Q1 2022 Mogo Inc Earnings Call
Ladies and gentlemen, thank you for standing by for the Mogul Q1, 2022 earnings calls I will now introduce Mr. Craig Armitage of Investor Relations. Please go ahead Sir.
Thank you Sylvia good afternoon, and thanks for joining US today, just a couple of quick notes before we get started I first 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 these risks and uncertainties are included in the company's annual information form as well as periodic filings with regulators in Canada U S. A which you can find on SEDAR Edgar and the company website.
Second today's discussion will include adjusted financial measures, which are non <unk> measures should be considered as a supplement to and not as a substitute for I F or S measures, you'll find reconciliations in our filings for those measures.
Lastly, the amounts today are discussed in Canadian dollars, unless we indicate otherwise as with most quarters. We do have slides to accompany today's call you can find these on the webcast page.
And on the website under presentations and with that I'll turn it over to Dave Fellow guests started safe.
Great. Thanks, Greg.
Good afternoon, and welcome to Mobiles first quarter 2022 results call I'm joined today by Greg Feller, our president and CFO.
Obviously, we're clearly in one of the most challenging environments, we've seen in a while and one of the things as market is showcasing how different certain fin techs are in terms of revenue stability in composition with some of our peers seeing revenue fall of over 40% within a few quarters, having a diversified business model is more important than ever.
We saw the strength in Q1 with member growth up 62% revenue growth up 50% year over year in.
And record gross profit of over $12 million. It's important to note. This was also driven by the revenue base of our existing products, which is 95% recurring revenue.
While existing business model is strong given the current environment like all companies, we were taking a hard look at where we're investing and ensuring that these are areas that will give us a solid ROI with near term impact.
This quarter also continued to make progress on our 2022 roadmap as we get ready for the full launch of our biggest product to date mogul trade.
Our mission continues to be all about making it easy for anyone to chief financial Freedom. The fact is that building wealth and financial health has been vastly over complicated which is why most adults continue to struggle in fact, 69% of 30% to 44 year olds are concerned to very concerned that he won't have enough money to retire yet the formula to achieve it is simple.
Spend less than you make and begin investing early and consistently.
As you can see if someone gets on track early they can easily retire a millionaire yeah for many without the right program. They may never be in a position to retire.
To deliver on this we continue to focus on building out a next gen digital wealth building platform that has three primary components spend management investing an impact we believe all three of these are key elements of a best in class Nextgen wealth building platform.
Although it may not seem obvious the reality is most people don't realize the most important part of wealth building really comes down to controlling spending as we know it's not really how much money you make but how much you have left to invest it's key to building well as we just highlighted 42% of Canadians are actually spending more than they make which is also why 68% had debt other than <unk>.
Our goal.
It's simple to make it easy for anyone to control their spending so they have money put towards the wealth building goals.
Although we have lots of opportunities to improve this product today. It is delivering with 93% of our active users, saying it helps them better control their spending with an average monthly savings of over $200.
Now $200 might not sound like a lot, but that's actually the amount that is at best and monthly would put someone on track to being a millionaire again it doesn't take a lot to achieve financial freedom. If you get started early enough like the rest of our products. We've also built the impact component into the card each time they use it a tree gets planted besides the 200 dollar amount savings our average card user.
Actually offsets doubled the carbon footprint of an average Canadian this card is the only free and simple way for any Canadian to eliminate their carbon footprint, which is how we stop climate change.
All of this helped to increase card spend in the quarter by over 70%.
Controlling your spending is key to helping you say, but another way to set up is to set up an automated savings goal.
Most half of Canadians, 49% in fact don't have any emergency savings again. This is a major problem and one that has been designed to help solve.
Today, we have over 145000 subscribers using moca to help them save for a variety of goals, including emergency savings.
With over 10005 Star reviews. This has proven to be a simple and powerful way to help our members achieve their savings goal for a low monthly fee of only $3 99 or amendments can easily set up multiple goals and depending on their goals and risk profile moka automatically assigns them a specific portfolio given today's current environment, we think helping people save money is more important than ever.
