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$EQONEX(EQOS)$
Company Participants
Christian Arnell - Investor Relations
Chi-Won Yoon - Chairman
Richard Byworth - CEO
Paul Ewing - CFO
Ross Dunwoody - Investor Relations
Conference Call Participants
Owen Lau - Oppenheimer
Kevin Dede - HCW
Hunter Diamond - Diamond Equity
John Todaro - Needham & Co.
Operator
Good day, and thank you for standing by. Welcome to the EQONEX Fiscal Year 2021 Financial Results and Business Updates for the First Quarter of Fiscal Year. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions].
I’d now like to hand the conference over to your speaker today, Christian Arnell. Please go ahead.
Christian Arnell
Thank you, operator. Hello, everyone, and thank you for joining us today. The company's annual results were released on June 30, and the business updates for the first quarter were released earlier today. Both are available on the company's IR website, as well as PR Newswire services.
On the call with me from EQONEX management are Chi-Won Yoon, Chairman; Richard Byworth, CEO; Paul Ewing, CFO; and Ross Dunwoody, Investor Relations. The management team will discuss the company's business operations and highlights as well as the financials during their prepared remarks. They will all be available to answer your questions during the Q&A session that follows.
Before we begin, I would like to remind you that the call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.
I would like to remind everyone that our reporting year is March 31. So, when we refer to full-year or fiscal year 2021, that relates to the 12 months ended March 31, 2021. The first quarter of fiscal year 2022, related to the three months ended June 30, 2021. Please refer to our annual report on Form 20-F filed with the SEC on June 30, 2021 for further information, including risk factors, and discussion of our operating results.
I will now pass the call over to our Chairman, Chi-Won Yoon. Please go ahead.
Chi-Won Yoon
Thank you, Christian. Hello, everyone. And thank you for joining us today on our first earnings call as a listed company. We're extremely excited to join the ranks of respected, cutting edge, financial and technology companies listed on the NASDAQ. We completed our listing in October last year, which was a watershed moment for the sector, with EQONEX becoming the first full digital asset ecosystem to be listed on NASDAQ.
As a company, we are committed to upholding the highest levels of transparency and corporate governance. Our vision is to bring digital assets to the world. And we are developing a complete ecosystem to deliver on that promise. The statement is much about making these assets more accessible through education and innovative product offerings, as it is about working with regulators to make them available to the world. We have built a platform that global regulators and traditional finance are accustomed to, one that uphold similar standards that you see in world's leading financial exchanges. This means that we will only list digital assets that have had the integrity of their developer network, technology and security fully vetted.
The crypto industry is rapidly trending towards increased regulation and oversight. This creates an opportunity for us, given our regulatory focus and commitment to fairness and transparency. As an organization, we embrace regulation, as we believe it is important for the industry's long-term success and widespread adoption. We devote substantial time and resources towards educating regulators across the globe and working with them to create an environment that will allow the industry to prosper. By maintaining active dialogue and coordinating our activities with key regulators, we believe we can create long-term sustainable value for our shareholders.
【评：Chi-Won是公司目前的主席。也是UBS的前高层。这一番评论也概括介绍了公司的定位是长期的、拥抱合规的路线。】
Our rebrand to EQONEX was an important step in this regard. While we rebranded last month, the listed company name will remain Diginex Limited until our forthcoming AGM, where a new name will be proposed. The rebrand follows the sale of Diginex Solutions in May 2020, which will maintain the Diginex brand. EQONEX focuses on the crypto elements of our business, which was previously reflected in our EQUOS and EQO brands whilst recognizing our history as Diginex. EQONEX signifies all the strongest elements of our existing brands, and offers the same value proposition to our customers: fairness, governance, and innovation for all of our stakeholders.
We have assembled a very strong leadership team, with decades of experience in traditional finance, technology and the crypto space. Employees are our most important asset, and we have devoted substantial resources towards attracting and retaining the best and the brightest people. I want to personally thank our colleagues for all their dedication and hard work, and I'm also grateful to our Board of Directors for their ongoing support and wise counsel.
This is an exciting time for EQONEX. There is a lot happening and the energy within the organization is palpable. Our journey as a listed company is just beginning. I believe we have an exciting future to look forward to, as we build one of the leading digital assets financial services companies.
Thank you. Over to you, Richard.
Richard Byworth
Thank you, Chi-Won. The transformation of the digital asset space following the pandemic over the last 18 months has been meteoric. We’re all witnessing a dramatic evolution of the technology’s implementation, the infrastructure institutions’ use and the overall maturity of the space, as regulators start to put proper frameworks together.
