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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, Sylvia. 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 the company's annual information form as well as periodic filings with regulators in Canada and the U.S., which you can find on SEDAR, 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. And with that, I'll turn it over to Dave Feller to get us started. Dave?
Great. Thanks, Craig. Good afternoon, and welcome to Mogo's first quarter 2022 results call. I'm joined today by Greg Feller, our President and CFO.
Obviously, we are 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 the 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 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 over-complicated, which is why most adults continue to struggle. In fact, 59% 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 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 3 primary components: Spend management, investing and impact. We believe all 3 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 towards the wealth building goal. 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 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 helped 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 Mogo has been designed to help solve. Today we have over 145,000 subscribers using Mogo to help them save for a variety of goals, including emergency savings. With over 10,000 5 star reviews, this has proven to be a simple and powerful way to help our members achieve their savings goal. For a low monthly fee of only $3.99, our members can easily set up multiple goals and depending on their goals and risk profile, Moka 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 Moka, 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. Moka 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 Moka does the rest. Depending on how early someone starts, that can put them on track to being a multimillionaire. With 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 pass and that investing strategy is 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 in automating. It's also about helping them retire with more money. They most deal with their banks to 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 Moka. The magnitude of this can be overstated. As you can see here, there's no wonder why the vast majority struggled to achieve a level of wealth through the current solution in the marketplace today. Investing through a low-cost automated platform like Moka isn't an incremental improvement, it's life changing. This is what disruption looks like. Until recently, Moka has designed primarily as a short-term savings app. And now with some recent updates, we built what we believe is arguably the most powerful long-term investing solution in the market. With the 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, MogoWealth 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 #1 growth initiative for 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 impacts that we trade along with FX fees are 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 the 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 to 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 grab towards brands with a purpose and making a positive impact. And they want to see more than just worth. 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 is arguably the greatest social issue over time and one where more most people struggle to see how they can make a meaningful impact. Our members today have already planted over 1 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 are 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 more challenging time for many fintechs.
First quarter highlights included 62% member growth, record quarterly gross 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 Coinsquare which had a book value of $98 million at the end of the quarter. Our growing member base increased by 62% over the last year to approximately 1.9 million with the year-over-year increase split roughly 50-50 between organic and acquisitions. Importantly Q1 represented the 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 MogoTrade. 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 and 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 is exposed in a number of fintech models that are predominantly reliant on nonrecurring transaction revenue, with some companies reporting dramatic decline 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 stream. Obviously MogoTrade once fully rolled out, will include more volatile trading revenue. However, we believe this will be an incremental and complementary stream to the large 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 70% gross margin this quarter. Also if you followed Mogo for some time, you will recall that we generated very strong positive adjusted EBITDA through COVID when we decided to reduce our gross spend. Specifically in the first quarter of 2020, we were able to dial back our cash OpEx 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 2 quarters before we decided to resume our gross 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 MogoTrade, 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 8x. Outside of our core digital finance products, we also continue to see a 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 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 Mogo 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 per 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 investment 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%, 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 up 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 math of TAM 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.
[Operator Instructions] And your first question will be from Adhir Kadve at Eight Capital.
Maybe I guess the top of mind will be on trade, on MogoTrade. Can you maybe give us some additional color on some -- what are some of these regulatory hurdles that you guys have to kind of cross? And yes, some of the regulatory hurdles that you need to cross and that you're looking forward to?
Sure. So I'd say at this point, most of the regulatory items, we actually have clarity on, just to give you a sense of kind of the detail. Some of the stuff we're doing with trade, including, for example, how customers are going to be funding the account, actually hasn't been done before. So some of these items are new. So when you kind of get into certain details in terms of the product and how it works, again, the devil is in the detail, they get very detailed on the flow of funds and there's a whole host of things. So these things can take a lot of time and you got to spend a lot of time designing solutions, et cetera. And then based on that, we have to make tweaks to the experience to kind of satisfy the regulatory requirements.
The good news is though essentially all the items that we were looking to get done, we have approved and now it's just a question of refining those. And again, the funding was an example. One of the items that differentiates MogoTrade is when you open an account you'll actually be able to instantly fund it up to $3,000. That is not something that you can instantly do on other platforms through this process. So I think it gives you a sense of some of the stuff that we're looking at. But again, as I just stated, where we are now where the product is out, we have people testing it. I personally have made over 100 trades on the platform. And we're confident that we should have the full waitlist and invitation mode off before the end of this quarter, i.e., the app will be available for anybody to download, sign up and begin trading before the end of this quarter, so before the end of June.
