Good afternoon. My name is Leone, and I'll be your conference operator today. At this time, I would like to welcome everyone to Mogo's Third Quarter 2019 Earnings Conference Call. I would now like to turn the call over to Craig Armitage. Please go ahead..

Good afternoon. Please note that today's call contains forward-looking statements. 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 these risks and uncertainties is included in Mogo's press release for Q3 as well as our filings with regulators in Canada and the United States. Also, today's discussion will include adjusted financial measures, which are non-IFRS measures.

These should be considered as a supplement to and not a substitute for IFRS financial measures. We do have a slide presentation to accompany the results today, which you can find through our investor website as well as a link to the webcast. And this presentation does include reconciliations for these adjusted financial measures.

And finally, I would note that all amounts discussed today are in Canadian dollars unless otherwise indicated. And with that, I'll turn the call over to David Feller..

Thanks, Craig. Good afternoon, and welcome to Mogo's Third Quarter 2019 Results Call. I'm joined today by Greg Feller, President and CFO. As mentioned in the intro we have prepared a presentation that accompanies our call, and it's available on our investor site.

It was another active quarter at Mogo with several important product and strategic milestones achieved and another big step forward in our mission to improve the financial health of Canadians.

The reason we have such a big opportunity is because the problem we are focused on solving is not only a massive problem, it's a really important problem and consumers want to solve it.

In fact, financial stress is by far the biggest stressor affecting all Canadians and it's even higher for millennials with 76% of them saying it's their number one stressor, and that's up from the year before. Financial stress also effects the other important areas of your life like relationships.

In fact, it's still the number one cause of relationship breakups. Our research has shown that there are two key drivers of financial stress. The first one is debt driven primarily by credit cards. Today, 57% of Canadians carry credit card debt. And if you carry credit card debt, that means you don't have money for saving and investing.

You've got to get out of debt first. Getting out of debt has been the number one financial goal for Canadians nine years in a row. The second financial stressor is lack of saving and investing. Without it, you can't achieve major financial and life goals like buying a home and retiring.

And with recent stats showing it takes up to 21 years to save for a down payment for a home in Toronto, the need for financial control early on is greater than ever. What's more, 68% of Canadians don't think they'll have enough money to retire. So it's clear that existing solutions aren't working.

In fact, you could argue they have actually contributed to the problem, like credit cards that make it too easy for people to overspend. This is why we believe there is going to be a secular shift to financial health. It's not going to be enough to just have great products and make them available in a mobile-first app.

You have to design and build an experience that makes it easy for consumers to adopt the right behaviors and help them get in control of their finances. This is what's driving our strategy. It's also our mission. A recent research report highlights how important solving this is for consumers.

It showed that 87% of people say nothing would make them happier and more confident than getting in control of their finances. And this mission continues to guide us and something that is clearly reflected in our latest initiative. Over the last quarter the team has been busy working on what is perhaps our biggest initiative yet, MoneyUp.

It's not only a new campaign, but an updated experience that's designed to make it even easier for our members to improve their finances. One of the key insights we identified in our research is that most people really don't know what they need to do to get financially healthy.

They have some general thoughts, but not something that's simple and easy to follow. This insight led to the four habits of financial health. The experience is now built around these four habits and incorporates our products within the habits.

The more our members follow and master these habits, the more likely they are to achieve their top financial goals such as getting out of debt and building wealth. It's also important to note that the experience doesn't depend on using our actual products.

Members can follow our strategy and choose to use other products that meet their criteria, although our goal is to ensure that each of our products are truly best-in-class and it's a combination of the experience and the products that we believe will optimize the ability for our members to achieve their goals.

In terms of the habits and our actual products, monitoring and protecting your credit score is critical if you want to achieve your goals. A bad credit score could cost you thousands in increased interest and becoming a victim of ID fraud can derail important goals like getting a mortgage.

We make it easy to do with our free credit score monitoring and ID fraud protection at only $8.99 a month. Controlling your spending is key to avoid getting into debt and helping you get out of debt as well as being able to save and invest and build wealth. Research clearly shows that people who use credit cards overspend.

In fact, studies show that with a credit card, consumers will spend up to 100% more than if they were using cash. MogoSpend not only offers best-in-class cash back that rivals any credit card, but the control of using your own money.

Now, sometimes people need access to credit, and our goal, which will increasingly be powered by our new partnered lending, is to offer all consumers across the entire credit spectrum access to unsecured loans at the best rate possible based on their credit profile.

