Good morning, everyone. Welcome to Propel Holdings' Second Quarter 2025 Financial Results Conference Call. As a reminder, this conference call is being recorded on August 7, 2025. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question- and- answer session. Instructions will be provided at that time for research analysts to queue up for questions. I will now turn the call over to Devon Ghelani, Propel 's Vice President, Capital Markets, and Investor Relations. Please go ahead, Devon.
Thank you, Operator. Good morning, everyone, and thank you for joining us today. Propel 's Second Quarter 2025 Financial Results were released yesterday after market close. The press release, financial statements, and MD&A are available on SEDAR+ , as well as on the company's website, propelholdings.com. Before we begin, I would like to remind all participants that our statements and comments today may include forward-looking statements within the meaning of applicable securities laws. The risks and considerations regarding forward-looking statements can be found in our Q2 2025 MD&A and annual information form for the year ended December 31st, 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 Q2 2025 MD&A for definitions of our non-IFRS measures and the reconciliation of these measures to the most comparable IFRS measure. Lastly, all dollar amounts referenced during the call are in U.S. dollars unless otherwise noted. I 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 overview of our record Q2 2025 results and our observations on the overall economic environment before Sheldon covers our financials in more detail. Before we open the call up to questions, Clive will provide an update on Propel's strategy and growth initiatives for the remainder of 2025. With that, I will now pass the call over to Clive.
Thank you, Devon, and welcome everybody to our Q2 Conference Call. Building on our strong start to the year, we are proud to have delivered another quarter of record results. While macroeconomic conditions remain dynamic, our AI-powered platform, disciplined risk management, and diversified global footprint continue to drive our record performance. We'll cover what we're observing from our consumer segment in the macroeconomic environment shortly, but first I want to speak about our record Q2 results. We delivered another quarter of strong growth with record quarterly revenue, total originations funded, and ending CLAC. Carrying over from our strong Q1, we and our bank partners continue to experience robust demand, leading to record total originations funded of CAD 194 million, an increase of 35% over Q2 of the previous year.
We accomplished this while delivering our strongest credit performance for a Q2 period since becoming a public company, a result of a disciplined approach to underwriting and our AI-powered technology. Strong consumer demand from both new and existing customers led to a record revenue of CAD 143 million, an increase of 34% from Q2 of last year. We also achieved in excess of CAD 50 million in monthly revenue for the first time in Q2. On the bottom line, adjusted net income increased by 22% to CAD 19.2 million from Q2 2024. Turning to the macroeconomic environment, which remains dynamic, we are confident in our business and the resiliency of our consumer segments. As we've previously discussed, for Propel , some level of macroeconomic uncertainty is an opportunity, with a tightening lending environment leading to more consumers with higher credit quality applying for credit from Propel and its bank partners.
As we discussed last quarter, credit for U.S. consumers in particular has become increasingly challenging to access. According to the New York Fed, 23% of credit applications were rejected in June, up 2% from February, and the highest reported level since 2014. This trend is especially acute for consumers with credit scores below 680, with nearly 57% of applications rejected, up from 48% in February of this year. Concurrently, the Wall Street Journal recently reported that the major credit card companies have been shifting their marketing to target consumers with higher credit scores. This is coupled with many major U.S. banks shifting their focus to higher-income households. Yet, consumers remain resilient. While the U.S. unemployment rate increased modestly to 4.2% in July, it remains near historical lows, and wage growth continues to outpace inflation.
Within our target markets, employment remains healthy, with job gains concentrated in sectors such as healthcare and education, industries that disproportionately employ many of our consumers. Meanwhile, in Canada, revenue grew by 55% year-over-year to a record in Q2, though Canada still represents only 2% of our overall revenue as we continue to scale forward. We also continue to observe differences in the broader macro environment compared to the U.S. Canada's unemployment rate remains higher at 6.9% as of June, and GDP growth was essentially flat in Q2, driven in part by the effects of U.S. tariffs. That said, there are encouraging signals. Inflation remains near the Bank of Canada's target rate, and in July, the bank held rates steady, noting that the economy has withstood U.S. tariffs better than expected.
We are closely monitoring the status of ongoing trade discussions, though it is clear that some level of tariffs will remain in place going forward. Turning to the U.K., the market continues to exceed our expectations. Total originations funded grew by 68% in Q2 compared to last year, representing a record. In addition, the market delivered record revenue and continued to deliver strong credit performance in Q2. Looking at the macro environment in the U.K., while economic growth has moderated, the unemployment rate of 4.7% remains below the long-term historical average. Inflation continues on a downward path, and while not yet at pre-COVID levels, it's steadily approaching the Bank of England's target. Encouragingly, wage growth remains strong and continues to outpace inflation, supporting consumer resilience.
Lastly, reflecting on our strong results and solid financial position, our Board of Directors has approved another increase to our dividend from CAD 0.72- CAD 0.78 per share annually . The 8% increase represents our eighth consecutive dividend raise. Since early 2023, our dividend has more than doubled, underscoring our strong financial performance and our commitment to delivering shareholder returns. I will speak more about our outlook and business development pipeline for the remainder of 2025, but first, I will pass the call over to Sheldon.
