Antalpha Platform - Earnings Call - Q1 2025

Transcript

Operator (participant)

Hello and thank you for standing by for Antalpha First Quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. Following management's prepared remarks, there will be a question-and-answer session. To ask a question during the session, you need to press star one and one on your telephone. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to Lin Chen, representing Antalpha Investor Relations. Thank you. Please go ahead.

Lin Chen (Head of Investor Relations)

Hi everyone. Welcome to Antalpha's First Quarter 2025 earnings conference call. Joining us today are our CFO, Paul Liang, and our Head of Strategy, Herman Yu. After our prepared remarks, we're holding a Q&A session. Please note our discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For discussions of these risks and uncertainties, please refer to our filings with the SEC. Antalpha does not undertake any obligation to update any forward-looking statements except as required by law. This call includes discussions of certain unaudited non-GAAP financial measures. Please see our press release for reconciliation to the most comparable GAAP measures.

This conference call will be recorded, and the webcast of this call and our press release will be available on our IR website at ir.antalpha.com. I'll now turn the call over to Herman to begin today's call. Herman.

Herman Yu (Head of Strategy)

Good morning, everyone, and thank you for joining our call. Thank you for joining us on our first earnings call. On May 16th, we reached an important milestone: listing on the NASDAQ to become one of the first crypto-native companies to list in the U.S. through a traditional IPO since 2021. At the heart of Antalpha is our simple business model: supply chain financing for Bitcoin mining. We work with only institutional investors, prioritize license application, and leverage our Antalpha Prime technology platform to allow customers and ourselves to perform risk management on our collateral, which is central to crypto lending. Our focus on a simple business model and on risk management has allowed us to list through a traditional IPO faster than many other crypto-related companies that have filed before us. I want to thank our investors, including Tether, who believed in us and supported us through the IPO process.

Thank you. Turning to first quarter, the crypto market entered 2025 with heightened volatility impacted by tariff negotiations and other macroeconomic uncertainties. Notably, compared to past stock market swings, Bitcoin withstood market volatility better than previously. Bitcoin's improved performance and market uncertainty underscore the increased adoption and market capitalization that it has become today. We believe as Bitcoin users further grow beyond the estimated 1.4 billion users today and BTC derivatives such as BTC ETFs expanding beyond the current market cap of approximately $130 billion, Bitcoin will continue to lead in the digital asset class, especially as a storage of value. Institutions and corporates will want to acquire more Bitcoin and its mining machines to produce more Bitcoin. Amid the market volatility in the first quarter, Antalpha demonstrated strong operational performance.

Our first quarter 2025 revenue grew 41% year over year and Adjusted EBITDA margin reached 18%, up from 5% a year ago. In other words, for every $100 in incremental revenue from a year ago, 50% fell to the Adjusted EBITDA line in Q1, demonstrating the scalability of the Antalpha Prime platform. Our loan outstanding, or total value loan, or TVL, at the end of Q1 reached $1.77 billion, growing 64% year over year. Supply chain loans grew 22% year over year, while Bitcoin loans surged 98% year over year. Antalpha's financing product lines are curated with the aim to better weather the volatility of Bitcoin prices. Historically, mining machine loans tend to perform better when Bitcoin prices are low, while Bitcoin loans tend to perform better in periods of rising Bitcoin prices.

Beyond our strong core business performance, we are exploring new opportunities in digital asset lending based on feedback from our customers. We plan to offer Ethereum collateralized loans on the Antalpha platform, as well as experiment with AI GPU financing. We believe our clients can make the best use of their collateral by consolidating all of their digital asset financing needs on the Antalpha platform. We also are excited to announce our digital gold treasury strategy. As of today, Antalpha has purchased $20 million in XAUT, also known as Tether Gold. We plan to continually buy gold and add gold to our collateral pool, which creates a strategic hedge against macroeconomic volatility and further strengthens the resilience of our collateral pool. We are unique in the deployment of a gold treasury strategy in that it is synergistic to our core business.

Acquiring digital gold will not only improve Antalpha's risk management. It will also pave the way for expansion into new businesses. Next, I will hand over to our Chief Financial Officer to talk about our Q1 financials.

Paul Liang (CFO)

Thanks, Herman. And hello, everyone. I'm excited to share with you our first quarter 2025 financial highlights on this first earnings call with you. For Q1 2025, our total revenue reached $13.6 billion, an increase of 41% year over year. Supply chain loan revenue grew 15% year over year. Hashrate loan revenue continued with strong growth, and we estimate that our hashrate loans financed approximately 62 exahash at the end of first quarter 2025. Supply chain loans outstanding at the end of the first quarter increased 22% year over year. In August 2024, we discontinued purchase order loans, which resulted in the retirement of $86.6 million in mining machine loans. Excluding the PO loans, supply chain loan outstanding at the end of first quarter would have grown 50% year over year.

