All right, we are going to continue here at the 45th Annual Canaccord Growth Conference. I am Joseph Vafi, Equity Research Analyst here at Canaccord, focused on FinTech and digital assets. We are pleased to have with us for the first time this year, the management team from Upexi, Allan Marshall, CEO, and Brian Rudick, Chief Strategy Officer. Upexi is an existing public company for a little while, four years now, specializing in development, manufacturing, and distribution of consumer products. We're not really here for that side of the business today. Recently, Upexi Inc has shifted its strategy to become a leading Solana-focused digital asset treasury company, backed by 15 of the top digital asset VC firms. Upexi is able to utilize capital markets and efficiently accumulate Solana, which it then can stake to generate some yields. To date, Upexi has accumulated more than, I believe, 2 million SOL at this point. With that, thanks for being with us here today, Allan and Brian.
Thanks for having us. Good to be in an inaugural setup with you guys.
Awesome.
Thank you.
Absolutely. Maybe we just kind of kick it off if you guys want to explain and introduce Upexi in your own words, where you are now and where you're going from here.
Yeah, awesome. I'll start up. Originally, we were licensed as an Amazon brand company. Last year, we decided to pivot our business mostly because, after the election, the regulatory clarity around crypto we thought would really, from headwinds, become a tailwind for us. We sold off some of our brands, still have a core business there, and we're happy with the business we have. We announced we're going to enter the crypto space, and really, years after watching MicroStrategy create massive amounts of value in August 2020, with $250 million to where they are today, it's been spectacular. We were lucky enough to meet a company, a big trading firm, GSR, and Brian worked at GSR. We were originally going to do a kind of a basket of crypto, but after really talking to Brian and doing some more research in the industry, really focused in on Solana for many reasons. One is the growth in Solana, the staking yield, and having a single story on Wall Street and in public markets is way better than having a story where you have to explain a lot. We were one of the first to market. We did a $100 million PIPE. After that, of course, there's been many that have followed. At least we feel like we're the pioneers of that space. Subsequent to that, we did a $200 million capital raise, probably just about a month ago. Our current portfolio is somewhere around $400 million. We've been very active in accumulating Solana. We've been able to accumulate a lot of it at a discount to the market. A lot of the Solana was created and some of it was owned by big institutions from FTX. We've been able to buy that at a discount to the market. That's been accretive to our shareholders. Our plan is to create the number one company in Solana to continue to accumulate. Brian, who was at GSR, ended up coming over and really brought a lot of talent in the crypto space to our management. I'll give Brian a second to just tell you a little bit about him because he's been a great addition to us and really instrumental in moving us forward quicker.
Yeah, thank you very much. Thank you for having us. I'm Brian Rudick. I'm the Chief Strategy Officer. I actually spent most of my career in traditional finance. I was running a book of bank stocks for a lot of the large hedge funds like Citadel, Balyasny, Millennium. I mention that because these digital asset treasury companies are literally just banks. Instead of raising from depositors and investing in loans, we raise from the capital markets and we invest into Solana. Like a bank, we earn spread income. We earn the spread between the return on Solana and our cost of capital. Investors will then present value all of that spread and then add it to the NAV. We'll trade at this premium to book value, which when you raise equity above book, it is by definition accretive. We can pull in a bunch of value for shareholders. This is how MSTR created $13 billion worth of free Bitcoin for shareholders last year. We're employing many of the same things. From these different hedge funds, I decided that it would take a while, but crypto would eventually become ubiquitous. That's when I moved over to GSR to run research for them. I was there for four and a half years. I led the investment into Upexi for their $100 million PIPE. It just made a lot of sense for me to join Allan and our CFO, Andy, to continue to push on this Solana treasury model.
That's great. Off to a pretty good start.
Yeah, it's been pretty good. It's been a really crazy 90 days when you think about it. When we did it just 90 days ago and the $100 million raise was like this.
Yeah.
Now $100 million is a starting point or $200 million is a starting point. It doesn't take long.
Maybe we kind of just dig into that a little bit more. I think you have an equity line in place right now. Is there a pace or cadence to what you want to acquire? There are a lot of treasury strategies out there. It feels like the law of large numbers is actually good in treasury strategies. If you want to think about the playbooks of strategy, previously known as MicroStrategy, et cetera. I personally think that if you're acquiring at a premium to your NAV, you should keep doing it because I think that's how your premium expands, right?
