Propel Holdings Inc

TSX:PRL

Good morning, everyone. Welcome to Propel Holdings First Quarter 2025 Financial Results Conference Call. As a reminder, this conference is being recorded on May 7, 2025. [Operator Instructions]. I will now turn the call over to Devon Ghelani, Propel's Vice President, Capital Markets and Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's first quarter 2025 financial results were released yesterday after market close. The press release, financial statements and MD&A are available on SEDAR+ as well as on 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 2025 MD&A and annual information form for the year ended December 31, 2024, both of which are available on SEDAR+. 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 2025 MD&A for definitions of our non-IFRS measures and the reconciliation of these measures to the most comparable IFRS measure.



Lastly, all dollar amounts 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 overview of our record Q1 2025 results as well as our insights into the broader macroeconomic environment before Sheldon covers our financials in more detail. Before we open the call up to questions, Clive will provide an update on Propel strategy and growth initiatives for the remainder of 2025.



With that, I will now pass the call over to Clive.

Thank you, Devin, and welcome, everyone, to our Q1 conference call. We had an exceptionally strong start to the year and are proud to have delivered another quarter of record results. While the quarter was marked by macroeconomic uncertainty, it was the strongest quarter in our company's history.



14 years into our journey, we continue to achieve new financial records only to surpass them. I'm incredibly proud of what the team has accomplished given the dynamic environment.



Looking at our business, our consumer segment remains resilient and the demand for credit from underserved consumers remains robust. We'll cover what we're observing from our consumer segment and the macroeconomic environment shortly. But first, I want to speak about our record Q1 2025 results.



We delivered another quarter of strong growth on both the top and bottom line with record quarterly revenue, adjusted EBITDA, net income, adjusted net income, diluted EPS, adjusted diluted EPS and NECAP. In Q1, during what is typically our slowest demand quarter, we and our bank partners originated a record volume for a Q1 period with total originations funded of $154 million, an increase of 32% over Q1 of the previous year. We accomplished this while delivering our strongest credit performance for a quarter since Q2 2021, a result of continued execution of profitable growth and our AI-powered technology. The strong consumer demand led to record revenue of $138.9 million, an increase of 44% from Q1 2025.



On the bottom line, net income increased by 79% to $23.5 million and adjusted net income increased by 49% to $23.4 million from Q1 2024 to 2025, both representing quarterly record performance.



As well as achieving the highest absolute net income and adjusted net income figures, we also achieved the highest net income and adjusted net income margins since becoming a public company.



Turning to the macroeconomic backdrop. While the global tariff escalation has caused economic uncertainty, we remain confident in our business and the resiliency of our consumer segments. Our business is not directly affected by the tariffs. And as we have previously discussed, for us, some macroeconomic uncertainty is an opportunity. This position is supported by 2 factors. First of all, our consumers remain resilient. In the U.S., unemployment remains at or near historical low of 4.2% and job creation for April was above expectations.



Looking at our segments of the market, the employment situation is even more encouraging with job creation highest in the sectors that employ a disproportionate number of our consumers, including health care, transportation and warehousing, all experiencing strong gains in April. And while consumer sentiment in the U.S. is currently at a multiyear low, this has not impacted our credit performance. In addition, it is not reflected in unemployment data nor consumer spending.



Second of all, demand for credit remains elevated, but more difficult for consumers to access. According to a February study by the Federal Reserve Bank of New York, approximately 27% of consumers believe they will apply for credit in the next 12 months, up from 23% a year ago. This level of demand appears in our own data, where we experienced record demand for a Q1 period with unique applications processed up 60% from a year ago, and yet rejection rates of credit applications across the credit spectrum remain elevated.



The Federal Reserve Bank of New York reported in February that 21.5% of credit applications were rejected, up from 18.7% in February 2024. Amid this economic backdrop, traditional financial institutions have continued to tighten their underwriting. We have seen several major U.S. banks shift their lending to more affluent households away from lower-income households as just one example. With credit demand exceeding credit supply for consumers, there is an opportunity for Propel to introduce our operating brands to more high credit quality consumers. We believe this dynamic will drive our strong growth and credit performance throughout 2025.



