CoinShares International Limited

Thank you for standing by and welcome to the CoinShares Q2 earnings broadcast. All participants dialing in are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. You can submit your questions via the postbox below the video on the platform. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host, Jerry Lee Brown. Thank you.

Thank you, Operator. I would like to welcome you all to the CoinShares 2025 Q2 Earnings Call and Webcast. Speaking from management today will be John-Marie Magnetti, Chief Executive Officer, and Richard Nash, Chief Financial Officer. All those joining today are encouraged to log in to the live event, where you'll be able to view the accompanying presentation during today's call. Alternatively, the results and a copy of the presentation are available to download from the investor relations section of the CoinShares website. A replay of the webcast will be available for 30 days following the live call, and a transcript will be posted on the company's website as soon as it is available. Following the presentation, we will host a short Q&A via the webcast platform. Should you wish to submit a question to the management team, please provide your name and company affiliation. We will do our best to get to as many as we can within the allotted time. Lastly, our safe harbour statement. CoinShares would like to remind everyone that, except for historical information contained herein, statements made on today's call and webcast that would constitute forward-looking statements are based on currently available information. The company assumes no responsibility to update such forward-looking statements, and I would like to appoint you to the risk factors associated with our business, which are detailed in our prospectus. At this time, I will turn the call over to Jean-Marie.

Good afternoon, and welcome to CoinShare Q2 2025 update. As we continue our journey toward listing on the US exchange, I want to take you through our story, where we've come from, where we stand today, and where we're heading in the fast-changing world of global financial services. If you are looking for my broader market views, you can always find them on the node, our platform for market insight. But today, I really want to focus on our results, our strategy, and the bigger picture beyond the numbers. Before we get into Q2 performance, it's worth revisiting the foundation we've built, because that foundation explains how we've been able to grow and adapt through every cycle, creating a crypto cycle-resilient company. Our history has three clear faces. Phase one began when we bought XBT Provider out of bankruptcy in Sweden, a small business managing just about 10 million in assets. For us, that wasn't just an opportunistic buy, it was a strategic move. By providing liquidity to XBT Provider and creating certainty for our clients, we turned a distressed asset into one that investors could trust and a success story we all know about. And in the process, we build the basis for what will become our capital market division. By the 2021 bull market peak, XBT providers have grown into the largest open-ended exchange-traded product tracking digital asset anywhere in the world, with over $5 billion in assets. That wasn't pure luck. That was foresight and a good dose of solid execution. Phase 2 started in March 2021 with our listing on Nasdaq Stockholm. This was our public commitment to transparency and high standards, the values that shape our institution and the way our market sees us. Earlier that year, we launched our physical crypto ETP platform across Europe, Coinshare Physical. Our competitors had a two-year head start, but our goal was clear, market leader in Europe. And today, despite being challenged by a company like BlackRock, we are this leader, with $440 million of net inflow at the close of Q2 2025. Phase 3 began in 2024 with our acquisition of Valkyrie. It was a low-cost deal, again, a non-performing asset, but one with a very high strategic value. More importantly, it gave us our own US issuing capacity in the US, putting us in a prime position for the expanding US crypto ETF market at a time when the regulatory climate is improving. So to recap, phase one, leadership in open-ended crypto ETPs. Phase two, defending and winning European market leadership. Phase three, expansion to the US, the largest asset management market in the world. And this expansion matters, not just because we want to be a global franchise, but because the US manages half of a global asset. And as regulations become more supportive with initiatives like the Genius Act and the Clarity Act, it is the right time to make not only our products, but also our shares available in that market. Now let's turn to Q2 performance. Our asset management revenues for the quarter are roughly in line with Q1. Even so, our assets under management were significantly higher at the quarter end. That's because early in Q2, the market faced a liberation day tariff, followed by mid-May weakness, price dropped sharply before bouncing back into it. The real story of this quarter is our capital market division. Revenues there stayed steady throughout the volatility. That stability reflects the risk management change we made during the 2022 BR market, transforming capital market from a simple trading desk into the research and development lab and operation engine of our business. The message is simple. Our strategy is working and our position is getting stronger. On that note, and without any further delay, let me hand over to Richard Nash, our CFO, for a deeper dive into Q2 numbers. Richard, over to you.

