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Pineapple Financial (PAPL): AI Tools and Tokenization: How a Canadian Fintech Is Modernizing the Mortgage Brokerage Market · WTR Small-Cap Spotlight

• 0:01
  SPEAKER_00: Welcome to the WTR Small Cap Spotlight Podcast.
• 0:04
  SPEAKER_00: I'm your host, Tim Gerdeman, Vice Chair and Co-Founder and Chief Marketing Officer of Water Tower Research.
• 0:12
  SPEAKER_00: In today's podcast episode, I'm being joined by Shuba Dashgupta, CEO and co-founder of Pineapple Financial Nasdaq Ticker Symbol, P A P L.
• 0:22
  SPEAKER_00: Pineapple is a Canadian financial technology company that operates as an advanced cloud-based brokerage network equipping over 700 independent brokers with proprietary AI-driven tools to streamline and simplify the home financing process for Canadian home buyers.
• 0:38
  SPEAKER_00: Also joining is my WTR equity research colleague John Roy.
• 0:42
  SPEAKER_00: Good morning, gentlemen, and thanks so much for joining me today.
• 0:45
  SPEAKER_01: Great to be here, Tim.
• 0:48
  SPEAKER_00: Shuba, first off, great to see you again.
• 0:50
  SPEAKER_00: It's been a while, too long.
• 0:52
  SPEAKER_00: For those listeners not familiar with Pineapple Financial, can you please provide a quick overview of the company's business model as well as your corporate strategy?
• 1:01
  SPEAKER_01: Sure.
• 1:02
  SPEAKER_01: So this business started about 10 years ago with a focus around digitizing and innovating the Canadian mortgage landscape.
• 1:08
  SPEAKER_01: You know, at that time we felt that the industry was very heavy analog and manual in its processes.
• 1:14
  SPEAKER_01: And we wanted to be the driver of innovation and change and ensure that, you know, we were staying ahead of where the industry needed to be, but also ensuring that we're clearly defining the vision of what it could be.
• 1:26
  SPEAKER_01: And over these last 10 years, we've done just that.
• 1:28
  SPEAKER_01: You know, we've built a full end-to-end ecosystem that captures everything all the way from customer inception all the way down to 25, 30 years later in their journey.
• 1:37
  SPEAKER_01: You know, everything from onboarding to marketing to sales and education, everything to document collection, fraud analytics, compliance, retention strategies, and customer experience, all housed within one ecosystem and one environment.
• 1:52
  SPEAKER_01: That's allowed us to really deliver tremendous value and create a more seamless mortgage experience for Canadians across the fence.
• 1:59
  SPEAKER_01: Today we've funded over$15 billion in mortgages since inception, and we're funding about$3 billion annually coast to coast here in Canada, as mentioned, about 700 users on our platform.
• 2:11
  SPEAKER_01: As an innovator and as an innovative business, we've always stayed at the forefront of technology, whether that be with AI implementation integration into the variety of workflows and processes that we have, or our newest launch, which is the tokenization strategy alongside the digital asset treasury.
• 2:30
  SPEAKER_01: So today our business is compiled essentially of three verticals, all working hand in hand with one another.
• 2:36
  SPEAKER_01: We have our core mortgage business, which we kind of just introduced that we've been building for the last decade.
• 2:42
  SPEAKER_01: Utilizing the data and the mortgages that we've originated on our platform, we're beginning to create tokenized mortgage solutions, putting some of this data, underlying information, loan data on chain to provide a more secured, seamless, and efficient way for us to move what was fragmented data flow.
• 3:00
  SPEAKER_01: And with that, we're also building a digital asset treasury, hosting and holding the same token in our treasury of the blockchain that we're developing on.
• 3:09
  SPEAKER_01: So we're supporting the blockchain and the tokenization using the mortgage data, and we're supporting the business with capital efficiency through the digital asset treasury.
• 3:18
  SPEAKER_01: So all three working hand in hand with one another.
• 3:21
  SPEAKER_00: Well, thank you.
• 3:22
  SPEAKER_00: That's a really thorough and appreciated overview and uh accolades again for being a pioneer in the business for a decade now.
• 3:27
  SPEAKER_00: It's it's wild it's been that long.
• 3:29
  SPEAKER_00: John?
• 3:30
  SPEAKER_00: Yeah.
• 3:31
  SPEAKER_02: So you obviously we've been talking a lot about tech and your strategy heavily emphasizes that, particularly, you know, Pineapple One and your AI assist Maui.
• 3:41
  SPEAKER_02: Um, how do these proprietary technologies really differentiate your platform from a traditional mortgage brokerage?
• 3:49
  SPEAKER_01: Yeah, so when you look at the mortgage industry, you know, it's a B2B business where you know we as mortgage brokers are dealing with a variety of different lenders across the fence, but creating that customer experience in a way that they feel is most comfortable for them and most um seamless requires that digital integration.