We also plan to launch MogoWealth and give our members the ability to save and invest wisely right through the app. For example, we will show them how they can invest in a low-cost ETF versus a mutual fund and retire with as much as a million dollars more. In our latest release, we now have MogoWealth featured in our app.

Although the product isn't live yet, our new MoneyClass is, where it walks you through the keys to investing wisely. As I've said, the key to getting people in control of their finances isn't just about the right products, it's about the experience. Think of us like a Peloton or a diet app like Weightwatchers.

Even if people know they need to exercise and what they should eat, there's a gap between knowing and doing. This is where gamification and behavioral science come into play. As a simple example, with every purchase on MogoCard, users get an instant notification showing them what they spent and what their remaining balance is.

This is based on research that shows the more transparent and immediate the user sees the payment outflow, the greater the aversion to spending. There's also something called the endowed progress effect which is a phenomenon that increases motivation as people believe they are nearing a goal. We've incorporated that into our loan experience.

Although, you hear a lot about things like AI, I believe that even more important than AI is the understanding and incorporation of behavioral science that will really impact the efficacy of our solution. And ultimately, it's the degree to which we solve the problem of financial stress that will be the real driver of user engagement and growth.

As part of this, we have also developed a new in-app experience called MoneyClass which is where we have specialized content that is organized in steps and designed to help our members master each habit. They are also designed leveraging visuals and animation, as studies show that visual learning leads to greater recall.

Each product has its own MoneyClass and easily accessible right in the product dashboard. Our save and invest MoneyClass is now live in the app through MogoWealth. I encourage you to experience it for yourself. The remainder of our classes will roll out over the next two weeks.

We also have been working on an entirely new marketing campaign that's focused on positioning Mogo as a leader in financial health. This new campaign just launched and ties into our new experience. It's all about inspiring and empowering Canadians to get in control of their finances.

This is a big evolution of our brand and I believe really improves our positioning and completely differentiates us from the banks and other FinTechs. You can also see from these ads that we will be incorporating stats that help showcase the problem and position Mogo as a solution. Again, this campaign is now live and is also on our updated website.

We'll be leveraging our close partnership for this new campaign. We continue to believe this partnership gives us a big advantage over others which is also why we have best in class customer acquisition costs and continue to sign-up about 20,000 new members a month.

This new experience also ties into future MogoGold, the premium account offering that we've mentioned before. We are working on elements of it now which is also designed to dramatically increase the results that members get as a premium member.

Our goal is to make this so that you are 10 times more likely to achieve your financial goals as a premium member than a free member. And that you get at least a 10 times return on your monthly fee. So, if we charge $15 a month, we want the member to see at least $150 a month return.

Based on our internal testing, we believe that for 57% of the Canadians that carry credit card debt and are overspending, this is very achievable. We also have lots of learnings from our existing premium offering within our loan experience where we see about a 65% conversion rate into our premium product.

Our long-term target model is based on the Spotify that is about 45% of their overall members is premium members. Now this is best in class, but we think it is a great benchmark to shoot for. For someone who becomes a premium member, this will perhaps be the only subscription they have that actually gives them a real dollar ROI.

Our goal is to launch this in the first half of next year. Last quarter we announced the launch of our new partner lending platform. We also said that we expected to announce our first partner, and as you've seen we recently announced a new pilot program with goeasy, one of the largest and most experienced non-prime consumer lenders in Canada.

goeasy is an ideal partner for our lending platform and we are very excited about the partnership. It's now live and we are successfully originating loans powered by goeasy.

It is still early days and there's work to be done to optimize the experience, but we're encouraged by what we are seeing and believe this new model is going to be a gamechanger for us. While we have built this amazing platform, we just haven't been able to fully monetize it given the capital requirements to really scale the loan portfolio.

We are also working on signing up prime partners so we can also begin growing the prime segment and expect to announce our first prime partner sometime in Q1.

These partners will enable us to really focus on helping those prime consumers to borrow at lower cost rates than credit cards and help those that have credit card debt consolidate them to a lower and faster amortizing loan. This can literally save consumers thousands of dollars.

Again, our goal here is to offer the best rates across the entire credit spectrum along with our holistic solution so we can help those that need to borrow, not only get the best loan they qualify for, but importantly, help them get in control of their finances and get out of debt. Here's an example of how that will work.

Someone borrows money from us, getting their loan is currently their number one priority, but they also want a get a control of their finances. And that's where the four habits and our products come into play. So, in this example here, someone either just borrowed some money or is already in debt.