Thank you, Clive, and good morning, everyone. We are proud to deliver another quarter of record results while continuing to grow the business significantly on a profitable basis. Similar to Q1, we and our bank partners continue to observe strong consumer demand and credit performance across our operating brands. We achieved record originations from both new and existing customers in Q2, which resulted in record total originations funded of CAD 194 million, an increase of 35% versus Q2 of last year. The record quarterly originations helped drive the 33% year-over-year growth in ending CLAC, which ended Q2 at a record CAD 520 million. Given the macroeconomic environment, we and our bank partners prioritized originating a higher proportion of volume from a return on existing customers versus new customers. Similar to Q1, new customers represented 43% of total originations in Q2.
Lending-as-a-service generated record revenues in Q2, with over 60% sequential revenue growth from Q1. The program continues to deliver strong margins and returns to forward flow purchasers, consistent with our expectations. In Canada, notwithstanding the macroeconomic backdrop, Fora experienced strong growth and generated record revenue in Q2 2025. In the U.K., as Clive mentioned, QuidMarket experienced record revenues and originations in Q2. Propel 's overall record loans and advances receivable balance and ending CLAC drove the record revenues of CAD 143 million for Q2, representing 34% growth over Q2 2024. The annualized revenue yield in Q2 was 114%, a modest decrease from 115% in Q2 of last year. The decrease was driven by several factors, including, firstly, the larger proportion of originations from a return on existing customers. Secondly, the continued aging of the loan portfolio, including the graduation of customers to lower costs of credit.
Thirdly, the ongoing expansion of Fora. These factors offset those items driving the yield higher, including QuidMarket and our lending-as-a-service revenue. Turning to provisioning and charge-offs, the provision for loan losses and other liabilities as a percentage of revenue decreased slightly to 49.8% in Q2 from 49.9% in Q2 last year. We continue to experience strong credit performance across the loan portfolio, driven by, one, the effectiveness of our AI-powered platform and our bank partners' disciplined underwriting approach. Two, the continued customer resiliency in our segment of the market. The continued scale and maturation of the loan portfolio, with an increased proportion of originations from a return on existing customers, is significant. As a reminder, existing and returning customers generally have lower default rates than new customers.
As Clive mentioned, the provision for loan losses and other liabilities as a percentage of revenue in the quarter was our strongest Q2 performance since going public. With respect to net charge-offs, our net charge-offs as a percentage of CLAC was 12% in Q2 2025 and reflect strong credit performance for the quarter. The provision as a percentage of revenue and net charge-offs were also impacted by a one-time accounting estimate change relating to QuidMarket. Without this one-time adjustment, the provision percentage would have been lower. The 50% in provision as a percentage of revenue and the 12% net charge-offs as a percentage of CLAC are both well within our target range for the loan portfolio, and we believe we'll continue generating strong unit economics and driving expanding growth and profitability going forward.
In Q2 2025, adjusted net income increased to CAD 19.2 million from CAD 15.7 million in Q2 last year, representing 22% growth. On an EPS basis, our diluted adjusted EPS grew to CAD 0.45 in Q2. For the year-to-date period, our adjusted net income increased to CAD 42.6 million, and our diluted adjusted EPS grew to CAD 1.01. Both of these figures represent six-month period records. As a reminder, all of these figures are expressed in U.S. dollars. The growth in our earnings is primarily a result of the overall revenue growth of the business, strong credit performance, and ongoing effective cost management. On a return on equity basis, our annualized adjusted ROE for Q2 declined to 32% from 54% last year. For the year-to-date period, our annualized adjusted ROE was 37% compared to 56% last year.
The primary reason for the declines was the CAD 115 million Canadian equity offering to finance the QuidMarket transaction that we completed in Q4 last year. We believe these metrics demonstrate strong returns to our investors, as well as our ability to efficiently utilize shareholders' capital. Turning to acquisition and data costs, starting in Q2, we removed the marketing and underwriting costs relating to our lending-as-a-service program and included them along with the other lending-as-a-service program costs in processing technology and program servicing. This enables users to better understand and compute our cost per funded origination, considering our total originations funded exclude lending-as-a-service. Acquisition and data expenses as a percentage of revenue increased to 13% in Q2 from 11.4% in Q2 last year. This increase was driven primarily by the strong total originations funded for the quarter and an increase in the cost per funded origination.
Our cost per funded origination increased to CAD 0.096 in Q2 from CAD 0.085 in Q2 last year, and our cost per new customer funded origination increased to CAD 0.224 from CAD 0.181 in the prior year. These increases were driven primarily by three factors. Firstly, QuidMarket, which has a higher cost per funded origination than our other programs, had an even more meaningful impact this quarter given the acceleration in its growth. Although it has a higher relative cost per funded origination, the provision for loan losses in this program is notably lower than our North American programs. Secondly, an increased spend in organic marketing, which has a higher cost per funded origination, but historically also drives relatively higher credit quality originations to our platform. This supported the strong credit performance in Q2 and is expected to continue delivering high-quality originations in future quarters.
Thirdly, given our prudent risk posture, we incurred a higher relative spend on underwriting and data, which in turn further contributed to our strong credit performance. As a reminder, underwriting and data costs are a meaningful part of our cost per funded origination. We continue to pursue broad application volume while maintaining a disciplined and conservative acceptance rate. While this increases our data and underwriting costs, we're comfortable with this approach considering the strong credit performance. Overall, this level of spend remains well within the acceptable range to achieve targeted profitability during a period of significant growth. With respect to other operating expenses, these increased as a percentage of revenue to 17% in Q2 from 16% in Q2 last year.
