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Edited Transcript of GO.TO earnings conference call or presentation 7-Nov-18 10:00pm GMT

Q3 2018 Mogo Finance Technology Inc Earnings Call

VANCOUVER Nov 18, 2018 (Thomson StreetEvents) -- Edited Transcript of Mogo Finance Technology Inc earnings conference call or presentation Wednesday, November 7, 2018 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Marshall Feller

Mogo Finance Technology Inc. - Founder, CEO & Chairman

* Gregory Dean Feller

Mogo Finance Technology Inc. - President, CFO & Director

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Conference Call Participants

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* Douglas Taylor

Canaccord Genuity Limited, Research Division - Director

* Nikhil Thadani

Mackie Research Capital Corporation, Research Division - Analyst of Technology

* Nikolaus Priebe

BMO Capital Markets Equity Research - Analyst

* Suthan Sukumar

Eight Capital, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Leonie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Mogo's Third 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 Q3 as well as in its filings with regulators in Canada and 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 subject for IFRS financial measures. Reconciliation between the 2 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 conference over to David Feller, Founder and CEO. Mr. Feller, you may begin your conference.

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [2]

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Thank you. Good afternoon, and welcome to Mogo's Third Quarter 2018 Results Call. I'm joined today by Greg Feller, our President and CFO. We've prepared a presentation again. It's available through our investor website.

Today, we're guided by one simple mission at Mogo. We want to make it easier for consumers to get in control of their financial health. It's obviously still very early days in this mission, but every quarter, we continue to get closer. And Q3 results were another sign that this approach drives real results, as demonstrated by our 80% growth in core revenue.

Financial services marketing in Canada is massive and measured in the trillions. And like many other industries, it's continuing to undergo a fundamental shift as it transitions to a mobile-first digital experience. At the end of the day, mobile is by far the most convenient and accessible way to manage your financial life, and as millennials become one of the biggest consumers of financial products, they continue to look for the best ways to digitally manage their financial lives. And it's not just millennials; eventually, all consumers will be interacting primarily through their mobile phones to manage their finances. This is the trend and fundamental shift that we are laser-focused on.

When you look at the competitive landscape today, most of the consumer's financial wallet is with the big banks. But increasingly, new players and digital-focused players are winning more of the customer's wallet. FinTechs are leading in terms of innovative new digital products, but none of them outside of Mogo have any real scale in terms of members, marketing reach and suite of products. We believe Mogo is a clear mobile-first challenger to the banks.

As we have talked about before, outside of the big banks, there are many sizable companies that today have a solid share of the customer's financial wallet, but are more challenged than the big banks to transition to this new mobile-first world. So we aren't just competing against the big banks.

As this shift continues, there's no question that financial services will be dominated by companies that not only offer the best digital experience, but the best products, and in a way that makes it easier for these consumers to become financially healthy. This is at the core of our strategy and what's fueling our growth today. To deliver on this, we've built a technology platform that is designed to deliver a best-in-class mobile-first digital experience along with best-in-class financial products, all through one app. This modern platform is one of the big advantages we have over the existing incumbents as it allows us to be faster and more innovative in terms of features and products than the banks, as we're not burdened by many of the legacy issues that they deal with. We think our past success in launching new products and features continues to showcase this.

All digital experiences aren't created the same. The difference between using Uber and your local taxi app are night and day. Our design-driven approach and modern tech platform enable us to be focused on the leading edge of a mobile-first digital experience. Our design is focused on not just making things simple, but a more engaging experience. Unlike many of the big competitors, we can offer all of these products through one app. No need to have multiple apps on your phone or log in to multiple accounts. These are not trivial things, as they have a big impact on the overall convenience of the experience, and it's convenience that has always been one of the main drivers of disruption.

Unlike the banks and credit unions that are primarily focused on their own proprietary products, our strategy is unique as we look to partner with others, including the banks, to bring the best products to our members while we control and deliver on the best digital experience. In the digital world, it's increasingly easier for consumers to switch. And unlike the old world, where the friction to go from one bank to the other was a lot, there will continue to be a decrease, and consumers will increasingly demand not only a great mobile-first experience but a best-in-class product, whether that's a savings account, mortgage or investment options.

