Onfolio Holdings, Inc. (ONFO) Earnings Call Transcript & Summary

Good morning, and welcome to the Onfolio Holdings Full Year 2025 Earnings Conference Call. Joining us today are Dominic Wells, Chief Executive Officer; and Adam Trainor, Chief Operating Officer and Interim Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. Forward-looking statements are based on management's current expectations as of today's date, and the company undertakes no obligation to update or revise any such statements. For a detailed description of risks and uncertainties, please refer to the Risk Factors section of the company's most recent Form 10-K filed with the SEC. Additionally, during this call, management may reference certain non-GAAP financial measures and supplemental operating metrics as indicators of performance. These measures should not be considered in isolation or as substitutes for GAAP results. A reconciliation of non-GAAP measures to the most comparable GAAP measures is available in the company's SEC filings, which can be found on the company's website at investors.onfolio.com/filings. With that, I'll turn the call over to Dominic.

Thank you, and good morning, everyone. We appreciate you joining us for our first formal earnings call. For anyone newer to the Onfolio story, we are an owner-operator of cash-generating digital businesses, primarily in B2B marketing agencies and B2C online education. Since our IPO in 2022, we have grown revenues from approximately $2 million to $10.7 million in full year 2025, roughly a 5x increase, entirely through acquiring and operating real businesses that generate real cash flow. I want to spend a few minutes on what 2025 actually looked like before Adam walks through the numbers because the GAAP figures alone do not tell the full story. Coming into 2025, we made a deliberate decision to pause acquisitions and focus on getting our existing portfolio to a point where it could fund parent company costs. We have built the portfolio across 2023 and 2024, and the question was whether it was large and profitable enough to sustain itself and us. The honest answer is that we got close, but not quite there. Q3 was our strongest quarter. Portfolio level operating profit reached approximately $500,000 for the quarter, well ahead of where we started 2023. Although several of our businesses then faced headwinds in Q4, we still ended the year with full year portfolio operating profit of approximately $1.8 million, a significant increase versus roughly $600,000 in 2023. That improvement is real and meaningful, but it was not enough to fully close the gap between what the portfolio distributes and what it costs to run the parent company. I'll discuss what we're actively doing to close the gap later in the call. But first, I'd like to discuss notable progress across our 2 primary business segments, B2B and B2C. Within our B2B segment, 2025 was our first full year owning Eastern Standard, our largest business. Eastern Standard grew revenues approximately 10% year-over-year, built up its cash reserves and began distributing meaningfully to the parent company in the second half of the year. That is exactly what we acquired it to do. Toward the end of 2025, we began treating our agencies as a unified platform, creating centralized back-end fulfillment, shared sales and marketing infrastructure and clear accountability across the portfolio. We are calling this our agency co-structure internally. We believe it makes our agency businesses more durable and positions them for the changes AI is bringing to agency work. Clients are increasingly expecting more value at lower costs and agencies that adapt will thrive. In our B2C segment, Proofread Anywhere had a mixed year. We started the year strong. However, by the second half of 2025, we identified that our advertising spend was generating diminishing returns. So we deliberately pulled back to preserve profitability at the business level. That decision compressed revenue significantly, but we believe it was the right call. Q1 2026 has shown early improvement as we have carefully redeployed ad spend with normalized unit economics, and it remains a solid cash-generative business. The platform has been evolving from a single course-based model toward a broader freelancing education platform, which we believe positions it for stronger long-term monetization. Additionally, Vital Reaction continued to generate consistent cash flow throughout 2025. We have also been finding opportunities to consolidate media buying and ad creative across both B2C businesses. AI tools are now good enough to improve the quality and efficiency of our media buying in ways that were not possible a year ago. We expect this to be a meaningful lever in 2026. In November 2025, we secured a $300 million convertible note facility with a U.S.-based institutional investor. To date, we have drawn approximately $6 million under this facility. We entered into it with 5 primary objectives. First, to provide access to long-term capital and strengthen our balance sheet; second, to extend our operational runway and position us to acquire larger cash flowing businesses; third, to retire some of our existing higher cost debt; fourth, to improve capabilities within our current portfolio, specifically in lead generation and sales execution; and fifth, to deploy a portion of proceeds into digital efforts to diversify our balance sheet and generate staking rewards. Adam will cover the balance sheet detail. From a strategic standpoint, this facility has meaningfully changed how we can approach acquisitions, both in terms of deal size and speed of execution. I'll now turn over the call to Adam to walk through our financial results for the full year 2025, and then I'll return with more context on our go-forward strategy. Over to you, Adam.

