Q4 2019 Earnings Call
At this time I'd like to welcome everyone to multiple fourth quarter 2018 earnings conference call.
He's still that todays call contains forward looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially fund those pitched it.
The company undertakes no obligation to update these statements except as required by law.
Information about these risks and uncertainties, including and Melco filings Q4, I suppose it's periodic filings with regulatory regulators in Canada, and the United States.
Oh. So today's discussion will include adjusted financial measures, which are non IRS measure.
They should be considered as a supplement to and not a substitute for IRS financial measures.
Finally, I would note that all amounts discussed today are in Canadian dollars unless otherwise indicated.
But that I was trying to calibrate Tuesday the filler. Please go ahead.
Thank you.
Good morning, and welcome to Moguls fourth quarter 2019 results call I'm joined today by Great seller President CFO.
We're going to take a different approach to this call given the magnitude of the cobot 19, pandemic and the resulting economic impact.
This is rapidly evolving crisis and while there are many unknowns, we'll do our best to give you our perspective any impact mogul both positive and negative.
And the actions and steps were taken to manage the things that are within our control.
We know there are the most of these are the most top of mind issues for investors.
Internally I she's here that we have quickly pivoted to remote work environment, including our customer experience Center. We are digitally led company. So this is a fairly seamless transition for us with minimal interruptions for operations and because we are digital platform no storefronts wrenches, our members would not experience 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 to our new partner Lenny channel, but at a reduced volume level given the current environment. We've also taken immediate and significant measures to lower expenses by an estimated 5 million in the second quarter, which Greg will walk you through shortly.
Separately, we have quickly move to create a cold at 19 response plan for our customers.
And we believe that our digital platform and focus on financial health will be particularly helpful to our members during these challenging times.
Four things I would highlight.
Firstly any active long neighborhood <unk>, who has experience a disruption in their employment will be offered payment options. It includes <unk> payment and interest referral to help them better manage through this time second through our customer experience team digital account and newsletter, we're 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're 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 it they lost their jobs and they're also many ways. They can lower their expenses managed 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 logo spend has been designed just for this task and what 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.
<unk>.
[noise] fourth our goal is to help our members get through these challenging times with minimal impact their financial health and that includes helping to minimize the impact on their credit score. So when they do get back to work. They can sell qualify for important things like mortgages.
Also the rest of identity fraud is actually increase so protecting themselves from this is also critical at this time.
Therefore monitoring and protecting is important now more than ever after those members. They don't currently have mogul protect 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 more relevant now than ever and something that our members will find very helpful and getting through this challenging time. This has been a quickly developing crisis, which if you could see coming to step back quickly. We're pleased that somebody achievements over the past several quarters have helped us put in a better financial position.
[noise] heading into this 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 which was obviously a great achievement for our team I remember 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 called money out.
This includes bringing the four habits of financial help into the experience itself along with our new enough money class. This is now much more relevant whenever theres no question, our minds that emerging from this economic downturn Canadians will increasingly seek solutions and tools elements, which all their finances lower expenses and do more with less so we're even better prepared to fill the state.
And we hope to help many Canadians who is trying time.
On the marketing side, we extended our agreement and post media for three more years as we've talked about in the past. This is a highly cost efficient channel to build the mother brand for a fixed payment options. We have access to millions of dollars of media spend so while we have cut back in all performance marketing. During this client climate, we will still be able to leverage our post media partnership.
We also launched our partner lending platform during 2019 under this model we offer third party lenders the ability to integrate and offer lonestar platform. This capability enables us to not only expand our offering but scale loans for our members, though capital constraints of on balance sheet lending subsequently, we announced the pilot program with go easy and after a successful trials.
Trial period, we transition this into a three year partnership earlier this year.
The same time, we announced the sale of our mogul liquid portfolio, which provided additional cash while reducing our leverage and credit risk exposure.
So we entered into this period with the stronger balance sheet and a partner for which we can continue to originate loans and monetize their platform, even when we ourselves have stopped on balance sheet lending.
