Q2 2023 Mogo Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the medical Q2 2023 earnings Conference call. At this time all lines are in a listen only mode.
During the presentation, we will conduct a question and answer session. If at any time. During this call you need assistance. Please press star zero for the operator.
This call is being recorded on Thursday August 10 2023.
I would now like to turn the conference over to Greg I'm attach. Please go ahead.
Thank you Joanna and good afternoon, everyone. Thanks for joining US just a few notes 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 logos Q2 filings as well as periodic filings with regulators in Canada, and the United States, which you'll find on SEDAR Edgar and through the Investor Relations website a second.
Secondly, today's discussion will include some adjusted financial measures such as non <unk> measures. Please consider these as a supplement to but not as a substitute for the IRS measures and we've included reconciliations to those are both in the filings and the investor deck.
I'll now turn it over to Dave color to get started.
Thanks, Greg.
Thank you and good afternoon, and welcome to our second quarter 2023 results call I'm joined today by Greg Feller, our president and CFO .
Over the past year, we focused our team and resources on accelerating the path to profitability narrowing our product focus and building a more efficient operating platform one that will allow us to scale mogul profitably over time, while also driving long term organic growth in our three core pillars.
As you can see we're continuing to make solid progress.
We continued to significantly improve adjusted EBITDA, which went from negative $4 1 million last year to positive $1 8 million this quarter.
Cash flow from operations before investment in loan book improved from negative $2 5 million last year, and roughly breakeven last quarter to positive $2 1 million this quarter.
Although revenue was down slightly from last year due primarily to the elimination of unprofitable products gross profit increased from $11 3 million to $11 9 million.
Our progress goes beyond efficiencies as we are also seeing growth in our three key business segments, which we will touch on.
As part of this we increased our full year adjusted EBITDA guidance to a range of 7 million to $9 million.
Although much of our focus has been on narrowing our focus and simplifying the business along with driving efficiencies in every area. We've also been spending time investing in growth initiatives in all three pillars of our business.
As we move forward, we expect more and more of our time resources will be towards driving profitable growth.
Importantly, today, we are already seeing organic growth lending, although down year over year is up sequentially.
Wealth assets have grown about 14% year over year in payment volume is up 50%.
Beginning with wealth wealth includes Moca, MOGO trade and mobile asset management, which is an emerging b to b growth opportunity for our wealth business.
Total assets and wealth are up 14% year over year in this segment now contributes about one third of our subscription services revenue.
Perhaps most importantly, the growth we're seeing is all organic as we essentially spending nothing on marketing these products.
Obviously this is a massive market measured in the trillions and we have three meaningful ways to grow within it.
Although from a product perspective, we've been focused on the development of trade Moca continues to be an important business.
And a big opportunity going forward in terms of revenue Mark is the biggest driver within wealth. Our goal is to build the best most effective passive wealth solution in Canada that means making it easy for anyone to get on track to becoming a millionaire and helping everyone build wealth more effectively than what they're currently doing.
The best way to understand our primary value proposition is comparing investing through moca versus the average mutual fund, which is still the dominant way most Canadians invest with almost two trillion dollars today mutual funds.
The average fee for a mutual fund is around 2% assuming the same return for both portfolios over a 50 year period, you would end up with about double the amount of money with mocha. Our value proposition is simple moca is designed primarily as long term wealth solution based on an S&P 500 strategy now.
Now the reality is the average mutual fund historically dramatically underperformed. The S&P 500 in fact research shows that 95 per cent of financial professionals can't beat the benchmark overtime with Mocha users can also set up short term savings goals and our current short term yield is five 3% significantly higher than rates found in any high interest rate savings.
The count again this is all for $4.99 a month and at anytime users can adjust their contributions pause them do one time deposits and set up as many goals that they want all from the App. This is a massive market and we were a very small player with a very compelling value proposition that positions us for significant long term growth.
Mobile asset management. This is a business that we've talked about in the past and it's become a meaningful part of wealth. This is a beta b model, where we offer an independent platform for portfolio managers to grow their business, we provide the regulatory technological and operational infrastructure needed for an advisor to build their business.
