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Operator: 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. 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.

Craig Armitage: 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 voted 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, that 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 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 SEDAR, 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.

Dave Feller: 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 environment 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 who are going bankrupt. Companies like Voyager Digital, FTX, Genesis, three Arrows, BlockFi and some previously highly valued fintechs are now no more. With the falloff in crypto, general market sell-off, coupled with a worsening economy, many business models that seem to be working quickly failed with 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 worst in early 2022, we took quick and decisive action to begin 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 have 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 was 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 and 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 barrier of 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 have been increasingly commoditized and the benefits of moving away from these products now dramatically outweigh the benefit 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 Borewell 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 Moka. Our goal is to narrow our focus and get lean and mean. Although we are 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 Moka, 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 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, and one of which we manage through multiple credit cycles. Going forward, Mogo 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 Mogo. First of all, unlike the products we have and are recently exiting, again, the barriers to entry in 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 stock bonds and mutual funds is approximately $9 trillion. And thirdly, we have a very disruptive value proposition for both our passive and active products. Moka, which is our passive investing solution, is a fraction of the cost of the almost $2 trillion in mutual funds in Canada, and this means that over a long investing horizon, assuming the same portfolio performance, because of the savings and fees, someone invested to 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 Moka into Trade so we can simplify and consolidate to one app. There’s also a 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 Moka 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 are incurring disclosing specific metrics around a 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’re on the platform. This is reflected in stats like U.S. trading volume in February of 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 by-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 product — a strong product market fit this year and set the stage for a more meaningful revenue impact next year.

With that, I’ll turn the call over to Greg. Greg?

Greg Feller: Thanks, Dave. So, I want to start with some comments on Carta. One of the outcomes of the recent restructuring and efficiency initiatives, is our increased focus will be placing on Carta’s payment business going forward, given what we see as attractive long-term growth opportunities in the massive TAM of over $2.5 trillion. As we previously discussed, our payments business is mostly European, but lost one of its largest customers in ’21, which was a significant tailwind to our growth in ’22. Specifically, volume decreased in ’22 from $8.6 billion to $7.3 billion. However, when you adjust out this legacy customer, payment volumes more than doubled. Although we’re not expecting continued growth at these levels, we obviously see strong underlying trends that support our investment in this business.

Our EBITDA guidance includes investments we are currently making in this business through the end of ’23, which we believe will position this business for accelerating overall growth as we move into ’24. As Dave explained, despite a highly challenging environment, we acted decisively last year on efficiency initiatives to adjust the balance between growth investments and profitability. While these efficiency initiatives had an impact on top line growth, we were still able to achieve a 20% year-over-year growth rate and hit the high end of our guidance — latest guidance of $68.9 million. Members also increased by 8% to roughly 2 million. Sequentially, net members decreased by 68,000 as a result of a onetime negative impact of about 100,000 members lost due to Moka wind down.

We do expect net members to increase sequentially as we move into ’23 and dial up marketing efforts. And as MogoTrade becomes more widely available, we believe we’ll see some acceleration in the second half of the year. Over our history, including most recently COVID, we’ve shown an ability to quickly realign our cost structure and adjust the balance of top line growth versus profitability. As we exited Q1 last year, we decided to take a more cautious approach to our spending given what we viewed as an increasingly challenging macro environment, and we implemented an efficiency plan that we executed over the next three quarters that resulted in over $8 million a quarter of cash OpEx savings from Q1 levels. These savings, combined with our steady quarterly revenue, resulted in rapid improvement in adjusted EBITDA and from a loss of $5.5 million in Q1 ’22 to positive EBITDA, adjusted EBITDA of $0.2 million in Q4.

This important milestone was reached one year ahead of previous guidance. Going forward, we will balance margins and growth, which we will be guided by using the Rule of 40 principal. Specifically, our goal is to manage between growth and margins as we strive for achieving a target combined adjusted EBITDA margin and revenue growth rate of 40. We ended the year with a strong balance sheet, including over $30 million of cash and over $37 million of other investments. I’d like to spend a few minutes talking about our crypto-related investments given the hyper volatility we have seen in this market, in particular in the U.S. Importantly, as Dave mentioned, we’ve exited all crypto activities at the Mogo operating level. So our crypto exposure now relates exclusively to the investments that we’ve made in our investment portfolio.

