Banxa Holdings Inc

XTSX:BNXA

Earnings Call Transcript 2022-Q1

[Domenic Carosa, Founder and Chairman]

Good morning, everyone and welcome to the Banxa Holdings’ Earnings Webinar. My name is Domenic Carosa, Founder and Chairman of Banxa. With me today, I have Holger Arians, our CEO and Shyam Deo, our CFO.

What we would like to do today is take you through, because I know there is a few newbies on this webinar, we’d like to take you through just a quick overview of Banxa, talk about some of the product updates, and some of the new revenue streams we are working on. And then after that, Shyam will take us through the numbers in a high level of detail. As I mentioned, if you have questions, feel free to basically ask questions, there is a Q&A box or a chat box on the Zoom platform.

Really, without further ado, just to sort of give a sense of Banxa and why we are here and maybe just to take a step back before we talk about it. What we have really seen over the last 10 or so years is really a growth in the digital asset space. When we first started, there were really only a handful of coins and it was really the early, early adopters getting involved in the space. And what we are really starting to see now is the whole industry is moving from the early adopter market to really being mass market. And we will talk much more about Web3 and some of the utility around Metaverse and gaming.

If you were to put Banxa in a box, the best way to really look at what we do is we are like the PayPal of the crypto industry. And what we are doing is building a bridge between the Fiat world, when I say Fiat, I mean U.S., euro, Canadian dollar world, and the digital asset world meaning Bitcoin, Ethereum and the hundreds and thousands of other coins out there. We are really the infrastructure that connects the two. Our business model is B2B focused. We are listed on the TSXV with code BNXA and on the OTCQX code BNXAF. Today, we got a market cap of around CAD70 million or just over $50 million and our TTM is roughly $52 million. So we are trading at about 1x revenue at the moment and cash and cash equivalents about $14.2 million. I know there will be some questions around that as well. And inside is a very much aligned holding about 20% of the company.

In terms of our mission, our mission ultimately is to onboard the next billion people to crypto and really by providing that infrastructure that connects the existing world where most people exist in to the digital asset world and I know Holger is going to touch much more around some of the Web3 opportunities that we see in space. And Banxa really sits in my view at a really interesting juncture that connects not only centralized exchanges and banks and fin-techs, but more importantly the big growth that we are now starting to see in verticals such as DeFi, NFTs, gaming, and the Metaverse. It’s a big new area. Frankly, in my view, it’s this whole new Web3 space is much larger than the existing traditional centralized exchange and I am going to call it the standard coins, the Bitcoin and Ethereum world, where there is much more utility, much more usage around NFTs and gaming and DeFi.

Holger, over to you?

[Holger Arians, Chief Executive Officer]

Thanks very much, Dom. Hi, everyone. I am Holger, the CEO of Banxa. I just want to go to the next level of detail of what we are actually doing and how we are doing it. So, like Dom mentioned, we are onboarding the masses to cryptocurrency. We do that by providing them a familiar payment option to convert their local currency into cryptocurrency. And today we are offering the vast majority of cryptocurrencies and blockchains and we do that so that there is a safe onboarding experience through a local trusted payment option. And we have taken care of all the regulation behind it, all the banking infrastructure that’s required to do so. We are taking care of all the fraud and charge-backs so that people can onboard safely, they can get their cryptocurrency and then they can do whatever they want to do in the crypto world with those digital assets. We do that through model, which is B2B2C. Like Dom mentioned, we are integrating with major exchanges.

And I am going to touch on a few of them in one of the next slides, but we partner with those exchanges, because those exchanges don’t really want to deal with anything in the old world, which is the whole banking, infrastructure, regulation, the moment you touch anything in the Fiat world, you really have to have those relationships, you have to have those licenses in various different countries. You have to have the local payment tracks. That’s what Banxa does. We do the end-to-end process for the users of our partners and there are 100 million users in all of our partners. So we take care of this old world, connect them with the new world. We are building this bridge. We are taking all these headaches away from our partners so that they can innovate in the new world on the blockchain.

If you go to the next slide please, Dom. I mentioned the local payments and they are important. Obviously, we do have global payments that the known credit cards and Apple Pay, Google Pay, and we reach over 100 – people in over 100 countries through that. But why are we going into those local payments – into those different geographies? Why is that part of our strategy? It’s because local payments are much more trusted, that cheaper than credit cards. They have much higher conversion rates. A bank transfer often goes through by like credit card transaction, especially in a high risk merchant category. It doesn’t always go through. You can make much larger transactions. And since we are also offboarding users people that want to convert their crypto back into Fiat currency, we can send that to their bank account. And to do that, we have those local payment methods, which require a lot of groundwork, literally people on the ground, as I mentioned, the required licenses and regulations, the banking infrastructure, the transaction monitoring, and reporting and so on.

