goeasy Ltd.

David Yeilding - Senior Vice President, Finance David Ingram - Chief Executive Officer Jason Mullins - President and Chief Operating Officer

Jeff Fenwick - Cormark Securities Doug Cooper - Beacon Securities Brenna Phelan - Raymond James Gary Ho - Desjardins Capital Stephen MacLeod - BMO Capital

Thank you, operator, and good morning, everyone. Thank you for joining us to discuss goeasy's results for the second quarter ended June 30, 2018.

The news release which was issued yesterday, after the close of market is available on Globe Newswire and the goeasy website. Today, David Ingram, the Company's Chief Executive Officer, will talk about the highlights of the quarter and then provide some insights into our strategic direction.

Jason Mullins, the company's President and Chief Operating Officer will then review the company's outlook before we open the line for questions from the investors. Jason Appel, the company's Chief Risk Officer is also on the call.

Before we begin, I'll remind you that this conference call is open to all investors and is being webcast through the company's investor website. All shareholders, analysts and portfolio managers are welcome to ask questions over the phone after management is finished.

The operator will pull for questions and will provide instructions at the appropriate time. Business media are welcome to listen to this call and use management's comments in responses to coverage and questions they may.

However, we would ask that they not quote callers unless that individual has granted the consent. Today's discussion may contain forward-looking statements.

I'm not going to read the full statement, but I will direct you to the caution regarding forward-looking statements included in our MD&A. Now, I'll turn the call over to David Ingram.

Thank you, David. Good morning, everyone, and thank you for your participation on our call today.

The second quarter of 2018 was extremely productive for us. We obtained access to growth capital at a significantly lower cost of borrowing, deliver record growth in active customers, loan originations and loan book, while continuing to show improvements in the credit performance of our loan portfolio.

All of this translated into record net income and diluted earnings per share in the quarter. Revenue grew to $123 million in the second quarter of 2018, up 26% driven by the expansion of easy financial.

We introduced a new multi-media brand marketing campaign across TV, radio and digital to drive awareness parameter of providing everyday Canadians with access to the credit they need, while put in the monopod to better financial future. Through the success of this campaign, we've seen a 30% increase in Web traffic and a 54% increase in total loan applications, which resulted in a record quarter of net customer growth.

The strong customer demand coupled with a 23% increase in the average size around secure loans resulted in record loan originations of $234 million, up almost 70% from the second quarter of 2017 and record loan book growth of $85 million, up 121% from the second quarter of 2017. The growth was also filled by the contribution from the strategic initiatives we launched last year.

Now given the growth the strong growth in the first half of 2018, we have also provided an updated a more ambitious three year look the Jason Mullins, who review shortly. We also saw continued strength in the credit performance of our portfolio in the quarter with a reduction in delinquency rates and improve collection performance.

This resulted in our net charge-off rate declining to 12.4% from 14.8% in the second quarter of 2017. The business results and revenue growth led to a record diluted earnings per share for the quarter of $0.82, an increase of 30% versus the second quarter of 2017.

The results for 2017 were reported under the old accounting standards rather than under IFRS 9 and for the bad debt expense was low in the prior period on a comparative basis. We estimate the earnings per share for the second quarter of 2017 would have been reduced to $0.52 per share if we applied the current IFRS 9 methodology for determining the provision for future credit losses in the second quarter of 2017.

On this comparable basis, diluted earnings per share increased by 58%. We are also able to secure additional growth capital at a lower price than before.

The North American capital markets have shown their confidence in our business model and our strategy. Through the recent increase to our revolving credit facility and the follow-on bond offering, the weighted average cost by total debt at full utilization has been reduced from 7.2% to 6.9% while the adjustments to the covenants are provided even greater flexibility.

When combined, these balance sheet enhancements have provided $268 million in additional capital to fuel our growth through the second quarter of 2020 while keeping us within our optimal net debt to total capitalization target of 70%. Turning to the regulatory environment, you may recall that three provinces Manitoba, Quebec and Alberta have either enacted or tabled proposed legislation regarding high cost lending.

