Mogo (NASDAQ:MOGO) reported revenues for the first quarter of 2019 of $16.4 million versus $14.3 million a year ago up 14% and ahead of our expectations. The beat was mostly in higher interest revenue from loans. Revenues from subscriptions and services were $8.3 million versus $5.0 million in 2018, and from loans were $8.1 million versus $9.4 million a year ago. Removing the discontinued short-term lending business from last year’s numbers, total revenues would have grown 57%; the subscription and services part of the business grew 68%. We are increasing our revenue estimates as the company continues to grow loans sequentially and we are adjusting our model accordingly.
Gross margin increased dollar wise by 13.8% with revenues to $10.7 million and was flat as a percentage at 65%.
Operating expenses increased to $10.9 million in Q1 2019 or 4%. Included in this total was an increase in spending on technology and development of $1.2 million and a decrease in marketing of $700,000. The company plans to use some of the cash from the Difference acquisition to increase marketing spend in future quarters.
The operating loss was $212,000 versus a loss of $1.1 million a year ago
Other expenses were $4.8 million compared to $2.9 million a year ago. Credit facility interest expense increased by $686,000, while the unrealized gain on derivative liability declined by $1.6 million.
The pretax (and net as it pays no taxes) loss increased to $5.0 million versus $4.0 million a year ago.
The non-GAAP net loss, taking out one-time charges and stock based compensation, was $4.7 million versus $4.9 million, a decrease of 3% compared to last year.
Average shares outstanding grew from 22.6 million in Q1 2018 to 23.4 million in Q1 2019, an increase of 3.3%. GAAP EPS loss was $0.21, an increase from last year’s $0.17. On a non-GAAP basis the number was a loss of $0.20 per share versus $0.22 per share.
Adjusted EBITDA, was $2.2 million for Q1 2019 compared to $303,000 a year ago, excluding loan financing.
Cash flow from operations for Q1 2019 was $2.3 million versus $0.5 million a year ago, and free cash flow increased significantly from a negative $1 million last year to a positive $101,000 in 2019. After funding the loan portfolio, the cash flow was a negative $7.2 million versus a negative $8.0 million a year ago. The company plans to remain EBITDA positive throughout 2019 and start to contribute to funding the portfolio through operating cash flow.
Business Combination with Difference Capital
The company is in the process of merging with Difference Capital Financial (TSX: DCF, TNTHF), a Toronto-based company that invests in equity of private Canadian companies. It invests primarily in late stage financings of pre-IPO companies in the technology and media sectors with liquidity events expected in the two to four year range. It currently holds approximately C$10 million in cash and a portfolio of 14 companies currently worth approximately C$24 million. It employs three people. Mogo plans to sell off portfolio to raise cash as opportunities arise and this is expected to take up to 24 months. Difference Capital currently spends about $900,000 per quarter, but Mogo expects that after the merger this will be reduced. The transaction will result in an incremental issuance of approximately 3.2 million shares and is expected to close in June.
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