IOU Financial Inc. Reports Financial Results for the Year Ended December 31, 2020 and Announces CEO Transition

Company meets challenges of the COVID-19 pandemic and positions itself to increase lending activities to small businesses in anticipated recovery of the US economy.

• Loan origination volume grew from a low of US$9.2 million in Q2 2020 to US$19.1 million in Q4 2020 and to more than US$25 million in Q1 2021.
• Expanded sources of capital with a loan purchase agreement of up to US$150 million per year with a fund managed by Neuberger Berman.
• Increased corporate cash position to $9.9 million at December 31, 2020 , and again to $11.5 million at March 31, 2021 .
• Founder and CEO Phil Marleau will transition to a management advisory role on June 10 th , 2021 and will remain as a Director and significant shareholder of IOU Financial. Robert Gloer , COO, will transition to the role of CEO of IOU Financial on that date.

MONTREAL , April 29, 2021 /CNW Telbec/ - IOU FINANCIAL INC. ("IOU" or "the Company") (TSXV: IOU), a leading online lender to small businesses (IOUFinancial.com), announced today its results for the year ended December 31, 2020 .

"We faced the challenges of the COVID-19 pandemic with the same entrepreneurial spirit that drove us to launch IOU Financial in 2009 on the heels of the 2008 financial crisis. The Company's Pandemic Resilience Plan helped us to adapt quickly and continue funding small businesses when they needed us most. We have emerged from 2020 in a position of strength to help fuel the recovery ahead," said Phil Marleau , CEO.

The onset of the COVID-19 pandemic in March 2020 effected significant changes to the operational and financial performance of the Company, leading to a series of strategic initiatives pursuant to IOU's Pandemic Resilience Plan:

Funding small business throughout the pandemic: Despite the setback caused by the COVID-19 pandemic, the Company worked throughout 2020 to bring its loan origination volumes back to pre-pandemic levels. In Q1 2020, the Company originated US$38.1 million in loans and then hit a low of US$9.2 million in Q2 2020. However, in Q3 2020 and Q4 2020, loan originations increased to US$18.4 million and US$19.1 million , respectively, as IOU gradually resumed lending to more businesses and geographical areas in the US.

Leveraging diverse capital sources: The continuation of loan originations was made possible due to the Company's diversified sources of capital. For example, the Company was able to seamlessly shift to selling all of its loan originations to institutional purchasers, while simultaneously moving away from originating loans to its balance sheet following the onset of the COVID-19 pandemic.

Expanding sources of capital: On November 4, 2020 , IOU announced that it concluded a loan purchase agreement (the "Loan Purchase Agreement") with a fund managed by Neuberger Berman for up to US$150 million per year over the next two years. In addition, IOU completed a non-brokered private placement of 18,009,806 common shares of the Company at a price of $0.1157 per common share for gross proceeds of approximately $2.1 million . The Loan Purchase Agreement, in conjunction with other sources of funding, supports IOU's plan to bring back its loan origination volumes to pre-pandemic levels, significantly bolsters IOU's funding capabilities and puts the Company in an excellent position to capitalize on the eventual economic recovery.

Reducing corporate expenses: On April 1, 2020 , the Company immediately implemented a hiring freeze and furloughed approximately 40% of its full-time employees and implemented a temporary 20% reduction in salary for all remaining employees and directors. In addition, management reduced or delayed payment of certain vendor expenses resulting in decreased data services and IT costs as well as travel and entertainment expenses.

Emerging from 2020 in a position of strength: Despite the adjusted net loss for the year ended December 31, 2020 of $3.2 million , IOU's corporate cash position increased from $5.3 million at December 31, 2019 to $9.9 million at December 31, 2020 and increased again to approximately $11.5 million at March 31 , 2021. This was primarily due to a shift in the Company's funding strategy to reduce the loan portfolio in favour of the servicing portfolio. Specifically, once the financing credit facilities were repaid, cash collected from the loan portfolio was preserved as IOU originated and sold loans to institutional purchasers.

Transitioning to a remote workforce: On March 13, 2020 , two days after the World Health Organization (WHO) declared the coronavirus a global pandemic, management transitioned all of IOU's employees to a work from home status. The transition was seamless and service levels remained uninterrupted largely due to the Company's IOU360 proprietary platform, keeping employees, brokers and merchants connected in real time.

Refocusing resources: In March 2020 , the Company moved certain employees from loan originations to servicing and collection efforts related to its loan and servicing portfolios. This evolved into the creation of a full-time loss-avoidance team dedicated to limiting write-offs.

Underwriting for a pandemic: Despite the disruption, slowdown and temporary closures of many of the Company's borrowers as a result of the pandemic, IOU was able to continue to originate loans, albeit at reduced levels, as the Company modified its underwriting standards to cease lending to geographical areas and industries which were strongly impacted by COVID-19, such as restaurants, hotels, travel and certain retail sectors.