I'm getting a little bit of feedback there. But maybe just then moving on, you mentioned a little bit of a volatile trading environment, where trading was going down a little bit. So just based on that, what are -- like what are your expectations for the product when it is when it's fully live. Maybe you can talk about that a little bit?
Dave, do you want to speak to that?
So -- yes. So I'll comment on that. Look, I think it's too early at this stage for us to give any kind of specific guidance there. But I think here's what I will say about this. We believe that we are still very much at the early days of the disruption that's happening around trading in Canada. The U.S. is way ahead of us. I mean almost every app has gone to free stock trading. In Canada today there's really essentially one free stock trading app. And there's only one app that actually you can do both stock trading and crypto. And we expect Mogo to be the second there. So we believe that we're very early days. And we believe that that is going to be a massive TAM even in a lower trading environment, obviously, equity trading is not going away. Investing is not going away. And we believe we've got a unique value proposition, a great user experience. And really the majority of trading today is still sitting within the big banks, the big brokers, bank loan brokers. And so we're at the early days in terms of disrupting that.
So we see this product as an opportunity to drive meaningful member growth, member engagement at a low-cost CAC given the fact that we are going to be very early. And we also think that in this volatile environment, that there is going to be a shakeout in the industry, which actually in the long run is going to be better for larger, better capitalized diversified players like Mogo. So in a lot of ways as painful as this is for all of us, in the long run, we actually believe we'll have some better long-term dynamic impacts from a competitive perspective.
And if I could sneak one last one in. In terms of the go-to-market, once it's fully live, can you remind us how you intend on advertising for the product, how the rollout will look like?
Sure. So again, we're trying to be pretty thoughtful and careful on how we do this. This, again, is definitely, put it in perspective, the scope of this from a product perspective, is at least 100x anything we've done in the past, right? I mean the last product really we launched would have been our Bitcoin account several years ago and before that card. So in terms of just kind of scope and complexity, including regulatory, I mean, this is probably 100x anything we've done, which is why we've obviously been focused on it for the last year.
But we've also learned a lot in terms of rolling out a product and getting product market fit, and that's also why we've been really careful on the current rollout, including the invitation process, really making sure that we're getting the right feedback. I mean that literally includes having people sign up, literally monitoring the actual sign-up experience, noticing everything they're doing, what they're understanding, what they're not understanding and because of that making adjustments to the user experience. And then we're going to be doing the same thing once we take the invitation list off, and that's kind of the next phase. We just start to get more and more people signing up. And really what you'll be looking and what we're going to be looking for is really those signs of product market fit. You're getting a good user experience, good feedback from existing users. And those are the things you need to see and want to see before you kind of hit the go button on paid market, right, which is really when you start to get a good return there. If you're premature there and you don't really know you've got the right product experience, then it can be premature. So as it relates to that, we actually are in the midst of completing probably, well, not probably, our biggest creative campaign ever. There's actually a 30-second spot that we've created. We've used an external agency that is essentially going to be ready to go once we believe the product is ready. And then there's a whole bunch of other kind of PR and other social elements that are all part of this strategy that will play out over the next 6 months, right? So it will be definitely our biggest marketing and product launch ever as well when we get to it.
[Operator Instructions] And your next question will be from Scott Buck at H.C. Wainwright.
I'm curious, could you give me a little bit more color on the revised revenue outlook? You're down kind of $6 million or so at the midpoint. What if that is attributable to the slower rollout of MogoTrade versus the Carta product?
Yes, Scott. So it really is the combination of the 2. Given some of the regulatory complexities of getting trade out that we talked about, so the product itself and the timing of the launches and totally within our control. And just given kind of the lower volumes that we're seeing and the other macro challenges we're seeing, we felt it was prudent to be very conservative there given we haven't actually fully rolled that product out yet. So that was a big chunk of that revenue over 50% and then the balance would be Carta. And what's going on there is we were expecting some rollouts with some of our existing customers, which were pushed out to 2023. So we still expect to get that, but that's going to happen in 2023. Now you can never perfectly time those things. There's a bunch of factors that go into it. So that's the other component of that, let's say, a more conservative approach.
And again, our general view is, in this environment, taking a conservative approach is the prudent way to go. We do think that both MogoTrade and Carta are positioned to drive growth in 2023 for us. But obviously the visibility on those items in the second half of this year are more challenging. So we've decided to reduce that outlook.
