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Good morning, everyone. Welcome to Propel Holdings First Quarter 2024 Financial Results Conference Call. As a reminder, this conference call is recorded on May 9, 2024 [Operator Instructions]I will now turn the call over to Devon Ghelani. Please go ahead, Devon.
Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's first quarter 2024 financial results were released yesterday after market close. The press release, financial statements and MD&A are available on SEDAR+, 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 Q1 2024 MD&A and annual information form for the year ended December 31, 2023, both of which are available on sedarplus.com.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 in the company's Q1 2024 MD&A for definition of our non-IFRS measures and a reconciliation of these measures to the most comparable IFRS measure. Lastly, all the financials referenced during the call are in U.S. dollars unless otherwise noted.I'm joined on the call today by Clive Kinross, Founder and Chief Executive Officer; and Sheldon Saidakovsky, Founder and Chief Financial Officer.Clive will provide an update on our existing operations and growth initiatives, and will then provide an overview of our record Q1 results, before Sheldon covers our financials in more detail. Before we open the call up to questions, Clive will provide an update of Propel strategy and growth initiatives for 2024.With that, I will now pass the call over to Clive.
Thank you, Devon, and welcome, everybody, to our Q1 conference call. We've had an exceptionally strong start to the year with another quarter of record results, including record revenue, adjusted EBITDA, net income, adjusted net income and Ending CLAB. We also achieved record total originations funded for a Q1 period.Our first quarter is typically our slowest seasonal quarter for origination volume with tax refunds in the U.S. lowering credit demand. While we did observe a more normal tax season, this year, we nonetheless experienced very strong demand carrying over from the holiday season in Q4 and from the continued tightening across the credit spectrum.Similar to Q4, we and our bank partners continue to lean into the strong demand and in particular, expanded some of the high-yield products in our loan portfolio. Supported by our industry-leading AI-powered technology, we were able to achieve record Q1 total originations funded of $117 million. We did this with strong credit performance and driving record profitability with net income of $13.1 million and adjusted net income of $15.3 million for the quarter.There were 2 primary factors driving our growth and profitability for the quarter. Firstly, our AI continues to be a key differentiator. Secondly, the overall economy and health of our consumer, especially in the U.S., remains incredibly strong.As we have spoken about previously, our AI gives us the ability to evaluate upwards of 5,000 variables as opposed to a handful that traditional credit scores consider. This ultimately allows us to have a more nuanced and complete picture of a consumer's financial well-being, which in turn, allows us and our bank partners to provide access to credits to more consumers while delivering profitable growth for our shareholders.On the AI front, Dr. Jonathan Goler, my co-founder, was recently recognized as one of the Globe and Mail's Report on Business Best Executives for his leadership role in the development of our proprietary AI-powered lending platform. We're incredibly proud of him, but also the recognition of the best-in-class technology we have built.Looking at the economy, the U.S. continues to experience record low unemployment levels and wage growth continues to outpace inflation. Overall, we believe the economic health of our consumers is strong, and this has led to the continued strong credit performance in our U.S. business.Meanwhile, in Canada, while strong, there are some differences in the broad economy compared to the U.S. While still low from a historical perspective, Canada's unemployment levels increased in March to over 6%, the highest level in more than 2 years.Furthermore, we have observed that consumers are cutting back on spending as demonstrated by the 0 growth in retail sales in the first quarter. Notwithstanding the macroeconomic backdrop, Fora continues to experience improving credit performance as a result of the ongoing refinement of our AI underwriting models. Fora is gaining momentum in Q1, generating record originations, revenues and ending the quarter with approximately CAD 20 million in CLAB and growing.We also launched our first insurance product offer with the official announcement in April of Fora's Payment Protection Plan. This is a digital credit insurance product offered in partnership with Walnut Insurance and underwritten by Trans Global Insurance and Trans Global Life Insurance company.This product is in line with our mission of advancing the financial opportunity of underserved consumers and will protect Fora customers in the event of unexpected financial hardship. The product also provides incremental fee revenue for Propel and some loss protection for our customers and in turn, Fora. We're excited by the strong customer adoption since our launch.With respect to the Canadian regulatory environments, we have no update on the implementation timeline, further details on the pending regulatory changes to the maximum allowable rate of interest.Given how many Canadians are underserved by traditional financial institutions, we continue to believe that lowering the maximum allowable rate of interest will be detrimental to the very consumers that the government is trying to protect who will face limited options. We urge the government to take the time to ensure the policy change doesn't have unintended, but predictable adverse consequences. Notwithstanding, we remain confident in our ability to grow a large and profitable leading digital fintech business