A good example of this, take saving accounts in Canada today. In today's world, the big banks can get away with offering a much lower rate outside of promotional offers. Their current savings rate is about half of what some of the other smaller banks offer. Now why would anyone keep their money in a savings account that offers half the rate of another savings account? There's only 2 reasons. One, they don't know about the other offer, or two, the friction and hassle in moving their money. If I have an account with Mogo and they offer double the rate, why would I keep it with my bank? Both are savings accounts with the same protection.

So our goal is to identify the best-in-class products and looking to partner with those companies to bring them into the app. So why would banks, wealth management, insurance, credit unions want to partner with Mogo? One, we have the distribution. With 700,000 members, that puts us larger than any credit union in Canada for things like deposits through savings accounts, GICs as well as wealth products like ETFs, mutual funds, et cetera. Distribution is key, and there are many multibillion-dollar financial companies that don't have direct distribution to consumers. Two, our Postmedia partnership expands our reach from just our 700,000 members to almost 18 million Canadians. But it's not just any distribution they're looking for. They are particularly challenged to get in front of the next generation of consumers and are looking for a mobile-first digital distribution.

The third quarter was another great quarter for Mogo on many levels, highlighted by an 80% increase in core revenue, our sixth sequential increase, and driven by subscription and services revenue, which grew 111% year-over-year. The more we improve our experience, launch new features, new products, the more reasons people will have to come to Mogo and the more reasons our members have to use us.

MogoMoney also contributed, with the interest revenue up 55% year-over-year. We also achieved a major milestone as we're now out of the short-term lending business. To put this in perspective, when we IPO-ed just over 3 years ago, short-term lending made up well over half of our revenues. So as you can see, the business is completely transformed.

Going forward, it's this holistic solution that will continue to drive our growth, along with the introduction of new features and the expansion of our product offering. On top of what's working now, we'll be introducing MogoWealth with multiple investment products a new cash-back feature of our card program, along with working on integrating MogoMoney more closely with the MogoCard.

As discussed in last quarter's call, MogoWealth will round out our holistic product offering and we believe will become a key product for us, as the ultimate measure of financial health is your net worth and key to increasing that is saving and investing over the long term. The market size in Canada for wealth management is over $4 trillion and expected to grow to over $7 trillion by 2026.

As the digital transformation continues in financial services, wealth management is one of the key areas that's transforming, and digital and mobile will continue to become the dominant way consumers manage their wealth. From a product perspective, our goal to design an experience makes it easy for consumers to begin investing in building wealth over the long term. If you ask most people today about their wealth-building investing plan, even those that have one, rarely are they clear on what they're investing in, what the returns are and how those returns compared to key benchmarks like the S&P 500. Again, this is why a mobile-first experience is so important. The ability to conveniently check in with a few clicks anytime, anywhere is what differentiates a mobile app experience with the current more traditional experience.

In terms of product offerings, once again, our goal is to offer best-in-class investment options along with the user experience that makes it easy to determine the appropriate investment strategy and plan. We plan to partner with others to bring in the best investment products and options to our members. We currently are looking at Robo product, along with mutual funds, ETFs, GICs and even some unique alternative investments like our own debentures, which can also help attract high net worth customers.

Next, the MogoCard continues to be a key part of our product strategy, as controlling someone's spending is no doubt an important part of their financial wallet. And now that we have a broader ecosystem of products, including many ways to monetize, we're now ramping up focus on the MogoCard.

The spending market in Canada is massive at about $850 billion a year, which includes cash, debit and credit card transactions. There's lots of competition for this part of someone's wallet. Cash continues to decline as consumers move more of their spending to both debit and credit cards. Debit cards are actually used more often than credit cards, but credit cards get more of the total spend, given things like reward programs.

We will be launching a new best-in-class cash-back program along with the user experience that is unlike any other card program in Canada. Consumers, especially millennials, want more control on their spending, but they also want the rewards of a credit card, and cash-back is by far the most requested reward program. Again, this is all about owning a key part of the customer's financial wallet and driving more member sign-ups and engagement to our app and product ecosystem.

