Netcapital Q4 2024 Earnings Report

Netcapital EPS Results

• Actual EPS: -$11.19
• Consensus EPS: -$3.50
• Beat/Miss: Missed by -$7.69
• One Year Ago EPS: N/A

Netcapital Revenue Results

• Actual Revenue: $0.35 million
• Expected Revenue: $1.10 million
• Beat/Miss: Missed by -$750.00 thousand
• YoY Revenue Growth: N/A

Netcapital Announcement Details

• Quarter: Q4 2024
• Date: 7/29/2024
• Time: N/A
• Conference Call Date: Tuesday, July 30, 2024
• Conference Call Time: 11:00AM ET

Netcapital (NASDAQ:NCPL) operates an SEC-registered online capital–raising platform that connects emerging companies with a broad base of individual and institutional investors. Through its web-based portal, Netcapital enables issuers to conduct equity offerings under Regulation CF, Regulation A+ and Regulation D, providing a streamlined process for startups and growth-stage businesses seeking to access private capital markets. The company’s platform incorporates digital subscription, investor accreditation checks and regulatory compliance tools designed to simplify deal execution for both issuers and backers.

For entrepreneurs and small-business owners, Netcapital offers end-to-end support that includes deal structuring, compliance workflow, and marketing assistance. Issuers can customize offering terms, set fundraising targets and engage directly with prospective investors via online communications and pitch materials. By leveraging automated workflows and standardized disclosure templates, the platform aims to reduce the cost and complexity traditionally associated with private securities offerings.

From the investor perspective, Netcapital provides access to curated deal flow spanning technology startups, consumer products, real estate ventures and specialty finance transactions. Accredited and non-accredited investors alike can browse available offerings, review offering documents and participate in funding rounds with custom investment ticket sizes. In addition, Netcapital has launched a regulated secondary trading venue that allows qualified investors to buy and sell previously issued securities in a digital environment.

Founded in 2015 and headquartered in New York City, Netcapital went public in mid-2022, listing its shares on the Nasdaq under the symbol NCPL. The company is led by a team of professionals with backgrounds in financial services, securities law and technology development. Netcapital’s platform serves issuers and investors across the United States, reflecting its commitment to expanding access to private-market opportunities.

Netcapital Q4 2024 Earnings Call Transcript

Key Takeaways

• In fiscal 2024, total revenues declined by 42% year-over-year to $4.9 million, leading to an operating loss of $3.44 million, a net loss of $4.99 million and a loss per share of $0.41.
• The company recorded an unrealized loss of $2.7 million on its equity securities and took a $1.48 million impairment charge that fully wrote down certain acquired intangibles after key personnel departures.
• Funding portal performance strengthened with portal fee revenue up 109% to $874 368, driven by higher average offering sizes (rising from $128 170 to $280 978) and a success rate increase to 53%.
• NET Capital launched a beta for its secondary trading platform in partnership with Templum Markets’ ATS, aiming to provide liquidity for private securities and broaden investor access before year-end.
• The company has applied for a broker-dealer license for Net Capital Securities to enable hosting Reg A+ and Reg D offerings, potentially unlocking up to $75 million per Reg A+ raise and unlimited Reg D capital on its platform.

Presentation

[Operator]

Good morning, everyone, and welcome to the Netcapital Inc. quarterly earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Coreen Kraysler of Netcapital Inc. Coreen, over to you.

[Coreen Kraysler, CFO at Netcapital Inc.]

Thank you so much, Jenny. Good morning, everyone, and thank you for joining Netcapital's full-year fiscal 2024 financial results conference call. This is Coreen Kraysler, CFO of Netcapital Inc. I will begin with a review of our financial results. Following that, Netcapital's CEO, Martin Kay, will follow with his prepared remarks before we open up the call for questions. Before we begin, I'd like to call your attention to the customary Safe Harbor Disclosure regarding forward-looking information. 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.

[Coreen Kraysler, CFO at Netcapital Inc.]

Netcapital 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 full-year fiscal 2024. Revenues for fiscal 2024 decreased by $3,542,550 or 42% to $4,951,435, compared to $8,493,985 in fiscal 2023. This decline in revenues was mainly due to a decrease in consulting services for equity securities, which dropped by $3,665,000 or 52% to $3.44 million in fiscal 2024, as compared to $7.1 million in the previous year. The aggregate decrease of approximately $3.7 million in consulting services for equity securities in fiscal 2024 occurred because we provided consulting services to only three companies in fiscal 2024, as compared to six companies in fiscal 2023.

