Mogo, Inc. (MOGO) Q1 2023 Earnings Call Transcript


Good afternoon, ladies and gentlemen, and welcome to the Mogo Q1 2023 Earnings Conference Call. [Operator Instructions]. This call is being recorded on Thursday, May 11, 2023. I would now like to turn the conference over to Craig Armitage. Please go ahead.

Craig Armitage

Thank you, and good afternoon, everyone. Thanks for joining us. Just a few notes before we get started that today’s call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company undertakes no obligation to update these statements, except as required by law.

Information about the risks and uncertainties are included in our Q1 filings as well as periodic filings with regulators in Canada and the U.S., which you’ll find on SEDAR, EDGAR and through the Investor Relations website. Second, today’s discussion will include some adjusted financial measures and non-IFRS measures. You should consider these as a supplement to and not as a substitute for the IFRS measures, and we included reconciliations both in our filings and the investor deck for those measures. Lastly, the amounts today are discussed in Canadian dollars, unless we indicate otherwise.

I’ll now turn it over to Dave Feller to get us started. Dave?

David Feller

Thanks, Craig. Thank you. Good afternoon, and welcome to Mogo’s First Quarter 2023 Results Call. I’m joined today by Greg Feller, our President and CFO. I can’t emphasize enough how pleased I’m with the progress our team made in Q1 as we continue to reengineer Mogo into a leaner and more profitable company. The level of engagement and focus that we’re seeing from our team is truly amazing, and it’s been reflected in our results.

When the macro picture began to look worse in early 2022, we took quick and decisive action to accelerate our path to profitability with a stated goal of achieving adjusted EBITDA positive in Q4 of 2023. As we discussed in March, we managed to achieve this goal in Q4 of 2022 one year earlier than planned. It’s hard to overstate the level of transformation we have made in the last 12 months, going from negative $5.5 million adjusted EBITDA to positive $1 million in just 4 quarters. This progress gives us confidence in our ability to get to our targeted EBITDA run rate by the end of the year, which Greg will discuss in the outlook.

We introduced our 3 key pillars last quarter, and this continues to be our goal. The elimination of products like will allow us to put more focus on 3 areas that we believe there are significant growth opportunities in each of these areas and perhaps more importantly profitable growth. These are also segments where we believe there’s a much higher barrier to entry and where we believe we can offer more differentiated value proposition. Lean and mean and getting to profitability as quickly as possible continues to be our #1 priority across the organization.

We are looking at every part of the business to identify areas where we can reduce costs and ensure we have the lowest possible cost. We are creating a more efficient operating platform that supports our strategy to be the low-cost provider in the marketplace. Again, key areas of focus include elevating the performance of the team, reducing vendor costs, eliminating unprofitable products and improving profitability by focusing on operational excellence and efficiencies.

Although in many of these ways these times are challenging. I couldn’t be more impressed with the level of intensity and focus of our team that is driving our improved results. Although we still have a lot of work to do, the momentum is there. Although our primary focus in the near term is on the efficiency and profitability initiatives, we also continue to advance MogoTrade and its disruptive value proposition in the Canadian market. When you enter a large market like DIY trading with a new product, the key is making sure that you truly have something that meaningfully differentiates you from the existing players, and that’s what we’re doing with Trade.

Canadians continue to spend billions a year in fees related to investing, and our goal is to eliminate this. Our value proposition is simple and compelling. MogoTrade is the simplest, lowest cost and most sustainable way to invest in Canada. Now what does that really mean? We are the first and only stock trading app in Canada that doesn’t charge commission or FX fees and the first and only where every investment you make also helps reduce your CO2.

When looking at the space, surveys show that the #1 reason users switch is for lower fees and MogoTrade now has the lowest fees in Canada. Arguably the most successful trading app in Canada is Wealthsimple in terms of the speed at which they have attracted millions of users with a lower cost and simpler experience than the existing incumbents. In fact, they also took the top spot for market share gain in 2022.

