TON Strategy (NASDAQ:TONX) Q3 2026 Earnings Call

0:00 Good morning and welcome to Tuns Strategy Company's third quarter 2026 earnings conference call. Joining us today are Chief Executive Officer Kevin Wilson and Chief Financial Officer and Chief Operating Officer Sarah Olson. Earlier today, the company issued a press release reporting financial results for the quarter ended September 30th, 2026. The release is available through the investor section of the company's website. Following prepared remarks, management will address selected questions submitted in advance by shareholders. Before we begin, I would like to remind everyone that today's call includes forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company's files with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2025, for discussion of these risks and uncertainties.

1:01 The company undertakes no obligation to update any forward-looking statements except as required by law. Today's remarks may also refer to non-GAAP financial measures and supplemental measures that are not defined under GAAP. and the required reconciliations and explanations of these measures are included in the earnings release. I will now turn the call over to Kevin Wilson. Please go ahead.

1:23 Thank you, operator, and good morning, everyone. On our Q2 call in August, we outlined Ton's strategy's next phase in three words, own, advance, and compound. Those three pillars define both our long-term strategy and the priorities guiding our day-to-day decisions. OWN refers to our significant Graham Treasury and our role in supporting TAN security and operation through staking and validator participation. Advance represents our opportunity to support the infrastructure, accessibility, and economic development of the TAN ecosystem and the Graham market. And Compound describes our objective of building long-term per share value for all shareholders through productive treasury management and disciplined capital allocation.

2:17 During the third quarter, we continued to make progress across all three areas. Our treasury earned approximately the same number of gram as in Q2, continuing to benefit from elevated network staking economics introduced by Tom's April network upgrades. We also made progress toward more efficient operations as we continued simplifying the business following the wind down of inherited VERB operations. On the network side, we participated in validator governance decisions that established important new infrastructure for Telegram's native Gram wallet and increased Tom's capacity to support transaction activity.

3:03 Telegram also began a limited rollout of its native Gram wallet during the third quarter, an important step toward bringing Graham transfers directly into the Telegram experience. I'll begin today's discussion with an overview of our treasury performance. Sarah will then review the financial results in greater detail, and I'll return to discuss our capital allocation approach and developments across TAN and Telegram. Turning to our treasury performance, At September 30th, we held approximately 235.1 million gram, including approximately 232.9 million, or 99% of our gram holdings, deployed in staking.

3:52 During the quarter, our treasury earned approximately 9.4 million additional gram, consistent with the prior quarter. Our staking operations generated an annualized growth yield of approximately 16% during Q3. As we discussed on our Q2 call, TAN's CatChain 2.0 consensus upgrade shortened block production times and increased validator reward issuance. Along with improvements to the TAN virtual machine, these network changes have supported substantially higher staking yields than those available earlier this year. As one of the network's largest seeking participants, we continue to benefit from these improvements through additional gram earned on our holdings.

4:42 Our net treasury position increased by approximately 4.6 million during the quarter, even after other treasury activity, including sales to support U.S. dollar liquidity. In line with our compound pillar, Staking continues to enable us to earn additional grants through participation in network validation without requiring additional cash purchase of those tokens. Those rewards can themselves be staked, contributing to future reward generation. The other major operational priority is ensuring that the benefits of our productive treasury are supported by an appropriately sized corporate cost structure.

5:27 On our last call, we highlighted the simplification of our business following the transition away from our inherited VIRB operations. We continue to focus on operating efficiently, treasury management, and financial flexibility as we pursue opportunities to increase long-term value for shareholders. I will now turn it over to Sarah to review our financial results.

5:53 Thank you, Kevin. Our third quarter results were driven primarily by grand staking activity and movements in the fair value of our digital asset holdings. Total revenue was $13.1 million compared with $15 million in Q2 2026. Revenue primarily consisted of staking rewards recognized at the fair value of gram when earned. The sequential decrease of approximately 13% was primarily attributable to lower gram prices, while the number of gram earned remained consistent with Q2. Gross profit was 12.4 million, or 95% of revenue, compared with 14.3 million, or approximately 95% of revenue, in Q2 2026. Total operating expenses were 8.4 million, compared with 13.8 million in Q2, a decrease of approximately 5.4 million, or 39%.