Thanks, Dom. Good morning, everyone. Unless otherwise noted, all comparisons are full year 2025 versus full year 2024. Total revenue for full year 2025 was $10.7 million, an increase of 36% from $7.9 million in 2024. Revenue from services, our B2B segment, increased 62% to $7.4 million from $4.7 million in 2024. That growth was driven primarily by the full year contribution of Eastern Standard, which we acquired in Q4 2024 and contributed approximately $3.3 million in 2025 revenue as well as a contribution of approximately $91,000 from ddsrank.com. Revenue from product sales, our B2C segment increased 5% to $3.3 million from $3.2 million in 2024, reflecting the Proofread Anywhere platform dynamics Dom described, partially offset by the absence of WPFolio revenue following its sale in Q4 2024. Gross profit was $6.4 million, representing gross margin of approximately 60%, up from 58% in 2024. This improvement reflects the increasing weight of our service-based B2B revenues. As our agencies become more operationally efficient and service revenues represent a larger share of our mix, we expect gross margin to trend into the mid-60% range over the course of 2026. Total operating expenses were $9.3 million compared to $7.1 million in 2024. The increase reflects the full year inclusion of Eastern Standard and SG&A costs. We also incurred professional fees of approximately $1.2 million, which included approximately $175,000 in onetime costs, primarily expenses related to the required reaudit of our 2023 financials and the Eastern Standard historical audits, neither of which we expect to recur at the same level in 2026. We also recorded impairment charges of approximately $440,000 related to AllThingsDogs.com and ddsrank.com. Both businesses remain operational. Net loss for the full year 2025 was $2.6 million. That figure includes $2.4 million in noncash expenses, a $1.1 million noncash gain on the change in fair value of derivative liabilities and a $229,000 noncash loss on the change in fair value in our digital asset holdings. Excluding those noncash expenses, our operating loss improved from $1.42 million in 2024 to just $880,000 in 2025, a 38% improvement year-over-year. Our EBITDA as defined for 2025 was positive $151,000 compared to negative $588,000 in 2024. A full reconciliation of this non-GAAP measure is included in our 10-K filed with the SEC. To frame the portfolio level picture that Dom referenced, when you isolate our portfolio businesses from parent company overhead, portfolio operating profit grew from approximately $600,000 annually in 2023 to approximately $1.8 million annually by the end of 2025. That underlying improvement is not fully visible in the consolidated GAAP figures, but it is the metric that most directly reflects the health and trajectory of our businesses. As of December 31, 2025, we had cash of $2.17 million compared to $477,000 at the end of 2024. That improvement reflects proceeds from our convertible note facility, partially offset by approximately $500,000 in legacy debt retired during the year and ongoing operating costs. Our Digital Asset Holdings had a total fair value of approximately $2.3 million as of year-end, consisting of 5.32 Bitcoin, 318.33 Ethereum, of which approximately 288 are staked and 6,786 Solana, all of which are staked. These holdings generate staking rewards, and we view them as a long-term balance sheet asset rather than a trading position. On debt, total outstanding indebtedness was approximately $7.8 million across several instruments detailed in Note 11 of our 10-K. The largest component is the $6 million drawn under our senior secured convertible note facility maturing November 2027. Our remaining obligations are primarily acquisition-related seller notes, $850,000 related to Eastern Standard maturing October 2026, $303,000 related to the revenues and earn-outs and $200,000 related to DDS Rank maturing June 2026. The retirement of approximately $500,000 in legacy debt in 2025, primarily higher cost seller notes from prior acquisitions, results in approximately $150,000 in annual savings on interest payments going forward. While total liabilities increased with the convertible note facility, the retirement of these legacy obligations meaningfully improved our recurring cash burn profile. On our Series A preferred stock, 170,460 shares are outstanding, carrying a 12% cumulative annual dividend payable quarterly. Accrued but unpaid preferred dividends were approximately $122,000 as of year-end. Those accrued and unpaid dividends were paid the first week in January. The Board retains discretion over dividend declarations. With that, I hand it back to Dom.

