Earnings Transcript for BNXAF - Q4 Fiscal Year 2021

Domenic Carosa: Hi welcome. My name's Domenic Carosa, Founder and Chairman of Banxa. What I'd like to do today is to present the other speakers, Holger Arians, our CEO, and Shyam Deo, our Group CFO who will be presenting with me today. What I'd like to do is just give those investors who are new to Banxa, who haven't heard the story, just a couple of minutes overview in regards to what we do as an organization, and then Shyam will talk about the financials, and Holger will give us a business update. So, in terms of -- our vision is really about democratizing finance, about providing equal access to financial opportunities to every part of the world and how we do that as an organization is that we onboard the masses by providing both payment and compliant infrastructure to global digital asset platforms. And I'll talk more about what that means in a moment. So, in terms of a quick snapshot on the company, we're actually the world's first stock exchange listed FinTech, payments service provider Regtech company, specifically for the digital asset industry. And what we're doing is we're building a bridge, a bridge between the fiat world and when I say fiat, I mean, U.S. Euro, Canadian, Australian Dollar world, with a digital asset world being Bitcoin, Ethereum, and other coins through what we call the fiat on ramps, as well as through the fiat off ramps, also called the buy function and the sell function. Our business model is B2B2C, we operate in a highly regulated environment that's only becoming more regulated, which, in fact, is music to our ears, which we'll touch on and it's a highly scalable business model. And more importantly, whether the price of Bitcoin goes up or down, we basically clip the ticket. There are four core things that we do as an organization. First of all, we bring together an aggregate a series of both global and local payment methods. And when I say global, I mean, MasterCard, Visa, and Apple Pay. And then local payments being interact in Canada, CBRE in Europe, [indiscernible] Australia, and many, many others, we bring those together and Holger will talk more about why local payments are absolutely critical to the success of not only Banxa, but also the industry. Secondly, we wrap that with our regulatory and compliance platform. To operate these days, the company needs to have licenses around the world, unlike when we started in 2014, where some considered the Wild West. Now, the industry is regulated and only becoming more regulated. And so part of the Banxa secret sauce is to provide that regulatory and compliance platform, as well as payments to our partners. And then point three and four is really about our own proprietary technology stack that we've built. It's a highly scalable technology platform that does everything from data pricing to payments, to ultimately delivering the coin to the customer in the most efficient way. And whether that's off chain or on chain, I'm not going to get into the nuances, but it's basically making cost effective and efficient for the customer as well as ourselves. We then wrap all of our technology, our payments, and our compliance into what is called an API or widget, which is just another fancy name of a connection, a technical connection into our customers, like Binance, coin edge, and many others and we help our customers acquire more customers because we take care of the payments infrastructure, as well as all the compliance. And once again, Holger, we'll just unwrap this a little bit more in detail. One of the key ways that we measure performance in the company is through a measure we call TTV, total transaction value. And as you can see, for the last 18 months, actually even longer, the business has been on a very strong growth path. We will talk more about that in a moment. We will be releasing our September quarter accounts at the end of November. So, watch out for those and there'll be some further updates with regards to TTV over the coming months. In terms of capital structure, there's just over 45 million shares on issue. In terms of stock options, just over 4 million stock options, and the majority of these are ESOPs is part of the employee ESOP, which is really about aligning our team with the people performance of the company, where our core exchange is the TSXV with code BNXA. And the secondary listing is the OTCQX BNXAF and FSE, AC00. There is some research available on the company which is available at banksa.com, which you're free to review and download. Now, what I'd like to do is hand over to Shyam, our group CFO, who will take us through the numbers. Over to you, Shyam.

