Propel Holdings Inc

TSX:PRL

Earnings Call Transcript

[Operator]

Good morning, everyone. Welcome to the Propel Holdings Fourth Quarter and Year End 2023 Financial Results Conference Call. As a reminder, this conference call is being recorded on March 13, 2024. [Operator instructions]. Following the presentation, we'll 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 Ghelani. Please go ahead, Devon.

[Devon Ghelani, executive]

Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's Fourth Quarter and Year-end 2023 Financial Results were released yesterday after market close. The press release, financial statements and MD&A are available on SEDAR Plus as well as the company's website, propelholdings.com. Before we begin, I would like to remind all participants that our statements at 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 Q4 2023 MD&A and annual information form for the year ended December 31, 2023, both of which are available on SEDAR Plus. 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 the company's Q4 2023 MD&A for definition of our non-IFRS measures and the 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 at 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 [Indiscernible] and provide an overview of our record Q4 and fiscal year 2023 results before Sheldon covers our financials in more detail. Before we open the call up to questions, Clive will provide an overview of some of Propel's achievements over 2023 before discussing our operating and financial targets for 2024. With that, I will now pass the call over to Clive.

[Clive Kinross, executive]

Thank you, Devon, and welcome, everybody, to our Q4 and year-end 2023 conference call. We are proud to end fiscal year 2023 with another year and quarter of record results, including record revenue, net income, adjusted net income, adjusted EBITDA, total originations funded and ending CLAB. These are our strongest annual and quarterly results in our history and a remarkable achievement for our team. Importantly, and in line with our mission in 2023, we were able to facilitate credit access and build financial opportunity for a record number of underserved consumers with over 164,000 new loans and lines of credit originated with our partners. Consistent with prior quarters, we continue to observe strong consumer demand and clear performance across our business in Q4. While we and our bank partners continue to originate significant volume from new customers during the quarter, we have observed particularly strong demand from existing and returning customers. As a result, we and our bank partners made the strategic decision to lean in to return an existing customer demand compared to recent quarters. Furthermore, during Q4, we and our bank partners expanded new customer originations on the higher-yielding segments of the portfolio, in particular, while maintaining strong default performance. Q4 is typically our strongest seasonal quarter, and this quarter was no different with a record total originations funded of $120.7 million. We did this while also driving record profitability with net income of $8.5 million and adjusted net income of $10.8 million in Q4 2023. The ability to achieve record originations while maintaining strong credit performance and profitability is a direct result of prudent management and our AI-powered technology that provides a more accurate measure of the consumers' financial health than credit scores used by traditional financial institutions. This past year, there has been a large focus on the future of AI and its potential to revolutionize businesses and the financial industry. At Propel, we have long believed in its power and have been using AI technology since 2018. Today, our AI technology is a market leader and sets the bar for performance. Jonathan Goler, my good friend and Co-founder and the architect of our proprietary AI models and platform was recently announced as one of the Globe and Mail's report on business' best executives for his role as Propel's Chief Risk Officer and his development of our AI-powered lending platform. It's a tremendous honor and one that speaks to the talent and technology we have at Propel. Looking at the economy, we continue to observe low unemployment levels, which is supporting the strong credit performance from our consumer segment on both sides of the border. Additionally, real wage growth for these consumers has remained positive, which is further supporting their resilience. In the U.S., we are very optimistic about the health of our consumer segments, both from the credit fresher MoneyKey brands as well as our lending as a Service program, which I will speak to shortly. In Canada, despite the strong employment levels and declining inflation, we continue to be mindful of the uncertainty in the economy as demonstrated by the weak Q4 GDP growth and the decline in January retail spending. In Q4, we continued our measured rollout of our credit allowing [Indiscernible] to enhance our AI-powered underwriting and model for the Canadian market. Furthermore, given the pending regulatory change in Canada metrics for the sub-35% APR markets. This will ensure we are well positioned when or if the Canadian government's reduction comes into effect. Also, we have discussed previously the decision to lower the maximum LIBOR rate of interest from 47% is going to lock up millions of Canadians from the credit market and a time when the need for access to credit remains critical. Notwithstanding this, we believe there is a lot of opportunities and we remain confident in our ability to grow a large and profitable leading digital fintech business here in Canada. Lastly, turning to our Lending as a Service program in June 2023, we launched our first lending as a service partnership with Pathward Bank and are proud of the performance to date. Pathwards consumer lending program by growing the number of active marketing channels, facilitating expansion into new states and onboarding more purchaser relationships while learning more and achieving KPIs in line with expectations. We are actively exploring additional Lending as a Service opportunities on both sides of the border. We expect our Lending as a Service offering will be a powerful driver of future growth and have a more meaningful impact on the company's results in for fiscal year 2023. Propel has once again delivered record results for a fiscal year as compared to fiscal 2022 to $316 million, and our CLAB increased by 36% to $337 million. In fiscal delivered net income of $27.8 million, representing 84% growth over fiscal 2022 and adjusted net income of $36.1 million over fiscal 2022. This translated into diluted EPS of $0.76 and diluted adjusted EPS of $0.98. In Canadian dollars, our fiscal 2023 EPS is CAD 1.02 and diluted EPS is CAD 1.32. All of these metrics represent a significant increase from the prior year and additionally, the fiscal year-end performance represents records from fiscal 2022. We've had a tremendous year. The record top line growth we experienced in fiscal year 2023 as well as Q4 was driven by the following: First of all, the continued origination growth from both existing and new customers. Secondly, the growth across all brands, including CreditFresh, MoneyKey and Fora. Third of all, the continued economic resiliency and ongoing strong consumer demand; fourth, tightening across the credit supply chain, driving consumers to Propel's products and services; and finally, the continued shift from brick-and-mortar to online lending. Our record performance this quarter and this fiscal year, along with our strong profitability on both an IFRS and on an adjusted basis, is a testament to our team, technology, our operating discipline and the scalability and operating leverage in our business model. With that, I will now pass the call over to Sheldon.