6:46 The decrease primarily reflected lower Kingsway-related advisory fees, personnel costs, and professional services expenses, along with the effect of elevated non-cash expenses recognized in Q2. These improvements were partially offset by higher legal fees associated with ongoing litigation matters. Excluding share-based compensation, general and administrative expenses declined approximately $3.4 million, or 41%, sequentially to $4.9 million, primarily reflecting lower advisory fees and personnel costs. Operating income from continuing operations was $4.0 million compared with income of approximately $0.5 million in Q2 2026. Lower operating expenses more than offset the change in staking revenue, resulting in approximately $3.5 million of sequential improvement in operating income.

7:38 Net loss from continuing operations before taxes was $22.9 million compared with Q2 income of approximately $83.5 million in the prior quarter. The third quarter included a $27.2 million net loss from changes in the fair value of the company's grant holdings. Q2 2026 included an $82.8 million net gain from digital assets fair value changes. As a reminder, these fair value adjustments reflect changes in the reported value of our grant holdings, not cash operating expenses. At September 30th, our digital assets had a reported fair value of approximately $348.5 million. compared with $369.5 million at June 30th.

8:23 We held approximately 235.1 million gram, of which 119.1 million were classified as restricted and 116 million were unrestricted. During the quarter, approximately 42 million previous restricted gram became unrestricted. As a reminder, restricted gram can still be staked and generate rewards, although it cannot be transferred or sold while restrictions are in effect. At September 30th, we had approximately $25.3 million in cash and restricted cash, compared with $29 million in cash and restricted cash at June 30th. The company has no outstanding debt, which, along with our cash resources and productive digital asset holdings, supports our financial flexibility.

9:11 Turning to our staking performance, the chart illustrates the increase in gram awards following tons of April network upgrades, and a sustained level of staking production through Q3. Our treasury earned approximately 9.4 million gram during the third quarter, representing a gross annualized staking yield of approximately 16%. Since beginning staking in August 2025, the company has earned approximately 23.2 million gram in total. Over that same period, we've recognized approximately $35.1 million in cumulative staking revenue. As a reminder, staking rewards are determined by network-level protocol mechanics and validator participation. At September 30th, we had 55.4 million basic common shares outstanding, compared with 56.5 million at June 30th.

10:00 This change represents the net reduction of approximately 1.1 million common shares during the quarter, reflecting share repurchase activity in the quarter, partially offset by shares issued in connection with vested equity awards. At September 30th, we held approximately 4.24 gram per common share compared with 3.89 at December 31st, 2025, representing a 9% increase. We continue to evaluate our capital allocation decisions with focus on their potential impact on long-term shareholder value, including the amount of gram attributable per share. With that, I'll turn it back to Kevin.

10:37 Thank you, Sarah. Turning now to capital allocation, which is central to our compound pillar. Our disciplined approach to capital allocation continues to guide our decisions as we balance opportunities to enhance long-term value per share with preserving U.S. dollar liquidity and maintaining a productive grand treasury during periods of elevated network level staking rewards. As previously announced, on July 1st, we entered into a Rule 10b-5-1 trading plan to facilitate repurchases of our common stock over a two-month period under the existing $250 million authorization. During Q3, we repurchased approximately 1.8 million common shares for an aggregate purchase amount of $5.7 million.

11:31 Repurchases funded with cash reduce the dollar liquidity available to support our operations and pursue future opportunities. Selling Graham to fund repurchases, meanwhile, preserves cash but reduces the productive treasury that continues to benefit from elevated staking rewards. We also carefully consider the liquidity characteristics of the Graham market where selling could involve price slippage and transaction costs that affect the overall economics of a repurchase. We also consider the importance of maintaining sufficient trading liquidity in TomX shares to attract and support long-term institutional ownership. The way I would describe our approach is that we're evaluating the overall economics of a repurchase beyond just the discount to book value.