here in Canada.Turning to our Lending-as-a-Service program. As you know, in June 2023, we launched our first Lending-as-a-Service partnership with Pathward. This program is laying a foundation for our business and future growth. Given our prudent approach to new product launches, we have gradually ramped up the program, ensuring we analyze and optimize our performance. As a reminder, this is the first lending product in the sub 36% APR market that we have serviced.We have continued to originate more consumers and onboard new purchases in the quarter. Our measured approach to growth has been at the foundation of our long-term success and value creation. We are pleased with the performance and the momentum of the Pathward partnership to date.In Q1, we also launched a new Lending-as-a-Service partnership under our CreditFresh brand with one of our existing bank partners. Similar to the Pathward partnership, we will earn fee income related to customer acquisition services, our loan management software and the licensing of our proprietary AI-powered risk and response scores and credit servicing capabilities.Furthermore, this partnership will allow us to service more underserved consumers across the United States while contributing to expanding revenues and margins. The early performance and consumer demand on this program have been exceptionally strong and reflects the vast market opportunity, and Propel and our partners' ability to meet the demands with best-in-class products. We believe this will grow into a meaningful extension of our CreditFresh brand.Lastly, we continue to actively explore additional Lending-as-a-Service opportunities on both sides of the border.Now on to some highlights for the quarter. Propel has once again delivered record results for the quarter. As compared to Q1 2023, revenue increased by 47% to $96.5 million and our CLAB increased by 41% to $349.2 million. In Q1, Propel also delivered net income of $13.1 million, representing 77% growth over Q1 2023 and adjusted net income of $15.3 million, representing an increase of 84% over Q1 2023.This translated into diluted EPS of $0.35 and diluted adjusted EPS of $0.41. In Canadian dollars, our Q1 2024 EPS is $0.48, and our diluted adjusted EPS is $0.56. All of these metrics represent significant increases from the year prior. We've had a stellar start to the year.Our record performance this quarter, along with our strong profitability on both an IFRS and on an adjusted basis is a testament to our team, technology and the scalability and operating leverage in our business model.Lastly, given our continued strong results and solid financial position, I am pleased to announce that our Board of Directors has approved another increase to our annual dividend from $0.48 per share to $0.52 per share, representing an 8% increase on our Q1 dividend. This is our fourth dividend increase since the start of 2023 and our dividend has grown by a combined 37% over the short period.With that, I will now pass the call over to Sheldon.
Thank you, Clive, and good morning, everyone. We are proud to start the year with another quarter of record results. Similar to last year, we experienced a more normalized Q1 with consumers receiving greater tax refunds in the U.S. as compared to our experience over several years prior to 2023.Furthermore, U.S. tax refunds were actually higher this year relative to 2023, with the IRS reporting a roughly 3% to 4% increase in year-over-year average refunds through the end of April.Typically, in a normalized Q1, we would expect a larger decline in demand from Q4. However, we and our bank partners observed stronger-than-expected demand during the quarter, largely due to some carryover from the Q4 holiday season and from the continued tightening across the credit spectrum.New customer originations in Q1 were actually slightly higher than Q4. These factors resulted in record Q1 total originations funded of $117 million. Consistent with our strategy in recent quarters and given the ongoing strong credit performance in the portfolio, we and our bank partners continue to originate a high proportion of new customers through both the CreditFresh and MoneyKey brands.In Q1, new customers represented 47% of total originations funded as compared to 42% in Q1 last year. The strong quarterly originations helped drive our loans and advances receivable balance as well as our record Ending CLAB to $349 million for the quarter end as compared to $248 million last year, representing a 41% increase.As Clive mentioned, we continue to expand our Canadian operations on a gradual basis with Fora generating record Q1 originations in revenue. Furthermore, we continue to ramp-up origination volume and onboard new purchasers through our Lending-as-a-Service program.Similar to Fora, as the program expands, we are accumulating performance data that is allowing us to optimize our acquisition and underwriting models, which will facilitate future growth and expand profitability in this fee income-based high-margin segment of the business.We remain confident that both Fora and our Lending-as-a-Service program will continue to have a more meaningful impact to the company's results over the back half of 2024 and beyond.In addition to the record loans and advances receivable balance in Ending CLAB, we experienced an increased annualized revenue yield, which together drove our record revenues of $96.5 million for Q1, representing 47% growth over Q1 last year.The annualized revenue yield was 112% in Q1, an increase of 106% in the prior year. The increase was driven by several factors, including: firstly, a larger proportion of new customer originations as a percentage of total originations funded leading into and during Q1.Secondly, an increase in origination volume from the MoneyKey reps, which typically have a higher revenue yield than our other programs and an increase in origination volume from the higher-yielding segments within the CreditFresh portfolio.And