Realbotix Corp. (XBOTF) Earnings Call Transcript & Summary

Hello and welcome to the Tokens.com Year-end Financial Review Conference Call. My name is Cheryl, and I will be your operator for today's call. [Operator Instructions] Please note that this conference call is being recorded. I will now turn the call over to Andrew Kiguel. Sir, you may begin.

Thank you very much. Welcome, everyone. On the call today from Tokens.com is myself, Andrew Kiguel, the CEO; Martin Bui, our CFO. Deven Soni, our COO; and Jennifer Karkula, our communications side. So in terms of reviewing the year, I mean, 2022 has been a frustrating year on many accounts. It's been frustrating for sure on the share price, although as a company, it technically achieved quite a lot and unfortunately that's always overshadowed by -- which has been generally a bad year in cryptocurrency and in the markets as a whole. Today, I do believe we're a better company than we were a year ago when we had close to a $400 million market cap. And in terms of things we can control, such as reducing our overhead build in good businesses, I think we've been successful. And areas that we can't control such as crypto price, our share price and national events, we've obviously suffered through that. But with that, maybe let's just dig into some of the key things of the year for stakeholders and shareholders to understand. In terms of our year-end cash and crypto balance is approximately $13.1 million or CAD 18 million. That's equivalent to $0.13 U.S. or CAD 0.18 per share. One of the questions that I always get asked is what is the capitalization of the company. And we've seen so many bankruptcies in this space that people are always really concerned about everything going on in there, some people will well capitalized, we have an inventory of liquid tokens plus cash. I don't foresee us requiring any capital next year. So companies well capitalized. In terms of total assets, $20 million -- $20 million, $21 million or close to CAD 28 million that's equivalent to $0.20 to $0.28 per share. And I list these out because that last book, we're trading at around $0.08 per share or something like that, U.S. and about CAD 0.11. So certainly feel we're undervalued and that the intrinsic value even in the audited statements for some of our businesses have reflected. Our start-up subsidiaries, Metaverse Group and Hulk Labs both became revenue positive this year, not huge numbers yet. But again, these are nascent businesses and areas that we're continuing to grow and build and innovate. Some of the key highlights of the year is Metaverse Fashion Week, which was hosted on the digital land, owned by Metaverse Group, attracted over 100,000 visitors, over 60 brands. Hulk Labs is only launched at the beginning of this year in the plate -- a gaming sector, which I think we've made a lot of great inroads and there are being some really exciting things there. Metaverse Group has had a really great year, lots of big tenants such as Forever 21, Skechers, UPS Store, and there's a whole bunch more that are going to be announced in the new year that the company has landed and is working on. They hosted the digital version of the Miami Fashion Week, entered into an exclusive or into a partnership with AIR MILES. So lots of positive things there. On the Hulk side, that continues to grow. We entered into an exclusive partnership with the Democratic Republic of Congo. There's now a workforce of over [ 1,000 ] players. We did the acquisition of Playte Group, which has a proprietary software tool that we'll use to integrate potential investors and play to earn into the gaming economy. And we did the completion of a small strategic investment round at Hulk Labs and U.S. [indiscernible] about $11 million postmoney. Again, Hulk Labs, on our balance sheet is carried, I believe that almost 0, yes, the market sees as -- the interest value being much higher. When I look at sort of the year, it's been a really frustrating market. I struggle with the fact that there have been so many disappointed shareholders and I trying to respond to everybody. Obviously, I can't control the share price, and I note that while we followed a lot, we fall in line with other crypto companies, especially the small cap ones. Management remains aligned. We own 25% of the company, the management and the Board and we have a view, as I say, in the press release with an eye creating value in the long term. And what do I mean by that is I have always tried to be careful towards the capital. There's no hail marries here. One thing I talk about, we've been approached by about 7 different other public crypto companies that are looking to merge or buy us, nothing has resulted in anything, but when we sort of scratch to service, everybody sort of looks at us and it's the cash they're interested in because we are so well capitalized. Although we're in, what is considered, a secundative area being crypto, the Metaverse is bigger in game. We have been adopted at the table here. We've tried to manage things carefully. We haven't gone out and gone everything but I said I think that shows up on our balance sheet. I'll mention again, 2022 is marked when you look at our income statement, it's marked with a lot of losses, and most of those are noncash of the peak. We have to revalue our token inventory quarter-to-quarter in our [ NFT ] inventory quarter-on-quarter. So what that means is that something at $1 and it trades $2, you can show that gain of $1 and it drops back to $1, the next we have to show that as a loss and got nothing changes in terms of what we're holding, but it's always reflected as these noncash flow which, again, don't impact the growing businesses that we have, but certainly makes the income statement look fairly unattractive. In terms of the market, I've already talked about, this has been one of the worst years in terms of the S&P and the NASDAQ, on the record. There's been a ton of macro factors, including several interest rate hikes in space, high profile bankruptcies and failures, fraud, places like FTX, [ at Carolina. ] It's been a bad year. And where in 2021, I would say, more so -- overvaluated assets, which was really a result of the economic stimulus that the government added into the system post-COVID, everything sort of came back and sort of went the other way. And so whereas I think we may have been overvalued towards the end of 2021, certainly, things are seeing the other way that we're significantly undervalued today. In terms of our operations, and then I'll say this, I'll move it over to Martin. We've been an early mover in lots of areas such as the Metaverse, play-to-earn gaming. These are all areas that we remain highly confident that are going to be impactful in the future. Again, we've been overshadowed by the poor performance of crypto currency this year and high-profile dealers in the sector. We're still feeling quite confident, we're in the right areas. We do have an eye on the long term. As I said, It's a struggle for us, and it's frustrating to see people disappointed in the share price. Again, we're looking at this with a long-term perspective. We did recognize that the 2022 crypto prices were almost out in the downside. Our ownership of cryptocurrency inventory resulted in some significant noncash losses related to the revaluation of these assets. We have taken steps post the quarter to sell down some of those crypto assets in favor of holding cash. Right now, our crypto inventory is primarily in the form of [indiscernible]. The reason why is we just don't know where the market's going to go. There's talk about dynamics potentially having issues and other things. So we just want to make sure that the company is well capitalized regardless of what happened in the crypto market. We've taken a lot of steps to reduce corporate overhead and preserve capital. As I said, again, as of September 30, we had $5.8 million of cash and $7.3 million in crypto tokens, respectively, USD 13.1 million, in terms of what I would call cash or cash equivalents and approximately CAD 18 million in cash equivalents. I'll note again, we're not a crypto exchange. We don't engage in performance enhancing dividends or leverage products. We do not custody assets for other people. There's no room here for things like [indiscernible] or anything else. We only custody our own assets. We don't have external clients that we manage assets for. And as we look forward, again, there's more information in the MD&A regarding Metaverse Group and Hulk Labs and the rest of these businesses. But we're really focused on positioning these businesses to be leaders in the space. I continue to be excited about what we're building in those areas. We did pivot a little bit away from just being a pure staking company. I think that's a positive thing. I don't think that these new businesses are adequately reflected in our financial statements or on our share price. But over time, we think this will benefit to shareholders. So with that, maybe I'm going to turn it over to Martin to give a quick review of the financial statements, and then we'll open it up for Q&A.