This legislation requires enhance disclosure and transparency for borrowers relating to their cost of borrowing and compliance with certain customer servicing activities. As we have always run our business with these principles in mind, we do not expect that these new regulations will have a meaningful impact on our business.

Over the past year, we've engaged with many provincial regulators and have had the opportunity to provide feedback on their proposal laws or regulations and will continue to do so in the future. With respect to the cash flows of our company, when we were raise capital, those cash inflows are treated as cash flows from financing activities.

However, when we advance funds to borrowers, those cash outflows are treated as cash used in operating activities. Now for high growth level like goeasy, cash used in operating activity is positive proof of our ability to grow our loan book and our business.

goeasy reporting cash used in operations in the first half of 2018 of $127 million. However, $202 million related to the investment in growing our loan book.

If we were to exclude this investment, then cash flow generated by operating activity would have been positive $75 million over that same period. We choose to invest in our loan book in order to grow future cash flows, revenue and net income.

It is the right strategy to build our business and it has resulted in total shareholder returns of over 4,500% since 2001. The journey of continuously focusing on our customers to ensure they have the best in cost borrowing experience across every touch point is heavily tied to one of our biggest assets, our people.

As we continue to grow and scale the business, we have invested involving our organizational quarter to help attract and retain top talent that would enable us to realize our future growth ambition especially in key areas such as digital, analytic and IT. Year-to-date, we have seen employee retention improve by 14% over the prior period.

In the fall where we will be moving into a newly redesigned office space that will create flexibility, more collaboration for our employees. In addition to build in a new physical workspace, we will continue to drive key corporate programs around training, leadership development and ensuring that our employees have all the tools and support, they require to be successful.

Now before I turn it over to Jason to run through our outlook and revised targets, I want to thank the entire team particularly those at the front line to work tirelessly each day to take care of our customers and execute the goeasy strategy. As all our managers are shareholders they are very aligned to the company's vision and success.

Now I'll pass the call over to Jason.

Thanks, David. The strengthening of our balance sheet, the strong growth we've experienced in the first half of 2018 and our plans for the future have given us the confidence to revise our targets.

We've taken a careful look at our portfolio and built a detailed bottom up forecast that considers expected consumer demand, evolving product mix, a changing yield profile and our expected loan loss performance. We now expect to reach a loan book of the $825 million and $875 million by the end of 2018 between $1.1 billion to $1.2 billion in 2019 and ultimately reach $1.3 billion to $1.4 billion by the end of 2020.

These growth targets will be primarily achieved through building our brand and meeting strong customer demand for our existing lending products wellbeing augmented by a series of new initiatives. First we expect to see continued robust demand for our core and risk adjusted unsecured loan products.

Risk adjusted rate loans will drive the majority of our projected growth in the future. Secondly, we have only scratched the surface of the opportunity in the Quebec market.

Quebec represents 23% of the Canadian population but only 5% of our loan portfolio today. We will continue to optimize our lending strategy in that province so that we can successfully scale.

Third, we continue to be very optimistic about the growth potential of our secured lending product. This product is an ideal way for the 20% of our existing customers that are homeowners to graduate to a larger loan at a lower rate as well as attract more of the 7 million Canadians with non-prime credit scores that are seeking alternative forms of credit.

Lastly, we believe that several new initiatives will aid in driving accelerated growth. Later this year, we will launch our enhanced to digital loan application which will enable us to further optimize web traffic and provide our customers with a streamline and personalized experience.

Our application process will be faster and easier for the customer and more importantly will provide us with a platform to optimize our online sales funnel and drive increase conversions across every stage of the process. This platform will be foundational to our ability to test and introduce new and innovative technologies such as artificial intelligence.

Secondly, we continue to drive innovation in our credit model and underwriting strategies by incorporating enhanced analytics and alternative data sources using the latest techniques in machine learning. These activities will enable us to further optimize our proprietary scoring models so that we can extend credit to a greater number of borrowers without an increase in risk.

Third, the upcoming launch of our white label starter loan product through a third party partnership will provide a vehicle for customers that do not currently have sufficient credit criteria to begin building a history with easy financial, so that they can be graduated to other lending products in the future. Designed for new Canadians or those with poor credit the consumer will be able to take a loan where proceeds are directed to a savings account.