And on this slide, you can just see that we are going global. We are already global. We are pushing forward with our Geo expansion. We just recently launched PIX, which is bank transfer in Brazil and that over 100 million people are using. And we are coming out with Turkey very soon as well and just continuing to offer new geographies to our partners so that they can onboard users locally.

Next slide, please Dom. Dom touched already on Web3. Today, many of our partners are at centralized exchanges. But we have seen over the last 6 months a shift to Web3 decentralized platforms, that’s DeFi, that’s NFT, that’s going into gaming, which is going to be huge as well. And we really believe we are today where the internet was in 1995, the best is yet to come. And we are just scratching the surface. Those partners are really the who is who of the digital asset space and they trust us, they want to work with us because of the value we provide to them.

Next slide, please. Just very high level, a couple of recent product highlights, I think really important is the NFT checkout, which we are now offering to many of those NFT marketplaces. And today, NFT marketplaces or NFTs in general are mostly connected to or related to art and collectibles. But eventually we do believe that there is a massive opportunity in gaming, there is an opportunity around the tokenization of many, many things we know from the real world. And when we provide to those platforms is that we just offer their users a direct purchase of an NFT whatever that is, if it’s an in-game asset or a JPEG file with a bank transfer or credit card payment so that users can without all the technical expertise directly by an NFT. And I think that is a major step towards mass adoption. We have launched it with a launch partner. We are going to be at a number of conferences in the U.S. over the coming weeks to showcase our product.

The other really important point here is a product where we are offering is the stablecoin off-ramping especially in markets where the prices are dropping people are selling their digital assets again. And our partners have asked for off-ramping solution as well so that our – or their users rather can, whenever they want to go in crypto, they can use Banxa and when they want to cash in again into the Fiat world they can do that through our off-ramping solution as well. And again, that’s where the local bank accounts, entities and licenses come in. We are from the competitive landscape the only one that have this reach in terms of geographies with local bank accounts.

The last project, corporate onboarding means that Banxa is also able to onboard companies, if your company, your family trust, your family office or institution wants to buy cryptocurrency, small or large amounts, Banxa can do that. And we know from a number of our partners that they have large amounts of trading volumes from corporate customers. So that is going to be a major differentiator for us to be able to offer the onboarding of those entities and do the required checks and just add a lot more volume, because these are usually big ticket items.

Next slide please, Dom. Going forward, what we are really already doing is really the geo expansion pushing into more markets, currently a big push into Asia. We are going to get new licenses and registrations around the world obviously with those local offerings we do have. We are pushing hard into other segments of the market. So far, I mentioned centralized exchanges, we are going into gaming, certainly NFT marketplaces and a lot more that’s going to come. Again, we are just scratching the surface of massive, massive market. So I am very excited about how far we got, how agile we are, how fast we are in delivering and adapting and growing with a growing market. And I am just very, very confident although we have seen crypto prices a little bit under pressure this year, I just see so many people building so many great things coming out. NFTs are really going to get us to the next thing. And I am just very excited about this space and our business.

With that, over to you, Shyam for an overview of our financials.

[Shyam Deo, Chief Financial Officer]

Great. Thank you, Holger and I am delighted to be here today to speak to about Banxa’s March quarter financial results. To begin with, I think we want to talk about really the top line performance and the charts here represent that, it looks at the total transaction volume, TTV, and revenue. And I think the team has maintained a strong focus on strategy and execution which both Dom and Holger have alluded to already to achieve some of this financial outcome, despite the subdued nature of the current market conditions.

Banxa’s TTV remains highly correlated with the market volume. And with regards that we can immediately look at the March quarter results and taking that into account despite the reduction compared to the December quarter, I think it’s worth noting that this is the second highest quarterly result in the history of Banxa’s trading at $357 million. That then positively translates into the chart on the right hand side, which looks at the year-to-date revenue at $57 million, or approximately 25% on financial year ‘21. And with the remainder of the financial year to be played out, we are positive in expanding that revenue base further in the coming 3 months.

Moving on to the financial highlights, looking at this, the year-to-date TTV at $1.2 billion and this represents a 200% growth period on period. Our liquid assets are $19 million. It comprises of cash deposits and digital assets that we hold with various exchanges, etcetera to fulfill out of liquidity needs.

And finally on this slide, the statutory loss of $8.5 million, this includes a number of cash items but it’s largely comprising of some of the factors that continued – Banxa has continued to invest into the business by way of product and technology and talent, which was mentioned earlier. And all of these elements combined together will help and support the strategy execution in the existing period as well as in the future period.

So, moving forward, I wanted to take the audience through the financial – the key financial statements, commencing with the profit and loss. And looking at the profit and loss, I’d really want to talk to this with regards to performance and what it’s underpinning some of these performance metrics. So TTV, as we mentioned earlier has continued to expand even in this subdued market condition. And this is largely driven by our partners and our partner conversion and user base expansion. This then translates into our gross take rate. And the gross take rate is really just expressing the revenue as a percentage of our transaction volume.

