Netcapital Q4 2023 Earnings Call Transcript

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July 27, 2023

There are 4 speakers on the call.

Operator

Good morning, everybody, and welcome to the Net Capital Earnings Conference Call. At this time, all participants have been placed on a listen only mode and we will open the floor for questions after the presentation. It is now my pleasure to turn the floor over to your host, Corine Kreisler of Net Capital Incorporated. Corine, over to you.

Speaker 1

Thank you so much. Good morning, everyone, and thank you for joining NET Capital's financial results conference call for our full fiscal year 2023 ended April 30. This is Corine Kreisler, CFO of Net Capital Inc. Joining me on the call are Martin Kaye, CEO and Jason Frischmann, Founder. I will begin with a review of our financial results and our CEO, Martin Kaye, will follow with Before we begin, I'd like to call your attention to the customary Safe disclosure regarding forward looking information.

Speaker 1

Management's discussion may include forward looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, Uncertainties and other factors that may cause actual results to be materially different from any future results, Levels of activity, performance or achievements expressed or implied by these forward looking statements. Any forward looking Statements reflect management's current views with respect to operations, results of operations, growth strategy, liquidity and future events. NET Capital assumes no obligation to publicly update or revise these forward looking statements for any reason or to update the reasons actual I'll begin now with a review of our financial results for fiscal 2023. Total revenues for the year were up 55 percent to $8,500,000 from $5,500,000 in fiscal year 2022.

Speaker 1

We generated operating income of $2,300,000 in fiscal 2023 versus an operating loss of $1,000,000 last fiscal year. Equity securities at fair value totaled $23,000,000 at April 30, 2023 versus $12,900,000 at April 30, 2020 And finally, we paid down approximately $1,000,000 in debt in fiscal 2023. I'll now turn the call over to our CEO, Martin Kaye.

Speaker 2

Thank you, Corinne, and thanks again For you folks for joining the call. Two things I wanted to cover. In January of this year, we announced an ATS or alternative trading partnership with Temple Markets. And by offering secondary trading functionality, our goal there is to provide potential liquidity for investors By allowing users to trade shares, this is one of the great opportunities ahead for our platform and coupled with our key competitive advantages, Including lower costs for digital capital raising and ease of onboarding, our value proposition continues to expand. As we move forward this year, our primary purpose is, as it always has been, to continue to make private capital markets work for everyone.

Speaker 2

We believe the value proposition of our integrated offerings translate to value creation for both investors and entrepreneurs alike. And as we look ahead, our focus for the fiscal 2024 is on continued scaling of our portal business, Focused on targeting 3 primary levers. The first is increasing the pipeline of high quality scale issuers. So we're building referral partnerships and targeting larger Reg A plus offerings. And we're also prioritizing industries where we see a lot of investor For example, a recent review showed that cleantech and AI together accounted for almost 60% of capital raised across companies that we're raising on the Net Capital platform.

Speaker 2

So increasing the pipeline of high quality scale issuers is number 1. 2nd is growing the investor community, the other side of our network and transaction volume. So in addition to fine tuning our own marketing outreach, We're partnering with niche agencies and others to support issuers in driving investors to their offering. So that's the second thing. And then 3rd, as I mentioned, the anticipated launch of our secondary trading functionality.

Speaker 2

We expect this liquidity model To support the growth of both the investor and issuer communities and to generate a potential new revenue stream for Net Capital. So exciting developments underway, and we look forward to sharing more details through the year. And as always, again, thank you for your interest and support of NET Capital. Operator, I think we're ready for questions.

Operator

Thank you very much. At this time, we'll be conducting our question and answer Thank you. Your first question is coming from Mark Nelson of Teshi Incorporated. Mark, your line is live.

Speaker 3

Hello. How are you doing today? Can you talk a little bit about the sectors of the business that are driving some of the profitability that we've seen lately? We know that you've been doing both Consulting, as well as the additional growth of the platform. Can you talk about how each of those lines of business are driving your current profitability?

Speaker 2

Irene, do you want to share that one?

Speaker 1

Sure, absolutely. Thanks for your question, Mark. So the key driver of Profitability this year was our consulting business had a very strong year. We had several new clients, New portfolio companies that we launched and as a result of that, that drove the strength in revenues this year. We are extremely excited about the secondary transfer platform functionality that we expect We announced that we expect to launch the beta test by the end of calendar year this year And expect that to drive significant momentum for the funding portal going forward.

Speaker 3

A follow-up question for the consulting work. Is that a long term contract? Or is that basically work Welcome quarter to quarter.

Speaker 1

So, well, That's an interesting question that you have asked. So the contracts themselves are short term, but we take Significant equity stakes in most of the companies that we work with. So we do work with them on an ongoing basis for the long term, so sort of a mix.

Speaker 3

Great. Thank you. No further questions.

Speaker 1

Thank you.

Operator

Thank you very much. Okay. We don't appear to have any further questions. I'll now apologies, somebody has just jumped We have a question coming from Robert Topping of Topping Capital. Robert, your line is live.

Speaker 2

Hi, Robert. Thank you.

