Earnings call transcript: Netcapital Q3 FY2025 sees revenue drop

Netcapital Inc. (NCPL) reported a significant decline in revenue for Q3 FY2025, with a drop of 85% compared to the same period last year. The company continues to face financial challenges, including increased operating and net losses, reflected in its weak financial health score of 1.45 out of 5 according to InvestingPro analysis. Despite these setbacks, Netcapital is focusing on its new broker-dealer subsidiary, Net Capital Securities Inc., which recently received regulatory approval.

Key Takeaways

• Revenues fell by 85% to $152,682, primarily due to reduced consulting service revenue.
• Net loss widened to $3,006,537, with a net loss per share improving to $1.57 from $13.60.
• Net Capital Securities Inc. has been established as a fully approved broker-dealer.
• The company is pivoting towards private securities placements and capital raising.

Company Performance

Netcapital’s Q3 FY2025 performance reflects a challenging environment, with revenues decreasing sharply due to a lack of consulting service revenue for equity securities. The company reported an operating loss of $1,687,692, compared to $1,205,157 in the previous year. Despite these financial hurdles, Netcapital is shifting its strategic focus towards its newly established broker-dealer subsidiary, aiming to capitalize on private securities placements and equity capital raises.

Financial Highlights

• Revenue: $152,682, down 85% from $1,042,793 in Q3 FY2024.
• Operating Loss: $1,687,692, compared to $1,205,157 the previous year.
• Net Loss: $3,006,537, compared to $2,200,000 the previous year.
• Net Loss per Share: $1.57, improved from $13.60.

Outlook & Guidance

Netcapital remains cautiously optimistic about its future prospects, despite its stock declining by 78% over the past year. The company is focusing on developing Net Capital Securities Inc. and exploring opportunities in private placements and capital raising. Forward guidance indicates a revenue forecast of $4.95 million for FY2025 and FY2026.

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Executive Commentary

CEO Martin Kaye highlighted the strategic shift, stating, "During the year, as a company, we have shifted some focus towards the goal of establishing Netsap Capital Securities as a broker dealer." CFO Corinne Kreisler added, "We received FINRA approval for our broker dealer subsidiary," emphasizing the importance of regulatory achievements in their strategic direction.

Risks and Challenges

• Continued revenue decline due to reduced consulting services.
• Increased operating and net losses impacting financial stability.
• Market uncertainty affecting the new broker-dealer operations.
• Potential challenges in scaling up private securities placements.
• Dependence on regulatory approvals for future business activities.

Netcapital’s Q3 FY2025 results underscore the financial pressures the company faces while highlighting its strategic pivot towards broker-dealer activities as a potential growth avenue.

Full transcript - Netcapital Inc (NCPL) Q3 2025:

: Thank you for holding. We sincerely appreciate your patience. Please stay on the line and we’ll be back in

Tom, Conference Call Operator: Good morning and welcome to the Net Capital Inc. Third Quarter Fiscal twenty twenty five Conference Call. At this time, all participants have been placed on a listen only mode, and we will open the floor for your questions and comments after the presentation. It’s now my pleasure to turn the floor over to your host, Corrine Krasler, CFO of Net Capital Inc. Corrine, the floor is yours.

Corinne Kreisler, CFO, Net Capital Inc.: Thank you, Tom. Good morning, everyone, and thank you for joining Net Capital’s third quarter fiscal twenty twenty five financial results conference call. I’m Corinne Kreisler, CFO of NET Capital Inc. And I will begin by reviewing our financial results and then our Chief Executive Officer, Martin Kaye, will share his prepared remarks before we open the Q and A portion of our call. Before we begin, I’d like to remind everyone of the Safe Harbor disclosure regarding forward looking information.

Management’s discussion may include forward looking statements. These statements relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward looking statements. Any forward looking statements reflect management’s current views with respect to operations, results of operations, growth strategy, liquidity and future events. Net capital assumes no obligation to publicly update or revise these forward looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward looking statements even if new information becomes available in the future. With that said, I’d like to now turn to our financial results for the second quarter fiscal twenty twenty five.

Revenues for the three months ended 01/31/2025 decreased by $890,111 or approximately 85% to $152,682 as compared to $1,042,793 during the three months ended 01/31/2024. The decline in revenue was attributed to the lack of consulting service revenue for equity securities in Q3 twenty twenty five as compared to revenue of $862,346 for consulting services for equity securities in Q3 twenty twenty four. In fiscal twenty twenty five, management has focused on establishing our broker dealer subsidiary to gain additional sources of revenue and that we have not been pursuing the equity based revenue contracts. On 11/22/2024, we received FINRA approval for our broker dealer subsidiary Net Capital Securities, Inc. We reported an operating loss of $1,687,692 for the third fiscal twenty twenty third quarter fiscal twenty twenty five as compared to an operating loss of $1,205,157 for the third quarter of fiscal twenty twenty four.

We reported a net loss for the third quarter fiscal twenty twenty five of approximately $3,000,000 6 thousand 5 hundred and 30 7 dollars as compared to a net loss of approximately $2,200,000 for the same period in the prior year. Third quarter results reflect an impairment charge of $1,300,000 for one of our portfolio companies. We reported a net loss per share of $1.57 EPS for the third quarter compared to EPS of a loss of $13.6 a share for the same period in the prior year. I’ll now turn the call over to our CEO, Martin Kaye.

Martin Kaye, CEO, Net Capital Inc.: Thank you, Corinne, and thank you to all our shareholders for being on this call today and for your continued interest and support of the company. As you heard from Corinne, we did face a tough time during the quarter. From a revenue perspective, we had a decrease, which we already touched on. And while I don’t want to diminish this, I do want to look at a major success we had during the quarter with our wholly owned subsidiary Net Capital Securities Inc, or NSI, becoming a broker dealer. During the year, as a company, we have shifted some focus towards the goal of establishing Netsap Capital Securities as a broker dealer, and we successfully completed this goal following approval by the Financial Industry Regulatory Authority or FINRA in November.

NSI is now approved to do three things. First, handle private placements of securities as well as referral business second, support companies raising equity capital under Reg A and Reg D, enabling larger fundraisers and potentially attracting a broader range of issuers and thirdly, partnering with other broker dealers. Looking forward, we are pleased that Algernon Neuroscience Inc. Recently engaged Net Capital Securities for one of those planned Regulation A or Reg A offerings and to provide broker dealer and administrative services. So although the market environment remains uncertain, management remains cautiously optimistic and we look forward to keeping you updated on our progress.

As always, thank you for your interest and support of NET Capital. And operator, we are ready for questions.

Tom, Conference Call Operator: Certainly. Ladies and gentlemen, the floor is now open for questions. And there are no questions in queue at this time. I would now like to turn the floor back to Martin Kaye for closing comments.

Martin Kaye, CEO, Net Capital Inc.: Okay. Well, thank you, Tom, and thanks, Corinne, our CFO, and thank you all for joining and again for your continued interest and support of the company. Take care. Thank you.

Tom, Conference Call Operator: Thank you. This does conclude today’s conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

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