We can help them improve their credit score, get them in control of their spending so they can avoid getting into further debt, and actually help them accelerate getting out of debt. Through our MoneyClass, we can show them how the same habit that got you out of debt can also help you build wealth.

You can clearly see how this new experience and campaign really tie things together in a much more holistic and simplified way. The team has done an amazing work on both partner lending and our new MoneyUp initiative and we're really excited to see the positive impact we believe we can have on millions of Canadians' financial health.

I'll now turn the call over to Greg to review the financial results.

Greg?.

Thanks, Dave, and good afternoon. As Dave mentioned, Q3 was another important milestone quarter for the company as it marks an important transformation of our financial model with the launch of our new lending platform and the announcement of our first lending partner, goeasy.

This milestone allows us to focus our revenue growth going forward on our high margin subscription services revenue compared to our historical revenue growth which was split roughly 50/50 between on-balance sheet lending and subscription services.

The transition will not only change the composition of our revenue growth, but will also significantly improve our margin profile as well as cash usage going forward.

Given the materiality of this change for our financial model going forward, we have provided additional commentary in our outlook section to help you understand how we see the model evolving in 2020 and longer term.

Before we get into specifics of the recent quarter, I think it's helpful to summarize some of the key highlights of our financial model that we believe will be core drivers of our financial performance going forward. We have a growing member base that now approaches 1 million Canadians today. As a comparison, this was less than 200,000 at our IPO.

We continue to acquire customers at a low cost and at scale which is driven by both our unique value proposition in the market as well as our innovative marketing partnership with Canada's leading news media company.

We continue to showcase what we believe is a best-in-class monetization model in the industry given our high LTV on both our lending products and our premium subscription model related to our non-lending products.

As previously mentioned with the launch of our partner lending platform, the composition of our economics will also shift from 50% coming from capital intensive lending revenue to an increasing, recurring fee-based model with no capital requirements.

Our best in class monetization model is what is driving sound underlying economics of our core business. Importantly today, our core business is profitable with 30% plus contribution margins. This profit contribution metric is net of all bad debt, customer service and operations costs and funding interest expense.

As our revenue growth going forward shifts to higher margin subscription services revenue, we expect to see our contribution margin also increase. This expanding margin along with the fact that we believe our platform today is built for scale, will drive operating leverage as we grow our revenue going forward.

Lastly, the combination of all of these factors we believe puts us in a position for accelerating revenue growth and expanding gross margins in 2020. As Dave mentioned, we continue to experience strong member growth, up 30% over last year or 214,000 net new members over the last year.

Importantly, we have seen an acceleration of net member additions each quarter in 2019 with 60,000 net new members added in Q3 alone. We believe our member base is an extremely valuable asset and positions us as one of the largest independent platforms in financial services in Canada, Digital First, as we start to approach a million members.

With the launch of partner lending and our decisions to stop growing our on-balance sheet lending, we see Q3 and Q4 as transition quarters. Our core revenue in the quarter was $16.6 million which was up 13% versus the third quarter of 2018. For fiscal year to-date, core revenue increased by 35% to $47.7 million.

Core revenue is equal to total revenue of the current quarter and going forward. However, given our exit of short-term lending in the third quarter of 2018 and small-scale big claim mining revenue in Q2, 2019, core revenue excludes these two items for comparison purposes.

Year-over-year growth in core revenue was driven by increased demand from our MogoMoney product with interest revenue up 22% in Q3.

Given our shift away from on-balance sheet lending and our launch of partner lending, which drives current fee-based revenue, we expect interest revenue to be relatively flat going forward with growth therefore being driven by subscription services.

Within subscription services revenue, we expect the majority of the growth to come from premium account revenue as well as partner lending revenue.

As we continue to introduce new products including launch of our upcoming Cashback Card as well as MogoGold, we expect these products to be additional growth drivers for subscription services revenue in 2020 and longer term.

The most significant milestone this quarter was the announcement of our first lending partner with a pilot with goeasy, one of the leading non-prime consumer lenders in Canada.

From a financial perspective, what this means is that we can now begin monetizing the platform without the need to invest more risk capital and instead monetize it through a recurring fee-based model that will accelerate our transition to a capital-lite business.

As we bring on new partners and begin to generate meaningful revenue, this will result in significant changes to our financial model, the components of which we've illustrated here.

Importantly, our revenue under partner lending is comprised of two pieces, upfront origination fee and a recurring platform fee, which is earned during the term of the loan which we believe is a testament to the value and uniqueness of our digital lending platform in Canada.