Now short term savings goals are important, but ultimately financial freedom depends on long term wealth building. When we acquired Moka. We also knew there was a big opportunity to turn this into a best in class long term wealth building solutions, but again, most most don't know what to do and it's been vastly over complicated moka really makes it easy and this chart shows how soon.
Well it can be simply set up an automated 200 dollar a month debit from your bank account and Moca does rest depending on how early someone starts that can put them on track to being a multimillionaire.
But the three and a half million dollars in perspective today less than 5% of Canadians have a net worth of $2.3 million or more.
Recent market volatility also highlights the value and importance of a passive investing strategy is a core part of your wealth building. This recent correction will be the first sign that many younger investors have experienced the reality of investing and although active investing will always be a key part passive is more relevant than ever.
A big part of the opportunity isn't just about helping and people invest in automating. This its also about helping them retire with more money today.
Today, most deal with their banks and sell them on high fee mutual funds in fact total mutual funds in Canada are now at over two trillion last year alone over $100 billion went into these with fees that are usually around 2%, even though even if the fund mimics the market. The 2% has a big impact on your total return in fact as you can see this would actually.
Mean overtime with the exact same amount invested there's 2% fee would actually result in someone retiring with less than 50% what they would have if the invested through moka the man.
92 that this can't be overstated as you can see here, it's no wonder why the vast majority struggled to achieve a level of well through the current solutions in the marketplace today investing through a low cost automated platform like moga isn't in the incremental improvement as life changing this is what disruption looks like until recently most of it was designed primarily as a short term savings out announced in recent.
Dates we built what we believe is arguably the most powerful long term investing solution on the market with a portfolio designed to mimic the benchmark S&P 500 index, along with industry, leading low fixed fees of only $3 99, a month, we challenge anyone to find a simpler more effective way to build wealth in Canada today mobile wealth managers, just over 300 million. So you can see how.
The growth opportunity is.
Although passive investing is perhaps the easiest way to build wealth active investing continues to be important part of the mix mobile trade has been our number one growth initiative last year and we couldn't be more excited for this product.
Unlike the U S market Commission free stock trading is still new in Canada, and mobile trade is actually only the second commission free trading App in Canada, but the first two also includes social impact every trade.
Along with FX fees are half, what many competitors charge and real time streaming prices.
Now, although the level of retail trading has clearly had a big drop recently this is still a massive market opportunity even at the lower levels and we believe our value proposition will resonate more than ever in this type of market.
One of the lessons we've learned over the last year, though is how challenging it is to build a fully regulated product like this and because of some of these challenges where we are behind on our goal of having this product fully rolled out this quarter. Today, we are still an invite mode and continue to gather great feedback and insights that are helping us to improve the product and get ready for a full launch we expect that by the end of this.
We will have the product fully available which positions us for beginning of marketing for some time in Q3.
An important point on the regulatory challenges is that although it can also be seen as a positive and that theres, a real barrier to entry and I like what we saw in the crypto space, where anyone could easily launch a crypto app. That's certainly not the case with equities and in general we believe that the crypto only asked will find it increasingly difficult to compete versus platforms like us with with both equities and crypto.
Although our primary goal is to help people achieve financial freedom. We also believe that making a positive impact of your money will become an increasingly important element of our consumers looking for especially the next generation <unk>.
As ESG investing has become extremely popular consumers continue to gravitate towards brands with purpose and making a positive impact and they want to see more than just words, they really want to see and understand the real impact they are making and we've designed this entity experience. Today. We are focused primarily on climate change given we see this is arguably the greatest social issue of our time and one more.
Most people struggle to see how they can make a meaningful impact our members today have already planted over a million trees and because of them over 800 million pounds of Sidoti will be absorbed the ultimate wealth building solution is one in which our members achieve their most important financial and life goals, while also making the world a better place we're still only scratching the surface on both of these but.
For the journey ahead.
With that I'll pass it over to Greg.
