DDC Enterprise - Earnings Call - Q2 2025

Transcript

Operator (participant)

Good morning, everyone, and welcome to DDC Enterprise Limited's first half 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Yujia Zhai, investor relations for DDC. Please go ahead.

Yujia Zhai (Head of Investor Relations)

Thanks, Operator. Hi, everyone. Thank you for joining DDC Enterprise's first half 2025 earnings conference call. Joining me today are Norma Chu, DDC's Founder, Chairwoman, and CEO. Kyu Ho, DDC's Chief of staff. Before we begin today's call, I'd like to remind everyone that today's call is being recorded and will be available on DDC's Investor Relations website. After management's prepared remarks, we'll open the line for Q&A. A press release of DDC's first half 2025 results and a supplemental investor presentation are also available on DDC's IR website. Please note that during the course of this call, we may make forward-looking statements. These statements reflect our current views and expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a more detailed discussion of these risk factors. With that, I'll pass the call to Norma.

Norma Chu (Founder, Chairwoman and CEO)

Hello, everyone, and thank you for joining us today. The first half of 2025 was transformational for DDC. DDC started as a content-driven Asian food platform that has since grown into a portfolio of beloved ready-to-eat consumer brands. In the first six months of 2025, DDC turned profitable and delivered record-high gross margin and net income of 33.4% and $5.2 million, respectively. Yujia will expand on this shortly, but our core operating business is the strongest it has ever been, and we expect continued growth into the second half of the year. For our second transformation in May, following in the footsteps of MicroStrategy, we added a balance sheet engine to our business, Bitcoin as a core treasury asset and a strategic tool to accelerate long-term value for our shareholders.

We published DDC's Bitcoin Manifesto, a public statement that outlines the standards by which we want to be measured by our investors and how we plan to operate as a Bitcoin treasury company with execution, transparency, discipline, and long-term conviction. That manifesto is now core to how we guide our team, speak to investors, and measure internal investment decisions. It's an extension of our values around stewardship, resilience, and sovereignty. Just as food is essential to our personal well-being, we at DDC believe Bitcoin is essential to financial well-being. We invest in our health through what we eat, and we protect the value of capital by holding an asset designed to resist fiat debasement. Concurrently, in late May, we made our first purchase of Bitcoin and outlined a structured plan for responsible accumulation.

Since then, we have scaled quickly, executing multiple purchases, bringing our holdings to 1,008 Bitcoin as of the end of August. Alongside our accumulation, we have secured record-breaking financing and institutional partnerships to support scaling our Bitcoin treasury aggressively. Our goal is clear: build one of the largest and most strategic public Bitcoin treasuries in the world and do it the DDC way, with methodical and disciplined execution, tight risk controls, and transparency while remaining steadfast with our company's core values. Our approach draws on proven playbooks such as MicroStrategy, which show the value of a clear treasury policy, disciplined disclosure, and aligning the capital stack to a long-term accumulation strategy. We've learned from each treasury company that has successfully executed the MicroStrategy and adapted it to DDC's brand, business model, and investor base. We believe two core differentiators define our approach. Our first edge is reach.

DDC is a trusted brand among Chinese-speaking audiences, engaging over 60 million active users, 3.5 million paying customers, and roughly 475 million monthly views across our website and streaming platforms. This reach connects us to a fast and under-penetrated investor base with an estimated 6.5 million mainland Chinese investors with U.S. brokerage accounts and $150 billion in AUM, along with Chinese high-net-worth individuals holding $1.5 trillion in U.S. assets. For these investors, DDC offers a compliant U.S.-listed equity proxy for Bitcoin exposure within a familiar ecosystem. Our second edge is a profitable core business. This foundation allows us to stack Bitcoin sustainably, independent of market volatility. Strong earnings reduce the risk of forced sales and strengthen our access to capital markets, enabling us to build our Bitcoin treasury while continuing to invest in our brand and products.

Together, we believe this creates a powerful flywheel, distribution plus cash flow, that compounds on both our income statement and the balance sheet. To support this strategy, we are strengthening our team and governance. I'm excited to welcome Kyu Ho as Chief of Staff. Kyu brings over two decades of investment experience across public markets and digital assets, including co-founding Initial Ventures and early-stage crypto investment firm and managing a disruptive technology investment portfolio at CPPIB, where he focused on areas including blockchain technology and AI. CPPIB is the largest pension fund in Canada, with over $700 billion in assets. In addition, he has held senior investment and management roles at hedge funds including Kenetic Capital and Value Partners and was the founder and CIO of Wuzhu Asia Partners.