In short, we're better positioned financially to manage through the current challenging environment, we have products and value proposition that is more relevant that ever with that I will turn the call over to Greg Greg.
Thanks, Dave I.
I want to first start with a quick summary of our year end results, which I think continued to demonstrate execution of our strategy reported full year core revenue of 47.2 million, which represented 33% year over year growth on a over full year 2018.
Core revenue now excludes loan related revenue from the recent sale of a portion of our loan book and it's also adjusted for the change in how he presenter loan protection revenue, which is now on a net basis. Adjusted EBITDA was 7.2 million <unk>, which represented 12% margin 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 cashing 21 million of investment portfolio, which we acquired from different capital total cash used in Q4 was 3.2 million down 50% from the prior quarter.
Post year end, we sold or 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 to covert 19, and resulting an uncertain economic environment in a business.
Particular, when I talk about two specific areas how is their business exposing 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 the remaining customer loan book how is it performing are we seeing any credit deterioration obviously, it's impossible for any went to predict what the economic impact will be and how long the environment will last so we'll share with you. What we know today why we believe that our remaining loan portfolio is it is positioned to manage through this uncertain period, let's start with a snapshot of the portfolio.
With the sale of mogul liquid in February the net receivable balance after allowances decreased 260 million from 89 million at yearend. This is a highly diversified portfolio composed of small dollar <unk> dollar lines of credit with an average balance of $1500 across 45000 customers in terms of the loan performance, we do not experienced any detour.
Question in 2019 on our loss curves Q4 charge offs were 16%, which was down from 17.9 in Q3.
Well, it's difficult to find parallels in today's advance our experience in this business through the credit crisis in high unemployment shocks like we've seen in Alberta supports our view that non prime portfolio conform comparatively well in a recessionary environment in particular nonprime consumers are in fact generally more resilient in their payment of credit during these times of economic stress and high.
Higher unemployment when compared to prime borrowers for a number of reasons, including the size of that overall debt levels and the relative beneficial impact of government support for lower income.
Several of the important points you should understand include understanding for loan book is set up for digital payments in approximately 88% of these loans are set up with multiple payments per month, the more closely aligned with the customers pay cycle 50, 55% of our customers have loan protection insurance, which is which they purchase at the time loan was granted the insurance is applicable in it.
Number of scenarios and importantly indicates is involved in voluntary unemployment it would cover them on payments from six months.
It's also important to know the mogas been lending to the Nonprime consumer loans consumers for over 15 years and has a history of offering flexibility to our customers during times of financial stress temporary unemployment and other unforeseen circumstances separately for those customers that loser job and don't have alone protection insurance. We believe the majority of affected customers would be eligible for government.
Beliefs, including unemployment insurance given the average income overlong customers is below the federal cap on you why we estimate our average customer through you I 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 its business well in its profitable segment, we believe it's prudent to take a pause and issuing new loans in our on our balance sheet in the near term instead, we will drive volume to our nonprime partner and potentially new prime lending partners, which will generate fee based revenue to off sates offset some of the anticipated decline in interest revenue in the near term, we have been transitioning our business to capital light.
Model for some time in light of the economic volatility we are effectively accelerating this transition turning to now how we as a company you're 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 originations.
Given the unprecedented environment, where we end all companies are in right now it is impossible to predict a total impact on the economy and how long of the impactful last as a result, we felt that it was necessary imprudent to immediately adjusts our cost base, including deferring a lot of growth investments specifically beginning in Q2, we are reducing expenses across the organization with folks.
Send deferring growth investments in technology development and marketing, excluding marketing efforts under the post media partnership.
These reductions, resulting in a temporary lay off of approximately 36% of our team as well as reduced compensation a four day than 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 impressive.
Dented period.
The net effect of these measures will immediately reduce cash expenses in the second quarter by an estimated $5 million.
