Netcapital Q2 2025 Earnings Call Transcript

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December 16, 2024

There are 5 speakers on the call.

Operator

Good day, everyone, and welcome to the Nett Capital, Inc. 2nd Quarter Fiscal 2025 Conference Call. At this time, all participants have been placed on a listen only mode. It is now my pleasure to turn the floor over to your host, Corinne Kreisler, CFO of Net Capital Inc. Ma'am, the floor is yours.

Speaker 1

Thank you, Matthew. Good morning, everyone, and thank you for joining Net Capital's 2nd quarter fiscal 2025 financial results conference call. I'm Corinne Kreisler, CFO of Net Capital Inc. I will begin by reviewing our financial results and then our Chief Executive Officer, Martin Kaye, will share his prepared remarks before we open up the Q and A portion of our call. Before we begin, I'd like to remind everyone of the Safe Harbor disclosure regarding forward looking information.

Speaker 1

Management's discussion may include forward looking statements. These statements relate to future events or 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 results could differ materially from those anticipated in these forward looking statements, even if new information becomes available in the future. With that said, I'd like to now turn to our financial results for the Q2 fiscal 2025.

Speaker 1

Revenues for Q2 fiscal 2025 for the period ended October 31, 2024 decreased by approximately $1,900,000 or approximately 92 percent to $170,528 as compared to approximately $2,040,000 in Q2 fiscal 2024. The decline in revenues was driven was attributed to the lack of consulting service revenue in Q2 2025 as compared to revenue of approximately $1,500,000 for consulting services for equity securities and $62,000 for consulting revenue in Q2 2024. I'm pleased to report that as of November 22, 2024, we received approval from FINRA for our broker dealer subsidiary, which will be a focus for the company moving forward. We reported an operating loss of $2,200,000 approximately for the Q2 fiscal 2025 as compared to an operating profit of $52,220 for the Q2 of fiscal 2024. Our net loss for the Q2 of fiscal 2025 was approximately $2,220,501 as compared to a net profit of approximately $339,616 for the same period in the prior year.

Speaker 1

We reported a loss per share of $2.34 for the Q2 ended October 31, 2024 compared to earnings per share of $2.52 for the same period in the prior year. As of October 31, 2024, the company had cash and cash equivalents

Speaker 2

of

Speaker 1

$1,346,739 I'll now turn the call over to our CEO, Martin Kaye.

Speaker 2

Thank you, Corine. I'd like to also thank everyone for being on this call today and for your interest and support of NET Capital. As Corine mentioned, during the quarter, we saw a decrease in revenue primarily due to the shift away from what is primarily non cash consulting service revenue. So with our focus on the broker dealer subsidiary, we believe that we will see greater potential and value added in that area. And as such, we've not been pursuing equity based revenue contracts.

Speaker 2

Recently, as Corinne mentioned, we were pleased to announce that our wholly owned subsidiary Net Capital Securities Inc. Had received approval from the Financial Industry Regulatory Authority or FINRA to become a FINRA member broker dealer. This marks a significant achievement for the company and it begins to open new opportunities for more revenue streams. We believe that by having Net Capital Securities Inc. As registered broker dealer, it could create new opportunities to expand the company's revenue base by hosting and generating additional freeze from Reg A and Reg D offerings on the Net Capital platform.

Speaker 2

This positions the company to support larger fundraisers and potentially expand the range of investment opportunities available to its investor base. Our broker dealer license allows us to conduct private placements of securities and referral business, support companies raising equity capital, as I mentioned under Regulation A and Regulation D, partner with other broker dealers to syndicate deals, charge fees on capital raised under Reg A and Reg D, as well as enter into fee sharing agreements with other broker dealers. Thank you for your continued interest and support of Net Capital and we look forward to keeping you informed of our progress. Netcapital and we look forward to keeping you informed of our progress. Operator, we're ready for questions.

Operator

Certainly. Everyone at this time, we'll be conducting a question and answer Thank you. Your first

Speaker 3

Who is this? Who am I speaking to?

Speaker 2

You have Martin Kaye, the CEO and Corinne Kreisler, our CFO.

Speaker 3

Okay. Hey, Martin, I'm an investor and I'm also I do a lot of startups and we look at crowdfunding, what have you. But more so, I'm curious to see what is your capital structure? I know online it says you've got limited number of shares, but you guys trade crazy volumes based on what you have. Can you kind of provide an update on what that structure is?

Speaker 2

It's all common stock. I mean, there's nothing really complex about it. We're we trade on NASDAQ and we have a pretty diversified shareholder base and not uncommon for that to trade large volumes periodically.

Speaker 3

How many shares are outstanding now?

Speaker 2

I think we I'll defer to Corine, but I think it's approximately 1,800,000 shares outstanding.

Speaker 3

Okay. And then you have a number of warrants or what have you what are the cheapest warrants that are out there and how many are out?

Speaker 2

I don't know, Kareem, if you have that in front of you.

Speaker 1

I don't have that in front of me.