And as an exempt market dealer, we also offer the ability for foreign investment managers, who distribute their alternative funds in Canada. This business continues to grow just by word of mouth and is now at a scale, that's driving meaningful revenue and profit contribution we're excited about long term growth prospects here.
In terms of product development mobile trade has been our primary focus for the last 12 months and we continue to make progress on our path to product market fit like Moca. Our goal is to build the most effective self directed trading platform in Canada, one that actually helps people become more successful investor.
Global trade is built for serious investors that know how hard it is to beat the market and are looking for every edge. They can get with zero Commission zero FX fee and zero C. O. Two mobile trade is the simplest lowest cost and most sustainable way to invest in Canada.
In terms of our competitive moat, we have built a very low cost platform that enables us to offer this unique value proposition. While it's still early days, we continue to see strong signs of product market fit including strong court retentions solid net promoter scores and a continued growth in assets on the platform.
Within wealth mobile trade is the fastest growing product.
Payments card is our payments business that runs completely independently of mogul with its own team and resources Kartik continues to grow payments volume up over 50% to two and a half billion. This is the second quarter in a row with year over year growth of 50%.
Two our wealth products Carter offers payment processing at a fraction of the cost of the big players and in today's world with a focus on efficiency and profitability, we think dispositions car dwell.
In terms of the long term growth opportunity payments is a massive market and were very small players. So there's lots of runway for Carter.
We have a long history in digital lending with over 20 years and this continues to be an important part of our business. Our moat includes 20 years of data and experience through multiple market cycles and deep organizational know how across all of the required capabilities.
Many fintech or looking to get into lending in some way, which speaks to the attractiveness of the business and the market opportunity.
As I mentioned earlier, although down year over year originations had been growing which drove a slight growth sequentially and we expect the growth to continue.
While we are while we also like the size of the opportunity for lending as a standalone product. We're also pleased with how synergistic it has become with well think about a traditional banking model where customers come in for savings checking and credit cards, and then attached to things like mutual funds, we see a similar opportunity here.
What's more is the same habit that enables someone to pay off the loan can be transferred to saving and investing I E going from being a debt to building wealth.
Now our results are really attributable directly to the performance of the team which continues to impress the team has really embraced our high performance culture and is helping improve productivity across the board totaled.
Total team members have gone from a high of 391 down to about 211 and mobile itself has gone from about 322 only 150.
A metric that I think highlights our progress is revenue per employee, which has gone from about 135000 in Q1 of 2021 to about 303000 this quarter all while also improving our growth prospects within our three pillars.
As we make further progress on our goals and see the results. The team continues to get more engaged we believe we're just getting started with that I will turn the call over to Greg.
Yeah.
Thanks, Dave.
We are very pleased again with the performance this quarter, where we achieved further meaningful EBITDA expansion driven by continued success in reducing our cost base through performance initiatives Spitz.
Specifically total opex decreased by 38% compared to Q2 last year in dollar terms, that's a decrease of $8 1 million exceeding our original targets of 25% to 35% reduction I.
I want to thank the entire team for the work to help US achieve these results and as Dave mentioned, we appreciate how everyone has really embraced our high performance culture, which continues to drive improving results.
As previously discussed our efficiency initiatives included a strategic decision to exit subscale and unprofitable products, which is that the short term impact to our revenue growth. We saw in the current quarter, However, and from a sequential basis, we were actually up slightly importantly. These initiatives also resulted in a material improvement to gross profit and gross margin year over year, but.
900 basis points or savings along with improved margins resulted in rapid improvement in adjusted EBITDA.
Year over year to $1 8 million in Q2.
This compares to a loss of $4 1 million EBITDA in the second quarter of 'twenty, two and perhaps more impressively was up 80% from Q1 importantly, these efficiency initiatives also resulted in increased cash flow from operations before investment and loan portfolio from.
From negative two and a half million in the year ago quarter to positive $2 1 million this quarter and up from just over breakeven in the first quarter of this year. In addition, our adjusted net loss decreased every quarter in 'twenty, two and that trend continued this year with Q2 adjusted loss of $2 9 million versus $3 nine in the first quarter and $9.
