Company highlights progress as Q2 2023 originations increased over Q1 2023 and reflect underwriting changes and strategic price increases
Highlights:
- Second quarter loan originations of US$53.9 million, representing a sequential increase of 11% over Q1 2023; Year to date loan originations total US$102.3 million.
- Revenue of $5.0 million and adjusted revenue of $4.3 million, representing increases of 10.1% and 5.6%, respectively, over Q1 2023 reflecting increased originations and 2023 loan performance
- Adjusted operating expenses declined $0.8 million (14%) from Q1 2023 to $4.8 million; adjusted operating expense ratio of 10.3%, a decline of 70 basis points from Q1 2023.
- Net loss and adjusted net loss of $(0.4) million, representing an improvement of $1.0 million and $1.3 million, respectively, over Q1 2023.
- Entered into Arrangement Agreement to be acquired by a group of investors; transaction expected to close late Q3 2023
MONTREAL, Aug. 28, 2023 /CNW/ - 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 June 30, 2023.
IOU Financial originated US$53.9 million of loans in Q2 2023, an increase of 11% over Q1 2023 reflecting continued strong customer demand and the Company's focused product sales efforts. Revenue for Q2 2023 was $5.0 million, a 10.1% increase over Q1 2023. Loans originated in Q2 2023 reflect the full impact of the previously announced changes to the Company's underwriting guidelines, focused sales efforts and 300 basis point price increase put in place in Q1 2023. As a result of these changes, and as collections on loans originated in 2023 continue to grow as a portion of overall collections, servicing revenue increased 9.5% on a sequential basis.
Revenue and servicing yield were lower in the three- and six-month period ended June 30, 2023 as compared to the same period in 2022 as collections from loans originated in the second half of 2022 continue to make up a significant portion of collections in the current quarter.
The Company also made significant expense reductions in Q2 2023, as adjusted operating expenses declined by $0.8 million, or 14% as compared to Q1 2023 as we took significant actions to reduce our operating expenditures, including:
- establishing a freeze on hiring and backfilling for natural attrition;
- renegotiation of certain vendor contracts;
- reduced spending on external consultants; and
- reduced discretionary expenditures such as travel and entertainment.
Adjusted operating expenses increased 17.5% compared to the second quarter of 2022 (33.8% for the year-to-date period) due to IOU's continued commitment to investing in its strategic growth initiatives combined with the growth in loans under management. However, the Company's adjusted operating expense ratio declined from 11.5% in the second quarter of 2022 to 10.3% in the second quarter of 2023 and from 11.3% for the six months ended June 30, 2022 to 10.6% for the six months ended June 30, 2023. The Company expects adjusted operating expenses in the third and fourth quarters of fiscal 2023 will be in line with Q2 2023.
As a result of the increased originations, 2023 loan performance to date and operating expense reductions in Q2 2023, adjusted Q2 2023 net loss was ($0.4) million, representing an improvement of $1.3 million compared to Q1 2023 adjusted net loss.
"We are pleased to see improvements in loan originations, revenue and adjusted operating expenses as compared to the previous quarter," said Robert Gloer, President and CEO. "We are excited to continue advancing on our Strategic Growth Initiatives as well as the Arrangement Agreement to be acquired in Q3."
OUTLOOK
The Company continues to target loan originations in the range of US$200M to US$240M and anticipates modest revenue growth in 2023. While the Company has reduced operating expenses for the remainder of the year, the Company expects operating expense growth over 2022 in the range of 15-19% on a full-year basis, including expenses incurred in connection with the Arrangement Agreement.
ARRANGEMENT AGREEMENT
On July 14, 2023, the Company announced that it had entered into an arrangement agreement dated July 13, 2023 to be acquired for a cash consideration of $0.22 per share by 9494-3677 Québec Inc., a corporation created by a group composed of (i) NB Specialty Finance Fund LP, a fund managed by Neuberger Berman Investment Advisers LLC, (ii) funds managed by Palos Capital, including Palos IOU Inc., and (iii) Fintech Ventures Fund, LLLP, pursuant to a statutory plan of arrangement under Chapter XVI – Division II of the Business Corporations Act (Québec) (the "Arrangement"). The Arrangement is subject to customary closing conditions for a transaction of this nature, including shareholder and court approvals and applicable regulatory approvals. A special meeting where shareholders will be asked to consider and, if deemed advisable, to approve the Arrangement is scheduled to be held as a virtual-only meeting conducted by live videoconference at https://web.lumiagm.com/412704157 on September 12, 2023.
