Good day, ladies and gentlemen and welcome to the Mogo Q3 2022 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. [Operator Instructions] This call is being recorded on Thursday November 10, 2022.

I would now like to turn the conference over to Craig Armitage, Investor Relations. Please go ahead..

Thank you, and good afternoon, everyone. Thanks for joining us. Just a few quick notes before we get started. First note that today’s call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected.

The company undertakes no obligation to update these statements, except as required by law. Information about the risks and uncertainties are included in our Q3 filings as well as periodic filings with regulators in Canada and the U.S., which you can find on SEDAR, EDGAR and through our Investor Relations website.

Second note is today’s discussion will include adjusted financial measures and non-IFRS measures. You should consider these as a supplement to and not as a substitute for IFRS measures, and you can find reconciliations both in the filings and in the investor deck.

And lastly, the amounts today are discussed in Canadian dollars, unless otherwise indicated. I will now turn the call over to Dave Feller to get us started. Thanks..

Thanks, Craig. Good afternoon and welcome to our third quarter 2020 results call. I’m joined today by Greg Feller, our President and CFO. In our 20-year corporate history, we have seen a lot of challenging macroeconomic operating environments, and Q3 clearly was another one of those periods, especially for tech and fintech companies.

In the face of this, our revenue was up 12% year-over-year, which underscores the resilience of our business. Of course, we have placed an even greater focus in recent quarters on improving bottom line performance versus top line growth.

And this showed through in the Q3 results with OpEx down 25% compared to Q1 2022 and EBITDA loss decreasing by 32% from the previous quarter 2.8 million.

Now this is a good start, however given the current environment, we need to do a lot more, which is why we announced today that we are taking very aggressive steps to reduce our expenses, as well as simplify and narrow our focus for better execution. While at the same time ensuring we are positioned for long-term growth.

We are already moving forward with several meaningful changes, including shutting down Moka France, which needed a lot more scale to get to profitability, and also eliminating our current crypto offering. We are also closely evaluating all of our products.

And we will be looking to narrow focus to only those products in areas where we see the greatest opportunities for profitable growth. Our goal is to simplify to one app, one brand and one platform. The centerpiece will be our new trade app, where we plan on bringing other products beginning with Moka into the app.

This will not only help reduce costs and drive efficiencies. But there is also a natural synergy between these two products. Given that approximately 67% of DIY investors today also own mutual funds. In Moka, is designed to be a far more cost effective way for Canadians to passively invest versus high cost mutual funds.

So again, this is more than just restructuring, this is a new path forward for our product offering and will help us speed up our execution and we believe put us on an accelerated path to long-term profitable growth. In terms of update on trade, we continue to gather feedback and iterate on the product.

Although we initially had removed our waitlist, we then decided to put it back up as we had enough users on it to get the data and feedback we needed in terms of changes and improvements we need to make. As I mentioned in the last quarter’s update, our goal is to have trade ready to begin driving growth beginning in Q1.

Given the features we are completing and enhancements we are making, including things like price notification, we are feeling like we have a solid product and value proposition to go into the market. The heavy lifting and development has been done and we are in the final stages before the product is ready for primetime.

With that, I will pass it over to Greg..

Thanks, Dave. I will provide a few comments on Q3 and then we will turn to restructuring initiatives that we outlined this morning in our release. Q3 results were solid despite the reduced marketing spend and the continued macro environment headwinds highlighting the resiliency of our model even in a volatile environment.

Our member count grew 17%, revenue increased 12% including a 10% increase in services revenue. Payment volume at our card payments division grew to 1.9 billion in the quarter. Growth profit was 10.8 million. Benefits of previously announced cost cutting initiatives resulted in a substantial improvement in or adjusted OpEx, adjusted EBITDA and net loss.

Lastly, we ended the quarter in a solid financial position with combined cash, digital assets and investments totaling 106 million, which included approximately 35 million in cash. Our total member base grew 17% over last year from 1.8 million in Q3 last year to 2.1 million members despite our decision to proactively reduce marketing spend.

We expect the new member growth will be affected in the near term from the restructuring initiatives including the wind down in Moka France in the current quarter.

Nevertheless, we will continue to work hard to bring value to the sizable member base as we dial up marketing efforts for MogoTrade in 2023, build out the wealth side, these should act as catalyst to recharge member growth.

