Goldmoney Inc. Reports Record Financial Results for Third Quarter 2018Feb 2, 2018
TORONTO – (February 2, 2018) – Goldmoney Inc. (TSX:XAU) (“Goldmoney”)(the “Company”), a precious metal financial service and technology company, today announced financial results for the quarter ended December 31, 2017. All amounts are expressed in Canadian dollars unless otherwise noted.
- Consolidated Revenue of $150.4 million, an increase of $23.5 million (+19%) quarter over quarter (“QoQ”) and quarterly record for the company.
- Cryptocurrency Business Revenue of $22.4 million in just 7 weeks of operation.
- Group Gross Operating Profit of $9.3 million, an increase of $7.7 million (+481%) QoQ.
- IFRS Net Income of $4.1 million, a quarterly record for the company.
- Basic and diluted net income per share of $0.06 and $0.05 respectively.
- Non-IFRS Cash Gain1 of $6.1 million, also a record for the company.
- Raised $28 million net of fees in a private placement to new institutional investors.
- Tangible Common Equity2 of $109.3 million at December 31, 2017 vs. $61.1 million at September 30, 2017.
- Cryptocurrencies position of $0.64 million at December 31, 2017. The Company, currently only managing inventory for client dealing, has no meaningful long positions in cryptocurrencies as of the date of this release.
- Currency loans totaling $19.3 million of balance sheet capital extended to users against their pledged precious metals earning an average interest rate of 3.6%.
- Corporate precious metal position of $16 million at December 31, 2017, reflecting the company’s commitment to grow long-term precious metal ownership per share from surplus returns on capital.
- Client assets under custody stable at $1.76 billion as of December 31, 2017.
- Signed Letter of Intent with Zhaojin Mining (1818:HK) to form Goldmoney® China Joint Venture. The venture is advancing and expected to launch by March 31, 2018.
- Launched crypto asset business within the Goldmoney Holding by signing on asset managers, crypto miners, and HNWI investors, which led to $22.4 million of revenue and 0.5 million of operating profit in less than 8 weeks of operation.
- Formed BlockVault Inc. subsidiary and announced pending launch of ColdBlocksTM: an insurable, auditable-custodial cold storage technology for crypto assets.
- Completed Menē 24 karat jewelry private beta launch and “Series A” Financing, raising up to $33 million ($12 million from unit subscription and the balance from outstanding warrants that may be exercised) in marketing and growth capital for an important Goldmoney “ecosystem” dealing client.
- Announced the spin-off and go-public listing of Menē, which will likely take place by June 30, 2018.
- Record quarter for FCA-regulated lending associate Lend & Borrow Trust Company Ltd. The company plans to expand into cryptocurrency loans in the future using the group’s propriety insured-custody solution and regulated asset-backed lending license.
The Company made several key advancements following the close of the second quarter, including the closing of a $30 million private placement to new institutional investors.
Please visit our SEDAR profile to view the consolidated financial statements and MD&A.
Comments from Management
Roy Sebag, Founder and Chief Executive Officer of Goldmoney Inc.:
This was a truly fantastic quarter for Goldmoney Inc., which is the direct result of hard work and the long-term strategic planning that guides our company. On the operational side, we saw record Gross Margin for the group at $2.5 million, a near 55% increase QoQ, and the normalization of our margins on the Holding line of business. While it has been widely reported that the precious metal industry has experienced a significant slowdown in sales, revenue in our precious metal businesses (Holding and coins) continued to grow QoQ through the second half of CY 2018, a period of some of the lowest realized-volatility in decades. I believe this can be attributed to our superior technology and trusted brand, which enables our company to continue gaining market share globally, even before the phased-in growth of new sales channels through Menē and the Goldmoney China JV to be realized in the March 31, 2018 and June 30, 2018 quarters, respectively.
It is important to note that, due to the IFRS accounting rules, this quarter’s financial results also include the consolidated results for Menē. As Menē was only launched in private-beta in November and there was not yet meaningful revenue during this quarter, results did not require material adjustments; however, it is important to recognize that on the operational expenditure side, nearly $1 million of the $5.6 million of operational expenditures can be attributed to Menē. Therefore, if we are to net out these ‘investment’ expenditures and also net out non-cash components totaling $2.2 million, one can see that our core Holding business is profitable and increasingly-producing recurring cash flow to group.
What’s more, we are still running our core business at significantly elevated levels of operational expenditure as we pursue long-term growth opportunities and build scalable operational infrastructure and branding. Said in another way: we could likely eliminate additional costs in our core business, leading to even more free cash flow. This operational discipline and capital management strategy allow us to make long-term decisions in our investment thesis, provide growth capital to new and exciting Goldmoney-related opportunities such as Menē, BlockVault, and Lend & Borrow Trust – and on occasion, generate significant capital gains. This quarter saw us generate nearly $7 million in capital gains within our investment portfolio. In total, the group has generated more than $15 million of capital and financing gains over the last 18 months related to our stated business thesis and capital allocation strategy. This can be attributed to the ongoing ‘mainstreaming’ of crypto assets we held prior to our risk-tempered entry into that business; currency and precious metal hedging; and a loan book which now stands at $19 million. It must be stressed that while these gains are not necessarily recurring through our ordinary course of business, with the group now managing nearly $109 million of cash and tangible equity, there are substantial levers for additional free cash flow generation through a combination of balance sheet, technology, and additional client-servicing activities.