[Sheldon Saidakovsky, executive]

Everyone. We are proud to deliver another year of record results while continuing to grow the business significantly at the top and bottom line. Our total originations funded were a record $121 million for Q4. Consistent with our strategy in recent quarters and given the strong credit performance of the portfolio, we and our bank partners continue to originate a high proportion of new customers through both the CreditFresh and MoneyKey brands. In Q4, new customers represented 46% as compared to 34% in Q4 of last year. Further driving the record total originations funded for the quarter was particularly strong demand from existing and returning customers. As a result, the new customer proportion of 46% in Q4 was a slight decrease from the 51% experienced in Q3. Additionally, new customer originations were further influenced by the decision by us and our bank partners to expand the higher-yielding segments within the loan portfolio, which carry a higher cost of credit and lower average loan amounts. And secondly, the decision to be more prudent given the factors Clive highlighted earlier. While these 2 factors contributed to lower new customer originations, they also contributed to a higher revenue yield. The record quarterly originations helped drive our loans and advances receivable balance as well as our record ending CLAB for the year-end. As Clive mentioned, we continue to roll out our Canadian operations on a measured basis with 4 contributing to the company's Q4 and fiscal 2023 revenue and loan balance growth. Furthermore, we continue to ramp up origination volume through our lending as a service partnership with Pathward, which launched in late June. Given the short duration of the program, this line of business contributed nominally to Q4 and fiscal 2023 revenue. Similar to Fora, as the program expands, that is allowing us to optimize our acquisition and underwriting models, which will facilitate future growth and expand profitability in this segment of our business. That both Fora and our Lending as a Service program will have a more meaningful impact to the company's results in 2024 and beyond. Ultimately, the record loans and advances receivable balance and ending CLAB, coupled with an increased annualized revenue yield resulted in our record revenues of $96 million for Q4, representing 54% growth over Q4 2022. Furthermore, our fiscal 2023 revenues of $316.5 million grew by 40% year-over-year and represented a record for a fiscal year period. The annualized revenue yield was 121% in Q4, an increase from 110% 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 in Q4. As a reminder, we and our bank partners were particularly tight on new customer originations in the back half of 2022 last year and through an increase in origination volume from the MoneyKey programs, which typically have a higher revenue yield than the CreditFresh programs. Thirdly, the optimization over the course of 2023 of graduation criteria and processes as well as the various speed tiers on the CreditFresh program. And fourthly, a change in accounting estimates, which contributed to an increase in accrued revenue in the quarter. To better align our definitions of Stage 2 and Stage 3 accounts under IFRS to industry standards, we made this change in estimates in Q4. The change which had an immaterial net income pact to the P&L ultimately increased the allowances on our balance sheet, delayed some charge-offs and resulted in the increase in our revenue accrual that was offset by increased provisions. Turning to provisioning and charge-offs. The provision for loan losses and other liabilities as a percentage of revenue increased slightly to 54% in Q4 from 53% in Q4 last year. The year-over-year increase was driven by a few factors: firstly, the normalized seasonality experienced in a typical Q4 period. As mentioned earlier, we and our bank partners had especially tight underwriting in Q4 2022, resulting in fewer new customers and overall originations than would be expected in a normalized Q4. Secondly, the continued expansion of new customer originations over the preceding quarters leading into Q4 and over the quarter [Indiscernible]. The fiscal year 2023 provision for loan losses and other liabilities as a percentage of revenue declined to 51% from 53% in 2022, reflecting the improvement in credit performance that began in the back half of Q2 last year in 2022 and continued through the entirety of 2023. We are very pleased with the credit performance results. The ability to grow our CLAB by 36% and revenue by 40% during 2023 while decreasing our provision percentage demonstrates risk on a prudent basis in part through our leading AI-powered technology while delivering significant growth and strong results. With respect to net charge-offs, our net charge-offs as a percentage of CLAB remained the same at 10% in Q4 as compared to Q4 last year. This performance in both quarters reflected the continued shift in the overall portfolio towards customers with lower credit risk profiles. However, I would note that Q4 2023 was also impacted by the accounting estimate change that I referenced earlier as we would expect the net charge-off rate to be in the 12% to 15% range on a normalized basis. This normalized range for the loan portfolio will continue to generate strong unit