Good afternoon, ladies and gentlemen, and welcome to the Mogo Q3 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct the question and answer session. [Operator Instructions] This call is being recorded on Wednesday, November 6, 2024.

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

Thank you, operator, and good afternoon, everyone. Thanks for joining us today. Just a few notes from me before we get started. 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 Mogo's Q3 filings as well as periodic filings with regulators in Canada and the United States, which you'll find, of course, on SEDAR, EDGAR, and you can access via the Mogo Investor Relations website. Secondly, today's session will include several non-IFRS measures.

Please consider these as a supplement to and not as a substitute for the IFRS measures. We've included reconciliations to those, both in the press release and the investor deck, which is on the website. With that, I'll turn it over to Dave Feller to get us started.

Dave?.

Thanks, Craig. Thank you. Good afternoon, and welcome to Mogo's third quarter fiscal 2024 results call. I'm joined today by Greg Feller, our President and CFO. I'll cover some of the key operating highlights and Greg will dig deeper into the financial results and outlook.

Our Q3 results highlight that we continue to execute on our plan to get to profitability while investing for the future in key product areas. We are pleased with the progress but there's a lot more to do.

Again, sustainable profitability is our strategic priority, and we continue to be hyper-focused on efficiency initiatives while also investing for future growth. We raised our 2024 EBITDA guidance, and we introduced EBITDA guidance for 2025 that implies 69% growth at the midpoint of the range.

Most importantly, for the first time in our company's history, we expect to have positive adjusted net income for 2025. We look at our business today through the lens of our key pillars. Each one has its own unique opportunity for long-term growth.

While efficiency and profitability remain our top priority, we've continued to make meaningful progress in our wealth platform and are more excited than ever on the opportunity we have with what we see as a very unique and compelling value proposition in a massive market.

Not only is the massive market measured in trillions but it's also a market with big barriers to entry. Wealthsimple recently reached a $2 billion valuation and recently announced $50 billion in assets, showing that a new player can make real progress on capturing meaningful market share against existing incumbents.

Given over 90% of Canadian assets are held by the big banks, banks have dominated for 100 years. RBC has over $1 trillion of wealth assets, and CIBC, which is the smallest of the big 5, has around $350 billion.

But we believe this domination is coming to an end, and there's a massive opportunity for a new entrant that really solves the problem in a meaningfully better way. The central problem is the average investor in Canada dramatically underperforms while overpaying.

The magnitude of the impact this has on someone's actual wealth is staggering and is one of the main reasons why so many fail to achieve financial freedom goals. The key point here is, even though there are many players in the market, consumers are being overcharged and dramatically underserved, which is why there's such a big opportunity.

One of the main reasons why investors underperform is the system is corrupt, as said by famed investor Charlie Munger. How is this the case in Canada? First, the principal agent issue. They take care of the agent more than the principal. Mutual funds are a good example of this.

They come up with a plausible narrative and sell consumers into these high-fee underperforming funds, i.e., consumers would have been way better off in a low-cost S&P index fund. Second is self-directed investing apps. They make more money when you gamble than invest and hold.

As Buffett highlights, their incentive is to get you to trade as that's what drives trading volume, even though study after study clearly shows that the more you trade, the less you make. And they market it like it's easy and anyone can do it. Yes, as Charlie Munger said, as anyone who thinks this is easy is stupid.

The reality is it's very hard to outperform the S&P benchmark, and it's very hard for the average investor to even come close. They make people think they're investing when they're just gambling. If you don't like the system, you can't just advocate for change. You have to build something that makes a change.

We believe the future of wealth building will be led not by products with the most features or the lowest cost or that have the existing distribution but by those that actually deliver the best performance for investors. And that's our guiding light.

We've designed a wealth platform that will help investors achieve a radically better outcome by investing intelligently versus the status quo.

