- Loan originations increased 23.4% to
US$154.2 million in 2019 compared to 2018. - Adjusted gross revenue increased 28.5% to
$23.7 million in 2019 compared to 2018. - Adjusted operating expense ratio decreased to 9.9% in 2019 compared to 11.0% in 2018.
- Adjusted net earnings amounted to
$1.8 million in 2019 compared to$2.1 million in 2018. - IOU repurchased 1,944,500 common shares since the beginning of its Normal Course Issuer Bid ("NCIB").
"In 2019, IOU made significant progress by increasing loan originations by 23.4% while generating
FINANCIAL HIGHLIGHTS
- 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. In 2019, the Company funded
US$154.2 million in loans (2018: US$125.0 million ), representing an increase of 23.4% over 2018. This was driven by identifying, recruiting, partnering and promoting existing relationships with business loan brokers, continued geographic expansion intoCanada and investing in direct marketing and sales. This was in line with the Company's long-term outlook for annual loan origination growth of 25% to 30%. However, it should be noted the Company retracted inMarch 2020 its previously disclosed long-term outlook for loan origination growth of 25% to 30% due to the Covid-19 pandemic and its unknown consequences on the economy. - As at
December 31, 2019 , total loans under management amounted to$110.8 million (2018:$95.9 million ), representing an increase of 15.5% year over year and is attributable to the growth in loan originations of 23.4% compared to the same period in 2018. The principal balance of the loan portfolio amounted to$56.9 million (2018:$34.5 million ), representing an increase of 64.8% and consistent with the Company's strategy to retain more loans on its balance sheet. The principal balance ofIOU Financial's servicing portfolio (loans being serviced on behalf of third parties) amounted to$53.9 million (2018:$61.4 million ), representing a decrease of 12.3%. - Adjusted gross revenue increased 28.5% to
$23.7 million for the year endedDecember 31, 2019 compared to 2018 ($18.4 million ) due to an increase in interest revenue and servicing income. - Interest revenue increased 32.7% to
$17.9 million in 2019 compared to the same period in 2018 as a result of the increase in the average commercial loans receivable balance of 44.5% in 2019 compared to 2018. The increase in the interest revenue will lag behind the increase in the average commercial loans receivable balance as loans originated in the latter part of the year do not contribute interest revenue for the full year. - Servicing income increased 25.0% to
$4.5 million in 2019 compared to 2018 as a result of the increase in the average servicing portfolio of 27.8% in 2019 compared to 2018. The servicing portfolio yield decreased slightly from 8.2% in 2018 to 8.0% in 2019. - Interest expense during the year ended
December 31, 2019 increased 19.2% to$4.0 million (2018:$3.4 million ). The increase is attributable to an increase in average borrowings of 30.3% in 2019 compared to 2018 and offset by a 1.0 percentage point decrease in the Cost of Borrowing Rate to 10.4%. In an effort to lower its Cost of Borrowing Rate, the Company closed a new credit facility in the first quarter of 2019 at a rate which is substantially lower than the current Cost of Borrowing Rate. Specifically, the rate on the new credit facility was 6.41% atDecember 31, 2019 or approximately 4.0 percentage points less than the current Cost of Borrowing Rate. Also, inDecember 2019 , the Company modified and extended its 2016 Credit Facility untilDecember 31, 2022 . The modified interest rate of the Credit Facility is LIBOR plus 5.5%, down from LIBOR plus 8.5%. The new rate came into effect inJanuary 2020 . However, due to the Covid-19 pandemic, the Company effected modification agreements in March andApril 2020 with certain borrowers in excess of allowable limits resulting in the 2016 Credit Facility charging additional default interest of 3% for a total interest rate of LIBOR plus 8.5% effectiveApril 1, 2020 . - Provision for loan losses during the year ended
December 31, 2019 increased to$8.0 million (2018:$5.0 million ). The increase is attributable to an increase in the average commercial loans receivable balance in 2019 of 44.5% compared to last year and an increase in the Provisional Credit Loss Rate to 16.7% in 2019 compared to 15.2% in 2018 due to a slight increase in delinquencies related to loans originated in Q2 and Q3 2019. The Provisional Credit Loss Rate in 2019 of 16.7% was in line with the Company's expected average of approximately 16.5%. However, due to the Covid-19 pandemic and because the unprecedented economic situation due to the pandemic remains unknown, the Company is retracting its previous expectation for the Provisional Credit Loss Rate to average approximately 16.5%.The Provisional Credit Loss Rate is a representation of the expected credit loss within the lifetime of the loan and includes a provision to all current loans (Stage 1 provision). The growth in the principal balance of the loan portfolio contributed approximately 1.0% to 2.0% to the Provisional Credit Loss Rate compared to the Net Credit Loss Rate. - The Net Credit Loss Rate decreased from 13.4% in 2018 to 12.5% in 2019. The Net Credit Loss Rate in 2019 of 12.5% was below the Company's expected average Net credit Loss Rate of approximately 15%. However, due to the Covid-19 pandemic and because the unprecedented economic situation due to the pandemic remains unknown, the Company is retracting its previous expectation for the Net Credit Loss Rate to average approximately 15%. The Company uses the Net Credit Loss Rate as an alternative measure to the Provisional Credit Loss Rate as it excludes the effect of provisions (reductions) in the allowance for expected credit losses during the period which may not coincide with the actual timing of charge-offs and recoveries.