Great, thank you, Andrew. Hello, everyone. Thank you for attending the call today. I understand this is not be the best time for you for the call, so I promise I'd be quick so that we can turn over to Q&A with Andrew. So like I said, I will be going over the financial statements and details. I believe the shareholder and supporter of the company, which we're always grateful for. You understand these periodic revaluation of our crypto currencies and other items such as warrants which create these noncash accounting gains or losses every reporting period that really do not matter to our operations. So I won't go over those, but I'm happy to take any questions regarding the financials later. So before I proceed, I want to remind the one that our numbers presented are in U.S. dollars, unless otherwise stated. So our revenue for the 9 months was $678,000 compared to $1.1 million for the 12 months of last year. So if we annualize our 9-month revenue, you get very close to last year, despite the markets have changed significantly. This is because of the 2 new revenue streams that we added throughout the year from our 2 subsidiaries, Metaverse Group and Hulk Labs. Our operating expenses for the 9 months are $2.7 million, a 60% decrease from the 12 months of last year of $6.3 million. Excluding share-based compensation, real cash expenses come to about $2.5 million. So if we look at our cash balance at the end of the year of almost 6 million and how little debt we have. This shows that, again, Tokens.com is capable of paying for our overhead in cash expenses for the next 14 to 20 months without a need to raise capital. And this is excluding the revenue that we earn with the Metaverse Group, which is 100% in cash, the liquid tokens that we have available to sale and management is always looking for ways to reduce our overhead. So again, I just want to point out a few highlights that really matter to our operations. I'll now turn the call back to Andrew. Thank you, everyone, for listening.