That said, as always, we remain vigilant, closely monitoring not only our own performance, but broader macroeconomic factors, too. As a reminder, this is our quick feedback loop and AI-powered technology critical and a differentiating factor. We have the ability to quickly adjust our risk orientation and underwriting if we observe any changes in our consumer segment. Propel is well positioned for growth. And overall, we believe the macroeconomic trends will continue to be a net favorable for us.



With respect to the U.S. regulatory environment, we have seen significant changes at the CFPB, our main regulatory body in the U.S. While the situation continues to evolve, these changes include a potential large reduction in workforce and narrowing and reduction of supervisory and enforcement priorities and revisiting certain rules recently implemented, including the small dollar rule.



Notwithstanding this dynamic, Propel remains committed to our compliance-first culture. In fact, we review this as an opportunity to continue to differentiate ourselves in the market as a fintech lender focused on the highest compliance and regulatory standards.



Meanwhile, in Canada, which represented less than 5% of revenue for Q1, we continue to grow with strong and improving performance indicators and record revenues in Q1. We also continue to see differences in the broader macro economy compared to the U.S. Canada's unemployment rate remains higher than the U.S. at 6.7% and economic growth remains weak in part due to the U.S. tariff impact.



That said, there are also some positive signals with inflation near the Bank of Canada's target rate. With the election of the new Prime Minister, who brings a deep background in economics and financial markets, we expect greater emphasis to be put on strengthening Canada's economy and look forward to working with this government to ensure access to credit to the Canadians who need it most.



Turning to the U.K. We completed our first full quarter post transaction closing. Quid markets delivered record Q1 revenue and strong credit performance, both of which were ahead of our expectations. Integration remains on track, and we are committed to accelerating quick markets growth and building into a market leader for the 20 million underserved consumers in the U.K.



Looking at the macro environment in the U.K., unemployment remains low at 4.4%. And while inflation has not returned to pre-COVID levels, wage growth in the U.K. continues to outpace inflation.



With respect to our credit facilities, on April 28, we announced a reduction in our cost of capital and increased capital capacity to achieve our growth targets. Sheldon will discuss in more detail, but I want to emphasize how proud we are to complete this upsize and refinancing within the current economic environment. The transactions demonstrate the trust we have built with our partners and the consistent results we have delivered. I want to thank our lending partners for their continued support and welcome a new large bank to the syndicate.



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 dividend from CAD 0.66 per share to CAD 0.72 per share on an annualized basis, representing a 9% increase. This is our eighth dividend increase since the start of 2023, and our dividend has grown by approximately 90% on an aggregate basis over the past 2 years.



I will speak more about our outlook for the remainder of 2025, but first, 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. Consistent with the past couple of years, we experienced a typical seasonal Q1 with U.S. tax refunds driving higher customer repayments and strong credit performance. Furthermore, the IRS reported that average U.S. tax refunds were 3% higher than last year and that the 2025 tax season was the strongest since 2022.



Notwithstanding the stronger tax season, we and our bank partners continue to observe strong consumer demand across our operating brands, driven by trends discussed earlier. We also benefited from a full quarter of operations from Quid Market in the U.K., which generated record quarterly originations in Q1. These factors led to record total originations funded for a Q1 period of $154 million, an increase of 32% versus Q1 of last year. The strong quarterly originations helped drive the 38% year-over-year growth in ending CLAP, which ended Q1 at a record $483 million.



Given the macroeconomic environment and the strong demand and credit performance we are observing, we and our bank partners prioritize originating a higher proportion of volume from return and existing customers versus new customers. New customers represented 43% of total originations in Q1. While a lower percentage of total originations, new customer originations still represented a record for a Q1 period.



Our Lending-as-a-Service program in the U.S. generated strong revenue in Q1, and we have onboarded new purchasers and upsized commitments from existing purchasers over the past few months. The margins for this program are robust and have been performing in line with expectations. With additional capital commitments, as we scale this program, it will contribute meaningful margin expansion and a higher return on equity for Propel as a whole.



In Canada specifically, notwithstanding the macroeconomic backdrop and the recent lowering of the rate cap to 35%, we continue to experience strong growth from Fora, which generated record revenue in Q1, increasing by 76% from Q1 last year.



With respect to Quid Market, after our first complete quarter, we're excited to report that revenue and growth are ahead of schedule. Propel's overall record loans and advances receivable balance and ending CLAB drove the record revenues of $138.9 million for Q1, representing 44% growth over Q1 last year.



