Propel reports record results for Q4 and fiscal year 2022

March 22, 2023 at 7:00 AM·20 min read

TORONTO, March 22, 2023--(BUSINESS WIRE)--Propel Holdings Inc. ("Propel" or the "Company") (TSX: PRL) today reported its financial results for the three months ("Q4 2022") and fiscal year ended December 31, 2022. All amounts are expressed in U.S. dollars unless otherwise stated.

Financial and Operational Highlights for Q4 and Fiscal Year 2022
Comparable metrics relative to Q4 2021 and Fiscal Year 2021

Loans and Advances Receivable: increased by 88% in Q4 2022 to $195.6 million, a record ending balance
Ending Combined Loan and Advance Balances ("CLAB")¹: increased by 84% in Q4 2022 to $247.5 million, a record ending balance
Total Originations Funded¹: increased by 12% to $101.5 million in Q4 2022, and increased by 71% to $386.4 million for fiscal year 2022, representing record performance for both periods
Revenue: increased by 52% to $62.5 million in Q4 2022, and increased by 75% to $226.9 million for fiscal year 2022, representing record performance for both periods
Adjusted EBITDA¹: increased by 427% to $13.8 million in Q4 2022, and increased by 61% to $40.8 million for fiscal year 2022, representing record performance for both periods
Net Income: increased to $5.0 million in Q4 2022 from $(2.2) million in Q4 2021, and increased by 131% to $15.1 million for fiscal year 2022, representing record performance for a twelve-month period ending Q4 2022
Adjusted Net Income¹: increased by 549% to $6.7 million in Q4 2022, and increased by 58% to $20.4 million for fiscal year 2022, representing record performance for both periods
Cost of Debt Capital: average effective interest rate increased to 12.4% in Q4 2022 from 9.7% in the comparative period in 2021 and increased to 10.6% in fiscal year 2022 from 10.4% in the comparative period in 2021
Dividend: Paid a Q4 2022 dividend of C$0.095 per Share on December 2, 2022, representing a 5.4% dividend yield against Propel’s closing share price on March 21, 2023

Management Commentary

"We are very pleased with our strong financial and operational performance throughout 2022. Amid macroeconomic uncertainty, including rising interest rates and elevated inflation, we delivered strong financial results with records in several key areas of our business. Together with our Bank Partners, we made the intentional decision to tighten underwriting starting in Q1 of last year. Even with this backdrop, we achieved 75% annual revenue growth for fiscal year 2022 while building a higher credit quality loan book and maintaining strong credit performance as we entered 2023. Building off our strong core business – powered by our proprietary artificial intelligence and machine learning technology – the Propel team rolled out Fora Credit in Canadian markets in Q4. Fora presents a meaningful opportunity for growth and has been performing better than expected since we launched in late 2022. We are also excited about the development of our new lending-as-a-service program with Pathward, which we expect to launch in the first half of this year. With our recently upsized $250 million CreditFresh credit facility, a record opening CLAB¹, and continued strong credit performance, we are starting 2023 in an excellent position to execute on our growth strategy. As always, we remain focused on delivering profitable growth while providing access to credit to an ever-increasing number of American and Canadian consumers who are counting on us," said Clive Kinross, Chief Executive Officer.

Discussion of Financial Results

Propel continues to observe strong demand for credit and ongoing consumer resiliency. In light of the ongoing macroeconomic headwinds, including higher interest rates and elevated inflation, Propel and its Bank Partners maintained a conservative approach to underwriting in Q4 2022 and entering 2023. Propel continues to operate the business with a focus on increasing profitable growth, which will be achieved through continued origination growth, a disciplined approach to underwriting by Propel and its Bank Partners, and ongoing operating efficiencies and the operating leverage inherent within the business model. Propel’s industry-leading proprietary AI and machine learning capabilities remain the cornerstone of its track record of profitable growth.