And if you look on the table on the right hand side in the red outline, the gross take rate for year-to-date has held steady at 4.7% compared to prior quarter. It’s worth noting at this point that the comparative of 7.2% includes a principal revenue mix change and various non-recurring items, which once adjusted and normalized will baseline back to comparative periods. And from background perspective, principal revenue – Banxa maintains a principal versus agency mix. The principal revenue is where Banxa holds ownership of the coin is recognized as the revenue on a gross basis in contrast to agency where banks appeal is deemed to be providing a service and as such, our sales are recognized on a net basis of spread and various other factors that make up our revenue component.

That said, moving on to the net take rate, which is expressed in terms of gross profit as a percentage of TTV. Again, this has remained considerably steady at 1.9%. But that said, I think the focus for the business remains on cost optimization within this category and thus leading to margin enhancement, particularly being cognizant of the current market condition. Operating overheads, by way of operating expense, has continued to expand and year-to-date, it’s at $25 million and large component of this is driven by the headcount expansion that Banxa has been able to achieve in a very short period of time. Now, that said, I think it’s worth taking a step back and looking at operating expense as a steady state, as a – when expressed as a percentage of our transaction volume and we have always held the benchmark of roughly about 2% of transaction volume.

And finally, the adjusted EBITDA loss of $6.6 million and this is really represented after various non-cash items and one-off items. This number is also negatively impacted by our FX losses that we incurred year-to-date at $6 million. Worth noting at this point that off that $6 million, $3 million remains unrealized as part of our FX calculations. And I think, as part of some of the initiatives going into this quarter, Banxa has taken a lot of initiative in terms of investing into the treasury functions to then further enhance and the FX components and outcomes in the future period.

Moving on to the balance sheet, the strength and stability and focus here has been really on the working capital management and building out that treasury offering that I mentioned – alluded to earlier. This included establishing appropriate funding structures, which I will speak to also. And the key feature of this balance sheet is really the liquidity strength based on where Banxa is today, liquid assets, totaling to $19 million.

We maintain – continue to maintain a strong net working capital position of $15 million, and a quick ratio of 3x compared to industry benchmarks. There is a positive collection terms that we continue to obtain, which looks at inward cash flows – within 2 days in contrast to standard payable terms of 30 days. And finally here, the treasury function that we are referring to has looked at establishing funding structures to the tune of approximately $20 million to support future trading activities of Banxa. However, that said, as at March, the facilities remain undrawn and thus the balance sheet remains debt free at this – as at the March reporting period.

Next slide is then looking at cash flows and really looking at the usage and the sources of some of this liquidity. Now liquid assets, as I mentioned, is $19 million. Cash is a subset of this at $10.8 million. The key driver of our cash flow in this period is really the operating cash outflow of $7.8 million. It’s worth noting here that deposits that we hold with exchanges are not classified as cash. So, post reclassification of deposits circa $5 million to correlate back to cash and cash equivalents would result in an adjusted operating cash outflow or reduced operating outflow of $2.8 million.

Now, all of this, our attention is very strongly on operational cash flows, particularly in the current market condition. And to achieve this, we are balancing this out by strategy and execution risk, optimizing some of our cost structures, as I mentioned earlier, and thus increasing or trying to gain on our margin position. We are going to continue to focus on the working capital management and build out our treasury functionality. Bringing all of this together, I think this will provide Banxa with that stable financial foundation on which it can continue to realize some of its strategies that the team has spoken to.

So, that concludes the financial narrative. And I just want to pass it back to the team to discuss the investment highlights. Thank you.

[Domenic Carosa, Founder and Chairman]

Thanks. Thanks, Holger and thank you, Shyam. Just a couple of sort of keynotes, as of our next financial year, which starts on the 1st of July 2022, we will actually be moving our reporting to a quarterly basis both in terms of TTV as well as revenue, more in line with what companies on NASDAQ will typically report. Having said that, when we do have updates new product initiatives or material customers will obviously announce them to the market over time.

So really, at a high level, as we mentioned, we are actually the world’s first stock exchange listed fin-tech payment service provider reg-tech company servicing the digital asset industry. There is significant opportunity in Web3. And I am sure there will be some questions specifically around Web3. We have, at Banxa, taken a regulatory first approach. In fact, we have more licenses and registrations around the world and most of our competitors put together. And the reason that is really important, as we know, the industry is becoming much more regulated. And so over time, the value of these licenses will actually become much – significantly more valuable, because you will not be able to trade as an organization without having licenses, whether they are best virtual asset service provider licenses or in the U.S. equivalent MTLs, money transmitter licenses.