Shyam Deo: Thank you, Dom. Everyone, today, I'm pleased to be able to share with you our financial year results. You would have recently seen that we launched our accounts for FY 2021 and the results I want to talk to you today is in relation to that in comparatives for FY 2022. So, FY 2021 has been a very strong year for Banxa. So, it's been listed with many firsts, albeit it's we've had the TSX listing, as well as the geographic expansions into North America and Europe region. And all of these factors have led to a strong TTV growth that Banxa has experienced. As you can see, it's AUD688 million, which represents close to nine times growth on prior year. The second part of this, which is revenue, the revenue is AUD46 million for FY 2021 and which represents a gross take rate of about 7%. Both these factors, of course, has been underpinned by a strong focus on our partners and trying to expand that partner network that we currently have. Then moving to -- taking the profit and loss performance and reflecting it further, we can certainly see a strong cash or liquidity position that's starting to emerge at Banxa. At financial year end, we had AUD25 million worth of liquid asset, its comprised of cash, deposits, as well as digital asset in our industry. And then, the other perhaps key highlight for the financial year has been the made in profit result, the adjusted EBITDA of AUD1.7 million was reflective of Banxa's activities throughout the financial year. Perhaps we move to the next slide Dom. And I think just moving into the next slide, this gives you a little bit further detail in regards to the EBITDA. But perhaps two key things that I'd like to pick up on -- from this slide is regard to our gross profit margin as a percentage of TTV, or referred to as the net take rate. Throughout the year, we've ended up at 2.5% and compared to prior, which was at 3.9%, we've certainly seen this net take rate compress. And this has been a factor of a couple of key points in our industry. One has been the geographic mix that we've expanded into, as well as then encountering some of the competitive market conditions around pricing. As I alluded to earlier, all of this regard -- regardless of that has kept us in good stead, businesses continued to invest in its product, talent, and systems. And as a result, we've continued to expand with regard to OpEx. OpEx during the reached close to AUD15 million or representing roughly 2% of TTV. Vast portion of this operating expenditure is largely related to employee headcount. As you can see, during the we've scaled in excess of close to 100 new employees that have joined the Banxa team. And the last point on this slide, perhaps is just to talk through to the EBITDA. The EBITDA of AUD1.7 million is in line with our income from operations. Now, this was realized within six months of listing and despite the operational expansions, spent that the businesses undertaken. On the left hand side table shows a number of different EBITDA adjustments, but largely just to categorize them. The bulk of the items are really non-cash items and the other major categories, of course, the listing expense of AUD2.7 million, all of these once reverse from the loss before tax end up in a AUD1.7 million adjusted EBITDA position. Just to the next slide, please, Dom. Now, just moving along to -- from the profit and loss is more around the performance of our balance sheet. I think the key takeaways or highlights at Banxa has been able to translate its topline growth into a significantly stronger balance sheet position. As I noted earlier, there's AUD25 million worth of liquid assets. Now, this also translates into a much stronger working capital position. We've seen an eight times growth in our net working capital, as well as in our quick ratio, we've seen a quick ratio of about four times a present volume. I think the other notable point on our balance sheet is perhaps to take account is the fact that despite the Banxa of being a technology business, all our research and development costs have been expensed. We have not capitalized anything on our balance sheet and will continue adopting this policy going forward. Now, just moving across to the next slide, it's worthwhile spending a little bit of time on this particular accounting policy, which is regarding our revenue recognition. The revenue recognition is an area that Banxa -- it's perhaps not unique to Banxa, but it's certainly slightly different and we certainly want to spend a little bit more time on it. And the nuance with the revenue recognition is all in relation to agency versus principal. Banxa undertakes two primary activities, which is on ramping and off ramping and I just wanted to quickly shed some light with regards to what is classified as agency revenue and what is principal and what's the determination factor. So, with regards on-ramping and the small diagram on the right hand side of the screen. The on-ramping activities are largely seen as a service provision where Banxa participate as an arranger of service, and hence determined to be an agency relationship. With regard to on-ramping activities, essentially, under the agency classification, it's recognized on our profit and loss as a net sale. In contrast to on-ramping, is the off-ramping activity and this is where Banxa -- or customer sells their cryptocurrency to Banxa. So, the major nuance that's taken account here is the fact that Banxa is in control of the actual coin. And with that, Banxa are carries the coin control risk. Hence, deemed to be principal in nature and recognized as gross sales on our profit and loss. I hope this helps with the revenue recognition. I'll pass it back to Dom.

A - Domenic Carosa: Thanks. Thanks Shyam. Just one point that I wanted to highlight for investors -- and Shyam, feel free to jump in, when we're talking about the GP as a percentage of TTV, total transaction volume for FY 2021 being 2.5% versus 3.9%, I think one of the other very important points to mention here is in FY 2020, the business was predominantly focused on the Australian marketplace and in FY 2021, the business expanded very aggressively outside of Australia or into Europe, into North America. And hence the Australian market is, let's call it, less competitive than some other countries around the world. And I think we're now at a point where the 2% to 2.5% as a take rate or GP as a percentage of TTV is really the, let's call it, the industry average. So, we're basically trending at that industry average. I just wanted to mention that for shareholders. Now, in terms of the business update, I'd like to hand over to Holger.

