WonderFi Technologies Inc. (OTCPK:WONDF) Q3 2022 Results Conference Call August 16, 2022 1:00 PM ET
Company Participants
Ben Samaroo – Co-Founder & CEO
John Rim – CFO
Kevin O’Leary – Strategic Investor & Advisor to the Company
Ben Samaroo
Thanks everyone for joining WonderFi Shareholder Update Call. I’m Ben Samaroo, CEO of WonderFi. Just before we get started, a couple of housekeeping matters. During the presentation, we may refer to forward-looking statements and information. Please refer to our disclosure on forward-looking statements and our MD&A, which was filed yesterday and our AIF, which are publicly filed on CEDAR. And after management’s presentation, they’ll be time for Q&. So, feel free to submit any questions in the Q&A section of Zoom.
So it’s a definitely a critical time in the crypto market, and it’s been a very eventful quarter for WonderFi and for the market in general. Very glad you could all join us today for an update from the company. As I mentioned, I’m Ben Samaroo, CEO of WonderFi. I’m joined by John Rim, CFO of WonderFi; and Kevin O’Leary, Strategic Investor and Advisor to the Company.
There have been some recent events relating to the crypto liquidity crisis, and we believe as a company, it’s emphasized the long term viability of WonderFi and the value of our business model, which is centered around providing users and investors with compliant ways to access crypto. And our — where we stand now, our management team, board and strategic investors are more excited than ever about our positioning in the market and the opportunities that lie ahead for WonderFi.
As I mentioned just earlier, yesterday we announced our Q3 financial results and MD&A and our revenue and total assets under custody remain strong relative to market conditions. And we’ve now established our resilience in down-market amidst the collapse of several major global crypto trading platforms. And our belief is that continued commitment to regulation and compliance will serve our users and investors going forward.
So we’ll kick things off today with Kevin providing a general update and some perspective on the crypto market. Over to you, Kevin.
Kevin O’Leary
Thank you, Ben. As an investor in this space, I’m very optimistic for the long-term opportunity here. I happen to be a believer that over time the [merits] of crypto, the blockchain on financial services will be apparent both with the speed and [mobility], productivity of all of these projects, and will support the value — exchange since regulated.
Now, what’s occurred since the last talk about this, it’s certain that everybody’s been watching this worldwide because this industry is so nascent and so early, there’s been a lot of weak management, if you look at the [outputs] delivered in the — For better term, I guess, we’ve seen this [moving forward], I don’t care if the bond investor or an equity investor or assets, when there’s a huge opportunity in geometric growth, you get a lot of independence, not that I need to be disrespectful to say that, but opportunists that don’t have any executional skills. We’ve seen a lot of backlash in place. And this companies, thankfully, everyone’s a hero, they just had the loss, and I’ll tell you why it’s significant.
It removes the [Patina] and it makes the overall surviving because they’re far stronger. At the same time, in the management team and those investors that tried to take opportunities to 20%, 30% yields, it’s always amazing to watch that moving [over the longer run]. But it’s important that those lessons are learned. And now we have a situation at the same time that that culling is occurring, you have policy on the doorstep in Washington, DC. And that’s a very, very good thing. But what we’re going to see first is an attempt to bring policy on Stablecoins, which had been really volatile, obviously we’re not alone in this situation there are others, basically, algorithmic Stablecoins have proven not to work. And so the markets going to shut those and look for ways to find payment systems that do work, the SEC, etcetera.
So that policy may be as soon as September, right after the break on the hill, the Toomey bill, [Harity] bill, the [Louis Taylor]. The reason I bring this up is that’s immensely positive for long-term investors, because it releases the spigot of institutional capital. It’s going to start to look at policy in just one small sector of crypto, Stablecoins as a payment system start to move forward under regulated and audited environment, which I think would be very useful for many different sectors.
At the same time, since we’ve last had a meeting like this, Fidelity, BlackRock each put in $200 million. It’s a circle in equity, at a $90 billion valuation, that’s $54 billion by the management there, again a Stablecoin payment system. So a lot of the indication institutional investors are waiting to get some policy here. And so the underlying investment thesis for WonderFi and why I remain a shareholder and continue to grow with the company in terms of my interest is that it represents the new order and it represents the regulated compliance.