And then really, we have got a fantastic team, a growing team, and we are going to continue building out our partner network in terms of you could relate partners back to customers. And then at the same time, the thing that gets me the most excited is there is a significant amount of leverage in the model. Now, whether we are doing $300 million TTV or $3 billion TTV, or for that fact, moving forward, $30 billion in TTV, the technology ultimately does the heavy lifting. So there is significant leverage in this business model. And this is why we have really been investing into the future. So, that’s really the – let’s call it the formal part of the presentation where we are 23 minutes in. What I will maybe do at this point, is take some questions. I do have some questions. And thank you very much for the people that have sent through.

[Domenic Carosa, Founder and Chairman]

Frank asks, can we please get an update on the NASDAQ application?

Frank, thank you for your question. So, the NASDAQ process, as we announced to the market earlier this year, we put in our application, we have jumped through a number of hoops with NASDAQ. Right now we have got a couple more hurdles, one of those hurdles being price. We need to have a price of at least $2 for 90 days or $3 for 5 days. And unfortunately, with the movement or decline of the equity markets earlier this year, I think we were a day number 75. We were almost there. And then we have slipped below $2 and then that stopwatch start all over again. So right now, we are just – it’s really a wait and see approach and I think it’s later on this calendar year if you are looking towards NASDAQ.

And Michael asks, what is Banxa doing in terms of its spending habits, specifically the exponential increase in salaries this quarter? It’s affecting its gross margin toward an healthy 39%. I am not sure Shyam if you can maybe sort of touch on that. I am not sure if – where that 39% number is coming from?

[Shyam Deo, Chief Financial Officer]

Yes, sure. Happy to address that, Dom. I think that 39% is perhaps expressing the margin by way of dividing it by revenue. So I think to address Michael’s query, certainly, I think there is a strong focus in the current market, as I alluded to earlier, with regards to cost optimization now and margin improvement. So we are certainly taking a strong focus on this. And we will continue to do this and realize some of those optimization initiatives in the coming months, if not quarters as well. And I think this will become a strong feature of Banxa going forward.

In terms of the gross profit margin, Banxa would typically look at this as a gross take rate, as I mentioned earlier, and that’s expressing the revenue as a percentage of TTV. And that, despite looking at where the market conditions currently sit, if you look at our gross take rate compared to last quarter where we experienced significant uplift in volume to current quarter, where of course the market volumes are lot more subdued. That gross take rate has remained largely consistent at 4.7%. So, we – again to close that question out, certainly our focus is on cost and margin optimization going forward.

[Domenic Carosa, Founder and Chairman]

Yes. And I think that we have had a couple other questions specifically around the cash burn for last quarter. And from I don’t know the name other than anonymous. And I think you touched on that already, Shyam. We are going through a cost optimization and review process. As you have mentioned, there are a number of initiatives that we are working on in order to, because what Matt asks another question around, what are we doing to increase our net take rates in terms of the margins?

And so there are a number of key initiatives already underway with regards to increasing our net take rate. And some of those things are, for example, today the way that we charge our customers is that we will bake in and effectively not on charge all of the gas or blockchain related fees to customers. What you are going to see over the next 4 to 6 weeks is that we are going to be changing our pricing model, where will be the price of the coin, plus whatever the blockchain or gas fee will be at that particular point in time, as you know, that can change literally hour by hour. And so just by doing that little change, we believe that will have a material impact on our net margin. That’s one of a number.

Secondly, we are continuing to acquire licenses in other parts of the world, which means that there will be less reliance on third-parties for the use of their licenses, which ultimately means that we will be able to increase our margins. Rather than paying them a percentage, we are able to keep that percentage ourselves. So, hopefully, I know that provides some – a bit more clarity around the cash burn.

[Holger Arians, Chief Executive Officer]

If I can just add one quick thing, we founded the business back in 2014. And over time, we have seen difficult markets, especially in crypto very volatile. And we have navigated through this. I have never been more confident and excited about this space. And this time around, it’s very different to the crypto winter we have seen in 2018-19. I really believe that we are now having much more validation of what we are doing. And we have positioned Banxa really at this intersection, where we are onboarding many more Web3 companies, traditional finance companies that are exploring this space and are building in this space. They are building exciting things. They don’t really want to do all the work that needs to be done with regulators with local banking infrastructure and so on. That’s where Banxa really fits in and is able to plug in to whatever they are doing. And as mentioned, we are doing a cooperation with [indiscernible], for example. They are launching an exclusive NFT series and Banxa allows them to purchase those NFTs directly. And we see many, many more brands of luxury brands, Web2 brands coming into this space. That doesn’t need to be cryptocurrency, it can be really anything. And that’s what Banxa, it’s just a plug and play solution for them so that they can offer their followers whatever they want to do in Web3. I think we are just a very important part of the Web3 ecosystem.

[Domenic Carosa, Founder and Chairman]

Yes, very good point. And on also asks, why doesn’t the company conduct a share buyback to bring the price back to the NASDAQ requirements? Very good question. And one of the other questions from Tony is around why hasn’t management and the board actually acquired shares or being on market buying shares?