By far, the largest of these is a 34% stake in Coinsquare. We believe this investment represents an attractive way for investors to participate in the broader crypto market and opportunity as Coinsquare is the first and only fully regulated IIROC crypto investment dealer in Canada, which makes them a unique asset, both in Canada and in North America, especially given the continued regulatory uncertainty U.S. players are currently facing. As mentioned before, we wrote down the book value of this investment to $25 million in the most recent quarter. In addition to this investment, we also have over a dozen smaller investments in a number of mostly private and some public companies with a combined book value of $12.5 million at year-end. We continue to believe that we will see monetization opportunities for some of these investments over the next 12 to 24 months.

With today’s results, we also presented an update outlook for 2023. As previously discussed, we expect the exit of certain unprofitable subscale products resulted in a 10% to 15% impact to our quarterly revenue in the near term while being accretive to our adjusted EBITDA in the long term. As it relates to our specific ’23 targets, we are focused on increasing adjusted EBITDA with the following goals. Full year 2023 adjusted EBITDA of $6 million to $8 million, and exiting 2023 with an annual adjusted EBITDA run rate of $10 million to $14 million, which is based on a Q4 2023 adjusted EBITDA target of $2.5 million to $3.5 million. While we focus on adjusted EBITDA growth, we will also continue to invest in our two primary growth platforms of digital wealth and payments, which we believe will position us well for profitable top line expansion in 2024.

Reaching these ’23 goals will put us in a healthy range for adjusted EBITDA margin exiting this year, which, as we turn to 2024, we believe in combination with renewed top line growth will position us to make further progress toward the Rule of 40 goal we discussed earlier. With that, we will now open the call to questions. Operator?

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Operator: Your first question comes from the line of Adhir Kadve from Eight Capital. Your line is now open.

Adhir Kadve: So there is actually a lot of precedent for you guys. You’ve shown in the past that, call it, 50% EBITDA margins. And now you guys are kind of mentioning the Rule of 40. Can you kind of help us get a sense of how that kind of lands? Do you think you’ll beat 30% EBITDA margins versus 10% growth? Can you help us unback that a little bit, if you could?

Greg Feller: Yes. Thanks, Adir. So I think if you kind of look at what we’ve actually guided to, both on in terms of revenue and in terms of EBITDA. The math is going to come out somewhere by Q4 in the 20% EBITDA range, depending where you fall out in that range probably in the middle of that range. So we do think that we’re effectively in a position to exit 2023 at attractive EBITDA margins as we go into 2024. Again, we are — our primary focus in ’23 is all about expanding that EBITDA and expanding that profitability and getting both the payments business and the wealth business on a strong path for delivering top line growth as we move into 2024. So I think, our goal, our long-term target is to get to that 40. And I think we’re not giving specific guidance on that.

But I think, at this stage right now, that is going to clearly be weighted towards margin, just given the — I think, the level of margin that we expect to end the year at. So, we’re not suggesting that we’re going to hit the 40 target in 2024, but our goal is to get as close to that as possible, and obviously, continue to focus on that as we move in beyond ’24. The main point here is that instead of this being a temporary onetime, “Hey, we just kind of cut costs to show margins,” we are really planning to have a concerted effort going forward where we actively manage our margin target and our growth target and balance between that with an overall blended target of trying to achieve that rule of 40, Rule of 40.

Adhir Kadve: Okay. Excellent. And then just on the actual payments business with Carta, what kind of initiatives are you kind of seeing there that would really kind of help you drive the growth of that business?

Greg Feller: So, we’re really focused right now on our existing customers. We have a number of large existing customers that we believe we’ve got an opportunity to expand our business with. And so that is where our primary focus is. Historically, in this sector, a lot of the players in the past have grown through bringing on new fintechs. And obviously, this is not the market where we think that’s an ROI that’s worth pursuing. So we’re really focused on expanding that with our existing customer base in this market. And we’ve got a couple of customers that we believe have significant upside opportunity for Mogo as long as we continue to deliver and execute on the business and make the right level of investment. So that’s kind of what we’re focused on there.

Adhir Kadve: Okay. Great. And then maybe just the last one on MogoTrade. Can you kind of give us a sense of what really still needs to be done to kind of roll that out to the broader market?

