DeFi Technologies Inc (DEFT) 2022 Q1 法說會逐字稿

Greetings. Welcome to the DeFi Technologies host earnings call. (Operator Instructions) And please note that this conference is being recorded.

I would now like to turn the conference over to Ryan Ptolemy, CFO. Thank you, sir. You may begin.

Thank you. Thanks, everyone, for joining in the conference call today. Before we start, I'll just read the forward-looking statement of the company. Statements or comments made on this conference call may be forward looking. Forward-looking statements may include but are not necessarily limited to financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties.

The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to the variety of factors which are disclosed in detail in our SEDAR files. Over to you, Russ.

Great. And thank you, everyone, for joining. As always, we're going to try to be as transparent and open and communicative as possible.

Some highlights from our Q1, which let's be honest, everyone can appreciate just how difficult and horrible the markets have been for the last four or five months. But as at March 20 -- March 31, 2022, we achieved about CAD344 million and AUM. And that translated into a net income gain, of course, of about $968,000 on total revenues of about $3.1 million.

We continue to push for, and we'll continue to launch as many new products as we can. And I think probably a diamond in the rough that a lot of people maybe aren't necessarily paying attention to is the fact that we did launch our first co-branded product with SEBA, our metaverse and gaming asset backed ETP, which should be launching shortly. And quite bluntly, everyone should be expecting more of those.

The company still maintains a strong liquidity position. Cash is around $8.3 million. We obviously have revenues coming in. We have tokens from staking. We have our venture portfolio. But all in all, again, I have to say that the team at Valour has done an exceptional job.

Everyone has really been invading me with emails related to the net loss of $12.3 million. But people need to take a step back and understand that the regulatory and audit framework for crypto and in general. But crypto in particular, or Web3.0 is nothing short of onerous and extremely cumbersome much quite for frankly, because the actual auditors are under intense scrutiny by the regulators. But if you actually back out share-based compensation and that is not us issuing more options or more RSUs.

People need to understand not only when you issue them, but when they vest, you actually have to take an expense. And so, the $8.7 million is almost exclusively vesting of options that are outstanding. But literally, if you take that off, if you take the mark-to-market on our venture portfolio off, our adjusted net loss was actually closer to $1.5 million. And so, in a quarter where, I don't know the old adage of put your head between your legs and pray, this has been a pretty decent outcome.

Obviously, as a major shareholder myself, I always want to see better. I always want to see more. We are continuing to review all aspects of the business to cut costs anywhere where they are excessive. And that's something you never want to go overboard because we are a growing business.

This is a business that I think regardless of what you've seen in the markets has tremendous potential. It's in my opinion, the future of how crypto and Web3.0 reaches the rest of the investing public, not just superstars, rockstars, and people who understand the crypto market and the unregulated crypto exchanges.

It should also be noted that LUNA -- I don't even know what you call it, but effectively, the breakdown of the algorithm in the wholesale [carnage in LUNA] really had was immaterial to us. At no point was it really over anywhere more than 1% of our AUM. It's terrible, what happens. But I've spent a lot of time walking people through the fact that Amazon at one point retraced 95%.

It's not just bad assets that retrace. Sometimes great companies also retrace. And quite frankly, when you have really truly just a complete unwinding of an entire trade, which is the risk trade, often times you see companies like ourselves and many of the other crypto publicly traded assets trading right now, which is kind of astounding at discounts to where the private companies are trading.

What can we look forward to moving throughout the rest of this year? I've laid a pretty heavy hand with the team at Valour. I'd like to see an incremental 20 products launched this year. And many people say to me, well, how are you going to get to $1 billion? Well, if we can launch 20 products this year, even in difficult markets, all we need to do is get to 33.3 million -- or sorry, it would be 30 products total because we have basically eight right now, so 28. But basically, if you had like 31 -- or sorry, $34 million bucks per product, you get to that $1 billion number.

And as everybody knows, and we've got it in our deck, and we've acknowledged that this is a forward-looking statement, but this model really starts to work when the AUM grows into that $5 million, $6 million, $7 million, $800 million level. And the margins are incredibly robust. So that's our challenge, basically getting as many new products as possible.

I think investors are going to be very, very surprised at how we build out our relationship with the SEBA Bank. And I really need to sort of harp on the fact that when we invested in SEBA Bank, they had about $1.4 billion in AUM, we put $30 million in as everyone is likely aware.