Each payment event reported to the credit file so that they can effectively improve their credit score. We will monitor that behavior and convert them to an unsecured loan as soon as they have demonstrated a stable history of payments.

Lastly, we are actively researching other potential loan products that can be added to our suite and 2019 and beyond. Our recent research and analysis of data provided by Trans Union tell those that our market continues to grow at a compound rate of 3% plus per annum and now sits at over $185 billion in total consumer balances presenting new numerous opportunities.

The increase in the expected loan book will also produce higher revenue growth and expanding operating margins as we benefit from greater scale and efficiency. In 2018, the net charge off rate will be within the originally guided range and we expect to see an improvement, in 2019 to between 11.5% and 13.5% with a sequential improvement in 2020 to a target rate of 11% to 13%.

The revised net charge off rate targets show the improvement occurring at a slightly slower pace than our previous guidance given the stronger demand for our higher core unsecured lending products. Lastly, we are confident that we can continue to finance industry leading growth within our targeted leverage ratio of 70% net debt to total capitalization and sequentially grow return on equity to 21% plus in 2018, 24% plus in 2019 and 26% plus in 2020.

We have never shied away from ambitious or lofty goals and we have never set targets that are not attainable. We have a team that believe strongly in our business and our goals and we have the capabilities, market positioning and the capital structure to make those goals a reality.

I'll now pass the back to David.

Thank, Jason. With those formal comments complete operator would now be happy to take questions from the callers.

Hi. Good morning, everyone.

Good morning, Jeff.

I want to start my line of questioning here maybe with a bit of operational discussion I guess when you see a company such as you're drawing at that kind of rate and the amount of volume coming in the door. How comfortable are you?

How you have approach designing your operational capacity in terms of that would be underwriting team that you've got the credit collection team and your ability to manage that effectively and execute well?

Yeah Jeff. It's' Jason, great question.

So I have a couple comments one as we've built out for the most part our store network the majority of the growth in terms of how we will originate and service those customers will reside within our existing store base. So we'll obviously need to add existing or add new labor to those stores as we had incremental customers but the platform is there to do it and with the growth we've seen in the last several years we feel confident we can add the personnel needed within the store network to support that growth.

Within the centralized function to be think about credit risk we continue to add to complement to our risk and analytics team well most of all the credit decision happens fully centralized and through the platform it has the capacity to scale and handle the volume without burden on labor. And then within our call center operations, we've been building that compliment in that team for a number of years now so we will of course incremental labor to support that growth.

But a lot of the work we've done isn't to invest in the technology in the capabilities that allow us to be able to handle more volume without necessarily adding more people. So within collections for example we've got dialer technologies, automated text messaging technology, e-mail technologies so a lot of the technology that we've invested in also makes the business platform much more scalable as well.

So certainly we're mindful of making sure that we grow at a pace we feel we can comfortably manage but the outlook we provided is within the range that we feel good about.

Just two points I would add Jeff, if we go back in to our history from 2001 to 2008, we almost tripled the size of the leasing business so we're able to look back with some experience on how to build in scale and organization will be at slightly different products but we've been through the process successfully once before. So I think that gives us some history to work from in terms of building the second growth platform through easy financial.

And then the second point I'd make is with the new office changes and restructure reopening in September we've expanded the space sufficiently and we have a call on extra spaces that we can expand into in 2020, that will allow us to reach our loan book targets over the next 5 to 10 years so we have the resources and the capacity. We've been always planning for a much, much bigger loan book and with that comes the plan to make sure we've got the right space with the right people and the right tools to do the job.

When we move on to credit quality and performance there I mean you've been able to put it quite good but can you just discussed that on how does it look on a static pool basis versus what we're seeing here with the growth is so strong when you talk about a 12% charge off rate there. Is that what it should get to is relatively steady state lease was?

Hey, Jeff, it's Jason Appel here. Static pools generally have been quite consistent year-on-year as you know we've been gradually increasing the loan size of the book through so periodic changes to our credit underwriting.