Next, lending will continue to be an important part of our product offering. We have a tremendous competency and experience here, and this will continue to be an asset and key competitive advantage. As we look into integrate all of our products more closely together, MogoMoney will be evolving over the next year to what we call MogoCredit and will be more integrated into our card product. As you can see here, card users will be able to more easily tap into this product, and we believe it will become a real alternative to a credit card, especially alongside the new cash-back program. For millennials, this really gives them the best of both worlds, the highest cash-back, no monthly fees, a great mobile experience and then access to a digital credit solution will be far easier to manage than borrowing on a credit card.

On the brand. Unlike the big banks that have to appeal to a broader demographic, we are hyper-focused on millennials, and that can also be seen in the design of our brand from the design of our user interface to our tone and marketing. This is yet another differentiated part of our strategy and aligns with our goal of becoming the go-to financial app for the next-generation consumers.

Given our current member base of over 700,000 members, along with our Postmedia partnership that gets us in front of up to 18 million Canadians, we really do have a scale of reach that is significant and gives us the ability to compete with some of the biggest players in Canada, and is a significant advantage compared to any of the new players. Leveraging this will also be key as we continue to build out the platform and product offering, and again, is one of the key benefits we bring to partnerships.

I will now turn the call over to Greg to review financial results. Greg?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [3]

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Thanks, Dave, and good afternoon. It was an excellent quarter for Mogo from a financial perspective, as the results continue to demonstrate tremendous top line growth with solid EBITDA performance. The main storyline continues to be the growth in core revenue, which increased by 80% in Q3, the sixth consecutive quarter of accelerating sequential growth. The key driver of this was 111% growth in our subscription and services revenue, which now represents 52% of core revenue. We also continue to grow our member base at a high rate to 711,000 members at quarter end, an increase of 45% over last year. We achieved positive adjusted EBITDA of more than $1 million again this quarter, our ninth consecutive quarter of positive results. We exited the quarter in a strong financial position, with $25 million of cash and $170 million of undrawn credit facilities.

As we have discussed on recent calls, our transition out of short-term lending business and corresponding declining loan fees masked the outstanding underlying growth in our core business, in particular, new fee-based products, which has driven a significant ramp in our subscription and services revenue. This quarter is a milestone quarter for the company that marks our official exit out of the short-term lending business, which is what drove a decrease on loan fees this quarter from $3.8 million in our last quarter to under $400,000 this quarter.

Despite the $3.5 million sequential decline in this revenue, line based on the strong growth of our other products, in particular, subscription and services revenue, we were actually able to increase our total revenue this quarter as compared to last. In particular, we reported total revenue of $15.4 million, which is up 23% year-over-year. Starting next quarter, Q4, we will no longer have any of this legacy revenue in our results, which we believe will make it easier for investors to understand our true underlying growth.

In this regard, our core revenue, which excludes the legacy loan fees, increased by 80% in Q3 of $15 million, up from $8.4 million in the comparable quarter in 2017, and represented the sixth consecutive quarter of accelerating growth. The growth was primarily driven by subscription and services revenue, which more than doubled again this quarter. Strong demand from our MogoCredit products also contributed growth, with interest revenue up 55%.

As Dave described, over the past several years, we've invested significant resources in building out our platform and launching multiple products to help consumers get into financial control. Suite of 6 products is driving high margin subscription and services revenue, which more than doubled again this year to $7.8 million. The increase is primarily driven by higher subscription-related fees for MogoProtect and our premium account option. MogoProtect revenue almost doubled this quarter over the second quarter, and our premium account revenue also increased significantly from last quarter. Our success of new products and premium options has quickly transformed the revenue make-up of the company. Subscription and services now comprises 52% of core revenue, ahead of our stated target of 50% by year end.

In last year's third quarter, our subscription and services revenue was 30% of our overall revenue while our legacy loan fee revenue was 1/3 of total revenue. So the revenue mix is really fundamentally different, and we're heavily weighted towards capital-light recurring revenue streams.

We continue to generate strong member growth in the quarter, which was up 45% to 711,000. We've also placed significant emphasis on driving increased monetization of our member base as we bring more relevant products and solutions to our members. This helped drive core average revenue per member to $88, which is up from $72 in the same quarter last year and up from $74 just last quarter.

While we continue to invest in our platform, including some of the exciting new products which Dave discussed in his remarks, we are also focused on profitable growth. In the third quarter, we delivered positive adjusted EBITDA of $1 million, and contribution, which is a measure of overall profitability of our product before investment in our platform, increased to $5.2 million. The strong year-over-year growth in revenue drove a 12% increase in gross profit dollars. Gross margin for the quarter was 62%, which compares to 68% last year due to 2 factors, the impact of IFRS 9 on our loan book growth and the wind-down of our short-term loan business, which had higher relative gross margins.