Thanks very much, John-Marie. So Q2 has been another solid quarter for the group, against a backdrop which is effectively the exact reverse of what we saw during Q1. As a reminder, Q1 saw the most significant quarterly decline in digital asset prices since early 2022. Despite this, we delivered a solid and stable performance. Q2, however, saw excellent price recovery in BTC, and to a similar extent, also Ethereum. The impact of these price movements over the first half of 2025 has resulted in top line performance that's actually rather consistent quarter on quarter with two key differences. First of all, the directional exposure we have been building through the accumulation of our BTC and Solana treasury position has performed extremely well in Q2, resulting in unrealized gains of $7.8 million. Secondly, more importantly, we are ending the quarter with a strong AUM position and a market that is indicative of a very promising second half to the financial year. New all-time highs post-quarter end have resulted in the group's highest monthly close of non-fee-paying AUM since its inception at the end of July. For Q2 2025, our asset management platform delivered $30 million in management fees, a modest increase on the $28.3 million earned in the same quarter in 2024. Capital markets contributed a further $11.3 million in gains and other income, slightly lower than the $14.6 million recorded in the prior year period. Movements within our principal investments portfolio were immaterial, mainly reflecting the transfer of digital assets previously held in this portfolio into capital markets and treasury during the quarter. The group adjusted EBITDA came in at $26.3 million, slightly lower than the 34 million reported in Q2 2024. However, this figure was inflated by some non-recurring items related to the FTX sale and also the write-off of FlowBank. Importantly, underlying profitability remains very strong and margins very consistent. The profit after tax was $32.4 million, up from 31.8 in Q2 2024, and it's this figure that's supported by the 7.8 million Treasury gain that we saw. This has resulted in total comprehensive income of $33 million and earnings per share for the quarter of 49 cents. From a cost perspective, the group remains tightly managed. While costs are broadly consistent with last year, admin expenses increased compared to Q1 2025, reflecting targeted investments into our US expansion and preparatory work for the potential change in listing venue. Now, let's take a closer look at our asset management platform, starting with XBT Provider. So on the XPG provider side, we generated $22.1 million in management fees, with net outflows slowing down in the quarter to $126 million. This is a small reduction versus the prior quarter's outflow of $154 million. This outflow, however, is dwarfed by the upside seen from price appreciation in the quarter, resulting in closing AUM at the end of June of $3.45 billion. It is also noted that the unique holder base in XPT provider remains very solid, and we stay committed to expanding in our core Nordic markets where we see ongoing opportunity, hence the launch of a number of additional products under the XPT umbrella during Q2. CoinShares Physical had an excellent quarter at $6.8 million in fees, being its highest on record. While the platform has obviously benefited from price action, this is further supported by strong flows in the quarter of $170 million, resulting in a closing AUM of 2.06 billion. We note that the flows in CSDS being in excess of the outflows seen on XBT, and this is a trend which has been evident for the whole of 2025 so far. One of the core goals of CS Physical and its establishment was to ensure that it was able to evolve to a point where it was more than offsetting any outflows seen on our legacy product, XBT. We hope with our continued efforts, this trend will continue throughout the remainder of 2025. Our US platform delivered half a million dollars in fees. We saw a modest amount of net outflow across the US products in the quarter of $4.7 million. Despite these outflows, the WGMI index delivered a standout performance, achieving gains of 78% during the quarter. In addition, Q2 marked a strategic milestone the removal of the Valkyrie brand name from the U.S. products, formally unifying the business under the CoinShares brand across investor, advisor, and institutional audiences in the U.S. And finally, the block index generated $0.6 million in management fees, but has ended the quarter very well in terms of performance, with AUM of just over $1 billion up from $713 at the end of