So granted our loss rate the quarter is really being aided by the accelerated growth but when we eliminate the impacts of those growths and simply look at the static pools on a year-over-year or quarter-over-quarter comparison basis. We're at where we need to be we're not seeing a sequential increase if anything were flat or somewhat under the year-over-year performance which is how we generally engineer the credit models to perform and as I said before we've generally been very mindful about how we go about doing that as we continue to test and roll out these new models and modify them over time our overall goal is not to increase the risk to the business if anything it's to do the opposite.

So the way to think about it going forward as you think about our new three year targets is we would expect our standard run rates to be in and around the 11, to 13, to 14 range as we continue to scale up the portfolio and change the mix but as we have guided the outset of the year between 12 to 14 obviously we're at the lower end of that range and some of that is being driven by the continued expansion of risk adjusted pricing but that's generally how we feel the rest of the year should come in generally within that 12 to 14 range.

Okay. And then as you're moving along I mean you're obviously extending the products structure you're extending to ration and up in the size a bit and kind of maybe it's a little bit a color around are you accessing the performance there, your ability to course correct as you bring in some fairly sizable incremental chunks of loans on the books here?

Yeah that's good question. One of the things that we certainly do in the business on a monthly basis is we do, apply on a very detailed level how our losses are performing relative to how the models are expecting them to perform.

So that exercise goes on monthly and invariably if we were it were to see some variances outside of where those expectations would lie we do have the ability to course correct relatively quickly these models are structured in such a way that we can recalibrate them literally within a couple of days and if need be if we find that those models themselves are not performing up to speed we can effect if we take them out of production if you will within a couple of maize. And since we employ multiple models in any one given strategy, we never rely and put all of our eggs in one basket.

So our ability to course correct historically as it is going forward is relatively strong and again since we do monitor the portfolio at quite a detailed level monthly we feel quite confident that we're we to see any abnormal behaviors we have the ability to get out front of it before being surprised at the backend.

I would just add to that Jeff. As we've talked about before we've employed a fairly rigorous test and learn philology so if you think about the average loan size that's something that's been a very gradual and steady increase over an extended period because we've made small adjustments watch those static pools over time when we get comfortable with the performance we make another incremental adjustment and that's really just the philosophy we've betted into our risk management practice so it's very similar with the secured loan product while you can see that even after kind 8 to 10 months in market.

It still represents a fairly small portion of our business a good portion of that is just being more cautious with the way that we make changes and adjustments so that we only make them once we feel really confident and in the way things are performing.

All right. Those are helpful answers.

Thank you, I'll be in queue.

Hi, good morning, guys. I just want a couple things I want to focus on secured the secured product line.

Can you talk about how big an opportunity you think that could be what kind of rate you charging and who's the competition in that space for you?

Yes sure. So certainly besides the opportunity significant it represents a decent share of $185 billion non-prime consumer market space that we highlighted earlier.

Today it's about $32 million portfolio at the end of the quarter as we think about the targets that we put out going forward, it will increase its share of the total portfolio but long term we don't see it increasing to much more than probably 10% to 20% of the total portfolio targets that we've published. So it'll be a meaningful piece but not certainly the lion's share that will continue to be the unsecured product.

In terms of competition, some of our traditional direct competitors like Fairstone would offer a product like that but because it is leveraging the customer's home equity as the backup security there are also other lenders in the space that cater to products like that such as capital direct and helpline credits those of the other two that are sort of in what you call the near prime space offering customers that have home equity access to the loan products that they can borrow. So it does expand our competitive set somewhat but we do have a very different distribution model from all of those lenders which is the branch based lending model where we build an established relationships and graduate customers into those products overtime as opposed to some of those other alternative competitors who are really relying purely on a mortgage broker channel for acquiring and originating customers.

So I don't think that they certainly have the brand in the customer loyalty and retention philosophy that that we would have so that's where we think we can be different and we can win and compete.

Okay. Just on the - I want to make sure most of numbers are right on the availability of cash.

So the borrower you have $175 million available but you've drawn I think $50 million as of June 30. You've got the CAD 200 million that should of their knows you just did and then you had $19 million in cash on the balance sheet so that's $344 million by my math availability to get to $1.1 billion sort of yearend 2019, that leaves about $150 million gap versus where you're at today.

