IOU REPORTS 2022 FINANCIAL RESULTS

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Company highlights record loan originations of US$275.5 million, strong revenue growth on an annual basis and impact of macro-economic factors on Q4 results

For the year ended December 31, 2022:

• 2022 loan originations totalled US$275.5 million, representing an increase of 70.6% over 2021 and surpassing all previous annual loan origination figures in the history of the company.
• Gross revenue of $19.1 million and adjusted revenue of $19.2 million, represent increases of 48.2% and 73.7%, respectively, over 2021.
• Operating expenses of $18.4 million and adjusted operating expenses of $18.1 million, represent increases of 108.1% and 63.7%, respectively, over 2021. Note that 2021 operating expenses were reduced by a $2.4 million non-recurring gain.
• Net earnings of $0.04 million and adjusted net earnings of $0.4 million in 2022 compared to net earnings of $3.7 million and adjusted net loss of $(0.3) million in 2021.

For the quarter ended December 31, 2022:

• Q4 2022 loan originations totalled US$82.7 million, representing an increase of 66.9% over Q4 2021.
• Revenue of $3.4 million and adjusted revenue of $5.1 million, represent increases of 10.3% and 58.6%, respectively, over 2021.
• Operating expenses of $5.6 million and adjusted operating expenses of $5.5 million, represent increases of 164.8% and 90.4%, respectively, over 2021. Note that Q4 2021 operating expenses were reduced by a $0.8 million non-recurring gain.
• Net loss of $(2.7) million and adjusted net loss of $(0.9) million in Q4 2022 compared to net earnings of $0.7 million and adjusted net earnings of $0.04 million in Q4 2021.

MONTREAL, April 25, 2023 /CNW/ - IOU FINANCIAL INC. ("We", "IOU" or "the Company") (TSXV: IOU), a leading online lender to small businesses (IOUFinancial.com), announced today its results for the year and quarter ended December 31, 2022.

"IOU Financial delivered on its strategy of investing in technology, products and distribution to build momentum and grow loan originations to record levels in 2022," said Robert Gloer, President and CEO.  "We have taken decisive action to adjust to recent macro-economic developments and remain committed to investing in strategic growth initiatives in order to maximize our exposure to the economic recovery as it unfolds,"

IOU Financial originated a record US$275.5 million in loans in 2022, including a record US$82.7 million in the fourth quarter representing increases of 70.6% and 66.9% over the same periods in 2021.  Originations were driven by healthy demand from borrowers resulting in increased loan applications and continued demand from investors seeking high quality loans.

During the fourth quarter of 2022 macro-economic factors including inflation and rising interest rates impacted the operating environments of many small businesses and negatively impacted IOU's collections efforts and servicing revenues.  This has led to a write down of specific servicing assets and reduced revenue accrual rates, resulting in a net loss of $(2.7) million on an IFRS basis and $(0.9) million on an adjusted earnings basis for the quarter ended December 31, 2022. 

IOU has taken decisive action to adapt to the challenges facing small businesses by tightening underwriting criteria, reducing its risk appetite in several industries and enlisting industry-leading collections experts to provide additional support to ongoing payment recovery efforts.  These actions have started to have a positive impact on collections but have also resulted in significantly reduced originations in the first quarter of 2023 and have tempered expectations for growth in originations and revenues in 2023.

While we have taken steps to limit the growth of our operating expenses in 2023, we remain committed to maintaining a high level of service to our broker and merchant networks as well as to continue to advance on our strategic growth initiatives:

• Technology innovation: The Company continues to invest in developing its proprietary IOU360 platform to better support brokers, merchants, investors and internal stakeholders, all designed to support greater efficiencies and the long-term scalability of the business. The Company continued to advance on the development of its next generation Broker Portal while automating several new features to ensure compliance and early fraud detection and increase efficiency for loan processing.
• Product expansion: The Company is committed to continue introducing innovative loan products to meet the needs of more small business owners as well as to achieve further differentiation in the market. Over the past 18 months The Company has introduced the IOU Financial Premier PLUS term loan (August 1, 2022) for loan amounts of up to US$1.5 million and with terms up to 36 months, the IOU Financial Cash-Back Loan (August 2021) and the IOU Financial 24-Month Loan (November 2021). Additional product innovations have recently been enabled by technology platform development and will be announced in 2023.
• Product distribution: The Company continues to evolve its wholesale (IOU Financial) and retail (ZING Funding) distribution strategies to maximize its exposure to growth opportunities through both channels.