In addition to the new recurring fee-based revenue streams, there are no capital requirements or credit risks for Mogo under partner lending which will also help accelerate our path to cash flow positive. With the transition in our business model and the increasing scale, we expect to see higher margins and operating leverage in 2020 and beyond.

Our gross margin this quarter was 61%, similar to last year's level. Gross margin is really a blend of lower margin interest revenue and high margin subscription services revenue which has close to an 80% gross margin today.

Given our focus going forward on the higher margin subscription services, we expect to see a steady increase in the margin in 2020. In addition, with our high gross margins, our bottom line will benefit from increasing operating leverage and the cash OpEx, slightly we expect to decrease next quarter.

We expect expanding gross margin and operating leverage to drive EBITDA margins and lower adjusted net loss and lower cash use in 2020. Essential to our model is underlying contribution dollars.

This quarter we generated positive contribution of $5 million, which core profitability net of loan losses, customer service and operations and interest expense and allow us to invest in the business in technology and new products.

Strong contribution will allow managing our expenses resulting in quarterly adjusted EBITDA of $1 million or 7% of revenue compared with adjusted EBITDA of $1 million last year.

Another important metric we focus on is cash flow from operations before changes in working capital which are volatile from period-to-period and before investment loan receivable. Specifically, this metric generated cash flow of $1.8 million in the current quarter, up from $1.5 million in the third quarter of 2018.

In terms of credit performance, net charge-offs increased 17.9%. However, this was consistent with our expectations. During the quarter where growth slowed down in the loan book, the denominator of the charge off-rate, while you still have the impact of charge-offs from higher period originations flowing through your financials.

We believe a more important metric is looking at vintage loss curves which we continue to see stable to improving performance across the majority of our cohorts. We believe that this quarter marks a high-water mark for our charge-off rate and expect this to decrease going forward.

This quarter helped highlight the non-cash component of our adjusted income. We thought it would be helpful to look at a reconciliation of adjusted net loss to what we call adjusted cash net loss.

You can see from the chart in the presentation the impact of non-cash expenses on our income statement after accounting for capitalized development costs, which shows up in our cash flow statement under investing activities. Taking all of these under consideration, our adjusted net cash loss for the quarter was $300,000.

Obviously does not include the cash invested in the loan book, but it does highlight how close from a cash perspective we are to breakeven in operations with the majority of our cash used today in our loan book. It also highlights a number of levers we have within our control to manage our profitability and our cash flow.

As mentioned earlier, we believe we have built a platform and team to scale, so as we move forward, the majority of our growth and gross profit will fall to the bottom line and we expect to see declining net cash use.

Looking at the balance sheet at quarter-end, our financial position remains solid, strengthened in the second quarter by the Difference transaction, which increased our cash and monetizable assets and resulted in positive share of the equity. At quarter end we had total cash and investment portfolio of more than $35 million.

Turning to the investment portfolio more specifically, we have a portfolio of investments around $22 million at quarter end which we acquired in the transaction with Difference. We believe there is substantial value in these assets including our first-year investments which represent $16 million of that total.

We feel good about the quality of these investments and in some of the leading technology companies in Canada with proven revenue and scale. Our goal is to maximize, to monetize the majority of this portfolio in the next 24 months and expect to realize a portion in 2020.

With today's announcements, we've provided additional color on expectations for Q4 2019 and full-year 2020 and also introduced our long-term target model to help investors better understand where we believe the business will trend as we execute on our growth plan.

For Q4 2019, we are expecting the combination of operating leverage, controlled expenses and reduced investment in our loan book will result in higher adjusted EBITDA and a significant reduction in net cash use.

For full year 2020, we expect to generate positive cash flow from operations before investment in loan receivables, but net of investment activity. This will help fund what will be a decreased investment in loan receivables in 2020. And importantly, we expect to be net cash breakeven even after net cash used in receivables by Q4 2020.

In addition, for the full year 2020, we are anticipating accelerating core revenue growth, expanding gross margins and EBITDA margins, all of which will drive lower quarterly adjusted net loss.

Lastly, as we transition our model to a capital-lite model, we thought it would be helpful to give some guidance as to what we believe the business can deliver longer term. We believe we are also consistent with the profiles of many leading tech and some of the larger more successful FinTech companies.

Specifically, for longer term target operating model, we see long term revenue growth of 20% to 30% and adjusted EBITDA margins of 30% to 35%. When we discuss the opportunity with new investors, particularly outside of Canada, the idea really crystallizes the opportunity for value creation.

