Propel Holdings Inc

TSX:PRL

Earnings Call Transcript

[Operator]

Good morning, everyone, and welcome to Propel Holdings Fourth Quarter and Year-End 2024 Financial Results Conference Call. As a reminder, this conference call is being recorded on March 13, 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.

[Devon Ghelani, executive]

Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's fourth quarter and year-end 2024 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 Q4 2024 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 Q4 2024 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 am 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 operations and an overview of our record Q4 and fiscal year 2024 results before Sheldon covers our financials in more detail. Before we open the call up to questions, Clive will provide an overview of Propel's strategy and growth initiatives for the year before discussing our 2025 operating and financial targets.

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

[Clive Kinross, executive]

Thank you, Devon, and welcome, everyone, to our Q4 and year-end conference call. 2024 was another year of growth for Propel that included achieving record results, expanding our partnerships, entering new geographies and serving a record number of consumers. We are making significant progress in our journey to becoming a global leader in building financial opportunities for the underserved consumer. We'll get to what is ahead of us, but I first want to speak about our 2024 results and existing business.

We delivered another quarter and year of significant growth on both the top and bottom line as well as record quarterly and annual results, including revenue, adjusted EBITDA, adjusted net income, total originations funded and ending CLAB. Furthermore, we achieved our 2024 guidance in which we exceeded our year-over-year CLAB growth forecast and hit the upper end of our targeted revenue and adjusted net income range. In 2024, we served a record number of new and returning customers with total originations funded of $586 million, an increase of 42% over the previous year. We and our bank partners were able to originate record volume while delivering the strongest provision as a percentage of revenue in the Q4 period since 2020.

We also achieved record revenue of approximately $450 million for fiscal 2024, an increase of 42% from fiscal 2023. On the bottom line, net income increased by 67% to $46.4 million and adjusted net income increased by 75% to $62.3 million for fiscal 2024 from fiscal 2023, both representing record performance. Since going public in 2021, we've achieved at least 40% in annual top line growth per annum. And with compounding, this has resulted in our annual revenue growing from $130 million in 2021 to USD 450 million in 2024, which represents approximately 3.5x over the past 3 years.

Turning to the current macroeconomic backdrop, the potential impact of tariffs has caused uncertainty on both sides of the border. However, given the tariffs are targeting goods and manufacturing, the tariffs do not have a direct impact to our business. As a reminder, our business performs well in an economy with some level of uncertainty. This is because banks and other traditional financial institutions generally tighten their underwriting during periods of uncertainty, pushing higher credit quality consumers to lenders who specialize in our segments. Even before the threats of tariffs, the Federal Reserve Bank of New York reported in November 2024 that 21% of credit applications were rejected for the October 2023 to October 2024 period with rejection rates higher than the previous year and remaining well above pre-pandemic levels of 18% in 2019. This trend contributed to us experiencing record demand and resulted in a record ending CLAB in 2024.

Furthermore, well into Q1, we continue to observe strong credit performance and demand consistent with our expectations across our portfolio. We expect economic uncertainty to cause even more traditional lenders to tighten underwriting further. This is an opportunity for Propel to introduce our brands to more high credit quality consumers. Looking specifically at the U.S., we believe any impact from tariffs to be counterweighted by an already strong U.S. economy. As a reminder, the U.S. represents in excess of 90% of our revenues in 2024. The U.S. continues to experience historically strong employment with unemployment remaining at 4.1% as of February.

Even if tariffs do lead to some economic slowdown, including a potential increased inflation and unemployment, this could be a net positive for Propel given the dynamics I just spoke to. With respect to the regulatory environment in the U.S., we have seen the new administration replace the leadership of the CFPB, our main regulatory body in the U.S. Historically, Republican administrations tend to be more business-friendly. And moving forward, we expect the CFPB to work more actively with the industry to find solutions that both protect consumers, but also expand access to financial products.

Meanwhile, in Canada, which, as a reminder, represented less than 5% of revenue for the quarter and year, we continue to see differences in the broader economy compared to the U.S. Canada's unemployment rate is higher than the U.S. at 6.6%, and the economy is more susceptible to any tariff impact. We have also seen the Bank of Canada be more aggressive on rate cuts versus the U.S. Federal Reserve. That said, there are also some positive signals with inflation now below the Bank of Canada's target rate. And the regulatory environment in Canada, the reduction to the maximum interest rate came into effect January 1, 2025. In advance of the regulatory change, we continued optimizing and refining our AR models for the sub-35% APR market and have been operating at the sub-35% APR for several months already.

Turning to updates on some of our recent announcements. Fora's partnership with KOHO is operational with further enhancements to be rolled out in the months to come. As a reminder, under this partnership, we act as an embedded lender to KOHO, providing the technology, underwriting, servicing and funding of lines of credit to qualified KOHO customers. Lastly, an update on QuidMarket and the overall U.K. market. QuidMarket was able to deliver strong revenue and earnings before acquisition-related expenses following the acquisition close on November 15, 2024. Since the close, we have continued to integrate QuidMarket ahead of schedule.

