
requirements. Legislators and regulators are increasingly adopting new privacy and information security laws which may increase the
Company’s cost of compliance. While the Company has taken reasonable steps to protect its data and that of its customers, a breach in the
Company’s information security may adversely affect the Company’s reputation and also result in fines or penalties from governmental
bodies or regulators.
Risk Management Processes and Procedures
The Company has established a Risk Oversight Committee and created regular and ongoing processes and procedures to identify, measure,
monitor and mitigate significant risks to the organization. However, to the extent such risks go unidentified or are not adequately or
expeditiously addressed by management, the Company could be adversely affected.
COMPLIANCE RISK
Internal Controls Over Financial Reporting
The effective design of internal controls over financial reporting is essential for the Company to prevent and detect fraud or material errors
that may have occurred. The Company is also obligated to comply with the Form 52-109F2 Certification of interim filings and 52-109F1
Certification of annual filings of the Ontario Securities Commission, which requires the Company’s CEO and CFO to submit a quarterly and
annual certificate of compliance. The Company and its management have taken reasonable steps to ensure that adequate internal controls
over financial reporting are in place. However, there is a risk that a fraud or material error may go undetected and that such material fraud or
error could adversely affect the Company.
Government Regulation and Compliance
The Company takes reasonable measures to ensure compliance with governing statutes, regulations and regulatory policies. A failure to comply
with such statutes, regulations or regulatory policies could result in sanctions, fines or other settlements that could adversely affect both
its earnings and reputation. Changes to laws, statutes, regulations or regulatory policies could also change the economics of the Company’s
merchandise leasing and consumer lending businesses including the salability or pricing of certain ancillary products which could have a material
adverse effect on the Company.
88
Section 347 of the Criminal Code prohibits the charging of an effective annual rate of interest that exceeds sixty percent for an agreement or
arrangement for credit advanced. The Company believes that easyfinancial is subject to section 347 of the Criminal Code and closely monitors
any legislative activity in this area. The application of additional capital requirements or a reduction in the maximum cost of borrowing could have
a material adverse effect on the Company’s financial condition, liquidity and results of operations. At present, additional provincial regulation in
certain geographic areas focusing on high-cost credit loans have been adopted, but do not materially impact the Company’s business operations.
While management of the Company is of the view that its merchandise leasing business does not involve the provision of credit, it could be
determined that aspects of easyhome’s merchandise leasing business are subject to the Criminal Code. The Company has implemented
measures to ensure that the aggregate of all charges and expenses under its merchandise lease agreement do not exceed the maximum
interest rate allowed by law. Where aspects of easyhome’s business are subject to the Criminal Code, and the Company has not complied
with the requirements thereof, the Company could be subject to either or both (1) civil actions for nullification of contracts, rebate of some
or all payments made by customers, and damages; and (2) criminal prosecution for violation of the Criminal Code, any of which outcomes
could have a material adverse effect on the Company.
Numerous consumer protection laws and related regulations impose substantial requirements upon lenders involved in consumer
finance, including leasing and lending. Also, federal and provincial laws impose restrictions on consumer transactions and require contract
disclosures relating to the cost of borrowing and other matters. These requirements impose specific statutory liabilities upon creditors
who fail to comply with their provisions.
easyfinancial is subject to minimal regulatory capital requirements in connection with its operations in Saskatchewan. Otherwise, the
Company operates in an unregulated environment with regard to capital requirements.
Accounting Standards
From time to time the Company may be subject to changes in accounting standards issued by accounting standard-setting bodies, which
may affect the Company’s consolidated financial statements and reduce its reported profitability.
LEGAL AND REPUTATIONAL RISK
Reputation
The Company’s reputation is very important to attracting new customers to its platform, securing repeat lending to existing customers,
hiring the best employees and obtaining financing to facilitate the growth of its business. While the Company believes that it has a good
reputation and that it provides customers with a superior experience, there can be no assurance that the Company will continue to
maintain a good relationship with customers or avoid negative publicity.
In recent years, consumer advocacy groups and some media reports have advocated governmental action to prohibit or place severe restrictions
on non-bank consumer loans, not making the proper distinction between payday loans and non-prime loans. Such consumer advocacy groups
and media reports generally focus on the annual percentage rate for this type of consumer loan, which is compared unfavorably to the interest
typically charged by banks to consumers with top-tier credit histories. The finance charges the Company assesses can attract media publicity
about the industry and be perceived as controversial. Customer’s acceptance of the interest rates the Company charges on its consumer loans
receivable could impact the future rate of the growth. Additionally, if the negative characterization of these types of loans is accepted by legislators
and regulators, the Company could become subject to more restrictive laws and regulations applicable to consumer loan products that could
have a material adverse effect on the Company’s business, prospects, results of operations, financial condition or cash flows.
The Company’s ability to attract and retain customers is highly dependent upon the external perceptions of its level of service, trustworthiness,
business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these matters — even if related
to seemingly isolated incidents, or even if related to practices not specific to short-term loans, such as debt collection — could erode trust and
confidence and damage the Company’s reputation among existing and potential customers, which would make it difficult to attract new customers
and retain existing customers, significantly decrease the demand for the Company’s products, result in increased regulatory scrutiny, and have a
material adverse effect on the Company’s business, prospects, results of operations, financial condition, ability to raise growth capital or cash flows.
Litigation
From time to time and in the normal course of business, the Company may be involved in material litigation or may be subject to regulatory
actions. There can be no assurance that any litigation or regulatory action in which the Company may become involved in the future will not
have a material adverse effect on the Company’s business, financial condition or results of operations. Lawsuits or regulatory actions could
cause the Company to incur substantial expenditures, generate adverse publicity and could significantly impair the Company’s business, force
it to cease doing business in one or more jurisdictions or cause it to cease offering one or more products.
The Company is also likely to be subject to further litigation and communications with regulators in the future. An adverse ruling or a
settlement of any current or future litigation or regulatory actions against the Company or another lender could cause the Company to have
to refund fees and/or interest collected, forego collections of the principal amount of loans, pay multiple damages, pay monetary penalties
and/or modify or terminate its operations in particular jurisdictions. Defense of any lawsuit or regulatory action, even if successful, could
require substantial time and attention of the Company’s management and could require the expenditure of significant amounts for legal fees
and other related costs.
89
Possible Volatility of Stock Price
The market price of the Common Shares, similar to that of many other Canadian (and indeed worldwide) companies, has been subject
to significant fluctuation in response to numerous factors, including significant shifts in the availability of global credit, swings in macro-
economic performance due to volatile shifts in oil prices and unexpected natural disasters, concerns about the global economy and potential
recession, economic shocks such as the ongoing global pandemic related to an outbreak of COVID-19 and the 2015 decline in oil prices and
their related impacts on the Canadian economy, as well as variations in the annual or quarterly financial results of the Company, timing of
announcements of acquisitions or material transactions by the Company or its competitors, other conditions in the economy in general or
in the industry in particular, changes in applicable laws and regulations and other factors. Moreover, from time to time, the stock markets
experience significant price and volume volatility that may affect the market price of the Common Shares for reasons unrelated to the
Company’s performance. No prediction can be made as to the effect, if any, that future sales of Common Shares or the availability of shares for
future sale (including shares issuable upon the exercise of stock options) will have on the market price of the Common Shares prevailing from
time to time. Sales of substantial numbers of such shares or the perception that such sales could occur may adversely affect the prevailing
price of the Common Shares. Significant changes in the stock price could jeopardize the Company’s ability to raise growth capital through an
equity offering without significant dilution to existing shareholders.
Insurance Risk
The Company’s insurance policies may not comprehensively cover all risks and liabilities because appropriate coverage may not be available
(or may not adequately cover all losses) or the Company may elect not to insure against certain risks. It may elect not to do so, for example,
where it considers the applicable premiums to be excessive in relation to the perceived risks and benefits that may accrue. As a result, the
Company may be held liable for material claims beyond its insurance coverage limits that could materially and adversely impact financial
performance and reputation. In addition, any significant claim against such policies may lead to increased premiums on renewal and/or
additional exclusions to the terms of future policies. If insurance (including cyber insurance) is not available to cover a claim or the quantum
of a claim exceeds policy limits, the Company will be exposed to the financial impact of the event which could have an adverse impact on the
Company’s business, financial performance and operations.
Critical Accounting Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses
during the year. Actual amounts could differ from these estimates.
Significant changes in assumptions, including those with respect to future business plans and cash flows, could change the recorded amounts
by a material amount.
The Company’s critical accounting estimates are as described in the December 31, 2021 notes to the consolidated financial statements.
Changes in Accounting Policy and Disclosures
(a) New standards, interpretations and amendments adopted by the Company
There were no new standards, interpretations or amendments that had a material impact to the Company’s consolidated financial
statements. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
b) Standards issued but not yet effective
There are no new standards issued but not yet effective as at January 1, 2021 that have a material impact to the Company’s consolidated
financial statements.
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Internal Controls
DISCLOSURE CONTROLS AND PROCEDURES (“DC&P”)
DC&P are designed to provide reasonable assurance that information required to be disclosed by the Company in reports filed with or
submitted to various securities regulators is recorded, processed, summarized and reported within the time periods specified in applicable
Canadian securities laws and include controls and procedures designed to ensure that information required to be disclosed in the Company’s
filings or other reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), so that timely decisions can be made regarding required disclosure.
The Company’s management, under supervision of, and with the participation of, the CEO and CFO, have designed and evaluated the Company’s
DC&P, as required in Canada by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings”. Based on
this evaluation, the CEO and CFO have concluded that the design of the system of the Company’s disclosure controls and procedures were
effective as at December 31, 2021.
INTERNAL CONTROLS OVER FINANCIAL REPORTING (“ICFR”)
ICFR is a process designed by, or under the supervision of, senior management, and effected by the Board of Directors, management and other
personnel, to provide reasonable assurances regarding the reliability of financial reporting and preparation of the Company’s consolidated
financial statements in accordance with IFRS.
The Company’s internal controls over the financial reporting framework include those policies and procedures that:
(i) Pertain to the maintenance of records that, in reasonable details, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial
statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the Company’s consolidated financial statements.
Management is responsible for establishing and maintaining ICFR and designs such controls to attempt to ensure that the required objectives
of these internal controls have been met. Management uses the Internal Control – Integrated Framework (2013) to evaluate the effectiveness of
internal control over financial reporting, which is a recognized and suitable framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).
In designing and evaluating such controls, it should be recognized that due to inherent limitations, any controls, no matter how well designed
and operated, can provide only reasonable assurance and may not prevent or detect all misstatements as a result of, among other things,
error or fraud. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies and/or procedures may deteriorate.
CHANGES TO ICFR DURING 2021
The Company’s management is certifying limited scope on the design of DC&P and ICFR during the year ended December 31, 2021 to exclude
controls, policies and procedures of the newly acquired business not more than 365 days before the last day of the year end covered by the
year end filings. The summary of financial information about the acquired business has been consolidated in the Company’s consolidated
financial statements for the year ended December 31, 2021.
EVALUATION OF ICFR AT DECEMBER 31, 2021
As at December 31, 2021, under the direction and supervision of the CEO and CFO, the Company has evaluated the effectiveness of the
Company’s ICFR excluding controls, policies and procedures of the newly acquired business. The evaluation included a review of key controls,
testing and evaluation of such test results. Based on this evaluation, the CEO and CFO have concluded that the design and operation of the
Company’s internal controls over financial reporting were effective as at December 31, 2021.
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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and the information in this Annual Report are the responsibility of management
and have been approved by the Board of Directors.
The consolidated financial statements have been prepared by management in accordance with International Financial Reporting
Standards [“IFRS”] and include some amounts based on management’s best estimates and judgments. When alternative accounting
methods exist, management has chosen those it considers most appropriate in the circumstances. Management has prepared the
financial information presented elsewhere in the annual report and has ensured that it is consistent with the financial statements.
goeasy Ltd. maintains a system of internal controls to provide reasonable assurance that transactions are properly authorized, financial
records are accurate and reliable, and the Company’s assets are properly accounted for and adequately safeguarded. These controls
include quality standards in the hiring and training of employees, written policies and procedures related to employee conduct, risk
management, external communication and disclosure of material information, and review and oversight of the Company’s policies,
procedures and practices. Management has assessed the effectiveness of this system of internal controls and determined that, as at
December 31, 2021, the Company’s internal control over financial reporting is effective.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately
responsible for reviewing and approving the financial statements. The Board of Directors carries out its responsibility for the financial
statements through its Audit Committee. The Audit Committee is composed entirely of independent directors. The Audit Committee is
responsible for the quality and integrity of the Company’s financial information, the effectiveness of the Company’s risk management,
internal controls and regulatory compliance practices, reviewing and approving applicable financial information and documents prior to
public disclosure and for selecting the Company’s external auditors. The Audit Committee meets periodically with management and the
external auditors to review the financial statements and the annual report and to discuss audit, financial and internal control matters.
The Company’s external auditors have full and free access to the Audit Committee.
The financial statements have been subject to an audit by the Company’s external auditors, Ernst & Young LLP, in accordance with
Canadian generally accepted auditing standards on behalf of the shareholders.
Jason Mullins
President & Chief Executive Officer
Hal Khouri
Executive Vice-President & Chief Financial Officer
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INDEPENDENT AUDITOR’S REPORT
To the shareholders of goeasy Ltd.
OPINION
We have audited the consolidated financial statements of goeasy Ltd. and its subsidiaries (the Company), which comprise the consolidated
statements of financial position as at December 31, 2021 and 2020, and the consolidated statements of income, consolidated statements
of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the
years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows
for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We
are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial
statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a
whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For each matter below,
our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section
of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
Allowance for loan losses
Key audit
matter
As more fully described in Notes 2 and 7 of the consolidated financial statements, goeasy has used expected credit loss
(ECL) models to recognize $159.8 million in allowances for credit losses on its consolidated balance sheet. The ECL is
an unbiased and probability-weighted estimate of credit losses expected to occur in the future, which is determined by
evaluating a range of possible outcomes incorporating the time value of money and reasonable and supportable information
about past events, current conditions and future economic forecasts.
The allowance for credit losses is a significant estimate for which variations in model methodology, assumptions and
judgements can have a material effect on the measurement of expected credit losses. Specifically, the effects of the COVID-19
pandemic have created a higher level of uncertainty in the estimation of future credit losses.
Auditing the allowance for credit losses was complex, involved auditor judgement and required the involvement of Credit
Risk Specialists due to the inherent complexity of the models, assumptions, judgements and the interrelationship of these
variables in measuring the ECL. Significant assumptions and judgments with respect to the estimation of the allowance for
credit losses included the calculation of both 12-month and lifetime expected credit losses, the determination of when a loan
has experienced a significant increase in credit risk and the determination of relevant forward looking multiple economic
scenarios and the probability weighting of those scenarios.
How our
audit
addressed
the key audit
matter
To test the allowance for credit losses, among other procedures, we assessed, with the assistance of our Credit Risk
Specialists, whether the methodology and assumptions used in the ECL models are consistent with IFRS. We independently
recalculated the ECL using source data. With the assistance of our Credit Risk Specialists, we evaluated the accuracy and
related application of the programming code which records loans in each of the appropriate stages. We evaluated the
reasonability of macroeconomic inputs used by comparing the information to third party sources and recalculated the effect
of the inputs on the ECL models. We tested the completeness and accuracy of a sample of data used in the measurement of
ECL by agreeing back to appropriate source systems or loan origination documents.
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Acquisition of LendCare Holdings Inc.
Key audit
matter
As more fully described in Note 4 of the consolidated financial statements, on April 30, 2021, goeasy Ltd. acquired LendCare Holdings
Inc. (LendCare) for consideration of $324.8 million. The purchase price allocation included goodwill valued at $159.6 million. The
acquisition was accounted for using the purchase method. The cost of the acquisition was measured at the fair value of the assets
given, equity instruments and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, and liabilities and
contingent liabilities assumed in a business combination were measured initially at fair value at the date of acquisition.
How our
audit
addressed
the key audit
matter
Key audit
matter
Auditing the acquisition of LendCare was complex, involved our Valuation Specialists and required the application of significant
auditor judgement due to the subjective nature of estimating the fair values of the identified assets and assumed liabilities.
Specifically, the valuation of loans and intangible assets, as at the date of acquisition required estimates of key assumptions
including the expected future cash flows and discount rate applied to the Merchant Network intangible and the methodology
and assumptions used to value the acquired loan portfolio.
To test the acquisition of LendCare, among other procedures, we tested the existence and completeness of the assets and liabilities
acquired as at April 30, 2021 by obtaining third party confirmations and invoices and recalculating balances where applicable. We
assessed the reasonability of the fair values of the assets acquired and liabilities assumed. With the assistance of our Valuation
Specialists, we reviewed the fair value of the loan portfolio and Merchant Network intangible asset. We reviewed the key assumptions
used by management to assess the fair value of the Merchant Network intangible asset, including the expected future cash flows and
discount rate. We evaluated the reasonability of the future cash flows by comparing to historical results and our understanding of
the business as well as current economic trends. With the assistance of our Credit Risk Specialists, we reviewed the reasonability of
the methodology and assumptions used by management in determining the fair value of the acquired loan portfolio. We performed
testing over key assumptions of the model including agreeing loan data back to loan origination documentation.
