IOU Financial Inc. Reports Second Quarter 2021 Financial Results and Breaks All-Time Record in Monthly Loan Originations

Company highlights strong quarter-to-quarter growth in loan originations, shares progress on Post-Pandemic Growth Plans and announces migration to marketplace strategy.

• Loan origination volume grew to US$34.4 million in Q2 2021, representing an increase of 36.1% over Q1 2021 and representing an increase of 272.4% over Q2 2020.
• IOU added US$18.5 million in loan originations in July 2021, representing the highest monthly loan origination volume in the history of the Company.
• IOU continued to sell its loan originations to institutional buyers as part of its marketplace growth strategy.
• The Company maintained a corporate cash position of $11.1 million at June 30, 2021 despite the repurchase of $1.9 million in convertible debentures.

MONTREAL, Aug. 26, 2021 /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 and six-month period ended June 30, 2021.

"We are delivering on our Post-Pandemic Growth Plan and these growth figures are the result," said Robert Gloer, President and CEO. "We are committed to continue delivering on our plans and maximizing the growth potential of the marketplace strategy."

The Company is focused on bringing its loan origination volumes back to pre-pandemic levels and returning to profitability on an annual basis by maximizing its exposure to the post-COVID-19 pandemic economic recovery. 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.

In order to achieve this goal, IOU is investing in its Post-Pandemic Growth Plan (PPGP), first announced during its Q1 2021 Financial Results, by targeting 3 key strategic areas:

• Product expansion: The Company intends to expand its ability to support the post-pandemic growth of small businesses with innovative new funding products designed to meet a wider range of business needs.
• Product distribution: IOU is focussed on launching initiatives to expand its network of quality brokers, adding to its sales team, and investing in marketing and communications programs to generate new levels of awareness, differentiation and growth.
• Technology innovation: The Company is investing in its IOU360 technology platform to better support its network of brokers, merchants and employees with a frictionless user experience for all stakeholders.

The Company is advancing on all fronts with improvements to the IOU360 technology platform underway, a contribution of over US$2.4 million in IOU USA loan originations generated by ZING Funding in Q2 2021, and the introduction of the IOU Financial Cash Back Loan on August 4, 2021.

In addition to the 3 strategic areas outlined above, IOU will further support growth in loan originations by migrating from a loan portfolio strategy (which involves funding directly to IOU's balance sheet) to a marketplace strategy whereby its loan origination growth will be primarily sold to institutional purchasers. This will provide the Company with significantly more room to grow and will necessitate the introduction of new key performance indicators (KPIs) in order to provide meaningful visibility into the performance of the Company. It should be noted that the marketplace strategy will also render previous key performance indicators (KPIs) - such as portfolio yield, cost of borrowing rate, provisional credit loss rates (PCL), net credit loss rates (NCL), allowance for expected credit losses ratio (ACL) and stage 3 delinquency ratios associated with the loan portfolio - irrelevant, and the Company will therefore discontinue the disclosure of these previous KPIs. Instead, the Company will introduce new KPIs to provide meaningful insights into the performance of its marketplace strategy as part of its Q3 2021 Financial Results.

The Company's growth strategies are further supported by strategic additions to the management team announced on August 4, 2021, providing IOU with a clear structure to execute on its growth strategies.

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:In Q2 2021, the Company funded US$34.4 million in loans (2020: US $9.2 million), representing an increase of 272.4% over the same period last year. Loan originations were significantly impacted downwards in Q2 2020 as IOU ceased lending to business and geographical areas which were strongly impacted by COVID-19. Nevertheless, IOU continued to originate loans and has worked to bring its loan origination volumes back to and beyond pre-pandemic levels. For the first half of 2021, the Company funded US$59.7 million in loans (2020: US$47.3 million), representing an increase of 26.3% over the same period last year.

