Q3 2023 Mogo Inc Earnings Call
Ladies and gentlemen, please standby your conference will begin shortly.
[music].
Ladies and gentlemen, please stand by we do apologize for the delay the conference will begin shortly thank you.
[music].
Okay.
[music].
Good afternoon, ladies and gentlemen, and welcome to the medical third quarter 2023 earnings Conference call.
At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
At any time during this call you need assistance. Please press star zero for the operator.
This call is being recorded on Thursday November nine 2023.
I would now like to turn the conference over to Craig <unk>. Please go ahead.
Thank you Joanna and good afternoon, everyone. Thanks for joining US today, 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 <unk> Q3 filings as well as periodic filings with regulators in Canada, and the United States, which youll find on SEDAR, Edgar and you can access through our Investor relations website as well.
Secondly, today's discussion will include several adjusted financial measures.
Non <unk> measures. Please consider these as a supplement to and not as a substitute for the IRS measures and we've included reconciliations to those which youll see in the press release in the Investor deck.
And with that I'll turn it over to Dave color to get US started go ahead David.
Thanks, Craig.
Thank you good afternoon, and welcome to our third quarter 2023 results call I'm joined today by Greg <unk>, our president and CFO.
Our third quarter results showcase the continued progress we're making in building a highly efficient and more profitable operating platform at mobile one that will allow us to scale more profitably over time, while also driving long term organic growth across our products.
As you can see we're continuing to make solid progress Q3 revenue was $16 2 million up from $16 million in Q2 of 2023 is there a second quarter in a row of sequential quarterly revenue growth.
Solid quarter with continued improvement in adjusted EBITDA from a loss of $2 8 million last year to positive $2 1 million this quarter.
Q3, gross profit increased $11 4, million% to 70% margin compared to $10 8, million% to 63% margin in Q3 of last year.
We continue to be on a path towards our EBITDA target of $7 million to $9 million.
Our progress goes beyond efficiencies as we're also seeing growth of their business, which we will touch on.
We continue to focus in both our Canadian consumer Fintech business, and our BTB international payments business over the last 18 months, we successfully simplified and narrowed our focus and you can consider.
Two main business segments mobile, which includes wealth in lending and card of our payments business. This runs completely independently with its own team resources, Let me highlight some of the progress and plans for each beginning with Carter.
We saw strong year over year growth in payment volume driven by growth from existing customer base Q3 payments volume increased over 30% to $2 4 billion.
<unk> to our wealth products card offers payment processing at a fraction of the cost of the big players and given the massive market size. We believe there's a lot of runway for growth.
We continue to make progress in terms of improving the efficiency of the platform and productivity of the team, including our migration to the Oracle cloud, which will enable us to scale more efficiently.
We continue.
To be excited about the progress and long term growth opportunity wealth. Our main focus is on building the ultimate wealth building platform that helps Canadian investors dramatically improved their performance, while also making a positive impact.
Reality is that wealth management in the investing space in Canada is broken and it's the primary reason why the vast majority are non track to retirement.
This graph illustrates the problem we're focused on solving.
30 year study showed that the average return of equity investors also only 4% versus the 10% average of the S&P now.
Now if you look at our target customer who is a 50 year investing time horizon. The difference translates into a staggering 16 at five times more money.
This is also one of the key reasons why 75% of Canadians between the ages of 55 to 65, who have yet to retire had less than 100000 and saved.
Why is the problem so big.
<unk> focused on optimizing for their profits not their customers.
Almost two trillion mutual funds that are charging and averaged 2% that's $40 billion a year in fees for the privilege of underperforming simply put it's a racket.
So how do we fix this.
One of the big inspirations to our approach as Warren Buffett, who is widely considered the greatest investor of all time is recommended approach is for the average investor to rely on a path of S&P 500 index strategy and only those that are truly prepared to do their homework and I had the right temperament should consider actively picking their own stocks.
The reality is this is the approach the vast majority take and is the reason why the vast majority of dramatically underperformed the market.
Buffett's partner, Charlie Munger said it best knowing what you don't know is more useful than being brilliant.
The advice, but that has given many times. There's also brilliantly simple consistently by an S&P low cost index fund keep buying it through thick and thin and especially through thin.
We've made it simple for anyone to get to get a long term path to financial freedom by following this formula while also making a positive impact.
For only 499, a month, we automated and fully manage this for our users we choose the Etfs. This is actually more complicated than most realized given how many etfs are available the difference in fees and importantly, choosing between hedged and unhedged, what's more we enable fractional investing so users can easily set up 10 to 25 $400 a week any amount they choose.
We also automatically reinvest the dividends. This is another important element the DIY investors often aren't aware of about 30% of the 10% average return on the S&P actually comes through dividend reinvesting.