A half at the same time last year.
The results give us increased confidence in our ability to deliver further adjusted EBITDA expansion. This year reach your 2023 targets.
With today's results, we actually increase our full year, adjusted EBITDA guidance, which I'll review in a moment.
In addition to improve the operating profitability. We continue to have a solid financial position ended the quarter with cash and total investments of 52 million, which included combined cash and restricted cash of $22 million investment portfolio of 13, and a half million loss of $16 7 million dollar steak and coin square, which post quarter end with <unk>.
Burton into 87 million shares in T. S X listed Wonder Phy technologies.
We believe the new wonder five well positioned in the crypto market in Canada, and the only fully regulated crypto exchange to acquaint square, a growing crypto payments business and a strong balance sheet.
Turning to our outlook, we continue to focus on growing our adjusted EBITDA and improving our cash flow while at the same timing and prudent investments in future growth specifically for 2023 we're focused on achieving full year adjusted EBITDA of $7 million to $9 million up from our previous guidance of $6 million to $8 million.
Exiting 2023 with an annual adjusted EBITDA run rate of $10 million to $14 million, which is based on a Q4 23, adjusted EBITDA target of two and a half to three and a half million dollars.
We believe this will position us well for both margin expansion and accelerating revenue growth in 2024 and beyond.
And puts us on a path to achieving our rule of 40 target of combined adjusted EBITDA margins and revenue growth rate of 40%.
We also believe is highly differentiating for our public fintech at this scale to generate positive adjusted EBITDA will continue to make investments.
In our three core pillars.
Lastly, as you probably noticed in our release today, we have decided to move forward on a three for one share consolidation, which will address the nasdaq's share price requirement and will also result in us having less than 25 million basic shares outstanding. The consolidation is expected to go into effect from a trading perspective on Monday August .
The 12.
With that we will now open up the call to questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear actually Tom prompt acknowledging your other question.
You are using a speaker phone please lift the handset before pressing any keys.
Next question comes from adhere Kathy at eight capital. Please go ahead.
Hey, guys.
Good afternoon, and thanks for taking my questions and congratulations on these results.
Wanted to ask on the on the Opex reductions are you are you largely done with what you wanted to do at this point in time or how much more is there really to just go with the opex.
Production separately increase the adjusted EBITDA.
Yeah, So oh, Dear Oh, I'll take that and Dave can add on any comments that he wants I would say we are still looking we continue to look at efficiency opportunities. So.
So I would say most importantly, really the lens that we're looking at any opex reductions are not through a hey, just cut costs, but through this high performance culture on how do we prove this agency in all parts of our business and.
And we continue to believe there are opportunities to do that but I would say hey, the lion's share of those opex reductions are definitely behind us from our perspective as we sit here today and we obviously are continuing to make investments in our in the business. So importantly, we really are looking to balance.
<unk>.
Our our Oh opex level with with an adequate level of growth investments that we do believe can can drive.
You know longer term growth rates and our goal as I as we talked about is to really be in a position by the second half of 'twenty 'twenty four.
Where we're starting to achieve that our rule of 40 target, which obviously means we have a combined revenue growth and EBITDA margin in the in the 40% range and I think that's what we're looking to make sure we're able to deliver on and that requires obviously, a inadequate level of investment as well.
Excellent and just as we think about that rule of 40 target would that be more weighted towards more.
EBITDA would be weighted more towards <unk>.
Our revenue growth what would it be 50 50, because theres, obviously lots of levers in the business that you can pull but there's also great growth opportunities all with trade and mocha and all the things that you mentioned in your prepared remarks. So how would you think about bold of 40 years.
If we're thinking call it you know.
As we're sitting here next year.
Yeah.
I think I think high level 50, 50 growth rate EBITDA margin is probably are the right way to think about it.
But I, but I do think.
That are better aspirations are to have higher higher growth than that.
And if that requires a little less EBITDA margin to enable that and we think that's long term profitable growth and I think that's an adjustment will make but I think the base level is something close to 50 50 with sort of adjustments around the margin depending on the opportunities.