- Adjusted operating expenses increased 21.0% or
$1.7 million to$10.1 million in 2019 (2018:$8.4 million ) due primarily to reinvestments in staff, technology and advertising and promotion expenses. However, the Adjusted Operating Expense Ratio, which is a measure of the Company's operating efficiency, decreased to 9.9% in 2019 (2018: 11.0%) as the Company increased its loans under management at a greater rate than operating expenses. Operating expenses increased to$9.9 million for the year endedDecember 31, 2019 compared to$8.5 million in the same period in 2018. The reinvestments in staff, technology and advertising and promotion expenses were partly offset by the non-recurring gain relating to the revaluation of convertible debentures of$0.5 million in Q3 2019 following the extension of the convertible debentures fromDecember 31, 2020 toDecember 31, 2023 . - IOU closed on the year ended
December 31, 2019 with adjusted net earnings of$1,758,254 , or$0.02 per share compared to adjusted net earnings of$2,152,712 or$0.02 per share for the same period last year. - IOU closed on its year ended
December 31, 2019 with IFRS net earnings of$1,523,309 , or$0.02 per share, compared to IFRS net earnings of$2,710,218 or$0.03 per share for the same period in 2018. - Since the establishment of the NCIB on
May 1, 2019 , IOU repurchased for cancellation 1,944,500 common shares in the market for a total cost of$500,668 .
Adjusted and IFRS net earnings | ||
For the year ended | 2019 | 2018 |
$ | $ | |
Interest revenue | 17,861,394 | 13,464,475 |
Servicing & other income | 5,837,860 | 4,979,791 |
Adjusted Gross Revenue | 23,699,254 | 18,444,266 |
Interest expense | 3,998,673 | 3,355,496 |
Provision for loan losses | 7,951,635 | 5,004,324 |
Recoveries | (248,043) | (322,000) |
Cost of Revenue | 11,702,265 | 8,037,820 |
Adjusted Net Revenue | 11,996,989 | 10,406,446 |
Adjusted operating expense | 10,117,365 | 8,369,410 |
Income tax expense/(recovery) | 121,370 | (115,676) |
Adjusted Net Earnings | 1,758,254 | 2,152,712 |
Adjusted Net Earnings per Share | 0.02 | 0.02 |
Adjusted Net Earnings | 1,758,254 | 2,152,712 |
Non-cash gain on sales of loans | 3,273,642 | 3,466,884 |
Non-cash amortization of servicing asset | (3,706,180) | (2,743,101) |
Non-cash stock-based compensation | (287,986) | (166,277) |
Non-recurring gain | 485,579 | - |
Net Earnings per IFRS | 1,523,309 | 2,710,218 |
Net Earnings per Share | 0.02 | 0.03 |
OUTLOOK
The Company's principal balance of its loan and servicing portfolios is diversified both across industry type and location within
The duration of the current situation with the pandemic is unknown and considering the uncertainty faced by the North American economy over the coming months, the Company retracted in
Due to the uncertainty surrounding the current situation, the Company furloughed approximately 40% of its full-time employees and implemented a temporary 20% reduction in salary for all remaining employees commencing on
While the current unprecedented economic situation due to the pandemic remains uncertain, the Company is prepared to react quickly as the situation may require and looks forward to emerging as a stronger business coming out of this downturn.
CONFERENCE CALL
The Company will hold a conference call at 4:30 (EDT) on
About
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
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 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.
- Portfolio Yield is calculated as follows: interest revenue divided by the average commercial loans receivable for the period presented on an annualized basis. The year-to-date ratios are calculated on a five-point basis, using December, March, June, September and year-end period end balances, presented on an annualized basis.
- Servicing Portfolio Yield is calculated as follows: servicing income divided by the average servicing portfolio for the period presented on an annualized basis. The year-to-date ratios are calculated on a five-point basis, using December, March, June, September and year-end period end balances, presented on an annualized basis.
- The Cost of Borrowing Rate is calculated as follows: interest expense divided by the average borrowings for the period, presented on an annualized basis. The year-to-date ratios are calculated on a five-point basis, using December, March, June, September and year-end period end balances, presented on an annualized basis.
- The Provisional Credit Loss rate is calculated as follows: provision for loan losses divided by the average commercial loans receivable for the period, presented on an annualized basis. The year-to-date ratios are calculated on a five-point basis, using December, March, June, September and period end balances, presented on an annualized basis.
- The Net Credit Loss rate is calculated as follows: charge offs net of recoveries divided by the average commercial loans receivable for the period, presented on an annualized basis. The year-to-date ratios are calculated on a five-point basis, using December, March, June, September and period end balances, presented on an annualized basis. The Company uses the Net Credit Loss Rate as an alternative measure to the Provisional Credit Loss Rate as it excludes the effect of provisions (reductions) in the allowance for expected credit losses during the period which may not coincide with the actual timing of charge-offs and recoveries.
- 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 year-to-date ratios are calculated on a five-point basis, using December, March, June, September and year-end period end balances, presented on an annualized basis. 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 Adjusted Operating Expense Ratio is calculated as follows: adjusted operating expenses divided by the average loans under management for the period, presented on an annualized basis. The year-to-date ratios are calculated on a five-point basis, using December, March, June, September and period end balances, presented on an annualized basis.
- Beginning in the first quarter of 2019, the calculation of adjusted net earnings was revised and is defined as net 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. Prior to the first quarter of 2019, the calculation of adjusted net earnings (net loss) was defined as net earnings (net loss) for the period in accordance with IFRS less: gain on sale of loans and income tax recovery, plus: amortization of servicing assets, stock-based compensation, amortization of transaction costs-financing credit facilities, depreciation and amortization, income tax expense and non-recurring costs. As a result, the prior comparative periods have been calculated to reflect the revised definition.
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