For Q1, supply chain loan net fee, which is tech financing fee rate minus funding rate, averaged 2.8%, compared to 3.1% a year ago. The decrease was primarily due to the change in product mix. Hashrate loan, which yields a lower tech financing fee rate, increased to approximately two-thirds of total supply chain loan. Our BTC loan tech fee rate remained stable at approximately 1.2%. Non-GAAP net income, which excludes stock compensation of $0.4 million, was $1.8 million in Q1, compared to $0.3 million a year ago, as we leveraged the Antalpha Prime platform to grow globally. We are seeing revenue growing much faster than non-funding operating expenses. Q1 Adjusted EBITDA was $2.5 million, up 392% year over year. Lastly, let me talk about Antalpha Q2 outlook.

Assuming Bitcoin price remains at $100,000 level, we expect Q2 revenue to reach between $60 million-$70 million, presenting a year-over-year growth rate of 40%-50%. So with that, Operator, we are ready to take questions. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one and one on your telephone and wait for your name to be announced. If you wish to cancel requests, please press star one and one again. Your first question comes from the line of Engel from Compass Point. Please ask your question.

Edward Engel (Senior Research Analyst)

Hi. Thanks for taking my question. Congrats on the IPO last month. I just wanted to ask two quick things. The first one is, are you able to offer what the LTV ratio was at the end of the first quarter? And then also, what the LTV ratio across the current portfolio might be right now? I guess the reason I ask is, I guess how much extra room is there for some of your customers to kind of use that collateral to continue to issue new loans before the kind of LTV, how the LTV ratio is reached?

Paul Liang (CFO)

Yeah. Okay. Thanks for the question. The LTV right now is roughly 52%, which goes up a little bit compared with the fourth quarter of last year, which is mainly due to at the end of first quarter 2025, the BTC price dropped to roughly $80,000 by that time. So this is basically the differences compared with the fourth quarter of last year. But in terms of the BTC we have on hand is relatively quite stable. So it's basically the adjustment of the BTC price as compared with the fourth quarter of last year. And on your questions about how much room we have, as you know, our hashrate loan is down to 60% right at origination. And our BTC loan is 50%-70% at origination, which means that we still have quite a big room for us to grow our lendings.

Edward Engel (Senior Research Analyst)

Great. Thanks. And just to clarify, I guess given that Bitcoin is up quite substantially since the end of the first quarter, would that mean that your current LTV that you have today is probably meaningfully lower than the 52% at the end of the first quarter?

Herman Yu (Head of Strategy)

First of all, at the end of first quarter is 50.7%, to be exact. Your question is because our loan origination is at 60% for hashrate loan, if there's room to take out based on the current collateral?

Edward Engel (Senior Research Analyst)

Yeah. I guess the question is, I guess you said it's about 51% at the end of third quarter, but today, I would assume it's going to be much lower now that we're almost done with the second quarter.

Herman Yu (Head of Strategy)

So the way our loan works is that the collateral that the customer provides is based on the loan that we give out. So if they want to take out new loans, they would have to put in new collateral. For example, the machine loans that they have, just because it went below 50%, we don't allow them to take more loans out of the machines that they gave us.

Edward Engel (Senior Research Analyst)

Okay. That's helpful, and then I just want to touch on the fact that you talked about adding Ethereum and AI GPUs to your collateral base. What does the financing for that look like? Are the LTVs that you typically require similar? I'm curious, I guess, when you're expecting that to be rolled out?

Herman Yu (Head of Strategy)

Okay. Yeah. So Ethereum collateralized loans and AI GPUs are something that we're working on. We have not signed a loan yet, so we're not definitive. But currently, as we're talking to customers, we're looking at LTV around 50%.

Edward Engel (Senior Research Analyst)

Great. Thanks so much. And yeah, thanks again.

Herman Yu (Head of Strategy)

Okay. Great. Thank you very much.

Operator (participant)

Thank you for the question. Your next questions can come from the line of Darren Aftahi from Roth MKM. Please go ahead.