Goodwill and intangible asset impairment
As more fully described in Notes 2 and 12 of the consolidated financial statements, goeasy has recognized $21 million
in goodwill as a result of past business combinations in the easyhome segment. In the current year, the company has
also recognized $159.6 million in goodwill and $134.2 million in intangible assets in the easyfinancial segment as part of
the LendCare acquisition. Goodwill is tested, at least annually, for impairment. Goodwill is also required to be tested for
impairment whenever there are indicators that it may be impaired. The Merchant Network intangible asset is amortized
over a 10-year period and is reviewed for impairment indicators. These assets are tested by comparing the recoverable
amount of the cash-generating unit (CGU) to which they have been allocated, with the carrying amount of the total CGU. The
recoverable amount of a CGU is defined as the higher of its estimated fair value less costs to sell and its value in use.
Auditing goeasy’s goodwill and intangible impairment tests was complex, required the application of auditor judgement and
involved the use of our Valuation Specialists due to the significant estimation required to determine the recoverable amounts of
the CGUs. In particular, the estimates of recoverable amounts are sensitive to significant assumptions, such as forecasted growth
rates, discount rates, and terminal growth rates, which are affected by expectations about future market or economic conditions.
How our
audit
addressed
the key audit
matter
With the assistance of our Valuation Specialists, we tested management’s estimate of the recoverable amounts of the CGUs. We performed
a sensitivity analysis over the significant assumptions to evaluate the changes in the recoverable amount of the CGU that would result
from changes in the assumptions. We performed audit procedures that included, among others, assessing the methodologies applied,
and testing the significant assumptions discussed above and the underlying data used by goeasy in its assessments. With the assistance
of our Valuation Specialists, we evaluated the discount rate by considering the cost of capital of comparable businesses and other industry
factors. We evaluated the reasonability of the forecasted earnings and terminal growth rates by comparing to historical results and our
current understanding of the business as well as current economic trends. We assessed the historical accuracy of management’s prior
year estimates by performing a comparison of management’s prior year projections to actual results.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises:
• Management’s Discussion & Analysis.
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, identified above
and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s repowrt. If based on the work we will perform on this other
information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance.
94
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is David Tedesco.
Toronto, Canada
February 16, 2022
95
Audited
Consolidated
Financial
Statements
For the Years Ended
December 31, 2021 & 2020
96
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(expressed in thousands of Canadian dollars)
ASSETS
Cash (note 5)
Amounts receivable (note 6)
Prepaid expenses
Consumer loans receivable, net (note 7)
Investments (note 8)
Lease assets (note 9)
Property and equipment, net (note 10)
Deferred tax assets, net (note 21)
Derivative financial assets (notes 8, 13 and 17)
Intangible assets, net (note 12)
Right-of-use assets, net (note 11)
Goodwill (note 12)
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities
Income taxes payable
Dividends payable (note 18)
Unearned revenue
Accrued interest
Deferred tax liabilities, net (note 21)
Lease liabilities (note 11)
Revolving credit facility (note 15)
Secured borrowings (note 14)
Revolving securitization warehouse facility (note 13)
Derivative financial liabilities (note 17)
Notes payable (note 17)
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital (note 18)
Contributed surplus (note 19)
Accumulated other comprehensive income (loss)
Retained earnings
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
AS AT
DECEMBER 31, 2021
AS AT
DECEMBER 31, 2020
102,479
20,769
8,018
1,899,631
64,441
47,182
35,285
-
20,634
159,651
57,140
180,923
93,053
9,779
13,005
1,152,378
56,040
49,384
31,322
4,066
-
25,244
46,335
21,310
2,596,153
1,501,916
57,134
27,859
10,692
11,354
8,135
38,648
65,607
-
173,959
292,814
34,132
1,085,906
1,806,240
363,514
22,583
8,567
395,249
789,913
2,596,153
46,065
13,897
6,661
10,622
2,598
-
53,902
198,339
-
-
36,910
689,410
1,058,404
181,753
19,732
(5,280)
247,307
443,512
1,501,916
David Ingram
Director
Karen Basian
Director
97
CONSOLIDATED STATEMENTS OF INCOME
(expressed in thousands of Canadian dollars except earnings per share)
YEAR ENDED
DECEMBER 31, 2021
DECEMBER 31, 2020
REVENUE
Interest income
Lease revenue
Commissions earned
Charges and fees
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION
Salaries and benefits
Stock-based compensation (note 19)
Advertising and promotion
Bad debts (note 7)
Occupancy
Technology costs
Other expenses
DEPRECIATION AND AMORTIZATION
Depreciation of lease assets (note 9)
Depreciation of right-of-use assets (note 11)
Amortization of intangible assets (note 12)
Depreciation of property and equipment (note 10)
TOTAL OPERATING EXPENSES
OPERATING INCOME
OTHER INCOME (NOTE 8)
FINANCE COSTS
Interest expenses and amortization of deferred financing charges (note 20)
Interest expense on lease liabilities (note 11)
535,638
112,371
163,734
14,979
826,722
157,157
8,875
30,393
182,084
23,614
18,033
46,677
466,833
35,844
18,207
16,831
8,004
78,886
545,719
281,003
114,876
75,910
3,115
79,025
409,583
112,796
117,913
12,630
652,922
136,306
7,575
26,786
134,998
22,501
14,191
29,406
371,763
35,770
16,183
6,773
5,997
64,723
436,486
216,436
21,740
52,248
2,744
54,992
INCOME BEFORE INCOME TAXES
316,854
183,184
INCOME TAX EXPENSE (RECOVERY) (NOTE 21)
Current
Deferred
NET INCOME
BASIC EARNINGS PER SHARE (NOTE 22)
DILUTED EARNINGS PER SHARE (NOTE 22)
See accompanying notes to the consolidated financial statements.
73,744
(1,833)
71,911
244,943
15.12
14.62
33,041
13,638
46,679
136,505
9.21
8.76
98
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(expressed in thousands of Canadian dollars)
Net income
Other comprehensive income (loss) to be reclassified to the consolidated statement of
income in subsequent periods
Change in foreign currency translation reserve
Change in fair value of cash flow hedge, net of taxes
Change in costs of hedging, net of taxes
YEAR ENDED
DECEMBER 31, 2021
DECEMBER 31, 2020
244,943
136,505
-
20,271
(6,424)
13,847
5
(667)
(3,703)
(4,365)
Comprehensive income
258,790
132,140
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(expressed in thousands of Canadian dollars)
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
TOTAL
CAPITAL
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
TOTAL
SHAREHOLDERS'
EQUITY
Balance, December 31, 2020
Common shares issued
181,753
189,362
(6,024)
183,338
19,732
201,485
247,307
(5,280)
Stock-based compensation (note 19)
-
8,875
8,875
Shares purchased for cancellation (note 18)
(7,601)
Comprehensive income
Dividends (note 18)
-
-
-
-
-
(7,601)
(54,689)
-
-
244,943
(42,312)
Balance, December 31, 2021
363,514
22,583
386,097
395,249
-
-
-
-
-
13,847
-
8,567
443,512
183,338
8,875
(62,290)
258,790
(42,312)
789,913
20,296
162,252
171,084
(915)
332,421
Balance, December 31, 2019
Common shares issued
Stock-based compensation (note 19)
141,956
9,025
-
Conversion of convertible debentures (note 16)
38,979
(7,307)
7,575
1,168
Settlement of deferred share units (note 19)
-
(2,000)
Shares purchased for cancellation (note 18)
(8,207)
Comprehensive income
Dividends (note 18)
-
-
-
-
-
1,718
7,575
40,147
(2,000)
(8,207)
-
-
-
-
-
-
(34,180)
136,505
(26,102)
-
-
-
-
-
(4,365)
-
Balance, December 31, 2020
181,753
19,732
201,485
247,307
(5,280)
See accompanying notes to the consolidated financial statements.
1,718
7,575
40,147
(2,000)
(42,387)
132,140
(26,102)
443,512
99
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net income
Add (deduct) items not affecting cash
Bad debts expense (note 7)
Depreciation of lease assets (note 9)
Depreciation of right-of-use assets (note 11)
Amortization of intangible assets (note 12)
Stock-based compensation (note 19)
Depreciation of property and equipment (note 10)
Amortization of deferred financing charges
Deferred income tax (recovery) expense (note 21)
Loss on sale or write-off of assets
Other income
Net change in other operating assets and liabilities (note 23)
Net issuance of consumer loans receivable
Purchase of lease assets
Cash (used in) provided by operating activities
INVESTING ACTIVITIES
Proceeds on sale of investment
Purchase of property and equipment
Purchase of intangible assets
Purchase of investment
Cash used in the acquisition, net of cash acquired
Cash used in investing activities
FINANCING ACTIVITIES
Issuance of notes payable, net of financing charges (note 17)
Advances from revolving securitization warehouse facility, net of financing charges
Issuance of common shares, net of issuance costs (note 18)
Advances from revolving credit facilities
Advances from secured borrowings
Lease incentive received (note 11)
Payment of cash-settled restricted share units
Payment of lease liability (note 11)
Payment of common share dividends (note 18)
Payment of loan from secured borrowings
Purchase of common shares for cancellation (note 18)
Payment of advances from revolving securitization warehouse facility
Payment of notes payable
Payment of advances from revolving credit facilities
Settlement of deferred share units
Redemption of convertible debentures
Cash provided by financing activities
Net increase in cash during the year
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements
100
YEAR ENDED
DECEMBER 31, 2021
DECEMBER 31, 2020
244,943
136,505
182,084
35,844
18,207
16,831
8,875
8,004
5,688
(1,833)
2,580
(114,876)
406,347
33,226
(484,817)
(33,631)
(78,875)
109,198
(7,815)
(19,634)
(11,343)
(281,041)
(210,635)
391,516
372,557
170,177
154,803
67,113
1,573
(1,159)
(18,880)
(37,474)
(60,433)
(62,290)
(80,000)
(243,567)
(355,000)
-
-
298,936
9,426
93,053
102,479
134,998
35,770
16,183
6,773
7,575
5,997
4,338
13,638
92
(21,740)
340,129
17,561
(246,824)
(36,454)
74,412
-
(14,405)
(14,268)
-
-
(28,673)
-
-
1,718
185,000
-
1,795
-
(16,837)
(23,889)
-
(42,387)
-
-
(100,000)
(2,000)
(2,427)
973
46,712
46,341
93,053
Notes To
Consolidated
Financial Statements
(Expressed in thousands of Canadian dollars except where
otherwise indicated)
December 31, 2021 and 2020
101
1. Corporate Information
goeasy Ltd. (the “Parent Company”) was incorporated under the laws of the Province of Alberta, Canada by Certificate and Articles of
Incorporation dated December 14, 1990 and was continued as a corporation in the Province of Ontario pursuant to Articles of Continuance
dated July 22, 1993. The Parent Company has common shares listed on the Toronto Stock Exchange (the “TSX”) under the symbol “GSY”
and its head office is located in Mississauga, Ontario, Canada.
The Parent Company and all of the companies that it controls (collectively referred to as “goeasy” or the “Company”) are a leading full-
service provider of goods and alternative financial services that provide everyday Canadians a path for a better tomorrow, today. The
principal operating activities of the Company include: i) providing loans and other financial services to consumers; and ii) leasing household
products to consumers.
The Company operates in two reportable segments: easyfinancial and easyhome. As at December 31, 2021, the Company operated 294
easyfinancial locations (including 5 kiosks within easyhome stores and 3 operations centres) and 158 easyhome stores (including 34
franchises). As at December 31, 2020, the Company operated 266 easyfinancial locations (including 14 kiosks within easyhome stores) and
161 easyhome stores (including 35 franchises).
The consolidated financial statements were authorized for issue by the Board of Directors on February 16, 2022.
2. Significant Accounting Policies
BASIS OF PREPARATION
The consolidated financial statements of the Company for the year ended December 31, 2021 have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The policies
applied in these consolidated financial statements were based on IFRS issued and outstanding as at December 31, 2021.
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of the Parent Company and all of the companies that it controls.
goeasy Ltd. controls an entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. This includes all wholly-owned subsidiaries and a structured entity (note 13)
where goeasy has control but does not have ownership of a majority of voting rights.
As at December 31, 2021, the Parent Company’s principal subsidiaries were:
• RTO Asset Management Inc.
• easyfinancial Services Inc.
• 2830844 Ontario Inc. (note 4)
All intra-group transactions and balances were eliminated on consolidation.
PRESENTATION CURRENCY
The consolidated financial statements are presented in Canadian dollars (“CAD”), which is the Parent Company's functional currency. The
functional currency is the currency of the primary economic environment in which a reporting entity operates and is normally the currency
in which the entity generates and expends cash.
FOREIGN CURRENCY TRANSLATION
Each entity in the Company determines its own functional currency and items included in the financial statements of each entity are
measured using that functional currency.
Foreign currency transactions are initially recorded at the rate prevailing at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated into the functional currency at the spot rate on the reporting date. Non monetary items
that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial
transactions.
REVENUE RECOGNITION
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received or receivable, excluding promotional discounts, rebates and
sales taxes. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or
agent. The Company has concluded that it is acting as principal in all of its revenue arrangements except for the sale of certain ancillary
products where it acts as an agent and therefore recognizes such revenue on a net basis.
i) Interest Income
Interest income from consumer loans receivable is recognized when earned using the effective interest rate method.
102
ii) Lease Revenue
Merchandise is leased to customers pursuant to agreements that provide for periodic lease payments collected in advance. The lease
agreements can be terminated by the customer at the end of the periodic lease period without any further obligation or cost to the
customer.
Lease revenue consists of lease payments, product damage liability waivers and processing and other fees. Revenue from lease agreements
is recognized when earned. Lease revenue also consists of revenue from the ultimate sale of goods to customers, which represents the
culmination of the lease asset life cycle and occurs when title passes to the customer. Such revenue is measured at the fair value of the
consideration received or receivable.
iii) Commissions Earned and Charges and Fees
Commissions earned are recognized when, or as, a performance obligation is satisfied by providing a service to a customer, in the amount
of the consideration to which the Company expects to receive. Charges and fees are recognized as revenue at a point in time upon when
the transaction is completed.
VENDOR REBATES
The Company participates in various vendor rebate programs, including vendor volume rebates and vendor advertising incentives. The
Company records the benefit of vendor volume rebates on purchases made as a reduction of lease assets based on the rebate amounts
the Company believes are probable and reasonably estimable during the term of each rebate program. Vendor advertising incentives that
are related to specific advertising programs are accounted for as a reduction of the related expenses.
CASH
Cash consists of bank balances and cash on hand, adjusted for in-transit items such as outstanding cheques and deposits.
FINANCIAL ASSETS
Initial Recognition and Measurement
Financial assets are classified at initial recognition at: i) fair value through profit or loss (“FVTPL”); ii) amortized cost; iii) debt financial
instruments measured at fair value through other comprehensive income (“FVOCI”); iv) equity financial instruments designated at FVOCI;
or v) financial instruments designated at FVTPL, based on the contractual cash flow characteristics of the financial assets and the business
model under which the financial assets are managed. All financial assets are measured at fair value with the exception of financial assets
measured at amortized cost. Financial assets are reclassified when and only when the business model under which they are managed has
changed. All reclassifications are to be applied prospectively from the reclassification date.
All debt instrument financial assets that do not meet a “solely payment of principal and interest” (“SPPI”) test, including those that
contain embedded derivatives are classified at initial recognition as FVTPL. For debt instrument financial assets that meet the SPPI
test, classification at initial recognition is determined based on the business model under which these instruments are managed. Debt
instruments that are managed on a “held for trading” or “fair value” basis are classified as FVTPL. Debt instruments that are managed on
a “hold to collect and for sale” basis are classified as FVOCI for debt. Debt instruments that are managed on a “hold to collect” basis are
classified as amortized cost.
Financial assets consist of amounts receivable, consumer loans receivable, derivative financial instruments and investments, and are
initially measured at fair value plus transaction costs.
Amounts receivable and consumer loans receivable are subsequently measured at amortized cost. Amortized cost is determined using the
effective interest rate method, factoring in acquisition costs paid to third parties, and the allowance for loan losses. The effective interest
rate is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to the carrying
amount. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the
financial instrument.
The Company does not have any financial assets that are subsequently measured at fair value except for investments and the derivative
financial instruments which may be in an asset or liability position (see section “Derivative Financial Instruments and Hedge Accounting”).
Financial assets are derecognized when the rights to receive cash flows from the asset have expired or the Company has transferred its
rights to receive cash flows from an asset.
