Realbotix Corp. (XBOTF) Earnings Call Transcript & Summary

Welcome to the Tokens Q2 Financial Review Conference Call. My name is Jennifer, and I will be your moderator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Andrew Kiguel. Andrew, you may begin.

Thanks, Jennifer, and thanks, everyone, for joining our Q2 investor call. On the call today is Martin Bui, our CFO, and we will answer questions at the end of my sort of notes here. So just to jump in quickly, Q2 on the surface was a noneventful quarter. However, there's been a lot going on. We've made several changes at the management level to broaden the team, all the promotions were from made within the company and people that we've known and have been working with. You may have read we made an offer to acquire the minority of Metaverse Group that would result in us owning 100% of the business. We're excited to blend the teams together and to bring Lorne Sugarman into the management team and adding to the Board of Directors. We still expect that to close towards the end of this month. Metaverse Group had a great quarter with $258,000 in revenue. To put that in perspective, that's a 140% increase in revenue over the previous quarter, and that quarter was also 100% increase over the quarter before that. And so when you look at that, we have a business here that we're bringing fully in-house that's been growing at least the last few quarters at 100% top line -- over 100% top line quarter-over-quarter. The fashion show in March was a success again. This year, it was almost all entirely held on our land. Our key clients that we were designing for were DKNY and Lancia, which is the automobile company from Italy. Company also did some groundbreaking work for KB Home, which is one of the largest home developers in the U.S. The pipeline there remains robust, and I feel able to maintain this level of growth, which again has been over 100% quarter-on-quarter. We have a new website, so I'd encourage people as well to go and checkout the new website at metaversegroup.com. Moving over to Hulk. Hulk has not performed to expectations, and we've made some changes there. We made the decision to unwind the player network for now. There isn't enough liquidity in the games to make that a profitable endeavor. That market just hasn't moved the way we envisioned it would. We've add new management at Hulk using the tools that we've created there to create a new Web3 gaming studio. We've already been advising large businesses on tokenomics for games. We've been hiring devs there, and we're looking to potentially launch our own game there, hopefully, this year. We're speaking to legal counsel on that to make sure we meet any regulatory requirements with respect to launching any Web3 games. But I think that's something really exciting for us. I think we've seen a gap in the market in terms of mobile Web3 games that we'd like to sell. There'll be more to come on Hulk in the near term and the things we are building there. As a note, it's very common for new tech businesses to pivot with the market. This is a good thing that we're doing this. You don't want management entrenched and sticking endlessly with the vision that isn't working. And I think flexibility is a key to success. Hulk has some incredible people working there. We have some very good IP, and it's really just a function of applying this to market. The staking business has been steady. Sales there -- or revenues there are lower and that's because the inventory is much smaller due to token sales in the past and the fact that token prices are still depressed from all-time highs in 2021. That business is largely dependent on the state of crypto markets. But it's also a cushion of capital for our business as we have well over CAD 10 million, and it's relatively easy to liquidate. Our cash flow, when you remove onetime items such as the investment in Metaverse Architects was under $250,000 for the last 6 months. And again, I would encourage anyone to find another public company that is able to maintain overhead at such a low level. This last quarter, we were net income positive. Our assets grew by $3.7 million, and we have approximately $0.30 per share in asset values. In Metaverse Group, we have a business that's growing at over 100% per quarter and a whole bunch of other exciting initiatives, but we're still trading at $0.15 per share, which is increasingly disappointing to us. The Metaverse Group deal, once it closes, we believe, is a huge win. We'll end up issuing approximately 20 million shares there to integrate a business in with $4 million in cash, $3.7 million in assets, and a robust pipeline of revenue to clients, high-profile clients as well. I think we have a hidden gem in our domain names. Domain names are still important in the world. Citibank is projecting that by the end of the decade, everything will be tokenized. And the use of Web3 will be measured in the billions of users and that the market will be measured in the trillions of dollars. With that in perspective, we have about 12 domains, several of which are focused around tokens.com, things like tokens art, tokens trade, tokens gaming and, of course, Tokens.com. I suspect that our domain names are going to be worth a lot of money in the next few years as large retail-based businesses come searching for those domains. As the entire world shifts towards tokenization as a package, all of our domain names centered around the Tokens.com brand are going to be very valuable to the right buyer if we choose to go in that direction. So overall, stepping back, we have ownership in 5 Web3 businesses. Our largest growing subsidiaries has revenues growing at over 100% a quarter, we have cash and liquid tokens of over $17 million, $0.30 in asset value, plus a bunch of highly valuable domain names that aren't included on the balance sheet. Our main growth isn't tied to crypto prices, but obviously, we benefit if they go up. We have close to 20 people on staff and yet we're trading at about a 50% discount to net to our asset value. So -- and looking at this, it tells me maybe we're doing some things wrong, maybe we need to make more changes and so we're looking at a whole bunch of new initiatives. We're looking to get more aggressive in the balance of this year to promote our story and to focus on our growth. Our cash and liquid token values at $17.2 million, and that's higher than our market cap. The Street value these days when we talk to people for cash or liquid assets is about $2 of equity or more for cash. So if you were to just value our cash, just based on that and what things are trading, that's about $0.35 per share, just at the cash value, not including the businesses. So this tells me that the market doesn't really care that we're better capitalized than most other crypto companies, small-cap crypto peers and had to do poorly timed dilutive deals just to survive. We've held in, and we have not issued any meaningful equity since 2021. While our peers' businesses have sort of continued to shrink, we've continued to grow. Obviously, that hasn't been reflected in the share price. In terms of new initiatives, we're starting to look at several acquisitions in the Web3 space and in the AI space. Lorne Sugarman and I are currently doing due diligence on several companies. There's still a lot of bleeding going on with many good companies out there that have great IP that are running out of money. I think we have an amazing platform that they can join being able to use either cash or paper to grow businesses. So we have capital, and we have a proven ability to be able to incubate businesses from ideation to revenue. And if we need to sell tokens to build businesses or to buy businesses, we are definitely going to consider doing that. So again, to summarize, we've got 5 businesses in the fold. We plan to grow them, build more, acquire more that fit our criteria. My goal is still to grow revenue this year, but also to make changes this year to try and get our share price back to where it should be and where it was. And I can't promise that the share price is going to go up, but I think what the market is telling us is we need to start disrupting things within the business to try and make some changes and see where we can go. So maybe with that, I'll open it up for questions right now. Martin is on the call and he can answer anything related to financial questions. I'm happy to answer questions related to the business. So Jennifer, I'll turn it over to you.