Thanks, David and good afternoon, given our results are posted this morning will be brief with my comments. So we can get to your questions.
Our diversified and primarily recurring revenue base proved resilient in the first quarter as we continued to show strong growth across key metrics during more challenging times for many fintech first quarter highlights included 62% member growth record quarterly gross profit and revenue up 51% strong positive contribution of $10 4 million in the quarter.
And lastly, we ended the quarter with a strong financial position of the combined cash digital assets and our investment portfolio was $75 million, excluding our investment in Queensborough, which had a book value of $98 million at the end of the quarter.
Knowing member base increased by 62% over last year to approximately $1 9 million with a year over year increase split roughly 50 50 between organic and acquisitions Importantly, Q1 represented third quarter in a row of increased organic net member additions.
The scale of our member base remains a key asset and competitive differentiator in the Canadian landscape and gives us the ability to more easily introduce new products like my go to train.
Our new member growth fueled continued revenue growth, which was up 751% over the same period last year revenue growth was driven by an increasingly diversified group of subscription and services revenue, which increased 78% over the comparable quarter.
We believe that our high recurring revenue model is becoming increasingly valuable during this period of financial market volatility that is exposed to a number of fintech malls that are predominantly reliance of nonrecurring transaction revenue.
With some companies reporting dramatic declines in quarterly revenue. We however expect to grow our revenue every quarter. This year driven by approximately 95% of our revenue coming from subscriptions payment processing interest in having a recurring revenue stream.
Obviously mobile trade once fully rolled out will include more volatile trading revenue. However, we believe this will be an incremental and complementary stream to the larger recurring base we've built.
In addition to the recurring revenue nature of all of our business. We've shown that our business model can generate healthy margins as evidenced by the 70% gross margins this quarter.
Also if you followed mogul for some time you will recall that we generated very strong positive adjusted EBITDA through Covid, when we decided to reduce our gross debt specifically in the first quarter of 2020, we were able to dial back our cash opex by almost 50%, which along with high recurring revenue component resulted in us generating an average of $5 million of them.
<unk> EBITDA over the next two quarters before we decided to resume our gross debt the combination of our strong balance sheet and the flexibility in our model gives us the confidence to continue our investment spend to support the upcoming release of products like mobile trade, while monitoring the business environment should we feel the need to dial back this grow spend against profitability.
Sooner.
Another area of significant upside from logo is the increasing monetization rate of our members, which we've made good progress over the last year, increasing from under 10% to 14% also when you compare average revenue across all of our members who are monetize members you can see that the payoff to continuing to increase the rate is significant almost eight times.
Outside of our core digital finance products. We also continue to see large opportunity for digital payments Carta. Despite some of the headwinds we are facing in 'twenty. Two we believe card is a valuable and underappreciated asset of ours and has it brought in a growing market poised to benefit from secular growth trends and we remain committed to growing this business going forward.
During Q1, we also announced the formation of mobile ventures to manage our existing investment portfolio, which currently has a book value on our balance sheet of 119 million. This includes $98 million book value for investment Acquaint square one of the leading crypto changes in Canada. Despite recent pressure in the sector. We continue to believe in the long term opportunity of cryptocurrencies.
For the next generation and we believe our investment provides our investors with the auction value and upside to that to two that are volatile sector without seeing the volatility directly in our own business.
We also believe that portfolio of investments is another underappreciated asset on our balance sheet and we will continue to look for value maximization opportunities from this portfolio over the next 12 months.
Finally, with todays results, we also updated our guidance, reflecting a shift in the rollout timeline and expected contribution from mortgage rate as well as the reduced revenue contribution harder in the second half of the year due to the deferral of certain customer program Rollouts. Despite these short term headwinds total revenues still expected to grow between 20% to 25%.
Over 2020. One we also stated that we now expect to improve adjusted EBITDA margins going forward. This compares to our previous guidance of improving adjusted EBITDA margins in the second half of this year.
In conclusion, despite the current market volatility we remain highly focused on building up the leading next Gen Digital finance platform in Canada and believe we are well positioned as one of the leaders in the Canadian market to capitalize on this massive Tam that is still in the early days of the secular growth trend in the sector.