We've introduced a wealth system design based on the principles of the world's greatest investors, that combines behavioral science with a managed S&P 500 strategy, complemented by self-directed investing based on the value investing principles of Warren Buffett.

Our intelligent investing solution is designed to give investors the behavioral, informational, and analytical edge they need to outperform existing solutions, a radically unique solution to achieve a radically better outcome, all for a very disruptive price of only $15 a month. As Warren Buffett says about investing, "You don't need brains.

You need temperament." One of the foundational principles of our approach is based on the key insight that is the behavioral edge that is the most important element of investing.

And while others have designed their products to drive behaviors that lead to revenue for them but underperformance for the investors, we've designed our experience to encourage the behavior that have been proven to help performance while minimizing those that hurt it.

This study of the CMG Fund really highlights how much behavior impacts performance. This was one of the best-performing funds in the early 2000s, and it generated an 18% average annual return during a time when the market was essentially flat, yet the average investor actually lost 11% a year.

This is a shocking stat and it was all to do with the typical emotional reaction of investors, including buying high and selling low and trying to time the market. The key point here is even if you manage to choose the right fund or strategy, without the right temperament, you won't do well. Knowledge is a superpower.

As Munger said, knowing what you don't know is more useful than being brilliant. One of the key elements of our value proposition is empowering our members with the knowledge they need to become a more intelligent and successful investor.

While others focus on content that drives trading, we're focused on content that helps our members develop the patience, discipline, and analytical skills needed to be a successful investor.

This is a key part of our experience and value proposition, creating and delivering the right content at the right time and in the right way to help investors make more informed and better decisions. The reality is most investors lack the knowledge and skills needed to be a successful investor, and our goal is to solve this.

We're still early days in this part of the experience but excited for where we can take this and the impact it can have on performance. Intelligent investing is based on having a managed S&P 500 strategy as your foundational strategy, given how few come close to matching this, let alone beating it.

98% of professional fund managers can't beat it over the long run. And as Munger says, the percent of wealth managers that can beat the S&P 500 consistently is essentially 0. Our Moka growth equity portfolio generated a 37.86% return in the last 12 months ended October. Now obviously, this has been a particularly strong year.

But looking longer term, the strategy generated a 15% 10-year compound return, significantly outpacing other growth strategies and importantly, a 50-year average of over 11%. Again, for our target demographic that has a 50-year-plus time horizon, the impact that this has on wealth is massive.

Users also get dollar cost averaging, dividend reinvestment, and portfolio management, along with the behavioral edge. Mogo, our self-directed investing app, is designed to complement our members' S&P strategy with thoughtful long-term investing based on the value investing principles of Warren Buffett.

Unlike other trading apps, we've designed ours to help minimize the trading activity that generally leads to poor performance and help encourage thoughtful long-term investing. Again, it's hard to overstate how unique this approach is versus the status quo.

As Buffett has said many times, most of the trading apps resemble gambling parlors because they make more money by getting into the gamble than invest. This is also the only self-direct investing product in Canada today that charges zero commission and zero FX fee. As Buffett says, if you can't value a company, you can't invest in it.

You can gamble on it but you can't invest. The reality is it's okay to gamble as long as you know that, that's what you're doing and you don't confuse it with investing. This is one of the biggest reasons most self-directed investors underperform.

Key part of our solution is our innovative controlled gambling feature that enables investors to gamble on stocks but in a controlled way. The experience is designed to force the user to identify if they are gambling or investing and then tracks your gambling stocks versus your investing stock so you can see the difference in performance over time.

Again, it's okay to gamble. Just don't pretend you're investing. This helps investors make more thoughtful decisions, especially as they see their performance over time. There's a fundamental shift coming to wealth, and AI is going to be a key part of this, and we are positioning ourselves to be at the forefront.

One of the biggest gaps in most investing apps today is they lack the tools and information needed to actually do thoughtful research and analysis that's needed to invest. Instead, they focus on superficial information that is generally designed to drive trading, i.e., gambling versus thoughtful investing.

