Good morning. My name is Joanna, and I'll be your conference operator today. At this time, I would like to welcome everyone to Mogo's Fourth Quarter 2019 Earnings Conference Call. 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 Q4, as well as its periodic 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. Finally, I would note that all amounts discussed today are in Canadian dollars unless otherwise indicated. With that, I'll turn the call over to David Feller. Please go ahead..

Thank you. Good morning. And welcome to Mogo's fourth quarter 2019 results call. I'm joined today by Greg Feller, President and CFO. We're going to take a different approach to this call given the magnitude of the COVID-19 pandemic and resulting economic impact. This is a rapidly evolving crisis.

And while there are many unknowns, we will do our best to give you our perspective and the impact to Mogo, both positive and negative. And the actions and steps we're taking to manage the things that are within our control. We know there are the most, these are the most top of mind issues for investors.

Internally, I should share that we've quickly pivoted to remote working environment, including our customer experience center. We are a digitally led company so this was a fairly seamless transition for us with minimal interruptions to our operations.

And because we are a digital platform, no storefronts or ranches our members would not have experienced any changes. Firstly, during this time we've chosen to stop originating any new on balance sheet loans, but we will continue to originate loans through our new partner lending channel, but at a reduced volume level given the current environment.

We've also taken immediate and significant measures to lower our expenses by an estimated 5 million in the second quarter, which Greg will walk you through shortly. Separately, we have quickly moved to create a COVID-19 response plan for our customers.

And we believe that our digital platform and focused on financial health will be particularly helpful to our members during these challenging times. Four things I would highlight.

Firstly, any active loan members who have experienced disruption in their employment will be offered payment options that include the reduced payment and interest deferral to help them better manage through this time.

Second, through our customer experience team digital account and newsletter, we are helping our members understand all the existing and new government benefit programs that are available to them. Again, our goal has always been to become a solution that helps people manage their finances.

And right now we are hyper focused on being a reliable resource for guidance and coaching through this challenging time. The good news for consumers is there are many new benefit programs they can access if they've lost their job, and there are also many ways they can lower their expenses to manage through these times and we're helping them do this.

Three or thirdly, given many now will need to live on a reduced income, controlling expenses will be more critical than ever. Our new MogoSpend has been designed just for this task and with the work we completed recently we're now in a position to begin leveraging this product.

We will start by focusing on inviting those members that have been most affected and this is going to be beginning next week. Fourth, our goal is to help our members get through these challenging times with minimal impact to their financial health, and that includes helping them minimize the impact on their credit score.

So when they do get back to work, they can still qualify for important things like mortgages. Also, the risk of identity fraud is actually increased so protecting themselves from this is also critical at this time. Therefore, monitoring and protecting is important now more than ever.

And for those members that don't currently have MogoProtect, we will be offering six months for free. This will also be available to all Canadians. These are clearly very difficult times and we believe our solutions are more relevant now than ever, and something that our members will find very helpful in getting through this challenging time.

This has been in a quickly developing crisis, which few could see coming. To step back quickly, we are pleased that some of the achievements over the past several quarters have helped us put in a better financial position heading into the challenging period, and we believe they give us new opportunities on the other side of it.

First, we continue to show strong growth in our member base with an almost 30% increase in 2019. And we reached the 1 million member milestone in January, which was obviously a great achievement for our team. Our member base now ranks us ahead of many of the credit unions in Canada and positions us as a leading fintech company.

Second, from product development perspective, we launched a significant enhancement to our app and account we call MoneyUp. This includes bringing the four habits of financial health into the experience itself along with our new in app Money Class. This is now more relevant than ever.

There's no question in our minds that emerging from this economic downturn, Canadians will increasingly seek solutions and tools help control their finances, lower expenses and do more with less. So, we're even better prepared to fill this need and we hope to help many Canadians through this trying time.

On the marketing side, we extended our agreement and Postmedia for three more years. As we've talked about in the past, this is a highly cost efficient channel to build the mobile brand. For a fixed payment and options, we have access to millions of dollars of media spend.