[Coreen Kraysler, CFO at Netcapital Inc.]

We strive to provide more than $1 million worth of consulting services to this type of client, and the average fee that we earned per client in fiscal 2024 and 2023 amounted to $1,146,667 and $1,184,167, respectively. These services are provided by our consulting subsidiary, Netcapital Advisors, and advisors did not earn any equity securities from consulting work in the fourth quarter of fiscal 2024. Our subsidiary, Netcapital Funding Portal Inc., introduced a 1% fee on the equity raised by issuers using the funding portal. In fiscal 2024, the funding portal earned equity securities from 30 clients with a total value of $97,700, as compared to $0 in the previous fiscal year. Our cost of revenues increased by $23,000 or 27% to approximately $108,000 in fiscal 2024, from approximately $85,000 in fiscal 2023.

[Coreen Kraysler, CFO at Netcapital Inc.]

The increase is attributable to the funding portal, which saw a rise in revenues from portal fees to $874,368 in fiscal 2024. We recognize an unrealized loss in the value of our equity securities of approximately $2.7 million in fiscal 2024, as compared to unrealized gains of approximately $1.9 million in the value of our equity securities in fiscal 2023. The loss in fiscal 2024 was attributable to a decrease in value of our 3.2 million shares of KingsCrowd common stock from $1 per share to $0.16 per share. We recorded an impairment loss of $1,048,430 in fiscal 2024. The loss in fiscal 2024 consists of a reduction in value from $647,264 to $0 for the intangible assets we acquired in the purchase of MST, and a reduction in value from $401,167 to $0 for the intangible assets we own that are associated with the website 1-on-1 Scans.

[Coreen Kraysler, CFO at Netcapital Inc.]

The person who operated MST retired due to health reasons during fiscal 2024, and we were unsuccessful in transitioning the valuation consulting work performed by MST to another person. We may continue providing business valuation services in the future, but at this point in time, we cannot attribute any value to the assets we purchased. Similarly, the person who was designated 1-on-1 Scans website left the company in May 2024, and without his expertise and connections with professional hockey players, we determined the value to be $0. Revenues from portal fees increased by $455,855 or 109% year over year to $874,368 from $418,513 in fiscal 2023. The increase in portal fees is attributable to the increase in the amount of capital raised on the Netcapital Funding Portal and the increase in the number of issuers that completed an offering in fiscal 2024 and 2023.

[Coreen Kraysler, CFO at Netcapital Inc.]

The average amount raised in an offering on the Netcapital Funding Portal was $280,978 and $128,170, respectively. We had an operating loss of $3,442,388 for the full fiscal 2024, as compared to operating income of $2,271,876 for fiscal 2023, and a net loss for fiscal 2024 of $4,986,317, as compared to $2,954,972 for fiscal 2023. We reported a loss per share of $0.41 in the full year ended April 30, 2024, which was down compared to earnings per share of $0.63 for the same period in the prior year. As of April 30, 2024, the company had cash and cash equivalents of $863,182. I'll now turn the call over to our CEO, Martin Kay.

[Martin Kay, CEO at Netcapital Inc.]

Thank you, Coreen, and thank you to all shareholders who are taking the time to be on this call today. We saw a challenging economic environment over the year, as reflected in the press release filing and the numbers that Coreen recapped, showing decreases in both our top and bottom line. However, there are several important metrics, positive metrics to highlight. Coreen mentioned these, but just to emphasize, the average amount raised in an offering on our platform went up from $128,000 to $280,000 year-over-year. The total number of successful offerings increased from 50 to 53. And in addition, we saw total revenue for portal fees increase by 109%, so more than double. And so these numbers tell the story that despite the tough environment, we completed more deals on our platform.

[Martin Kay, CEO at Netcapital Inc.]

Our issuers, on average, raised more capital, and as a result, we saw strong growth in our portal fee revenue compared to 2023. Along those lines, I'd like to highlight two significant deals that were closed by issuers during the year. Avadain, a graphene technology company, successfully sold out their $4.5 million offering after upsizing the offering several times due to strong demand. The second deal, EarthGrid PBC, a plasma boring technology company, closed a $3.3 million offering. These two deals alone totaled almost $8 million, demonstrating the opportunity for both companies and investors that use our funding portal. As of today, we own minority positions in 22 portfolio companies that have utilized the funding portal to facilitate their offerings, for which equity was received as a payment for services.

[Martin Kay, CEO at Netcapital Inc.]