Holger Arians: Thank you, Dom. Thank you, Shyam. It was a great overview so far. Hi, everyone. I'm Holger, the CEO of Banxa. As Domenic said, we're a B2B2C business and what we do for the industry. We provide these local compliance and payment solutions to the digital asset space and we do that by offering local payment methods and having those required licenses and virtual asset servers, service provider licenses available so that we can onboard the users to these global crypto exchanges, or wallets, or whatever this digital asset platform is doing. By having credit cards as a global payment method and many local payment methods available in more than 100 countries, we're true to our mission of onboarding the masses to cryptocurrency. If you go to the next slide, please. So, how we are different to many of our direct competitors is that we have those local payment methods. Dom mentioned that, for example, Faster Payments or in the UK, or Interact [ph] in Canada. And what that allows us or our users, more importantly, to do is to make a transfer from their bank account to our bank account and use their local currency. There is usually a lower or non-cost at all involved for the transfer and the authorization rate or the conversion rate is much, much higher than with credit card as you can imagine. And why is it important because our partners -- those digital asset platforms, they really care about how many of their users are actually converting, meaning uploading coins to their platforms, and then start trading or whatever they do on those platforms. And that's really important. So, it's for me, I see it as a win-win-win situation. The more we convert, the more people upload to these platforms and start engaging with those platforms. And so we really focus on these conversions. And for us, it starts with the payment method and then obviously, we have a number of technologies in our -- built into our platform, around fraud, compliance, and so on, so that we can really have the highest conversions in the industry. We protect our partners from chargebacks, and any fraud. So, we take all that away from them and we're very confident doing that, because we've done this for more than seven years, we know the ins and outs of the industry. We've built our technology to this and we have a team of specialists looking at that pretty much every second. So, very confident in offering this service and the industry and the biggest players in the industry appreciate that very much. Dom, if you go to the next slide, please. Just to give you a bit of an overview of what we've achieved over the last 12 months, there's much more to it, but on a high level, we've added a number of key executives and senior management, so that we continue to rapidly growing, there was really important because as Shyam has shown, we've grown very, very much. And for us, it was really key to get extra resources, many of them who have been there done that before, from payments companies and so on, to really bring a lot of expertise into this business. On the partner side, we've increased our partners from 38 to 72 since listing in January and we now have a fully dedicated sales team, for the first time customer success team and a marketing team, with a great CMO as well, who's really going to onboard many, many more partners in the near future. Our order numbers have increased by 3.5 times from FY 2020 Q4 to Q2 FY 2021. So, that's been great. And obviously, the operations need to keep up with that. So, we've increased our team around that and our efficiency is much more importantly, because we are highly scalable, but with this kind of growth that we've experienced, we just needed a really strong foundation, which we now have and we're able to process 24/7 out of three global locations and we're looking after everything from customer onboarding and KYC, verification, compliance, fraud, and obviously, the support. And then as mentioned, over the last 12 months, we've really improved our automatic processing by more than 500%. As mentioned, we've on boarded and the marketing sales and customer success team, so that we can really go out there and engage with the market onboard many, many more partners, and make sure that they are converting well. We also started a number of additional license applications for the virtual asset service provider licenses around the world, which is really important. Great thing is we have a lot of data, which really tells us which markets we have to go into, get on the ground, get those licenses up and running. And then local payments, which is really the next point. We're engaging with strategic partners that are already on the ground from the non-crypto industry that have local payment rails. And we investigate if we can partner with them, so that we can offer those local trusted payment methods, which often come at a lower cost and at a much higher conversion rate as mentioned before. And then also what we're doing is we do have a number of enterprise partners, as you've seen earlier and we're working with them very closely on customized solutions around our core pillars that are payments and compliance. And that has become more and more important. What I always like to say is we're sort of connecting these platforms with the old world, so that these platforms can create a new world. And those blockchain innovators, they have endless opportunities in the new world. We're connecting them with the old world building that bridge for their users. So, that’s end-to-end seamless customer experience and that's where Banxa are fits in, we're doing extremely well. And that's why a number of these industry players have backed our mission as well by investing in us at an earlier point in time. So, that's probably it for me, Dom, I'll hand back over to you.