So, while we have cut back on all performance marketing during this client climate, we will still be able to leverage our Postmedia partnership. We also launched our partner lending platform during 2019. Under this model, we offer third party lenders the ability to integrate and offer loans through our platform.

This capability enables us to not only expand our offering, but scale loans for our members without capital constraints upon balance sheet lending. Subsequently, we announced a pilot program with Goeasy and after a successful trial period, we transitioned this into a three year partnership earlier this year.

At the same time, we announced the sale of our MogoLiquid portfolio, which provided additional cash while reducing our leverage and credit risk exposure.

So we entered into this period with a stronger balance sheet and a partner for which we can continue to originate loans and monetize our platform, even when we ourselves have stopped on balance sheet lending.

In short, we are better positioned financially to manage through the current challenging environments and we have product and value proposition that is more relevant than ever. With that, I will turn the call over to Greg.

Greg?.

Thanks, Dave. I want to first start with a quick summary of our year end results, which I think continue to demonstrate execution of our strategy. We reported full-year core revenue of 47.2 million, which represented 33% year-over-year growth on over full-year 2018.

Core revenue now excludes loan related revenue from the recent sale of a portion of our loan book and is also adjusted for the change in how we present our loan protection revenue, which is now on a net basis. Adjusted EBITDA was 7.2 million, which represented 12% margin and up 73% over 2018.

We reported a net loss of 10.8 million, which represented 51% decrease from the reported loss in 2018. We ended the year with 31 million of cash and investments, which included 10.4 million of cash and 21 million of investment portfolio, which we acquired from Difference Capital. Total cash used in Q4 was 3.2 million, down 50% from the prior quarter.

Post year-end, we sold our liquid installment loan portfolio for total consideration of 32 million and repaid and retired one of our two credit facilities. I would like to now discuss the potential impact of COVID-19 and resulting in uncertain economic environment on the business.

In particular, I want to talk about two specific areas, how is their business exposed and impacted today and what are adjusting, what we are adjusting to manage through this uncertain period. The first topic we've been getting questions on is our remaining customer loan book. How is it performing and are we seeing an end credit deterioration.

Obviously, it's impossible for anyone to predict what the economic impact will be and how long the environment will last, so I’ll share with you what we know today and why we believe that our remaining loan portfolio is positioned to manage through this uncertain period. Let's start with a snapshot of the portfolio.

With the sale of MogoLiquid in February, the net receivable balance after allowances decreased 260 million from 89 million at year end. This is a highly diversified portfolio composed of small dollar lines of credit with an average balance of 1,500 across 45,000 customers.

In terms of the loan performance, we do not experience any deterioration in 2019 on our loss curves. Q4 charge offs were 16%, which was down from 17.9% in Q3.

While it's difficult to find parallels in today's events, our experience in this business through the credit crisis and high unemployment shocks like we did seen in Alberta supports our view that non-prime portfolio can perform comparatively well in a recessionary environment.

In particular, non-prime consumers are in fact generally more resilient in their payment of credit during the times of economic stress and higher unemployment when compared to primes for number of reasons, including the size of the overall debt level and the relative beneficial impact of government support for lower income.

Several of the important points you should understand include 100% of our loan book is set up for digital payments and approximately 88% of these loans are set up with multiple payments per month, that's more closely aligned with the customers pay cycle.

55% of our customers have loan protection insurance, which they purchased at the time the loan was granted. The insurance is applicable in a number of scenarios and importantly in the case of involuntary unemployment it would cover the loan payments for up to six months.

It's also important to know the Mogo has been lending to the non-prime consumer loans consumers for over 15 years, and has history of offering flexibility to our customers during times of financial stress, temporary unemployment and other unforeseen circumstances.

Separately for those customers that lose their job and don't have a loan protection insurance, we believe the majority of affected customers would be eligible for government relief including unemployment insurance, given the average income of our loan customers is below the federal cap and UI, we estimate our average customer through UI and other federal and provincial relief programs that have been announced would take on between 60% to 90% of their employment take home pay today.

Although, we understand this business well and it's profitable segment, we believe it's prudent to take a pause in issuing new loans on our balance sheet in the near-term.