Where we see that that growth potential.
Okay excellent and then.
Wanted to ask about the product market fit and local trade, what what what really still needs to happen to really achieve that product market fit is there are we still thinking or what are you guys still thinking about like a broader a broader launch to the to the market.
Sure So it's Dave.
Thank you know maybe the right way to think about.
MOGO trade has really taken a step back and just thinking about wealth itself and in particular, our kind of our objective is to you.
Build the best will wealth building platform in Canada, which is based on a strategy of having a best in class passive along with a best in class active investing solution.
But it's also based on the belief that for the vast majority of people. They should rely primarily on a passive solution. So as much as we're building. This DIY active trading solution, our fundamental belief is and again, whether they if you think about what our objective is our objective isn't to create the biggest trade.
<unk> platform is to create the most successful wealth building platform and it's a combination of the two so as an example, I mean, given the stats that I in fact shared in my.
Remarks, you know.
95% of professional money managers can't beat the S&P 500 over time, so what does that mean for the average DIY investor right. So we're really trying to educate this isn't about trying to get as many people into trade is actually trying to get people into the right solution and for most of those people actually moca.
Is the right solution, so and what we're seeing now is even as we market a trade you know for some people moca may be the better solution. So if we bring 1000 people into bogo, we actually don't care, which one they choose we just want them to get into the best solution right.
And by the way obviously, the Moca business itself, it's reoccurring revenue subscription base. So it's got some attractive nature from that but we believe that having both of these platforms actually it makes our overall attractiveness, there and theres always going to be synergy a lot of people, who still invest you know, possibly also have.
Some level of active investing as well so there's going to be some synergy there.
From a product market fit perspective, we talk about that only because it really is about understanding that when your early days and a product you know that's the reality of where are you are we.
We actually believe today.
That based on the current product and the current user experience and features.
That theres no no big missing element to mobile trade today right. It really is about just continuing to see the feedback, making small tweaks to it and continuing to improve how we market and communicate that value proposition. So the reality is today theres not a lot of development that we feel we need to.
Make to the platform.
But you know maybe perhaps a lot of small tweaks as the best way to answer that.
Yeah, and I guess, what I would just add is is again our goal here and the way, we're really investing and looking at the wealth business is to grow the wealth business, we're not looking at it from the perspective grow any one product.
We want to grow the overall wealth business and we believe the right way to do that just like we believe the right way to grow grow. The overall MOGO is having synergistic products and having a compelling value proposition to bring members into MOGO and those those members may or may not choose to use all our.
Products, but what we care most about is they are using some of our products and we are building and growing that and so where we're less focused on any one individual product by itself and really sort of growing that overall pie and and and I think what we've really seen continue to highlight this quarter and I and I guess what were articulating this.
Order, which I don't think we have articulated before is the synergies that we're seeing of wealth across our broader man.
Member base and.
And how that's playing to our broader member base, our members that werent in wealth before and that value proposition quite frankly, driven more by moca today, and we're not really in the sort of hot retail stock trading environment that we were a few years ago and I'm sure that will that will come and go but from.
From an overall perspective of the long term that recurring revenue our recurring investment theme to our to our users and our members. That's that's the story that's a I think really really playing well and we're seeing what we believe is really good monetization.
Metrics in that that's starting to happen there.
Okay. Thanks for that color and then last last question and I'll pass the line here.
I Wonder if I shares obviously a significantly more.
Investment now for you guys. So just kind of gives you a lot of Optionality what are the plans for those shares are they largely do you just see a lot of.
The opportunity with one with what wonder if is doing just kind of thinking through what what you'd like to do with those shares.
Yeah. So look early days well post transaction there so.
The team there is working on integrating the three businesses and we think that wonder fine now has a very unique trading platform for crypto in Canada and again, the only fully regulated exchange.
Exchange in Canada are growing payments business. So.
So we think there's a lot of upside there and we're early days. So you know we're we're in no hurry to to monetize the position there, but obviously as you say given that theyre public it gives us a lot of optionality.