economics and drive expanding growth and profitability going forward. In Q4 2023, our net income increased to $8.5 million from $5 million in Q4 2022, while adjusted net income increased to $10.8 million from $6.7 million last year in 2022, both representing quarterly records. Our net income for fiscal 2023 grew to $27.8 million and adjusted net income increased to $36.1 million, both representing fiscal year records.On an earnings per share basis, our diluted EPS increased to $0.23 in Q4 from $0.14 in Q4 last year, while our diluted adjusted EPS grew to $0.29 in Q4 from $0.18 in Q4 last year. Our diluted EPS for fiscal 2023 grew to $0.76 and diluted adjusted EPS increased to $0.98, both representing annual records. And on a return on equity basis, our ROE for fiscal 2023 was 30%, up from 19% in 2022, and our adjusted ROE was 40% in 2023, an increase from 26%. Both metrics demonstrate strong returns to our invest as well as our ability to efficiently utilize shareholder more. I would note that given the capital-light and high-margin nature of our Lending-as-a-Service program as it continues to grow in scale, it should continue contributing to strong return on equity. The growth in our earnings is primarily a result of, one, the overall growth of the business; two, the inherent operating leverage in our business model from the infrastructure we've built out over the years and our effective cost management; and thirdly, the continued techniciancy in originations and loan services. To this point, our operating expenses which exclude acquisition and data expenses decreased to 15% of revenue for Q4 2023 as compared to 20% in Q4 last year. Acquisition and data expenses increased as a percentage of revenue to 12.1% in Q4 2023 from 8.5% in Q4 of 2022. This was driven by, firstly, an increase in organic marketing spend, which includes pay-per-click and SEO marketing, direct mail and other direct branded spend. We expect this additional organic marketing spend to result in high-quality new customer originations over the course of 2024. And it's been our experience that customers sort through organic marketing channels typically perform better from a risk perspective than those originated through other channels. Secondly, the expansion of new customer originations through higher-yielding products. These products typically have lower average loan amounts and higher relative cost per acquisition than the lower-yielding products that we and our bank partners prioritize in Q4 2022. And finally, some additional underwriting and adjudication costs to originate additional volume from the higher-yielding products previously discussed. These products are typically offered to higher-risk customers and the additional underwriting efforts resulted in strong credit performance on these originations. Notwithstanding the increase in acquisition and data costs, our cost per funded origination of $9.6 this quarter remains below those levels experienced prior to 2021 when we and our bank partners were originating a similar proportion of new customer volumes relative to total originations funded. Furthermore, credit performance remains strong and the high-quality loan vintages that were originated leading into and during the quarter supported our decision to increase our overall marketing spend. On balance, our ability to expand profitability while incurring increased acquisition and underwriting costs is a testament to the levers in our business and overall effective management. Overall, our net income margin increased to 8.8% in Q4 2023 from 8.1% in Q4 2022 and the adjusted net income margin increased to 11.2% in Q4 2023 from 10.6% in Q4 of last year. For the fiscal year, our net income margin increased to 8.8% in 2023 from 6.6% in 2022. And the adjusted net income margin increased to 11.4% in 2023 from 9% in 2022. In addition to the higher acquisition and data costs, which led to record originations, our margins were further impacted by the higher interest costs on our credit facilities due to the increasing interest rates relative to last year. The higher interest rates increased our overall cost of debt, which includes interest and other credit facility associated fees to 13.7% in Q4 from 12.4% in the prior year. We believe we are at the peak of interest rates and given the floating rate 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 Q4, we remain well capitalized with a strong liquidity position to continue executing on our growth plan. As of December 31, we had approximately $89 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 [ MS ] at the end of 2023. Given the structuring of our credit facilities which provides us the capacity for 4x leverage, we continue to have ample debt capacity and liquidity to execute on our strategy. We are confident that our strong financial position and significant cash flow generating capability will be able to support the continued expansion of our existing programs, 2024 growth initiatives and to support our dividend, which we recently increased by 14% to $0.12 a share per quarter in Q1, representing our third dividend increase as a public company. We are well on our way to building a new world of financial opportunity for underserved consumers while creating value and opportunity for our partners and shareholders. I will now pass the call back over to Clive.

