DeFi Technologies Inc. (DEFI) Earnings Call Transcript & Summary

Hi, everyone. Welcome to the DeFi Technologies' Second Quarter 2026 Financial Review and Shareholder Call. I'm Curtis Schlaufman, VP of Marketing and Communications. Joining me on the call today are Chief Executive Officer, Johan Wattenstrom; Chief Financial Officer, Paul Bozoki; and President, Andrew Forson. We'll begin with opening remarks from Johan, followed by a review of our second quarter 2026 financial results from Paul. We will then provide an update on growth initiatives and strategic priorities from Andrew, and we'll open up for Q&A after that, a mix of retail from the chat and invite analysts to come on and ask questions live. Before we begin, I'd like to remind everyone that certain statements made during today's call may constitute forward-looking information under applicable securities laws. These statements include, but are not limited to, comments regarding expected financial performance, business development, strategic initiatives, market expansion, product growth and future opportunities. Forward-looking statements are based on management's current expectations and assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied. With that, I'll turn it over to Johan.

Thank you, Curtis, and thank you, everyone, for joining us today. The second quarter was shaped by continued volatility across digital asset markets as lower crypto asset prices affected assets under management, which together with the mark-to-market adjustments weighed on our reported financial results. With those market -- while those market conditions impacted our financial numbers during the quarter, they have not changed our conviction in the long-term opportunity of the progress across the business. Our focus remains on executing our strategy, strengthening the platform and creating long-term value for our shareholders. More importantly, the underlying business continues to move in the right direction. Our core business is becoming more scalable and efficient as we invest across our existing businesses, pursue strategic opportunities and advance product innovation. We believe these efforts are strengthening the platform, enhancing our competitive position and expanding all our long-term growth opportunities across all the business areas. Valour has listed over 100 listed ETPs and structured products across multiple exchanges globally, aiming for another 8 more during Q3 -- during the quarter. Valour generated more than $22.8 million of net inflows, reflecting continued customer demand for our products despite a challenging environment for the broader digital asset industry. We view these positive net inflows as an encouraging sign, demonstrating continued demand for our products despite the weaker market environment and reinforcing our confidence in the long-term opportunities ahead. Beyond Valour, we continue to broaden our institutional platform and product offering. The launch of our first hedge fund remains a key priority. With all obstacles now removed, we are days or at worst a week or 2 from the actual launch. We also expect to expand our arbitrage strategies during the second half of the year with the goal of further strengthening our institutional capability and diversifying our revenue streams. While the Swedish FSA did not approve our initial UCITS structure, we have appealed the decision and are simultaneously working hard to establish a UCITS platform in another domicile within the European Union. Those efforts are moving ahead quite quickly. Development of the Valour Custody platform also remains on track for a targeted beta launch in the second half of the year. The initial deployment will focus on bringing custody capabilities in-house, reducing third-party custody costs and improving margins. Over time, the platform is expected to support a broader range of products and services. AI has also become an increasingly important part of our business. We are leveraging AI to improve operational efficiency while developing AI-enabled investment products and we believe -- which we believe will complement our existing crypto product offering and support future growth. From a financial standpoint, the company continues to operate from a position of strength. Our balance sheet and liquidity provide the flexibility to invest through the market cycle, support product innovation, pursue strategic acquisition opportunities while also maintaining a disciplined approach to capital allocation. Stillman maintained a strong momentum in onboarding larger clients and remains on track for a second record year of revenue. As market conditions improve, we believe the business is positioned for asymmetric upside supported by continued growth in key operating metrics that are not dependent on market volatility. Looking ahead, our priorities remain unchanged. We are focused on expanding our institutional capabilities, broadening our product offering and building a more diversified business aligned with the long-term growth of digital assets. While near-term market conditions remain challenging, we believe the investments being made today are strengthening the business, expanding our capabilities and positioning the company to capitalize on the next phase of growth. Our main focus during this market downturn is to aggressively take market share in our core markets. With that, I'll turn it over to Paul to walk through the financial results.

