Earnings Transcript for DCC.AX - Q3 Fiscal Year 2023

Unidentified Company Representative: Hello, everyone, and welcome to the March 2023 Quarterly Investor Webinar of DigitalX. My name is Antonio Sherry [ph], I'm the Head of Marketing for DigitalX, and I'll be the host for today's session. Before we begin, I'd like to start by acknowledging the Gadigal people, the traditional custodians of the land on which I'm on right now, and pay my respects to their elders, past, present and emerging. Over the next 30 minutes, DigitalX's Chief Executive Officer, Lisa Wade will take you through our strategy, our highlights for the January to March quarter, our quarterly business activity, an update on our corporate activity and our outlook for the next quarter. Please note that this session is being recorded, and we will circulate the recorded version to you all afterwards. We have quite a lot to get through and although questions are welcome. Can you please post them in the chat related to respond to at the end of the session. If we run out of time for all questions during the presentation, we'll provide responses over e-mail afterwards. So with that said, I'll hand over to our Chief Executive Officer, Lisa Wade.

Lisa Wade: Thanks very much, Antonio, and welcome, everybody. I do believe this is our third quarterly webinar that we've done, and I'm super excited to be coming to you today to report the results and to discuss the outlook. Just a little recap on who DigitalX is we are a transparent investment -- we run transparent investment management at the intersection of technology and finance, which makes us what we finally call ourselves a techfin company and the next slide, please, Antonio. So I just wanted to do a little recap of the strategy because, as you know, last year, we delivered a strategy to Board, and there will be a strategy refresh happening in June, probably more of a tweak from last year with the new team and really continuing to focus on building those foundations and really buckling down and focusing on the execution piece, and then getting better and better at this measurement and transparency that we're trying to -- we are delivering to shareholders. Just a brief recap on the strategic objectives of the company. So we aim to be a leader in cultural environment and stand for positive social impact, while generating sustainable financial returns to build the value for shareholders. And from my point of view, we're really seeing this, if you like, environmental social and governance become a core theme for listed corporations and I think corporations globally. And where we're really focusing those efforts right now is governance, and we'll talk a little bit later around the efforts we've made, the risk -- the Board risk governance committee having Francis Cranston [ph] running that with Greg Dooley had a profound impact on the business, and really enabled us to uplift that governance of the business. And I think part of the reason why you're seeing the operational excellence emerge is due to that. The second part is building this customer and colleague focused business. And I do believe that really focusing on the customer and the people that we work with generate profitability and generates investor returns, communicating with our customers. We were so excited at the end of last year to sign with Automic and have them as a strategic partner. And this has been an exciting quarter of really working with them and listening to them and really staying to position ourselves in alignment to what our customer’s need, which are also their customers. We are a transaction business at the end of the day, -- we -- our share’s business and the funds business is -- our transactional businesses, and we aim to transact more and more. And they're very measurable goals that we have in order to bring revenue. And as you know, as a team, we're very revenue-focused. We have a little natural revenue, revenue, revenue. That goes hand-in-hand with execution, execution, execution on the strategy. And really, what I'll show you in the result is just that constant uptick in the semi shares business, which is really nice to see. And that is really due to strategic initiatives that were the T0, which is increasing margins and the disease states, which is actually upticking the revenue. Again, investment is a core focus of what we're doing. And we measure ourselves in total value locked in that. I'll go through the funds business towards the end. And obviously, we were very impacted last year in our TVL with the performance of Bitcoin and it's very pleasing to see Bitcoin recover and sentiment towards that has turned and we'll go through some of the reasons why towards the end. And then the final pillar or strategic objective is growth to really grow the customer-focused businesses that underpin the business and to really focus on profitability and going into the future and financial sustainability. So, as a management team, we're really focused on profitability. We've been driving costs lower at the same time as managing this growth, and you'll see the pleasing results in the reduction in our corporate cost base from -- in this financial year. So if we could jump to the next slide, please, Antonio. I supposed to do a quick overview of our company, what we do, our products and services