Q1 2024 Bit Digital Inc Earnings Call

Operator: Hello, and welcome to the BitDigital first quarter 2024 earnings conference call. Good morning, good afternoon, and good evening, depending on where you're joining us from. Thank you for being here.

Hello, and welcome to the Big Digital first quarter 'twenty 'twenty four earnings conference call. Good morning, Good afternoon, and good evening, depending on where you are joining us from thank you for being here, we're just giving a few more moments for attendees to dial in so thank you for your patience.

Operator: We're just giving a few more moments for attendees to dial in, so thank you for your patience. While we wait, please note that during this call, all participant lines will be in listen-only mode. Following the officer's updates, we will open the floor for a question and answer session. If you have a question at that time, then simply press star 1 on your telephone keypad. Also, as a reminder, today's conference is being recorded. I'll now hand the call over to your host, Cameron Schneer, head of investor relations at Bid Digital. Cameron, the floor is yours.

While we wait please note that during this call all participant lines will be in listen only mode.

Following the officers updates we will open the floor for a question and answer session.

If you have a question at that time than simply press star one on your telephone keypad.

Also as a reminder, today's conference is being recorded.

Speaker Change: Now I'll hand, the call over to your host Cameron sphere head of Investor Relations at that digital camera the floor is yours.

Cameron Schneer: Thank you. Good morning. Welcome to the FIT Digital First Quarter 2024 earnings call. Joining us on the call today are Sam Tabar, Chief Executive Officer, and Eric Long, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 20-F filing, yesterday's 6-K filings, and our other SEC filings.

Speaker Change: Thank you good morning, and welcome to the <unk> digital first quarter 2024 earnings call.

Speaker Change: Joining us on the call today are stamped Barr, Chief Executive Officer, and Eric <unk>, Chief Financial Officer.

Speaker Change: Before we begin I would like to remind all participants that some of the statements. We're making today are forward looking these matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements I. Therefore refer you to our latest 20-F filing yesterday 6K filings and our other SEC filings.

Speaker Change: Our comments today May also include non-GAAP financial measures additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our 20-F filing and yesterday's 6K filings, which are on our website.

Speaker Change: After our prepared remarks, we will open the call up for questions if you'd like to ask a question. Please hit star one on your keypad with that I will turn the call over to Sam.

Cameron Schneer: Our comments today may also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our 20-F filing and yesterday's 6-K filings, which are on our website. After our prepared remarks, we will open the call for questions. If you would like to ask a question, please hit star 1 on your keyboard. With that, I'll turn the call over to Sam.

Sam Tabar: Thank you, Cam. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I'll discuss three things. First, our first quarter results. Secondly, an update on our strategic initiatives. And third, our thoughts on the outlook for the remainder of 2024. Cam and Eric will then provide more detail on our financial results, and we will then open the line for your questions.

Thank you Cam ladies and gentlemen, thank you for joining us on the call today.

Sam: My prepared remarks, I'll discuss three things first our first quarter results secondly, an update on our strategic initiatives and third.

Sam: Our thoughts on the outlook for the remainder of 2024.

Sam: Tim and Eric will then provide more detail on our financial results and we will then open the line for your questions.

Sam Tabar: We started the year off strong, and our first quarter results speak to the effort and execution by our team. Our Q1 revenue grew by over 250% from the prior year and by over 85% sequentially. We generated $58 million of adjusted EBITDA and a fully diluted GAAP EPS of $0.43. This first quarter marks the first time that our two primary business lines coalesce to produce what we view to be an emphatic year to the start.

Sam: We started the year off strong in our first quarter results speak to the effort and execution by our team.

Sam: Our Q1 revenue grew by over 250% from the prior year and by over 85% sequentially.

Sam: We generated $58 million of adjusted EBITDA and our fully diluted GAAP. If she has a 43.

Sam: The first quarter marks the first time that our two primary business lines coalesce to produce what we view to be an emphatic year to start with bad start to the year pardon me.

Sam Tabar: Emphatic start to the year, pardon me. Our active hash rate was approximately 2.676 exahash as of March 31st, compared to 2.52 at year end. The listing of certain curtailment programs should bring that figure above 3.0 in the near term. We employed a cautious approach to fleet expansion heading into the halving, and we are still evaluating the post-halving landscape for growing our mining fleet. Our goal remains to reach six Exahasts by year-end.

Sam: Alright, I could pass rate was approximately $2 six 776 extra house as at March 31, compared to $2 five two at the year end.

Speaker Change: The lifting of certain Kentucky curtailment program that should bring back bigger above three <unk> in the near term.

Speaker Change: We employed a cautious approach to fleet expansion heading into the habit and we are still evaluating the post having landscape for growing our mining fleet.

Speaker Change: Our goal remains to reach six extra house by year end.

Sam Tabar: We are in a number of discussions with counterparties for new hosting opportunities and fleet deployment, some of which we expect to be finalized imminently. However, we are still approaching fleet growth cautiously, and we will only implement new growth programs if the economics meet our criteria. Having two uncorrelated revenue streams allows us to be selective on the timing of deploying growth capital. Our average fleet efficiency for our active fleet was 28.3 joules per terahash as of March 31st, 2024, a slight improvement compared to year-end 2023.

Speaker Change: We are in a number of discussions with counter parties for new hosting opportunities in fleet deployment.

Speaker Change: Some of which we expect to be finalized imminently.

Speaker Change: However, we are still approaching fleet growth cautiously and we'll only implement new growth programs, if the economics meet our criteria.

Speaker Change: Having two uncorrelated revenue streams allows us to be selective on the timing of deploying growth capital.

Speaker Change: Our average fleet efficiency for our active fleet was $28 three jaws Portera house as at March 31, 2020 for a slight improvement compared to the year end 2023.

Sam Tabar: We aim to improve that metric considerably as we build out our mining fleet with more efficient miners. As of March 31st, 2024, our Bitcoin mining fleet was approximately 85% carbon-free, a decrease from our year-end 2023 run rate of 93%. The decrease was driven by an increased consumption of power grids that use more carbon-based energy sources.

