VANCOUVER May 20, 2019 (Thomson StreetEvents) — Edited Transcript of Mogo Finance Technology Inc earnings conference call or presentation Tuesday, May 14, 2019 at 9:00:00pm GMT

Mogo Finance Technology Inc. – Founder, CEO & Chairman

Mogo Finance Technology Inc. – President, CFO & Director

* Lisa R. Thompson

Zacks Investment Research, Inc. – Senior Technology Analyst

B. Riley FBR, Inc., Research Division – Research Analyst

Good afternoon. My name is Leone, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Mogo’s First Quarter 2019 Earnings Conference Call.

Please note that today’s call contains forward-looking statements. Statements that are based on current assumptions are 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 Q1 as well as in its filings with the regulators in Canada and the United States.

Also, today’s presentation will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliation between the 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 call over to David Feller, founder and CEO. Mr. Feller, you may begin your conference.

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

Thank you. Good afternoon, and welcome to Mogo’s First Quarter 2019 Results Conference Call. I’m joined today by Greg Feller, our President and CFO. We’ve prepared a presentation to accompany today’s call, which is available in our Investors site.

It was a great start to 2019 against the backdrop of rapid transformation in banking. We continue to advance our digital platform and products and to solidify our position as a FinTech innovator and leader in Canada. All our development and innovation starts with a simple question: what is the problem we are trying to solve? Quite simply, it’s that the majority of Canadians are struggling to be financially healthy. Financial stress continues to be one of the biggest stress factors affecting Canadians, and it seems to be getting worse. I’m sure many of you have seen some of the recent stats showcasing the current state of financial health of Canadians, almost half are worried they’re not going to have enough money for retirement, and over 40% are overspending so much in credit cards that they’re carrying a balance, which means that they are most likely not saving and investing at all. These are staggering numbers that showcase how the majority of Canadians are really struggling in one of the most important areas of their life, while the banks and most of them primarily depend on for financial services are making record profits. This is both the problem and, obviously, the big opportunity.

Globally, this trend is leading to a new wave of digital challenger banks, who see what we see, an opportunity to use technology to create a more convenient mobile-first solution to make it easier to be financially healthy. Among the elements that unify this group is that they are all designing products for a mobile-first world and delivering innovative products, like credit score, Roboinvesting, or prepaid cards, that are all designed to make it easier for consumers to do things like control their spending, manage their score or invest. There are now several new FinTech unicorns in this category, some of which are shown here. Again, they’re gaining traction as consumers increasingly look for products to make it easier to be in control of their financial life.

While consumers have access to more apps and solutions to complement their existing banking products, no one has brought them together into 1 app. This is our mission and what’s guiding our growth and our roadmap, 1 finance app that makes it easy and engaging to get financially fit. We are looking beyond single product innovative solutions and focusing on our holistic financial health solution. We all know from our own experience that it’s a hassle to have multiple accounts and apps to manage your financial life, and we’re all looking for the most powerful and convenient way to achieve our best financial life. We’re not just talking about financial health as some abstract concept, we’ve developed a very specific formula for achieving it, i.e., the 4 key elements of being financially healthy. This is what’s guiding our roadmap and user experience.

And this is how we’re going to be bringing this to life for our members as far as how we market Mogo. In terms of innovation, I actually believe this is one of the most innovative things we’ve done at Mogo and that’s actually coming up with a simple formula. In a complicated financial world, part of the big challenge for people to get control of their financial health is there’s an overwhelming amount of products and information. No one has distilled it to a simple formula alongside the products to make it easy.

Rule your spending or it will rule you, this is the heart and perhaps the most important part of financial health. If you are overspending, you have no money left for saving and investing. As we all know, it doesn’t matter how much money you make, whether it’s $30,000 or $1 million a year, it’s easy to overspend and end up with nothing left for building wealth, or worse, end up with lots of consumer debt. So for the majority of Canadians that are looking to improve their financial health, controlling their spending is perhaps the most important area to focus on. Studies show that on an average, consumers will spend about 20% more with a credit cards than if they use their own money. Our goal with Mogo Spend is to have the most powerful tool in Canada to control spending. So although people can use their debit card to get more control than their credit card, they’ll be missing key features like our instant notifications that help you stay on track and mindful of every time you spend as well as our best-in-class Cashback that isn’t available on any debit card in Canada. The feedback from our beta testing continues to be excellent. I can share my own personal experience of getting $65 Cashback in April with my card versus $0 if I’d used my bank card, which is my other option if I wanted to use my own money. Not to mention, my bank charges me about $15 a month versus $0 for Mogo. Again, this is all about making a meaningful impact on someone’s financial health.