Instead, we will drive volume through our non-prime partners and potentially new prime lending partners, which will generate fee-based revenue to offset some of the anticipated decline in interest revenue in the near-term.

We've been transitioning our business to capital light model for some time and in light of the economic volatility, we are effectively accelerating this transition. Turning to how we as a company are going to manage through this what is an uncertain period.

We've always highlighted that one of the important aspects of our financial model is we have a number of dials that we can control to manage our cash use, including growth investments and loan origination.

Given the unprecedented environment, we and all companies are in right now, it is impossible to predict the total impact on the economy and how long the impactful will last. As a result, we felt that it was necessary and prudent to immediately adjust our cost base, including deferring a lot of growth investments.

Specifically beginning in Q2, we are reducing expenses across the organization with folks on deferring growth investments in technology development and marketing, excluding marketing efforts under the Postmedia partnership.

These reductions will result in a temporary layoff of approximately 33% of our team, as well as reduced compensation for Dave and myself. We've also decided that it is prudent at this time to exercise the option to defer interest payment on our non-convertible debentures beginning in Q2 to reduce monthly cash outflow during this unprecedented period.

The net effect of these measures will immediately reduce cash expenses in the second quarter by an estimated 5 million. Despite this significant cost reduction, we believe we will continue to have the resources to execute on our strategy, including the upcoming rollout of our MogoCard and Spend account.

We will obviously continue to monitor the environment on a real-time basis, and be prepared to make whatever additional changes we feel are necessary. Now I will hand it back to Dave..

Thanks Greg. Of course, periods like this do more than just great new challenges, they bring opportunities, and we've historically been agile and quick to capitalize on these. One, we believe that people will want digital banking and digital financial tools now more than ever.

We have made a big investment in our platform and believe it will become an even more appealing partner to organizations that need to quickly advance their digital offering. This makes great partnership opportunities that can take a number of forms, and we are currently in active discussions on that front.

We've also been reaching out to the government as we see an opportunity to leverage our digital loan platform in a way that can help all Canadians.

One specific idea is to offer low interest or no interest rate, government backed loans given the government is looking for ways to help consumers during this time and the challenges that they have for enabling simple accessibility our platform could be ideal.

For many that have lost their job, they’re tapping into things like credit cards at very high rates. So low interest or no interest loan with no payments for a period of time could be a great additional benefit. Again, these are just discussions and ideas but you get the sense of how else we can leverage our platform.

In general, we see an increased focus on economic empowerment. Consumers will want even greater control of their financial affairs and we'll definitely want it to be more mindful of their financial health. Like example of managing spending, saving and investing to build wealth.

We can see this shock creating a permanent change in how many consumers look at their finances and therefore want to make financial health a priority. So although, these are definitely challenging times for many companies, including us, there are also many opportunities. With that we will open the call to questions..

Thank you. [Operator Instructions] And your first question comes from Nik Priebe from BMO Capital Markets. Please go ahead..

I just wanted to start with a few questions mostly related to the pandemic response. I was wondering if you could help us, I guess as we're thinking through your cash flow, obviously, the decision to suspend new on balance sheet loan originations will create a bit of a natural runoff from that portfolio.

I assume part of the proceeds from the repayments would be used to repay the credit facility, but also I think you'll get some natural support from just the net positive cash flow there.

Can you just give us a sense, just given the natural rate of churn in that portfolio, how much you would expect the temporary runoff there to produce for you on a monthly or quarterly basis?.

It's hard to predict exactly what it's going to be, because obviously potential changes in delinquencies could impact that as that obviously is set up as well. We probably have a natural runoff of close to a million a month right now on that portfolio. And as you say, the majority of that will actually go to repay the credit facility.

So we will see some cash benefit from that. But clearly the biggest cash benefit that we're going to see is going to be from the very specific operating expense reductions that we're making.

And if you look at it right now, approximately we've talked about at least 5 million of cash operating expenses, including the capitalization of our debenture interest expense in Q2. So that along with significantly reduced originations in Q2, are obviously going to have a positive impact on our cash flow..