FINANCIAL HIGHLIGHTS
Revenue was lower by 3.6% compared to the second quarter of 2022 (5.0% for the year-to-date period) as originations decreased in the current year from the previously announced underwriting changes and collections from loans originated in the second half of 2022 continue to make up a significant portion of collections in the current quarter. However, servicing income increased 9.5% in Q2 2023 on a sequential basis from Q1 2023 reflecting improved loan performance and the increasing portion of total collections coming from loans originated in 2023.
Adjusted operating expenses increased 17.5% compared to the second quarter of 2022 (33.8% for the year-to-date period) as a result of IOU's continued commitment to investing in its strategic growth initiatives combined with the growth in loans under management, as the Company significantly grew operating expenses in 2022 to support growth. However, the steps IOU took in the second quarter of 2023 to reduce operating expenses are reflected in the Company's adjusted operating expense ratio, which declined from 11.5% in the second quarter of 2022 to 10.3% in the second quarter of 2023 and from 11.3% for the six months ended June 30, 2022 to 10.6% for the six months ended June 30, 2023. IOU expects adjusted operating expenses in the third and fourth quarters of fiscal 2023 to be in line with second quarter results.
Q2 2023 results included significant expenses incurred in connection with the Arrangement Agreement. These expenses are excluded from adjusted operating expenses as they are not expected to recur upon consummation of the Arrangement, and primarily include professional fees paid to outside advisers in connection with their work on the arrangement agreement. Q1 2023 adjusted operating expenses have also been adjusted to reflect certain transaction expenses incurred in connection with the arrangement agreement that were previously classified in recurring operating expenses in Q1 2023 results.
The Company's net loss on an IFRS basis for the second quarter of 2023 was $(0.4) million ($0.00 per share) compared to net income of $0.9 million ($0.01 per share) for the second quarter of 2022. For the first six months of 2023, the Company's net loss on an IFRS basis was $(1.9) million ($0.02 per share) compared to net income of $2.0 million ($0.02 per share) for the same period in 2022.
SUMMARY FINANCIAL DATA
| For the three months ended June 30, | 2023 | 2022 | Difference | Difference |
| $ | $ | $ | % | |
| Loan originations ($US) | 53,901,590 | 58,987,750 | (5,086,160) | (8.6 %) |
| Loans under management | 180,700,279 | 147,521,527 | 33,178,752 | 22.5 % |
| Revenue | 4,974,965 | 5,159,605 | (184,640) | (3.6 %) |
| Operating expenses | 5,528,813 | 4,169,047 | 1,359,766 | 32.6 % |
| Net income (loss) | (437,693) | 923,444 | (1,361,137) | nm |
| Net income (loss) per share | - | 0.01 | (0.01) | nm |
| Adjusted revenue | 4,289,849 | 4,925,730 | (635,881) | (12.9 %) |
| Adjusted operating expense | 4,822,194 | 4,103,157 | 719,037 | 17.5 % |
| Adjusted net income (loss) | (416,190) | 755,458 | (1,171,648) | nm |
| Adjusted net income (loss) per share | - | 0.01 | (0.01) | nm |
| Total assets | 24,756,105 | 30,684,192 | (5,928,087) | (19.3 %) |
| Total liabilities | 9,715,978 | 12,706,019 | (2,990,041) | (23.5 %) |
| For the six months ended June 30, | 2023 | 2022 | Difference | Difference |
| $ | $ | $ | % | |
| Loan originations ($US) | 102,254,605 | 118,552,364 | (16,297,759) | (13.7 %) |