thirdly, the optimization over the course of 2023 of graduation criteria and processes as well as the various fee tiers on the CreditFresh program.Turning to provisioning and charge-offs. The provision for loan losses and other liabilities as a percentage of revenue decreased to 44% in Q1 from 47% in Q1 last year. Achieving a 44% provision was better than our expectations entering the quarter.The year-over-year decrease is a result of, firstly, the ongoing strong credit performance driven by the effectiveness of our proprietary AI-driven underwriting and our ability to continue moving up the credit spectrum.Secondly, a relatively more normalized U.S. tax season and thirdly, continued consumer resiliency in addition to wage growth, keeping up with inflation.I would further highlight that the provision for loan losses and other liabilities as a percentage of revenue in Q1 was the lowest since Q2 of 2021, a period impacted by government support payments issued to individuals related to COVID-19.We are very proud of our credit performance. The ability to grow our CLAB revenue and the proportion of new customer originations significantly during Q1, while decreasing our provision percentage demonstrates our capability of managing credit risk on a prudent basis, while delivering strong growth and results. This ability enables us to serve more and more consumers across the underbanked credit spectrum while driving increasing profitability.With respect to net charge-offs, our net charge-offs as a percentage of CLAB decreased to 12% in Q1 2024 from 13% in Q1 last year. This decrease is a result of the same factors that drove down the provision for loan losses and is reflective of the higher credit quality portfolio composition.Our net charge-offs as a percentage of CLAB is well within our target range for the loan portfolio to continue generating strong unit economics and drive expanding growth and profitability going forward.In Q1 2024, our net income increased to $13.1 million from $7.4 million in Q1 last year, while adjusted net income increased to $15.3 million from $8.3 million last year, both representing quarterly records.On an earnings per share basis, our diluted EPS increased to $0.35 in Q1 from $0.20 in Q1 last year, while our diluted adjusted EPS grew to $0.41 in Q1 from $0.23 in Q1 last year. On a return on equity basis, our annualized ROE for Q1 was 49%, up from 35% in Q1 last year, and our annualized adjusted ROE was 57% in Q1, an increase from 40% last year. Both metrics demonstrate strong returns to our investors as well as our ability to efficiently utilize shareholders' capital.Furthermore, our Q1 is typically our highest margin quarter, and as such, we would expect our ROE results to moderate during the remainder of the year, albeit to remain well in line with our 2024 guidance, which was greater than 30% on an IFRS basis and greater than 40% on an adjusted basis.The growth in our earnings is primarily a result of, firstly, the overall growth of the business; secondly, the lower provision for loan losses as a percentage of revenue; thirdly, the inherent operating leverage in our business model and ongoing effective cost management; and fourthly, continued technology enhancements, driving increased automation and efficiency in originations and loan servicing.To this point, our operating expenses, which exclude acquisition and data expenses, decreased to 16% of revenue for Q1 as compared to 18% in Q1 last year. Acquisition and data expenses, however, increased as a percentage of revenue to 11.9% in Q1 from 10.5% in Q1 last year.This is a result of significantly more new customer originations in the quarter relative to last year. As a reminder, we incur acquisition and data costs, primarily on new customer originations, whereas originations to existing and returning customers carry little to no cost.Our cost for funded origination of $0.098 in Q1 increased from $0.087 in Q1 last year, primarily driven by the higher proportion of new customer originations. When evaluating the acquisition and data expense on a per new customer dollar funded instead of total originations funded, the expense actually decreased slightly from Q1 2023.The acquisition and data expense per new customer dollar funded of $0.21 for Q1 2024 is well within the acceptable range to achieve targeted profitability during a period of significant growth.Overall, our net income margin increased to 13.6% in Q1 2024 from 11.3% in Q1 last year, and the adjusted net income margin increased to 15.9% in Q1 2024 from 12.7% in Q1 last year. Our margins continue to be impacted by the higher interest costs on our credit facilities due to the elevated interest rate environment.Our overall cost of debt, which includes interest and other credit facility associated fees, increased to 13.4% in Q1 from 12.9% in the prior year. We believe we are at the peak of interest rate increases. And given the floating nature of our credit facilities, this could provide a tailwind to our profitability when interest rates decline.Lastly, I'll provide an overview of Propel's financial position. At the end of Q1, we remain well capitalized with a strong liquidity position to continue executing on our growth plan. As of March 31, we had approximately $76 million of undrawn capacity under our various credit facilities.As a reminder, each of our credit facilities is supported by a syndicate of lenders, ensuring that we have redundancy across our funding partners. Our debt-to-equity ratio was 1.9x at the end of Q1, a decrease from 2x at the end of 2023 despite the significant growth in our Ending CLAB. This is a result of the continued strong earnings and operating cash flow generated during the quarter.We are confident that our strong financial position and significant cash flow generating capability, we'll be able to support the continued expansion of our existing programs, 2024 growth initiatives and to support our increased dividend.I will now pass the call back over to Clive.
