Propel Reports Q4 and Year End 2021 Financial Results

TORONTO--(BUSINESS WIRE)--Propel Holdings Inc. (“Propel” or the “Company”) (TSX: PRL) today reported its financial results for the three months (“Q4 2021”) and full year ended December 31, 2021. All amounts are expressed in U.S. dollars unless otherwise stated.

Management Commentary

“2021 was a transformational year for Propel. In addition to our IPO, we reached many operational milestones. We increased Total Originations Funded¹ by 123%, increased revenue by 76%, added a third bank partner, we facilitated the entry into 10 new states for our Bank Partners through each of our MoneyKey and CreditFresh brands and we launched our variable pricing and graduation capabilities for us and our Bank Partners, which significantly increases the addressable market and helps fulfill our mission of facilitating access to credit for the millions of underserved consumers in the United States. I am incredibly proud of the Propel team, which now stands at over 400 people, and I believe we are well positioned to execute on our growth strategy,” said Clive Kinross, Chief Executive Officer.

Financial and Operational Highlights for Q4 2021 and Fiscal 2021

• Loans and Advances Receivable: increased by 109% in fiscal 2021 to $103.8 million, a record ending balance
• Ending Combined Loan and Advance Balances¹: increased by 115% in fiscal 2021 to $134.8 million, a record ending balance
• Total Originations Funded¹: increased by 98% to $90.5 million in Q4 2021 and increased by 123% to $226.4 million for fiscal 2021, representing record performance for both periods
• Revenue: increased by 84% to $41.2 million in Q4 2021, and increased by 76% to $129.6 million for fiscal 2021, representing record performance for both periods
• Adjusted EBITDA¹: decreased 34% to $2.6 million in Q4 2021, and increased 27% to $25.4 million for fiscal 2021
• Net Income: decreased by 96% to $(2.2) million in Q4 2021, and decreased by 11% to $6.6 million for fiscal 2021
• Adjusted Net Income¹: decreased 18% to $1.0 million in Q4 2021, and increased 40% to $12.9 million for fiscal 2021
• Cost of Debt Capital: decreased average effective interest rate to 9.6% in Q4 2021 from 12.2% in the prior year, and decreased to 10.4% in fiscal 2021 from 13.2% for fiscal 2020 as a result of reduced borrowing costs under the credit facilities and the retirement of the higher cost term loan
• Product structure additions: rolled out variable pricing and graduation capabilities through our platform for us and our Bank Partners, consistent with our strategy of facilitating and/or providing more competitive products and lower cost of credit to new and existing customers through our platform
• Geographic expansion: from Q1 to Q4 2021, facilitated expansion of Bank Partner and Bank Service Programs (collectively, the “Bank Programs”) into 10 new states through each of the MoneyKey and CreditFresh brands
• Successful IPO: raising gross proceeds of approximately C$70 million from the Company’s initial public offering (“IPO”) on the Toronto Stock Exchange, including the exercise in full of the over-allotment option
• Dividend: Declared and paid its first dividend as a public company of C$0.095 per Share

Outlook

Propel operates in a very large market, facilitating credit solutions for the ~25% of U.S. adults that lack access to traditional credit. In 2021, Propel facilitated the rollout of 10 new states through its MoneyKey brand and 10 new states through its CreditFresh brand. This expanded geographic reach by our Bank Partners and provided the addressable market to rapidly accelerate originations in 2021. The Company believes these new states will continue to provide new opportunities to grow in 2022 and beyond. A strong economy in the U.S. and an accelerated transition from brick and mortar to online lending has also increased demand for credit beyond the Company’s expectations.

Furthermore, consistent with the Company’s growth strategy of facilitating the graduation of consumers up the credit spectrum and to serve lower risk segments of the consumer credit market, in the quarter ended September 30, 2021 (“Q3 2021”), the Company launched variable pricing and credit graduation capabilities on its platform for the Company and its Bank Partners. The level of originations attributable to variable pricing and graduation was immaterial in Q3 2021, but materially accelerated and exceeded the Company’s and our partners’ expectations in Q4 2021 contributing in large part to the record top-line growth experienced in the quarter. In addition, the loans and advances receivable and Total Originations Funded¹ attributable to these programs continue to perform better than previously planned thus far in 2022.

