Company highlights record loan originations, strong revenue growth and improved operating expense ratio
Third quarter loan originations totalled US$74.2 million, representing an increase of 25.8% over Q2 2022 and 42.1% over Q3 2021. Year to date loan originations of US$192.7 million position the Company to deliver at the high end of our 2022 origination guidance range of US$220 millionUS$260 million.
Loans under management of $186.1 million in Q3 2022, representing an increase of 26.1% over Q2 2022.
Servicing and fee revenue of $4.8 million in Q3 2022, representing an increase of 7.4% over Q2 2022 (and an increase of 54.8% over Q3 2021).
Adjusted operating expense ratio decreased to 11.2% in Q3 2022 compared to 13.0% for Q3 2021, reflecting the impact of increased scale of the business on a year over year basis.
Net earnings of $0.7 million in Q3 2022 highlighting 6 consecutive quarters of positive earnings.
MONTREAL, Nov. 18, 2022 /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 three- and nine-month period ended September 30, 2022.
“IOU Financial continues to grow revenues and invest in scalability while reducing its adjusted operating expense ratio” said Robert Gloer, President and CEO.  “We remain laser focused on scalability and growth while maintaining consistent underwriting standards, and we expect to build on this trend in the months and quarters to come.”
IOU Financial originated a record US$192.7 million in loans in the nine months ended September 30, 2022, representing an increase of 72.2% over the same period in 2021.  Originations were driven by healthy demand from borrowers resulting in increased loan applications and continued demand from investors seeking high quality loans.
Loans under management increased 79.1% (nine months 2022 vs. nine months 2021), outpacing a 43.7% growth in operating expenses (on an adjusted basis) and helping to reduce the Company’s Adjusted Operating Expense Ratio to 10.6% for the nine months ended September 30, 2022 (vs. 13.5% for the nine months ended September 30, 2021).
The Company continued to advance on its strategic growth initiatives first announced in its Q1 2021 Financial Results:
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 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. On August 1, 2022 the Company announced its largest term loan product to date, the IOU Financial Premier PLUS term loan for loan amounts of up to US$1.5 million and with terms up to 36 months. Previous product innovations include the IOU Financial Cash-Back Loan (August 2021) and the IOU Financial 24-Month Loan (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 growth opportunities through both channels.
“IOU Financial’s strong year to date loan originations and progress towards our 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,” added Gloer.
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
Record origination volume for the third quarter of 2022 has resulted in higher loans under management. Collections have been in line with expectations, and we have not seen significant increases in delinquencies, defaults or loan modifications.  The combination of higher originations, higher loans under management and collections in line with expectations has driven a 54.8% increase in servicing and fee revenue for the third quarter of 2022 compared to the third quarter of 2021 and a 90.9% increase for the nine-month period ended September 30, 2022 compared to the same period in 2021.
Higher origination volume and loans under management also contributed to higher adjusted operating expenses in the third quarter of 2022 compared to the third quarter of 2021, and we continue to invest in growth and scalability.  For example, we have 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 have increased our marketing and advertising spending. As a result, adjusted operating expenses have increased by 50.2% for the third quarter of 2022 compared to the third quarter of 2021 and 43.7% for the nine-month period ended September 30, 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 (11.2% for the third quarter of 2022 compared to 13.0% for the third quarter of 2021).
Interest expense decreased $0.4 million or 37.3% in the nine- month period ended September 30, 2022 compared to the same period in 2021 due to the continuing reduction in convertible debenture balance. For example, as of November 18, 2022, IOU has redeemed approximately $6.1 million of its debentures since Q2 2021 leaving an outstanding principal balance of approximately $5.6 million.
IFRS earnings for the third quarter of 2022 were $0.7 million ($0.01 per share), compared to $3.1 million ($0.03 per share) for the third quarter of 2021 (which included a non-recurring gain of $1.6 million).  Adjusted earnings for the third quarter of 2022 were $0.1 million ($0.00 per share) compared to $0.4 million ($0.00 per share) for the third quarter of 2021.
Adjusted and IFRS net earnings

