PROPEL REPORTS Q1 2022 FINANCIAL RESULTS AND DECLARES QUARTERLY DIVIDEND

Published on 10 May 2022

Revenue increased by 85%, representing record quarterly performance

Total Originations Funded1 increased by 156%

Loans and advances receivable and Ending CLAB1 increased by 120% and 134%, respectively

Declares dividend of C$0.095 per share

TORONTO, ON, May 10, 2022 – Propel Holdings Inc. (“Propel” or the “Company”) (TSX: PRL) today reported its financial results for the three months ended March 31, 2022 (“Q1 2022”) and declared a dividend for the second quarter of 2022. All amounts are expressed in U.S. dollars unless otherwise stated.

Management Commentary

“Propel’s Q1 2022 results demonstrate the impact that our team’s operational progress has had on delivering profitable growth. In the past year, we have added bank partners, expanded our geographical presence, invested in marketing channels and introduced variable pricing and graduation capabilities, which have all contributed towards record loan balances and revenue growth in Q1 2022. Additionally, as the economy continues to reopen, we are seeing a return to the demand for credit and the transition from brick and mortar to online lending remains firmly intact. Going forward, we continue to be focused on the profitable expansion of our business and we see many opportunities to facilitate access to credit for more and more underserved consumers,” said Clive Kinross, Chief Executive Officer.

Financial and Operational Highlights for Q1 2022

Comparable metrics relative to Q1 2021

  • Loans and Advances Receivable: increased by 120% in Q1 2022 to $124.8 million, a record ending balance
  • Ending Combined Loan and Advance Balances1(“CLAB”): increased by 134% in Q1 2022 to $158.2 million, a record ending balance
  • Total Originations Funded1: increased by 156% to $89.8 million in Q1 2022
  • Revenue: increased by 85% to $50.5 million in Q1 2022, representing record quarterly performance
  • Adjusted EBITDA1: decreased 4% to $9.7 million in Q1 2022
  • Net Income: decreased by 32% to $3.9 million in Q1 2022
  • Adjusted Net Income1: decreased 3% to $5.6 million in Q1 2022
  • Cost of Debt Capital: decreased average effective interest rate to 8.9% in Q1 2022 from 11.3%
  • Dividend: paid a Q1 2022 dividend of C$0.095 per Share on March 10, 2022, representing a 4.8% dividend yield against Propel’s closing share price on May 9, 2022

 

Discussion of Financial Results

Loans and advances receivable increased by 120% to $124.8 million as at March 31, 2022, compared to $56.8 million as at March 31, 2021. The growth in these balances was driven by: 1) the growth in the Bank Programs under our CreditFresh brand which included the ramp-up of our new bank partnership with First Electronic Bank (launched in the second quarter of 2021); 2) the roll-out of 10 new states over the fiscal year 2021; 3) the general economic recovery and return of demand as a result of easing of COVID-19-related restrictions; 4) the expansion of originations through newly-established marketing partners and channels; 5) the successful launch and subsequent expansion of variable pricing and graduation capabilities in the third quarter of 2021; and 6) the industrywide transition from brick-and-mortar to online lending. These factors, along with the significant growth in the MoneyKey Bank Service Program, have also driven the increase in Ending CLAB1 and Average CLAB1.

Revenue increased by 85% to a record $50.5 million in Q1 2022, compared to $27.3 million in Q1 2021. This growth was the result of the 134% growth in CLAB1, offset by a decrease in Annualized Revenue Yield1 to 132% in Q1 2022 from 162% in Q1 2021. The decrease in Annualized Revenue Yield1 is a result of a higher concentration of growth of the Bank Programs relative to our legacy products and the general reduction of interest rates across products facilitated over our platform and the introduction of variable pricing and graduation capabilities. The change in portfolio composition is consistent with the Company’s strategy and is expected to result in higher portfolio growth and lower defaults across the portfolio over time.

Net income decreased by 32% to $3.9 million in Q1 2022 from $5.7 million in Q1 2021. Adjusted Net Income1 decreased by 3% to $5.6 million in Q1 2022 from $5.8 million in Q1 2021. Management believes Adjusted Net Income1 is a truer reflection of business performance as it removes the effect of the non-cash forward-looking credit loss provisions that are recorded on accounts that are otherwise in good standing with no past-due amounts owed and expenses that that are not indicative of continuing operations, on an after-tax basis. The reduction in net income and Adjusted Net Income1 relative to Q1 2021 is the result of: 1) the investment and increased expenses incurred to support the Company’s significant Ending CLAB1 growth in the quarter and recently launched initiatives; 2) the atypical credit environment that the Company experienced in Q1 2021 as a result of COVID-19 related factors; and 3) the addition of costs related to Propel operating as a public company. These are also the primary factors that led to the changes in EBITDA1 and Adjusted EBITDA1.

_________
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 Q1 2022 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 Q2 2022 Dividend

Propel also announced today that its board of directors has declared a dividend of C$0.095 per common share, payable on June 2, 2022 to shareholders of record as of the close of business on May 19, 2022. 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 later this morning with a presentation by Clive Kinross, Chief Executive Officer, and Sheldon Saidakovsky, Chief Financial Officer.

Conference call details are as follows:

Date:May 10, 2022
Time: 8:30AM ET
Conference ID: 7257144
Toll free dial-in: (888) 550-4423
International dial-in: (438) 801-4067
Webcast: Click here
Replay: (800) 770-2030 or (647) 362-9199

About Propel

Propel is an innovative, online financial technology (“fintech”) company, committed to credit inclusion by providing and facilitating fair, fast and transparent access to credit with exceptional service using its proprietary online lending platform. Through its operating brands, MoneyKey and CreditFresh, Propel is focused on providing access to credit to underserved consumers who struggle to access credit from mainstream credit providers. Propel’s revenue growth and profitability have accelerated significantly over the past two years as Propel has been able to facilitate access to credit for an increasing number of consumers, helping them move forward in their credit journeys.