Loans and advances receivable increased by 88% to $195.6 million as at December 31, 2022, compared to $103.8 million as at December 31, 2021. Total Originations Funded¹ increased by 12% to $101.5 million for the three-month period, and by 71% to $386.4 million for the fiscal year 2022. The growth in these balances was driven by: 1) the growth and expansion of the Bank Programs; 2) stronger consumer demand for credit; 3) the expansion of originations through growth with key marketing partners and channels; 4) the expansion of variable pricing and graduation capabilities; and 5) at a macro level, the continuing industry-wide transition from brick-and-mortar to online lending, and tightening across the credit supply chain, which has increased the quality and volume of applications across Propel’s platform.

Revenue increased by 52% and 75% to a record $62.5 million in Q4 2022 and $226.9 million for the year ended December 31, 2022, respectively. This growth was primarily the result of the growth in CLAB¹, offset by a decrease in Annualized Revenue Yield¹ to 109% in Q4 2022 from 141% in Q4 2021 and 121% in fiscal year 2022 from 148% in fiscal year 2021. The decrease in Annualized Revenue Yield¹ is consistent with Propel’s strategy and the evolving portfolio composition towards a better credit quality consumer. This shift in the Company’s portfolio is driving down loss rates and is expected to result in continued improved portfolio performance.

Net income increased to $5.0 million in Q4 2022 from $(2.2) million in Q4 2021, and increased by 131% to $15.1 million for the year ended December 31, 2022 from $6.6 million for the fiscal year 2021. Adjusted Net Income¹ increased by 549% to $6.7 million in Q4 2022 from $1.0 million in Q4 2021 and increased by 58% to $20.4 million for the year ended December 31, 2022 from $12.9 million for the fiscal year 2021. The increase in net income is primarily a result of the following factors: 1) overall growth of the business; 2) a substantial reduction in Propel’s Cost Per Funded Origination¹; and 3) effective and prudent cost management and operating leverage. The increase in net income would have been greater if not for the higher than expected interest expense driven by the tighter Federal Reserve policy and the startup costs pertaining to the recently launched Fora Credit ("Fora") and soon to be launched Pathward lending-as-a-service ("LaaS") program. The increase in Adjusted Net Income¹and Adjusted EBITDA¹ are attributable to the same factors as the increase in net income.

Fora Credit Continues Successful Rollout Across Canada

On November 21, 2022, Propel announced its entrance into the Canadian market with its new brand, Fora. In addition to Alberta and Ontario, which launched at inception, customers in British Columbia can now also access convenient, online lines of credit through Fora. Rooted in Propel’s existing flexible, scalable technology infrastructure and capabilities in artificial intelligence, Fora enables consumers to apply for personal lines of credit through a seamless digital experience backed by extraordinary customer service. Propel expects to roll out Fora to additional provinces across Canada over the next few quarters.

2023 Operating and Financial Targets

Propel finished fiscal year 2022 with record results across multiple operating and financial metrics and with a strong liquidity and financial position that was bolstered by the recently upsized CreditFresh credit facility to support its ongoing growth. The 2023 updated targets below include the continued growth of the existing MoneyKey and CreditFresh brands in the United States, the ongoing ramp up of the recently launched Fora product in Canada and the soon to be launched Pathward LaaS program across the United States. There are a number of new business and corporate development initiatives that form part of the Company’s strategy, which are not included in the operating and financial targets below.

The Company expects to achieve higher revenue and margins in fiscal year 2023 driven by the significantly higher opening CLAB¹, continued growth in originations, higher operating leverage inherent in the business model, and the performance of a maturing and higher credit quality loan portfolio. The factors driving the higher Net Income and Adjusted Net Income¹ margins are partially offset by higher interest costs due to the rising interest rate environment.

The table below provides a comparison of Propel’s updated 2023 targets to the original 2023 forecast provided in the Company’s December 31, 2021 MD&A. The update to the Company’s 2023 targets is primarily a result of: 1) the Company and its Bank Partners maintaining a tighter underwriting posture than originally forecasted; 2) higher interest costs driven by higher than originally anticipated interest rate increases; and 3) the ramp up of Fora in Canada and the launch of the Pathward LaaS program, which while gradually increasing revenue, will negatively impact 2023 earnings due to the IFRS provisioning requirement for Fora and the startup costs associated with both initiatives. Propel expects that both of these new initiatives will have a meaningful and positive impact to the Company’s revenue and profitability in 2024.