Thank you, Adam. Our priorities for 2026 are clear: generate more cash flow from the existing portfolio, resume acquisitions that immediately add to that cash flow and close the gap between what the portfolio distributes and what it costs to run the parent company. When those 2 numbers cross, we are self-funding, that is the goal. Portfolio operating profit grew from roughly $600,000 annually in 2023 to $1.8 million annually in 2025. Parent company overhead has come down approximately 35% from its mid-2023 peak. We are closing the gap from both directions simultaneously. And we are following 3 levers to get there. First, disciplined cost management at the parent level. Nonrecurring expenses from 2025, including approximately $175,000 in reaudit costs will not repeat. The retirement of legacy debt saves approximately $150,000 annually in interest. Our recurring parent company cost base entering 2026 is materially lower. Second, improving cash generation across the portfolio. The Centralized Agency Co sales and marketing initiative is designed to drive meaningful revenue growth across the agency platform. We believe a 10% increase in agency revenue gets us close to the profitability threshold, a 20% increase gets us there, but 30%, we're comfortably past it, assuming continued stability in our B2C segment and ongoing overhead discipline. Third, selective acquisitions that add immediate cash flow. One or two properly sized acquisitions could close the gap to self-funding more meaningfully than organic levers alone. Our B2B segment currently consists of 6 agencies, Eastern Standard, RevenueZen, SEO Butler, Pace Generative, Contentellect and DDS Rank. We are consolidating these into the agency co structure with centralized sales and marketing. Previously, each agency managed its own business development. A centralized approach will produce better results, better accountability, better resource allocation and better conversion across the platform. A key part of that is how AI is changing what agencies can deliver. We are already using AI tools to drive efficiency and fulfillment across the portfolio. Agencies that lean into this shift will be able to deliver more value at lower cost, which is exactly what clients are asking for. In our B2C segment, we are focused on improving the profitability of what we already own rather than adding complexity. For Proofread Anywhere, Q1 2026 is tracking ahead of Q4 2025 as ad spend have been carefully redeployed. For Vital Reaction, we are finding real opportunities to consolidate media buying, ad creative and e-mail marketing with Proofread Anywhere, reducing costs while maintaining reach. After pausing acquisitions through 2025, we are actively back in the market. The financing facility has changed our position meaningfully. Deal flow has increased in both size and quality since our November announcement. We are now evaluating businesses with characteristics that were previously out of reach, stronger management teams, lower revenue concentration risk and more predictable recurring revenue. Our pipeline today represents approximately $5 million in potential acquired EBITDA, which at our current portfolio margins would represent a meaningful step forward towards self-funding at the parent level. We may not pursue all of them, but the caliber of what we are seeing is meaningfully different from where we were a year ago. Our ideal acquisition at this stage, consistent cash flow that distributes to the parent immediately, no integration complexity that pulls focus from existing operations and financing that does not meaningfully increase our interest burden. So to summarize, our plan is straightforward, control costs, grow portfolio cash flow and acquire additional profitable businesses. 2025 was the year we built the operational foundation. 2026 is the year we intend to demonstrate that the platform can fund itself. Our liabilities are lower than a year ago on a recurring basis. Our balance sheet is stronger and our agency portfolio is better structured than it has ever been. I'm confident in our team and in the direction we are headed. With that, I will hand it back to the operator for questions.

[Operator Instructions] Our first question comes from the line of [ Edgar Zadorozhny ] private investor.

Congratulations guys on doing the earnings call. It's nice to hear both of you. I'm happy with the progress, but there's a few things that stood out that I think some of us would like to know. So about the -- we are currently in default preferred into senior secured notes and orchestration rights. So my question, what exactly is current state on negotiation with noteholders? What's the remedies as of today? What's the worst-case scenario regarding the potential dilution? Can you discuss a little more about this?

Yes. I mean we're still in negotiations. So I think we have to be limited with what we say. I can't really say anything that is not public. But basically, we will -- when negotiations are finished and any waiver gets signed, we'll file an 8-K, so people can look out for that. I think the potential impact on dilution would be a slightly larger discount to the VWAP calculation on dilution. So instead of, say, 97%, it would be 85%. But yes, as I said, we'll give an update on that in due course by an 8-K.

All right. If I may have a few more. Can we expect in the near future another acquisition similar to Eastern Standard? It seems like that's the one that kind of really bumped up things and makes acceleration. Is this something you're looking for a similar one like Eastern Standard or something a little smaller, something a little bigger? I know you're kind of looking at the things, just trying to get the feel for potential acquisitions.

Yes. I guess are you referring to the size of the business when you say similarities?

Yes.