The annualized revenue yield in Q1 was 115%, an increase from 112% in Q1 last year. The increase was driven by a variety of factors, including, firstly, the ongoing strong originations from new customers in the preceding quarters leading into Q1. Secondly, the continued expansion of our Lending-as-a-Service revenue; and thirdly, the recent acquisition of QuidMarket that has a higher revenue yield than our U.S. and Canadian products.



Turning to provisioning and charge-offs. The provision for loan losses and other liabilities as a percentage of revenue decreased to 42% in Q1 from 44% in Q1 last year. This decrease is primarily a result of the following: #1, the ongoing strong credit performance driven by the effectiveness of our AI-powered platform and R&R Bank partners' disciplined underwriting approach; #2, the continued scale and maturation of the loan portfolio with an increased proportion of originations from return and existing customers. And thirdly, continued consumer resiliency in our segment of the market.



As Clive mentioned, the provision for loan losses and other liabilities as a percentage of revenue in Q1 was our strongest quarterly performance since Q2 2021, a period that was impacted materially by COVID and the associated government relief support.



With respect to net charge-offs, our net charge-offs as a percentage of CLAB remained at 12% in Q1 from Q1 of last year. The 12% reflects strong credit performance for the quarter and is well within our target range for driving profitable growth. We are very proud of our credit performance. The ability to grow CLAB and revenue significantly while decreasing our provision as a percentage of revenue and maintaining our rate of net charge-offs demonstrates our capability of managing credit risk while delivering strong growth and record results.



In Q1 2025, our net income increased to $23.5 million from $13.1 million in Q1 last year, representing 79% growth while adjusted net income increased to $23.4 million from $15.7 million in Q1 last year, representing 49% growth. Both of these metrics represent quarterly records.



On an earnings per share basis, our diluted EPS increased to $0.56 in Q1 from $0.35 in Q1 last year, while our diluted adjusted EPS grew to $0.55 in Q1 from $0.42 in Q1 last year. Both EPS metrics also represent quarterly records. Furthermore, as a reminder, all of these figures are expressed in U.S. dollars.



We would note that we experienced a lower Stage 1 add-back and an unrealized gain from changes in foreign exchange rates during Q1. Combined, these factors resulted in our adjusted net income being slightly lower than our net income for the quarter. The growth in our earnings is primarily a result of the overall growth of the business, lower year-over-year provisions as a percentage of revenue, operating leverage and ongoing effective cost management.



On a return on equity basis, our annualized ROE for Q1 declined to 42% from 49% last year, and our annualized adjusted ROE declined to 42% from 59% last year. The primary reason for the decline in the Q1 return on equity metric was the CAD 115 million equity offering we completed in Q4 to finance the Quid Market transaction. We believe these metrics demonstrate strong returns to our investors as well as our ability to efficiently utilize shareholders' capital.



With respect to acquisition and data costs, acquisition and data expenses as a percentage of revenue increased to 12.9% in Q1 from 11.9% in Q1 last year. This increase as a percentage of revenue was driven primarily by the strong originations funded for the quarter and an increase in the cost per funded origination. Our cost per funded origination of $10.7 in Q1 increased from $9.04 in Q1 last year, and our cost per new customer funded origination increased to $0.24 in Q1 from $0.194 in Q1 last year.



The increase for both metrics was driven by several factors. Firstly, an increase in upfront spend on organic marketing, which has driven high credit quality originations to our platform. This ultimately contributed to the strong credit performance experienced in the quarter and will continue driving high-quality originations in future quarters.



Secondly, higher spend on underwriting and data, which further contributed to the strong credit performance. And thirdly, the inclusion of Lending as-a-Service spend in the computation of this metric. As a reminder, our revenue under the Lending as-a-Service program includes these marketing and data costs that are in turn charged to our purchasers. We're comfortable with this level of spend per dollar funded as it remains well within the acceptable range to achieve targeted profitability during a period of significant growth.



With respect to the other operating expenses, these decreased as a percentage of revenue to 15% in Q1 from 16% in Q1 last year. We continue to benefit from the operating leverage inherent in the business and from recent investments to improve operating efficiency.