103
Impairment of Financial Assets
The Company applies an expected credit loss (“ECL”) model, where credit losses that are expected to transpire in future years irrespective
of whether a loss event has occurred or not as at the statement of financial position date, are provided for. The Company assesses
and segments its loan portfolio into performing (Stage 1), under-performing (Stage 2) and non-performing (Stage 3) categories as at
each statement of financial position date. Loans are categorized as under-performing if there has been a significant increase in credit
risk. The Company utilizes an internal risk rating methodology that incorporates changes, delinquency and other identifiable risk factors
to determine when there has been a significant increase or decrease in the credit risk of a loan. Indicators of a significant increase
in credit risk include a recent degradation in internal company risk rating based on the Company’s custom behaviour credit scoring
model, non-sufficient fund (“NSF”) transactions, delinquency and substantive adjustments to a loan’s terms. Under-performing loans are
recategorized to performing only if there is deemed to be a substantial decrease in credit risk. Loans are categorized as non-performing
if there is objective evidence that such loans will likely charge off in the future which the Company has determined to be when loans are
delinquent for greater than 30 days. For performing loans, the Company is required to record an allowance for loan losses equal to the
expected losses on that group of loans over the ensuing twelve months. For under-performing and non-performing loans, the Company is
required to record an allowance for loan losses equal to the expected losses on those groups of loans over their remaining life.
The Company does not provide any additional credit to borrowers who are delinquent. In order for additional credit to be advanced to
a borrower, they must be current on their pre-existing loan and meet the Company’s credit and underwriting requirements. In limited
situations, the Company may amend the terms of a loan, typically through deferring payments and extending the loan amortization period,
for customers that are current or are in arrears as a means to ensure the customer remains able to repay the loan.
The key inputs in the measurement of ECL allowances are as follows:
• The probability of default is an estimate of the likelihood of default over a given time horizon;
• The exposure at default is an estimate of the exposure at a future default date;
• The loss given default is an estimate of the loss arising in the case where a default occurs at a given time; and
• Forward-looking indicators (“FLIs”).
Ultimately, the ECL is calculated based on the probability weighted expected cash collected shortfall against the carrying value of the loan
and considers reasonable and supportable information about past events, current conditions and forecasts of future events and economic
conditions that may impact the credit profile of the loans. Forward-looking information is considered when determining significant increases
in credit risk and measuring expected credit losses. Forward-looking macroeconomic factors are incorporated in the risk parameters as
relevant. From an analysis of historical data, management has identified and reflected in the Company’s ECL allowance those relevant FLIs
variables that contribute to credit risk and losses within the Company’s loan portfolio. Within the Company’s loan portfolio, the most highly
correlated variables are unemployment rates, inflation, oil prices, and gross domestic product (“GDP”).
Unsecured customer loan balances that are delinquent greater than 90 days and secured customer loan balances that are delinquent
greater than 180 days are written off against the allowance for loan losses.
Consumer loan balances, together with the associated allowances, are written off when there is no realistic prospect of further recovery.
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was
recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a write off is later recovered, the
recovery is credited to bad debt expense.
For amounts receivable, the Company applies a simplified approach in calculating ECLs recognizing a loss allowance based on lifetime
ECLs at each reporting date.
Modified Loans
In cases where a borrower experiences financial difficulty, the Company may grant certain concessionary modifications to the terms
and conditions of a loan. Modifications may include payment deferrals, extension of amortization periods, rate reductions and other
modifications intended to minimize the economic loss. The Company has policies in place to determine the appropriate remediation
strategy based on the individual borrower.
If the Company determines that a modification results in the expiry of cash flows, the original asset is derecognized while a new asset
is recognized based on the new contractual terms. Significant increase in credit risk is assessed relative to the risk of default on the
new financial instrument at the date of derecognition. A gain or loss is assessed at the date of modification or derecognition equal to the
difference between the fair value of the cash flows under the original and modified terms.
If the Company determines that a modification does not result in derecognition, significant increase in credit risk is assessed based on the
risk of default at initial recognition of the original asset. Expected cash flows arising from the modified contractual terms are considered
104
when calculating the ECL for the modified asset. For loans that were modified while having lifetime ECLs, the loans can revert to having
twelve-month ECLs after a period of performance and improvement in the borrower’s financial condition.
Purchased or Originated Credit-Impaired Financial Assets
Purchased or originated credit-impaired ("POCI") financial assets are assets that are credit-impaired at the time of initial recognition. A
lifetime ECL is incorporated into the calculation of the effective interest rate of these assets. Consequently, POCI assets do not carry an
impairment allowance at the time of initial recognition. The amount recognized as a loss allowance subsequent to initial recognition is
equal to changes in the lifetime ECL.
LEASE ASSETS
Lease assets are stated at cost net of accumulated depreciation and accumulated impairment losses, if any.
The cost of lease assets comprises their purchase price and any costs directly attributable to bringing the assets to the location and
condition necessary for them to be capable of operating in the manner intended by management. Vendor volume rebates are recorded as
a reduction of the cost of lease assets.
As the leases are effectively cancellable by the customer with a week’s notice, and there are no bargain purchase options provided to the
customer, the customer leases are considered operating in nature. Lease agreements entitle customers to buy out a lease asset earlier in
accordance with conditions stipulated in the lease agreements.
The residual value, useful life and depreciation method of the lease assets are reviewed at each financial year-end, and if expectations
differ from previous estimates, they are adjusted, and the changes are accounted for prospectively as a change in accounting estimates.
In the event management determines that the Company can no longer lease or sell certain lease assets, they are written off. The residual
value of lease assets is nominal.
Depreciation on lease assets is charged to net income as follows:
• Lease assets, excluding game stations, computers and related equipment, are depreciated using the units of activity method over
the expected lease agreement term.
• Game stations are depreciated on a straight-line basis over 18 months. Computers and related equipment are depreciated on a
straight-line basis over 24 months.
• Depreciation for all lease assets includes the remaining book values at the time of disposition of the lease assets that have been
sold and amounts that have been charged off as stolen, lost or no longer suitable for lease.
The Company records a provision against the carrying value of lease assets for estimated losses from theft and/or damage.
PROPERTY AND EQUIPMENT
The cost of property and equipment comprises their purchase price and any costs directly attributable to bringing the assets to the
location and condition necessary for them to be capable of operating in the manner intended by management.
Property and equipment are stated at cost net of accumulated depreciation and accumulated impairment losses, if any.
Subsequent costs are included in an asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other
expenses are charged to net income as repairs and maintenance expense when incurred.
Depreciation on property and equipment is charged to net income.
Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Asset Category
Estimated Useful Lives
Furniture and fixtures
Computer
Office equipment
Automotive
Signage
Leasehold improvements
7 years
5 years
7 years
5 years
7 years
5 to 10 years depending on the lease term
Property and equipment are derecognized upon disposal or when no future economic benefits are expected from their use or disposal. Any
gains or losses arising on derecognition of the assets (calculated as the difference between the net disposal proceeds and the carrying
amount of the assets) are included in net income in the period the assets are derecognized.
105
INTANGIBLE ASSETS
Intangible assets acquired separately are measured on initial recognition at cost. The costs of intangible assets acquired in a business
combination are their estimated fair values at the date of acquisition. Following initial recognition, intangible assets are carried at costs
less any accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized
development costs, are not capitalized and the expenditure is reflected in net income in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the economic useful life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful
life are reviewed at least at the end of each reporting period for potential impairment indicators. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or
method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives
is recognized in net income.
Intangible assets are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Asset Category
Estimated Useful Lives
Customer lists
Websites and digital properties
Software (excluding websites and digital properties)
Merchant networks
5 years
3 years
5 to 10 years
10 years
Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually. The assessment of indefinite life
is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
The Company’s trademarks have been assessed to have an indefinite life.
Gains or losses arising from the derecognition of intangible assets are measured as the difference between the net disposal proceeds and
the carrying amounts of the asset and are recognized in net income when the assets are derecognized.
DEVELOPMENT COSTS
Development costs, including those related to the development of software, are recognized as an intangible asset when the Company can
demonstrate:
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete and its ability to use or sell the asset;
•
•
• how the asset will generate future economic benefits;
the availability of resources to complete the asset; and
•
the ability to measure reliably the expenditure during development.
•
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost
less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete,
and the asset is available for use. It is amortized over the period of the expected future benefit.
LEASES
The Company assesses contracts at inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control
the use of an identified asset for a period of time in exchange for consideration.
A. Company as a Lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-
value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the
underlying assets.
i) Right-of-use Assets
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized at the inception of
the lease, initial direct costs incurred, and lease payments made at or before the lease commencement date less any lease incentives
106
received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized
right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use
assets are subject to impairment.
ii) Lease Liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease
incentives receivable, plus variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the
Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The
variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition
that triggers the payment occurs.
In determining a lease component, the Company does not separate the non-lease components from the lease component and instead
accounts for each lease component and any associated non-lease components as a single lease component.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate on leases at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities
is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
iii) Short-term Leases and Leases of Low-Value Assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of
12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets
recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases
of low value assets are recognized as expense on a straight-line basis over the lease term.
B. Company as a Lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified
as operating leases. Lease revenue recognition is discussed above.
BUSINESS COMBINATIONS AND GOODWILL
Business combinations are accounted for using the purchase method. The cost of an acquisition is measured at the fair value of the
assets given, equity instruments and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, and liabilities
and contingent liabilities assumed in a business combination are measured initially at fair value at the date of acquisition, irrespective of
the extent of any non-controlling interest.
Goodwill is initially measured at cost being the excess of the cost of the business combination over the Company’s share in the net fair
value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the fair values of the assets, liabilities and contingent
liabilities can only be calculated on a provisional basis, the business combination is recognized initially using provisional values. Any
adjustments resulting from the completion of the measurement process are recognized within twelve months of the date of acquisition.
After initial recognition, goodwill is measured at cost less accumulated impairment losses, if any. Goodwill is not amortized. For the purpose
of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s
operating segments that are expected to benefit from the synergies of the combination, irrespective of whether other assets and liabilities
of the acquiree are assigned to those segments.
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Company assesses, at each reporting date, whether there is an indication that an asset or a cash-generating unit (“CGU”) may be impaired.
The Company regularly reviews lease assets that are idle for more than 90 days for indicators of impairment. Such assets deemed not leasable
or saleable are discarded and their net carrying value reduced to nil.
A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets.
For the easyhome business unit, a CGU was determined to be at the individual store level, as the cash inflows of an individual store are largely
independent of the cash inflows of other assets in the Company. For the easyfinancial and LendCare Holdings Inc. (“LendCare”) business units, a
CGU was determined to be at the business unit level, as the cash inflows are largely dependent on their centralized loan and collection centres.
107
If an indication of impairment exists, or when annual testing for an asset is required, the Company estimates the asset or CGU’s recoverable
amount. The recoverable amount is the higher of the asset or CGU’s fair value less costs to sell and its value in use. The recoverable amount is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets, in which case it is determined for the CGU to which the asset belongs. Where the carrying amount of an asset or CGU exceeds
its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs to sell, an appropriate
valuation model is used. Impairment losses are recognized in net income.
The impairment test calculations are based on detailed budgets and forecasts, which are prepared annually for each CGU to which the assets are
allocated. These budgets and forecasts generally cover a period of three years with a long-term growth rate applied after the third year.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable
amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset
or CGU’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset
or CGU does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no
impairment loss been recognized for the asset or CGU in prior years. Such reversals are recognized in net income.
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is
determined for goodwill by assessing the recoverable amount of each group of CGUs to which the goodwill relates. Where the recoverable
amount of the CGUs is less than their carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be
reversed in future periods.
Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level and when circumstances indicate that the
carrying value may be impaired.
FINANCIAL LIABILITIES
Financial liabilities are initially recognized at fair value. In the case of certain loans and borrowings, the fair value at initial recognition includes the
value of proceeds received net of directly attributable transaction costs. The Company’s financial liabilities include a revolving credit facility, United
States Dollar (“USD”) denominated notes payable, a revolving securitization warehouse facility, secured borrowings, derivative financial instruments
and accounts payable and accrued liabilities.
After initial recognition, the Company’s interest-bearing debt is subsequently measured at amortized cost using the effective interest rate method.
Amortized cost is calculated by taking into account any fees or costs related to the interest-bearing debt. Interest expense and the amortization of
deferred financing charges are included in finance costs.
Non-interest-bearing financial liabilities, such as accounts payable and accrued liabilities, are carried at the amount owing.
A financial liability is derecognized when the obligation under the liability is settled, discharged, cancelled or expired. Any gains or losses are
recognized in net income when liabilities are derecognized.
CONVERTIBLE DEBENTURES
Convertible debentures included both liability and equity components associated with the conversion option. The liability component of the
convertible debentures is initially recognized at fair value determined by discounting the future principal and interest payments at the rate
of interest prevailing at the date of issue for a similar non-convertible debt instrument.
The equity component of the convertible debentures is initially recognized at fair value determined as the difference between the gross
proceeds of the convertible debt issuance less the liability component and the deferred tax liability that arises from the temporary
difference between the carrying value of the liability and its tax basis. The equity component is allocated to contributed surplus within
shareholders’ equity. Directly attributable transaction costs related to the issuance of convertible debentures are allocated to the liability
and equity components on a pro-rata basis, reducing the fair value at the time of initial recognition.
On July 31, 2020, the Company redeemed all unconverted debentures (note 16).
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Company’s financing activities expose it to the financial risks of changes in foreign exchange and interest rate volatility. The Company
utilizes derivative financial instruments as cash flow hedges to assist in the management of these risks.
Derivative financial instruments are initially measured at fair value on the trade date and are subsequently remeasured at fair value at
each reporting date using observable market inputs.
108
The Company designates derivative financial instruments as cash flow hedges to hedge the change due to foreign exchange risk or interest
rate risk when the derivative financial instruments meet the criteria for hedge accounting in accordance with IFRS 9, Financial Instruments.
In order to qualify for hedge accounting, formal documentation must include identification of the hedging instrument, the hedged item,
the nature of the risk being hedged and how the Company will assess whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship
qualifies for hedge accounting if it meets all the following effectiveness requirements:
• There is an economic relationship between the hedged item and the hedging instrument.
• The effect of credit risk does not dominate the change in values that result from that economic relationship.
• The hedge ratio of the hedging relationship is consistent with management’s risk strategy.
Where an effective hedge exists, the change in the fair value of the derivative instrument is recognized in OCI and reclassified to profit or loss
as a reclassification adjustment in the same period or periods during which the hedged cash flows affect profit or loss. As such there is no net
impact on net income.
Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis. Should a hedge cease to be effective any changes in fair
value related to movements in foreign currency or interest rates would be recognized in net income at that time.
PROVISIONS
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past event, and the costs to
settle the obligation are both probable and reliably measurable. Where there is expected to be a reimbursement of some or all of a provision,
for example under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is
virtually certain. If the effect of the time value of money is material, provisions are discounted. Where discounting is used, the increase in
the provision as a result of the passage of time is recognized as a finance cost.
TAXES
i) Current Income Taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. Income
tax rates and tax laws used to compute the amount are those enacted or substantively enacted by the end of the reporting period.
Current income tax assets and liabilities are only offset if a legally enforceable right exists to offset the amounts and the Company intends
to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Current income taxes relating to items recognized directly in equity are also recognized in equity and not in net income.
ii) Deferred Income Taxes
Deferred income taxes are provided for using the liability method on temporary differences at the reporting date between the tax basis
of assets and liabilities and their carrying amount for financial reporting purposes. Deductible income tax liabilities are recognized for
all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of
unused tax credits and unused tax losses, to the extent that it is probable that taxable income will be available against which the deductible
temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized.
The following temporary differences do not result in deferred income tax assets or liabilities:
•
•
•
the initial recognition of assets or liabilities, not arising in a business combination, that does not affect accounting or taxable profit;
the initial recognition of goodwill; and
investment in subsidiaries, associates and jointly controlled entities where the timing of reversal of the temporary differences can be
controlled and reversal in the foreseeable future is not probable.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be realized.
Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has
become probable that future taxable income will be available to allow the deferred income tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized,
or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax assets and liabilities are offset if a legally enforceable right exists to set off current income tax assets against current
income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
109
iii) Sales Tax
Revenue, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on a purchase of assets
or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the
asset or as part of the expense item as applicable.
The net amount of sales tax recoverable from, or payable to, taxation authorities is included as part of amounts receivable or accounts
payable and accrued liabilities in the consolidated statements of financial position.
STOCK-BASED PAYMENT TRANSACTIONS
The Company has stock-based compensation plans as described in note 19.
i) Equity-Settled Transactions
The Company grants stock options, Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”), which are accounted for as equity-settled
transactions. The cost of such equity-settled transactions is measured by reference to the fair value determined using the market value on the grant date
or the Black-Scholes option pricing model, as appropriate. The inputs into this model are based on management’s judgments and estimates.
The cost of equity-settled transactions is charged to net income, with a corresponding increase in contributed surplus over the vesting period. The
cumulative expense recognized for equity-settled transactions at each reporting date reflects the extent to which the vesting period has elapsed and
the Company’s best estimate of the number of equity instruments that will ultimately vest. The expense for a period is recognized in stock-based
compensation expense in the consolidated statements of income. No expense is recognized for awards that do not ultimately vest.
ii) Cash-Settled Transactions
The Company grants Performance Share Units (“PSUs”), which mirror the value of the Company’s publicly traded common shares and can only
be settled in cash (“cash-settled transactions”). The cost of cash-settled transactions is measured at fair value at the grant date. The liability is
remeasured, at each reporting date up to and including the settlement date, based on the value of the Company’s publicly traded common shares
and the Company’s best estimate of the number of cash-settled instruments that will ultimately vest.