In Q1, we continued development work on our new Visa direct load option as well as features that gives users the ability to set up automated loading on their payday or whenever they choose. We’ll continue to gather data on the feedback from our beta users and hope to more broadly roll this out by the end of this quarter or Q3.

MogoSpend ties into MogoWealth, as only by controlling spending will you have enough money available to save and invest. The second part of the formula to financial health is save and invest wisely. When any of us invest, what are we looking for? The best investment products and the most effective strategy. Our objective is to bring together a range of best-in-class products along with the information and ongoing coaching that someone needs to stay the course. Global investing ETFs savings accounts, so that our members can easily begin investing and saving all within the same app and have access to best-in-class solutions. For millennials, the stat show that only about 18% are confident in their investment strategy. Some look for advisers, but increasingly the stats show the majority of professional money managers and financial advisers underperform their market and, specifically, the S&P 500 benchmark over the long run, which is why we’re seeing a continued outflow of mutual funds into low-cost ETFs.

One of the key points we will be emphasizing in our marketing is how powerful regular investing is key to long-term wealth creation. For example, investing as little as $75 a week can make you a millionaire if you begin investing early enough and invest wisely to a low-cost ETF that mirrors the benchmark S&P. Again, the first step is having the money available because you aren’t overspending. The second step is setting up an automated regular investment program and one designed to match benchmark. This is increasingly considered the smartest way to invest. Even Warren Buffett recommends this as the best way for consumers to invest, as even he highlights that not only his own guys can beat the S&P 500.

For short-term savings goals, money not going towards your long-term retirement goal, we’re also looking to bring an high-interest rate savings and GICs through partnerships with banks that offer best-in-class rates. These rates are usually double what the big banks offer.

From a business model perspective, we see revenue on this both in terms of subscription revenue, which I’ll touch on later, and partner fees. We continue to advance discussions with prospective partners, with the goal of announcing 1 or more partnerships later this year.

Being financially healthy isn’t just about building your net worth. It’s also about protecting yourself from things that can derail it. For example, if you want to be able to buy a home and qualify for a prime mortgage rate, you typically need a credit score of 700 or above. So making sure you’re tracking and managing this is important. Outside of just monitoring your score, it’s also increasingly critical that Canadians protect themselves from identity fraud. Again, this isn’t a fraudulent charge in your credit card, which you’re already covered for, this is about helping prevent someone from using your ID to get a credit card under your name or a loan under your name. When this happens, the impact can be severe and something that you personally have to deal with and solve. The majority of Canadians today don’t have a solution like this and we continue to see this as a significant long-term opportunity and a key part of our financial health solution. This is also another product where we see potential partnerships to expand distribution. In the meantime, this continues to be a key driver of our subscription revenue. And over time, we also see this product being an important part of our premium account option, like MoGold.

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Responsible credit is the fourth pillar in managing your financial health. Our goal is to continue to build the most convenient mobile-first loan experience in Canada that gives our members access to not only the best rates but in experiences designed to help them make smarter borrowing decisions, all from a mobile app. We continue to enhance our MogoMoney product, including giving people the ability to make additional payments or pay off their entire loan directly from the app. We’ve also made several enhancements to the mobile app onboarding experience that dramatically reduces the friction of applying and getting funded, and our development team will continue focusing on enhancing this to continue to ensure we’re on the leading edge of the most convenient mobile-first loan experience in Canada.

As we discussed in our Q4 call, we see increased opportunities to expand our lending through partnerships to offer products across the credit spectrum. These partnerships would allow us to address segments in the market we cannot do today because of our cost of capital while generating new fee-based revenue with no impact to our balance sheet. There is development work that’s happening to support this so that these partners can leverage our platform to offer their loans to our member base. Again, this is going to enable us to expand our offering and ensure we offer the best rates to our customers and give us the ability to dramatically scale the business. We continue to have constructive partnership discussions in this area with the objective of announcing an agreement into — this year.