At anytime users can adjust your contribution easily do one time deposits instead as many goals that they want all from the App.
Again this is a massive market and we are very small player with a compelling value proposition that positions us for significant long term growth.
It's also important to note that in most of life. The more money you have the better things you can buy but in investing in personal finances is rarely true.
For those who want to actively manage their investing we built mobile trade. There are many things that set us apart from a every other DIY trading app, but without question. The biggest one is we are primarily focused on helping our users improve their performance versus actively trying to get them to trade more.
Not only do we educate our users and how hard it is to beat the market.
If 95% of professionals can't do it what makes you think you can we.
We in fact are actively encouraging people to not trade given the reality and for those that are really prepared to do the homework. We're building an experience that helps them investors avoid the speculation that causes poorer performance and really focuses on thoughtful long term investing.
As an investor you can have three kinds of advantages informational you know something others Bachelors don't analytical you do your homework better than others and behavioral you think and act more rational than others behavioral advantages are by far the most interesting is their most enduring and impactful as Buffett says the most important quality for an investor is temperament.
Not intellect.
On top of our focus on helping users invest wisely. We also offer a zero Commission zuroff, XP and <unk>, making mobile trade the lowest cost and most sustainable way to invest in Canada. We're not only proud of the experience we built to help people improve their performance, but doing it in a way that also has a meaningful positive impact really puts our solution on another level. This is also something.
That our internal survey show that our users really appreciate and value.
I thought it was important that we also showcase how this is impacting real people Vince is a real person and like many Canadians in their twenties wasn't sure how to invest but knew it was important although he has consistently saving he wasn't sure whether or not that would put them on a path to financial freedom.
After discovering moca.
And gaining confidence in the approach is now on a path to financial freedom and why do you discovered was shocking. He had just kept doing how do you just kept doing what he is doing he would've ended up with a fraction of what was possible one of the things we consistently see as well is when someone lacks confidence in the approach. It also impacts the level of commitment.
As you can see then significantly decreases contributions, but that's only part of it had he simply increase but kept in savings he would've been on a path to 350000 versus the $6 million. We've seen many of these examples where the impact is typically 10 X plus versus their existing strategy.
Lastly.
Our results continued to be driven by the performance of our team and the high performance culture. We've been building. This has also helped US increase our revenue per employee metric that we believe captures efficiency improvements we are relatively small team going up against literally the biggest companies in Canada with almost unlimited capital resources. This along with our mission is what motivates our team to work hard to deliver.
<unk> really help Canadians dramatically improve their financial path.
With that I'll turn it over to Greg.
Thanks, Dave Good afternoon to everyone. The third quarter was our second quarter in a row of sequential topline growth in the fourth quarter in a row of positive and increasing adjusted EBITDA clearly demonstrating the strength and resiliency of our model, while we placed significant focus on driving increased efficiencies and profitability over the past 18 months, which included.
Decision to exit unprofitable product. We've also continued to invest in our wealth and payments platform as.
We view these as the two strong drivers of growth going forward and while our reported revenue declined year over year due to difficult comparisons to 'twenty. Two we've now clearly seen a return to revenue growth with Q3 revenue up sequentially to $16 2 million, our second quarter in a row of sequential topline growth importantly, this growth is happening with less than $1 million a quarter of <unk>.
Operating spend today as you move into 2024 and launch our marketing initiatives for our wealth platform. We believe that this along with the strong growth. We are seeing in our payments and lending business will set us up for delivering on accelerating revenue growth in 2024.
Our strong focus on efficiencies resulted in total opex decreasing by 34% from $18 5 million in Q3 of last year to $12 2 million. This quarter in dollar terms. That's a decrease of $6 2 million in quarterly expenses well ahead of our original target.
And although we expect some additional cost savings going forward, we plan to invest some of those savings into increased marketing development spend to drive the accelerating revenue growth. We are targeting 24 importantly, any investment spend we do make will be guided by the rule of 40, and therefore require an expectation of increased top line growth from that spend.
These cost reductions translate into another strong quarter of adjusted EBITDA expansion adjusted EBITDA grew for the sixth quarter in a row, increasing nearly $5 million of the same period last year to $2 1 million in Q3.
Importantly, we have also seen a corresponding significant increase in cash flow from operations, which went from negative one 5 million in Q3 to positive $2 6 million this quarter before discretionary investment and loan book. These.
These improvements also resulted in a reduction of our adjusted net loss in every quarter since the start of 2022 and that continued in Q3 with adjusted net loss of $2 6 million versus $2 nine in Q2, and $8 4 million in the comparable period in 2002.
These results keep us solidly on track to deliver further adjusted EBITDA expansion in the fourth quarter and reach our full year 2023 targets.