With that we will now open the call up to questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please slowly press star followed by one on your Touchtone phone you will then hear a three tome prompt acknowledging your request and if you would like to remove yourself from the question queue. Please press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset.
Before pressing any keys. Please go ahead and press Star one now if you have any questions.
And your first question will be from a tier cadby at eight capital. Please go ahead.
Thank you guys for taking my questions, maybe I guess the top of mind will be on trade on logo trade can you maybe give us some additional color on some what are some of these regulatory.
Hurdles that you guys have to kind of crossing and Dan.
Yes, some of the regulatory hurdles that you need to cross and that you are looking forward to.
Sure so.
I would say at this point most of the regulatory items, we actually have clarity on you know just to give you a sense of kind of the detail some of the stuff, we're doing with trade AR.
Including for example, how customers are going to be funding the account actually hasn't been done before so some of these items are new so when you when you kind of get into a certain details in terms of the product how it works again, the Devil's in the detail they get very detailed on on the flow of funds in there.
There's a whole host of things. So these things can take a lot of time and you've got to spend a lot of time designing solutions et cetera, and then based on that we have to make tweaks to the experience to kind of satisfy the regulatory requirements.
The good news is though essentially all of the items that we were looking to get done we have approved and now. It's just a question of you know refining those in and again. The funding was an example of one of the items that that differentiates SAP MOGO trade is when you open the account you'll actually be able to instantly fund it up.
Two to $3000.
You know that is not something that you can instantly do one on other platforms through this this process. So I think it gives you a sense of some of the stuff that we're looking at but again as I. Just stated you know where we are now where you know the product is is out we have people testing. It you know I personally have made over 100 trades on the <unk>.
For them.
And you know where we're confident that our we should have the full waitlist.
An invitation mode.
Off before the end of this quarter I E. The the App will be available for anybody to download sign up and begin trading you know before the end of this quarter. So before the end of June .
Okay, great. Thank you sorry, I was getting a little bit of feedback there, but maybe just spend moving on you mentioned a little bit of a volatile trading environment were trading.
Trading was going down a little bit. So just based on that what are like what are your expectations for the product. When it is when it's fully lives maybe you could talk about that a little bit.
Greg you want to do that so yeah.
Yes, so I'll comment on that look I think it's too early at this stage for us to give any kind of specific guidance, there, but I think here's what I will say about this.
We believe that we are still very much in the early days of.
The disruption that's happening around trading in Canada. The U S is way ahead of US I mean, almost every app has gone to free stock trading in Canada today, Theres really essentially one free stock trading App and.
And Theres only one went out that actually you can do both stock trading and crypto and and and we expect MOGO to be the second there. So we believe that we're very early days.
And we believe that that is going to be a massive tam even a lower trading environment, obviously equity trading is not going away investing is not going away.
And we believe we've got a unique value proposition a great user experience.
And really the majority of trading today is still sitting within the big banks the big brokers.
Bank loan brokers.
And so we're at the early days in terms of disrupting that so we see this product as a as an opportunity to drive meaningful.
Meaningful member growth.
Member engagement.
At a low cost CAC and given the fact that we are going to be very early.
And we also think that in this volatile environment that there is going to be a shakeout in the industry.
Which actually in the long run is going to be better for larger better capitalized diversified players like like MOGO.
So in a lot of ways as painful as this if this is for all of US are in the <unk>.
Long run we actually believe we will have some some better long term dynamic impacts from a competitive perspective.
Great and if I could sneak one last one in.
In terms of the go to market. Once it's fully live can you remind us how you intend on advertising for the product how the rollout will look up look like.
Sure so.
We're trying to be pretty thoughtful and careful on on how we do this this again is definitely you know put it in perspective, you know the scope of this from a product perspective.
Is at least 100 times anything we've done in the past right. I mean, the last you know product really we launch would have been vick, our bitcoin account several years ago, So and before that card. So in terms of just kind of scope and complexity, including the regulatory I mean, this as you know.
