K33 AB (publ) (K33) Earnings Call Transcript & Summary

Good morning, and welcome to this Q2 Presentation for K33. My name is Torbjørn Bull Jenssen, and I'm the CEO of K33. And Q2 has been a really important quarter for the company. We have achieved our MiCA license, which really forms the foundation for our further scaling and growth as we attack the European market. But to remind you all first what K33 is because many people think we are a crypto exchange. We do actually more than that. We are a platform built for businesses and investors. We offer professional execution with really tight spreads, no fees and institutional-grade liquidity, meaning that you can get in and out of the market with both large and small orders alike without worrying about slippage or poor execution. We offer our clients currency flexibility. You can deposit, trade and draw in 8 different fiat currencies, so you can avoid extra FX costs and get your accounting in your preferred currency. We offer tailored custody with multi-sig set up together with our clients, segregated not only from the company funds, but also from other clients, on-chain auditability. We're combining this with lending where clients can borrow money using their Bitcoin or cryptocurrency as collateral such that they can free up liquidity without having to sell the assets they have a long-term view on. And lastly, we complement all of this with market-leading research and insight to where the market is headed, dedicated support, access to real humans when you need it. Of course, you can use the platform without ever speaking to anyone. But if you have a question, we're always there to answer. And this is what we're now truly bringing out to the European market. Looking at the first half of this year, we saw kind of relatively low growth of 10% relative to last year. Q1 was pretty good, but Q2 has been extremely quiet. And the reason has been the general market, where we saw a massive drop in volume across the board. This, of course, affected K33 as well as our activity is highly correlated to that of the market. More importantly, though, we secured the MiCA license, which really creates the foundation for our further growth and journey from here. We passported initially now to Sweden, Denmark, Finland and Germany to start addressing these markets more actively before we scale even further. We deepened our relationship with a portfolio company, Sixty Six Capital, a Canadian-listed Bitcoin treasury company, where we now have taken over the management and acquired a 200 Bitcoin call option giving K33 an indirect exposure of around 95 Bitcoin -- 94 Bitcoin. And lastly, reflecting our good standing, Cboe Europe reached out and said that they are now ready to list our share on their market. So in addition to being available on First North, Cboe is making the share available to a broader investor base because they see demand for a company like K33 amongst their investors and users. But looking at the market, Q2 was actually pretty depressing. Interestingly, after the quarter and just right now, the market is on fire. Bitcoin has taken a massive jump up, and everything indicates that the worst now may be behind us. But during Q2, Bitcoin fell down to $58,000 and volumes dropped almost 30% relative to Q1, which itself saw a massive drop relative to Q4. So this market drop is what impacted K33. But if you have a long-term view, a quiet and bearish market creates opportunity. And we saw that opportunity when volatility collapsed and options became increasingly cheap. That's what we took advantage of when we brokered a 200 Bitcoin option deal from K33 on behalf of Sixty Six Capital. So we bought volatility cheap and secured a lucrative long-term upside exposure to 200 Bitcoin above this price of $100,000 for the next 12 months. But looking at the quarter specifically, this resulted in lower volumes and lower revenue. First half seen together, we saw modest growth below what we really target long term, but still good, taking into account that the general market actually fell. Q2 came in weak and some of the quietness continued into the summer. We had a mild negative result looking at cash flow and the adjusted EBITDA and a larger negative result, mainly driven by the revaluation of Bitcoin on our balance sheet. Of course, Bitcoin is volatile. Activity is volatile. Variation should be expected from quarter to quarter, but the underlying growth trend for both K33 and for Bitcoin is, in my view, very much intact. And we see this when looking at the 12-month rolling volume. Yes, we saw a pullback during the summer, but we still managed to keep it above SEK 2 billion, and we show that the longer-term trend is intact. And the reason we're able to keep this up is because of our focus on larger private clients, corporate clients and institutional partners. We already have clients in all these segments. And with MiCA now in place, we are in a position to really start accelerating and scaling this more efficiently. And that brings me to the biggest headline of the quarter, the licensing. Across Europe, estimates circled that it was around 2,500 different cryptocurrency providers prior to MiCA and that around 200, 250 has been granted a license. It's a massive washout. This really creates a competitive advantage for the licensed entities, companies like K33. We received our license unconditionally from the Norwegian FSA. And this is what we are now building on, as we're starting to move out towards the broader European market, having notified the regulator about our intention to targeting the Swedish, Danish, Finnish and German markets first. Targeting these markets, we are not going to go after retail. We're going to stay true to our focus, which is on the larger private and corporate clients. So right now, the foundation is in place. It was a massive undertaking. Most companies failed achieving the license. We didn't. Now that is in place, and now we can focus 100% on commercialization and growth. Looking then over at our Bitcoin balance sheet. We're taking some active measures after the quarter. So we've taken over the management of Sixty Six Capital, the company listed on the Canadian Stock Exchange, where we acquired a 46% equity stake earlier this year. The reason for that acquisition was to combine the synergies of K33's operational business with a Bitcoin balance sheet of Sixty Six. And what we're proving now is that we can really harness those synergies by actively managing the Bitcoin of Sixty Six, moving them from an ETF on-chain, seizing opportunities like buying a call option and putting these Bitcoins to work in the K33 business model. We can prove that it's possible to not only sit long Bitcoin and be exposed to what I believe will be the best-performing asset over the coming years, but you can do better, you can also generate a yield and alpha, like an excess return. And that is what we're now starting to prove with Sixty Six to the benefit of both companies. But more interestingly, Sixty Six isn't the only Bitcoin treasury company out there. There's a ton of others with a strong balance sheet denominated in Bitcoin, but with a need of a complementary business model. That represents a massive opportunity for K33, where we're using Sixty Six as the proof of concept, which we potentially could bring to others and scale with other partners in the industry as well. So to summarize, we are now licensed to scale. The focus is shifting from achieving and obtaining the MiCA license towards accelerating commercial growth. The market looks like it has bottomed and is now starting to wake up. Volatility is expected, both in the K33 activity and in the market. But the long-term trend, I believe, is extremely positive. And we will stay sharply focused on our strategy. We will continue expanding through partners, but now on a European scale. We will continue our iterative product and feature development giving our clients what they need, adding new services, like we did with loans earlier this year. We have other services that are coming up and exciting features that will be announced in due course. And we're really building this to bring kind of the future of digital finance. We still believe that we are in the very early days of the adoption of Bitcoin, cryptocurrencies, stablecoins and that the whole financial industry will face a massive change over the coming years. And in that change, K33 will be a driving force in Europe. Thank you so much, and have a great day.