Although we continue to benefit from the operating leverage inherent in the business, we are also continuing to invest in our infrastructure to support the launch of near-term business development initiatives. We expect to announce these initiatives over the coming months and for them to significantly contribute to our growth and profitability as they scale over time. Our profitability benefited from a reduction in our overall cost of debt, which includes interest and other credit facility-associated fees. The combination of lower interest rates and a recent reduction to our credit facility costs decreased the cost of debt to 11.4% in Q2 from 13.4% in the prior year. Overall, our adjusted net income margin decreased to 13% in Q2 from 15% in Q2 of last year.
The positive impact from the strong credit performance and lower interest costs was offset by a lower stage one provision add-back and an unrealized foreign exchange gain in the quarter, which is removed from our adjusted figures. Turning to Propel 's capitalization, as of June 30th, we had approximately CAD 151 million of undrawn capacity under our various credit facilities. During Q2, we completed a CAD 70 million upsize to our CreditFresh facility, bringing the total capacity up to CAD 400 million. Furthermore, we completed the refinancing of our MoneyKey credit facility to CAD 15 million. In addition, we were able to reduce the cost of both facilities meaningfully by approximately 150 basis points per annum on a combined basis. As a reminder, our credit facilities are based on a floating rate, so any additional reduction in interest rates in Canada and the U.S. will provide a tailwind to our profitability.
Our debt-to-equity ratio was approximately 1.1x at the end of Q2, providing us with an exceptionally well-capitalized balance sheet. We believe that our strong financial position and additional debt capacity, as well as our significant cash flow generating capability, will be able to support the continued expansion of our existing programs, additional growth initiatives, and to support the increased target dividend. Lastly, I want to provide an update on the integration of QuidMarket. We have nearly completed the integration of our financial, general corporate, and IT infrastructure systems and are ahead of schedule. We have also placed a greater focus on the integration of our two cultures. Last month, I was in the U.K. with our Head of People and Culture, Cindy Usprech, where we had a discussion with the U.K. team about our common values and the mission that unites and drives us.
The team was bursting with input and energy. Next, we are focusing on customer acquisition, product, and underwriting strategies that will unlock significant synergies and opportunities to further accelerate our growth in the U.K.. As always, I came away from the visit even more excited about what we are building. We are increasingly focused on how we can further expand into the U.K.'s large addressable market. Congrats to our exceptional team in Nottingham on helping deliver a quarter of significant and record growth. I'll pass the call back over to Clive.
Thanks, Sheldon. More than a month into our third quarter, we are confident in our ability to deliver strong record results in the second half of 2025. As a reminder, our business is seasonal, with more of the growth typically in the back half of the year. While we remain vigilant on a seasonally adjusted basis, we continue to observe strong credit performance and customer demand across our operating regions. Now operational in three markets and with a full business development pipeline, there is significant opportunity in front of us, and we are focused on seizing it. Looking at our growth in the U.S., the U.S. remains a critical market for us, and we are actively exploring ways to expand our presence through new partnerships, products, and investments. In this regard, we will have more to announce in the months to come.
With lending-as-a-service, we have always stated that the market demands within the states we operate in outweigh the capital we have had access to. With the addition of new purchases and additional commitments secured from existing purchases during the quarter, we are well positioned to meet more of the demand in front of us in the months and quarters to come. Overall, this remains a relatively young and well-performing program, and one we expect to continue to grow significantly. In Canada, the effects of the U.S. tariffs appear to be largely confined to a limited number of sectors. While we continue to take a cautious approach to our home markets, we are working on several new fintech partnerships, not too dissimilar to KOHO, which we expect to announce in the coming months. We remain confident in our ability to grow into the leading fintech lender for underserved consumers in Canada.
Lastly, in the U.K., given strong originations and credit performance, we now expect top-line growth to exceed 50% in our first full year of owning QuidMarket. There is tremendous opportunity in the U.K. and millions of consumers underserved by today's market. We have the right team on the ground in the U.K. to ensure we deliver and accelerate growth even more in the future. As we continue to grow, scaling effectively remains a top priority. AI underpins that effort. When we went public in 2021, we had a team of roughly 330 and generated trailing 12-month revenue of approximately CAD 110 million. Today, four years later, we have a team of roughly 630 and at the midpoint of our guidance suggest we will achieve CAD 620 million in revenues this year. That represents a nearly six times revenue growth with less than double the headcount.
It is a result of disciplined technology investments, automation, and an AI-powered underwriting platform that continues to deliver strong credit performance and operating leverage. We're just getting started. We see even greater opportunity to deepen our use of AI across the business. That's why we're investing further in our AI capabilities, not just in our underwriting and lending platform, but increasingly across our operations. One area we're especially excited about is our customer operations center. We're working with a leading AI customer service company to implement solutions that drive both automation and effectiveness. This includes AI agents as well as real-time tools that assist our representatives with real-time guidance, assistance, and workflow integration, allowing them to serve more customers quicker, more accurately, and effectively. Our AI investments are working. In Q2 2025, we achieved a record in auto-decision originations.
