DigitalX Limited (DCC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to today's investor webinar for DigitalX Limited, ASX code DCC. My name is David Tasker, and I'll be your host for today's session. We're here today at a very exciting time for DigitalX following the successful completion of a $20.7 million strategic investment and with the company now holding over 500 Bitcoin on its balance sheet, making it one of the largest corporate BTC treasuries in the region. Joining us is Leigh Travers, the Non-Executive Chairman of DigitalX, who will walk us through the company's refreshed strategy, key developments across the Bitcoin ETF and Sell My Shares platforms and what this next chapter looks like for the company and its shareholders. After the presentation, we'll open the floor for a live Q&A session. [Operator Instructions] We'll address as many of them as time allows at the end of the session. With that introduction now complete, I will hand over to Leigh Travers, who will, as I said, run you through the company's refreshed strategy, key developments and what is next for the company moving forward. Leigh, over to you. [Operator Instructions] Thanks, Leigh.

Thank you, David, and thanks to everyone that's joined us here today. I'm here to present DigitalX at a very exciting time. There's a clear strategy from the Board and our advisers and a clear mandate from our major shareholders, and I'm really happy to share that with you today. As part of joining DigitalX in May this year, I've had conversations with our stakeholders, our shareholders and globally, crypto and Bitcoin equity investors. And a diversified treasury of crypto wasn't attractive to them, but a focused, pure-play, single-asset treasury was where the demand is. I'm seeing hundreds of millions of dollars weekly going into these global pure-play crypto equities and Bitcoin equities are the king. We want DigitalX to be around another 10 years, and we want DigitalX to be winning. To be the dominant Bitcoin treasury player on the ASX, that is appealing, and we have to do it right. We have a Bitcoin-based business with our Bitcoin ETF. We have Sell My Shares, our online brokerage business, delivering free cash flow. And I think this is the perfect structure to build something amazing with Bitcoin at its core, and I'm really confident that Bitcoin will succeed. Slide across, please. Next slide, please. Thank you. The global debt and bond markets, we've seen fractured over recent periods. There's runaway government deficits, there's been rising yields, and there's been significant bond market instability. We've seen Japan's carry trade collapse. There's U.S. bank holdings with significantly underwater, COVID era, low interest bonds. And these factors are driving investors from traditional safe havens of treasuries to Bitcoin and gold as the reliable stores of value. We recently had the U.S. 30-year yields at over 5%. And during that period, gold and Bitcoin rallied. So the world is waking up to the monetary debasement, and the best quality assets are gaining that demand. I see Bitcoin as the Swiss Army knife, capable of solving any problem that comes up in financial markets. So we see Bitcoin and gold have outperformed over that medium and longer term, and we expect that to continue. Importantly, it significantly outperforms the cost of capital over the medium and long term. And that's what we're going to leverage. Next slide. Thanks. Bitcoin's consistent growth over the long term showcases its resilience and ability to deliver returns even in volatile markets. And that digital gold thesis is simple. The currency debasement is actually bullish for hard and scarce assets, and Bitcoin's best at that. Bitcoin is transitioning from a niche investment to mainstream institutional asset class. And governments are looking at strategic Bitcoin reserves. This is our opportunity to capitalize on that wave of adoption and acquire as much Bitcoin as we can for shareholders in a capital-efficient manner. Global Bitcoin ETFs have attracted over $50 billion of inflows this year. And while in Australia, there might still be challenges in acquiring Bitcoin ETFs from your preferred investment platforms and for receiving that advice and recommendations from your wealth adviser, that actually creates a bit of an opportunity for DigitalX as an ASX-listed public Bitcoin equity to gain some of that demand and some of that interest. Next slide, please. So what you're seeing here is just a small sample of some of the larger Bitcoin equities globally. My expectation is that it will be a winner takes most market in each market. DigitalX is going to be a leader across Australia or in ANZ. So we need to size and scale and build up that management expertise to create this flywheel of accessing more capital efficiently and acquiring more Bitcoin for our shareholders. Some of these share price performances have, yes, been led by Bitcoin, but also due to the efficient manner in which they're allocating capital towards their Bitcoin strategies. And in terms of their valuation premiums to their net asset values, well, we're seeing the most mature players are Strategy or MicroStrategy, trading at around 1.8x mNAV, whereas some of the faster-growing Bitcoin acquirers like Metaplanet and Blockchain Group are trading at 2x, and globally, there's many multiples of that as we look out further in more emerging markets. And DigitalX is looking to become the leader over in Australia and NZ. Next slide, please. Actually, sorry, just back one. Yes, sorry, one more over. My monitor might be a bit delayed. Thank you. Thank you. The DigitalX strategy is new, but the business and our backers are not. We have been hitting some scale now with our treasury over $100 million and 500 Bitcoin on our balance sheet. We expect to acquire significantly more, and we'll share some of our targets there in due course. Animoca and ParaFi are both running multibillion-dollar