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Good afternoon. My name is Leonie, and I will be your conference operator today. At this time, I would like to welcome everyone to Mogo's Second Quarter 2018 Earnings Conference Call. Please note that today's call contains forward-looking statements. 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 is included in Mogo's press release for Q2 as well as its filings which -- with regulators in Canada and the United States.Also, today's presentation will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliation between the two can be found in the company's presentation today, which is available on its website. And finally, note that all amounts discussed today are in Canadian dollars unless otherwise indicated. I would now like to turn the call over to David Feller, Founder and CEO. Mr. Feller, you may begin your conference.
Thank you. Good afternoon, and thank you all for joining Mogo's Second Quarter of 2018 Results Call. I'm joined today by Greg Feller, our President and CFO. We've prepared a presentation accompanying today's call, which can be accessed from the Investors section of our IR website under Events. As we continue to advance our business, we're guided by our mission of making it easier for consumers to get in control of their financial health. We're using technology and design to bring the right financial solutions to our members, along with a simple and engaging experience designed to help them improve their overall financial health. This mission is what guides and motivates our team of approximately 250, and we're proud of the progress we've made this quarter. As we deliver on this mission, we are seeing not only growth in members, but an increase in adoption of our products, which is translating into strong business results. The second quarter was another excellent quarter for Mogo on many levels, highlighted by accelerating core revenue growth of over 60%, which was driven by an increase in subscription and services revenue of over 100%. We also hit a major milestone as subscription and services revenue now represents 50% of core revenue. We've been transforming the business over many years, and this quarter now marks the fifth consecutive quarter of accelerating core revenue growth. Underlying our success and opportunity is a continued transformation of banking. We think this quote from Bill Gates sums up where financial services is moving, "We will always need banking, we won't always need banks." The point is clear. Banks will always be here, but increasingly, consumers will be dealing with innovative FinTechs to manage much of their financial life. Like every other industry that has faced disruption, innovation is coming from new players. The U.S. market is perhaps the best example of how quickly FinTechs have gained a dominant presence in the lives of millions of Americans. Why are all these companies popping up? Because quite simply, existing banking solutions are lacking. They aren't the innovators, and consumers are struggling to get financially healthy. These new crop of companies are making this easier with mobile-first engaging solutions, whether it's managing your credit score, sending money to a friend or making it easier to invest in the stock market. It's also important to note that many of these solutions were things the banks never offered. It's clear that consumers, driven by millennials, will continue to gravitate to this new way of managing their financial life. We believe the next phase of this will be one app that brings all these together. And that's what we're building at Mogo, one app to manage your financial health. We're the leaders in Canada today, and we believe we're one of the leading innovators, not only in Canada, but even ahead of many U.S. players in terms of bringing a holistic financial solution into one app. So why one app? Convenience. Convenience is the driver of disruption. If given the choice, users don't want 10 apps with 10 different companies. One app eliminates the friction to sign up for new products, share data, and importantly, it gives you a more holistic view of your financial health, which is one of the biggest challenges to managing your financial life.The future of financial services is all about making it easy for consumers to be financially healthy. We believe there are 6 core products that consumers need, and that's guiding our current road map. Starting with managing your credit score, which really does impact your financial life, like the rate you pay for credit or whether or not you get approved for mortgage. Increasingly, in this digital world, protecting yourself from identity fraud, which can significantly impact your financial life, will continue to increase in importance. Controlling your spending and sticking to a budget is perhaps the biggest challenge most consumers have. It also drives how much money, if any money, you have left for savings and investing. Then making it easy to save and invest by offering the right products, along with the right user experience, like automated monthly investing is critical. This also includes savings for things like a down payment for a home. User should be guided through every single one of these important financial goals. Buying a home and focusing on getting mortgage free is one of the biggest things consumers could do to build wealth over the long term, along with the benefits of homeownership. Then finally, smart and controlled access to consumer credit. The more you take care of the others, the less you need to tap into consumer credit. Again, this is what's driving our product road map and gives you a better sense of how they all come together to help consumers get financially fit. It's early days in the transformation of banking in Canada, and we're just getting started. But it's important to note the Canadian market, although obviously much smaller than the U.S., is still massive. The banks alone in Canada are expected to generate $95 billion in pretax profits this year. You can see here that Mogo has exposure to multiple very large markets and segments based on our products today. And as we continue to add new