MogoTrade is not only significantly cheaper given our 0 FX fee but we believe are much simpler, and we continue to get feedback from our users supporting this. All you need to do is check it out for yourself and compare it with any trading app in Canada in terms of cost and simplicity, seeing is believing.

It’s also important to note that we’re building this in a way that enables us to be a low-cost leader. Without the constraints of a higher-priced model, along with modern architecture and automation, we are hyper focused on building a platform that enables us to offer this disruptive value proposition profitably. We are now on a weekly release cycle for this product. And every week, we are releasing improvements to the experience. And with each new release, we continue to see improved metrics.

Once we complete some of our key initiatives, we will be able to spend even more time on improving and growing this product. Our goal remains to achieve a strong product market fit this year and set the stage for a more meaningful revenue impact next year. Obviously, there’s a lot of discussion around AI and there’s no doubt it will have a big impact on our business. There are 2 key areas where this will be happening. The first is internally on how we leverage it to drive operational efficiencies and productivity improvements.

We have been using AI in our lending and underwriting for a while, and now we’re looking at every other part of the business. Customer service is going to be a big one, and AI will enable us to cost effectively scale customer support for Trade. And we’re also leveraging it in marketing and engineering as well. The efficiency gains we have made to date are without any real impact from AI, and we expect AI will continue to drive our costs down for years to come.

The other big area in the impact with AI will be in the wealth space itself and in fact, we believe will help drive more users to a platform like MogoTrade. AI will make it easier for the average investor to make better decisions without the need of high-priced financial advisers. But the one thing that will always be constant is needing the lowest cost way to execute the trade itself. We are building MogoTrade for a world with AI, and we think it will be a powerful combination that will help accelerate the move away from traditional wealth solutions. Building a brand-new platform with a business model designed for a world with AI is a big advantage compared to the existing players.

With that, I will turn the call over to Greg.

Gregory Feller

Thanks, Dave, and good afternoon. As Dave explained, in addition to implementing our efficiency initiatives across the company, we’ve been investing in 2 core growth areas of wealth and payments. As part of our strategic review last year, we identified our payments business, which is driven by our wholly owned subsidiary, Carta Worldwide, as having a number of attributes we believe making it an attractive growth opportunity for the company, including addressing a massive $2.5 trillion TAM, significant barriers to entry, strong history of achievements by Carta especially in the European payments market and a number of large global customers that represent significant long-term growth opportunity.

As a result, we made the decision to increase our investment in this business, which this year includes a significant investment in migrating a platform to the Oracle Cloud. We expect this migration to be complete in Europe by year-end, which, along with other investments we are making should help position the business for long-term growth and margin expansion. Turning to our financial results for the quarter.

Despite a challenging environment, macro environment, we’ve acted decisively to adjust the balance of growth, investments and profitability over the last 4 quarters, and our results clearly demonstrate the progress. Specifically, total OpEx for the quarter decreased by 45% year-over-year in dollar terms [indiscernible] $11 million quarterly decrease. In our disclosures for Q4, we set the expectation we would see a 25% to 35% [indiscernible] over the next several quarters relative to Q3, and we’re already near the middle of this range.

As discussed, our efficiency initiatives include a strategic decision to exit a few of our subscale and unprofitable products, which were having a short-term impact to revenue as we saw in the current quarter with revenue down about $1.2 million from Q4. However, these initiatives also resulted in a material improvement to gross margins, which expanded by 600 basis points sequentially from Q4. Our cost savings, along with improved gross margin resulted in a rapid improvement in adjusted EBITDA to $1 million in the quarter.

In addition, our adjusted net loss decreased every quarter in ’22 and continued that decrease in Q1 to a net loss of $3.9 million versus $4.3 million in Q4 and $10.8 million same time last year. The results give us confidence to continue to deliver expansion of the adjusted EBITDA and reach our target of $10 million to $14 million by year-end. We ended the quarter in a solid financial position with cash and total investments of $60.4 million. And we believe that we’ll see a number of monetization opportunities for some of our investment portfolio over the next 12 to 24 months.