And then just on that last point, I was wondering if you could also help explain the option that you're exercising on those subordinated debentures? Does that provision just allow you to essentially pick the interest for an intermediate period? And is that just for the next three months? Is that how we read that?.

Yes, that's right. We have the ability, we have the option. People have always talked to us about the cost of those debentures.

And one of the things that we've always said is that it's very flexible capital, we pay a high cost for it, relatively high cost for it, but it gives us a lot of flexibility and obviously that flexibility very relevant in uncertain times like we're in right now. We do have the ability for to capitalize that for up to six months.

And so we're going to exercise that for the second quarter right now. We'll assess if we need to extend that but right now, we just started for the second quarter but that effectively gets added to the principal balance.

Also, it's important to know that as I mentioned in my comments and as you saw with the press release around Fortress and the Goeasy transaction, we paid off one of our two credit facilities and we extended our other credit facility to July 2022, increased the available balance up to 60 million on that facility and fairly significantly lowered the rate.

And that is going to dramatically cut by, and that rate reduction is going to kick-in in Q3. And in Q3, if you look at where we are right now in terms of our quarterly interest expense on our credit facility, you're going to see that fall by over 50% by Q3. It’s obviously going to fall significantly in Q2 as well.

But we now have no cash maturities before July 2022 all of the debentures are subordinate to the Fortress credit facility and can't be redeemed before the Fortress facility. So we have no cash maturities before July 2022 now..

And then maybe one last one for you Greg, just I was wondering if you could just kind of elaborate for us with this accounting change entail. My understanding is that I think there were some seeds that were previously separated on the loan protection product.

Are those just, is that just essentially what's remitted to the third party provider of that product? Is that what is now being netted out?.

Yes, that's exactly right. That was basically included in cost of goods sold. So we reported the gross premiums and we paid out effectively the commissions to the insurer, which was included in the cost of goods sold, roughly about 50%. So that was a 50% gross margin product for us.

With the new revenue presentation, we are just recognizing the net amount but that net amount then has 100% gross margin. And there although, it did result in a reduction of the reported revenue, there's no impact to reported gross profit..

Thank you. The next question comes from Nikhil Thadani from Mackie Research. Please go ahead..

So maybe just going back to some of your comments Dave and Greg from a high level, could you maybe talk about how the environment has changed in the last two weeks versus the trough of what you may have seen back in 2008, 2009?.

I mean, I think the reality is right now as it relates to our business. Yes, we've seen, we've had a number of customers call in and say, they need some temporary relief on their loan payment. But we actually haven't seen anything dramatic from any sort of credit performance impact right now.

But clearly, we are in the early days of seeing increased unemployment flowing through the economy. And the biggest challenge right now is nobody knows how long this is going to last. I think the general view is that we're going to see a very quick rise to peak unemployment and then a gradual improvement there.

So from our perspective right now, at least it is fair to say 2008, this is global, it's impacting all industries. And right now it's still uncertain as far as the timings and how long that impact going to last. So this is really clearly not just a financial services industry it's impacting the everyday worker.

And so from our perspective, we decided that the prudent thing to do was make decisions to-date that we believe would allow us to manage through a prolonged downturn, if that's the case so obviously, we hope it's not.

And I think one of the things we've always talked about are the dials that we have in our business to manage our spend, manage our cash use, manage our investment. And we're clearly executing on that in a very rapid way right now just to what we believe is the prudent thing to do in the current environment..

The other thing I'd just add to that is back in 2008, we didn't have the current platform that we currently have. We didn't have our mobile app. We didn't have any of the other kind of broader solutions.

So in terms of how are we helping our members kind of manage through this and do we actually have solutions that can actually be helpful in getting through this, including being able to survive on essentially reduced income and you know, we definitely do. So, there's a lot more ways that we can actually help them, including MogoSpend.

I mentioned, we completed the final elements that we needed to complete in terms of being able to start inviting customers onto to that product. We think that is going to be a perfect product, especially for those that have been most impacted.

And then there's some other ways, obviously, in terms of our ability to create content, deliver that through our digital channels and really kind of help guide our members on here's all the things that you can do. And we're continuing to update it.