And most participants are starting to realize they’d rather be in that environment, whether it’s a centralized or decentralized wallet, given the shenanigans that have occurred over the last four months. And so there’s a run for quality, a run for compliance and a run for a regulated platform that is audited and clearly have statements for tax regulators and all the rest of that. And that is exactly what WonderFi is, a huge opportunity in just the Canadian market alone, massive consolidation going on. And frankly to say, the original investment plan which was years ago, WonderFi believes in that.
Ben Samaroo
Great. Thank you, Kevin. Yeah, it’s very helpful to get perspective on the markets and what you’re seeing as somebody who invest broadly across the space, not just the crypto space, but obviously across many different sectors.
So as Kevin outlined, the market has been very active over the last few months. And I think that we’re very well positioned to continue to be a market leader in Canada. And we’re focused on expanding that footprint globally. In the quarter, we successfully integrated the Bitbuy acquisition which has brought numerous operational and technology synergies, which — many of which we’ve started to realize and some of which will realize in the near future.
We’re starting to realize many of the benefits of consolidations through not just Bitbuy but also Coinberry. And from a people and a technology standpoint, this is creating a great foundation for our international expansion. And going global remains a key priority for us, we’ve now initiated the expansion of the Bitbuy brand into multiple jurisdictions, including the United States, the UK and Australia. And we’re evaluating other jurisdictions that have stable regulatory frameworks and strong economies that we believe will garner more value for those licenses as opposed to some of the more fringe jurisdictions that are crypto friendly, and are issuing licenses but don’t have as robust of a financial framework.
So we’re now the only crypto platform that’s listed on the TSX, which compounds our growth opportunities organically and inorganically. You may have just seen that we announced our OTCQB listing this morning, which is great news and what that does is it significantly increases access to our stock in the U.S. And we are taking further steps to increase investor access to WonderFi in the U.S. and in global markets.
In the midst of the market conditions, we have decided to postpone the launch of the WonderFi DeFi mobile app and the decision is based around us focusing on our revenue generating assets in the market. And so the WonderFi app will remain available on desktop in 174 countries. We’re also working with the Canadian regulators for regulatory approval and clarity on that app, which would be the first of its kind globally and continues to feed into our thesis of providing regulated compliant access to crypto and to DeFi. And we remain focused on integrating all of our newly acquired businesses and continuing our user acquisition growth and unlocking some of these operational and cost synergy opportunities that are available which becomes more and more important in this type of a market.
And regarding the down market in general, this has created significant opportunities for WonderFi from a strategic and M&A standpoint. We’ve already established ourselves as a consolidator in Canada. And we continue to explore creative acquisitions within the country and internationally, which are really focused around growing our user base and the geographical footprint of the company.
I touched on the crypto liquidity crisis a little bit earlier but I think it’s important to emphasize that WonderFi, Bitbuy and Coinberry have never lent client assets and so we don’t have the types of risks that are associated with some of the platforms that have run into those issues earlier this year, Celsius, Voyager and BlockFi to name a few. So that doesn’t occur with any of our platforms.
We really see the long-term value in this approach. It does mean that we’re offering less aggressive products, but it just means more safety and security for our users, and then in turn for our investors, because it doesn’t — we’re not taking these oversized risks that we’re seeing what that looks like for these unregulated platforms. The risks profile for users and investors just grows and grows, and we’re starting to see those platforms get weeded out.
And so I think the value proposition for regulated platforms with track records of significant transaction volume and operations will just continue to grow as we move forward. And this is really a central part of WonderFi’s thesis.
So I’ll now hand it over to John Rim, our CFO, who will provide some more details on the quarter. John you’re on mute.
