PROPEL REPORTS Q2 2022 FINANCIAL RESULTS AND DECLARES QUARTERLY DIVIDEND

Published on 9 August 2022

Revenue increased by 90% to $54.1 million, representing record quarterly revenue

Total Originations Funded1 increased by 115% to $97.5 million, representing record quarterly originations

Loans and advances receivable and Ending CLAB1 increased by 115% and 123%, increasing to $140.8 million and $179.0 million respectively, both record ending balances

Declares dividend of C$0.095 per share

TORONTO, ON, August 9, 2022 – Propel Holdings Inc. (“Propel” or the “Company”) (TSX: PRL) today reported its financial results for the three months ended June 30, 2022 (“Q2 2022”) and declared a dividend for the third quarter of 2022. All amounts are expressed in U.S. dollars unless otherwise stated.

Management Commentary

“Propel delivered record originations and revenue in Q2 2022. Notwithstanding the tightening of credit criteria implemented by Propel and its partners, we are experiencing strong demand for consumer credit in general and higher quality applications, which we attribute to the normalization of demand coming out of the COVID-19 pandemic and the broad based tightening of credit criteria across the financial services sector. Amidst the exceptional growth, we have maintained profitability which we attribute to our operating discipline, a variable cost structure and the execution of our strategy. We remain as committed as ever to our long-term strategy of graduating customers to new and better credit products, serving lower risk markets through our platform, expanding into new jurisdictions and delivering outstanding service to consumers. Our team is energized, our balance sheet remains strong, and we are making meaningful and impactful investments into our business to continue our trajectory of long-term profitable growth,” said Clive Kinross, Chief Executive Officer.

Financial and Operational Highlights for Q2 2022

Comparable metrics relative to Q2 2021

  • Loans and Advances Receivable: increased by 115% in Q2 2022 to $140.8 million, a record ending balance
  • Ending Combined Loan and Advance Balances (“CLAB”)1: increased by 123% in Q2 2022 to $179.0 million, a record ending balance
  • Total Originations Funded1: increased by 115% to $97.5 million in Q2 2022, and increased by 131% to $187.2 million for year-to-date through Q2 2022, representing record performance for both periods
  • Revenue: increased by 90% to $54.1 million in Q2 2022, and increased by 88% to $104.6 million for year-to-date through Q2 2022, representing record performance for both periods
  • Adjusted EBITDA1: increased by 13% to $8.5 million in Q2 2022, and increased by 3% to $18.2 million for year-to-date through Q2 2022, a record for the six-month period
  • Net Income: decreased by 19% to $2.0 million in Q2 2022, and decreased by 28% to $5.9 million for year-to-date through Q2 2022
  • Adjusted Net Income1: increased by 9% to $4.3 million in Q2 2022, and increased by 2% to $9.9 million for year-to-date through Q2 2022, a record for the six-month period
  • Cost of Debt Capital: decreased average effective interest rate to 9.2% in Q2 2022 from 10.3% in the comparative period in 2021 and decreased the average effective interest rate to 9.1% year-to-date through Q2 2022 from 10.9% in the comparative period in 2021
  • Dividend: paid a Q2 2022 dividend of C$0.095 per Share on June 2, 2022, representing a 4.4% dividend yield against Propel’s closing share price on August 8, 2022

 

Discussion of Financial Results

Loans and advances receivable increased by 115% to $140.8 million as at June 30, 2022, compared to $65.5 million as at June 30, 2021. The growth in these balances was driven by: 1) the growth in the Bank Programs under our CreditFresh brand; 2) the roll-out of 10 new states by our bank partners over 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 expansion of variable pricing and graduation capabilities in the third quarter of 2021; and 6) at a macro level, the continuing industrywide transition from brick-and-mortar to online lending, and tightening across the credit supply chain which has increased application volume and quality across our platform. Ending CLAB1 increased by 123% to $179.0 million which we attribute to the factors above, as well as the significant growth in the MoneyKey Bank Service Program.

Revenue increased by 90% to $54.1 million in Q2 2022, compared to $28.4 million in Q2 2021. This growth was the result of the growth in Ending CLAB1, offset by a decrease in Annualized Revenue Yield1 to 127% in Q2 2022 from 154% in Q2 2021. The decrease in Annualized Revenue Yield1 is a result of a higher concentration of growth of the Bank Programs relative to legacy products, the general lower cost of credit across products facilitated over Propel’s platform and the introduction of variable pricing and graduation capabilities. The evolving 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 19% to $2.0 million in Q2 2022 from $2.5 million in Q2 2021. Adjusted Net Income1 increased by 9% to $4.3 million in Q2 2022 from $3.9 million in Q2 2021. The reduction in net income in Q2 2022 relative to Q2 2021 is the result of the following factors: 1) the investment and increased expenses incurred to support the Company’s significant Ending CLAB1 growth, as well as greater investment in future strategic initiatives; 2) an increased provision for loan losses and other liabilities due to the post-COVID-19 normalization of credit conditions and associated growth in Q2 2022; 3) the uncharacteristically strong credit quality in Q2 2021 as a result of COVID-19 related factors; and 4) the addition of costs related to our operations as a public company. The increase in Adjusted Net Income1 is attributable to the same factors as the increase in revenue and decrease in net income, excluding $1.9 million in after-tax non-cash provisions for credit losses related to newly originated and current status accounts. 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 Q2 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 Q3 2022 Dividend