• 4:09
  SPEAKER_01: Now, where our digital integration really helped the customer as well as our brokers is that we were able to house the whole workflow into one environment.
• 4:17
  SPEAKER_01: One of the challenges that we saw kind of or foresaw when we first began this business was that as technology was being developed for the industry, it was fragmented, more sectional technologies.
• 4:30
  SPEAKER_01: So albeit that it captured a portion of the entire workflow or of the entire process, it would then have to either flow into another system or there would be a point where it gets disjointed completely.
• 4:42
  SPEAKER_01: For us to be able to handle everything from when a customer is nothing more than a name and an email address all the way down to 30 years in their lifespan, you know, you think about and realize the amount of data that we're aggregating and collecting, the amount of information and knowledge we have about that customer, the connectivity we have to the various solutions and needs that they have, the compliance, the fraud, all of those things.
• 5:04
  SPEAKER_01: It just creates for an incredible environment that they can live in, which then delivers a wonderful experience for us to grow the business.
• 5:11
  SPEAKER_02: So a fully integrated approach is really what you're looking for.
• 5:15
  SPEAKER_02: Excellent.
• 5:15
  SPEAKER_02: So now you also were talking a little bit about uh tokenization.
• 5:19
  SPEAKER_02: Can you explain the long-term strategic vision really behind you know the data tokenization initiative and how moving mortgage records to on-chain creates a really recurring revenue opportunity?
• 5:34
  SPEAKER_01: Yeah, and this is more of a long-term vision than it is short-term.
• 5:38
  SPEAKER_01: And you know, the definition of long-term, maybe in today's world, has changed significantly, um, especially with the advancements that we're seeing in AI.
• 5:46
  SPEAKER_01: Um, but I still would consider this a long-term.
• 5:49
  SPEAKER_01: Um, and what I mean by that is let me take a step back for a moment to about, you know, a year or two years ago, um, when our industry or when our business specifically first started looking at what that intersection of DeFi and TradFi was going to look like and how it related to the mortgage industry.
• 6:06
  SPEAKER_01: And when we began diving into it, you know, there wasn't a clear solution, there wasn't a clear answer for how the two would synergistically work together or if they would ever work together at all.
• 6:16
  SPEAKER_01: Um, but when we began to explore it a lot deeper, and you know, when we saw um many publicly traded companies begin to build digital asset treasuries, we saw an opportunity for us to begin working in the early stages of building a partnership and relationship.
• 6:31
  SPEAKER_01: So we were fortunate enough to come across the Injective Foundation, which is a finance-first blockchain protocol.
• 6:39
  SPEAKER_01: And, you know, being specifically focused into the finance sector and being in the mortgage business ourselves really allowed us a more strategic way to build solutions that could be utilized in the future.
• 6:51
  SPEAKER_01: Think of Injective as the WordPress of blockchain, where organizations like ours can come on, create these kind of templated processes, workflows, and automations and make them broadly available across the industry.
• 7:05
  SPEAKER_01: So as we began doing that, we started asking ourselves, well, what is the first wave?
• 7:10
  SPEAKER_01: What is the way that we're going to be able to really build out the solution?
• 7:13
  SPEAKER_01: And obviously there's a hundred ideas out there.
• 7:16
  SPEAKER_01: But what we thought and what we saw would be kind of the path for us to be able to get on was to take the fragmented data that exists today across the mortgage industry.
• 7:26
  SPEAKER_01: And fragmented meaning that some of it lives in PDF documents, some of it lives in filing folders, some of it in different data systems and different data warehouses, and really aggregate that all into one place, one environment, and mint it as a token.
• 7:41
  SPEAKER_01: So today, of the thousands of mortgage loan records that we've funded since inception, what we're doing is we're taking the five to 700 data attributes that live under saw underneath, sorry, each loan and tokenizing those in an anonymous fashion.
• 7:57
  SPEAKER_01: So now when you know an investor or an audit firm was to look at our organization and say, hey, can you validate and verify these loan records?
• 8:06
  SPEAKER_01: Well, the data is there, all in one place, um, all provable.
• 8:11
  SPEAKER_01: Now, in the future, what can be done with that?
• 8:14
  SPEAKER_01: Well, I think sky's the limit, but one thing that we're really looking at, and one of the things that we would really like to hope to accomplish is allowing more liquidity into the mortgage market.
• 8:24
  SPEAKER_01: And what does that mean?
• 8:25
  SPEAKER_01: It means that today, mortgages are funded specifically in Canada by, you know, a couple main channels, right?
• 8:31
  SPEAKER_01: We have mortgage backed securities, we have deposits through the big banks.