With further automation, AI and process efficiencies implemented throughout our operations, we are able to originate and service more customers than ever in an increasingly cost-efficient manner. Our margins also benefited in Q1 from the recent reductions in interest rates in the U.S. and Canada. Our overall cost of debt, which includes interest and other credit facility associated fees, decreased to 12.2% in Q1 from 13.4% in the prior year.



Overall, our net income margin increased to 17% in Q1 2025 from 14% in Q1 last year, and the adjusted net income margin increased to 17% in Q1 from 16% in Q1 of last year. As Clive referenced, our net income and adjusted net income margins represent quarterly records since becoming a public company in October 2021.



Turning to Propel's capitalization. As of March 31, the business had approximately $96 million of undrawn capacity under our various credit facilities. Following the quarter, we announced last week an upsize of $70 million to our credit fresh facility, bringing the total capacity up to $400 million. Furthermore, we announced the refinancing of our Money Key credit facility to $15 million. In addition to the upside, we introduced a new bank to our lending syndicate and received increased commitments from several existing lenders under the credit fresh facility. Furthermore, we were able to reduce the cost of both facilities meaningfully by approximately 150 basis points per annum on a combined basis.



By working with our existing lending syndicate, we were able to restructure both facilities efficiently and without incurring significant additional fees. The trust of our partners amidst the current economic backdrop speaks to our track record, the strength of our team and our ability to deliver on what we say we will.



In addition to the reduced cost of debt, given the floating nature of the credit facilities, any additional reduction in interest rates on both sides of the border will provide a tailwind to our profitability. Our debt-to-equity ratio was approximately 1.2x at the end of Q1, providing us with an exceptionally well-capitalized balance sheet. We believe that our strong financial position and additional debt capacity as well as our significant cash flow generating capability will be able to support the continued expansion of our existing programs, additional growth initiatives and to support the 9% increase to our quarterly dividend of CAD 0.18 per share.



Lastly, the integration of Quid Market is on track and growth is ahead of schedule. Team members and I have visited the U.K. several times since closing, and we have come away as enthusiastic as ever about the future. The entire U.K. team is very engaged, is delivering on a comprehensive 2025 growth plan and is passionate about growing into a leader in the U.K. market.



I'll now pass the call back over to Clive.

Thanks, Sheldon. This has been our strongest quarter in our history, and I'm excited about what is ahead for the remainder of 2025. And while there remains some macroeconomic uncertainty, we continue to observe strong credit performance and elevated demand across our operating regions more than a month into Q2. We are well positioned for continued growth.



In the U.S., as I discussed earlier, consumers remain resilient with near historically low unemployment rates and continued job creation within those sectors that tend to employ our consumers. The U.S. remains our largest market. And as a reminder, we have served just over 1 million consumers in the U.S. with more than 60 million underserved consumers in the country. As I often like to say, we're just getting started.



With our Lending as-a-Service program, we continue to grow and expand with strong consumer demand and performance. In addition, as Sheldon mentioned, we continue to secure upsizes from existing purchases while adding new ones. The pipeline for adding additional purchases remains strong.



In Canada, the effects of the U.S. tariffs are already being felt and given the potential to weaken the Canadian economy further, we are taking a cautious approach to underwriting in our home market, and it's working as our performance indicators continue to improve while Fora continues to expand in Canada. We are working on several new partnerships, complementary fintechs to fuel our continued growth in this market and raise our visibility with the more than 10 million Canadian consumers locked out of the traditional credit markets. Even in a dynamic economy, we are confident in our ability to grow into the leading fintech lender for underserved consumers in Canada.



Lastly, in the U.K., Quid Market continues to exceed our expectations since we closed in mid-November. A few weeks ago, Sheldon and I went to the U.K. and spent time with the team there. As exciting as the growth plans were that we discussed, the team on the ground was motivated to continue to exceed expectations on their path to becoming the U.K. leader. Like our teams in Toronto and Winnipeg, the U.K. team know the markets, work hard and are focused on serving the underserved customer. We have always been bullish on the U.K. market, but after my recent visit, seeing the results they've been able to deliver to date. And with the business and integration on track, I'm even more confident in our success in that market.