John Rim
Thanks a lot, Ben. And welcome everyone to the call. I’ll just go over a few of the highlights for the quarter from a financial perspective and other things. So the third quarter — our third quarter because our year end at September 30, we’re pleased to report that in the past quarter it was the full first — first full quarter of results with Bitbuy. And just a reminder to everyone because you’ve seen our press release that we acquired Coinberry, this past quarter doesn’t include any results of Coinberry because we closed that deal on July 4. So next quarter, we’ll have the full results of both Bitbuy and Coinberry incorporated in our consolidated results. So just stay tuned for that.
For the last quarter, revenue was 2.9 million and we maintained a healthy cash and crypto reserve of approximately CAD19 million. And as Ben mentioned, the integrations f Bitbuy and Coinberry are going extremely well. They’re well underway. And with the recent announcement that we have with the strategic resource alignment, we’re expected to result in run rate cost reductions of about 35% for the Bitbuy operation. So, that’s well underway and very stable there.
We remain very active on the M&A front, as you’ve seen through our press releases. We’ve closed two pretty big deals in the crypto space and we maintain a robust pipeline. You can see there, we’re very actively looking at things and as Ben mentioned earlier during the call that, in times like these it does create a lot of opportunities for market consolidators and we’re viewed as one. So great news on the M&A front.
In terms of our user community, which is a key metric for us, we’re creating our user community. It’s about getting users. It’s about creating that network effect in crypto. It’s very strong at over 620,000 registered users now, and asset under custody and trading volume are really consistent with the overall sort of market at this time, but still remain very, very healthy.
So with that, that’s our summary. I’ll turn it back over to Ben to talk about our long term strategy.
Ben Samaroo
Thanks John. So yeah, spending a few minutes talking about what’s to come over the next six to 12 to 18 months, we’ll break it down into a few different segments here. So, on the organic growth side, touched on all this a little bit already, but with the Bitbuy and Coinberry acquisitions what we’ve done is we’ve brought together some of the best engineering and product talent in the country. These are leading crypto platforms and just tech companies in general in Canada that have attracted great talent over the last four or five years. And so now we’ve brought that all under the WonderFi umbrella. So we’re really fortunate to have that.
And so we’re applying that talent to improving our user experience across all of these products, and also just the quality of the product offerings and that goes for both retail and institutional. And ultimately, this is directed at driving more users into our ecosystem. At the end of the day, we see just so much value from being able to attract these users and retain them within the WonderFi ecosystem, and will continue to expand the product offerings through regulated products as we move forward into things like staking and other opportunities that are driving adoption within the crypto industry.
So this is going to be a continued area of investment across all of our products. And again, it’s all centered around simplifying crypto trading for customers in a compliant way. On the inorganic side, both John and I have touched on this a little bit. In the down market, there’s no shortage of acquisition opportunities within Canada and internationally. So we’re constantly evaluating assets very carefully, we’re looking at those that are accretive to the company and that complement our current asset base from a customer product and also from a regulatory perspective. And I think we’ve established ourselves as the initial consolidator in the space. And we are going to continue to invest our time and leverage the networks of our management team strategic investors and board to identify and pursue these opportunities.
On the product development and ecosystem side, we are evaluating several new product offerings within the ecosystem. And as I mentioned, we’re working with the regulators to bring those to market. So again, we see value in just having continuity around operating all the businesses in a compliant and regulated fashion. We’re not launching any products without that type of regulatory approval or blessing.
And we see that as providing more long-term value for the company than us bringing something to market quickly and maybe having short-term revenue opportunities that might jeopardize the longer term value of the entity and of WonderFi. And so that really remains a key part of our philosophy and our focus going forward. And I do expect that we’ll have further developments to share on some of these new regulated products in the rest of 2022.
So I’ll hand it back over to Kevin for a few minutes, so he can add some thoughts about market catalysts on the horizon in the crypto market in general that he’s anticipating.
Kevin O’Leary
I think the most interesting opportunity will be over the next 12 months in seeing the launch in [indiscernible] and what happens with regulators. The allocation of sovereign pension level interest in crypto, I always remind people that Bitcoin theory on Polygon, Solana — all of these projects are not tokens, Bitcoin’s not performing, something has softened. But then at the end of the day, look at a graduating class at MIT or Waterloo or Yale and talk to the graduate engineers, I think in science, we’ll find a third of that class, which is just a percentage wants nothing to do with the other 11 sectors in the economy, they want to work on blockchain and will see that as the next opportunity. And I’d argue to any investor thinking about this, you can’t push that much intellectual capital, which the global market is not expected to slowing their outcomes.
And so ways to invest in it from my point of view is, yes, it’s great to pick winners and losers and tokens. That’s interesting. But it goes back to the old analogy of gold rush, we were way better off only when people manufactured jeans and shovels and picks, but with the infrastructure for the new economy, this is the gold rush. And so that’s really what won the fight in here, it’s just a confining infrastructure that allows for the accumulation in trading of all of the software projects in a way that an average consumer or even a family, office of high net worth individual or an institution, they participate with full accountability, full tax reporting, and full compliance. And I can’t stress enough the value of full compliance.
The crypto world until the last four months was a wonderful wild west cowboy place. And then all of a sudden, a billion of dollars erased in a matter of hours as the hammer came down, not just regulatory, but the fact of weak strategies, bad business ideas and unregulated black money [indiscernible]. And now we’re in the renaissance, now we’re building back, there has been a bit of a recovery in some of the asset values as you’ve seen, but we’re just in third inning of that.
And so for those of you that are WonderFi’s shareholders, you are in a very good place. And those that are not, this is something to consider through indexing for crypto that you can put into your portfolio and know that you ride on the same horse as the regulator does. They’re not on the cowboy horse, and so I put a lot of [indiscernible]. I think we should open up for Q&A.
Ben Samaroo
Thanks, Kevin. Appreciate that. And, yeah, we’ll open up the Q&A. I’ll just conclude the presentation before we jump into that, just really restating our commitment to providing users and investors with compliant ways to access crypto. And again, our thesis is that’s going to serve stakeholders best in the long run. And I think we’ve seen some, like, as Kevin said, we’ve seen some crazy events over the last few months, which I think just really validate that thesis.
And, I think that the downfall of some of these major crypto platforms due to outsized risks and unregulated products just further emphasize the long-term viability of WonderFi and our philosophy and business model. And I think with this quarter in particular, I think we’ve established our resilience even in a down market equities and crypto, and we all are extremely excited about where we stand in the market and opportunities that lie ahead over the next, 3, 6, 12 months.
So that concludes management’s presentation. We’ll now open it up to Q&A. And yeah, looks like we have several questions that have come in through the chat. So we’ll take as many as we can. I’ll hand it over to John Rim, who will lead the Q&A portion.
John Rim
Thanks, Ben. So yeah, we had some questions come in through the Q&A. What I’m going to try to do is answer those questions not individually, because there is some common themes there. So one of the questions that we have is, generally speaking, how is crypto winter affected WonderFi’s businesses and when do you start — think you’ll start to see a turnaround?
I’ll start, but I’d also love to get Ben and Kevin, if they have some comments and want to chime in, I’ll invite them to do so after. But generally speaking, as we mentioned in our presentation, the global trading is down significantly, okay, it’s — from 2022 versus 2021. And that’s consistent with what we’re seeing in Canada as well too. So we’re not going to sugarcoat that.
However, as Kevin had on his slide, despite the down market this year, if you look at it in relative terms the speed of adoption is still pretty massive. It’s over 800% increase in trading volume compared to 2018, which isn’t that long ago. So, it’s going to go through ebbs and flows and well-timed, but relatively speaking in terms of growth curve, it’s still very good.
And as Ben mentioned, we’re very fortunate and well positioned to respond to this market downturn, a couple of reasons for that. There were some well-timed capital raises. And the other thing is, is generally we have a very strong management team with a lot of experience in crypto. And, and why does that matter in our context right now? Well, one thing is we’ve all been through the last crypto winter. And so we are super conscious and vigilant about streamlining costs to always ensure that our costs are in line with the current level of business. And so you got to be really nimble and flexible and it’s been pointed out that’s exactly what we’re doing.