In April, Coinsquare announced a business combination with TSX-listed WonderFi and CoinSmart. The company combined will become one of the largest registered crypto asset trading companies in the world and will provide Canadians a wide range of products and services, including both retail and institutional investors. From a financial perspective, the company will have transacted over $17 billion since 2017 and have over $600 million assets under custody with a registered user base in excess of 1.65 million users. The company will also have a well-capitalized balance sheet with no debt.

Post transaction, Mogo is expected to be the largest shareholder with approximately 14% ownership. Not only are we bullish on the outlook of the company, but we believe it will offer more visibility and clarity and transparency for Mogo shareholders as we will own about 85 million shares in the new company, which will trade on the Toronto Stock Exchange. Transaction is expected to close subject to regulatory and shareholder approval early Q3 this year.

Upon closing, we expect that we would no longer be required to consolidate a proportional share of the company’s losses in our results.

Turning to our outlook. We will continue to focus on expansion of our adjusted EBITDA and improving our cash flow. Specifically, for 2023, we are focused on achieving full year adjusted EBITDA of $6 million to $8 million and exiting 2023 with an annual adjusted EBITDA run rate of $10 million to $14 million based on Q4 ’23 adjusted EBITDA target of $2.5 million to $3.5 million. As Dave said, we’re extremely proud of the entire Mogo team and the hard work that has allowed us to achieve these results, along with the continued improvements we expect for the rest of the year. We believe it is a major milestone and highly differentiating for a fintech at this scale to generate positive adjusted EBITDA while continuing to make investments in long-term growth areas such as our investments in wealth and payments.

We believe this will position us well for the future and for accelerating revenue growth in 2024 and beyond. Going forward, we will continue to balance margins and growth, which will be guided by using the Rule of 40 principle. Specifically, our goal is to manage between revenue growth and EBITDA margins as we strive for achieving a target combined of the 2 of 40.

With that, we will now open the call to questions. Operator?

Question-and-Answer Session


[Operator Instructions]. Your first question comes from Adhir Kadve with Eight Capital.

Adhir Kadve

And let me just say congrats on the margin performance, really strong performance there. I just wanted to ask on MogoTrade and payments moving forward. Seemingly, you guys mentioned that these are growth investments, but they’re also scaling, which implies like they’re potentially dragging down your margins, but you’re still getting — you saw a strong margin performance. As you program scale and as these assets scale, how should we be thinking about the margins for them moving forward versus the revenue growth as well?

Gregory Feller

So Adhir as it relates to I think the 2 businesses that we’ve highlighted that we’re still investing in, obviously, the payments business and the digital wealth business. So I think what I would say on the payment side is it’s — I think scaling up of that will be on a relative basis, depending on the growth, could be accretive to — from a gross margin and allow expansion of the gross margin. I think our target for that business is really to exit the year in a breakeven — around a breakeven level from an EBITDA perspective so that we see the benefits of operating leverage as we move into 2024 and beyond. So that’s what I would say on the payment side.

On the MogoTrade side, I think it will be relatively stable from a gross margin perspective. From an EBITDA perspective, it really depends on the level of investment that we decided to make in that business. Obviously, marketing being one area, which we plan to invest in. And I would say that we are planning, even in our guidance that we can expand marketing dollars in Q4 of this year.

So the ultimate margin profile from an EBITDA perspective will depend on that balance. And again, on a consolidated basis, we will continue to adhere to the principle of the Rule of 40 and managing both that level of investment, the impact on EBITDA margin and what we believe the outgoing — outcoming growth rate is. So I think we will sort of try to stay from a consolidated basis within that range.

Adhir Kadve

Excellent. And then just you kind of touched on my next question towards the end there. Just on Trade. Can you give us a sense of what you’re kind of seeing in the — as it’s invitation only and from the early adopters of the app? And kind of what are you thinking about in terms of a broader launch? What still needs to be done for the asset to kind of really be out there on a broader basis?