| Loans under management | 180,700,279 | 147,521,527 | 33,178,752 | 22.5 % |
| Revenue | 9,494,563 | 9,998,413 | (503,850) | (5.0 %) |
| Operating expenses | 11,353,972 | 7,948,797 | 3,405,175 | 42.8 % |
| Net income (loss) | (1,924,703) | 2,040,848 | (3,965,551) | nm |
| Net income (loss) per share | (0.02) | 0.02 | (0.04) | nm |
| Adjusted revenue | 8,351,625 | 9,056,491 | (704,866) | (7.8 %) |
| Adjusted operating expense | 10,433,065 | 7,799,270 | 2,633,795 | 33.8 % |
| Adjusted net income (loss) | (2,146,734) | 1,248,454 | (3,395,188) | nm |
| Adjusted net income (loss) per share | (0.02) | 0.01 | (0.03) | nm |
IOU's financial statements and management discussion & analysis for the quarter ended June 30, 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
| For the three months ended June 30, | 2023 | 2022 | Difference | Difference |
| $ | $ | $ | % | |
| Total Revenues | 4,974,965 | 5,159,605 | (184,640) | (3.6 %) |
| Amortization of servicing assets | 2,020,418 | 2,076,237 | (55,819) | (2.7 %) |
| Servicing assets recognized | (2,705,534) | (2,310,112) | (395,422) | (17.1 %) |
| Adjusted Revenue | 4,289,849 | 4,925,730 | (635,881) | (12.9 %) |
| Operating Expenses | 5,528,813 | 4,169,047 | 1,359,766 | 32.6 % |
| Stock-based compensation | (25,748) | (24,597) | (1,151) | 4.7 % |
| Non-recurring gain/(loss), net | (680,871) | (41,293) | (639,578) | nm |
| Adjusted Operating Expenses | 4,822,194 | 4,103,157 | 719,037 | 17.5 % |
| Other (Income)/Expense | (116,155) | 67,114 | (183,269) | nm |
| Income tax expense | - | - | - | nm |
| Adjusted Net income (Loss) | (416,190) | 755,459 | (1,171,649) | nm |
| Diluted Adjusted Net Income (Loss) per Share |
- | 0.01 | (0.01) | nm |
| Servicing assets recognized | 2,705,534 | 2,310,112 | 395,422 | 17.1 % |
| Amortization of servicing asset | (2,020,418) | (2,076,237) | 55,819 | (2.7 %) |
| Stock-based compensation | (25,748) | (24,597) | (1,151) | 4.7 % |
| Non-recurring gain/(loss), net | (680,871) | (41,293) | (639,578) | nm |
| Net Income | (437,693) | 923,444 | (1,361,137) | nm |
| Diluted Net Income per Share | - | 0.01 | (0.01) | nm |
| For the six months ended June 30, | 2023 | 2022 | Difference | Difference |
| $ | $ | $ | % | |
| Total Revenues | 9,494,563 | 9,998,412 | (503,849) | (5.0 %) |
| Amortization of servicing assets | 3,584,863 | 3,772,029 | (187,166) | (5.0 %) |
| Servicing assets recognized | (4,727,801) | (4,713,950) | (13,851) | 0.3 % |
| Adjusted Revenue | 8,351,625 | 9,056,491 | (704,866) | (7.8 %) |
| Operating Expenses | 11,353,972 | 7,948,797 | 3,405,175 | 42.8 % |
| Stock-based compensation | (56,025) | (49,194) | (6,831) | 13.9 % |
| Non-recurring gain/(loss), net | (864,882) | (100,333) | (764,549) | 762.0 % |
| Adjusted Operating Expenses | 10,433,065 | 7,799,270 | 2,633,795 | 33.8 % |
| Other (Income)/Expense | 65,294 | 8,767 | 56,527 | 644.8 % |
| Income tax expense | - | - | - | nm |
| Adjusted Net income (Loss) | (2,146,734) | 1,248,454 | (3,395,188) | nm |
| Diluted Adjusted Net Income (Loss) per Share |
(0.02) | 0.01 | (0.03) | nm |
| Servicing assets recognized | 4,727,801 | 4,713,950 | 13,851 | 0.3 % |
| Amortization of servicing asset | (3,584,863) | (3,772,029) | 187,166 | (5.0 %) |
| Stock-based compensation | (56,025) | (49,194) | (6,831) | 13.9 % |
| Non-recurring gain/(loss), net | (864,882) | (100,333) | (764,549) | 762.0 % |
| Net Income | (1,924,703) | 2,040,848 | (3,965,551) | nm |
| Diluted Net Income per Share | (0.02) | 0.02 | (0.04) | nm |
SOURCE IOU Financial Inc.
For further information: investors@ioufinancial.com