Over our history, including most recently COVID, we have shown the ability to quickly realign our cost structure to adjust balance of top line growth versus profitability based on challenging macroeconomic backdrop, we have managed our gross investments more conservatively for several quarters now.

As discussed in our last earnings call, we started to reduce expenses and increase focus on profitability with the goal of reaching a positive adjusted EBITDA by Q4 2023. During Q3, reduced marketing and product development investments, lowered head count and subsequent to quarter end began to wind down Mogo crypto as Dave mentioned.

These decisions have quickly a positive impact on profit and cash flow measures. Adjusted OpEx decreased by 24%. Adjusted EBITDA loss improved substantially to 2.8 million a 32% decrease compared to loss of 4.1 in Q2.

Net cash flow from operations before investment and receivables improved 47% to negative 1.2 million compared to negative 2.3 million in Q3 2021 and negative 7.2 million in Q1 of this year.

Our net loss for Q3, which improved materially from the previous quarter includes unrealized losses totaling approximately 10 million, primarily driven by Mogo’s share of losses and affiliates and revaluation of Mogo’s investment portfolio, which reflect recent broader equity in crypto market to clients.

In today’s earning results, we announced that we are implementing restructuring that we will see further reductions in our OpEx, which I will comment on a little later.

We ended the quarter in a solid financial position and the restructuring we announced today is intended to protect this and ensure we are in a position to move the business forward over a long period without the requirement of capital.

We ended the quarter with 35.3 million of cash and investment portfolio of 13.8 million, digital assets of 0.7 million, which we monetize subsequent to quarter end and our investment in Coinsquare, which had a book value of 56 million at the end of the quarter.

Clearly it has been a very challenging period for anything crypto related with the recent FTX news adding to the volatility we have seen in the sector of the last several quarters. With our recent decision to exit our Mogo crypto product and our primary crypto exposure today now is through our 35.4% ownership in Canadian Crypto Exchange Coin Square.

Although the current crypto volatility and specific company related issues with companies like FTX have been painful for a lot of people in this sector, we believe this is only going to accelerate what we have always believed, that the future of crypto, at least in North America, will be within a regulated environment with regulated crypto exchanges, which is exactly why we believe Coin Square is the first and at this point, the only regulated crypto only exchange in Canada and for that matter, North America is very well positioned for the future of this industry.

Among other important factors, it means that clients now have the comfort and security of knowing Coin Square is subject to the highest level of dealer compliance and oversight under the existing regulatory system in Canada.

Turning to Carta, our payments business Carta showed healthy sequential growth in transaction volume to 1.9 billion from 1.7 billion in Q2.They continue to grow with their existing customers while building a pipeline of future business.

We also recently brought in a new managing director based in Europe where several key - our key customers are he is going to help us execute on our payment strategy going forward.

Carta remains a valuable asset with a positive outlook in a massive sector and we continue to believe there is significant opportunity for this business even just with the current customers alone, much less new customers.

As we consider our overall growth priorities and investments, we will continue to think through the best long-term path for this business strategically to maximize value. In light of the macroeconomic conditions, we are acting decisively to adjust the balance in growth, investment and profitability.

Based on the inputs and key indicators we see today, our view is, these economic challenges will persist and likely worsen in 2023, which has informed our decision to take these additional steps.

Beginning this quarter, we are implementing a broad restructuring plan that we will expect will result in a further 25% to 35% reduction in operating expenses over the next several quarters.

In addition to headcount reductions, we are evaluating other efficiency and product rationalization opportunities, which may include eliminating unprofitable or sub-scale products.

In addition, we are taking a cautious approach to our loan business and expect our loan book to actually decline over the next couple quarters, as we continue to manage this business with a defensive posture.

While we work to achieve these savings and efficiencies, we will continue investing in prudently in initiatives that we believe will drive top-line expansion over the long-term with focus on our digital wealth solutions like MogoTrade. Once implemented, we expect these initiatives to have a 10% to 15% reduction on our quarterly revenue.

But we expect this impact to be more than offset by our OpEx reductions and therefore further accelerate our path to positive adjusted EBITDA and profitability. In terms of 2022 based on the restructuring, we now expect total revenues of $68 million to $69 million this year, down modestly from previous guidance of $69 million to $72 million.

In summary, these are difficult decisions in a challenging market.