And what I will – there is – I am going to be careful what I say here, other than right now, we are in a blackout, a trading blackout and what that basically means is that as officers of the company, we are not able to buy or sell shares, because we are in a blackout. And the reason we are in a blackout is that there are certain corporate activities that are going on, that preclude us from doing so. And that’s answering a question around the NASDAQ. So, that will apply to the directors and the officers. And at the same time, that rule also applies to the company. So that company, as in Banxa, is not permitted to go out there and actually buy its own shares, because that is a question that has been discussed at the board and with our investment banks, bankers already with regards to Banxa embarking on a share buyback, but we are just not in a position to do so, because as officers and as a company, we are in a blackout. When that will end? We don’t know. We are just working with an investment bank through a number of, let’s call it, corporate initiatives. And that’s really all I can say on this particular matter.

Matt and Justin, and this is one for you Shyam asks, when would shareholders expect a positive net earnings per share return? And Justin also comments rather than explaining wages of 2% of TTV, can please split the wages into growth, establishment of new regions and products and cash cows? It’s unclear what the product potential profit of the business is. So, maybe you can touch on those two questions.

[Shyam Deo, Chief Financial Officer]

Yes, sure. I think just looking at the mixture of I guess the employee cost, just touching on that first is more around the fact that we have certainly gone and invested into the growth segments by way of headcount. And this largely looks at investment into our product teams, our technology team and then also being consistent to where Banxa’s heritage has come from largely from a reg-tech type structure. So the compliance team that also then underpins the expansion into all the different geographic regions that we are exploring. Those are the perhaps the key growth areas within the business that the headcount has been established. And of course, to support the growing, I guess the operational and the TTV expansion that we’ve seen. And you have got to look at it on a year-to-year basis as well, not just on a quarterly component, where Banxa is showing significant growth in TTV year-on-year. And that’s really then required further investment into operations team around customer services, customer success etcetera. And of course, the final component, the growth component that this question was really seeking for is that sales component and we are going to continue to invest into the sales piece as well. So hopefully, that gives you a bit more of a breakdown of yes, we have had a strong expansion in our headcount. And hence, there is strong increase in operating expenditure. But this is all about investing in the business to then be able to support some of the strategic aspirations and the journey that Banxa wants to achieve going forward in the coming months, quarters and years.

[Domenic Carosa, Founder and Chairman]

Thanks, Shyam and Holger. David asks, why do you need so many licenses and what’s the cost? And I will just sort of maybe just quickly touch on this. At first and foremost and this is sometimes a question I get is, can you just turn up to a country and acquire a license or registration and to a degree, I wish it was that easy? It is a big investment in terms of acquiring licenses. Sometimes, some of our recent, let’s call it, our Dutch license that was a 12-month plus process. And we have a number of – in the licenses are kind of broken down into what you call exchange or transactional type licenses. And then there are custody licenses that allow us to effectively hold custody of coins and we own licenses in a number of countries that allow us to do both.

Our view is that licensing is absolutely critical as the industry becomes much more regulated. And just to give sort of your sense of a leading indicator, I will give you a sense of where we believe the industry is going to be over the next 5 years, which kind of tells you why we are doing the things that we are doing today. If you take the U.S. and the Netherlands, take the Netherlands, The Dutch National Bank came out earlier this year and said that if you are an exchange or a DeFi platform, if you are targeting or servicing a customer in the Netherlands or using a payment method that’s used in the Netherlands, you have to be licensed, otherwise you are breaking the law. And the same goes for the U.S., you cannot service a U.S. customer without having the appropriate MSB MTLs and if you are doing custody trust charter license. This is where we see countries around the world starting to implement these rules, because it all comes from FATCA, which is basically the global organization, and it filters to the countries and then they implement these rules. And ultimately, what it will mean is that if you want to target a customer in Germany, you need to have a German license. If you want to target a customer in the U.S. or Canada, you need to have a U.S. or Canadian license, which is why we have spent a lot of time, energy and investment in acquiring these licenses, because they are ultimately an asset on the balance sheet. And from a pure financial perspective, we expense all of our development, we expense all of our licenses, because it’s ultimately the most conservative thing to do. But the way to look at a bunch of our expenditure, particularly from a regulatory perspective is it is an investment into the future. And we have already started saying and it’s – you only need to go Google crypto regulations to know that they are starting to become much, much more important all around the world. Did anyone want to make any sort of further comment on that?

[Holger Arians, Chief Executive Officer]

Maybe just one comment that the B2B partners were targeting they can be just two dreamers in a garage building the next big thing in Web3. And again, the sentiment today is very much around where the internet was in its early days and they don’t want to deal with all that. It’s hard to get all these licenses, like, like you said and also the infrastructure behind it. And that’s what we do. That’s what we take away from them. And again, it’s a plug and play solution that we provide, so that they can onboard users around the globe, with local regulation and local currencies and trusted payment options. That’s really what we are all about. So I hope that helps clarifying it.