We see significant opportunity to continue to grow our member base and drive increased monetization of the member base through new products, improving our user experience and enhancing our overall value proposition for Canadians.

As Dave outlined, we see no reason that Mogo's average earnings per member cannot be significantly higher than where it is today as we provide more digital products and effectively replace the traditional bank offering. That concludes our formal remarks. And we'll now pass it over to the Operator to open it up for questions..

[Operator Instructions] Your first question is from Nik Priebe from BMO Capital Markets. Please go ahead..

Thanks. I wanted to start with a question on the new lending partnership with goeasy. I recognize it is still early days as you say, but I'm just wondering if there is any takeaways or learnings there from the initial pool of loans that had been originated for and funded by that partner..

Hey, Nik, it's Greg. I'll start on this. So yeah, the partnership was launched fairly quickly after we announced it.

But I think as goeasy even mentioned on their earnings call, it's going to be a managed launch where we're looking to make sure everything is working properly, goeasy is happy with things before we actually start ramping the volumes up materially.

I think there's been a lot of learnings internally as we've been working with them that quite frankly are going to help us as we launch with other partners. But the net of it is, I think every week we're doing better than the previous week. It's headed in the right direction and I think we feel pretty good about where we are right now.

And we feel very good about goeasy as a longer-term partner for us in this..

Okay.

And how long will you I guess anticipate piloting that partnership for before you get a greenlight to sort of expand that relationship and accelerate the transfer of new originations to goeasy?.

We would expect to be in a position by Q1 to move from a pilot to a longer-term agreement would be our target..

Got it. Then I did want to ask one other thing that just kind of stood out to me here. When I'm looking at the balance of gross loans quarter-over-quarter, it's essentially flat, I think it was up about half a percent or so, which is kind of consistent with what you guys articulated that that on balance sheet lending portfolio should be flat.

But I noticed interest revenue was up about 7% sequentially. So I was just wondering if you could kind of help me fill in the blank there.

Like is there a mix shift within the existing portfolio?.

Yes, there was. That's exactly right. We have been, as some loans have churned off, we've managed to move them into higher yielding loans. So we've obviously been focusing on yield on the portfolio and that's what you've seen there..

Thank you. Your next question is from Doug Taylor from Canaccord Genuity. Doug, please go ahead..

Thank you and good evening. I certainly appreciate all of the new guidance metrics you've provided to help us think about 2020. I wonder if you'd provide what degree of third-party loan originations would be required to get you through all of these guidance metrics and into that breakeven net cash use in Q4. Any help there would be useful..

Sure, Doug, it's Greg. Look, I think a couple of things. The majority of these numbers actually we think are not predicated on some massive ramp in partner lending to get there in terms of increasing gross margins, increasing, expanding margins, reducing losses and reducing cash use.

Because our plan is effectively to hold our costs flat here and we've got, we're obviously focused on our very high margin subscription services revenue to drive that growth. So the majority of that is going to fall to the bottom line and that's actually going to be cash.

So I think we feel pretty good about those metrics really being able to drive the majority of those guidance ones. I think as far as getting to cash flow breakeven in Q4, that one, there are a whole bunch of ways that we could actually get there.

Obviously, we have a certain set of expectations which we think are reasonable in partner lending that can get us there.

However, if those expectations weren't met, we have a whole bunch of dials on our side that we can control which we've talked about before, and I think it's a really important point, that when you're at a $66 million revenue run rate and we are investing a substantial amount every quarter in growth initiatives, we have a whole bunch of dials that we can control both on our own cost side as well as the investment in the loan book.

So I think between all of those things, I think we feel that we've got the dials to manage that..

Okay. Again, I'll focus in on the cash breakeven in Q4 of next year. You said that with the cash and investments you have on your balance sheet currently, you see yourself as well capitalized to get to that point.

I wonder, being that a lot of the investments are not liquid, or not overly liquid, I wonder if you'd provide whether you think the cash alone or to what degree that would get you to that point given your current outlook..

Again, I think importantly, we've got a whole bunch of dials that we can manage on a quarter to quarter basis as it relates to our cash use. So I think we feel pretty good about that.

On the investment portfolio, I think we are already having a number of discussions and have received interest in a few of our assets that I think we feel pretty good about our ability to monetize at least a couple of them if we needed to. That if we've got the flexibility to delay on some of those, we may want to do that.

But our goal ultimately is to as we say, monetize those in the next 24 months and we feel very good about our ability to have some of those monetizations happen in 2020. Because as I say, I think we already feel good about at least a couple of assets that we have visibility on today.

