Orion Digital Corp. (ORIO) Q1 2024 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Mogo Q1 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Craig Armitage, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thanks for joining us today. Just a few notes before we get started. 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 Mogo’s Q1 filings as well as periodic filings with regulators in Canada and the United States which you’ll find on SEDAR, EDGAR and you can access to the investor – the Mogo Investor Relations website as well. Secondly, today’s session will include several adjusted financial measures such as – or non-IFRS measures, excuse me. Please consider these as a supplement to and not a substitute for the IFRS measures. You’ll see that we’ve included reconciliations to those in the press release and in the investor deck. And with that, I’ll turn it over to Dave Feller to get us started. Dave?

Thanks, Craig. Good afternoon, and welcome to Mogo’s first quarter fiscal 2024 results call. I’m joined today by Greg Feller, our President and CFO. I’ll cover some of the key operating highlights, and Greg will dig deeper on the financial results and outlook. It was a solid start to 2024 for Mogo, both from a financial perspective and a product perspective. Q1 revenue was a quarterly record of $17.9 million. We exceeded $400 million in AUM, and we continued to generate positive adjusted EBITDA while, we invest in our products and marketing to achieve long-term growth in our business. Wealth payments and crypto form the key pillars of our business today. I’ll walk through wealth and Greg will talk about payments in crypto. Our excitement around the long-term potential in wealth starts with the overall market size and the opportunity for innovation and disruption given the dominance of the big banks. The Canadian wealth market is measured in the trillions and is expected to grow from over $6 trillion today to over $11 trillion by the end of 2032. Within this, there’s an estimated $2 trillion in high fee mutual funds alone, along with annual contributions to RRSP and TFSAs of around $100 billion a year. The market today is dominated by the big banks that offer everything from self-directed trading to mutual funds to private wealth managers. Yet the reality is most investors struggle to make adequate returns. In fact, studies show that the average investor dramatically underperform the S&P 500 let alone anywhere close to the kinds of returns at great investors like Warren Buffett have produced. As Buffet says, the reality is Wall Street makes more money by getting you to gamble than invest. What’s more, they offer products like mutual funds that not only dramatically underperform, but charge very high fees, a killer combo. We firmly believe that the future of investing will be dominated by products and brands that actually deliver the best results, not by those that simply have distribution. The reason for this is simple. The impact of better performance is staggering. This graph showcases just how dramatic the difference can be. Compare the average return to the S&P 500 and then to a Buffet level return. Right now, the majority of investors are dramatically underperform the S&P 500 and literally leaving millions on the table. At Mogo, we’re obsessed with the performance of our members, and the reality is there’s zero reason investors shouldn’t be at least matching the S&P. And for some, they even have the opportunities to beat it. An important point to highlight here is the magnitude of the impact on investors wealth-building. The difference between 4% and 10% over a 50-year time horizon is more than 16x. And as you can see at the Buffet level return, the numbers are almost incomprehensible. It’s important to note that our goal isn’t to build the biggest wealth-building platform in Canada, it’s to build the most effective, i.e., the one that really delivers the best returns for investors. Again, we believe the future of investing won’t be about the features you have or the tools you have, it will be primarily, if not exclusively based on the actual performance of the investors using it. That’s our focus. We think that both a fully managed solution, along with a self-directed solution will continue to be the way people choose to invest and build wealth. With that, we offer both a fully managed solution along with the self-directed investing app. We believe most investors will primarily rely on a managed solution as most don’t have the experience and desire to actively manage their investing, not to mention most would be way better off this way. Having said that, the excitement and potential will always attract investors to self-directed and when done right, can be a very effective way of generating great returns and be a good complement to a managed solution. Given our focus is also on the next generation of investors, it’s not all about the money. We believe that the products that we’ll win are the ones that not only help people achieve important life goals like financial freedom, but they do it in a way that can also have a meaningful positive impact in the