Earnings Call Transcript - NCPL Q3 2024

Operator, Operator

Good morning, everyone, and welcome to the Netcapital Inc. Quarterly Earnings Call. It is now my pleasure to hand over to your host, Coreen Kraysler of Netcapital. Coreen, the stage is yours.

Coreen Kraysler, CFO

Thank you so much, Jenny. Good morning, everyone, and thank you for joining Netcapital's Fiscal Third Quarter 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 the call up 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 to 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. 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. Turning to our financial results for the third quarter. During the quarter, revenue decreased by approximately $1.2 million or 54%, to $1 million, as compared to $2.3 million during the 3 months ended January 31, 2023. The decrease was primarily attributed to a decrease in revenue for consulting services that we provide in exchange for equity securities during the quarter. In the 3 months ended January 31, 2024, revenues from equity-based contracts decreased by $1.1 million or 56%, to $862,000, as compared to revenues of $1.9 million in the 3 months ended January 31, 2023. A decrease of approximately $52,000 or 23% was also noted in funding portal revenues during the quarter when compared to the prior fiscal quarter. In Q3, we recorded $179,588 in funding portal revenues, consisting of portal fees of $84,548 and listing fees of $95,040, as compared to funding portal revenue of $231,833 in the 3 months ended January 31, 2023, consisting of portal fees of $99,333 and listing fees of $132,500. The decrease in funding portal revenues for the third quarter is primarily attributable to fewer issuers listing to raise capital on the funding portal platform. Funding portal revenues decreased approximately 23% to $179,588, compared to $231,833 in the third quarter of fiscal 2023. We reported diluted earnings per share of a loss of $0.19 in the 3 months ended January 31, 2024, which was down compared to diluted earnings per share of $0.33 for the same period in the prior year. As of January 31, 2024, we had cash and cash equivalents of $2,172,099. I'll now turn the call over to our CEO, Martin Kay.

Martin Kay, CEO

Thank you, Coreen. This was a challenging quarter for many businesses trying to raise capital in the current market environment. We had fewer issuers listing on our funding portal during the quarter than in the prior year period. But we remain optimistic about our future prospects. All companies need capital and Netcapital provides an easy-to-use, easy-to-access platform that connects high-quality investors with high-quality companies. We saw both overall revenue and funding portal revenue drop for the quarter but we remain steadfast that we are providing the best service for our clients and that our value proposition continues to resonate with private companies looking for capital and with investors looking for opportunities. While our overall revenue for the first 9 months of fiscal 2024 dipped by approximately 14% compared to the prior year period, funding portal revenues increased by more than 70%. We had an increase in portal fees of $375,683 or 152%, and an increase in listing fees of $48,040 or 14%. The increase in funding portal revenues during the time is primarily attributable to increased offering activity on the platform that generated increased investments by investors who purchased securities on the portal. Another bright point during Q3 was that we closed a $4 million public offering in December, which adds to our working capital and strengthens our balance sheet. We're pleased to see the continued growth in our funding portal revenues and believe it's a testament to the platform itself and the need for it. The platform continues to grow with over 100,000 people using it and with over 50 companies currently raising capital. Moving forward, we plan to continue to scale our platform and to continue catering to accredited and non-accredited retail investors, early-stage companies and others that need a platform designed to provide a real-time solution that's user-friendly and works 24 hours a day, 7 days a week. The scalability of our platform is a key driver of our business model, allowing us to grow revenues ahead of costs. As always, Netcapital will remain vigilant and dedicated to our shareholders, staff, customers and the investment community. And as always, we want to thank you for your interest and continued support of Netcapital. Operator, we are ready for questions.

Operator, Operator

Our first question is coming from Bill Peters of Investments.

Unidentified Analyst, Analyst

Do you see the crowd funding market consolidating? It seems so fractured. And if so, would management consider that and use their valuable NASDAQ listing as a potential partner?

Coreen Kraysler, CFO

Martin, do you want to handle that?

Martin Kay, CEO

Yes, thank you for the question. It’s a great question. We definitely think it’s early in our industry, which is still relatively small. If you look at third-party data, the equity crowdfunding industry is likely around $1 billion from Reg CF and Reg A combined, which is quite small compared to the total capital flowing into private companies. Therefore, we believe that the industry is in its early stages, we are still growing, and there is definitely room for multiple competitors. That being said, like any other company, we are always open to discussions and exploring ways to create value for our shareholders in collaboration with others.

Operator, Operator

I'm not seeing any further questions in the queue. However, we have another question that just came in from Bill Peters again from Investments.

Unidentified Analyst, Analyst

I forgot to mention, where does the company stand with the ATS system, the alternative trading system?

Martin Kay, CEO

Again, great question, Bill. It's certainly been a focus for management over this quarter. We are currently in a closed beta, is how we describe that, in a production environment. So we're working with our ATS partner, Templum. We have an invited set of beta users, what was previously in test environment, is now in a production environment. And we expect to be able to launch more broadly in the near future.

Unidentified Analyst, Analyst

Near future, 6 months from now, is that realistic?

Martin Kay, CEO

Yes, that's realistic. I hope we can launch sooner than that.

Operator, Operator

Well, again, we don't appear to have any further questions in the queue. I can hand back over to the management team for any closing comments.

Coreen Kraysler, CFO

Thank you, Jenny, and thank you, everyone, for joining us. And we look forward to speaking to you soon.

Martin Kay, CEO

Thanks, everyone.

Operator, Operator

Thank you very much, Coreen. 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.