Looking ahead with strong wage growth and low unemployment, we are confident that our consumer segment will remain resilient. In addition to the data points already provided, our consumers who often look paycheck to paycheck are experienced in managing tight budgets and in many ways, are better at navigating the ups and downs of the current economy than those higher up the credit spectrum. This is exhibited both in our own and external data where strong repayment and credit performance continues in the face of a dynamic economy.



Looking ahead, we see opportunity. We were again named one of America's fastest-growing companies by the Financial Times in April. We have a full business development pipeline with new structures and partnership opportunities that will create additional growth vehicles across our existing markets in the U.S. and Canada. We look forward to sharing some specifics in the coming quarters.



We have a new market in the U.K. to leverage and continue to grow into a market leader. We have an AI-powered technology platform that has the flexibility and scalability to operate across shifting economic conditions. And we have the experienced and world-class team that has navigated multiple economic environments over the past 14 years while driving revenue and profitability growth every year since inception.



Looking ahead, we don't see uncertainty. We see opportunity. Now more than ever, we are committed to building a new world of financial opportunity for the more than 90 million consumers underserved by traditional financial institutions. We're just getting started. That concludes our prepared remarks. Operator, you may now open up the line for questions.

[Operator Instructions]. We now have our first question, and this comes from the line of Matthew Lee from Canaccord Genuity.

Maybe just want to start on credit. PCLs sales look really good this quarter. And obviously, there's some seasonality in Q1 that might be skewing those numbers. But how do we think about PCLs sales for the rest of the year relative to 2024 as of now, just given what you're seeing from consumers so far and of course, the maturation of that book?

Yes. Thanks for the question, Matt. You're absolutely right. PCLs in Q1 were very strong and frankly, better than expected. And when you contrast it relative to last year, it's obviously a notable improvement being down at 42%. So, so far, I'm happy to say that we're more than a month into Q2. Credit performance is continuing to be very strong. Our consumer is resilient. We're not seeing any direct impact to them with the macroeconomic dynamics, tariffs and so on and so forth. Consumers are spending and they're paying back on their loans. And again, credit performance has been very strong.



Given what we're seeing, I would suspect that the trend should continue and the PCL is trending to be a little bit better than last year. We're not seeing anything outside of, again, the outstanding performance we saw in Q1 and so far into Q2.

Okay. That's helpful. I know you have the choice to kind of be more selective and adjust the risk in your model for adjudication. What would you have to see in the macro to make you maybe tighten those a little bit?

Yes. Thanks for the question, Matt. Yes, it's a fascinating environment that we're operating in. And in many respects, I've said it many times, where other people see uncertainty, we see opportunity. I mentioned in my prepared remarks that the New York Federal Reserve recently put out their data saying that the rejection rate by banks is 21.5%, up from 18.7% a year ago. Demand from consumers for unsecured credit over the next 12 months is expected to be 27% versus 23% a year ago. So to a large degree, that's the Goldilocks scenario as far as we're concerned.



And if you said to me what's really going on that underpins this behavior. When there's uncertainty, big banks and credit unions are tightening their underwriting. We're reading more and more about that each and every day. And as a result of that, you're seeing more of these consumers dropping into our segment of the market. And in turn, not only does that increase our addressable market, but increases our addressable market with better quality credit consumers on a risk-adjusted basis. All of that, again, is our ideal scenario. What do we need to see before we start getting concerned on a macro basis, as an example, probably significant increases in the unemployment rates right now, as I mentioned, higher job growth in the month of April, unemployment rates ahead of schedule, wage growth growing faster than any inflationary numbers, particularly in our segment of the market.



And the number of open jobs relative to the number of people looking for jobs is one of the highest ratios it's been. It's come down a little bit over the last year or so. But looking at it on a historical basis, it's really, really strong. So the fundamentals, notwithstanding some of the macroeconomic uncertainty are really, really stellar. That said, we'll keep a close watch on things. And if there are any shifts in any of these metrics, none of which are showing up so far, obviously, we have the mechanisms to adjust quickly.

That's helpful. And maybe if I can sneak one last one in here. Cost of acquisition, just a touch higher than what we were looking for. Can you remind us maybe how much of that was to service your new Lending as-a-Service clients versus the base business? And then what are the trends are you seeing there? Has it become more attractive to attract competitive to attract customers? Or maybe there's been an increase in pricing from some of the origination partners, just some color there.