David Feller

Yes, I think a couple of ways to look at this. First and foremost, I think, again, it’s important to remember that our primary focus continues to be on operational efficiency and cost cutting, also including things like eliminating certain products winding down. So a lot of the team and the resources and attention are still going to those items, which means obviously less time and attention for growth items like Trade. So that’s just an important point. So obviously, that’s having an impact in terms of the speed at which we kind of get trade going.

Having said that, we still have resources on it. It’s still our #2 OKR in the organization. And as I mentioned, we are on now a weekly release cycle. So we used to be on a biweekly and now we’re on a weekly release cycle. So we’re actually beginning to kind of pick up the pace at which we’re releasing and making improvements.

In terms of just feedback in that, we also are being kind of very careful in terms of our strategy before we quote really launch. And part of this is a strategy of when before launch and really making sure that we have all of those signs of product market fit, and that’s what we kind of has stated repeatedly that our primary focus in this year is to get — achieve product market fit with MogoTrade.

And that really means making sure that when we bring on users, we’re seeing really good retention metrics, engagement metrics, both qualitative and quantitative. We’re doing a lot of surveys, a lot of user interviews. One of the things I highlighted is we continue to get really good feedback in terms of the simplicity of the app as well as the fact that people appreciate the lower fees.

One, as an example, one of the pieces of feedback we had was that many users were not aware that we were charging 0 FX fee. So we actually have a new experience feature that’s going to be released next week, in which any time somebody goes through the experience, it’s very clear, a lot clearer that there’s 0 FX fee. But once they found out about it, obviously, they appreciate the value proposition. So these are just all the things that we’re trying to do to really make sure that we get the product to where it is and to where it needs to be before we start putting any sort of material marketing dollars behind it.

And again, I think, given where we are in terms of — we’re in May, we’re in a really good position. I think we’re going to be well positioned where we can start to get more aggressive in terms of — especially as we move away from some of these efficiency items beginning in Q4 and hopefully in Q1. But I don’t know if you personally have tried the app. But right now, you shouldn’t even be on the waitlist for long. You should be able to get it very quickly if you’ve signed up.

And what’s really important to be able to understand too is, this is not an app that is meant to appeal to every single DIY investor out there, right? And we saw that with even companies like Wealthsimple, as I mentioned, right? They came out with a much simpler user experience, with obviously the first to offer zero commission, many existing users of some of the existing platforms said, nobody is going to use this platform. It doesn’t have a whole bunch of features and things that other people want.

The reality is no DIY trading platform grew as quickly as Wealthsimple. In fact, they actually gained the most market share last year. So that really is a key part of our focus and strategy is essentially. We believe that kind of is more of the modern direction. And we have the advantage of kind of building this now, knowing everything we know. We don’t generally believe in the first-mover advantage. We think a lot of obviously successful companies out there came after the first mover.

And so we really are focused on making sure that we can go out there with a very meaningful differentiation against all the players, including the Wealthsimple and continue to get that user feedback to make sure that we’re hitting the mark.

Adhir Kadve

Excellent. And then finally, just on the WonderFi and Coinsquare merger, obviously, you guys will be a big shareholder in that. Do you see — one, what are your longer-term plans for the asset? And then two, is there any kind of strategic benefit to Mogo, maybe some — from some cross-selling between your user base, their user base? Just kind of thinking longer term, how you’re thinking about that asset.

Gregory Feller

So yes, I think there definitely will be some strategic opportunities, I think, between the 2 companies. It’s not our primary focus right now, but we continue to believe in the value and the relevancy of the digital asset class as being another asset class that investors, in particular, next-generation want access to. So having that relationship with the only fully regulated crypto exchange in Canada, we believe, is going to be an advantage for us. I would say that our long-term plans will ultimately be to really maximize value for our shareholders.