12:24 Against these considerations, additional share repurchases continue to be one option available to us under our existing board authorization. We will continue evaluating opportunities with our board of directors to repurchase shares based on market conditions, valuation, and alongside the importance of maintaining U.S. dollar liquidity and preserving the productivity of our Graham Treasury. We also see potential value over time in initiatives that could improve institutional access to Graham, deepen trading liquidity, and strengthen custody and execution infrastructure. We have not committed capital to these opportunities to date, and any investment would need to demonstrate a compelling economic benefit to our shareholders.

13:18 Ultimately, our objective is to make capital allocation decisions that we believe will enhance long-term value per share while maintaining financial flexibility to support our treasury strategy. Turning to TAN, We've seen important progress this year in network performance, Telegram's involvement in Ton's development, and most recently, the introduction of Telegram's native Gram wallet. The foundation of our investment thesis rests on Ton's ability to support fast, inexpensive transactions at consumer scale, combined with Telegram's distribution to more than 1 billion users. a combination that creates a direct path for bringing digital asset ownership and consumer payments into a global platform already used around the world.

14:13 In April, Telegram founder Pavel Durov introduced a seven-step initiative to accelerate Tom's development and strengthen its integration with Telegram. Four steps have been publicly announced to date. The implementation of CatChain 2.0, which substantially accelerated transaction processing, a six-fold reduction in network transaction fees, Telegram's increased leadership and participation in network validation, and the restoration of GRAM as the native currency's original name. Telegram's more active role is significant because it brings network development into closer alignment with the products and services being introduced to its users.

15:03 The increased alignment was evident during Q3 when validators, including Tom's strategy, approved two network upgrades supporting Telegram's native Gram wallet and improvements in transaction capacity. Config 123 introduced a shared smart contract design that allows Telegram's native wallets to receive updates through validator-approved network upgrades without requiring users to manually transfer assets to new addresses. Separately, Config 30 was designed to increase network throughput by up to 30%, improving capacity to support more transaction activity on the network.

15:48 Taken together, the upgrades position the network to better support consumer applications and improve the wallet experience. One of the most important developments came near the end of Q3, when Telegram began rolling out its native Gram wallet. To put that development in context, Telegram users now have access to two distinct but complementary wallet experiences. The first is Walt. formerly known as Wallet in Telegram. Walt remains available as a separately operated service integrated with Telegram, providing access to multiple digital assets and a broader range of crypto services.

16:33 In Q3, Telegram introduced Money, the native, self-custodial Gram wallet. Unlike Walt, Money is built directly into the Telegram application and can be accessed through Telegram settings for users who have been granted access during the rollout. As the rollout continues, users will not need to open separate wallet services to begin interacting with Gram. Users can send Gram to a Telegram contact without entering a blockchain address, even if the recipient has not yet activated their wallet. The recipient can then activate their wallet to access those funds. Telegram also sponsors the network fees for up to five eligible transfers each day, eliminating the need for users to manage transaction fees for those transfers.

17:30 Money also supports connections to compatible TAN applications through TAN Connect, allowing users to interact with apps using their wallet while maintaining control of their assets. The significance of money is that it brings Graham closer to the way people already use Telegram. Users can send Graham directly to a Telegram contact without entering a blockchain address or opening a separate app. We believe the native wallet rollout helps bring TON closer to its original distribution advantage thesis. The new wallet also builds on existing integrations of Graham and Ton within Telegram's digital economy.

18:19 Advertisers purchase sponsored placements in Telegram channels using Graham, while eligible channel owners can receive ad revenue in Graham. Creators and developers can withdraw eligible Telegram stars' earnings in Graham, and Telegram users buy and trade collectibles, gifts, and usernames through services such as Fragment. Expanded native wallet access could make it easier for Telegram users to transfer GRAM and interact with applications built on TON, creating opportunities for TON within Telegram integrations to become even more accessible and for additional consumer use cases to develop.