Yep.
Maybe kind of some thoughts on the cadence of how the pace at which you want to build that Solana, that treasury.
We did a $200 million round pretty quickly after the first round. We did a really interesting, you know, convertible note on that where people could pledge Solana, and it really created a mostly risk-free transaction for people that wanted to pledge that. We are looking to create really unique instruments to grow our strategy and our treasury. We will always, like you said, look to raise capital above book, but as we do it, we really want to be systematic and raise it as quickly as possible at the highest possible premium we can. Also, one of the important parts is each time we're trying to diversify our shareholder base more. We want to go out more institutionally. I think what our investors should consider is that that's our business. We will do it as quickly as possible, but we will do it as economically for our shareholders as possible.
Great. I think one of the, so MicroStrategy has been very successful, just focused on Bitcoin, but Bitcoin doesn't have an inherent yield to it, right? There is a difference in the model. I'm kind of a fan of these preferred equity offerings that MicroStrategy has done recently, and there's a dividend attached to it. They will fund that dividend probably through selling a little bit more stock to fund it, right? They can cover that easily, but you have a yield. Just kind of wondering, compare and contrast, like, I mean, you're still kind of at the beginning of your journey. What do you think of kind of some of those preferred vehicles to keep dilution low, grow your Solana per share? You have staking yield, which could theoretically fund some of that dividend and kind of get that flywheel really moving a little bit.
I'll start with that. I think definitely that's what we talked about, creativity. We're looking to be creative. One of the things that Michael Saylor has done is be the most creative in the instruments he's developed. I think, one, because we would fall off our, you know, draw off our lines to sell into the market, but more so we would look at these vehicles to create the most value, like you said. I think a preferred is definitely on our mind and on the radar for us. We need a little more size and critical mass before we can get to where that's almost automatic. Really, Michael Saylor doesn't have to call more than one person to do a large raise. I think as we do a couple more raises and get to scale, we'll be able to be in that same place. We do anticipate, you know, our goal is to get to $1 billion as quickly as possible. We'd love to do it this year. Let's see how the markets are. On the staking yield, I think one of the things, I'm going to let Brian just go into the way we look at our staking yield now. By buying this discounted locked SOL at, you know, mid-change discount, how much that yield is worth to us. We do plan on using that too as well.
Yeah, so we're very much following the MicroStrategy model. We want to employ all of their tactics, and we're open to issuing whatever sort of structure is most advantageous for shareholders at the time, depending on market conditions. What I would say is that we will access the capital markets like MicroStrategy, but we actually do have these additional value accrual mechanisms like Allan mentioned. We are staking our $400 million worth of Solana to turn it into this productive asset. We are in a roughly 8% yield on that, and then we're buying locked Solana at a roughly 15% discount. Importantly, we are still getting that 8% staking yield. If you put that 15% discount into any sort of yield equivalent, we're roughly doubling that 8% staking yield in this risk-prudent fashion. It effectively amounts for built-in gains for shareholders and aligns with our buy and hold strategy. We don't intend to sell Solana really ever, so yes, we will engage in that full MicroStrategy flywheel and then have a couple other additional value accrual mechanisms that are all compounding as well.
That's great. There may be some people listening or in the room that may not know what locked Solana is. Why don't you just explain that to everybody real quick?
Yes, it has to do with how a blockchain or cryptocurrency comes into existence. Like Bitcoin and Ethereum were fair launched, and the only way to get new Bitcoin or ETH was to actually engage in that blockchain protocol and effectively mine, and you got it in the form of a block reward. Just about every other cryptocurrency is what is called pre-mined, so they mint those tokens up front and then they earmark them for different purposes. They can go to the foundation to incentivize developers, they can be sold to VCs, and this is where much of it came from. It was SOL that was created initially and sold to VCs, and they don't want to have it all go onto the market at day one because all that supply would suppress the price. They want to let that basically vest over time as these protocols develop and grow their traction and see more uses. We can buy this actually OTC. There's this quite liquid OTC market. The only thing we can't do is buy and sell it on an exchange, which we don't really need to do anyway, and we can't use it in DeFi. One thing that differentiates us, we're running the company in this very risk-prudent fashion. We're not doing a lot of on-chain degen trading. We want to do things in a way that will maximize shareholder value but won't put shareholders at excess risk. We feel there's not many downsides for us to buying locks, so that's effectively where it comes from, and we can get it at this solid discount for this built-in gain.