world. We believe we are the only investing platform in the world taking this unique approach to wealth-building today. We’ve come a long way over the last few years with Moka as we evolved it from what was primarily a short-term savings app to a best-in-class managed investing app. What really sets Moka apart is the actual performance and the impact that this has on wealth-building for investors. In terms of performance, the strategy employee has a big impact on your returns, i.e., stocks, bonds, etcetera. But what most people don’t realize is it’s the behavioral element even in passive and managed investing that really drives the big impact. The natural tendency for investors is to want to sell when the market is down and buy when it is up. But as we all know, trying to time the market is a losing game and ultimately leads to poor returns. So even if you pick the right strategy like the S&P 500, you won’t achieve good returns unless you address the behavioral issues. Ultimately, the combination of the right strategy and right behavioral edge produces radically better outcomes. We see this every day with our customers, whether they switch from self-directed investing, mutual funds or even wealth managers, getting them on track to 5x, 10x and even more in terms of the wealth is not uncommon. While others have gamified trading, we are focused on gamifying serious wealth-building to drive the right behaviors to maximize the outcome. Every day, we see our users engage in features that motivate them to normally continue with their investing. But to increase their contributions as they see how much money they can get on track for. Although you might think this would be common, the fact is, most investors today have no idea what the returns are, have no idea what they are on track to or even what they would like to achieve in the long run. We make it easy for them to not only invest, but to see exactly what they’re on track to by when, and this helps drive the right behaviors to maximize the outcome. Some of the new features we are working on, including a leaderboard that gamifies wealth-building experience. At Moka today, we have users who are actually on track to over $70 million. And just to get into the top 100 on our leaderboard requires being on track to about $4 million. As we continue to improve the experience and our value proposition, we see opportunities to increase our monthly subscription fee and still deliver great value while improving our economics, which is why we’re going to be offering a new $15-a-month tier. Mogo is our self-directed investing app. And in Q1, we launched our biggest feature yet, Buffet Mode. Like Moka, the key to successful investing comes down to the right behavior and temperament. As Warren Buffett says, successful investing is more about temperament than Intellect. While every other training app are primarily designed to drive trading as that’s what they drive revenue, we believe Mogo is the only self-directed investing app that is designed to actually get investors to trade less and focus more on long-term value investing. The reality is, most self-directed investors dramatically underperformed the S&P 500 and most have no idea. We’ve designed and experienced it is based on the investing principles of Warren Buffet. Warren started with $114 and turned it into a fortune over $100 billion. The fact is there will be investors who today are in their 20s and will become billionaires by investing based on principles of value investing and its greatest practitioner Warren Buffett. With a simple monthly subscription fee, we are solely focused on helping our users become more successful investors, not on getting them to trade. This positioning and business model sets us apart from all the other self-directed trading apps in Canada. One of our unique features is how we help investors minimize gambling and speculating, which is one of the primary reasons for underperformance. Another big advantage we have over the existing incumbents is our smaller hyper-focused team. We believe that small teams build better products, but that also gives us a cost advantage in terms of the ability to be profitable on a fraction of the users of the bigger companies. We’re still in the early days with both of these products, and we continue to work on increasing our product velocity in terms of improvements to the experience to help our members improve their performance. This is what guides our road map. Does this help the user improve their performance as an investor? Again, you would think this would be common, but I can assure you it’s not. As Warren Buffet reminds us with investing, you can’t be active every day, but you can learn every day. This is also a core focus with our experience as we develop more and more learning features that drive more engagement and better outcomes. We believe that our investment in our products will continue to be the primary driver of growth, while also continuing to increase our marketing activities to drive increased awareness and what we see as a more premium positioning in the marketplace. With that, I’ll turn it over to Greg. Greg?