products to our platform, such as wealth management, we expand our addressable market and open up new revenue streams.One of the main barriers to entry in our space is the cost of customer acquisition. As we look to continue to grow our member base, we have a huge advantage and asset in our partnership with Postmedia, which we renewed for an additional 2 years in Q2. This partnership has been tremendously successful in creating broader awareness of the Mogo brand and when combined with our other marketing initiatives, has fueled our member growth while also continuing to build our brand as the leading consumer FinTech in Canada. Our customer acquisition continues to be highly efficient. In the most recent quarter, we grew our core revenue by 64%, however, our marketing spend represented only 20% of core revenue, much less than what you typically see with other high-growth tech companies. Fundamental to our success is the ongoing investment in our products and platform. As we launch new products, add new features and improve the user experience, we drive revenue growth and operational efficiencies. New products, like MogoCrypto, not only expand our addressable market and add a new revenue stream, but can also help drive member engagement, reduce churn and increase word of mouth. New features like in-app loan payments improves the user experience, which helps increase retention but also reduces operational costs. Making improvements to our onboarding experience helps improve our conversion rates, which also helps lower our customer acquisition cost. We have a team of almost 100 people that are working on all of these things. And almost weekly, we make enhancements to the platform. The investments we make here will continue to be the core driver of growth, along with building our competitive moat. We are still very early days and have a large and ever-growing road map of opportunities to focus on. It's also important to note that we have also proven our ability to innovate and have delivered on many firsts in the Canadian market, including the first company to offer a free credit score monitoring and now the first company in Canada to offer the ability to invest in Bitcoin without any funding or withdrawal fees, alongside other products. One of the areas we are focused on as a key part of rounding out our holistic solution is our new wealth products. MogoWealth will include all the products that we believe our members will need access to, to build long-term wealth. Our first product on this is our new crypto account as we believe Bitcoin, in particular, is an increasingly important asset class that consumers should have access to. One of the key advantages of our model is not only can we offer this within the same app alongside other products, but because we have multiple ways to monetize our members. Along with a certain scale, we could offer this at a fraction of the fees of anyone else in Canada. The next MogoWealth products we're looking to bring to our platform are high interest rate savings and Roboinvesting. For a savings account, we'll be partnering with a bank. And again, one of the advantages we have is we can partner with whoever we think can offer the best rates. This highlights another advantage we have. As we build out a marketplace of financial products, we are carefully selecting and curating the right products so that we can offer the best possible value proposition to our members. Our goal would be to offer the best rates, much higher than any of the big banks. And we believe, along with our Postmedia partnership, this will be a big market opportunity. Remember, this is also how ING Direct was built in Canada, by initially offering a much higher savings rates than the banks. In terms of offering access to the stock market, we are looking to bring in Roboinvesting. Like all of our products, we will be focused on differentiating our solution, including offering among the lowest fees in Canada. Again, we believe consumers will gravitate to a holistic solution that not only makes it easier to do things, but because of the broader product offering, can offer better rates and lower fees. I will now turn the call over to Greg to review the financial results. Greg?
Thanks, Dave, and good afternoon. Q2 was really a milestone quarter for the company from a financial perspective. As our results clearly showed the power of our platform to drive meaningful revenue growth from new products within our subscription and services revenue stream. And we're just getting started in what is a massive market. Although we reported record revenue of $15.4 million in the quarter, the real story was accelerating core revenue growth. Core revenue, as you know, excludes our legacy short-term loan fee business, which we will be fully out of in our current third quarter. Specifically, core revenue increased by 64% in Q2, which was a fifth sequential quarter of accelerating growth. Perhaps even more impressive was the success we saw in our subscription and services revenue, which more than doubled in the quarter and now represents 50% of core revenue. We also continued to grow our member base at a healthy rate, with total members at the end of the quarter of 654,000, an increase of 49% over last year. We also achieved positive adjusted EBITDA for the eighth consecutive quarter. Finally, we exited the quarter on a strong financial position with almost $31 million of cash and $184 million in undrawn credit facilities. Cash used in the quarter was roughly flat with Q1. Core revenue increased 64% to $11.6 million this quarter, which is up from $7.1 million in the comparable quarter in 2017. The growth was primarily driven by growth of subscription and services revenue, which more than doubled during the quarter, but strong demands for our MogoMoney credit products also contributed to this growth, with interest revenue up 38% from the prior period. As Dave mentioned, we also delivered record quarterly revenue for the second quarter in a row with $15.4 million, up 34% from the same quarter last year. This growth was achieved despite the continued decline in our legacy short-term loan business, again, which we plan