Looking at the macro environment, unemployment in the U.K. 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 the integration going exceptionally well and as we get more immersed in the U.K. market, we are excited as ever about the opportunity to accelerate the growth of the U.K. business and build QuidMarket into a market leader.

I will speak more about our growth plans and our guidance for 2025 later. But first, I will now pass the call over to Sheldon.

[Sheldon Saidakovsky, executive]

Thank you, Clive, and good morning, everyone. We are proud to deliver another year of record results while continuing to grow the business significantly at the top and bottom line. Consistent with the typical seasonal demand we experienced in Q4, we observed strong consumer demand, which led to record originations from both new and existing consumers. New customer originations in particular grew by 48% in Q4 of last year, while total originations funded grew by 45%. Combined, the strong demand drove the record total originations funded of $176 million, leading to the 42% year-over-year growth in ending CLAB, which ended Q4 at a record $481 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. I'd also note that QuidMarket accounted for a small contribution to our year-over-year growth after the transaction closed. As we continue to integrate the business, we expect QuidMarket to contribute meaningfully to our top and bottom line growth going forward.

We experienced strong growth from our Canadian operations with Fora generating record revenue in Q4 2024 and a more than doubling of CLAB. Fora's ending CLAB at December 31 was approximately CAD 37 million. Our Lending-as-a-Service program generated record revenue in Q4 and experienced significant sequential growth from Q3. We also launched our third Lending-as-a-Service partnership during Q4. Propel's overall record loans and advances receivable balance and ending CLAB drove record revenues of $129.3 million for Q4, representing 35% growth over Q4 of last year. The annualized revenue yield in Q4 was 113% and is within the range of what we would expect for our business given the current portfolio composition and to drive profitable growth.

Turning to provisioning and charge-offs. The provision for loan losses and other liabilities as a percentage of revenue decreased to 51% in Q4 from 54% in Q4 last year. This decrease is a result of, firstly, the ongoing strong credit performance driven by the effectiveness of our proprietary AI-powered underwriting and our success in continuing to move up and across the credit spectrum. And secondly, continued consumer resiliency in addition to wage growth keeping up with inflation. As Clive mentioned, the provision for loan losses and other liabilities as a percentage of revenue during the quarter was our best Q4 performance since 2020, 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 was 13% for Q4 2024. The 13% reflects strong credit performance for the quarter and is well within our target range of 12% to 15% for driving profitable growth. We do note the Q4 2023 net charge-offs was uncharacteristically low at 10% as it was impacted downward by an accounting estimate change in that quarter. The 51% in provision as a percentage of revenue and the 13% net charge-offs as a percentage of CLAB are both well within our target range for the loan portfolio, and we believe we will continue generating strong unit economics and drive expanding growth and profitability going forward.

Furthermore, our strong credit performance and underwriting capabilities enable us to serve more consumers across the underserved credit spectrum while driving increasing profitability. In Q4 2024, our net income increased to $11.6 million from $8.6 million in Q4 2023, representing 37% growth, while adjusted net income increased to a quarterly record of $16.9 million from $10.2 million last year, representing 67% growth. Our net income for fiscal '24 grew to $46.4 million and adjusted net income increased to $62.3 million, both representing fiscal year records. On an earnings per share basis, our diluted EPS increased to $0.29 in Q4 from $0.23 in Q4 last year, while our diluted adjusted EPS grew to $0.42 in Q4 from $0.28 in Q4 last year. Our diluted EPS for fiscal 2024 grew to $1.22 and diluted adjusted EPS increased to $1.64, both representing annual records.

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 and ongoing effective cost management. As a reminder, all of these figures are expressed in U.S. dollars. Furthermore, we do note that the adjusted figures exclude a couple of additional items. Firstly, unrealized gains and losses relating to currency hedges; and secondly, the amortization of intangible assets acquired pursuant to the QuidMarket transaction. By removing these items, management believes the adjusted net income reflects the true operating performance of the company.

On a return on equity basis, our annualized ROE for Q4 declined to 27% from 35% in Q4 last year, and our annualized adjusted ROE declined to 40% in Q4 from 41% last year. Our ROE for fiscal '24 was 36% and adjusted ROE was 48%, both increasing meaningfully from fiscal 2023. The primary reason for the reduction in the Q4 ROE metrics was CAD 115 million equity offering we completed in Q4 to finance the QuidMarket transaction and only benefiting from a partial quarter of results from QuidMarket given the mid-November transaction close. We are proud of these metrics as they both 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 13.3% in Q4 from 12.1% in Q4 last year. This was driven by the record total origination funded for the quarter and in particular from the record new customer originations. New customers represented 47% of our total originations funded in Q4, up from 46% in Q4 of 2023. Our cost per funded origination of $0.098 in Q4 increased modestly from $0.096 in Q4 2023. However, our cost per new customer funded origination remained the same at $0.21 for Q4 in '24 from Q4 of last year. This level of spend per dollar funded is well within the acceptable range to achieve targeted profitability during a period of significant growth. As we've mentioned previously, Q4 is a period where we and our bank partners typically originate more volume, which requires additional spend on acquisition, and we expect that to result in an economic benefit over the coming quarters.