Yes. Thanks, Matt. And actually, this connects to part of what's driving the really strong credit performance as well. Part of -- as you know, part of our acquisition costs includes underwriting costs. So that data that we leverage from all the bureaus and the various products that we use through the underwriting process. So it's combined with the leads and marketing that we're spending on as well as the underwriting costs. So given the demand that we're seeing, which is incredibly strong ahead of expectations, we're being -- we're using -- we're spending a little bit more on the underwriting side to ensure that the credit quality is excellent. So if anything, we're seeing higher applications and just implementing additional underwriting processes. And that costs a little bit more. But on balance, we're happy to do that given the results, given the excellent credit performance that you're seeing. So that's #1.



The other piece is -- and as we said for -- certainly last quarter, we mentioned that organic spending is higher. These are -- this is spend that we use for brand advertisement directly to consumers through SEO, PPC, some direct mail, et cetera. And that type of spend doesn't necessarily translate right at the same time to originations. That builds out the ability to attract consumers over time and brings higher quality originations relative to our other marketing channels on balance.



So deliberately, we're spending a bit more on organic. And again, you could see it in the results. The credit performance is excellent, and this will generate additional originations in the quarters to come.



And then finally, just on the Lending as a Service side, yes, that spend is increasing. But as you know, that's part of the way the model works. There hasn't been any increase in the cost per acquisition in that program, in particular, outside of anything we expected. And we charge out those costs to the purchasers. Clive, did you want to add something?

The only thing I wanted to add is just quantify a couple of the elements you spoke to over there, Sheldon. I again mentioned in my prepared remarks, Matt, that we saw a 60% increase in loan applications for the quarter. If you look at the growth in new customer originations, it was obviously less than 60%. So we underwrote 60% of those applications but we only provided loans to a smaller percentage of them. Net delta goes into the incremental data costs associated with underwriting. So I just wanted to quantify that for you and suggest that, that also from a numerical perspective, leads to slightly higher marketing costs when that's going on.



If I were to look in the rearview mirror, I would say to you that we probably should have originated with our bank partners a higher percentage of those loans. And I'm always happy to look back and say we should have originated more. We were too prudent. We were too conservative rather than the other way around. And as you know, that's always our bias and will always continue to be our bias.

And maybe just one final thing I would add to that, Matt, just from a numerical perspective. We spent in Q1 $0.24 per new customer dollar funded. That's fully within the range that we're comfortable with that we've said all along to be somewhere in the low $0.20 to $0.25 on a new cost per funded basis. So we're well within that range, and we're very comfortable where it is at the moment and the results that it's driving.

And the next question comes from Rob Goff from Bentham.

Congratulations on a very good quarter. Very pleased to see.

Thank you, Rob.

Thank you. So are we -- we're really, really pleased.

And my question is perhaps a follow-up on that. Do you see the balance of spending a bit more on SEO and underwriting continuing such that you get higher uniques and you screen tighter? Is that a balance that you like? Or do you think you might open up the screen a little bit more and allow more loan growth and maybe a little bit higher provisions in terms of the bottom line? Or how is that balance in your mind right now?

Yes. That's a great question. Let me start off, Rob, just by reminding everybody the seasonal gyrations in our business. Q1, the quarter that we've just come out of is typified by lower demand during tax season and better credit quality during tax season. And generally speaking, that trend reverses over the remainder of the year, where you've got slightly higher delinquencies but stronger demand. And that's certainly what we're seeing in Q2, albeit in line with, if not even better than our expectations on both fronts.



From a marketing standpoint, we really can control the levels on the organic side. We don't spend 24 hours of the day from an organic marketing perspective. If anything, we probably spend 20%, 25% of the day. So we could control the spend over there, we could control the growth over there. And the excellent aspect of it is our team has done such a good job understanding that market that we really can grow a lot faster if we chose to.



With that said, we do like the performance on the organic side, as Sheldon already fleshed out, the CPAs from organic marketing do tend to be a little bit higher. Loan performance does seem to be a little bit better. Overall profitability, particularly on a lifetime basis, tends to be a little bit better with organic channels, which is one of the reasons you'll see more and more of our volumes and a slightly higher percentage of our overall marketing costs and origination leading towards organic versus the partners that we book.