Thanks, Mike. So just before I open it up to questions, again, my view is, I think, we're a better company today than we were 12 months ago, although we had a much larger market cap 12 months ago. Why? I think we have more cash, a straightforward business. I think our business compared to other public crypto companies is a lot better than most of them out there. And again, why? Because we've been good stewards of cash. Our businesses have more growth potential. We're not involved in highly regulated businesses or have to test the other people's assets. So again, this has been, I would say a year of struggle on the capital markets for us. We're working hard to try and continue to get our story out there, and we're hoping that 2023 has better things in sight for us from a public market perspective. So operator, with that, I can turn it over to questions.

[Operator Instructions] Our first question comes from Joshua from Capital Markets.

So, I just want to ask first, obviously, with the market kind of being weighted, just kind of with FTX issues and maybe potentially finances. Are you guys noticing something -- anything in the regulatory market and what that might mean for you guys?

Nothing for us. Most of the regulatory oversight involves protection of people's assets. We don't custody assets for anyone. If you go through our businesses, on the stake side, which take their own assets, they remain in our custody and we earn a yield for helping their validated blocks in the blockchain. On the Metaverse Group side, a lot of what's being done there, it's almost turning into what I would call some of this marketing agency business where we're landing big Tier 1 clients and dealing with the marketing departments of these clients, and these people aren't necessarily concerned with the price of crypto. There like what can we do here to create something immersive as a way of interacting and becoming better ways of us interacting with our clients. And the next Hulk Labs, similarly, we're using our own assets, we have the sort of this player network that are playing games on our behalf and earning revenue for us. So there's nothing really that we're doing that would get regulated to answer your question.

Okay. Yeah, perfect. I know you guys obviously have a lot to deal with in the Decentraland. But I know you guys kind of own also there like just Metaverse parcels. Can you guys provide us an update just on those?

Sure, Metaverse Group owns now in 12-plus different Metaverses. A lot of the attention does so to Decentraland and I think 40% or 50% of the digital real estate owned is in Decentraland, but Decentraland has the advantage of being somewhat more advanced than some of the other players. And so Metaverse Fashion Week in the Northern Decentraland has come under some criticism in the last few months over a number of people that are in it or visitors. But we hope for our events, we did a lot to attract people for the fashion show, attracted 108,000 visitors. We recently did a music festival that I believe attracted over 10,000 people. So it's just an easy place to do that. But in terms of Metaverse Group, the idea is to remain Metaverse agnostic. And the new installations that are being done there being done across several Metaverses and trying to get integrated with things like Twitch and YouTube and areas like that, to create a broader presence and to be more sort of touch points with potential clients for brands.

Okay. Perfect. And so obviously, you guys mentioned earlier in this call and also I think MD&A and news relates how you guys are just lowering overhead. So I'm guessing what I'm looking at it is this year, it's like CAD 800,000 in professional fees and roughly say, like $400,000 in management fees. Is that kind of a good number to look at going forward?

Well, my target is that outside of like things like share grants and [ DSUs ] to the Board like in terms of cash spend. I'd like to get everything below CAD 1.5 million for 2023. So including salary fees, everything, products, legal fees.

Okay. And then you also mentioned just how you guys were not needing to basically raise capital in 2023. And so how do you really kind of plan on just kind of investing in additional assets over this next year.

So the business is more than investing in assets. On the staking side, for sure, that means we're not going to be deploying new capital into staking. That remains there is a reserve. And I think it was 6.6% or 6.9% was the yield for us on our staking assets in 2022. Metaverse Group and Hulk Labs are self-sustaining. They don't need new capital to grow and the growth in those businesses is more dependent on gaining customers. And so at the Metaverse side, it's a B2B play. There's a fairly large pipeline of businesses that there's work being done. Those installations will be announced in the year. But the investments in those businesses are really covered by their revenues, something that Hulk Labs, [indiscernible], there's no asset investment department there. What I'd say the market became linked again, and our share price was just $3 or $4, we would certainly consider raising capital to things like speaking. But as of right now, the key thing is to make it through trip to winter, I think we can more than adequately do that, but sure that might mean the expense of going into a whole bunch of new capital or new businesses.

Okay. And then last before I go back in the queue. I know that since you guys are now seeing positive revenue both Hulk Labs and your Metaverse divisions. So do you guys have any kind of foresight on how maybe next year how does revenues will look for both for your play to earn and Metaverse.

Well, we do, but I don't want to provide guidance. Yes, I think we're too small in the area that there's some volatility, but I would say, internally, we certainly have robust forecasts within each of the businesses. But at this time, I'm not prepared to give guidance on revenue or the rates.

[Operator Instructions] Our next question comes from Bill from Stifel.