The cost of cash-settled transactions is charged to net income, with a corresponding increase in liabilities, over the period in which the performance
and service conditions are fulfilled. The cumulative expense recognized for cash-settled transactions at each reporting date reflects the extent
to which the vesting period has elapsed and the Company’s best estimate of the number of cash-settled instruments that will ultimately vest.
The expense for a period including changes in fair value are recognized in stock-based compensation expense in the consolidated statements of
income. No expense is recognized for awards that do not ultimately vest.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the year.
Diluted earnings per share is calculated using the treasury stock method, which assumes that cash received from the exercise of options,
warrants and convertible debentures is applied to purchase shares at the average price during the period and that the difference between the
shares issued upon exercise of the options and the number of shares obtainable under this computation, on a weighted average basis, is added
to the number of shares outstanding.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements in conformity with IFRS requires management to make accounting judgements,
estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.
These accounting judgements, estimates and assumptions are continuously evaluated and are based on management’s historical
experience, best knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances.
As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates, which
could materially impact these consolidated financial statements. Changes in estimates will be reflected in the consolidated financial
statements in future periods.
Impact of COVID-19 Pandemic
The Company’s business has been impacted by the COVID-19 pandemic, which has created significant societal and economic disruptions.
The COVID-19 pandemic has had, and will continue to have, a broad impact across industries and the economy, including effects on
consumer confidence, global financial markets, regional and international travel, supply chain distribution of various products for many
industries, government and private sector operations, the price of consumer goods, country-wide lockdowns in various regions of the
world, and numerous other impacts on daily life and commerce.
110
With the active vaccination campaigns during the year, Canada saw improvements in containing outbreaks of the COVID-19 pandemic and
the economy reopened at a different pace across the country. Lighter control measures led to partial economic recovery. However, towards
the end of 2021, the emergence of new variants, including the Omicron variant, have led the Canadian government, and governments
around the world, to re-institute measures to combat the spread of COVID-19, including, but not limited to: the implementation of travel
bans, border closings, mandated capacity limits and closures, self-imposed quarantine periods and social and physical distancing policies,
which have contributed to the material disruption to businesses globally, resulting in continued economic uncertainty.
The ever-changing and rapidly-evolving effects of COVID-19, the duration, extent and severity of which are currently unknown, on
investors, businesses, the economy, society and the financial markets could, among other things, add volatility to the global stock
markets, change interest rate environments, and increase delinquencies and defaults. With the stricter control measures back in place,
the Company will continue to remain vigilant in its efforts to mitigate the impact of COVID-19 related risks to the Company. The COVID-19
virus, and the measures to prevent its spread, may continue to contribute to a higher level of uncertainty with respect to management’s
judgements and estimates.
Significant Accounting Judgements, Estimates and Assumptions
Key areas of estimation where management has made difficult, complex or subjective judgments often in respect of matters that are
inherently uncertain are as follows:
i) Business combinations
Business combinations require management to exercise judgment in measuring the fair value of the assets acquired, equity instruments
issued, and liabilities incurred or assumed.
ii) Allowance for Credit Losses and Allowance for Loan Losses
The ECL method is applied in determining the allowance for credit losses on gross consumer loans receivable. The key inputs in the
measurement of ECL allowances, all of which are subject to accounting judgments, estimates and assumptions are discussed in note 2,
Financial Assets. In light of the turbulent economic environment brought on by the COVID-19 pandemic, management identified the need to
incorporate additional data and methodological approaches into the Company’s forward-looking scenario modelling. Therefore, additional
factors have been incorporated in assessing the economic impact of the COVID-19 pandemic on the Company’s consumer loan portfolio,
as discussed in note 7.
In addition, consumer loans receivable includes accrued interest earned from consumer loans that is expected to be received in future
periods. Interest receivable from consumer loans is determined based on the amounts the Company believes will be collected in future
periods.
iii) Depreciation of Lease Assets
Certain assets on lease (excluding game stations, computers and related equipment) are depreciated based on the time on lease against
the lease agreement term, which is estimated by management for each product category. Other assets on lease such as game stations,
computers and related equipment, are depreciated on a straight-line basis over their estimated useful lives.
iv) Impairment of Non-Financial Assets
Indicators of impairment are based on management’s judgment. If an indication of impairment exists, or when annual testing for an asset
is required, the Company estimates the asset’s or CGU’s recoverable amount. Where the carrying amount of an asset or CGU exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the recoverable amount,
management estimates the asset’s or CGU’s value in use. Value in use is based on the estimated future cash flows of the asset or CGU
discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset.
Impairment test calculations are based on detailed budgets and forecasts, which are prepared for each CGU to which the assets are
allocated. These budgets and forecasts generally cover a period of three years with a long-term growth rate applied after the third year.
Key areas of management judgment include the cash flow forecast, the growth rate applied to cash flows subsequent to the third year and
the discount rate.
v) Impairment of Goodwill and Indefinite-Life Intangible Assets
In assessing the recoverable amount, management estimated the group of CGU’s value in use. Value in use is based on the estimated
future cash flows of the asset or CGU discounted to their present value using a discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. The impairment test calculations are based on detailed budgets and forecasts,
which are prepared for each CGU to which the assets are allocated. These budgets and forecasts generally cover a period of three years
with a long-term growth rate applied after the third year. Key areas of management judgment involve the cash flow forecast, the growth
rate applied to cash flows subsequent to the third year and the discount rate.
111
vi) Fair Value of Stock-Based Compensation
The fair value of equity-settled stock-based compensation plan grants are measured at the grant date using either the related market
value or the Black-Scholes option pricing model, as appropriate. The Black-Scholes option pricing model was developed for estimating the
fair value of traded options that are fully transferable and have no vesting restrictions. In addition, option pricing models require the input
of highly subjective assumptions, including expected share price volatility. The Company’s share options have characteristics significantly
different from those of freely traded options and because changes in subjective input assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a single reliable measure of the fair value of the unit options granted.
The vesting of the Company’s stock-based compensation plans is based on the expected achievement of long-term targets and management
retention rates, the assessment of which are subject to management’s judgment.
vii) Taxation Amounts
Tax provisions, including current and deferred income tax assets and liabilities, may require estimates and interpretations of federal and
provincial income tax rules and regulations and judgments as to their interpretation and application to the Company’s specific situation.
Therefore, it is possible that the ultimate value of the tax assets and liabilities could change in the future and that changes to these
amounts could have a material effect on the Company’s consolidated financial statements.
Under some of the Company’s lease contracts for premises, it has the option to lease the premises for additional terms of one to ten
years. The Company applies judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all
relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses
the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not
to exercise) the option to renew (i.e., a change in business strategy).
viii) Fair Value Measurement of Investments
When the fair values of investments recorded in the consolidated statement of financial position cannot be measured based on quoted prices in active
markets, their fair value is measured using alternative valuation techniques. The inputs to these models are taken from observable markets where
possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such
as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments.
3. Changes In Accounting Policy And Disclosures
(a) New standards, interpretations and amendments adopted by the Company
There were no new standards, interpretations or amendments that had a material impact to the Company’s consolidated financial statements.
The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
(b) Standards issued but not yet effective
There are no new standards issued but not yet effective as at January 1, 2021 that have a material impact to the Company’s consolidated
financial statements.
112
4. Significant Acquisition
On April 30, 2021 (“Acquisition Date”), through its newly created wholly-owned subsidiary, 2830844 Ontario Inc., the Company acquired 100%
of the outstanding equity of LendCare, a Canadian point-of-sale (“POS”) consumer finance and technology company, from LendCare’s founders
and CIVC Partners for consideration of $324.8 million, of which $313.0 million was paid in cash and $11.8 million was paid in the Company’s
common shares (the “Acquisition”). The $11.8 million fair value of the 81,400 common shares issued as consideration was calculated with
reference to the closing price of the Company’s common shares on the Acquisition Date.
The Company determined the fair value of the identifiable net assets and liabilities, goodwill and intangible assets acquired of LendCare at
the date of acquisition as follows:
Total identifiable net assets acquired
Intangible assets
Goodwill
Deferred tax liabilities
Total purchase consideration transferred
Purchase consideration
Cash
Common shares
Total consideration
Analysis of cash flows on Acquisition
Transaction costs of the Acquisition (included in cash flows from operating activities)
Cash used in Acquisition, net of cash acquired (included in cash flows from investing activities)
Issuance of notes payable, net of financing charges (note 17) (included in cash flows from financing
activities)
Issuance of common shares, net of issuance costs (note 18) (included in cash flows from financing
activities)
Payment of notes payable (included in cash flows from financing activities)
Net cash flow on Acquisition
AMOUNT
71,212
134,186
159,613
(40,229)
324,782
312,945
11,837
324,782
(9,341)
(281,041)
391,516
164,812
(243,567)
22,379
The goodwill of $159.6 million largely reflects the synergies of combining and streamlining the Company’s current business with LendCare’s
operations. Goodwill is not deductible for income tax purposes.
The results of the Acquisition have been consolidated from the Acquisition Date and combined within the easyfinancial reporting segment
(note 30).
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IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED
The following table summarizes the identifiable assets acquired and liabilities assumed at the Acquisition Date:
Cash
Amounts receivable
Prepaid expenses
Consumer loans receivable
Property and equipment
Right-of-use assets
Income tax recoverable
Accounts payable and accrued liabilities
Accrued interest
Deferred tax liabilities, net
Notes payable
Secured borrowings
Lease liabilities
Total identifiable net assets acquired
AMOUNT
29,507
9,337
798
444,520
4,159
1,160
6,120
(9,034)
(564)
(2,859)
(243,567)
(167,205)
(1,160)
71,212
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
ASSETS ACQUIRED
Consumer loans receivable
Property and equipment
Intangible assets
VALUATION TECHNIQUE
Income approach:
The income approach considers the present value of future contractual cash flows
expected to be generated by loans. For non-credit impaired loans, estimated fair
value is determined by discounting the expected future contractual cash flows,
considering changes in market interest rates and credit risk that have occurred
since the loans were originated, amongst other factors. For purchased credit-
impaired loans, fair value is estimated by discounting the expected future cash
flows using assumptions of probability of default, loss given default and exposure at
default based on historical experience.
Market comparison technique and cost technique:
The valuation model considers market prices for similar items when they are
available, and depreciated replacement cost when appropriate. Depreciated
replacement cost reflects adjustments for physical deterioration as well as
functional and economic obsolescence.
Income approach and replacements cost method:
The income approach considers the present value of net cash flows expected
to be generated by the merchant network, by excluding any cash flows related
to contributory assets. The replacement cost method considers the cost for the
Company to replace the asset.
The total gross consumer loan contractual amounts due were $457.3 million, of which $16 million was expected to be uncollectible at the
date of acquisition.
ACQUISITION COSTS
During 2021, the Company incurred transaction costs of $9.3 million related to the Acquisition, including advisory and consulting costs, legal
costs, commitment loan fees and other direct transaction costs. Of these transaction costs, $7.6 million and $1.7 million was recognized
under Other expenses and Finance costs, respectively, in the consolidated statements of income.
5. Cash
Certain cash on deposit at banks earns interest at floating rates based on daily bank deposit rates.
The Company has pledged part of its cash to fulfill collateral requirements under its cross-currency swap contracts and total return swap.
As at December 31, 2021, the fair value of the cash pledged by the Company as a cash collateral in respect of the cross-currency swap
was $19.6 million (2020 – $30.1 million).
114
Related to its secured borrowing loans, the Company holds back an amount from the proceeds of the loan transfer as a reserve against
future customer defaults. As at December 31, 2021, the cash held back as a reserve for the Revolving Securitization Warehouse Facility
and Secured Borrowings was $6.8 million and $20.8 million, respectively.
6. Amounts Receivable
Commission receivable
Vendor rebate receivable
Due from franchisees
Amounts due from customers and others
Current
Non-current
DECEMBER 31, 2021
DECEMBER 31, 2020
15,223
601
337
4,608
20,769
20,769
-
20,769
6,367
539
656
2,217
9,779
9,595
184
9,779
7. Consumer Loans Receivable
Consumer loans receivable represent amounts advanced to customers and includes both unsecured and secured loans. Unsecured loan
terms generally range from 9 to 84 months while secured loan terms generally range from 5 to 10 years.
DECEMBER 31, 2021
DECEMBER 31, 2020
Gross consumer loans receivable
Interest receivable from consumer loans
Unamortized deferred acquisition costs
Unamortized deferred revenues
Allowance for credit losses
2,030,339
18,881
16,320
(6,147)
(159,762)
1,899,631
1,246,840
16,566
14,648
-
(125,676)
1,152,378
The allocation of the Company’s gross consumer loans receivable as at December 31, 2021 and 2020, based on loan types, is as follows:
Unsecured instalment loans
Secured instalment loans
DECEMBER 31, 2021
DECEMBER 31, 2020
1,364,696
665,643
2,030,339
1,091,562
155,278
1,246,840
The scheduled principal repayment aging analyses of the gross consumer loans receivable portfolio as at December 31, 2021 and 2020
are as follows:
0 - 6 months
6 - 12 months
12 - 24 months
24 - 36 months
36 - 48 months
48 - 60 months
60 months +
DECEMBER 31, 2021
DECEMBER 31, 2020
$
% OF TOTAL LOANS
$
% OF TOTAL LOANS
220,383
160,914
351,028
408,762
332,049
229,782
327,421
10.9%
7.9%
17.3%
20.1%
16.4%
11.3%
16.1%
184,553
144,341
300,560
289,065
181,866
62,361
84,094
14.8%
11.6%
24.1%
23.2%
14.6%
5.0%
6.7%
2,030,339
100.0%
1,246,840
100.0%
115
The gross consumer loans receivable portfolio categorized by the contractual time to maturity as at December 31, 2021 and 2020 are
summarized as follows:
0 - 1 year
1 - 2 years
2 - 3 years
3 - 4 years
4 - 5 years
5 years +
DECEMBER 31, 2021
DECEMBER 31, 2020
$
% OF TOTAL LOANS
$
% OF TOTAL LOANS
60,319
155,957
347,331
501,830
473,096
491,806
3.0%
7.7%
17.1%
24.7%
23.3%
24.2%
48,561
142,958
321,683
381,055
209,994
142,589
3.9%
11.5%
25.8%
30.6%
16.8%
11.4%
2,030,339
100.0%
1,246,840
100.0%
An aging analysis of gross consumer loans receivable past due as at December 31, 2021 and 2020 is as follows:
1 - 30 days
31 - 44 days
45 - 60 days
61 - 90 days
91 - 120 days
121 - 150 days
151 - 180 days
DECEMBER 31, 2021
DECEMBER 31, 2020
$
% OF TOTAL LOANS
$
% OF TOTAL LOANS
71,505
14,417
12,358
14,966
3,350
2,792
1,841
121,229
3.5%
0.7%
0.6%
0.7%
0.2%
0.1%
0.1%
5.9%
34,880
7,645
5,503
7,258
231
83
64
55,664
2.8%
0.6%
0.4%
0.6%
0.0%
0.0%
0.0%
4.4%
The following tables provide the gross consumer loans receivable split by the Company’s risk ratings and further segregated by Stage 1, Stage
2, and Stage 3. The categorization of borrowers into low, normal and high risk is based on the Company’s custom behaviour credit scoring model
and/or third-party credit scores. This scoring model has been built and refined using analytical techniques and statistical modelling tools in
predicting future losses among certain customer segments than traditional credit scores available from credit reporting agencies. Borrowers
categorized as low risk have expected future losses that are lower than the average expected loss rate of the overall loan portfolio. Customers
categorized as normal risk have expected future losses that are approximately the same as the average expected loss rate of the overall loan
portfolio. Customers categorized as high risk have expected future losses that are higher than the average expected loss rate of the overall loan
portfolio. The median TransUnion Risk Score for those borrowers categorized as low, normal and high risk is presented below as reference.
MEDIAN TRANSUNION
RISK SCORE
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-PERFORMING)
STAGE 3
(NON-PERFORMING)
TOTAL
AS AT DECEMBER 31, 2021
635
557
504
583
1,090,814
610,484
167,008
1,868,306
1,586
6,122
105,102
112,810
122
270
48,831
49,223
1,092,522
616,876
320,941
2,030,339
MEDIAN TRANSUNION
RISK SCORE
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-PERFORMING)
STAGE 3
(NON-PERFORMING)
TOTAL
AS AT DECEMBER 31, 2020
617
544
502
564
636,101
384,942
120,758
1,141,801
2,467
7,174
75,194
84,835
107
246
19,851
20,204
638,675
392,362
215,803
1,246,840
Low Risk
Normal Risk
High Risk
Total
Low Risk
Normal Risk
High Risk
Total
116
The improvement in the customers’ median TransUnion Risk Score as at December 31, 2021, compared with December 31, 2020, was
mainly driven by the inclusion of gross consumer loans acquired from LendCare, which are typically issued to consumers with higher
credit scores.
