Earnings Call Transcript - NCPL Q2 2023

Operator, Operator

Good morning, everyone, and welcome to the Netcapital Fiscal 2023 Second Quarter Earnings Conference Call. It is now my pleasure to introduce your host, Ms. Coreen Kraysler, CFO of Netcapital. Coreen, you have the floor.

Coreen Kraysler, CFO

Thank you, Jenny. Good morning, everybody, and thank you for joining Netcapital's financial results conference call for the second quarter of fiscal 2023 ended October 31, 2022. This is Coreen Kraysler, CFO of Netcapital Inc. I will begin with a review of our financial results. Jason Frishman, CEO of Netcapital Funding Portal, will follow with an update on our platform; and Cecilia Lenk, CEO of Netcapital Inc., will discuss the recent addition to our Board of Directors. 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. I'll begin now with a review of our financial results for the second quarter of fiscal 2023. We had a particularly strong quarter for our consulting services for equity securities. Led by this revenue expansion, total revenues increased 48% year-over-year to $1.8 million compared to $1.2 million in the year-ago quarter, and we generated positive operating income for the second quarter compared to an operating loss of $325,000 in the year-ago quarter. Net income for the second quarter was $183,000 compared to a net loss of $274,000 in the second quarter of fiscal 2022. Diluted earnings per share for the second quarter were $0.04 per share compared to a loss per share of $0.10 in the year-ago quarter. For the six months of fiscal year 2023, revenue increased 71% year-over-year to $3.1 million. Netcapital generated positive operating income compared to an operating loss of $1.4 million in the first six months of fiscal year 2022. Diluted earnings per share of $0.07 compared to a loss per share of $0.47 in the first six months of fiscal year 2022. At October 31, 2022, we had cash and cash equivalents of $1.6 million as compared to $474,000 at April 30, 2022. As of October 31, 2022, equity securities at fair value totaled $15.1 million compared to $12.9 million at April 30, 2022. I'll now turn the call over to Jason Frishman, CEO of the Netcapital Funding Portal. Jason?

Jason Frishman, CEO, Netcapital Funding Portal

Thank you, Coreen. We have hosted many exciting offerings this year, and we've featured a number of them in press releases over the past six months. Some examples include lithium start-up EnergyX, which completed two rounds of financing with us and recently received a $450 million investment commitment from private equity firm Global Emerging Markets Group, or GEM. Banton Global, a start-up that was among the first clients of Netcapital Advisors, completed a round of financing through that capital funding portal. Vantem Global is now backed by Bill Gates' Energy Fund Breakthrough Energy Ventures. Multiple offerings raised more than $1 million in the past six months, including KMX Technologies and others. And we've previously discussed MAGFAST, a developer of premium wireless magnetic chargers. MAGFAST has previously sold out two offerings on the Netcapital platform and has relaunched a new offering in the last few months. These are some of the success stories we are privileged to support through our digital private market ecosystem. One of our missions as a business is to mentor and support entrepreneurs in their journeys, and it's truly rewarding to see the start-ups on our platform that succeeded in attracting subsequent funding as they build, expand, and prosper. We continue to see our business grow stronger, even during tough economic climates. I will now turn the call over to Dr. Cecilia Lenk, Chairman of the Board and CEO of Netcapital Inc.

Cecilia Lenk, Chairman of the Board and CEO

Thank you, Coreen and Jason. It is with great pleasure that we recently welcomed Arnie Scott to our Board of Directors. Arnie has been involved in Netcapital as an investor and adviser since our inception. He is an accomplished business leader and corporate governance expert with 15 years of experience as a director and chair on various corporate and advisory boards. He is deeply rooted in startup businesses, venture capital, business strategy, executive management, and entrepreneurship, all of which are fundamental to the services we provide in private capital markets and strategic advisory. As an active participant in the angel investing community of Greater Boston for more than 10 years, Mr. Scott currently serves as a founding member of the Private Directors Association. Previously, he has served as a member of the Board of Trustees for Alderson Broaddus University and is Vice Chairman of First Commons Bank, Chairman of Asset Link International, and Director for SEVO Nutraceuticals, Neuron Corp, and Hub Management Company. He has also served on a number of advisory boards, including Best Mark, Success EMO, AI Resources, and the Capital Network. Mr. Scott served for over 30 years at MFS Investment Management, retiring as Senior Executive Vice President in 2001. Arnie, we are so delighted to have you join us. We are very pleased with our company's performance to date and a strong first half of fiscal year 2023. We thank you for your interest in investment in Netcapital and look forward to delivering continuing growth in the future. Operator, we are now ready to take questions.

Operator, Operator

Your first question is coming from Mark Nelson of Nelson Inc.

Mark Nelson, Analyst

I have two questions today. What are some of the primary factors that have led to your ability to become profitable so far in this quarter?

Coreen Kraysler, CFO

Do you want to ask your second question as well?

Mark Nelson, Analyst

The second question will be, can you provide a progress update on providing a secondary market for the securities that you've already raised on the new platform?

Coreen Kraysler, CFO

Sure. I will take the first question, and I will let Jason take the second question. So we had a good quarter in the consulting business, and we had a large contract with an equity portfolio company, and that led to the profitability in the quarter. Jason, do you want to take the second question?

Jason Frishman, CEO, Netcapital Funding Portal

Yes, I'm happy to. Mark, thanks for the questions. I can't provide a specific comment at this time, but I can tell you that it is very important to us to solve for the problem with respect to providing liquidity through an APS and alternative trading system. That is something that is important to us and something that we view as critical on our path to growth, but I can't provide a specific comment at this time.

Coreen Kraysler, CFO

So I will just follow up with that by saying that it's very high up on our radar screen.

Operator, Operator

Your next question is coming from Frank Draper, who is a private investor.

Unknown Attendee, Investor

I think Mark passed the other question I had. I guess the only other question I have is the equity that you guys hold, do you have a facility to turn that into cash if you needed to?

Coreen Kraysler, CFO

So I assume that you're talking about the investment portfolio that we hold, which are equity securities and private companies. And we do intend to monetize those over time and there are several ways that we can do that. One is by selling specific portions or subset portions of those or total portions to other private investors, and we have had interest from time to time expressed in some of those companies that we own. Another path to monetization would be taking those companies public, which is certainly also on our radar screen as well.

Operator, Operator

Thank you very much, everyone. Just a reminder, if you have any questions, we don't seem to have any further inquiries. I will now turn it back over to Coreen for any closing remarks.

Coreen Kraysler, CFO

All right. Thank you very much. Thank you, everyone, so much for joining us today. We're very pleased with the results that we have demonstrated so far, and we appreciate your interest in Netcapital, and we wish you all a very happy and healthy holiday season. Thank you.

Operator, Operator

Ladies and gentlemen, 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.