Speaker Change: We aim to improve that metric considerably as we build out our mining fleet with more efficient miners.

Speaker Change: As of March 31, 2024, our bitcoin mining fleet was approximately 85% carbon free a decrease from our year end 2023 run rate of 93%.

Speaker Change: The decrease was driven by an increased consumption of power grids that use more carbon based energy sources.

Sam Tabar: We continue to strive for our operations to become entirely carbon neutral, but we must weigh the economic trade-offs in each deployment. Ultimately, we do hope that the market starts to demand greater transparency on the power sources that miners use. This will help incentivize greater sustainability practices from the mining industry at large.

Speaker Change: We continue to strive for our operations to become entirely carbon free, but we must weigh the economic tradeoffs in each deployment Ulta.

Speaker Change: Ultimately, we do hope that the market starts to demand greater transparency on the power sources that miners use.

Speaker Change: This will help incentivize greater sustainability practices from the mining industry at large.

Sam Tabar: As mentioned last quarter, we still need to secure around 40 megawatts to reach our six EXA-Hash goals. We are currently in late stage discussions with several potential hosting partners that would put a significant dent into that requirement if the respective agreements were consummated. We are also actively evaluating several M&A opportunities both on the mining side and for High Performance Computing Services, or HPC. We've seen an increase recently in reverse inquiries from entities either looking to be acquired outright or for some sort of strategic partnership. We expect the M&A opportunity set will likely ripen further on the mining side if the hash price remains near current levels. Regarding potential M&A, we're not particularly interested in solely acquiring hash rates.

As mentioned last quarter, we still need to secure around 40 megawatts to reach our extra high school we.

Speaker Change: We are currently in late stage discussions with several potential hosting partners that would put a significant dent into that requirement if the respective agreements were consummated.

Speaker Change: We are also actively evaluating several M&A opportunities both on the mining side and for high performance computing services for H P. C.

Speaker Change: We've seen an increase recently in reverse inquiries from entities, either looking to be acquired outright or perhaps some sort of strategic partnerships.

Speaker Change: We expect the M&A opportunities that will likely ripe and further on the mining side, if the house price remains near current levels.

Speaker Change: Regarding potential M&A, we're not particularly interested in solely acquiring has right.

Sam Tabar: We're more interested in opportunities that fill a strategic gap in our portfolio or improve pro forma margins and returns. One of the reasons that we have slowed down our ExaHash build out this year is because we wanted to maximize our flexibility to capitalize on opportunities that might arise post halving. I believe one reason that prospective sellers have approached us is the strength of our balance sheet. We had over $160 million worth of cash and digital assets at the end of March and zero debt. However, we are actively evaluating debt financing options to accelerate the growth of our digital AI business.

We're more interested in opportunities that fill a strategic gap in our portfolio or improved pro forma margins and returns.

Speaker Change: One of the reasons that we have slow played our extra has build out. This year is because we wanted to maximize our flexibility to capitalize on opportunities that might arise post habit.

Speaker Change: I believe one reason that prospective sellers have approached us as the strength of our balance sheet.

Speaker Change: We had half over we had over $160 million worth of cash and digital assets at the end of March and zero debt.

Speaker Change: However, we are actively evaluating debt financing options to accelerate the growth of our digital AI business.

Sam Tabar: Our first quarter 2024 results represent the first time that the contribution from this business, referred to as High Performance Computing Services within our financials, has impacted our income statement. For the quarter, this business produced $8.1 million in revenue and a gross profit of $3.2 million. You may notice that the revenue number is about $1.3 million lower than the sum of the monthly revenue numbers we published in our monthly reports for the first three months of the first quarter.

Speaker Change: Our first quarter 2024 results represent the first time that the contribution from this business referred to as high performance computing services within our financials has impacted our income statement.

Speaker Change: For the quarter this business produced $8 $1 million in revenue and a gross profit of $3 $2 million.

Speaker Change: You may notice that the revenue number is about $1.3 million lower than the sum of the monthly revenue numbers, we published in our monthly reports for the first three months during the first quarter.

Sam Tabar: The Delta is driven by a one-time $1.3 million credit that we issued to our customer as compensation for reduced utilization during the initial deployment period, which included testing and optimization phases. To be clear, this is a non-recurring charge.

Speaker Change: The Delta is driven by a one time $1 3 million dollar credit that we issued to our customer as compensation for reduced utilization during the initial deployment period, which included testing and optimization phases to be clear. This is a nonrecurring charge for illustrative purposes, if we.

Sam Tabar: For illustrative purposes, if we add the credit back to revenue, gross margins for the HPC segment would be approximately 72.5%. Compared to the reported 61%, that includes the one-time customer credit. I would also like to point out that the gross profit includes our lease expense as we treat that as an operating lease for accounting purposes. As previously disclosed, our anchor client for our BitDigital AI business has requested that we double the size of the GPU deployment and contract another 2,048 GPUs.

Speaker Change: Add the credit back to revenue gross margin for the APC segment would be approximately 72, 5%.

Speaker Change: Compared to the reported 61% that includes the onetime customer credit.

Speaker Change: I would also like to point out point out that the gross profit include our lease expense as we treat that as an operating lease for accounting purposes.

Speaker Change: As previously disclosed our anchor talent, our anchor client for a bit digital AI business has requested that we double the size of the GPU deployment and contract another 2048 Gpus.

Sam Tabar: We are in the process of finalizing the terms with our customer and respective vendors, and we hope to announce the final terms in the coming weeks. We also continue to progress in our discussions with other prospective customers.

Speaker Change: We are in process of finalizing the terms with our customer and respective vendors and we hope to announce the final terms in the coming weeks.

Speaker Change: We also continue to progress in our discussions with other prospective customers.

Sam Tabar: Our goal to grow the HPC business segment to $100 million of annualized revenue by year-end remains intact. However, given the market pricing trends and volume-based discounts, it's unlikely that we will achieve this run rate from only an additional 2,048 GTU deployment from our existing customer, assuming that the contract is finalized. However, we expect to be able to procure the GPUs at a reduced rate relative to our initial purchase. This should help us maintain a similar return profile and payback period relative to our initial deployment.