• 8:35
  SPEAKER_01: Well, we've envisioned a world where we think we can open up digital assets as part of liquidity into mortgage investments.
• 8:43
  SPEAKER_01: So people that hold tokens or any kind of digital asset can acquire either a fractional ownership in a mortgage loan or in a mortgage loan portfolio.
• 8:53
  SPEAKER_01: All of the data is already there.
• 8:55
  SPEAKER_01: We can provide that ownership over to them in a secured and efficient manner, and they can begin earning real-world yield off of that digital token through the mortgage interest that's being paid.
• 9:07
  SPEAKER_01: So, one way that we envision kind of these intersections meeting and working together in the future, um, alongside many others that we're obviously envisioning and working on.
• 9:18
  SPEAKER_02: Right.
• 9:18
  SPEAKER_02: Now, another slightly different strategy you have is additional asset treasury, the yield strategy there.
• 9:24
  SPEAKER_02: And I was curious as to how you balance market volatility with the core financial operations of the company.
• 9:32
  SPEAKER_01: Yeah, so the digital asset treasury, you know, albeit working synergistically with the other two verticals of our business, you know, does kind of operate as a standalone and great governance built around that.
• 9:46
  SPEAKER_01: So we have built a special advisory committee who's governing the digital asset treasury, who's working strategically with a variety of different banks and uh institutions in the crypto space to ensure that we're optimizing both our accumulation through various accumulator programs of tokens that we're putting in, of balancing risk through stablecoin, USDC, as well as cash, having proper allocations, ensuring that we're um kind of optimizing our acquisition of tokens and building staking yield, which is driving more capital efficiency and revenue into the business.
• 10:27
  SPEAKER_01: So they're monitoring and managing it on a daily basis with rigor, with governance, and with board oversight.
• 10:36
  SPEAKER_02: Right.
• 10:36
  SPEAKER_02: Now, what are your primary strategic levers that you're really looking to pull to transition the company to a sustainable long-term profitability?
• 10:46
  SPEAKER_02: I know you've made some recent operational changes.
• 10:49
  SPEAKER_02: Curious as to if you can give us some color on that.
• 10:52
  SPEAKER_01: Yeah.
• 10:52
  SPEAKER_01: So the last, you know, we'll call it three years, maybe four, um, of the mortgage industry, specifically here in Canada, have been tumultuous.
• 11:01
  SPEAKER_01: You know, we've been dealing with headwinds such as in extraordinary inflation causing high interest rates, you know, uh dampened real estate markets and consumer demand and consumer sentiment that really just, you know, almost fell off of a cliff.
• 11:16
  SPEAKER_01: Um, and as our organization battled those headwinds, we're actually very proud of how we weathered that storm.
• 11:22
  SPEAKER_01: You know, we continued to stay growing, um, albeit modestly, um, and we continued to navigate, you know, really what was an unpredictable environment where unfortunately some of my peers and competitors just didn't even make it.
• 11:37
  SPEAKER_01: Um, as we kind of look to the future now that we've weathered this storm and we feel that we're moving into a brighter horizon slowly, I don't think it's going to be a hockey stick style of rebound, but as we're progressively moving into a better real estate environment and economy, you know, we've already begun making a lot of strategic, you know, adjustments to modify the business towards profitability in this new age.
• 12:01
  SPEAKER_01: So the two ways that we're really looking at that, and I might offer a third, which is really just more of a subsection of one of them, is you know, cost reduction.
• 12:10
  SPEAKER_01: Um, cost reduction, I think, is something that we have to be cautious about, right?
• 12:14
  SPEAKER_01: Because you have to balance cost reduction with future growth and future scale as well.
• 12:19
  SPEAKER_01: You know, you can't put yourself in a position where we're not growing, we're not optimizing, and we're not innovating, but we also have to be very responsible with how we manage the fiscal budget and how we approach, you know, the uh the opex of the business.
• 12:33
  SPEAKER_01: So over the last couple of years, we've been able to reduce the operating cost by about$2 million, which has helped significantly get our balance sheet to you know near profitability and break-even, which is where we were reporting on our last quarter.
• 12:47
  SPEAKER_01: Um, and we continue to see that there's some opportunity for some minor adjustments, but we've done most of the heavy lifting on that front and have gotten to where we needed to be.
• 12:57
  SPEAKER_01: Now, the next phase of profitability really comes from growth.
• 13:01
  SPEAKER_01: Um, and as a growth-focused business, as a sales-focused business, that's really where I as an executive want to focus our attention because you know you can't cut your way into growth, but we can grow our way to tremendous success.
• 13:15
  SPEAKER_01: So as we kind of enter this new era of mortgages and we're starting to see increase in consumer sentiment, we're starting to see more and more opportunities, and we're starting to see more and more opportunities building on our platform through AI analytics, through retention, through uh recurring revenues with existing customers that we've originated on the platform.