So you’ve seen how we’re going to be tying these 4 products together, and this brings us to a premium account opportunity. We’ve been discussing this expansion for some time. And as part of this new formula, we see an even bigger opportunity for MoGold. For these consumers that are interested in taking their financial gain to a whole new level, MoGold will be designed to do just that. Unlike many other subscription services in the marketplace, this one is one in which we think we can show our members a real return on investment, i.e., if you pay $100 a year to become a gold member, we believe we can help you save many times that. You can see some of the benefits that are contemplated here, and this will be something we’ll continue to enhance and add value to while also testing various different pricing strategies. We’re also looking at adding in financial coaching, including personalized messages to help inspire and motivate users to stay on track to their goal. There’s unlimited ideas and opportunities to test and iterate with this new product. We’re still working through the timeline, where this fits into our roadmap. But as of now, we expect it to happen within the next 3 or 4 quarters.

From a brand perspective, we believe our focus on financial health also aligns to the general trend we’re seeing across all industries and that’s a trend of mindful consumerism, whether it’s electric cars, recycling, less waste and even food products like Beyond Meat, it’s all about being more mindful around the impact we make on the planet and the people. Financial health ties into this. As consumers who are overspending or often spending money on items they don’t need, can’t afford and it’s the production and waste of these products that contribute to many of the global environmental challenges we face. So the more mindful you are around your finances and your spending, the more you’re able to also make sure that you’re making the world a better place. Not to mention, the more financially healthy you are, the more you can contribute, whether it’s donating to a good cause or volunteering for things that are meaningful to you. We know that it’s not just about the products that matter to consumers. In fact, recent surveys show that 85% of consumers believe what the products they buy represent are just as important as the quality or design of the product. As part of this new positioning, we’ve also been preparing a new marketing campaign built around the tagline [Money Up]. This campaign will be focused on inspiring Canadians around their financial health, along with communicating our 4-part formula and our specific products. In terms of how we communicate financial health, we also are developing a more relatable and emotionally engaging way to communicate it with the message, “the goal isn’t to look rich, it’s to be rich.” We want to democratize the ability for everyone to build wealth and empower Canadians to realize that being wealthy isn’t just for the 99%.

Our Postmedia partnership continues to be a key differentiator and advantage for us as we build our brand, and we’ll be leveraging this to get this new campaign and messaging into the Canadian marketplace. The scale of this partnership really gives us an opportunity to get our message out to millions of Canadians, while also building our brand in a very cost-effective way.

In terms of our technology platform, our ability to deliver these solutions is underpinned by our mobile-first tech platform. We continue to invest in the platform with a total investment now well over $200 million. In the last quarter, we made several enhancements to the platform, including many of the items that will help us deliver on a new partner program. In addition to creating competitive barriers, our technology platform has also made us an increasingly attractive partner. Partners can see firsthand that we offer a best-in-class mobile-first experience, and we can also help them as they evolve their own platforms to be able to integrate with ours.

In terms of strategic priorities. As we look ahead of the remainder of 2019, we continue to focus on 3 main priorities, all of these are closely aligned: one, expand our product offering with a focus on partner lending, MogoWealth and new MogoSpend; two, continued focus on revenue growth, with the primary focus on Subscription & Services, this also ties into our product expansion initiatives as well as new products like MoGold; and three, also related to these is the expansion of our partnership ecosystem.

I’ll now turn the call over the Greg to review the financial results.

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

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Thanks, Dave, and good afternoon. Our strong first quarter results reflect the continued execution of our strategy, strong underlying economics of our products and the significant growth opportunities in front of us. Core revenue increased by 57% in the first quarter of 2019 and has now increased by more than 50% in each of the past 5 quarters. Our high-margin Subscription & Services revenue continue to be a key driver, increasing by almost 70% in the quarter. Since our IPO just over 3 years ago, we have completely transformed the revenue makeup of the company to a much greater portion of the capital-light recurring revenue stream. We also continue to see strong growth of our member base, which increased to over 800,000 during the quarter. Not only are we growing our revenue at a high rate, we are seeing strong year-on-year growth in our adjusted EBITDA, which is fueled by strong underlying product economics that are driving high contribution margin. Specifically, adjusted EBITDA reached a record $2.2 million in the quarter, a sixfold increase over last year. In addition to the dollar growth, this is the fourth quarter in a row of expanding EBITDA margins. For those who follow Mogo, you recall that we exited the short-term lending business in the third quarter of 2018. The core revenue is really the metric to focus on for year-over-year comparisons as it excludes fees from our legacy short-term lending business in the prior year period.

Core revenue reached $16.4 million in the first quarter, reflecting strong growth in Subscription & Services revenue, which increased 68% year-over-year as well as increased demand from our MogoMoney product, with interest revenue up by 48% in Q1.

Within Subscription & Services revenue, MogoProtect and our premium account products continue to be the largest contributors to our growth and give us confidence that as we launch new additional products, including MoGold, that the solution that Dave spoke about earlier, we expect to see strong demand for these monthly recurring subscription products, giving our unique holistic financial health value proposition. There really isn’t anyone else in the market with a comparable solution that we see to help consumers manage their financial health. The power of our expanding ecosystem of products and partners, as well as best-in-class digital experience, is one of the big drivers of what we believe to be the best-in-class marketing efficiency. Our unique marketing partnership with Postmedia is allowing us to be extremely efficient in acquiring new members and increasing user engagement. We delivered 57% core revenue growth in Q1, with only 9% of revenue spent on marketing. That was down from 23% in last year’s Q1. As we launched new products, we have the unique ability to put a huge marketing push behind them with low cash costs. Not only is our $300 million marketing partnership with Postmedia a significant and valuable asset for the company and our shareholders, but potential partners we are talking to also see this as another valuable asset that we bring to the table.

Core to our economic model is the underlying contribution dollars and margin of our product, as this is an indicator of the operating leverage inherent in our model as we scale our operation. This quarter, we generated record contribution of $6 million, which represented 37% of revenue. This record contribution, along with managing costs on marketing, technology, development and G&A resulted in record quarterly adjusted EBITDA of $2.2 million or 14% of revenue, up over 600% from the $300,000 we reported in the same period last year.

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The other important metric that we focus on is the operating cash flow of the business before investment in loan receivable. This quarter, we generated $2.9 million of positive operating cash flow from operations before investment in loans receivable, which was a significant improvement over the negative $200,000 cash used in the first quarter of 2018. We expect this metric to stay positive for the remainder of 2019. After accounting for investing activities and the net investment in our loan book after financing, we had total net cash used in the quarter of approximately $4.2 million, which was down from $4.9 million in the year earlier quarter. As we discussed on the last call, we have multiple dials we can use to manage our cash to use, in particular, the amount of growth we want to achieve in our balance sheet loan book. In addition, as we continue to scale our revenue, we expect that by the fourth quarter of this year, we’ll be cash flow positive net of all investing activity, but prior to investment in our loan book and will, therefore, be able to start self-funding a portion of our loan capital from our cash flow.

In terms of credit performance, our loan book continues to perform well and consistent with our expectations, with net charge-off of 15.4% in the quarter. This compares to 13.7% in last year’s first quarter, which we have previously said was unusually low. Importantly, however, our charge-off rate was down sequentially from 15.8% in Q4. While we continue to see quarter-to-quarter variability, we are generally expecting for the net charge-off rate to trend down based on a shift to lower risk installment loan products.

Adjusted net loss improved to $4.6 million in Q1 from $4.9 million at the same time last year.

We saw accelerating net member growth in the first quarter despite lower absolute marketing spend compared to our most recent Q4. Specifically, we added net members of 52,000 in Q1 versus 45,000 net member additions in Q4. We ended the period with 808,000 members, up 34% over last year. Our core average revenue per member increased 16% year-on-year to $84, although it was down modestly from Q4 as net member additions accelerated this quarter. In the near term, we are placing greater priority on continuing to grow our members and core revenue versus growing our average revenue per member. So expect to see variability quarter-to-quarter in this number.