Q1. Bringing all of the above together, we generated $30 million in management fees this quarter, up from 28.3 in the same quarter last year. And very importantly, we are ending the quarter on a high in terms of AUM, which we believe is setting the tone for Q3. The total fee-paying AUM ended the quarter at $6.6 billion, up from $5.23 at the end of Q1. And this is an increase of circa 26% in just a short three-month period. As always, our weekly fund flows report and daily AUM attestations via LedgerLend ensure we maintain transparency and trust, and we encourage you to take a look at these if you so wish. So now moving on to capital markets. And before we look at the results themselves, just to reiterate once again, some changes to our financials that we highlighted last quarter, being that gains and losses associated with the groups BTC, ETH and Solana treasury holdings are now separated out from capital markets results and are reported independently as treasury movements on an ongoing basis. The capital markets business unit itself, however, for Q2 2025 delivered another solid performance generating total income and gains of $11.3 million. The key contributors to Q2 2025 performance were as follows. So first we have ETH staking. This has remained the principal driver of the capital market's income, generating $4.3 million during the quarter, which is comparable to Q1, but down slightly on Q2 2024. Staking continues to provide a reliable recurring source of top line income for the wider business. Liquidity provisioning income amounted to $1.5 million for the quarter. This represents an increase versus last year and also versus Q1. Such an increase is consistent with historical patterns during periods of digital asset price increases when trading and redemption activity typically increase. Delta neutral trading strategies delivered $2.2 million during the quarter, while digital asset lending came in slightly higher at the $2.6 million. The direct costs associated with capital markets have continued to be stable, contributing in turn to solid and steady gross profit margins for the business unit. The capital markets business unit continues to demonstrate resilience through a diversified range of revenue and income generating activities, maintaining strong operational performance, even during periods of lower digital asset prices. The group remains focused on driving further expansion within capital markets as market conditions continue to evolve. And now if we just take a look at the quarterly performance in context at the adjusted EBITDA level, we can see that what we achieved in Q2 is slightly down on Q1, but it's important to remember that this figure doesn't include our solid treasury gains of $7.8 million, which have bolstered the group's bottom line meaningfully, as can be seen within our full financials. The combined top line totals of asset management and capital markets being the core of our business of circa $41.5 million. Keeping in mind the price recovery we've seen in digital assets in Q2 and also new all-time highs post-quarter end, H1 represents a solid foundation on which to build out the remainder of the financial year. We continue to deliver stable profits, maintain solid margins, and grow our presence across key markets. For the rest of the year, we remain well-positioned to benefit from this momentum with a focus on our product expansion, geographic growth, and our operational scalability. And just a quick recap before we move on to questions. So from a financial perspective, we posted solid revenue gains and other income across our core business units. We maintain stability and cost base and protected a healthy margin resulting in an adjusted EBITDA of $26.3 million and total comprehensive income of $33 million. From an operational perspective, our CS physical product suite continues to show dominance in York, and flows in the product suite have more than offset negative impact on AUM from XBT outflows in H1. Additionally, we've launched seven more products within XBT in the quarter. We are continuing to pay a solid dividend to our shareholders and have already seen a number of positive steps since the end of the quarter, including those of a regulatory nature for our French entity, more products launched, and a market which stands us in good stead for the second half of 2025. And just as a reminder for everyone that's on the call today, full detail on everything we've covered and more is in the Q2 earnings report that we released earlier today. And we encourage you to go and take a look at that. And now I will hand over four questions.

