Hilbert Group AB (publ) (HILB-B.ST) Earnings Call Transcript & Summary

Good morning, and thank you for joining me for Hilbert Group's Q4 update and 2025 outlook. To begin, I wanted to go over some significant events from past quarter. We made some interesting and strategic strides in Q4 2024, which was otherwise a rather difficult year, to be honest, largely driven by lack of institutional and organic inflow into the asset class. However, in Q4, some of the milestones that we were able to achieve, and that's up on the screen now were significant. In Q4, we saw major growth in our asset under management, where we more than 10x our asset base. This means that we now have surpassed the previous AUM target of $300 million, which was set back in 2022. This growth was driven by 2 major factors. The first one being the strategic partnership with Xapo Bank, where we won the mandate to manage the Byzantine structured credit fund. This fund has now grown to roughly 3,300 Bitcoin in size and has a current yield of 4.02 percentage. And we anticipate a strong growth trajectory for this specific fund, and I will comment more on that later in this presentation. The second point on the screen as well as the second factor for our AUM growth is the acquisition of Liberty Road Capital, which was announced last quarter. Liberty Road currently manages roughly $110 million in assets. This acquisition is strongly value accretive for Hilbert, not just from asset under management perspective but with this transaction, we have acquired many strongly performing trading strategies or routines that enable us to upgrade our product menu. Additionally, Liberty's client base is divergent to Hilbert's in the sense that while Hilbert has largely institutional LPs, Liberty's client base is much more in the high net worth and family office space, which then allows us to have a strong foothold in this new client category. Furthermore, we have also acquired all of the advanced AI tools and IP that Liberty had. This allows us to significantly upgrade Hilbert's trading and analytical capabilities on the asset management side, and it also makes way for new user-centric AI-enabled products on the COIN360 side as well. Additionally, as of 1st of January this year, I have taken over the responsibilities of CEO from our Co-Founder, Niclas Sandström, who continues to remain active within a strategic and operative role at Hilbert Group, and he's also now serving as a Board member. Finally, we have made a substantial effort on the COIN360 side of the business, where we spent almost upwards of $1.5 million last year in comprehensively rebooting that platform. Since then, we have also announced our newest project, which I'm very excited to speak to you about today later in the presentation called A360. A360 is Hilbert's decentralized finance or DeFi RWA solution. RWA, of course, stands for real-world assets. At the onset, A360 will be a spot trading platform for pre-IPO shares such as OpenAI, SpaceX, Anthropic, et cetera. And as I said, I will go over this specific project in a little bit more detail later in the presentation. Some of the financial highlights from the previous quarter. So the revenue landed at around SEK 42.2 million last quarter, which led to an operating profit, or loss in this case, loss of circa SEK 11.3 million. The profit and loss for the period in total was just under SEK 1.5 million for the quarter. Underneath the second table that you see, the thing to highlight here from my perspective is the fund management fees. Quarter-over-quarter from 2023 to 2024, there was clearly a significant jump in fund management fees, and we continue -- we will continue to see this growth as the benefit of Xapo growth as well as Liberty Road's revenue, which is not in this -- in the Q4 2024 numbers, will flow through in the subsequent quarters. So just to frame the conversation as to where we are with all of the strategic steps that we took in Q4. To give you a broad understanding of our products and services, Hilbert is set up as a crypto firm. The firm has 2 main lines of the business. One is asset management and one is what we call crypto infrastructure. Under the asset management, we do traditional fund management business as well as we have taken large steps in being a solution partner to our clients, whereby we are providing bespoke investment solutions to specific client needs. And as you can see, the fund management with the acquisition of Liberty Road specifically now has products across the risk spectrum. That includes a multi-strategy Alpha fund, which we are launching as of 1st of April. We already have an enhanced version of the long-only smart beta fund, and we are running the Xapo Byzantine Bitcoin yield fund or Bitcoin Credit Fund. On the investment solutions via either SMAs or other avenues, we are able to provide yield enhancers, treasury management, directional as well as long/short strategies to our investors. On the crypto infrastructure side, there are 2 main things to focus on. One is coin360.com, which, as you know, is a data and analytics platform as well as focuses on news and research. A number of developments on this specific site will be spoken to later in the presentation as well. And A360 is the newest project, which focuses on tokenization and RWA trading platform. To give you an idea as to the performances that we have been able to achieve by virtue of acquiring the trading strategies from Liberty Road as well as our own, there are a few of the numbers to highlight on this slide, specifically the basis plus strategies, the second and the third line items. The second one is Bitcoin denominated. The third one, that's a basis plus USD dollar-denominated fund. These are largely market-neutral or delta-neutral strategies, so very low volatility. And they have put up extremely strong numbers, both in 2024 and year-to-date in 2025. These type of strategies, in addition to the ones that we already had in-house at Hilbert, we are able to create a diversified alpha product, which would be multi-strat in nature, the last one on this slide. For institutional money that is looking for capacity in strategies, which is a constraint in crypto space, and that is looking for extremely low drawdown and steady returns. Just to flag additionally, the current yields for Xapo Byzantine Credit Fund has also remained pretty steady, just over 4%, both last year and as it stands today. Essentially, what this gives you is a view to the success in the sellability of these products that we currently have and the newer product menu of Hilbert that spans, as I said previously, the entire risk spectrum of existing and newer crypto allocators. Here are some financial highlights from 2024 year-end and projections for the coming year. Total asset clearly saw an exponential growth last quarter due to the 2 main factors that I have already spoken to. As of January, we were around $450 million in dollar terms in total assets. We anticipate to end the year over $1 billion, the specific number being $1.25 billion, and this will be achieved via 2 main factors. One, the previous projections on the Xapo fund still holds true. This fund currently is being worked to be provided via a phone app that Xapo Bank deposit holders and clients have access to. And once that goes live, we anticipate a pretty steep increase in the AUM in that fund. And then the second thing is the multi-strat fund that we are launching as of 1st of April, which has large amount of capacity, very attractive returns, as shown in the previous page. And we anticipate that even though we will not have the same rate of growth as Q4, we will be able to achieve substantial asset base growth in whole of 2025. That should put our asset management income, including Xapo and for 2024, the number does not include or exclude Xapo-related revenue. For 2025, our total asset management income should land somewhere around $6 million in terms of projection. On COIN360 side, as of 2024, prior to even the product upgrade, we had over 2 million monthly visits to the website. As we sit here, we have over 5 million monthly visits with the new product, which is in the beta phase currently. And we anticipate by 2025 end, this visit will easily surpass 8 million. On COIN360 side, there is additional efforts on the ad revenue-related efforts, and that should take the meager $360 revenue to $1.5 million in our projections. We are introducing subscription models onto the COIN360 ecosystem as well. There will be 3 layers of subscription tiers. However, for revenue projection purposes, we have assumed a very conservative 0.2% conversion rate of these visits that are on the screen and a subscription fee, which is the basic tier of $15 a month, that should give us an additional revenue of $3 million by the end of this year. In addition, COIN360'S new platform has access to trading swaps on other platforms by which we receive a portion of the fee. This swap-related revenues will account for about $0.5 million in additional revenue as well, which puts the total crypto infrastructure, specifically COIN360 income at $5 million. And in these projections, we are completely ignoring the A360 project and the revenues relating to that, which is, in my personal view, extremely conservative and has high potential of being quite profitable quickly. But even with just the asset management and the COIN360, we should end up somewhere around $11 million in total income and which would take our 2024 negative cash flow of about $5 million, which includes the capital expenditure that we spent on COIN360 last year, and we do not have that in 2025 to a positive net cash flow of $6 million. Looking forward to 2025, and here, I wanted to speak to you in 2 distinct lines of the business, as I have laid out at the very beginning. On the asset management side, our new multi-strategy fund is set to launch on 1st of April. This is a key product in addition to all the other very well-performing products on our menu. It is largely because the multi-strategy by virtue of allocating to different types of routines means that the multi-strat fund is truly scalable in nature. And because it has less of a capacity constraint and diversified sources of return, it is a prime candidate for institutional allocators who we believe with the change in the U.S. administration and regulatory environment-related changes are finally due to arrive in 2025 Q3, Q4 time frame. Our pipeline on this screen, which is on the right side of the slide, currently stands around $750 million equivalent. Please bear in mind, this excludes the Xapo Byzantine credit pipeline. That's a separate discussion. Here, the pipeline represents the 2/20 fees hedge fund AUM that we will be -- we are looking to get by virtue via the Liberty Road-related products and the newer multi-strat that we are launching. A note on the Xapo Byzantine scaling as well. Away from just the unlock relating to the Xapo's own equity investors, there has been significant interest on their side from their existing investor that are looking to access yield products. And they are in active discussion in receiving further licenses, which will enable them to offer the fund via their banking app. And as I mentioned prior as well, by virtue of offering this via the Xapo banking app, it opens up the fund to a much, much larger audience as well. And thus, they reiterate the previously stated target of being about $2 billion by the end of 2025. That's $2 billion equivalent in dollars. Clearly, the fund is Bitcoin denominated. COIN360 and A360 side of the things in February, earlier this month, we launched a Telegram Mini app for COIN360. And this Mini app will expand the ecosystem as we have seen with other Web3 related projects. Also, as mentioned, there will be 3 new subscription tiers later in the year that, in fact, in Q2, which will lead to the new sources of revenues for the website. And this is in addition to the advertising income and the swap income that I spoke to you about in the previous slide. A360 is the project that we are currently most excited about. And this is because tokenization and real-world asset-related growth in the crypto space has been significant. And in fact, it remains to be one of the areas where maximum growth is anticipated in the next couple of years. A360 has already announced partnerships with leading DeFi specialist, Private Pool Networks that will deliver what we call the trading platform or the DEX decentralized exchange on which the assets such as the pre-IPO equities, bonds and other assets will be listed and people can trade and thus providing us trading revenues, tokenization fees and additional governance token-related revenue on the platform. We are in the final phases of signing contracts with American SEC and FINRA licensed broker-dealers that will bring or enable the bonds, equities and pre-IPO stock trading, which are essentially securities. It also allows us to not only trade in U.S. market, but eventually by acquiring and partnering appropriate licenses, we will expand the distribution network to the retail, which is a very exciting development in the works. So in conclusion, we had a difficult first 3 quarters in 2024 due to market conditions. However, we have taken some strategic and important steps in Q4, the benefits of which we will see -- not only see in 2025, but gather momentum for the years to come. We are on track to turn cash flow positive in Q2 2025 or this year, which is as per the previous guidance that we provided to you at the time of last raise. I thank all of you. And if you have any questions, please feel free to write to us or call us. You can reach us via e-mail and we'd be happy to answer any questions that you might have. Thank you very much, and I look forward to speaking to you again with the next update.