As we expand our products this year and into 2020, we have more opportunities to bring new members into Mogo’s ecosystem, more ways to add value and build engagement with our growing member base and more ways to digitally cross-sell to increase our average revenue per member over the long run.

Longer term, the bigger opportunity for Mogo is depicted here in the average revenue per member for the Canadian credit unions of $1,300. We see no reason that Mogo’s average revenue per member cannot be significantly higher than where it is today as we provide more digital products as part of the unique holistic financial health platform that effectively replaces the traditional bank offering.

As most of you would’ve seen, we had an important development post quarter end with the announcement of our business combination with Difference Capital. This transaction, which is subject to shareholder approval, significantly strengthens our balance sheet, providing immediate access to approximately $9 million in cash pretransaction costs plus an additional $24 million in monetizable assets from Difference’s investments in some of the premier private technology companies of Canada. The transaction, which will be completed through a 1-for-1 share exchange will result in additional net issuance to Mogo’s existing 23.5 million basic shares outstanding or approximately 3.2 million shares, after accounting for the approximately 2.5 million shares of Mogo that Difference currently owns. The transaction, which has received the unanimous recommendation of both Mogo and Difference’s special committees and respective Board of Directors is a great transaction for both shareholders, as this will also enable different shareholders to participate in the continued growth of Canada’s leading FinTech with the financial resources to execute on our growth plan. The transaction requires the approval of both company’s shareholders and is expected to close next month.

Looking more closely at Mogo’s pro forma financial position, we will have approximately $47 million in total cash from investment, bringing our pro forma net corporate debt, assuming no conversion of our $12 million it converts, to approximately $6 million. In short, this transaction significantly strengthens our financial position and gives us greater resources to continue to invest in our platform and new products and grow our members and revenue.

As we look ahead to 2019 and beyond, we have multiple important growth drivers this year, led by strategic partnerships for new best-in-class fee-based products as well as partnerships for MogoMoney. In addition, we remain excited about the opportunity for our new MogoSpend account and Cashback card to make an important impact in improving financial lives of Canadians. These partnerships and products will create significant new revenue streams for the company and provide more opportunities to both expand our member base and monetize it, further solidifying our position as a leading mobile-first digital challenger to the banks in Canada.

That concludes our formal remarks, and we’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 Nik Priebe from BMO Capital Markets.

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Nikolaus Priebe, BMO Capital Markets Equity Research – Analyst [2]

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I just wanted to start with a question on the Subscription & Service revenue line item. A strong piece of growth experienced in 2018. When I look at it on a quarter-over-quarter basis, a bit of a smaller step up that you’ve experienced in prior quarters. Just wondering if you could give us a bit of color on some of the puts and takes or what products were sort of larger contributors to growth? Or whether there are any offsets we should be aware of in that line item?

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

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Yes. Thanks, Nik. So yes, if you look at our financials, what we were very focused on this quarter, which was obviously free visibility into the Difference transaction, was really managing our cash resources, managing our capital and the bias towards really sort of path to cash flow positive and profitability. So you — obviously, we saw continued decline in our absolute marketing spend, so investment dollars going in to drive growth, we effectively decreased. And that obviously has an impact in driving overall top line revenue. And I think we still obviously managed to see strong year-over-year growth. But as you say, some of that growth was slower this quarter than in other quarters and we think that’s really a reflection of that lower investment. Obviously, as we come to close the Difference transaction, which is targeted to close by the end of this quarter, our plan is obviously to start ramping back up in growth, given that we’re going to have the additional capital resources to be able to do that. Just one other comment, our net loan originations were down in the quarter. We’ve got a very high attachment rate to our premium account in that, which obviously impacts that and that was part of what you saw. Also as we look at going forward and look at some of the partnerships, even on the MogoMoney side, there’s obviously a lot of opportunities there to drive growth with less capital and then still have the ability to start attaching other product to it.

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Nikolaus Priebe, BMO Capital Markets Equity Research – Analyst [4]

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Okay. Okay, that’s good color. And then just on the topic about operating expenses, it sounds like you might be inclined to ramp up marketing spend, which has been a bit low the last few quarters once the Difference Capital transaction is completed. So — I mean, looking at the other items, technology development spending, customer service operations and G&A, would Q1 be kind of a good clean number to sort of establish a base for expectations for the remainder of the year? Or are there any seasonal elements that are onetime items that we should be aware of?