Speaker Change: Our goal to grow the APC business segment to $100 million of annualized revenue by year end remains intact.

Speaker Change: Given the market pricing trends and volume based discounts, it's unlikely that we will achieve this run rate only but from all the additional 2048, new deployment from our existing customer and assuming that the contract is finalized. However, we expect to be able to procure the gpus at a reduced rate relative to our initial purchase.

Speaker Change: This should help us maintain a similar returns profile and payback period relative to our initial deployment.

Sam Tabar: Nonetheless, based on our conversations with prospective customers and the overall view of the market, we continue to believe that we will achieve our revenue goal for the year. We are set up for strong multi-year growth in this business. To date, we have invested minimally in the business development or customer acquisition side of the HPC business.

Speaker Change: Nonetheless based on our conversations.

Speaker Change: Sorry, but nonetheless based on our conversations with prospective customers and the overall view of end market. We continue to believe that we will achieve our revenue goal for the year. We are set up for a strong multiyear growth in this business.

Speaker Change: To date, we have invested minimally in the business development or customer acquisition side of the H P C business.

Sam Tabar: However, it's become clear to us that we need to expand our team and add dedicated headcount to support the growth of this business. So we are now actively working on making very key hires that will help us accelerate that growth. I'll now hand over the line to Eric, who will discuss our financial results. Thank you, Tim.

Speaker Change: Or it's become clear to us that we need to expand our team and add dedicated head count to support the growth of this business.

Speaker Change: So we are now actively working on making very key hires that will help us accelerate that growth.

Eric: I'll now hand, I'll now hand over the lines to Eric who will discuss our financial results.

Eric Long: I will now discuss certain financial results for the first quarter of 2024. Total revenue was $30.3 million, a 266% increase compared to the prior year. The revenue increase was primarily driven by the higher realized Bitcoin price and the start of our HPC services. Our Bitcoin production increased 13% year-over-year to 410.7%, with increased retrieval by an increase in our extra hash rate and the partial offset by an increase in Bitcoin network difficulty.

Eric: Thank you I will now discuss certain financial results for the first quarter of 2024.

Eric: Total revenue was $33 million and 266% increase compared to the prior year.

Eric: The revenue increase was primarily driven.

Eric: Higher realized price and the start of our <unk> services business.

Eric: Albeit corn production increased 13% year over year.

Eric: Year to 410 seven.

Eric: The increase was driven by an increase in extra.

Eric: Three and partially offset by an increase in the core network difficulty.

Eric Long: Our HPC services business began generating revenue in May and January and recognized $8.1 million during the quarter. This is net of a one-time $1.3 million credit we issued to our customer, as previously mentioned. Our Ethereum state strategy generated approximately $326,000 during the first quarter, and the total cost of revenue was $16.2 million compared to $5.2 million the prior year. The increase was primarily driven by an increase in our active mining fleets, higher Bitcoin network capability, and the start of our decentralization. The electricity price was approximately $0.05 per kilowatt hour for the quarter.

Speaker Change: Our HQ pizza.

Speaker Change: <unk> generated revenue in late January our recognized $8 $1 billion during the quarter.

Speaker Change: Net of the one time 1 million borrowed credits were used to it to a customer that prevents mentioned.

Speaker Change: I see.

Strategies generated approximately $326000 during the first quarter and the total cost of revenue was $16 $2 million compared to five.

Speaker Change: The prior year.

Speaker Change: <unk> was primarily driven by an increase of our active mining fleets higher bitcoin network difficulty at the start of that.

Speaker Change: Fitness.

Speaker Change: I think tripathi price was approximately five cents per kilowatt hour for the quarter.

Eric Long: Our production cost per Bitcoin, defined as electricity and other hosting fees divided by Bitcoin production, amounted to approximately $19,700 for the quarter. Coffee fees amounted to around $10,300 per Bitcoin for Q1. Profit sharing fees spiked due to the sharp increase in Bitcoin price. However, following the happening and reduction of..., profit sharing fees should decrease in materiality in Q2 and with the current Bitcoin price, which should partially offset the margin impact from the happening. General and administrative costs were approximately $6 million, compared to $5.2 during the prior year quarter. The increase was most driven by higher professional and consulting expenses.

Speaker Change: Production costs per big coin.

Speaker Change: As yeah, truthfully and other hosting fees divided that'd be quite production.

Speaker Change: Wanted to approximately <unk>.

Speaker Change: <unk> thousand $700 for the quarter amounted.

Speaker Change: Amounted to around $10300 appropriate coin for Q1.

Speaker Change: Profit sharing these spikes due to the sharp in indigo and price.

Speaker Change: However, following the happening a reduction of about <unk>.

Speaker Change: Profit sharing fees should decrease materially in Q2, and current bitcoin prices, which should partially offset the margin impact from that happening.

Speaker Change: General and administrative costs were approximately eight 6 million compared to $5 to do the <unk>.

Speaker Change: Prior year quarter, the increase was mostly driven by higher personnel.

Speaker Change: And consulting expenses.

Eric Long: Depreciation and amortization expense was $6.8 million for the first quarter compared to $3.6 million last year, with the increase driven by a larger mining fleet and our GPU fleet that was deployed in early 2024. Adjusted EBITDA was $58.5 million for the quarter compared to $1.5 million in Q1 2023. The improvement was primarily driven by gross margin expansion and the introduction of high-margin HPC business and, of course, higher Bitcoin prices. We implemented the new FAFSA Fair Value Accounting Rules during the quarter, which resulted in a pre-tax gain of approximately $43.5 million on our digital assets. Gap earnings per share were $0.43 for the quarter compared to a loss of $0.03 the prior year.

Speaker Change: Depreciation and amortization expense was $6 8 million for the first quarter compared to $3 6 million last year.

Speaker Change: They include driven by a larger mining fleet and our GPU fleet that was deploy our new 2024.

Speaker Change: Adjusted EBITDA.

Speaker Change: <unk> $8.5 million for the quarter compared to $1 5 million in Q1 2023.

