goeasy Ltd. (GSY) Earnings Call Transcript & Summary

Thank you.

Good morning ladies and gentlemen and welcome to the Go Easy Limited Q2 2026 earnings call. At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, August 7, 2026. I would now like to turn the conference over to James O'Bright. Please go ahead.

Thank you, Operator, and good morning, everyone. I'm James O'Bright, Senior Vice President of Investor Relations and Capital Markets. Thank you for joining us to discuss Go Easy Limited's results for the second quarter ended June 30th, 2026. Our Q2 news release, which was issued yesterday, is available on CDAR Plus and GoEasy website. On today's call, Patrick Enns, GoEasy's Chief Executive Officer, will provide an update on our second quarter performance and recent developments and an outlook for the business. Felix Wu, our Chief Financial Officer, will provide an overview of our Q2 26 financial results as as well as our liquidity position. Also joining us on the call today is Jason Appel, GOESI's Chief Risk Officer. After the prepared remarks, we will open the lines for questions from our research analysts. The operator will pull for questions and will provide instructions at the appropriate time. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company website and supplemented by a quarterly earnings presentation, which will be referred to by our speakers today. For those dialing in by phone, the presentation can be found in the investor relations section of the company website. As noted on slides two and three, forward looking statements will be made on this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that Go Easy uses non IFRS financial measures and metrics to arrive at adjusted results. Please refer to our Q2 MD&A for further details on the risks, assumptions, and non-IFRS measures. Management evaluates performance on both a reported and an adjusted basis and considers both useful for assessing underlying business performance. These are more fully described in the appendix. With that, I will now turn the call over to Patrick Adams.