So obviously, as new information comes in, new benefits programs, even getting feedback from members on other ways that they're using to save money and then pass that onto our members. So, there's a lot of ways now that we're set up to kind of help and support through this challenging time that we just didn't have that ability in back 2008..

And just so if I could go back to your previous comment, is it fair to assume that as of now, there haven't been any significant changes to your loan loss provisions in the back half of March? Or is that kind of yet to be determined as to how Q2 plays out?.

As you know under IFRF 9 loan loss provision actually has to take into account the economic environment outlook as well. So clearly, this is going to have an impact in our loan loss provision at least in Q1.

Q2, yet to be seen because we'll see, one of the benefits we'll have in loan loss provision in Q2 is that we're going to have dramatically lower originations, which also obviously directly drives loan loss provision but I think it's fair to assume there will be an impact in our provision in Q1.

What that actually results in, in terms of actual true charge off or cash impact yet, we obviously too early to determine.

But again, from our perspective the things that we think put us in a good position to manage through on the portfolio side is the fact that over half the loan book has own protection insurance, and clearly the bigger risk right now is just a spike in unemployment.

And those customers would be covered and so the payments would continue to be made to Mogo.

And then the other comment I made on the fact that about our average salary or income of our average customer is below the federal cap and unemployment insurance, which means that the benefit from an after tax take home basis to that consumer is actually a lot more material than a high higher income individual.

In addition, as you know there's been a number of federal and even provincial relief programs that have been implemented. And we actually think even a customer that's unemployed through this without loan protection insurance given the lower average income that they have is going to have a relatively much smaller decrease in their take home pay.

And you know we have plenty of tools to be able to work with those consumers to manage through, including the ability for them to skip a payment every six months and we will work with consumers to lower their payments as well to manage through that period. One of the important points we always say is this has been our business.

This has always been our business in terms of having a team that works with our customers who are facing challenges even in normal times they face challenges, and that’s part of our ongoing business. And so, yes we clearly expect to see an increase in the volume of that but we're going to be using the same tools in that that we've always done..

And then on the financial relief impact, is it possible to quantify that to some extent right now, fully understanding that obviously this is the inner pretty early and we're just getting into that? And also recognizing that that's a great sort of way to build consumer loyalty once we exit this particular scenario, but in that sort of run up.

Is any kind of way to quantify that financial relief?.

What specifically are you asking? I'm not sure I understand the question….

You've spoken about allowing your customers to defer some payments and whatnot. So if you were to quantify the impact of that on your balance sheet and cash flow.

Is there like a rough way to kind of do that at this stage fully recognizing that and obviously it’s pretty early?.

Yes, I would say at this stage, we say it's impossible right now for us to quantify that. As I say, we still have not seen a significant impact or increase in things on our side yet. So, this is still early days and we're going to wait to see how things play out before we're in a position to comment on that.

But in the meantime, we've obviously made the decision that even before we see that or understand what that true impact is, we're going to make what we believe are prudent moves on reducing our cost basis. So whatever that impact is hopefully we're in a position that we believe we could manage through it..

And just one last one before I pass the line here, so if you look at the Q4 ‘19 numbers, looks like the cash flow from operations before new loans was about 2 million bucks and that's been pretty stable call it between 1.5 million and 2 million bucks on a quarterly basis.

And so if we sort of add in the 5 million of cash OpEx savings are you looking at a baseline of call it 7 million on a quarterly basis going forward and obviously, whatever impact you have on the business will come in on top of that, right?.

Yes, that's correct. Obviously, that cash savings would flow through to that. But the unknown right now obviously is what is the impact to the revenue and the cash flow there but in a steady state, yes, you could do math like that..

[Operator Instructions] Next question comes from Suthan Sukumar of Eight Capital. Please go ahead..

First question is just kind of looking at go-to-market. How are you guys thinking about things in that strategy in the near-term and that just recent launched the money up campaign.

How are you thinking about driving awareness in the near-term and what might the impact be on new user acquisition over this trade?.

