Netcapital Inc (NCPL) 2022 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Netcapital Inc. quarterly call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Coreen Kraysler. Ma'am, the floor is yours.

Thank you very much. Hello, and welcome to Netcapital Inc.'s fiscal 2022 first-quarter earnings conference call. Thank you for joining us this afternoon. This is Coreen Kraysler, CFO of Netcapital Inc. And with me today are Cecilia Lenk, CEO of Netcapital Inc.; and Jason Frishman, CEO of Netcapital Funding Portal Inc.

In today's presentation, we'll review Netcapital Inc.'s performance for the quarter ending July 31, 2021. A copy of the slide deck we'll be using today is available on the Investors section of our website at netcapitalincdotcom/investors. A recording of this call will be made available on our website shortly after its conclusion. Please be sure to note the Safe Harbor disclaimer regarding forward-looking statements on page 2 of the presentation. After today's remarks, the operator will open up the line for questions.

Netcapital Inc. is a fintech company with a scalable technology platform that allows private companies to raise capital online and gives both accredited and non-accredited investors access to new investment opportunities and private companies. Through our consulting business, Netcapital Advisors, we also market private capital raises and incubate and take equity positions in select early-stage companies with disruptive technology.

We believe our stock is significantly undervalued relative to peers. When we compare the price-to-revenue multiples of competing companies, such as Wefunder and StartEngine, our stock sells at a substantial discount, 8 times revenues for NCPL versus 38 times for Wefunder and 33 times for StartEngine.

We also believe that there is a significant opportunity to disrupt private capital markets with financial technology. Venture capital funding for private companies was more than $149 billion last year in the US alone and more than $70 billion in the three months ended June 30, 2021.

Meanwhile, RegCF funding commitments were $117 million for the June quarter, representing less than 0.2% of the size of the US VC funding market. With the recent increase in annual RegCF funding limit funding limit from $1 million to $5 million, the opportunity for funding portals such as Netcapital to take share from these fees is large. The Netcapital Funding Portal charges a 4.9% success fee for capital raise to the platform, as well as engagement and other fees. Net Capital Advisors generate fees from consulting, and the equity stakes we take in select technology companies provide optionality through possible exits such as a sale or IPO.

We also delivered strong first-quarter results with the rapid earnings growth and a substantial increase in the value of our equity securities portfolio, driven by a rise in the value of our KingsCrowd investments.

Net income increased by more than 4,000% versus the fourth quarter of last year to $1.5 million. EPS grew 829% to $0.65 per share versus $0.07¢ per share. Equity securities at fair value increased by 204% to more than $9.6 million, and book value rose to $9.26 per share.

And now, I'll turn the call over to Jason Frishman, CEO of Netcapital Funding Portal Inc. to discuss industry trends and Netcapital's business.

Thanks, Coreen. The Netcapital Funding Portal is showing strong momentum. More than $7 million were invested to the platform this quarter, a 500% increase from the first quarter of last year. Visitors to the site have been surging with almost 370,000 unique visitors to netcapitaldotcom during the month of July, which is a 561% increase from July of last year.

Meanwhile, recent enhancements to our site have helped propel a 454% increase in the number of investor accounts during the quarter. The industry continues to grow rapidly as the pandemic is helping to drive momentum in digital fundraising.

The RegCF funding commitments totaled $109 million for the three months ended July 31, 2021, an increase of over 100% from the previous year, according to KingsCrowd, which is a Netcapital Inc.'s portfolio company. The exempt offering regulatory enhancements proposed by the SEC in 2020 went into effect this March. The amendments increased the offering limits of RegCF, Reg A, and Rule 504 offerings as follows: the RegCF limits increased to $5 million from what was $1.07 million in every 12 months; Regulation D, Rule 504 moved $10 million from what was $5 million; and Regulation A Tier 2 rose to $75 million from $50 million.

We expect these regulatory changes to have a significant positive impact on demand, as they increase the attractiveness of digital fundraising options and pave the way for larger companies to utilize the exempt framework. This could also potentially drive higher demand for Netcapital Advisors services. We are already seeing some evidence of a pickup in demand. KingsCrowd reported a dramatic spike in RegCF monthly funding commitment that coincides with the SEC rules, taking effect in March of this year.