Looking ahead, we expect the AI agents alone will enable us to serve an additional 10,000 customers each month by the end of the year without additional headcount. Going forward, AI will continue to drive margin expansion, elevate customer satisfaction, and help us become a true global leader. While we continue to invest in AI and technology, it is our people and culture that remain at the center of our business. That is why we are proud to be named one of the best places to work by HRD Canada for the third year in a row. This award is a recognition of the meritocratic culture we have built and championed here, and of course, the strength of our people. Our Propel culture is set at the top.
I was especially proud to see my friend and co-founder, Sheldon Saidakovsky, recognized as Executive of the Year by the Canadian Lenders Association. While this award highlights Sheldon's leadership in the acquisition and integration of QuidMarket, his impact on Propel runs far deeper. Sheldon has one of the sharpest financial minds I've ever worked with, and more importantly, he's one of the most principled, hardworking, and honorable individuals I know. Over 14 years, we've worked side by side, and I've seen Sheldon grow into a powerhouse CFO and a world-class leader and executive. Congratulations, Sheldon. As we head into the second half of the year, when demand for our and our bank partners' products is highest, our business development pipeline is strong. With credit demand at record highs, we are well- positioned to expand our products, enter new markets, and enhance our partnerships.
There's a lot of exciting work underway that we're investing in, and we look forward to sharing some of these initiatives in the months to come. Let me close by sharing a few thoughts on the uncertainty we continue to see around the world and how Propel is built for this market. For a while now, uncertainty has become the norm. Many businesses are pulling back, reassessing, or waiting for clarity. At Propel , this is the environment we were built for. We have built an AI-powered platform that is flexible, scalable, and adaptable. It allows us to move quickly and operate confidently across any economic condition. We serve a resilient consumer base with people who know how to manage their tight budgets, adapt to uncertainty, and do more with less, often better than those with higher income and credit scores. We're increasingly global.
Geographic diversification allows us to manage risk and drive sustainable growth across our portfolio. We are disciplined. Our approach to risk management isn't reactive. Discipline is in our DNA and guides every decision we make. We have an exceptionally well-capitalized balance sheet and sufficient debt capacity to fund our existing business growth initiatives and support our dividends. We have developed partnerships and business models that give us virtually unlimited paths to scale, with more opportunities close to launching. Most importantly, we have a team that has worked together for over 14 years, weathering every storm, seizing every opportunity, and always moving forward. Looking ahead, we see lots of opportunity. Now more than ever, we are committed to building a new world of financial opportunity for the more than 90 million consumers in the U.S., Canada, and the U.K., underserved by traditional financial institutions. That concludes our prepared remarks.
Operator, you may now open the line for questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. Your first question comes from the line of Matthew Lee from Canaccord Genuity. Your line is now open.
Hey, morning guys. Congrats, Sheldon, on the award, and thanks for taking my questions. I want to maybe ask about the guidance ranges. I know you've maintained the range every March, but at the time that you guys kind of set that guidance, things were much more opaque, and frankly, none of us had a good idea of how things would go. It feels like we have much better clarity now, and just given how your first half has gone, the natural seasonality, it seems like you're going to end up on the high end of the loan growth range, and then maybe in my model that translates to earnings growth kind of in the 50% range. Can you just give any tightening of the guidance would be helpful here?
Morning, Matt. Nice to hear from you over there. We just mentioned that in June we exceeded CAD 50 million in revenue for the first time. We also made mention of the fact that our growth in the back half of the year dramatically exceeds the growth in the front half of the year, which means that the June revenue numbers are kind of the low point from a monthly perspective from this point onwards. You could kind of extrapolate what that means in terms of revenue for the back half of the year, and you could triangulate that into our guidance. All of which is to say we certainly can increase the bottom end of our guidance range with a lot of confidence, but we elected not to simply because we're big believers in underpromising and overdelivering.
You know very well that we'll be pushing hard to get to as close to the top end of that guidance as possible. We certainly see market conditions that support strong demand. We're seeing good credit performance on a seasonally adjusted basis, and at the same time, we've never been better capitalized, 1.1 debt-to-equity ratio. The amount of dry liquidity we have on the sidelines all supports our ability to lean into that demand. As we've always done, we will only do so on a very, very disciplined basis, ensuring not only growth but very profitable growth at the same time.
Okay, that's helpful. Maybe when I think about yield so far this year, if you take away the impact of the existing customer mix and the targeting of better customers, would you say yield has been fairly stable? Maybe thought of another way, is there any competitive pressure impacting pricing, or is it really all related to your internal risk management preferences?
Hey, Matt. First of all, thanks for the congrats and good to speak to you. It's primarily related to the composition of the portfolio. It's not related to anything in the external market. It's just the composition of our products. QuidMarket obviously has a higher yield on balance, so that's driving some of that yield up. Whereas the maturation of the portfolio is sort of going the other way and driving it down. I would say what I've said consistently is that we expect our revenue yields this year to be between 110% and 115%. We're at the top end of that range, and you know that's a good thing for the portfolio, just given the composition also within the products themselves, within the risk tiers that we're originating in. There's quite a lot that goes into it.
I would say that if anything, our revenue yield is probably ahead of our estimates and will probably end up closer to the higher end of the range for the remainder of the year.