The Company believes that achieving scale in variable pricing and graduation programs will be accretive to earnings over the long-term and that establishing market leadership in variable pricing and graduation capabilities is a timely competitive opportunity. In the near term, a higher concentration of lower credit risk consumers in the portfolio, driven in large part by the variable pricing and graduation related originations by our Bank Partners, is expected to result in higher growth to loans and advances receivable and Ending Combined Loan and Advance Balances¹. At the same time, such growth is expected to result in a lower Annualized Revenue Yield¹ and higher up-front costs to support the growth. The Company expects profitability trends to increase in 2023 and that lower relative provisions for loan losses along with lower Cost per Funded Origination¹ associated with variable pricing and graduation programs will drive continued growth in profitability and cash flow over the long term.

Updating Previous Short-Term Operating and Financial Targets for 12 to 18 Months following June 30, 2021

As a result of its higher-than-expected growth trajectory of the Company’s loans and advances receivable and Ending Combined Loan and Advance Balances¹ and the shift in portfolio composition, the Company is updating its previously reported Short-Term Operating and Financial Targets in connection with its IPO.

Propel now expects that for the 12 to 18 months following June 30, 2021:

• Ending Combined Loan and Advance Balances¹ to be materially higher than the 100% target;
• Annualized Revenue Yield¹ to be in-line or slightly lower than the 140% – 150% target;
• Adjusted EBITDA Margin¹ to be lower than the 22% – 26% target; and
• Net Income Margin¹ to be lower than the 8% – 10% target.

Initiating Annual Operating and Financial Targets

The Company is initiating annual Operating and Financial Targets with growth rates provided in reference to the prior year, rather than the 12 to 18 month period covered in its previously reported targets. Based on the assumptions discussed in Propel’s accompanying management’s discussion & analysis for the period ended December 31, 2021 (the “Fiscal 2021 MD&A”), Propel anticipates achieving the results set forth below for the fiscal years ended 2022 and 2023.

Discussion of Financial Results

Ending Combined Loan and Advance Balances¹ increased by 115% to $134.8 million as at December 31, 2021, compared to $62.6 million as at December 31, 2020. Total Originations Funded¹ increased by 98% to $90.5 million for the three-month period, and by 123% to $226.4 million for the fiscal year ended December 31, 2021. The growth in these balances was driven predominantly by: i) growth in the Bank Programs which included the ramp up of our new bank partnership with First Electronic Bank (launched in Q2 2021); ii) our facilitation of the roll-out of 10 new states by our Bank Partners through each of the MoneyKey and CreditFresh brands over the fiscal year 2021; iii) the addition of a number of new marketing partners and channels during the period; iv) the general economic recovery as a result of easing of COVID-19 related restrictions; and v) the transition from brick and mortar to online lending. In addition to the above, growth in these balances in the three months ended December 31, 2021 was further driven by the successful launch of variable pricing and graduation capabilities and by rising seasonal consumer demand that is typical for Q4.

Revenue increased by 84% to a record $41.2 million for the three months ended December 31, 2021, compared to $22.4 million in the corresponding quarter of the previous year and 76% to a record $129.6 million for the year ended December 31, 2021, compared to $73.5 million in the corresponding period of the previous year. This growth was primarily a result of the growth in balances and originations driven by the factors outlined above. All of these factors are expected to drive continued growth in future revenue over the upcoming periods.

Our Annualized Revenue Yield¹ for the three-month period ended December 31, 2021 decreased to 141% from 169% for the same period in 2020. The Annualized Revenue Yield¹ for the year ended December 31, 2021 decreased to 148% from 190% for the same period in the previous year. This change reflects the growth of CreditFresh and the Bank Programs relative to our legacy MoneyKey direct lending and credit service organization (“CSO”) products and a general reduction of rates across products facilitated through our platform consistent with our strategy. Products offered by our Bank Partners through the Bank Programs generally serve lower risk consumers when compared to our legacy direct lending and CSO products offered under the MoneyKey brand. As such, products offered to consumers through the Bank Programs have lower costs of credit, higher average loan amounts, as well as lower default rates, therefore maintaining and potentially enhancing margins while expanding the potential customer base that can receive products by and through the Propel platform. This shift in the portfolio along with the variable pricing and graduation capabilities are expected to continue to impact the Annualized Revenue Yield¹ as lower cost products available through our platform continue to expand and be offered to new and existing customers.