[Operator Instructions] So the first question is from Bill.

Andrew, can you hear me?

Yes, I do.

I just was hoping to get a little bit more color on the consulting revenues. Obviously, a massive jump this quarter from the last. Can you provide a little bit more on -- kind of a breakdown of where the consulting revenue came from? Was it pertaining to the Metaverse Fashion Week? And how should we look at that line item going forward?

Yes. So I think there's a couple of ways to look at it. I think the simplest way to look at it is when we first started Metaverse Group, the idea was we were going to buy Metaverse real estate, which we still have several million dollars' worth and rent it out. What we started realizing is that there was a gap in the market. You had all these big brands out there. And we've mentioned some of the big brands we're working with, including -- we're hoping to launch some other really impressive names in the next few months. But the companies were like, we don't want to just rent the land, we just -- if we did that, we wouldn't know what to do with it. And so where the consulting revenues come in, we sort of sit down and say, okay, what are you trying to achieve? Where do you want to take the business? And we help with the ideation. We help with the event creation. We help with the design and build of a project. Once it's there, we help them sort of do things. I can give some examples with Lancia, which is the luxury automobile brand from Italy, they did it during the fashion show, a reveal of a new automobile they were looking to. And so part of this is consulting revenues is working with them to build that step up. KB Home is, I think, the fourth largest homebuilder in the United States. We've built 3 model homes for them online. So you can go into the Metaverse, you can walk around these houses, like how far is the bathroom from the kitchen and where are the bedrooms, how big is the garage and the back yard. And we have the ability for you to customize them so you can say, I don't like the color of the backsplash. I'd like a different stain on the hardwood floor. I'd like different pendants and chandeliers hanging for the walls. And you can click different things. And once you've got something designed for the way you like it, you can click through and it takes you right to a KB Home representative and you can start having a conversation about the home and the price. And so that's where the consulting revenue comes in is in sort of putting together all these things, which is sort of over and above just collecting money for renting up the land. And what we're finding is the business is far more lucrative and bigger growth. If we can start doing more of this consulting and be more of like an agency a Web3 branding agency or entry point into the Metaverse as opposed to just collecting rent from the land. That business is also growing to be more, what I would say, Metaverse agnostic. And so we've been hiring people there where, look, Roblox is clearly the giant in the space, 65 million users a day, 65 million. So what we've said is, look, we don't need to sort of hitch our wagon to Decentraland or Sandbox or everything else. We want the ability to be -- provide services for anybody in any Metaverse. And so we now have the ability to go out and build for people inside Roblox. And when we're talking to clients, it's not about go to Decentraland or go here, we give them the options and we're getting this consulting revenue by providing this sort of whole A-Z white-glove service to get your creation, what you have in mind into a Metaverse.

Great. I appreciate that color. And then one more, if I may. The company holds a fairly sizable amount of cash relative to cash OpEx. And I can see in the MD&A that you know that some of the staking rewards that have been generated may be used to help pay for operating expenses. Can you speak a bit more to like the likelihood of that happening in the near term? I understand that the Shapella upgrade just happened. But you guys seem like you have a decent amount of runway. So what's the appetite for keeping Token stake versus using them for liquidity?

So look, I think some of this is coming out of the frustration of lack of market recognition. And I went through on the things that I wrote before, and I gave it a lot of thought, which I think we have a really interesting company. We provide exposure to things that I don't think any other public company can do. As I said, while a lot of our small-cap peers have been sort of shrinking in size, our businesses have been growing. I think we've been excellent stewards of capital. We haven't really raised -- done an equity or anything since 2021. And so the -- I think, Bill, when I think about this, it's like, okay, we're sitting on this. The market is not recognizing or really caring about what we're doing, maybe we need to start making some changes in using our tokens and our cash to grow the business. And as I said before, we're starting to look at potential acquisitions. Right now, we're looking at 4. There's a lot of things, for example, where AI can integrate really nicely to things with Metaverse. And so Laura and I have been very focused on talking to companies in that space. And so if the market doesn't care about the fact that we have cash and they want growth, then again, subject to conversations with the Board and doing things that are accretive, and we think will pan out, I think we need to start getting more aggressive and I think we need to start shaking things up a little bit because clearly, the market is not appreciating what we've done thus far, so we need to do more.

Great. Sorry, I lied. One more question. I know that you've managed that you're actively seeking ways to scale example potential acquisitions and pursue other growth opportunities for the remainder of the year. What else in the space right now, what's exciting you? What's keeping your eye on outside of Tokens.com and the Metaverse Group? Any color you can provide there?

Yes. Look, I've been doing a lot of work looking into demographics and I talk about this with people, which is like Generation Alpha and Generation Z, I call them Zalphas. This is going to be the largest cohort in history, replacing the Baby Boomers, huge spending power, they live and breathe Metaverse. And so what I'm sort of looking at is, if there's all this talk about AI, I don't think people are realizing yet, but where AI is going to really start taking place and flourish is going to be in the Metaverse. I talked to them the other day, they're like, oh, the Metaverse is dead, the Metaverse is dead. No, the Metaverse isn't dead. You got like Nike, Adidas, L'Oreal, Amazon, like everybody is building stuff here. There's billions of dollars going in. And if you start thinking about the potential for AI within the Metaverse, that's going to be the killer app or the killer business model. Imagine you can start creating 3D virtual stores that are manned by AI-driven avatars. You can start doing things like virtual banking, stores, all of these things. And I do a ton of reading every day, and I just see brand after brand after brand after brand entering the space, and then they I read the media and the media is like, oh, the sector is dead. The media is just looking to sensationalize things and write stories. It's certainly not the experience we're having because like I said, we have a fairly robust pipeline of companies we're working with, including like top 4 accounting firm in the world, like some of the top food companies. We're hiring people and looking to keep up with this growth and yet the perception of optics that this thing is going to disappear, which again makes no sense, 65 million users. I think I was reading today, it was like 400 million monthly users, different monthly users in different Metaverses, these kids are all going to start getting older and they're going to demand this type of level of service and 3D interaction, everything they do. So when I think about this, what kind of things are we looking at, where do I see growth? I think there's going to be -- the Metaverse, I call it is going to unify things like financial services, delivery online, the use of AI, gaming, and social media.

The next question is from Joshua.

Can you guys hear me?

Yes.

Perfect. Yes, I just want to kind of speak about this Metaverse Fashion Week. I know that kind of this year's attendance is probably -- is pretty low. Like I said, on the Decentraland said about 26,000 from like 108,000 last year. And then I know you guys said that it was pretty much going to be a lower attendance this year, but was that kind of like below expectations, do you guys think? But -- and besides that, how was just the feedback of the event? And can we expect any more events probably in the year?

Right. So the -- so two things. Number one, the numbers were probably around where I was expecting, maybe on the lower end of my expectations. But we knew and I think we had signaled that the numbers were going to be lower. But I would say this, I think the people that attended this year -- whereas last year, there was a novelty factor. I think the people that attended this year were more like the hardcore users. The fashion show overall this year was better, while I think there were some good last year, there were some kinks and things to sort of settle into. I think it was a better show this year. I think the technology was better. I think the ability to integrate in to pay for things using your credit card. I think there was a whole bunch of other new technology developments from last year. So from that perspective, it was a win. From an attendance perspective, sure, it looks lower. But you got to remember for us, we're not -- we don't -- we're not the initiators of that. You got to think of us like we're the conference center and people come to us and they build and they do stuff on our land. And so we get compensated, obviously, better if there was 1 million people at the event, but we're still going to get compensated even if one person shows up, and we are compensated as well for doing these events. So we did DKNY and a few other fashion brands. We're working and compensated to do this stuff. So yes, obviously, we want the longevity to be there. We think the market will come back. But overall, we're not super concerned. In terms of other events this year, we're having conversations. Fashion is like a no-brainer with the Metaverse because you can do all kinds of interesting things. So the team is consistently working on more events and doing more things in the sector. But there's nothing that I can disclose at this time.

Okay. Perfect. That's fine. So I guess shifting over just I guess, the whole clubs. I was thinking how does the company believe they could be fixing this -- all this subsidiary, especially with this change? And like kind of what competitive advantage do you guys have?

Right. So we're not looking to fix anything. We made the decision to really shut down part of that business. But I'll tell you why we think that there's something there. So number one, the business doesn't cost us anything, like it's breakeven with its own revenues and the stuff going on there. And from an overhead perspective, it's pretty low, and it has its own balance sheet that will last another 12 months or a little bit longer. So here's the things that I think are interesting, worthwhile there. We've got a couple of guys working there who are recognized as being gamenomic experts in the world. They're based in Australia, and they have these huge Discord followings and essentially people seek our advice there. This is another piece of the consulting revenue. People seek our advice as to how do you structure the economics in a game. Because what's happened with the Web3 gaming where you have all these tokens is, I think they call it farm and dump, which basically the gaming aspect of it is so easy. There were so many tokens that creates this inflation and end up making the tokens worthless. That's kind of what happened and dried up the liquidity in the space. We have guys that have been doing analysis on gaming calculators. We have a wallet interface that allows us to connect or I would say, several wallets to gamers that's still there and create a dashboard. And so when we start looking at we're like, okay, we have all the capabilities of designing game. We know exactly what's wrong because we've analyzed over 250 games. We publish free calculators for these games on the Hulk website. And so we started looking at saying, okay, there's definitely a lack of quality games out there, especially mobile, which is when we look at Africa, we say, we take Internet for granted, but that entire country has certainly come online, and they're not doing it through computers. They're doing it through mobile phones. So we start piecing these things together. We start looking at sort of AI and some of the things that are out there, which we've been employing into game ideation, and we see a gap in the market. And so are we going to be successful there for sure? No. But I think what we've done is we've done a lot of work. We understand the Web3 gaming market extremely well. We've got some really talented people on the team there and the sort of said, if the current strategy or the previous strategy wasn't working, shut it down and let's create something new that will -- we think will work. So that's where we're at. But like I said, it's not going to require a big investment from Tokens com, and I've told them that said you guys got to work with what you have and let's build something interesting.

Okay. Great. And I kind of wanted to -- I guess, besides that, I wanted to go back to the Metaverse and just talk about to see -- I know you guys made a lot of investments across a number of Metaverses. I just kind of wanted to see where we are today, just the status of those investments just outside Decentraland? And what is the company doing on those other properties?

Right. So we're still working with a lot of properties. We actually -- most of our land in Decentraland is rented out if we're collecting some revenues there. It's not huge. The consulting revenues are a lot bigger in the design stuff that we're doing. We're basically just holding those for now. I'll make note. We haven't actually bought any land in any Metaverses now in probably well over a year. I think there was obviously a trend that went on there in 2021. We started buying land before the increase. We bought into the increase as well. But I don't think we've bought any land since 2021. And so part of it is we're just banking it for now. The prices are obviously off significantly. We think those prices will eventually come back. We've seen this happen in all kinds of various assets like including Bitcoin and different tokens, but there's utility there. But we're not planning on buying more land. We're becoming Metaverse agnostic, and we're shifting like I said, that business that was already pivoted to providing consulting revenues to what I would call large international brands as opposed to trying to make -- find a brand for slot rental. But I still think we own like over 500 plots things like in not just Decentraland central, but Sandbox, I think there's over like 14 or 15 different places. And we'll continue to hold us and see. I think down the road, they might have some additional value. I don't see a point in selling them right now, but they're currently value. We did a whole lot around them. Martin, what's the last valuation on that land. Was it about $2.7 million?