Propel Holdings Inc.

Good morning and welcome to Propel Holdings' second quarter 2023 financial results conference call. As a reminder, this conference call is being recorded on August 11th, 2023. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for research analysts to queue up for questions. I will now turn the call over to Devon Galani. Please go ahead, Devon.

Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's second quarter 2023 financial results were released yesterday after market close. The press release, financial statements, and MD&A are available on CDR Plus, as well as the company's website, propelholdings.com. Before we begin, I would like to remind all participants that our statements and comments today may include forward-looking statements within the meaning of applicable securities laws. The risks and considerations regarding forward-looking statements can be found in our Q2 2023 MDNA and annual information form for the year ended December 31st, 2022, both of which are available on CDER+. Additionally, during the call, we may refer to non-IFRS measures. Participants are advised to review the section entitled Non-IFRS Financial Measures and Industry Metrics and accompanies Q2 2023 MD&A for definitions of our non-IFRS measures and the reconciliation of these measures to the most comparable IFRS measure. I am joined on the call today by Clyde Kinross, Founder and Chief Executive Officer, and Sheldon Sidakovsky, Founder and Chief Financial Officer. Clive will provide an update on our operations, including observations on the overall consumer market, and will then provide an overview of our record Q2 results before Sheldon covers our financials in more detail. Before we open the call up to questions, Clive will provide an update on Propel's growth strategy and outlook for the remainder of 2023. With that, I will pass the call over to Clive.

Thank you, Devin, and welcome everybody to our Q2 2023 conference call. We are proud to deliver another outstanding quarter of record results in Q2 on both the top and bottom line, including record revenue, adjusted EBITDA, adjusted net income, total originations funded, and ending combined loan and advance balances, or CBAT. Following a more typically seasonal first quarter characterized by lower consumer demand, we returned to a period of robust originations, driven by additional new customer volume representing 48% of total originations funded, which is the highest percentage of new customers originated since 2021. Looking at the broader economy on both sides of the border, we're encouraged by the macroeconomic data we are observing. Inflation appears to be moderating, the job market remains strong with the unemployment rate remaining at a 50-year low, and we haven't observed any material slowdown in economic activity, including consumer spending. We're also encouraged by the ongoing positive real wage growth supporting our and our bank partners' target consumers. This is all to say that we continue to observe resilience and strong demand coupled with strong credit performance among the underserved consumer segments. Turning to our U.S. business, we experienced a significant increase in consumer demand and strong credit performance during Q2, following a more typical seasonal Q1. This demand was supported by several factors, including the expansion of products and services offered through our platform, the continuing industry-wide transition from brick and mortar to online lending, and the continuing tightening of credit throughout the credit spectrum, which has pushed more higher-quality credit consumers to our platform. As noted last month by the Federal Reserve Bank of New York, The tightening across the credit spectrum, amongst other factors, has pushed the rejection rates for loan applications to 22%, the highest level since June 2018, leaving many borrowers looking to alternative lenders. The quality of consumer demand, strong credit performance, and the encouraging macroeconomic data previously discussed led to record originations. we did this while we and our bank partners maintained a prudent approach to underwriting the strong credit performance is demonstrated by provision for loan losses and other liabilities which has a percentage of revenue decreased to 51 during the quarter from a high point of 58 in q2 2022 Our ability to continue to grow while decreasing the provision as a percentage of revenue is driven by our proprietary and industry-leading AI capabilities. We believe that our AI calculated credit risk scores are a more accurate measure of a consumer's ability to repay than traditional credit scores, and our industry-leading underwriting platform provides us with the confidence to facilitate loans to consumers that are otherwise locked out of the credit market by traditional lenders. Our AI is able to bring more people into the credit market while driving profitability in our business. While we're optimistic about the opportunity to continue facilitating access to credits to even more new consumers, we also recognize that the macroeconomic environment remains dynamic, and as such, we and our bank partners remain vigilant and will continue to operate prudently. Also in the U.S., we're excited about the official launch of our lending as a service program with PathWord. We announced this program on June 20th, which was in line with expectations. The program will broaden access to credit for underserved consumers, a shared vision for both companies. While in its early days, Pathwood is pleased with the performance to date, including credit performance, which is strong in line with expectations. Importantly, the loans originated by Pathwood will generate fee revenue for Propel, expand our presence into the sub 36% APR consumer lending products, diversifies our business, and is the start of our lending as a service product offering. As we have previously communicated, it will take additional time before this program will have a meaningful impact to our financial performance, and we're not expecting it to have a material impact to our 2023 results. Turning to Canada, our rollout plan remains on track with the launch of FORA in Saskatchewan during the quarter. We are also delighted to announce a recent expansion into the Atlantic provinces with the launch of New Brunswick and Newfoundland and Labrador on July 26. While still nascent, the fuller credit loan portfolio has grown to approximately 6 million Canadian dollars at the end of Q2. Furthermore, Canadian credit performance is continuing to perform in line with expectations, and we have also observed that our cost per customer acquisition in Canada has performed better than we had originally projected. This is a testament to our prudent underwriting and the application of our AI capabilities to optimize our marketing efforts and determine the creditworthiness of applicants. Our cost per acquisition is one of the largest operating expenses on the income statement, and while it is still early days, this performance should ultimately help in generating higher margins than our business plan had initially anticipated. This is another way our AI drives profitability throughout our entire business. We're incredibly excited about our growth prospects in Canada. Having just added two new provinces in the portfolio, we are now live in six provinces across the country, with more expected to follow. Regarding the Canadian federal government's announcements in the 2023 budget to reduce the maximum allowable rate of interest to a 35% APR, We continue to engage in productive discussions with the Canadian government, both directly and through the Canadian Lenders Association. We continue to believe that without the appropriate exemptions to this change, a blanket reduction in the maximum liable rate of interest will put into peril the very Canadians the government is trying to protect. Propel has dedicated itself to building a new world of financial opportunity for our consumers and partners, and we will continue to proudly advocate for our consumers. While the implementation timing and specifics remain uncertain, the change is not expected to have any impact on our current 2023 guidance. Now onto some highlights for the quarter. Propel delivered another quarter of record results in Q2 2023. In comparison to Q2 of last year, revenue increased by 33% to a record of $72 million, and our C-Lab increased by 53% to a record of more than $273 million. This quarter, Propel also delivered record adjusted EBITDA of more than $18 million, net income of 5.7 million dollars and record adjusted net income 8.6 million dollars all of these metrics represent significant increases from the prior year the top line growth we experienced in q20 q2 2023 was driven by first of all updates to our ai model to originate additional volume from new customers Secondly, the continued successful expansion and performance of graduation and variable pricing capabilities. Third of all, the growth of our bank programs. Fourth, expansion of originations through growth into Canada and with new marketing partners. And fifth, At a macro level, strong consumer demand for credits, driven in part by the continued focus on online lending, as well as the tightening of credit criteria across the financial sector, which has resulted in a broader, higher credit quality consumer base seeking credits across our platform. Our strong profitability on both an IFRS and on an adjusted basis is a testament to our operating discipline and the scalability and operating leverage in our business model. And as discussed, our industry-leading AI, which is constantly optimizing our platform for efficiencies. With that, I will now pass the call over to Shel.