Dave Feller: Sure. So I think from a product perspective, we’re feeling really good where the product is. And I think the thing to think about is; a, we’ve obviously spent a lot of time internally on efficiency initiatives, and therefore, trade has kind of moved to the number two spot in terms of priority, i.e., anytime we have an opportunity to drive efficiency, that essentially becomes the priority over opportunities to improve and drive growth on Trade right now. Obviously, once we get through those items, then we free up the resources to focus primarily on growing our digital wealth, which will be a combination of both Trade and Moka. The goal still remains to bring Moka into the app, so that we have both the passive and the active within the app.

From a product perspective, Trade right now, we’re feeling really good about where it is in terms of the user experience, the feature set. During this period of time, we’ve done a lot of surveys, a lot of customer interviews, continue to see, as I mentioned, some really kind of positive traction and signs of meaningful product market fit. And so, we are at a place where we are happy to continue to bring on more users right now. And I think one of the things is there is not a lot of features that we think are missing in Trade, but there’s definitely enhancements to come that we obviously believe will help increase the growth rate of the product. A lot of our focus is increasing growth organically, both by focusing on our members, but also bringing certain things into the product that make it a lot easier for people to kind of spread the word and share it just given the value prop.

So, getting to some of those items, once we get over on the efficiency items, will help accelerate the growth rate of the trade product.

Operator: Your next question comes from the line of Scott Buck from H.C. Wainwright. Your line is now open.

Scott Buck: First, interest revenue was still 40% or so of total rev. Can you talk a little bit about what you’re seeing from the consumer in this kind of environment? I mean any credit deterioration we should be thinking about?

Greg Feller: Yes. Thanks, Scott. So look, we’ve taken a very conservative, and I would say, prudent approach in this environment. You — if you’ve seen our balance sheet, you will see that, this quarter, our loan book actually decreased. So loan receivables decreased for the second quarter in a row on our balance sheet, which obviously is a sign that we are being really conservative on the originations. Having said that, we’ve actually seen improving credit trends over the last couple of quarters, and that’s actually reflected somewhat in our loan loss provision, which was down sequentially from Q3 to Q4 by over $1 million. So, we actually are seeing quite positive signs on the creditworthiness and the health of our customers.

And so, we’re actually feeling pretty good about that right now. We’re going to continue to, I think, be pretty conservative as it relates to lending until we have sort of more visibility on this macro environment. One of the other things I would say is, look, our loan — our average loan size is just over $1,000. So it’s a small loan. It’s a very small payment. So it’s got high affordability in terms of where it ranks in our customers’ wallet. We’ve got, as you know, close to 20 years of history of lending through multiple cycles, including the global financial crisis. So we feel very good about our ability to sort of manage through this period. And the other thing I would actually just say is, look, some of the — by far, the biggest driver, ultimately, of loan loss performance from a macro perspective is just overall unemployment and it actually stayed relatively strong — or employment levels have stayed strong.

And so — but the areas that the market you have seen it anecdotally have been more in the — in kind of the higher income white-collar jobs, which generally are not our target customers. They’re more kind of the service level industry where you’ve sort of seen less there. So that actually, I think, bodes well also. But I’d say those are probably the key highlights there.

Scott Buck: That’s really helpful. And my second one, the Company is well capitalized. You’re going to be generating some cash this year. How should we be thinking about buybacks here? Is there a chance for acceleration? Or how do you kind of view that?

Greg Feller: So we do have a buyback plan in place. We have done a few buybacks already. We bought back about 1 million shares in Q4, and we bought shares in the quarter prior to that as well — or actually in Q2. So we’ve done a number of buybacks already. And I would say those sizes have been in the kind of $700,000 to $1 million range. And at these prices, we’ve actually managed to buy a fair amount of stock. In fact, we’ve repurchased about 1/3 of the last major equity issuance that we issued in December 2021 through those two buybacks for less than $2 million. So, I think we will continue to look opportunistically there, and that’s something that we will continue to look at if it makes sense. But by far and away, our primary focus is on cash, getting to cash flow, continue to expand our EBITDA on our business and preserving the cash on our balance sheet, but we will — as we’ve done in ’22, but I think we will look opportunistically when it makes sense to potentially do some other buybacks.

Operator: There are no further questions at this time. Please continue.

Dave Feller: Okay. Well, thank you, everybody, for your time. We appreciate you joining us on the quarter and year-end review. We look forward to updating you post Q1 2023. Thanks again.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.