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 EBITDA Margin”, “Adjusted Net Income”, “Adjusted Net Income Margin”, “EBITDA”, “EBITDA Margin” 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 Fiscal 2021 MD&A. 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 profitably grow our business and facilitate access to credit to more and more underserved consumers, the expected higher portfolio growth and lower defaults resulting from the Company’s portfolio composition. Particularly, information regarding our expectations of future results, targets, performance achievements, prospects or opportunities is forward-looking information. 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 21, 2022 for the year ended December 31, 2021 (the “AIF”). A copy of the AIF and the Company’s other publicly filed documents can be accessed under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

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.

For further information, please contact:
Sarika Ahluwalia
Senior Vice President, Corporate Affairs & Chief Compliance Officer
(647) 776-5468
IR@propelholdings.com

Selected Financial Information

Three Months Ended March 31,
(US$ other than percentages) 2022 2021
Revenue 50,516,957 27,296,891
Provision for loan losses and other liabilities 23,551,631 6,894,155
Operating Expenses
Acquisition and data 8,647,081 3,838,757
Salaries, wages and benefits 6,455,839 4,520,613
General and administrative 2,254,758 797,477
Processing and technology 2,521,378 1,166,226
Total operating expenses 19,879,056 10,323,073
Operating income 7,086,270 10,079,663
Other income (expenses)
Interest and fees on credit facilities (1,293,277) (1,045,398)
Interest on term loan (443,716)
Interest expense on lease liabilities (102,420) (113,952)
Amortization of internally developed software (564,453) (505,939)
Depreciation of property and equipment (22,807) (31,676)
Amortization of right-of-use assets (159,952) (170,220)
Foreign exchange gain (loss) 36,990 (19,067)
Unrealized gain (loss) on derivative financial instruments 221,893 (32,169)
Total other income (expenses) (1,884,026) (2,362,137)
Income before transaction costs and income tax 5,202,244 7,717,526
Transaction costs
Income tax expense (recovery)
Current 1,378,271 1,911,272
Deferred (52,554) 133,873
Net Income for the period 3,876,527 5,672,381
Earnings per share(1):
Basic 0.11 0.24
Diluted 0.11 0.23
Dividends(1):
Dividends 2,563,057 1,069,469
Dividends per share 0.08 0.05

(1) All per share amounts prior to Q4 2021 have been restated to reflect the 2:1 share split that occurred as part of the reorganization completed in connection with our initial public offering. Please see the accompanying Q1 2022 MD&A for further details.

 

Reconciliation of Non-IFRS Financial Measures

The following table provides a reconciliation of our net income to EBITDA1, EBITDA margin1, Adjusted EBITDA1 and Adjusted EBITDA margin1 for Q1 2022 and Q1 2021:

Three Months Ended March 31,
(US$ other than percentages) 2022 2021
Net Income 3,876,527 5,672,381
Interest on Debt 1,293,277 1,489,114
Interest on lease liabilities 102,420 113,952
Amortization of internally developed software 564,453 505,939
Depreciation of property and equipment 22,807 31,676
Amortization of right-of-use assets 159,952 170,220
Income Tax Expense (Recovery) 1,325,717 2,045,145
EBITDA1 7,345,153 10,028,427
EBITDA margin1 as a % of revenue 15% 37%
Transaction Costs and Financing Costs
Provision for credit losses on current status accounts2 1,555,249 255,834
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities 828,546 (117,405)
Adjusted EBITDA1 9,728,948 10,166,856
Adjusted EBITDA margin1 as a % of revenue 19% 37%

(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 Q1 2022 MD&A).

 

The following table provides a reconciliation of our Net Income to Adjusted Net Income1 and Adjusted Net Income margin1 for Q1 2022 and Q1 2021:

Three Months Ended March 31,
(US$ other than percentages) 2022 2021
Net Income 3,876,527 5,672,381
Provision for credit losses on current status accounts net of taxes2 1,143,108 188,038
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities net of taxes2 608,981 (86,293)
Adjusted Net Income1 for the period 5,628,616 5,774,126
Adjusted Net Income Margin1 11% 21%

(1) See “Non-IFRS Financial Measures and Industry Metrics”.

(2) Each item is adjusted for after-tax impact, at an effective tax rate of 26.5%.

The following table provides a reconciliation of our Ending CLAB1 to loans and advances receivable for periods ending March 31, 2022, March 31, 2021 and December 31, 2021:

As at March 31, As at Dec 31,
(US$ other than percentages) 2022 2021 2021
Ending Combined Loan and Advance balances1 158,151,577 67,462,965 134,843,170
Less: Loan and Advance balances owned by third party lenders pursuant to CSO program (3,752,500) (1,755,313) (4,260,648)
Less: Loan and Advance balances owned by a NBFI pursuant to the MoneyKey Bank Service program (22,199,374) (4,452,616) (17,782,252)
Loan and Advance owned by the Company 132,199,703 61,255,036 112,800,270
Less: Allowance for Credit Losses (27,099,543) (13,027,902) (23,700,774)
Add: Fees and interest receivable 16,657,696 7,080,040 12,034,604
Add: Acquisition transaction costs 3,031,759 1,506,790 2,715,724
Loans and advances receivable 124,789,615 56,813,964 103,849,824

(1) See “Non-IFRS Financial Measures and Industry Metrics”.