【评：CEO已经被炒，不过他对公司当时（2021年7月）业绩的介绍还是可以参考】
We've invested heavily in building an ecosystem, which addresses many of the pain points that the industry is currently experiencing. Regulation, reputation, governance, oversight, security, and fairness are the pillars on which we've built this business. This approach has been validated based on the large clampdowns by regulators that we're seeing across the industry. Our ecosystem approach has been designed to facilitate adoption at any level. If an institutional client is comfortable in dealing with the nature of these digital bearer assets, then our Exchange, OTC desk, Access Trading platform and custodian can provide direct access and supporting infrastructure. If the need is synthetic representation or some other derivative, then again our Exchange Access Trading platform and soon to launch Investment Products Business can provide our clients with derivatives, synthetics, listed and structured products.
For investors who want to take advantage of the unique trading returns as this asset class presents without doing the trading themselves, then our asset management business provides a fund vehicle that offers access to these strategies, and their differentiated returns. Fiscal year 2021 was a year of milestones for us. We completed our NASDAQ listing, launched our core business, The Exchange, added multiple spot and derivative products, rolled out EQO our exchange token and saw validation of many business lines by global regulators.
We also ended the year in a position where our exchange was able to transition from a more incentivized fee structure to one where the vast majority of our trading volumes are fee paying, resulting in substantial and sustainable revenue growth in the first quarter of fiscal year 2022. The structural design of our ecosystem means that market volatility is good for business, directional moves matter less. We have this picks and shovels play to the digital asset class, making money in up and down markets.
So let's get a little bit more granular on the business and the progress that was made over the course of the past year. The biggest growth has been within The Exchange. Since publicly launching in July 2020, volumes have grown from the tens of thousands per day to $1 million to $3 million per day by the time we listed before hitting all-time highs of $250 million per day in June, a remarkable first 12 months.
Launched in April this year the EQO token has been instrumental in driving that growth. Professional retail, crypto native hedge funds and prop trading firms alike have realized that by trading on EQONEX their profitability can be significantly enhanced, due to the structure of the token. EQO and the growth in volumes that is generated have acted as a flywheel for market makers and institutional clients alike in joining the platform.
In the traditional world, we say flow, biggest flow and here is no different. As we add more participants and grow our supporting ecosystem, it becomes very apparent to all stakeholders that our Exchange is creating quite a differentiated profile of flow. We’re one of the fastest exchanges to reach $100 million in daily trading volume amongst some of the most well-known exchanges globally. And while this is a remarkable accomplishment, it should also be considered in the context of the fact that the market as a whole is experiencing rapid growth in volumes as we move into the early majority phase of the adoption cycle.
So as Paul will cover in more detail, we closed the year with just $0.2 million in Exchange revenues, nearly all of that’s generated in March as the flywheel got started. The first quarter of the new fiscal year, however, has already generated $2.4 million in Exchange revenue, with June alone contributing $1.1 million to that number. While much of the volume throughout the year ended March was often zero fee to incentivize early growth, we've now transitioned, as I said before, to fee paying with commission rates now coming in to our targeted average range of 2 basis points to 4 basis points for trade.【评：介绍了交易所的业绩情况。也说明了初期业绩比较差主要是因为做营销活动降低了手续费。】
Trading volumes across the industry have declined since late June and these same declines have indeed impacted our very sharp growth trajectory. We expect to see that reverse as new client onboardings are starting to become more active and make up for the overall volume drop across the industry.
Due to the nature of the way EQO is distributed, its prices remained stable through this period. Again, more and more investors are starting to see the value of the first token for a NASDAQ listed exchange, and its various utilities and benefits. It's a very attractive valuation, it’s a $20 million market cap, especially when compared to the other exchange utility tokens out there, which have market caps that range anywhere from $200 million to $48 billion. And as the price continues to tick upwards, it will continue to drive volumes higher and higher. Holders enjoy daily staking allocations, airdrops and we will be implementing buybacks as a continuing reward by helping us bootstrap our way through the early growth phase.
The coming roadmap for The Exchange sees us push out more and more institutionally focused products and features. Isolated margin was released last month which will be shortly followed by managed account functionality, user-defined margin and cross asset collateralization; later this year, dated futures and options.