As Warren Buffett said, if you bought and held Berkshire Hathaway over the last 50 years, you've gotten rich, but your broker would have starved to death. Giving investors an informational and analytical edge is a key part of our system that is very unique and unlike other options in the market.

We recently partnered with FinChat.io, a leading AI research and analytic platform and have now integrated their AI Copilot right into our app, which makes it easy to get up-to-date information on any company, including recent earnings reports and call transcripts.

What's more, we are now about to introduce an even bigger component by giving our members full access to their FinChat Pro solution. This is something that costs about $100 a month and will now be included along with everything else in our $15 month fee. We believe this is another game-changing feature and excited to get this into the market.

We are obsessed about helping our members improve their investing performance, but it's not all about the money. A key component of intelligent investing is doing it in a way that actually builds a better world for all. Mogo is part of a generation of companies that make positive impact, a happy byproduct of using the products.

Just as the future of investing will be dominated by solutions that deliver best returns, those that also help build a better world for all matter will also really be a big impact, especially for the next generation. As Warren Buffett says, "Price is what you pay.

Value is what you get." Our goal is to not only build the most effective investing and wealth building platform but to offer it for a price that makes it accessible to all and, ultimately, the single best value proposition in investing today while at the same time, aligning it to the investors' best interest.

So whether you make 100 trades or 0 trades, we charge a simple $15 month fee. As author of Atomic Habits, James Clear says, "You don't rise to the level of your goals.

You fall to the level of your systems." Moving from a corrupt system to a system designed to help you outperform can literally mean millions and more in wealth for an individual investor over their lifetime. One of the key metrics we track is our Net Promoter Score, which represents a likelihood a user will recommend the product to their friends.

An NPS score above 0 is considered good and above 50, excellent. Over the last 2 years, through the improvements we've made, we've seen the score increase for new users from negative 25 to most recently, positive 59. We're still early days in developing this solution and our goal is to get our NPS north of 80.

We've got a long way to go, but I believe we'll get there. With that, I'll turn it over to Greg..

Thanks, Dave. Let me quickly discuss our two other pillars beginning with payments, Carta Worldwide. Carta had another strong quarter as reflected in a 23% year-over-year increase in payments volume to $3 billion in the quarter, putting them on an annual run rate of more than $12 billion.

And revenue grew at a similar rate year-over-year as we continue to expand with a number of our large European customers.

As we discussed before, we've been investing in Carta's tech platform over the last year and now expect to complete this major technology investment by Q1 of '25, giving us more confidence for the long-term prospects of this business.

Another major pillar to our business is our crypto-related investments, which include stakes in Crypto Exchange's WonderFi as well as U.S.-based Gemini, along with investments in Bitcoin and a number of other crypto-related companies. Collectively, our crypto-related investments at the end of the third quarter represented $0.58 per Mogo share.

Or said another way, about 42% of our share value today represents crypto exposure for our shareholders. The largest of these investments is our 87 million share position in TSX-listed WonderFi, the only fully regulated crypto exchange in Canada.

WonderFi continues to be well positioned in the Canadian crypto sector as one of the only fully regulated exchanges with cash and investments of over $50 million and no debt. Turning to Mogo's financials.

It was a solid third quarter highlighted by year-over-year growth in all 3 of our primary business lines of wealth, payments, and lending as well as significant improvements in cash flow and profitability metrics.

Specifically, subscription and services revenue increased 12% year-over-year, driven by a 20% year-over-year growth in our payments business and mid-teens growth in our wealth business, which collectively represent approximately 2/3 of subscription and services revenue today. Interest revenue was also up 5%.

However, was down sequentially as we continued our conservative approach to loan originations in the period.

I think it's worth pointing out here that our revenue guidance for 2025 accounts for expected impact of the new rate cap that goes into effect in January that lowers the maximum APR from 47% to 34%, effectively aligning Canada's maximum interest rate to the maximum rate generally accepted in the U.S.