Got it. Is there kind of, I'm not sure what the term is, is there a duration or how long is the lock in general, like on an average basis across that locked Solana or unlocks?
I think everything we have unlocks by January of 2028.
Exactly.
I think that on a monthly basis.
While at the same time you're generating kind of a 10% yield or something.
I think it's 11.1% on average attitude.
Fair enough. Is there any other risks to that? Do you see in buying the locked Solana that might not unlock or something happens really?
No.
It's liquid on the OTC, I guess, right?
Yeah, because there's a submarket there, there's not a lot of risk. We really don't use too much leverage. We don't anticipate having to sell it. I think for us, it just makes, like Brian said, it makes the most sense for us to own it just for those gains and for the additional return on our capital. If we had to, we could sell it in the aftermarket, but we don't anticipate that.
Got it. Maybe let's just drill into your staking yield. It's a pretty nice yield, right? Validator nodes, are you in, or do you have one now, or do you plan to? That's a nice yield. Do you see risk to staking your Solana today?
I'll do the first part and I'll let Brian do the second part. On our, we just put a press release out on our monthly updates. I think our current, like when the price was $163, our daily staking revenue was over $70,000 a day. Solana's up probably 25% from there, so the yield's up 25% from there. I think we're really in a good place on that, and as a small company, that's material off of a small base. As we grow it, it's going to be very material to us. On the validator stuff, we don't intend to be a validator for several reasons, and Brian could go into why.
Yeah, we could run a validator ourselves. It comes with costs to doing that. We actually have a lot of validators that are coming to us offering to pass back all economics, so literally the full staking yield we get. We actually save money by just delegating to these top validators, and it also helps us diversify. It's good from a risk management perspective as well.
Right. These validators want critical mass.
Exactly.
Right.
We have size and also relationships. They do get rewards from the other side. Even some of them give us back now the block rewards. For us, we're in a hyper growth phase. For us to go out and start a really new business, we would have to staff it and monitor it. Never mind, we wouldn't want to stake all of our own stuff and our own validators if something happened. We would diversify anyway. I think it just makes the most sense for us to just focus on what we're doing and just be the best at what we do.
Right.
The staking yield, you had asked about that, is pretty darn steady. There's one component of it, inflationary rewards, which will go down 15% per year. There's also another component, which is transaction fees and priority fees, which is based on network activity. As Solana.
Theoretically, that should go up.
Exactly.
Right. Got it. The locked Solana can still be staked.
Oh yeah.
Right.
Yes.
Got it. That sounds great. How do you think about staking? Do you stake at all?
We do. We stake everything. On top of that, even the rewards that come in, we don't sell it. It's automatically restaked into a wallet. It is liquid if we need it to sell. As it unlocks, it is liquid, available to us. We don't use it, but it's automatically restaked. The only time we have sold liquid SOL was in the beginning when we bought some liquid, but then we got an opportunity to buy locked and were able to sell that at a gain and then buy additional tokens. We've been continuous. We try to keep everything.
Right. If there's liquidity in the locked market on OTC versus buying unlocked, how do you look at those two? Do you have a preference? Are you going to just buy locked and grab the discount, or are you going to buy the unlocked?
Depends on where the market is that day and what cash is available. Like we said, the last deal we did, we only took in locked SOL. That was an all locked deal. Our goal right now, we're at 60/40. On our liquid, we would always look to sell the liquid or a good portion of the liquid, especially at a preferred moment in time to buy more locked because you gain 15% when you do that. Our strategy is to maintain a balance between the two right now, 60/40. Probably as we get bigger, it'll drop. As we get larger, 70/30, and then as we get larger, depending on how much locked is available and where the discounts are. A year ago, the discounts were 30% - 40%, and now they're down to 15% - 17%. There may be a moment in time where it's not worth it and you want to stay liquid.