plus portfolios in this space, and UTXO is one of the most significant investors in Bitcoin equities globally, having been very early to Metaplanet and others. DigitalX has a Bitcoin-centric business with our spot Bitcoin ETF. It's not a feeder fund. And these assets are growing, and we've got large institutions and super funds getting very familiar with this product to help us significantly scale it. We also have our successful online brokerage, Sell My Shares, generating millions of dollars in revenue and also generating free cash flows. Next slide, please. This is some of the growth that we've seen just since our strategic investment from Animoca, ParaFi and UTXO. We've built up the balance sheet to 500 Bitcoins. We're also building up our Bitcoin per share. That growth in the number of Bitcoins for our shareholders is a key metric for us. We're measuring that in sats or satoshis, which is the smallest visible unit of Bitcoin. And we look forward to increasing that metric over time. The market has responded favorably. We've increased our mNAV from 1.2 to 1.4. We're still significantly short of where our global peers are, but I think that will increase over time as we can demonstrate our capabilities in terms of being able to acquire more Bitcoin efficiently and improve the operations of our operating businesses. So this part -- next slide, please. This part is very important. This is where we're going to see significant growth for DigitalX. And that's effectively our ability to access capital, deploy that efficiently into acquiring more Bitcoin per share and demonstrating management and Board capabilities, building up that confidence in the market so we can then acquire more assets. With our market cap increasing, I have no doubt we'll be able to track the likes of some of the passive flows that we've seen, grow markets and grow individual companies specifically. And our first target for that would be the ASX 300, where we're seeing some of the smaller market caps in that group at around $800 million in market cap. Next slide, please. BTXX is our ASX-listed Bitcoin ETF. It was the first spot Bitcoin ETF in Australia on that platform. We've been able to grow assets since inception, and that's something that we're now focused on in terms of improving the access for investors in terms of working with some of the largest investors in the market, self-managed super funds, superannuation funds directly that have been doing due diligence on the product, and we're slowly getting them up to speed. There are some blockers in Australia in terms of professional indemnity as well as with working with regulators specifically for those firms to make sure they can actually access Bitcoin for their investor base. And that's something that we're helping to smooth out that process, improve that education and work to grow this as fast as we can. Next slide, please. Sell My Shares, it's the online brokerage business. It's the leading platform outside the brokerage -- outside the individual brokerages. This has been generating millions of dollars since we acquired the platform in 2021, and it's something we've grown since that time. The business generates free cash flow for the company, and it's something that we're looking to deploy in the future into our Bitcoin treasury. As we get free cash flow, as we get capital, we want to be accessing more Bitcoin for our shareholders and holding that for the long term. Board. So my background is interesting in the perspective that I was CEO of DigitalX from 2016 to 2021. Came on board and initially recapped the company at effectively shell value. We had some good success during that period. And ultimately, I left in 2021 to go and work with the largest crypto trading platform in the world, Binance, and have since gone on to work at crypto equity firms across various different public markets. I'm also a director in the capital markets team for Animoca Brands. So yes, firmly focused across crypto equities and Bitcoin with DigitalX. And Peter Rubinstein has been a Chair of the company. He's been one of the major shareholders and supporters and has got a lot of experience in the Australian public market. Ieva Guoga, she has had experience globally at one of the fastest-growing crypto equities over in the Canadian market. That's been really helpful for bringing together some of our investor relations and marketing capabilities at the company. Next slide, please. The management team, very experienced across financial products, specifically in ETFs and funds management. We've got experience across some of the leading brokerages and wealth managers. And I feel like we've got the capabilities to be able to sell our Bitcoin ETF into the largest investors across Australia. So we're looking to scale that as fast as we can. Thank you. Our growth strategy is clearly centered around our Bitcoin treasury. We want to continue to accumulate more Bitcoin for shareholders. We've got to be accessing capital in a really efficient manager -- in a really efficient way so that we're able to bring up more Bitcoin per share for our shareholders. The funds management division is firmly focused on BTXX, our listed spot Bitcoin ETF that we think has a tremendous capacity for growth. And our Sell My Shares brokerage business will continue to generate free cash flow for the business, which we have to deploy efficiently into the company. The corporate overview. I think what stands out there is that we're trading near 12 months highs. That's a reflection of the recent strategy change as well as the growth in the Bitcoin market. Our shareholder base has changed as well over the last 12 months, specifically. We've gone from 90% plus retail to now moving closer towards 50-50 in terms of institutions and retail. We really welcome our new shareholders, and it's fantastic to have the support of all our major shareholders for this Bitcoin strategy. Next slide, please. That's it.