We believe this will ultimately be a positive to expand the appeal of Mogo's printed solutions to a broader set of customers. This, along with expectations of further rate cuts in 2025, are turning us more positive on the long-term growth opportunities for this profitable area of our business.

Adjusted EBITDA for the quarter was $2.1 million or 12% margin, consistent with the prior year, but importantly, the second consecutive increase in quarterly EBITDA this year. Together, these results materially increased our Rule of 40 performance, which was over 24% in Q3 from just 4% at the same time last year and accelerated from 16% last quarter.

A reminder that a Rule of 40 target is based in combined subscription services revenue growth and adjusted EBITDA margin. The improvements we saw in each of our core products drove a significant increase in overall cash flow during the quarter.

Adjusted cash flow from operations reached a record $4.8 million in Q3, up 85% from the year ago period, while total cash flow from operations, which also accounts for investment and loan book was positive $1.5 million in Q3 versus negative $4.2 million in the same period in 2023.

We have also seen a steady improvement in our adjusted net loss during 2024, which we view as a proxy for overall normalized cash flow. Adjusted net loss for Q3 was only $500,000, down significantly from the $1.5 million in Q2 and very close to breakeven.

These results, along with continued efficiency initiatives that our team are executing on, put us on track to more than double our revenue per employee from where we were in the first quarter of '22 when we started on our efficiency journey improvement.

Collectively, this gives us confidence to introduce positive adjusted net income guidance for 2025 for the first time in our company's history. We maintained a solid financial position at quarter end with cash and total investments of $36 million.

This included combined cash and restricted cash of $12.4 million, an increase from $11.3 million in the second quarter, marketable securities of $12.5 million, and investment portfolio of $11.3 million. On a per share basis, this represents approximately $1.48 per Mogo share.

With our Q3 results, we updated our full year '24 outlook and introduced targets for '25. For fiscal '24, we are now expecting subscription services revenue growth of approximately 10% for the full year, and we raised our adjusted EBITDA guidance to $6 million to $7 million from previous guidance of $5 million to $6 million.

For fiscal '25, we are aiming for high single-digit subscription services revenue growth driving modest overall revenue growth, again regarding my comments on the impact of the rate cap on interest revenue.

Adjusted EBITDA of $10 million to $12 million, an increase of 69% year-over-year from the midpoint of both ranges, and positive adjusted net income, as I mentioned before, for the year. As Dave highlighted, sustainable growth, i.e. profitable growth is the theme for Mogo as we look ahead to 2025.

And we believe these initiatives really put Mogo in a position to be in control of our own destiny with the cash and resources that we have today. With that, we will now open the call to questions.

Operator?.

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

We've seen you guys drive a lot of efficiency in EBITDA this year.

And so I guess my question is, with the EBITDA guide calling for about $4.5 million to $5 million in adjusted EBITDA improvement into fiscal 2025, where do you guys think you can really drive those efficiencies from? Is there any 1 particular area that you're targeting?.

Yes. Thanks, Adhir. So it's actually going to be spread out across 3 different areas. One, we are making a significant investment in migration to OCI right now at both Carta and Mogo. And once that's complete, we have pretty meaningful savings from that, which we're -- effectively think of it as double spending during this period.

So that's going to be a big chunk of the efficiencies or savings there. The balance is really going to be split between payroll reduction and vendor expense reduction. So again, getting more efficient across all of our teams, staying very focused on our 4 businesses, and continuing to really be focused on every single expense.

I mean, the reality is since we started this journey, we really have cut more than half the OpEx, and it is a muscle that you build as an organization. Until you start doing it, it actually is a pretty daunting thing if you haven't done it. We've done it a few times now, and the team is getting better and better of it.