I see. That's a pretty bullish sign for Solana if people are bidding this right away between locked and unlocked, right?
Yeah, institutions now are buying big blocks of locked just to take that gain. The good thing is if you look at the note we created, you can actually pledge that to us. We take some of that gain, you take some of it, and you could actually participate in either Solana upside or the stock upside, whichever is greater. It's a pretty interesting instrument.
Why don't you go into it? I don't quite get that. Why don't we go into that instrument a little bit more?
All right. Go ahead. Actually, I'm going to let Brian. I created it, but I'm going to let Brian explain it. He's going to do it better than I am.
Yeah. It's just like any other convertible note, but it's an in-kind note. The way that it works is an investor pledges Solana or locks Solana as consideration that is held in a qualified custodian in a tri-party agreement. We take ownership of that Solana if after two years, the investor hasn't converted that into Upexi stock, then they simply get their SOL back. If they do, and I think our last deal had a conversion price of $4.25, highly in the money, they convert to our equity and it actually allows us to sell stock at a premium to where we're currently trading at. We're at 2x , on a fully loaded or adjusted MNAV right now. If we do another deal, it would come at a roughly, say, finger in there, 30% premium. We're actually able to sell stock at this premium. Good for the investor because they have downside protection and this almost free option in Upexi stock. Good for us because we're effectively selling equity into the market at a higher price. If you use any sort of options pricing model like Black-Scholes, because these things have like a two-year maturity and the underlying Upexi stock is so volatile, it will say like the delta on that is like 85%+ , which effectively means it will most likely be turned into equity.
Sure. The advantage of pledging the Solana in the first place versus fiat is that just tapping a different market for raising capital or is there something else going on there?
Like we said, institutions are buying it now, putting it on the balance sheet, maintaining the yield, and then they realize that, you know, like I said, the options market was saying that there was a 95% chance they would execute on the convertible and it was 30% above the money. Tell me our last investor did this deal less than 30 days ago, the stock $7.0. An institution is still an institution, right? Their job is to make the most money. It gives them another opportunity where they could, if they owned $1 billion, they could leave $500 million there and put $500 million here and see what outperforms. If they wanted to own it to maturity anyway, we made the maturity match up to the maturity. It's just a way for people to really be creative.
Have another shot on goal at maximum.
Return on, right. Like Brian said, you could actually, they can actually hedge their downside and actually sell out of them. There are a lot of ways, the instrument creates a lot of ways for people to make a lot of money.
The big benefit for us is we're not taking on basis risk. If we were borrowing in dollars and we invested that into Solana, the price of Solana went down, there could be this mismatch there. Here, if we're taking it in kind and we just owe them a certain number of SOL back at the end of those two years, if it hasn't converted because something has happened, we simply just give them that SOL back. You can think of it as very minimal credit risk for us. For the investor, there is the potential, if they do have a lot of Solana already, we do think that this is most likely a tax-free event. They can actually just effectively convert it into one of these convertible notes and not have to pay taxes on it until they convert to Upexi stock and then likely sell it if they do in the future.
It's a little innovative for sure, right?
Yeah, it's pretty unique. I like it.
That's great. That was an oversubscribed deal, or?
We cut it off. We actually decided to do it, test it, test the market with it. In 24 hours, we did $200 million. It was pretty interesting.
Good. Would you do that kind of vehicle again? Is it or?
Oh, it's definitely something that's repeatable. We, because like I said, if we priced one today, we'd price it at 30% above the market. It's a really great opportunity for us and the investors.
Sure. I agree. I agree. That's great. We're going to kind of run out of time. All right, I don't follow your stock at least at this point. Is there some other pieces of the story that we didn't hit that we should have, do you think?
I think we got it. We're working on, we just announced a pretty, you know, an advisory board. We brought on an influential person from the industry, and we're going to continue just to build our exposure. For us, now it's just about how do we get the story out to more people.
Great. All right. Solana's doing well. It's a differentiated strategy in the market. Every day there's more treasury strategies, but just stay ahead of the pack, guys, and keep it going.
Thank you, everybody, for coming. Thank you.
Allan, Brian, thank you very much.
Thank you.
All right. Thank you.