In terms of when we’re going to see a turnaround, it’s really hard to say, obviously. But like I said, we’ve been through this before and I think, this was on Kevin’s slide as well too, generally speaking, for the last six months or so, the crypto market has kind of floated pretty in line with the equities market. And there’s a lot of capital that was injected in 2021 and now that’s tapering off obviously with the interest rate hikes.
Eventually, I think when those interest rate hikes and sort of the macroeconomic environment taper off as well too and broader equity markets recover, I think as we’ve mentioned in our slides, you’ll start to see more equity come into crypto.
Kevin, Ben, did you want to add anything to that?
Ben Samaroo
I think that’s a great overview and just emphasizes that, we’re well positioned to weather the storm and that’s — those are the decisions that we’d be making to ensure the long term viability of the company. And this is sort of part of the cycles that we’ve all seen before in various capacities.
John Rim
Another question, can you speak to the M&A opportunities that we’re working on?
Yeah, generally speaking and been alluded to this, we’re super pleased with our positioning right now for all the reason that we discussed before. And we’re also pleased that our pipeline is really robust and active. So we’re getting looks at a lot of good deals, basically. We mentioned that there’s a lot of people in the industry expecting industry consolidation of smaller players and/or other players that sort of leverage too much. And we’re definitely seeing that as WonderFi, Ben and I are getting looks at a lot of different things.
So we feel really well positioned as a public company with access to capital and the sort of platform businesses that we have right now, we feel very optimistic that we’re going to be opportunistic and continue to grow through M&A.
Kevin O’Leary
I would add something to that, just from an investment perspective, we’re all for example, [indiscernible] as matter of fact. In the last six months, two things have happened. Consolidations occurred and [demand] sides have been tempered — from the dealers in crypto. But also because it changes to Apple’s OS, operating system around privacy, the cost of customer acquisition has skyrocketed and the yields in digital saving have declined in matter of seconds.
Small entities that were riding the wave of being able to acquire a customers and using all kinds of different strategies around Facebook, on Instagram and even TikTok. They reply on anticipation on the Apple platform, that’s not working anymore.
So the revaluation of those companies because of the increasing customer acquisition costs is dramatic, some of them down 80%. That’s no different to what’s happened with cannabis. So if you have scale and you have the ability to weather the storm, and while we already have a very large customer base, so our word of mouth itself in [indiscernible] in addition to compliance, you have a huge advantage.
So I’m going to make the assumption and I don’t know what the hike is to management, but I’d put it this way. I’m glad I’m not an investor in a timing [indiscernible]. I think their upside is — well, let’s call it [indiscernible].
John Rim
Again, I’m trying to get the general concept, because there’s a quite a few questions in the Q&A. And so we’ll try to sort of answer them as we answer sort of broader questions in general and incorporate them in.
Another, I think a good question maybe we can talk about is, how is the integration going? And what kind of synergies are you seeing with these two acquisitions? As we mentioned, the integrations of Bitbuy and Coinberry are going really, really well, obviously, they’re the same type of business. So you can expect, and we’re expecting, and we’re seeing lots of opportunities for synergies.
We mentioned the strategic plan to align resources. And really what that means is, we’re able to really right size the organizations and get a lot of cost savings just from having the right size of organization in terms of personnel. But the other thing is on our other overheads, there’s lots of meaningful cost synergies. We’re consolidating vendors, and then with the vendors that we keep, we’re able to renegotiate group pricing. And so we’re able to get the cost down.
And so that’s one of the ways where we always make sure that our cost structure — because there were some questions on cash in our Q&A. Our cost structure is always in line with what’s happening in the market, generally speaking, right? So we don’t want what goes out the door to be more than what comes in the door. And so that’s kind of our guiding principle. And so we’ve always want to maintain that healthy cash in crypto reserve.
And so with all the potential cost synergy opportunities, we’re expecting to achieve, you saw on the slides 35% plus. And if the market continues to deteriorate, we have levers that we can pull to make sure that our costs are always in line with our business and always provide that stable cash reserve and opportunities to capitalize on opportunities that come up. So hopefully that answers that question.