Thank you, James, and welcome to everyone listening today. GoEasy exists to create financial opportunity for Canadians who are underserved by traditional financial institutions. Serving those customers well with discipline, care, and innovation is how we create lasting value for our shareholders, employees, and the communities in which we operate. That purpose is at the center of everything we do. I saw it reflected firsthand in the considerable time I spent with frontline leaders and employees across the country during the past several weeks. These conversations provided valuable insight into the evolving needs of our customers and opportunities we have to continue improving execution. What stood out most was the strength of our people. their commitment to serving our customers and supporting each other, and coming to work with enthusiasm and resilience every day. We have long believed that culture is a competitive advantage, and what I saw confirmed that belief. Our strategic priorities for the near term are clear and consistent with those I outlined in Q1. We are reducing our exposure to underperforming merchant-originated loans. concentrating new originations in our direct-to-consumer, easy financial brand. and managing our liquidity and balance sheet carefully. We are doing this with a close eye on the macroeconomic backdrop. where the Canadian non-prime consumer continues to feel pressure from a prolonged period of economic uncertainty. Our objective remains to reduce credit losses, strengthen our balance sheet, and return to generating healthy returns for shareholders. We have continued to execute against our six-point plan, and I look forward to discussing that in more detail shortly. Let's turn to an update on the business. Starting with the key financial developments of the quarter, we delivered adjusted diluted earnings per share of $1.02. This is down compared to the second quarter of 2025, but up sequentially from an adjusted diluted loss per share of $1.90 in Q1 2026. Consistent with our plans, we pulled back significantly on originations in Q2. Originations are the largest use of cash in our business. Reducing them, combined with continued strength in cash provided by operations before net principal risen, meaningfully strengthened our balance sheet this quarter. Together, with elevated but improving levels of net charge-offs, Lower Q2 originations resulted in a contraction in our gross consumer loans receivable by $363 million, or 6.8%, on a quarter-over-quarter basis. a quarter-end balance of $5 billion. Elevated charge-offs in our merchant-originated LendCare business continue to weigh on profitability. The overall net charge-off rate came in as anticipated at 16.7%, higher year-over-year, but improving by 110 basis points relative to the first quarter. Delinquencies trended better, down 100 basis points year-over-year to 11.9%. An improvement in 30-day-plus past-due loan balances was partially offset by an increase in the 1-30-day category. Relative to Q1, loan balances greater than 30 days past due declined from 5.9% to 5.8%. Total allowance for credit losses on gross consumer loans increased to $499.5 million from $406.7 million at this time last year. The net change in ACL was negative $41.6 million compared to positive $21 million in the second quarter of 2025. This provision release contributed to improved earnings relative to the prior quarter. As a core focus of our six-point plan, we continue to prudently manage our liquidity. We tightened credit, particularly in the merchant-originated loan portfolio, while also pulling back originations in our direct-to-consumer segment. We built up our cash position and repaid the full balance on a revolving credit facility by quarter end. meaningfully improving our debt-to-adjusted tangible equity ratio to 4.95 times, down from 5.3 times in Q1. As of July 1st, we regained the ability to make incremental draws on our revolving credit facility. We also received confirmation from the lenders under a revolving securitization facility that the audit report requirement had been satisfied. As a reminder, this audit report was one of two conditions required to restore access to incremental draws on that facility. We have meaningfully advanced steps to replace the backup servicer, which will satisfy the second condition. Turning to our financial performance, compared to the first quarter of 2026, we improved our total yield, reduced our net charge off rate, managed our costs, and delivered positive earnings. We also strengthened our leverage position. As expected, our results were impacted by our decision to reduce originations alongside elevated net charge-offs, though the charge-off rate itself continued to improve relative to Q1. Turning to slide 8, I want to highlight our progress on the six-point plan we introduced on March 10. First, despite pulling back significantly on originations in the second quarter to prioritize liquidity, we have increased the direct-to-consumer share of our total gross loans receivable by 300 basis points since Q4. We will continue to focus second half originations on easy financial direct-to-consumer lending. Second, we made a very significant reduction to second quarter LendCare originations year over year. We are maintaining a selective presence in segments and merchants where performance meets our standards and we see opportunities for future optimization. Third, we strengthened our leadership team with key appointments that bring additional outside expertise. In mid-June, we welcomed Lynn Otte to Go Easy's executive team as SVP and Chief Operations Officer. Lynn brings deep consumer lending expertise across operations, risk, collections, customer experience, and transformation, built through 15-plus years in non-prime consumer lending. At Go Easy, Lynn will consolidate and oversee loan processing, customer service, collections, and administration. Fourth, we continued our focus on operational and cost efficiencies. In the quarter, we closed one of our four main office locations, generating greater operating leverage on our real estate spend. Fifth, our efforts to strengthen land care progress as expected, including improvements to net charge offerings. We continue to evaluate our long-term strategy for the merchant's originated business. And six, we delivered on our aim to strengthen our balance sheet and liquidity position. With the retained cash flow from reduced originations, we repaid our revolving credit facility in full. Effective July 1, we restored access, incremental draws on that facility. The progress made on our balance sheet gives us a stronger starting point for origination activity going forward. Our six-point action plan has two objectives. To stabilize the business in the near term and to strengthen the foundation for sustainable, profitable growth over the long term. We have made meaningful progress on both and are well advanced in building a stronger or resilient company. Slide 9 revisits the Q2 2026 outlook that we shared with our Q1 financial results. Actual Q2 performance was consistent with our outlook across all three measures. ending gross consumer loans receivable of $5 billion came in at the midpoint of our $4.9 to $5.1 billion outlook range. Total yield on consumer loans came in at 28.3%, near the top end of our 27 to 28.5% range. Net charge-off at 16.7% came in at the midpoint of our 16 to 17.5% outlook. Slide 10 presents an update on the composition of our gross loans receivable, focusing on the direct-to-consumer and merchant-originated split. As noted in the six-point plan update, LendCare merchant-originated loans represented 39.7% of our portfolio at the end of Q2, down from 41.3% in Q1, and from 46.2% in Q2 last year. The core of direct-to-consumer unsecured personal loans, secured home equity loans, and easy home lending now make up 60.3% of our total portfolio from 53.8% in Q2 2025. That 650 basis point shift in one year reflects the deliberate repositioning of the portfolio toward our core franchise. We expect this shift to continue. Direct-to-consumer unsecured and secured originations will be our primary focus in the second half of 2026. Slide 11 provides an update on the performance of the components of our EG Financial reporting segment. Quarter over quarter weighted average interest rates of originations remain largely stable across our easy financial unsecured, easy financial secured, and LendFair merchant originated secured loans. At quarter end, 87.9% of total gross consumer loans receivable carried an interest rate at or below the 35% APR maximum allowable interest rate for loans written after January 1, 2025. This was up 130 basis points from 86.6% as of March 31st. In Q2, credit performance in our direct-to-consumer secured product continued in line with expectations. Annualized net charge-offs for direct-to-consumer unsecured loans were 17%, up from 13% in Q2 2025. This increase was driven by three factors, a declining loan book or the denominator effect, a significant increase in non-prime consumer insolvency rates, and an increase in age losses. In our merchants originated loan portfolios, net chargeoffs fell 580 basis points to 20.6% in the quarter from 26.4% in Q1 in line with our expectations. I will now turn the call over to our CFO, Felix Wu, for a discussion of our second quarter financial performance.