• 13:33
  SPEAKER_01: All of these things are going to compound in the years ahead, drive more revenue, drive more users, and drive essentially more profitability for the business.
• 13:45
  SPEAKER_02: Yeah, and your network really relies significantly on independent agents.
• 13:51
  SPEAKER_02: I was curious as to what are you doing to grow that?
• 13:55
  SPEAKER_02: What are you doing to retain them?
• 13:57
  SPEAKER_02: Really, since it's a key element, what do you talk about when you talk to these independent agents?
• 14:04
  SPEAKER_01: So the goal here is how do we help agents close more business, drive more revenue, um, and reduce the amount of work and time that's required to do so.
• 14:14
  SPEAKER_01: So that's what our platform is optimized to do, and especially now as some of our algorithms have shifted into more AI-driven algorithms and predictive modeling, where we were helping to analyze and assess customer portfolios, drive real-time customer opportunities, whether from cost savings or new qualification opportunities, you know, now we're able to do it at lightning speed and we're able to offboard a lot of that manual work that was required throughout the process, right?
• 14:44
  SPEAKER_01: What used to be kind of eight hours of maybe underwriting on a mortgage loan application today has been reduced to well below an hour.
• 14:52
  SPEAKER_01: And where we reallocate that time for mortgage agents is what our value proposition is.
• 14:59
  SPEAKER_01: So if we're able to reduce, you know, X amount of percent of hours from each loan transaction.
• 15:04
  SPEAKER_01: Well, now you have a variety of things you can do with each hour.
• 15:08
  SPEAKER_01: And that could be going out and hunting new business, it could be spending time with your family, it could be vacationing.
• 15:14
  SPEAKER_01: Our platform is optimized, not in you going out and necessarily hunting new business, but finding it from your already existing book.
• 15:22
  SPEAKER_01: So it's optimizing renewal opportunities for customers, cost-saving opportunities to help them get into better interest rates.
• 15:28
  SPEAKER_01: So, albeit that you're gonna go get net new business, we're also driving revenue from your existing book at an increased tick.
• 15:35
  SPEAKER_01: So if we can help people make more money more efficiently, that's gonna help us grow the business.
• 15:41
  SPEAKER_01: Excellent.
• 15:42
  SPEAKER_02: So if you take a step back looking ahead, what is the most critical strategic milestone that investors really should kind of focus on over the next, I don't know, 12 to 18 months?
• 15:52
  SPEAKER_02: Like you said, short-term versus long-term has changed the definition recently, but just over the next year, let's say, to really gauge Pineapple's uh market acceptance.
• 16:02
  SPEAKER_01: Absolutely.
• 16:03
  SPEAKER_01: I think the main one, in my opinion, if I'm to, you know, kind of let shareholders know what the best leading indicator is, is funded mortgage volumes, right?
• 16:11
  SPEAKER_01: Because where we used to onboard more brokers, which we're still doing and still, you know, aim to do successfully and today have incredible AI tools that are helping us do that at a faster rate and at a better, you know, more efficient process.
• 16:26
  SPEAKER_01: You know, what I just mentioned was obviously also a goal of helping more agents being more profitable, right?
• 16:32
  SPEAKER_01: So, you know, as more and more agents maybe um leave the industry um because of AI or because of other opportunity, we want to ensure that the funded volume continues to grow.
• 16:46
  SPEAKER_01: Because the ideology here is that one person could continue doing the business of maybe what used to be five or maybe even more, right?
• 16:55
  SPEAKER_01: So funded mortgage volume is really that key KPI that I think shareholders should really keep an eye on um and something that we intend to grow significantly over the years ahead.
• 17:06
  SPEAKER_02: Excellent.
• 17:06
  SPEAKER_00: That really is a good one.
• 17:08
  SPEAKER_00: Thanks, and over to you, Tim.
• 17:10
  SPEAKER_00: John, thanks, and uh Shua, great to see you again, and thank you so much for a long overdue update on our uh podcast.
• 17:16
  SPEAKER_00: And uh have a great afternoon.
• 17:18
  SPEAKER_00: Pleasure is all mine.
• 17:19
  SPEAKER_00: Thank you so much, Tim.
• 17:20
  SPEAKER_00: Thank you, John.
• 17:23
  SPEAKER_00: Thank you for listening, and don't forget to subscribe, as well as visiting wwwwatertower research.com to stay up to speed on the company's small cap written research reports, podcast, fireside chats, industry specific symposiums, and conference schedules.
• 17:39
  SPEAKER_00: We will see you next time for another edition of the WTR Small Cap Spotlight Podcast.
• 17:44
  SPEAKER_00: Finally, a special thanks to the producer and editor of the podcast, Krista Fitzpatrick.