I mean, we’re at our time right now, Ben, I don’t know if you want to add —
Ben Samaroo
There’s a couple of others that I think we can quickly address that just came in before we wrap things up. So I think one really, really good question. In the context of BlackRock and Coinbase’s recent announcement is asking for our opinion on other institutions like big banks and their interest and appetite for providing customers with access to crypto. So that is, I mean the BlackRock and Coinbase deal for sure is obviously a great example of that interest from larger institutions. And we for sure are seeing within Canada and in the U.S. that there are banks, credit unions and other financial institutions that are actively exploring how they can provide their customers with access to crypto in a compliant and regulated way, we’re actively engaged in those discussions and I see that as a big opportunity for us.
And going back to the long-term value of being regulated and doing seeing things in a careful manner, those are the types of opportunities that I think if you’re introducing unregulated products and taking higher risks, you’re not going to be able to land those types of partnerships and opportunities with something like a financial institution, which is obviously — has a incredibly high level of compliance standards.
So I guess to answer that, definitely there is interest, even in a down market I think that there are financial institutions that are dedicating resources from a venture side and also from a technique perspective to understand the opportunities and find suitable partners. And so I think we’ll see that continue to develop.
And then one other question I’ll quickly answer and I’ll hand it back off to John, if he has any others to take or to conclude the Q&A portion. So this question is about — right, it’s basically I guess, it’s somebody asking about how some of the major platforms that have gone down really exuded a lot of confidence and how it was difficult for a user or a investor to be able to make that determination and then these events happen.
So I think that the best way to answer that really is just going back to, again, our philosophy and our business model. We’re not going after introducing, incredibly high risk products or models into our business that create disproportionate risk for customers. All of our products that we’re bringing to market, we’re going to the right way — I mean as part of — as part of our licenses, we have to go to the regulators, present them with the product that we wish to bring to market, for example, staking, which we’re actively working on. And be able to present them with different risks and how we’re mitigating those risks for the company and then for our users as well.
So that extra level of vetting really makes a huge difference from a security and safety perspective for customers. And so that would — that’s how we’dapproach that. It’s just that our core philosophy really is around that versus being able to offer the highest yields and — which is inherently linked to extremely high risk.
So, yeah, so I’ll leave it at that. Back over to you, John.
John Rim
Just being conscious of time, maybe we’ll just take one more because it came up in a few of the questions in the Q&A. It’s really around — the question is around, are you guys planning to expand internationally and what’s the environment in terms of getting licenses? This is something I think Ben and Kevin also have a lot to say on, but I’ll start.
You will have seen another press release recently where we initiated efforts for this very reason. Now, what I will say is, as a management team we’re laser-focused on priorities, going international is part of our long term strategy, full stop. But right now, we just closed two big acquisitions, it’s absolutely critical that we integrate them successfully. And so that’s probably top on the list, but that doesn’t mean that we’re not working on other things concurrently. And as we’ve said in our press release, we have initiated those things formally.
So, but the other thing I can say is, those licenses can come organically, and the other thing I’ll say about that is, is we have a ton of experience already being a regulated platform and going through the long laborious process here in Canada, which regulation is further ahead. So that puts us in good stead. We basically have our playbook and then we adapt to other jurisdictions with very similar rules. That’s one way.
But the other way is through the M&A track, which I alluded to earlier. And we have had opportunities that come to us that, with smaller entities that are already far along in the process or maybe have already received approval. So, it can come in various shapes and forms, but full — in summary, part of our long-term strategy, we’ve already started and there’s lots of opportunity in that area. So that’s some something that we are looking to.
Ben, Kevin, do you want to add to that?
Ben Samaroo
I think that sums it up all John.
John Rim
Okay. So, yeah, again, just being — we’re 10 minutes over, so mindful of time. We’re happy to, obviously if you reach out to the company directly, we can deal with some other — some of the other questions that came up. But thank you very much for the call — for attending the call, and we look forward to speaking again the next quarter.
Ben Samaroo
Thanks, everyone.
Kevin O’Leary
Thank you.
Question-and-Answer Session
End of Q&A
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