Netcapital Q4 2024 Earnings Call Transcript

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July 30, 2024

There are 4 speakers on the call.

Operator

Good morning, everyone, and welcome to

Speaker 1

the Nett Capital Incorporated Quarterly Earnings Call. At this

Operator

time, all participants have been placed on a listen only mode and the floor

Speaker 1

will be opened for questions following the presentation. It is now my pleasure to turn the floor over to your host, Corinne Kreisler of Net Capital Incorporated. Corinne, over to you.

Speaker 2

Thank you so much, Jenny. Good morning, everyone, and thank you for joining NET Capital's full year fiscal 2024 financial results conference call. This is Corinne Kreisler, CFO of NET Capital, Inc. I will begin with a review of our financial results. Following that, NET Capital's CEO, Martin Kaye, will follow with his prepared remarks before we open up the call for questions.

Speaker 2

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. 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.

Speaker 2

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 $3,54550 or 42 percent to 4,900 and 51,435 compared to 8,493,985 decline in revenues was mainly due to a decrease in consulting services for equity securities, which dropped by 3,665 100,000 or 52 percent to 3,440,000 in fiscal 2024 as compared to 7,100,000 year. The aggregate decrease of approximately $3,700,000 in consulting services for equity securities in fiscal 2024 occurred because we provided consulting services to only 3 companies in fiscal 2024 as compared to 6 companies in fiscal 2023. We strive to provide more than $1,000,000 worth of consulting services to this type of client and the average fee that we earned per client in fiscal 20242023 amounted to 1,146,667 dollars and $1,184,167 respectively. These services are provided by our consulting subsidiary, Net Capital Advisors, and Advisors did not earn any equity securities from consulting work in the Q4 of fiscal 2024.

Speaker 2

Our subsidiary, Net Capital 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 dollars as compared to $0 in the previous fiscal year. Our cost of revenues increased by $23,000 or 27 percent to approximately $108,000 in fiscal 2024 from approximately $85,000 in fiscal 2023. The increase is attributable to the funding portal, which saw a rise in revenues from portal fees to $874,368 in fiscal 2024. We recognized an unrealized loss in the value of our equity securities of approximately $2,700,000 in fiscal 2024 as compared to unrealized gains of approximately $1,900,000 in the value of our equity securities in fiscal 2023.

Speaker 2

The loss in fiscal 2024 was attributable to a decrease in value of our 3,200,000 shares of King's Cloud common stock from $1 per share to $0.16 per share. We recorded an impairment loss of $1,484,430,000 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 MSG 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 stand. The person who operated MSG retired due to health reasons during fiscal 20 unsuccessful in transitioning the valuation consulting work performed by MSG 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.

Speaker 2

Similarly, the person who was designated to operate our 1 on 1 fans 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 4.55 $855 or 109 percent year over year to $874,368 from 4.18five thirteen in fiscal 2023. The increase in portal fees is attributable to the increase in the amount of capital raised on the net capital funding portal and the increase in the number of issuers that completed an offering in fiscal 20242023. The average amount raised in an offering on the Net Capital Funding portal was 280,978 and 128,170, respectively. We had an operating loss of 3,442, $388,000,000 for the full fiscal 2024 as compared to operating income of 2,271,876 dollars for fiscal 2023 and a net loss for fiscal 2024 of 4,986,317 dollars 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.

Speaker 2

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 Kaye.

Speaker 3

Thank you, Corinne, 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 Corrine recapped showing decreases in both our top and bottom line. However, there are several important metrics, positive metrics to highlight. Corinne mentioned these, but just to emphasize that 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%.

Speaker 3

And in addition, we saw total revenue for portal fees increased 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. 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 2 significant deals that were closed by issuers during the year.

Speaker 3

Aberdeen, a graphene technology company successfully sold out their $4,500,000 offering after upsizing the offering several times due to strong demand. And the 2nd deal Earthgrid PBC, a plasma boring technology company closed a $3,300,000 offering. These two deals alone totaled almost $8,000,000 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. And as Corinne 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.

Speaker 3

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 close group of users in collaboration with Templin 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.

Speaker 3

So this partnership will provide investors who purchase stock through the Net Capital Funding portal with the potential for secondary trading and allow for improved liquidity. 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. 2nd, we also announced that Net Capital has applied for a broker dealer license for its wholly owned subsidiary Net Capital 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 plus and Reg D offerings on the Net Capital platform. Under Reg A plus companies can raise up to $75,000,000 from accredited and non accredited investors every 12 months versus $5,000,000 that committed under our current Reg CF environment.

Speaker 3

Additionally, under Reg D506C, companies can raise unlimited amounts of capital from accredited investors using general solicitation. So Net Capital 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 percent 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.

Speaker 3

Our success depends on our clients' success and that usually takes time and patience. As always, thank you for your interest and support of NET Capital. Operator, we are ready for questions.

Speaker 1

Thank you very much. We are now opening the floor for questions. Thank you. Your first question is coming from Chris Sakai of Singular Research. Chris, your line is live.

Operator

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

Speaker 3

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 in 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 plus business and leveraging the learnings to date as to how to make any given issuer as successful as possible on the platform.

Operator

Okay, thanks. And then you mentioned the ATS platform. Do you have any

Speaker 3

sort of timeline as far as the progression there? Yes. 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 obviously we're doing something that no one else has done.

Speaker 3

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.

Speaker 1

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 Corinne.

Speaker 2

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.

Speaker 1

Thank you all. 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.

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Earnings Conference Call
Netcapital Q4 2024
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