Our adjusted net loss on the quarter of $5.5 million was higher than the comparable quarter last year due primarily to higher noncash depreciation and amortization as well as the noncash impact of IFRS 9 implemented this year. Credit performance remained strong in the period with charge-offs at 15.3%, which is roughly in line with last year's Q3.

Going forward, we see an opportunity to benefit from the inherent operating leverage we have in our model that will allow us to continue to invest in platform product, while at the same time, bringing increasing amounts of incremental gross profit dollars to the bottom line.

Regarding our cash use in the quarter, you can see that our total cash flow from operations and investing activities, excluding cash investment in our loan book, was positive $500,000 in the quarter. This compares to negative $1.1 million in the quarter last year. Based on this positive cash flow before investment receivables, our actual cash used in the quarter was entirely related to our investment in our loan book. This level of investment is important to understand, as this is the dial that we can control based on our desire to increase or slow down the growth in our loan book, and this cash use is very different than burn, as it's supporting a revenue-generating asset on our balance sheet.

While we're demonstrating early success in monetizing our current member base, we still have a huge opportunity ahead of us. Our $88 of annualized average revenue per member compares with the average credit union in Canada of $1,300. There are really a number of ways for us to continue to grow this metric, including increase the percent of our members that we're monetizing, increasing the share of wallet of our existing members that we are monetizing, and adding new revenue-generating products to our platform.

As we continue to add new products that are relevant to our member base like MogoWealth and the new card program, we will have increased opportunities both to expand our member base and monetize it, further solidifying our position as the leading mobile-first digital challenger to the banks in Canada. That concludes our formal remarks.

And I'll now pass it over to the operator to open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from Nikhil from Mackie Research Capital.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division - Analyst of Technology [2]

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I wanted to go back to the partnership issue there, and it sounds like there is sort of the scope of potential partnerships is possibly expanded since your Q2 update a few months ago and also I guess the potential partners you may be speaking to. So I was just wondering if you could maybe give us some color there in terms of the updates since Q2.

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [3]

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Sure. Nikhil, it's Dave. So yes, I think you're right. There's -- we've been obviously hard at work on this kind of wealth product since the last quarter's call. Part of that has absolutely been partnership-type discussions. And what we've found, especially on the wealth product, is there really is a lot of partnership opportunities, and it goes beyond obviously even some of the wealth products into insurance as well. Again, as I mentioned, there is -- almost -- there's a lot of companies out there, especially even outside of the big banks, that are looking for distribution. Some of them rely heavily on the banks for distribution, and obviously that can compose a problem. They also lack a direct-to-consumer platform themselves. And a lot of their distribution today is more kind of traditional-type distribution, and their challenge again is to get more into those kind of future platforms, especially to get to that millennial cohort where if you listen to, for example, BlackRock and a lot of these firms, that absolutely is one of their core parts of their kind of strategy and goal going forward. So we continue to have a whole bunch of partnership discussions with a bunch of different firms. I can't really name any new companies, but what I can say is very, very positive response, whether it's a robo adviser-type company or a bigger platform mutual fund, ETFs, you name it. And obviously, you can imagine that all of them are looking for the more distribution the better, especially in a game where it's all about scale.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division - Analyst of Technology [4]

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Got you. And then in terms of the cash-back program as it relates to the prepaid cards, just at a high level, how are you thinking about that driving more user engagement going forward? And how does that affect your sort of negotiating position with these potential partnerships?

