Propel Reports Record Second Quarter Results and Declares Quarterly Dividend

TORONTO–(BUSINESS WIRE)–Propel Holdings Inc. (“Propel” or the “Company”) (TSX: PRL), an innovative fintech company dedicated to credit inclusion, today reported record financial results for the three months ended June 30, 2023 (“Q2 2023”) and declared a dividend for the third quarter of 2023. All amounts are expressed in U.S. dollars unless otherwise stated.

Financial and Operational Highlights for Q2 2023 

Comparable metrics relative to Q2 2022 and year-to-date Q2 2022, respectively

• Revenue: increased by 33% to $71.7 million in Q2 2023, and increased by 31% to $137.3 million for year-to-date through Q2 2023, representing record performance for both periods
• Adjusted EBITDA¹: increased by 114% to $18.2 million in Q2 2023, and increased by 93% to $35.3 million for year-to-date through Q2 2023, representing record performance for both periods
• Net Income: increased by 183% to $5.7 million in Q2 2023, and increased by 123% to $13.1 million for year-to-date through Q2 2023, representing record performance for a six-month period ending Q2
• Adjusted Net Income¹: increased by 102% to $8.6 million in Q2 2023, and increased by 71% to $16.9 million for year-to-date through Q2 2023, representing record performance for both periods
• Diluted EPS: increased by 174% to $0.15 in Q2 2023, and increased by 116% to $0.36 for year-to-date through Q2 2023, representing record performance for a six-month period ending Q2
• Adjusted Diluted EPS¹: increased by 96% to $0.23 in Q2 2023, and increased by 66% to $0.46 for year-to-date through Q2 2023, representing record performance for a six-month period ending Q2
• Loans and Advances Receivable: increased by 53% in Q2 2023 to $215.7 million, a record ending balance
• Ending Combined Loan and Advance Balances (“CLAB”)¹: increased by 53% in Q2 2023 to $273.2 million, a record ending balance
• Dividend: Paid a Q2 2023 dividend of C$0.10 per share on June 7, 2023, representing a 4.3% dividend yield against Propel’s closing share price on August 10, 2023

Management Commentary

“Propel delivered another outstanding quarter of record results in Q2 including record revenue, Adjusted EBITDA¹, Adjusted Net Income¹ and Ending CLAB balance¹. After experiencing a more typically seasonal first quarter, our business returned to a period of robust originations driven mainly by new customer volume.

Growth of new customer volume was driven by strong consumer demand, which coupled with a resilient macro-economic environment and continued strong credit performance, led to record originations. Critically, Propel achieved these results while we and our Bank Partners maintained a prudent approach to underwriting. We can facilitate access to credit to more consumers, while driving profitably for shareholders because our AI builds a more accurate prediction of credit performance than credit scores used by traditional lenders. This translated into improved provision for loan losses and other liabilities as a percentage of revenue, which decreased to 51% during the second quarter from a high point of 58% in Q2 2022.

As we move into the second half of 2023, we expect growth to accelerate as a result of: (1) expanding our established programs by continuing to originate new, high credit quality customers for us and our Bank Partners; (2) scaling Pathward®, N.A. and Fora; and (3) realizing additional market opportunities including new products, partners and geographies. At Propel, we’re building a new world of financial opportunity and we are just getting started,” said Clive Kinross, Chief Executive Officer.