Thanks, Dave, and good afternoon. Let me first discuss our two other pillars beginning with Carta, our payments business. Carta had another solid quarter in Q1 as reflected by an 18% year-over-year increase in volume to $2.6 billion, putting this business on an annual run rate north of $10 billion. We continue to be very excited about Carta and its long-term growth prospects. Another major pillar in Mogo is our crypto-related investments, which collectively today represent just under 50% of our market cap. Largest of these is our 87 million shares in TSX-listed WonderFi, the only fully regulated crypto exchange in Canada. Recently, WonderFi announced the nomination of three new directors to the Board as a cooperation agreement with Coast Capital. We view the agreement as a shareholder-friendly step that will enable WonderFi to begin to fully realize the growth potential of its position as the only fully regulated Crypto Exchange in Canada. We’d also like to congratulate the WonderFi team on the recent Q1 results, which included a 6% increase in assets under custody to $1.6 billion, record trading volumes of $1.1 billion and ending the quarter in a strong financial position with cash and digital assets of $54 million. Turning to Mogo’s Financials. It was a solid first quarter to start of 2024. Generated record quarterly revenue, while continuing to deliver positive adjusted EBITDA. Q1 revenue was a quarterly record $17.9 million, up 13% over the prior year and showed accelerating growth for the second consecutive quarter. We achieved this without significant marketing spend to date. However, as we said in the last quarter, we are increasing our marketing initiatives for our wealth platform. Over the past 2 years, we’ve been highly focused on accelerating profitability despite an increase in growth-related spend in Q1. Total OpEx is down almost 50% from the beginning of ‘22. This quarter, we generated 13% year-over-year revenue growth while holding OpEx relatively flat. Although we continue to operate with efficiency mindset, our focus again is on increasing revenue growth and will be guided by the Rule of 40, and therefore, we require expectation of increased growth to offset any decrease in margins. Q1 adjusted EBITDA remained positive at $1 million, similar to the same period last year. Importantly, we’ve seen continued positive cash flow from operations before discretionary investment in loan book. This metric was positive for the sixth consecutive quarter, reaching $1.8 million in Q1 ‘24. Lastly, adjusted net loss for the quarter was $4 million, roughly flat with the prior year period of $3.9 million. Dave talked about the relaunch of our two wealth products, Mogo and Moka and the significant value-enhancing elements to these products. These changes will help our users invest and build wealth more intelligently. They also create a significant opportunity for Mogo to increase our ARPU while maintaining a compelling value proposition for our users. With the new pricing tier of $15 a month for each of Moka and Mogo, we have a significant subscription-driven opportunity of up to $360 per year per user for those members that subscribe to both products. This represents a huge opportunity to expand our subscription revenue over time. With these new monetization opportunities from wealth, we believe there is a significant potential to leverage our existing 2.1 million member base to drive increased monetization and therefore, overall ARPU above our current consumer ARPU of approximately $27 a year. Given the limited penetration of these products today within our member base, our primary focus will be increased monetization of this member base over growth of the member base itself. Lastly, we ended the quarter in a solid financial position with cash and total investments of roughly $53 million. This included combined cash and restricted cash of $13.8 million, marketable securities of $28 million and investment portfolio of $11.6 million. We expect to see monetization opportunities from these investments over the next 12 months. Uniquely, Mogo investors continue to have a meaningful leverage to the crypto sector through these investments. In summary, we are very excited about our new wealth products and the continued growth of our payments business and remain focused on driving increased subscription services revenue growth to the mid-teens for the full year. We will also continue to focus on increasing our combined subscription and services revenue growth and adjusted EBITDA margin towards our target Rule of 40. And 19% for Q1 versus 14.5% last quarter and negative 5% in the year-earlier period, we believe we are well on our way. With that, we will now open the call to questions. Operator?

Thank you. [Operator Instructions] Your first question comes from the line of Scott Buck with H.C. Wainwright. Please go ahead.

Hi, good afternoon, guys. Thanks for taking my question. I’m curious if you guys have received any early feedback on the Moka and Mogo app relaunches. And then what’s the appropriate time line for investors to see some, I guess, meaningful growth or progress on that front?