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [5]

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Yes. So a couple of things. I think this obviously aligns to one of the core strategies in terms of this best-in-class digital, along with the best-in-class product offering, from a cash-back perspective. This card program that we're talking about here, no fee, 1.5% unlimited on all transactions, 3% on foreign transactions. For a no-fee card including a credit card, that is higher than any other card in Canada for no fees, significantly higher than any debit card. So again, there is $250 billion a year approximately spent on debit cards. They really isn't -- there is no cash-back program on a debit card in terms of unlimited. So a lot of people obviously are using those for controlling their spending and not tapping into credit. So that's a natural to move to more of a cash-back prepaid card, which essentially some merchant debits using your own money. So we see that really as a key driver from a marketing perspective of, I'll say, a, bringing a lot more members into our ecosystem. And obviously, as you get control of spending, that is a very engaged customer. That's somebody that for an active customer could be interacting, obviously, several times a day with Mogo. And obviously that also, because it is a mobile-first experience, you can actually only get the card through the app. It very much is designed to drive people obviously into the app. And then that also becomes a part of what these other partners, you can imagine, see as what makes Mogo unique, right, and attractive. So the more Mogo obviously increases its reach, its scale, the more it has these products, the more interested these partners are to partner with us on other products because they know that Mogo is out there with a very compelling value prop. And quite frankly, one that we think is very difficult for others, especially in the start-up phase, to compete with because we've built this ecosystem of products and we've got a lot of ways to monetize. We are in a position to be able to get really aggressive on the cash-back program.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division - Analyst of Technology [6]

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Got it. And just one last one before I pass the line here, maybe for Greg. How should we think about the cash flow profile now that you've exited the short-term loan business? And as you ramp up these other fee-based sort of lines, how should we think about the cash flow profile? And also, at some point in the future, philosophically does it make sense to maybe securitize some of the loan book and lighten up the balance sheet there?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [7]

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So thanks, Nikhil. Yes, so I think as it relates to -- from a cash flow perspective, obviously we've put in the slide here on our cash use this quarter, and you can see actually that overall cash use in the quarter, we actually had net cash flow from operations after all investment as well, excluding debts and receivables, so really the -- all of the cash flow or cash use was in the loan book. So what that means is there's a whole bunch of things that, that allows us to do. As we continue to scale up the business and see more operating leverage, obviously, and more and more of our revenue coming from effectively no capital required on the subscription services business, we think we ultimately will be able to get to a point where we can self-fund our loan book growth. So that's obviously what our goal is. But in the meantime, as I say, the investment we do put in our number loan book is a dial we can control, and we can dial it up or dial that down, depending on what we see as -- on how we want to manage our cash, and we'll obviously do that as we go forward. As it relates to longer term, there's a whole bunch of things that we're thinking about as it relates to a more capital-light model. Yes, securitization in the future is absolutely an option. Also, we see an opportunity to originate loans for third parties, whether it's credit unions or other players that in a digital world don't have the distribution. And Mogo effectively becomes that distribution arm, and we get a fee based off of that, and they provide the capital and they take the credit risk. So there's a whole bunch of opportunities we think on the credit side going forward that allow us to have less and less capital requirements and ultimately, actually generate revenue off of lending without any capital requirements in that partnership model I just described.

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Operator [8]

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Your next question is from Doug Taylor from Canaccord Genuity.

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Douglas Taylor, Canaccord Genuity Limited, Research Division - Director [9]

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Now that the short-term loan business has effectively been run off, should we expect a change in the charge-off rates? Or did that impact the charge-off rates that we saw in Q3?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [10]

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Yes. So Doug, it's Greg. So we've talked about sort of our goal around charge-offs and really having charge-offs -- our level of charge-offs is very much dependent on the target yield and risk profile that we're taking in the business. I think, right now, we are -- we continue to be comfortable with this level of charge-offs, given the yield that we're generating off of our portfolio. So effectively, we look at our net yield after charge-off, and we believe we've got a very attractive gross spread there. There is an opportunity longer term to bring that charge-off rate down. But I think in the near term, we're probably going to be sitting around this level, which is really based on our own decision on what level of yield we're going in the portfolio. We've actually seen an increase in our growth yield in our portfolio this quarter over last quarter, excluding the short-term loan business. So that's actually been another positive in our net yield.

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Douglas Taylor, Canaccord Genuity Limited, Research Division - Director [11]

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Okay, that's helpful. Last quarter, I believe in Q2, you put in a new loan management system. You talked about the operational efficiencies going forward from putting that system. Were those fully reflected in this quarter? Is that something you still expect to benefit from?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [12]

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So yes, we do expect to benefit more from this. It's not fully implemented yet, but I think probably the way we'll see it in the future is that we can continue to have increased volumes without seeing any real increase in our costs there. So that's probably more the way you're going to see it reflected in our financials rather than an absolute sort of cut in our customer service and operations.

