IOU Financial Inc. Corporate Presentation May 2019
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IOU Financial Inc. Corporate Presentation May 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 20 under the heading "Risks
and Uncertainties" in IOU Financial's Q1 2019 MD&A dated May 23, 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.
2A leading online lender to small businesses
• US$660+ million – of total loans originated since inception.
• 9,000+ loans made to merchants and small businesses across the US and Canada.
• 5 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 Q1 19 Shareholder summary
$666 87.8M total shares outstanding
$700
$600
~37% insider ownership
$500
in millions (US$)
$400
$300
$200
$100
$-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
* Total loan origination volume as of Q1 19 was US$666.3 million.
3Investment highlights
• Focused on profitable growth
– IOU originated US$125M of small business loans in 2018 and US$133.2M over the TTM period ending Q1 19.
– IOU expects to profitably grow originations by 25%-30% per annum, over the long-term.
• Unique, proprietary technology platform
– Allows for industry-leading operating efficiency.
• Alignment of interests with management and insiders
– Insiders own approximately 37% of Company’s stock.
• Unique exposure to a growing online lending industry
– IOU is a compelling option for investors seeking exposure to the rapidly growing SMB lending industry.
– One of the only pure-play publicly-traded online lenders to small businesses.
4Online 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
Source: refers
Pang, to “Trailing
H 2018, Twelve
Information Months” as
Technology of Q3 18. and Small Business Lending utilizing data from FDIC reports on US depository institutions
Improvement
5Business model
IOU generates interest income from originated loans held
on its own balance sheet and servicing income from
IOU’s business model is simple, originated loans sold to institutional investors.
scalable and has significant
embedded operating leverage. The Company’s profitability is dependent on its cost of
capital, the credit performance of its loan portfolio, and its
operating efficiency.
IOU's business model
Interest & servicing Credit losses Interest expense Opex Operating income
revenues
6Loan originations & Loans under management
Total loans under management
$100 $92.7
$95.9 $96.5
Servicing portfolio
Principal portfolio
$80
IOU intends to ramp up loan origination $70.3
$61.7 $58.4
in millions (C$)
$61.4
growth to 25%-30% per annum $60 $56.9 $65.2
$28.2
over the long-term. $40
$28.6
$42.7
$26.5
$20 $14.7
$42.1
$33.0 $34.5
$38.1
$27.5
$5.6 $14.3
$1.9 $11.8
$0
$5.6
2011 2012 2013 2014 2015 2016 2017 2018 Q1 19
Loans originated
$146.4
$150
$125.0
$133.2 IOU will grow loan originations by:
$125
$107.8
$99.5 • Increasing the number of quality loan brokers
$100 $91.3
in millions (US$)
working with IOU.
$75 • Investing in direct marketing and sales.
$49.5
$50 • Expanding product offering to serve more SMBs.
$25 • Further geographic expansion into Canada.
$11.5
$2.4
$0.4 • Continuing to add new strategic partners such as
$-
2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM banks and payment processors.
Note: TTM refers to “Trailing Twelve Months” as of Q1 19.
7Revenues
Portfolio yield
42% 40.8% 40.1%
38.1%
IOU utilizes a hybrid revenue 35.8%
35% 32.6%
strategy to fully optimize it’s
origination platform. 28%
21%
14%
2015 2016 2017 2018 TTM
Breakdown of adjusted revenues Note: 2015 to 2017 portfolio yields calculated under IAS 39; 2018 under IFRS 9.
$25 Servicing & other
Interest • IOU uses adjusted gross revenue as it eliminates
$20 $18.4 $19.2
$18.0 $17.2 items that do not necessarily reflect how the
$5.6
$5.0 Company is performing.
in millions (C$)
$15 $4.7 $2.8
$12.3
• Specifically, it eliminates the non-cash gain on sale
$10 $5.6 of loans and the non-cash amortization of
$13.3 $14.4 $13.5 $13.7
$5
servicing assets which influence operating results
$6.8 depending on the timing and amount of the loan
$0 sales.
2015 2016 2017 2018 TTM
Note: TTM refers to “Trailing Twelve Months” as of Q1 19. Figures may not add due to rounding.