And if they're not aware, you should look at the recent news for SEBA Bank where LGT Bank, the largest Liechtenstein Bank, $284 billion in AUM, just committed $2 billion to SEBA Bank specifically for crypto, which, as you can imagine, forgetting even any of the synergies that we have at SEBA Bank. But if you just do some simple math, you paid USD30 million for 6% of SEBA Bank at $1.4 billion in AUM, they now doubled that and a little bit more, you take a little bit of a discount to what the market's done. But if SEBA Banks [put] USD40 million or USD50 million on our balance sheet, we're legitimately now trading at two times just our SEBA Bank investment.

Forgetting about any of our other AUM, forgetting about any of our privates, and forgetting about any of the potential for growth, it's very rare that you see a sector down eight weeks in a row. But bitcoin had the dubious distinction of eight down weeks in a row at the end of last week. And so, my hope is: A, that people start recognizing just how bad the fiscal situation is in the US; B, they recognize that this entire new ecosystem is another tech-like opportunity; and C, we see less than 0.1% or 0.001% of everyone's portfolio. We see far more than that being allocated towards this new ecosystem that's growing two times faster than the internet.

With that, I'm going to start answering on some of the questions that have been written in.

Does the company have sufficient cash to survive a likely recession? Yes, we're well capitalized.

And are there any examples that could be shared of the marketing and or advertising that is being done to get the name of DeFi Technologies on the mainstream?

Look, yes, just Google it. We're all over Bloomberg now. We're all over other publications. We're working on getting involved with CNBC and various other publications. But yes, and very, very importantly, we have hired a head of sales and a new head of product development.

It's just unfortunate that in Switzerland, or fortunate for Swiss people that you typically get a three-month gardening leave before you start your new job. So that will be coming in. But yes, Dave, we hired watchman and it's not billboards, but our social media, trade magazines, and whatnot, you should see -- we'll just Google and you'll start seeing them all over the place.

[Neil]. I won't use last names or use first name, Neil. So just checking in that is registered in the meeting. Neil, yes, you're in. You are good man. That's a good one. Can you lever up debt markets to buy back more shares, guys?

We've been buying back shares now for six, seven, eight months. We've just haven't talked about it. Were -- we've probably bought back 12 million shares. The issue isn't us and the buying. It's in my opinion, shorting. And just a complete abandonment of this sector despite what I would call rock bottom multiples for buying.

Like I said, if you just eliminate everything else that we've got, and you only look at SEDA Bank, we're basically trading at a two times the market cap of our investment in SEDA Bank. Then we have our venture portfolio, then we have our ETPs, and so on and so forth.

Can you take profits in the venture portfolio to buy back shares?

Of course, we can. We're not thinking like that. But yes, we can. And -- but my view, I mean this is James. Guys, you don't want to catch a falling knife. You still want to be sensible. So you don't want to just sit in there and try to stop the bleeding when in my opinion, people who shouldn't be selling because the valuation is just ridiculous at this moment, continue to sell. You what -- I'd rather buy lower and lower and lower than pay into walls of stock coming at you.

And our story -- look, our story is 10 times better now at basically USD0.60 than it was when we were at USD0.60 a year ago. And yet here we are again with investments in SEBA Bank, eight products of nine have already been listed co-branding with SEBA Bank, our venture portfolio still exist. The only thing that's changed is it's been basically crypto winter for the last six months.

How do you build awareness and cultivate relationships with institutional or large shareholders?

Look, people write research on us like BTIG. We believe there's another institutional firm. [It's a must come up] with coverage on us maybe in our second one. And you continue to get in front of institutional investors. The reason why I may sound a little disjointed or speech a little off is because I literally spent the entire day today talking to institutional investors at a conference. And we will continue to do that.

Someone's asking you about potash. That's not really a relevant question. The potash investment is a legacy investment. And the minute that it's actually public, we'll be selling it. It just happened to come with the company went when there was a -- when Valour was rolled into this entire structure.

Wonder if we should hear from your hand directly on the direction of this company given that the share price has been such a disaster.

Not really -- I mean, Johan personally committed over $1 million at around a buck to buying shares. And I don't really know how to answer questions like that. It's almost like people think that we should be completely trading differently than the trillions of dollars that have been lost on the NASDAQ. We've been caught in a market deluge of selling in this space in particular. And Johan is a huge supporter, as is all the as is me and we'll continue to when we can buy. We're not limitless with cash. But the company continues to buy back, and good companies survive. And we are a good company.