With respect to the other operating expenses, these increased as a percentage of revenue to 16% in Q4 from 15% in Q4 last year. Typically, we see these costs decreased as a percentage of revenue. However, during Q4 2024, there was an uptick as a result of onetime transaction costs relating to the QuidMarket acquisition, expanding programs such as Lending-as-a-Service and Fora and other business development activities. Overall, our net income margin remained the same at 9% in Q4 from Q4 last year, and the adjusted net income margin increased to 13% in Q4 2024 from 11% in Q4 last year. For fiscal 2024, our net income margin increased to 10% from 9% last year, and the adjusted net income margin increased to 14% in fiscal 2024 from 11% last year.

Our margins also benefited from the decline in interest rates in 2024. Our overall cost of debt, which includes interest and other credit facility associated fees, decreased to 12.7% in Q4 from 13.7% in the prior year. Given the floating nature of our credit facilities, we expect that any additional reduction in interest rates on both sides of the border will provide a tailwind to our profitability.

Turning to Propel's financial position. As of December 31, the business had approximately $95 million of undrawn capacity under our various credit facilities. As we discussed on our prior call, we continue to review terms on our existing facilities and explore alternative debt structures that we believe will not only reduce our cost of debt, but also provide us with additional capacity to grow the business. We hope to provide an update in the near future. Our debt-to-equity ratio was approximately 1.3x at the end of Q4, providing us with an exceptionally well-capitalized balance sheet. Our capital structure was strengthened in Q4 following the completion of our CAD 115 million equity financing in connection with the USD 71 million acquisition of QuidMarket.

We also benefited from Propel's overall continued strong earnings and operating cash flow generated during the quarter. We believe that our strong financial position capacity and the recent equity raise 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 our dividend, which we recently increased by 10% to CAD 0.165. Lastly, as Clive mentioned, the integration of QuidMarket is going exceptionally well. As the executive overseeing this business, I speak to our U.K. colleagues frequently, and they are excited to be an integral part of the Propel team. Together, we have an excellent plan to drive growth and become a leader in the U.K. market.

I will now pass the call back over to Clive.

[Clive Kinross, executive]

Thanks, Sheldon. It's really been an amazing journey so far. 2024 was another record year for Propel. We set a record in approximately 407,000 total consumers served in a year, a 39% increase over 2023. We increased our dividend every quarter with our Q4 dividend growing by 43% versus Q4 of 2023. And as Sheldon mentioned, we increased our dividends again this quarter by another 10%. We maintained an excellent Net Promoter Score of 57 from our customers. To put this into perspective, American Express, widely seen as having the best customer service in the credit card industry, has a reported Net Promoter Score of 52.

We ranked again as one of the Globe and Mail's Top-Growing Businesses, Deloitte's Fastest-Growing Technology Companies in both Canada and North America and Financial Times as America's Fastest-Growing Companies as well as being named by HRD as one of Canada's Best Places to Work. And we completed our first acquisition financed through a 2x oversubscribed equity bought deal and entered our first market outside of North America. Yet even with all of this, we are just getting started. Every year, we set bigger, bolder and more ambitious goals. The executive team and I have spent a lot of time in these past few months talking about prioritizing our plans for 2025 and beyond and the programs, partnerships and products that will drive our success.

Our business development pipeline is full, and we are working on a number of exciting new initiatives we hope to announce during the year. There is still a lot of work to do and lots of white space on our journey to becoming a global leader for underserved consumers. Well into Q1, we continue to observe strong credit performance and demand consistent with our expectations across our portfolio. Looking ahead to the rest of the year, there are 3 pillars of our growth strategy. First of all, the scaling of our existing and core business. In the U.S., as we spoke to earlier, we expect Propel and its bank partners to benefit as traditional financial institutions tighten underwriting. Given this dynamic, we and our bank partners anticipate strong demand from consumers further up the credit spectrum and consequently strong credit performance through the rest of the year.

The U.S. remains a critical market for us and accounts for the vast majority of our revenue. In Canada, we are more determined than ever to become the leading fintech lending business. Our largest competitors in the Canadian space still rely on brick-and-mortar retail at a time when open banking and a younger population are driving fintech adoption. To further our growth in 2025, we are in active discussions with potential partners about additional embedded lending partnerships similar to KOHO. In our Lending-as-a-Service program, we've seen strong consumer demand and performance. We expect to accelerate purchaser onboarding into 2025 with more commitments to be secured over the coming quarters.

Secondly, the integration of QuidMarket and the U.K. There is tremendous opportunity in the market with 20 million underserved consumers. We expect growth this year to continue to accelerate as we incorporate best practices, leverage our technology and expertise to build a market leader in the U.K. And third, expanding and optimizing our products and building new partnerships and structures to serve more underserved consumers across the credit spectrum. On the back of this strategy, we are introducing a set of 2025 operational and financial targets. We are setting a 2025 ending CLAB growth rate of 25% to 35%. Our 2025 revenue target range of USD 590 million to USD 650 million represents a growth rate of roughly 31% to 45% over 2024 and is driven mainly by our CLAB growth and also reflects our expansion into the U.K. market.

