IOU Financial Inc. Corporate presentation November 2019
Forward looking statements Certain information set forth in this presentation may contain forward-looking statements. Forward-looking statements are statements, other than statements of historical fact, that address or discuss activities, events or developments that IOU Financial expects or anticipates may occur in the future. These forward-looking statements can be identified by the use of words such as "anticipates", "believes", "estimates", "expects", "may", "plans", "projects", "should", "will", or the negative thereof or other variations thereon. These forward-looking statements reflect management's current views and are based on certain assumptions including assumptions as to future economic conditions and courses of action, as well as other factors management believes are appropriate in the circumstances. Such forward-looking statements are subject to risks and uncertainties and no assurance can be given that any of the events anticipated by such statements will occur or, if they do occur, what benefit IOU Financial will derive from them. A number of factors could cause actual results, performance or developments to differ materially from those expressed or implied by such forward looking statements, including, but not limited to risks inherent in growing a new business, dependence on third-party service providers, competition, regulatory risk, dependence on key personnel, risks related to rapid growth of IOU Financial, security and confidentiality risk, risk related to inability to attract borrowers and lenders, technological development risk, IT disruptions, maintenance of client relationships, litigation risk, volatility of stock price, and other factors that are beyond its control. Additional information concerning these and other factors can be found beginning on page 22 under the heading "Risks and Uncertainties" in IOU Financial's Q3 2019 MD&A dated November 13, 2019, which is available under IOU Financial's profile on SEDAR at www.sedar.com. IOU Financial does not undertake any obligation to update publicly or to revise any such forward-looking statements, unless required by applicable legislation or regulation. 2
A leading online lender to small businesses US$740+ million – of total loans originated since inception. • 10,000+ loans made to merchants and small businesses across the US and Canada. • 6 consecutive years on the PROFIT 500 List of Canada’s fastest growing companies. • Proprietary, fully integrated technology platform. • 3-5 minute application process with approved loans funded in as little as 24 hours. • Cumulative loans originated Shareholder summary Q3 19 87.7M total shares outstanding $747 $800 $700 ~37% insider ownership $600 in millions (US$) $500 $400 $300 $200 $100 $- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3
Online lending to small businesses Estimated total loan originations by online lenders to US small businesses Online lenders will continue to $15 $12.0 increase their share of the small in billions (US$) $10 business lending market. $5.0 $5 $0 2015 2017 Small business loans as a Sources: Harvard Business School, Board of Governors of the Federal Reserve share of total US bank loans As banks have exited the SMB lending market, there has been significant growth in online lending to small businesses. SMB loans as a percentage of total bank loans decreased from 6.7% to 3.5% from 2002 to 2017. Note: TTM refers to “Trailing Twelve Months” as of Q3 18. Source: Pang, H 2018, Information Technology Improvement and Small Business Lending utilizing data from FDIC reports on US depository institutions 4
Loan originations & Loans under management Total loans under management $108.0 $100 $95.9 Servicing portfolio $92.7 Principal portfolio $80 $53 IOU intends to ramp up loan origination $70.3 in millions (C$) $61.7 $61 growth to 25%-30% per annum $56.9 $60 $65 $28 over the long-term. $29 $40 $43 $26.5 $55 $20 $42 $15 $35 $33 $27 $5.6 $14 $1.9 $12 $0 Loans originated 2011 2012 2013 2014 2015 2016 2017 2018 Q3 19 $147.7 $146.4 $150 IOU will grow loan originations by: $125.0 $125 $107.6 Increasing the number of quality loan brokers • $99.5 $91.3 in millions (US$) $100 working with IOU. $75 Investing in direct marketing and sales. • $49.5 Expanding product offering to serve more SMBs. $50 • Further geographic expansion into Canada. • $25 $11.5 $2.4 $0.4 Continuing to add new strategic partners such as • $- banks and payment processors. 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. 5
Adjusted & IFRS net earnings 2017 2018 TTM Interest revenue $14,386,265 $13,464,475 $16,200,816 Servicing & other revenue $2,838,453 $4,979,791 $6,310,762 Adjusted gross revenue $17,224,718 $18,444,266 $22,511,578 Interest expense $3,680,425 $3,355,496 $3,764,133 Provision for loan losses $8,614,664 $5,004,324 $7,393,353 Recoveries ($381,927) ($322,000) $235,073 Cost of revenue $11,913,161 $8,037,820 $10,922,413 Adjusted net revenue $5,311,557 $10,406,446 $11,589,165 Adjusted operating expense $8,875,682 $8,369,410 $9,798,470 Income tax expense/(recovery) $101,110 ($115,676) ($115,676) Adjusted net earnings/(loss) ($3,665,235) $2,152,712 $1,906,371 Non-cash gain on sale of loans $1,856,237 $3,466,884 $3,332,596 Non-cash amortization of servicing assets ($1,665,859) ($2,743,101) ($3,696,614) Non-cash stock-based compensation ($160,672) ($166,277) ($262,554) Non-recurring gain/(costs) ($819,753) $0 $485,579 Net earnings/(loss) (IFRS): ($4,455,282) $2,710,218 $1,765,378 Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. Net earnings under IFRS are calculated by adding to adjusted net earnings: (i) gain recognized on sale of loans, and subtracting (ii) amortization of servicing asset, (iii) stock-based compensation, and (iv) non-recurring costs/(gain) listed above. These four items are adjusted for as they are either non-cash or non-recurring and do not reflect on the actual operating performance of the business. 6
Interest revenue Interest revenue $18 $16.2 $14.4 $15 $13.5 $13.3 $12 in millions (C$) $9 $6.8 Interest revenue increased in $6 2016 as IOU brought on MidCap $3 as a new source of financing. $0 2015 2016 2017 2018 TTM As IOU seeks to maximize its Average commercial loans receivable balance new US$50M credit facility with and portfolio yield Credit Suisse, the commercial $60 40.8% 45% 38.5% 38.1% loans receivable balance should 35.8% $50 in millions (C$) 32.6% 36% $42.1 increase, thereby driving $40.2 $40 $34.9 increased interest revenues. $33.0 27% $30 $20.8 18% $20 9% $10 $0 0% 2015 2016 2017 2018 TTM Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. The average commercial loans receivable balance considers the average of five Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by quarterly points-in-time, including the beginning and end of such period. Portfolio yield is calculated by dividing TTM interest revenues by the subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. 7 average commercial loans receivable balance over the period
Servicing & other revenue Servicing & other revenue $12 $9 in millions (C$) $6.3 $5.6 $6 $5.0 $4.7 IOU’s servicing portfolio $2.8 decreased from 2015 to 2017 as $3 IOU tightened its underwriting $0 criteria, sold less loans to hedge 2015 2016 2017 2018 TTM funds, and shifted more loans to Average servicing portfolio balance its balance sheet. and servicing yield $80 12% 10.5% From 2017 onwards, servicing 9.0% in millions (C$) 8.8% 8.3% revenue increased, driven by an 8.2% $60 9% $47.2 $45.9 increasing servicing portfolio. $56.1 $44.1 $40 6% $26.0 $20 3% $0 0% 2015 2016 2017 2018 TTM Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. The average servicing portfolio balance considers the average of five quarterly Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by points-in-time, including the beginning and end of such period. Servicing & other revenue exclude certain non-cash items such as gain on sale of subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. 8 loans & amortization of servicing assets. Servicing fees amounted to $5.0M; and other fees amounted to $1.3M over TTM period ended 9/30/19.
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