Speaker Change: The improvement was primarily driven by gross margin expansion.

Speaker Change: The introduction of our high margin <unk> business and of course higher corn prices.

Speaker Change: We implemented a new chassis and fair value accounting of routes during the quarter, which would result in a pretax gain of approximately $43 $5 million on our digital assets.

Speaker Change: GAAP earnings per share were 43 cents for the quarter compared to a loss of three cents the prior year.

Eric Long: According to our balance sheet, we held approximately $35 million of cash and restricted cash as of March 31, 2024, and our digital assets position was worth approximately $28 million. The total assets amounted to $291 million at the end of the quarter, while shareholders' equity was $265 million. Our balance sheet remains debt-free, but we are actively evaluating potential debt financing to grow our HPC business. COPEX was less than $1 million during the quarter and was used for the purchase of approximately 2,300 miners.

Turning to our balance sheet, we held approximately 35 million of cash and restricted cash as of March 31, 2024, and our digital asset position was worth approximately $28 million.

Speaker Change: We had total assets amounted to $291 million at the end of the quarter, while shareholders' equity was $265 million.

Speaker Change: Our balance sheet remains debt free, but we are actively evaluating potential debt financing to grow our HPV business.

Speaker Change: Capex was less than 1 million during the quarter and was used for the purchase of approximately 2300 <unk>.

Eric Long: Note that our capital commitment to the quarter was reduced by the decision to enter into a sales-backed agreement for 96 HPC servers. We raised approximately $38.7 million of net proceeds from the insurance of $12.9 million of generated shares during the first quarter. The majority of the shares were issued in January when our share price was higher, and the proceeds were raised to both partially fund the build-out of our HPC business and to fortify our balance sheet ahead of the half. I will now turn the call back to Sam for closing remarks. Thank you, Eric.

Speaker Change: Note that our capital commitment to the quarter was reduced by the decision to enter into a facility to back agreement for 96 S. P&C servers.

Speaker Change: The rate of approximately $38 $7 million of net proceeds from the issuance of $12 9 million.

Speaker Change: Or any shares during the first quarter.

Speaker Change: Georgia This year, what do you do it in January when our share price was higher and the proceeds were raised.

Do both partially found the build outs of our edge pizza business and to fortify our balance sheet ahead of that happening.

Sam: I'll now turn the call back to Sam for closing remarks.

Sam: Thank you Eric.

Sam Tabar: BID Digital is focused on building a company that succeeds in all phases of the cycle. We gladly benefited from the run-up in Bitcoin prices, but we knew that the halving would offset that benefit. And it has, with the half price falling to all-time lows at the end of April.

Speaker Change: Digital is focused on building a company that succeeds in all phases of the cycle.

Speaker Change: We'd gladly benefited from the run up in bitcoin prices, but we knew that the habit would offset that benefit and it has the highest price falling to all time lows at the end of April.

Sam Tabar: We were expecting a difficult mining environment post-halving, and we prepared accordingly. We have a formidable balance sheet and an HPC business that already generates enough income to cover our cash overhead. It's also worth reminding ourselves that there is no such thing as a "having event" in AI.

We were expecting a difficult mining environment post, having and we prepared accordingly.

Speaker Change: We have a formidable balance sheet and an H P. C business that already generates enough income to cover our cash overhead.

Speaker Change: Also worth reminding ourselves that theres no having events in AI.

Sam Tabar: Look, we still run a profitable mining business at the current hash price, but the margin for error has been reduced. This is why we designed our business to be resilient to the hash price, as we don't want to find ourselves in a position of being held hostage by certain macro events we don't control. Bitcoin mining is speculative in nature, and we accept that risk-reward trade-off. But we don't want our entire business to be predicated on speculation.

Speaker Change: Look we still run a profitable mining business at the current house price, but the margin for error has been reduced.

Speaker Change: That's why we designed our business to be resilient to house price as we don't want to find ourselves in a position of being held hostage by certain macro events, we don't control.

Speaker Change: Bitcoin mining is speculative in nature, and we accept that risk reward trade off but we don't want our entire business to be predicated on speculation. This is why we diversified into the H P C space.

Sam Tabar: This is why we diversified into the HPC space. BitDigital's AI business is not aspirational; it's real, and we see significant growth runway on the HPC side, and we are actively looking to capitalize on those secular tailwinds.

Speaker Change: Digital's AI business is not aspirational, it's real and we see significant growth runway on the APC side, and we are actively looking to capitalize on those secular tailwind.

Sam Tabar: We are starting to build out our team, and we've earmarked capital to expand our GPU fleet and also enhance the breadth of our offering. Having two distinct business lines gives us optionality in terms of when and where we can allocate capital. We think this is a key advantage. We are not forced to always reinvest in a single business line regardless of the returns profile. We don't just have one lever.

Speaker Change: We're starting to build out our team and we've earmarked capital to expand our GPU fleet and also enhance the breadth of our offerings.

Speaker Change: Having two distinct business lines afford us optionality in terms of when and where we can allocate capital. We think this is a key advantage. We are not forced to always reinvest in a single business line, regardless of the returns profile. We don't just have one lever.

Sam Tabar: We are able to weigh different options at any given time and invest our capital in the area we expect to yield the best return on capital. Bitcoin mining is a capital-intensive business, and returns are primarily dictated by macro factors.

Speaker Change: I E. We are able to weigh different options at any given time and invest our capital in the area, we expect to yield the best return on capital.

Speaker Change: The coin mining is a capital intensive business returns are primarily dictated by macro factors it.

Sam Tabar: It can be a great business or a terrible business at any given time, depending on the hash price. We don't believe it's prudent for our company to pursue a perpetual exerhash growth model that many in the sector champion. The idea of having to continuously raise external capital to chase exerhash growth when marginal utility is naturally diminished by the consensus mechanism is a perplexing notion to us. We would prefer to invest in an uncorrelated business line that generates predictable free cash flow that can then be reinvested into the Bitcoin mining business when the returns justify the investment at any given time. As I mentioned earlier, we don't just have one lever.