I am very proud of the results this quarter, our second quarterly IFRS profit this fiscal year, and the continued normalization of our business after nearly two years of consolidating operating activities. I am also proud of the fact that our senior management team, the majority of which continues to accept a $1 cash salary in lieu of deferred equity in the business, has demonstrated our ability to raise capital, deploy that capital effectively, build businesses from scratch, and monetize those businesses. If we look at our crypto asset business, it could very well continue to grow and eventually reach the size and scale of our precious metal business – even before we scale institutional BlockVault services. If the Menē business develops into something that is even minimally successful, we can expect our 80 million shares to add additional tangible equity to our balance sheet in addition to the growth in revenue, dealing, lending and cross-client leads funded with ‘off-balance sheet’ growth and spending.
Lastly, I must highlight that the single most important upcoming event is the launch of Goldmoney® China. We are taking this launch very seriously, and we believe there is a fantastic opportunity to expand our brand into the world’s largest gold market and the most advanced ‘fintech’ market. I look forward to this important launch, and to continuing to expand the Goldmoney® mission into more markets globally.
Josh Crumb, Founder and Chief Financial Officer of Goldmoney Inc.:
This quarter marks 2.5 years since the launch of the original ‘BitGold’ business, and we are extremely pleased by the Company’s results at this halfway point to a “five-year build”. Importantly, we also realized some notable validations of our underlying macro thesis as the digital-asset market reached a mainstream tipping point. While our core expertise and focus remain on the link and interoperability between securely-vaulted precious metals and other market ecosystems – be it fiat or crypto – a link that, in our view, will become increasingly clear and important. We were well positioned to capitalize on this crypto-asset tipping point both on our balance sheet and within our client-dealing infrastructure; in just half a quarter, we recorded crypto-related revenues and margins that took us many months to achieve with BitGold.
The quarter also marked our strategic entry into Asia through Goldmoney China, and the beta launch and ‘Series A’ financing of Menē, two important steps to set up future value to the business in both brand and sales infrastructure. While we will continue to take a tempered and long-term approach to growth spending, these proactive as well as reactive positions should help demonstrate the value of what we’re building at Goldmoney, which is no better demonstrated to stakeholders than through record top and bottom line results.
Turning specifically to the crypto asset market, it’s important to note a few subtle points: first, we made the important decision to finally enter client services in this market in a very risk-measured way, focusing on our core infrastructure expertise in custody and minimizing counter-party risk “outside of the banking system, but inside the regulatory system”. While crypto markets could be considered the antithesis of precious metals stability, our clients recognized the need for a qualified custodian in a crypto-market still riddled with banking system friction and lacking financial transparency at exchanges and other points of third-party “safe” keeping.
Further, we remain perplexed that tens of billions of dollars in assets are held without standard-market transparency, where even ‘industry leaders’ do not provide: sufficient auditing of segregated client holdings (if even properly legally-segregated), audits of their own financial statements as counterparty, or third-party insurance. We also believe that many competitors who are entering the crypto-custody space have not made the sufficient investments in licensing and regulation that we have. We spent nearly three years being thoughtful about regulation before launching our services, which is why we are excited to launch ColdBlocks by BlockVault over upcoming quarters, providing important institutional-quality infrastructure to this now massive market – one that in our view still lacks a single competitor that is qualified at the required level for professional market infrastructure.
Lastly, we’ve transitioned from taking a measured-speculative position in assets to a measured-position in servicing the market. In our view, the most substantial ‘Graham’s law’ move has perhaps passed in Bitcoin on a risk-adjusted basis. While we are not attempting to speculate on the Bitcoin price, which could again move either substantially higher or lower without surprise, we feel we are now well-positioned to provide the metaphorical “shovels to this digital gold rush” and will keep our gold in physical form from a balance sheet perspective. Therefore, we have chosen to minimize our risk exposure only to client-dealing inventory in this phase. Our macro-thesis remains intact and we believe the market is sending an important signal about this nascent asset class, so we are focusing on our core expertise of precious metal interoperability and minimizing counterparty risk in market infrastructure for the mainstreaming of digital assets and “Web 3.0”.
James Turk, Lead Director of Goldmoney Inc.:
It took two years of hard work to bring two companies together into Goldmoney, and these results for the quarter, and indeed the past nine months, show that our long-term vision is now starting to pay off with visible rewards. I have complete confidence in the management team and the employees throughout the company and look forward to seeing the results of the new initiatives already underway.
The selected financial information included in this release is qualified in its entirety by, and should be read together with, the Company’s unaudited condensed consolidated interim financial statements for the three months and nine months ended December 31, 2017, prepared in accordance with International Financial Reporting Standards (“IFRS”) and corresponding management’s discussion and analysis, which are available under the Company’s profile on SEDAR at www.sedar.com.
Consolidation with Menē Inc.
The financial statements are consolidated with Menē Inc.’s financial statements under IFRS rules. Once Menē completes its go-public listing, the financials will be unconsolidated. In terms of direct impact, the Menē consolidation resulted in minimal revenue impact and about $0.9 million of operational expenses and a $13 million increase in tangible equity. Netting these figures would provide the non-consolidated view of the group’s financials. With that said, it is important to stress that Goldmoney Inc. currently owns approximately 38% of Menē. Therefore, it would be correct to ascribe a portion of the tangible equity to Goldmoney Inc. as well.
Investor Relations Questions
As is our company’s tradition, we only host two conference calls per year. Our next call will be held on the reporting date for our Annual Financial Results. Investors with interim questions may send them to: [email protected].
This news release contains non-IFRS financial measures; the Company believes that these measures provide investors with useful supplemental information about the financial performance of its business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating its business. Although management believes these financial measures are important in evaluating the Company’s performance, they are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. These non-IFRS financial measures do not have any standardized meaning and may not be comparable with similar measures used by other companies. For certain non-IFRS financial measures, there are no directly comparable amounts under IFRS. These non-IFRS financial measures should not be viewed as alternatives to measures of financial performance determined in accordance with IFRS. Moreover, presentation of certain of these measures is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of the adjustments thereto provided herein have an actual effect on the Company’s operating results.
Non-IFRSCash Gain (Loss)1 is a non IFRS financial measure. This figure excludes from comprehensive loss the impact of non-cash items, including the amortization of intangible assets or stock based compensation. Refer to the MD&A for a detailed breakdown of these items.
Tangible Common Equity2 is a non-IFRS measure. This figure excludes from total shareholder equity (i) intangibles, and (ii) goodwill, and is useful to demonstrate the tangible capital employed by the business.
For a full reconciliation of non-IFRS financial measures used herein to their nearest IFRS equivalents, please see the section entitled “Reconciliation of Non-IFRS Financial Measures” in the Company’s MD&A for the year ended March 31, 2017.
About Goldmoney Inc.
Goldmoney Inc., a financial service company traded on the Toronto Stock Exchange (TSX:XAU), is a global leader in precious metal investment services and the world’s largest precious metals payment network. Safeguarding $1.8 billion in assets for clients located in more than 150 countries, Goldmoney is focused on a singular mission to make precious metals-backed savings accessible to all. Powered by Goldmoney’s patented technology, the Goldmoney® Holding is an online account that enables clients to invest, earn, or spend gold, silver, platinum, palladium and cryptocurrencies that are securely stored in insured vaults in seven countries. All bullion assets are fully allocated and physically redeemable property. Goldmoney Wealth Limited is regulated by the Jersey Financial Services Commission (JFSC) as a Money Services Business. Goldmoney Network is a reporting entity to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), and is registered with the Financial Crimes Enforcement Network (FinCEN) in the U.S. For more information about Goldmoney, visit goldmoney.com.
Media and Investor Relations Inquiries:
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This news release contains or refers to certain forward-looking information. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “may”, “potential” and “will” or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. All information other than information regarding historical fact, which addresses activities, events or developments that the Goldmoney Inc. (the “Company”) believes, expects or anticipates will or may occur in the future, is forward looking information. Forward-looking information does not constitute historical fact but reflects the current expectations the Company regarding future results or events based on information that is currently available. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Such forward-looking information in this release speak only as of the date hereof.
Forward-looking information in this release includes, but is not limited to, statements with respect to: service times for transactions on the Goldmoney network; growth of the Company’s business, expected results of operations, and the market for the Company’s products and services and competitive conditions. This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others: the Company’s limited operating history; history of operating losses; future capital needs and uncertainty of additional financing; fluctuations in the market price of the Company’s common shares; the effect of government regulation and compliance on the Company and the industry; legal and regulatory change and uncertainty; jurisdictional factors associated with international operations; foreign restrictions on the Company’s operations; product development and rapid technological change; dependence on technical infrastructure; protection of intellectual property; use and storage of personal information and compliance with privacy laws; network security risks; risk of system failure or inadequacy; the Company’s ability to manage rapid growth; competition; effectiveness of the Company’s risk management and internal controls; use of the Company’s services for improper or illegal purposes; uninsured and underinsured losses; theft & risk of physical harm to personnel; precious metal trading risks; and volatility of precious metals prices & public interest in precious metals investment; and those risks set out in the Company’s most recently filed annual information form, available on SEDAR. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to update or revise any forward-looking information, except as required by law.