[Domenic Carosa, Founder and Chairman]

Yes. And Matt asks that there was no mention with regards to when do we expect positive EPS or profitability or should we expect this company to be perpetually not profitable?

Shyam, I will sort of let you touch on this. But just to sort of take a step back into the history, the first 3 years of operation of Banxa, the company was actually profitable. We know how to run a profitable organization, we have lived through three crypto winters, if we are going into another one, it will be the fourth. We have got experience on how to basically survive and prosper. The reason that we have made these significant investments into the business is because licensing and local payment methods in Web3, they are all important and they are all growth areas. If – and I sometimes get this question, what happens if we go into a recession or a major, major bear market, I can’t tell you exactly what we are going to do in the future. But what I can tell you what we have done in the past, we have adjusted our cost base, we have adjusted our margin, and very, very quickly, we’ve moved the company back into profitability. So, we are effectively washing our own face. That’s how we have survived the last three crypto winters. If we need to do it, again, we have those tools at our disposal. And we will do whatever is required. So, in that – in terms of answering your question, obviously, we can’t make any predictions. We can’t provide any forecasts on this. But suffice to say, we do have a K9 on profitability. And it’s very much as you can see in the financials, we got our TTV, which converts into revenue at sort of high 4s, then we have got our net take rate, which is basically GP just under 2%. And then under that, what have you got, you have got employee costs and SG&A. And so it’s just by tweaking those last two expenses that will basically adjust what comes out bottom line. Shyam, did you want to make any sort of comments around that and some of the maybe sort of elaborate on some of the optimization both at the margin level as well as the expense level that we are currently working on?

[Shyam Deo, Chief Financial Officer]

Sure. Thanks Dom. And I think you have pretty much covered bulk of it. But to address Matt’s query, I think the margin optimization is the real key focus. There is a number of identified areas, which you spoke to earlier, but banks that can continue to work on in a very short period of time to be able to extract greater net take rates to a certain extent. And I think we have already mentioned the fact around the network fees component that can be charged, which is a normal industry practice that can be charged on to the end user. Now, that’s probably at a direct cost level. And there is a number of other factors that we can continue to optimize there. In terms of an operating overhead level, we are certainly taking a closer look at all the categories within it, within the operating overheads. But then there is elements in there with regards to managing our chargebacks and our provisioning, with regards to as mentioned, the employee costs as well, contractor usage, etcetera. So, there is many categories there that we can certainly look at from a cost optimization point. But I think I am very conscious of the fact that we have invested into the business for the growth of the business. And we have continued to optimize some of the margins ahead of optimizing a huge amount of our operating overheads.

[Domenic Carosa, Founder and Chairman]

Yes. Thanks Shyam. I mean frankly, we could be profitable tomorrow, just by enacting a few things, which we don’t need to really get into this call. But just, once again, just want to reassure investors, we have survived three crypto winters. We have effectively a key set of actions that we can push the button on, at any point in time. And the three of us, as executives in the organization are very conscious of what they are and what we need to do and how we need to do it. Maxwell asks, we know you can’t give guidance, but can you give investors any idea on how TTV has trended throughout the current quarter? And would you say similar to the March quarter? I mean we have already released some numbers for April, May is in the process of completion. So, we can’t really comment until we have announced it. Suffice to say, and sometimes I get asked with investors, like, what are some of the key drivers with regards to TTV? And there is a number of key drivers. One is obviously the Bitcoin price. The high the Bitcoin price, the better. I think that’s fairly obvious. The other one is, what is the volatility of the Bitcoin price if – what we have seen in the last 18 months, if the Bitcoin price trades in a very narrow band, so there is hence not a lot of volatility, that’s actually not that great for us. Like in equity markets, when did the exchanges make money is when there is actually high volatility, and we have seen significant volatility, particularly in the last four weeks. And then the third factor is what is the volume, the transactional volume at the exchanges. So, if the liquidity reduces, then obviously, the requirement for onboarding reduces as well, which is why as an organization, we have now really accelerated our push in terms of the Fiat off ramps. The sell functionality where you can go from Bitcoin, Ethereum, or stablecoin into cash. And so as we move into a, potentially a crypto winter or bear market, we believe, and we have already seen this. If you go back the last 6 months to 12 months, most of the volume was Fiat on ramping, I think off ramping was literally single digits. What we are starting to see and Shyam, correct me if I am wrong, the percentage now is now into still low compared to – I am going to say double digits. It’s like low-double digits. But we are starting to see an increase in people off ramping, as there is let’s call it some more uncertainty in the market. So, the best way to kind of look at the banks of businesses, as you are driving on the freeway, or you are driving off the crypto freeway, we clip the ticket. And that’s why we have really accelerated what we are doing in terms of Fiat offerings. Gents, would you like to add anything to that?