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Gregory Dean Feller, Mogo Finance Technology Inc. – President, CFO & Director [5]

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Yes. I think, effectively, yes, it would be. With the one that we are obviously focused on increasing is marketing. Obviously, we’ve got very low marketing relative to our growth, marketing spend, which is great. But there’s obviously a lot more room there to increase that and drive higher growth and we think the bias now, as we look to close this transaction, is going to be really demonstrating positive — accelerating growth, so that’s what we’re focused on. Obviously, we’re going to maintain a focus on remaining EBITDA positive, and I’ve also commented that our goal remains that by Q4, we’re cash flow positive net of all investments, excluding investment in the loan book so that we start self-funding it, so we’re still going to be managing for that as well. But otherwise, yes, on the OpEx side, I think Q1 would be a good base for those, with the exception of marketing.

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Nikolaus Priebe, BMO Capital Markets Equity Research – Analyst [6]

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Okay. Okay, that’s helpful. And then maybe one last one for me before I pass the line. Perhaps it’s a bit premature to ask this, but just — with the closing of the Difference Capital transaction expected within the next month, do you sort of have a timeline envisioned for the monetization of the portfolio that you will be acquiring with that acquisition?

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

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So our goal is that the next 24 months after close of the transaction to monetize the majority of the portfolio, so obviously hard to completely predict, but our goal is also to start having a — that monetization to happen over that, not just all back-ended, but actually have a cadence to it. So obviously, as we close the transaction in that and get more visibility into it, we’ll have more color in it. But again, the goal is really to monetize the majority of that portfolio within the 24 months after closing.

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Operator [8]

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Your next question is from Scott Buck from Riley FBR.

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Scott Christian Buck, B. Riley FBR, Inc., Research Division – Research Analyst [9]

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I was hoping to talk a little bit about the transaction. Curious kind of post-close, how you’re prioritizing capital use? Is it originations to pay for some of the marketing spend, additional product development? I’m sure it’s all of the above, but just kind of how are you thinking about that?

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

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Yes, I think it’s really mostly on the marketing side and there’s going to be some investment in technology and development as well. But I think the bigger increase you’re going to see is on the marketing side. So that’s kind of how we’re looking at that as far — I think we feel fairly good about at a rough level where our G&A and our customer service and operations spend is today. But we are going to look at, for instance, on the technology and development side, potentially expanding our product teams there on the development side, which gives us the ability to work on more things in parallel. But #1, marketing, and then #2, technology and development.

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Scott Christian Buck, B. Riley FBR, Inc., Research Division – Research Analyst [11]

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Okay, that’s helpful. And then in terms of the VC portfolio, is there anything in there that may have some strategic value to you guys from a technology standpoint? Or are there investments in there that you would look to actually hold on to beyond the 24 months?

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

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There may be some investments in there that could be potential partners of ours, but really, that’s not the focus of the rationale for it, and we don’t think having an investment in those companies is necessary for those to be relevant partners for us. So our bias is monetizing the entire portfolio as long as we can get what we believe is fair value for them. We’re in no rush to do it, but again, our bias is to monetize the portfolio and not hold on to anything.

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Operator [13]

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(Operator Instructions) Your next question is from Lisa Thompson from Zacks Investment Research.

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Lisa R. Thompson, Zacks Investment Research, Inc. – Senior Technology Analyst [14]

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So I just want to ask a question about Difference Capital. What is going to be the incremental expenses from owning that portfolio going forward?

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Gregory Dean Feller, Mogo Finance Technology Inc. – President, CFO & Director [15]

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So, yes. So we are looking at — we’re going to have a few people helping us monetize that portfolio from Difference Capital, and they’re going to stay on for a period of time. But the majority of the OpEx that Difference has are really related to, quite frankly, being a public company. And we think that the majority of that OpEx, we’ll be able to eliminate pretty quickly. So there’s going to be some incremental OpEx, but we don’t think it’s going to be material.

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Lisa R. Thompson, Zacks Investment Research, Inc. – Senior Technology Analyst [16]

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Can you give us a number, just to help for the model?