Felix? Thank you, Patrick, and good morning, everyone. Before recapping our second quarter financial performance, I want to provide an update on the LendCare specific material weakness related to IFRS 9 that we identified at year end. Since our first quarter update, we have continued to make meaningful progress on our remediation plan. strengthening governance and operational controls, as well as enhancing our policies, documentation, and training. During the quarter, we engaged a big four consulting firm to conduct an independent advisory assessment for broader internal controls over financial reporting, or ICFR program. Most importantly, the targeted assessment did not identify additional critical gaps in our program. highlighted the strong commitment to ICFR by our internal audit team, as well as additional opportunities for improvement. Our focus remains on implementing, monitoring, and testing these enhanced controls. Our internal audit function is now actively performing control testing. As we have previously stated, a material weakness is not remediated until the controls have operated for a sufficient period and have been validated through testing. We remain committed to maintaining a strong control environment and high standards of financial reporting discipline. Turning to our year-to-date results, the 2% year-over-year decline in our consumer loan portfolio led to a modest decrease in revenue. Our net income and return on equity were negatively impacted by elevated net charge-offs in our merchant-originated auto and power sports portfolios. On an adjusted basis, we reported a net loss of $14.5 million and adjusted diluted loss per share of $0.88, both of which were down year over year. On slide 14, we tighten credit measures in the merchant-originated loan portfolio and curtailed loan originations in Q2. We managed originations down 70% year-over-year to $272 million from $904 million in the second quarter of 2025. This helped to bolster our liquidity position. The reduced loan originations directly impacted gross consumer loans receivable, which ended the quarter at $5 billion, a decrease of $107 million, or approximately 2% from $5.11 billion at Q2 2025 quarter end. Quarter-end, 55.4% of the total loan portfolio was unsecured, up from 52.4% in Q2 2025, and essentially flat to Q1 this year. The plan reduction in gross loans receivable, coupled with a lower total yield compared to the prior year, led to a 9.6% year-over-year decline in quarterly revenue to $390 million. The total yield on our consumer loan portfolio was down 340 basis points relative to Q2 2025, but up 40 basis points relative to Q1. Year over year, yields face downward pressure on four fronts. The impact of the higher allowance for credit losses on interest receivable. by the tightening in merchant-originated loan originations and a moderate reduction in direct-to-consumer originations. The continued impact of the lowered maximum allowable rate of interest on unsecured lending products. and a higher proportion of larger dollar value loans which carry lower yields on certain ancillary products. Returning to costs since slide 16, other operating expenses in Q2 were $91 million, down 9.3% compared to last year. The decrease was mainly driven by lower marketing expense in line with lower origination activity and the decline in total compensation expense. The efficiency ratio for Q2 was 25.5%, relatively flat from 25.6% in the same period of 2025, despite the decline in revenue. The efficiency ratio for the quarter benefited from reduced marketing costs due to the 70% reduction in year-over-year originations. We continue to evaluate and identify opportunities to improve effectiveness and operational efficiency across all areas with a particular focus on credit, underwriting, and collection practices. On both a reported and an adjusted basis, Q2 operating income was down year over year. The decrease in adjusted operating income was primarily driven by elevated credit losses and lower total yield on consumer loans, including ancillary products. and higher cost of borrowing. Operating income improved quarter over quarter as credit losses continued to decline. Earnings benefited from the release of provision for credit losses resulting from the decline in gross consumer loans receivable. We generated adjusted diluted earnings per share of $1.02 in the quarter. That figure backs out the impact of the amortization of intangibles and fair value changes on prepayment options related to our notes payable. Starting on the next slide, we move into a discussion of our credit and underwriting performance in the quarter. The year-over-year merchant originated auto and power sports loan portfolio. Patrick covered net charge-offs for Easy Financial Secured, Unsecured, and LendCare in slide 11. For the whole business, we delivered a 110 basis point quarter-over-quarter improvement to 16.7%, despite the denominator effect resulting from a decrease in average gross loans receivable. The chart in slide 19 illustrates a meaningful shift in the composition of our gross consumer loans receivable past due or delinquencies. Total delinquent loans at the end of the second quarter represented 11.9% of the total, a decrease of 100 basis points compared to Q2 2025. consumer loans receivable that were 1 to 30 days past due as at the end of the second quarter increased by 130 basis points compared to Q2 last year. This was driven by elevated credit risk performance in merchant-originated auto and power sports loans, an increased focus on cash collections and the loan portfolio and persistent weak macroeconomic conditions. GROWTH CONSUMER LOANS RECEIVABLE THAT WERE OVER 30 DAYS PAST DUE AS OF THE END OF Q2 DECREASED BY 230 BASIS POINTS COMPARED TO Q2 LAST YEAR, PRIMARILY DRIVEN BY CHARGE-OFFS RECOGNIZED IN THE 4th QUARTER OF 2025 TO THE 2nd QUARTER OF 2026 RELATED TO CERTAIN DELINQUENT auto and power sports loans. We place the most focus internally on loans 30 days past due or more and are pleased with the continued improvement both year over year and quarter over quarter that we are seeing in that category. Looking at our allowance for credit losses in slide 20, we ended the quarter with total ACL at $499.5 million, up from $406.7 million in Q2 2025. Net change in allowance for credit losses on gross consumer loans was negative $41.6 million compared to $21 million in Q2 2025, primarily due to the release of provision for credit losses resulting from the decline in gross consumer loans receivable during Q2. The rate of allowance for expected credit losses decreased from 10.09% as of Q1, 2026 to 9.99% for Q2, 2026 driven primarily by changes in the macroeconomic outlook data used in our IFRS 9 allowance model coupled with improved product mix, specifically a higher proportion of easy financial secured in the portfolio. On slide 21, cash provided by operating activities before net principal written in Q2 2026 was $585 million, up from $489 million in Q2 2025. As our Q2 results demonstrate, we have significant control over the pace and volume of originations, the biggest use of cash in our business. This control proved a valuable lever in liquidity management as we deliberately moderated originations to bolster our liquidity. The continued strong cash generation from the business drove positive momentum toward restoring our balance sheet health. As we previously disclosed, we used existing cash resources to repay the $64.6 million US dollar unsecured note that matured in May. On June 30, 2026, we repaid the full outstanding balance of $314 million under our revolving credit facility. As of June 30th, liquidity represented by unrestricted cash on hand plus unused contractual borrowing capacity was $1.37 billion, of which $1.06 billion was not available. On July 1st, we regained the ability to make incremental draws on a revolving credit facility as expected. expected. With the amendments to our securitization warehouse facility secured earlier this year, we had to satisfy two conditions to regain the ability to make incremental draws. First, we had to complete a facility-level audit to the satisfaction of our lenders. We received confirmation from the applicable lenders that the audit report requirement had been accepted and that condition had been fulfilled. Second, we needed to replace our backup servicer. We are well advanced in meeting the second condition and are working with a new provider on implementation plans. Our securitization lenders have also initiated preliminary discussions with us to extend the facility. continue to appreciate the constructive approach and look forward to finalizing an extension. With the May maturity repaid, we have no other near-term unsecured note maturities. We continue to benefit from low and mostly fixed or hedged interest costs in the near term. The average blended coupon interest rate on our debt was 6.8% at the end of Q2. Our capital allocation priorities remain consistent with the prior two quarters. Dividends and share repurchases are suspended indefinitely as we continue to prudently manage our liquidity. With that, I will turn the call back to Patrick for our outlook and concluding comments.