An analysis of the changes in the classification of gross consumer loans receivable is as follows:
YEAR ENDED DECEMBER 31, 2021
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-
PERFORMING)
STAGE 3
(NON-
PERFORMING)*
TOTAL
Balance as at January 1, 2021
1,141,801
84,835
20,204
1,246,840
Gross loans originated
Gross loans purchased (note 4)
Principal payments and other adjustments
Transfers to (from)
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Gross charge-offs
Net growth in gross consumer loans receivable during
the year
Balance as at December 31, 2021
* Includes purchased credit-impaired loans from the Acquisition (note 4).
1,594,480
435,311
(1,091,069)
265,508
(356,082)
(88,832)
(32,811)
726,505
1,868,306
-
-
-
9,209
1,594,480
444,520
11,778
(14,275)
(1,093,566)
(226,178)
369,644
(112,779)
(39,330)
(13,562)
201,611
-
-
-
(14,490)
(114,634)
(161,935)
27,975
112,810
29,019
49,223
783,499
2,030,339
YEAR ENDED DECEMBER 31, 2020
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-
PERFORMING)
STAGE 3
(NON-
PERFORMING)
TOTAL
Balance as at January 1, 2020
983,323
103,448
23,862
1,110,633
Gross loans originated
Gross loans purchased
Principal payments and other adjustments
Transfers to (from)
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Gross charge-offs
Net growth in gross consumer loans receivable during
the year
Balance as at December 31, 2020
1,033,130
31,275
(813,788)
298,014
(313,536)
(54,358)
(22,259)
158,478
1,141,801
The changes in the allowance for credit losses are summarized below:
-
-
-
-
17,805
(5,417)
(264,592)
325,354
(84,617)
(12,563)
(18,613)
84,835
(33,422)
(11,818)
138,975
(91,976)
(3,658)
20,204
1,033,130
31,275
(801,400)
-
-
-
(126,798)
136,207
1,246,840
Balance, beginning of year
Net charge offs against allowance
Increase due to lending and collection activities
Balance, end of year
DECEMBER 31, 2021
DECEMBER 31, 2020
125,676
(147,998)
182,084
159,762
107,107
(116,429)
134,998
125,676
117
An analysis of the changes in the classification of the allowance for credit losses is as follows:
YEAR ENDED DECEMBER 31, 2021
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-
PERFORMING)*
STAGE 3
(NON-
PERFORMING)*
TOTAL
Balance as at January 1, 2021
77,759
32,608
15,309
125,676
Gross loans originated
Gross loans purchased
Principal payments and other adjustments
Transfers to (from) including remeasurement
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Net charge offs against allowance
Balance as at December 31, 2021
* Includes purchased credit-impaired loans from the Acquisition (note 4).
57,648
14,252
(28,520)
35,662
(25,851)
(10,635)
(30,650)
89,665
-
-
-
-
57,648
14,252
800
(17,032)
(44,752)
(45,015)
(26,283)
97,907
(9,018)
(32,030)
(13,590)
40,680
170,199
(103,758)
29,417
(35,636)
63,038
127,534
(147,998)
159,762
Balance as at January 1, 2020
Gross loans originated
Gross loans purchased
Principal payments and other adjustments
Transfers to (from) including remeasurement
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Net charge offs against allowance
Balance as at December 31, 2020
YEAR ENDED DECEMBER 31, 2020
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-
PERFORMING)
STAGE 3
(NON-
PERFORMING)*
TOTAL
55,930
43,651
2,328
(53,548)
88,620
(30,138)
(8,440)
(20,644)
77,759
33,671
17,506
107,107
-
-
475
(54,650)
89,120
(24,367)
(11,641)
32,608
-
-
43,651
2,328
(13,753)
(66,826)
(23,408)
(8,231)
127,339
(84,144)
15,309
10,562
50,751
94,532
(116,429)
125,676
In calculating the allowance for credit losses, internally developed models were used which factor in credit risk related parameters
including the probability of default, the exposure at default, the loss given default, and other relevant risk factors. As part of the process,
the Company employed distinct forecast scenarios for the period as at December 31, 2020, derived from the FLI forecasts produced by five
large Canadian banks, which include neutral, optimistic and pessimistic forecast scenarios. For the period as at December 31, 2021, the
Company enhanced the methodology by employing five distinct forecast scenarios, derived from the FLI forecasts produced by Moody’s
Analytics, which include neutral, moderately optimistic, extremely optimistic, moderately pessimistic and extremely pessimistic forecast
scenarios. These scenarios use a combination of four inter-related macroeconomic variables including unemployment rates, GDP, inflation
rates, and oil prices and are utilized to determine the probability weighted allowance. Judgment is then applied to the recommended
probability weightings to these scenarios to determine a probability weighted allowance for credit losses.
The following table shows the key macroeconomic variables used in the determination of the probability weighted allowance during the
forecast periods as at December 31, 2021 and December 31, 2020, respectively:
118
12-MONTH
FORWARD-LOOKING
MACROECONOMIC
VARIABLES
(AVERAGE ANNUAL)
Unemployment rate1
GDP Growth2
Inflation Growth3
Oil Prices4
DECEMBER 31, 2021
DECEMBER 31, 2020
NEUTRAL
FORECAST
SCENARIO
MODERATELY
OPTIMISTIC
FORECAST
SCENARIO
EXTREMELY
OPTIMISTIC
FORECAST
SCENARIO
MODERATELY
PESSIMISTIC
FORECAST
SCENARIO
EXTREMELY
PESSIMISTIC
FORECAST
SCENARIO
NEUTRAL
FORECAST
SCENARIO
OPTIMISTIC
FORECAST
SCENARIO
PESSIMISTIC
FORECAST
SCENARIO
5.81%
3.78%
3.07%
$67.34
5.02%
6.36%
3.64%
4.33%
9.03%
4.14%
$69.02
$72.75
8.04%
9.45%
(2.18%)
(6.91%)
2.38%
$42.25
1.79%
$38.69
7.51%
5.91%
1.52%
7.30%
6.55%
1.05%
$49.91
$55.04
11.41%
(2.90%)
2.03%
$31.33
1 An average of the projected monthly unemployment rates over the next 12-month forecast period.
2 A projected year-over-year GDP growth rate.
3 A projected year-over-year inflation growth rate.
4 An average of the projected monthly oil prices over the next 12-month forecast period.
The analysis performed by the Company determined that the rate of inflation and rate of unemployment were positively correlated with
the Company’s historic loss rates while oil prices and the rate of GDP growth were negatively correlated with the Company’s historic loss
rates. The assignment of the probability weighting for the various scenarios using these variables involves management judgment through
a robust internal review and analysis to arrive at a collective view of the likelihood of each scenario, particularly in light of the current
COVID-19 pandemic. If management were to assign 100% probability to the extremely pessimistic scenario forecast, the allowance for
credit losses would have been $24.7 million (2020 – $14.0 million under 100% pessimistic scenario forecast) higher than the reported
allowance for credit losses as at December 31, 2021. This sensitivity does not consider the migration of exposure and/or changes in credit
risk that would have occurred in the loan portfolio due to risk mitigation actions or other factors.
8. Investments
Investments include the following:
DECEMBER 31, 2021
DECEMBER 31, 2020
Listed and actively traded equities
Affirm Holdings Inc.
Others
Unlisted equities
Brim Financial Inc.
PayBright
53,543
398
10,500
-
64,441
-
-
-
56,040
56,040
119
Changes in the holdings, fair values of investments and the related total return swap and realized and unrealized gains (losses) recorded
in Other income in the consolidated statements of income are summarized below:
FAIR VALUE,
BEGINNING OF
THE YEAR
ADDITIONS
SALES/
SETTLEMENTS
TOTAL REALIZED
AND UNREALIZED
GAINS (LOSSES)
FAIR VALUE,
END OF THE
YEAR
For the year ended December 31, 2021
Investments
Listed and actively traded equities
Affirm Holdings Inc.1
Others
Unlisted equities
Brim Financial Inc.
PayBright1
Investments
Total return swap related to Affirm
Holdings Inc.2
Investments including total return swap
For the year ended December 31, 2020
Investments
Unlisted equities
PayBright
Investments
-
-
-
56,040
56,040
-
56,040
34,300
34,300
33,065
843
10,500
(54,577)
-
-
-
(56,040)
75,055
(445)
-
-
44,408
(110,617)
74,610
-
(33,287)
44,408
(143,904)
40,266
114,876
53,543
398
10,500
-
64,441
6,979
71,420
-
-
-
-
21,740
21,740
56,040
56,040
1 On January 1, 2021, the Company sold its equity investment in PayBright for consideration of cash and equity in Affirm Holdings Inc.
2 In August 2021, the Company settled the total return swap related to the non-contingent portion of the equity in Affirm Holdings Inc. and in September 2021 and November 2021, the Company
entered into new total return swaps to partially hedge the contingent portion of the equity consideration received.
AFFIRM HOLDINGS INC. AND PAYBRIGHT
In September 2019, the Company purchased a minority equity interest in PayBright for an aggregate price of $34.3 million. PayBright is a
non-listed Canadian lending company and payments platform focused on providing consumers with buy now pay later solutions at their
favourite retailers, both online and in-store.
On January 1, 2021, PayBright sold 100% of its shares to Affirm Holdings Inc. (“Affirm”), including the Company’s minority equity interest
in PayBright. Subsequent to the closing of the sale transaction, Affirm completed an initial public offering and its shares now trade on the
Nasdaq Global Select Market under the symbol “AFRM”. The equity consideration received by the Company is subject to customary lock-up
agreements in connection with Affirm’s initial public offering.
Under the terms of the sale to Affirm, the Company received total consideration, which was valued at that time, as follows:
•
•
•
Cash of $23.0 million, excluding one-time expenses and closing adjustments and including $2.1 million held in escrow;
Equity in Affirm with a value of $21.5 million; and
Contingent equity in Affirm with a value of $15.4 million, subject to revenue performance achieved in 2021 and 2022.
After considering the likelihood of realizing the contingent equity, the fair value of the investment in PayBright was determined to be $56.0
million as at December 31, 2020.
On January 1, 2021, the Company derecognized its investment in PayBright and recognized its $33.1 million investment in Affirm in the
consolidated statements of financial position.
The Company’s investment in Affirm was classified at initial recognition at fair value through profit or loss (“FVTPL”) on January 1, 2021.
In August 2021, the lock-up period for the non-contingent portion of the equity in Affirm ended and the Company sold all non-contingent
Affirm shares with a total consideration of $54.6 million and realized a fair value gain of $33.0 million under Other income in the consolidated
statements of income.
For the year ended December 31, 2021, the Company recognized an unrealized fair value gain of $42.0 million under Other income in the
consolidated statements of income.
120
TOTAL RETURN SWAP
Subsequent to Affirm’s initial public offering, the Company entered into a 6-month total return swap (“TRS”) agreement to substantively hedge
its market exposure related to its equity in Affirm which represents the non-contingent portion of the equity consideration received, pursuant to
the sale of its investment in PayBright. This TRS effectively results in the economic value of the Company’s non-contingent shares in Affirm being
settled in cash at maturity for USD108.87, net of applicable fees. This TRS does not meet the criteria for hedge accounting.
The TRS related to the non-contingent portion of the equity in Affirm was settled in August 2021 for $33.3 million, which was recognized
as a realized fair value gain under Other income in the consolidated statements of income.
In September 2021, the Company entered into a 9-month TRS agreement to partially hedge its market exposure related to 100,000 contingent
shares of Affirm. This TRS effectively results in the economic value of the hedged portion of the Company’s contingent equity in Affirm being
settled in cash at maturity for USD110.35 per share, net of applicable fees. This TRS does not meet the criteria for hedge accounting.
In November 2021, the Company entered into a 7-month TRS agreement to partially hedge its market exposure related to an additional
75,000 contingent shares of Affirm. This TRS effectively results in the economic value of the hedged portion of the Company’s contingent
equity in Affirm being settled in cash at maturity for USD163.00 per share, net of applicable fees. This TRS does not meet the criteria for
hedge accounting.
Included in Derivative financial assets is the change in fair value of the above 9-month and 7-month TRS, in the amount of $7.0 million
as at December 31, 2021, which was recorded as an unrealized fair value gain in Other income in the consolidated statements of income.
The fair value of the cash posted by the counter parties in respect of the 9-month and 7-month TRS related to the contingent portion of
the equity in Affirm was $6.3 million.
BRIM FINANCIAL INC.
In 2021, the Company invested $10.5 million to acquire a minority equity interest in Brim Financial Inc. (“Brim”), a Canadian fintech
company and globally certified credit card issuer.
9. Lease Assets
Cost
Balance, beginning of year
Additions
Disposals
Balance, end of year
Accumulated Depreciation
Balance, beginning of year
Depreciation for the year
Disposals
Balance, end of year
Net book value
DECEMBER 31, 2021
DECEMBER 31, 2020
52,539
33,642
(38,469)
47,712
(3,155)
(35,844)
38,469
(530)
47,182
54,840
36,458
(38,759)
52,539
(6,144)
(35,770)
38,759
(3,155)
49,384
During the years ended December 31, 2021 and 2020, the net book value of the lease assets sold or disposed of were nil.
121
10. Property And Equipment
FURNITURE AND
FIXTURES
COMPUTER AND
OFFICE EQUIPMENT
SIGNAGE
LEASEHOLD
IMPROVEMENTS
TOTAL
Cost
December 31, 2019
Additions
Disposals
December 31, 2020
Additions through business acquisition
(note 4)
Additions
Disposals
December 31, 2021
Accumulated Depreciation
December 31, 2019
Depreciation
Disposals
December 31, 2020
Depreciation
Disposals
December 31, 2021
Net Book Value
December 31, 2020
December 31, 2021
9,369
1,651
(294)
10,726
216
893
(10)
11,825
(5,169)
(1,058)
242
(5,985)
(1,100)
8
(7,077)
4,741
4,748
8,376
3,546
(147)
11,775
806
1,306
(9)
13,878
(3,726)
(1,229)
120
(4,835)
(1,911)
9
(6,737)
6,940
7,141
3,407
462
(17)
3,852
-
751
(14)
4,589
(1,976)
(442)
13
(2,405)
(439)
12
(2,832)
1,447
1,757
22,826
8,746
(71)
31,501
3,137
4,865
(5)
43,978
14,405
(529)
57,854
4,159
7,815
(38)
39,498
69,790
(10,100)
(3,268)
61
(13,307)
(4,554)
2
(20,971)
(5,997)
436
(26,532)
(8,004)
31
(17,859)
(34,505)
18,194
21,639
31,322
35,285
As at December 31, 2021, the amount of property and equipment classified as under construction or development and not being amortized
was $1.1 million (2020 – $4.1 million).
Regarding the easyhome CGU, various impairment indicators were used to determine the need to test the CGU for impairment. Examples
of impairment indicators include a significant decline in revenue, performance significantly below budget and expectations of negative
CGU operating income. Where these impairment indicators exist, the carrying value of the assets within a CGU was compared with its
estimated recoverable value, which was generally considered to be the CGU’s value in use. When determining the value in use of a CGU,
the Company developed a discounted cash flow model for the individual CGU. Revenue and cost forecasts were based on actual operating
results, three-year operating budgets consistent with strategic plans presented to the Company’s Board of Directors and a 3% long-
term growth rate. The pre-tax discount rate used on the forecasted cash flows was 14.7%. Where the carrying value of the CGU’s assets
exceeded the recoverable amounts, as represented by the CGU’s value in use, the store’s property and equipment assets were written
down. As at December 31, 2021 and 2020, no impairment on property and equipment was recognized.
For the easyfinancial and LendCare CGUs, it was determined that no indicators of impairment existed that would require an impairment
test on property and equipment.
For the years ended December 31, 2021 and 2020, no net impairment of property and equipment was recognized by the Company.
122
11. Right-Of-Use Assets And Lease Liabilities
December 31, 2019
Additions
Depreciation expense
Interest expense
Interest payment
Lease inducement received
Principal payment
December 31, 2020
Additions through business acquisition (note 4)
Additions
Depreciation expense
Interest expense
Interest payment
Lease inducement received
Principal payment
December 31, 2021
RIGHT-OF-USE ASSETS
PREMISES
VEHICLES
TOTAL
LEASE LIABILITIES
43,419
15,945
(15,339)
-
-
-
-
44,025
1,160
27,554
(17,435)
-
-
-
-
2,728
426
(844)
-
-
-
-
2,310
-
298
(772)
-
-
-
-
46,147
16,371
(16,183)
-
-
-
-
46,335
1,160
27,852
(18,207)
-
-
-
-
55,304
1,836
57,140
52,573
16,371
-
2,744
(2,744)
1,795
(16,837)
53,902
1,160
27,852
-
3,115
(3,115)
1,573
(18,880)
65,607
For the year ended December 31, 2021, the Company recognized rent expense from short-term leases of $1,759 (2020 – $2,433) and
variable lease payments of $12,598 (2020 – $12,061).