"IOU Financial has weathered many storms and always emerged stronger than before," added Gloer. "We've pivoted to adjust to current macro-economic conditions and remain committed to investing in products and technology designed around the needs of small business owners and our broker network."

OUTLOOK

In the first quarter ended March 31, 2023 IOU originated US$48.4 million in loans. For all of 2023, the Company is targeting loan originations in the range of US$200M to US$240M.  Based on lower expected origination volume combined with the continuing impact of delinquencies on loans originated in 2022, we anticipate modest revenue and operating expense growth in 2023. 

FINANCIAL HIGHLIGHTS

Record origination volume for the year ended December 31, 2022 and the associated increase in loans under management drove a 73.7% increase in adjusted revenue and a 48.2% increase in revenue compared to 2021.  For the quarter ended December 31, 2022, the positive impact of record origination volume and higher loans under management was somewhat offset by a significant increase in delinquencies.  This increase in delinquencies caused us to revise our estimates of future collections on loans we currently service, so we reduced the rates at which we recognized servicing revenue and servicing assets in the fourth quarter.  Additionally, we recorded additional amortization (a reduction of revenue on an IFRS basis) of certain servicing assets recognized in previous quarters.  As a result, for the quarter ended December 31, 2022, adjusted revenue increased by 58.6%, but revenue recognized on an IFRS basis was up 10.3%. Cost of revenue was $0.6 million of expense in 2022 compared to $0.4 million in 2021, and reflects the wind down of our balance sheet loan portfolio and the continuing reduction of our convertible debenture balance, which stood at $4.4 million as of December 31, 2022.

Higher origination volume and loans under management contributed to higher adjusted operating expenses in the year and quarter ended December 31, 2022 compared to 2021, and we continued to invest in growth and scalability.  For example, we added to our sales and underwriting teams to accommodate growth, we continue to invest in our IOU360 platform to better support brokers, merchants, investors, and internal stakeholders, and we increased our marketing and advertising spending. As a result, adjusted operating expenses increased by 90.4% for the fourth quarter of 2022 compared to the fourth quarter of 2021 and 63.7% for the year ended December 31, 2022 compared to the same period in 2021. However, we are also beginning to see the benefits of increased scale resulting in a lower adjusted operating expense ratio on a full year basis (11.3% for 2022 compared to 12.4% for 2021). 

 IFRS earnings for 2022 were $0.04 million ($0.00 per share), compared to $3.7 million ($0.03 per share) for 2021 (which included a non-recurring gain of $2.4 million).  Adjusted earnings for 2022 were $0.4 million ($0.00 per share) compared to an adjusted loss of $(0.3) million ($0.00 per share) for 2021. IFRS loss for the fourth quarter of 2022 was $(2.7) million ($0.02 per share), compared to earnings of $0.7 million ($0.01 per share) for 2021 (which included a non-recurring gain of $0.8 million).  Adjusted loss for the fourth quarter of 2022 was $(0.9) million ($0.01 per share) compared to adjusted net earnings of $0.04 million

 ($0.00 per share) for 2021.

SUMMARY FINANCIAL DATA

For the year ended December 31,	2022	2021	Difference	Difference
	$	$	$	%
Loan originations ($US)	275,480,864	161,486,680	113,994,184	70.6 %
Loans under management	217,332,774	119,473,535	97,859,239	81.9 %
Gross revenue	19,140,091	12,918,067	6,222,024	48.2 %
Operating expenses	18,365,973	8,824,958	9,541,015	108.1 %
Net income	38,826	3,722,068	(3,683,242)	(99.0 %)
Net income per share, diluted	-	0.03	(0.03)	(100.0 %)
Adjusted gross revenue	19,242,693	11,077,458	8,165,235	73.7 %
Adjusted operating expense	18,065,013	11,033,325	7,031,688	63.7 %
Adjusted net income (loss)	442,389	(326,908)	769,297	nm
Adjusted net income (loss) per share	-	-	-	nm
Total assets	25,809,140	26,563,736	(754,596)	(2.8 %)
Total liabilities	8,496,760	11,058,178	(2,561,418)	(23.2 %)

For the quarter ended December 31,	2022	2021	Difference	Difference
	$	$	$	%
Loan originations ($US)	82,747,015	49,567,725	33,179,290	66.9 %
Loans under management	217,332,774	119,473,535	97,859,239	81.9 %
Gross revenue	3,417,250	3,098,178	319,072	10.3 %
Operating expenses	5,607,505	2,117,785	3,489,720	164.8 %
Net income (loss)	(2,654,479)	690,507	(3,344,986)	nm
Net income (loss) per share	(0.02)	0.01	(0.03)	nm
Adjusted gross revenue	5,127,586	3,233,423	1,894,163	58.6 %
Adjusted operating expense	5,536,504	2,908,097	2,628,407	90.4 %
Adjusted net income (loss)	(873,143)	35,440	(908,583)	nm
Adjusted net income (loss) per share	(0.01)	-	(0.01)	nm
Total assets	25,809,140	26,563,736	(754,596)	(2.8 %)
Total liabilities	8,496,760	11,058,178	(2,561,418)	(23.2 %)

IOU's financial statements and management discussion & analysis for the year ended December 31, 2022, have been filed on SEDAR and are available at www.sedar.com.

About IOU Financial Inc.

IOU Financial Inc. is a wholesale lender that provides quick and easy access to growth capital to small businesses through a network of preferred brokers across the US. Built on its proprietary IOU360 technology platform that connects underwriters, merchants and brokers in real time, IOU Financial has become a trusted alternative to banks by originating in excess of US$1 billion in loans to fund small business growth since 2009.  IOU trades on the TSX Venture Exchange under the symbol IOU (TSXV: IOU), and on the US OTC markets as IOUFF. To learn more about IOU Financial's corporate history, financial products, or to join our broker network please visit www.IOUFinancial.com.

Forward Looking Statements

Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of IOU including, but not limited to, the impact of general economic conditions, industry conditions, dependence upon regulatory and shareholder approvals, the execution of definitive documentation and the uncertainty of obtaining additional financing. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. IOU does not assume any obligation to update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Non-IFRS Financial Measures

The Company uses certain non-IFRS financial measures as an alternative method to evaluate performance. These measures include adjusted revenue, adjusted operating expenses, adjusted operating expense ratio, non- recurring gains and losses, adjusted net earnings (loss), adjusted net earnings (loss) per share. These financial measures may not be comparable to similar measures used by other issuers.  The definitions for certain non-IFRS financial measures are provided below.

Definitions

• Adjusted revenue is defined as revenue prepared in accordance with IFRS for the period, adjusted to add back the amortization of servicing assets and remove revenue associated with the creation of servicing assets. We use adjusted revenue as another measure of financial performance and believe it useful to investors as it removes components of revenue that are non-cash in nature for the periods presented, as these items influence operating results depending on the timing and amount of loan sales.
• Adjusted operating expenses is a non-IFRS measure and is defined as defined as total operating expenses prepared in accordance with IFRS for the period, adjusted for stock-based compensation and non-recurring gains and losses which affect operating results only periodically. We use adjusted operating expenses as another measure of financial performance and believe it useful to investors as it removes certain non-cash and non-recurring expenses that we believe are not closely correlated with the Company's operating performance.
• The Adjusted Operating Expense Ratio is a non-IFRS measure and is calculated by dividing adjusted operating expenses by the average loans under management for the period, presented on an annualized basis. The ratio uses the average of month end balances over the period presented. We believe this measure is useful to investors as its to identify trends or occurrences in the underlying business.
• Non-Recurring Gain/(Loss), net is a non-IFRS measure and refers to adjustments to remove the impacts on operating expenses which are not incurred in the normal course of business and can fluctuate at different times and at various amounts.
• Adjusted net income is a non-IFRS measure and is defined as net income for the period prepared in accordance with IFRS, adjusted for the adjustments to revenue and operating expense discussed above. We believe these measures are useful to investors because they help identify underlying trends in our business that could otherwise be masked by certain expenses, write-offs, charges, income or recoveries that can vary from period to period.

Reconciliation of non-IFRS measures to IFRS measures

For the year ended December 31	2022	2021	Difference	Difference
	$	$	$	%
Total Gross Revenues	19,140,091	12,918,067	6,222,024	48.2 %
Amortization of servicing assets	10,186,195	5,177,397	5,008,798	96.7 %
Servicing assets recognized	(10,083,592)	(7,018,006)	(3,065,586)	43.7 %
Adjusted Gross Revenue	19,242,694	11,077,458	8,165,236	73.7 %
Cost of Revenue
Debenture interest expense	802,134	1,278,677	(476,543)	(37.3 %)
Net recovery of loan losses	(185,153)	(925,548)	740,395	(80.0 %)
Total Cost of Revenue	616,981	353,129	263,852	74.7 %
Operating Expenses	18,365,973	8,824,958	9,541,015	108.1 %
Stock-based compensation	(160,152)	(150,213)	(9,940)	6.6 %
Non-recurring gain/(loss), net	(140,807)	2,358,580	(2,499,387)	nm
Adjusted Operating Expenses	18,065,013	11,033,325	7,031,688	63.7 %
Income tax expense	118,311	17,912	100,399	561.0 %
Adjusted Net income (Loss)	442,389	(326,908)	769,297	nm
Adjusted Net Income (Loss) per Share	-	-	-	-
Servicing assets recognized	10,083,592	7,018,006	3,065,586	43.7 %
Amortization of servicing asset	(10,186,195)	(5,177,397)	(5,008,798)	96.7 %
Stock-based compensation	(160,152)	(150,213)	(9,939)	6.6 %
Non-recurring gain/(loss), net	(140,808)	2,358,580	(2,499,388)	nm
Net Income	38,826	3,722,068	(3,683,242)	(99.0 %)
Net Income per Share	-	0.03	(0.03)	(100.0 %)

For the quarter ended December 31	2022	2021	Difference	Difference
	$	$	$	%
Total Gross Revenues	3,417,250	3,098,178	319,072	10.3 %
Amortization of servicing assets	4,044,636	2,039,248	2,005,388	98.3 %
Servicing assets recognized	(2,334,300)	(1,904,003)	(430,297)	22.6 %
Adjusted Gross Revenue	5,127,586	3,233,423	1,894,163	58.6 %
Cost of Revenue
Debenture interest expense	170,120	269,822	(99,702)	(37.0 %)
Loan loss provision	256,761	2,151	254,610	nm
Total Cost of Revenue	426,881	271,973	154,908	57.0 %
Operating Expenses	5,607,505	2,117,786	3,489,719	164.8 %
Stock-based compensation	(20,479)	(24,597)	4,118	(16.7 %)
Non-recurring gain/(loss), net	(50,522)	814,909	(865,430)	nm
Adjusted Operating Expenses	5,536,504	2,908,098	2,628,406	90.4 %
Income tax expense	37,344	17,912	19,432	108.5 %
Adjusted Net income (Loss)	(873,143)	35,440	(908,583)	nm
Adjusted Net Income (Loss) per Share	(0.01)	-	(0.01)	nm
Servicing assets recognized	2,334,300	1,904,003	430,297	22.6 %
Amortization of servicing asset	(4,044,636)	(2,039,248)	(2,005,388)	98.3 %
Stock-based compensation	(20,479)	(24,597)	4,118	(16.7 %)
Non-recurring gain/(loss), net	(50,5212)	814,909	(865,430)	nm
Net Income	(2,654,479)	690,507	(3,344,986)	nm
Diluted Net Income per Share	(0.02)	0.01	(0.03)	nm

SOURCE IOU Financial Inc.

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