Probably 100 ask anything we've done which is why we've obviously been focused on it for the last year.
But we've also learned a lot in terms of rolling out a product in and getting product market fit and that's also why we've been really careful on the current rollout including the.
<unk> process really making sure that we're getting the right feedback I mean that literally includes you know having people sign up literally monitoring the actual sign up the experience you know noticing everything they're doing what they're understanding what they're not understanding and because of that you know making adjustments to the user experience.
And then we're going to be doing the same thing you know once we take the invitation list off and that's kind of the next phase where you start to get more and more people signing up.
And really what what youll be looking and what we're gonna be looking for is really those signs of product market fit you know you you're getting a good.
User experience good feedback from existing users and those are the things you need to see and want to see before you kind of hit the go button on paid marketing right.
Which is really when you start to get a good return there if you're a premature there and you don't really know you've got the right product experience then it can be premature so now as it relates to that we've actually you know are in the midst of completing probably well not probably our biggest creative campaign ever there's actually a 30 seconds.
Spot that we've created a we've used an external agency.
That is essentially going to be ready to go once we believe the product is ready.
And then there's a whole bunch of other kind of P. R and and other social elements that are all part of this strategy that'll play out over the next you know.
Six months right. So it's it'll be you know definitely are our biggest marketing and in product launch ever as well and when we get to it.
Yeah.
Okay, great looking forward to it.
I'll pass the line thanks, guys. Thanks.
Once again as a reminder, ladies and gentlemen, if you would like to ask a question. Please slowly press star followed by one on your Touchtone phone.
And your next question will be from Scott Buck at H C. Wainwright. Please go ahead.
Hi, good afternoon guys.
I'm curious could you give me a little bit more color on the revised revenue outlook are you down kind of $6 million or so at the midpoint what of that is attributable to the slower rollout of MOGO trade versus the cardio products.
Yes, Scott so it really is the combination of the two.
Given some of the the regulatory complexities of getting trade out there.
We talked about so that the product itself and the timing of the launches and totally within our control and and just given kind of the lower volumes that we're seeing in the other macro challenges. We're seeing we felt it was prudent to be very very conservative there given we haven't.
Actually fully rolled that product out yet.
So that was.
Uh huh.
A big chunk of that revenue.
Over 50% and then the balance would be a would be carta and what what's going on there is we were expecting some rollouts with some of our existing customers.
Which were pushed out to 2023, so we still expect to get that but that's going to happen. In 2023 now you can never perfectly time those things there is a bunch of factors that go into it.
So that's the other component of <unk>.
Let let's say a more conservative approach and again, our general view is in this environment.
Taking a conservative approach as is is the is the prudent way to go.
We do think that you know.
Both MOGO trade.
Yeah and card out our position to drive growth in 2023 for us.
But obviously the visibility on those items in the second half of this year are more challenging so we decided to reduce that outlook.
Great. That's very helpful. And then second on the EBITDA commentary.
Is this you.
Proactively pulling back on some growth investments beginning in <unk> or is this just kind of a more natural progression.
Yeah, I mean, I think it's just you know obviously in the current environment.
Putting a level of discipline on the on the spend here.
That that we believe will continue to show our path to profitability.
So I think that is the lens that we're looking at it a buy button, but importantly, as I mentioned on the call. We've talked about in the past. We obviously have growth that we can turn back very quickly and very aggressively if we felt we needed to so the reality is.
I have a lot of ways, we have a lot of ways to manage and control that EBITDA number.
We see we are balancing or are the opportunities that we see on the investment side in.
In areas like mobile trade in areas like Carta with you know the you know the more volatile markets and investors' concern on path to profitability I think what makes US unique is we're not just saying we have a path to profitability, we've actually proven in the past our ability to generate a.
Positive EBITDA positive castle, and do that quickly and by the way that was back when we were generating $10 million a quarter revenue now we're over $17 million.