Discussion of Financial Results and Business Strategy

• Resilient macro-economic environment and strong consumer demand, drove new customer growth in Q2
  • Macro-economy remained resilient, supported by moderating inflation, continued economic growth, 50-year low unemployment and continued real wage growth
  • Consumer demand supported by several factors including: the continued industry-wide transition from brick-and-mortar to online lending and the tightening across the credit spectrum, which increased the quality and volume of applications on Propel’s platform
  • Macro-economic environment remained dynamic and consequently we and our Bank Partners remained vigilant with a prudent risk posture
• Revenue increased by 33% to reach new quarterly record
  • Revenue increased by 33% to a record of $71.7 million in Q2 2023, compared to $54.1 million in Q2 2022. This growth was the result of the 53% growth in CLAB¹, offset by a decrease in Annualized Revenue Yield¹ to 110% in Q2 2023 from 128% in Q2 2022
  • Decrease in Annualized Revenue Yield¹ was a result of a reduction in the cost of credit across the portfolio as we and our Bank Partners continued expanding the product offerings to a stronger credit profile consumer segment. We do note that Annualized Revenue Yield¹ increased relative to Q1 2023 which was reflective of the higher new customer volume
• CLAB¹ grew by 53% driven by robust consumer demand and the expansion of our portfolio towards those consumers higher on the credit spectrum
  • CLAB¹ increased by 53% to a record $273.2 million as at June 30, 2023, compared to $179.0 million at June 30, 2022. The increase was supported by record Total Originations Funded¹ of $102.6 million in Q2 2023, an increase of 5% from $97.5 million in Q2 2022
  • Growth in the CLAB¹ was driven by those macro-economic factors and Total Originations Funded¹ discussed above in addition to: 1) the growth in new customer originations; 2) the expansion of variable pricing and graduation capabilities; 3) the growth of the Bank Programs; 4) rollout across Canada and 5) the expansion of key marketing channels
• Net income and Adjusted Net Income¹ increased due to overall growth, lower relative provisions, operating leverage and effective operating expense management
  • Net income increased by 183% to $5.7 million in Q2 2023, compared to $2.0 million in Q2 2022 and Adjusted Net Income¹ increased by 102% to $8.6 million in Q2 2023, compared to $4.3 million in Q2 2022
  • Growth in net income and Adjusted Net Income¹ was primarily a result of the overall growth of the business, lower provision for loan losses and other liabilities as a percentage of revenue, operating leverage and continued technology enhancements driving increased automation in originations and loan servicing, lowering our operating costs
    • These factors resulted in the net income margin increasing from 4% in Q2 2022 to 8% in Q2 2023, and the Adjusted Net Income¹ margin increasing from 8% in Q2 2022 to 12% in Q2 2023
• AI as meaningful differentiator in evaluating risk and driving profitability
  • Key to our profitable growth is our proprietary underwriting technology. We have been successfully using our AI for several years and, based on our experience, Propel’s AI-powered underwriting technology can better evaluate risk for us and on behalf of our partners, than traditional credit scores. With over 12 years of proprietary data and years of experience developing and improving our models, we believe that we have one of the industry’s leading AI models
  • Provision for loan losses and other liabilities as a percentage of revenue significantly decreased to 51% in Q2 2023 from a high point of 58% in Q2 2022. This was partly driven by a decrease in year-over-year Net Charge-Offs as a Percentage of CLAB¹ from 15% in Q2 2022 to 12% in Q2 2023. This improvement was driven by our prudent underwriting and application of AI capabilities
  • Technology platform enabled us to originate additional volume without incurring significant additional cost demonstrating the operating leverage and scalability of our business model
• Continued growth in Canada under our Fora brand, with expansion to new provinces
  • In Canada, under our Fora brand, we continue to grow originations through new and existing provinces
  • On July 26, 2023, we launched Fora in New Brunswick and Newfoundland and Labrador expanding our Canadian operations to six provinces
  • As previously disclosed, the proposed legislation by the Canadian government continues to have no impact on our guidance for 2023
• Launching LaaS program with Pathward to expand access to lower-risk market
  • Our program with Pathward launched on June 20, 2023, in line with expectations. The program marked the official launch of our LaaS product offering
  • Notably, this represents fee revenue to Propel, expansion into sub-36% APR consumer lending products and the diversification of our business. Similar to Fora, this program will not have a material impact to our 2023 guidance

Note:
(1)	See “Non-IFRS Financial Measures and Industry Metrics” and “Reconciliation of Non-IFRS Financial Measures” below. See also “Key Components of Results of Operations” in the accompanying Q2 2023 MD&A for further details concerning the non-IFRS financial measures and industry metrics used in this press release including definitions and reconciliations to the relevant reported IFRS measure.

Declaration of Q3 2023 Dividend 

Propel also announced today that its board of directors has declared a dividend of C$0.10 per common share, payable on September 8, 2023 to shareholders of record as of the close of business on August 18, 2023. The Company has designated this dividend as an eligible dividend within the meaning of the Income Tax Act (Canada).

Conference Call Details 

The Company will be hosting a conference call and webcast tomorrow morning with a presentation by Clive Kinross, Chief Executive Officer, and Sheldon Saidakovsky, Chief Financial Officer.