Domenic Carosa: Thank you. Thanks, Holger, what I'd like to do is just take investors through a number of comparables. This was prepared by fundamental research, it's even available on their website. And so the -- let's call it I think, if you just look at this particular table, you can clearly see that the median and average is between 15.2 to 18.1. And Banxa, as of the 18th of October, is trading well below this. And I think there are a number of reasons for that. But I think at the same time, this just gives investors a bit more insight into ultimately what should be the valuation of the company. At the same time in October 2021, there were a number of our comparable, so a number of our competitors had also raised money at valuations materially higher than where Banxa are is today and by -- and there's a couple of links there for you to have a look at those particular articles. But Ram [ph], which is basically a startup in the space raised at a AUD300,000 value -- AUD300 million valuation and Moonpay, who is only a little bit larger, based on our market intelligence, than Banxa are raised it at AUD3 billion valuation. So, once again, whichever way you cut it, I think there's really good value in Banxa for investors out there. In terms of key catalysts, and both Holger I can sort of go through this and provide a little bit more color. But obviously, the focus is on increasing our TTV, our total transaction volume and the ways that we do that there's a number of different ways or levers as you can say, obviously, growing our B2B customer base is one such way. As Holger mentioned, early this year, we had literally one salesperson, building out our customer base. Now, we have a full complement, a team going out there, maybe Holger can sort of add to this as well. And then adding more licenses -- crypto licenses and registrations around the world and I just want to sort of maybe just touch on this because this is an area that I think deserves much more attention. And I'm going to just sort of peel back the onion, as they say. In 2014. And when we got involved, and when this industry was very nice, and there were no rules or regulations, Banxa always had the view that a more regulated industry that was fit for purpose was actually going to help the industry grow by providing a level of consumer protection, as well as also the regulators would allow, and would actually help foster the growth of this particular industry. And our view of the world is that if you want to operate in a particular country, you need to actually have a license, whether it's a cryptocurrency license or now called a VASP license. This is something that is absolutely critical for companies operating, let's call it, in a compliant way in the actual sector. And that's really part of the heavy lifting, that Banxa does. And just once again, provide a bit of color, one of our licenses that we received last year was for the Netherlands. And just to give you context, that was a 12-month process from start to finish. So, ultimately, this is the value that we can provide to our customers is because we can, in effect open up many new countries for them much faster than then trying to do it themselves. As well as adding more payment options, expanding coins, we have about 40 coins on the platform today. As we know there are significant opportunities in defi, in the NFT space. And without sort of giving away too much, all I'm going to say is watch this space, as well as adding new geographic coverage and market. So, maybe at this point, Holger, maybe there's a couple of areas that you'd like to highlight and touch on for our investors.

Holger Arians: Yes, totally. Thank you, Dom. That was a good overview. Look, it's not just sales, it's also like not just onboarding new partners, also working with existing partners and increasing their volumes. We have so much -- so many insights, so much data. We really have a very close relationship through our customer success team with those partners, we're really looking into how can we increase conversions. What sort of promotions can we do so. And the partners appreciate that very much that we're very accessible -- actually very proactive in that way to increase those volumes. So, I think that's one really important point. And then, as Domenic said, going into these other new verticals in the market defi, the NFT space, this is just the beginning. But there's just going to be much, much more to come in this space and Banxa are really aims to be in plugged into these platforms. Many of those haven't even been founded yet, but this space moves very, very quickly. And again, the great thing is that number of those exchanges have invested in us where we really speak with them quite often and they tell us what they're seeing, where they're moving. So, we do have a lot of market intelligence and I think that's really giving us a lot of insights into the positioning and how to keep winning. On the geographical side, super important that we're just continuing to increase our serviceable market by acquiring those licenses, and also then having those local payment methods. And you'll see a number of those coming online in the next couple of months as well. So, that's going to be really interesting. And here again, back to our partners, they tell us which markets are important to them. And that's definitely a factor in our priority prioritization as well. Domenic, over to you,

Domenic Carosa: Fantastic. Thank you. Thanks Holger. So, that really wraps up the formal part of the presentation. At this point, we were happy to sort of take some questions as well, but just to -- for those that need to log off now, because we're about at around the 30 minute mark, just to maybe sort of leave you with one thing. If you believe the hypothesis that digital assets Bitcoin, Ethereum, and other coins are only going to become much more popular over the next three, four, five, 10 years then -- and more people from the traditional fiat world, the U.S., Euro, Canadian, Australian Dollar world will be migrating across to this digital asset world, then companies like Banxa that are providing the infrastructure, the bridge between the old world or the fiat world, and the digital asset world, in my view will be companies that will prosper. And so I'd like to thank everyone for their time and at this point, we can open it up for some further questions.

Domenic Carosa: So, I'd like to -- unless there are any further questions, I'd like to thank everyone for their time. If you do have any questions, even after the webinar, feel free to basically go to banx.com, drop us a note in the Investor section and basically, ask any questions and most people that are on this webinar know me anyway, so you can reach me on Twitter or drop me an email. Thank you very much and have a great day everyone.