At DDC, he will drive cross-functional execution across capital markets, treasury operations, partnerships, and investor relations to ensure a tight operating cadence as we scale. We're also formalizing external oversight through our newly formed Bitcoin Visionary Council. I'm proud to announce Yat Siu, co-founder and Executive Chairman of Animoca Brands as our inaugural member. Yat brings global experience across venture, regulation, and digital asset ecosystems and will help us pressure-test our governance and strategic roadmap as we grow our Bitcoin holdings. Complementing this institutional leadership, in July, we also announced the Bitcoin Influence Collective, a mission-driven advisory group of key thought leaders and seasoned Bitcoin investors focused on contributing to the company's strategic directions and industry-specific innovations. Its four founding members include Adrian Morris, Lama Ashour, Magdalena Gronowska, and Tim Kosmin.

These new leadership and advisory additions reflect DDC's commitment in executing one of the most forward-thinking and disciplined Bitcoin strategies among public companies globally. Since launching our program in May, we've executed several tranches, reaching 1,008 Bitcoin as of August 31st, with an average purchase price of $108,416. Compared to our first purchase in May, we've increased our Bitcoin yield by 1,798%. As of today, DDC is now the second-largest Bitcoin treasury company in the world. We intend to continue accumulating on an opportunistic, risk-management basis, and only when it is accretive on a Bitcoin per-share basis. Capital raising is the lifeblood of treasury companies, and this quarter, we secured up to $528 million in financing from Anson Funds, Animoca Brands, Kenetic Capital, QCP, and other premier institutions. This represents one of the largest Bitcoin dedicated raises ever completed by an NYSE-listed company.

It is an especially notable achievement given the size of the company at the time of the raise. It underscores the strength of our management team's capital market expertise and ability to attract world-class investors. In addition, we filed a $500 million F-3 universal shelf that further enhances our financing capability. Importantly, 100% of these proceeds are dedicated to one purpose: accumulating Bitcoin for the long term. Going forward, we will continue to leverage a mix of cash on our balance sheet, selective equity, convertible notes, and structured capital, applied opportunistically with a singular goal of maximizing our BTC yield. In addition to building our Bitcoin treasury, we've partnered with leading institutions and Bitcoin-native advisors to strengthen our platform. These collaborations expand DDC's capabilities in trading efficiency, secure custody, and Bitcoin yield enhancement.

Together, these partnerships bring institutional-grade oversight to our Bitcoin strategy while unlocking new opportunities for growth and reach. Looking forward, we expect strong revenue growth in our core business, driven by a focus on markets with higher consumer demand with healthier margins. In regards to our Bitcoin treasury, we will continue accumulating Bitcoin and will publish updates with each material event. Lastly, we believe transparency matters. As such, we began reporting our Bitcoin holdings, cost basis, average purchase price, mNAV calculations, and other Bitcoin treasury metrics on a regular basis on our treasury dashboard on our website at ddc.xyz. Our near-term goal is to achieve 10,000 BTC by the end of 2025 through a combination of purchases with our existing financing facilities, as well as structured transactions. Longer term, our goal is to rank among the world's top three public Bitcoin treasury companies within three years.

Thank you to our team at DDC, our partners, and our shareholders. We are building a company that compounds value on both the income statement and the balance sheet. With that, I'll now pass the call over to Kyu, DDC's Chief of Staff, to provide a detailed update on our first half 2025 financial results.

Kyu Ho (Chief of Staff)

Thank you, Norma. DDC is a global Asian food platform. Our portfolio includes DayDayCook, Nona Lim, and Yai's Thai, brands with strong consumer engagement and distribution. During the first half of 2025, we made the strategic decision to shut down our U.S. operations amid tariff uncertainty. This strategic decision allowed us to focus on growing our profitable Asia business and our Bitcoin treasury strategy. The exit of our U.S. operations removed significant costs related to headcount, marketing, logistics, and other costs that were weighing on our profitability, and it simplified our operating model.

We plan to maintain this focused approach for the near term, with options for reassessment in the future following greater clarity on trade tariff policies. Now turning to our financial performance, revenue came in at $15.6 million for the first half, which represents a 9.4% year-on-year decline. This decrease was entirely the result of our strategic exit from loss-making U.S. operations, where our goodwill was already written off in 2024. The underlying story is much stronger. Our core China business revenue grew 7.5% year-on-year, mainly driven by the increase in sales volume in China, where we are seeing increased demand as consumer environment improved in 2025, particularly at the price points where we operate. Looking forward, we expect our China business to continue to grow into our seasonally stronger second half of the year.

Our sales will be boosted by new target markets in Southeast Asia, including Thailand and Indonesia, where we have strong synergies due to close proximity of supply chain and logistics with our domestic China business. Despite lower overall revenues, gross profit increased a strong 16.9% year-on-year to $5.2 million. This translates to a gross margin of 33.4%, a remarkable 750 basis points improvement year-on-year. This marks our sixth consecutive quarter of margin improvement, driven by economies of scale, stringent supply chain optimization, and cost discipline. In addition, deflation in China provided raw material cost savings. Perhaps most importantly, we achieved GAAP net income of $5.2 million and net income excluding BTC fair value gain of $1.3 million. GAAP net income represents a remarkable turnaround from negative $5.2 million in the prior year, demonstrating the impact of our decision to exit the U.S. market and focusing on higher margin territories.