And in fact, what we're actually finding is that we're actually seeing a lot more benefits than just cost reduction. Again, this is about efficiency. This is about increasing overall productivity relative to cost. And we're finding that with smaller teams of high performers, we're able to actually increase overall productivity.

And so I think we're continuing to be focused on that over the next couple of quarters.

I don't know, Dave, if you have to add anything to that?.

No, I think that summarizes it well..

And then kind of balancing that against investing in the wealth business, clearly, the wealth business and the Carta business are seeing some momentum here.

How are you guys thinking about investing in those businesses as we move forward?.

Well, I'll make a few comments. But I would say that all the things that we're focused on right now are with the lens of ensuring we still have the right level of investment in those businesses. So again, efficiency is not about reducing costs, it's actually about increasing overall productivity.

And so there's 2 parts to that equation and that's what we're focused on. So we will continue to be investing on the product side, product improvement features on the wealth side, building out that value proposition, focus on increasing that Net Promoter Score.

We've done a number of partnerships over the last few quarters, including with Fundstrat and with Postmedia that, quite frankly, give us more leverage to be able to take some of our own expenses out of certain investments, including marketing and other areas and leverage those partnerships. So that was another benefit of those partnerships.

And those 2 partnerships in particular are very much focused on wealth. So we continue to make a number of investments in those areas. And then on Carta, again, once we get through this migration in Q1, we're going to see significant savings from that. And that will drive positive EBITDA in 2025 for Carta, which will be a big positive for us as well..

So actually, maybe just adding a couple of key pieces there, just reiterating a few points that Greg made as well just in terms of smaller teams. And we're definitely finding, again, smaller teams are just faster and can actually be more productive on an absolute basis even than bigger teams. So that is something that we continue to see.

I think that's generally a theme not just obviously in our company but other companies that really you're seeing the benefits of smaller, flatter organizations, decisions get made faster. You have -- there's less places to hide. You have more engaged team members.

It also forces us to really kind of prioritize a lot more thoughtfully, really think through the things we're going to do. The more team members and more resources you have, generally, the more things you can do. The less resources, the more you really have to think through, prioritize and really try to focus on higher impact.

So again, it is possible to do actually less things and drive more impact if you select the bigger opportunities. So that is something as well that we're seeing a big benefit. Just also on the partnership side, we just talked about the FinChat partnership, a good example.

Obviously, that's an example of bringing AI into our wealth building solution but not developing that tool internally. You can imagine the resources that you could have and what you might invest on that.

Our view is we partner we identify kind of best-in-class solutions, look for those types of partnerships and see how we can bring that solution and integrate it in a way that actually can enhance our value proposition, speed to market, et cetera.

And we obviously think that, that's another good example of being a lot more efficient and creative around how do we actually build out this best-in-class solution but in a really lean way. That also, by the way, enables us to offer this very disruptive value proposition, right? We are a relatively small company with a lean team.

And so we now have a full self-directed investing app for full managed wealth solution, all for this $15 a month, which is -- which includes, by the way, this AI solution. And even at that price, there's good margin because again our costs are so low. So this is not something that we need to scale to millions of users.

This is something that today already has margin and profitability. So that's another important point..

Last one for me, guys and I'll pass the line here. Just on the loan book, you talked a little bit about the interest rate caps that are coming into effect on January 1 here.

How are you guys thinking about the loan book as we look into 2025 and beyond?.

Yes. So as I mentioned in my comments, we've taken a pretty cautious approach during the last really 3 years of a rising rate environment and the pressure that, that puts on the consumer. And I think that's helped us sort of navigate that period very well.

I mean, the benefit of having a diverse revenue base and having 2 other, really, areas, products to grow between wealth and the Carta business is that we can kind of make those decisions independently. But as we head into 2025 and expect lower rates, and quite frankly, we continue to be impressed by the performance of the lending business.

We realized we really do have a very valuable asset in our lending business. We've done over 1 million loans online. We think we've got one of the premier online lending platforms in Canada, and we just haven't really been leveraging it, again, because of the cautious approach.