And perhaps if I could have a follow-up. In your MD&A, you did comment on your limited exposure to more economically sensitive regions and the lower 2 deciles of consumers. Could you perhaps expand on that and your ability to turn the sales engine towards economically stronger regions?

So let me start off by saying that to the extent that those is active, they're active in and around D.C. and some of those surrounding states, from our perspective, we're just not active in any of those states to begin with. And where there have been any upticks in unemployment, notwithstanding the incredibly strong unemployment rate in the U.S., we're not exposed in any of those markets.



As I mentioned earlier as well in our comments, any of the employment growth are in sectors of the market where demand for our customers is strong. So all of which is pointing to very strong conditions and those strong conditions, as we said, not only drove some of that excellent credit quality in Q1, but continue to drive excellent credit quality in Q2.



We obviously monitor our exposure from a geographic perspective, from an industry perspective, from an employer perspective all the time to make sure that we're fully diversified. And as you can appreciate, with hundreds of thousands of consumers on our books in the U.S. we're vastly diversified to begin with and making sure that if there are any economic movements of an adverse nature, we adjust our marketing and underwriting efforts accordingly.

And the next question comes from Kyle Joseph of Stephens.

Nice quarter. Just want to get a sense, obviously, a lot of moving parts in terms of the 3 geographies and then the mix of new customers, existing customers. But just get a sense for -- and then factoring in growth as well, but just get a sense for where you see the reserve -- the consolidated reserve trending over time given all the mix of factors there?

Yes. Thanks a lot, Kyle. So when you say -- so you're talking about the allowance against our book, which is kind of in the 21%, 22% range at the moment, which has been consistent over -- certainly over the last 4 or 5 quarters. The quick answer to that is we expect it to be consistent. Keep in mind that Q1, as Clive mentioned, from a seasonal perspective, it was an increased tax season. It's a normalized tax season. There was actually an increase in tax refunds, all things considered. We saw some additional paydowns as well in the quarter, which -- and again, excellent credit performance.



Now as we get into Q2 and beyond, there will be significant growth on both the new and existing consumer side. So first of all, you've got our existing consumers and excellent credit quality that we're seeing driving the allowance rate down. The U.K.'s allowance rate in general is lower than the U.S. and Canada. So that's driving it down as well. But obviously, the shift to more new customers in the coming quarters will drive the allowance rate up.



So that's just some of the nuances that are pulling in both directions. But overall, it's fair to assume that the allowance rate should be -- should remain in kind of the 20% to 22% range for the remainder of the year.

Got it. Very helpful. And then just one follow-up for me. I mean just given all the noise around tariffs, have you seen any changes in consumer behavior? I mean, just from your results, it doesn't look like you're seeing it on the credit side. But whether on the demand side, whether it's more demand or less demand given kind of shifts in consumer confidence. And just as you're thinking about underwriting, I know you guys have a very nimble portfolio. And obviously, you have data from inflation from '22, obviously, in your underwriting, but kind of the posture given everything that's going on macroeconomically in the U.S.

Yes. It's a great question, one that we think about a lot, Kyle. I think that first and foremost, just to reiterate, the fundamentals are incredibly strong in our business, notwithstanding some of the noise and some of the understandable uncertainty that's in the broader markets. If we look at kind of consumer sentiment, it's down. It's low. And if you then translate that into what we're seeing into the market, customers, in particular, our customers are spending less on discretionary spend and saving more. That's what consumers do in the face of not being as confident as they were. And as a consequence of that, they save a little bit more, their wages are up a little bit more and credit performance is obviously very strong on the back of that.



In addition to that, as I've mentioned already as well, we're also seeing tightening from banks and credit unions that are ahead of us. It's now becoming a broader story in the broader macros and those consumers who might otherwise get funded are dropping into our segment of the market. So even though what I would call our historical customer is saving more, stronger balance sheets, paying down more, the quality -- credit quality of customers, new customers that we're onboarding is better than we have done in the past because of those dynamics. And all of that some of the explanation why we say this kind of uncertainty really does represent opportunity for Propel.



Obviously, we need to ensure that the broader macros remain firmly intact, unemployment rates, wage inflation, wage inflation relative to normal inflation, provided that all remains intact. We think that this is an ideal scenario to continue our business profit.