Conference call details are as follows:

Date:	Friday, August 11, 2023
Time:	8:30 a.m. ET
Toll-free North America:	1-888-886-7786
Local Toronto:	1-416-764-8658
Conference ID:	88200336
Webcast:	Click here
Replay:	1-877-674-7070 or 1-416-764-8692 (PIN: 200336 #)

About Propel 

Propel (TSX: PRL) is an innovative financial technology (“fintech”) company, committed to credit inclusion by facilitating fair, fast and transparent access to credit through its proprietary, industry-leading online lending platform. Understanding the challenge faced by millions of people without adequate access to credit, Propel, through its operating brands, is dedicated to bringing best-in-class credit solutions to consumers in Canada and the United States. For more than a decade, Propel has leveraged its expertise in consumer lending, its robust capabilities in artificial intelligence and underwriting, and its steadfast dedication to a superior customer experience to facilitate over one million loans and lines of credit to consumers in need. For more information, please visit propelholdings.com.

Non-IFRS Financial Measures and Industry Metrics 

This press release makes reference to certain non-IFRS financial measures and industry metrics. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. Such measures include “Adjusted EBITDA”, “Adjusted Net Income”, “EBITDA” and “Ending CLAB”. This press release also includes references to industry metrics such as “Annualized Revenue Yield” and “Total Originations Funded” which are supplementary measures under applicable securities laws.

These non-IFRS financial measures and industry metrics are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. We believe that securities analysts, investors and other interested parties frequently use non-IFRS financial measures and industry metrics in the evaluation of issuers. The Company’s management also uses non-IFRS financial measures and industry metrics in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts, and to determine components of management and executive compensation. The key performance indicators used by the Company may be calculated in a manner different than similar key performance indicators used by other similar companies.

Definitions and reconciliations of non-IFRS financial measures to the relevant reported measures can be found in our accompanying MD&A available on SEDAR+. Such reconciliations can also be found in this press release under the heading “Reconciliation of Non-IFRS Financial Measures ” below.

Forward-Looking Information 

Certain statements made in this press release may constitute forward-looking information under applicable securities laws. These statements may relate to our ability to accelerate our growth in the second half of 2023, the expansion our established programs by continuing to originate new, high credit quality customers for us and our Bank Partners, scaling Pathward®, N.A. and Fora and evaluating additional market opportunities including new products, partners and geographies, and our ability to profitably grow our business and facilitate access to credit to more and more underserved consumers. As the context requires, this may include certain targets as disclosed in the prospectus for our initial public offering, which are based on the factors and assumptions, and subject to the risks, as set out therein and herein. Often but not always, forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “believe”, “estimate”, “plan”, “could”, “should”, “would”, “outlook”, “forecast”, “anticipate”, “foresee”, “continue” or the negative of these terms or variations of them or similar terminology.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the factors discussed in the “Risk Factors” section of the Company’s annual information form dated March 22, 2023 for the year ended December 31, 2022 (the “AIF”). A copy of the AIF and the Company’s other publicly filed documents can be accessed under the Company’s profile on SEDAR+ at www.sedarplus.ca.

The Company cautions that the list of risk factors and uncertainties described in the AIF is not exhaustive and other factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. The forward-looking information contained in this press release represents our expectations as of the date of this press release (or as the date they are otherwise stated to be made), and are subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Selected Financial Information

		Three Months Ended June 30,		Six Months Ended June 30,
(US$)		2023	2022	2023	2022
Revenue		71,688,456	54,080,680	137,305,788	104,597,637
Provision for loan losses and other liabilities		36,206,543	31,160,299	67,343,216	54,711,930
Operating expenses
Acquisition and data		9,387,011	7,066,697	16,283,848	15,713,778
Salaries, wages and benefits		7,489,202	6,011,422	14,653,417	12,467,261
General and administrative		1,787,901	1,755,553	4,113,577	4,010,311
Processing and technology		2,567,635	2,369,615	4,796,616	4,890,993
Total operating expenses		21,231,749	17,203,287	39,847,458	37,082,343
Operating income		14,250,164	5,717,094	30,115,113	12,803,364
Other income (expenses)
Interest and fees on credit facilities		(5,210,245)	(1,729,758)	(10,066,778)	(3,023,035)
Interest expense on lease liabilities		(80,758)	(98,185)	(166,225)	(200,605)
Amortization of internally developed software		(814,771)	(632,603)	(1,600,660)	(1,197,056)
Depreciation of property and equipment		(47,736)	(44,006)	(95,514)	(66,813)
Amortization of right-of-use assets		(162,451)	(154,510)	(324,163)	(314,462)
Foreign exchange gain (loss)		11,714	79,994	(10,917)	116,984
Unrealized gain (loss) on derivative financial instruments		89,374	(329,721)	63,342	(107,828)
Total other income (expenses)		(6,214,873)	(2,908,789)	(12,200,915)	(4,792,815)
Income before transaction costs and income tax		8,035,291	2,808,305	17,914,199	8,010,549
Income tax expense (recovery)
Current		3,861,377	1,542,644	5,746,751	2,920,915
Deferred		(1,531,184)	(747,443)	(952,829)	(799,997)
Net Income for the period		5,705,098	2,013,104	13,120,276	5,889,631
Earnings per share:
Basic		0.17	0.06	0.38	0.17
Diluted		0.15	0.06	0.36	0.17
Dividends:
Dividends		2,553,447	2,579,642	4,955,800	5,142,699
Dividends per share		0.074	0.075	0.144	0.150