So obviously, as I mentioned, we've stopped all of our performance marketing. Most of the performance marketing was obviously focused more on the loan originations but it was definitely still had an impact on just driving member acquisition as well. As it relates to, we still obviously have our post media partnership.

And our goal essentially is to take this, what we call our covid response program and essentially translate that into a marketing program, obviously, basically showing, hey to any Canadian’s been affected, there's a bunch of ways in which obviously Mogo can help you get through this.

We still potentially, for those that are looking at loans, we still are going to decision members that sign-up and for those that qualify, obviously for a loan through our partner, we’ll continue to try to originate those. So we still have that. Obviously, we're still offering free credit score monitoring.

We also have a partner with Equifax and now customers through Equifax and also get their full credit report as well. And we're also offering our six month free of identity fraud protection.

And then just the ongoing focus on how do we help people understand what are the solutions available to them, how can they kind of manage through this more of that financial health content that also ties into our user experience and MoneyClass in that.

So we're starting to kind of work through that, and we expect to have this campaign kind of launching in the next few weeks.

So not sure exactly what the net effect is in terms of what that's going to do to our member growth, given the decrease in our performance marketing spend, we do expect a decrease in member growth, but once that campaign kicks-off, we'll see we're not going to really know exactly what the impact to member growth is..

And beyond the kind of on the product platform side, can you speak to some of the recent trends in user activity with respect to engagement or product adoption on the platform? And kind of how this has been trending since the crisis and any puts and takes there?.

Yes, I mean, we're definitely seeing obviously some on the credit score side. But interestingly enough, we've also seen essentially a significant increase in our Bitcoin volume, so both funding and kind of transactions on Bitcoin. So that actually it's another opportunity.

It's not one we've really focused on given the current environment but obviously, it continues to be an opportunity one we're kind of thinking through.

Obviously, Bitcoin itself has also been volatile given kind of the hyper-focus on how are we helping Canadians through this financial crisis, we don't really think focusing on Bitcoin is appropriate at this stage. But even with no focus, we've seen a significant increase in volume there. So in terms of, obviously, on the protect side.

Again, I think what we're seeing now and this is what we're also talking with and I think everybody individually is going through this too. Whether or not you've lost your job or not, everybody is hyper-focused on their expenses. Anybody that still has a job, obviously, is to a certain degree more concerned than ever.

Hey, I can see how things can change very rapidly. So I think everybody's going through all of their expenses and seeing how do I bring down my expenses, whether it's my cable plan, phone plan, all of these things, whether you've lost your job or not. So even things like signing up for a new subscription like MogoProtect, i.e.

spending money for it, that's not something that in today's environment, I think people are looking to do. So that's why we think, the idea of offering something for free there for a period of time really using it as an acquisition during this time and clearly something that people do need, but not necessarily prepared to pay for is an opportunity.

But again not one that's going to drive short-term revenue more in terms of acquisition, customer, affiliation, brand affiliation, affinity and ultimately long-term value..

And on the partnered lending model, can you speak to maybe what some of the specific milestones or KPIs that allowed you and believe you to kind of expand from the trial to the full blown commercial agreement?.

So, I think what we were really trying to accomplish during the initial trial period was really make sure that we could get our systems working together that they go easy with comfortable with the quality of loans that they were seeing, applications they were seeing. We've spent a lot of time working on different tools to increase conversion rate.

Obviously, we're bringing our digital experience and digital channel to the table and trying to leverage that for the benefit of Goeasy.

And so we spent a lot of time working on a whole bunch of things that could drive improved conversion, which actually required a fair amount of development time and integration, so all of that had to be accomplished.

And I think once we sort of got through that period they were comfortable with the quality of loans that they were seeing and we felt that this was a channel that we could start to ramp up, both sides obviously agreed that it made sense to move it up, move it towards a longer term partnership.

We kept the economics the same as we had agreed to in the pilot program. And now we're obviously early days. Obviously, I think it's fair to say that given the current environment that there likely to be a slower ramp to that partnership as well. I think everybody is going to be cautious on new loan originations right now.

Things could change very quickly there. If things start to look like things are becoming more stable, but that channel is open and we are sending leads to go easy and they continue to originate new loans..