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Douglas Taylor, Canaccord Genuity Limited, Research Division - Director [13]

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Okay. Understood. I wanted to ask about the MogoCrypto. I mean, I think we can all see what's going on in the cryptocurrency market. Was this line of your business actually down sequentially? I'm just trying to understand if the growth in the other parts of your business were actually higher and that business tapered off a little.

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [14]

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So yes. So I mean, MogoCrypto, so we do have some revenue related to our broader crypto businesses, and that overall revenue was down from Q2. So the -- if you look at, for instance, sequentially, the growth in subscription and services revenue is clearly coming from all the other products, and in fact, it's actually offsetting a decline on our broader crypto-related revenue.

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Douglas Taylor, Canaccord Genuity Limited, Research Division - Director [15]

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Okay. That's helpful. Can you talk to the -- any earlier response from some of the new markets that you've recently entered within Canada. I know there are some of the smaller markets, but how does that help you to drive towards your target per subscriber base by the end of the year?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [16]

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So yes, so the new markets -- obviously, our goal is ultimately to be across Canada in all provinces, and so it's -- that's a -- entering these new markets has been part of that plan. The truth is, is we are very small in every market that we're in. So we are not limited by growth based on the markets that we're in. So we have massive opportunity to grow just in the existing markets. I think the -- as far as our member base growth, we're continuing to see a healthy level of growth in our member base. We've -- we are increasingly focused more on the monetization of that member base. So I think over the last couple of quarters, you've seen we've actually been able to sequentially increase our core average revenue per member, and we've been very happy about that. So I would say that, strategically, our member base, we believe, will continue to grow at a healthy clip. But if you ask us what are we more focused on, we're more focused on monetization of that member base while that member base continues to grow. There's a whole bunch of dials that we could sort of turn to focus more on just pure member growth, but we're sort of balancing that with trying to drive material revenue growth, which I think we've been successful on here over the last few quarters.

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Operator [17]

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Your next question comes from Suthan Sukumar from Eight Capital.

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Suthan Sukumar, Eight Capital, Research Division - Research Analyst [18]

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So my first question is on MogoProtect. It appears that you guys have been a little bit more active on marketing this quarter. Just curious, are you guys seeing greater uptake of MogoProtect from your existing base or from net new users?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [19]

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I would say, it's actually a little of both. But it's probably the majority of revenue has been driven by -- it's more weighted towards new users. I mean, in general, I think if you look at where there are opportunities for us to increase monetization, as an organization, we've been a lot more focused on driving increased monetization from our new members based on launching new products, et cetera, versus spending a lot of time focused on increasing monetization of our existing members. That remains a significant opportunity for us. But just in terms of priorities, we've been more focused on new member monetization. And in fact, since the beginning of the year, we have increased the percent of new members that sign up that we monetize. We've increased that by over 50% since the beginning of the year, so -- and that's been a big driver of the -- our growing average revenue per member. So you can see that adding more products into our ecosystem really allows more customers that sign on to Mogo that they're more likely to have a revenue-generating product. Obviously, this card and our next-generation version of the card, we believe is obviously another important product to be able to do that. So we still see a lot of opportunity ahead of us on that.

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Suthan Sukumar, Eight Capital, Research Division - Research Analyst [20]

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Good. On MogoCard, in the call intro, you mentioned that you look into increased focus on this offering. How much of that is marketing/awareness-related or versus new features and functionality? And when do you plan to support Android?

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [21]

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So it's Dave. So in terms of new features, obviously, the cash-back program itself is clearly a new feature, and there's work being done on that. That also includes an update of the user experience, including some of the images you're seeing on the deck there in terms of showcasing the amount of cash-back. By the way, there is an example of if you actually have a cash-back card in your wallet today, one of the challenges with the cash-back experience is it isn't that easy sometimes to even know how much cash-back you have and it isn't easy necessarily to get a hold of that cash-back. So our first version of this cash-back user experience, at the end of the month, that money is automatically credit back to the account. A customer doesn't have to do anything. Obviously, it becomes an engagement point in terms of letting the customer know your cash-back, your index has just been credited back to your card account. Once we launch MogoWealth, we start to have more product options there. That user can then determine or select, hey, actually, I want that cash-back to automatically go into stocks or a high-interest rate savings account, whatever. So they'll start to have control over that. So there's a bunch of related features to the cash-back experience that we are working on. That cash-back actually is going to be live with some of our internal beta users beginning this quarter. And then in terms of -- sorry, your other question on the marketing side?