We’re in no rush there. I think we are very kind of optimistic on the prospects of that business once they close their transaction. We think that the company is going to be very well capitalized, very well positioned to really be the de facto leader in the Canadian market. And I think it’s going to be an attractive story for investors from a public market perspective as effectively the only publicly listed regulated crypto exchange in North America. And as I mentioned in my comments, we effectively will with 85 million shares and only — of ownership of WonderFi and only 75 million shares of Mogo outstanding, effectively there will be one WonderFi share underlying each share of Mogo.

And so seeing the value of that share will give our shareholders a lot more visibility and clarity in the components of the value of Mogo today. We, quite frankly, don’t believe we’re getting any value for that asset today because it’s opaque. It’s not transparent. And we think that will help unlock some value for our shareholders as well.

Adhir Kadve

Excellent, guys. Congrats on the quarter. Congrats on the operational efficiency.


[Operator Instructions]. Your next question comes from Scott Buck with H.C. Wainwright.

Scott Buck

You’ve done a really nice job reining costs in. I’m curious, Greg, how much of these reductions represent a permanent change in the cost structure versus more temporary?

Gregory Feller

So I would say that none of these are temporary reductions in the sense that we haven’t made temporary changes that we expect are — have any clear plans for them to come back. But obviously, there are variable expenses like marketing that we’ve reduced that will be variable, and we will see periods where we increase those investments. But I think we’ve — as Dave really talked to in his comments, this was not just a cost-cutting exercise. This was really a strategic review, refocusing of the business and reengineering of the business to be leaner and meaner to be in a position to be the low-cost operator in the industry.

As I said in my comments, I don’t think there are a lot of examples of fintechs of our scale showing the kind of EBITDA margin that we’re showing and that we expect to show over the next couple of quarters and that’s while making real investments in our payments business and our wealth business. And so being the low-cost operator, we believe, is a massive advantage, especially in these volatile times where capital is scarce. And effectively, we believe we have a sustainable business that we can manage and grow and invest without needing to go to the capital markets just by managing with the capital that we have.

So we think that’s a huge advantage. As far as investments going forward and ramping those expenses up, again, we will manage that within the Rule of 40 discipline of basically saying if we’re going to dial-up expenses, which are going to, in the short term, lower EBITDA margin, we better expect an offsetting increase in growth rate to be able to do that. But we, at this stage, plan to remain EBITDA positive rather than just being some temporary dial that we’ve just turned.

Scott Buck

Great. I appreciate that additional color. Second, I wanted to ask about the consumer lending business. Just curious what you’re doing on underwriting there? Whether you’ve kind of tightened your underwriting standards given the environment? And maybe just as a whole, what you’re seeing in terms of consumer credit?

Gregory Feller

So yes, I think — look, as we’ve said in the past, we’ve taken very cautious and disciplined approach, conservative approach to our lending business. It’s a business that we’ve been doing for 20 years. We believe we’re one of the most experienced digital lenders in Canada and have experience through all kind of cycles. And so the cycle we’re seeing right now is not one that’s new to us. We think that gives us a big advantage. As you’ve seen on our balance sheet, our actual loan book has decreased in the last couple of quarters and will actually — in fact, it’s actually decreased in the last 3 quarters.

So that tells you the approach that we’ve been taking. Meanwhile, our credit performance continues to be strong. So we really haven’t seen any deterioration there. We’ve been very pleased with it, and in fact, gives us more confidence to adjust that and at least have a stable loan book as we move further into 2023.

Scott Buck

Great. That’s helpful. And then last 1 for me. It looks like share count may have come in a little bit this quarter versus end of year. Do you guys buy back some shares?

Gregory Feller

We didn’t buy back any shares in — we bought back shares in Q4. There may have been some small changes, but I don’t think there was anything meaningful from last quarter.


There are no further questions at this time. Please proceed.

David Feller

Thanks for joining us for our Q1 call. I appreciate the questions and look forward to updating you post Q2. Thanks again.


Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.