Note: “Servicing & other” exclude certain non-cash items such as gain on sale of loans & amortization of servicing assets. Servicing fees amounted to
$4.3M; and “other” fees amounted to $1.3M over TTM period. “Portfolio yield” is calculated by dividing TTM interest revenues by the average 8
commercial loans receivable balance over the period, which is the average of 5 quarterly points in time, including the beginning & end of such period.Funding sources and interest expenses
Decreasing average cost of borrowing
18%
IOU has increased its borrowing 16.1%
capacity, diversified its funding 15% 14.0% 13.8%
sources, and lowered its cost of 12.0%
11.5%
12% 11.4%
debt capital over time. 10.8% 10.8%
9%
6%
2012 2013 2014 2015 2016 2017 2018 TTM
Funding Type of Size of Funding Maturity
source facility facility cost date
Convertible Unsecured C$11.5
10.0% 12/31/2020
debentures corporate million
In Q1 19, IOU entered into a 3 year, US$50 million
Midcap
Secured
US$22 1 month USD
warehouse credit facility with Credit Suisse, lowering its
term loan + 12/31/2020
Financial
revolver
million LIBOR + 8.5% overall funding costs and further diversifying its
funding sources.
Credit Secured US$50 3 month USD
03/05/2022
Suisse revolver million LIBOR + 4.5%
Note: TTM refers to “Trailing Twelve Months” as of Q1 19. As of April 1/19, the 1-month USD LIBOR rate was 2.49% and the 3-month USD LIBOR was 2.6%.
The revolving period for the Credit Suisse facility ends Mar.5/21 with an amortization period beginning after the revolving period ending on Mar. 5/22.
Note: “Average cost
net interest
of borrowing”
margin”
is is
calculated
calculatedasas
interest
the average
expenses of four
divided
quarterly
by thedata
average
points
balance
in a TTM
of debt
period,
outstanding
with eachover
datasuch
point
period.
calculated
The by
subtracting
average balance
interest
of expenses
debt outstanding
over the period
considers
fromthe
theaverage
portfolioofyield
five (as
quarterly
definedpoints-in-time,
on the Revenuesincluding
slide) ofthe
suchbeginning
period. and end of such period. 9
Interest expenses and the average balance of debt outstanding includes both conv. debenture and credit facility interest expenses and balances.Credit performance
In Q3 16, IOU pro-actively implemented the
Provisional credit loss and following strategies to improve its portfolio’s credit
performance:
net credit loss rates
have declined since 2016. • A tightening of credit oversight.
• An aggressive litigation strategy to pursue
intentional defaults by borrowers.
• Improved servicing and collections processes.
Provisional credit loss and
net credit loss rates
These strategies have improved IOU’s credit
25% 22.9%
21.2% performance, as demonstrated by IOU’s provisional
20% 22.2% credit loss and net credit loss rates in 2018 and over
15.2%
16.1% the most recent TTM period.
15% 13.2%
13.9% 13.4% 12.8%
10%
9.0%
5%
2015 2016 2017 2018 TTM
Note: TTM refers to “Trailing Twelve Months” as of Q1 19.
Note: Provisional credit loss rates and net credit loss rates are calculated by dividing provisional losses and net credit losses as defined in IOU’s
financial statements, by the average commercial loans receivable balance over the twelve month period under observation. The average commercial 10
loans receivable balance considers the average of five quarterly points-in-time, including the beginning and end of such period.Operating expenses
IOU has demonstrated increasing operating leverage,
as adjusted operating expenses as a percentage of
loans under management continue to decline.
Adjusted opex as a percentage of
24% loans under management
• IOU utilizes an adjusted operating expense ratio
20.2%
as a measure of the Company’s operating
18% efficiency.
14.2% 14.3% • The adjusted operating expense ratio has
13.3% 12.9% decreased over time as the Company has
12% 11.2% 10.8% increased loans under management at a greater
rate than operating expenses, demonstrating
solid operating leverage.
6%
2013 2014 2015 2016 2017 2018 TTM
as of Q3
Note: TTM refers to 2018
“Trailing Twelve Months” as of Q1 19.
Note: Adjusted operating expenses calculated as: total operating expenses for the period less stock-based compensation and non-recurring costs. The
adjusted operating expense ratio calculated as adjusted operating expenses divided by average loans under management for the TTM period. The 11
average loans under management considers the average of five quarterly points-in-time, including the beginning and end of such period.Adjusted earnings/(losses)
IOU has successfully executed on its plan to achieve profitability.