Thank you, Felix. With our Q2 results, we are introducing a Q3 2026 Outlook. For the quarter, we expect ending loans receivable of between $4.8 and $5 billion. Yield on consumer loans is expected to land between 26.5% and 28%. and net charge-offs are expected to be between 14.5% and 16%. We are also refreshing two components of our full year 2026 commentary. On gross consumer loans receivable, we have updated our full year outlook to reflect current and expected near-term macroeconomic conditions and continued moderation of direct-to-consumer loan originations. Accordingly, we expect gross consumer loans receivable at year-end to be broadly consistent with Q2 ending levels. For total yield on consumer loans, including ancillary products, we We expect to see continued benefit from lower charge-offs over the course of 2026. However, continued moderation of direct consumer origination and portfolio mix changes are now expected to offset much of this benefit. Accordingly, we expect full-year total yields on consumer loans to be broadly consistent with first-half results. We continue to expect net charge-offs to average in the mid-teens for the year, with improvements continuing as the year progresses. Before we conclude our prepared remarks, I want to recognize Jason Appel, our Chief Risk Officer, who we announced yesterday will be leaving GO-EASY at the end of August to pursue an external opportunity. Over the past 13 years, Jason has made significant contributions to Go Easy and played an important role in helping to build and strengthen our risk analytics capabilities through a period of substantial growth. On behalf of the entire team, I would like to thank him for his leadership and wish him every success in the future. We have identified a successor to Jason and expect to announce that appointment separately. before Jason wraps up his time with us. In closing, our focus for the second half is clear. grow originations responsibly, and are direct to consumer easy financial business. Continue to improve credit performance and build on the progress we have made on our balance sheet. With that, I would like to turn the call back to the operator and open the lines to questions from our analysts.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from John with Jeffrey. Please go ahead.