But we will look at maximizing value there in relation to how we see our cash needs and how we're managing our business..

Last question for me. I know that exiting the on-balance sheet lending business altogether and potentially monetizing your loan book is not a decision that you've made yet, but I have heard it talked about in presentations that you've made.

For the benefit of the listeners on this call with respect to your new guidance, can you talk about how a decision like that might impact your overall outlook for next year or perhaps the longer-term operating model?.

Well yeah. So I think we have talked about that being an option. I think we've also talked about an option being selling a portion of our loan book. And so I think if the right opportunity presented itself, that actually is something we would look at. I actually think in a lot of ways that would accelerate a whole bunch of things.

Obviously, it would accelerate the expansion of margins, the reduction of cash use in the loan book. It would obviously reduce our absolute revenue. But we also have other costs associated with that that would go away clearly.

So I think actually that would be upside I believe to where we're headed in the long term model as far as accelerating to get there. It may be starting at a lower revenue base, but I think you would have a whole bunch of other dynamics as it relates to that model that I think would actually accelerate that transition.

And obviously put cash on the balance sheet too..

Thank you. Your next question is from Nikhil Thadani from Mackie Research Capital. Please go ahead..

Great. Thanks, guys.

How should we think about the member adds going forward? And especially as the partner lending ramps up, is it still sort of reasonable to expect 20,000 members a month in 2020?.

I would say at this stage, yes.

I don't think we're going to be suggesting a higher number at this stage, but I think from our perspective with the rollout of the MoneyUp campaign, not really partner lending by itself, but actually the MoneyUp campaign and sort of the new app redesign, we think there are a whole bunch of opportunities there that we're excited about that could drive higher net member adds a quarter.

But at this stage, I think we feel comfortable with the level we're at today and if there is upside to that, then great..

Going back to the redesign for a second, are there any sort of benefits or KPIs that perhaps you could talk about in terms of session length or things along those lines that might benefit your product roadmap as well in 2020?.

It's Dave.

In terms of the things that we're actually seeing now or things that we expect to see going forward?.

A bit of both actually, but I guess more of what you'd expect to see going forward..

Yeah, so this app redesign actually literally just launched yesterday. So I don't know if you've downloaded it, if you've gone through it, but you can check it out for yourself. And we've got, and that's really kind of phase one.

There is going to be new features and enhancements that are going to continue to roll out every couple of weeks, so two weeks from now there is going to be some, the rest of our MoneyClasses and some other features.

But ultimately, yes, in terms of what we are expecting to see from this new experience is we're absolutely expecting to see more engagement, so from our members. There is also an entire new onboarding experience, it also includes email in that.

And really, everything is geared towards driving more engagement to both the app, driving, and also ultimately driving more engagement to our products. So in today's experience, or sorry, the past experience, all the products were very separate, there was really no context to hey, if you are doing this, you should also do this.

There were all kind of individual products to select. The new experience really focuses in on obviously those 4 habits and really tries to get people to realize, hey, you need to monitor and protect yourself. Obviously, those two products tie in together, you need to control your spending.

So we are absolutely expecting to see more engagement, more app downloads.

Obviously, somebody who is on the app is 5x more engaged than somebody who isn't on the app, so there's an example of that Multiple products, the more people have obviously products, the more products they have, the more engaged they are, the more likely they are to get other products. Obviously share of wallet is key.

Typically, they say share of wallet has a 10x greater impact on lifetime value than does increase in satisfaction. So we are very much kind of focused on obviously getting bigger share of wallet, more products with each of our members. And there's also something related to the partner lending.

I did mention that we expect to announce a prime partner, our first prime partner in Q1. That obviously opens up an entire new market. These are essentially, the reality is, the vast majority of Canadians are actually in that prime category. And up until now, we really have not focused on that segment, although we have had an offering there.

It is not something we've ever focused on actually trying to convert and improve conversion, obviously given the cost of capital versus our higher yielding products.

So we definitely believe that that obviously is going to – and there's a big opportunity there especially in terms of refinancing credit cards and then the prime partners we're talking to are – I mean that's part of the opportunity there is essentially to offer prime consumers the ability to refinance credit cards at a lower rate and save money.

And obviously that becomes a really big part of our value proposition, so we're expecting that to also be a driver of things in 2020..

Got it. Just the last one before I pass the line, so the long-term model that you've laid out, that's pretty transformative.