Despite the significant cost reduction we believe we will continue to have the resources to execute on our strategy, including the upcoming rollout of or mobile card 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'll hand, it back to Dave.
Thanks, Greg.
Of course periods like this do more than just create.
<unk> new challenges they bring opportunities we've historically been agile equipped 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 we will become an even more appealing partner to organizations that need to quickly advance or digital offering. This may create partnership opportunities that can take a number of.
Forms and wherever 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 they help all Canadians one specific ideas 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 they have for enabling simple accessibility our platform could be ideal for many that have lots her job there.
Tapping into things like credit cards, very high rates, so low interest there no interest loan with no payments for a period of time could be an a great. Additional benefit again. These are just discussions and ideas that you get the sense of pellets, we could leverage our platform.
In general we see an increased focus on economic empowerment consumers will want even greater control over their financial affairs, and we'll definitely want to be more mindful of their financial health. I example, 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 held the party.
So all those these are definitely challenging times from any companies, including us they're also many opportunities.
With that we will open the call the questions.
Thank you.
Ladies and gentlemen, we will now begin the question answer session.
Did you have a question. Please press the star followed by the one on your Touchtone phone.
Well, if you will see teleprompter deleveraging everquest.
If you wish to claim from the billing process. Please press star followed by Tim.
And if you're using speakerphone, please let the handset before passing any piece.
Your first question comes from Nick people from BMO capital markets. Please go ahead.
Okay. Thank you I just wanted to start with a few questions are mostly related to the pandemic response.
I was wondering you could help us like you know 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.
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 the net positive cash flow. There can you just give us a sense you know just given the natural rate of churn in that portfolio. How much you would expect the temporary runoff there to produce for you on on a monthly or quarterly basis.
Sure Nick it's a it's Greg.
Yeah, it's it's it's hard to predict exactly what it's going to be because.
Obviously potential changes in in delinquencies could impact that as as that obviously you set up as well, we probably have a natural a run off 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.
It's going to be from the very specific operating expense reductions that were making and if you look at it right now approximately we've we've talked about at least $5 million of cash operating expenses.
Including the the capitalization of our debenture interest expense in Q2.
So that along with a significantly reduce originations in Q2, obviously going to have a positive impacts on our cash flow.
Okay. Okay. That's helpful. And then just on that last point like I was wondering if you could also help explain the opposite your exercising on those subordinated debentures.
Does that provision just allow you to essentially a pick the interest for an intermediate period and is that just yeah like for the for the next three months is that how should read that.
Yeah, that's right we have the ability we have the option.
People have always talk to us about you know 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 costs for it.
Relatively I costs 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 out for for for the second quarter right now.
We'll assess saw a if we need to extend that but right now we've just started for the second quarter.
But that effectively gets added to a two to the principal balance also it's important to know that as I mentioned in my comments and you saw with the the press release around a fortress and to go easy transaction. We we paid off one of our two credit facilities and we extended our other credit facility to July.
2020 to increase the available balance up to 60 million on that facility and a 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 where we are right now in terms of our quarterly.
Interest expense on our credit facility, a you're going to see that you know fall by over 50% by Q3, it's obviously going to fall a significantly in Q2 as well.
But we now have no cash maturities before July 2020 to all of the debentures, our subordinate to the fortress credit facility and can't be redeemed fourth a fortress.
Facility.
So we have no cash maturities before July 2022 now.
Okay, Great that's helpful and then.
Maybe one last one free Greg.
Just I was wondering you could just kind of elaborate whereas what this accounting change entailed my understanding is I think there were some sees that were previously separate it on the loan protection.
Product are those just is that just essentially whats committed to the third party providers that product is that is that what is now being netted out.
Yeah, that's exactly right that was basically included in cost of goods sold so we reported the gross.
Premiums and we.
Paid out a that 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.
The new.
Revenue presentation, we are just recognizing the net amount.
But that net amount then has 100 present gross margin and you know there. Although it did result in a reduction of the reported revenue there's no impact reported gross profit.