And we do think that the rate cap puts some near-term pressure or headwinds on that business, but at the same time, we think it expands the opportunity. So we really see the loan book actually as an opportunity to grow that.

And so we expect, as we really get to the second half of 2025, that the lending business starts contributing to growth at least sequentially and then going into 2026..

And your next question comes from the line of Scott Buck with H.C. Wainwright..

I wanted to see if I could get a little more color on the deceleration in revenue growth in subscription and service for '25. Is that something in the macro or something unique to what you guys are seeing within your product suite? Just kind of give me a sense of what's going on and what's driving that..

Sorry, Scott, could you repeat the question?.

Yes, I just want to get some color on the deceleration in revenue, in subscription service revenue into '25. I think we go from kind of 10% in '24 to high single digits in '25. Just want to try to understand if that's something in the macro or something you're seeing unique to your product suite..

Yes. I would say, I guess, a couple of things. One, I think the high single digits that we're guiding for in 2025, I would say, is pretty consistent with 2024. So I would say that's point number 1. Point number 2 is I would say the strong message we are giving in this quarter is our prioritization of profitability and cash flow over growth.

As you know, we believe the Rule of 40 is a great guidepost for the business. And either we have to be driving higher growth on lower margins or higher margins on lower growth to continue to make improvements in that Rule of 40.

And our view is in the current environment, that making sure that we have a base level of profitability and positive cash flow and therefore turn the dials down on growth spend and therefore have potentially lower growth rate today puts us in a position to ultimately be in control of our own destiny here.

We have been burning cash, lower amount of cash every quarter. But with this initiative, we're effectively going to get to cash flow positive here on a normalized basis in Q1.

And that really allows us a ton of flexibility, whether it's waiting for the right time to monetize some of our investments, whether it's buying back our stock if we continue to see the market not valuing the business in the way that we think it should be, and then giving us the ability to ramp up that spend should we see the ROI that justifies it.

So again, I'd say our guidance is pretty consistent with what our growth rate was this year. But importantly, our bias right now is to profitability, cash flow positive over higher growth.

Obviously, as we get into 2025 and we achieve those, I think that may then allow us to start turning our attention to, okay, now how do we sort of dial back up the growth rates as well?.

You kind of touched on it there, but it seems like we seemingly have a potential crypto catalyst with the outcome of the U.S. presidential election.

Does that change the way you think about your WonderFi investment long term?.

Well, I would say first of all, I agree with you. I think there's a very strong tailwinds to the broader crypto space. I mean, our view is that WonderFi is a really strong asset in the Canadian market and, we believe, significantly undervalued relative to its peers. And so getting more certainty on the regulatory environment in the U.S.

really sets the tone, quite frankly, for sure for North America and even globally for crypto. And I think WonderFi is going to benefit from that. And then as we pointed out, given effectively 50% of our share price is sitting in crypto, we think our -- we are sort of a unique play for investors to get significant meaningful leverage to crypto.

And getting our own core business to cash flow positive puts us in a position that we can really manage our WonderFi position and look for the right time to monetize some of that when we think value is starting to get more in line with where we think it should be.

So yes, I think it's a big positive for the sector and our shareholders a significant exposure to it. And hopefully, we'll all see the benefits of it..

And then last one, just a clarification.

When we talk about positive adjusted net income for 2025, we're talking full year, correct, not just the fourth quarter or quarterly number on there?.

And as there are no further questions at this time, I'd like to turn it back to Dave Feller for closing remarks..

Thank you. Yes, wanted to say a big thank you to the team at Mogo. Again, a lot of hard work by everybody to get to where we are. A lot of work to go, but the team is really stepping it up and it's reflecting in our results. Thanks again for joining us today, and we look forward to updating you post our Q4. Thanks, again..

Thank you, presenters. And this concludes today's conference call. Thank you all for participating. You may now disconnect..