Thank you, Johan, and good morning, everyone. I'll begin with an overview of assets under management. Average AUM for the quarter was approximately $471.5 million, and quarter end AUM was approximately $397.2 million. Lower digital asset prices continue to weigh on reported assets under management during the quarter, consistent with conditions across the broader digital asset market. Our effective management fee yield was approximately 1% compared to approximately 1% in the prior period, primarily reflecting the larger weighting of Bitcoin-related products within our AUM, which carry lower or no management fees as well as continued weakness across many altcoin markets. Within Valour, our effective staking yield of 2.4% also moderated during the quarter as lower digital asset prices, compression in lending rates for Bitcoin and Ethereum and changes in the composition of staking assets reduced overall monetization. Client activity remained encouraging despite these market-driven headwinds. Valour generated $22.8 million of net inflows during the quarter, reflecting continued demand for our products despite the broader market environment. These inflows provide a solid foundation for future growth in assets under management as digital asset prices recover. Total revenues for the quarter were $7.8 million compared to $11.2 million in the prior period, reflecting lower average assets under management and unfavorable mark-to-market adjustments on our digital asset holdings, which are recognized through revenue under our broker-dealer accounting structure. The company also maintained a fortress balance sheet, ending the quarter with $60.3 million in cash and cash equivalents, $19.1 million of Stretch preferred shares and RWUSD financial assets, $10.4 million of USDT/USDC tokens and $30 million of digital asset treasury holdings for total liquidity of $119.8 million. For clarity for our investors about the obvious drop in our cash balance from Q1, we bought $20 million of MicroStrategy Stretch preferred shares for 200,914 shares to achieve a higher yield on our treasury cash reserves. These preferred shares yield 12% or $1 per month. We also purchased a smaller position RWUSD product. Our short-term U.S. treasury bill holdings yield approximately 3.5%. So these other products yield significantly more. These investments are disclosed on the face of our balance sheet as other investments at fair value through profit and loss. And again, as management, we view these as essentially cash equivalents, but they're not classified as such under IFRS rules. We believe this strong financial position provides flexibility to continue investing in strategic initiatives while maintaining a disciplined approach to capital allocation. Turning to product activity. We ended the quarter with 102 ETPs and structured products across our platform. We continue to expand our institutional product pipeline and distribution capabilities while advancing several new investment products and fund structures. Stillman Digital maintained an important diversification component of the broader platform. During the first half of 2026, Stillman generated approximately $5.4 million of revenue, representing 30.2% year-over-year growth. We remain encouraged by the business' trajectory and its contribution to the overall platform as it paces for a record revenue year. We remind our investors that Stillman revenue growth is not dependent on cryptocurrency prices increasing, but rather on trading volumes and realized trading spreads. Turning to operating expenses. General and admin expenses and fees and commissions, which are our main cash costs, totaled $8 million in the quarter, which represents a $1.6 million reduction from the $9.6 million incurred in Q1 2026 of these costs. We remain focused on disciplined cost management and continue working towards our targeted annualized cash operating cost structure of $36 million to $39 million while continuing to invest in our business. Our bottom line result was negatively affected by $16.3 million negative mark-to-market adjustments on our venture portfolio as well as our Stretch preferred shares. Most of the negative adjustment is from the markdown of our 5% investment in AMINA Bank to reflect lower AUM and a compression in EV to AUM multiples across the valuation peer group. We are aware of publicly available information that AMINA Bank has engaged Cantor Fitzgerald to explore a potential public listing for it. With that, I'll turn it over to Andrew.