12. Intangible Assets And Goodwill
TRADEMARKS
CUSTOMER LISTS
SOFTWARE
SOFTWARE
TOTAL
Cost
December 31, 2019
Additions
December 31, 2020
Additions through business
acquisition (note 4)
Additions
Disposals or write-off
December 31, 2021
Accumulated Amortization
December 31, 2019
Amortization
December 31, 2020
Amortization
Disposals or write-off
December 31, 2021
Net Book Value
December 31, 2020
December 31, 2021
2,088
-
2,088
-
-
-
1,254
-
1,254
-
-
-
2,088
1,254
(1,992)
-
(1,992)
-
-
(1,992)
96
96
(858)
(159)
(1,017)
(116)
-
(1,133)
237
121
34,893
14,268
49,161
3,186
19,634
(3,689)
68,292
(17,636)
(6,614)
(24,250)
(7,982)
1,107
(31,125)
-
-
-
131,000
-
-
131,000
-
-
-
(8,733)
-
(8,733)
24,911
37,167
-
122,267
38,235
14,268
52,503
134,186
19,634
(3,689)
202,634
(20,486)
(6,773)
(27,259)
(16,831)
1,107
(42,983)
25,244
159,651
123
Trademarks are considered indefinite-life intangible assets as there is no foreseeable limit to the period over which the assets are expected
to generate net cash flows.
Included in additions for the year ended December 31, 2021 were $19.6 million (2020 – $14.3 million) of internally developed software
application and website development costs.
For the year ended December 31, 2021, the Company wrote off software in the amount of $2.3 million in conjunction with the integration
of LendCare.
Goodwill was $180.9 million as at December 31, 2021 (2020 – $21.3 million). In April 2021, the Company purchased LendCare resulting in the
recognition of $159.6 million of goodwill (note 4). There were no disposals of goodwill during the years ended December 31, 2021 and 2020.
Goodwill and indefinite-life intangible assets are attributed to the group of CGUs to which they relate. As at December 31, 2021, the carrying
value of goodwill attributed to the easyhome CGU was $21.3 million (2020 – $21.3 million) and $159.6 million (2020 – nil) was attributed
to the LendCare CGU. Impairment testing was performed as at December 31, 2021 and 2020. The impairment test consisted of comparing
the carrying value of assets within the CGU to the recoverable amount of that CGU as measured by discounting the expected future cash
flows using a value in use approach. When determining the value in use of a CGU, the Company developed a discounted cash flow model
for the individual CGU. Revenue and cost forecasts were based on actual operating results, three-year operating budgets consistent with
strategic plans presented to the Company’s Board of Directors and a 3% long-term growth rate for both easyhome and LendCare. The pre-
tax discount rate used on the forecasted cash flows was 14.7% for easyhome and 21.0% for LendCare.
No impairment charges of goodwill or indefinite-life intangible assets were recorded in the years ended December 31, 2021 and 2020.
13. Revolving Credit Facility
On December 7, 2020, goeasy Securitization Trust (the “Trust”), a securitization vehicle controlled and consolidated by the Company, was
established. The Company’s activities include transactions with the Trust, a structured entity, which has been designed to achieve a specific
business objective. A structured entity is one that has been designed so that voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means
of contractual arrangements.
The primary use of the Trust is to provide the Company with funding for its operational needs. The Trust initially entered into a $200 million
Revolving Securitization Warehouse Facility (“Revolving Securitization Warehouse Facility”) with National Bank Financial Markets (“NBFM”), and
as collateral for the drawn amount, consumer loans are sold from easyfinancial Services Inc. into the Trust. The economic exposure associated
with the rights inherent to these consumer loans are controlled by easyfinancial Services Inc. As a result, these consumer loans do not qualify
for derecognition in the Company’s consolidated statements of financial position. The Revolving Securitization Warehouse Facility had an initial
maturity date of December 7, 2023 and beared interest equal to the 1-month Canadian Dollar Offered Rate (“CDOR”) plus 295 bps.
In September 2021, the Company increased its existing revolving securitization warehouse facility to $600 million. The Revolving
Securitization Warehouse Facility continues to be structured and underwritten by NBFM under a new three-year agreement, which
incorporates favourable key modifications, including improvements to eligibility criteria and advance rates. The interest on advances are
payable at the rate of 1-month CDOR plus 185 bps, an improvement of 110 bps.
The following table summarizes the details of the Revolving Securitization Warehouse Facility:
Drawn amount
Unamortized deferred financing costs
DECEMBER 31, 2021
DECEMBER 31,2020
295,000
(2,186)
292,814
-
-
-
As at December 31, 2021, $457.7 million (2020 – nil) of consumer loans receivable were pledged by the Company as collateral for the
drawn amount against its Revolving Securitization Warehouse Facility.
Concurrent with the establishment of the Revolving Securitization Warehouse Facility, the Company entered into derivative financial
instruments (the “interest rate swap”) as a cash flow hedge to protect against the variability of future interest payments by paying a fixed
rate based on the weighted average life of the securitized loans and receiving a variable rate equivalent to 1-month CDOR.
The Company has elected to use hedge accounting for the Revolving Securitization Warehouse Facility and related interest rate swap (i.e.,
the same notional amount, maturity date, and interest payment dates). The Company has established a hedge ratio of 1:1 for the hedging
relationships. To test the hedge effectiveness, the Company uses the hypothetical derivative method and compares the changes in the
fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks. There are no
significant sources of hedge ineffectiveness between the Revolving Securitization Warehouse Facility and interest rate swap. There was
no hedge ineffectiveness recognized in net income for the year ended December 31, 2021.
124
As the Revolving Securitization Warehouse Facility and the interest rate swap are in an effective hedging relationship, changes in the fair
value of the interest rate swap are recorded in OCI and subsequently reclassified into net income upon settlement.
The interest rate swap has an aggregated notional amount equal to the aggregated principal outstanding of the Revolving Securitization
Warehouse Facility. The fair value of the interest rate swap is determined using swap curves adjusted for credit risks. Swap curves are
obtained directly from market sources. The fair value of the interest rate swap is as follows:
DECEMBER 31, 2021
DECEMBER 31,2020
Derivative financial asset
Interest rate swap
1,035
1,035
The financial covenant of the Revolving Securitization Warehouse Facility is as follows:
FINANCIAL COVENANT
REQUIREMENTS
DECEMBER 31,2021
DECEMBER 31, 2020
Minimum consolidated fixed charge coverage ratio
> 2.0
4.83
-
-
-
As at December 31, 2021, the Company was in compliance with its financial covenant under the terms of the Revolving Securitization
Warehouse Facility.
14. Secured Borrowings
The Company’s also securitizes consumer loans through non-structured third parties. The economic exposure associated with the rights
inherent to these consumer loans are retained by the Company. As a result, these consumer loans do not qualify for derecognition in the
Company’s consolidated statements of financial position and Secured Borrowings are recognized for the cash proceeds received.
The Company has the following securitization facilities with non-structured third parties:
• A $105 million securitization facility (“$105 million Securitization Facility”), which bears interest at the Government of Canada
Bonds (“GOCB”) rate (with a floor rate of 0.95%) plus 395 bps. The loan sale agreement to sell loans into the facility expired on
July 31, 2021. The balance of the loans that were sold into the facility will amortize down based on their contractual time to
maturity; and
• An $85 million securitization facility (“$85 million Securitization Facility”), which bears interest at the GOCB rate (with a floor rate
of 0.25%) plus 325 bps. In addition to the securitization loan facility, there is a $6 million accumulation loan agreement which
advances 85% of the face value of consumer loans for up to a 90-day period, bearing interest rate at the Canadian Bankers’
Acceptance rate (“BA”) plus 400 bps. The loan sale agreement to sell loans into the facility expired on November 30, 2021. The
balance of the loans that were sold into the facility will amortize down based on their contractual time to maturity.
As at December 31, 2021, the drawn amount against the Secured Borrowings was $174.0 million.
As at December 31, 2021, $171.3 million consumer loans receivable was pledged by the Company as collateral for these Secured
Borrowings.
The financial covenants on the Secured Borrowings of the $105 million Securitization Facility are as follows:
FINANCIAL COVENANT
Minimum LCI tangible net worth
REQUIREMENTS
DECEMBER 31, 2021
>20,000
70,027
The financial covenants on the Secured Borrowings of the $85 million Securitization Facility are as follows:
FINANCIAL COVENANT
Minimum LCI tangible net worth
Maximum LCI leverage ratio
REQUIREMENTS
DECEMBER 31, 2021
>30,000
< 9.00
75,919
6.79
As at December 31, 2021, the Company was in compliance with its financial covenants for all Secured Borrowings.
125
15. Revolving Credit Facility
The Company’s Revolving Credit Facility consists of a $310 million senior secured revolving credit facility maturing on February 12, 2022. The
Revolving Credit Facility is provided by a syndicate of banks. The Company also has the ability to exercise the accordion feature under its Revolving
Credit Facility to add an additional $75 million in borrowing capacity. Interest on advances is payable at either the BA plus 300 bps or the lender’s
prime rate (“Prime”) plus 200 bps, at the option of the Company.
The following table summarizes the details of the Revolving Credit Facility:
Drawn amount
Unamortized deferred financing costs
The financial covenants of the Revolving Credit Facility were as follows:
DECEMBER 31, 2021
DECEMBER 31,2020
-
-
-
200,000
(1,661)
198,339
FINANCIAL COVENANT
REQUIREMENTS AS AT
DECEMBER 31, 2021
DECEMBER 31,
2021
REQUIREMENTS AS AT
DECEMBER 31, 2020
DECEMBER 31,
2020
Minimum consolidated tangible net worth
Maximum consolidated leverage ratio
Minimum consolidated fixed charge coverage ratio
Maximum net charge off ratio
Minimum collateral performance index
>132,000, plus 50% of
consolidated net income
$472,917
>132,000, plus 50% of
consolidated net income
< 4.25
> 1.75
< 15.0%
> 90.0%
3.23
2.41
9.0%
99.2%
< 3.25
> 1.75
< 15.0%
> 90.0%
$384,692
2.26
2.77
10.0%
100.1%
As at December 31, 2021 and 2020, the Company was in compliance with its financial covenants under its Revolving Credit Facility agreements.
16. Convertible Debentures
In June 2017, the Company issued $53.0 million of 5.75% convertible unsecured subordinated debentures, with interest payable semi-
annually on January 31 and July 31 each year, commencing on January 31, 2018 (the “Debentures”). The Debentures had a maturity date
of July 31, 2022 and were convertible at the holder’s option into common shares of the Company at a conversion price of $43.36 per share.
On and after July 31, 2020, and prior to July 31, 2021, the Debentures could be redeemed in whole or in part from time to time and with proper
notice by the Company, provided that the volume-weighted average trading price of the common shares on the TSX for the 20 consecutive
trading days prior to the 5th trading day before redemption notification date was not less than 125% of the conversion price. On or after July
31, 2021, the Company could redeem with proper notice the Debentures for the principal amount plus accrued and unpaid interest.
On July 31, 2020 (the "Redemption Date"), the Company redeemed all Debentures that remained unconverted on that date in accordance
with the notice of redemption to the holders of its Debentures issued on June 29, 2020. The Debentures were redeemed at a redemption
price equal to their principal amount, plus accrued and unpaid interest thereon up to, but excluding, the Redemption Date. On the
Redemption Date, the Company redeemed $2.4 million aggregate principal amount of Debentures that remained unconverted on that date
and the Debentures were subsequently de-listed from the TSX.
The following table summarizes the details of the convertible debentures:
Balance, beginning of the year
Accretion in carrying value of debenture liability
Redemption of Debentures in cash (net of $118 unamortized deferred financing costs)
Conversion of Debentures to equity (net of $2,650 unamortized deferred financing costs)
Balance, end of the year
DECEMBER 31,
2021
DECEMBER 31,
2020
-
-
-
-
-
40,656
632
(2,309)
(38,979)
-
During the year ended December 31, 2020, $41,629 of Debentures were converted into 959,983 common shares.
126
17. Notes Payable
On November 27, 2019, the Company issued USD550.0 million of 5.375% senior unsecured notes payable (the “2024 Notes”) with interest payable
semi-annually on June 1 and December 1 of each year and commencing on June 1, 2020. The 2024 Notes mature on December 1, 2024 and include
certain prepayment features.
Concurrent with the issuance of the 2024 Notes, the Company entered into derivative financial instruments (the “2024 cross-currency swaps”) as
cash flow hedges to hedge the risk of changes in the foreign currency exchange rate for the proceeds from the offering and for all required payments
of principal and interest under the 2024 Notes at a fixed exchange rate of USD1.000 = CAD1.3242, thereby fully hedging the USD550.0 million 2024
Notes at a CAD interest rate of 5.65%. The 2024 cross-currency swaps fully hedge the obligation under the 2024 Notes.
The following table summarizes the details of the Notes Payable:
Notes Payable in CAD at issuance
Change in fair value of Notes Payable since issuance date due to
changes in foreign exchange rate
Unamortized deferred financing costs
DECEMBER 31, 2021
DECEMBER 31,2020
728,310
(33,275)
695,035
(8,063)
686,972
728,310
(28,380)
699,930
(10,520)
689,410
On April 29, 2021, the Company issued USD320.0 million of 4.375% senior unsecured notes payable (“2026 Notes”) (the 2024 Notes and
2026 Notes are collectively referred to as “Notes Payable”) with interest payable semi-annually on May 1 and November 1 of each year,
commencing November 1, 2021. The 2026 Notes mature on May 1, 2026 and include certain prepayment features.
Concurrent with the issuance of the 2026 Notes, the Company entered into derivative financial instruments (the “2026 cross-currency swaps”)
(the 2024 cross-currency swaps and 2026 cross-currency swaps are collectively referred to as the “cross-currency swaps”) as cash flow
hedges to hedge the risk of changes in the foreign currency exchange rate for the proceeds from the offering and for all required payments
of principal and interest under the 2026 Notes at a fixed exchange rate of USD1.000 = CAD1.2501, thereby fully hedging the USD320.0 million
2026 Notes at a CAD interest rate of 4.818%. The 2026 cross-currency swaps fully hedge the obligation under the 2026 Notes.
The following table summarizes the details of the 2026 Notes:
DECEMBER 31, 2021
2026 Notes in CAD at issuance
Change in fair value of 2026 Notes since issuance date due to changes in foreign exchange rate
Unamortized deferred financing costs
The following table summarizes the total carrying value of Notes Payable:
2024 Notes
2026 Notes
DECEMBER 31, 2021
DECEMBER 31,2020
686,972
398,934
1,085,906
400,032
4,352
404,384
(5,450)
398,934
689,410
-
689,410
The Company has elected to use hedge accounting for the Notes Payable and the cross-currency swaps (i.e., the same notional amount,
maturity date, interest rate, and interest payment dates). The Company has elected to designate foreign currency basis as a cost of hedging,
thereby excluding foreign currency basis spreads from the designation of the hedging relationship, and has established a hedge ratio of 1:1
for the hedging relationships as the underlying risk of the foreign exchange contracts is identical to the hedged risk components. To test
the hedge effectiveness, the Company uses the hypothetical derivative method and compares the changes in the fair value of the hedging
instruments against the changes in fair value of the hedged items attributable to the hedged risks. There are no significant sources of
hedge ineffectiveness between the Notes Payable and cross-currency swaps. There was no hedge ineffectiveness recognized in net
income for the years ended December 31, 2021 and 2020.
127
As the Notes Payable and the cross-currency swaps are in an effective hedging relationship, changes in the fair value of the cross-
currency swaps is recorded in OCI and subsequently reclassified into net income to offset the effect of foreign currency exchange rates
related to the Notes Payable recognized in net income. The amount of the foreign currency basis spread at inception, designated as a cost
of hedging, is amortized in net income on a straight-line basis over the life of the Notes Payable.
The cross-currency swaps have an aggregated notional amount equal to the aggregated principal outstanding of the hedged Notes Payable.
The fair value of cross-currency swaps is determined using swap curves adjusted for credit risks. Swap curves are obtained directly from
market sources. The fair value of the cross-currency swaps are as follows:
Derivative financial liabilities
2024 Cross-currency swaps
Derivative financial assets
2026 Cross-currency swaps
18. Share Capital
AUTHORIZED CAPITAL
DECEMBER 31, 2021
DECEMBER 31,2020
(34,132)
12,620
(21,512)
(36,910)
-
(36,910)
The authorized capital of the Company consisted of an unlimited number of common shares with no par value and an unlimited number
of preference shares.
Each common share represents a shareholder’s proportionate undivided interest in the Company. Each common share confers to its
holder the right to one vote at any meeting of shareholders and to participate equally and rateably in any dividends of the Company. The
common shares are listed for trading on the TSX.