In addition to the improved operating profitability, we continue to have a solid financial position. We ended the quarter with cash and total investments of roughly $44 million. This included a combined cash and restricted cash of $19 3 million, our investment portfolio with a book value of $12 7 million and as we discussed last quarter. Our assets. Now also include 87.
<unk> million shares in T. S. Next listed Wonder five technologies, which was valued at approximately $12 million at quarter end, we continue to believe that <unk> well positioned in the crypto market in Canada is the only fully regulated crypto exchange, a growing crypto payments business and a strong balance sheet as of July the company at $35 million of cash and $18 million in other.
Investments and over 700 million in assets under custody on their platform.
Importantly, with less than 25 million mobile shares outstanding today, our shareholders have leverage to about three and a half shares a wonderful I per mobile share given the meaningful exposure to this exciting asset class in crypto.
Turning to our outlook with our Q3 results, we reiterated our objectives for the full year 2023.
Specifically, we are focused on achieving full year, adjusted EBITDA of $7 million to $9 million.
And exiting 2023 with an annual adjusted EBITDA run rate of $10 million to $14 million based on our Q4, adjusted EBITDA target of two and a half to $3 5 million.
Our year to date results position us well to achieve these objectives and as we look out to next year to deliver an attractive combination of both topline growth and positive adjusted EBITDA margins towards our rule of 40 target in the second half of 2024.
With that we will now open the call to questions operator.
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 touch telephone you will hear us say telecom technology ever quest.
Speaker phone please lift the handset before pressing any case.
Your first question comes from Scott Buck from H C. Wainwright. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions.
Greg It seems like you guys are obviously poised for a return to revenue growth in 2024, how does that kind of fit in or could you give a little more specifics about how that fits in with the rule of 40 and what that means for.
For adjusted EBITDA, just in terms of.
What levers are going where.
Sure Yeah. Thanks, Scott. So so yes, I think as you know we've been focused on adjusted EBITDA positive adjusted EBITDA in 2023.
<unk>, three which we've now clearly achieved and have achieved that every single quarter.
Also importantly from a revenue growth perspective, although we.
Are not showing year over year revenue growth right now.
Due to the comparison period in 'twenty two when we had other products. We are importantly, showing sequential growth. So we really believe that revenue trough in Q1 of this year.
And we're growing from that level, but we do expect to return to year over year growth in early 2024.
And as we as you mentioned, we're targeting the rule of 40, so what does that mean.
It means that we are looking to get to a revenue growth.
Find revenue growth and adjusted EBITDA margin that total at least 40 at some point in 2024, and I would say that our bias.
Is to obviously remain adjusted EBITDA positive, but our bias is to have our revenue growth higher than our adjusted EBITDA margin at this point in time, just given the fact that we believe we have such a massive tam.
And so I think as we look at the those two levers we're going to be leaning.
More heavily on the growth side of it.
But importantly, our plan is to remain.
Adjusted EBITDA margin positive so.
So we have no intention to go back negative there just to drive growth that will be sort of a key guideposts for us is staying adjusted EBITDA margin positive.
But I think in the near term given the Tam that we've got ahead of US we're going to be more focused on getting there more weighted towards the growth side of the equation in that rule of 40 calculation.
Great. That's really helpful. And then second one for me.
This was the sixth consecutive quarter of sequential decline in tech spend is that reflect confidence in where you guys are in the product pipeline or is that more a rift.
Just trying to get to adjusted EBITDA positive.
So yeah, here's what I would say there we have as Dave talked about then focus on efficiencies.
And the reality is is we believe with the high efficiency culture, we've been building internally at MOGO, we're seeing very meaningful improvements in productivity from the team and.
And we believe we're operating at a higher level of productivity from all areas, including technology.
With a smaller team than we were before now as we move into 2024 and as we look at really sort of accelerating the top line.
I think the two big growth lever investments will be both marketing and technology.
So as I mentioned, we do believe that we have additional some additional cost saving opportunities, but we actually expect.
To be investing those more in the in the grocery related investment areas in the big ones, there will be technology and marketing.
Okay Super and then last one for me.
We've been bombarded down here in the states with negative news flow in terms of where credit card balances are and then increases in auto delinquencies can you just given that give us an update on the state of the consumer credit.
And your business.
Yes, so we.
As you know we've been operating in the credit environment in Canada for now 20 years, we've gone through all cycles, including the global financial crisis.
And managed to keep that business profitable throughout those cycles.
Our customer base.
And in the subprime space as we say is more used to operating.
In <unk> and in an environment.
I would say a a more pressured environment.
That quite frankly is now.
Covering more of the economy, but the reality is our customer base operates in that kind of area. Most of the time and because of that we generally don't see ads as meaningful of an increase in delinquencies in periods of stress that quite frankly the prime.
Lenders see so that's point number one.