Okay. That's it for me thanks.
Thank you.
Thank you next question comes from the cancer Donny from Mackie Research. Please go ahead.
Great. Thanks, guys can you hear me okay.
Yep.
Oh, okay. So.
Maybe just going back to some of your comments, Dave and Greg you know from.
From a high level could you maybe talk about how the environment has changed in the last two weeks, where so the trough or what you may have seen back in 2008 2009.
Well, so sure I guess I guess I'll also start I mean, I I think Uh huh.
The reality is right now as it relates to our business. Yes, we've seen we've had a number of customers, calling in and say they need some temporary relief on their loan payment.
But we actually havent seen anything dramatic from and any from any sort of credit performance impact right now, but clearly we are in the early days as 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 you know from our perspective right now it leases it's fair to say 2008, you know this is a.
Global.
It's impacting all industries and right now it's you know, it's still uncertain as far as the timings and how long that impacts in Alaska. So.
So this is really not just the clearly not just a financial services industry, it's impacting the everyday the everyday worker and so from our perspective, you know we decided that the prudent thing to do with make decisions today that we believed would allow us to.
To manage through a prolonged.
Downturn, if that's the case, so obviously, we hope it's not.
And I think one of things we've always talked about are the dials that we have in our business to manage our spend manager cashews manager investment.
And we're clearly executing on that in a very in a very rapid a way right now just to.
What we believe is the prudent thing to do in the current environment.
The other the other thing I'd just add to that is back in 2008, we didnt have the current platform that we currently have we didn't have our mobile app. We didnt have any of the other kind of broader solutions. So in terms of how are we helping our members kind of managed through this and do we actually have solutions.
That can actually be helpful and and getting through this including including being able to.
Survive on essentially a reduced income and you don't we definitely do so theres a lot more ways that we can actually help them, including you know moguls band I mentioned earlier, we completed the final elements that we do use to complete in terms of being able to start.
Inviting customers onto to that a 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 we're continuing to update its obviously has new information comes in new benefits programs.
Even getting feedback from from members on other ways that they're they're using to save money.
And then pass it onto our members so theres a lot of ways and now that we're we're set up to kind of help and support through this challenging time that we just didn't have that ability and back 2008.
Got it and just if I could go back to your.
[noise] therapies comment a isn't fared sort of as you can bet 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.
Yeah. So so look I I nickel as you know a under I've for us nine.
Loan loss provision I actually have to taken into account the 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 you know what we'll see what one of the benefits will have an loan loss provision in Q2 is that we're going to have dramatically lower originations, which also obviously directly drives a 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 you know, we obviously, it's too early to determine.
But again from our perspective, you know 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 long protection insurance, So and clearly the big risk right. Now is just a peak a spike in unemployment and those customers would be covered and so the payments.
Would continue to be made tomo go.
And then the other comments I made on the fact that about.
Our average.
Salary or income of our average customer is below the.
Federal capping unemployment insurance, which means that.
The benefit from an after tax take home basis to that consumer.
Is actually a lot more material for Dan Hi, higher income individual. In addition, as you know there's been a number of federal and even provincial.
Relief programs that have been implemented in and we actually think you know even even a customer that's unemployed.
Through this with or without loan protection insurance.
Given the lower average income that they have is going to have a relatively us much smaller decrease in their take home pay no 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 or business.
In terms of having a a team that works with our customers who are facing challenges you know even you know 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 it but we're going to be using the same tools and that that we've always done.
Got it and then on that financial release impact is it possible to to quantify that to some extent right now fully understanding that obviously this is in a pretty early on we're just getting into that.
And and also recognizing but that's a great sort of way to build you know consumer loyalty. Once we exited this this this particular scenario, but can be it in that sort of run up is is there any kind of wait to quantify that financial relief.
Oh, what specific what what specifically do you are you are you asking I'm not sure all the question Oh, well, so like you, but you've spoken about a you know.