COMMON SHARES ISSUED AND OUTSTANDING
The changes in common shares issued and outstanding are summarized as follows:
Balance, beginning of the year
Share issuance
Share issuance costs, net of tax
Exercise of stock options
Exercise of RSUs
Dividend reinvestment plan
Shares purchased for cancellation
Conversion of Debentures
Balance, end of the year
DECEMBER 31, 2021
DECEMBER 31, 2020
# OF SHARES
(IN 000S)
$
# OF SHARES
(IN 000S)
$
14,801
1,486
-
164
75
6
(333)
-
16,199
181,753
184,358
(6,034)
7,326
2,904
807
(7,600)
-
363,514
14,346
141,956
-
-
47
199
17
(768)
960
14,801
-
-
1,121
7,070
834
(8,207)
38,979
181,753
$172.5 MILLION BOUGHT DEAL EQUITY OFFERING
In connection with the Acquisition (note 4), on April 16, 2021, the Company closed its bought deal equity offering of 1,404,265 subscription
receipts of the Company (“Subscription Receipts”) (including 183,165 Subscription Receipts issued pursuant to the exercise in full by the
syndicate of underwriters of the over-allotment option granted by the Company), at a price of $122.85 per Subscription Receipt, for gross
aggregate proceeds of $172.5 million (the “Offering”). The Subscription Receipts issued pursuant to the Offering commenced trading on
the TSX on April 16, 2021 under the ticker symbol GSY.R. As a result of the completion of the Acquisition on April 30, 2021, each of the
1,404,265 outstanding Subscription Receipts were automatically exchanged for one common share of the Company. The Subscription
Receipts were delisted from the TSX after the close of market on April 30, 2021.
128
SHARE CONSIDERATION FOR THE ACQUISITION OF LENDCARE
As share consideration for the Acquisition of LendCare (note 4), the Company issued 81,400 common shares to LendCare’s founders valued
at $11.8 million, calculated with reference to the closing price of the Company’s common shares on the Acquisition Date.
DIVIDENDS ON COMMON SHARES
For the year ended December 31, 2021, the Company paid dividends of $38.3 million (2020 – $23.9 million) or $2.430 per share (2020 –
$1.660 per share). On November 3, 2021, the Company declared a dividend of $0.66 per share to shareholders of record on December 31,
2021, payable on January 14, 2022. The dividend paid on January 14, 2022 was $10.7 million.
SHARES PURCHASED FOR CANCELLATION
During the year ended December 31, 2021, the Company purchased and cancelled 333,315 (2020 – 767,855) of its common shares on the
open market at an average price of $186.86 (2020 – $55.18) per share for a total cost of $62.3 million (2020 – $42.4 million) pursuant to
a normal course issuer bid. This normal course issuer bid expired on December 20, 2021. The normal course issuer bid was renewed on
December 14, 2021, which allows for a total purchase of up to 1,243,781 common shares and expires on December 20, 2022.
19. Stock-Based Compensation
SHARE OPTION PLAN
Under the Company’s share option plan, options to purchase common shares may be granted by the Board of Directors to directors,
officers and employees. Options are generally granted at exercise prices equal to the fair market value at the grant date, vest at the end of
a three-year period based on earnings per share targets and have exercise lives of five years.
Outstanding balance, beginning of year
Options granted
Options exercised
Options forfeited or expired
Outstanding balance, end of year
Exercisable balance, end of year
DECEMBER 31, 2021
DECEMBER 31, 2020
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
EXERCISE PRICE
$
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
EXERCISE PRICE
$
577
65
(165)
-
477
144
36.07
119.39
34.85
-
47.20
32.44
472
181
(47)
(29)
577
-
33.67
37.81
18.81
35.62
36.07
-
Outstanding options to officers and employees as at December 31, 2021 were as follows:
OUTSTANDING
EXERCISABLE
RANGE OF
EXERCISE
PRICES
$
32.37 - 49.99
50.00 - 99.99
100.00 - 149.99
150.00 - 159.61
32.37 - 159.61
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
REMAINING
CONTRACTUAL LIFE IN
YEARS
WEIGHTED AVERAGE
EXERCISE PRICE
$
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
EXERCISE PRICE
$
412
5
50
10
477
2.11
3.12
4.13
4.51
2.39
36.56
64.07
111.83
156.60
47.20
144
-
-
-
144
32.44
-
-
-
32.44
The Company uses the fair value method of accounting for stock options granted to employees. During the year ended December 31, 2021,
the Company recorded an expense of $2.0 million (2020 – $1.2 million) in stock-based compensation expense related to its stock option
plan in the consolidated statements of income, with a corresponding adjustment to contributed surplus.
129
Options granted in 2021 and 2020 were determined using the Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate (% per annum)
Expected hold period to exercise (years)
Volatility in the price of the Company’s shares (%)
Dividend yield (%)
RESTRICTED SHARE UNIT (“RSU”) PLAN
2021
2020
0.33
4.75
49.95
2.00
0.75
4.75
47.51
5.00
Under the Company’s RSU Plan, RSUs may be granted by the Board of Directors to employees of the Company. RSUs are granted at fair
market value at the grant date and generally vest at the end of a three-year period based on long-term targets.
Outstanding balance, beginning of year
RSUs granted
RSU dividend reinvestments
RSUs exercised
RSUs forfeited
Outstanding balance, end of year
DECEMBER 31, 2021
DECEMBER 31, 2020
# OF RSUs
(IN 000S)
WEIGHTED AVERAGE
FAIR VALUE AT
GRANT DATE
$
# OF RSUs
(IN 000S)
WEIGHTED AVERAGE
FAIR VALUE AT
GRANT DATE
$
270
86
4
(87)
(10)
263
46.11
127.63
112.33
38.07
48.74
76.33
401
100
8
(199)
(40)
270
41.34
40.97
54.05
35.53
39.66
46.11
For the year ended December 31, 2021, $4.5 million (2020 – $3.8 million) was recorded as an expense in stock-based compensation expense
related to the Company’s RSU program in the consolidated statements of income with a corresponding adjustment to contributed surplus.
DEFERRED SHARE UNIT (“DSU”) PLAN
During the year ended December 31, 2021, the Company granted 14,352 DSUs (2020 – 32,246 DSUs) to directors under its DSU Plan. DSUs
are granted at fair market value at the grant date and vest immediately upon grant. For the year ended December 31, 2021, $2.3 million (2020
– $2.6 million) was recorded as stock-based compensation expense under the DSU Plan in the consolidated statements of income with a
corresponding adjustment to contributed surplus. Additionally, for the year ended December 31, 2021, an additional 4,667 DSUs (2020 – 8,011
DSUs) were granted as a result of dividends reinvested. During the year ended December 31, 2021, no DSUs were settled. In 2020, 28,028
DSUs were settled for $2.0 million.
CONTRIBUTED SURPLUS
The following is a continuity of the activity in the contributed surplus account:
DECEMBER 31, 2021
DECEMBER 31, 2020
Contributed surplus, beginning of year
Equity-settled stock-based compensation expense
Restricted share units
Deferred share units
Stock options
Conversion of convertible debentures
Reduction due to exercise of stock-based compensation
Restricted share units
Stock options
Deferred share units
Contributed surplus, end of year
130
19,732
4,544
2,339
1,992
-
(4,431)
(1,593)
-
22,583
20,296
3,820
2,574
1,181
1,168
(7,065)
(242)
(2,000)
19,732
20. Interest Expense And Amortization Of Deferred Financing Charges
Interest expense and amortization of deferred financing charges under finance costs in the consolidated statements of income include
the following:
DECEMBER 31, 2021
DECEMBER 31, 2020
Interest expense
Notes payable
Revolving securitization warehouse facility
Secured borrowings
Revolving credit facility
Convertible debt
Amortization of deferred financing costs and accretion expense
Loan commitment fees (note 4)
Interest income on cash in bank, net
21. Income Taxes
The Company’s income tax expense was determined as follows:
Combined basic federal and provincial income tax rates
Expected income tax expense
Non-deductible acquisition transaction costs
Non-deductible expenses
Effect of capital gains on sale of assets and investments
Other
54,106
6,441
5,674
2,897
-
5,655
1,726
(589)
75,910
DECEMBER 31, 2021
DECEMBER 31, 2020
26.6%
84,283
1,998
1,293
(15,221)
(442)
71,911
The significant components of the Company’s income tax expense are as follows:
DECEMBER 31, 2021
DECEMBER 31, 2020
Current income tax:
Current income tax charge
Adjustments in respect of prior years and other
Deferred income tax:
Relating to origination and reversal of temporary differences
74,017
(273)
73,744
(1,833)
71,911
Deferred tax related to items recognized in OCI during the year are summarized below:
Change in fair value of cash flow hedge
Change in costs of hedging
Deferred tax expense (recovery) charged to OCI
3,704
(575)
3,129
DECEMBER 31, 2021
DECEMBER 31, 2020
41,150
-
-
5,866
1,409
4,338
-
(515)
52,248
26.6%
48,727
-
1,119
(2,891)
(276)
46,679
37,482
(4,441)
33,041
13,638
46,679
(240)
(1,335)
(1,575)
131
The changes in deferred tax assets (liabilities) are as follows:
Balance, beginning of the year
Tax recovery (expense) during the year recognized in profit or loss
Tax (expense) recovery during the year recognized in OCI
Deferred taxes in business acquisition (note 4)
Tax on share issuance costs
Tax on the equity component of Debentures
Balance, end of the year
DECEMBER 31, 2021
DECEMBER 31, 2020
4,066
1,833
(3,129)
(43,088)
1,670
-
(38,648)
The significant components of the Company’s deferred tax (liabilities) assets are as follows:
DECEMBER 31, 2021
DECEMBER 31, 2020
Financing fees
Amounts receivable and allowance for credit losses
Stock-based compensation
Loss carry forwards
Right-of-use assets, net of lease liabilities
Revaluation of Notes Payable and derivative financial instruments
Unrealized fair value gains on investments
Tax cost of lease assets and property and equipment in excess of
net book value
Intangible asset arising from business acquisition (note 4)
Others
3,578
3,312
1,874
1,467
1,230
(868)
(7,015)
(10,165)
(32,401)
340
(38,648)
14,961
(13,638)
1,575
-
-
1,168
4,066
4,593
4,933
1,551
182
1,184
2,261
(2,880)
(8,062)
-
304
4,066
As at December 31, 2021 and 2020, there were no recognized deferred tax liabilities for taxes that would be payable on the undistributed
earnings of the Company’s subsidiaries.
22. Earnings Per Share
BASIC EARNINGS PER SHARE
Basic earnings per share amounts were calculated by dividing the net income for the year by the weighted average number of ordinary
shares and DSUs outstanding. DSUs were included in the calculation of the weighted average number of ordinary shares outstanding as
these units vest upon grant.
Net income
Weighted average number of ordinary shares outstanding (in 000s)
Basic earnings per ordinary share
244,943
16,200
15.12
136,505
14,817
9.21
For the year ended December 31, 2021, 274,735 DSUs (2020 – 254,200 DSUs) were included in the weighted average number of ordinary
shares outstanding.
DECEMBER 31, 2021
DECEMBER 31, 2020
DILUTED EARNINGS PER SHARE
Diluted earnings per share reflect the potential dilutive effect that could occur if additional common shares were assumed to be issued under
securities or instruments that may entitle their holders to obtain common shares in the future. Dilution could occur through the exercise of
stock options or the exercise of RSUs, or the exercise of the conversion option of the convertible debentures. The number of additional shares
for inclusion in the diluted earnings per share calculation was determined using the treasury stock method. On July 31, 2020, the Company
redeemed all Debentures that remained unconverted on that date. For the year ended December 31, 2020, the convertible debentures were
dilutive. Therefore, diluted earnings per share is calculated based on a fully diluted net income (adjusted for the after-tax financing cost
associated with the convertible debentures) and including the shares to which those debentures could be converted.
132
Net income
After tax impact of convertible debentures
Fully diluted net income
Weighted average number of ordinary shares outstanding (in 000s)
Dilutive effect of stock-based compensation (in 000s)
Dilutive effect of convertible debentures (in 000s)
Weighted average number of diluted shares outstanding (in 000s)
Dilutive earnings per ordinary share
DECEMBER 31, 2021
DECEMBER 31, 2020
244,943
-
244,943
16,200
557
-
16,757
14.62
136,505
1,586
138,091
14,817
376
564
15,757
8.76
For the year ended December 31, 2021, 10,076 stock options to acquire common shares (2020 – nil) were considered anti-dilutive using
the treasury stock method and therefore excluded in the calculation of diluted earnings per share.
23. Net Change In Other Operating Assets And Liabilities
The net change in other operating assets and liabilities was as follows:
Amounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes payable
Unearned revenue
Accrued interest
DECEMBER 31, 2021
DECEMBER 31, 2020
(1,834)
5,785
4,064
19,506
732
4,973
33,226
8,703
(5,928)
4,296
9,710
2,540
(1,760)
17,561
Supplemental disclosures in respect of the consolidated statements of cash flows comprised the following:
Income taxes paid
Income taxes refunded
Interest paid
Interest received
DECEMBER 31, 2021
DECEMBER 31, 2020
54,846
1,184
64,094
535,601
25,534
2,203
50,111
409,887
24. Commitments And Guarantees
The Company has technology commitments and operating leases for premises and vehicles. Some of the Company’s lease contracts for
premises include extension options. Management exercises significant judgement in determining whether these extension options are
reasonably certain to be exercised. As at December 31, 2021, no extension option for lease contracts for premises is expected to be exercised.
The undiscounted potential future lease payments for operating leases for premises and vehicles and the estimated operating costs
related to technology commitments required for the next five years and thereafter are as follows:
Premises
Vehicles
Technology commitments
WITHIN 1 YEAR
AFTER 1 YEAR, BUT NOT
MORE THAN 5 YEARS
MORE THAN 5 YEARS
21,210
710
19,939
41,859
45,212
1,358
23,095
69,665
4,400
45
-
4,445
133
25. Contingencies
The Company was involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not
expected to have a material adverse effect on the Company’s financial position, financial performance or cash flows.
The Company has agreed to indemnify its directors and officers and particular employees in accordance with the Company’s policies. The
Company maintains insurance policies that may provide coverage against certain claims.
26. Capital Risk Management
The Company manages its capital to maintain its ability to continue as a going concern and to provide adequate returns to shareholders
by way of share appreciation and dividends. The capital structure of the Company consists of debt facilities (revolving credit facility,
Revolving Securitization Warehouse Facility and secured borrowings), Notes Payable and shareholders’ equity, which includes share
capital, contributed surplus, accumulated OCI and retained earnings.
The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval
from its Board of Directors, will balance its overall capital structure through new share issues, share repurchases, the payment of
dividends, increasing or decreasing drawn amounts against the Company’s debt facilities and Notes Payable or by undertaking other
activities as deemed appropriate under specific circumstances. The Company’s strategy, objectives, measures, definitions and targets
have not changed significantly in the past year.
The Company has externally imposed capital requirements as governed through its financing facilities. These requirements are to ensure
the Company continues to operate in the normal course of business and to ensure the Company manages its debt relative to net worth.
The capital requirements are congruent with the Company’s management of capital.
The Company monitors capital on the basis of the financial covenants of its financing facilities.
For the years ended December 31, 2021 and 2020, the Company was in compliance with all of its externally imposed financial covenants.
27. Financial Risk Management
OVERVIEW
The Company’s activities are exposed to a variety of financial risks: credit risk, liquidity risk, interest rate risk and currency risk. The
Company’s overall risk management program focuses on the unpredictability of financial and economic markets and seeks to minimize
potential adverse effects on the Company’s financial performance.
CREDIT RISK
Credit risk is the risk of loss that arises when a customer or counterparty fails to pay an amount owing to the Company.
The maximum exposure to credit risk is represented by the carrying amount of the amounts receivable, consumer loans receivable
and lease assets with customers under merchandise lease agreements. The Company makes consumer loans and leases products to
thousands of customers pursuant to policies and procedures that are intended to ensure that there is no concentration of credit risk
with any particular individual, company or other entity, although the Company is subject to a higher level of credit risk due to the credit
constrained nature of many of the Company’s customers and in circumstances where its policies and procedures are not complied with.
The credit risk on the Company’s consumer loans receivable made in accordance with policies and procedures is impacted by FLIs. The
analysis performed by the Company determined that the rate of inflation and rate of unemployment were positively correlated with the
Company’s historic loss rates while oil prices and the rate of GDP were negatively correlated with the Company’s historic loss rates.
In calculating the allowance for credit losses, internally developed models were used, which factor in credit risk related parameters
including the probability of default, the exposure at default, the loss given default, and other relevant risk factors. As part of the process,
for the year ended December 31, 2020, three forward-looking scenarios were generated – 1) neutral, 2) optimistic, and 3) pessimistic –
based on forecasting degrees of change in the macroeconomic variables (GDP, unemployment rates, inflation rates, and oil prices) within
a 12-month period. For the year ended December 31, 2021, five forward-looking scenarios were generated – 1) neutral, 2) moderately
optimistic, 3) extremely optimistic, 4) moderately pessimistic, and 5) extremely pessimistic – based on forecasting degrees of change
in the macroeconomic variables (GDP, unemployment rates, inflation rates, and oil prices) within a 12-month period. Judgment is then
applied by management to assign probabilistic weightings to these scenarios to determine a probability weighted allowance for credit
losses as at the reporting date. The proposed macroeconomic forecasts and probability weightings are then subject to robust internal
review and analysis by management to arrive at a collective view on the likelihood for each scenario. Refer to note 7 for additional details
on the allowance for credit losses. As at December 31, 2021, the Company’s gross consumer loans receivable portfolio was $2.03 billion
(2020 – $1. 25 billion). Net charge offs expressed as a percentage of the average loan book were 8.8% for the year ended December 31,
2021 (2020 – 10.0%).