Operating and Financial Targets (US$)	2022A Results	Original 2023 Target	Updated 2023 Target
Ending Combined Loan and Advance Balances year over year growth¹	84%	45% - 55%	45% - 55%
Revenue	$227 million	$345 - $375 million	$315 - $345 million
Adjusted EBITDA Margin¹	18%	25% - 30%	23% - 28%
Net Income Margin	7%	12% - 16%	8.5% - 12.5%
Adjusted Net Income Margin¹	9%	16% - 20%	11% - 15%

The updated operating and financial 2023 targets are based on management’s current strategies and expectations and may be considered forward-looking information under applicable securities laws. Such targets are based on estimates and assumptions made by management regarding, among other things, the following:

the regulatory landscape applicable to the Company’s operations;
the continued expansion of the Company’s Bank Program relationships;
the availability and cost of debt capital for the Company;
the maintenance and expansion of the Company’s marketing partnership; and
the macroeconomic environment in fiscal 2023 and its impact on the Company.

For a more detailed discussion on the updated operating and financial 2023 targets and the assumptions underpinning such targets, please refer to the Company’s accompanying December 31, 2022 MD&A, which is available under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com. The above operating and financial targets are based on growth in the Company’s existing business lines, existing Bank Programs and the soon to be launched Pathward LaaS partnership. While the new opportunities have the potential of driving significant incremental growth for the business, their impact on the Company’s operating and financial targets, particularly in the short-term, are unknown.

Management currently believes that the achievement of the updated 2023 operating and financial targets described above can be reasonably estimated and are based on underlying assumptions that management believes are reasonable in the circumstances, given the time period for such targets. However, there can be no assurance that Propel will be able to meet such operating and financial targets.

_________
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 Q4 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.

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:		Wednesday, March 22, 2023
Time:		8:30 a.m. ET
Toll-free North America:		1-888-886-7786
Local Toronto:		1-416-764-8658
Conference ID:		41543102
Webcast:		Click here
Replay:		1-877-674-7070 or 1-416-764-8692 (PIN: 543102 #)

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 appropriate 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 approximately 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 profitably grow our business and facilitate access to credit to more and more underserved consumers, the ramp up of Fora in new Canadian markets and the financial impact of Fora on the Company’s financial results, the launch of the Pathward partnership and the anticipated benefits derived therefrom, the impact on the macroeconomic environment on our consumers. Particularly, information regarding our expectations of future results, targets, performance achievements, prospects or opportunities and our updated operating and financial targets for 2023 is forward-looking information and for which we refer readers to the assumptions set out above. 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.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.

Selected Financial Information

	Three Months Ended Dec 31,		Year Ended Dec 31,
(US$)	2022	2021	2022	2021
Revenue	62,514,925	41,177,872	226,850,634	129,649,121
Provision for loan losses and other liabilities	32,887,310	21,846,098	120,152,745	55,021,098

Operating expenses
Acquisition and data	5,329,721	9,012,671	27,230,127	23,697,576
Salaries, wages and benefits	7,371,727	6,746,338	26,709,694	21,376,719
General and administrative	2,789,060	1,747,037	8,844,587	4,607,577
Processing and technology	2,577,942	1,648,783	10,029,943	5,797,000
Total operating expenses	18,068,450	19,154,829	72,814,351	55,478,852
Operating income	11,559,165	176,945	33,883,538	19,149,171

Other income (expenses)
Interest and fees on credit facilities	(4,047,068)	(1,193,162)	(9,784,859)	(4,431,071)
Interest on term loan	-	-	-	(886,852)
Interest expense on lease liabilities	(86,635)	(106,035)	(379,480)	(440,043)
Amortization of internally developed software	(792,304)	(610,520)	(2,596,779)	(2,140,366)
Depreciation of property and equipment	(46,558)	(24,513)	(158,215)	(111,704)
Amortization of right-of-use assets	(158,241)	(158,649)	(621,890)	(660,778)
Foreign exchange gain (loss)	(214,746)	(676,292)	(58,093)	(451,466)
Unrealized gain (loss) on derivative financial instruments	345,946	2,077	(61,866)	(312,764)
Total other income (expenses)	(4,999,606)	(2,767,094)	(13,661,182)	(9,435,044)
Income before transaction costs and income tax	6,559,559	(2,590,149)	20,222,356	9,714,127