Net income decreased by 96% to $(2.2) million for the three months ended December 31, 2021 from $(1.1) million for the same period in 2020, and decreased by 11% to $6.6 million for the year ended December 31, 2021 from $7.3 million for the same period in 2020. The reductions in net income relative to 2020 came as a result of a number of factors including: i) investment in growth and new initiatives; ii) direct and indirect costs associated with becoming a publicly listed company; and iii) the impact of COVID-19 on 2020 results and performance. In order to realize and deliver the Company’s significant growth opportunities, we are required to invest in and absorb larger costs in the short-term while realizing a large portion of the revenues and economic benefits in the future. As such, we are required to take larger immediate expenses relating primarily to: i) the provision for loan losses and other liabilities; ii) acquisition and data; and iii) other operating expenses including salaries, wages, and benefits and general and administrative expenses as we build up our infrastructure to support the increasing origination volumes.

Adjusted EBITDA¹ decreased by 34% to $2.6 million for the three months ended December 31, 2021 from $4.0 million for the same period in 2020 and increased by 27% to $25.4 million for the year ended December 31, 2021, from $20.0 million for the same period in 2020. Adjusted EBITDA¹ removes the effects of non-cash estimated credit loss provisions that are required under IFRS to be recorded against balances that are otherwise in good standing (see “Critical Account Policies and Estimates — Loans and advances receivable” in the accompanying Fiscal 2021 MD&A). As a result, in periods of significant growth where we record estimated loan losses on new originations without any corresponding income, our margins can appear artificially decreased and do not reflect the actual credit performance of the portfolio and the overall financial performance of the business. Adjusted EBITDA¹ is impacted by similar dynamics and factors as those driving net income.

Propel is introducing Adjusted Net Income¹ as we believe this metric reflects a more accurate picture of the portfolio’s and the Company’s performance as, similar to Adjusted EBITDA¹, it removes on an after-tax basis 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 that are required under IFRS. Furthermore, it removes, on an after-tax basis, one-time expenses that are not indicative of continuing operations such as the transaction costs relating to the IPO. Adjusted Net Income¹ decreased by 18% to $1.0 million for the three months ended December 31, 2021 from $1.2 million for the same period in 2020, and increased by 40% to $12.9 million for the year ended December 31, 2021 from $9.2 million for the same period in 2020. Notwithstanding the above, Adjusted Net Income¹ is impacted by similar dynamics and factors as those driving net income and, as such, Adjusted Net Income¹ as a percentage of revenue decreased to 10% from 13% for the year ended December 31, 2021.

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:

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”, “Annualized Revenue Yield”, “Cost Per Funded Origination”, “EBITDA”, “Ending Combined Loan and Advance Balances”, “Net Charge-Offs”, “Net Charge-Offs as a Percentage of Total Funded” and “Total Originations Funded”.

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 expected future growth, our ability to expand to jurisdictions outside of the United States, our ability to achieve scale in variable pricing and graduation programs and the resulting growth in Loans and Advances Receivable and Ending Combined Loan and Advance Balances¹, the short term and long term impact of the Company’s portfolio growth to, our updated operating and financial targets for the 12 to 18 months following June 30, 2021 and our operating and financial targets for each of fiscal 2022 and 2023. 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.

Implicit in forward-looking statements in respect of the Company's expectations for: (i) Ending Combined Loan and Advance Balances growth; (ii) Revenue; (iii) Adjusted EBITDA Margin; (iv) Net Income Margin and (v) Adjusted Net Income Margin for the fiscal years 2022 and 2023 and our updates to the previously provided operating and financial targets for the 12 to 18 months following June 30, 2021, are certain assumptions relating to the COVID-19 pandemic and related government subsidies, the regulatory landscape, our continued expansion of our Federal Deposit Insurance Corporation (“FDIC”)-insured, state-chartered bank relationships (“Bank Partner”), the availability and cost of debt capital, the maintenance and expansion of our marketing partnerships and the overall macroeconomic environment, each as further set out in the accompanying Fiscal 2021 MD&A.

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, 2021 for the year ended December 31, 2020 (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.

Selected Financial Information

Reconciliation of Non-IFRS Financial Measures

The following table provides a reconciliation of our net income to EBITDA and to Adjusted EBITDA² for the three- and twelve-month periods ending December 31, 2021 and December 31, 2020:

The following table provides a reconciliation of our Net Income to Adjusted Net Income¹ for the three-month periods ending December 31, 2021 and December 31, 2020 and for the years ending December 31, 2021 and December 31, 2020.

The following table provides a reconciliation of our Ending Combined Loan and Advance Balances¹ to loans and advances receivable for periods ending December 31, 2021 and December 31, 2020 (See “Significant Accounting Judgments, Estimates and Assumptions and Significant Account Policies — Loans and advances receivable” in the accompanying Fiscal 2021 MD&A):