and how we've moved forward this quarter. And really, this slide looks like a company, but from my point of view, it really is the people and how we all interact together. And one of the big things we've been doing is really developing an end-to-end business model of all working together and moving across into one whole business rather than two separate businesses. There's still work to do on that. And at the moment, we have our crypto assets business, which is our Bitcoin fund and our digital assets fund -- to -- I'll go into more detail, but to grow that during the year. We have developed a strategic partnership with a company called Bricklet, which is seeding really exciting products initiative, which is the real-world asset tokenization fund. And we'll talk about the runway for that to launch in the outlook statement. But really, we have made a lot of progress in the background. I'll show you at the end that we've built an entire asset tokenization platform with an Australian company called Blockflow, and that platform is called -- sorry, BlockFolds who's built it and the platform is called Blockflow which I'll go through a little bit at the end. And then the other side to our business is the Sell My Shares/Drawbridge business. And while we've been working on in Sell My Shares is embedding that relationship with Automic, as I spoke to in the first slide, and then really focusing on what is the future of Drawbridge and how do we innovate Drawbridge with what our customer atomic needs and the needs of their customers, which is right in the sweet spot for Drawbridge, not only do Automic customers need to execute share sales. So they also can and most of them that come through our employees of companies so they are potential users of Drawbridge and really understanding what their needs are, so we can enhance that product at the same time as being cost focused. So if we go to the next slide, please. Yes, I just want to run through some highlights of this quarter. And really, what we're focusing on is building scalable, sustainable revenue. As I said, revenue, revenue, revenue and there is pleasing results. We had a record quarter for revenue to sell my shares. And I just want to have a shout out to the team there, because you don't get increased revenue without people getting busier. And the Perth team has really taken that in their stride and really embrace the change. There was a lot of systems upgrades last year, which was a lot of pressure on them. But those systems upgrades are paying dividends, if you like, because the team is able to process transactions in a more efficient way, which is allowing the revenue uptick in that consistent revenue growth. And we also have a new hire in the business which we'll get to in a little bit, and some new team in there. Excitingly, in the quarter, at the very 11th hour, we executed our first Automic share sales, and that's not with our effort onboarding new clients and one of our mantras is to play the regulatory advantage. And so to onboard clients in a manner that allows the full due diligence and work that goes into those client integrations in the modern world of finance is quite a lot of work. And again, the team and the dev team worked really hard on that integration. And there may have only been a few sales in the last couple of days of quarter. However, it was really meaningful to hit that milestone of onboarding atomic. And there's still a bit of work to do around the data piece. I know the team is working very hard on. And then we should be hitting our straps with Automic and the sales are starting to increase, as those systems get integrated. Really excitingly, the funds business had a strong performance. Bitcoin fund was up 69%. The Digital X fund was up 47%, up to 2022. I think it's -- some of us aren't sure whether to shout it from the rooftops or just free the size of release. And those of you who watch those markets would know that it's not just a short squeeze or a short-term rally, there's -- I'll go through in the next slide, a little bit more detail on some fundamental shifts that have happened in that market, in that transition. So what we describe as Web 2 to Web 3. Another highlight is progressing the real-world asset tokenization fund, which I will go to in quite a bit of detail in some of the slides and show you a prototype or a proof-of-concept, if you like, of our platform. The block flow platform developed with block fold. That is a bit of a tongue twister, by the way. So I challenge everybody to say this after this call a few times over. But the platform even a tongue twister it works very well. We also signed another partnership with Bricklet. And from my point of view, again, we'll go through that in more detail, but that was actually my highlight for the quarter. because Bricklet is doing great work in the community to solve for a really big problem, which is housing affordability. Some of the team at DigitalX, that has been something that we've been throughout our careers trying to solve for -- and it really was a surprise use case for blockchain, where we could actually see positive social impact as well as generate financial returns for our shareholders. And really create a win-win-win for households in Australia and for the product development inside DigitalX and then the shareholders