[Clive Kinross, executive]

Thank you, Sheldon. 2023 was a record year for Propel and the team is incredibly energized for the year ahead. So far in Q1, we have observed strong demand and credit performance, and we believe we will continue our trend of enabling credits to a record number of underserved consumers. 2023 was a year of several milestones. We launched our Lending-as-a-Service program in June 2023, which has allowed us to expand our addressable markets. In September, we celebrated our 12-year anniversary, a testament to the business we have built and the people that powers. We also collected a few new awards, including The Globe and Mails Top-Growing Companies, Deloitte's Fast 500 and HRD Canada's Best Places to Work. As of 2023, we have also officially served over 1 million loans and loans of credits and in excess of 750,000 consumers, all while maintaining our excellent rating on trust partners. We also promoted the most several employees, with 18 alone in our senior leadership team, a testament to the culture of meritocracy we have booked. And lastly, in Q4, we celebrated the 1-year anniversary of 4 in Canada with a growing presence across 7 provinces. As a business headquartered in Canada, it's been especially meaningful to watch our business grow here at home. This, together with our results has made us the best performing stock in our vintage of [ Propel ] Public today. Looking ahead, we see tremendous opportunity. We are more than 70 million underserved consumers in Canada and the U.S., and we are committed to continuing to build a new world of financial opportunities for that. Looking globally, the market is even bigger. Turning to our outlook. We are introducing a set of 2024 operational and financial totes. We are setting a 2024 ending CLAB growth of 25% to 35%. This growth will be achieved through the continued expansion of our addressable market through first of all, scaling of our core business in the U.S.; secondly, the expansion of our Fora brand in Canada; and third of all, the continued investments in our proprietary technology to maintain our market leadership in AI-powered lending. Our 2024 revenue target range of $410 million to $450 million represents a growth rate of roughly 30% to 42% over 2023 and is driven mainly by our CLAB growth and also reflects expansion of our Lending-as-a-Service offering. We are setting an adjusted EBITDA margin range of 24% to 29%, which is compared to the 24% we achieved in 2023. The net income target range of 9.5% to 12.5% and the 2024 adjusted net income target range of 11.75% to 14.75% of both improvements from the 2023 margins and reflect a higher level of operating leverage inherent in our business model as costs are expected to continue decreasing as a percentage of revenue. Furthermore, the aging of the loan portfolio should result in lower loss rates in the future, resulting in additional margin expansion. This contribution of Propel's Lending-as-a-Service offering to contribute to increased margins. As a reminder, our Lending-as-a-Service program generates higher margins than the existing product portfolio, given the fee income nature of the program. I would note that our net income and adjusted net income margin targets do not assume any meaningful reduction in interest rates in 2024. As a reminder, our credit facilities include a floating rate component and any decrease in interest rates by the U.S. Federal Reserve and the Bank of Canada will be a positive tailwind in 2024. We are also introducing a return on equity and adjusted return on equity targets for 2024. The 2024 return on equity target of 30% plus and adjusted return on equity target of 40% plus are consistent with our performance in 2022. Lastly, we will continue to actively pursue exciting growth initiatives such as new partnerships, products and geographies. These are not included in operating and financial targets but form part of our long-term growth strategy. Before we end, I want to say how motivated we are for the year ahead and how proud of what we have accomplished to date. Over the past several years, consumers have experienced a rising cost of living, and we have been there for them throughout. We believe now more than ever in our mission of building financial opportunity for underserved consumers. For many, it starts with a line of credit to get them through a tough month, but it ends with them being able to keep their car running and get to their job, rebuild their credits and eventually build a greater financial opportunity for their families. We are proud to be part of that turn and part of the business we have built for consumers, shareholders and our employees. That concludes our prepared remarks. Operator, you may now open the line for questions.