Quarterly adjusted earnings/(losses) since 2017
$800 $688
$635
$469 $476
$500 $362
$200
-$100 ($12)
in thousands (C$)
-$400
-$700
($837)
-$1,000
-$1,300
($1,316)
-$1,600 ($1,500)
Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19
Note: IOU uses adjusted net earnings as a measure of financial performance. Beginning in Q1 19, the calculation of adjusted net earnings was revised and is defined as net earnings for the
period less gain on sale of loans, plus: amortization of servicing assets, stock-based compensation and non-recurring costs. Prior to Q1 19, the calculation of adjusted net earnings (net loss)
was defined as net earnings (net loss) for the period less: gain on sale of loans and income tax recovery, plus: amortization of servicing assets, stock-based compensation, amortization of
transactions costs-credit facility, depreciation & amortization, income tax expense and non-recurring costs. As a result, the prior comparative periods have been calculated to reflect the
revised definition.
12Proven & experienced team
Phil Marleau, CFA Robert Gloer David Kennedy, CPA, CA Benjamin Yi, CFA
Chief Executive Officer President & COO Chief Financial Officer Capital Markets & Corp. Dev.
Former equity research analyst at Former SVP East Region Former CFO at Dale Parizeau Morris Former Investor at Dundee Corp &
Merrill Lynch, CSFB, Scotia Capital at First Franklin Financial Mackenzie & CFO at Mirabaud Canada 1832 Asset Management L.P.
Madeline Wade Jeff Turner Mark Schrews Christophe Choquart, MBA
VP, Operations VP, Credit & Compliance VP, Wholesale VP, BD & Strategic Partnerships
Formerly underwriting Former VP & Branch Manager Former nuclear weapons technician Former institutional equity sales
at First Franklin Financial at First Franklin Financial at US Navy & broker at Metro Brokers at Bear Stearns & Lehman Bros
13Trading comparables
Fintech & Specialty
Valuation Price-to-sales Price-to-earnings
finance companies
Shares TTM TTM
Company Ticker Share price Market cap TTM RevPS Trailing P/S TTM EPS Trailing P/E
outstanding Revenues Earnings
Commercial lenders
On Deck Capital (US$) NYSE:ONDK $4.34 74.6 $323.6 $418.3 $5.61 0.8x $35.5 $0.48 9.1x
Funding Circle Holdings (£ ) LSE:FCH £2.53 271.3 £685.0 £141.9 £0.52 4.8x -£49.3 -£0.18 -
Chesswood Group (C$) TSX:CHW $10.16 16.8 $170.8 $116.2 $6.91 1.5x $20.1 $1.19 8.5x
Accord Financial (C$) TSX:ACD $9.58 8.3 $79.8 $49.5 $5.94 1.6x $10.8 $1.29 7.4x
Commercial lenders avg - - - - - - 2.2x 8.3x
Consumer lenders
LendingClub (US$) NYSE:LC $3.13 423.2 $1,324.8 $717.6 $1.70 1.8x -$117.1 -$0.28 -
Enova International (US$) NYSE:ENVA $22.51 33.5 $753.7 $1,153.0 $34.44 0.7x $77.2 $2.31 9.8x
Goeasy Corp. (C$) TSX:GSY $50.22 15.7 $787.0 $531.3 $33.90 1.5x $60.3 $3.85 13.0x
Elevate Credit (US$) NYSE:ELVT $4.35 43.4 $188.8 $782.6 $18.03 0.2x $16.4 $0.38 11.5x
Mogo Finance Tech (C$) TSXV:MOGO $5.00 22.9 $114.6 $63.3 $2.76 1.8x -$23.1 -$1.01 -
Axis Auto Finance (C$) TSXV:AXIS $0.435 96.9 $42.2 $28.0 $0.29 1.5x -$5.3 -$0.05 -
Consumer lenders avg - - - - - - 1.3x 11.4x
Overall average - - - - - - 1.9x 9.9x
IOU Financial (C$) TSXV:IOU $0.245 87.8 $21.5 $19.6 $0.22 1.1x $2.7 $0.03 7.9x
Source: Company reports. TTM refers to “Trailing Twelve Months” as of 3/31/19 for all companies except FCH and AXIS, which are as of 12/31/18. Share prices reflect closing prices on
05/28/19.
14IOU Financial Inc. Corporate Presentation May 2019 For more information, please contact: Benjamin Yi, MFin, CFA Capital Markets & Corporate Development Email: byi@ioufinancial.com www.ioufinancial.com
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