of DigitalX ultimately. So we're looking forward to watching that progress, and I will talk about that a little bit more. And as I've said, here's even more of a tongue twister, block fold fire blocks to build block flow, so that's really exciting for us to have another partnership and really continue executing on our strategy. So if we could go to the next slide, please. I'll just go into a few more details of those execution. So just in the detail, the -- as you will have read in the quarterly, the record brokerage revenue for Sell My Shares was $544,000. The most exciting thing, I think, is just the demonstration of execution of strategy last year developing the Deceased Estates business was one of our core strategic goals as well as signing Automic and Deceased Estates is 20% of the brokerage revenue. So really, that has come from a concerted effort, the development team built some kit for the lawyers, so that we could be more present in that market, where people do look at those Deceased Estates transactions. And the marketing team has made a really concentrated and focused effort to be front and center in those markets. So it's not just 20% of brokerage revenue. It's 20% of our Sell My Shares revenue directly attributed to strategic execution and operational excellence. So again, hats off to the team for that. Again, the referral agreement with Automic, although, the revenue hasn't shown through yet. Just to execute that and to go online was quite a bit of a tech piece, and that was worked by both development teams, lots of workshops between the teams and the real partnership forming. And I think over the next quarter, we are seeing those sales tick up. And then as I said, there's blue sky in that for our Drawbridge product and really developing a proper client base for that Drawbridge has really -- the sales for Drawbridge have been quite low. And we're really looking forward to engaging with our Automic client base to really see if we see and bring the Drawbridge business to life in the way that we believe it should and could be. In terms of the Digital Asset Management business, as I said, stellar performance. What you can't see there is the blood, sweat and tears of the volatility in the market and the team really -- there's a lot of uncertainty at the beginning of January, and we didn't know what was going to happen with some of the major events like the follow-through from FTX and some of the other insolvencies that were -- with some large funds being impacted. And then it became apparent when Hong Kong decided that they would reenter the crypto or bitcoin space that there was a shift in sentiment, which was really then hammer home or brought home, if you like, by the financial uncertainty for some of the banks offshore and the bank insolvencies that happen in the U.S., which two of the largest insolvencies of banks in financial history, by the way. And that really has got the market talking about the use case for bitcoin and why it was invented. And we really have seen a shift in sentiment in the bitcoin market in particular, which is why it has outperformed the broader and more volatile crypto space. There's still a regulatory headwind. And I think some of the fundamental principles we really need to be remembering in this market is and where DigitalX really plays is playing this regulatory advantage, just because we're operating in new markets, it doesn't mean that all regulations don't apply, and we apply all regulations to these new markets. And do what we call playing the regulatory advantage, which is I heard a commissioner of the CFTC, say, last week that being regulated is a privilege and serving investors is a privilege in and of itself, and we don't discount that privilege, and we regulate our ourselves to the highest level. The -- and I think that really plays into the products and how we structure them. Then you have -- we did in January, make a decision to -- had some cash at the end of the year, we made a decision to go full weight back into the market, which was really good timing. And that was a call that has seen us outperform over those three months. We really never stopped researching. We never stop measuring what we call the shift, that shift lifts the way we engage with our investors, week in, week out monitoring, the shift that is happening from Web2 to Web3 rails. Throughout the quarter, what you can't see here is our investment methodology really came into a new life. We did a lot of work on modeling on our universal scoring matrix and really brought the team together to get more efficient with the data that we collect. As the crypto markets get more mature, we can start bringing different portfolio management skills. And to do that, we're working with Bloomberg. And a super exciting event last Friday is we went live on Bloomberg with our weekly report. So anybody on this call that has Bloomberg, you can now read our weekly report on Bloomberg News, which is pretty huge for us and it was the entire quarter of effort from the team. And just on to product development, we're still going gangbusters in that area. The team was mostly focused on the Automic integration, but somehow they managed to wizard up some improvements in Drawbridge, which will hold it in good stead for the workshops with Atomic. We had some movement with