Thanks, Sheldon. Looking ahead, the team and I have confidence for the remainder of the year. There is incredible momentum in the business and the financial health of our consumers remains strong.In the U.S., under our CreditFresh and MoneyKey operating brands, we are roughly halfway through Q2. We continue to observe strong credit performance and continued strong demand.While we and our bank partners are continuing to maintain a prudent underwriting posture, we will also continue to originate record loan volumes with a higher proportion of new customers relative to last year, particularly from the higher-yielding segments of the portfolio.There is still a large runway in front of our existing brands in the U.S., and they continue to account for the majority of our overall origination volume.Time and again, we hear from our U.S. customers that we and our bank partners offer some of the most competitive products in the market.In fact, our Net Promoter Score, which is a score that measures how likely a customer is to recommend our products, have seen record highs this past year across many of our products. And we are able to offer these superior products to a broader range of consumers because of our AI technology and our vigilant cost control.In Canada, we are determined to become the leading digital lending business. The opportunity is immense. McKinsey recently published a report outlining the opportunity for Canadian fintechs.The report find Canada ranked among the bottom 5 of developed countries for digital banking, digital B2B services and fintech solutions adoption with only 13% of Canadians reporting they used fintechs compared with 32% of those in the United Kingdom and 42% in the United States. Yet, Canada was in the top 5 for smartphone and technology penetration.The barrier for adoption has been the market dominance of traditional financial institutions, but that is changing and the market opportunity is prime for disruption. The findings match our own market analysis and reinforce while we continue to be so optimistic about the Canadian market.To that end, we are expanding our market and acquisition strategies to further penetrate the market and differentiate our offering to consumers. Following another record of quarterly originations and Ending CLAB in Canada, we anticipate the trend of strong growth and credit performance to continue.Looking at our Lending-as-a-Service program, we continue to be optimistic about its growth. The addition of our new program will allow us to further expand our CreditFresh business to more underserved consumers across the U.S. As I've said before, we continue to explore additional Lending-as-a-Service partnerships on both sides of the border. We remain confident that by the end of 2024, we will have achieved our Lending-as-a-Service growth and profitability targets.13 years ago, my 3 co-founders and I sat in a small cramped office of what would become Propel. We were new to the consumer lending industry, but we were ambitious, hard-working and focused. It's incredibly gratifying to see what we have built. It is a company that since going public in 2021, has more than tripled its revenue and adjusted net income.It's of no surprise that we are the best performing stock of our vintage on the Toronto Stock Exchange. And while we were recently named by the Financial Times as one of America's fastest-growing companies.We have built a business that has an incredibly solid foundation and is capable of exceptional growth. Looking ahead, we see tremendous opportunity. There are more than 70 million underserved consumers in Canada and the U.S. and hundreds of millions more globally.There are consumers who should have access to credit, but have been locked out. We are committed to building a new world of financial opportunity for them and believe we are exceptionally well positioned to do so. We have a robust business development pipeline, a passionate and focused team, industry-leading technology and are well capitalized for the future. There is much more to come.That concludes our prepared remarks. Operator, you may now open up the line for questions.
[Operator Instructions] Your first question comes from the line of Matthew Lee from Canaccord Genuity.
Looking at CLAB growth in the quarter, the number was very strong, certainly better than we forecasted, given seasonality. I just wanted to maybe talk about your 2024 guidance on CLAB with the top end being 35%. Is that still where you believe the highest growth could be this year? And if so, maybe what's expected to change given that you did 41% in a seasonally quiet quarter?
Yes. Thanks a lot for the question, Matt. So we've certainly had a very, very strong start to the year. The growth in originations were above what we expected. And credit performance was better than expected as well, a very good combination of dynamics for our business, obviously.From a seasonal perspective, we did expect it to dip a little bit more than it did, but we continue to benefit from the tightening across the credit spectrum. There was some demand carryover from Q4. And the U.S. economy and consumers remain very, very resilient and strong and personal spending is strong as well.So we'll see. It's early in the year. We're certainly trending towards what we say, better, probably stronger than expectations. But again, it's early in the year. We're just through Q1, and we'll see how -- if Q2 is more seasonal relative to Q1 based on our historical observations. So we're not ready to make any adjustments as of yet. But we'll certainly update you guys as we move forward into Q2.
I'm certainly not in the position to contradict my CFO, and I agree with all of these comments. But I would like to, Matt, provide a little bit of additional color. Now that we are halfway through Q2 and arguably a little bit more than 1/3 of the way through the year, the trend of very strong demand and very strong credit performance in both instances, stronger than our forecast being in the middle of Q2 over here.Obviously, all goes well for getting to and potentially achieving the top end of that range, but as Sheldon suggests, it's too early in the year to be moving our targets upwards. But once again, the trends are just over 1/3 of the year certainly suggest that, that may be possible.
I guess maybe thought of a different way. There's nothing structural about Propel that would suggest that you could not do more than 35%, right?
No, yes. Absolutely correct. There's nothing structural that would prevent us from exceeding that guidance. So hopefully, that's the case, and we're certainly working very hard to address that.
And then maybe my second question on PCLs. I mean, does the strength of the U.S. consumer and your improving AI platform, make it may be more attractive to move even further down the credit ladder this year? I know you talked about it a bit in Q4, but could you potentially take on a little bit more risk if charge-off rates across the board remains somewhat better than expected?
Yes. Yes, absolutely. I mean, and that's partially why, Matt, we've talked about kind of leaning into the higher-yielding portions of the book. Why we were happy to do -- I think it was our second highest new customer acquisition quarter in our history. So we were very comfortable leaning into and moving into that volume because credit performance just exceeded our expectations.And it's a result of -- we're relatively conservative from a forecasting perspective. So if anything, we err towards being a little bit more tight from an underwriting perspective, but performance is excellent. And to that end, as it continues to trend that way we'll lean into the demand, first of all, on our core pricing tiers, if you will, and move up the credit spectrum as well in line with our strategy.
I guess that's helpful. Congrats on the great quarter.
Thank you very much.
Your next question comes from the line of Adhir Kadve from Eight Capital.
Let me add my congratulations on the quarter. I just want to ask about the Canadian business. I think you kind of -- you mentioned, Clive, that very little in terms of movement or additional details in the budget about how these interest rate caps might come to effect or when they might come into effect. But you noted a little bit of momentum in the Canadian business. How are you guys thinking balancing that kind of uncertainty with the massive market opportunity that you see in Canada? How are you balancing that? And how should we be thinking about that business as we kind of model it and look at your growth rates moving forward?
Yes, it's a great question. And as you suggest, first of all, good morning, and thanks for the kind words. Once again, we're also really, really pleased with the blowout record start to the year.The Canadian business continues to perform exceptionally well. I could tell you that demand was quite a bit stronger than we thought it would be. I saw goeasy's results a couple of years ago. I think they reported a 41% increase in quarterly originations. There is a real, real need for our services. And in the absence of our products and services in Canada, these Canadian consumers are going to be locked out of sub 47% APR products and be pushed into payday loans that have APRs north of 400%.We've spent a lot of time trying to educate the regulators on this. I am hopeful that they understand what a detrimental impact this could have on the very consumers they purport to want to protect. And I'm also hopeful that that's the reason that they've delayed the actual implementation of what was proposed in the budget last year.From our perspective, as with everything that we forecast, we tend to be a little bit prudent, and we assume that the new regulation would come into effect July 1 in our forecasting. We don't have a date yet for that regulation and hopefully, it could be pushed on indefinitely.All of which is to say that it won't be put into effect on July 1. So if anything, we think there will be upside to our Canadian projections. As a result, first of all, of that date being pushed out. And second of all, I just seeing stronger demand than we anticipated when we developed our forecast in the first place.It's very easy for us, Adhir, to pivot should they ultimately put that regulation in or to expand our staffing, to expand our team to take into account the stronger demand that we're seeing in Canada across the board. All of which is to say, however you come at it, I think Canada is going to be a big beat relative to what we initially forecast, both at the top line and the bottom line. But just to kind of temper that enthusiasm, remember, a big beat in Canada is a big beat on what is still a relatively small growing piece of our overall business.
And then maybe on the Lending-as-a-Service business, I think last quarter, you mentioned that it could provide, call it, 10% to 15% of net income margins by Q4. Is that kind of still the line of thinking for that business? I know, again, you called out a lot of good performance from that business this quarter, but are you still thinking about that in that sense?
Yes. We certainly are. As mentioned, we've announced now the launch of our second Lending-as-a-Service program under our CreditFresh brand. That's a business line that we've got a lot of experience in, both on the marketing side, the underwriting side and the servicing side, and we're delighted to be able to launch that product as well and offer those products to consumers across the United States who are otherwise locked out.The demand has been exceptional. The credit performance has been exceptional. Adhir, I'm hopeful that in the next quarter or 2, we'll be able to even raise that guidance on what we expect the Lending-as-a-Service contribution to be for the year. But for the time being, we're going to remain where we are at that 10% to 15% profitability contribution from Lending-as-a-Service.
Congrats on the quarter on that one.
Thank you.
Your next question comes from the line of Stephen Boland from Raymond James.
Just in terms of the overall revenue yield, I know it jumps around quarter-to-quarter and a good improvement this quarter within the customer base. I mean, I don't know, Sheldon, to meet your budget or your guidance for 2024, is this the 112%, is that a number that we should continue to look at? Or do you see some expansion now that even you're halfway through Q2?
Hey, Stephen, thanks for the question. So yes, I mean, as you could see quarter-to-quarter, the yield does is dependent on kind of what we're seeing in the market, whether we're expanding new customer volumes, whether we're leaning into the new -- into the higher-yielding segments of the portfolio, how fast we're expanding up the credit spectrum and introducing lower fee tiers and et cetera.But as you know, as you noted, it has increased over last year relative to Q1. And I think we are targeting this year to be in somewhere between 105% to 115% range and that will certainly enable us to hit hopefully exceed our guidance.And in the event that we decide to expand up the credit spectrum even faster and lean in existing customer demand, maybe the yield will fall further than that, but that will be made up by better credit performance on a relative basis.So we manage all of these variables in concert with each other, and we calibrate them to ensure that our profitability is expanding all the time and margins are expanding too. So in short, be between -- I'm expecting between 105% and 115%. But quarter-to-quarter, it will fluctuate a little bit.
And maybe, Sheldon, since your just -- but can you just maybe help me reconcile look, you said you had $76 million of capital capacity. When I look at your MD&A and the credit facilities and your max borrowing base and the amount drawn, it's not up to that amount. Can you just help me reconcile the $76 million to what's in the MD&A --
Yes, sure. No, for sure. So the $76 million that we're talking about is in relation to the $290 million of committed debt capacity that we have across all of our credit facilities. But enable -- for us to be able to access that, we need to build our borrowing base for our loan balance because we borrow against our loan balance.So whatever our loan balance is, we can borrow up to about 85%. That's our advance rate on our loan receivables. So if you think about it today, we can access only up to our borrowing base, but we won't need any more unless we grow the loan book. So as we grow the loan book up to the $290 million of available capacity, which is $76 million incremental to where we are today, we'll have to build up the book in order to access that, but that's the only reason we would need to access that additional debt. Does that make sense?
Yes. I just wanted to make sure. So I mean, where do you -- sorry, maybe just I'll ask and then -- where do you project -- now with the growth that you're seeing, where do you expect 2024 to be in terms of capacity? Like you don't want to go into '25 having to slow the growth down. So I'm just curious where you see that projection for capital capacity by the end of the year?
Absolutely right. So what I'm projecting towards the end of the year, that will probably have somewhere north of $250 million of debt outstanding, possibly a little bit more than that, just given our growth trajectory, still within the $290 million of capacity that's available to us.But with that said, we're working on increasing our capacity with our existing lenders as well as new lenders that we're speaking to and expecting to bring on to our facilities and potentially in different debt structures.As you know, we pay a very high cost of debt today, and this is based on the facilities that we structured years ago when we were a much smaller company. So given -- a couple of factors. Number one, the scale that we're reaching right now, we're getting bigger and bigger.Number two, our consistent performance and the record results that we're putting out quarter-over-quarter. And thirdly, the debt markets are opening up a little bit. We're getting more and more inbound calls, certainly over the past 3 to 6 months than we had in the probably 18 months prior to that. So with all of that said, I'm very confident that we'll, first of all, increase the capacity well in advance of year-end. And secondly, probably put in a new debt infrastructure that will lower our cost of debt significantly as we get into 2021.
That's great. And maybe one for Clive. Clive, in your outlook, you talked about MoneyKey, it's kind of been forgotten child, I would say, for the last 18 months or maybe 2 years, with CreditFresh being kind of like the real dominant product. But it seems like you talked more about MoneyKey this quarter than I remember. And it seems to be a demand from your bank partners and yourself that are decided there's demand for that maybe that higher rate product again.Can you just explain, was that -- am I reading that correctly? And two, was that the bank partners come to you? Or you just saw the demand and went to your bank partners? How did that -- how has it evolved a little bit? That's I guess the question.
Yes. So first of all, you're absolutely right. It's so far as the growth of MoneyKey was excellent in the quarter and has certainly been under even more focused internally over here. Let me also just make the distinction between our bank service program under the MoneyKey brand as well as our state license legacy program under the MoneyKey brand.They're, obviously, a little bit different. The state license program, I think, is operational in 10 states today. APRs tend to be a little bit higher than our MoneyKey bank service program, which is offered, I think, in 20 states today -- approximately 20 states today, both of which we saw very, very strong demand in that segment of the portfolio. And we've spoken about tightening of underwriting across the credit supply chain, and that's certainly what's going on.We're finding lots of very high-quality consumers who don't qualify for credit at rates lower than what MoneyKey can offer today in this tight and present environment. And we're seeing their credit performance being exceptionally strong.In fact, some of the highest margins that we're seeing today, net margins that we're seeing today are in our MoneyKey and -- MK and MoneyKey, 2 brands today with our bank partners. So on the bank partner side, we've spoken to them. We're collectively comfortable with the risk. We believe that there's a lot of loans of consumers we could have originated over the last couple of years that we haven't done and with our bank partners have leaned into that demand. As we've leaned into the demand, Stephen, we have seen absolutely no degradation in credit performance. If anything, it's maintained exactly where it was, even with the higher growth that we're experiencing over there.And same on the MoneyKey side. In fact, on the MoneyKey side, we believe there's a couple of additional states that we could be launching in as well. We're taking a good, hard careful look at those with a view to getting one, maybe 2 more states up and running sometime in the next 12 to 18 months on top of the organic excellent growth that we're seeing across both those portfolios.As Sheldon mentioned or alluded to, because we're funding a larger percentage to those portfolios, which have a higher revenue yield, the higher APR, it's also going to contribute to pushing that annualized revenue yield up a little bit, all other things being equal.
Your next question comes from the line of Andrew Scutt from ROTH MKM.
Congrats on the strong quarter. So I apologize if I missed this in the prepared remarks, but it's great to see the launch of the second Lending-as-a-Service program. Could you maybe talk about the expected scale of the program, the rollout and maybe what you've learned through the Pathward partnership to date that might help out the second rollout here?
Sure. And they've certainly got similarities, Andrew. There's also differences. Let me start off by speaking about the new program under the CreditFresh brands. Just from a scale perspective, if you said to me, how many more incremental consumers can we and our bank partners provide access to as a result of the CreditFresh Lending-as-a-Service program, I think in the order of [ doubling ].The demand from those states is probably the equivalent of the demand that we've seen under the states where we could purchase the receivables. So what's taken us 4 or 5 years to build up under the CreditFresh brand, I believe that on the Lending-as-a-Service side with CreditFresh, the purchases could build up to that same level of volume in a much shorter period of time just because of all the experience that we've acquired over the years.And obviously, our fee revenue associated with that is significant in absolute terms and also in relative terms relative to the rest of the portfolio. We are exceptionally confident with the growth projections over there, largely because the product offering is one that we're very, very familiar with, insofar as its targeting the same types of consumers in regions where we couldn't get to them previously under our Lending-as-a-Service brand, and the early results candidly have been outstanding, both in terms of the demand as well as in terms of credit performance.Obviously, one of the additional gating items on these Lending-as-a-Service programs is the onboarding of new purchases. The gating item right now, again, on the CreditFresh side is just our ability to onboard more and more purchases faster. The demand and credit performance is not a limiting factor at all. And I could tell you the pipeline of new purchases on the CreditFresh side is very robust order which is to say, I think we could see explosive growth from that, certainly towards the end of this year, but even more so into 2025. We've already provided what we expect the profitability contributions to be this year.As it relates to the Pathward program, the Pathward program being at a sub-36% APR represents a difference for us insofar as we're targeting a different type of consumer to the consumers we typically target as typified by a lower APR, higher loan amounts. And by virtue of those dynamics, the defaults and that makes sense for that program to operate profitably for the purchases are materially lower than, say, what we could tolerate at a higher APR, which means it takes us a little bit longer to accumulate the data.So while that program is growing nicely and in line with our expectations, the growth trajectory over there, as you would imagine, doesn't look anything like the growth trajectory of our CreditFresh Lending-as-a-Service program.We knew about the CreditFresh Lending-as-a-Service program when we prepared our guidance for the year. So even though we've just announced it to the market now, it has been taken into account in our projections and in the guidance that we've provided. And as I said there a little bit earlier on in the call today, we're maintaining the guidance, and I'm hopeful and optimistic that towards either next quarter or the quarter after, we'll actually be able to even increase that guidance on the Lending-as-a-Service side.
And second one for me here. When you guys were -- became a public company, you're really just a consumer lender, since then you've launched Lending-as-a-Service platform going into Canada. And also in the quarter, you announced the insurance program that goes along with the Fora business. So I was just kind of wondering if there are any other areas of the market you are looking to expand into maybe to grow the Propel platform and find other revenue streams?
Yes. It's also a great question, Andrew. And everything that we've done in the last 2, 2.5 years, as you suggest, we've done organically. And we've been able to do it organically because of our world-class technology platform. And if anything, I think we've demonstrate our ability to be a nimble, our ability to adjust and most importantly, our ability to execute on what we tell the market we're going to do.As it relates to forward-looking opportunities that fall outside of what we're currently doing today, we could do those through greenfield startups or through acquisitions. We've mentioned many times before that we have aspirations of creating a global industry leader over here. We're in an industry that's global in nature. We're not afraid of looking at acquisitions. We've looked at many, many potential acquisitions over the last couple of years. And we haven't moved forward, Andrew, because we have a very, very high bar.In order to move forward with an acquisition, we need to check off all the boxes of that high bar and we bought broadly speaking, 3 boxes. Number one, any acquisition that we make has to be accretive. So our investors need to know that we won't do an acquisition unless it's accretive, unless there's very, very exceptional circumstances, which I don't anticipate. That's number one.Number two, it has to be in the jurisdiction that we like. There's a lot of jurisdictions that we like, given that it's a global business, pick your jurisdiction and there's an opportunity in that market.And number three, there has to be a cultural fit with our team. Our team is best in class. The growth that we've demonstrated to date and the growth that we will continue to demonstrate organically is a function of the culture and outstanding team that we've developed over here, and we will not compromise from a cultural perspective with any acquisition, even if the financial profile looks outstanding, but there's not the right fit, we won't move forward.All of which puts us at a high bar, but even at the high bar, we're seeing outstanding opportunities, and I'm hopeful that we'll be announcing the entrance into another market, either through a greenfield startup or through an acquisition, again, sometime over the next, call it, 6 to 12 months.
Congrats on the results.
There are no further questions at this time. I will now turn the call over to Clive Kinross. Please continue.
Thank you again, everybody, for attending our call this morning. I'd like to thank our investors for your continued support and belief in Propel and our vision of building a new world of financial opportunity.And as always, I would like to extend a really big thank you to the Propel team, I know a lot of you are on the call listening this morning for helping us transform an industry. You all know, and I'm speaking both to our employees as well as to our investors over here, how great things are going and that the best is yet to come.With that, have an excellent day. Operator, you may end the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.