This will complete the full derivative product offering which will in turn support the growth of the soon to be launched structured product business. This year saw significant partnerships with GSR, Parallel and Kronos coming into play, providing deep liquidity for our Exchange that acts as a regulator in markets rather than maker of markets. We’ve built in the governance and oversight required by institutional investors and professional retail traders alike, who no longer have to suffer at the hands of crypto exchanges that trade against them with full view of the order book and all the associated liquidation levels.
So moving on from The Exchange, return to our custody in Digivault. Digivault received the first standalone approval from the FCA to operate a business under the new AMLD5 framework. They've not approved any other business since and have given the rest of the industry a nine-month extension, stating that a significantly high number of crypto businesses are not meeting the required standards under the money laundering regulations. This approval and the regulator's subsequent comments help demonstrate EQONEX's unique positioning within this nascent industry.
Last month, assets under custody in Digivault hit $54 million, a significant increase from the $11.1 million at the end of March. The FCA approval has seen a surge in reverse inquiry from institutions and even other exchanges seeking to have a credible, regulated, secure and insured partner. The solution has some of the highest accreditations for cyber security in the industry, positioning us as one of the only real choices of custody partner for institutions that are focused on bank grade security and protocols. We're working on a number of [RFIs] to some of the largest banks in the world and it's clear that nearly every major financials institution is now seeking a solution to the first obstacle that everyone needs to overcome before entering the industry and that is custody.
Digivault is also being integrated into Torstone, a post-trade solutions fund, providing a front of that solution to digital asset custody. Front end trading platforms can be connected with Torstone and Digivault custody. Digivault is also working in integration with Access Trading to provide the market with a one-stop prime services like solution that will allow clients to deposit assets into Digivault, trade using Access on multiple different venues, borrow and lend, and have fully integrated post-trade solutions and reporting, thanks to Torstone, without ever having the assets leave the safety of Digivault.【评：托管业务是未来一个潜在的增长点。托管本身和交易所、基金投资、经纪商业务密切相关，有着很大的战略价值。而获得FCA的相关托管牌照（目前唯一）也侧面体现了Digivault的质量】
Moving on to asset management. The performance of the underlying fund has been stellar, Bletchley Park is a fund of crypto hedge funds focused on the very unique offer available in this space. Taking a largely market neutral approach, it's returned 47% year-to-date and 98.3% on a 12-month rolling basis to June. Assets have scaled from streaming in at the start of this year where we were running seed capital in order to bed down the track record. We then started raising capital, and now assets sit at US$21 million coming into July. We're now rolling out the fund offering to U.S. investors with a U.S. fee structure being offered later this quarter. With a solid and consistent track record to market, we're now bolstering capital raising support externally and internally, which should see assets continue their trajectory of growth into the end of the year.【评：资管板块有较大增长，但AUM也只有21M美金，还是很小的。另外他们的资管业务也是以FOF策略为主。】
Our soon to launch Investment Products Business has the potential to be even bigger than The Exchange in terms of revenue opportunity. The margins on this business are a factor of 50 times larger than The Exchange. And as we scale, we'll have the potential to keep up with, if not, even drew off The Exchange revenues.
We expect to launch our first listed product, Bitcoin Tracker Fund later this quarter, a product that already has nearly $30 billion in assets across listed ETPs globally. Our product has been designed to add features that will attract market share away from some of the early movers, particularly a more efficient creation and redemption structure leveraging the EQONEX ecosystem, but also as market makers will source coins from EQONEX. That means, for the first time institutional investors can be sure that listed products they're investing in, is backed by coins that have been checked from a KYC and anti-money laundering perspective, a very key differentiator.【评：他们可能会上一个BTC基金，类似灰度但比灰度的架构更优。但在亚洲能做成这样的产品还是蛮难的。个人感觉2022年能上这样的产品（大概率在新加坡）比较悬】
As the business develops, more products will follow, including leverage product, insured product, guaranteed yield product and structured products, all in the coming quarter. The potential for this business is huge, and we'll likely already start to demonstrate our potential in this fiscal year.
Two of our businesses that saw less growth last year are Access Trading and EQONEX Capital. Access has seen decent volume growth toward the end of the fiscal year; however, these volumes are still not particularly interesting from a revenue perspective. While the platform has a great pipeline, and in activity, particularly we have a great partner, there's still work to be done iterating the product to a far broader client requirement. As mentioned earlier, Access is going to be a core component of our prime services model anticipated earlier into calendar 2022.