So that's can be filled in for that you're confident can be filled in from cash flow from operations? And then of course are my numbers rights?

So Doug, your numbers are right. There's obviously the growth to retained earnings.

So that will fill the gap and if you look at the revised guidance we've obviously built cash flow production on those new revised targets. So we are very good where we are getting into the second of 2020.

Second quarter of 2020. Okay.

Yeah.

Okay. Perfect.

Thanks very much guys. That's it for me.

Thanks, Doug.

Hi, good morning.

Good morning.

So in your MD&A there is now a disclosure that loan is classified as non-performing, if you think it's likely later charge-off i.e. delinquent for 30 days.

I just wanted to verify that just new disclosure that's consistent with Q1 when you adopted IFRS 9?

Hey Brenna, it's Jason. Yeah, that is not a new disclosure that is consistent with how we classified under IFRS 9 beginning in Q1.

Okay. I just think the disclosure is not paragraph at the MD&A.

And I'm following on that as your charge-off are being helped by improved collection policies. Is that are you getting relief from better more effective collections in your IFRS 9 provisioning methodology?

So always that a bit of a roundabout way so ultimately the lion share of the provision as we talked about in the past is a function of the historical loss rate performance. And given that the improvements in collections will drive down the loss rate as we get better collections that in and of itself can help the historical loss rate and therefore the provision even all things being equal credit adjustment or changes.

So the answer is essentially yes both the credit and the collections collectively contribute to the historical loss rate. The historical loss rate represents the lion share of the provision.

Okay. So fair to think of that and yes but on a lag because it has to actually show up in your credit performance before you can model it out on a go forward basis?

That's exactly right. That's right.

Brenna, it's Jason, you just to clarify your original statement again the methodology that we used to classify loans as non-performing is the same methodology that we did use in Q1. The disclosure that you're referring to is new in the MD&A because we provided a little bit more info to the market about how we classify the three buckets.

Okay. Perfect.

Thank you and just could you give a little bit more color on the white label agreement and maybe who the partner is and how much this is expected to contribute to the growth?

Yes. So it's actually a partnership that we've had for a number of years now we've talked about in the past with a company called Refresh financial.

Historically, we've always had a partnership where we've operated on a purely referral basis so when we have customers that are declined for access to our products we referred them to them as an alternative way to go, get something that would allow them to build their credit. We're now expanding that partnership in a capacity to allow us to white label the product and then allows us to have a bit more control over the customer experience the brand, the pricing and really its contribution to the growth is by way of the fact that when a customer subscribes to the product and uses it as a form of building their credit.

We now can monitor their payment history and cross market them those other traditional unsecure and secured products when we've seen their payment history improve and when we've seen their credit improve. So the way to think about it is we get 10,000 to 20,000 declined applicants every month where we're unfortunately unable to offer them one of our other lending products.

So this is a very good way for those customers that have an opportunity to build credit so that they can build history with us and then we can migrate them over. So that's why when I talked about in the commentary earlier the majority of our future growth coming from our existing core products.

Other new initiatives like that will help lead and fuel the growth of the core products because they are be a cross sell opportunities.

Okay. So you're not this is not your capital but you're just now by way of labeling and having more involvement with monitoring the performance versus fully funding it off to refresh?

That's exactly right. Yeah it still be the ultimately their loan that they'll carry.

We're just making the relationship more deeply integrated and white labeling it so that it's more of an easy branded solution and we have more access to the data.

Okay. And so in the breakdown of net credit extended to new versus existing customers looks like there's seasonality in Q2 of more loans extended to existing customers.

Is that a seasonal trends or and looking forward what would you expect the breakdown to be net new to existing customers and versus to net new customers?

Jason again here Brenna. There would be some seasonality in those numbers clearly there would be an impact arriving from a very strong Q4 originations that we occurred that occurred in Q4 2017.

So we typically find the customers borrowing that front time frame and sometimes come back for an adjustment or an increase in their borrowings with the easy financial. So we do see a somewhat of a skew in Q2.