Speaker Change: It can be a great business or a terrible business at any given time, depending on the highest price.

Speaker Change: We don't believe it's prudent for our company to pursue a perpetual extra half growth model that many in the sector champion the idea of having to continuously raise external capital to take extra has growth when marginal utility it naturally diminished by the consensus mechanism is a perplexing notion to us.

Speaker Change: We would prefer to invest in an uncorrelated business line that generates predictable free cash flow that can then be reinvested into the bitcoin mining business when the returns justify the investment at any given time as I mentioned earlier, we don't just have one lever.

Sam Tabar: Finally, we believe our company remains considerably misunderstood by the markets. It is our opinion that our Bitcoin mining business and the HPC business are complementary and synergistic business designs, and we are able to grow the HPC business to a $50 million run-rate revenue business in a very short time with the same team we used to run the mining business. That said, it does seem like the retail side of the market is more concerned about growing the mining business, while institutional investors would like to see us invest exclusively in the HPC business. It's unclear how this plays out, but regardless, we do believe our valuation will normalize over time. With that, I would like to open the line up for some questions.

Speaker Change: Finally, we believe our company remains considerably misunderstood by the markets. It is our opinion that our bitcoin mining business and the SPC business are complementary and synergistic business designs, and we're able to grow the HPV business to a $50 million run rate revenue business in a very short time with the same team we used to be.

Speaker Change: The mining business that's.

Speaker Change: That said it does seem like the retail side of the market is more concerned about growing the mining business, while institutional investors would like to see us invest exclusive exclusively in the HCC business at.

Speaker Change: It's unclear how this plays out but regardless, we do believe our valuation will normalize overtime.

Speaker Change: With that I would like to open the lineup for some questions.

Speaker Change: Okay.

Operator: If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open.

Speaker Change: If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.

Speaker Change: Please prompt on the phone line will indicate when your line is open.

Operator: Again, you may press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Mike Rundle with Northland Security. Your line is now open. Please go ahead. Hey, thanks guys. Hey, first question.

Speaker Change: Ken You May press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.

Speaker Change: Well take our first question from Mike Grondahl with Northland Securities.

Speaker Change: Your line is now open. Please go ahead.

Mike Grondahl: Hey, Thanks, guys.

Mike Rundle: guys. Um, first question, you know, you received that letter about the second 2000 GPUs back in late March. What's taking so long there for final terms or final contract? And then do you think those GPUs will still be sort of... installed and live?

Mike Grondahl: Hey first question.

Speaker Change: You received that.

Speaker Change: That letter about that.

Speaker Change: Second 2000 Gpus back in late March.

Speaker Change: What's kind of taking so long there for final terms or final contract.

Speaker Change: And then do you think those gpus will still be sort of.

Speaker Change: Installed and live by June 30th.

Speaker Change: Yeah.

Speaker Change: Yeah.

Eric Long: This is Eric speaking. Oh, I'm so sorry. I was on mute.

Eric: Hi, Dave This is Eric speaking.

Speaker Change: I'm, so sorry, I was on mute I apologize thanks very much.

Eric Long: I apologize. Oh, yeah. Go ahead, Eric. I was on mute by accident, but go ahead, Eric.

Eric: Okay.

Dave: Go ahead, Eric I was on mute by accident, but go ahead Eric.

Eric Long: Okay. Yeah. So, why it took so long was a combination of preparing all the vendors for the deployment. And ultimately, we're working with the vendor and the client for deployment, so it took a little bit more time. And we are expecting to see installation by June 30th, or around that time. So, that's still the target. Yeah, Mike, so we're finalizing this, and basically,

Dave: Okay, Yeah. So.

Dave: So why it took so long it was a combination of preparing all of the vendors for their deployment.

Ultimately.

Dave: We're working with the vendor and the crime to cause deployment. So it took a little bit more time.

Mike Rundle: Got it. And June 30th is still your best guess for installation and when it's generating revenue?

Dave: And we are expecting to see an acceleration.

Dave: June 30th.

Dave: At that time.

The target.

Mike Grondahl: Yeah, Mike So we're finalizing this and basically weeks.

Speaker Change: Got it and in June 30th is still a.

Speaker Change: I don't know your best guess of installation and when is generating revenue.

Speaker Change: Give or take a week.

Speaker Change: Okay, Okay, or we're talking we're talking weeks here, but not more.

Eric Long: Okay. Okay. We're talking weeks here. Not not more. Got it.

Mike Rundle: Got it, got it. Related to that, you talked a little bit about a volume discount, which I think the customer is getting, you know, because it's the second 2000. But I think you also referred to a purchase discount. Are you finding the market competitive for GPUs so you're getting them at a lower price also? Could you just kind of explain that a little bit?

Speaker Change: Got it got it.

Speaker Change: And.

Speaker Change: Related to that you talked a little bit about a volume discount.

Speaker Change: The customer is getting.

Speaker Change: Because it's the second 2000, but I think you also referred to like a purchase discount.

Are you finding what the market competitive for Gpus, so you're getting them out at a lower price also could you just kind of explain that a little bit.

Eric Long: Yeah, Eric, do you want to take that? I can drive either one of us.

Speaker Change: Yes, Eric do you want to take that I can it's either one of us.

Eric Long: Yeah, so for a long time, credit was due to the backup and installation. Then we got the customer. And yes, we're seeing more competitive pricing for these services as the manufacturing and production of chips and OEMs are coming up. So we should be getting better prices for our procurement from our perspective as well.

Speaker Change: Yeah. So for the for a one time credit that was due to the.

Speaker Change: Meanwhile, and installation.

Speaker Change: Okay.

Speaker Change: The customer right.

Speaker Change: And yes, we're seeing more competitive pricing for those high risk as.

Yes.

Speaker Change: Manufacturing production of shapes, and Oh, yes, I'm sorry.

Speaker Change: Yes, coming coming up so we should be seeing better pricing for our procurement from our appropriate perspective as well.

Eric Long: Got it. I think on the first 2000, it was about 60 million for the GPUs. And the networking equipment, is it meaning meaningfully below that? Or I don't know. Can you kind of give us a sense of direction?