Thanks, Leigh. A fantastic presentation, and it's great to see the strength of DigitalX' positioning in the Bitcoin ecosystem, particularly now with clear global validation from strategic investors like Animoca Brands, UTXO and ParaFi, who have all, as you say, come on the register and taken very strong strategic positions. As I said at the beginning, you will be sticking around for Q&A, and we've had a stack of questions come through, so we're going to just jump to them. We will get through as many as we possibly can. But if we do miss some out, we will get them answered directly by the company at a later date. So let's just jump straight into it. Some of these, I'm just going to read out as is.

Leigh, could you expand on what DigitalX treasury strategy means for retail and institutional investors, especially in terms of Bitcoin per share growth?

Excellent. Yes, sure. So the goal for DigitalX is to accumulate as much Bitcoin as possible in the most accretive manner as possible via all instruments that are available to us up and down the capital stack. And what that means to shareholders investing in the company is you see our Bitcoin that we're holding today. In the future, you should expect that those Bitcoin will be there, plus what we've acquired, and we'll be trying to do that in a way that the amount of Bitcoin per share will be increasing over time. Similar concept to when you invest in equities on a price earnings multiple. You want that earnings per share to be increasing over time. You want the business to be growing in that manner. We want our Bitcoin per share to be increasing over time.

What geographic region are the institutional investors from who are interested in the Bitcoin treasury strategy? And will you be looking to list the company in a secondary sense on any exchanges where those investors reside?

Animoca is Hong Kong-based, UTXO and ParaFi are U.S.-based. The major investors in these plays are U.S.-based. We do have an OTCQ listing at the moment, and that was one of the elements that was attractive. As we build up the market cap and as we build up the investment from these groups, that's something that we'll be looking at in terms of overseas listings. And that's where you're seeing a significant increase in volumes and valuations as well. But for now, we're firmly focused on the ASX, and we think there's tremendous upside with the position we have as being the leading ASX Bitcoin player.

You mentioned earlier that BTXX is Australia's first spot Bitcoin ETF. How do you see its role evolving in the broader superannuation and retail investor landscape?

I think for one, we've got the product right. It's been operating for 12 months. It's tracked the Bitcoin price, and we're really happy with the structure. In terms of the distribution, that's where we need to improve. So one, from a retail perspective, we need to improve the marketing. We want to be on the first page of Google. We want to be the product that's known to investors that are looking to access Bitcoin via the ETF structure. On the institutional side, there's some partnerships that we need to complete with wealth management platforms. That's an education and a regulatory piece so that we can have our product list alongside other equities and other ETFs that don't have restrictions. And then we need to find the superannuation investors, superannuation funds specifically, that have a mandate to invest into Bitcoin. I think that's becoming something that will be a possibility and a reality in the medium to short term, and we want BTXX to be the vehicle for that exposure. So that's something that we're working really closely on.