And the next question comes from Stephen Boland from Raymond James.

I apologize, Sheldon, if you said this, but just the revenue yield, a lot of moving parts. Obviously, you're tightening, you're reducing some of the higher-yielding products, but then you've got [indiscernible] market on the other side, the high yield. Just trying to get a little bit of outlook in terms of where you think the revenue yield goes for the remainder of the year.

Yes. Thanks, Stephen. So it's an interesting dynamic, and we tried to explain it more in the MD&A. We did a higher proportion of existing customers in Q1, but if you look in the preceding quarters leading into Q1, we were doing record new customer originations for a number of quarters consecutively. So we've been building that new customer portfolio leading into Q1. So the portfolio coming into Q1 naturally had a bit of a higher yield. As you know, new customers typically start with a higher APR or yield before they prove themselves out and graduate to better and better products over time. So that's one part of it.



On the core portfolio, the yield was higher heading into Q1 and naturally over the course of Q1. Quid Market certainly is having an impact. Just a note on Quid Market, and Clive mentioned this, Quid Market is ahead of expectations from a volume perspective and from a revenue perspective, it's just been absolutely outstanding. And so far in Q2, we're about 10% to 15% ahead of the growth plan as well. So that's contributing to the higher yield also.



And for now, we're also including the Lending as a Service revenue portion that has been growing into the overall revenue yield calculation. But with all of that said, Stephen, we've said for a while that our yield should be kind of in the 110% to 115% for the year. So again, we're right there. It's nice to be at the top end of that range. But the expectation for the remainder of the year is, again, we're kind of reaffirming somewhere between the 110% to 115% range.

Okay. My follow-up is just on Quid Market. You mentioned that you guys were over there recently. Can you just update us on initiatives? I know it's only been a couple of months since Q4, but infrastructure, hiring, just what we should expect over maybe the next 6 months?

Yes. And there have been a number of trips, obviously, over there. And one was recently with me and Clive and what we were focusing on was what are the barriers to growth over there? How can we grow the business faster because the market is, first of all, wide open. There's not any dominant players over there. The supply of credit is just not there. The demand is higher than ever. And there's a huge opportunity to get -- to be positioned to lead the market over there.



So we were -- firstly, keep in mind, they used to pay out a large portion of their earnings in dividends. They're not doing that anymore. So they're using that additional cash to reinvest in good quality originations. So we were over there kind of encouraging them to grow, to push more on good quality originations, which they have been doing over the first kind of 4 months of the year, and that's why the 10% to 15% ahead on their volume side.



Now it's a matter of continuing to automate across every area of their operation. They're very, very hands-on on the underwriting side, on the origination side and the servicing side. And part of their road map over the course of 2025 is to implement technology to enable more and more automation across every aspect of their operation. That way, they can originate more volume, push more applications through their funnels and through their system and then service them in a very efficient way.



So if they're able -- that's what the thrust of all the work has been on, and they've made incredible advancements, I would say, ahead of schedule, and this will certainly enable us to continue beating expectations on the growth side and position us well for just a significant growth into 2026 and beyond.



The other thing I will mention, we're doing a lot of sophisticated analytics with the data now, and we're examining new products potentially to introduce into that market, which will further give Quid Market more of a reach across the underserved credit spectrum and enable more originations that way as well.

And the next question comes from Andrew Scutt from ROTH Capital Markets. [Operator Instructions].

Andrew, to the extent that you're asking your phone may be on mute. We are getting what you're saying. [Indiscernible] Whatever the question is, I'm sure it's a good one and the group that's on the call, we are going to get the benefit of hearing it nor the response, but I'm sure we'll be able to pick it up later on in the day today.

Okay, sir. So with that, it seems like no further questions have came through. I'll now hand the call over back to Clive Kinross for closing remarks. Please go ahead, sir.

Thank you so much, and thanks, everybody, for attending our call this morning. I'd like to thank our investors and partners for their continued support and our vision of building a new world of financial opportunity. And as always, I'd like to extend a big thank you to the Propel teams in Canada and the U.K. for delivering these outstanding record results and achievements. On that note, have an excellent day. And operator, you may end the call.

Thank you. This concludes the conference call for today. Thank you all for participating. You may now disconnect your lines.