Good day, ladies and gentlemen, and welcome to the Mogo Q3 2022 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 10, 2022. I would now like to turn the conference over to Craig Armitage, Investor Relations. Please go ahead.
Thank you and good afternoon, everyone. Thanks for joining us. Just a few quick notes before we get started. First, I'd note that today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected. Company undertakes no obligation to update these statements except as required by law. Information about the risks and uncertainties are included in our Q3 filings, as well as periodic filings with regulators in Canada and the U.S., which you'll find on SEDAR, EDGAR, and through our investor relations website. Second note is today's discussion will include adjusted financial measures and non-IFRS measures.
You should consider these as a supplement to, and not as a substitute for, IFRS measures, and you can find reconciliations both in the filings and in the investor deck. Lastly, the amounts that we discussed today, excuse me, are in Canadian dollars, unless we indicate otherwise. I'll now turn the call over to David Feller to get us started. Thanks.
Thanks, Craig. Good afternoon, and welcome to our third quarter 2022 results call. I'm joined today by Greg Feller, our president and CFO. In our 20-year corporate history, we've seen a lot of challenging macroeconomic operating environments, and Q3 clearly was another one of those periods, especially for tech and fintech companies. In the face of this, our revenue is up 12% year-over-year, which underscores the resilience of our business. Of course, we have placed an even greater focus in recent quarters on improving bottom line performance versus top line growth. This showed through in the Q3 results, with OpEx down 25% compared to Q1 2022, and EBITDA loss decreasing by 32% from the previous quarter to CAD 2.8 million. Now, this is a good start.
However, given the current environment, we need to do a lot more, which is why we announced today that we are taking very aggressive steps to reduce our expenses, as well as simplify and narrow our focus for better execution, while at the same time ensuring we are positioned for long-term growth. We are already moving forward with several meaningful changes, including shutting down Moka France, which needed a lot more scale to get to profitability, and also eliminating our current crypto offering. We're also closely evaluating all of our products, and we'll be looking to narrow focus to only those products and areas where we see the greatest opportunities for profitable growth. Our goal is to simplify to one app, one brand, and one platform. The centerpiece will be our new trade app, where we plan on bringing other products, beginning with Moka, into the app.
This will not only help reduce costs and drive efficiencies, but there's also a natural synergy between these two products, given that approximately 67% of DIY investors today also own mutual funds. Moka, excuse me, is designed to be a far more cost-effective way for Canadians to passively invest versus high-cost mutual funds. Again, this is more than just restructuring. This is a new path forward for our product offering and will help us speed up our execution and we believe put us on an accelerated path to long-term profitable growth. In terms of update on MogoTrade, we continue to gather feedback and iterate on the product.
Although we initially had removed our wait list, we then decided to put it back up as we had enough users on it to get the data and feedback we needed in terms of changes and improvements we need to make. As I mentioned in last quarter's update, our goal is to have MogoTrade ready to begin driving growth beginning in Q1. Given the features we are completing and enhancements we are making, including things like price notification, we are feeling like we have a solid product and value proposition to go into the market with. The heavy lifting and development has been done and we are in the final stages before the product is ready for prime time. With that, I will pass it over to Greg.
Thanks, Dave. I'll provide a few comments on Q3, and then I'll turn to restructuring initiatives that we outlined this morning in our release. Q3 results were solid despite the reduced marketing spend and the continued macro environment headwinds, highlighting the resiliency of our model even in a volatile environment. Our member count grew 17%, revenue increased 12%, including a 10% increase in services revenue. Payment volume at our Carta payments division grew to CAD 1.9 billion in the quarter. Gross profit was CAD 10.8 million. Benefits of previously announced cost-cutting initiatives resulted in a substantial improvement in our adjusted OpEx, adjusted EBITDA, and net loss. Lastly, we ended the quarter in a solid financial position with combined cash, digital assets, and investments totaling CAD 106 million, which included approximately CAD 35 million in cash.
Our total member base grew 17% over last year from 1.8 million in Q3 last year to 2.1 million members, despite our decision to proactively reduce marketing spend. We expect the new member growth will be affected in the near term from the restructuring initiatives, including the wind down of Moka France in the current quarter. Nevertheless, we will continue to work hard to bring value to this sizable member base as we dial up marketing efforts for MogoTrade in 2023, build out the wealth side. These should act as catalysts to recharge member growth. Over our history, including most recently COVID, we've shown the ability to quickly realign our cost structure to adjust balance of top line growth versus profitability. Based on challenging macroeconomic backdrop, we've managed growth investments more conservatively for several quarters now.
As discussed on our last earnings call, we started to reduce expenses and increase focus on profitability with the goal of reaching a positive adjusted EBITDA by Q4 2023. During Q3, we reduced marketing and product development investments, lowered headcount, and subsequent to quarter end, began to wind down MogoCrypto, as Dave mentioned. These decisions have quickly had a positive impact on profit and cash flow measures. Adjusted OpEx decreased by 24%. Adjusted EBITDA loss improved substantially to CAD 2.8 million, a 32% decrease compared to loss of CAD 4.1 million in Q2. Net cash flow from operations before investment in receivables improved 47% to -CAD 1.2 million, compared to -CAD 2.3 million in Q3 2021, and -CAD 7.2 million in Q1 of this year.
Our net loss for Q3, which improved materially from the previous quarter, includes unrealized losses totaling approximately CAD 10 million, primarily driven by Mogo's share of losses at affiliates and revaluation of Mogo's investment portfolio, which reflect recent broader equity and crypto market declines. In today's earnings results, we announced that we are implementing a restructuring that we will see further reductions in our OpEx, which I will comment on a little later. We ended the quarter in a solid financial position, and the restructuring we announced today is intended to protect this and ensure we're in a position to move the business forward over a long period without the requirement for capital.
We ended the quarter with CAD 35.3 million of cash, investment portfolio of CAD 13.8 million, digital assets of CAD 0.7 million, which we monetized subsequent to quarter end, and our investment in Coinsquare, which had a book value of CAD 56 million at the end of the quarter. Clearly, it's been a very challenging period for anything crypto-related, with the recent FTX news adding to the volatility we've seen in the sector over the last several quarters. With our recent decision to exit our MogoCrypto product and our primary crypto exposure today now is through our 35.4% ownership in Canadian crypto exchange, Coinsquare.
Although the current crypto volatility and specific company-related issues with companies like FTX have been painful for a lot of people in this sector, we believe this is only gonna accelerate what we've always believed, that the future of crypto, at least in North America, will be within a regulated environment with regulated crypto exchanges. Which is exactly why we believe Coinsquare is the first, and at this point, the only regulated crypto-only exchange in Canada, and for that matter, North America, is very well positioned for the future of this industry. Among other important factors, it means that clients now have the comfort and security of knowing Coinsquare is subject to the highest level of dealer compliance and oversight under the existing regulatory system in Canada. Turning to Carta. Carta, our payments business.
Carta showed healthy sequential growth in transaction volume to CAD 1.9 billion from CAD 1.7 billion in Q2. They continue to grow with their existing customers while building a pipeline of future business. We also recently brought in a new Managing Director based in Europe, where several key customers are, and he's gonna help us execute on our payment strategy going forward. Carta remains a valuable asset with a positive outlook in a massive sector, and we continue to believe there's significant opportunity for this business, even just with the current customers alone, much less new customers. As we consider our overall growth priorities and investments, we will continue to think through the best long-term path for this business strategically to maximize value. In light of the macroeconomic conditions, we're acting decisively to adjust the balance between growth, investment, and profitability.
Based on the inputs and key indicators we see today, our view is these economic challenges will persist and likely worsen in 2023, which has informed our decision to take these additional steps. Beginning this quarter, we are implementing a broad restructuring plan that we expect will result in a further 25%-35% reduction in operating expenses over the next several quarters. In addition to headcount reductions, we are evaluating other efficiency and product rationalization opportunities, which may include eliminating unprofitable or subscale products. In addition, we are taking a cautious approach to our loan business and expect our loan book to actually decline over the next couple of quarters as we continue to manage this business with a defensive posture.
While we work to achieve these savings and efficiencies, we'll continue investing prudently in initiatives that we believe will drive top-line expansion over the long term, with a focus on our digital wealth solutions like MogoTrade. Once implemented, we expect these initiatives to have a 10%-15% reduction on our quarterly revenue. We expect this impact to be more than offset by our OpEx reductions, and therefore, further accelerate our path to positive adjusted EBITDA and profitability. In terms of 2022, based on the restructuring, we now expect total revenues of CAD 68 million-CAD 69 million this year, down modestly from previous guidance of CAD 69 million-CAD 72 million. In summary, these are difficult decisions in a challenging market.
However, we believe they will better position Mogo to manage through this period with our existing capital, while also making us a more efficient company that continues to focus on long-term growth opportunities through our broad product portfolio, including exposure to innovative digital wealth solutions, like MogoWealth, to help Canadians invest and build wealth. With that, operator, we will now open the call to questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
First question comes from Adhir Kadve of Eight Capital. Please go ahead.
Great. Thanks and good afternoon, guys. My first question will be on MogoTrade. You guys kind of gathered feedback that you removed the wait list and kind of brought it back. Maybe just can you give us a sense of what you did learn during that period and how you're kind of applying that moving forward to the broader launch?
Yeah. Hi, it's Dave. You know, one of the challenges with launching a product like MogoTrade is you obviously were launching a product in a, you know, in an existing marketplace with a bunch of existing solutions. You know, as much as on product, you try to focus on kind of what's that MVP, minimal viable product, it's also a balancing act between that and understanding what are those right features that you need and the experience that you need to really give yourself a chance to have, you know, to essentially win market share against the existing incumbents, you know. Those include, you know, companies like, Wealthsimple and Questrade and the big banks. You know, that's a key part of what we were kind of looking for in terms of feedback.
At the same time, just continuing to refine the performance of the app too. Obviously, you know, reliability and performance in an app like this, especially in the markets that you're seeing today, are critical. These are things that, you know, we're trying to be kind of really thoughtful and careful before we, you know, release it to the broader public and therefore having enough, you know, initial users, we can get that feedback. Ideally not actually bring on more users before you've made those adjustments, just because you know that these other users, they're probably gonna kind of have the same perspective, right?
You kind of have, to a certain degree, you know, that initial one-time chance to convince somebody, "Hey, this is an app that I now want to use." You know, that really has been the focus and that includes things like other ways to load money on it, you know, in terms of more options to load money on it. We've mentioned this before too in terms of certain limit order capabilities. Not everybody does limit orders, stop orders, those types of things. Those kind of features and understanding which of those are important, as well as identifying features that help to differentiate our value proposition meaningfully from the other players in the market, price notification being one of them. You know, that's really what we've been focused on.
Okay, got it. Just to kind of confirm, you don't expect that restructuring will kind of impact MogoTrade at all?
No. I mean, our restructuring, the way we're doing it is, you know, we're making sure we still have resources and ability to continue to focus on growth initiatives like trade. We just aren't gonna have, you know, multiple. We're not gonna be able to do multiple things at one time. Trade still being kind of our priority. As I mentioned, you know, the heavy lifting has been done. We're really kind of finalizing it and, you know, we've got the resources to continue to obviously finalize it and iterate on it, you know. The challenge for Mogo going forward is gonna be, you know, deciding between, new features, new products, things like that.
Obviously, as I just outlined, our priority right now is, you know, once we complete trade and have it out there, we're really focusing on everything to kind of drive that efficiency. Instead of, you know, maybe in the past we might have prioritized, for example, launching crypto before we would have prioritized bringing Moka into the app. Now we're prioritizing things like bringing Moka into the app, which we know there's a synergy there, but also there's an efficiency. You know, that really is more the kind of trade-offs we're gonna make as we, you know, adjust our resources.
Okay, gotcha. Maybe just on Moka, kind of bringing it into the app and that the one app solution you guys described. You guys kind of have a timeline on when that would happen or when you would kind of get started. Just any color around that would be great.
I mean, the most I'd say is our goal is obviously to focus on that in next year, but no specific timeline.
Okay, gotcha. Maybe just on, you know, broadly on the crypto space. We've been kind of hearing a lot about FTX and Sam Bankman-Fried and everything that's going on, and I kind of completely agree with you with the regulation path forward. How is the team at Coinsquare kind of thinking through that? Can you give us a sense of how that's gonna play out maybe potentially in Canada?
Sure. It's Greg. You know, as I made the comments I made in the opening remarks, I mean, I think this just accelerates what we've always believed and what Coinsquare has always believed, which is why they've been pursuing the regulatory path ahead of every, you know, really all the other players, is that ultimately this industry is going to be regulated, needs to be regulated, and customers need to have comfort that their assets are protected. You know, that has potentially been a disadvantage for Coinsquare up until this point as it's really been operating in the context of being regulated even prior to regulation.
As the world moves to more of a regulated crypto environment, especially in North America, we think that is gonna quickly shift to an advantage, and protect against things like, you know, leveraging a customer's assets. I mean, you know, as a regulated entity today, Coinsquare doesn't provide margin to customers, doesn't lend out crypto, and none of their custodians are allowed to lend out crypto as well. Really, in a regulated environment in Canada, it's that leverage that is being regulated in particular, and it's that leverage that actually has caused the problems that we're seeing in an unregulated environment.
My own personal view is that, you know, this is gonna accelerate the path. I would say requirement for companies to be regulated. Also the bar is gonna be high. I think it's gonna be a challenge for a number of players that aren't regulated right now to meet all the requirements, capital requirements, et cetera, in the current market, which, you know, I think gives, you know, Coinsquare a big advantage. Despite the volatility in the sector, we feel that we've got, you know, a great investment in the only regulated crypto-only exchange in Canada, because we think that that's actually where the industry is clearly gonna be going now.
Okay, great. Then maybe one last question and I'll pass the line. You mentioned that the restructuring will have some impact on user growth moving forward, but how about the current base of users, the 2.1 million users that you have right now? Do you anticipate any kind of accelerated churn or anything like that with that base? Or do you think that you'll kind of the restructuring is aimed at products that maybe don't have large bases of customers using it? Just any color around that would be helpful.
Yeah. I would say at this point, we don't expect there is gonna be an impact, you know, a minor impact in the current quarter, which I think will more impact what the absolute net increase is in the quarter in Q4. But we don't at this stage foresee any material impact to our member base with what we're contemplating.
Excellent. Thanks, guys. I'll pass the line.
Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Scott Buck of H.C. Wainwright. Please go ahead.
Hi. Good afternoon, guys.
Hey, Scott.
During 2020, you guys were able to pull some levers and generate some pretty meaningful EBITDA margins basically overnight. This time seems a bit more nuanced. I wonder if, you know, you could give us maybe a little bit more color on the differences between, you know, what you did then in 2020 and what you're looking at doing now over the next, you know, four or five quarters.
Right. Look, I think it's a good comment. As you know, we generated about CAD 5 million of EBITDA on CAD 10 million a quarter revenue. We have substantially higher revenue here today. We haven't given explicit guidance on EBITDA. But I think the difference is back then we really just didn't have any strength on our balance sheet to support, you know, any growth investment. We had to make a very different decision than we're making today. I think the decision that we're making today is one that considers the capital we have today, in particular the cash. We obviously believe we've got a number of assets that ultimately we can monetize over time that can provide additional capital.
We're focused today on having a strategy that allows us to operate with the current cash that we have. We think the plan that we're implementing today allows us to do that. Obviously we were targeting Q4 EBITDA positive in 2023 before this. We expect that is gonna be accelerated and moved up without you know yet giving a specific timeline on that. You know, our focus is to get to positive EBITDA. You know, managing that with making appropriate level investments in what we believe are still important products, big opportunities like MogoTrade.
Great. That's very helpful. My second question, on the loan book. I'm curious what you guys have seen so far in terms of, you know, any deterioration in credit quality, and have you already been proactive in adjusting underwriting standards as you know, prepare for a more difficult environment there?
The answer is yes, and we made comments on, as far as being proactive. We made comments on the last quarter that we were being conservative in this environment. We continue to be conservative, and we're indicating that we're gonna, you know, continue to take that sort of conservative defensive posture as it relates to lending. And part of that guidance of 10%-15% impact to revenue is a combination of that more conservative posture on the lending side, alongside of some of the restructuring initiatives like exiting crypto, Moka France, et cetera.
I would say that we've tightened up our underwriting and, in fact, have seen pretty solid credit performance over the last couple of months with, you know, what we've been seeing, you know, here in Q3. You know, all the things that we're doing proactively, we think are resulting in positive results here. Clearly we're making these ahead of an environment that, you know, ultimately we think could become more challenging, and we wanna make sure we're ahead of it. Which means that, you know, we run the risk of actually not giving out what would be good loans right now, but that's a risk we're willing to take.
I think we feel, you know, good about where we are on the lending side. You know, as you know, Scott, you know, this is not our first downturn. You know, I think we may be one of the only public fintechs out there that's been operating, has a 20-year operating history, and especially 20 years in lending, in the Canadian market. I think that gives us a lot of comfort and in our ability to manage through, you know, these periods, and that's why we're being proactive.
Great. Well, I appreciate the time, guys. Thank you very much.
Thanks.
Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. There are no further questions at this time. I would like to turn the call back to Dave Feller for closing remarks.
Thank you. Thank you for joining today's call. We look forward to updating you post Q4 and year-end results. Thanks again.
Ladies and gentlemen, this does conclude the conference call for today.