Reconciliation of Non-IFRS Financial Measures

The following table provides a reconciliation of Propel’s net income to EBITDA¹ and Adjusted EBITDA¹:

			Three Months Ended June 30,		Six Months Ended June 30,
(US$ other than percentages)			2023	2022	2023	2022
Net Income			5,705,098	2,013,104	13,120,276	5,889,631
Interest and fees on credit facilities			5,210,245	1,729,758	10,066,778	3,023,035
Interest expense on lease liabilities			80,758	98,185	166,225	200,605
Amortization of internally developed software			814,771	632,603	1,600,660	1,197,056
Depreciation of property and equipment			47,736	44,006	95,514	66,813
Amortization of right-of-use assets			162,451	154,510	324,163	314,462
Income Tax Expense (Recovery)			2,330,193	795,201	4,793,922	2,120,918
EBITDA1			14,351,252	5,467,367	30,167,539	12,812,520
EBITDA margin1 as a % of revenue			20%	10%	22%	12%
Provision for credit losses on current status accounts2			2,098,008	2,624,603	2,692,188	4,179,852
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities			1,757,978	423,971	2,392,964	1,252,518
Adjusted EBITDA1			18,207,239	8,515,941	35,252,690	18,244,890
Adjusted EBITDA margin1 as a % of revenue			25%	16%	26%	17%
(1) See “Non-IFRS Financial Measures and Industry Metrics”.
(2) Provision included for (i) loan losses on good standing current principal (Stage 1 — Performing) balances (see “Critical Account Policies and Estimates — Loans and advances receivable” in the accompanying Q2 2023 MD&A).

The following table provides a reconciliation of Propel’s Net Income to Adjusted Net Income¹ and Adjusted Net Income margin¹:

			Three Months Ended June 30,		Six Months Ended June 30,
(US$ other than percentages)			2023	2022	2023	2022
Net Income			5,705,098	2,013,104	13,120,276	5,889,631
Provision for credit losses on current status accounts net of taxes2			1,573,506	1,929,083	2,019,141	3,072,191
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities net of taxes2			1,318,484	311,619	1,794,723	920,600
Adjusted Net Income1 for the period			8,597,088	4,253,806	16,934,140	9,882,422
Adjusted Net Income Margin1			12%	8%	12%	9%
(1) See “Non-IFRS Financial Measures and Industry Metrics”.
(2) Each item is adjusted for after-tax impact, at an effective tax rate of 25.0% for the three months and six months ended June 30, 2023 and at an effective tax rate of 26.5% for the three months and six months ended June 30, 2022.

The following table provides a reconciliation of Propel’s Ending CLAB¹ to loans and advances receivable:

		As at June 30,		As at Dec 31,
(US$)		2023	2022	2022
Ending Combined Loan and Advance balances1		273,195,030	178,968,408	247,488,344
Less: Loan and Advance balances owned by third party lenders pursuant to CSO program		(3,096,208)	(3,971,770)	(2,988,636)
Less: Loan and Advance balances owned by a NBFI pursuant to the MoneyKey Bank Service program		(27,997,288)	(22,900,712)	(21,088,522)
Loan and Advance owned by the Company		242,101,534	152,095,926	223,411,186
Less: Allowance for Credit Losses		(50,520,769)	(32,805,238)	(49,844,370)
Add: Fees and interest receivable		20,633,383	18,403,343	19,265,893
Add: Acquisition transaction costs		3,471,441	3,085,561	2,795,722
Loans and advances receivable		215,685,589	140,779,592	195,628,431
(1) See “Non-IFRS Financial Measures and Industry Metrics”.

 

Contacts

For further information:

Lindsay Finneran-Gingras

Vice President, Communications

[email protected]

Devon Ghelani

Senior Director, Capital Markets and Investor Relations

[email protected]