And guys just on the balance sheet, any updates on potential monetization opportunities with the assets required to the different capital transaction?.

No specific updates. There is a portfolio of company in there that is planning year end really Q3, Q4 of this year to do a financing. And generally -- and they would expect there'd be an opportunity to do a secondary as part of that. And this is one of the better performing companies in the portfolio.

So we think there could be an opportunity on a monetization there. But obviously, the current environment, I would say, is clearly impacting everyone but we'll continue to monitor that and look to opportunistically monetize when appropriate..

And I guess just last one for me, it's on the back of the Credit Karma acquisition.

Just kind of curious to see where you guys have been seen as sitting on the back of the acquisition and if that's been potentially serving as a channel for any inbound interest for you guys?.

I'm not sure I would say that the Credit Karma acquisition itself is driving something, but I actually do think, as Dave sort of alluded to in some of his comments that the one thing that this pandemic is highlighting is the importance of digital channel in all aspect of our lives.

And I believe there's a number of players out there that were, felt that they had a much longer tail on their brand strategy and now increasingly that is not the case.

And I think that it creates a big opportunity for players like Mogo and potential new partnership opportunities, because the challenge always on these partnerships is you've got to have the, other party have a view that this is a priority today versus everything else that they're doing.

And I think this could be a catalyst that drives some of these other potential strategic partners to say, this is something that's important sooner rather than later. So, we're obviously going to stay very close to that. We're having a number of conversations and we always have and we're going to continue to do that.

And I think a lot of those will increase in frequency just given the current environment that we're in. Obviously, it's going to take some time really for things to settle down for, I mean, there isn't any player out there in the industry that's not dealing with just sort of getting their arms around their own current business right now.

But once that happens, they're going to -- people are going to start thinking, okay, what does this mean for the future now..

Thank you. The next question comes from Doug Taylor from Canaccord. Please go ahead..

You've made some substantial changes to your cost base. You briefly mentioned in your prepared remarks that you're still moving ahead with certain product initiatives.

I wonder if you could just cycle through MogoWealth, MogoSpend, MogoGold and some of the other partner lending initiatives that you guys had, and whether you think the development time table has been pushed out substantially. Just provide an update on those will be helpful? Thank you..

So, MogoSpend is on track to what we had initially said in terms of getting it complete and ready for kind of this spring launch. So before we made these big changes, we essentially completed all the key things that we needed to do to get it ready, so MogoSpend is in a good place.

And as I said, we're going to start leveraging that actually beginning next week, specifically focused on initially the members that are experiencing the biggest impact.

As it relates to MogoWealth, there's we have had many, many conversations in terms of potential partnerships and those opportunities are still there and I think that ties into to Greg's comments on some of these opportunities Having said that, although, we're still having those conversations and we do expect an opportunity there given our reduced capacity, we're obviously not in a position to commit to any one of those items yet.

So, we're essentially, continuing to kind of really assess what are our priorities based on this current situation that obviously is leveraging our team for direct actions related to kind of our covid response, so all of a sudden, that actually has changed our priority from a roadmap perspective.

Once we you know get things settled and get a better sense of what are some of those short-term items we need to execute on then we'll be able to start dealing with more of those kind of longer-term growth opportunities, including things like MogoWealth, same thing with MogoGold.

That obviously is something that is, still on our roadmap but we're still assessing. And we actually think quite frankly this environment could tie in nicely to gold, i.e. people essentially signing up for a premium membership that really does help them get in better control of their finances.

So, we think that environment kind of could lead nicely into kind of segue into the introduction of that. And again Gold is going to include things like Protect and Spend that are all kind of going to be part of it. But bottom line is we still have the capacity to make, to launch new products, new features.

We just have less capacity, so we can't do multiple products on at the same time. Having said that, if for example, we come up with a strategic partnership, we make sense and things change depending on what kind of partnership that is and depending on where we think we are.

We obviously have the ability to bring back some people and expand the teams again. So that option and that flexibility remains..

It brings me right to my next question. We've made proactive and prudent steps to reduce your cost base. Certainly part of that, a big part related to COVID-19 and the uncertainty related to the pandemic. But I mean, I wonder if you'd talk a little bit about the potential for some of the cost reduction initiatives to be more permanent in nature, i. e.

if things snap back in the next quarter or two.

How much of your cost base do you think you'd bring back online?.

Doug, it's Greg, I'll take that a couple of comments that would just make on the cost savings initiatives. Just about 55% of the cost saving initiatives are what I’d call non-volume related, so whether its development resources, things that we're working on growth related, other G&A related expenses.

And then other 45% are volume related like performance marketing spend and other costs, even sort of call center, things like that. And so, the volume related is clearly going to be more variable that as volume increases, you're going to see -- and as we return to more normal environment then we're looking to ramp back up on growth.

You're going to see the volume related expenses go up. The non-volume related expenses really depend on the environment and the specific initiatives that we want to focus on.

And so as Dave mentioned, we retain the flexibility to bring back a number of those resources if we think it's the right thing to do, the environment is stabilized and we believe financially those decisions make sense. So I would say it's still too early to tell.

But I think what you've seen here is that; A, we've always said we've got these dials and we will use them, and clearly we're using them in a very significant way right now. We're going to be prudent as we kind of ramp back up any expenses.

So I imagine there absolutely is going to be some more permanent fixed reduction of expenses that we're going to keep in going forward at least for the foreseeable future. But it's still a little too early to say what the exact magnitude of that will be..

Just further to that, one of the other things that we're doing is, as part of this is and this is still ongoing, so we actually are still identified some further expense reduction opportunities. Obviously, we didn't just look at the people.

We looked at every single expense in the company, everything from challenging every software license and platform that we have to further simplify things, reduce costs. We're also, as most companies are doing now, not only looking for potential short-term relief, but actually longer-term relief as it relates to ongoing contracts, et cetera.

So, this is the environment in which we're essentially renegotiating a lot of those contracts as well that actually will position us for longer-term kind of cost savings, expense reduction, both in terms of eliminating certain vendors and contracts and platforms that we're currently using and feeling we're not get enough value from along with looking at the ones we're keeping and making sure that we've got the best deal going forward.

So whereas before maybe some of the stuff wasn't a top priority now it's kind of a very much a top priority. And again, we expect those expense reductions to continue through..

For our modeling purposes, I'm sorry if I missed it.

But could you give us a rough breakdown of how we should take the 5 million per quarter in? And you know maybe related to that, is there any one time expense or one time in nature related to these expenses cost cuts?.

So basically if you kind of look at the allocation of that spend, you're going to see, first of all, it's about 3.5 million to 4 million on the OpEx side. There's 1.4 as it relates to a temporary spend reduction on the debenture interest expense.

So as you're sort of thinking about modeling on the OpEx side, that number is going to be somewhere in the 3.5 million range and that's going to be roughly, 50% of that is going to be in technology and development.

And then the balance, a big chunk of that is going to be in -- about 50% of the remaining portion is going to be in marketing and the balance split between our other OpEx lines..

So just to be clear, the 1.4 million debenture interest expense is part of the 5 million overall. Is that correct? And that will still be an income statement item, it'll just be cash. .

Yes. It’ll be a cash item, exactly..

And then, I guess the last question kind of bigger picture here. I mean this bogey of cash flow positive after all the loan investment things, which you break down considerably. I mean, do you feel like changes you've made to-date get you there in Q2? I understand there’s a lot of uncertainty out there.

But I mean, are you that close to it or are you still several quarters away?.

Well, in a status quo environment, we absolutely would be cash flow positive in Q2. As I say, it's still too early for us to project what the exact financial impact is going to be in Q2, on the revenue side, on the cash flow side. And I think the expense reductions we're making here give us room for the variability in that.

But as far as the exact order of magnitude, it's still difficult for anyone to predict..

Thank you. There are no further questions. You may proceed with closing comments..

Okay. Thanks for your time today. And if there's any other announcements we feel we need to make during this time, we will. But other than that, we look forward to updating you on our next quarterly earnings. Thanks again..

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