the ETH validated nodes and an exciting moment in history really when the lock for the ETH staking, the staking was unlocked. And we -- people are now able to move that ETH staking around. Now, people were quite worried about what would happen. And actually, it shows the strength of that network and the strength of the community. But actually, it was a positive event for the ETH network and blockchain, if you like. And we earn a staking yield of 4%, which we really see that as participating in these -- the evolution of the financial rails of the future. And an interesting fun fact, which I find fascinating and finance stakes might as well, I mean maybe not, but I do, is that what they're saying about this ETH yield is that it is equivalent of the crypto risk-free rate, which I find fascinating when you consider how we build financial models using the risk-free rate. And I see it as an opportunity to really go further and deeper into the safe pair of hands approach and the analysis we do of these markets and really refining our investment process. But when I get to the outlook, I'll talk about our five-year track record, but it is a hugely exciting time for us. In terms of the tokenized tZERO pool, we made some small progress with that, but that will really plug into the block flow platform, which we'll go into in a minute. So if we go to the next slide, please, Antonio. Corporate activities, as I said, and we really have uplifted the operational excellence at anyone who follows our stock will see. And if you can imagine the amount of time is given back to have employee time efficiency by streamlining our monthly processes, like we have gone from 23 days to issue our ASX release to literally in the first business week of the month and getting that reporting out consistently on time and in a timely manner, which is a huge team effort. And that really speaks to the operational excellence. We have built an internal -- and this is thanks to the Board Risk Committee. We've got a new, more robust financial return hurdle to which we measure projects and partnerships and we name that our economic engine. And that, in and of itself, allows management to make decisions about where and how we spend our time in a much faster, much more efficient manner and a great communication tool to the Board. As I said, the Board Risk Committee is a huge uplift in how we're looking at the business and how we're really planning for the future in terms of regulation and what we see coming. As you know, we -- part of our strategy is this efficiency in the treasury management and we'll speak to Bricklet in a moment, but that was hugely exciting, putting some of our treasury assets to work to seed investments for the real-world asset tokenization pool, which we will move into the legal structure when that's completed in this quarter. And really hoping to build on that and generate assets under management. We're also still very focused on ESG and working with Social Suite to build that piece out. As I said, in our ESG initiatives, though, we're focusing on governance first because I believe that is what moves the needle right now for a company our size is just excellent governance and that points back to the Board Risk Committee. Now, we can do the next slide. Thank you. This is probably the most exciting part because I don't think that anybody has really seen this. And -- this is the prototype for our real-world asset tokenization fund platform now on this screen it looks like a bunch of screenshots because that's kind of what it is. But actually, if you have a look at these properties, these are three Australian houses, where we have issued co-investment deals well Bricklet has issued co-investment deals. And we have tokenized -- Bricklet tokenize those co-investment needs. And this platform here creates an investment token over those properties and then puts it into a world-leading new fund structure, which has a fund geeky name of an ERC-4626. But really, what that is, is a fund token generates an NAV and also has the ability to calculate the yield in the security and is, for many reasons, a game changer in funds management. Now, the initial launch of this project -- we'll just be showcasing the ability to fractionalize asset ownership. But as we go down the track with that product, you'll start to see that, there's some really great operational benefits and a lot of transparency to using the ERC-4626 as a delivery mechanism for funds, and it actually opens-up new channels for us as a business that we're working towards to build this out. And that sort of sits in our -- we've always had a really strong relationship with the Australian Stock Exchange, and we're doing some proof of concept, working on some proof of concepts with them to build off our work from September last year to use their Symphony platform as a distribution channel for not only the Bricklet assets, but a pool of real-world asset tokenization assets and including the rewak pool [ph] and some others that we're looking at. We also in the ventures, we do own part of the stable coin ex-AUD, all of this is possible around our StablePoint innovations. And we're also -- it was in the press in January that we're also working very closely with National Australia Bank, my alumni to work with our stable coin. So we're really excited