19:07 We're interested in seeing how easier access translates into more recurring network activity and greater utility and demand for GRAM. For TON strategy, the progress we're seeing strengthens our conviction in the long-term potential of GRAM. As Telegram makes the tokens easier to access and use, we'll be watching how that translates into increased transaction activity, wider usage of TON, and recurring demand for Graham. I want to emphasize that our focus is on the factors that we can directly influence. Managing a productive treasury, operating the company efficiently, exercising our large validator position to support pond governance decisions, and allocating capital with discipline.

19:58 What I think we've demonstrated this quarter is continued progress in managing the treasury and business alongside developments across TAN and Telegram that we believe strengthen the long-term opportunity. Developments across TAN and Telegram are beginning to make the long-term potential of Graham more tangible, and we believe TAN Strategy is well-positioned to participate as the ecosystem continues to progress. Thank you for joining us today and for your continued interest in TAN Strategy. We'll now turn to your questions. Thank you. We will now begin the question and answer portion of the call. Today's questions have been compiled in advance and will be moderated by Alec Wilson, Head of Investor Relations of Tun Strategy Company.

20:45 Alec, please proceed.

20:47 Thank you. Our first question is for Sarah. With the wind down of the legacy Verve operations substantially complete, what expenses do you expect will remain associated with the discontinued business?

21:01 Hey, Alec. Thanks. So we've substantially wound down all of the legacy VIRB operations. You know, I think barring any unforeseen expenses, we expect OpEx with disk ops to be no more than $150,000 for 2027. So we view this as a pretty de minimis cost for the business.

21:24 Awesome. Thank you. Next one for you, Kevin. How should investors think about the incremental value of owning Tonex versus holding and staking Graham directly?

21:37 Sure, Alex. Thanks. That's a great question. So Tonex gives investors exposure to Graham through a publicly traded regulated equity security without the operational complexities of wallets, custody, or direct staking. We actively manage the treasury, the staking operations, liquidity, and capital allocation to seek attractive risk-adjusted returns. And our objective here is to increase the amount of gram held over time through staking rewards and disciplined capital allocation. We do see opportunities over time to develop additional revenue streams around validation, staking infrastructure, and other types of services supporting the TON ecosystem, which we believe can create potential value beyond direct token ownership.

22:35 When TONX trades below its underlying treasury asset value, as is the case at present, investors can acquire indirect RAM exposure at a discount. That creates an additional source of potential upside if the discount narrows.

22:53 Great, thanks, Kevin. Sarah, we've got another one for you. How does management evaluate the appropriate level of dollar liquidity to support expenses without compromising the longer-term gram accumulation strategy?

23:09 Yeah, so we try to target about 12 months of U.S. dollar liquidity. And when I say liquidity, what I mean is our OPEX, our COGS, and any contra-revenue obligations And we think this level supports operations, but also mitigates any going concern risks. That said, we try not to hold too much cash. So our objective is to strike the right balance between financial flexibility and then maximizing our gram exposure.

23:42 Great, thanks. And Kevin, maybe we'll do one more for you around Telegram. So with Telegram beginning the rollout of the native gram wallet, What milestones should investors be watching to evaluate progress in ton adoption and demand for Gram?

24:03 Sure. So I think the first milestone is the pace of Gram wallet adoption within Telegram, particularly the number of activated wallets and the conversion of those Telegram users into active blockchain participants. So beyond wallet creation, we're focused on recurring usage metrics like daily and monthly active wallets, transactions per user, and retention rates. Sustained engagement will be more meaningful than one-time wallet activations. We also view growth in USDT transfers, payment volumes, and telegram native commerce.

24:48 as particularly important indicators of real economic activity taking place on TAN. And we'll also be watching the number of applications which are incorporating wallet functionality, particularly around things like payments, digital commerce, subscriptions, and other types of services that create recurring blockchain transactions. So ultimately, the most important measure here is whether increased adoption translates into sustained network activity, fee generation, and incremental demand for gram. We want to see genuine economic utility more than simply growth in wallet numbers.

25:34 Awesome. That concludes our Q&A session for today's call. I'll turn it back to the operator. Thank you. This concludes Tuns Strategy Company's third quarter 2026 earnings call. You may now disconnect.