Okay, that's helpful. Maybe just to sneak one last one in on lending-as-a-service. I listen to a lot of the U.S. big banks, and it sounds like they're getting a lot of interest from them, wanting to expose you to consumer credit. They're all getting into this buy now, pay later business. I would argue Propel's business model is better than some of those other models. Is that an opportunity to maybe add a bigger partner to the lending-as-a-service roster?
Yes. Matt, first of all, I think our lending-as-a-service revenue sequential growth was about 60%, 60%+ from quarter-to-quarter. If anything, we expect that Q2 to be the low point. We're going to continue to drive lending-as-a-service growth into Q3 and Q4. Right now, we expect the annualized numbers for 2025 to more than double into 2026. I'm really giving you a kind of a sneak peek as to where we're seeing the lending-as-a-service going. Let me maybe take a step back and tell you what we're seeing or what our purchasers are seeing over there, and I'll try also to answer your question about a larger institution. First of all, very, very important, the foundation to our lending-as-a-service program is are the purchasers seeing the returns that we represented they would be seeing?
Not only are they getting those returns, but they're doing even better than we told them they would do. Our philosophy of underpromising and overdelivering doesn't stop with the investor community. It goes with all of our partners, and they are over the moon by what they're seeing to the point that every single purchaser is going out and raising fresh capital so that they could put more funds to work with Propel. We saw new purchases as well as increased commitments from purchasers during the quarter, and they're racing fast to fill up that capacity before we bring on any new purchasers. You've certainly got that dynamic taking place in the marketplace, and we are much more balanced today in terms of having capital to absorb lots of the loan application volume from our lending-as-a-service portfolio. That notwithstanding, there's obviously tremendous growth.
We're now, I think we're originating approximately 3,000 new loans a month in our lending-as-a-service portfolio, and that will also represent kind of a low point. That's going to grow. There's way more capacity than that. The question that I think you're alluding to is where's the capital going to come to to fund that growth? First and foremost, from our existing guys. I can't overstate that. Again, they're raising capital and putting it to work. At the same time, it's a huge market that we operate in, and there's more than enough capital to go around if and when we do bring on a big institution.
With that said, and I'm going to be absolutely candid about it, the opportunity for those bigger and bigger institutions to participate, frankly, is becoming less and less because more and more of the capital that needs to be put to work is being taken up by the smaller guys, and a lot of these big institutions want huge commitments on an annualized basis, and the opportunity for that is being squeezed. They're being squeezed a little bit out of the market because the other guys are taking up their capacity. All of which is to say, Matt, expect the growth to continue for the remainder of the year. There's tons of capital coming after this market as we're maturing, and expect that to more than double as we move into 2026. That's just the lending-as-a-service program with our current infrastructure.
All I'm alluding to is that there's lots of other good stuff coming down the pike, and we'll be announcing that in the months to come, which will accelerate the lending-as-a-service program and other parts of the business even more than what I've already alluded to.
All right, sounds great. Talk to you soon.
Great, thanks. Thank you, Matt.
Thank you. Your next question comes from the line of Andrew Scutt from ROTH Capital Partners. Your line is now open.
Hey guys, just want to echo the congratulations for Sheldon. I'm going to say congrats on another solid quarter, and thank you for taking my questions. First one from me. You guys often talk about how, you know, customers are falling down the credit curve. You gave the Federal Reserve statistic of credit card applications, but you guys are also kind of about a year and a half, two years into a marketing initiative to also attract higher credit quality customers. Can you kind of talk about how that's translated into, you know, the improved customer base you're working with today?
Do you want to take it? Do you want me to take it? Yeah, sure. You take it. Why don't you take it? If there's anything you need, I'll jump on.
Yeah, no, absolutely. Hey, Andrew, thanks a lot. Yeah, we're continuing to move up the credit spectrum, as you're saying. As we've been telling folks for a while now, we've got a number of programs that enable us to continue to expand our total addressable market and move upstream as banks and traditional credit institutions tighten their underwriting more and more and shift away from the non-fund consumer. We're doing more and more risk-based pricing. We're graduating consumers at, I would say, on balance at a faster pace. That's enabling us to keep consumers with Propel and offering them products all along their credit journey so they stay with us for an extended period of time and access better products than they would access anywhere else in the market. That's certainly continuing to happen across our platform, and you're seeing it in the credit results.
We're operating in an incredibly dynamic market with some macroeconomic numbers that are coming out that are impacting consumers, obviously, but we continue to hit our growth targets and continue to improve our credit quality all along the way. We are operating with a tightened underwriting approach on new customers. That's part of the way that we're managing it. Our intent is to continue expanding often across the credit spectrum all along the way.
Maybe let me add because Andrew, you're right. You spoke about the tightening that we're seeing. In citing the New York Federal Reserve, that's where the rejection rate grew from 21% last quarter to 23% this quarter, a 10% growth in the rejection rate, the highest it's been since 2014. If you were to bifurcate that between strong credit consumers and consumers with a FICO score sub-680, the rejection rate grew from 49% - 57%. That's your rejection rate from your credit card companies and your mainstream banks. If you then look at delinquencies from credit card companies and mainstream banks, it's increased by about 20% over the last two years, particularly for consumers who are earning north of CAD 150,000. You kind of scratch your head and you say, what's going on over there? I think a lot of that is AI starting to take hold.