to exit this quarter. Over the last couple of years, we have invested significant resources in building out our platform to enable us to launch multiple products to help consumers get into financial control. As Dave highlighted, we are strong believers that consumers are embracing offerings from emerging FinTech players like Mogo, not only because these products are more convenient, but these products are also leveraging technology to actually help people make better financial decisions in their day-to-day life.Our suite of 5 products, outside our MogoMoney product, are helping Canadians do just that, and this is driving both subscription and transaction-related fees. Specifically, subscription and services revenue more than doubled in the quarter to $5.8 million, primarily driven by the increase in subscription-related fees, including MogoProtect and our premium account options. We are now close to 30,000 monthly MogoProtect subscribers, and 20,000 Mogo members have signed up to a premium subscription account. Keep in mind, we are at the early stages with most of these products. For example, we just finally made MogoCrypto broadly to our members this month. We also reached a significant milestone this quarter, with subscription and services revenue now comprising 50% of core revenue. Our stated target was for 50% of total revenue from the subscription and services by year-end, and so hitting this milestone on core revenue this quarter is something we are extremely excited about. Our success with new products and premium options has quickly transformed the revenue makeup of the company. For example, in last year's second quarter, our subscription and services revenue was the smallest contributor to our overall revenue, while our legacy loan fee revenue was the largest. During the second quarter, we continue to generate strong member growth, surpassing 650,000 members, which is up 49%. However, a large focus for us this quarter was on driving increased monetization of our member base, as we bring more relevant products and solutions to our existing members, which helped drive core average revenue per member to $74, which is up from $68 in the same quarter last year. So as we expand our member base, our strategy is to increase the monetization and convert more of these members to paying customers. Increasingly, we're seeing the power of having built a platform, which allows us to monetize members in multiple ways, fund the products and cross-sell and drive higher value per member over time. You can see that we are investing for future growth. We are also seeing the benefit of offering leverage and efficiencies. Total cash OpEx as a percent of revenue decreased by more than 500 basis points year-over-year. Two core areas of investment are product and technology development and marketing. The primary product development initiatives during the quarter related to MogoCrypto and our first -- our first product within Mogo Wealth as well as enhancements of our digital loan solution. Both of these enhance member experiences and promote engagement, making our suite of products relevant to a wider base of members and increasing average revenue per member. On the marketing side, you heard from Dave that we extended our unique partnership with Postmedia for an additional 2 years. This allows us to continue to benefit from the significant brand scale as well as free up resources for other marketing channels as we continue to expand our member base and product portfolio.As it relates to our customer service and operations, we are investing in our technology platform to drive increased efficiency and automation, such as the new digital loan platform that we are just starting to roll out in our -- in some loan product. This is the more efficient platform that allows for more automation, self-serving by our customers and dramatically improves the overall user experience. Illustrating some of these initiatives, we saw customer service and operations as a percentage of revenue decrease by more than 300 basis points during this quarter compared to the same period last year. In summary, we are focused on investments in our platform that, not only improve overall user experience, but also help drive efficiencies in our operations, which will allow us to scale more efficiently. In the second quarter, we delivered a contribution of $5.8 million. Contribution, as you will recall, is the measure of our overall profitability of our products before investment in our platform. We also delivered our eighth consecutive positive adjusted EBITDA quarter of $700,000. EBITDA was up $500,000 year-over-year and $400,000 sequentially. We continue to see strong credit performance with charge-offs of 15%, down from 15.5% in the same quarter last year and up slightly from 13.7% in Q1. We believe these metrics continue to underscore our focus on balancing our continued investment in growth while demonstrating a path to longer-term profitability. While we're demonstrating early success in monetizing our member base, we are still very early days with the huge opportunity ahead of us. In Q2, our core average revenue per member was $74 compared to the average credit union in Canada of $1,300. As we continue to add new products that are relevant to our member base, like MogoProtect, MogoCrypto, we believe we will see increased opportunities to monetize this member base. At the same time, we also remain focused on continuing to grow our member base and achieving our target of at least 800,000 members by year-end. Through a combination of further member growth, along with increasing opportunities to monetize this growing member base, we see a significant opportunity to drive strong growth going forward. That concludes our formal remarks. And we'll now pass it over to the operator to open it up for questions.
[Operator Instructions] Your first question is from Nikhil Thadani from Mackie Research Capital.
Dave, I just wanted to go back to your product road map remark for a second there. In terms of the high interest savings account and the Robo adviser products, do you have a rough time line for when you might be launching those 2 new products?