The way to think about it going forward is that we would expect that to normalize more around what we saw in Q1 as we look to Q3. But since we've had a very strong period of net new customer growth certainly in the first two quarters of the year we would expect probably two to three quarters from those points to see an increase in those customers ability to borrow again, if only because by that point they would have demonstrated some a stable credit performance and history with us, allowing us to then consider them for a future increase of their existing facility and or rate adjustment on their borrowing amount.

So it is a trend that we expect to see more or less consistent as we look at going forward. But it is being fueled by the stronger new customer growth that we saw in the latter part of last year in the early part of this year.

Okay.

I think the takeaway Brenna, there will be some small piece adjustment quarter-to-quarter as Jason highlighted on a year-over-year basis the loan origination to new customers has held and or slightly increased as a percentage of the little net advances. So for us that's the way we really look at it and monitor it is ensuring that the majority of the growth continues to come from the addition of new customers and as you saw on the release yesterday was a record quarter for net customer additions so that's what is real confidence in the health of business.

Great. And then last one for me and then I'll re-queue.

Just on your leverage ratio, the new covenant published looks like that consolidated leverage ratio a lots of room now. Is that now less restrictive than what you would view the rating agencies as required to keep your access to the high yield markets open which one of those is a tighter covenant right now?

Guidance for it if?

It does a lot of variables Brenna to that piece because as you're probably aware the different rates and agencies have slightly different methodologies of doing the calculation so one of them use his net versus gross one uses gross versus net and then they have some slight adjustments to that. Based on the conversations we packed with both S&P and with Moody's we feel very good with where the rating agencies all with their outlook and their rating.

It is fair to say that one of those rates in agencies is very close to the same laboratory sure that we got from the banks on the change to the covenants. So all three stakeholders they are really key to us preserving that rating and getting access with that rating are pretty much aligned and that's what keep in us talk to keep within 70% on the debt capitalization leverage.

So for us that's telling us how we should manage to cap structure going forward and we feel very good looking forward over the next at least the next 18 months that will stay within the 70% target ratio.

Okay. Thank you very much.

As long as we that we feel pretty good with the rating agencies that there would be no negative change to the outlook.

Okay. Great.

Thank you I'll be in queue.

Thank you.

Thanks. Good morning.

First just on you're going back to three year outlook and want to dig deeper in your function. I know that where in the late economic cycle.

Just wondering how you stress tested maybe a recession scenario within your two year time frame would you get to the lower end of your guidance or how should I think about that?

Yeah sure. It's Jason.

So as we've talked about before we do quite a bit of research analysis on our consumer set and looking at a combination of credit data and research analysis may have built as well as looking at prior peer groups and what their performance looked like through different economic cycles. And we generally feel strongly that our consumers fairly stable during periods of economic shock.

Now granted that may result in some tax impact and as you said could put some pressure on being in the lower end of our guidance versus the mid or the high point, it could certainly have some pressure but we feel pretty good that the way we've modeled this that's economic condition change shouldn't create a material adverse effect on our ability to perform and achieve these targets. And I think that's also evidence by the work we've done to in this release, show you some of the sensitivity analysis through the provision model as to what impact things like changes in unemployment and inflation have on our particular portfolio which as we showed in the MD&A is consistent with what we said which is it's fairly minimal in terms of its impact on our consumer.

So model is built on the assumption that all things to equal and there's no material change but in the event that there is we think our customer remains fairly stable.

Okay. Got it.

There just sorry Gary, can I just one thing to follow-up on that as we've gone through obviously a lot of different presentations over the last number of months as we refinance the debt structure, one of the key takeaways from that analysis that Jason referred to was when we look at the debt to income ratio of existing customers at the financial business that's approximately half what the ratio is for the average Canadian in Canada today. So the 171% that's referred to commonly when we used the same calculation for the easy financial consumer that number is about 86%.

So there's a lot of data that tell the suggest to us that a customer's doing very well at the moment and even in an environment where they get into a very difficult economic challenge as we've said in the past they're quite resilient and they hold up pretty good and certainly better than the average Canadian.

Got it. That's helpful.