with how this space is evolving. And just to have access to stable claims makes this product delivery a complete game changer for not only funds management. I heard the CEO of Templeton Asset Management speaking last week, and they've launched a product called Benji [ph], which is very similar to this acceptance cash management product. And they're really talking about a total disruption of funds management. We believe that we're participating in this, what we call a financial revolution, and we're super excited that we're able to deliver this prototype in the quarter. And I'm truly grateful to block fold for working with us on that, and you'll hear more about this throughout the next quarter. So, if we just go now to the outlook slide, I just quickly wanted to run through how we see the world and as a team, we are super-focused on the enhancement of sustainable and recurring revenue opportunities. We really are focusing in that area and the [Indiscernible] probably the best example of that, achieving that strategic objective now it's 20% of our recurring revenue. We are -- with our partnership with Automic, we're really positioning Drawbridge as a centerpiece for listed companies to bridge compliance and digital services. Our funds management business, the crypto fund has a five-year track record. We'll be one of the first funds in the world to have this five-year track record. And in the funds management world, that's when the rubber really starts to hit the road for institutions. Now, there's no proof in crypto that large institutions and super funds will move into crypto just because we have a five-year track record, but the narrative around Bitcoin being a cornerstone of portfolios and potentially 1% to 2% of people's portfolio is really starting to gain traction, especially as we see more volatility in the financial sector globally. We -- I think you can probably see from looking at this result that a lot of this success that we're having really is coming down to these partnerships that we're developing and strengthening. And we're really aiming to cultivate more and more of those partnerships and those partnerships are allowing us to execute strategy in a way that we can move the needle, we believe, much faster than if we were to go it alone. I think the [indiscernible] example is the perfect example of that. They have an enormous pipeline of Australian householders that we can help to get funding and to close that gap. And we're super excited to execute on our strategy of launching that real-world asset tokenization fund, so we can actually get that money to Australians, achieve returns for the investors, and achieve yield for our shareholders. That's a super exciting opportunity and a massive focus for our team in this quarter. In saying that, we don't want to rip money out. We're very cost conscious and we've really focused on this cost-conscious culture. We've developed new systems within our accounting and our finance team has worked hard on new invoicing systems, new sign-off processes. Everything is signed off relative to budget, every sent that we spend, the ROI gets looked at. And from my point of view, I think that's a really great example of operational excellence and what that can bring. And as I mentioned, just this building of the ecosystem and -- we've got atomic block fold, Fireblocks and the partnership I haven't mentioned here is our innovation partnership. We've always been part of the Digital Finance Cooperative Research Center. And we've really put a cherry on top of that this quarter by partnering with the University of New South Wales Research Lab, Unova. And also potentially bringing in another team member to really nail this being a big part of the conversation in Australia in not only driving Web 3 innovation, but also building a particular financial tool using our proprietary universal scoring matrix, and bringing that to life in a Web 3 way, but partnering with larger organizations so that, that can actually be a really great asset for our business, not only validating these investments in real-world asset tokens and being a global leader, but also contributing to the conversation in Australia. So we're front and center. As you can see, we have not rested during this quarter. We're focused on our exclamation as we're now nicknaming it. We're continuing on our path towards this operational excellence and profitability. And our biggest focus of all is the long-term strategic execution to build a solid sustainable revenue base, continued ESG focus. Let's not forget the cost-conscious approach. And every single day, our entire team is looking to maximize shareholder returns. So thank you very much for being on the call. Thank you very much, everyone, for being on the call. All the details are there. If you have more questions, please put your questions in the chat. I do believe we're on time. So I'm sorry, I didn't get to questions, and I will reach out to each individual question as and when they come through. Thank you very much.

Unidentified Company Representative: Thanks, Lisa. So many great results for the quarter and way more exciting things on the horizon. As Lisa mentioned, we will follow up with responses to all the questions that we have received as well as sharing the recording of the webinar. Thank you.

End of Q&A: