Mogo(MOGO) - 2024 Q3 - Quarterly Report

Interim Condensed Consolidated Statements of Financial Position The company's total assets decreased to $183.2 million, while total equity declined to $70.6 million as of September 30, 2024 Interim Condensed Consolidated Statements of Financial Position (Unaudited, in thousands of Canadian Dollars) | | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalent | 9,765 | 16,133 | | Restricted cash | 2,665 | 1,737 | | Marketable securities | 12,517 | 26,332 | | Loans receivable, net | 60,349 | 61,717 | | Prepaid expenses, and other receivables and assets | 13,428 | 13,067 | | Investment portfolio | 11,274 | 11,436 | | Property and equipment | 372 | 526 | | Right-of-use assets | 593 | 670 | | Investment in sublease, net | 1,069 | 1,228 | | Intangible assets | 32,834 | 36,562 | | Goodwill | 38,355 | 38,355 | | Total assets | 183,221 | 207,763 | | Liabilities | | | | Accounts payable, accruals and other | 24,958 | 24,082 | | Lease liabilities | 2,297 | 2,709 | | Credit facility | 49,317 | 49,405 | | Debentures | 35,324 | 36,783 | | Derivative financial liabilities | - | 34 | | Deferred tax liability | 729 | 1,026 | | Total liabilities | 112,625 | 114,039 | | Equity | | | | Share capital | 389,717 | 389,806 | | Contributed surplus | 37,210 | 35,503 | | Foreign currency translation reserve | (430) | 243 | | Deficit | (355,901) | (331,828) | | Total equity | 70,596 | 93,724 | | Total equity and liabilities | 183,221 | 207,763 | Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Total revenue increased to $53.2 million for the nine months ended September 30, 2024, with a net loss of $24.1 million Interim Condensed Consolidated Statements of Operations (Unaudited, in thousands of Canadian Dollars) | | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | | | | | | Subscription and services | 10,689 | 9,519 | 31,816 | 28,598 | | Interest revenue | 6,996 | 6,661 | 21,347 | 19,466 | | Total Revenue | 17,685 | 16,180 | 53,163 | 48,064 | | Gross profit | 11,898 | 11,387 | 35,299 | 35,198 | | Loss from operations | (398) | (843) | (3,584) | (3,652) | | Net loss | (8,112) | (9,504) | (24,073) | (26,396) | | Total comprehensive loss | (8,661) | (9,483) | (24,746) | (26,495) | | Basic and diluted loss per share | (0.33) | (0.38) | (0.99) | (1.06) | Interim Condensed Consolidated Statements of Changes in Equity (Deficit) Total equity decreased to $70.6 million as of September 30, 2024, primarily due to a net loss of $24.1 million - Total equity decreased from $93.7 million at the end of 2023 to $70.6 million as of September 30, 2024. The decrease was primarily driven by a net loss of $24.1 million for the nine-month period[9] Changes in Equity for the nine months ended September 30, 2024 (in thousands of Canadian Dollars) | | Share capital | Contributed surplus | Foreign currency translation reserve | Deficit | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance, Dec 31, 2023 | 389,806 | 35,503 | 243 | (331,828) | 93,724 | | Net loss | — | — | — | (24,073) | (24,073) | | Foreign currency translation reserve | — | — | (673) | — | (673) | | Stock-based compensation | — | 1,724 | — | — | 1,724 | | Other changes | (89) | (17) | — | — | (106) | | Balance, Sep 30, 2024 | 389,717 | 37,210 | (430) | (355,901) | 70,596 | Interim Condensed Consolidated Statements of Cash Flows The company experienced a reduced net cash outflow of $6.4 million for the nine months ended September 30, 2024, driven by improved operating cash flow Consolidated Statements of Cash Flows (Unaudited, in thousands of Canadian Dollars) | | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | (1,809) | (6,967) | | Net cash used in investing activities | (1,996) | (2,104) | | Net cash used in financing activities | (2,541) | (2,443) | | Net decrease in cash and cash equivalent | (6,368) | (11,553) | | Cash and cash equivalent, beginning of period | 16,133 | 29,268 | | Cash and cash equivalent, end of period | 9,765 | 17,715 | - For the nine months ended September 30, 2024, the company experienced a net cash outflow of $6.4 million, a significant improvement from the $11.6 million outflow in the same period of 2023. This was primarily due to a reduction in cash used in operating activities[13] Notes to the Interim Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, financial