Propel also announced today that its board of directors has declared a dividend of C$0.095 per common share, payable on September 8, 2022 to shareholders of record as of the close of business on August 18, 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: August 9, 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 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 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 June 30, Six Months Ended June 30,
(US$ ) 2022 2021 2022 2021
Revenue 54,080,680 28,431,463 104,597,637 55,728,354
Provision for loan losses and other liabilities 31,160,299 10,860,002 54,711,930 17,754,157
 
Operating expenses
Acquisition and data 7,066,697 4,644,465 15,713,778 8,483,222
Salaries, wages and benefits 6,011,422 4,868,834 12,467,261 9,389,447
General and administrative 1,755,553 920,051 4,010,311 1,717,528
Processing and technology 2,369,615 1,410,858 4,890,993 2,577,084
Total operating expenses 17,203,287 11,844,208 37,082,343 22,167,281
Operating income 5,717,094 5,727,253 12,803,364 15,806,916
 
Other income (expenses)
Interest and fees on credit facilities (1,729,758) (979,666) (3,023,035) (2,025,064)
Interest on term loan (443,136) (886,852)
Interest expense on lease liabilities (98,185) (113,493) (200,605) (227,445)
Amortization of internally developed software (632,603) (530,532) (1,197,056) (1,036,471)
Depreciation of property and equipment (44,006) (30,329) (66,813) (62,005)
Amortization of right-of-use assets (154,510) (172,280) (314,462) (342,501)
Foreign exchange gain (loss) 79,994 46,063 116,984 26,996
Unrealized gain (loss) on derivative financial instruments (329,721) (133,711) (107,828) (165,880)
Total other income (expenses) (2,908,789) (2,357,084) (4,792,815) (4,719,222)
Income before transaction costs and income tax 2,808,305 3,370,169 8,010,549 11,087,694
 
Income tax expense (recovery)
Current 1,542,644 1,602,571 2,920,915 3,513,843
Deferred (747,443) (709,476) (799,997) (575,603)
Net Income for the period 2,013,104 2,477,074 5,889,631 8,149,454
 
Earnings per share(1)
Basic 0.06 0.10 0.17 0.34
Diluted 0.06 0.09 0.17 0.32
 
Dividends(1)
Dividends 2,579,642 3,783,310 5,142,699 4,852,779
Dividends per share 0.075 0.152 0.150 0.200

(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 Q2 2022 MD&A for further details.

 

Reconciliation of Non-IFRS Financial Measures

The following table provides a reconciliation of our net income to EBITDA1 and Adjusted EBITDA1

  Three Months Ended June 30, Six Months Ended June 30,
(US$ other than percentages) 2022 2021 2022 2021
Net Income 2,013,104 2,477,074 5,889,631 8,149,454
Interest on Debt 1,729,758 1,422,802 3,023,035 2,911,916
Interest on lease liabilities 98,185 113,493 200,605 227,445
Amortization of internally developed software 632,603 530,532 1,197,056 1,036,471
Depreciation of property and equipment 44,006 30,329 66,813 62,005
Amortization of right-of-use assets 154,510 172,280 314,462 342,501
Income Tax Expense (Recovery) 795,201 893,095 2,120,918 2,938,240
EBITDA1 5,467,367 5,639,605 12,812,520 15,668,032
EBITDA margin1 as a % of revenue 10% 20% 12% 28%
Transaction Costs and Financing Costs 41,605 41,605
Provision for credit losses on current status accounts2 2,624,603 1,171,107 4,179,852 1,426,380
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities 423,972 715,537 1,252,518 598,131
Adjusted EBITDA1 8,515,941 7,567,854 18,244,890 17,734,148
Adjusted EBITDA margin1 as a % of revenue 16% 27% 17% 32%

(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 2022 MD&A).

 

The following table provides a reconciliation of our 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) 2022 2021 2022 2021
Net Income 2,013,104 2,477,074 5,889,631 8,149,454
Provision for credit losses on current status accounts net of taxes2 30,580 30,580
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities net of taxes2 1,929,083 860,764 3,072,191 1,048,389
Service Program liabilities net of taxes2 311,619 525,920 920,600 439,626
Adjusted Net Income1 for the period 4,253,806 3,894,337 9,882,422 9,668,049
Adjusted Net Income Margin1 8% 14% 9% 17%

(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:

  As at June 30, As at Dec 31,
(US$) 2022 2021 2021
Ending Combined Loan and Advance balances1 178,968,408 80,369,458 134,843,170
Less: Loan and Advance balances owned by third party lenders pursuant to CSO program (3,971,770) (2,473,039) (4,260,648)
Less: Loan and Advance balances owned by a NBFI pursuant to the MoneyKey Bank Service program (22,900,712) (6,673,988) (17,782,252)
Loan and Advance owned by the Company 152,095,926 71,222,431 112,800,270
Less: Allowance for Credit Losses (32,805,238) (15,538,428) (23,700,774)
Add: Fees and interest receivable 18,403,343 7,913,228 12,034,604
Add: Acquisition transaction costs 3,085,561 1,893,175 2,715,724
Loans and advances receivable 140,779,592 65,490,406 103,849,824
 

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