EQONEX Capital is a business that has seen change in the underlying market, impact the way we operate. ICOs were very hot in the previous fiscal year, and there was a lot of work to be done in the advisory field. But as we transitioned to digital securities, the regulation frameworks need to be adapted. We have an interesting pipeline of business that we advise on. We can distribute four out of our FCA appointed representative office in London. We continue to work with global regulators to license this business further. But make no mistake, this part of the business is a critical cog in the broader disruption that we anticipate blockchain brings to the $200 trillion capital markets. And so, we see this business as a very cheap option on us being a core player in that future industry.
Final part of business, I'd like to cover is the soon to be launched Borrow & Lending Business. This becomes a core addition to the ecosystem as it ties everything together. All businesses can be grants for us having this facet to our Group. It creates increased AUM to custody. It makes balances stickier by creating incentives for people to hold on our platform, as well as providing increased benefits to Exchange users, and holders of record. It's also a core requirement to guaranteed yield products within the Investment Products Business. And it's also a key element of the prime services structure that I laid out earlier.【评：新的借贷类业务线也有助于完善目前以交易为中心的生态建设。】
As it should be apparent, the EQONEX ecosystem is coming together to provide a full one-stop shop for all types of users of this brand new asset class. We've pulled together a team of world class professionals to address this massive opportunity, and in a short period of time, have built a strong culture around drive and execution as the vision and progress of the organization resonates with the employees. While demand is very high for talent in the industry, we actually see large amount of applicants for our compositions. I've even had candidates say, if I can't work for EQONEX, I don't want to work in this industry. We will continue to focus on carefully calibrating and enhancing our workforce, which has evolved into one of the highest performing, most driven and ambitious teams that I've ever witnessed in all my years in banking.
So, with that, I'll pass it over to Paul, who'll review our financials, and then I'll return to closing comments before we go into Q&A.
Paul Ewing
Thanks, Richard. Before getting into the detail, I'd like to start, a few formalities by reminding everyone that our financial results are reported in U.S. dollars, and under IFRS accounting standards. I will also focus the review on the financial performance from continuing operations. However, it should be noted that we did record a $5 million gain during the year on the sale of distributions business which has been classified as a discontinued operations in the financial statements.
Year ended March 2021 was an eventful year for EQONEX as we began our life as a listed company, launched revenue generating products such as Exchange and significantly strengthened our balance sheet. All combined, we’ve built a solid foundation, with a financial framework needed to continue driving growth into fiscal year 2022 and beyond.
To commence the review, I'd like to provide a brief overview of our revenue model, which will give more context of our financial results and how we generate revenue. Our revenue model can be split into three broad categories: Volume-based revenues, asset-based revenues and advisory-driven revenues. Our volume-based revenue is generated by The Exchange and trading businesses. Exchange operates a tiered commission structure, which is charged against volumes traded. Our trading business is composed of OTC, Access Trading and our risk management desk, all three charge fees on a transactional basis. OTC charges a spread on trades executed, Access Trading charges 2 basis points in the volume executed via the platform and the risk management desk charges a fee to manage the risk of liquidated positions on The Exchange.【评：介绍了EQOUS的三种盈利模式——按交易量、按托管资产、按咨询收费。】
Asset-based revenues are generated by Digivault and Bletchley Park Asset Management. Digivault charges fees based on the value of assets held under custody, as well as the charges on the platform. Bletchley Park, our asset management business charges fees based on the value of assets held under management on a monthly basis and an annual fee based on the performance of the fund.
And finally, advisory-driven revenues relate to our capital markets business. Capital market mandates are generally structured to include a monthly retainer fee and then a success fee based on the percentage of capital raised.
That was an overview of the revenue model. I'll now take a look at the actual revenue generated in the fiscal year ended March '21 in more detail. The revenue for the fiscal year was $0.3 million compared to $0.5 million in the prior fiscal year. While our revenues dropped slightly year-over-year, fiscal year '21 was pivotal as it saw us rolling out products, positioning our business for future revenue growth. Revenue during the year was for the most part generated during the final quarter and was the result of increasing revenue generating volumes on The Exchange.
Exchange revenue we saw for the fiscal year was $0.2 million. We publicly launched The Exchange in July. And during the initial months, the focus was on onboarding clients and generating volumes. Once we achieve these goals, we offer fee incentives which trigger the flywheel for future volume and revenue growth. As a result, average daily volume from March '21, the final month of the fiscal year improved to $15.9 million, providing us with a springboard into the fiscal year 2022.
The balance of revenues in fiscal year '21 which generated in the main by the trading business, and most specifically from OTC. Whilst other business lines did not generate material revenues during the fiscal year, they're well-positioned to do so in fiscal year '22. Specifically the asset management business has seen assets under management increase in the final quarter of the year, where we also began to apply fee from the new investments into the fund, following a zero fee structure offered to the original seed investors. And while custody revenues were minimal during the fiscal year '21, our custody solution provides an extremely valuable service to The Exchange, which again, helps to attract clients.
I'll now put some context to the losses from continuing operations. As previously mentioned, the year ended March '21 was an eventful for EQONEX and some of the events which are non-recurring, non-cash accounting entries, but together have some fair value adjustments significantly inflated the loss from continuing operations by $94.2 million to $130.8 million. A key component of this was a non-cash charge associated with the listing on NASDAQ and the increased fair value charged related to the employee share option plan. Taking this into account, and on an adjusted basis, which we believe provides a more meaningful view of the core business performance both past and present, the adjusted EBITDA for the year was a loss of $33.5 million, which compares to a loss of $32.5 million in the prior year.【评：CFO解释了2021年度出现重大亏损的原因是上市以及员工期权池的估值调整。经过调整后的运营亏损为3350万（上一年3250万）。这个亏损金额还是不低。】
With regards to the ongoing cost base, salaries and associated expenses made up a material component and amounted to $14.9 million during the year, which is a marginal increase compared to that of the prior year. Our headcount as of the end of March was 157.【评：支出的很大一部分是人力成本。截至2021年3月员工数为157人；据最近（2021年12月27日招股书）消息，公司headcound增长到200人。】
Moving now on to balance sheet, we significantly strengthened our balance sheet throughout the year, which puts us in a robust position to finance growth going forward. A strong balance sheet is a result of a number of initiatives performed during the year. Firstly, we raised funds prior to going public and the completion of the listing itself brought more funds to the Group. Following the listing, we raised gross funds of $38.6 million in January, which was quickly followed by the redemption of warrants that were held by former 8i investors, which added an additional $17 million.
As of the end of March '21, we had cash and cash equivalents of $52.1 million, and $2.4 million of other liquid assets, of which $0.6 million was available for working capital purposes. We also had net assets of 61.1 million, which compares favorably to net asset liability positions in the prior year. It's also important to note that we have no interest bearing debt compared to the prior year, where we had $10.7 million of interest bearing debt outstanding.
That concludes the summary of the financial performance of the core business during the year ended March 2021.
And now I’d like to turn our attention to the first quarter of the new fiscal year and take a look at our revenue performance. As previously mentioned, revenue generation really began to pick up in the final quarter of the year ended March '21 and this continued to accelerate into the first quarter of the fiscal year 2022, with the revenue for the first quarter amounting to $2.5 million, significantly more than the entire full fiscal year of $0.3 million. The revenue and the cost was almost exclusively generated by The Exchange.【评：2022年Q1（即2021年3~6月）的业绩表现——营收增长到250万美金，比上一年全年都多，而且基本都是由交易所业务贡献的。】
So breaking this down a little further, on a monthly basis, the revenue rapidly trended up from $0.3 million for the fiscal year '21, $0.6 million in April, $0.8 million in May and $1.1 million in June. The Exchange revenues during the first quarter were $2.4 million, compared to $0.2 million for the entire prior fiscal year. This was the result of a significant increase in trading volumes, which grew month-by-month to an average daily volume in June, reaching 176.9 million, an increase from the 15.9 million we experienced in March.
The remaining parts of the business, including the trading business, asset management and custody didn’t contribute materially to revenues. However, we continue to see fee paying investments into the asset management business, which now has assets under management of $21 million heading into the second quarter, compared to $9.6 million at the end of March.
Digivault saw assets under custody increase from $11.1 million at the end of March to $54 million at the end of June.【评：其他业务线虽然同期没有显著利润产生，但都有一定潜力。例如托管余额3~6月期间从1100万增长到5400万】
Revenues will be further complemented as the year continues with the launch of the Borrowing & Lending Business and Investment Products. It should also be noted that given we have already built the majority of our core business lines and the supporting infrastructure that we expect to benefit from significant fixed operating leverage. What this means is, we anticipate a significant improvement in margins as revenues grow over cost base and will increase at slower rates. After June 30, the Group had cash and cash equivalents and liquid assets of $42.1 million.【评：CFO预测公司的亏损和利润率将会随着基础设施建设以及各个业务线的协同而大幅度改善】
I'll now pass back to Richard for some closing comments.