Speaker Change: Got it I think on the first 2000 it was about.

Speaker Change: 60 million for the Gpus.

Speaker Change: And the networking equipment.

Speaker Change: Is it meetings meaningfully below that or I don't know can you kind of give us a sense of direction.

Eric Long: Yeah, it's going to be lower, but like I previously said, it's being finalized. So it's not finalized yet. We should be able to announce that in the coming weeks.

Speaker Change: Yeah, it's gonna be nowhere, but.

Speaker Change: Hi.

Speaker Change: As you said, it's been finalized so it's not finalized yet we should be able to.

Speaker Change: With that in the coming weeks.

Mike Rundle: Got it. Got it. And then.

Speaker Change: Got it got it.

Speaker Change: And then in.

Mike Rundle: In regards to, you know, potential customers two, three, and four. You said you're hiring a team, a sales team, I think you said, to help with that process. Has that process slowed down? Or is that still moving rapidly? I guess I'm trying to understand what your message is there about getting like a second or third.

Speaker Change: In regards to you know.

Speaker Change: Potential customer two three and four.

Speaker Change: You said, you're hiring a team.

Speaker Change: Our sales team I think you said to help with that process.

Speaker Change: Is that process slowing down.

Speaker Change: Or is that still moving rapidly I guess I'm trying to understand what your message is there.

Speaker Change: About getting a second or third customer.

Sam Tabar: I'm happy to take that. So, yeah, the process with potential clients is moving forward, but nobody owns that process at the moment, and that's why we're hiring a head of revenue. We're pretty much in final discussions with very experienced people in the relevant space, and we need somebody who actually owns the sales process to accelerate and unleash the business. And so we intend to do that, key hire and announce that, and in the medium term, build that team.

Speaker Change: I'm happy to take that so yeah. So.

Speaker Change: The process with potential clients is moving forward, but nobody owns that process at the moment and that's why we're hiring ahead of revenue we have.

Speaker Change: We're pretty much in final.

Speaker Change: Discussions with a very experienced people in the relevant space and we need somebody who actually owns the sales process to accelerate and unleash the business and so we intend to do that to hire it announced that and.

Speaker Change: In the medium term built that team, but there is absolutely zero salespeople at digital everything has been done with the existing with the existing management team, so far but in order to unleash and grow this business and to take on all the inquiries that we're getting it's important that somebody owns that process, which is why we are.

Sam Tabar: But there are absolutely zero salespeople at BitDigital. Everything has been done with the existing management team so far, but in order to unleash and grow this business and take on all the inquiries that we're getting, it's important that somebody owns that process, which is why we are in the process of interviewing this head of revenue person, and we look forward to making that announcement soon. But in the meantime, Mike, there are the clients, the potential clients that are moving forward, but frankly, it could move forward faster if we had a head of revenue, and that way someone's owning the sales process.

Speaker Change: In the process of interviewing this head of revenue person and we look forward to making that announcement.

Mike Grondahl: But in the meantime, Mike there is they the clients potential clients that is moving forward, but frankly it could move forward faster. If we had ahead of revenue and that way so much on the sales process.

Mike Grondahl: Got it I mean.

Mike Rundle: Got it. It's hard to draw a timeline, but do you think you could announce something this summer or fall about a second or third customer? What's your best guess?

Speaker Change: It's hard to draw a timeline, but do you think you could announce something summer fall about a second or third customer whats your.

Sam Tabar: Oh, for a customer? Well, certainly, I believe, and this is just my view, we'll certainly be announcing the head of revenue, Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. Got it. Got it. And then just left.

Speaker Change: Oh for a customer.

Certainly.

Speaker Change: Well I I believe and this is just my view well certainly be announcing that you're ahead of revenue.

So hopefully soon.

Speaker Change: And I would prefer to get that answer if I'm. The question you just asked from our head of revenue because he or she will have to look at the landscape of all the inquiries, we have and where the status quo is with these clients.

Speaker Change: But it's still it remains a pregnant pipeline.

Speaker Change: Again, we need somebody to own that process to accelerate the sales cycle. It does it does it work for management.

Speaker Change: Are you running the business and also owning the sales cycle as you as you can imagine this is a sales business.

Speaker Change: And we need that sales team and that's one of the reasons why hiring our sales team will help unleash and accelerate all the leads that we have right now.

Speaker Change: Okay.

Speaker Change: Got it got it and then just lastly.

Mike Rundle: On the last call, you guys talked about getting a credit facility put in place to kind of help finance GPU purchases. Where does that stand? Is there a timeline for getting that done?

Speaker Change:

Speaker Change: On the last call you guys talked about.

Speaker Change: About getting a credit facility.

Speaker Change: Put in place to kind of help finance Yeah G. P S.

Speaker Change: Yes.

Speaker Change: Where does that stand as their timely.

Speaker Change: Timeline for getting that done.

Sam Tabar: Yeah, I mean, in the past, we never took on debt because, you know, taking on debt and borrowing money for Bitcoin mining equipment is a fool's errand. You can't predict the cash flows because you don't know where Bitcoin is going to be.

Speaker Change: Yeah, I mean in the past, we never took on that because because taking on debt and borrowing money for a big claim mining equipment is a fool's errand you can't predict the cash flows because you don't know where a big claim is going to be but of course, we're we remain very open minded.

Sam Tabar: But of course, we remain very open-minded to looking at credit facilities with respect to the AI business because it's a very predictable cash flow. Every month we're drawing cash from the client, so that makes a lot of sense. We have been looking, and there's a menu of options we've been looking at. There are certain terms that we want, and we just want to optimize the very best financing terms. But until that is signed, we have to look at all our options.

Speaker Change: So youre looking at credit facilities with respect to the AI business, because it's very predictable cash flow every month, we're drawing a.

Speaker Change: Cash from the client so that makes a lot of sense, we have been looking theres a menu of options has been looking at.

Speaker Change:

Speaker Change: There are certain terms that we want.

Speaker Change: And we just want to optimize the very best financing term.