Speaker 3

Okay. And what's your net assets would do right now? I know you have a number of investments in other companies. What would you say your net asset value is?

Speaker 2

Well, if you're talking about the portfolio of equity securities and we talked about the business we had been in of taking equity in return for consulting services, that portfolio of equity positions is, I believe on the balance sheet we just disclosed is a little over $25,000,000 worth of net asset value in those equity positions.

Speaker 3

And what's your cash position and payables or liabilities?

Speaker 2

Again, cash and cash equivalents at the end of the quarter, a little over $1,300,000

Speaker 1

And we're going to have to move on to the next questioner after this. Thank you.

Operator

Thank you. Your next question is coming from Chris Sakai from Singular Research. Your line is live.

Speaker 4

Yes. Hi. Good morning. Just really wanted to get a sense and idea of what differentiates Net Capital Securities from other broker dealers?

Speaker 2

There's a number of things. Obviously, as we talked about the ability to support Reg A fundraising through the existing net capital platform where we've already built out an ecosystem and a marketplace that brings investors and other issuers together, obviously creates a platform and an environment that is unique to the sort of equity crowdfunding industry versus traditional broker dealer activities. So in other words, we already we have and then we've disclosed over 115,000 investor accounts and we have robust relationships with digital marketing providers and the team internally that understands how to bring the right investors to the right deal in this way and in this model, which is relatively unique. Obviously, we have competitors, a few competitors in our space, but it's not the traditional broker dealer business.

Speaker 4

Okay. Thanks for that. And also, does this new registration for broker dealer, does that provide any revenue visibility? Can you see any revenue streams new revenue streams from that? And what about how much would that be, do you think?

Speaker 2

Well, we haven't disclosed specifically what that forecast. It's not what we do. But as we discussed in our remarks, it certainly opens up the potential for new revenue streams. For example, we Reg A, as I'm sure you know, allows issuers to raise the greater amount up to $75,000,000 in a 12 month period versus $5,000,000 under Reg CF exemption. So that much larger raise and as a broker dealer, we are now able to structure a fee arrangement that is likely a percentage of that as opposed to some sort of flat fee.

Speaker 2

So that obviously is something that we plan to pursue.

Speaker 4

Do you see any large deals like that coming up?

Speaker 2

Well, again, we haven't disclosed specifics of deals that we're pursuing, but safe to assume that, again, we are out in the marketplace talking to issuers all the time and have been we've had almost 300 companies successfully raised on our platform. Many of those have gone on to raise additional rounds of capital and are obviously candidates also for Reg A. So, yes, we're in active discussions and have been for some time with companies who'd like to raise more capital than they can under Reg CF exemption.

Operator

Your next question is coming from John Gilliam from Point Clear Strategic Capital.

Speaker 3

Last quarter, you indicated that you expected the 10th platinum ATS exchange to open up from the beta to a full launch in the quarter ended this month. And wanted to just get an update there if it's still expected to launch in 'twenty four?

Speaker 2

Well, what I can say and what we've said, I think previously is the technical and product build out is complete, as you mentioned, in partnership with the Templin ATS. But I think it's safe to say we're still working through some details of the regulatory framework governing secondary exchanges. And it's really important to us to make sure that we don't roll out or open up to everyone a capability that we're still wanting to get to be exactly right. So we're still working on that. And again, I think it's prudent for us to not do anything before we feel 100% comfortable that we have the best product experience and that we have that we're operating within the regulatory framework in a way that we need to.

Speaker 2

So again, we haven't really talked or disclosed official timeline for launching that secondary transfer functionality, but that's all I can at this point.

Speaker 3

Well, you on the prior call, you mentioned you thought it would be in the year, the calendar year ended 'twenty four. Are you feeling like that's going to push into Q3 into past end of Q3 into Q4? I think that's right. How far out do you think we're looking?

Speaker 2

Again, I don't think I can confidently predict that at this point.

Operator

Thank you. That concludes our Q and A session. I'll now hand the conference back to CFO, Corinne Kreisler, for closing remarks. Please go ahead.

Speaker 1

Thank you, everyone, for joining our call today. We really appreciate you as shareholders and potential shareholders. We are excited about the prospects ahead for our new broker dealer subsidiary and wish you all a wonderful holiday season. Thank you.

Operator

Thank you all. Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Key Takeaways

  • Revenues for Q2 FY25 decreased by 92% to $170,528 due to the shift away from non‐cash consulting service revenue.
  • The company reported an operating loss of $2.2 million and a net loss of $2.22 million, or a loss per share of $2.34, compared to prior year profits.
  • Net Capital Securities Inc.’s FINRA approval as a broker dealer marks a key milestone and strategic focus for the company’s growth.
  • The new broker dealer license enables support for Reg A and Reg D offerings on the Net Capital platform, potentially generating material fee‐based revenue streams.
  • The launch of the secondary ATS exchange remains pending as management finalizes compliance with the regulatory framework before broad rollout.
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Earnings Conference Call
Netcapital Q2 2025
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