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Gregory Dean Feller, Mogo Finance Technology Inc. – President, CFO & Director [17]

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Yes, I don’t think we’re quite ready to give that number. But as soon as we are, we’ll communicate that.

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Lisa R. Thompson, Zacks Investment Research, Inc. – Senior Technology Analyst [18]

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And is that going to be like a flat number or are they going to kind of get commissions when they sell off a part of it? Or how’s it going to work?

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

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It’ll be a flat number. There’ll probably be incentives for monetizations above book value, but it would be incentives for, again, above what their current book value is that we’re putting in on our balance sheet.

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Lisa R. Thompson, Zacks Investment Research, Inc. – Senior Technology Analyst [20]

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Okay. And they continue to do valuation on that? You have it marked-to-market every quarter.

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Gregory Dean Feller, Mogo Finance Technology Inc. – President, CFO & Director [21]

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Yes. We will continue to mark those assets on a mark-to-market basis every quarter.

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Lisa R. Thompson, Zacks Investment Research, Inc. – Senior Technology Analyst [22]

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Okay. And I guess my last question is, referring to MoGold, can you kind of describe what is going to be like the big attraction when somebody says, “Oh yes, I’ll pay $100 a year because I’m going to get XYZ.” What are you encouraging to be the real driver?

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

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Sure. So this is Dave. There’s going to be — at the end of the day, it’s going to be a combined value proposition, but right off the bat, ID fraud protection, which is actually — right now, we’re charging $9 a month is actually going to be included in MoGold. And again, that’s a tentative pricing model, i.e., a discount if you do it annually. Currently, in the marketplace, typically, you could spend easily $15 a month, that’s $180 a year just for identity fraud protection. From there, we’re planning on adding in a bunch of other features as you can see in there. We’re also even considering a different tier in terms of Cashback for the card, right? So obviously, right now we have a Cashback on the card. There is no tier, so the gold could also have a higher tier for the Cashback. And then there’s going to increasingly be a whole bunch of features, right? Could be more insight and analytics on your card spending, other features in terms of content, ongoing kind of financial coaching, whole bunch of you could call it kind of digital content-related pieces that will be part of this kind of MoGold offering, along with things like a discount on mortgage. We’re also looking at no trading fees. So today, for example, we charge a 1% trading fee on Bitcoin. In this case, there’d be no trading fee if you have the subscription. So there’s going to be a whole bunch of things that we’re going to continue to test to kind of find that right — pricing value prop versus features.

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Operator [24]

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(Operator Instructions) We have a follow-up question from Scott Buck from Riley FBR.

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Scott Christian Buck, B. Riley FBR, Inc., Research Division – Research Analyst [25]

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It looked like another quarter of strong member growth. I’m curious whether it’s a particular product or service that’s attracting these members? Or whether it may be the new demographic that you guys are starting to reach? I’m just curious where the membership growth is coming from?

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

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So yes, I would say, it’s been a pretty kind of consistent just trend in terms of our member numbers. We’re obviously highlighting this presentation or kind of new positioning and some of the new messaging in that, that we’re going out with. And one of the things we obviously have seen is, typically, as we launch other products, then you start bringing in a different type of customer as well. I would say, we continue to see a slight and ongoing evolution in terms of the demographic makeup of our members, right? The — traditionally, if you looked years ago, it would have been more of that kind of subprime customer, whereas increasingly, we’re focusing on more of the — increasingly, the prime consumer, of which, the vast majority of Canadians are — over 70% of Canadians are in that kind of prime category. So obviously, as we bring in products even like a high interest savings account, well, some of these other products that could maybe appeal more to that type of demographic, we expect to continue to see that member shift. But generally, it’s been pretty consistent and, obviously, it’s also reflected in just our continued awareness in terms of our marketing through Postmedia and just through the general kind of brand awareness as well and that ongoing kind of shift in terms of how people see Mogo. Some people saw Mogo years ago as a short-term lender and that takes time before increasingly they’re starting to see these new products and see us increasingly as, for example, offering services like MogoProtect.

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Operator [27]

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

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

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Okay. Well, thanks for your time, and we look forward to updating you following Q2.

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Operator [29]

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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.



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