Speaker 3

Congratulations on the quarter. Thank you. A couple of my questions were answered, so That's good. On the revenue side and the platform, I guess the other couple of questions I had were On the increase on equity securities fair value, I think from 12.8% to 22.9%, what's driving that? And how concentrated is it in In terms of the increase in value, is it one issue or does it have an equity exposure on or just trying to get more Insight to that and I have 2 other questions after that.

Speaker 1

Yes. So it was a combination of We did write up the value of 2 of our companies. So that increased the value by $1,900,000 of that was from the write up. The majority of that was driven by Chipbrain and part of that by Muskwatch. And that is because they did follow on offerings at higher valuations, so we had to write up those values.

Speaker 1

And then the additional value increase was more portfolio companies that we added.

Speaker 3

Yes. And I was speaking over year over year. Yes. And when you write up are you writing up To the latest round offering or are you taking a discount off that?

Speaker 1

How do you approach that? So the way it works, Robert, is that we have to look at the valuations with our auditor every quarter. And if there's an observable input as to what the Those securities are, which is an offering. Then we have to write up or down to whatever that value is that the company last raised money up.

Speaker 3

Got it. Okay. And then I'm not sure this might be for Martin or Cecilia, you, but someone on the team is just I know there's been some talk about, At some point, kind of expanding categories or new categories, and I noticed this baseball movie offering the other day. And so I was just wondering if there's Additional insight into how you're thinking about that. I guess, Martin, to you now that you're a few quarters in.

Speaker 3

But just curious how you guys are thinking about that.

Speaker 2

Yes, that's an interesting one, Rob, the April movie. Great. And look, I mean, we as I mentioned in my comments, we've seen some concentrations in some sectors that you would expect. Cleantech and AI, obviously, popular across the economy and certainly the early stage community. So we feel those same trends.

Speaker 2

But I don't think right now other than supporting those things that are popular and Trending right now, we're not making any deliberate moves into other spaces. And we've had other media companies In the past, on our platform, in fact, one of the companies Corinne just mentioned, Muskwatch, is in the same space. So we're pretty agnostic with respect to industry sector at this point. That answers your question.

Speaker 3

Yes. That's helpful. Thank you. And then the last question, I was saving a sensitive one for the last, Sorry, but and it's really twofold. 1, any status on the SBA loan?

Speaker 3

And then secondly, The constant selling of stock, I understand the need for working capital and all, but do you have any It's come at every lower price. Do you have any kind of thoughts on the go forward on that? Are you Kind of over the hump. I know there is a lot to do coming in and so understand it, but I'm just Trying to get a sense of how you're thinking that cost of capital going forward.

Speaker 2

Sure. I'll take a stab at that one and then Great. Can you comment on your SBA loan question? We'll laser focus on building long term value, right? So Built on the fundamental the 3 fundamental beliefs really that we talked about, we believe that in democratizing private markets, we're tackling a very real problem investors and issuers, and it's a large potential market, number 1.

Speaker 2

Number 2, we're going after that with a differentiated solution, The business model that combines, as we've discussed, cash fees with a growing portfolio of equity positions. And so 3rd, It's all about scale. Our solution is highly scalable, and we're very focused on growing that issuer and investor community True, as we've discussed, the mix of organic activity and partnerships with others that can grow the community and extending our own value proposition through the secondary. And all of those things, We want to do as quickly as possible. It's a big market.

Speaker 2

We have competitors. There's going to be room for more than 1, but we want to be the winner in this space. And so we want to be well funded and accelerate activity in those areas as fast as we can. So that's what we're focused on, building long term value and accessing capital to support that effort.

Speaker 3

Got it. Okay. Thank you. Yes, and Corinne, any update on the SBA loan?

Speaker 1

No, there is no update. We filed our paperwork, and there's just no update.

Speaker 3

Yes. I know how that goes. Okay. All right. Well, congratulations to you all.

Speaker 3

Thank you for your time.

Speaker 1

Thank you so much.

Speaker 3

Thanks, Rob.

Operator

Thank you very much. Okay. We don't appear to have any further questions. I will now hand back over to the management team for any closing comments.

Speaker 1

Thank you very much for joining everyone. We're really pleased with the revenue growth that we generated this year. We're looking forward to offering liquidity to investors on the Net Capital platform through our secondary transfer functionalities that we hope to begin offering

Speaker 2

Thank

Operator

you

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Key Takeaways

  • 55% revenue growth to $8.5 M in FY 2023 and a return to profitability with $2.3 M in operating income versus a $1 M loss last year.
  • Equity securities at fair value nearly doubled to $23 M from $12.9 M, driven by follow-on offerings from portfolio companies such as Chipbrain and Muskwatch.
  • Announced an ATS partnership with Temple Markets to launch secondary trading, with a beta planned by year-end to provide liquidity and create a new revenue stream.
  • The consulting business was a key profitability driver, combining short-term contracts with equity stakes to foster long-term relationships with portfolio companies.
  • FY 2024 strategy centers on three growth levers: boosting high-quality scale issuers via referrals and Reg A+ offerings, expanding the investor community through marketing and niche partnerships, and rolling out secondary trading functionality.
AI Generated. May Contain Errors.
Earnings Conference Call
Netcapital Q4 2023
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