We've all heard about a lot of the terminations and reductions in force at some of the big tech companies. I think that's where you're seeing some weakening in the credit cycle, leading to the tightening, which ultimately translates to way more high-quality volumes moving into our segment of the market. The obvious question then is, does that mean that there's more risk in our segment of the market? The answer to that question is no. We just had a record quarter from a provisioning perspective in Q2 since being a public company. That's the data point that proves my point. More than that, what you're seeing is a very low unemployment rate for our consumers. You're seeing more and more open jobs or a very high number of open jobs for our consumers. That's the second important data point.
If you look at where the job growth is coming from, a lot of it is coming from industries like transportation, like education, which have a disproportionate number of our consumers in that segment of the market. All of which is to say this needs to be analyzed not at a 30,000-foot level, but at a more granular level to understand how some of this dislocation is impacting our business. For the most part, what's going on in the broader market is a net positive for Propel Holdings, translating to more originations, more demand for our products because of these dynamics, coupled with very strong seasonally adjusted credit performance.
Great. Really, really appreciate the color there from you guys. My second question here is on kind of operating leverage. Clive, you really broke down the AI initiatives you guys are investing in right now. Noted this was the highest percentage of auto-decision originations. I think another area which margins can grow is when lending-as-a-service really scales. Can you guys just talk about your ability to drive operating leverage and maybe what you can pull over to QuidMarket?
Yeah, maybe let me touch on one or two points over there, Sheldon. You're absolutely right about the operating leverage. The other thing that we mentioned is that there's a full business development pipeline. I want to reiterate that. We live as a public company in a market where we can't put out announcements until they're crystallized. Rest assured, there's some big things coming down the pike that are going to move the needle at scale relative to where we are today. One of the things that's going on, if you look in the bottom half of our income statement, is there's a lot of investment in these items. We write off all of the early-stage costs associated with these initiatives that we haven't announced yet, but expect them to be hitting certainly in the back half of this year and early into next year.
You will start to see some very, very exciting announcements. All of which is to say our OpEx is a little bit elevated because we're taking on some of those big infrastructure build-out costs at the moment, but expected to generate big outsized returns on a go-forward basis. That's the first thing that I want to say. The next thing that I want to say just in terms of the operating leverage is we are seeing AI playing a big role. I mentioned some of those data points in terms of what we're seeing.
I think that from an efficiency perspective, I think by the end of this year, if you were to ask me to measure the impact of AI, probably 10% efficiency, particularly in our operations center, meaning that those costs would probably have been 10% higher than they otherwise might be because of the introduction of AI, which, mind you, has its own incremental costs. For 2025, I would say overall it would be a net neutral. Moving into 2026, I expect the efficiencies from AI in our operations center to move closer to 20%, and you'll really start to see the operating leverage coming out of that as we move into 2026. The other big tailwinds, for the first time, we have our own economist here at Propel, and for the first time, we're starting to predict Fed rate cuts.
You all may have your own perspective on that, but that's a little bit of a tailwind, particularly as our debt, certainly in dollar terms, starts to grow. 25-50 cut-in rates is a nice tailwind heading into 2026, and also will lead to some margin acceleration. The final thing I want to say, and I'd be remiss if I didn't speak to it, is the costs in the U.K., the operating expenses in the U.K. as a percentage of revenues, are also blended into those numbers. Sheldon explained in quite a lot of detail the impact it's having on our cost of acquisition. By the same token, the expense line items in the U.K. tend to be a little bit higher than here at Propel Holdings, even though the overall margins are higher. Credit performance is better. They don't have any credit, so the overall margins are better.
Looking at those line items, they are a little bit higher on a percentage basis. They will also decrease as the growth in the U.K. continues to accelerate. Sheldon mentioned, I mean, we mentioned last year that we expect growth in the U.K. of about 40% at top and bottom line. Sheldon is conservatively already saying 50% growth in his prepared remarks. I actually think that we could achieve 60% top-line growth in our first year of that business. We did almost 12,000 originations in our most recent month of July. Contrast that to around 7,000 monthly originations a year ago, and if anything, that's just accelerating.
What that's going to translate to, just from an operating leverage standpoint, is not only a faster top-line growth than we've suggested, but you will also start to see the operating leverage in the U.K., which will also lead to more margin expansion on a go-forward basis.
Maybe, Andrew, I'll just add one thing, just as we look at this from how the numbers come together. As Clive said, we're investing quite a lot in a number of future initiatives that are moving along incredibly well, and we expect to have some announcements in the coming months. We are investing a lot in operations and infrastructure. With that said, I do want to make sure that in terms of the numbers, if you look at our IFRS net income, the net income actually grew 36% year-over-year while the revenues grew 34%. The margins on an IFRS basis actually improved slightly, even with all of this additional investment in our operating infrastructure. Certainly benefiting from some operating leverage over there, even with a lot of the additional investment.
The reason the adjusted net income margin was a little bit lower was because there was a lower stage one adjustment relative to last year because we were tighter on the new customer side, and most of that adjustment to stage one comes from higher growth on the new customer acquisitions. Secondly, there was just a large Forex gain that we back out of our adjusted net income as well. I did want to clarify that we're still seeing operating leverage even in an environment where we're investing quite a lot into our infrastructure.
Great. We really appreciate the detail. Congrats again on the strong quarter.
Thanks, Andrew.
Thank you, Andrew.