[Holger Arians, Chief Executive Officer]

Yes. I think Dom just a quick thing to add there from my side. We are certainly seeing that trend in the financial data. And then it does fluctuate month-on-month. As you have mentioned Dom, it is a smaller percentage, but as a percentage in its mix, it’s actually increased 2x to 3x on prior month. But again, as the market stabilizes, I expect that to start coming back again. And I think you shouldn’t lose focus on the significant part of the business is the on ramping exercise as well. And we have continued to optimize that area going forward. But certainly, in the volatile market situations, we are seeing higher off ramping activity.

[Domenic Carosa, Founder and Chairman]

Yes. Matt asks, what are the barriers to growth in the U.S. market? And I think Matt, it comes back to licensing. As we announced to the market earlier in May, we are now effectively moving into a number of new territories, including the U.S. We are already well down the process of our MSB MTLs which is done not on a country level, but very much at a state-by-state level, plus the trust – the state trust charter license which basically allows us to hold custody of coins. We haven’t released to-date, any kind of custody services, we have acquired a number of licenses related to custody, which once again is really an asset that should be sitting on our balance sheet, because it’s not easy to acquire and maintain those particular licenses. But we see significant growth and opportunity in the U.S. market. And frankly, it’s the biggest or one of the biggest markets in the world, which is why we have now been investing heavily over the last nine months in terms of acquiring those licenses, as we move full force later on this calendar year into that market. Holger or Shyam?

[Holger Arians, Chief Executive Officer]

Yes. And I will just to add to that, but that’s exactly right, on the infrastructure that we are building out with licenses and banking, but also on the sales side, many great projects are coming out of the U.S. And we are hiring salespeople, already have a few in the U.S., and focusing on marketing much more on the U.S. And attending those conferences where we are exhibiting at Consensus next week, and then NFT, in New York, as well. So, that’s where people can see the banks a product live buying an NFT directly. And the U.S. is already one of the biggest markets for us. And we believe there is going to be much, much more coming from this. So, we are also intensifying our activities there.

[Domenic Carosa, Founder and Chairman]

George asks, did you see any impact from UST and Luna unwind? The answer is no. And just to sort of clarify, I am not going to get into UST and Luna and what happened there, you can very easily Google that yourself. Suffice to say, we as banks, we do not hold coins on our balance sheet. So, we actually don’t take risk when it comes to the coins. All we are doing is really passing through from upstream providers directly to the customer, whether it’s on-chain or off-chain. And ultimately, we are just providing the coins to the customers. And Dan asked, can you walk us through the use case for protocols like Polygon and Arbitrum and others? Ultimately, when we first started this business many, many years ago, what did we offer, Fiat, the Bitcoin, that was basically the number one coin. Now as we know, there are thousands of coins out there. We support roughly 80 coins and blockchains. And I guess part of the – once again, I don’t want to get into too much of the technical details, but just to kind of illustrate the value that we provide to our partners and some of the proprietary technology that we have created, you can effectively get a coin like USDC. It’s a stablecoin, minted by a group out of the U.S. called Circle. Now USDC, you can actually send that across the Ethereum network, or the Polygon network, or the Hadera network. So, the whole industry is becoming much, much more complex these days, where you have multiple coins running on multiple chains. And that’s once again, part of the value proposition that we have created is that we are able to support not just one, but multitude of chains, and a multitude of coins. And so for example, Polygon, why did people use Polygon, or TRON, or some of the others as opposed to Ethereum. And that’s just purely because the guest fees. The transactional costs are much less on Polygon than they are on other networks. And this is why as banks are, we take an agnostic view when it comes to the coins that we support. Ultimately, we speak to our partners, we speak to our customers. And we get a sense of, the market, you can go into coin market, cap.com. And you will see that out of the top 50, we support a very, very large percentage of coins, because ultimately, that’s where the volume is. And that’s the volume that we want to basically pick up as an organization. Holger?

[Holger Arians, Chief Executive Officer]

Yes. No, just from a commercial angle, we are also trying to establish those relationships with those layer twos or layer one ecosystems as an example Hadera. We were – which is an enterprise blockchain. We are the first on an off ramp that is offering USDC stablecoin on Hadera. And that has helped us to get into the Hadera ecosystem, which has many, many large corporations, as followers, as users. And they have, for example, introduced us to their key wallet, which we are integrating with the cooperation with [indiscernible] and that we are working on right now. And so there are a number of opportunities that are coming from really partnering very deeply with different ecosystems. We are not only going after segments in the market, like NFT, collectible marketplaces, for example, NFT, in gamming assets, and so on DeFi marketplaces. But we are also going into those ecosystems of different blockchains and our coins, where we can play a vital role and just plugging Banxa and to connect them to onboard users. And so there are many, many angles. And maybe I just wanted to mention another point, given that we are working on very – we are doing all the heavy lifting of entering new countries, getting all the banking infrastructure up and running and the regulation. There is a lot happening every day. And we are trying to move on that front as fast as possible. But in this crypto on Web3 space, this is also just really pacing extremely fast. And we have set up the organization so that we can adjust that we can anticipate what’s coming. And I think that’s just very important that everyone knows that we are really trying to stay on top of this wave and innovating heavily while we are really building this strong foundation, which we need to execute on our business model. And that’s why you might not always hear from us with product updates all the time. We are doing a lot of heavy lifting. But at the same time, there are many, many opportunities that we are assessing, and identifying and executing on. And we will certainly keep everyone updated with those. And again, I just remain extremely excited about what’s to come. I think we are still just at the beginning. We are growing with this market. Yes, it’s a bit depressed at the moment. But if we just zoom out, crypto has been going up and up. And we have been doing it for 8 years. And we will do it for many, many more years. And that’s what gets me out of bed everyday.