Transaction costs	-	1,285,034	-	1,649,855

Income tax expense (recovery)
Current	1,301,734	590,691	7,003,736	4,742,780
Deferred	213,640	(2,252,817)	(1,908,827)	(3,240,950)
Net Income for the period	5,044,185	(2,213,057)	15,127,447	6,562,442

Earnings per share⁽¹⁾:
Basic	0.15	(0.06)	0.44	0.24
Diluted	0.14	(0.06)	0.42	0.23

Dividends⁽¹⁾:
Dividends	2,428,196	2,547,870	10,055,003	8,073,563
Dividends per share	0.071	0.074	0.293	0.294

(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 Propel’s initial public offering. Please see the accompanying Q4 2022 MD&A for further details.

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 Dec 31,		Year Ended Dec 31,
(US$ other than percentages)	2022	2021	2022	2021
Net Income	5,044,185	(2,213,057)	15,127,447	6,562,442
Interest on Debt	4,047,068	1,193,162	9,784,859	5,317,923
Interest on lease liabilities	86,635	106,035	379,480	440,043
Amortization of internally developed software	792,304	610,520	2,596,779	2,140,366
Depreciation of property and equipment	46,558	24,513	158,215	111,704
Amortization of right-of-use assets	158,241	158,649	621,890	660,778
Income Tax Expense (Recovery)	1,515,374	(1,662,126)	5,094,909	1,501,830
EBITDA¹	11,690,365	(1,782,304)	33,763,579	16,735,086
EBITDA margin¹ as a % of revenue	19%	(4)%	15%	13%
Transaction Costs and Financing Costs	-	1,285,034	-	1,649,855
Provision for credit losses on current status accounts²	2,185,938	46,552	7,389,684	2,674,338
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities	(41,198)	3,074,339	(320,340)	4,312,966
Adjusted EBITDA¹	13,835,105	2,623,621	40,832,923	25,372,245
Adjusted EBITDA margin¹ as a % of revenue	22%	6%	18%	20%

(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 Q4 2022 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 Dec 31,		Year Ended Dec 31,
(US$ other than percentages)	2022	2021	2022	2021
Net Income	5,044,185	(2,213,057)	15,127,447	6,562,442
Transaction Costs and Financing Costs net of taxes¹	-	944,500	-	1,212,643
Provision for credit losses on current status accounts net of taxes¹	1,639,453	34,216	5,542,263	1,965,639
Provisions for CSO Guarantee liabilities and Bank Service Program liabilities net of taxes¹	(30,898)	2,259,639	(240,255)	3,170,030
Adjusted Net Income² for the period	6,652,740	1,025,298	20,429,455	12,910,754
Adjusted Net Income Margin²	11%	2%	9%	10%

(1)		Each item is adjusted for after-tax impact, at an effective tax rate of 25.0% for the three and twelve months ended Dec 31, 2022.
(2)		See "Non-IFRS Financial Measures and Industry Metrics".

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

	As at Dec 31,
(US$)	2022	2021
Ending Combined Loan and Advance balances¹	247,488,344	134,843,170
Less: Loan and Advance balances owned by third party lenders pursuant to CSO program	(2,988,636)	(4,260,648)
Less: Loan and Advance balances owned by a NBFI pursuant to the MoneyKey Bank Service program	(21,088,522)	(17,782,252)
Loan and Advance owned by the Company	223,411,186	112,800,270
Less: Allowance for Credit Losses	(49,844,370)	(23,700,774)
Add: Fees and interest receivable	19,265,893	12,034,604
Add: Acquisition transaction costs	2,795,722	2,715,724
Loans and advances receivable	195,628,431	103,849,824

(1)

See "Non-IFRS Financial Measures and Industry Metrics".

View source version on businesswire.com: https://www.businesswire.com/news/home/20230322005278/en/

Contacts

Devon Ghelani
Senior Director, Investor Relations
437-343-7673
IR@propelholdings.com