Orion Digital Corp

Good afternoon, and welcome to the MoGo Q3 2021 earnings conference call and webcast. Please note that all lines will be in listen-only mode until the question and answer session of today's conference. To ask a question over the phone by that time, you may press the star key followed by the number one. I'll now turn the call over to your host, Head of Investor Relations, Craig Armitage. Sir, you may now begin.

Thank you. Good afternoon and thanks for joining us today. Just a couple of quick notes before we get started. 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 our Q3 2021 filings. well as periodic filings with regulators in canada and the united states which you can find on cedar edgar and the company website second today's discussion will include some adjusted financial measures which are non-ifrs measures these should be considered as a supplement to and not as a substitute for the ifrs financial measures also the amounts today are discussing canadian dollars unless otherwise indicated and lastly as per our normal practice we do have presentation slides available To accompany today's call, I encourage you to download those from the investor relations section of the website. With that, I'll turn the call over to Dave Feller to get us started. Dave?

Thanks, Greg. Good afternoon. Welcome to MoGo's third quarter 2021 results call. I'm joined today by Greg Feller, our president and CFO. Building on a strong Q2 result, this quarter showcased the strength of our business and its multiple revenue drivers, which helped drive record subscription and services revenue growth. even in a market where some fintech and crypto companies saw declining sequential Q3 revenue. The diversification we've added has really helped to solidify the business model. Building a successful fintech is definitely hard. You have to differentiate yourself from the existing banks as well as fintech competition while also developing solid unit economics and a business model. Mogul has clearly demonstrated success in this regard, and at the same time, we appreciate we're still at a small scale relative to the massive market opportunity. As a result, we are investing heavily and appropriately for long-term growth, led by our biggest initiative ever in mogul trade. Two of the biggest issues of our time are climate change and the wealth gap, and they are clearly linked and ties directly into our mission. Our team continues to be guided by a simple mission to make it easy and engaging for consumers to get financially fit and live a more sustainable lifestyle. Save planet, stack money. Our strategy and performance are driving our results and reflected in strong third quarter and year-to-date performance. Highlights include 64% increase in our member base to 1.8 million, subscription and services revenue accelerated to 126% year-over-year, payment processing volume was up 65% to 2.4 billion, and just as importantly, through our platform, our members have now contributed to planting over 500,000 trees. Ultimately, we believe that a next-gen money solution will be one that makes it simple and engaging to not only achieve financial freedom, but in a way that also positively impacts the planet. The fact is that becoming a millionaire is very achievable for almost anyone if they get into the right habits early on. If someone today who is 20 years old began investing just $200 a month in the market based on the average return over the last 100 years of the S&P, they could get to almost $3 million by the time they're 70 years old. And if that member was also using MoGo for the majority of their spending and investing, during that timeline, the average person would also plant over 30,000 trees. There's no question that the hardest part of wealth building equation really comes down to spending. As we all know, it's possible to be broke even if you have a high income and if you're overspending, just as it's possible to be on track to being a millionaire even if you're only making $30,000 a year, well below the average, if you're spending less than you make so you have more money for saving and investing. Today, we live in a world of not only credit cards that make it easy to overspend, but new solutions like Buy Now, Pay Later that also help drive overspending. We are focused on more of the Buy Now, Pay Now lifestyle and helping people spend less than they make, which is why our average user reports saving over $200 a month. Again, $200 a month invested can turn into almost $3 million over time. What's more, this is the first and only spending card in Canada that actually makes it easy and even free to not only be net zero, but climate positive. The average Canadian uses their debit and credit card about 50 times a month. If that was done through MoGo, the average person would plant enough trees to absorb about 300,000 pounds of CO2 a year, which is more than six times the average carbon footprint of a Canadian today. So this isn't just a tool to control spending. It's perhaps the most powerful tool around for the average person to make a big impact in helping stop climate change. In fact, if just 20% of all spending in Canada were done through this card, Canada would be climate positive today. We are still early days in the new value proposition and continue to focus on increasing awareness of the product and encourage with the growth trend we're seeing in spend volume with Q3 up over 900% versus the same period last year. The other part of the planet saving stacking money solution is investing and our goal is to build the leading next-gen digital wealth platform in Canada and we're extremely excited about the progress we're making in this area. This is a massive market in Canada. In fact, Canadians have over $8 trillion in financial assets, including more than $3 trillion in equities, mutual funds, and ETFs. There are two key elements of our wealth platform that we're focused on. One is passive investing, and the other is active investing. In the long run, we believe that most people have a blend of both, and so we see the two as complementary. In terms of active investing, we're still heads down on our biggest growth initiative ever, Mogotrade. Mogotrade is now a Canadian registered investment dealer and a member of IROC. Our goal with Mogotrade is to build a modern next-gen trading platform that is truly native to where things are going. We continue