Thank you. Your next question comes from the line of Rob Goff from Ventum . Your line is now open.
Good morning, and congrats to Sheldon as well, and congratulations on a solid quarter. I'm very pleased.
Thank you. Thanks, Rob. Thank you.
Most welcome. I have two questions around the sales pipeline. Could you talk to your thoughts with respect to the funnel screening where, you know, the parameters are sometimes between, I believe, 8% and 15%? Secondly, on this, could you talk to your stated shift towards organic in the use of SEO?
Sure thing. I'm happy to take it, Sheldon, and just jump in. We've continued to have a tight underwriting posture, and we're seeing such strong demand that notwithstanding a tight underwriting posture, we're hitting record volumes. You heard it was a record quarter. I could tell you that the month of July has just come and gone, and that was another record month from an originations perspective. Not only was it a record month, but I would tell you that it exceeded our expectations in terms of demand and credit performance on a seasonal basis, very much in line with the expectations, notwithstanding a tight underwriting posture. Why are we keeping that tight underwriting posture? We're keeping it because the growth, we're hitting all of our growth metrics. If anything, we're now at a time of year where we're exceeding them, and credit performance has been very strong.
The drawback, if you were to kind of look at the whole thing fulsomely, as Sheldon mentioned in his prepared remarks, is our CPA was a little bit higher. As your accept rate is a little bit lower, your data and underwriting costs are the same cost. If you're amortizing those costs over fewer accepted relative loans, your CPFL is going to be a little bit higher. The opposite would be true if we were to open up a little bit, which we're not inclined to do right now, given the stellar performance that we've demonstrated. That's what's going on on that front. Now, as it relates to your, and by the way, Rob, we certainly can.
Our marginal safety from our last marginal loan is significant, and if we really wanted to drive more of that growth and lean into more of the demand and take a little bit more risk, we could certainly do that. On balance, we'd rather grow a little bit slower, and we think that roughly 40% year-over-year growth, considering that slow growth, is still quite impressive. Regarding your comment about organic marketing, that's an area where we really do control the spend. We're probably spending there a fraction of what we could spend, and we could maybe spend at least double what we're spending and achieve the same type of KPIs that we are achieving on the organic growth side. With that said, we've already accelerated our growth on the organic side. A greater proportion of new loan originations are coming from those channels.
As Sheldon mentioned as well, they do tend to have higher upfront marketing costs associated with them. By the same token, they tend to have better credit performance. One of the things that's driving the better credit performance is a higher proportion of that organic traffic. We can accelerate that a lot faster as well if we wanted to, but we feel quite comfortable with where it's cadenced at the moment. Even as I say that, Rob, I would say to you that there was maybe even a little bit stronger organic originations heading into Q3 than the strong performance we already saw in Q2.
Yeah, maybe just to add to that really quickly and to give kind of a real example of how these dynamics work in our P&L, as we said in our prepared remarks and Clive just reiterated, our acquisition costs have gone up a little bit, mainly because of organic spend, as well as just being tighter from an acceptance rate perspective and incurring higher data and underwriting costs. You mentioned the acceptance rate of between 8% and 15%. We're closer to that lower end, just given our tighter underwriting posture. We are happy to be spending more on the organic side and driving lower default rates, just on balance.
If we are to sort of pick between those two drivers or levers, traditionally in our North American business, we run with a provision for loan losses of about 50% of revenue and our acquisition and data costs of about 12% of revenue. To contrast that to what the U.K. is doing, in the U.K., the provision for loan losses is probably closer to about 30%, so much lower relatively speaking, but their acquisition costs are about 24% of revenue, so double what ours are on a relative basis. In both cases, you're generating very strong margins. It's just a different approach. You have to spend more in order to drive better credit performance.
There are other factors that factor in, but I did want to contrast kind of the North American business and the U.K. business because now you're starting to see how the U.K. business is impacting some of the numbers as you look across the P&L.
That is great. Thank you. Let me have a follow-up. You've talked a fair bit about new services that could potentially move the needle on scale. The new services were also discussed within the MDNA. Can you talk to how they might be introduced? I know there's privacy issues here, but these new services, would they be piloted and learned from before going more broadly, or would they be the type of services where you could do more of a blanket launch?
Oh, that's a great question. We're delighted that we could turn around and say we know how to do acquisitions. We've done one and we've already, I think, dramatically exceeded the expectations that we set in the markets. More than growth through acquisition is organic growth, and I think that that's what we've demonstrated since our inception. We have now the team and the infrastructure and the capital and the technology of anything to even accelerate that. Wait till you see what we've got coming, Rob. I will tell you that these are initiatives that we have a high degree of confidence in. We'll be able to launch some of these initiatives at scale rather than kind of that slow build that you're referring to.
If I were to contrast what's coming relative, say, to new initiatives like Canada or lending-as-a-service, which at the time of launching them, they were net new and we had to cadence the growth and learn a lot as we go, the nature of these initiatives is they're going to move the needle quite materially on day one, the day that we launch them, and we'll continue to grow and expand from there. If you were ready to connect the dots as to what they translate to, ultimately what they translate to is operating in additional geographies within the same countries that we operate in and expanding our product sets in both instances in areas that we're very, very familiar with.
That is great. Thank you very much. Good luck.
Great, thank you.
Thanks, Rob.