[Operator]

Thank you. [Operator instructions]. One moment please for your first question. Our first question comes from Matthew Lee from Canaccord.

[Matthew Lee, analyst]

So I know that Q4 traditionally has an influx of new customers that drives a bit of yield and PCL seasonality. But when you think about 2024 guidance it seems like you're looking to drive yield growth through expanding your high-yield portfolio. Just help me understand, does it entail taking on more risky clients? And then maybe how do you think about managing your PCL given that changing mix?

[Sheldon Saidakovsky, executive]

Yes. Matt, it's Sheldon. Thanks for the question. So if you recall, Matt, we saw an uptick in defaults. I'm going back to Q2 2022. After that point, we started tightening on both new customer originations and also the higher-yielding segment of the portfolio. And we held that type of their exceptionally tight underwriting over the course of Q3, Q4 and then well into the pretty much the first half of 2023. Credit performance, we experienced was excellent in the first half of 2023. So we felt it was time to start leaning more into the new customer demand and also start expanding our higher-yielding segments of the portfolio as well. So that's why you see our new customer proportion starting to grow in 2023, and it's continued to be strong in Q4 of 2023. We would not do that unless we were very comfortable with the credit performance. And the fact that we kept the provision as a percentage of revenue in the low 50s, while increasing our yields substantially is a very, very good outcome for the business. I mean overall, if you look year-over-year, our overall revenue yield still dropped in 2023 relative to 2022 as the portfolio continues to move up the credit spectrum, if you will, but we're very comfortable with where credit performance is right now and our proportion that we're funding on new customers and what we're doing on the higher yield segments of the portfolio. I think as we look towards 2024, I feel like the revenue yield will probably be in probably be in about the 110 to 114 range. That's probably the right level for us given the mix. But we're very comfortable on the higher yield segments as long as the provisions are at these levels.

[Clive Kinross, executive]

I want to just add a couple of points, Sheldon, to your comments there. First of all, as you know, we've been doing AI and machine learning underwriting for the last 6 years now. And we're always updating those models, we updated them as recently as Q4. And pursuant to that update, we really noticed a significant uptick, particularly in some of those riskier segments of the market where we could fund a much larger percentage of applications while not taking on any incremental risk. And again, that's just a function of updating our models, which we're doing all the time. And while I'm stressing to you that, that had a more profound impact on all of those higher risk, relatively higher-risk consumers had a positive impact across the board. The other thing that I want to differentiate, Matt, is your comment about risky customers, and I want to differentiate the concept of risky customers versus risky business. Risky customers doesn't translate to a risky business. If anything, in many respects, it translates to a less risky business. We have the margins, as you could see from the expanded margins, as you could see from our business associated with these riskier consumers we are very, very, very, very averse at managing through challenging times way more so than, call it, the so-called less risky consumers where lenders don't necessarily have the margins or the ability to toggle levers the way we do if there is a shift in the overall market. The other thing, and I think this goes without saying about consumer lending. It's a fully diversified portfolio. As I mentioned, we've made over 1 million loans and lines of credit since our inception. We're geographically diversified, we're diversified across different industries, we diversified across different companies. So while our customers are still risky from a credit score perspective, I wouldn't want that to be interpreted that the business is risky when just the opposite is true.

[Matthew Lee, analyst]

That's super helpful. And then maybe just one quick one on club growth. You gave a range of 25% to 35% growth. Can you give us some parameters on what would have to happen for you to reach the top versus the bottom of that range this year?

[Sheldon Saidakovsky, executive]

Yes. I mean I think that it will all depend on how credit is performing, the macro environment, our continued rollout in Canada. So I think there's certainly opportunity to reach the high end and may be exceeded it. I mean, we've definitely got the demand. Demand is certainly there from a market perspective. We still as now we've spoken about, we've got a very long runway in this business. We're just scratching the surface of ultimately getting to scale in the existing states where we and our bank partners are operating in. So there's definitely opportunity to do that, it will just depend on making sure that credit performance is where it is right now. And I could say also, so far, as we're into 2024, we're a couple of months in, credit performance has just continued to be excellent. So there's definitely opportunity to do that, but obviously, we're operating in a very dynamic macro environment.

[Operator]

Your next question comes from Adhir Kadve from Eight Capital.

[Adhir Kadve, analyst]

I think, Sheldon, you may have just answered my question towards the tail end of your last response there but I just wanted to make sure I heard it right. I wanted to ask on the broader demand environment for credit in the first 3 months of the year here. Did you mention that it's continuing to be excellent? And any further commentary on that demand environment as we stand today?

[Sheldon Saidakovsky, executive]

Yes. No, Adhir, thanks for your question, by the way. And as we've said Adhir, our system sees about 40,000 applications a day. We're funding -- and our bank partners are funding a fraction of that, probably think about -- we're proving probably somewhere between probably 8% to 10% to 12% of those applications a day and then converting a smaller percentage of those. So as we're more comfortable with -- first of all, those 40,000 applications a day are also increasing because we're consistently adding additional marketing partners and providers. That's first of all. And secondly, our acceptance rate, we can ratchet up slightly if we're very confident on the risk. So we are very comfortable with the risk and that's why you're seeing more originations coming through the system. So there is a ton of demand over there. I mean, as we've always said, from day 1, we're oriented to the bottom line to profitable growth. So we're not going to take any excess risk that will decrease the margins to below our targeted levels. So we're going to make sure first of all, our gross applications that we're looking at and the ones that we're going to accept and fund ultimately are going to hit our profitability targets. The demand is there. Again, we're just scratching the surface of getting to the ultimate scale in the U.S. and certainly Canada because that's new. So it's there are. It's just going to depend on the risk performance.

[Clive Kinross, executive]

And I want to also add a little bit of color. I think you asked what we're seeing in Q1. And it's no surprise that we're seeing an incredibly strong Q1 to date. I guess to date, we're almost at the end of the quarter. But if you said to me, why is that the case? Look, consumer sentiment has bounced back, particularly in the U.S. in a very, very strong fashion, and it should. Unemployment levels are at or near an all-time low, the number of outstanding jobs, particularly for our segment of the market continues to be incredibly robust. There's very, very strong wage growth. And what all of that is translating to is robust demand and maybe even more importantly, exceptional credit performance. On both sides of the border, but as you know, our portfolio, our business is far heavily weighted to the U.S. and in particular on the U.S. side. I think the other thing, and I mentioned it earlier about our update on underwriting models, I think the other thing that's fueling more demand, greater accept rate and could move us towards that high end of that CLAB growth or our new underwriting models that we've just rolled out. And if you turn around to me and said, just bake it down to the most basic fundamentals of what that's providing us. It's providing us the ability to fund more and more consumers with a disproportionately higher number of those, as I've already mentioned, call it, our riskier portfolios while at the same time, not having any degradation in risk. So all of which is to say not only were we exceptionally pleased with 2023, but I think we're exceptionally pleased with a very strong start here in 2024.

[Adhir Kadve, analyst]

That's excellent. Next question I'll ask is just on the last partnership. You guys have mentioned that it does provide some contribution to the 2024 numbers, and then continuing to scale up into 2025. For 2024, how much of the last partnership is really contemplated in the guidance that you guys have provided?

[Clive Kinross, executive]

Yes. So let me provide some color but that's an excellent question, and I think in Matt's questions a few minutes ago. He spoke about the CLAB growth of 25% to 35%, yet if you look at the revenue guidance, the growth is 30% to 42% and suggesting that the revenue growth is higher than the CLAB performance. And if you were to turn around and say, how do you connect those dots, you connect those dots because the Lending-as-a-Service revenues are not included in the CLAB growth if that makes sense. So everything incremental is as a result of our Lending-as-a-Service. So what I will tell you about Lending-as-a-Service, is we expect it to contribute on a net income basis, about 10% to 15% of our net income for Q4, more of that net income is oriented towards the back half of the year. I'm sure that probably makes sense with Q4 being the highest contributor. And as we get to Q4 of the total new originations that we're doing as a company after 12 years of business, roughly 1/3 of those new originations will come from a program that we started just a few months ago, which is our Lending-as-a-Service. And that growth will be fueled even more into 2025 and beyond. So we're really pleased with what we're seeing from this program. We're really pleased that we'll be able to make a positive impact on revenue and earnings and also on return of equity this year, but just wait until you see the impact it has on 2025 and beyond.

