Company highlights strong quarter-to-quarter growth in loan originations, shares progress on Post-Pandemic Growth Plan and continues migration to marketplace strategy.
- Loan origination volume grew to an all-time record US$52.2 million in Q3 2021, representing an increase of 51.5% over Q2 2021 and representing an increase of 183.1% over Q3 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 – until September when it established a new monthly record of US$19.6 million in loan originations.
- Achieved adjusted net earnings of $0.4 million and $3.1 million on an IFRS basis in the quarter.
- Repurchased $0.4 million in convertible debentures in Q3 2021; subsequent to quarter end, IOU repurchased an additional $0.9 million bringing total repurchases of convertible debentures to $3.2 million as of November 4, 2021.
MONTREAL, Nov. 18, 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 nine-month period ended September 30, 2021.
"Our successful migration to a marketplace strategy has enabled IOU Financial to capture more volume in Q3 than would have previously been possible," stated Robert Gloer, President and CEO. "This has proven to be a win-win that has in turn given us the financial latitude to invest in growth initiatives and further reduce our corporate debt."
The Company has been 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. These goals are enabled by the Company's continued migration to a marketplace strategy that has both increased origination capacity and liberated financial resources for other purposes, and supported by a focus on investing in technology, products and distribution as part of the Company's Post-Pandemic Growth Plan (PPGP) first outlined as part of its Q1 Financial Results.
The Company repurchased $0.4 million in convertible debentures in Q3 2021 as well as repurchasing an additional $0.9 million on November 4, 2021 bringing the total repurchases of convertible debentures to $3.2 million. The repurchases will result in annual interest expense savings of over $0.3 million. The remaining principal balance of the convertible debenture is $8.5 million and matures on December 31, 2023. The Company will continue to pursue its effort to reduce the outstanding principal balance.
IOU continued to benefit from a reversal in its provision for loan losses and recoveries of loans previously written off as well as reduction in operating expenses due to the recognition of $1.5 million in employee retention credits in the quarter.
For 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.
"We are thrilled to achieve our 2021 goal of surpassing pre-pandemic loan origination volume levels within weeks of celebrating over US$1 billion in total loan originations in the history of IOU Financial," added Gloer. "We are excited and proud to be a part of the comeback story for thousands of small businesses across North America."
The Company continues to migrate to a marketplace strategy allowing it to accelerate loan origination growth. This strategy has the impact of placing more emphasis on servicing and other income over interest 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 other income increased consistent with the increase in the servicing portfolio.
Due to the wind down of the loan portfolio, there is no longer any interest expense associated with the financing credit facilities as IOU repaid this outstanding debt at the end of 2020. Interest expense has decreased in the quarter as the Company was able to use its financial resources to repurchase certain of its convertible debentures.
In addition, the marketplace strategy will render the provision for loan losses irrelevant and IOU will continue to focus on cash collections on the remaining 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 in order to better reflect the actual operating performance of the business.
Loan Originations: In Q3 2021, the Company funded US$52.2 million in loans (2020: US $18.4 million), representing an increase of 183.1% over the same period last year. For the first nine months of 2021, the Company funded US$111.9 million in loans (2020: US$65.7 million), representing an increase of 70.3% over the same period last year.
Interest Revenue: Interest revenue decreased 95.3% to $0.1 million in Q3 2021 from $2.4 million in Q3 2020. The principal balance of the loan portfolio decreased 80.0% to $4.2 million in Q3 2021 from $20.8 million in Q3 2020.
Servicing and Other Income: Servicing and other income increased 121.8% to $3.1 million in Q3 2021 from $1.4 million in Q3 2020. The principal balance of the servicing portfolio increased 75.2% to $99.7 million in Q3 2021 from $56.9 million in Q3 2020.
Adjusted gross revenue: Decreased to $3.2 million (2020: $3.8 million), representing a decrease of 15.5% for the three-month period ended September 30,2021 compared to the same period in 2020.
Interest expense: Interest expense continued to decrease from $0.5 million in Q3 2020 vs $0.3 million in Q3 2021.
(Recovery of) Provision for loan losses: Due to better than anticipated collection on loans for which IOU recorded a provision for loan losses in prior periods, the Company continues to benefit from reversals in the provision for loan losses (reversal of $0.2 million in Q3 2021 vs $0.7 million in Q3 2020).
Cost of Revenue: Remained flat at $(0.2) million in Q3 2021 compared to Q3 2020.
Adjusted Operating Expenses: Increased 35.9% to $3.0 million in Q3 2021 compared to $2.2 million in Q3 2020 mainly due to an increase in wages and salaries and data and IT costs.
Adjusted Net Earnings (Loss): IOU closed on its third quarter ended June 30,2021 with an adjusted net earnings of $0.4 million compared to adjusted net earnings of $1.7 million for the third quarter ended September 30, 2020. IOU closed on the nine-month period ended September 30,2021 with an adjusted net loss of $0.4 million, compared to adjusted net loss of $3.1 million for the same period last year.
IFRS Net Earnings (Loss): IOU closed on its third quarter ended September 30, 2021 with IFRS net earnings of $3.1 million, or $0.03 per share, compared to IFRS net earnings of $1.7 million or $0.02 per share for the same period in 2020. IOU closed on the nine-month period ended September 30,2021 with IFRS net earnings of $3.0 million, or $0.03 per share, compared to IFRS net loss of $3.5 million or $(0.04) per share for the same period last year.
IOU's financial statements and management discussion & analysis for the quarter ended September 30, 2021 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.
- 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 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.
SOURCE IOU Financial Inc.