September 30,

For the three months ended
2022
2021
Difference
Difference

$
$
$
%
    Interest revenue
8,424
113,106
(104,682)
(92.6 %)
    Servicing & fee revenue
4,809,724
3,106,442
1,703,282
54.8 %
Adjusted Gross Revenue
4,818,148
3,219,548
1,598,600
49.7 %
    Interest expense
188,527
331,750
(143,223)
(43.2 %)
    Net recovery of loan losses
(67,137)
(496,972)
429,835
(86.5 %)
Cost of Revenue
121,390
(165,222)
286,612
(173.5 %)

Adjusted Net Revenue
4,696,758
3,384,770
1,311,988
38.8 %
      Adjusted operating expense
4,549,047
3,027,744
1,521,303
50.2 %
      Income tax expense
80,967

80,967
100.0 %
Adjusted Net Earnings
66,744
357,026
(290,282)
(81.3 %)
Adjusted Net Earnings per Share
0.00
0.00
0.00
0.0 %

Adjusted Net Earnings
66,744
357,026
(290,282)
(81.3 %)
      Non-cash gain on sales of loans
3,035,342
2,411,638
623,704
25.9 %
      Non-cash amortization of servicing asset
(2,369,530)
(1,210,107)
(1,159,423)
95.8 %
      Non-cash stock-based compensation
(90,479)
(24,597)
(65,882)
267.8 %
      Non-recurring gain, net
10,049
1,566,311
(1,556,262)
(99.4 %)
Net Earnings per IFRS
652,126
3,100,271
(2,448,145)
(79.0 %)
Net Earnings per Share
0.01
0.03
(0.02)
(66.7 %)
 
Adjusted and IFRS net earnings (loss)

September 30,

For the nine months ended
2022
2021
Difference
Difference

$
$
$
%
    Interest revenue
68,367
937,316
(868,949)
(92.7 %)
    Servicing & fee revenue
13,189,243
6,910,210
6,279,033
90.9 %
Adjusted Gross Revenue
13,257,610
7,847,526
5,410,084
68.9 %
    Interest expense
632,014
1,008,750
(376,736)
(37.3 %)
    Net recovery of loan losses
(441,914)
(927,193)
485,279
(52.3 %)
Cost of Revenue
190,100
81,557
108,543
133.1 %

Adjusted Net Revenue
13,067,510
7,765,969
5,301,541
68.3 %
      Adjusted operating expense
11,671,345
8,124,826
3,546,519
43.7 %
      Income tax expense
80,967

80,967
100.0 %
Adjusted Net Earnings (Loss)
1,315,198
(358,857)
1,674,055
(466.5 %)
Adjusted Net Earnings (Loss) per Share
0.01
(0.00)
0.01
100.0 %

Adjusted Net Earnings
1,315,198
(358,857)
1,674,055
(466.5 %)
      Non-cash gain on sales of loans
7,749,292
5,100,449
2,648,843
51.9 %
      Non-cash amortization of servicing asset
(6,141,559)
(3,128,086)
(3,013,473)
96.3 %
      Non-cash stock-based compensation
(139,673)
(125,616)
(14,057)
11.2 %
      Non-recurring gain/(loss), net
(90,284)
1,543,671
(1,633,955)
(105.8 %)
Net Earnings per IFRS
2,692,974
3,031,561
(338,587)
(11.2 %)
Net Earnings per Share
0.02
0.03
(0.01)
(33.3 %)
 
IOU’s financial statements and management discussion & analysis for the three- and nine-month period ended September 30, 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 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.
Servicing and fee 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 and less interest revenue. The Company uses servicing and fee revenue as another measure of financial performance. Specifically, it comprises those elements of revenue that most closely reflect the Company’s shift to a marketplace strategy, which emphasizes the Company’s servicing activities.
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 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 ratio is using the average of month end balances over the period presented.
Non-Recurring Gain/(Loss), 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.
View original content:https://www.prnewswire.com/news-releases/iou-reports-q3-2022-financial-results-301683206.html
SOURCE IOU Financial Inc.
View original content: http://www.newswire.ca/en/releases/archive/November2022/18/c7658.html
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