And your customers to defer some payments on what yet so it. So if you were to quantify the impact of that on your on your.
Balance sheet and and cash flow.
Is there like a rough theater kind of do that at this stage fully recognizing that obviously, it's pretty early.
Yeah, I would say at this stage you know we you know we we'd say it's impossible right now for us to quantify that as they say, we you know we still have not seen a significant impact or increase in.
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 ER or understand what that true impact is we're going to make you know what we believe our prudent moves on on reducing or our cost base. So that whatever that impact is we've you know hopefully we're in a position with that we believe we could match.
As through it.
Got it and just one last one before I pass line year. 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 will be when it happened 2 million Bucks on a quarterly basis and so if we sort of add in the $5 million up cash Opex savings are you looking at a baseline of call it $7 million and.
Utterly basis going forward and obviously.
Whatever impact you have on the business will go well coming on top of that right.
Hi.
Yes, that's that's correct, obviously that that that cash savings.
I would flow through to that.
At the unknown right. Now obviously is is what is the impact to the revenue.
And the cash flow, there, but but in a stat in a steady state. Yes, you could you know do math like that.
Okay. Thanks, guys.
Thanks.
Ladies and gentlemen, as a reminder, should you have any further questions. Please press star followed by line.
Next question comes found assistance to come on capital. Please go ahead.
You guys.
Hey, good question I mean is.
So let me go to market.
How are you guys thinking about the changes in that and that strategy in the near term and just given that you get suite, we launched the money upfront again.
How do you think about driving a brand awareness.
And then what might impact the on kind of new user acquisition over this period.
Sure. So it's it's Dave.
So obviously as I mentioned, we've stopped all of our performance marketing most of the performance marketing was was obviously focus more on the loan originations, but it was definitely still had an impact on.
On just driving member member acquisition as well.
As it relates to we feel obviously have our post media partnership and our goal essentially is two to take this what we call Ur Cobot response, a program and essentially translate that into a marketing program.
Obviously.
You know basically showing hey to any Canadian this been affected there's a bunch of ways in which obviously mogul can help you get through this we still potentially for those that are looking at that loans. We still are gonna decision members that sign up and for those that qualify obviously for alone 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 partnering 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 managed to this more that financial health health.
Content that also ties into our user experience and money class in that so worst 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 due 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 kicks off when we see we're not going to really know exactly what what the impact to members.
Both is.
Sure that's a fair.
And.
Oh product platform side can you speak to some the recent.
We can trends in user activity with respect to engage in core product adoption on the platform that can how this has been trending since the crisis has been unfolding any just just seems any puts it puts and takes to.
Yeah, I mean, we're definitely seeing some obviously some some activity on the credit score aside but interestingly enough. We've also seen essentially a significant increase in our our bitcoin volumes. So.
Both funding and and kind of transactions on decline so that actually it's another opportunity. It's not one we've really focused on given the current environment, but it at obviously it continues to be an opportunity and one we're kind of thinking through.
Obviously bitcoin itself has also been volatile given kind of the hyper focus on how we helping can answer 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 income increase in volume there.
So in terms of obviously on the protect side again I.
I think what were what we're seeing now and this is what we're also talking with in the I think everybody individually is going through this to whether or not you've lost your job or not everybody is hyper focused on their expenses anybody. That's still has a job obviously is to a certain degree more concerned that 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 by 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 mogul protect <unk> spending money for it that's not something that in todays.
Environment, you know I think people are looking to do so.
That's why we think the idea of offering you know something for free there for peer 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 of terms of acquisition customer affiliation brand affiliation affinity and and ultimately long term value.
Right, Okay, great and that's helpful.
Hi, guys on on on the partnered lending model.
Can you speak to maybe with some of those specific milestones are key I know that allowed you and go easy the kind of expand from the trial to the full blown commercial agreement.
I'm sure I'll speak to that so I think what.
What was or what we were really trying to accomplish.
During the.
Initial trial period.
