Mogo(MOGO) - 2024 Q4 - Annual Report

Part I Key Information The company faces principal economic, operational, regulatory, and strategic risks that could materially affect its business and financial condition Risk Factors Key risks include loan defaults from economic conditions, model inaccuracies, a history of losses, and evolving regulations - Worsening economic conditions could increase loan default rates, harming operating results; as of December 31, 2024, loans to members constituted approximately 31% of the company's assets[36] - The company has a history of losses, with an accumulated deficit of approximately $346 million as of December 31, 2024, despite having shareholder equity of about $81 million[43] - The business is subject to extensive and evolving regulations, including the Canadian government's reduction of the criminal interest rate to 35% APR effective January 1, 2025[57][59] - The company's investment in WonderFi (an approximate 13% stake) exposes it to risks within the volatile cryptocurrency sector[61][83] - The company's increasing reliance on Artificial Intelligence (AI) introduces operational, regulatory, and reputational risks[140][141] Information on the Company The company's history, business segments, organizational structure, and properties are detailed History and Development of the Company The current entity was formed via a reverse acquisition in 2019, with minimal capital expenditures since - On June 21, 2019, the company completed a plan of arrangement with Mogo Finance Technology Inc, which was accounted for as a reverse acquisition[17][148][151] - The company's common shares were consolidated on a three-for-one basis on August 10, 2023[150] Business Overview The company operates in Wealth, Payments, and Lending, supported by a significant investment portfolio - Mogo operates across three core business lines: Wealth (Intelligent Investing), Payments (Carta Worldwide), and Lending (MogoMoney)[155] - The payments subsidiary, Carta, processed over $11 billion in transaction volume in 2024 and operates primarily in Europe[157] - As of December 31, 2024, Mogo's investment portfolio was valued at approximately $38 million, which includes an approximate 13% stake in WonderFi valued at $25.7 million[167][168] - In February 2025, Mogo extended its credit facility with Fortress Investment Group to January 2029 and reduced the interest rate by 100 basis points to SOFR plus 7%[169] Revenue by Geographic Market | ($000s) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Subscription and services revenue: | | | | | Canada | 35,216 | 32,668 | 35,112 | | Europe | 7,892 | 6,117 | 6,531 | | Other | – | – | 98 | | Interest revenue: | | | | | Canada | 28,098 | 26,436 | 27,208 | | Total revenue | 71,206 | 65,221 | 68,949 | Organizational Structure The company operates through wholly-owned subsidiaries with an authorized capital of unlimited common and preferred shares Significant Subsidiaries (as of Dec 31, 2024) | Name of Entity | Place of Incorporation | Ownership Interest | | :--- | :--- | :--- | | Mogo Finance Technology Inc. | British Columbia | 100% | | Mogo Financial Inc | Manitoba | 100% | | MogoTrade Inc. | Canada | 100% | | Mogo Asset Management Inc. | Canada | 100% | | Moka Financial Technologies Inc | Canada | 100% | | Carta Solutions Holding Corp. | Canada | 100% | | Carta Financial Services Ltd | United Kingdom | 100% | - As of December 31, 2024, the company had 24,472,377 common shares and no preferred shares issued and outstanding[222] Property, Plants and Equipment Operating on a remote-first basis, the company leases administrative properties and plans to reduce its physical footprint - The company is remote-first for its North American and European operations and does not own any real property[227] - Mogo plans to not renew leases in Winnipeg, PEI, and Cyprus, reflecting a shift to remote work and cloud solutions for data storage[228] Operating and Financial Review and Prospects The company's financial performance shows revenue growth and an improved net loss, driven by subscription and services Operating Results Revenue grew 9% to $71.2 million and net loss improved by 24%, though Adjusted EBITDA declined Key Performance Indicators (Year Ended) | ($000s, except percentages) | Year ended Dec 31, 2024 | Year ended Dec 31, 2023 | Change % | | :--- | :--- | :--- | :--- | | Revenue | $71,206 | $65,221 | 9% | | Subscription and services revenue | 43,108 | 38,785 | 11% | | Wealth revenue | 10,670 | 9,203 | 16% | | Payments revenue | 8,634 | 7,166 | 20% | | Net (loss) | (13,680) | (17,887) | (24)% | | Adjusted EBITDA | 6,649 | 7,669 | (13)% | | Adjusted net loss | (4,064) | (2,872) | 42% | - Total Mogo members grew by 4% to 2,194,000 as of December 31, 2024, from 2,110,000 a year earlier[238] - Cost of revenue for FY2024 increased to $24.5 million (34% of revenue) from $18.6 million (28% of revenue) in FY2023, primarily due to a 39% increase in the provision for loan losses[276] - For FY2024, total other expenses decreased to $3.6 million from $8.3 million in FY2023, mainly because a prior year loss from its Coinsquare investment did not recur[300] Liquidity and Capital Resources The company manages liquidity through cash flow monitoring, supported by a credit facility, debentures, and an investment portfolio Cash Flow Summary (Year Ended) | ($000s) | Year ended Dec 31, 2024 | Year ended Dec 31, 2023 | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | (1,271) | (9,167) | | Cash used in investing activities | (2,794) | (3,086) | | Cash (used in) provided by financing activities | (3,517) | (861) | | Net decrease in cash for the period | (7,603) | (13,135) | - As of December 31, 2024, the company had approximately $49 million outstanding on its Credit Facility and $35 million in outstanding debentures[80] - Subsequent to year-end, in February 2025, the company amended its credit facility, extending the maturity to January 2029 and reducing the interest rate to 7% plus SOFR[315][338] - The allowance for loan losses as a percentage of gross loans receivable increased to 19.4% as at Dec 31, 2024, from 16.9% at the end of 2023[334] Research and Development, Patents and Licenses, etc. Investment in capitalized software development has decreased significantly over the past three years Investment in Intangible Assets | ($000s) | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Investment in intangible assets | 3,175 | 3,206 | 7,482 | Critical Accounting Estimates Significant management judgment is required for loan loss provisions, fair value of investments, and goodwill valuation - Key areas requiring significant management estimates include: provision for loan losses, fair value of privately held investments, valuation of goodwill, and impairment testing of intangible assets[350][351][352] Directors, Senior Management and Employees The company's leadership, compensation, board structure, and employee base are outlined, showing a reduction in headcount Directors and Senior Management The leadership team and board members collectively own approximately 8% of the company's common shares - Key leadership includes David Feller (Chairman & CEO), Gregory Feller (President, CFO & Director), and Justin Carter (COO)[358] - As of December 31, 2024, directors and executive officers collectively owned approximately 8% of the Company's outstanding Common Shares[368] Compensation Executive compensation combines salary, bonuses, and equity incentives, guided by the Corporate Governance, Compensation and Nominating Committee Executive Compensation for Fiscal Year 2024 | Name and Principal Position | Salary | Option-based Awards | All Other Compensation | Total Compensation | | :--- | :--- | :--- | :--- | :--- | | David Feller, CEO | $417,819.28 | $40,615.55 | $4,428.14 | $462,862.97 | | Gregory Feller, President & CFO | $530,525.03 | $40,615.55 | $83,538.85 | $654,679.43 | | Justin Carter, COO | $223,417.57 | - | $4,428.14 | $227,845.71 | - Non-executive directors receive an annual retainer of $35,000, with an additional $30,000 for chairing a committee[392] - Upon termination without cause, David and Gregory Feller are entitled to 24 months' pay in lieu of notice, while Justin Carter is entitled to one month plus an additional month per year of service, up to a maximum of 18 months[396] Board Practices The Board operates with three primary committees, with the Audit and CGCNC composed of independent directors - The Board has three primary committees: Audit Committee, Corporate Governance, Compensation and Nominating Committee (CGCNC), and Investment Committee[401][409] - The Audit Committee consists of three independent directors: Christopher Payne (Chair), Kees Van Winters, and Kristin McAlister[402] Employees The company's workforce has been significantly reduced over the past two years to 174 full-time employees Employee Headcount by Function | | As of Dec 31, 2022 | As of Dec 31, 2023 | As of Dec 31, 2024 | | :--- | :--- | :--- | :--- | | General & Administrative | 65 | 44 | 42 | | Customer Service & Operations | 131 | 105 | 85 | | Technology | 65 | 55 | 47 | | TOTAL | 261 | 204 | 174 | Major Shareholders and Related Party Transactions Two shareholders own over 5% of common shares, and related party transactions include insider-held debentures Principal Shareholders (>5%) as of Feb 25, 2025 | Principal Shareholder | Shares Beneficially Owned | % | | :--- | :--- | :--- | | Michael Wekerle | 1,837,282 | 7.5 | | Tidal Investments, LLC | 1,330,643 | 5.4 | - Related party transactions in 2024 included $0.1 million in debentures held by related parties and $88,000 in sponsorship expenses paid to a company owned by a director[422][423] Financial Information The company has no material litigation and does not intend to pay dividends, reinvesting earnings for growth - The company does not intend to pay dividends on its common shares in the foreseeable future, planning instead to reinvest earnings to finance growth[430] - The company believes that none of its current litigation is material to its consolidated financial condition or results of operations[427] The Offer and Listing The company's common shares are dual-listed on the Toronto Stock Exchange (TSX) and NASDAQ under the symbol 'MOGO' - The company's common shares are listed on the TSX (since June 25, 2015) and NASDAQ (since April 18, 2018) under the symbol 'MOGO'[434][435] Additional Information Details on material contracts, exchange controls, and tax implications for non-Canadian and U.S. shareholders are provided - The company's material contracts primarily relate to its revolving credit facility and associated subordination agreements with DB FSLF 50 LLC[455] - Canada has no system of exchange controls, and there are no Canadian restrictions on the repatriation of capital or earnings to non-resident investors[457] - For U.S. Holders, the company does not expect to be treated as a Passive Foreign Investment Company (PFIC) for the current taxable year, but this is a factual determination made annually[130][480] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate, currency, and other price risks from its credit facility and investments - The company is exposed to interest rate risk on its credit facility tied to the Secured Overnight Financing Rate (SOFR); a 100-basis point change in SOFR would impact annual credit facility interest expense by $315,000[511] - Currency risk exists due to financial instruments denominated in U.S. dollars; a 5% change in the USD exchange rate would result in an unrealized gain or loss of $166,000[512] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective[523] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024[526] Additional Disclosures Governance topics include the audit committee expert, auditor fees and changes, and cybersecurity risk management - The Board has determined that Christopher Payne qualifies as an 'audit committee financial expert' as defined by the SEC[532] Principal Accountant Fees | ($) | Year ended Dec 31, 2024 | Year ended Dec 31, 2023 | | :--- | :--- | :--- | | Audit Fees | $1,171,629 | $1,235,850 | | Audit Related Fees | $247,170 | – | | Tax Fees | $108,305 | $155,492 | | All Other Fees | $13,433 | $30,896 | | Total Fees Paid | $1,540,537 | $1,422,238 | - Effective October 1, 2024, KPMG LLP resigned as the company's auditor and was replaced by MNP LLP[542] - The company has a share repurchase program, and in 2024, it repurchased a total of 44,741 common shares[541] - The company has established a cybersecurity risk management framework and governance structure, and no material cybersecurity incidents have been identified[554][559][560]