And in fact actually on our major credit metrics that we follow and track whether it's charge off rate whether it's.
Total delinquencies, we've seen continued improvement over the last couple of quarters and over the last several quarters.
Including since 2022, so we feel really good about.
Where we are in terms of managing the risk.
That book, we've been pretty conservative on it and we also think we have a customer base.
Manage as well through these through the cycles.
One other data point I would just give you is that the big concern increasingly is just refinancing on mortgages and the impact that has on.
Consumers that their mortgage payment increases significantly, but the reality is for us is a.
Less than 25% of our customer base actually have mortgages majority of them actually rent.
And so in a lot of ways. There are a lot of them are insulated from what we kind of see as the biggest impact for a lot of consumers out there. So that would just be another data point.
Great I appreciate the added color there and just if I could squeeze one quick one in I'm curious where you guys are on your current repurchase authorization and should we expect to see you guys continue to buy back shares at these levels.
Yes, we have significant capacity in our share back buyback authorization, both on NASDAQ in the <unk>.
I think what you have seen.
Is that over the past several quarters.
<unk> have been a buyer of our stock in almost every quarter in the last four quarters.
So.
Obviously, we continue to believe.
That there is significant value there and in the markets arent, reflecting that value appropriately. So we think that's an opportunity.
And a good use of <unk>.
Our excess capital on our balance sheet so yeah.
Yes, I think it's fair to say that that that trend will probably continue at these levels.
Great I appreciate the time, guys and congrats on the quarter.
Thank you.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question comes from adhere Kathy from eight capital. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions.
Can you talk about maybe the three pillars of growth that you guys have been talking about.
Returned to growth into next year, where do you really see or what do you really see driving that in terms of the three the cards <unk> payments business the wealth business in the lending business, where do you really see that.
The growth coming from.
Okay.
<unk>, it's Greg I mean, really it's going to be a combination of all three of those.
I think over the long run we believe that.
Youre going to see wealth and payments growing at a faster rate than the credit side of the business.
But we think the credit side of the business will be a contributor to growth and not a drag on growth, which quite frankly has been on in the past.
But clearly the big upside that we see.
Is going to be from the wealth in the payment side.
And so I think ultimately, that's where you're going to see it more heavily weighted.
But we believe that Theres, a great opportunity in all three of these segments.
And.
So that's why we're.
Feeling pretty confident about our ability to drive accelerating growth as we go into 2024 and beyond.
Okay excellent and then maybe just on the marketing you guys have historically always had a very strong user base 2 million users.
As long as I can remember.
When you think about investing in marketing, how you balance that investing in trying to acquire new users or will you kind of just push the new products to your current user base, just kind of give us how to think about that balance as we head into 2024.
The growth aspect.
Sure.
Dave here.
I mean, obviously at the end of the day, we're going to continue to focus on leveraging our member base, obviously, our member base any at the end of the day, it's all about efficiency. So obviously acquiring converting an existing member into any of our products is always going to be kind of priority number one.
On the external marketing, we've always been very kind of disciplined and focused as it relates to efficiency there as well I mean, we track very closely our cost of customer acquisition.
Customer pay back how quickly do we get that acquisition cost payback.
And ultimately tie that into the lifetime value of the customer. So and then we continue to kind of optimize that based on what we're seeing.
Part of that also comes to Theres different customers out there are different segments same.
Same thing in lending all customers arent equal same thing on the wealth side right.
We're really focusing on growing assets. So obviously, you'll have different customer segments.
That are obviously worth more than that other segments as well.
And so as we continue to go out there with our paid marketing develop kind of those those profiles.
Figure out what those ltvs are and what the appropriate CAC is it.
In the long run it really becomes kind of a balanced blend of the two right.
So so I think that's the way we look at it.
Awesome and maybe just one last one for me just in terms of the broader optimization and cost efficiency that you are looking at of course, we've seen the strong EBITDA performance over the last six quarters, but is that largely behind you. I guess are you guys all done with that.
And if youre not what else needs to be done on those on those broader initiatives.
So yeah.
Go ahead Greg.
Yes.
I had mentioned in your mind in my comments, we actually do still have some additional initiatives that we are working on.
Including our migration to the cloud.
But what we're expecting to do is to take a lot of those savings and in messaging growth.
So we are going to be less focused on just driving absolute opex down and.
And we're focused on driving a combination of of EBITDA positive EBITDA.
And accelerating top line revenue.
Is how we're going to balance that going forward. So again, we do have additional initiatives.
But we do expect to use that freed up capital to invest in growth initiatives.
Awesome guys. Thank you very much for taking my question. So I'll pass the line.
Thanks.
Thank you we have no further questions I will turn the call back over for closing comments.
Okay, well, thanks again for joining us on our Q3 call. We look forward to updating you post Q4, thanks again.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.