However, we believe that will better position Mogo to manage through this period with our existing capital while also making us more efficient company that continue to focus on long-term growth opportunities through our broad product portfolio, including exposure to innovative digital wealth solutions, like MogoWealth to help Canadians invest and built wealth.

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

Thank you. [Operator Instructions] First question comes from Adhir Kadve of Eight Capital. Please go ahead..

Great. Thanks and good afternoon, guys. My first question will be on MogoTrade. You kind of kind of gathered feedback and you removed the wait list and kind of brought it back.

Maybe just can you give us a sense of what you did learned during that period and how you are kind of applying that moving forward to the broader launch?.

Yes. Hi. It is Dave. One of the challenges with launching a product like MogoTrade is you - obviously we are launching a product in an existing marketplace with a bunch of existing solutions.

So as much as on product you try to focus on kind of what’s that MVP, Minimal Viable Product It is also a balancing act between that and understanding what are those right features that you need and the experience that you need to really give yourself a chance to have to essentially win market share against the existing incumbents and those include companies like well simple and quest trade and the big banks.

So, that is a key part of what we were kind of looking for in terms of feedback. And the same time just continuing to refine the performance of the app too, obviously reliability and performance in an app like this, especially in the markets that you are seeing today are critical.

So these are things that, we are trying to be kind of really thoughtful and careful before we release it to the broader public, and therefore, having enough initial users, we get that feedback.

And ideally, not actually bring on more users, before you have made those adjustments, just because that these other users there, they are probably going to kind of have the same perspective, you kind of have to a certain degree that initial one time chance to convince somebody, hey, this is an app that I now want to use.

So, that really has been the focus and that includes things like other ways to load money on it, in terms of more options for to load money on it.

We have mentioned this before, too, in terms of certain limit order capabilities, not everybody does limit orders, stop orders, those types of things, so those kinds of features, and understanding which of those are important.

As well as identifying features that help to differentiate our value proposition meaningfully from the other players in the market, price notification being one of them. So, that is really what we have been focused on..

Okay got it.

And then just to kind of confirm, you don’t expect that restructuring will kind of impact mobile trade at all?.

No, I mean, we are restructuring the way we are doing it is, we are making sure we still have resources and ability to continue to focus on growth initiatives like trade, we just aren’t going to have multiple, we are not going to be able to do multiple things at one time.

So trade still being kind of our priority as I mentioned, the heavy lifting has been done. We are really kind of finalizing it. And we have got the resources to continue to obviously finalize it and iterate on it.

The challenge for Mogo going forward is going to be deciding between new features, new products, things like that, obviously, as I just outlined, our priority right now is, once we complete trade and have it out there. We are really focused on everything kind of drive that efficiency.

So instead of maybe in the past, we might have prioritized for example, launching crypto, before we would have prioritized bringing Moka into the app. Now we are prioritizing things like bringing Moka into the app, which we know there is a synergy there. But also, there is an efficiency.

So, that really is more of the kind of tradeoffs we are going to make, as we adjust our resources..

And then maybe just on Moka kind of bringing it into the app, and that the one app or solution you guys described, you guys kind of have a timeline on when that would happen or when you would kind of get started? Just any color on that would be great..

I mean, the most I would say is our goal is obviously to focus on that in next year, but no specific timeline..

Okay got you.

And then maybe just on broadly on the crypto space, we have been kind of hearing a lot about FTX and sandbank been free and everything that is going on, and I kind of, I completely agree with you with the regulation path forward, but how is the team at Coinsquare kind of thinking through that and can you give us a sense of how that is going to play out? Maybe potentially in Canada?.

Sure it is Greg. So as I made the comments, I made the opening remarks.

I mean, I think this just accelerates what we have always believed and what Coinsquare has always believed, which is why they have been pursuing the regulatory path ahead of every really all the other players is that ultimately this industry is going to be regulated needs to be regulated.

And customers need to have comfort that their assets are protected. And that has potentially been a disadvantage for Coinsquare up until this point as it is really been operating in the context of being regulated, even prior to regulation.

But as the world moves to more of a regulated crypto environment, especially in North America, we think that it is going to quickly shift to an advantage and protect against things like leveraging a customer’s assets.

I mean, as a regulated entity, today, Coinsquare doesn’t provide margin to customers, doesn’t do any, doesn’t lend out crypto and none of their custodians are allowed to lend out crypto as well.

So really, there is in a regulated environment in Canada, is that leverage that is being regulated in particular, and it is that leverage that actually has caused the problems that we are seeing in an unregulated environment.

So my own personal view, is that, this is going to accelerate the path for, and I would say, requirements for companies to be regulated, but also the bar is going to be high.

And I think it is going to be a challenge for a number of players that aren’t regulated right now to meet all the requirements, capital requirements, etc, in the current market, which I think, gives Coinsquare a big advantage.

So, despite the volatility in the sector, we feel that we have got a great investment in the only regulated crypto only exchange in Canada. Because we think that that is actually where the industry is clearly going to be going now..

Okay great. And then maybe one last question, I will pass the line. You mentioned that the restructuring will have some impact on user growth moving forward.

But how about the current base of users the 2.1 million users that you have right now, do you anticipate any kind of accelerated churn or anything like that with that base or do you think that you will kind of the restructuring is aimed at products that maybe don’t have large bases of customers using it.

Just getting color on that would be helpful?.

Yes. I would say at this point, we don’t expect there is going to be an impact, a minor impact in the current quarter, which I think will more impact what the absolute net increase is in the quarter in Q4, but we don’t at this stage for see any material impact to our member base with what we are contemplating..

Thanks guys. I will pass it along..

Thank you. [Operator Instructions] The next question comes from Scott Buck of HC Wainright. Please go ahead..

During 2020, you guys were able to pull some levers and generate some pretty meaningful EBITDA margins, basically overnight. This time seems a bit more nuanced.

I wonder if you could give us maybe a little bit more color on the differences between what you did then in 2020 and what you are looking at doing now over the next four or five quarters?.

Right. So look, I think it is a good comment. As you know, we generated about 5 million of EBITDA on 10 million a quarter revenue. And we have substantially higher revenue here today. And we haven’t given explicit guidance on EBITDA.

But I think the difference is back then we really just didn’t have any strength on our balance sheet to support, you know, any growth investment. So we had to make a very different decision than we are making today. And I think the decision that we are making today is one that considers the capital we have today, in particular the cash.

We obviously believe we have got a number of assets that ultimately we can monetize over time that can provide additional capital. But we are focused today on having a strategy that allows us to operate with the current cash that we have. And we think the plan that we are implementing today allows us to do that.

Obviously we were targeting Q4 EBITDA positive in 2023 before this. So we expect that that is going to be accelerated and moved up without, you know, yet giving a specific timeline on that. But, our focus is to get to positive EBITDA.

But again, managing that with making appropriate level investments in what we believe are still important products, big opportunities like MogoTrade..

Great. That is very helpful.

And my second question on the loan book, I’m curious what you guys have seen so far in terms of - any deterioration in credit quality and have you already been proactive in adjusting underwriting standards as you prepare for a more difficult environment there?.

Yes. So the answer is yes, and we made comments on as far as being proactive. We made comments on the last quarter that we were being conservative in this environment. We continue to be conservative and we are indicating that we are going to, you know, continue to take that sort of conservative defensive posture as it relates to lending.

And part of that guidance of 10 to 15% impact to revenue is a combination of that more conservative posture on the lending side alongside of some of the initiative restructuring initiatives like exiting Crypto Moka France, et cetera.

But I would say that, we have tightened up our underwriting and in fact have seen pretty solid credit performance over the last couple of months with, you know, what we have been seeing, you know, here in Q3. So, you know, all the things that we are doing proactively we think are resulting in positive results here.

And clearly we are making these ahead of an environment that, you know, ultimately we think could become more challenging, and we want to make sure we are ahead of it, which means that, you know, we run the risk of actually not giving out what would be good loans right now, but that is a risk we are willing to take.

So I think we feel, you know, good about where we are on the lending side. As you know, Scott, you know, this is not our first downturn. I think we may be one of the only public fintechs out there that is been operating, has a 20-year operating history, and especially 20 years in lending in the Canadian market.

So I think that gives us a lot of comfort and, in our ability to manage through these periods. And that is why we are being proactive..

Great. Well, I appreciate the time guys. Thank you very much..

Thanks..

Thank you. [Operator Instructions] There are no further questions at this time. I would like to turn the call back to Dave Feller for closing remarks..

Thank you. Thank you for joining today’s call. We look forward to updating you post Q4 and year end results. Thanks again..

Ladies and gentlemen, this does conclude the conference call for today. We thank for your participation and ask that you please disconnect your lines..