Netcapital - Q3 2024

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Netcapital Incorporated quarterly earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for questions following the presentation. It is now my pleasure to turn the floor over to your host, Coreen Kraysler of Netcapital. Coreen, the floor is yours.

Coreen Kraysler (CFO)

Thank you so much, Jenny. Good morning, everyone, and thank you for joining Netcapital's fiscal Q3 2024 financial results conference call. This is Coreen Kraysler, CFO of Netcapital, Inc. I'll 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 Q3. During the quarter, revenue decreased by approximately $1.2 million or 54% to $1 million as compared to $2.3 million during the three months ended January 31st, 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 three months ended January 31st, 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 three months ended January 31st, 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 three months ended January 31st, 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 Q3 of fiscal 2023.

We reported diluted earnings per share of a loss of $0.19 in the three months ended January 31st, 2024, which was down compared to diluted earnings per share of $0.33 for the same period in the prior year. As of January 31st, 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, Corinne. 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're 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 nine 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, seven 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 (participant)

Thank you very much. We will now be opening the floor for questions. If you have any questions, please press star one on your phone keypad now. We ask that while you're posing your question, you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality. Please hold a moment while we pull for questions. Thank you. Our first question is coming from Bill Peters of CAS3 Investments. Bill, your line is live.

Bill Peters (Analyst)

Hi. Good morning. Thank you for taking my call. Do you see the crowdfunding market consolidating? It seems so fractured. And if so, would management consider that and use their valuable Nasdaq listing as a potential partner? Thank you.

Coreen Kraysler (CFO)

Martin, do you want to handle that?

Martin Kay (CEO)

Yeah. Thanks for that question. Yeah, very good question. We certainly agree that it's relatively early in our industry, and we're still relatively small as an industry. I think if you look at the data that's collected by third parties, the equity crowdfunding industry is probably around $1 billion, Reg CF and Reg A combined, flowing into private companies. And obviously, that's just a drop in the bucket compared to the overall amount of capital that's flowing into private companies. So we believe that right now, it's very early in the industry. We're still growing and that there's certainly room for multiple competitors. That said, obviously, like any other company, we're always open to discussions and ways in which we can find opportunities to create value for our shareholders in partnership with others.

Bill Peters (Analyst)

Okay. Thank you.

Operator (participant)

Thank you very much. Just as a little reminder there, if you have any further questions, please press star one on your phone keypad now to join the queue. I'm not seeing any further questions come into queue. Oh, we have another question just popped up there. It's from Bill Peters again from CAS3 Investments. Bill, your line is live.

Bill Peters (Analyst)

Hi. Thank you for taking my call again. 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 I would 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.

Bill Peters (Analyst)

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

Martin Kay (CEO)

Yes. Certainly, that's realistic. I would expect that we would hope to be able to launch sooner than that.

Bill Peters (Analyst)

Okay. Thank you. Have a good day.

Martin Kay (CEO)

Thanks, Bill.

Operator (participant)

Thank you very much. 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. We look forward to speaking to you soon.

Operator (participant)

Thank you very much, Corinne. 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.