At Netcapital, a number of previous client success stories have returned to our platform to leverage the SEC enhancements and raise additional capital. In February, Netcapital announced an alternative trading system partnership with Rialto markets.

Rialto is an innovative broker-dealer that applies blockchain technology, blockchain-based smart contract in the form of digital securities to transform the private capital markets. Rialto's team affords decades of institutional experience, including firms like Goldman Sachs, Instinet, and Citadel. Their team has built nine ATS platforms in the past. We expect this partnership to provide Netcapital issuers and investors with the potential for greater distribution and liquidity, both primary and secondary, ultimately increasing demand and share prices.

We believe that this agreement also establishes a path for future monetization and Rialto's integration with blockchain creates some interesting optionality on our future opportunities for Netcapital. We're excited about working with our new partner and in the enhanced value proposition, we expect the partnership to facilitate for stakeholders.

And now, I'll hand the call back to Coreen to summarize.

Thank you, Jason. So in summary, Netcapital, with its digital private capital markets ecosystem, is uniquely well positioned to benefit from a significant secular opportunity to disrupt traditional funding sources. Our recent partnership with Rialto Markets offers future monetization opportunities, and our portfolio of promising early-stage investments provides upside optionality.

Netcapital team of experienced institutional investors, angel investors, and entrepreneurs afford the leadership required to execute to our fullest potential and transform the private investment landscape. Additionally, Netcapital trades at a discount to peers. Democratization and proliferation of private capital markets is in its infancy. We're excited about the next stage of our journey and welcome you to participate in Netcapital's future growth.

And now I'll hand the call over to Cecilia Lenk, CEO of Netcapital Inc. Cecilia?

Thank you, Coreen. This was a very strong quarter for our company, as the purchase of the Netcapital Funding Portal placed us at the forefront of emerging technology in digital capital markets. With the significant increase in RegCF offering limits from $1 million to $5 million, the outlook for the industry remains bright. I couldn't be more proud of our team, and I want to thank everyone for all of their hard work and dedication.

Lastly, I want to remind everyone that Netcapital is a mission-driven company. We're passionate about empowering entrepreneurs to succeed and democratizing access to capital and to investment opportunities in private companies. We're successful when our clients are successful. We're truly grateful for the opportunity to partner with so many talented entrepreneurs and investors. Our entire team looks forward to continuing our good work together and look to the future with optimism.

And now we'll open the call for questions. Operator?

Thank you. Ladies and gentlemen, the floor is now open for questions. (Operator Instructions) And we do have a question coming from Richard Newberg. Richard, your line is live.

Hi.

Hi, everyone. I just wanted to find out what your schedule is -- looks like to get some sense to NCPL -- this [observation]. People I see every day doesn't do anything. They just laze and laze. What is your plan for the future?

Hi, Richard. Thanks for your question. We totally hear where you're coming from. And as you may have observed, we've been using this opportunity of the fall conference season to get out there and speak at several fintech conferences. We spoke over the last few weeks at both the H.C. Wainwright conference and yesterday at the OTC fintech conference, and you should expect us to speak at more conferences going forward as well.

We feel that our story's been very well received with the investors that we've spoken to, and we do have follow-up calls with several of the investors who requested one on one. So that's certainly our strategy, as well as posting great numbers and excellent growth.

I have a suggestion. I like to proffer to have somebody in operation calling on these people on a scheduled basis to get investment bankers involved. Once you get them as involved, they give you a great base and they could take you from there. That would be my only suggestion. If you need, I have somebody calling on these people actively pursuing it rather than you wait for them to come to you.

Right. That's a great suggestion, Richard. Thank you.

You're welcome.

Thank you. (Operator Instructions) And there were no other questions from the lines at this time.

All right. Great. So we are really excited about the momentum that the Netcapital Funding Portal is delivering. The 500% increase in dollars -- investors to the portal in the first quarter was really a fabulous number, and we're super excited. While we believe the six-fold increase in the value of our KingsCrowd investment over two years really validates our portfolio model. So thank you, everyone for joining the call. Goodbye.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time. Have a wonderful day. Thank you for your participation.