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Suthan Sukumar, Eight Capital, Research Division - Research Analyst [22]

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Yes. I mean, could you -- earlier in the call, you guys mentioned increasing your focus overall on the MogoCard offering. And I'm just curious how much of that will be driven through marketing and better awareness in your base?

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [23]

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Yes. So obviously, once we have the cash-back program ready to go, you're already going to start to see some ads in market, marketing on the card. We actually haven't focused on marketing the card really at all over the last few quarters. So you're going to start to see the cash-back program, the card itself starting to be marketed. In fact, if you go to the website today and you go to the card page, you'll see that's already been updated to reflect this new cash-back program. And again, we will have ads in market this quarter. So obviously, that's going to start. That will most likely start to take over from, say, our credit score campaign because obviously this is a program that we think not only is very differentiated and compelling in the marketplace, but ultimately, the -- getting somebody in to actually use the card is 100x more engaging than obviously, say, a credit score where you're only checking it once a month, right? So as a product, the challenge again with the card program is you really have to have a bunch of other ways to monetize before you can really want to -- before you'd want to scale up that card program. And so now that we feel that we've kind of proven we've got a bunch of other ways to do this and do it successfully, we think now is the time to bring a feature like the cash-back program to the market. And absolutely, we think it will be -- probably become one of the main drivers of our marketing and member sign-up.

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [24]

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But Suthan, just to add a little further commentary on that. The -- on the marketing side, as Dave mentioned, we've been lately focused on this rock star campaign on the credit score. But what you can imagine, and that's all mostly on Postmedia, right, which is based on a fixed quarterly payment of just over $500,000, we basically will be taking that -- those resources and putting it to the card. So we're not expecting a big ramp in marketing spend for this. We obviously have the advantage here with this marketing partnership to put a whole bunch of dollars and resources through it, through the Postmedia partnership without actually really increasing our cash marketing spend.

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Suthan Sukumar, Eight Capital, Research Division - Research Analyst [25]

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Okay, good. And just lastly on the MogoCard. When do you plan to support Android?

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [26]

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Yes. So Android, the plan has always been, until we really think we've got a solid winning formula on the iOS and one that we really want to scale, that's kind of been the deciding factor on when's the right time to launch Android, and that's a part of kind of managing your product road map. Otherwise, you sometimes have to do things over again, right? You launch them on both platforms and you got to make up changes to both platforms. So -- but at this stage, I would say, before -- at some point by Q2, Android app is going to be out. So -- and depending on the uptake in that, that we see on the card program and where -- in terms of where we are, in terms of pleased with it, that could also accelerate the timing of the Android. But most likely, you'll see it probably no later than Q2.

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Suthan Sukumar, Eight Capital, Research Division - Research Analyst [27]

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Great. And then just a last question from me. Really, we're looking ahead to your longer-term product road map. What are you thinking about in terms of build versus buy for some of the new product categories that you might enter longer term?

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [28]

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Well, again, in terms of build versus buy, I would say it's more about partnering, right? So look at the Robo adviser as an example. Sure, there may be opportunities to go there and purchase an existing robo, but we believe, from a strategy perspective, we are better off focused on doing what we do best, which is really controlling that customer experience, the brand, the user experience, partner -- identify those companies that already have a best-in-class solution, they're focusing on it, and look to kind of partner with them to bring that solution in. That obviously dramatically simplifies all of the things that we have to deal with, right? It's exactly what we did on the crypto. It's one of the reasons why we can go to market so quickly. We partnered with what we consider as a best-in-class crypto exchange in Canada, and we really just focused on a few key elements of the user experience. That obviously gives us ultimate flexibility, too. We're not in the exchange business that has own complexities, et cetera. So we see that opportunity for everything, savings account, GICs. Part of this, too, is this best-in-class product offering. Once you buy, then you're almost predisposed to, hey, you want to now sell your own product, right, whether or not it's "best-in-class." And increasingly, I think, in this digital world, part of the benefit of our strategy is making sure that we're always identifying what are those best-in-class solutions and bringing that to our customer base. So never say never. There could be a time in which buying something absolutely makes sense. But I'd say, at this stage, we're definitely way more focused on partnering.