We are setting an adjusted EBITDA margin range of 26% to 30%, in which the midpoint represents an increase from the 27% we achieved in 2024. The 2025 net income target range of 10.5% to 14.5% and the midpoint of the adjusted net income range of 13.25% to 16.25% are both improvements from the 2024 margins and reflect a higher level of operating leverage inherent in the business model as overall operating 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. We also expect the increased contribution of QuidMarket and Propel's Lending-as-a-Service program to contribute to increased margins.

The 2025 return on equity target of 27% plus and adjusted return on equity target of 34% plus represents strong targets on shareholders' equity. Lastly, as I said earlier, we will continue to actively pursue exciting growth initiatives. These are not included in the operating and financial targets, but form part of our long-term growth strategy. Almost 14 years into our journey and having navigated through a global pandemic, 4 different administrations in the U.S., years of prolonged inflation, wide fluctuations to interest rates, geopolitical tensions amongst many other crises and yet notwithstanding that, every year, we've grown profitably since 2015. With a larger CLAB than ever coming into 2025 following a record-breaking year in 2024, supported by a well-capitalized balance sheet and an exceptional start to 2025, we have never been stronger.

Additionally, we are now operational in 3 geographies, addressing a market that is over 90 million consumers. We have built a market-leading AI-powered technology platform that has the flexibility and scalability to operate across multiple geographies and shifting economic conditions. And lastly, we have an experienced and motivated team that coming to work every day thinking about how to grow our business and can serve -- and serve our consumers even better. When I look ahead, I don't see uncertainty. I see opportunity. Over 2025, we will continue to create opportunities for our consumers with best-in-class products and access to the credit market that had otherwise been locked out of. And we will continue to build opportunity for our investors by balancing the delivery of strong credit performance with our ambitious growth agenda. Now more than ever, we are committed to building a new world of financial opportunity. We are just getting started.

That concludes our prepared remarks. Operator, you may now open the line for questions.

[Operator]

[Operator Instructions] And the first question comes from Matthew Lee from Canaccord Genuity.

[Matthew Lee, analyst]

I wanted to maybe start on the credit side. You touched on it a bit, but in terms of how the current economic volatility has been impacting your customers and maybe how that added uncertainty changes your algorithm and expectations for credit in 2025. Maybe the question here is, does your guidance that you provided generally contemplate improving or worsening credit for the year?

[Clive Kinross, executive]

Matt, I had 2 parts to that question. I'm going to ask Sheldon to ask (sic) [ answer ] the second part, which is the question regarding our guidance. Let me take what I heard is the first part, which is how is credit performance at the moment. As we highlighted during the call, our Q4 2024 credit performance was the best that we've seen since 2020, really an exceptional quarter from a credit performance standpoint, notwithstanding the exceptional growth that we demonstrated. And now almost through this quarter, we continue to see very strong performance.

I could say in line with our seasonal expectations, but I would probably go a step further and say it's probably even better than our expectations. We're seeing strong performance across the board, particularly in the U.S. market. And if you think about it, and I've said this many times before, our business performs very well during periods of a little bit of uncertainty. I mentioned during my prepared remarks that the Federal Reserve Bank of New York stated that rejections over the course of October '23 to October '24 were about 21%, up from 18% pre-COVID.

And those rejections have increased every year where banks have continued to tighten. That's been part of our theme for our profitable growth over the last few years. We expect that these levels of uncertainty, bank tightening to continue. And at the end of the day, that plays exceptionally well into our hands. As banks continue to tighten, in essence, our addressable market continues to expand. Even if we tighten, which will probably be our posture, our overall growth won't slow down because our market sizing has increased by virtue of that.

In addition to that, credit performance could and should improve given the fact that we're funding consumers who are higher up the credit spectrum. So in many respects, we obviously like a very strong economy that we've had over the last few years. But our Goldilocks scenario for a business like ours is actually when there's a little bit of weakening in the economy, provided it's all within the right range. With that, I'm now going to ask Sheldon to answer what I believe was your actual question.

[Sheldon Saidakovsky, executive]

Yes. Thanks, Clive. And good speaking with you, Matt. Yes, I think as Clive said, we're coming out of a period in Q4 where we had exceptional credit performance, the best in the Q4 period. So I want to mention that again. So far in Q1, everything is going fully in line with expectations. And on a seasonal basis, obviously, we expect in Q1 that credit performance improves. So there's a downtick in the PCL as a percentage of revenue. So everything is going according to plan. And ultimately, the plan that underpins the guidance expects the provision to be more or less in line with what we experienced last year, which, by the way, 2024 was an improvement over 2023.

So that's important to note as well. We went from 51% in 2023 to 49% in 2024. And part of that, obviously, is the continued maturation of our book and just our exceptional underwriting that continues to be enhanced over time. I think in 2025, we should expect kind of a similar sort of 49-ish percent range on the PCL front. I will say that some of our P&L is shifting a little bit insofar as Lending-as-a-Service as it grows and becomes part of our P&L, Lending-as-a-Service doesn't have any provision for loan losses. As you're aware, [ it doesn't ] require our balance sheet nor do we carry the risk over there. So as that grows, the PCL overall in aggregate will come down as a percentage of our revenue. But if you look just on our core business, we're expecting it to be in line with 2024.