Good morning, Felix. Thanks for the update in terms of the the warehouse facility, do you have any sense in terms of when the second requirement will be completed?.

Yes, in terms of the backup service provider, requirements for them to be live or able to step in whenever needed. When we signed the contract with the replacement, they outlined a 60 to 90-day implementation implementation plan. We're well on our way from that. They're all between 60 and 90 days would probably lead us into around the early or mid-September.

That's great. And then with presumably access to this facility as well as the standby that you refreshed, given the fact that you got a little bit more access to liquidity, can we make the assumption that originations may accelerate from where they were in the second quarter? I understand. and the guidance for year-end gross loans. But is that something that might be a reasonable expectation?.

In terms of, yes, so we provided... Hey, John, this is Patrick. Let me jump in on that one if I could. So two things to think about there. One are the forecasted originations for Q3 over Q2. They will increase, and that's embedded in our guidance on where we expect the loan book to end Q3. Okay. Really, the binding constraint for us at this point is more about where we see So we've moderated our expectations in Q3 relative to where we would have been when we met in May, based on some of the increases observed in our easy financial markets. unsecured loss rates. So we're really focused on managing credit well to ensure that all the originations we put on our books will generate the proper risk-adjusted returns. And at this juncture, we're not constrained from a capital or funding perspective in achieving our target origination levels.

Understood. Thanks Patrick. I'll recoup. Your next question comes from Gary with us, Jordan. Please go ahead.

Hi, good morning. I want to start off the question with the easy financial unsecured net charge off. So, 17% last quarter, Patrick, I think you flagged the denominator effect that could be larger in the quarter. So, just wondering if you can quantify the shrinking book, so the denominator, and then the portion that's really large. related to perhaps underlying deterioration and any collections strategy shift? And where do you see the easy financial net charge off in Q3 and also exiting this year?.

Thank you, Gary, and good morning. So, you know, overall portfolio loss rates for Go Easy stepping down from 17.8 to 16.7, you know, directly hit the midpoint of the guidance. And so we're very pleased with the trajectory that we see there. We've obviously made tremendous progress on the LendCare portfolio. As you can see, those rates are stepping down quite substantially, and the investments that we've made on the leadership front and the collections front are starting to pay dividends, and we see momentum building. We did expect coming into the quarter that our easy financial unsecured rates would present as higher and that this would be at least partially driven by the denominator effect typical quarters, we've been growing the loan book between, call it 4% and 5% recently. And in this quarter, ED Financial shrunk by a little bit more than 4%. So it's a pretty significant swing. It is challenging to get precise in exactly how big the denominator effect is, because to some degree, you need to estimate what the losses would have been on the loans you did not book and we did not book them. So assuming there's a significant contribution from the denominator effect, but also knowing that there is a significant contribution from the increase in our insolvency losses in particular on that portfolio is notable. One thing that we did validate through external data sources is that the rise in consumer insolvencies we observed here is a significant step up from the prior quarter and year, but also in line with industry trends. And that's what's really leading to us taking a more cautious outlook on growth in Q3 and into the end of the year, given that trend.