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Operator [29]

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(Operator Instructions) Your next question is from Nik Priebe from BMO Capital Markets.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [30]

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It looks like you guys had pretty strong growth in the longer-term installment loans portfolio in the quarter. I was just wondering if you could comment on some of the factors contributing to that growth, whether that's certain geographic regions or capturing some of the attrition from the wind-down of the legacy product. Or just general strong demand for that offering? Anything you can speak to on that?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [31]

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Sure. Nik, it's Greg. Yes, it's a combination of all those factors. There was some conversion from the wind-down of the short term for those customers that qualified, but we also have seen very strong demand across the markets. And then we've made a whole bunch of improvements on the digital side in terms of removing friction. That's leading to higher conversion. We are being -- we still have the benefit of, on a relative basis, having a very small loan book. And on a relative basis, although it grew for us, it's still not a massive amount in the Canadian market. So we have the ability to pick and choose on where we want to grow. We're obviously being careful from a credit risk perspective. By far, the majority of that growth would be in Ontario, and well -- probably in excess of 3 quarters of that growth would've been from Ontario. So -- but yes, I would say it's a combination of those things. And increasingly, the -- we're really been more and more focused on near prime. And even prime customers, one of the opportunities as we evolve MogoMoney into MogoCredit, the kind of solutions that Dave talked about where the credit starts becoming more and more attached to the card, is this -- the opportunities is more and more like a credit card kind of portfolio. And one of the attractive aspects of a credit card portfolio is actually you've got a high average credit score relative to the yield because this is about convenience, and even prime consumers tap into credit card debt that can have 20% to 30% interest rate because of convenience. So where we're taking the overall product set, we think, creates a whole bunch of opportunities for us to drive attractive yield on the credit side, but also even continue to improve our credit profile of the customers that we're focused on.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [32]

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Got it. That's good color. Maybe I'll just shift over to the subscription services side. Obviously, it's a pretty -- another decent step-up in contribution from those products. Can you just give us a bit of insight on which products specifically are driving that growth Q2 to Q3 and what sort of incremental margins will be attached to that growth as well?

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [33]

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Sure. So I gave a little bit of color in my remarks but I'll add to that. MogoProtect revenue and the premium account fee revenue was definitely the lion's share of that growth, if you look from Q2 and Q3, and then the balance kind of spread out over all our other products. So those are the big ones. MogoProtect almost doubled in the quarter from Q2, just to give you a sense. So anyway, it was -- that's kind of where we saw the lion's share of the growth there. And now as far as margin, overall, the products that are growing are probably in the blended average 80% gross margin.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [34]

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Okay. No, that's great. And then one last one for me. I was just wondering if you could give us a bit of an update on the status and the uptake of the -- well, I guess, just the status of the premium account service. When is that expected to be rolled out more broadly?

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [35]

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So it's Dave. What I'd say is it's absolutely on our road map for 2019. We just don't have a specific time line. And again, it's all about just kind of picking and choosing the right features and products. MogoWealth, cash-back, all of those are examples of things in our road map that are competing for resources and just kind of prioritization. So again, we don't have any specific time line, but what I can say is at this stage, we are looking at offering it as an additional feature through the card program. So at some point in 2019, we expect the kind of expansion of what we call the premium account, and at this stage, most likely starting within the card -- card experience, and that includes things like a premium metal card. So right now, we just have the plastic cards. And you can imagine a more kind of premium card experience that obviously comes with a premium metal card, and you can get a sense of the kinds of features in that, that we'd be looking at in terms of that more premium, what we'd probably most likely call our gold member account status.

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Operator [36]

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There are no more questions at this time. Please proceed.

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David Marshall Feller, Mogo Finance Technology Inc. - Founder, CEO & Chairman [37]

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Okay. Well, thanks for your time, and we look forward to updating you after our next quarterly earnings. Thanks again.

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Gregory Dean Feller, Mogo Finance Technology Inc. - President, CFO & Director [38]

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Thank you.

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Operator [39]

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Ladies and gentlemen, this concludes your conference call today. We thank you for participating, and ask that you please disconnect your lines.