Orion Digital Corp

Ladies and gentlemen, thank you for standing by for the MoGo Q1 2022 earnings call. I will now introduce Mr. Craig Armitage of Investor Relations. Please go ahead, sir.

Thank you, Sylvie. Good afternoon. 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 subjects 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, the U.S., which you can find on CDAR, EDGAR, and the company website. Second, today's discussion will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not as a substitute for IFRS measures. You'll find reconciliations in our filings for those measures. And 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. With that, I'll turn it over to Dave Feller to get us started. Dave?

Great. Thanks, Greg. Good afternoon, and welcome to MoGo's first quarter 2022 results call. I'm joined today by Greg Feller, our president CFO. Obviously, we're clearly in one of the most challenging environments we've seen in a while, and one of the things this market is showcasing is how different certain fintechs are in terms of revenue stability and 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 this strength in Q1 with member growth up 62%, revenue growth up 50% year-over-year, and record gross profit of over $12 million. It's important to note that this was also driven by the revenue base of our existing products, which is 95% recurring revenue. While our existing business model is strong, given the current environment, like all companies, we are taking a hard look at where we are 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, Mogotrade. Our mission continues to be all about making it easy for anyone to achieve financial freedom. The fact is that building wealth and financial health has been vastly overcomplicated, which is why most adults continue to struggle. In fact, 69% of 30 to 44 year olds are concerned to very concerned that they 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. Yet 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, and impact. We believe all three of these are key elements of a best-in-class next-gen 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 your spending. As we know, it's not really how much money you make, but how much you have left to invest that's the key to building wealth. As we just highlighted, 42% of Canadians are actually spending more than they make, which is also why 68% have debt other than mortgages. Our goal is simple, to make it easy for anyone to control their spending so they have money put towards their 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 if invested 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 a month savings, our average card user actually offsets double 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 this helps increase card spend in the quarter by over 70%. Controlling your spending is key to helping you save, but another way to set up is to set up an automated savings goal. Almost half of Canadians, 49% in fact, don't have any emergency savings. Again, this is a major problem and one that MoCA has been designed to help solve. Today, we have over 145,000 subscribers using MoCA to help them save for a variety of goals, including emergency savings. With over 10,000 five-star reviews, this has proven to be a simple and powerful way to help our members achieve their savings goals. For a low monthly fee of only $399, our members can easily set up multiple goals, and depending on their goals and risk profile, MoCA 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 MoCA, we also knew there was a big opportunity to turn this into a best-in-class long-term wealth building solution. But again, most don't know what to do, and it's been vastly overcomplicated. MoCA really makes it easy, and this chart shows how simple it can be. Simply set up an automated $200 a month debit from your bank account, and MoCA does the rest. Depending on how early someone starts, that can put them on track to being a multimillionaire. Put the $3.5 million 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 as 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 people invest and automating this. It's also about helping them retire with more money. Today, most deal with their banks that sell them on high fee mutual funds. In fact, total mutual funds in Canada are now at over $2 trillion. Last year alone, over $100 billion went into these. With fees that are usually around 2%, 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 over time, with the exact same amount invested, this 2% fee would actually result in someone retiring with less than 50% what they would have if they invested through Mocha. The magnitude of this can't be overstated. As you can see here, it's no wonder why the vast majority struggle to achieve a level of wealth through the current solutions in the marketplace today. Investing through a low-cost automated platform like Mocha isn't an incremental improvement. It's life-changing. This is what disruption looks like. Until recently, Mocha was designed primarily as a short-term savings app, and now with some recent updates, We've built what we believe is arguably the most powerful long-term investing solution in 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, Mogul Wealth manages just over $300 million, so you can see how big the growth opportunity is. Although passive investing is perhaps the easiest way to build wealth, active investing continues to be an important part of the mix. Mogotrade has been our number one growth initiative for the 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 Mogotrade is actually only the second commission-free trading app in Canada. But the first to also include social impact with every trade, along with FX fees or half of 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 have 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, we are behind on our goal of having this product fully rolled out this quarter. Today, we are still in invite mode and continue to gather great feedback and insights that are helping us improve the product and get ready for a full launch. We expect that by the end of this quarter, we will have the product fully available, which positions us for beginning a marketing push sometime in Q3. An important point on the regulatory challenges is that although it can also be seen as a positive in that there's 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 apps will find it increasingly difficult to compete versus platforms like us with both equities and crypto. Although our primary goal is to help people achieve financial freedom, we also believe that making a positive impact with your money will become an increasingly important element of what consumers are looking for, especially the next generation. Just as ESG investing has become extremely popular, consumers continue to gravitate towards brands with a 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 into the experience. Today, we are focused primarily on climate change, given we see this as arguably the greatest social issue of our time. and one where 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 CO2 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 excited for the journey ahead. With that, I'll pass it over to Greg. Thanks, Dave, and good afternoon. Given our results for posted this morning, I'll 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 continue to show strong growth across key metrics during a more challenging time for many fintechs. First quarter highlights included 62% member growth, record quarterly growth profit and revenue up 51%, strong positive contribution of 7.4 million in the quarter, And lastly, we ended the quarter with a strong financial position of combined cash, digital assets, and our investment portfolio of $75 million, excluding our investment in Coinscore, which had a book value of $98 million at the end of the quarter. A growing member base increased by 62% over the last year to approximately $1.9 million, with a year-over-year increase split roughly 50-50 between organic and acquisitions. Importantly, QN represented a 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 Mungo Trade. Our new member growth fueled continued revenue growth, which was up 51% over the same period last year. Revenue growth was driven by an increasingly diversified group of subscription 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 has exposed a number of fintech models that are predominantly reliant on non-recurring 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, and other recurring revenue streams. Obviously, mogul 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 our business, we've shown that our business model can generate healthy margins, as evidenced by the 7% gross margins this quarter. Also, if you've followed mogul for some time, You will recall that we generated very strong positive adjusted EBITDA through COVID when we decided to reduce our growth spend. Specifically, in the first quarter of 2020, we were able to dial back our cash off X by almost 50%, which along with high recurring revenue component resulted in us generating an average of 5 million of adjusted EBITDA over the next two quarters before we decided to resume our growth spend. The combination of a strong balance sheet and the flexibility in our model give us the confidence to continue our investment spend to support the upcoming release of products like MoGo Trade while monitoring the business environment should we feel the need to dial back this growth spend to get to profitability sooner. Another area of significant upside for MoGo 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 our average revenue across all our members who are monetized members, you can see that the payoff to continue to increase the rate is significant at 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 were facing in 22. We believe Carta is a valuable and underappreciated asset of ours and is 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 Mogul 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 in CoinSquare, one of the leading crypto exchanges 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 option value and upside to that volatile sector without seeing the volatility directly in our own business. We also believe that portfolio 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 today's results, we also updated our guidance reflecting a shift in the rollout timeline and expected contribution from MoGoTrade, as well as the reduced revenue contribution from Carta in the second half of the year due to the deferral of certain customer program rollouts. Despite these short-term headwinds, total revenue is still expected to grow between 20% to 25% over 2021. 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 out 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 TAN that is still in the early days of the secular growth trends in the sector. With that, we will now open the call up to questions.