Again, if you'd like to ask a question, please press star one on your touch-tone phone. Your next question comes from the line of Jeff Fenwick from Cormark Securities. Your line is now open.
Hi, good morning everyone. Wanted to follow up on some of the commentary on the lending-as-a-service. Appreciated the added disclosure there on the expenses matched up against the fees that you're generating. Can you maybe give us a sense of how quickly that relative margin begins to build? We don't have obviously a balance from you in terms of loans under management, but it sounds like as those loans stack up that you're managing on behalf of your third parties, you should start to see the economics improve there with respect to margins. Any sort of color you can offer there to help us understand how that will begin to build?
Yeah, for sure. Thanks a lot, Jeff. I'm glad you liked the additional disclosure. I think it's, now that the lending-as-a-service program is becoming quite meaningful. We're having 60% revenue growth quarterly, sequential quarter over quarter, and that's going to continue. We've got at the end of Q2 just over CAD 50 million that are being managed across our purchasers, and that's going to scale, I would say, at least the 50% growth between now and the end of the year. You're going to see that the revenues ramp up quite significantly as Clive, you know, commented on earlier in the call. In terms of the margins, as you could see, they increased quite significantly over last year. Right now, they're at about 24%. The goal for this program is to get kind of well into the 30%s and probably touch 40% once it gets really up to scale.
Obviously, the way the program works is we do receive an upfront fee when loans do get originated. However, a lot of the economics are earned over the life of the loan through our various servicing technology and other fees that we charge as the loan goes through its duration across our platform. Those economics grow significantly because the costs for us are quite a bit lower as the loan portfolio matures. A lot of our costs are really upfront on the origination side.
I guess the duration of those loans under management, I believe those are some lower APRs that you wouldn't typically target for your own balance sheet, but maybe a longer duration. That, I assume, makes it easier to begin to stack those assets. You know, they're not rolling off as quickly, right? The revenue build should be strong, the margins better, and relatively sustainable or less variability, I guess, in that balance.
Yeah, I mean, the answer to that is yes, they are kind of longer duration. They are open-ended lines of credit as we have on our balance sheet as well, very similar. Our goal is obviously to continue graduating consumers and offering them better and better products as they perform well. The intent is for us to be the ones and our bank partners to be offering the consumers the best in market products. In terms of what the product looks like, there's quite a range on the APR side, and I would look at it in a very similar way as we look at our CreditFresh program and its range on our balance sheet today.
Thank you. Maybe one on the U.K., obviously going well for you. You don't have a debt facility in place there. At what point does that start to become a priority to support the continued growth of that business?
It's a very good question because the U.K. is generating incredible profitability and cash flow. We're certainly able to continue funding that business with retained earnings for the time being. Clive mentioned earlier, I have been conservative in my estimates. To put it into perspective, this year, I believe we're on pace to be close to CAD 50 million in revenue. That's compared to what the business is last year, which was CAD 32 million. That's well in excess of 50% growth. What we're doing, the intent was always sort of to look in the back half of this year to size up the growth and figure out what type of facility we should place into the U.K..
Right now, the focus on the U.K. after all of our infrastructure integration has been done is now to refine products, to incorporate some of our sophisticated underwriting capabilities and platform, and to expand their marketing and distribution initiatives and channels. Once we start sizing that up and that work is going underway, we'll size up the capital required and I expect us to have a facility in place over there. Certainly next year, the timing of that probably in the first half of next year. In the meantime, to achieve the numbers for this year in excess of CAD 50 million of growth, it doesn't require any debt facility.
Helpful. Thanks. Thank you. Maybe one more just on the aggregate of your funding. Great to see the continued reduction in the cost for Propel overall. Remind us, you know, there were some step-down in funding costs through the quarter. How much of that was fully in effect for the quarter versus maybe just continuing to see the rate continue to decline through Q3? Obviously,
Notwithstanding the fact that the rates overall may be cut by the Fed or the Bank of Canada.
Sorry to interrupt here. I might have missed a piece of your question. Are you asking the cost of debt being lower this quarter relative to last year if that's a result of the decrease?
Sequentially.
Yeah, it's mostly.
The decline is mostly from our refinanced and renegotiated debt facility, where we brought down the cost by about 150 basis points. Now, there were, relative to last year, some reductions in the Fed, relatively speaking, but most of it is because of the cost of debt reduction. I think, once it's fully baked in, we should be kind of close to that 11% cost of debt on a go-forward basis. Unless there are further rate reductions by the Fed or the Canadian Fed, those will, you know, the rates will come down further.
I would just add, Jeff, first of all, great to have you on the call over here, and you've certainly got your own perspective in terms of what will happen to rates over there. My sense is the U.S. is at a point now where they're really getting ready to lower rates, and that will be a nice little tailwind to us. That's outside of our control, obviously. What's inside of our control from a rate reduction perspective, currently where our focus is, is renegotiating our Canadian debt facility. To that end, you should certainly expect, I would expect, a fairly material rate reduction on the Canadian side.
Thank you very much for that color. That's all I had.
Thanks, Jeff.
Thank you. There are no further questions at this time. Turning over back to Clive for closing remarks.
Thank you so much, everybody, for attending our call this morning. I would like to thank our investors and our partners for their continued support and our vision of building a new world of financial opportunity. I would like to extend a very 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 operate as you may endeavor.
Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.