[Matthew Lee, analyst]

That's helpful. And then maybe just thinking about that in the context of your adjusted ROE guidance, the suggestion here is 34% plus. That's a bit down from the 40% guidance in 2024. Maybe just talk about what you might be seeing in the business that might make that number a little more conservative this year than last year?

[Sheldon Saidakovsky, executive]

Yes. I mean, firstly, Matt, obviously, we increased our equity base quite substantially with the acquisition of QuidMarket, which ended up adding about USD 80 million to our equity base. So we're coming in with a much larger equity base. So it is important to note that. Now with what you're talking about in terms of being conservative, and this may point to just general guidance overall, we've provided a bit of a wider range just for a number of reasons. I think that, firstly, obviously, the macro environment is dynamic.

Secondly, we've got a number of programs that are getting up to speed and really going to be driving a lot of enhanced profitability and revenues in '25, namely Lending-as-a-Service and Fora. There's the potential refi of our debt facility that could factor in and bump things up. So we are kind of giving a bit of a wider range on the basis of some of those factors. And keep in mind also, if you look at our margin range -- our margin rate -- the low end of our margin range effectively starts at what we achieved in 2024.

So our margins on the business are improving across the board just because of operating leverage and the general growth in our business. So we're expecting an outstanding year. We're on our way. And we've -- we're hopefully going to -- as we've done in the past, we've put out guidance. And if anything, we've achieved close to the high end or in some cases, exceeded it as you could see. So hopefully, that's going to be the case this year.

[Clive Kinross, executive]

I want to just reiterate a couple of points if you don't mind. Matt, the answer to the ROE kind of question is the easy one. As Sheldon said, we raised an additional USD 80 million towards the end of the year. So the equity base is a lot higher. But I think Sheldon did touch on the guidance last year, we also had a big range, $410 million to $450 million. And the most important profit metric to us is our adjusted earnings. We came in right in line with the top end of that fairly significant range in 2024. We exceeded our adjusted earnings margins in 2024. And obviously, we've built a reputation, I think, of growing our top and bottom line every single year.

The bottom line last year grew on an adjusted basis by a staggering 75%, 76%, which we think is outstanding on top of 40% plus growth. And by the same token, our hope and our expectation is to get to the top end and potentially even increase our revenue guidance. But we are living in uncertain times, and we wouldn't be responsible if we didn't contemplate a more conservative scenario as well. And that explains the bigger kind of guidance range, if you will. Even at the low end of the range, obviously, it's exceptional, both top and bottom line growth, but you could rest assured we'll be pushing hard to meet or exceed the top end of the range.

[Operator]

And the next question comes from Andrew Scutt from ROTH Capital.

[Andrew Scutt, analyst]

Congrats on the strong results. The first one here on the Lending-as-a-Service business, really nice contribution in the quarter and great to hear you added a third partner. You guys previously talked about it coming around 10% of the company's earnings. I was kind of wondering if that target is kind of still in place? And also if you could maybe touch on the pipeline of additional partnerships that would really be great?

[Clive Kinross, executive]

Yes. So first of all, Andrew, thanks for the compliments. We appreciate it. And as we've said before quite a few times with the Lending-as-a-Service, it's a relatively long sales cycle. The diligence process is very comprehensive by these purchases. And it's not in our control entirely to control the speed at which we onboard these folks. And as a consequence of that, it does create some challenges around forecasting exactly when they will land and consequently, when the growth will take off. So we do, if you were to get under the covers, have kind of a stair-step growth with our Lending-as-a-Service model.

Importantly, the demand side of that equation is exceptional. The KPIs that we're delivering for our purchases aren't in line with the expectations that we suggested to them. They're better than the expectations that we suggested to them, all of which translates to them all increasing their commitments. And we're now at a point where we are speaking to larger and larger institutions who are getting ready to onboard on the Lending-as-a-Service side. I expect, Andrew, that once we move probably to maybe the back half of Q2 into Q3, the demand for the Lending-as-a-Service side will match -- the demand, sorry, from purchases or the supply of capital will match the exceptional demand that we're seeing from that program, at which time it will be much easier for us to predict the growth on a go-forward basis.

I could tell you that we had a multibillion-dollar institution in our offices last week. They're getting ready to onboard. They did a 2- or 3-day very, very exceptional diligence process. This is a group that's quite familiar and I'll say with investing in these types of initiatives, they came out of it, they said they've looked at hundreds of Lending-as-a-Service opportunity, Propel is the most compelling opportunity with the best management team and best presentation that they've seen across the board. So that's the type of feedback we're getting. We're getting similar feedback from our existing investors. We expect that to grow on a go-forward basis.

However, with that as the backdrop, it's not as easy to forecast what that might look like for 2025 because of those dynamics that I've spoken about. And that's one of the things that where we've got a relatively big range from both a revenue and profitability standpoint in 2025. I think we've been quite conservative in projecting that, and I hope that there's upside over there. I hope that we'll be able to come in at close to 10% in Q4 of this year from a revenue standpoint. And as you know, the faster we can grow that, the more contribution there are to our margins. That business, the margins are, generally speaking, about double of what they are from our other business lines.

[Andrew Scutt, analyst]

Great. And yes, can't imagine those are easy agreements to hammer out, but great to see the continued progress. Second one for me on QuidMarket. You guys have touched on it on the prepared remarks, but can you kind of just remind us the opportunity the business has now with the backing of Propel's balance sheet?

[Sheldon Saidakovsky, executive]

Yes. Andrew, thanks for that. QuidMarket, first of all, the transaction went as smoothly as we could have ever expected or imagined. And I think, if anything, now a number of months in, the integration and just the way we look at the opportunity is ahead of plan, and we're actually even more excited with what we're seeing. It's an outstanding team over there in the U.K. that aligns fully with our culture and our way of doing things. And we're united in the plan to grow Quid into a leader in the U.K.

It's a wide open market, as we've said before, and the opportunity is right in front of us. So there's a number of things that we're taking it a little bit slow in the beginning as we build out and integrate both cultures and our infrastructure, which, as you can imagine, does take time, and we need to be disciplined just as we are in every other aspect of our business. But as we flip to the second half of the year, there's opportunity, as you say, to add capital. But more -- even more importantly is some of our sophistication on the technology side, on the underwriting side, and frankly, our expertise in potentially introducing new products into the market and moving up and across the credit spectrum as we have done here in the U.S.

So not even including any of those capital, our tech, our expertise, the business is expected to grow close to 40% at the top line for 2025 and generate significant margins. I think beyond that, as we expect everything to go right, we expect it to grow by multiples thereafter. That's certainly the goal, and that's what it will take to become the industry or amongst the industry leaders over in the U.K.

[Operator]

And the next question comes from Rob Goff from Ventum.

[Rob Goff, analyst]

Congratulations on a very strong Q4 and 2024 itself.

[Clive Kinross, executive]

Thanks, Rob. Thank you.

[Sheldon Saidakovsky, executive]

Thank you.

[Rob Goff, analyst]

Most welcome. Maybe diving a little bit deeper into the last [ remarks ], can you talk a little bit about how the cycle unfolds of your first meeting with a last partner, the sales cycle, so to speak, or the close cycle is 6 months and then it's another 6 months to implement and then another 6 months to gain traction? How should we look at our expectations there? And when we might see another announcement building on the third one with Q4?

[Clive Kinross, executive]

Sorry, Rob, I missed your final little question over there. When we should see an announcement, I missed that.

[Rob Goff, analyst]

The last one there, sorry, was with respect to -- you added third one in Q4. Would you look at a fourth one in the second quarter or is it third quarter [ type thing ]?

[Clive Kinross, executive]

Yes. So maybe let me take the first part about what that sales cycle looks like. And in order to do that, I need to do a little bit of a historical look-back and explain to where we are so far. I would say that the funds or the purchasers who've joined the Lending-as-a-Service program so far have been folks who have been so impressed by the opportunity that they've specifically gone out and raised dedicated funds for the opportunity.

Frankly, as we develop momentum and generate the KPIs and returns that they expect their funds run out. We need to kind of slow the growth down a little bit. And then what they do is they go out and they raise more capital. And what we've done invariably on these calls is speak to you about how all the funds are going out and raising more capital because by the nature of who they are, they don't have unlimited funds available and every time they need to go back into the market and do that.

Every single one of those purchases have increased their commitments and increased their funding, but it takes time. It's kind of got the start-stop dynamic, which is, in retrospect, not unusual given it's a new program and given that they're all relatively new to it as well. Where we're getting to now in our cycle over here, given that we've got the data and we've got the track record is we're speaking to bigger, bigger financial institutions who have big balance sheets and won't have the same constraints as it relates to committing and growing capital to the program. All of which is to say we've got probably 2 purchases over there that are in the business development pipeline right now.

We expect to onboard them, as I said, towards the end of Q2 and into Q3. And at that point in time, we will no longer have this dynamic that I think is characterized by the earlier phase of this program, it will be much easier to project on a go-forward basis. And at that point in time, frankly, I expect the revenue growth and the profit growth from the Lending-as-a-Service program to explode and conceivably be the fastest-growing segment in our revenue and profitable -- profitability profile on a go-forward basis. Just give us, I would say, another few months, and then we'll really be able to provide better guidance as to what that growth looks like. If anything, as a result of that, as I said a little bit earlier, I think we've probably leaned a little bit on the conservative side with -- with incorporating less into our guidance for this year.

[Sheldon Saidakovsky, executive]

And maybe I'll add on to that, Rob, just in terms of your question around the third partnership, just to draw a distinction for all of us over here, when we say the third partnership, that means the bank with whom we're working with in order to originate loans to consumers. But ultimately, what happens after that is that the bank then sells the receivable to a network of purchasers that we facilitate. So when we say there's 3 programs, that means banks that are -- that we're working together with that originate those loans. What Clive was talking about is the capital because ultimately, these receivables are sold for flows to a network of purchasers. So bringing on those purchasers is what takes a little bit of time. And you asked kind of -- I mean, it's very, very similar to when we look back years for our own facilities that we raised to finance our portfolios.