And then Jason just come back to you just on the new product side you mentioned product launches in your prepared remarks. Can you elaborate maybe which was more meaningful and can you give us an update on what other products you're looking at and perhaps a timeframe on when you'll be rolling that out and maybe just some rights what is or is not including your 209, 2020 guidance?

So I'll be a little bit wag and that we're still doing the research and the analysis and certainly haven't made any decisions yet. So let me maybe frame it this way if we look at that full non-prime credit market and you break it down by product category it really represents kind of four major products.

Traditional installment loans, auto loans, credit cards and lines of credit those would be the kind of four major product categories that sit within the space. So those are obviously all the options we have to consider and the ones we're doing the research and analysis on obviously installment lending is the one we're in today.

So the thinking that we're putting into that is looking at which ones over index within our specific non-prime consumer set, qualitative research and understanding from the customer where they see the availability for these products and what products they feel that they need to manage their everyday financial life. And then also layer on top of that which products are actually good healthy products for our customer.

So we know for example current things like credit cards and lines of credit those can be challenging products for our customers given their non-prime profile so we're being cognizant aware of that when we consider which products we might pursue. So all of the research is both is happening to figure out which ones are most appealing to our consumer site which ones we feel good about that we can we can build and execute well.

In terms of the assumptions built into the forecast we put in very, very little contribution from the introduction of the new product to the targets. The majority of the targets as I highlighted in the prepared comments are built upon our existing products that and then the new initiatives that will drive growth of those products.

As I highlighted really are if you look at secure lending launch for an example, it takes a look at a good while when you launch a new product to introduce into the market create awareness and then follow our philosophy of test and learn before we get more ambitious with the product growth and so we want to follow that same approach and so if you think about us launching a product sometime in 2019 or 2020 as it relates to the next three years it will represent a fairly minor share of that.

Okay. That's helpful.

And then just last question maybe for David you then just on the corporate expenses $11.3 million a quarter, a bit higher versus last year in Q1, were there anything unusual that's good in that line and you can help me out with a good run rate to use going forward?

Yeah sure, Gary. In terms of the driver behind increase in media the corporate classes really a couple of factors one we've been bringing in additional management ahead office to help us continue the growth of the business expanded in this and I delivered channel develop new products and the like.

And the second piece is that accrued but not paid incentive compensations but a little bit higher given the growth in the financial results of the business have exceeded our internal expectations budget. In terms of a run rate you probably want to use over the next few quarters probably looking at around call it 12 to 12.5 for the next call it 2, 3, 4 quarters, is probably a reasonable way to model this out.

Perfect. That's helpful.

That's if for me. Thank you.

Hi, thank you. Good morning, guys.

Good morning.

Good morning. I have just - just coming back to the sort of long term growth guidance and you mentioned some of the new initiatives and I think there were four in terms of digital loan applications improving your credit model underwriting, the white label product as well as new loan products adding the 2019.

Can you just talk a little bit about how those each of those factors is sort of driving your expectation for loan book growth or is it more coming from the sort of the core business at this point plus these secured lending?

Sure. So if you think about the core business being our unsecured loan including the risk adjusted pricing feature the expansion to can back the secured lending products and then the investments that we've made in creating brand awareness throughout Canada for easy financial, those collectively absolutely drives the majority of the growth and so when we built this we've done a very concentrated bottom up forecast that looks at the very most granular level what do we expect in terms of web traffic, online application volume, retail application volume, what we expect funding rates and approvals to look like and built month-by-month from the bottom up in a very deliberate way.

These new initiatives are the things that we feel add to our optimism and our confidence because we know that they will contribute to the performance of the business. So for example we know what our historical funding rate is for an individual that builds visits our website and how that traffic converts into a customer the enhancements we're making to our digital platform give us confidence that we will be able to do a much better job of optimizing that traffic and then driving incremental growth.

So we've built in some small assumption for improvements as a result of those new initiatives. So that's how you would think about each of those new initiatives they've been layered on with an assumption that they will drive some contribution but the contribution from them represents a much smaller part of the majority is from the continued growth of those new initiatives which still today represent a fairly small piece of the portfolio and have quite a bit of runway for growth.