And then the other component, which I think is in a really important differentiator, which we've talked about in the past, but the market didn't appreciate it is a high recurring revenue nature of our business. So the reality is if you are a high transaction fee based revenue business.
It's very difficult to figure out how to cut your way to profitability because you don't know what your revenue is going to be next quarter.
And we've seen that those those revenue streams can drop off very quickly.
But we obviously have spent a long time building up the recurring piece.
And that obviously gives us visibility and the ability to manage our spend towards whatever our profitability targets are.
No that's great.
Member growth remains pretty impressive is there a particular product or two that is driving that and kind of as a follow up there. Your posted 2 million members at this point right I mean, how much room is there left in the Canadian market.
Well I'll, let Dave talk about what what we see as the bigger opportunity there but.
It actually is fairly broad based and I mean look they.
I think one of our advantages is we have multiple products and we have.
Multiple multiple ways for members to onboard.
And obviously, we're super excited about getting MOGO trade out there and quite frankly, we see that as one of the biggest opportunities to drive that member growth that at attractive cap.
Level. So that's something we're focused on but I would say, it's fairly broad based as far as the <unk>.
Size of the Tam, maybe I'll, let Dave speak to that sure.
Yeah, I mean, a couple of comments, obviously theres two ways to obviously grow the business you know even if the member base actually didn't grow that much and that's clearly good.
Getting more adoption from our member base with our existing products as I mentioned earlier.
Today, we have over 100, just over 145000 subscribers I'm OCA.
But as you mentioned, we're close to $2 million on the member side. So yeah, that's still a new product for us we theres a lot of opportunities there in terms of marketing that to our existing customer.
Customer base, including kind of integration with.
Just rolled out as I mentioned in my commentary.
Essentially updates for the mobile App that also position. This is a great long term wealth building solution of which we believe all of our members need we can put that up against anybody's product in the marketplace.
But also just give you another perspective.
Obviously, you know you look at a company like a bank like RBC RBC has over 13 million customer accounts right in Canada right. So you know the largest kind of financial players are well north of 10 million right in terms of customers. So it's a combination of.
Obviously, increasing the the attack attachment rate of our existing members based on kind of our broader product offering as well as obviously, increasing the member base Tangerine as an example, which use V. I N. G. Direct has approximately 2 million customers National Bank has approximately $2 million.
Customer accounts and these are obviously companies that are in the.
Tens of billions. So you can still grow your business materially just from your existing member base as you kind of bring out other products along with obviously growing it.
No that makes a ton of sense and then last one for me quickly did you guys repurchased any shares during the quarter.
Sorry, no. We did not we are subject to certain blackout restrictions on that but no we did not.
Okay understood I appreciate the time guys. Thanks, a lot. Thank you.
Thank you.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star followed by one you touched on the phone.
Okay.
The next question will be from Josh Horowitz Uptown. Please go ahead.
Yes.
Hi, everybody, Thanks, Hey, Greg.
Good quarter.
Yes.
Hi follow up to the last caller's question I know that it's always tougher boards to buyback shares and subject to all kinds of restrictions.
Volume weighted average price during a day blackout all this stuff, but I guess conceptually in a perfect world given the large discount to intrinsic value is it something that you guys would like to do or the course of the year should the restrictions lift.
So the answer is yes. So obviously, we don't believe that the current share price here is reflective.
Of the underlying value of our business, nor quite frankly, the assets on our balance sheet.
So you know.
And that's why we put that share buyback in place.
So we will absolutely.
<unk> be looking at opportunities to.
Uh huh.
To leverage that buyback when we a have windows and we feel it's appropriate.
Great. Thank you.
Thanks.
Thank you and at this time gentlemen, we have no further questions. Please proceed.
Well. Thank you for your questions today and for joining us on our Q1 call. We look forward to updating you post our Q2 results. Thanks again.
Thank you Sir.
Ladies and gentlemen, this does indeed conclude your conference call for today once again, thank you for attending.
And at this time, we do ask that you. Please disconnect your lines.
Okay.
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Yeah.
Okay.
Okay.
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