Speaker Change: Until that is signed.

Speaker Change: We have to look at all our options, but for now we're just we're speaking very aggressively with investors and Counterparties, who are enthusiastic to get involved in this business from a financing perspective, but we just wanted to make sure we optimize the best terms.

Sam Tabar: But for now, we're just speaking very aggressively with investors and counterparties who are enthusiastic to get involved in this business from a financing perspective, but we just want to make sure we optimize the best terms.

Mike Rundle: Okay. Hey, I'll jump back in the queue.

Speaker Change: Okay, Hey, I'll jump back in the queue.

Sam Tabar: Thanks, Mike. Good questions.

Speaker Change: Thanks, Mike Good question.

Operator: If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. And once again, if you'd like to join the queue, you may press star 1. We'll move to our next question from Joe Gomez with Novo Capital Partners. Please go ahead.

Speaker Change: If you find that your question has been answered you may remove yourself from the queue by pressing star two and once again, if you'd like to join the queue. You May Press Star one well move to our next question from Joe Gomes with Noble Capital Partners. Please go ahead.

Joe Gomez: Good morning, and thanks for taking the questions. Hi Jeff.

Joe Gomes: Good morning, and thanks for taking the questions.

Speaker Change: Hi, Jeff.

Joe Gomez: I wanted to start off on the HPC adjusted gross margin there. I think you said it was about 72 and a half. Should we expect that similar type of margin going forward, or do you think that margin could possibly even increase from there?

Speaker Change: Wanted to start off on the H B C. Adjusted gross margin. There I think you said it was about 72 and a half.

Joe Gomes: Should we expect that similar type of a margin going forward or do you think that margin could.

Joe Gomes: Possibly even increase from there.

Joe Gomes: Okay.

Eric Long: Eric, do you want to take that? It's more of a finance question. Yes, so for the first batch, it's going to be the same margin. But going forward, we do see some pricing compressing as well for 800 cards per hour. So I would say the margin would decrease, but it's going to be until the contract is finalized and the market. And yeah, Marge, it's remained great.

Speaker Change: Eric do you want to take that it's more of a finance question.

Eric: Yeah. So for the for the first batch is going to be the same margin before going forward, we do see some pricing compressing as well for.

Speaker Change:

Speaker Change: <unk> costs for our pricing.

Eric: So I would say the margin would be.

Speaker Change: Decrease.

Speaker Change: But yeah.

Speaker Change: Yeah.

Speaker Change: It's going to be onto.

Speaker Change: The contract has been finalized and the market.

Speaker Change: And yet margins remain great.

Eric Long: The gross margin that we report does include the lease expense for this first batch, so the second batch, whenever those terms are finalized, the gross margin will also be dictated by whether there is some extent of a lease expense in that as well.

Speaker Change: The gross margin that we report.

Speaker Change: These include the lease.

Speaker Change: For this first batch so the second batch whenever those terms are finalized the gross margin will also be dictated whether there is some extent to the lease expense in that as well.

Speaker Change: Okay.

Eric Long: And then professional consulting expenses increased to $2.6 million from $1 million. Maybe you could just give us a little more color on what was driving those costs?

Speaker Change: And then professional consulting expenses increased $2 6 million from a million.

Speaker Change: Maybe you could just give us a little more color on what was driving those cost.

Eric Long: Yeah, I can take that. So those calls were related to the sales process now for, you know, pricing the deal, and like professional services related to the installation of the equipment.

Speaker Change: Yes, I can take that so those costs were related to the sales process now for placing the deal.

Speaker Change:

Speaker Change: And.

Speaker Change: Our professional services related to installation.

Speaker Change: Equipment.

Speaker Change: Yeah.

Speaker Change: Okay.

Joe Gomez: And then I was wondering if you could give us a little more color on what you've been seeing as kind of the overall environment since the halving, you know, kind of maybe give us a little more color detail on what you're seeing out there today.

Speaker Change: And then I was wondering maybe guess.

Speaker Change: Give us a little more color.

Speaker Change: And what you've been seeing as kind of the overall environment since they're having.

Speaker Change: Kind of maybe you can give us a little more color or detail on what youre seeing out there today.

Sam Tabar: with respect to how it relates to the HPC business or the Bitcoin mining business or just generally? The mining business? Well, I mean, everything is dictated by the hash price. And I think that the sector is sometimes myopic in that they only have one lever. There's an old saying, if all you have is a hammer, everything you see are nails.

Speaker Change: With respect to how it relates to the APC business or that they claim my name business or just your mining business.

Speaker Change: The mining well.

Speaker Change: I mean, everything is dictated by the house price and and and I think that the sector is sometimes by OPEC and that they only have one lever there there's an old saying if all you have is it.

Speaker Change: Hammer everything you see our nails and so.

Sam Tabar: And so... With respect to our sector, they only have one lever, and that lever is gross at all costs. And that is dangerous, and we've been able to avoid that because we have a real business on the HPC side where we're able to leverage our existing know-how with respect to the procurement of specialized machines and identifying data centers. And so we were able to establish that business line. And I just want to emphasize that it's only a business if you have the following three things.

Speaker Change: With respect to our sector. They only have they only have one lever and that lever is growth at all costs and that is dangerous and we've been able to avoid that because we have a real.

Speaker Change: Related to that we have a real business on the APC side that we're able to leverage our existing knowhow with respect to procurement of specialized machines and identify them data centers and so we were able to establish that business line and I just want to emphasize is that only a business. If you have the following three things.

Sam Tabar: If you have access to these machines, which are difficult to get, if you have access to a data center to park those machines, and lastly, you have clients. If you don't have all those three, it's just an aspiration.

Speaker Change: Do you have.

Speaker Change: Access to the machines, which are difficult to get.

Speaker Change: You have access to that data center to park those machines and lastly, you have plants. If you don't have all of those three it's just an aspiration.

Sam Tabar: So we have all those three. We have a real business. We're drawing revenue every month, and that is really important with respect to the Bitcoin mining business because we're able to allocate resources at the right time and not overpay for things. BitDigital historically has always run a counter-cyclical growth strategy, and that has worked out very well so that we're not overpaying just to get sexy headlines. So we're really comfortable with our position. We have levers, and hopefully, the market will understand that and begin to normalize our price.