Initially, the funders provide a small amount of capital. They look for about 6 to 12 months of performance history, then they'll upsize. And based on that performance history, it builds a lot of momentum where we're able to bring on larger institutions and upsize the existing purchasers. So I think we're through that initial phase over here. We've got outstanding data and the purchasers are upsizing their commitments, and we expect to bring a lot more on board. I could tell you that the demand is there. It's a matter of just bringing the purchasers. And as Clive says, then it will take off at an accelerated rate.

[Rob Goff, analyst]

And perhaps one follow-up, if I may. Could you talk to any subtle shifts that you're seeing in the competitive dynamics in the marketplace?

[Clive Kinross, executive]

That's an interesting question. I think the first part of it that we need to do is speak about the subtle shift that we're seeing what I would call in the adjacent competitive marketplace. And I already mentioned, Rob, that rejections from big banks and credit unions as measured by the Federal Reserve Bank of New York were at their highest level in several years in 2024. We were messaging that throughout the year. And if anything, I think you're going to see even more tightening from those banks and credit unions. We've already seen it in Canada, where the banks have increased their provisions and intimated that they're going to be tightening credit standards. And I think you're going to see the same in the U.S. So I wouldn't necessarily call those folks competitors per se.

I would call them adjacent lenders that in turn impact our marketplace. And as I've said before, that's going to increase our addressable market, number one. And number two, not only is it going to increase our addressable market, but it's going to increase our addressable market with a higher proportion relatively speaking of quality consumers. So that's number one, very important dynamic to take into consideration this year. And we're already seeing that in the back end of 2024 and now well into Q1 of 2025, where credit performance, frankly, has been really, really strong.

In terms of how that will impact the competitive marketplace, look, I don't think this is discrete to Propel, particularly on the U.S. side. I think that our competitors are seeing the same thing. They all came out with strong Q4 results with one of the last to report over here. All of them, I think, put out relatively strong guidance for 2025. Mind you, none of them demonstrate anything close to the growth, both top and bottom line that Propel are showing. But I'm not surprised that they've all come out with relatively strong guidance. It's a nature of what we do. Canada, by the way, is a little bit of a different dynamic, and I've mentioned it a few times before, less than 5% of our overall revenue, even less than that of the profit contribution. A bit of a different picture in this country, frankly. First of all, the rate cap at 35% is a little bit more limiting than what the products are in the U.S. that we offer.

So you don't quite see as big a market sizing adjustment as you see south of the border. We've also got unemployment over here at 6.6%. Negative GDP -- real GDP growth per capita, and that's before 25% increase in tariffs. So I think Canada, we've got a little bit more of a conservative posture. I mentioned during my prepared remarks that Canada continues to go very well for us. But I think that's more because of the learnings in Canada, the discrete nuances between Canada and the U.S. that we're learning all the time, and we're accommodating and improving our processes and underwriting as a consequence of that against what I would call a little bit more headwinds in Canada compared to the U.S.

[Operator]

And the next question comes from Kyle Joseph from Stephens Inc.

[Kyle Joseph, analyst]

Let me echo congratulations on a really strong year. I'll start just on the Quid acquisition. It's been a while since I've taken a look at that market. Can you give us a quick little history lesson on how that market really shook out after the regulatory overhaul? What was that -- I can't remember what year that was, but big regulatory changes for the industry and how that's impacted competitive dynamics over there?

[Sheldon Saidakovsky, executive]

Yes. Kyle, it's great to have you on the call. So from a -- the U.K., as you say, there was a regulatory change over there. I think, obviously, the U.K. has amongst the highest fintech adoption in the developed world, certainly much, much higher than what we have in the U.S. and Canada. What they call over there is high-cost shorter-term lending took off over there and was a huge industry. And then the regulators came in, the FCA, Financial Conduct Authority introduced a lot of rules and regulation in around 2015-'16. And that led to a lot of the supply in the market exiting. And I think since then, the FCA has recognized that they've, in their words, have kind of overcorrected and they've just crushed a lot of the supply that was in the U.K.

And that also led to a big rise in the legal lending market in the U.K. I've been to a couple of conferences over in the U.K. where the FCA is present, and now they're asking and welcoming good solid operators to come back into the market and address this massive gap in credit demand and the supply that's available in the U.K. And because of what they did back in 2015 and '16, which led to a lot of that exit in the following years, that left a couple -- just a handful of very, very strong operators that were able to navigate through that period, and one of them is QuidMarket. They were there before the regulation and they're there now. But there's only a handful of operators in the U.K., certainly no market leader over there that's serving this market and growing.

And that's why that leads to incredible opportunity. The regulator over there is very collaborative with the industry, understands that there's a big, big hole in the demand and wants to work together with industry to make sure the right consumer outcomes are delivered to the consumers over there in the U.K. and that there's the right products there to serve this big demand. So I think the regulatory landscape over there is as stable as it gets, I would say, and the regulator is working very, very well with the industry.