So my first question is in regards to the decrease in staking revenues for the period. Obviously, asset prices came down in the quarter. But wanting to get a little bit more color on what management was doing during the quarter that may have also contributed to the decrease in staking revenues. My understanding is that you liquidated a substantial amount of the portfolio -- or a substantial amount of tokens following the quarter. What's -- were you guys trying to unstake a lot of these assets in the third quarter, just given the lag in getting those tokens back after unstaking. And if you can share some color on what proportion of the portfolio is stake today versus unstake?

Sure. So in terms of the question, staking is, it's somewhat of a path of business. And so the issue on the revenue and why it's one is last year we're staking E, which is primarily what we're staking now, and you earning E, I think E hit a high of about $4,800 or something. Your revenue accounts as $4,800. This year, E is taking at around $1,200. The staking, the amount of tokens that you see doesn't increase because we're staking and getting paid in the native token. And so we're receiving the yield of whatever is 6.9% or close to 7% in E that we receive an E. And so whereas the revenue last year would have been $4,800 for every E stake, this year, it's only $1,200. So it's not necessarily anything that management has done to decrease the revenue. Like I said, it's somewhat of a passively operated business. Frankly, it's just the price of crypto came down, and so the value of what we've been staking was less. Not that similar to maybe a mining company where you mine 10 bitcoin last year versus 10 bitcoin this year, same amount of bitcoin you mine, same amount of work, but the revenue is going to be far less this year. In terms of what -- to your other question, disposal. We didn't dispose that much, reported a press release, and I think it was CAD 1.4 million. And it was just a decision to say, there was a whole bunch of other being smaller tokens that we are staking like Oasis, FTX and some other things that. We said it weren't necessarily core to where we wanted the business to be going into the new year. And the idea is if there is to be another -- what I would say another failure in the sector from one of the big exchanges or something, there's another, call it, [ shoot a drop ]. We wanted to make sure that the tokens we own that were most susceptible to decreases in losses or sort of going to favor, we really just remove it from our books in favor of holding additional cash. And part of that was important because we had so many companies calling us up asking to see if we were interested in sort of doing a merger or being acquired and everybody was really interested in cash. And it's not that the company is up for sale, but I just sort of realizing, hey, we're going to survive here, we want to be able to survive here for 1, 2 years if required. Holding on to some of these smaller types really necessarily in a way to balance. If this market turns, we think it's going to turn in favor of things like Bitcoin and E. And certainly, we will make E right now that we'll get substantial upside in that term while also preserving our cash balance in the event that it doesn't or goes down further.

Great. And in regard to...

I think -- yes, just to add to that, I think one of the things here it's good to focus on the assets. But I think one of the things that management has done relatively well this year is we've managed to grow 2 businesses that I think are not even adequately their intrinsic values not reflected on their balance sheet, and we've managed to do that while preserving a fair amount of cash, whereas I think if you look at the balance sheet of a lot of our peers, they don't have a lot of cash left. So I think that's been a good task of balancing those states.

Great. Yes. I mean sticking revenues did come down sequentially quite a bit. But just moving on, the recent [ OSC ] decision resulted in cryptocurrency assets moving from current to noncurrent. Can you provide a little bit more light in terms of the reason behind the decision? Just from my understanding, that results in -- that's likely due to the results of the portfolio being staked. Is that correct?

I'll let Martin run this a little bit but the one thing I'd say about this is we submitted this way back. We submitted shelf prospectus, I'm going to say 6 or 7 months ago or review by the OSC, I think it's publicly filed on SEDAR. And the idea there was, in the event we were looking to raise capital in the future to streamline it and also to make sure the OSC was similar like our business. After a lot of like back and forth, the OSC answer a lot of questions. We had a lot of really positive conversations and they really looked at the business with a magnifying glass over the course of several months. At the end of all that, the key item that they sort of had recommended to us is they wanted us to do the tokens that we have. So this is not the FTX with the digital land and Metaverse Group, but just the tokens that we held from being current to long term. We did push back on it because we said, hey, as we showed post this last quarter, we can turn around and sell some of these assets, if we would need to, in favor of cash. They were fairly adamant that this is the treatment they wanted to see on the balance sheet, and we didn't want to create any issues. And so we have [indiscernible]. Martin, I don't know if there's anything else you want to add as to why?

Yes, for sure. I think the result of the OSC review is to give a better presentation of our digital asset to shareholder and reader of the financial statements. So for example -- so one thing we also do, we pick that between the NFTs and the cryptocurrencies, and we move both of them to noncurrent assets. which may sense for NFTs because these are assets that we want to hold on and to build business and revenue upon. The cryptocurrency is a little bit trickier because they are given our strategy of staking and holding E token over a long period of time. It makes sense to move it over to noncurrent. But operation-wise, those tokens are available to us to liquidate, if we need to. So -- yes.

Yes, The positive thing there is that, look, we started off like certainly, it wasn't like the OSC and said, hey, here's, look, we had extensive conversations with them around our business. And I think there was an earlier question about regulation in our space. After a lot of back and forth, the fact that we -- at the end of those conversations that this is really the only issue that concern them, and in my opinion it's a very benign issue. It doesn't change any of the numbers. There was no restatement of financials acquired, I think it's a pretty good sign.

Great for that. Just moving on to a couple of other questions. I wanted to touch a little bit more on that earlier question on operating expenses. It appears that cash OpEx would have come down sequentially. And had it not been for that doubling of professional fees in the quarter. Can you shed some light, it's great that you guys are trying to cut cost on a go-forward basis, just given the challenging market environment. But can you shed some light on what caused that uptick in professional fees? And how should we look at that expense line going forward?

Yes, Martin, I don't know if you want to talk a little bit about it. I mean I'd have to go back and check Martin probably has some more details on it. But I would say some of these things are things that would be pretty committed to. So professional fees, I believe that may include some things like legal costs. I think earlier in the year and especially we have been engaging in some marketing programs, different programs and things that I think over the course of time, we just decided we didn't need. And so that's today, our overhead is pretty low. It's basically the 4 people here -- from a corporate side it's 4 people here on the call. There are payments that come up to us from the subsidiaries as well. So each of the 3 subsidiaries are self-sufficient in terms of its cost. And there's like some small things that we outsource on a monthly basis that can be terminated with 30 days' notice, if we needed to. But overall, this is the leanest of the business has been, I think, in its history. Yes, like I said, we remain to be pretty well capitalized. But Martin, I don't know if you have specifics on those professional fees.

Sure, yes, I think the obvious -- the most significant change from last quarter is the addition of Metaverse Group and Hulk Labs. So these are -- the increase -- this increase is primarily just additional costs incurred within the Metaverse Group and Hulk Labs, which has to be consolidated into Tokens' financial statements. So I think that is the reason why there's an uptick from last quarter.

And to your question, Bill, like between Hulk Labs and Metaverse Group might have been the only 2 technology companies this year who are actually hiring people and growing. And what I mean by that, it's not like we were grossly on hiring a ton of people. But certainly, there's like 3 or 4 people at Metaverse that were hired and 2 or 3 that were hired at Hulk Labs throughout the year, as those businesses continue to grow and have more demand in terms of human resources.

Okay. Great. And then last one, just before I head back into the queue is, can you shed some color in terms of the player onboarding at Hulk Labs? Subsequent to the quarter, you announced that more than 1,000 players had onboarded. Where does that number sit today? And are -- you previously gave guidance of trying to ramp it up to, I believe, 10,000 players. How is that looking? Any color you can provide on that is great.

Sure. I'm going to turn that over to Deven to respond.

Sure. So on the Hulk side, I think we're still kind of dedicated to growing the player base as capital efficient way as possible. A few of the games we were playing during the last 2 quarters were heavily reliant on a couple of token ecosystems that do not definitely well over the last couple of months and particularly Solana. Solana-based games, obviously, are denominated in price in Solana, which is if you can hit more than other crypto tokens. So because of that, I think temporarily, some of the profitability changed a bit. So we took an active decision to slow down player acquisition because we are also really envisioning a bunch of really top-tier mobile -- kind of mobile-friendly play-to-earn games coming out in Q1 for the next 3 months that we're kind of wrapping up for building tooling for. So the players today are higher than the 1000, press release, lower than 2,000. But I think our goal really is -- the tooling is built for us to scale very rapidly from that sort of [ mid-8000s ] to 10,000. The player demand is there. We're really just waiting for the right titles to jump into so as those kind of appear hopefully kind of mid-Q1, that's clearly where you're going to see sort of an uptick.

And at this time, I show no further questions in queue. I will turn it back to the presenters for closing comments.

Yes. I mean thank you very much, everyone, I think investors for their patience. Certainly, this has been for myself as well as to shareholders has not been a fun year. We're working our way. We're trying to build value in the company. I think if there's further questions from anyone, you'll please reach out to us. I think everyone has the ability to access us either via contact at Tokens.com or me directly. And we can respond with further answers. But again, fingers crossed, the 2023 is better year, and well keep an eye on us, I think we have some exciting things in the works, hopefully, the market will recognize next year. Thanks.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.