Adjusted Gross Revenue: Decreased 49.9% to $2.4 million for the three-month period ended June 30, 2021 compared to Q2 2020 ($4.7 million). The decrease in adjusted gross revenue is due primarily to the following:

Interest Revenue: Interest revenue decreased $3.6 million or 93.9% year over year as a result of a decrease in the average commercial loan receivable balance of 82.5% or $45.0 million in Q2 2021 as compared to Q2 2020 as the Company is transitioning to its marketplace strategy by selling its loan origination volume in Q2 2021 to its base of institutional loan buyers.

Servicing and Other Income: Servicing and other income increased 135.7% to $2.1 million in Q2 2021 from Q2 2020 mainly due to the migration from a loan portfolio strategy to a marketplace strategy.

Servicing income increased 76.4% to $1.3 million in Q2 2021 compared to Q2 2020 ($0.7 million) due mainly to the Company expanding its servicing portfolio. In Q2 2021, the average servicing portfolio increased 23.3% compared to the same period in 2020. In addition, the servicing portfolio yield rebounding back to historical averages from 5.2% in Q2 2020 to 7.5% in Q2 2021.

Adjusted gross revenue decreased to $4.6 million (2020: $11.1 million), representing a decrease of 58.4% for the six-month period ended June 30,2021 compared to the same period in 2020.

Cost of Revenue: Decreased from $5.6 million in Q2 2020 to $(0.1) million in Q2 2021. The variance is mainly due to the Company recording a provision for loan losses of $4.8 million in Q2 2020 following the onset of the COVID-19 pandemic compared to a recovery of loan losses of $0.4 million in Q2 2021. In addition, interest expense decreased $0.5 million in Q2 2021 compared to Q2 2020 as the Company repaid all its outstanding debt to its financing credit facilities at the end of 2020.

The cost of revenue for the six-month period ended June 30, 2021 decreased from $11.5 million in 2020 to $0.2 million in 2021.

Adjusted Operating Expenses: Increased 45.6% to $2.7 million in Q2 2021 compared to $1.8 million in Q2 2020 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 (PPGP). Adjusted operating expenses increased 14.7% to $5.1 million in the first half of 2021 over the same period in 2020.

Adjusted Net Loss: IOU closed on its second quarter ended June 30,2021 with an adjusted net loss of $0.3 million compared to adjusted net loss of $2.7 million for the second quarter ended June 30, 2020. IOU closed on the six-month period ended June 30,2021 with an adjusted net loss of $0.7 million, compared to adjusted net loss of $4.9 million for the same period last year.

IFRS Net Loss: IOU closed on its second quarter ended June 30, 2021 with IFRS net earnings of $0.0 million, or $0.00 per share, compared to IFRS net loss of $3.1 million or $(0.04) per share for the same period in 2020. IOU closed on the six-month period ended June 30,2021 with IFRS net loss of $0.1 million, or ($0.00) per share, compared to IFRS net loss of $5.2 million or $(0.06) per share for the same period last year.

IOU's financial statements and management discussion & analysis for the quarter ended June 30, 2021 have been filed on SEDAR and are available at www.sedar.com.

CORPORATE UPDATE

The Company has implemented a work from home program whereby the majority of its Canadian employees can work remotely. As a result, the Company agreed to sub-lease the majority of its office space in Montreal, Quebec it currently rents from Palos to a third-party. The sub-lease term commences October 1, 2021 and ends on April 20, 2027 and is subject to head landlord approval. The sub-lease agreement will result in approximately $1.1 million to be received from the third- party over the sub-lease term. At the same time, IOU has agreed to amend its current sub-lease agreement with Palos, a related party, to lease significantly reduced office space to April 20, 2027 on terms similar to those that would have been present for an arm's length transaction.

CONFERENCE CALL

The Company will hold a conference call at 4:30 (EST) on September 1, 2021, to discuss its financial results. The dial-in number to access the conference call from Canada and the United States is 1 (800) 430-8332 (toll-free), conference ID: 58373354.

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 underwriting US$932 million 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.

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 period-to-date ratios are calculated on a three-point basis, using December, March and June 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.