Speaker Change: We have all those three we have a real business. We're drawing revenue every month and that is really important with respect to the big Quay money business, because we're able to allocate at the right time.

Speaker Change: And not overpay for things that digital historically has always had a countercyclical growth strategy and that has worked out very well. So that we're not overpaying just to get sexy headlines. So we're really comfortable with our position.

Speaker Change: We have leavers and and hopefully the market will understand that and begin to normalize our price.

Sam Tabar: I'm assuming with the agreement so close for the second batch on the HPC side, you already have the hosting capacity, but once that is done, if you were to get customers 2, 3, 4, do you need additional hosting capacity, or do you already have under contract enough hosting capacity to add on a customer 2 or a customer 3 on the HPC side?

Speaker Change: Okay, and then one more for me and I'll jump back in queue.

Speaker Change: I'm, assuming with the agreement so close for the second batch on H P. C side, you already have the hosting capacity, but once that is John if you were to get customer 234.

Speaker Change: Do you need additional hosting capacity or do you already have under contract are enough hosting capacity to add on.

Speaker Change: Customer to a customer three on the <unk> side.

Sam Tabar: Yeah, we have enough capacity for sure to accommodate client demand, and I will add that we are in the markets to potentially even acquire and get vertically integrated on the HPC side. The reason why that's interesting for us is, basically, the margins on the business. It's basically, you require 90% less energy to produce the same amount of revenue on the HPC side than on the Bitcoin mining side.

Speaker Change: Yeah, we have we have enough capacity for sure to accommodate the client demand and I will add that we are in the market to potentially even acquire.

Speaker Change: And get vertically integrated on the H P. C side. The reason why that's interesting for us.

Speaker Change: Basically.

Speaker Change: The margins on the business. It's basically you require just basically 90% less energy to produce the same amount of revenue on the H P C side than the bitcoin mining side. So it's.

Sam Tabar: So it's an interesting vertical integration that we're seriously considering, and we are talking to various counterparties to potentially get vertically integrated on that side of the business. But to answer your question directly, once again, we definitely have enough capacity to meet client demand. That is something we already have, but we are looking to vertically integrate on that side of the business.

Speaker Change: It's an interesting vertical integration that we're seriously considering and we are talking to various counterparties at potentially get vertically integrated on that side of the business.

Speaker Change: But to answer your question directly once again, we definitely have enough capacity.

Speaker Change: To meet client demand.

Speaker Change: That is something we already have but we are looking to vertically integrate or on that side of the business.

Joe Gomez: Okay, great. Thanks for taking my questions.

Speaker Change: Okay, great. Thanks for taking my questions.

Speaker Change: Thank you.

Operator: We'll move to our next question from Kevin Dede with H.C. Wainwright. Your line is now open.

Speaker Change: Well move to our next question from Kevin Dede with H C. Wainwright. Your line is now open.

Kevin Dede: Thanks. Good morning, Sam. Hi, Eric, and Cam. Thanks for having me on.

Speaker Change: Thanks, Good morning, Sham hired Kim.

Kim: Thanks for having me on Sam just to go back to your last touch which is or my question list then about.

Sam Tabar: Sam, just to go back to your last touch, which was on my question list about building or acquiring your own infrastructure. Can you kind of just go through your rationalization for that given? You know, given your commentary regarding investments and timing, I guess you're just more comfortable there because you can see a return, right, regardless of the hash price. But that's right. Yeah, for example, for example, four megawatts on the HPC side produce the same amount of revenue as 40 megawatts on the Bitcoin mining side.

Speaker Change: Building or acquiring your own infrastructure can can you kind of just go through your rationalization of that given.

Speaker Change: You know just given your commentary regarding investments and timing I.

Speaker Change: I guess, you're just more comfortable there because you can see return right regardless of our past price.

Sam: But that's right.

Sam: Yeah.

For example.

Sam: For example, four megawatts on the H P. C side produces the same amount of revenues 40 megawatts on the bitcoin mining side. So the math is nice.

Sam Tabar: So the math is nice. Can you give us some insight on the expertise that you think you'd need to do that, what you'd have to do on..., you know, on the management team side to be able to accommodate that expertise, and what kind of timing you had in mind?

Speaker Change: So can you give us some insight on on.

Speaker Change: On the expertise that you'd think you'd need to do that the what you'd have to do on.

Speaker Change: You know and the management team side to be able to accommodate that expertise and.

Speaker Change: What kind of timing you had in mind.

Speaker Change: Sure with respect to the expertise and the way we're doing it now which is pretty successful we have a track record already we have we've contracted with that data center in Iceland and things are going very well if things were not going very well the client would not be asking to grow the fleet. So if things are going pretty well there and our expertise.

Sam Tabar: Sure. Well, with respect to the expertise in the way we're doing it now, which is pretty successful, we have a track record already. We have contracted with that data center in Iceland, and things are going very well. If things were not going very well, the client would not be asking to grow the fleet. So things are going pretty well there, and our expertise is pretty good on that front. But if we're to acquire a data center to accommodate and vertically integrate this business, of course, there is going to be a management team attached to that particular infrastructure, and we'll be leveraging that management team very, very deeply in order to expand the margins on this business once we're vertically integrated, if and when we become vertically integrated on that side of the business.

Speaker Change: <unk> is pretty good on that front, but if we were to acquire a datacenter to accommodate and vertically integrate this business of course, there is gonna be a management team attached to that particular infrastructure and we will be leveraging that management team.

Speaker Change: Very deeply in order to to expand the margins on this business once once we're vertically integrated if and when we become vertically integrated on that side of the business.

Sam Tabar: Do I understand everything correctly? Yeah, sorry, go ahead. I mean, that's sort of the attractive component of M&A on that side is that we would be able to acquire an existing team in place, run the operation, and also just acquire an existing book of business and an existing pipeline of news. So the idea then, Cam, I should think about it, your expansion there as... