DeFi Technologies Inc. Q3 FY2025 earnings call

• Olivier Roussy Newton: Q3 was an exceptional quarter with $22.5M revenue and $9M operating income, third consecutive profitable quarter. Valour had net inflows every month YTD, $38.8M inflows in Q3, YTD $116.2M. Ended Q3 with $989.1M AUM. Stillman Digital had $2.2M trading commissions in Q3, integrated into Talos network. Repurchased ~1M shares for $2.44M. Announced resignation as CEO, appointing Johan Wattenstrom as incoming CEO.
• Johan Wattenstrom: Talked about use of funds and DeFi Alpha monetization rates, mentioned temporary dip in monetization rate due to infrastructure upgrades, but optimistic about higher rates ahead. Focus on expanding in Europe, new products like UCITS funds, and leveraging capital raise.
• Andrew Forson: Discussed geographical expansion progress (big market, can't name), focus on data and research products for digital assets, SovFi project, and new products to increase TAM.

AUM: DeFi closed September 30 with AUM of USD 989.1 million. Q3 average AUM was $950.7 million, up from $760.2 million in Q2 and $789 million in Q1 due to crypto price movements and positive cash flows into ETP products. Revenues: Q3 revenue was $22.5 million, cumulative IFRS revenues for 9 months ended September 30 were $80 million. Q3 effective staking and lending income yield was 3.1% on average AUM of $950.7 million, down from 3.6% in Q2. Effective management fee yield was 1.2% in Q3, up from 1.1% in Q2. Product Count: Closed Q3 with 99 products, aiming for 100 by October 2025. Crypto Investments: Venture portfolio has 12 private investments, largest is a 5% stake in AMINA Bank (83% of portfolio fair value). Made three new investments in Q3: TenX Protocols, Canada Stablecorp, Continental Stable Coin. Cash Position: $119.5 million cash on hand, $46.2 million treasury crypto holdings, total $165.7 million.

• Reiterated core revenue forecast of $116.6M for 2025, deferred DeFi Alpha-related revenues. Believes core revenue forecast is achievable if crypto prices rally into year-end. Confident in capital supporting growth and downside protection.
• Johan mentioned focus on new vehicles (UCITS funds, active managed certificates) to tap larger global market, leveraging infrastructure upgrades and strong balance sheet.

• Delayed DeFi Alpha revenues due to proliferation of digital asset treasury companies and crypto price consolidation.
• Market turbulence could affect downside protection.
• Regulatory challenges in geographical expansion.

Q: Do Alpha trades carry a liquidity or price liability? Can you please explain what happens with the May $23.8 million SUI trade if price is lower or higher than $3.51 per token, at maturity? Also, could you explain if and how DeFi is hedged...

A: Yes, happy to answer that. So basically, with that trade and I think two other trades historically, as I think we communicated before, we have hedged all market risk for the core operation. We have a part of the profit, locked-in profit for this trade and the historical trades has been retained in tokens. So to that respect, the profit -- some of the profit is locked up and in token. So that part of the profit will obviously fluctuate a bit with the market. We will get a higher profit if the market goes higher and slightly lower if market goes down. Whilst the core -- the arbitrage itself is 100% hedged for the principal, the pure profit we locked in is retained in tokens that will be locked for a bit. So we will -- we might see some volatility there over time. There's a lot of upside and some downside, but it will not -- the principal of that trade is locked up and hedged away. Same thing as historically, we've seen with some of the other trades as well, where we retain some of the parts in the actual token where we did the trade. And that's something that we are keen to do for some of the assets where we have a high conviction and where we're building, where we have products and we're happy to support those ecosystems. And we believe the upside and potential is great, and we have a lot of interactions and support those ecosystem and technologies for sure.

Q: What key message do you want to give long-term shareholders to take away today? And what to expect in regarding to milestones should they watch out for over the next 12 to 18 months?

A: Yes. I think nothing really has changed in the long-term core strategy. We will continue with a really, really high core focus to maximize AUM and maximize monetization and expanding in all the vectors like new products, second, third generations of products, more value-added and also more types of vehicles for participating in digital assets that will tap into new pools of capital that could be a debt markets, it could be funds that are not allowed to invest in ETFs and so forth. So we can tap into a much larger market and a more global market from our present organizational base and really leveraging the scalability we have had since long -- since beginning and also utilizing the extreme upgrades we have done, I would say, monthly in our infrastructure as well. So for some of that, we have taken a few hits temporarily in the monetization rate that was made in -- for us to be able to upgrade to a better infrastructure where we have partly new counterparties, partly new setups for the market making, where we can use collateral much more efficiently and being able to deploy a much more higher percentage of our balance sheet in income-generating yielding activities. And I think we have never been at a stronger point actually in terms of our balance sheet, liquidity, asset under management and an ability to really leverage and quickly go after and execute. And I think we have a great starting point. I also think that any temporary weakness in the macro scenarios or order temporary -- in the market, which we see, for instance, right now, I think that provide us with better opportunities to build on this long term.

Q: First question is maybe for Andrew. It sounds like you were talking about a geographic expansion win in your comments. I mean, was that the case? And is it in a small market, a big market? Just a little more color there. And I know you can't name it. I'm not asking that, but a little more color would be helpful.

A: Yes. And it's a big market.

Q: Some on the accounting side for you. In the MD&A, there was an add-back for adjusted revenue and EBITDA, which is a "price movement on equity investment distribution timing loss." Can you kind of go through that, please?

A: Yes. So we have an investment in a fund, and it took almost 3 weeks for the fund to distribute cash. It was a bunch of Solana, and they sold it at the end of the quarter and then just the nuance of getting the money to us in Switzerland took a bit of time. So there was some slippage on the crypto price. So it was a one-off Q: Just given all of the new strategic initiatives around the advisory business, stablecoins, sovereign debt and what have you. Just curious to get your perspective on how you see the revenue mix evolving over time, particularly as it relates to management/advisory fees versus more trading or volume-based fees, if that makes sense.

A: Yes. I think -- those are -- the reason we have taken these initiatives is that we see they have a lot of synergistic properties to our other assets and our other businesses, for sure. I think it's in some of these areas, we are at a point where we see a huge potential stepping into new capital pools, new flows and so on that will benefit all sides of the business. It's probably a bit too early to say that in 1 year, the revenue mix will look this and that different. It's a little bit like with the DeFi Alpha that these are businesses we are building. It's much easy to forecast the core business and the evolution of that and then the new also type of products we will incorporate into that. I think that we do obviously want more streams of revenues, but we -- I'm not sure -- it's a goal in itself to just find things that makes us more diverse in that sense. I think we're really trying to make things that are synergistic and really make sure we are a leader within our core business. And I think all of these initiatives are synergistic with that goal in mind. While obviously, we would not have done these investments in these initiatives, we wouldn't think they would be great stand-alone revenue generators also in the long term because we don't really invest in anything that's not -- we don't -- we not have a high conviction that it will be cash flow positive, and we don't need to throw a lot of money at it. We're trying to build the long-term robustness and I would say, edge and the uniqueness of our business, so it's much harder for competition to really touch any of our core general drivers. And I think all of these new initiatives contribute to that. It's very hard, obviously, I guess, from my perspective, in 1 year to say how much would be contributed from this new business.