How should we think about the timeframe to get there? And is that predicated upon either selling a portion of the loan book or the entire loan book? And also, I guess to some extent the prime partnership rollout, right?.

Yes, so I would say, and it's Greg, I would say that it is not predicated on selling the loan book. Selling the loan book would accelerate a lot of it in terms of expanding gross margins and which ultimately will drive higher margins, EBITDA margins as well. But it's not predicated on that.

Look, I think the timeframe of that will really depend on a number of things, but I think our goal is to show continued progress towards that target.

So our focus right now is, as we grow revenue, that we're showing the majority of that is flowing to the bottom line, flowing to EBITDA margin and to the bottom line and to cash flow rather than continuing to ramp up our OpEx.

If you look out a few years and you say, okay, where are we? Well that will depend on the growth opportunities and level of investment we want to make. But I think at this stage, our focus is on continuing to show progress towards that model so that people see the bigger, the long-term opportunity that we see..

Thank you. [Operator Instructions]. Your next question is from Suthan Sukumar from Eight Capital. Please go ahead..

Hey there, guys. First question for me is on the member growth. I mean you guys hit the 900,000-user milestone recently. You guys have quite a healthy outlook for new member adds.

What's been driving this strength in adds just given that your marketing spend has been relatively constrained over the past couple of quarters?.

Greg, do you want me to answer that? At the end of the day, it also continues to be, as we continue to evolve the product, the experience, obviously add more features, add more products, enhance our value proposition, generally we believe that not only increases the utility and value for existing members, but obviously it also helps to attract new members.

You look at that Postmedia partnership and there's obviously a lot of people we're getting in front of in Canada that have yet to actually sign up for a member account.

This new MoneyUp campaign and this new kind of focus on financial health and really this new experience, although we're not kind of baking that into the model, we absolutely believe they us upside there in terms of member growth. So I think what we've seen seeing in the past is just that natural growth as that value proposition experience.

And also, you get to a certain degree, the more members you have, the more you're doing the marketing and branding, the more awareness, all of these things help to ultimately, I think, drive better performance over the long run..

Great.

And just looking at a recent ad, are you guys seeing an increase in new member additions that are being product led? And just kind of broadly speaking, what sort of cross sell things have you guys been seeing start to evolve on the platform over time?.

So in terms of sorry, your first question, have we seen more customers sign up for product led, did you say?.

Correct, yep..

Yes, so we're always testing. I mean part of the, one of the challenges we have is we obviously have multiple products. So to a certain degree the challenge of what are the products that you're going to market as well as ultimately kind of this more holistic solution which is where we're going with this current campaign.

But that also is an opportunity. So we're constantly testing.

So for example, some people are wondering, hey, why were you guys doing Bitcoin ads? Well the reality is, we did a whole bunch of testing around Bitcoin and ultimately it was among the most effective in terms of lowering customer acquisition costs and then once they get in there, they are more likely to be an active member.

And especially as we start looking to partner lending, ultimately when you look at our existing member base, what actually drives on the partner lending side is the engagement. So the more engaged the member is, the more likely they are to obviously put Mogo at the top of their consideration list when they get to a point of needing to borrow money.

They are already active in the account, they are familiar with the account, obviously that is what our goal is, is essentially be their kind of go-to app so when they're at the point of needing a loan or needing a mortgage or anything else, we are obviously at the top of their list.

And that typically is the number one, when you look at the research of why do people choose the solution they choose, having an existing account, but also having confidence that that product actually is a good offer. So for example, on the loan side. And that's why those kinds of prime partners really matter.

But anyway, I would say so we're constantly experimenting, testing different things on performance channel, including Facebook, etc., and then we take those learnings and we apply it over to Postmedia. Now Postmedia right now I'd say we're primarily using it as kind of our form of say broad-based, more like TV advertising, right? Brand building.

This new campaign, which I don't know if you've actually seen some of the ads, but obviously we feature some in the deck here, that clearly is a much kind of bigger, broader positioning not specifically focused on any one product, but more really going after for the first time ever this whole concept of financial stress and financial health and more of that kind of holistic solution.

So early days before we can see what the impact of that is..

Great, that's helpful.

Just looking ahead on additional partnerships, do you guys have an update on potential timing around new partnership announcements for your high interest savings account and other MogoWealth offerings?.

Yes. I wouldn't say we have a specific update. Right now, we are from a priority perspective, we are definitely focused on the partner lending. We want to get those partners from a priority perspective, that is part of the challenge, just prioritizing the partners and the products you're bringing on.