Was a really make sure that we could get our systems working together that they go easy was comfortable with the quality of our loans that they were seeing.
Applications. There we're seeing we've spent a lot of time working on different tools to increase conversion rate. You know, we're obviously, we're bringing our digital experience in digital channel to the table and Ah trying to leverage that.
For the benefit of of go easy 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 'em. We felt that this was a channel that we could start to ramp up.
You know both sides are obviously agreed that it made sense to move to move it towards a longer term partnership.
We kept the economics. The same is are we had agreed to in the pilot program.
And now we're obviously a early days obviously, it's a you know way I think it's fair to say that given the current environment.
That there is they're likely to be a slower ramp to that partnership as well I think everybody is gonna be cautious on new loan originations right now.
Things could change very quickly there you know if things start to look like you know things are becoming more stable, but you know that channel is open.
And we are sending leads to go easy and they continue to originate lunar new loans.
Okay, great. Thank you guys. This is the balance sheet any update.
All potential monetization opportunities with the assets acquired through the difference capital transaction.
No no specific updates there is a Ah portfolio company in there that is is it planning.
Yearend.
Really Q3 Q4, this year to do a financing.
And.
And generally there and they would expect there would 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 because clearly impacting everyone.
So, but we'll continue to.
Monitor that and look to opportunistically monetize when appropriate.
Okay great.
I guess just last one from me.
Back of the credit Karma acquisition.
Cures and see where you guys.
We've been seeing as hearing on the back of the acquisition and that's.
Then.
Potentially serving as a channel for any.
Inbound interest for you guys.
Yeah, I mean, I I'm not sure I would say that credit Karma acquisition itself is driving something but I, but I actually do think you know as Dave sort of alluded to in some of his comments that the one thing that this you know.
Pandemic is is a highlighting is the importance of digital channel in all aspects of our lives.
And I believe there's a number of players out there that you know were felt that they had a much longer tail on their branch strategy and.
And now increasingly that is not the case and I think that it it creates a a big opportunity for players like moko.
And potential new partnership opportunities because they all the challenge always on these partnerships as you've got to have it. 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 partner.
So to say this is something that's important sooner rather than later.
So, we're obviously going to stay very close to that.
Were you know, 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 you know we will.
The 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 a 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 are going to you know people are going to start thinking okay. What does this mean for the future now.
Okay, Great antigen you guys. Thanks for taking my questions I'll pass the line.
Thanks.
Thank you for the next question comes from that came in from Canaccord.
Please go ahead.
Yes. Thank you good morning.
You've made some substantial changes to your cost base you briefly mentioned in your prepared remarks.
That you're so moving ahead with certain product initiatives I Wonder if you could just cycle through mogul wells logo span logo golds and somebody other partner lending initiatives that you guys had.
And whether you think say development time tables being pushed out substantially just provide an update on those would be helpful. Sure you sure it's Dave.
So mogul spend is on track to what we had initially said in terms of getting it complete and ready for kind of this this spring launch so before we made these big changes we essentially completed you know all the the key things that we needed to do to get it ready. So most spends in it in a good place.
And as I said, we're going to start leveraging that actually beginning next week study specifically focused on you know initially that the members that are experiencing the biggest impact.
As it relates to mogul wealth. There's we have had many many conversations in terms of a potential partnerships and those opportunities are still there and I think that ties into to greg's comments on some of these these opportunities having said that although we're still having those conversations and we do expect an opportunity.
I'd there given our reduced capacity, we're obviously I'm not in a position to commit to any one of those items yet.
So were essentially you know continuing to kind of really assess what are our priorities base on this current situation that obviously is leveraging our team for you know direct actions related to kind of our Kobin response. So all of a sudden that actually is change our priority from a roadmap perspective, once we things you know get.
Being 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 mogul wealth.
Same thing with mogul gold.
That obviously is something that is you know we're still on our roadmap, but we're still assessing.