And then second, on the EBITDA commentary, is it you proactively pulling back on some growth investments beginning in 2Q? Or is this just kind of a more natural progression?
Yes. I mean I think it's just -- obviously, in the current environment, putting a level of discipline on the spent here that we believe will continue to show our profitability. So I think that is the lens that we're looking at it by. But importantly, as I mentioned on the call, we've talked about in the past, we obviously have the gross dollars that we can turn back very quickly and very aggressively if we felt we needed to. So the reality is I have a lot of ways, we have a lot of ways to manage and control that EBITDA number. Obviously we are balancing our -- the opportunities that we see on the investment side in areas like MogoTrade, in areas like Carta with the more volatile markets and investors' concern on path to profitability. I think what makes us unique is we're not just saying we have a path to profitability. We've actually proved it in the past, our ability to generate positive EBITDA, positive cash flow, do that quickly. And by the way, that was back when we were generating $10 million a quarter of revenue. Now we're over $17 million. And then the other component, which I think is a really important differentiator, which we've talked about in the past, but the market didn't appreciate it is the high recurring revenue nature of our business. So the reality is if you are a high transaction fee-based revenue business, it's very difficult to figure out how to cut your weight to profitability because you don't know what your revenue is going to be next quarter. And we've seen that those revenue streams can drop off very quickly. But we obviously have spent a long time building up the recurring piece. And that obviously gives us visibility and the ability to manage our spent towards whatever our profitability targets are.
And member growth remains pretty impressive. Is there a particular product or 2 that's driving that? And kind of as a follow-up there, you're close to 2 million members at this point, right? I mean how much room is there left in the Canadian market?
Well, I'll let Dave talk about what we see as the bigger opportunity there. But it actually is fairly broad-based. And I mean, look, I think one of our advantages is we have multiple products and we have multiple ways for members to onboard. And obviously we're super excited about getting MogoTrade out there. And quite frankly, we see that as one of the biggest opportunities to drive that member growth at attractive CAC level. So that's something we're focused on. But I'd say it's fairly broad-based. As far as the size of the TAM, maybe I'll let Dave speak to that.
Sure. Yes, a couple of comments. Obviously, there's 2 ways to obviously grow the business even if the member base actually didn't grow that much and that's clearly getting more adoption from our member base with our existing products. As I mentioned earlier, today, we have over 100 -- just over 145,000 subscribers on Moka. But as you mentioned, we're close to 2 million on the member side. So that's still a new product for us. We -- there's a lot of opportunities there in terms of marketing that to our existing customer base, including integration. We just rolled out, as I mentioned in my commentary, essentially updates to the Moka app that also positioned us as a great long-term wealth building solution, of which we believe all of our members need. We can put that up against anybody's product in the marketplace.
But to also just give you another perspective, obviously, you look at a company like a bank like RBC. RBC has over 13 million customer accounts, right, in Canada, right? So the largest kind of financial players are well north of 10 million, right, in terms of customers. So it's a combination of obviously increasing the attachment rate of our existing members based on kind of broader product offering as well as obviously increasing the member base. Tangerine is an example, which used to be ING Direct, has approximately 2 million customers, National Bank has approximately 2 million customer accounts, and these are obviously companies that are in the tens of billions. So you can still grow your business materially just from your existing member base as you kind of bring in other products along with obviously growing it.
And then last one for me, quickly. Did you guys repurchase any shares during the quarter?
Sorry, Scott, no, we did not. We are subject to certain blackout restrictions on that, but no, we did not.
[Operator Instructions] And next question will be from [ Josh Howards ] at [indiscernible].
Good quarter. Follow-up to the last caller's question. I know that it's always tough for boards to buy back shares and subject to all kinds of restrictions, volume-weighted average, price time a day, blackout, all of that stuff. But I guess conceptually in a perfect world, given the large discount to intrinsic value, is it something that you guys would like to do or foresee yourself doing should the restrictions lift?
So the answer is yes. So obviously, we don't believe that the current share price here is reflective of the underlying value of our business nor quite frankly the assets on our balance sheet. So -- and that's why we put that share buyback in place. So we will absolutely be looking at opportunities to leverage that buyback when we, a, have windows and we feel it's appropriate.
Thank you. And at this time, gentlemen, we have no further questions. Please proceed.
Well, thank you for your questions today and for joining us on our Q1 call. We look forward to updating you post Q2 results. Thanks, again.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.