IOU REPORTS Q1 2022 FINANCIAL RESULTS

Company more than doubles loan originations vs. Q1 2021, generates over $1 million in net earnings and provides update on Post-Pandemic Growth Plan.

• Loan originations reached an all-time quarterly record US$59.6 million in Q1 2022, representing an increase of 20.2% over Q4 2021 (and an increase of 135.5% vs. Q1 2021).
• Loans under management of $140.6 million in Q1 2022, representing an increase of 17.7% over Q4 2021 (and driven by an increase of 18.8% in the servicing portfolio).
• Servicing and fee revenue of $3.9 million in Q1 2022, representing an increase of 22.6% over Q4 2021 (and an increase of 133.0% over Q1 2021).
• Adjusted operating expenses of $3.5 million in Q1 2022, representing an increase of 19.2% over Q4 2021 (and an increase of 43.1% over Q1 2021).
• Net earnings of $1.1 million in Q1 2022, representing an increase of 61.8% over Q4 2021 (and vs. a net loss of $0.1 million in Q1 2021), on an IFRS basis.

MONTREAL, May 18, 2022 /PRNewswire/ - IOU FINANCIAL INC. ("IOU" or "the Company") (TSXV: IOU), a leading online lender to small businesses (IOUFinancial.com), announced today its results for the three-month period ended March 31, 2022.

"IOU Financial continues to deliver on its promise to stakeholders by growing loan originations and increasing profitability while continuing to invest the scalability of its operations and technology," said Robert Gloer, President and CEO. "IOU's record Q1 loan originations made it possible to continue investing in strategic growth initiatives while reducing corporate debt through the repurchase of an additional $1.2 million in convertible debentures."

IOU Financial originated a record US$59.6 million in loans in the first quarter ending 2022, representing an increase of 135.5% over Q1 2021 as well as representing an increase of 20.2% over Q4 2021. The Company attributes a significant portion of its strong growth in loan originations to its successful transition from a balance sheet strategy (under which the Company traditionally funded loans to its balance sheet) to a marketplace strategy under which new loan originations are primarily being sold to institutional purchasers. 

Loans under management increased, on average, 83.5% (Q1 2022 vs. Q1 2021), outpacing a 43.1% growth in operating expenses (on an adjusted basis) and helping to reduce the Company's Adjusted Operating Expense Ratio to 10.7% in Q1 2022 (vs. 13.7% in Q1 2021). 

The Company continued to advance on its Post-Pandemic Growth Plan, first announced as part of its Q1 2021 Financial Results, based on three strategic pillars designed to support scalability and growth:

• 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.
• 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. The Company launched its first new lending product, the IOU Financial Cash-Back Loan, in August 2021 and the IOU Financial 24-Month Loan in November 2021. Additional product innovations are planned and will be enabled by further development of the IOU360 platform in 2022.
• Product distribution: The Company continues to expand its wholesale (IOU Financial) and retail (ZING Funding) distribution strategies to maximize its exposure to the economic recovery through both channels.

IOU Financial's strong Q1 2022 loan originations and progress towards its strategic goals demonstrate the Company's continuing ability to leverage its marketplace strategy and make strategic investments to support scalable growth and create value for all stakeholders.

OUTLOOK

For all of 2022, the Company is targeting loan originations in the range of US$220M to US$260M while continuing to invest in growth and scalability.

FINANCIAL HIGHLIGHTS         

The Company continues to focus on its marketplace strategy allowing it to accelerate loan origination growth. This strategy has the impact of placing more emphasis on servicing and fee revenue over interest revenue and cost of revenue associated with holding loans as part of a loan portfolio. Interest revenue decreased as the principal loan portfolio balance continues to wind down while servicing and fee revenue increased consistent with the increase in loan origination volume as well as the increase in the servicing portfolio.

Due to the wind down of the loan portfolio, there is no interest expense associated with the financing credit facilities in Q1 2022 as IOU's two financing credit facilities were terminated in December 2020 and October 2021, respectively. Interest expense has also decreased in the quarter as the Company was able to use its financial resources to repurchase $1.2 million of its convertible debentures in the quarter as well as to repurchase an additional $0.2 million of convertible debentures subsequent to quarter end.

In addition, the marketplace strategy will render the provision for loan losses less significant as it relates to loans held on the balance sheet. IOU will continue to focus on cash collections on the remaining loan portfolio, which may give rise to reversals in the provision for loan losses and recoveries of loans previously written off.

Please refer to the table below for adjustments made to IFRS gross revenue and operating expenses. These adjustments serve as another measure of actual operating performance of the business.

Loan Originations: In Q1 2022, the Company funded US$59.6 million in loans (Q1 2021: US $25.3 million), representing an increase of 135.5% over the same period last year and representing an increase of 20.2% over Q4 2021

Servicing and fee revenue: Servicing and fee revenue increased 133.0% to $3.9 million in Q1 2022 from $1.7 million in Q1 2021. On a sequential basis, servicing and fee revenue increased $0.7 million or 22.6% over Q4 2021. More specifically, servicing and fee revenue growth is attributable to the following:

• Servicing fees earned on the servicing portfolio increased $1.3 million or 125.6% over Q1 2021 (and increased 31.4% over Q4 2021). The average servicing portfolio increased by 113.7% quarter over quarter (and increased 18.1% over Q4 2021).
• Referral fee revenue earned by IOU's retail distribution operation (ZING Funding) increased to $0.5 million in Q1 2022 from $0.1 million in Q1 2021 as it facilitated approximately US$6.0 million in loan origination volume in Q1 2022, representing an increase of 220.4% over Q1 2021 (US$2.8 million). On a sequential basis, referral fee revenue increased 25.8% over Q4 2021.
• Administrative and other fees earned on the servicing portfolio increased $0.1 million to $0.2 million in Q1 2022 over Q1 2021.
• Accelerated recognition of transaction costs on loans sold. This represents income earned on loans after taking into consideration loan origination sales costs. This income category increased by $0.5 million or 140.7% quarter over quarter as loan origination volume increased 135.5% in the same period. On a sequential basis, this income category increased 29.8% over Q4 2021 as loan origination volume increased 20.2% in Q1 2022 vs Q4 2021.

Adjusted Gross Revenue: Adjusted gross revenue increased to $3.9 million (2021: $2.3 million), representing an increase of 73.7% for the three-month period ended March 31, 2022 compared to the same period in 2021 or 21.9% over Q4 2021.

Adjusted Net Revenue:  Increased 99.6% to $3.9 million in Q1 2022 compared to $2.0 million in Q1 2021 due mainly to an increase in servicing and fee revenue of 133.0%. On a sequential basis, adjusted net revenue increased 33.8% over Q4 2021.

Adjusted Operating Expenses:  Adjusted operating expenses increased 43.1% to $3.5 million for the first quarter of 2022 compared to $2.4 million for the same period in 2021 (and increased 19.2% over Q4 2021) mainly due to an increase in wages and salaries and data and IT costs as the Company continues to support the future growth in loan originations by investing in innovation and resources as part of its 2021 Post-Pandemic Growth Plan. The Adjusted Operating Expense Ratio, which is a measure of the Company's operating efficiency, decreased from 13.7% in Q1 2021 to 10.7% in Q1 2022. The ratio decreased as average loans under management for the period increased by 83.5% over the same period in 2021, outpacing the 43.1% growth in adjusted operating expenses,

Adjusted Net Earnings (Loss):  IOU closed on its year first quarter ended March 31, 2022 with an adjusted net earnings of $0.5 million compared to adjusted net loss of $(0.4) million for the same period in 2021.

IFRS Net Earnings (Loss):  IOU closed on its first quarter ended March 31, 2022 with IFRS net earnings of $1.1 million, or $0.01 per share, compared to IFRS net loss of $(0.1) million or $(0.00) per share for the same period in 2021. 

IOU's financial statements and management discussion & analysis for the three-month period ended March 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 and Canada. 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 gross revenue, adjusted net 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 gross revenue is defined as gross revenue prepared in accordance with IFRS for the period, plus amortization of servicing assets less gain on sale of loans. The Company uses adjusted gross revenue as another measure of financial performance. Specifically, it eliminates the non-cash gain on sale of loans and the non-cash amortization of servicing assets which influence operating results depending on the timing and amount of the loan sales.
• Adjusted net revenue is defined as adjusted gross revenue less cost of revenue.
• Adjusted operating expenses is calculated as follows: total operating expenses prepared in accordance with IFRS for the period less: stock-based compensation and non-recurring costs, plus non-recurring gains. The Company uses adjusted operating expenses as another measure of financial performance. Specifically, it eliminates non-cash stock-based compensation which is given at different times and prices and non-recurring costs and gains which affects operating results only periodically.
• Adjusted Operating Expense Ratio is a non-IFRS measure and is calculated as follows: adjusted operating expenses divided by the average loans under management for the period, presented on an annualized basis. The ratios are calculated on a two-point basis, using December and period end balances, presented on an annualized basis
• Non-Recurring Cost-net 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.
• The calculation of adjusted net (loss) earnings is defined as net (loss) earnings for the period prepared in accordance with IFRS less: non-cash gain on sale of loans and non-recurring gains, plus: non-cash amortization of servicing assets, stock-based compensation and non-recurring costs.

SOURCE IOU Financial Inc.