Okay, great. And then maybe just more broadly on your net charge off outlook for the full year. So first half, you did 17.3%, and then about take your midpoint guidance for Q3, 15.3%. and I reverse engineer that versus your mid-teens. So the math implies Q4 to be in the low double digits range. So is that the right way to think about it, visiting this year and is that number a reasonable starting point for 27? just any help in the trajectory would be helpful. Certainly appreciate the.

desire to kind of map out the longer term credit trends. Our focus, Gary, for sure, is bringing down credit losses quite substantially over the back half of the year. and into future years as well. The trend that we've observed in particular on our LendCare portfolio in combination with the LendCare The success we're having in really shifting the composition of the portfolio towards our easy financial business is really driving down the significant step down in losses into Q3 and what's implied into Q4 as we confirm our guidance of mid-teens loss rates. So we're very much focused on... on completing the year with a strong end on credit losses and riding that momentum into 2027. You know, too early at this point for us to just comment and provide guidance on where we expect 2027 to land, but our focus is clear, which is to continue to bring down credit losses over time.

Okay, great. That's it for me. And lastly, Jason, I appreciate all your help over the years and congrats on your next chapter.

Thank you, Gary. Much appreciated. Your next question comes from Steven with Raymond James. Please go ahead.

Good morning. I want to revisit the provision release, if we could, because obviously that's the main driver of the headline profit issue. So I guess at this point, it was driven because of a lower loan book, but there was nothing forcing you to... to do that release. You could have kept the allowance elevated. So I'm trying to understand the rationale to do that because at some point you're going to be regrowing this company and that's going to require an allowance increase which means you're dampening earnings on the other side so can you explain the rationale of why you would want to release at this point where you know credit is still elevated in both your books.

Good morning, Stephen. Yes, I'll pass it over to Felix. Yes, thanks, Stephen, for the question. And so in terms of the provision, it is fairly prescriptive, and we are following IFRS 9 accounting standards on that, Stephen. So there are some requirements. are very formulaic assumptions driven based on the performance of our portfolio, probability of default, exposure of default, loss given default, as well as a macroeconomic indicators that we use from Moody's from external benchmarks. And so when you think about the calculation of the allowance for credit losses, it's going to be based on the size of our book as well as the rate. the rate is driven by the overall credit outlook and credit performance that I was mentioning in terms of those factors. But then you do have the volume impact, which is ending receivables. And so, you know, following IFRS 9 accounting standards, as we shrink the book, as the rate is all else being equal, if the rate is the same, it will result in a release. There are sometimes adjustments that can be done from a management perspective related to the macroeconomic outlook, but it is based on It is very prescriptive, and I would say that the loan loss allowance is also based on the existing book. It doesn't include – it's based on the balance sheet ending loan receivables and does not include any future losses from that perspective, too.

Okay, maybe I'll follow up. I don't want to spend 10 minutes on this. But the second question is when I look at the 90 to 180 bucket, That fell $25 million quarter over quarter, which was positive. I'm just wondering how much of that decline or that $25 million is contributing to the charge-off rate? Like, what's the success rate? of that decline and what ended up being in charge off? You know, I know you probably don't wanna give specifics, but is it like, did that 25 all become charge offs? And because you have 90 million left, so I'm trying to figure out, you know, the success rate of that, you know, 90 to 180 bucket.

I'll take that one, Steven. So, it's a good observation. We've seen a significant step down in our 90 to 180. past due receivables. As a reminder, the majority of that, the vast majority of that is going to come from our merchant-originated loans through LendCare. And a good chunk of the loans in that space will be secured against collateral as well, where we'll attempt to recover on the balances for those that... ultimately aren't able to get back to current status. But certainly a meaningful proportion of what ends up in 90 plus is going to flow through to charge off. As we continue to shrink the LendCare portfolio, we will also just naturally see that Volume continued to decline. And as the risk profile of what's remaining improves, the rate may end up declining as well.