Great. Okay.

That's helpful. And you mentioned obviously higher increase in Web traffic and I think online loan applications.

Is like when you think about it over the next couple years do you believe that you'll see the majority of your growth coming from online loan applications or in-store?

So we've been tracking the mix of our applications for number of years now and I would say that over the last few years the mix fluctuates one quarter to the next but it generally stays pretty consistent. And so I think given that more and more consumers are moving towards using digital applications as a way to get speed and convenience that is share of our application pool is certainly not going to decline anything we may say see some increase.

But we'll still follow our philosophy of using web to drive trafficking capture application velocity and then using our store networks to send those customers into a region and service and manage their loans. So I think that the way we've modeled the business is that that mix will remain broadly similar to what we've seen in the last few quarters with perhaps a slight increase in the velocity coming from online.

Just to give a little bit more context that ever think if you were to take the application flow that comes from out in direct partners so the merchant partners and the online put those two together you have the majority of the funding or the application will coming through those sources. And therefore well retail do the heavy lifting at closing the transaction the majority of the cases.

The majority is going to come through as we expand our indirect channel and on line competence those two combined will probably give us the majority so one of 50% of the of the application fill?

Right. Okay.

So sort of the discussion we still need to go to the store to finalize the completion of the loan?

Yes So Steve that's always been our - it's always been our philosophy in approach and it will remain to be so as you saw our same store revenue at the existing branches went up quite nicely in the last two quarter. So we believe that philosophy of driving everything online and pushing the customer to experience the relationship side of these stores has served us well for the last number of years and we believe that the right greeting to success for the future as well.

Okay. Yeah, right.

Just want to make sure you haven't change materially?

No.

Which is great. And then just finally just when I think about sort of modeling going forward it gives a good color for the run rate for corporate expenses for the next three quarters.

Beyond that do you expect that the corporate costs would increase from that to support a growth into 2019, 2020? And then secondly how do you look at some of the other non-operating items like amortization moving over the next couple years as you increase the loan book?

So I mean picking up the first part of that question there absolutely will be a need to increase resources to support the scatter the size of the business. I think the key process in the discipline that we've used for the last 18 years is to ensure that while the absolute dollar investment will continue to rise with the growth of the business at the scale an efficiency should improve and therefore we should use we should see some leverage.

And I think what you should expect us in spite to see from us over the next couple of years, is that the relative cost as a ratio to the revenue of the business will see some decline and will get more efficient as we expand the size of the book and obviously the management business. And I think a lot of that is what information at confidence in the return on equity measures on the operating margin measures as you've seen with those go forward in our three year guidance.

Okay. That's great.

And then just on the maybe the D&A?

Yeah, sure. Steve, let me touch on that briefly.

So if you look at the CapEx back in 2016 came in around for - 2017 around $12 million, our 2018 for the first half a year we are around $6 million. And we anticipate spending more in Q3 related to office redesign as David has indicated.

So the total CapEx in 2018 are coming at around $19 million with approximately 13 of that being recurring CapEx in these sort of franchise, IT things like that. For modeling purposes, I think you can likely use that run rate of CapEx going up the next few years at 12% to 13% at current CapEx and model D&A accordingly.

Okay. That's great.

Thank you very much to you all.

Hi could you just give a little bit more color on in your target you increase modestly the net charge-off assumption that the revenue yield stayed constant is that just if you're looking within the band maybe slightly higher revenue yield there are is should I think of this is building a bit of a buffer and here charge-off assumptions?

Yeah good question yeah it's really just a matter of that when we remodel the business and added in the stronger demand for the unsecured product we felt that the bans we had previously established were still appropriate and didn't need to change while we had to make some small adjustments to the bands on the on the losses. So given that I think we provided the two full point band range for both numbers that gives us the ability to feel comfortable that even though the product mixes of all slightly in our latest set of targets will still fall within both of those ranges.

Okay. Thank you.

Okay. Okay, I wish to on behalf of the management team, thank you everyone again for their participation and interest in the company and we look forward to updating you for the Q3 results in November.

Thank you.