The credit risk related to lease assets with customer’s results from the possibility of customer default with respect to agreed upon
payments or in not returning the lease assets. The Company has a standard collection process in place in the event of payment default,
which includes the recovery of the lease asset if satisfactory payment terms cannot be worked out with the customer, as the Company
134
maintains ownership of the lease assets until payment options are exercised. As at December 31, 2021, the Company’s lease assets were
$47.2 million (2020 – $49.4 million). Lease asset losses for the year ended December 31, 2021 represented 2.5% (2020 – 2.4%) of total
revenue for the easyhome segment.
For amounts receivable from third parties, the risk relates to the possibility of default on amounts owing to the Company. The Company
deals with credible companies, performs ongoing credit evaluations of counterparties and consumers and creates an allowance for
uncollectible amounts when determined to be appropriate.
LIQUIDITY RISK
The Company addresses liquidity risk management by maintaining sufficient availability of funding through its financing facilities. The
Company manages its cash resources based on financial forecasts and anticipated cash flows, which are periodically reviewed with the
Company’s Board of Directors.
The Company believes that the cash flow provided by operations and funds available from the credit facilities will be sufficient in the near term
to meet operational requirements, purchase lease assets, meet capital spending requirements and pay dividends. In addition, the incremental
financing obtained through the Revolving Securitization Warehouse Facility in 2021 will allow the Company to continue growing its consumer
loans receivable portfolio into the fourth quarter of 2023 based on the Company’s organic growth assumptions. In order for the Company to
achieve the full growth opportunities available, however, additional sources of financing over and above the currently available credit facilities
will be required in the future. There is no certainty that these long-term sources of capital will be available or at terms favourable to the Company.
The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:
DECEMBER 31, 2021
Accounts payable and accrued liabilities
Accrued interest
Revolving securitization warehouse facility
Secured borrowings
Derivative financial liabilities
Notes payable
DECEMBER 31, 2020
Accounts payable and accrued liabilities
Accrued interest
Revolving credit facility
Derivative financial liabilities
Notes payable
INTEREST RATE RISK
LESS THAN 6
MONTHS
6 TO 12
MONTHS
1 TO 5
YEARS
5 YEARS +
TOTAL
57,134
8,135
-
-
-
-
-
-
295,000
-
-
-
57,134
8,135
295,000
19,129
19,598
125,715
4,936
169,378
-
-
LESS THAN 6
MONTHS
6 TO 12
MONTHS
46,065
2,598
-
-
-
-
-
-
-
-
-
-
34,132
1,099,419
1 TO 5
YEARS
5 YEARS +
-
-
200,000
36,910
699,930
-
-
-
-
-
-
-
34,132
1,099,419
TOTAL
46,065
2,598
200,000
36,910
699,930
Interest rate risk measures the Company’s risk of financial loss due to adverse movements in interest rates. As at December 31, 2021,
the Notes Payable had a fixed rate of interest.
The revolving credit facility has a variable interest rate at either the BA rate plus 300 bps or the Prime rate plus 200 bps, at the option
of the Company. The Company does not hedge interest rates on the revolving credit facility. Accordingly, future changes in interest rates
will affect the amount of interest expense payable by the Company to the extent that draws are made on the variable rate revolving credit
facility. As at December 31, 2021, the Company’s has no drawn amount against its $310 million revolving credit facility.
The Revolving Securitization Warehouse Facility has a variable interest rate at 1-month CDOR plus 185 bps. The Company entered into an
interest rate swap agreement as a cash flow hedge to protect itself against the variability of future interest payments by paying a fixed
rate based on the weighted average life of the securitized loans and receiving variable rate equivalent to 1-month CDOR.
The $105 million Securitization Facility bears interest at the GOCB rate (with a floor rate of 0.95%) plus 395 bps and the $85 million Securitization
Facility bears interest at the GOCB (with a floor rate of 0.25%) plus 325 bps. The loan sale agreements to sell loans into these facilities expired in
2021. The balance of the loans that were sold into the facility will amortize down based on their contractual time to maturity.
As at December 31, 2021, 100% (2020 – 78%) of the Company’s drawn debt balances effectively bear fixed rates due to the type of debt
and the aforementioned interest rate swap agreement on the Revolving Securitization Warehouse Facility.
135
CURRENCY RISK
Currency risk measures the Company’s risk of financial loss due to adverse movements in currency exchange rates.
On November 27, 2019, the Company issued the 2024 Notes with a USD coupon rate of 5.375% and on April 29, 2021, the Company
issued the 2026 Notes with a USD coupon rate of 4.375%. Concurrent with these offerings, the Company entered into currency swap
agreements to hedge the risk of changes in the foreign exchange rate for the proceeds from the offerings and for all required payments
of principal and interest under these notes effectively hedging the obligation. The hedge is designed to match the cash flow obligations
of the Company under the Notes Payable.
The Company sources a portion of the assets it leases in Canada from U.S. suppliers. As a result, the Company had foreign exchange
transaction exposure. These purchases were funded using the spot rate prevailing at the date of purchase. Pricing to customers can be
adjusted to reflect changes in the CAD landed cost of imported goods and, as such, there is not a material foreign currency transaction
exposure.
28. Financial Instruments
RECOGNITION AND MEASUREMENT OF FINANCIAL INSTRUMENTS
The Company classified its financial instruments as follows:
FINANCIAL INSTRUMENTS
Cash
Amounts receivable
Consumer loans receivable
Investments
Derivative financial assets
Accounts payable and accrued liabilities
Accrued interest
Revolving credit facility
Secured borrowings
Revolving securitization warehouse facility
Derivative financial liabilities
Notes payable
FAIR VALUE MEASUREMENT
MEASUREMENT
Fair value
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Amortized cost
DECEMBER 31, 2021
DECEMBER 31, 2020
102,479
20,769
1,899,631
64,441
20,634
57,134
8,135
-
173,959
292,814
34,132
1,085,906
93,053
9,779
1,152,378
56,040
-
46,065
2,598
198,339
-
-
36,910
689,410
All assets and liabilities for which fair value was measured or disclosed in the consolidated financial statements were categorized within
the fair value hierarchy, described as follows, based on the lowest level input that was significant to the fair value measurement as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The hierarchy required the use of observable market data when available. The following table provides the fair value measurement
hierarchy of the Company’s financial assets and liabilities measured as at December 31, 2021 and 2020:
DECEMBER 31, 2021
Cash
Amounts receivable
Consumer loans receivable
Investments
Derivative financial asset
Accounts payable and accrued liabilities
Accrued interest
Secured borrowings
Revolving securitization warehouse facility
Derivative financial liabilities
Notes payable
TOTAL
LEVEL 1
LEVEL 2
LEVEL 3
102,479
20,769
1,899,631
64,441
20,634
57,134
8,135
173,959
292,814
34,132
1,085,906
102,479
-
-
53,941
-
-
-
-
-
-
-
-
-
-
-
20,634
-
-
-
34,132
-
-
20,769
1,899,631
10,500
-
57,134
8,135
173,959
292,814
-
1,085,906
136
DECEMBER 31, 2020
Cash
Amounts receivable
Consumer loans receivable
Investments
Accounts payable and accrued liabilities
Accrued interest
Revolving credit facility
Derivative financial liabilities
Notes payable
TOTAL
LEVEL 1
LEVEL 2
LEVEL 3
93,053
9,779
1,152,378
56,040
46,065
2,598
198,339
36,910
689,410
93,053
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,910
-
-
9,779
1,152,378
56,040
46,065
2,598
198,339
-
698,410
There were no transfers between Level 1, Level 2, or Level 3 during the current or prior year.
29. Related Party Transactions
Key management personnel includes all directors and corporate officers. The following summarizes the expense related to key
management personnel during the year.
Short-term employee benefits including salaries
Share-based payment transactions
DECEMBER 31, 2021
DECEMBER 31, 2020
6,462
5,847
12,309
4,694
5,473
10,167
30. Segmented Reporting
For management reporting purposes, the Company has two reportable operating segments:
• The easyfinancial operating segment lends out capital in the form of unsecured and secured consumer loans to non-prime borrowers.
easyfinancial’s product offering consists of unsecured and real estate secured installment loans. The LendCare operating segment specializes
in financing consumer purchases in the powersports, automotive, retail, healthcare, and home improvement categories. The majority of
LendCare loans are secured by personal property or a Notice of Security Interest. The Company aggregates operations of easyfinancial and
LendCare into one reportable operating segment called easyfinancial, on the basis of their similar economic characteristics, customer profile,
nature of products, and regulatory environment. This aggregation most accurately reflects the nature and financial results of the business
activities in which the Company engages, and the broader economic and regulatory environment in which it operates.
The Company’s chief operating decision maker (“CODM”), which has been determined by the Company to be the Chief Executive Officer, utilizes
the same key performance indicators to allocate resources and assess the performance of the operating segments. The CODM uses several
metrics to evaluate the performance of the operating segments, including but not limited to, the volume of consumer loan originations and
the risk-adjusted margin of the businesses (comprising the yield on the consumer loan portfolios net of the annualized loss rates). These
key financial and performance indicators, which are used to assess results, manage trends and allocate resources to each of the operating
segments, have been, and are expected to remain, similar. In addition, the Company will gradually centralize and share some of the common
functions such as finance and certain aspects of human resources and information technology.
The customers served by the easyfinancial and LendCare operating segments are Canadian consumers, the majority of whom are classified
as non-prime borrowers and seeking alternative financial solutions to those of a traditional bank. These consumers actively use a wide range
of financial products and will migrate across the products offered in each segment. Furthermore, the nature of products sold by each of the
operating segments and the distribution methods of those products are similar. Both the easyfinancial and LendCare operating segments offer
unsecured and secured instalment loans, which are offered through a retail network of branches or merchant partnerships, and complemented
by an online digital platform. In addition, both operating segments are subject to the same federal and provincial legislations and regulations
applicable to the consumer lending industry.
• The easyhome reportable operating segment provides leasing services for household furniture, appliances and electronics and unsecured
lending products to retail consumers.
The Company’s business units generate revenue in four main categories: i) interest generated on the Company’s gross consumer loans receivable
portfolio; ii) lease payments generated by easyhome lease agreements; iii) commissions and other revenues generated by the sale of various
ancillary products; and iv) charges and fees.
General and administrative expenses directly related to the Company’s business segments were included as operating expenses for those segments.
All other general and administrative expenses were reported separately as part of Corporate. Management assessed the performance based on
segment operating income (loss).
137
The following tables summarize the relevant information for the years ended December 31, 2021 and 2020:
YEAR ENDED DECEMBER 31, 2021
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
Total operating expenses before depreciation and
amortization
Depreciation and amortization
Depreciation and amortization of lease assets,
property and equipment and intangible assets
Depreciation of right-of-use assets
512,810
-
152,485
11,056
676,351
22,828
112,371
11,249
3,923
150,371
-
-
-
-
-
535,638
112,371
163,734
14,979
826,722
323,381
68,706
74,746
466,833
18,553
9,666
28,219
37,115
7,689
44,804
5,011
852
5,863
Segment operating income (loss)
324,751
36,861
(80,609)
Other income
Finance costs
Interest expense and amortization of deferred
financing charges
Interest expense on lease liabilities
Income before income taxes
60,679
18,207
78,886
281,003
114,876
75,910
3,115
79,025
316,854
YEAR ENDED DECEMBER 31, 2020
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
Total operating expenses before depreciation and
amortization
Depreciation and amortization
Depreciation and amortization of lease assets,
property and equipment and intangible assets
Depreciation of right-of-use assets
Segment operating income (loss)
Other income
Finance costs
Interest expense and amortization of deferred
financing charges
Interest expense on lease liabilities
Income before income taxes
392,450
-
109,246
8,208
509,904
17,133
112,796
8,667
4,422
143,018
-
-
-
-
-
409,583
112,796
117,913
12,630
652,922
251,897
67,261
52,605
371,763
7,665
7,753
15,418
242,589
37,209
7,489
44,698
31,059
3,666
941
4,607
(57,212)
48,540
16,183
64,723
216,436
21,740
52,248
2,744
54,992
183,184
As at December 31, 2021, the Company's goodwill of $21.3 million (2020 – $21.3 million) is related to its easyhome reportable operating
segment and $159.6 million relates to the LendCare operating segment within easyfinancial reportable operating segment.
138
In scope under IFRS 15, Revenue from Contracts with Customers ("IFRS 15") are revenues relating to commissions earned and charges and
fees. Lease revenue is covered under IFRS 16, Leases. Included in lease revenue is certain additional services provided by the Company
related to the lease, but which fall under the scope of IFRS 15. These revenues totalled $13.2 million in both 2021 and 2020.
The Company's easyhome reportable operating segment consisted of four major product categories: furniture, electronics, computers and
appliances. Lease revenue generated by these product categories as a percentage of total lease revenue for the years ended December 31,
2021 and 2020 were as follows:
Furniture
Electronics
Computers
Appliances
DECEMBER 31, 2021
(%)
DECEMBER 31, 2020
(%)
40
32
15
13
100
42
32
14
12
100
31. Subsequent Events
In January 2022, the Company increased its Revolving Securitization Warehouse Facility from $600 million to $900 million. The Revolving
Securitization Warehouse Facility continues to be underwritten by NBFM, with the addition of new lenders to the syndicate. The facility
matures on December 7, 2023 and continues to bear interest on advances payable at the rate equal to 1-month CDOR plus 185 bps.
In addition, the Company amended its Revolving Credit Facility agreement. The amendments reduced the maximum principal amount
available from $310 million to $270 million, with the maturity extended to January 27, 2025 and increased the accordion feature from $75
million to $100 million. The amendments also include key modifications including improved advance rates, less restrictive covenants,
and a broader syndicate of banks. On lenders Prime advances, the interest rate payable has been reduced by 125 bps, from the previous
rate of Prime plus 200 bps to Prime plus 75 bps. On draws elected to be taken utilizing the BA rate, the interest rate payable has been
reduced by 75 bps from the previous rate of BA plus 300 bps to BA plus 225 bps.
139
CORPORATE INFORMATION
HEAD OFFICE
33 City Centre Drive
Suite 510
Mississauga, Ontario
L5B 2N5
Tel:
(905) 272-2788
INVESTOR RELATIONS
Jason Mullins
President & Chief Executive Officer
Tel:
(905) 272-2788
David Ingram
Executive Chairman of the Board
Tel:
(905) 272-2788
Hal Khouri
Executive Vice-President
& Chief Financial Officer
(905) 272-2788
Tel:
Farhan Ali Khan
Senior Vice President and Chief
Corporate Development Officer
Tel:
(905) 272-2788
BANKERS
Bank of Montreal
Toronto, Ontario
Wells Fargo Canada
Toronto, Ontario
Canadian Imperial Bank
of Commerce
Toronto, Ontario
Royal Bank of Canada
Toronto, Ontario
The Toronto-Dominion Bank
Toronto, Ontario
National Bank of Canada
Toronto, Ontario
TRANSFER AGENT
TSX Trust Company
Toronto, Ontario
LISTED
Toronto Stock Exchange
Trading Symbol: GSY
SOLICITORS
Blake, Cassels & Graydon LLP
Toronto, Ontario
AUDITORS
Ernst & Young LLP
Toronto, Ontario
WEBSITE
www.goeasy.com
BOARD OF DIRECTORS
CORPORATE OFFICERS
David Ingram
Executive Chairman of the Board
Jason Mullins
President & Chief Executive Officer
Donald K. Johnson
Chairman Emeritus
David Appel
Corporate Director
Karen Basian
Corporate Director
Susan Doniz
Corporate Director
Sean Morrison
Corporate Director
Hal Khouri
Executive Vice-President & Chief Financial Officer
Jason Appel
Executive Vice-President & Chief Risk Officer
Andrea Fiederer
Executive Vice-President & Chief Marketing Officer
Jackie Foo
Executive Vice President & Chief Operating Officer
Ali Metel
President, LendCare
Honourable James Moore
Corporate Director
Mark Schell
Chief Operating Officer, LendCare
Tara Deakin
Corporate Director
Jason Mullins
Corporate Director
140
David Cooper
Senior Vice-President & Chief Talent Officer
Sabrina Anzini
Senior Vice President & Chief Legal Officer
Michael Eubanks
Senior Vice-President & Chief Information Officer
Farhan Ali Khan
Senior Vice President & Chief Corporate Development Officer
Steven Poole
Senior Vice-President, Operations & Merchandising
141
PROVIDE
EVERYDAY
CANADIANS
A PATH TO
A BETTER
TOMORROW,
TODAY.