Okay. And I'll sneak one more in here. maybe for you, Patrick, you know, when I look at, you know, the, you know, the elevated charge offs for the ring of the year, um, And obviously that's going to change in the 2027. The yield is well under the rate cap now and your unsecured book, which tends to be the highest yielding product, and will dominate, but I don't know if it's ever going to get back into the 30s. What are you looking at in terms of longer term ROE potential for this business? I think next quarter, if you're not, you know, if the book is stable, you won't get that provision release. So, you know, I'm trying to understand what is your goal or what is the longer-term ROE potential.

in your mind? Yes, great question, Stephen, and spot on as well. I mean, we're very excited about the long-term potential of our business, and we continue to be focused on becoming Canada's leading non-prime lender. You know, the strength that that we have in our easy financial and easy home lending business. enables us to generate very strong risk adjusted returns. Those are, of course, dampened at the moment because of the performance of our merchant originated business and some of the elevation we're seeing in loss rates there. But over the long term, that's a business that has generated very strong returns. and will continue to be able to serve that customer base very well because what we see in the market is continued strong demand and relatively limited options for these consumers from competitors. And you're right to point out that we're, you know, a year and a half past the rate cap implementation now. You can see that the core quarter-on-quarter effect of running off the previous above 35% book is going to continue to shrink. Our unsecured business and our secured business combined generates closer to the 30-ish percent yields with, you know, in the 12, 13%-ish. loss rates and with the right operating leverage and scale, that's going to produce very attractive returns for our shareholders. To get there, we really need to continue executing on our plan, which is why we're so focused in the here and now on improving credit performance, particularly in LendCare, but across the portfolio. and shifting our mix quite strongly towards our easy financial direct-to-consumer base.

Okay, thank you. Your next question comes from Bart with RBC Capital Markets. Please go ahead.

Great. Thanks, Emma. Good morning, everyone. Felix, appreciate the update on the internal control mediation. Can you just maybe give us a bit more detail around sort of the path and next steps that you have? You guys are looking forward to get that remediation done by the end of this year, which I think is your expected timeframe.

Good morning, Bart. I think you're looking for Felix there. Go ahead, Felix. Yes. Thank you.

Yes, I would say to approach the remediation of the material weakness is sort three steps or three parties involved here. We have in the first phase we have finance and credit risk team working actively as well as operations to improve our controls, documentation on policies and the training from that side. That would be the first phase. The second group that then comes in is internal audit to do substantive testing and verify the actual success of the controls. And then the third phase would be active collaboration with our financial auditors in terms of satisfaction as well. that side. We're near the end of the first phase and starting the second phase, or the second group with internal audit having started doing active control testing on that side. Once we complete that group, we're going to be actively working and we'll be working over then going forward with our auditors to close that. And so that's where we stand in terms of the overall process. There is time that is required in terms of the number of results of satisfactory control testing that we need to see.

Thanks, that's helpful, Felix. And then, maybe Patrick, just on the guidance, I mean, we did see a guide down this quarter on the top line, and that's on the back of guidance that was just released last quarter. So maybe, can you help us understand, like, when you provide guidance to us, like, what what the kind of bottoms up process is and what's giving you the comfort that the current guidance out there is,.

let's call it stable from here. Thanks. Yes, thank you, Bart. Maybe just from a, philosophical perspective here. You know, the business drives the guidance, and the guidance doesn't drive the business. So as we had communicated last quarter, we will provide an outlook to the best of our ability on how we're seeing the year unfold. But in the day-to-day, as things evolve, we have a very dynamic... business. So managing our easy financial business, as an example, we've invested quite a bit in the credit infrastructure that supports that business, which means we're right on top of credit trends, and we have technology and processes in place that allow us to be very nimble with making updates. from a credit perspective. And the same is true of how we deploy our marketing spend. So really this is a sign of strength that as we saw some loss rates that were elevated compared to what we might have originally expected, we're fine-tuning our approach heading into Q3 and Q4 based on that. And then, of course, that had a natural implication for where we'd land at the end of the year, and we wanted to provide that update and give clarity. But it's a very dynamic market that we live in. So as we work through Q3, there will, of course, be new things that come up, and we're going to respond accordingly in optimizing our business and then providing transparency on the implications of that with each of our calls. So that's just kind of how we look at it internally. We don't ever want to let kind of and the guidance drive to business decisions as the data changes. So we wake up and answer the case every day.