Darren Aftahi (Managing Director and Senior Research Analyst)

Good evening. Thanks for taking my questions and congrats again on the IPO. I guess just following up on the GPU financing, I mean, that's a market where there's a fair amount of competition, maybe not as unique as your offering in Bitcoin. So I'm just kind of curious, how are you thinking about that opportunity? Is it specific to certain geographies? Any kind of insight you guys can offer? And then will you guys be competing directly against some of the server houses, the Dells, and the HPs of the world? Just trying to get an understanding of strategic positioning there. Thanks.

Herman Yu (Head of Strategy)

Okay. My understanding, most of the GPU financing you're talking about are like H100, H200 for these LLMs. Or is your understanding you're talking about inference GPUs using inference chips like the 4090s and 5090s?

Darren Aftahi (Managing Director and Senior Research Analyst)

I think it's all the above, but I'm just more curious about what hypothetically this roadmap might look like for Antalpha.

Herman Yu (Head of Strategy)

Yeah. So we're differentiating in several ways. Our customer base are people who do crypto mining. And what we have found is that you can use 4090s and 5090s to do crypto mining for POWs. Okay. So because these machines can mine POW tokens on a positive ROI, and when they build up scale on this thing, as agentic AI takes off, there's going to be more demand for inference compute. And as a result, they could shift their compute capacity to this new demand. So I think we're differentiated because of the customer set. And I think most of the compute that you hear, the financing you hear, they're probably for LLMs rather than for inference compute.

Darren Aftahi (Managing Director and Senior Research Analyst)

Got it. Would that require you to find new data center compute, just given that HPC is a little bit of a different animal than Bitcoin?

Herman Yu (Head of Strategy)

So that's a very good question. That is something that we're working on right now. Our first location, we're experimenting with Tennessee. The idea is that we want to be able to put both of these machines in one data center. If you look at Bitmain's new machine, S23, which recently launched, that has the ability to be housed with these inference GPUs, so that's something that we're exploring right now. I think ideally, that's where we want to go, and that's why we're working with partners to make these kind of tests.

Darren Aftahi (Managing Director and Senior Research Analyst)

Great. That's helpful. And then just two more, if I may. Just on the core business, on the supply chain loan, as you move forward into 2025, strategically, what geographies are kind of emerging as growth drivers outside of Asia?

Herman Yu (Head of Strategy)

So we expanded into the Middle East last year, and this year, we are expanding into the U.S. So I think as the U.S., with the regulatory tailwind that we've seen, I think that that is going to be a good growth region for us going forward.

Darren Aftahi (Managing Director and Senior Research Analyst)

Got it. That's helpful. And then just one last one. On your financing rates, how are you thinking about that figure going forward and any kind of new channels to kind of lower your funding costs in 2025 and beyond? Thanks.

Herman Yu (Head of Strategy)

I think that if you look at our funding costs right now, it's relatively low. The founder and I, we were in New York at the end of last year, and we went around. Our funding cost is quite competitive in the market. I think where the opportunity is, is the funding fees that we charge. Our funding fee, on average, is between 8%-10%. And as we go through New York, we're noticing other places are charged much higher. So I think this is something that we will further explore as we look at the U.S. market. With regards to our funding rate, I think that is a function of treasury rate, right? So as treasury rate comes down, there's probably room for us to do better here. We have not spent the time to look at our funding source other than Northstar.

As you know, for the IPO, Antalpha was spin-off from a parent company, and we only completed that since November. So far, we haven't seen funding being a deterrent for us as we talk to other people. In fact, some of the lenders that we've given loans to, they actually rent out. So they think that our prices are more like a wholesale, and they could rent out at a higher price. We have several of those customers like that.

Darren Aftahi (Managing Director and Senior Research Analyst)

That's helpful. Appreciate it. Thanks, Herman.

Herman Yu (Head of Strategy)

Okay. Great.

Operator (participant)

Thank you for the questions. One moment for the next question. Our next question comes from the line of Kevin Dede from H.C. Wainwright. Please ask your question.

Kevin Dede (Managing Director and Senior Technology Analyst)

Thanks for having me on the call, Herman. Appreciate it, Paul. I'm kind of curious about some of the underlying assumptions that you have for your second quarter view and maybe what you can offer about what you see in the balance of the year regarding overall hashrate demand, Bitcoin mining machine demand. And to piggyback off of Darren's question, where you see that demand originating geographically?

Herman Yu (Head of Strategy)

Okay. I think hashrate, we've been pretty consistent. You're seeing quarterly growth, and I think it's just a function of the machines that we have in existence. Although we have standalone hashrate loans, that is a smaller part of our overall hashrate, so I think you're going to see hashrate loans continue to go forward as we have. In our perspectives, at the end of last year, we said that machine loans have an average of 15 months left. At the end of March, we have 18 months left, so that means you're going to see not only machine revenues, you're also going to see revenue from hashrate loans.

