Vancouver-based FinTech company Mogo has temporarily laid off 30 percent of its staff in a move to prepare for the growing economic challenges and uncertainty caused by the COVID-19 pandemic.
“In light of the economic volatility and uncertainty, we are accelerating this transition [to a capital-light model].”
– Greg Feller, Mogo
Mogo, which touts itself as a digital challenger to traditional Canadian banks, made the announcement last Friday as part of its fourth-quarter and full-year 2019 financial report.
In the report, Mogo pointed to the “current economic volatility and uncertainty,” as the reason for its decision to make the reduction in staff. The company is also cutting back on expenses across the organization, with Mogo’s C-Suite executives taking a compensation cut.
President and CFO Greg Feller noted that the aim is to mitigate the potential impact of the pandemic. Mogo also made the cutbacks in an attempt to move towards positive cash flow amid COVID-19.
“We have been transitioning our business to a capital-light model for some time and, in light of the economic volatility and uncertainty, we are accelerating this transition and taking immediate steps, which we expect will allow us to mitigate the potential impact to our business during these uncertain times and accelerate our path to cash flow positive once we return to a more stable environment,” Greg Feller said.
According to LinkedIn, Mogo currently sits at just over 260 employees, a 30 percent reduction in staff would mean about 78 employees were laid off. Notably, Mogo made the decision to temporarily lay off the employees, a move that other Canadian companies have made amid the financial challenges brought on by COVID-19.
Temporary layoffs in Canada are when an employer lets go of an employee for a predetermined period of time (timing differs across each province) with the expectation that compensation and employment may resume in the future. Employees are able to look for alternate employment during this period, thus ending their contract with the original company.
Outside of the layoffs, the company-wide cuts are focused on deferring Mogo’s growth investments in technology, development, and marketing (excluding marketing efforts under a partnership with Postmedia Network).
Founded in 2003, Mogo is a FinTech company that offers a wide range of fully-digital financial services, spanning loans, credit, mortgages, investing, and credit scores. To help Mogo move towards positive cash flow, the company is also putting a temporary pause on new on-balance-sheet loans and is exercising its option to capitalize interest payments on its non-convertible subordinated debts.
The Vancouver digital bank challenger still plans to support its existing loan customers and will be directing new loan applications to its lending partners. Greg Feller called this a way to allow Mogo to continue to monetize its digital lending platform.
Mogo said exercising its capitalized interest payments option will result in the company conserving approximately $1.4 million CAD during Q2. Overall, Mogo said that the employee layoffs combined with the above measures will reduce cash expenses in Q2 by an estimated $5 million CAD.
“[These moves] will allow us to mitigate the potential impact to our business during these uncertain times and accelerate our path to cash flow positive.”
Greg Feller also pointed to the recent sale of its MogoLiquid portfolio, noting that the move provided additional cash, while significantly reducing Mogo’s leverage and credit risk exposure. Mogo recently sold MogoLiquid, its digital personal loan offering, to Goeasy for $31.5 million CAD.
“These steps, along with several immediate cost reduction initiatives we are implementing, will better position the company to manage through the current challenging environment,” said Greg Feller.
“Now more than ever, financial stress is a huge issue for Canadians, and in 2019 we made progress improving our technology platform, products, and user experience to help our members improve their financial health,” said David Feller, Mogo’s founder and CEO. “Our focus during these challenging times will be on leveraging our digital products and solutions to help minimize the impact to our members’ financial lives, especially those who have been most affected.”
In the financial report, the company noted that its loan balance sheet currently sits at approximately $72 million. Despite making layoffs and company-wide cuts, Mogo expressed the belief that given its recent cutbacks as well as the reduction in loans due to the sale of MogoLiquid, the risk to its portfolio during COVID-19 is mitigated.
Mogo highlighted that its consumer lending portfolio is primarily composed of small lines of credit, with an average balance of approximately $1,500 per loan and average payments of approximately $50. It added that approximately 55 percent of Mogo’s customers have optional loan protection insurance, which covers payments for a period of up to six months in the event of unemployment, and due to the income profile of its typical customer, Mogo believes the majority of its customers will be eligible for government relief measures as well as employment insurance.
Mogo also noted that it will be open to providing more flexible options, including extended payment terms, payment deferrals, and interest relief in order to support its customers during COVID-19.
In its financial report, Mogo outlined year-over-year revenue growth and noted that its active members increased 29 percent year-over-year to 976,000. In February 2020, Mogo surpassed one million members.
The Canadian tech sector, like many across the country, has been severely impacted by the economic fallout of the pandemic. Companies like Ecobee, #MoveTheDial, and Rangle, among others, have made layoffs because of COVID-19.
Like many of those companies, Mogo’s decision to make temporary layoffs came prior to Prime Minister Justin Trudeau announcing the expanded 75 percent wage subsidy. While there had been hope that awaited details on the subsidy program would reverse layoffs and prevent others, there have been major concerns that the program does not benefit tech companies.
The day after details were shared Toronto’s Ritual let go of half its team. And Cameron Howieson, CEO of Toronto-based startup Opencare, which laid off one-quarter of its staff last week, recently told BetaKit that the government’s 75 percent wage subsidy did not change anything for the startup.
It is unclear at this time whether current government measures played a role in Mogo’s decision to make layoffs. BetaKit has reached out to Mogo to find out whether the subsidy program played a role in the decision, but Mogo has not responded to multiple requests for comment.