to witness the rise of retail trading, not just in equities, but in cryptocurrencies and even NFTs. It's no longer just a world of Monday to Friday where the markets close at 4 p.m. We now live in a world where things are being traded 24-7, 365 days a year globally, particularly with crypto. Our goal for trade is to build a platform that has been built with this new world in mind. As previously announced, our goal is to start with commission-free stock trading, and our goal remains to launch this in this quarter, subject to regulatory approval. Unlike the U.S., commission-free trading is still very new in Canada, and there is currently only one other commission-free trading app in the market, and we expect to be the second. We are also excited about our differentiated value proposition, including the first trading app, but also helps make every investment you make greener by planting a tree with every stock purchased. There are also some other firsts in terms of innovation in the Canadian market, which we think will help us achieve product market fit early on. Again, our goal remains to launch this quarter, subject to final regulatory approval. We were one of the earliest companies in Canada to offer Bitcoin back in 2018, and we believe more than ever in the market opportunity for crypto. This space is rapidly evolving, and we plan on being a major player in the Canadian crypto space. From a product standpoint, our goal is to build a leading crypto platform within MogoTrade right alongside stocks. In terms of growth opportunity for crypto, the estimated market cap of stocks globally is around $100 trillion today versus just $3 trillion for crypto today. What's more, again, crypto trade 24-7, 365, and global in nature. Similar to how we have put the pieces together for stock trading, we are very focused on the strategic components for crypto and importantly believe that the future of this space is a platform that brings them all together. Worth noting, we also recently announced the first climate-positive Bitcoin in the world, so now the best-performing asset class of last decade is now one of the greenest through MoGo. The other key part of our wealth-building platform is passive investing, and through our asset management business, we offer passive investing to our members, including the ability to round up and save or make regular contributions. Total AUM is approaching approximately $300 million today, and an area that we also believe will continue to grow right alongside active investing. Gamification has always been an important part of our product strategy, and our Bitcoin rewards program is something we continue to build out and leverage, both internally with our members, as well as externally with new marketing partnerships like the one we recently announced with the Element Combo. Just like any good game, our goal is to reward users with Bitcoin as ways to motivate them towards their financial goals, whether that's improving their credit score or reaching savings goals. Just another example of what we think a modern platform will look like versus traditional banking experience today. Why not making getting wealthy and saving the planet one of the coolest and most rewarding games you can play? In terms of our brand and marketing strategy, we are continuing to focus on not only cost-effective channels to drive growth, but important partnerships like gaming that not only help to drive relevancy of our brand, but leverage gamers for spreading the word. Lots of exciting things on the horizon here, and I believe in the long run our brand can and will become a competitive differentiator alongside a strong and differentiated product and value propositions. One of the key strategic advantages we have with our platform is our payments platform. Not only does this give us the benefits of vertical integration in terms of long-term cost advantages, but also serves as another revenue driver. We've seen this model before in terms of companies like Amazon building a core competency in web services and then offering this as a service for other businesses. Again, our payments volume is up 65% year-over-year to $2.4 billion. Another important strategic opportunity with this business is potential new partnership opportunities for MoGo through our B2B partners. As we continue to build out our platform and key areas like legal and compliance, we continue to build a competitive moat that isn't easy to replicate. Hundreds of millions in investments and years of work are needed to get to where we are today, and we continue to build on this moat every quarter. With that, I will introduce Greg to walk through the financials. Thanks, Dave. Building on a strong Q2, our third quarter results were again highlighted by accelerating top-line growth from an increasingly diversified set of products and revenue streams, which allowed us to raise outlook for both Q4 subscription services revenue as well as total revenue for full year 2022. Key third highlights include a significant jump in our member base, second quarter in a row of accelerating total revenue growth, and third quarter in a row of accelerating subscription services revenue growth. Record gross profit, and we also ended the quarter with a strong balance sheet, including approximately $64 million of cash and in our investment portfolio. This amount excludes our approximate $128 million book value investment in crypto exchange Coinsquare. MoGo's total member base increased by 64% over last year to approximately 1.8 million members from a combination of accelerating net member additions and the benefit of members acquired as part of our MoCo acquisition. We believe the scale of our member base, which excludes Coinsquare, is approximately 600,000 members, puts us in rare category in terms of member breadth and scale in Canada. Our member base is also an incredibly valuable asset that enhances our ability to successfully launch new products like MoGo Trade. That product in particular should enable us to both increase member monetization as well as further accelerate the growth of new members. Q3 2021 revenue growth of 58% was driven by continued acceleration of subscription services growth, which increased 126% year-over-year and now makes up 61% of total revenue. The growth comes from an increasingly diversified set of products and revenue streams, including the contribution of acquisitions, along with