Yes. We're targeting in the next 12 months, sometime the next 12 months. We expect that probably within the next 3 months, we'll give a more specific time line on at least one of those products. But our plan at this stage is within the next 12 months to have both those products launched.
Right. And in terms of -- like the additional color to be forthcoming in the next 3 months, is it fair to assume then that the high interest savings account might come before the Robo adviser? Or is that something which you are...
That -- yes. I would say that, that's definitely a possibility. I mean, just to give you a better sense of how we look at things, we're always kind of prioritizing opportunities. We think both of those are good opportunities. A lot of it obviously comes down to do we find the right partner and also kind of the scope of the actual product itself. So we take all of that stuff into account. I would say at this stage, we're still looking at both of those. We have yet to determine which one we're going to launch first.
And just to dig a little bit deeper on that. Maybe if you could help us understand how you would sort of provide higher interest rates than what's available right now? And how that flows into sort of reducing perhaps your cost of customer acquisition maybe even further or to the cross-selling opportunities that you spoke about before?
Sure. I think part of the key to understand here is we also look at this as one of the big opportunities is to have that broader kind of product solution. So one of the things you're starting to see traction, including in the U.S., is a lot of these kind of savings apps. Apps that are helping to kind of do a, say, a monthly round up where people are rounding up $10 or $20 a month from the purchases. Those are typically apps that are linked to somebody's bank account, and then they're debiting the bank account at the end of the month. So problem or the challenge with that is you've got a bunch of different accounts and solutions. With our prepaid card, our goal is really to tie all these stuff together. So somebody could obviously use the card, we can do the round ups within the card, and then somebody can choose does that money go every month directly into a savings account or into a stock account or potentially, a portion of it even into something like Bitcoin. So that's part of that kind of broader opportunity in terms of leveraging our full product suite and driving, obviously, more member sign-ups. In terms of -- obviously, as Greg said, every time we launch a new product, we obviously are attracting a different type of customer. Potentially, we may not have products today that appeal to certain customers. We've obviously -- and a lot of companies out there grow their customer base just by going out there and offering an attractive savings rate. We also think with our partnership with Postmedia, we have an opportunity to really get in front of that right demographic, right, that obviously looks for a higher interest rate. Right now, if you -- I think as of a few weeks ago, the highest rate offered by, say, the big banks was about 0.9%. We're looking at offering a rate that's, at this stage, probably double that. So a very attractive deposit rate. We obviously, as part of our kind of revenue model, would get a percentage of those deposits. So that obviously would be in partnership with the bank. We wouldn't have access to the funds, but ultimately, we share in the economics. And I think you can start to get a sense that because of this kind of platform and marketplace approach, we have that ability where we can just really kind of partner with who do we think can offer us the best product, including among the highest rates. In terms of specific numbers and how many customers, we're -- it's not something that we're talking about today.
Got you. And so fair to assume then that as a result of all these new products, the core sort of average revenue per member, that should only keep trending up, right, for the balance of the year?
Well, I would say in the long run, obviously, that is the opportunity. Don't forget. I mean, every time we launch a new product, it is possible to bring on new members that are attracted to that product. And therefore, sometimes, like a high interest rate savings account, it could actually appeal to the whole -- maybe even more so to a group of people that have yet to come to Mogo, therefore -- although they're not existing members, right? They may obviously -- that revenue may drive -- be driven more by those new member sign-ups. So sometimes, it's possible that you can actually grow revenue -- obviously, you can grow revenue, you can grow members, but not necessarily in the short-term that the average revenue per member per -- growing, right? But obviously, that is our goal.
Got it. And just one last one before I pass the line, maybe for Greg. The onetime cost of about $230,000 in Q2. What was that pertaining to?
Yes, thanks Nikhil. So yes. So the onetime cost were related to some of our financing costs and related to some of our marketing costs with Postmedia that were onetime in the quarter.
[Operator Instructions] Your next question is from Suthan Sukumar from Eight Capital.
I guess my first question is around the continued robust growth in your member base. From a new member acquisition perspective, are there any changes in terms of what you're seeing in what's driving this growth? Is the -- I guess I'm curious to see if the free credit score offering remains the key driver. Or are you starting to see greater traction with some of your other offerings?