Thank you, Richard. We've got a couple of questions from Russell Newton of Gabby Ventures. The first one is capital markets expenses. Awesome. much higher than for the previous quarters. Please, could you explain why?

Sure. So I think there's two questions together here. So you're also asking the same question around asset management, Russell, as to why the expenses have gone up. So if you actually look at our admin expenses at the group level, quarter on quarter compared to last year is very, very similar. We had 10.3 million for Q2 2025 and 10.5 million for Q2 2024. What actually changed, and we touched upon this in the Q1 earnings broadcast, is the way in which we are allocating the moving into 2025. So while the overall costs of the business have been fairly static, the portion of the centralized costs that we were previously not allocating to asset management or capital markets are now being allocated there. So in terms of overall spend, no real movement year on year, 10.3 million as of Q2 versus 10.5 last year. But just the allocation methodology has changed.

Thank you very much, Richard. We've got another question here from Johan Bundum, who's a private banker. This is for you, Jean-Marie. Why did you pause the expansion of your BTC holdings?

Thanks for the question, Johan. We didn't really pause it. It's like we take the decision to manage our exposition to not become a treasury company so it was a very i would say assess decision making process we look at how much volatility we wanted to impact our results from the the volatility derived from having a cryptocurrency on a balance sheet and we saw that following a number of stress testing analysis that around 30 million was the maximum level we should be having given our current quarterly earnings and so you know we have 25 million give or take of bitcoin six million dollars worth of offer of solana and a little bit of ethereum and i think that's where we're gonna uh keep it for the time being thanks very much we've got another question here for you

From Kevin Deedy, who's an analyst at HCW, he's asking, regarding comments about building the US team patiently, what capacities are you hoping to fill specifically? What's your internal timeline for execution? And how does it correspond to CoinShare's ambitions to list in the US? What specific progress has been made? on that target? Sorry, there's quite a bit there.

Okay, we're going to unpack all this question in one question. Thanks, Kevin. So, passionately in the US, yes, passionately because the US market is not opening as fast as people expect. The US market make an announcement, but the SEC didn't approve a single S-1 since the new administration has come in. There is progress on that sense. There's progress on the framework that the exchange can list. There is a new product from CoinShare coming out to the market in September. It is public information, so I'm not betraying any information. You just need to go on Edgar website to figure it out. So we're building patiently. We have a new CCO who just joined us, the first CoinShare hire CCO in the US. which is a lawyer and a compliance officer to help us on a full-time basis navigate that and also help us kind of see how we will operate the business between Europe and the US and build a narrative there. So, you know, in terms of people we're filling in, you know, we hire this year a couple of people to help with distribution, we hire a bit of marketing. And so we are completing our team as we go, but it's really kind of step by step. We forgot the US listing. I won't be able to give more information than what I gave already in the report. It is something which is very much front and center on our mind. We are conscious of the market condition and the market timing, and we hope to be able to keep executing as quickly as possible.

Thank you very much, Jean-Marie. I've got another question here from Kevin at HCW. He's saying, given your commentary about July and August performance, passage of the Genius Act and impending Clarity Act, what more regulatory clarity and market conditions are you looking for regarding further product launch on the ex-Valkyrie platform?

So as I mentioned previously, it's not so much what we can launch. If you look at it, we have a Solana ETF pending approval. We have a Ripple ETF pending approval. The SEC is not approving things right now. They are just, they keep delaying it, which is fine. We know why. They are waiting to get the framework in place before approving any new things. So I think giving three to four months, you probably have some new thing being listed, but Cochia already have product in the pipeline. If the SEC goes as quickly as possible, we may have three additional product lines by the end of the year in the US. So the pipeline is pretty full for the size of the team we're having, which is still very small.

Thank you very much, Jean-Louis. I've got another question here from James Rutherford, who's the chairman of Smartframe Technologies. I'm going to direct this one to Richard. He's asking, could you please walk us through the free cash flow generated in the quarter As we go forward, I imagine the business will generate substantial cash flow. What would you expect cash conversion to be, X investments? With thoughts on a US listing, does this affect what you can do with the cash, i.e. buybacks, etc.?

Okay, so I think the easiest way to get a good proxy for the free cash flow generated in the quarter is to look at our group performance and APMs table, which shows the performance split by business units. And effectively, if you take the combination of the asset management revenue and the capital market schemes and other income, but adjust for a CoinShares XPT provider, that's effectively all free capital generated out of them when we're recognizing those revenues. CoinShares XPT provider comes to the way that we choose to hedge that product suite. We release the cash on redemption. So the easiest way to get a good proxy for the quarterly cash generations to take our total revenue gains and other income adjusted for XPT provider is and then remove the costs. So yes, we are very cash generative at the moment. In terms of what that will be going forward, it's obviously a function of the market and the performance as a business. As alluded to on the presentation, we started H2 very well indeed across all of our activities. And given that this overview calculator is presented to you, you can get a good proxy for how that might be cash generative and what that number may be.

Thank you very much, Richard. Well, that appears to be all the questions that we have for today. Thank you, everybody, for dialling in today. So that concludes our questions. Thank you very much.