a substantial increase in MoGo card volume and revenue, which saw volumes increase 834% year-over-year, as well as strong organic growth of subscription and payment processing revenue. MoGo crypto was not a driver of revenue growth this quarter, given the overall decreases in volume seen in the market, but we still exceeded expectations this quarter, highlighting the diversification of recurring components of our models. In a period of high revenue volatility experienced by a number of fintech and crypto players, we were very happy with both the growth and resiliency of our model, which includes a high percentage of recurring revenue across a diverse stream of products. The high recurring revenue component of our model at approximately 95% also gives us increased confidence in our outlook. Total ARPU of $36 this quarter was down slightly from last quarter due to significant growth in our average member count during the quarter, Although we expect this number to have some volatility quarter to quarter, in the long term, we see a significant opportunity to expand this metric. As a reminder, the average ARPU by most of the Canadian banks and credit unions is $1,000 or greater. In 2020, we clearly demonstrated the underlying profitability of our financial model. Combined with strong industry tailwinds, this gave us a conviction to significantly increase our investments and growth initiatives, and we're starting to see the benefits of those investments in Q3. Specifically, we continue to make the largest investment in our history in the development of mogul trade, which we expect to be a major driver of member and revenue growth. This is a massive TAM. We were in very early innings of the shift in Canada to a fully digital and mobile trading experience, not to mention the shift to commission-free trading. In addition, we are making a big investment in digital payments business as we expand into the massive U.S. market and see significant opportunities to grow the business over the long term. Importantly, we have discussed before a high profitability model that generated close to 50% margins in Q2 and Q3 when we chose to dial back our levers. This should give investors confidence in our ability to manage the growth spend and these levers going forward. A significant and perhaps underappreciated asset on our balance sheet is the 39% ownership in crypto platform Coinsquare. Our total book value of our investment on our balance sheet is approximately $129 million in the quarter. When you include this investment alongside our cash cash, digital assets, and investment portfolio. We have close to $200 million cash investments on our balance sheet today. It's the second period we've accounted for the investment under the equity method, and we recognize pickup loss of $2.5 million and $5.5 million for the three and nine months for September 30th. The $2.5 million loss was driven primarily by MoGo's share of Coinsquare's $5 million loss in the quarter and the amortization of Coinsquare's intangible asset fair value at acquisition date. Coinsquare's Q3 loss was largely driven by non-operating losses related to the revaluation of equity investments in the quarter, including shares it holds in MoGo. In terms of Q3 results for Coinsquare, they were impacted by lower cryptocurrency volumes that were also seen across the broader sector. Subsequent to Q3, however, Coinsquare has seen a meaningful pickup in volumes, resulting in revenue of $3.6 million for the month of October alone, which represents a meaningful increase over the average performance in Q3. CoinSquare's total assets under custody were approximately $851 million at the end of October. We continue to be big believers in the disruptive power of crypto and its importance in any next-gen digital financial platform and continue to view CoinSquare as a strategic and attractive long-term investment. Although we do have crypto-related revenue at MoGo, it accounts for less than 5% of our total revenue, so crypto volatility doesn't have a meaningful impact on our core business and results. During Q3, we also announced a small investment in Tetra, which spun off from Coinscript and became Canada's first qualified custodian for crypto assets. Core business is the custody and storage of cryptocurrency assets, including Bitcoin, Ether, and a variety of other digital assets. We continue to have a sizable investment portfolio in our balance sheet of about $19 million, which we have been slowly migrating from legacy investments into companies that we believe have strategic value and partnership opportunities for Mogul and our ecosystem in Canada. A great example is our investment in the gaming sector, which increasingly is converging with the crypto sector, as well as the emerging metaverse, all of which are clearly relevant for MoGo and a role in that ecosystem. Our portfolio includes investments in digital assets, Bitcoin and Ethereum, with both seeing significant appreciation since our original investment was started back in January. We also expect to see monetization opportunities within the portfolio over the next six to 12 months as some of our portfolio companies pursue IPOs. Our strong results here today and the multiple growth drivers have talked about today enable us to increase our financial guidance for the remainder of 2021 as well as for 2022. Specifically, we expect year-over-year growth of 110% to 115% in subscription services revenue in Q4. That compares to the previously guidance of 100% to 110%. We are also expecting total revenue for 2022 in the range of $75 million to $80 million, up from previous guidance of $70 million to $75 million. While we are investing heavily in growth, we do anticipate improving adjusted EBITDA margins in 2022. And we also believe that we continue to increase our scale EBITDA margins in the range of 35% are achievable over time. While we do expect to remain active in M&A, we've not factored that into our outlook at this time. To quickly summarize, it's been a strong year to date for MoGo, and we are carrying great momentum into 2022, where we expect to complement an already strong revenue profile with upside for MoGo trade. We're targeting a massive addressable market supported by long-term tailwinds, and we are heavily investing to build a next-gen fintech platform that can capture more of this market. With that, we will now open the call to questions. Operator?