instrument risks, and specific balance sheet and income statement items 1. Nature of operations Mogo Inc. is a Canadian financial technology company offering digital financial health solutions, including trading, investing, loans, and payments, and completed a 3-for-1 share consolidation in August 2023 - Mogo offers a suite of digital financial products: commission-free stock trading, Moka for managed investing, digital loans and mortgages, and the Carta Worldwide payments platform[15] - The company completed a 3-for-1 share consolidation on August 14, 2023. All share and per-share amounts in the report are adjusted to reflect this consolidation[16] 2. Basis of presentation The unaudited interim financial statements are prepared under IAS 34 and IFRS on a going concern basis, presented in Canadian dollars, and include a reclassification of investment portfolio assets - The financial statements have been prepared on a going concern basis, with management concluding the Company has adequate resources for the foreseeable future (at least 12 months from November 6, 2024)[19][20] - The statements are presented in Canadian dollars, and the functional currencies of various international subsidiaries include GBP, EUR, MAD, and SGD[25] - A reclassification was made in the current year, moving a portion of the investment portfolio to marketable securities to improve presentation, with no effect on reported results[24] 3. Material accounting policies Accounting policies remain consistent with the 2023 annual statements, and the adoption of IAS 1 amendments had no material impact on the financial statements - Accounting policies are consistent with the annual statements for the year ended December 31, 2023[26] - The adoption of amendments to IAS 1 on January 1, 2024, regarding the classification of liabilities, did not materially impact the financial statements[28] 4. Loans receivable Net loans receivable decreased to $60.3 million as of September 30, 2024, while the allowance for loan losses increased to $13.9 million, with a pessimistic scenario potentially increasing it by $1.14 million Loans Receivable, Net (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Gross loans receivable | 74,236 | 74,272 | | Allowance for loan losses | (13,887) | (12,555) | | Loans receivable, net | 60,349 | 61,717 | Allowance for Loan Losses by Stage (in thousands of CAD) | | Stage 1 (Lower Risk) | Stage 2 (Medium/Higher Risk) | Stage 3 (Non-performing) | Total | | :--- | :--- | :--- | :--- | :--- | | Sep 30, 2024 | (6,107) | (2,550) | (6,215) | (13,887) | | Dec 31, 2023 | (6,445) | (2,074) | (4,844) | (12,555) | - Management's allowance model considers macroeconomic factors like unemployment and inflation. A pessimistic scenario would increase the allowance for credit losses by $1.14 million as of September 30, 2024[32] 5. Marketable securities The company's marketable securities significantly decreased to $12.5 million as of September 30, 2024, primarily due to a reduction in the value of its WonderFi Technologies Inc. holdings Marketable Securities (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | WonderFi Technologies Inc. | 12,175 | 25,654 | | Others | 342 | 678 | | Total | 12,517 | 26,332 | 6. Property and equipment The net book value of property and equipment, consisting of computer equipment, decreased to $372 thousand as of September 30, 2024, due to depreciation charges Property and Equipment, Net Book Value (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net book value | 372 | 526 | - Depreciation expense for property and equipment was $169 thousand for the nine months ended September 30, 2024, compared to $268 thousand for the same period in 2023[36] 7. Intangible assets The net book value of intangible assets decreased to $32.8 million as of September 30, 2024, driven by $6.2 million in amortization, partially offset by $2.4 million in additions Intangible Assets, Net Book Value (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net book value | 32,834 | 36,562 | - Amortization of intangible assets for the nine months ended September 30, 2024, was $6.2 million, slightly lower than the $6.1 million recorded in the same period of 2023[37] 8. Credit facility The company's $60 million senior secured credit facility's maturity was extended to January 2, 2026, and a waiver was granted for a potential tangible net worth covenant breach - The maturity date of the $60 million senior secured credit facility was extended from July 2, 2025, to January 2, 2026[39] - The company was granted a waiver for a potential breach of its tangible net worth covenant, which was at risk due to unrealized losses on its investment in WonderFi Technologies Inc[42] Credit Facility Balance (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Balance, end of the period | 49,317 | 49,405 | 9. Debentures The company's debentures, with an outstanding balance of $35.3 million as of September 30, 2024, are subordinated to the credit facility, extending their maturity to January 2, 2026, with payment options in cash or shares Debentures Balance (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Principal balance | 35,453 | 37,020 | | Discount | (867) | (1,000) | | Interest payable | 738 | 763 | | Total Balance | 35,324 | 36,783 | - The debentures are subordinated to the credit facility, which extends their maturity dates to January 2, 2026, aligning with the credit facility's maturity[48] - Debenture principal repayments are payable in either cash or Common Shares at Mogo's option[50] 10. Derivative financial liabilities The company's derivative financial liabilities, related to stock warrants, were reduced to zero as of September 30, 2024, due to fair value changes and the expiry of 891,000 warrants - Stock warrants with a USD-denominated exercise price are classified as a liability and revalued at each reporting date; the liability was reduced to zero as of Q3 2024[52][55] Warrants Outstanding (Derivative Liability, in thousands) | | Warrants outstanding (000s) | Weighted average exercise price $ | | :--- | :--- | :--- | | Balance, Dec 31, 2023 | 1,910 | 29.06 | | Warrants expired | (891) | 41.84 | | Balance, Sep 30, 2024 | 1,019 | 17.88 | 11. Geographic information The company primarily generates revenue and holds non-current assets in Canada, with a smaller portion of revenue from Europe 11a. Revenue For the nine months ended September 30, 2024, total revenue grew to $53.2 million, with Canada contributing $47.4 million and Europe $5.7 million Revenue by Geographic Location (in thousands of CAD) | | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | | Canada | 47,449 | 43,395 | | Europe | 5,714 | 4,669 | | Total | 53,163 | 48,064 | 11b. Non-current assets The company's non-current assets are predominantly located in Canada, totaling $73.0 million as of September 30, 2024 Non-current Assets by Geographic Location (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Canada | 73,037 | 77,032 | | Europe | 163 | 263 | | Other | 23 | 46 | | Total | 73,223 | 77,341 | 12. Expense by nature and function Total operating expenses for the nine months ended September 30, 2024, were $38.9 million, with personnel and depreciation/amortization as the largest categories by nature Operating Expenses by Nature (Nine months ended Sep 30, in thousands of CAD) | Expense Category | 2024 | 2023 | | :--- | :--- | :--- | | Personnel expense | 15,430 | 15,486 | | Depreciation and amortization | 6,426 | 6,682 | | Hosting and software licenses | 4,187 | 4,129 | | Marketing | 3,113 | 2,065 | | Professional services | 2,435 | 2,056 | | Total | 38,883 | 38,850 | 13. Revaluation loss The company recorded a significant revaluation loss of $12.5 million for the nine months ended September 30, 2024, primarily due to $13.4 million in unrealized losses on its investment portfolio and marketable securities Revaluation Loss Components (Nine months ended Sep 30, in thousands of CAD) | | 2024 | 2023 | | :--- | :--- | :--- | | Unrealized loss on investment portfolio and marketable securities | 13,351 | 3,962 | | Unrealized foreign exchange (gain) | (725) | 91 | | Loss (gain) on modification of debentures | (364) | (195) | | Other items | 235 | 91 | | Total | 12,497 | 3,972 | 14. Other non-operating (income) expense Other non-operating expenses substantially decreased to $68 thousand for the nine months ended September 30, 2024, mainly due to lower restructuring charges compared to the prior year Other Non-operating (Income) Expense (in thousands of CAD) | | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | | Restructuring charges | 14 | 3,030 | | Acquisition costs and other | 54 | 215 | | Total | 68 | 3,245 | 15. Fair value of financial instruments The company classifies financial instruments into a three-level fair value hierarchy, with Level 1 assets valued using quoted prices and Level 3 assets using unobservable inputs, and a 5% market multiple change impacting profit or loss by $561 thousand 15b. Accounting classifications and fair values As of September 30, 2024, financial assets measured at fair value totaled $23.8 million, including $12.5 million in Level 1 marketable securities and $11.3 million in Level 3 investment portfolio Fair Value Hierarchy of Financial Assets (Sep 30, 2024, in thousands of CAD) | Asset Type | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | | :--- | :--- | :--- | :--- | :--- | :--- | | Marketable securities | 12,517 | 12,517 | — | — | 12,517 | | Investment portfolio | 11,274 | — | — | 11,274 | 11,274 | 15c. Measurement of fair values Level 3 fair values for unlisted equity investments are determined using recent investment prices and revenue multiples, with a 5% market multiple movement impacting profit or loss by $561 thousand - Valuation techniques for Level 3 unlisted equities include using revenue multiples ranging from 0.6x to 3.0x and discounts for lack of marketability up to 20%[74] Sensitivity Analysis of Level 3 Investment Portfolio (in thousands of CAD) | | Profit or loss Increase | Profit or loss Decrease | | :--- | :--- | :--- | | Sep 30, 2024 | | | | Adjusted market multiple (5% movement) | 561 | (561) | 16. Nature and extent of risk arising from financial instruments The company faces credit risk from unsecured loans, interest rate risk from its variable-rate credit facility, and liquidity risk managed through refinancing plans, with $84.4 million in contractual obligations due in 2026 - Credit risk is primarily from unsecured consumer loans; the company uses underwriting models based on historical data to manage this risk but cannot guarantee future delinquency rates will match historical levels[80][81][82] - The company is exposed to interest rate risk through its credit facility, which has a variable rate tied to SOFR (4.96% as at Sep 30, 2024)[84] - The company has total contractual obligations of $84.4 million due in 2026, primarily related to the credit facility and debentures maturing[87] 17. Equity As of September 30, 2024, the company had 24.5 million common shares outstanding, with 3.4 million stock options and 769 thousand warrants outstanding, including 500,000 new warrants issued to Postmedia 17c. Options As of September 30, 2024, 3.4 million stock options were outstanding with a weighted average exercise price of $5.14, resulting in $1.7 million in stock-based compensation expense for the nine-month period Stock Option Activity (in thousands) | | Options outstanding (000s) | Weighted average exercise price $ | | :--- | :--- | :--- | | Balance, Dec 31, 2023 | 3,498 | 5.56 | | Options issued | 215 | 2.38 | | Exercised | (2) | 2.12 | | Forfeited | (306) | 7.89 | | Balance, Sep 30, 2024 | 3,405 | 5.14 | - Total stock-based compensation costs related to options for the nine months ended September 30, 2024 was $1.7 million[96] 17d. Warrants As of September 30, 2024, 769 thousand warrants were outstanding with a weighted average exercise price of $5.02, including 500,000 new warrants issued to Postmedia Warrant Activity (in thousands) | | Warrants outstanding (000s) | Weighted average exercise price $ | | :--- | :--- | :--- | | Balance, Dec 31, 2023 | 358 | 20.53 | | Warrants issued | 500 | 2.15 | | Warrants expired | (89) | 51.15 | | Balance, Sep 30, 2024 | 769 | 5.02 | - On August 9, 2024, Mogo issued 500,000 warrants to Postmedia as part of a marketing collaboration agreement with an exercise price of $2.15 and an expiry date of August 9, 2027[100] 18. Related party transactions Related party debentures held by shareholders, officers, and directors decreased to $138 thousand as of September 30, 2024, incurring $11 thousand in interest expense for the first nine months of 2024 - Related party transactions include debentures held by shareholders, officers, and directors[103] Related Party Debentures (in thousands of CAD) | | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Debentures Balance | 138 | 290 | | Interest Expense (YTD) | 11 | 18 (for 9 months ended Sep 30, 2023) |