As Coreen mentioned, we added a 1% fee on equity raised by issuers this year, and the funding portal earned securities from 30 clients as a result of that move. Looking forward and highlighting some of the strategic priorities for us as a company, we recently announced the launch of the beta version for a secondary trading platform to a closed group of users in collaboration with Templum Markets. In September, we began internal testing of this secondary trading platform, which provides access to a registered alternative trading system or an ATS. The Templum ATS is approved in 53 U.S. states and territories and will have the ability to facilitate the trading of unregistered or private equity securities. This partnership will provide investors who purchase stock through the Netcapital Funding Portal with the potential for secondary trading and allow for improved liquidity.

[Martin Kay, CEO at Netcapital Inc.]

It will provide issuers with a potential path to a broader pool of retail investors, a way to engage their communities and share in the value they're creating, and also a potential stepping stone on journey to a more traditional public market. Second, we also announced that Netcapital has applied for a broker-dealer license for its wholly owned subsidiary Netcapital Securities. We believe that by having a registered broker-dealer, we may create opportunities to expand our revenue base by hosting and generating additional fees from what are called Reg A+ and Reg D offerings on the Netcapital platform. Under Reg A+, companies can raise up to $75 million from accredited and non-accredited investors every 12 months versus $5 million that are permitted under our current Reg CF environment. Additionally, under Reg D 506(c), companies can raise unlimited amounts of capital from accredited investors using general solicitation.

[Martin Kay, CEO at Netcapital Inc.]

So Netcapital remains a competitive, scalable platform offering a cost-effective online capital-raising solution for a growing network of companies and investors. We continue to strive as innovative leaders in producing what we believe and our customers frequently tell us is the best platform. More than 100,000 users and growing, over 50 companies currently in the fundraising process, a healthy but very competitive 4.9% portal fee for capital raised at closing, and higher outcomes in money raised per offering all speak to the value we provide in the marketplace. Finally, I'd say that we are focused on the long term and not optimizing for short-term results. Our success depends on our clients' success, and that usually takes time and patience. As always, thank you for your interest and support of Netcapital. Operator, we are ready for questions.

[Operator]

Thank you very much. We are now opening the floor for questions. If you have any questions, please press star one on your phone keypad now. We ask that while you're posing your question, you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality. Please wait a moment whilst we poll for any questions. Thank you. Your first question is coming from Chris Sakai of Singular Research. Chris, your line is live.

[Christopher Sakai, Research Analyst at Singular Research]

Hi, good morning. Just a question on portal fees and the growth there. What sort of initiatives are you doing to maintain and/or increase that growth?

[Martin Kay, CEO at Netcapital Inc.]

Well, as we mentioned, it's a function of the number of issuers on the platform and the success of those issuers. So we're continuing to do the things we always do, which is innovate in the ways in which we connect with new companies that would be a good fit for our platform. And in terms of individual raises, we're learning from history at this point as to what it takes to be successful on our platform and ways in which you can engage in digital marketing activities and engage your community to become investors and owners and ambassadors for those companies. So we expect to continue focusing on those efforts, so targeting newer and potentially bigger issuers, particularly as we move into the Reg A+ business and leveraging the learnings to date as to how to make any given issuer as successful as possible on the platform.

[Christopher Sakai, Research Analyst at Singular Research]

Okay, thanks. And then you mentioned the ATS platform. Do you have any sort of timeline as far as the progression there?

[Martin Kay, CEO at Netcapital Inc.]

Yeah, well, as I mentioned, we announced the launch of the production in a production environment to a closed group of users. We expect, as I think we said in that press release, to open that up to a broader group of users before the end of this year. But we're obviously doing something that no one else has done. We're doing it in partnership with a great company, and we just want to be careful and make sure that when we do open to everyone, that we provide the experience that folks will expect.

[Christopher Sakai, Research Analyst at Singular Research]

Okay, great. Thanks for the answers.

[Operator]

Thank you very much. Just as a reminder there, if anyone has any further questions, you can press star one on your phone keypad now to join the queue. That's star one. Okay, I'm not seeing anyone else come into queue. No, we don't have anyone else in the queue at the moment. I will now hand back over to Coreen.

[Coreen Kraysler, CFO at Netcapital Inc.]

All right, thank you everyone for joining our call. We really appreciate your support, and we look forward to speaking with you all soon. Thank you.

[Martin Kay, CEO at Netcapital Inc.]

Thank you all.

[Operator]

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Participants

Executives

• Coreen Kraysler, CFO
• Martin Kay, CEO

Analysts

• Christopher Sakai, Research Analyst at Singular Research