Shareholder currently continue to be an optic issue portfolio for [close comp], even though it's not. So, company is perceived as a management enrichment scheme by those I talked to.

Are we going to incur huge comp expenses headline numbers going forward? Every single quarter and every time that there's options and RSUs that vest, yes, you're going to see that probably very similar to that $8.6 million quarter over quarter. But I really don't understand how people can actually perceive that as a management enrichment scheme. You know, if you want to get a guy like Johan, or Oli, or the guy that we just hired to run our sales department, we can't pay them a lot of cash. We have to pay them in options or RSUs. You're effectively asking me whether we're better off not hiring anyone and not issuing any RSUs or options, which doesn't make a lot of sense.

Every single company has this issue. It's just that we're a startup and we issued them all basically at the same time. And so they're hitting us at the same time. But in a year, or a year-and-a-half when they've all finished vesting, no, you won't see this anymore. But to actually call it a management enrichment scheme, I believe is offensive. And it just shows -- and I'm sorry, I normally am a really laid back and relax individual, but wow, that just shows how little people know about accounting.

Quantity or quality, I'd say we're both. Right now, the Valour metaverse index contains three tokens. That's a metaverse and gaming will more tokens like Wilder will be added to that specific index. Chris, as the increase in market cap and as the regulators become more comfortable with metaverse companies, absolutely, that basket will get bigger. It's just, your kind of limited to that how the regulators look at them and what their market caps are. And so, we work under -- we put as many in as we could, but we still have to deal with the regulators, unfortunately. And that's just the way it is.

Are Teeka and Pomp still active as advisors? Absolutely, yes.

When can we expect Matic become live? I will get back, Adam, to you on that. It should have already been. But again, I think when LUNA -- the market chaos and then LUNA, it's really complicated our lives to a certain extent, just in terms of getting the attention of some of these regulators. Because they're so swamped with incoming calls unrelated to us but related to just the market in general. And so, you're just dealing with exchanges that are getting overwhelmed with selling globally, forgetting even the Web3.0, just tech in general.

Node revenues remind us what the assets are being staked and flowing to the node items. According to the MD&A, it's entirely shift. But my understanding is Solana node validators are being run as well.

Yes, we're getting revenues or staking or fees from both Solana and Shift. And I suspect in our next quarter you'll see more. Ryan, am I missing anything there?

No. I mean, there is a little bit of the Solana node in there, but it's really the Shift on us as the Solana node just needs starting to ramp up. So like you said, you'll see more of it going forward and we'll have more disclosure on that.

Yes. And Bill, you can reach out to me by email as well independent. But you'll see other nodes start to evolve here near term as well.

Nice to -- keep fighting the fight, man. Thanks, James.

Can you comment on the continued investment in HIVE Blockchain? Good, bad, ugly?

No, it's -- I don't even want to say it's irrelevant or relevant for us. The reality is that basically HIVE and us are just a close friendly entities. And we still view HIVE as an incredible company and deeply, deeply discounted in the market. And you could actually probably say the same about Pyth, Marathon.

And you know, I've already given you my thoughts on this, when you look at just the value of our SEBA stake alone then all of our UTPs, I can tell you that we've had some pretty aggressive e-mails and texts related to shorting and sort of how easy it is in this type of a market for basically nefarious hedge funds to just be all over companies like this. But look, the reality is this company should not be trading down here.

And while I wish it was trading at $2 or $2.50 where it probably should be, I've been doing this for too long to know that, you know, and everybody needs to remember this, if the capital markets were efficient, none of us would make money. It's when you get these incredible divergences from value that investing makes so much sense.

Please let us know when the SEBA product is building AUM. Where will it trade?

Euronext. And it should be very, very shortly. I think within the next week, Edmund, maybe two. And that's the metaverse and gaming one.

Can you give an example of how the capital from SEBA Bank actually flows into the business of DeFi Technologie? Is it strictly staking on their behalf?

Guys, rate right now, we're still working through everything. So the reality is that we've got effectively [SEBA V], which is our joint business model where we're going to be launching asset-backed products. And the reason that's very, very relevant is institutions prefer asset-backed products, retail prefer the ETPs, and so as we launch more and more of these metaverse and gaming-like opportunities with SEBA, the AUM will grow. The staking will start to fly,SEBA's just changing their CEO right now. I'm flying out to meet them not next week, but the week after. And you should start seeing hopefully, in my opinion, all of this synergy really starts to manifest itself in the near, near, near future.

What steps is DeFi taking to market products to institutions and institutional investors?