I think we feel good at MOGO about are our existing position. The again really important metric that we hit this quarter are cash flow positive from operations before investment alone book. The reason that metric. So important is the investment in loan book as you know is a dial we can control we turned that dialogue that actually turns into positive cash.
Cash flow from the loan book.
But if we're growing the loan book, obviously that that that that is a is a use of cash but would the clean asset on our balance sheet, but importantly, we're now at a point, where we're effectively we're self funding.
A lot of the growth of our of our of our own loan book and that was a really important milestone that we hit this quarter.
Yeah.
Awesome, Thanks, guys I'll pass the line.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question comes from Scott Buck from H C. Wainwright. Please go ahead.
Hi, Good afternoon, guys. Thanks for taking my questions first one.
If the Moca revenue is reoccurring versus transactional.
Seemingly make it more valuable or their upper M&A opportunities, there, where you could potentially scale the wealth business.
Meaningfully.
Yes, it's great Scott.
There definitely are opportunities there I mean, I think stepping back and thinking about M&A for MOGO. As you know we have been active in the past we haven't been active more recently, but we do think we have a very unique asset and platform in Canada and key Differentiators are 2 million plus.
Members makes us one of the biggest in Canada.
A and a strong underlying profitable model with scale. There I think there still remains a number of in Texas and Canada that are subscale havent reached profitability and it's going to be challenged in the challenging these markets to be able to do that so I think that gives us a lot of options.
As we think about M&A.
And that that could be in the in the wealth area for sure.
So that's something that we'll we'll keep an eye out here as we move forward.
That's helpful. Greg I appreciate that and then turning to the lending business and Theres a lot of talk here in the states about credit card balances reaching an.
All time highs it sounds like the demand is there for your own.
Lending I'm curious what the.
Credit environment looks like in terms of quality and and you know maybe where we go from here.
Yeah, So look I think.
A couple of things I would say on that.
First of all <unk> been in lending for 20 years and I think we have we have navigated through all markets, including the global financial crisis.
And economic times that are that are a lot more challenging than the times. We are seeing right. Now. The reality is we haven't really seen any any significant deterioration in the and the economy in Canada.
A lot of people are predicting a soft landing here.
But we're also we're taking a cautious approach we have a very small loan book are relative to the size of the Tam here, there where we were.
This is a multibillion dollar opportunity.
From a loan perspective here.
And we're sitting here today in a $55 million.
Our range. So we're very small and it's just one component.
Our of our overall.
Revenue piece.
I think our goal there is that is not a drag on growth.
And then it contributes but we really kind of see our other two businesses as being more of the primary driver. The other thing just to remind you our average loan size are very small.
Just over a thousand dollar average payment size very low.
That's why we've been able to navigate through more difficult times in a in a very positive way. So we're seeing good performance in the in the in the loan market today and relative to our scale. We think there's huge opportunity and it's just going to be one of the three components that we're going to be executing on.
Okay. That's helpful. And then last one on payments I am curious, where you guys see the incremental opportunities, obviously, 50% volume increase year over year, it's pretty impressive I'm curious, where we go from here.
So that the business is predominantly a European focused business and we have some some good customers. There that we are growing with them and we believe we have an opportunity just with our existing customer base to meaningfully grow the business from there.
Level of that right now and I would say.
That's our primary focus today, so we as Dave mentioned in his remarks.
We've really been positioning the business to be the low cost leader in the market and to be able to.
Produced support our customers and high volume at the most cost effective price and we think that's a very differentiated strategy.
And so I do think in the longer term there will be opportunities for us to.
Go in and compete with other players that quite frankly, we don't think can match or a match our pricing.
So we're trying to build every part of our business on a model that allows us to be a low cost winter. So we can have the lowest pricing in the industry and still make money. That's what we did with with this more of a trade and that's what we're gonna be doing on our on our payments business as well. So we think that gives us a lot of flexibility.
An opportunity ahead of us.
Great well I appreciate the added color guys. Congrats again on the quarter.
Thanks Scott.
Thank you there are no further questions I will turn it back over for closing comments.
Okay. Thanks again for joining us on our Q2 call. We look forward to updating you post Q3, thanks again.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask you. Please disconnect your lines.