So we are prioritizing partner lending and specifically on the prime side. Now some of those partners are also potential partners on the other products. So ultimately that would potentially tie into you partner on the prime lending side and then you ultimately partner on things like high interest rate savings accounts.

And also, even potentially on the wealth side. I would say on the wealth side right now, generally our view is we expect to kind of formally announce a wealth partnership, probably, well I would say safely say within the first half of next year.

But again, since we launched this new partner lending, that's where we kind of shifted to, getting those partners onboard first. But there's definitely going to be some overlap in terms of those partners in terms of other partnerships as well.

And by the way, since we announced the goeasy partnership, that's definitely accelerated kind of inbound partnership requests on that as well. So that's also been helpful from that perspective..

Thank you. Your next question is from Lisa Thompson from Zacks Investment Research. Please go ahead..

Hi. I just wanted to clarify the chronological events going forward next year.

So you're going to rollout goeasy fully and then would you expect to announce the prime partner, or is the prime partner going to come first? And do you also expect them to do the same sort of pilot thing and then evaluate and rollout in the same sort of timeframe?.

It's Greg. It's hard to say, to be totally honest, which one is going to be first, announcing the prime partner or announcing the goeasy moving to a long term. So I think it could be either one of those.

And yes, it is probably likely that we start, whether or not it's formally described as a pilot with our other partner or not, it's likely that it starts in a pilot kind of structure where you start off with lower volumes to make sure everything is running smoothly before you start to ramp up.

So I think that kind of a structure is something that makes sense for other partners as well..

Okay.

And these loans will appear seamless, right? the person will put in their info and then at the end when they finally get granted a loan, then they'll find out who it's with, is that how it's going to work?.

Yeah, Dave, do you want to walk through the user experience on this? But, that's exactly right..

Yeah. So ultimately, obviously a big part of our unique value prop is, unlike some of these other kind of lead aggregators, whether it's a Lending Tree in the US or even a Credit Karma where essentially, they're doing referrals. Obviously, the key here is that we are trying to make this as seamless as possible within the app.

So ultimately from our member perspective, they don't really care who funds it, they just care about the convenience, the experience, and obviously the rate. So we're obviously trying to replicate that as much as possible.

That is also what ultimately attracts the partners to us is they obviously see that as a benefit because we're also ultimately also helping them in terms of the ongoing kind of retention side, which there is a positive impact that we see with our mobile app in some of these other products.

In terms of whether or not they know it is from goeasy or somebody else, even that part we actually are experimenting and testing on.

So that's even part of the pilot phase in terms of at what point do you need to and/or is it beneficial to show the customer, hey, potentially here's a loan from X? So those are things that we're currently testing and we'll continue to optimize.

Ultimately at the end of the day, where it will matter is once the customer gets a loan, they obviously need to know that they now have an agreement with the lender, whoever is powering that. Obviously, that's reflected in the documents.

But even the process of getting the loan, signing the agreements, we're essentially facilitating all of that as well. So again, the goal here is it really shouldn't feel any different if you got a loan powered by goeasy or you got a loan powered by Mogo. And that's what we're optimizing for..

Yes. The important thing here is this is obviously very different than a referral model like a Lending Tree where you send them over to somebody else and you have a totally different user experience.

So the key part of our platform and the partnership is that it is a seamless user experience no matter whether it's Mogo funding it or goeasy or another partner funding it. But as Dave said, we are testing a whole bunch of things on that to optimize.

You also are dealing – every partner has their own criteria for lending and so part of that rollout is working with those partners to really sort of identify where the friction points and things that we can improve on together and so that's also sort of part of the initial rollout phase that actually happens..

And just a further point to that, one of the benefits we bring to the table is for some of these partners that maybe haven't done these types of mobile-first or digital loans, we essentially, based on our background and history and our data, we essentially can obviously show them the loans that we've done, the data that we acquired to be able to originate these loans.

And then they have the ability to see, hey, before we ask for let's say physical documents that obviously in a digital experience would add friction, they essentially get to take, basically learn from us, from our past learnings and data, and obviously get more comfortable to pilot some of those things.

And then ultimately, we're essentially helping them kind of transition more to that digital model, which I think all of them understand that the future of lending increasingly is going to be digital.

Increasingly 10 years from now, how many people are going to be going into a branch to get a loan?.

That was great. Thank you. That’s very helpful..

Thanks..

Thank you. There are no more questions at this time. Please proceed, David.

Okay. Well thanks again for your time today. We look forward to updating you after our next quarterly earnings. Thanks again..

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