[Kyle Joseph, analyst]

That's really helpful. And then in terms of the operating leverage of the business, obviously, you guys are online, highly scalable platform. But just high level, not asking for specific guidance. Well, we have revenue guidance, but how you're thinking about OpEx growth in the context of that really strong revenue growth?

[Sheldon Saidakovsky, executive]

Yes. I think, Kyle, the easiest way to kind of look at it is I mentioned earlier in the call on Matt's question that our PCL, which happens to be the biggest cost for the business is going to be relatively similar to what we saw in 2024, but yet our margins are expanding across the board. The midpoint of our guidance range is kind of significantly higher than where we ended 2024. So what that represents is operating leverage. We expect our operating costs as a percentage of revenue to come down. Now keep in mind, that's in a period where we're growing dramatically. So this is nowhere near the operating leverage that will ultimately get to in the coming, let's say, '26 and '27 and beyond when the business gets a bit more maturity. But we're expecting certainly improved margins across the board because of the operating leverage.

[Clive Kinross, executive]

If I could just add a couple of points to that. Bear in mind, 90% plus of our revenues are in the U.S., in excess of 50% of our costs are here in Canada. And we've got a weakening Canadian dollar right now. So if anything, from a U.S. dollar perspective, that will also help, first of all, in reducing our U.S. dollar costs, which in turn obviously should lead to even more operating leverage or even more profits in U.S. dollar terms. And when you convert those U.S. dollar profits into Canadian dollar profits from an EPS perspective, they should increase by virtue of that fact alone.

In addition to that, we've already seen an appreciation in the U.K. pound relative to the dollar from the time that we did our budget. So hopefully, if anything, that will be more of a contribution than we've contemplated, all other things being equal, both at the top and the bottom line. In addition to these increased margins from the operating leverage, I also want to note that, that's not stopping us from adding world-class executives to our team.

So for example, in the last quarter alone, we added 3 external executives to our team, including Jeanne Lam to our SVP of Growth and Global Marketing. Jeanne was previously the President of Wattpad. What a tremendous addition she's already been to our team. Anne Steptoe as our Senior Vice President of Software Development. Anne headed up previously software development at Wealthsimple. She's also joined the team. And lastly, Jason Bolla has joined our executive team as the VP of Financial Reporting and Analytics. And he joined us from Li-Cycle, New York, a New York Stock Exchange listed company. So we've beefed up the exec team. Obviously, that costs money. Those costs are also taken into account as well as others in our below-the-line item. And even with that, we've got an even more stellar team and even still demonstrating the operating leverage that are inherent in the guidance.

[Operator]

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

[Stephen Boland, analyst]

Yes. Just one question on QuidMarket. I know you provided some details. I'm wondering, Sheldon, you just provide a little bit more granularity in terms of -- I know you said you're ahead of plan, but like where are you on facilities, hiring? I don't need specific, but like are you -- is it 30%, 50% done, getting that kind of set up the systems? Maybe just a little bit more detail.

[Sheldon Saidakovsky, executive]

Yes, for sure. So firstly, Stephen, the business, just to be clear, doesn't require additional capital to deliver the 40% -- close to the 40% growth that we contemplate for this year. The business is generating significant earnings and cash flow that's being reinvested into the business today. So I think from a capital perspective, realistically, I think although the expectation is we'll set up probably something this year, but that will fuel the growth into next year and beyond where we expect the growth to be in the multiples. So that's kind of on the capital side. So that's not something we're rushing to put into place.

I think from an infrastructure perspective, why it's so important is because a lot of the processes at QuidMarket are manual in nature, and that's impeding some of the growth. So when you look at it from an underwriting perspective, whereas just a contrast, ours happens in a pretty much fully automated process through our underwriting engine. From their perspective, they've got very talented people doing their underwriting manually. So that impedes some of the growth. And then also from a call center perspective, a lot of their processes are manual in nature. Now on the one hand, that leads to their exceptional credit performance, but it slows down from an origination standpoint. So that's why even though they're growing this much, and that's because of the market dynamics, there's just no -- there's just limited supply in the U.K., they're pretty much shutting off originations partway through the month.

So the idea over here is to help build out a lot of that infrastructure, implement some of our technology, which will start, I believe, in sometime in the second half of the year. But we're going right in accordance with plan. I think the plan right now is to grow close to 40%, deliver close to the 20% to 30% margins on a U.K. GAAP basis and then set everything up to roll out our technology and add additional capital to grow by multiples beyond 2025.

From a hiring perspective, we have -- we're trying to accelerate the process over there. So we've -- we're definitely hiring some very talented people over there. And it's all going according to plan, and we're happy to invest more to get this infrastructure build done as we plan.

[Stephen Boland, analyst]

Okay. I'll follow up offline, Sheldon, with a few others. I know you guys are running late.

[Sheldon Saidakovsky, executive]

Sounds good, Stephen.

[Operator]

And no further questions that came through. Speakers, please continue.

[Clive Kinross, executive]

Thank you again, everybody, for attending our call this morning. I would like to thank our investors for their continued support and our vision of building a new world of financial opportunity. And as always, I would 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.

[Operator]

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.