So this is Dave. I would say, our credit score continues to be a product that obviously attracts users, but I wouldn't say -- it doesn't have the same impact as it did when we first launched it. But that is really to say, I think increasingly what we're seeing is people are increasingly coming to Mogo not just because we have one product. Obviously, if you sign-up whether you download the app or you open it online, you're bumping into a whole bunch of products. So I think it's increasingly -- it really is that broader value proposition of why am I coming to Mogo, because of all these things. Every time we add another product in there, obviously there's more functionality, there's more reasons to open the account with Mogo relative to, obviously, the competition. There's some -- obviously, some other competitors out there offering a free credit score, but there's nobody, none of them offering kind of that broad kind of product reach. I would say the other key point is we are still the only company in Canada offering free monthly monitoring of your Equifax bureau. So there are some that are offering -- with through a mobile app, I should say. Many of the others are offering a competitor, TransUnion. TransUnion typically has a smaller share of the Canadian market, so that's part of the advantage of our particular credit monitoring solution.
Okay, great. And just quickly on MogoProtect and your -- and the premium subscription. I appreciate the update there on the user metric. Are these offerings now available to the broader base? And when do you plan to increase kind of the external marketing for these offerings?
So I would say -- so Protect right now is available for the broader base. Having said that, there is a bunch of opportunities that we still have yet to take advantage of. For example, obviously, if you look at our credit score monitoring -- if you go into the app and you see credit score monitoring, there is no immediate upgrade experience to Protect or anything that says, "Hey, you are currently not protected against identity fraud." And that is perhaps one of our biggest kind of growth opportunities, to get more people who are logging in monthly for their credit score to see and decide to get MogoProtect. So we've got a bunch of kind of user experience opportunities to kind of drive further growth with the existing members, but that product itself is available to the broader member group. We're not really marketing it that much right now. So there's no real ad campaigns out there. We're focused right now on some other things including -- we're doing a -- just launched a campaign kind of promoting our new Bitcoin account. On the premium side, right now, that is still limited to a segment of really kind of loan customers, so we have actually yet to formally bring that out into our other products. And as we said before, we really see that evolving into, what we're calling, this MoGold. And that is still on our road map and something that we still plan on essentially launching into our other product experiences over the next 12 months, including, for example, bringing that into the card experience. So giving people a reason why do you want to upgrade to gold, because there's a whole bunch of other benefits. But right now, that is based on really only being available to a certain subsection of our MogoMoney customers.
Okay. And just on the loan segment, so recent industry data has been pointing to decline in consumer loan growth trends. How should we be -- how should we think about loan originations for the back half of the year?
So yes, Suthan, it's Greg. So first of all, remember, we have a very small loan portfolio, only $80 million roughly. So we're very small in a very large market opportunity. So there's clearly a lot of opportunity for us to grow in that area. We're being very, very careful and deliberate on where we want to grow, and that's one of the benefits of having a small portfolio. We don't need a lot of growth to move the needle. But we are seeing no, really, a decrease in the demand, in fact, just the opposite. In particular, we have implemented a number of technology-related initiatives to automate our loan flow process. And that's driving much higher conversion of our applications. So we're seeing a lot of benefits just from that. Really, we don't even need to acquire more members in the door. And we're seeing an ability to start generating more revenue and more loan originations. So I think our positive trend in originations is going to continue in the back half of the year.
Okay, great. And guys just one last one from me. Any -- are there any changes to your full year targets for member base of -- for the full year of 800,000 to 1 million? And the target for 50% of subscription revenue to account for total revenue by the end of the year? Any updates there?
So no updates. I mean, we're -- I think we're on track right now to hit the low end of that 800,000 to 1 million members. As we've talked about before, for us to accelerate beyond that to 1 million members by year-end, we'd need to see an increase in our member sign-ups. The truth is we've got a number of dials that we could do to drive that and quite frankly, confidently get to that million number by year-end. But we're focused -- we're focused more on monetization of that member base, driving strong revenue growth, both in core and subscription and services. So between those 2, our bias is there. We absolutely will get to the million number, whether it's the end of the year or at some point in the first half of 2019. So that we don't actually think is a challenge. The bigger opportunity from our perspective is just continuing to drive increased monetization of our existing member base as we continue to grow that member base as well. And we're -- we've obviously seen some good initial success here. And we're starting to see core average revenue per member increase. So that's a really good sign. And we're still early days in launching some of our products and monetizing our existing member base, much less continuing to grow our member base, which we're continuing to do in a really efficient way. And just to finish off on your 50%, I mean, as we've said, given we've hit 50% of core revenue today, obviously, by Q4, we expect that we would probably be north of that.
Thank you. There are no further questions at this time. Please proceed.
Okay. Well, thanks for joining us today. Before I go, I just wanted to send out a big thank you to all our team members. There's no question these results were definitely a team effort. We will look forward to talking to you following next quarter's results. Thanks.
Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.