On machine loans, the way it has worked historically is when you have new machines that come onto the market, and then initially, people are going to pay full price, and they're going to the ones that really want the machines, they're going to buy directly from Bitmain. And as these machines give it a few quarters later, typically, then there's promotions, including financing. So I actually see there's a good chance for our machine loans to have better growth on a quarterly basis in the outlying quarter. Okay. So S23 just came along. So S21 Hydro, machines like that, that could be interesting in a few quarters. And then BTC loan is a function of the BTC prices. So we'll see. I think if BTC continues to grow, as we have seen in the last three to six months, that has opportunities there.

Kevin Dede (Managing Director and Senior Technology Analyst)

Can you talk a little bit about the effect on your portfolio, on the price of machines themselves, on a $ per terahash basis? If Bitcoin continues to ramp up through the balance of the year, then you would think that the demand for machines would increase and the price per terahash would increase, and I'm just kind of wondering how you see that reflected in your business.

Herman Yu (Head of Strategy)

I don't see that as a strong correlation. If Bitcoin prices continue to go up, there's probably greater demand for the machine. As a result, there's less need for us to do financing, right? So machine loans are usually better when the market is more bearish. When the market is very bullish, everyone's rushing to buy machines. Some probably want to add a premium because when they place a purchase order, it's going to be at least a six to eight-month wait. You see that? Whereas us, when it's a very bullish market, when people are trying to get the machine as fast as possible, then for us, probably financing is not as strong as that.

Kevin Dede (Managing Director and Senior Technology Analyst)

Could you offer just a little bit more of the strategic thinking on using XAUT as?

Herman Yu (Head of Strategy)

Yes.

Kevin Dede (Managing Director and Senior Technology Analyst)

Yeah. I'm just kind of curious on how you looked at that.

Herman Yu (Head of Strategy)

Yeah. Yeah. So think of it from a risk management perspective. I think number one is you see MicroStrategy being very successful using treasury strategy, right? For us, it's twofold. Number one is I think building up a gold makes sense, given the fact that it also fights inflation very well. But for us, it's particularly important because our business is a lending business, right? So right now, if you think about all the hashrate loans, we use BTC that the customer gives us, and we hypothecate to Northstar, right? And BTC is quite volatile. So we have seen BTC doing very well since November, going up. But as being a volatile asset, there's also a chance that it could go down, right? So if everything you have in your collateral is BTC and we're LTV-based, that puts it at risk.

Whereas if you have a mix of that being gold, which is more stable over time, that the mix of gold plus BTC as collateral will allow us to manage our collateral much better. So you can see us, on the one hand, we could do a treasury strategy whereas we continue to do type of financing, debt or equity financing, and then we increase the gold holding for the long term. And then on the other hand, leveraging this makes our collateral, we believe, over time more stable. And also by having digital gold on our balance sheet and so forth, there's opportunity to also expand our product line.

Kevin Dede (Managing Director and Senior Technology Analyst)

Okay. Well, thank you. Appreciate the color, Herm.

Herman Yu (Head of Strategy)

Yeah. Yeah. Because you guys look at it from our business of trying to get our collateral more stable. And I think once we have that, since most of our customers are large institutional BTC holders, they also want stability too. So that drives demand. That drives business opportunity for them to say, "Well, how do they get a portion of their collateral to be more stable?" So that's the whole idea. We would do it ourselves and show our customers and also help them do risk management on their collateral.

Kevin Dede (Managing Director and Senior Technology Analyst)

How do you validate your holdings so your customers can see them?

Herman Yu (Head of Strategy)

So for example, XAUT, you could see them. It's live. The data is live, right? So Tether would deposit these in Switzerland, and you can see you could check 24 by 7 the amount of gold there.

Kevin Dede (Managing Director and Senior Technology Analyst)

Okay. Okay.

Herman Yu (Head of Strategy)

Yeah. Yeah. I visited the place in Switzerland last year. So I think it's a very interesting product.

Kevin Dede (Managing Director and Senior Technology Analyst)

Okay. Thanks, Herm. Appreciate it.

Herman Yu (Head of Strategy)

Yeah.

Operator (participant)

Thank you for the question.

Herman Yu (Head of Strategy)

Thank you.

Operator (participant)

That concludes our Q&A session. Thank you once again for joining Antalpha First Quarter 2025 earnings call. You may now disconnect.