Thank you, Paul. As we discussed last quarter, our focus remains on expanding the institutional capabilities, distribution relationships and operating infrastructure needed to support the next phase of growth for DeFi Technologies. Throughout the quarter, we made progress across several strategic initiatives designed to broaden our product offering, improve monetization and expand access to the platform. A key priority remains the development of regulated fund structures and institutional investment products. We are working to bring these initiatives to market in a disciplined manner with an emphasis on products that are fully operational, commercially ready and available to investors. An organization like DeFi operates in a complex regulated space, which require the building of trust through relationships. Initiatives often require work months and years before the results are seen by the general public. In our case, Q2 saw increased adoption by partner organizations globally of our DVIO Index platform, which provides a strong broad narrative to discuss the unique strengths of each product within the Valour platform. Q2 also saw us systematize and execute on approaches for interacting with institutions and onboarding institutional capital into our Valour products. Over 40% of this quarter's inflows are directly attributed to our institutional events and outreach. To give a clear example, deals that began as discussions at our Abu Dhabi event in December 2025 closed during Q2. We have built an institution-focused marketing and outreach strategy that uniquely and interestingly enables us to communicate the power of our products, the services offered by our portfolio companies and our pipeline of future products on our terms efficiently and economically to a global audience of bona fide investors. We built this capacity, which has enabled us to be competitive and generate positive net inflows, despite compressed digital asset prices and poor market conditions in less than 12 months. What we've created plays an important role. We finally have an all-important institutional sales platform. The beauty of what we do and how we do it is, it is global and flexible enough to accommodate all the innovative products in our pipeline that have been discussed by Johan in his CEO letter and his earlier statement. In science and in finance, to be effective, we must categorize the factors we deal with as independent or dependent variables. I remain heartened by our team's focus and our company's resilience in unfavorable market conditions. I am bullish on DeFi Technologies, Valour and Stillman Digital because we are demonstrating increased efficiency and effectiveness with the dependent variables. These elements we have control over, like net inflows, visibility, product development, clarity of the financial story, optimization of our corporate venture holdings. Those areas we do not have full autonomy or control over like asset prices and regulatory approvals, which can be impacted by anything from war, interest rates, holiday seasons and broader asset prices, we monitor closely and have a dedicated team that responds quickly and professionally to all requests in an attempt to ensure we give ourselves the best shot at success. I ask listeners and viewers to note. When Johan speaks of creating a platform, these are not empty words. He's done it before, and the evidence of this is in our world-leading portfolio of over 100 digital asset underlying ETPs. Now we are entering into a new era of product with the objective of expanding our platform into structured instruments that have the potential for performance-based upside increases. It is not a question of if these products will be delivered. They will be. And when they come online, the nature of many of these products are higher returning with great potential for upside to the firm. These initiatives are important not only because they broaden our product offering, but also because they expand the ways we can monetize the platform. Historically, our revenue model has been driven primarily by assets under management, management fees and staking income. Over time, we believe these new institutional products and investment strategies can add performance-based returns, institutional mandates and other revenue streams that are less directly tied to the direction of digital asset markets. Since November 2025, we've worked hard to develop our innovative business intelligence system that provides granular views of key competitive and operational metrics. This has grown into a system of proprietary data-driven tools that give unique insights as to how specific Valour's single or index products interact with the financial world around us. Such research and development efforts leverage our infrastructure to provide unique insights. This serves as a proving ground for potential new products that can be created for third-party asset managers for deployment by their internal risk desks or wealth management platforms. This new capability enables us to expand distribution through the provision of valuable insights, enables us to create new institutional partnerships and improve monetization across products and assets already supported by the business whilst using data to define the products of the future. The positive net inflows generated in Q2 are proof that our model is working, demonstrating the strength of our product offering and our ability to attract institutional and other customer assets through challenging market conditions. We also continue to invest in the long-term capabilities of the platform. As tokenization becomes more widely adopted across financial markets, we believe our technology and operating infrastructure can eventually support a broader range of financial products and asset classes, including tokenized real-world assets. As the new products come online, I'm excited that the firm will be in a position to speak with institutional capital allocators worldwide. This is the platform and product diversification that will insulate the company from the exogenous shocks inherent in digital asset markets whilst providing new and larger opportunities for institution-focused revenue generation. That said, our focus is on execution. We will only communicate new products when they are operational and available to investors rather than before the necessary legal, regulatory and commercial requirements are in place. We believe this approach will strengthen credibility, support durable client relationships and create more sustainable value for shareholders. With that, I'll turn the call back over to Curtis for Q&A.

Thanks, Andrew. [Operator Instructions] I guess, first question from Anshuman. When can we expect the smart crypto fund and hedge fund products? How is UCITS listing coming along? I think, Johan, if you could sort of give as much color as you can on our upcoming fund structures as a whole.

Yes. We have actually right now much more visibility than we had only a few weeks ago. Unfortunately, it took us also, I think, 3 months to onboard with some key trading partners because of different jurisdictional problems and other things. But now we finally onboarded with everyone. There's no more obstacles for the smart crypto fund. So we are in the final, yes, practicalities. So it should be maybe a week or 2, hopefully, until 3 weeks, the most. But I would say within -- it's possible within a week. We have no more actual formal obstacles. Everything is done. We are into practicalities and just some final integrations. So we should see that within Q3 for sure. And on UCITS, unfortunately, we got a note from the Swedish FSA. They dragged it out longer time than they actually had a legal ground to do, and they actually, in the end, didn't even give a reason. There are quite anticrypto activists in the Swedish FSA since a long time. But we have actually both appealed that decision. We have also redone the application in Sweden, yes, to pressure on there. But we also have come quite far in the Luxembourg structure, where they are quite neutral in terms of different asset classes. So yes, if we don't get through in Sweden, we will get through in Luxembourg. So -- but it will -- if it's Luxembourg, it might unfortunately take another few more months, so we can't give an exact date or clarity. I don't want to promise anything there. But within this year is my hope. If we get through in Sweden, I have no idea what the probability would be, that could go much quicker. So unfortunately, uncertainty on the UCITS, but on the hedge fund, we have clarity. We are through with all the obstacles.

Next question. Our shares are 1/5 the price that they were when we initiated the capital raise. Should we not utilize some capital at this 80% discount to close out our current buyback? So again, another question and thoughts around on our view on buybacks.

Yes. I can say what we've said before on that matter that our objective is to use the cash to grow our operation. We have done some investments this quarter. You have to get a higher yield on the cash. But obviously, we want to maintain it ready for some of the deals we continuously are looking at, which we think would have a much higher impact on the stock price if and when we can get those or any of those done than to just buy shares back. I also have the opinion that we should primarily buy back shares if we do, if we have a strong positive cash flow and use part of actual earnings to buy back shares. Obviously, you can do it in other -- by other reasons as well. But in a falling market, in a market where we don't see any change in the crypto market so far, I don't think it would have a lasting impact. I think what would have a lasting impact is for us to grow the AUM, get out with more products and do structural deals. So that remains the focus. That's not a no to buybacks. It's just saying that we think we have better opportunities, better use of cash at this point.

And to reemphasize again, when we do buy back shares, those shares are retired. It's not like buying shares on the open market and you hold them and they increase in value if the share price appreciates. So there's -- once we utilize that capital, the shares are burned, that capital is then dead. It's gone. We can't make it liquid again and go out and buy anything else or reinvest it anywhere else. So from an operating leverage standpoint, especially during a bear market when we're not producing a whole lot of free cash flow, it doesn't make a whole lot of sense for the long-term revenue capabilities of the company.

Yes. I think what is best for the stock price long term, what will drive the stock price in the long term, the most is obviously for us to grow the AUM and grow the revenues, and that remains our full focus with all the resources we have at hand.

And then a couple of questions on the NASDAQ compliance and applying for a 180-day extension. I'll address this quickly. We will be applying for the additional 180-day extension on September 1. We have had discussions with the team at NASDAQ. They have indicated that we do qualify for the additional 180-day extension, but they cannot give us an affirmative answer, yes or no until the application is submitted, but we are very optimistic that the extension will be granted. And then, of course, during that time, hopefully, crypto winter ends and the company rerates during that time. So we'll keep all investors apprised as we proceed along this process. And the goal here is to get back over $1 organically through our own internal growth initiatives and quite bluntly, the markets coming out of a crypto winter and back in stable run in Bitcoin and some of the other alts. I'll answer one more question, then we'll go to analysts, and then I'll keep answering. We'll pop back and forth. Now that geographic expansion has slowed and institutional products have stalled in Europe, what does the company see as the biggest driver of AUM outside of increased crypto prices? I think, Andrew or Johan.

Yes. I can start. So I think, obviously, the new products we're launching now, the new crypto fund, the UCITS funds and so forth, where we address a different market. We have distribution not just locally in our core markets, we have distribution globally for those products. I think that's not as -- that market, we have a lot of demand. There's not a lot of products to choose from. I think our products will be unique and address that market in an extremely attractive way. We also will be listing a few innovative new products in the next few months. I think 2 of them, hopefully, within 2 weeks that are unique. There's no competition for those. So I think within the product portfolio, I don't want to get too explicit about what we're going to list here in the next few months. That's something we will announce when we list. But both the institutional fund type of products and also the other ETP products we have in our pipeline, I think, will be unique, will address a new market than what we are working with right now. So I think a lot of untapped potential there, and I think that will really drive our AUM once launched.

And then, Paul, before we go to Ed and Allen and Hal, I guess, could you clarify the use of capital to purchase the Stretch shares and the RWUSD?

Yes. Okay. So for everybody, we keep our cash in U.S. dollars. We keep our cash in U.S. treasury bills short term, 3 months or less. The yields on those are about 3.5%. So it's not great, as we all know, in this environment. The Board approved $20 million of our cash pile going to MicroStrategy prefs, the Stretch STRCs that I think most people are aware of. We did buy them at $99.50. They went as low as $85 at June 30. I think we were actually in the 70s, but they were $85 on June 30. So we marked it down in the financials that you're seeing today. Those shares have since recovered to approximately $95. And Michael Saylor and Phong Le have come out publicly repeatedly saying that their goal is to get them back to $100. We will not sell -- we don't have any intention to sell our shares in the near term. They're just a higher-yielding component of our treasury. So we do pick up $1 a share. There's no withholding tax. They're paid as return of capital. They are -- we do still consider them attractive.

Okay. Ed from Compass Point, analyst.

I mean, I know you kind of touched on some of the strength in the net flows being driven by institutional. But just kind of curious, was there any specific product? Or was it just kind of across the spectrum for those 2Q net inflows? I know I think you guys called out one big sale related to Hedera, I think, early in the quarter, but it seems like even since then, things have had a pretty good pace.

Yes, I can touch that briefly. There certainly was the $11 million of HBAR, the Hedera, which was a big part of it. And just overall for people to be aware of our AUM that we're 46% Bitcoin and Ethereum and 69.8% Bitcoin, Ethereum and Solana. So 70% in 3 tokens. So the growth does generally reflect that. There was the disproportionate HBAR inflow that we press released and you're aware of.

Yes. I guess even -- I mean, for the $13 million of inflows, it's still your best quarter in a while. I'm just kind of curious like what's driving that? Is it any geography? Is there anything specific? Or was that like -- was it lumpy? Or is it generally broad-based?

I mean, I can comment to that. It was actually quite broad. I think the distribution that Paul mentioned is correct. But we've just really been -- over the past year, we've just been really hammering contacts with broker-dealer platforms, with institutional investors and making sure that people are aware of our presence. They see that we're visible. There have been some strong marketing and publicity campaigns in the Nordics as well. And we have a very granular system for being able to track which products money is flowing into and out of, of not only us, but our competitors, too. So we're just maximizing efficiency. And we were aware that it was a tough market. So we wanted to make sure to squeeze out every last drop of capital into our products to attract capital into our products.