IOU REPORTS Q1 2023 FINANCIAL RESULTS

Company highlights impact of macro-economic conditions on Q1 2023 performance, outlines actions to improve revenue performance, reduce expenses for the remainder of 2023.

Highlights:

• First quarter loan originations of US$48.4 million, representing a decrease of 18.8% compared to Q1 2022.
• Loans Under Management grew to US$198.6 million representing an increase of 41.2% compared to Q1 2022.
• Revenue of $4.5 million and adjusted revenue of $4.1 million, representing decreases of 6.6% and 1.7%, respectively, compared to Q1 2022.
• A 300-basis point price increase on new originations across the product spectrum.
• Operating expenses and adjusted operating expenses of $5.8 million, representing increases of 54.1% and 56.8%, respectively, over Q1 2022.
• Net loss of $(1.5) million and adjusted net loss of $(1.9) million compared to net income of $1.1 million and adjusted net earnings of $0.5 million in Q1 2022.

MONTREAL, May 30, 2023 /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 quarter ended March 31, 2023.

IOU Financial originated US$48.4 million in loans in the first quarter of 2023, representing a decline of 18.8% compared to the same period in 2022. While demand for the Company's services remained strong, the volume of originations was impacted by reductions in the Company's appetite to originate loans to small business sectors that were impacted by macro-economic headwinds in the United States, a trend first observed in Q4 2022.

Strong year-over-year growth in Loans Under Management of 41.2% was offset by both lower collection rates and the rate at which the Company recognized servicing revenue on collections, resulting in a decline in adjusted revenue of 1.7% in the first quarter of 2023 compared to the same period in 2022. Both collection and revenue accrual rates were negatively impacted by an increase in delinquencies on loans originated in 2022, the continuation of a trend first observed in the fourth quarter of 2022.

In order to improve expected collections and revenue accrual rates for the remainder of 2023 the Company has:

• exited specific lines of business that contributed to greater than expected delinquencies on loans originated in 2022;
• established new minimum credit score requirements for borrowers;
• increased pricing by 300 basis points on new originations across the product spectrum;
• focused sales efforts on those products that have historically had positive loss and yield attributes.

"We're confident that we have taken the right measures to get defaults back in line, use pricing to enhance yield and leverage our data analytics capabilities to identify opportunities to originate high quality loans. We further believe that our strategy of continuing to pursue our strategic objectives and while maintaining infrastructure to accommodate growth, positions us to capitalize upon opportunities when macro economic conditions improve," said Robert Gloer, President and CEO. "We expect the net result of these actions will drive increased revenues in the latter part of 2023 as an increasing portion of the company's collections will come from 2023 originations. We are already encouraged to see this trend begin to take shape in Q2."

While the Company grew adjusted operating expenses throughout 2022 to support business growth as well as to invest in its Strategic Growth Initiatives, it has taken steps to reduce its growth in operating expenses in Q1 2023 while continuing to invest in its Strategic Growth Initiatives throughout the year. As a result, with Q1 2023 revenue down 6.6% compared to Q1 2022, the Company incurred a net loss of $(1.5) million on an IFRS basis (or $(1.9) million net loss on an adjusted earnings basis) for the quarter ended March 31, 2023.

IOU took additional steps during the Quarter ended March 31, 2023 to reduce operating expenses for the balance of 2023. The Company has:

• established a freeze on hiring and backfilling for natural attrition, resulting in a total headcount of 94 as at March 31, 2023 (vs. 104 on December 31, 2022) including contractors and staff;
• renegotiated certain contracts;
• reduced spending on external consultants; and
• reduced discretionary expenditures such as travel and entertainment.

IOU expects these actions to result in significantly lower operating expenses in the second, third and fourth quarters of fiscal 2023 as compared to the quarter ended March 31, 2023. The Company is committed to taking additional actions to further reduce operating expenses in the event that revenues are below the Company's current expectations.

"IOU Financial has course-corrected to weather the current macro-economic environment and we are positioning ourselves for accelerated growth and profitability when conditions improve," added Gloer. "The continued investment in our Strategic Growth Initiatives and Business Intelligence capabilities will allow us to maximize growth opportunities while continuing to optimize our underwriting, pricing and risk selection decisions, and ultimately maximize our ability to create value for small business owners, our broker network and for investors."

OUTLOOK

IOU continues to target 2023 loan originations in the range of US$200M to US$240M and anticipate modest revenue based on lower expected origination volume and the continuing impact of delinquencies on loans originated in 2022. While the Company expects operating expenses to decrease from the quarter ended March 31, 2023, operating expenses are expected to increase by a range of 13%-17% on a full year basis.

FINANCIAL HIGHLIGHTS

The lower origination volume coupled with reduced collections and reduced revenue accrual rates on those collections in the first quarter of 2023 led to a 1.7% decrease in adjusted revenue and a decline of 6.6% in revenue compared to first quarter of 2022. The reduced collections and revenue accrual rates were a continuation of a trend from fourth quarter of 2022, when the Company revised its estimates of future collections and associated servicing revenues. As a result, although loans under management grew 41.2% as compared to the first quarter of 2022, revenue declined during the same period. IOU expects increased revenues in the latter part of 2023 as an increasing portion of the company's collections will come from 2023 originations.

IOU grew adjusted operating expenses throughout 2022 to support the growth in loans under management as well as to support investments in Strategic Growth Initiatives. While the Company has taken steps to limit further growth in operating expenses in 2023, adjusted operating expenses grew 56.8% in the first quarter of 2023 compared to 2022 in order to support the growth in loans under management during the same period. IOU expects recent expense reduction actions to result in significantly lower operating expenses in the second, third and fourth quarters of fiscal 2023 as compared to the quarter ended March 31, 2023.

The Company's net loss on an IFRS basis for the first quarter of 2023 was $(1.5) million ($0.01 per share) compared to net income of $1.1 million ($0.01 per share) for the first quarter of 2022. On an adjusted basis the corresponding figures are $(1.9) million ($0.01 per share) and $0.5 million ($0.00 per share) respectively.

SUMMARY FINANCIAL DATA

IOU's financial statements and management discussion & analysis for the quarter ended March 31, 2023, 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 income (loss), adjusted net income (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 a non-IFRS measure and 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 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 it can assist in identifying trends in the underlying business.
• Non-Recurring Gain/(Loss), net is a non-IFRS measure and refers to adjustments to remove the impacts of operating expenses which are not incurred in the normal course of business and that can fluctuate at different times and at various amounts and therefore are not closely correlated with our recurring performance.
• 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

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SOURCE IOU Financial Inc.