How do you plan to access more capital to acquire Bitcoin? Is there a preferred structure or funding source?

There's a huge range of options that we have at our disposal, and we're receiving options across that, I guess, variety of the cap stack, whether that's a modest amount of debt, whether that's preferred shares, whether that's convert to premium. These are all discussions that we're having at the moment and looking at some of the really interesting funding structures that you're seeing from global markets. So pleasingly, we're working with some global advisers on how to best manage that acquisition of capital so we can access more Bitcoin at these levels.

The Sell My Shares platform has delivered over $2.5 million in revenue and more than 10,000 trades. How does this business complement your Bitcoin strategy?

I think with our business being very asset heavy, we want to have an operating business that's generating consistent revenue that's generating free cash flow for shareholders. This business has been soundly managed. We can optimize that through sort of some further marketing. We've also got some partnerships that we've employed in terms of with Automic. There's some other partnerships that I think we could really accelerate as well. So I think there's upside to that platform from an execution perspective. But the way that it solves for DigitalX is it generates free cash flow, and that supports the business growth.

What NAV multiple would you be comfortable with when raising additional capital to acquire Bitcoin?

The higher the better is always the answer. In terms of the specific number, we haven't yet decided on that number. It's something that we're going through in a discussion with global advisers. They're certainly seeing ways in which, I guess, global crypto equity is achieving much higher mNAVs and obviously wanting to do that at higher levels, which potentially makes options like debt more appealing. But that's something that we're going through at the moment. We think at the current mNAV, that's fundamentally undervalued, but we also know it's very early in the piece for DigitalX as well.

Has the Board discussed the share price volatility tied to your buying program? And if so, what adjustments, if any, have been made to the treasury policy or the trading protocols?

The share price hasn't influenced our acquisition of Bitcoin. That's been something that the strategy has dictated. We are looking to employ our treasury that we have into Bitcoin, acquiring more Bitcoin. The share price will dictate in terms of our capital-raising strategies in the future, but it won't necessarily dictate how and when we buy Bitcoin.

DigitalX share price has already risen about 80% since the adoption of the Bitcoin treasury strategy. What do you think still needs to happen for broader market recognition of the company's valuation?

Well, I think in terms of that share price growth, that's something that a lot of investors that have reached out to me is they've been waiting for DigitalX to have a clear strategy. They've been wanting to see that for a significant period of time and have started to enter the company. They like the way that the company is presenting a Bitcoin-first and Bitcoin-focused treasury, and they're keen to support that. In terms of the share growth from here, I think that's largely to do with our investor relations, attracting the right investors, has to do with our ability to accumulate capital in a capital-efficient manner and acquire more Bitcoin. And of course, it will be subject to the Bitcoin price rises in the future as well, will be heavily linked to the price of Bitcoin. But pleasingly, that's something that we expect to perform well over the longer term based on some of the tailwinds that we talked about today, some of the institutional adoption, and of course, because of some of the Bitcoin treasury companies globally as well as some of the governments around the world that are looking to bring in Bitcoin as part of their strategic reserve.

Now I should have said at the beginning, we don't shy away from the hard questions, so I'm going to throw a few at you. The shareholders have asked them. So it's incumbent on me to ask some of you. Do you agree -- you touched on this before, but do you agree that constant shifting in strategy creates uncertainty and suggests or could suggest a lack of clear long-term vision and making it difficult for shareholders to trust in the company's direction or assess its true value? How is the company sure that this move into Bitcoin only is the right one?

Great question. I think in terms of a strategy, needs to be the right strategy for the company, for the Board, for the shareholders and for the market. And I think we've got that right. We have had changes in our shareholders. We have had changes in the Board. And this is something that has led to the change in strategy. The Board is committed for the long term towards a Bitcoin-first strategy. Our shareholders have come on board with a clear mandate for a Bitcoin-first strategy. Bitcoin has outperformed over the longer term versus other digital assets. We think Bitcoin solves one global problem at scale that no other asset can do, and that's monetary debasement and inflation. It's one horse in a one-horse race, whereas looking at some of the other digital assets that are digital oil, they're competing with hundreds of other competitors. And I think you'll need to shift strategy over time based on wanting to be the leader in that sector, whereas we are backing the fastest horse in a one-horse race. And that's something that we want to do for the longer term. And I think it's just a question really of why we couldn't have done this earlier.

Can you give us some insight into your road map for scaling BTXX assets under management and operational revenue over the next 12 months?

BTXX has got the 2-part strategy of attracting investors. One is retail and one is institutional. On the retail side, there's work we need to do on the marketing. So we need to ensure that retail investors can become familiar with this product because it's on the first page of Google, because when they read about Bitcoin products in their financial media, the BTXX product is visible and they're aware of it. On the institutional side, we need to access platforms, wealth management platforms with the products recommended, not hidden away, not where we'll have to have the investors specifically ask their adviser to bring it up for them. So that's an education piece. That's a partnership piece. That's a business development piece. And then on the superannuation fund, superannuation funds in Australia have already articulated they're looking to try to make Bitcoin accessible for their members. We're in discussions with these groups. That's been ongoing for a long period of time. We think we've got the right product that's there for them. So it's just a case of time. It's a case of building out our assets under management to make this product more appealing to them, but it's ultimately something that we think will succeed in, in terms of scaling this product.

Stack of questions coming through. So I'm going to try and get through as many as I can. How do you grow Sell My Shares? Is it a niche play? Or is there an opportunity there? And there was another question, so I'll link the two together. Can you involve crypto-related trading in Sell My Shares in the future?

On the first part, in terms of how we grow it, I think there's some optimization there on marketing that we can do. In terms of being able to access this product when an individual wants to sell their shares, they'll be able to see that through their search functions. In terms of for a business development partnership perspective, there's already been 1 partnership with Automic. Interestingly, a significant number of sales are from groups like deceased estates and from financial planners. So those networks are something that we need to improve our integration with, and that's something that we will be getting up to speed with. In terms of offering crypto, that's not something that's on our road map, but it's certainly something that we are considering.

How are you currently funding and executing your on-market Bitcoin acquisitions? Obviously, there's the cash that you brought in recently, but are you liquidating your other crypto assets, drawing out operational cash flow or using other type of facilities? And which execution methods do you employ to minimize market impact, things like algorithmic orders, staggered limit orders, OTC desks?

Excellent. Currently, the funding has been, one, via the capital that was raised of the $20.7 million. That was received on a Friday, and that was deployed that afternoon. So that it signals our intent with our capital that we will deploy it for shareholders into Bitcoin. That was done via TWAP, time-weighted average price. We have a number of OTC brokers. The costs that we have to access and operate these orders are significantly less than retail orders. As a background, I used to run Binance across Australia and New Zealand, which was the largest crypto trading platform. So there's a lot of experience between myself and between the team, and we are certainly using what I would say is best-in-class OTC providers to be able to operate these orders, secure Bitcoin, custody and then have reporting so that managing those assets over time, whether that's for the team, whether that's for auditors is done in a really efficient manner. And yes, very, very happy with our capabilities on that front.

A couple of questions here, very similar, so I'll group them together. In terms of your other crypto assets, is the plan to liquidate out of them?

Yes. I think I didn't touch on that as well in the last question. We have been selling our other crypto assets to fund our Bitcoin purchase. And over time, that's what we'll continue to do as a Bitcoin-first and Bitcoin-only treasury strategy.

Any -- where are we? Any M&A plans in the future? Are there other businesses that you think could bolt on to DigitalX?

I think ultimately, the company has a Bitcoin-centric business in our Bitcoin ETF. So potentially, there's some other Bitcoin infrastructure and Bitcoin operating businesses that we could look at. There's always opportunities in the market, but that's not a short-term goal of ours in terms of M&A. I think there's some really important activities that we have in the short term that we're focused on in terms of the 2 operating businesses and our treasury play.

Last few. Is the company -- as the company has changed its strategy to acquire more Bitcoin, is the company sort of giving up on its Solana staking, earning reward as the steady revenue?

The company will not be looking to yield a multi-digital asset or a diversified portfolio in the future. The focus is on Bitcoin.

Is the company thinking of other crypto and blockchain business models in terms of innovative payment or trade system and stablecoin strategy to grow its business? I didn't want to butcher that question, apologies.

No, we're not.

A couple of questions here on sort of communication. How do you plan to interact with the shareholders going forward? Have you -- the question or the comment is, we've seen some great communication from businesses like Smarter Web and Metaplanet. And another part of that question is -- or I'm trying to join a couple of questions here. Will you be updating the website to give more disclosure around the Bitcoin holdings and that price element or value element?

I think that second question helps answer the first one. Absolutely, yes. We will be significantly improving our investor relations capabilities, and that includes on the transparency of our Bitcoin holdings in terms of the future direction of our Bitcoin holdings, in terms of our Bitcoin per share. We'll be looking to update all our materials for investors, I think starting with the investor presentation today. Looking also to do a lot more roadshows, speaking with investors, speaking with brokers, speaking with financial advisers on our clear focus. And part of that as well will be updating the website and improving all our investor communications going forward.

Question on CEO. It's a bit of a loaded question because one of the questions is, how is the recruitment going for a CEO? And the other question is, would you consider coming back as CEO, given your experiences in the space and your knowledge of the business and the Bitcoin industry?

The current role I have is Nonexecutive Chair, and I think that's been working really well to help firm up our investors, firm up our strategy, and that's something that I'm really focused on at the moment. In terms of the CEO in the future, I think Dem has done a great job in terms of managing the business through this period. In terms of the future CEO, then yes, certainly, we're still looking for the right candidate that can really drive the company's Bitcoin strategy in the future.

Well, just last 2 questions. Going forward, if a cap raising is on offer -- and there's quite a few questions and comments in relation to the fact that the last raise or 2 was very much driven by the institutional group and not offered to existing shareholders. Is the plan to come back to shareholders, current shareholders in the future should company look to raise capital and equity through an equity raise?

I think that previous raise we did, the reason why that figure of $20.7 million was calculated was that was the amount of issued capital the company had. So there was significant demand in excess of that. The retail shareholders as well had an opportunity to purchase via a share purchase plan not too long ago. And I think that's something that the company will continue to look at in the future in terms of supporting our retail shareholders, letting them have access to the company in terms of investments. So yes, certainly, we'll look to accommodate retail in the future. But the reason why, I guess, the most recent one was, was, I guess, shareholders had an opportunity not too long ago to participate. The other element is all the capital from those proceeds were deployed into Bitcoin. So I think once investors on the retail side are understanding our strategy and we're able to be clear with our communications around the strategy, then that's something that we might feel more comfortable, offering up the ability to invest in DigitalX via raising to our shareholders as they know where that capital will be going.

Last question. You touched on during the presentation that you were previously CEO of the company when it essentially recapitalized and you've been in this space for a long time. What does the future for DigitalX look like? We know that it's a single focus. We know that the strategy is very much built around a Bitcoin treasury. But if we fast-forward 12 months, 18, 24 months, what does DigitalX look like?

DigitalX' focus is on our Bitcoin treasury. So it's growing the amount of Bitcoin per share for our shareholders, growing the total number of Bitcoin and scaling our operating businesses. So when you see DigitalX in 12 months' time, I want you to see a company that has a clear investor relations strategy, it has metrics to market that investors understand. It has more Bitcoin per share and certainly has not sold any Bitcoin. We're here for the longer term, and we think we can execute the strategy really clearly.

Thanks, Leigh, and thanks to everyone who joined us today. A great presentation and, I think, gave shareholders an opportunity to very clearly hear what the strategy of DigitalX is and will be going forward. So Leigh, thanks for your time.

Thank you, David.

And thanks to everyone who joined us today. If you have any follow-up questions or would like further information, jump on the DigitalX website, which is there on the screen, or e-mail the e-mail address there on the screen. This webinar will be made available for replay shortly, and we look forward to keeping you updated on what's next for DigitalX as it continues to lead the Bitcoin movement in the Australian region. Have a great day, and thanks, everybody.