And we actually think quite frankly, this environment could tie in nicely to two gold I you know people essentially signing up for a premium membership that really does help them getting better control of their finances.
So we think that environment kind of could lead nicely into kind of a segue into the introduction of of that.
And again gold is going to include things like protect and and and spend that are all kind of going to be part of it.
But ah, but bottom line is we still 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 kinda partnership that is and 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.
Oh It brings me rich My next question mom, you've made proactive and prudent steps to reduce your cost base certainly part of that a big part related to cope with 19 and the uncertainty related to the pandemic, but I mean, I wonder if youd.
Talk a little bit about you know the potential for some of the cost reduction initiatives to be more permanent in nature, I guess thing snap back in my next quarter or too.
You know how much of your cost base do you think you bring back online.
Doug It's it's Greg I'll I'll take that a couple of comments I would just make on the cost savings initiatives. So just about 55% of the of the cost saving initiatives are what I call non volume related.
So whether its development resources things that we're working on growth related other gionee related expenses.
And then the the other 45% our volume related like performance marketing spend and other costs, even sort of call center or 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 and as we returned to more normal environment and we're looking to you know ramp back up on growth a you're going to see the volume related expenses go up.
The non volume related expenses, you know really really depend on you know on on the environment.
And the specific initiatives that 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 has stabilized and we believe financially the those decisions make sense. So I would say, it's still too early to tell but I think what.
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 you know I'm ramp backup any expenses.
So you know I imagine there there are there absolutely is going to be some more permanent fixed.
Production of expenses that are that we're going to keep in a you know going forward at least for the foreseeable future, but it's still little too early to say what the exact a magnitude of that will be.
Just just further to that one of the other things. 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 and the company.
You know everything from you know challenging every.
Software license and platform that we have to further simplify things reduce reduce costs were 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, which were 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 you know, eliminating certain vendors and and contracts and platforms that were currently using and feeling we're not get enough value from along with looking at the ones were keeping and making sure that we've got to the best deal going forward, so, whereas before maybe some of that stuff was in a top priority now it's kind of a a very.
And my top priority and again, we expect those those expense.
Reductions to continue through.
Okay.
Our modeling purposes, I'm, sorry, I missed it but could you give us a rough breakdown of how we should take the $5 million per quarter.
And ER, maybe related to that is there any onetime expense a.
A onetime in nature are related to these.
Expenses cost cuts.
Yeah, Doug so basically.
If you kind of look at the allocation of that of that spanned you know you're going to see.
First of all it's about it's about.
Three and a half to 4 million of on the Opex side Theres 1.4, as it relates to.
A temporary spend reduction on the debenture interest expense.
So as you sort of thinking about modeling on the Opex side.
It's that number is gonna be somewhere in the a in the in the three and a half million dollar range and that's going to be a roughly.
50% of that is going to be in in in technology and development.
And then the balance a big chunk of that is going to be in about 50% of the the remaining portion is going to be in marketing.
And the balance split between our there to Opex lines.
Okay. So let's be clear on the 1.4 million debenture interest expense is part of the 5 million overall, yeah is that correct. Okay.
Okay and that will still be an income statement item it'll just be yes cash on cash items exactly yeah. Okay. And then you know I guess the last question kind of bigger picture here I mean, this bogey of cash flow positive I you know after all the loan investment and things, which you've ramped down.
Incidentally I mean do you feel like these.
Changes you've made today get you there in Q2 I understood stand as a lot of uncertainty out there, but I mean is involved are you that close to it or well I stole some quarters away.
Well I you know it in a status quo environment, we absolutely would be cash flow positive in Q2.
As they 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 were making here give us you know room for you know the variability in that but as far as the exact order of magnitude.
It's still you know, it's still difficult for for anyone to predict.
That's it for me I'll pass line. Thanks.
Thanks.
Thank you there no further questions you May proceed for closing comments.
Okay. Thanks for your time today and I'm, if theres 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 and could you comment okay. Thank you participating and we ask that you. Please disconnect your lines.