Like I said, we just hired a head of sales. We've never done it before. I can't really tell you a lot about them other than when you see who it is, you will all be very, very happy. And his brand carries huge leverage across everything that you just asked.

Don't apologize at all for stupid questions. Keep them coming, man. All good.

Russ, can you please explain what synthetic collateral [opposed to some] and values collateral is one of that Euronext ETPs who's being listed as synthetic?

I don't know what that means. You'll have to just -- I got to apologize to you, maybe were crossing wires. But let me let me talk to the Valour gang and see if they can -- I'm sure you're trying to get somewhere. I just don't understand what it is. So maybe Ryan or Curtis, write down that one question.

And Jeff, we've got your email and everything or just e-mail us and we're trying to get you an answer for it. Apologies. It might be that you're talking about asset backed ETPs are aback rate by the token. The asset-backed products are slightly different structures. That might be what you're referring to. But sorry, I just don't understand the question.

How do you feel about releasing new products during a deep crypto bear market?

Guys, we love it. And the reason we love it is we are the only company globally who increased their net sales by 27%. Everyone else lost market share slash sales in this last [route]. We increased our investor base by 27%. Why our AUM has gone down is because the underlying tokens have gone down so much. But the beautiful thing about what we're doing is the big -- by virtue of increasing net sales as this sector recovers, we will recover back to our previous size. We'll go much higher than our previous size.

So, there's torque in us releasing these products in these weaker markets, continuing to build our net sales, so that when -- it's not if, when the world does recover, the torque just grows exponentially as we continue to add investors.

Any updates on the listing in the NASDAQ?

You know what, guys, this time I say to everyone, start writing in. We feel like we are the ideal company for a NASDAQ listing where everything we do is cleared by prospectus. Every single person who buys our product is [KYCed]. We don't market to you any of our products to US investors. We market obviously the company to US investors. But none of our products. We're on our fourth letter from the SEC. They're getting smaller and smaller and smaller and smaller. But that's the best answer I can give you. My hope is soon. Obviously, our share price isn't anywhere close to where it needs to be. But my hope is soon.

If I'm not mistaking, does DeFi does not make the market share necessary for a NASDAQ listing. If you can address it, if I'm not.

Yes. So guys, we need a $3 share price for five days to get on the NASDAQ. So we've got a lot of heavy lifting ahead of us to get there. Another NASDAQ question, [about] HIVE's planning. So is -- I believe HIVE is planning a reverse, but have already did a reverse split, by the way, Adam. Their stock price went to about [$5.30] and is now trading at [$5.80]. They did the reverse split five-for-one when they were about $1. And so that now blow where they did the reverse split.

Have we ever considered one?

We actually have permission to do one. And they did it so they could stay on the NASDAQ. Once you drop below $1, you're no longer -- you have to delist from the NASDAQ. And so they did it to make sure that they can stay on the NASDAQ. We could also do a rollback if we so wanted to. It's kind of one of the last things that I want to do though. If we book if -- I believe we have the A-team and congrats to the team for the work in the middle of this downturn: [Jeff], Diana, Johan, and company. This kind of freefall, it's hard to injure for everyone. But the employees are good, and the new head of sales is also fantastic. Thanks a lot, James.

I totally agree. This is a company with a great team, a great future valuation, I think is [poundingly] off. But it's my job, honestly, and I take it personally when it's down here to get the stock higher. And that's my single and largest goal moving forward for the rest of this year.

And I think that's it for the questions. And honestly, it dovetails ideally with sort of when we wanted to terminate this call. If anyone didn't get a chance to ask a question, I always say this to people, send an e-mail into ir@defi.tech. My email, my phone number is out there. Oh, please resume the video sessions with Tika.

We are -- we're doing -- oh, sorry, I should've reminded everybody, we are changing our name formally on June 1. We'll be doing a Tika on that date. It's just we've been waiting for our name change just to make sure everybody has it. And we're changing our name to valour.com just to dovetail better with our number one business, Valour. And also DeFi has become a really bad, bad word for the regulators. So it just made sense to do it. So take that to heart, David. Thanks for saying that. And thanks a lot, Evan. And everybody, have a great night.

Great rest of the week and fire in any questions if I didn't happen to get to them.

The new ticker -- oh, sorry, [Ken Perrone] said, is there going to be a new ticker? No, the ticker will be the same, DEFTF in the US and DEFI in Canada. Valour.com is going to be the new website.

All right. That's it guys. Thank you very much. Everybody, have a great night.

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