So it’s Dave. Maybe I’ll just talk about the first piece here. Yes, I mean, obviously, we continue to stay close to our users and our customers, constantly seeking feedback. We also recently did a new – what we call Net Promoter Score survey, which generally judges the likelihood that people would be promoters versus detractors. Generally, a score above zero is considered good and the higher you get, the better it is. Our most recent Net Promoter Score was north of 40, which was a dramatic improvement from the previous one. Before we did the – basically the rebranding and the new features for Moka. So very pleased with what we saw on the Net Promoter Score. And then we continue to be pleased with just generally the behaviors that we’re seeing with users signing up, especially those that are setting up these long-term wealth goals. And as I mentioned in my commentary, one of the behaviors that we’re really looking for is how do people actually interact with the app, how often are they coming back to it. And instead of this just being a passive investing strategy, some – for example, look at something like this as a managed solution like Mokas being something like I said it and forget it, whereas our approach is very different. We’re actually looking for engagement from our users because the engagement is actually what drives, we think that long-term success versus if it’s in the background, we don’t know what’s going on. And that also ultimately drives people to increase what their contributions are to actually get on even a better path to financial freedom. So we’ve got a lot of people that start out initially set up where they’re on a path to, let’s say, just over $1 million. We have one example where somebody started initially contributing around $25 a week, put them on a path just over $1 million and has now consistently increased that contribution because of the experience itself, including things like our wealth calculator, where every time you actually engage with it, it shows you how much more money you’d be on track for. And this user has gone from being on track to $1 million to now being on track to $10 million. So again, it kind of just showcases the importance of that engagement. And so just another kind of really good sign that we’re seeing, which is also, by the way, why we’ve also – as we continue to improve the value proposition, we’re also looking at not only increasing the base price but also adding different tiers. And that obviously is something that I just spoke about as well, and that obviously reflects our ongoing confidence in the value proposition based on the feedback of the users.

Great. Dave, I appreciate that. Greg, I think you had some comments in the earnings release regarding potential monetization of some of the assets in the investment portfolio. Any additional color there you can share with us?

So, yes, what I would say is, look, a big chunk of the total portfolio are in what we call marketable security. So, obviously, publicly traded shares, and we also have a number of meaningful private investments that we believe we will see some opportunities over the next 12 months. So, I think a combination of some of the public equities we hold as well as the private, we – gives us confidence that we will be able to see some monetization out of that portfolio here over the next 12 months.

Okay. Perfect. I appreciate that. And then last one, I just want to ask you about provisioning real quick. It looks like there was a meaningful tick-up from the fourth quarter. Just curious if that reflects something you are seeing in consumer credit or more just a function of – I don’t know the portfolio, the loan book size and accounting?

Yes. So, our credit performance continues to be within the range that we are looking for from the loan book, so no flags there. From an accounting perspective, the loan loss provision is driven by a number of factors including just the overall origination amount. The overall origination amount in Q1 of this quarter versus Q1 of last quarter was up about 5x. So, that by itself would account for probably the lion’s share of the increase. And then there are some other factors, then there is the IFRS provision that we have to take into account, including unemployment rates and things like that, that impact it. But I would expect that, that provision on an absolute level actually comes down over the next couple of quarters. So, there is some seasonality there as well, but nothing that we are concerned about.

Perfect. I appreciate the time guys. Thank you very much.

Thanks Scott.

[Operator Instructions] Your next question comes from the line of Adhir Kadve from Eight Capital. Please go ahead.

Hi guys. Thanks for taking my questions. I just wanted to ask, first, so it’s good to see the subscription line kind of return to growth this quarter. Can you give us a sense of which of the two products, whether it was wealth or – sorry, whether it’s Moka or whether it’s Mogo trade, that really kind of contributed to that growth, or was it something else?

