Orion Digital Corp

Good afternoon, ladies and gentlemen, and welcome to the MoGo Q4 and year-end 2022 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. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, the 23rd of March, 2023. I would now like to turn the conference over to Craig Armitage. Please go ahead.

Thank you, and good afternoon, everyone. Thanks for joining us, and I apologize in advance for the delay. We had some challenges with the third-party provider trying to get the slides loaded for today's event, so they will be available on MoGo's IR page shortly, and they will be synced to the post view of this event. Just a few other notes before we get started. 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 the risks and uncertainties are included in our Q4 and year-end filings, as well as periodic filings with regulators in Canada and the U.S., which you'll find on CDAR, EDGAR, and through the IR website as well. Second, today's discussion will include some adjusted financial measures and non-IFRS measures. You should consider these as a supplement to and not as a substitute for the IFRS measures, and we included reconciliations both in the filings and the investor deck for those. Lastly, the amounts today are discussed in Canadian dollars unless we indicate otherwise. I'll now turn it over to Dave Feller to get us started. Thanks.

Thanks, Greg. Thank you, and good afternoon. Welcome to our fourth quarter 2022 results conference call. I'm joined today by Greg Feller, our President and CFO. Clearly, this is one of the most challenging macro operating environments we've had in our 20-year corporate history. This has been the case across almost all sectors of the economy, but fintech and crypto have been particularly hard hit. Literally dozens of crypto companies that were all once valued in the billions with some of the sharpest investors are going bankrupt. Companies like Voyager Digital, FTX, Genesis, Three Arrows, BlockFi, and some previously highly valued fintechs are now no more. With the fall-off in crypto, general market sell-off, coupled with a worsening economy, many business models that seem to be working quickly failed when things got difficult. And it's not just fintechs and crypto companies. In the last few weeks, we've seen even highly profitable and regulated banks in the U.S. go out of business almost overnight. Mass layoffs continue across tech, and almost every tech company is now hyper-focused on efficiency, profitability, and even survivability. This is clearly a big reset for businesses and highlights the importance of a solid and resilient business model along with the right balance of profitability and growth. When the macro picture started to turn for the worse in early 2022, we took quick and decisive action and began focusing on accelerating our path to profitability with the stated goal of achieving adjusted EBITDA positive in Q4 of 2023. With a lot of hard work by the team, we managed to achieve this goal in Q4 of 2022, one year earlier than planned. Compared to many in our space, we've seen revenue declines of 50% or more. Our business has been strong. and our Q4 results clearly highlight the relative strength of our business model. Our revenue is up 20% year-over-year, and more importantly, we ended Q4 adjusted EBITDA positive. Although our focus on efficiency began last year, it continues this year with the theme of lean and mean. This is the number one priority across the organization, and the team continues to make significant progress. There are several key areas we are focused on, people being the most important, And it's not only the largest cost area, but it's obviously people that deliver results. Although we have made material reductions, our goal is to simultaneously increase productivity, and that means raising the performance standards across the organization. It's actually great to see how the team is responding and really stepping up to the challenge, and we continue to see increased engagement and performance across the board. In terms of vendors, a lot of work is focused on lowering our costs here, including eliminating certain vendors, reducing usage, and renegotiating contracts. This has been a material source of cost savings to date. Operations is the other key area in finding ways to do things more efficiently and effectively. This is currently the main area where our product and engineering team is focused, as these initiatives usually require development work to implement. Lastly, on the product side, we are simplifying our business and narrowing our focus by eliminating unprofitable products, products that have been commoditized, and those with little barriers to entry. so we can focus our resources on products with better long-term profitable growth opportunities and much higher bearish entry. It's important to highlight that we're doing this in a very careful and thoughtful way with the goal of increasing trust with our members. We've already exited crypto and referred our users to Coinsquare, which as you know is the first and only fully regulated crypto platform in Canada. We now have zero crypto-related operating activity at MoGo. Next up is credit score protect and then card. Although we were one of the pioneers in these products, they've been increasingly commoditized and the benefits of moving away from these products now dramatically outweigh the benefits of staying with them. Similar to CoinSquare, we created strategic partnerships with what we see as best-in-class products to recommend to our members. These partnerships now include Borwell and EQ Bank. Both of them have products that actually give our users an even stronger value proposition and these partnerships also include referral fees. Again, this will not only drive increased profitability, but dramatically simplify our business, and more importantly, allow us to focus more on our highest value opportunities. It's also important to highlight that our members will continue to stay members of MoGo and remain an opportunity to market our digital wealth products, including trade and MoCA. Our goal is to narrow our focus and get lean and mean. Although we're exiting some products, we will end up with three key pillars of the business, digital wealth, payments, and digital lending. Digital wealth includes both trade and MOCA. And this is not only a massive market, but one where the barriers to entry are much higher. And perhaps most importantly, we believe we have a very disruptive value proposition that will help us drive long-term significant growth. Our B2B business, Carta, has a massive opportunity in payments. Greg will walk you through more in detail a little later. And then lending continues to be an important part of our business. While not a key growth driver at this stage, by our choice, it's an important and profitable segment, one of which we manage through multiple credit cycles. Going forward, Mogul will be primarily positioned and focused on digital wealth with the goal of building a best-in-class both passive and active investing. There are a few key reasons why we believe this opportunity in the space presents a long-term profitable growth opportunity for Mogul. First of all, unlike the products we have and are recently exiting, again, the barriers to entry and wealth are much higher, including very strict regulations. In addition to this, it's a massive market. In fact, the most recent stats for Canadian financial assets, including stocks, bonds, mutual funds, is approximately $9 trillion. And thirdly, we have a very disruptive value proposition for both our passive and active products. MoCA, which is our passive investing solution, is a fraction of the cost of the almost $2 trillion mutual funds in Canada. And this means that over a long investing horizon, assuming the same portfolio performance, Because of the savings in fees, someone invested through our solution would end up with almost double the amount of money for retirement. In the current environment, this matters more than ever. Our trade product offers a similarly disruptive value prop in terms of both simplicity and lower fees. Our goal is to bring Mocha into trade so we can simplify and consolidate to one app. There's also synergy between these two products given over 60% of DIY traders also own mutual funds. Lastly, it's important to note that the customer protection on our products is significant, with both Trade and Mocha users being protected for up to $1 million for all general accounts combined, plus $1 million for all registered accounts combined. Although our main focus today is on profitability and efficiency initiatives, we continue to make progress on our new app, Mogotrade. Our goal remains to find meaningful product market fit for Trade this year, and we continue to be encouraged by the results we are seeing. Although we aren't currently disclosing specific metrics around number of users, we do have some high-level stats we wanted to share. Most importantly, we are seeing continued increase in engagement from users the longer they are on the platform. This is reflected in stats like U.S. trading volume in February, up 3x from January with the same cohort of users, and up 5x from Q4. What's more, we're seeing strong retention rates of over 86% from users after six months, And this is also reflected in an almost 4X increase in average assets under administration. Our plan is to continue to leverage our buy invitation only strategy, as we think it's very helpful in building buzz and exclusivity, while also giving us maximum control and flexibility. Our goal remains to achieve a strong product market fit this year and set the stage for a more meaningful revenue impact next year.