Lastly, our balance sheet remains strong with $25.1 million in cash, cash equivalents, and short-term investments as of June 30, 2025. Of the $528 million financing, we have utilized $53 million for our Bitcoin purchases as of the date of this call. $275 million in convertible notes and $200 million equity line of credit remain undrawn. In addition, to date, we have not utilized any of the $500 million universal shelf. With that, we'll open the call for questions.

Operator (participant)

Thank you. Again, as a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. And our first question will come from Matthew Galinko with Maxim Group. Your line is open. Great.

Matthew Galinko (Analyst)

Thanks for taking my questions and congratulations on the move into the treasury.

So I was hoping maybe we could start a little bit in the operating business, in the food business. I think it was April that you announced a joint venture. Did that contribute anything to first-half results, or is there a second-half impact from the JV you announced?

Operator (participant)

Okay. One moment, please. Stand by one moment, please. There seems to be a technical difficulty.

Norma Chu (Founder, Chairwoman and CEO)

Oh, hi, Matt. Sorry. I was on mute earlier. Thanks for joining the call and thanks for the question. So for our JV that was announced in April, it did not contribute to the first-half results. It completed the setup in September, and so we expect to have contributions starting this month and going into the fourth quarter.

Matthew Galinko (Analyst)

All right. Terrific.

And is there potential for additional of those sorts of JVs moving forward, or do you feel like you have capacity to do more on that front to kind of help grow the operating business and cash flow?

Norma Chu (Founder, Chairwoman and CEO)

Yeah. I mean, we are looking at a number of potential M&A and JV opportunities, and the structure is going to be very similar to the one that we did in April. There is a likelihood that we could do one more in the fourth quarter of this year.

Matthew Galinko (Analyst)

Great. Thank you. And then just another couple on the Bitcoin side. I think you mentioned a few partnerships around yield enhancement. I was hoping you could go maybe a little bit further into what sorts of strategies you can employ to improve yield.

Norma Chu (Founder, Chairwoman and CEO)

Sure. I'll pass this one to Kyu.

Kyu Ho (Chief of Staff)

Yeah. Sure. Hi, Matt. This is Kyu Ho, Chief of Staff at DDC.

Thanks for your question. So from a yield enhancement standpoint, what we have found is there are quite a lot of partners that we have, and also there are quite a lot of inbound interests that we have received over the last couple of months in suggesting different Bitcoin yield products to us. And we've been busy evaluating each of them. Right now, given the fact that we're around four months into our strategy, we have taken an approach from a treasury standpoint to be much more conservative than others, meaning that we're looking for yield enhancement strategies that give us principal protection. These strategies can range from someone offering us to put some capital, Bitcoin specifically, into their fund to be managed for passive yield to potentially structured products where we may enjoy some yield.

To give you an example, some of these yield enhancement suggestions that were given to us include selling puts, covered calls. They could be structured products. It could be accumulators, all of which we're evaluating at the moment. Got it. Thank you. That's a helpful overview. Maybe secondly, you talked about potentially structured purchases to help move towards the 10,000 Bitcoin goal by the end of 2025. I was hoping you could talk a little bit more about mNAV being pretty close to one. We've seen MicroStrategy sort of talk about a more stringent approach to deploying the common ATM for Bitcoin. I'm just curious sort of how you're thinking about issuing common relative to mNAV and what sort of the other approaches you have to creatively acquire Bitcoin. Thank you. So I can give you a general sense of how we approach this.

mNAV is out of our control, obviously. It's whatever market wants to place that multiple to be on our share price, and obviously, from a management standpoint, we do as much as we can to be transparent. We try to be consistent with how we execute and how we communicate to shareholders. In terms of how we think about what instruments to use, you can think about it from a perspective of our ultimate goal is and always will be increasing Bitcoin per share, which means that even as we were to issue new equity or if we were to use convertible debt, it's always keeping in mind that that action itself will increase our Bitcoin per share so that even if it's issuing new equity, it's a creative dilution.

So this is really key because to us, that's a really important yardstick in which we measure whether we're adding value to shareholders. So with that in mind, we evaluate different instruments that are available to us, and we look for what would make the most sense from a cost of capital standpoint.

Matthew Galinko (Analyst)

Great. Well, I appreciate the answers and congrats again on the progress.

Operator (participant)

And again, as a reminder to ask a question, please press star 11 on your telephone. At this time, I do not show any additional questions in the queue. So this will conclude today's conference call, and thank you for participating, and you may now disconnect.