Supporting small business owners: In an effort to help its clients navigate the pandemic, IOU created a website ( www.iouinsights.com ) to connect clients with available government assistance programs and other small business resources.

"IOU's Pandemic Resilience Plan has put the Company in an excellent position to grow moving forward," added Marleau. "Small businesses will lead the eventual recovery and IOU is in a stronger position than ever before to fund their growth plans."

FINANCIAL HIGHLIGHTS

Please refer to the table below for adjustments made to IFRS gross revenue and operating expenses in order to better reflect the actual operating performance of the business.

Loan Originations: For the year ended December 31, 2020 , the Company funded US$84.9 million in loans (2019: US$154.2 million ), representing a decrease of 45.0% over the same period last year. The decrease in loan originations was a result of the COVID-19 pandemic whereby IOU modified its underwriting standards to cease lending to industries and geographical areas which were strongly impacted by COVID-19.

Adjusted Gross Revenue: Decreased to $17.1 million (2019: $23.7 million ), representing a decrease of 27.7% for the year ended December 31, 2020 compared to the same period in 2019.

Cost of Revenue: Decreased to $10.8M , down from $11.7M in 2019 primarily due to a shift in the Company's funding strategy to reduce the loan portfolio in favour of the servicing portfolio.

Adjusted Operating Expenses: Decreased to $9.5M (down from $10.1M in 2019) as a result of the Pandemic Resilience Plan.

Adjusted Net Loss: IOU closed on its year ended December 31, 2020 with an adjusted net loss of $3.2 million compared to adjusted net earnings of $1.8 million for the year ended December 31 , 2019. On a per-share basis this represents an IFRS net loss of $2.8 million , or $(0.03) per share, compared to IFRS net earnings of $1.5 million or $0.02 per share for the same period in 2019.

Adjusted and IFRS net (loss) earnings

CEO TRANSITION

IOU is also announcing today that Founder and CEO Phil Marleau will transition to a management advisory role on June 10 th , 2021 and will remain as a Director and significant shareholder of the Company. Robert Gloer , COO, will transition to the role of CEO of IOU on that date.

"Robert and I have worked side-by-side since the Company was founded," said Marleau. "Together, we underwrote our first small business loan in December 2009 and have since originated nearly US$1 billion in loans. IOU's resilience and success are a direct result of the team's considerable efforts over the past decade – a team that Robert and I have built and led. I look forward to continuing our partnership in an advisory capacity and as Director."

"IOU Financial has emerged from the pandemic in an excellent financial and operational position and is set-up to capitalize fully on the eventual economic recovery," said Marleau. "This makes it the optimal time to announce this transition. Robert has my full support and confidence to lead IOU to new heights. He has a proven track record of building, motivating and maintaining top performing teams, both at IOU and previously with First Franklin Financial Corporation, a subsidiary of Merrill Lynch, where Robert led over 450 employees and was responsible for the oversight of $5 billion in annual originations."

Robert Gloer added: "As CEO, I plan to continue the work I started with Phil Marleau to build a strong, successful and profitable company for the benefit of all of its stakeholders, including its employees, customers and shareholders."

OUTLOOK

Despite the setback caused by the COVID-19 pandemic, the Company continues to work on bringing its loan origination volumes back to pre-pandemic levels and a return to profitability on an annual basis. For all of 2021, the company is targeting loan originations in the range of US$165M to US$200M as compared to US$84.9M in 2020 and US$154.2M in 2019.

IOU's financial statements and management discussion & analysis for the year ended December 31, 2020 have been filed on SEDAR and are available at www.sedar.com .

CONFERENCE CALL

The Company will hold a conference call at 4:30 (EST) on May 4, 2021 , to discuss its financial results. The dial-in number to access the conference call from Canada and the United States is 1 (888) 231-8191 (toll-free), conference ID: 7187255

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 a proprietary technology platform that connects underwriters, merchants and brokers in real time, IOU Financial has become a trusted alternative to banks by underwriting US$873 million in loans to fund small business growth since 2009. 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.

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 it eliminates items that do not necessarily reflect how the Company is performing. 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 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 year-to-date ratios are calculated on a five-point basis, using December, March, June, September and year-end period end balances, presented on an annualized basis. The Company uses adjusted operating expenses as it eliminates items that do not necessarily reflect how the Company is performing. 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.
• The calculation of adjusted net (loss) earnings is defined as net (loss) earnings for the period prepared in accordance with IFRS less: gain on sale of loans and non-recurring gains, plus: amortization of servicing assets, stock-based compensation and non-recurring costs.

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SOURCE IOU Financial Inc.

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