[Domenic Carosa, Founder and Chairman]

Thank you. Thanks Holger. Matt, it’s actually a suggestion, consider providing a turnkey NFT solution for brands, not just payments, but the ability to create NFT soon, so they don’t need to hire engineers, i.e. the Shopify of NFT stores.

[Holger Arians, Chief Executive Officer]

Maybe I can quickly respond to that we are already exploring this. There are certainly already services that are offering this. What’s really important for banks is just to be the standard and Fiat on and off ramp in those services and then partnering with them so that they can actually resell to us. But we are also able to offer those services ourselves in the future. So, I guess it’s a combination of, whatever the market is looking for, banks that can offer a variety of those services to its partners. And for us, it’s just a product extension, really, again, the heavy listing – the heavy lifting is what will eventually allow users to onboard from Fiat to crypto, and do that conversion.

[Domenic Carosa, Founder and Chairman]

Yes. Thank you. Thanks for that. I think maybe you have got time for one or two more questions. So, feel free to dial in and just on NFTs, because I have had some questions from investors. We came out earlier in May and announced this, the Fiat to NFT product. And they are asking what’s so special about that? Why is that important? And the answer to that question is right now, if you want to buy an NFT you are going to go and buy some Bitcoin or Ethereum, work out if you need to convert it into Polygon or Solana or one of the other blockchains depending upon the NFT that you want to buy. Then you have got to basically use a wallet like MetaMask, a non-custodial wallet. So, you need to be able to go from a centralized exchange to something like a non-custodial wallet, then you need to be able to link it up to a website like OpenSea and only then you can transact. Like there are – and you need to make sure you got enough theory in Polygon or Solana basically to pay for those guest fees as well. So, the whole process, I won’t say you need a computer science engineering degree, but you need something pretty close to it. And so what we have done at banks are once again taking a step back and saying, this is we are now trying to build our company around the mass market. The next 2 billion people that are going to move into this space aren’t going to be the tech nerds, or the finance nerds, they are going to be ordinary people that want to just be able to make a few clicks and buy their NFT or their gaming product or buy some bitcoin. And so what we have done as part of that technology, that launch is you go from Fiat to NFT. And there as all this technology behind the scenes as all these hubs, we take care of all of that behind the scene. So, it’s really, really simple for the customer to be able to execute. And that’s very much part of our vision on onboarding the next billion people. It’s about making it simple to onboard and ultimately providing really good experience for our customers. And we have got maybe one more question Justin asks, when do you expect Banxa percentage revenue split to be in ‘23 between C5 on-ramping, C5 off-ramping and Web3, which includes gaming and NFTs?

[Holger Arians, Chief Executive Officer]

Good question, Justin. Hi again. Like I believe C5 on ramping is really the cash cow. There is a lot of volume coming through and it will continue to be so. But over the next few years, we will certainly see much more off ramping happening as well as we are not just servicing the centralized exchanges, but as crypto is really moving across many, many more use cases. But Web3 was gaming, which is a huge opportunity. Andreessen Horowitz just raised another $4.5 billion fund to invest in Web3 and gaming projects. We believe there is going to be much, much more coming from that actually much bigger than the centralized exchange volumes. And in my view, the reason is that the everyday use cases are just much more in Web3, in gaming, NFTs. They are just much more consumer friendly than traditional centralized exchanges that largely offer crypto to crypto trading these days. And that is very special in finance and tech, but NFT is much more consumer focused. So, I believe we see a lot more traffic coming from this in the future.

[Domenic Carosa, Founder and Chairman]

Fantastic. Alright. I think that’s basically a wrap. I would like to thank everyone for their time and all the participants and their questions. We will make this recording available on YouTube in the next 24 hours. And if you have any further questions, feel free there is plenty of ways of reaching out to us on the banxa.com website. And once again, thank you for your time everyone and have a great day. Cheers.

[Holger Arians, Chief Executive Officer]

Thanks, everyone.

[Shyam Deo, Chief Financial Officer]

Thank you all.