[Operator]

[Operator instructions]. Your next question comes from Andrew Scutt from Roth MKM.

[Andrew Scutt, analyst]

First one for me. In the MD&A you guys discussed within your 2024 targets, confidence in gaining market share in 2024. And I was just wondering what you guys are seeing out there that gives you that confidence? And what pockets of the market you guys feel you're best positioned to capture additional share?

[Clive Kinross, executive]

Let me first congratulate you for really the MBNA. There must have been a late night, Andrew. And yes, we are all confident that a lot of it kind of plays into what I was saying. Our confidence at this stage of the game is earned as we're approaching the end of Q1 over here. And I think that at the end of the day, our updated underwriting models, we really are seeing more penetration, higher accept rates, also higher conversion rates leading to excellent growth and low performance particularly tilted to some of those higher-risk portfolios, which in turn are helping us drive up our revenue yields and continue to grow the business. At the same time, we've got a very, very, call it, aggressive experienced business development team, and growth team that's spearheaded by our President and Chief Revenue Officer, Noah Buchman and there are there all the time forging new relationships entering into new preferable deals and all of that is aimed at bringing us more applications in the first place. We don't announce all of those new partnerships as we bring them to bear all the time, but rest assured that engine is robust and operating all the time to help fuel the growth of the business.

[Sheldon Saidakovsky, executive]

The other thing I would just add to that, we've talked about our graduation program a number of times, well, ever since we've gone public. I mean our ability, Andrew, to retain our consumers and continually offer them better and better rates ensures that they stay with us and that our products are competitive and best-in-class when you compare them to anything else that they can get in the market. So our retention and graduation program is working exceptionally well. And we truly believe our products that we continue to offer consumers are best in class.

[Andrew Scutt, analyst]

Great. And second follow-up for me on the Lending-as-a-Service. So you guys have talked about seeking out additional opportunities both in Canada and the U.S. Can you just help us understand how discussions with potential partners may go the time line there? And maybe how big you see the potential Lending-as-a-Service market is that you guys can [Indiscernible]?

[Clive Kinross, executive]

Yes. Let me start off by saying that the infrastructure that we've built to be able to bring on these Lending-as-a-Service programs, and no one on these calls, we often can speak about these types of opportunities from a financial perspective, not necessarily from an operational perspective. Rest assured, these are complex operational elements to pull together. And what we've demonstrated over here is that we're able to do it because of our proprietary technology, our AI and the entire operating infrastructure that we have over here to be able to do this. There are some additional moving parts in the context of Lending-as-a-Service, as you can imagine. We need to bring on institutional purchases of these loans, and we're adding more and more of those all the time and we've got a big pipeline of additional purchases that we're signing up at different stages of, call it, the sales cycle, if you will. In addition to that, with our current Lending-as-a-Service partner, we have lots of new channels that we will be bringing to the table that will drive more and more growth. As other either originating banks see what we do or alternatively institutions see what we're doing, they're coming to us really on both sides of the border and speaking about how we could spin up a Lending-as-a-Service program for them, in the case of banks and in the case of institutional purchases, they're looking not only at both sides of the border, but seeing if there are opportunities to create Lending-as-a -Service products for other segments of the market. So all of that, our areas of focus for us, and we certainly expect over the course of this year to be adding additional Lending-as-a-Service programs. And maybe Andrew, I should not have said that in the plural, I certainly would hope we'll spin up additional Lending-as-a-Service programs, but at a minimum, we'll be spinning up an additional Lending-as-a-Service program that will continue to fuel their growth on top of our very nascent Pathward program.

[Andrew Scutt, analyst]

Well, I definitely hope it's plural and congrats on the strong results.

[Operator]

And there are no further questions at this time. I will turn the call back over to Clive for closing remarks.

[Clive Kinross, executive]

Yes. Thank you so much. I mean thank you, Matthew, Adhir, Andrew, for the excellent questions. Everybody else on the call, thank you. Thank you so much for attending. We really appreciate that. And I'd also like to thank our investors for your continued support and belief in Propel and our vision for building a new world of financial opportunity. And of course, as always, I'd like to extend a really big thank you to the Propel team for delivering these outstanding record results and for helping us transform an industry. On that note, have an excellent day and operator, you may end the call.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.