It’s Dave. So, I would say at this stage, Moka is still the bigger product given its kind of longer history. So, I would say, at this stage, we are kind of further along with Moka. But we are also seeing some meaningful growth even on the Mogo side assets, assets on the platform up well over 100%, but also on a much smaller scale. We also effectively have done very little to no marketing on the Mogo product where we have actually done some on Moka. But think we are now at a place where we kind of feel both products are increasingly ready for prime time. So, I think kind of going forward, we expect to have more of a balance between both of those products in terms of what’s driving growth.

Okay. Got it. And then what does that marketing kind of entail, I mean you guys have 2.1 million users already on the platform. How do you kind of get them to reactivate, what kind of strategies will you use around that?

Yes. I mean obviously, there is a bunch, but obviously, email campaigns continue to be an effective strategy for sure, and we are constantly testing different strategies there. But generally, email campaigns that aren’t just meant to sell people on the product that actually kind of deliver value, we know that from our member base that one of the top goals they have continues to be around basically, financial education, specifically even on learning how to invest and building wealth. So, that’s also kind of a really kind of big core focus. From a product and marketing perspective, increasingly is just really kind of solid educational content versus, quite frankly, more of a hard sale. But yes, email continues to be a key driver and something we will continue to leverage and leverage more than we have in the past. But also, we have our Postmedia partnership still. So, that also continues to be something that we are confident in, especially given financial post and its positioning in the marketplace, and generally, leveraging it to establish a certain level of credibility, especially for a relatively new entrant in the wealth space in Canada. So, although our target customer isn’t necessarily subscribing to the financial post, and just generally, that section, news item in through social media, a lot of this stuff still is effective with that target demo. Really, our kind of main target is Gen Z and millennial. So, I would say generally between 25 and 40 is kind of our main target demo. We are also developing relationships with influencers. So, we expect a lot more influencer-type marketing out there, including product reviews of both Mogo and Moka as well. And just generally a lot more kind of social media presence, we have hired up on the marketing team, brought on some more kind of social media and creative people to create more and more content. So, that’s also an area that we are investing in versus just paid marketing.

Okay. Got it. And then maybe two more questions. One, in terms of the fee tier, so if I heard that correctly, it will be $15 a month for Moka, $15 a month for Mogo, so all-in, $30 a month, $360 ARPU per user. But how about the kind of…

Yes. If customers take both products. Yes.

If they take both. Yes. So, what it looked cross-sell between the two products, say, Moka and Mogo, obviously there is a very high level of cross-sellability between the two, and kind of also leverage that as well, or has that started right to that?

Yes. I would say that really hasn’t started. Right now, we are primarily focused on each product kind of developing its own marketing and narrative in that. But obviously, at a point, no question about it. And we have tested it in a very small way. But generally, our view is that – and in fact, kind of the stats show, for example, 60 – a high percentage of self-directed investors obviously also invest in things like mutual fund as well as have other kind of managed solutions, so well north of 50%. So, there is already a strong kind of data point on the general attachment rate. Most people are not exclusively self-directed. And then generally, we think especially over time, if you take a look at somebody in their 20s, even if they start, for example, on something like Moka, where they are saying, hey, I really don’t have the confidence in investing and I don’t really have the time to do it, they start with something like that. But over time, in a 50-year journey, a lot of them start saying, hey, listen, I actually have some interest in some self-directed as well. So, we see that over time, a natural addition as you add kind of that other product in there. I mean our kind of target in the long run is to have at least a kind of 50% attachment rate, right. So, that’s what we are looking at.

Awesome. Selling time is ahead guys, I will pass it on.

Yes. Thanks.

Thank you. And there are no further questions at this time. I would like to turn it back to Dave Feller for closing remarks.

Okay. Well, thanks for joining us for the call. Thanks for the questions. Also, I just wanted to say a special thank you to all the Mogo team members that make all of this possible and look forward to updating everybody post our Q2 results. Thanks again.

Thank you, presenters. And ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.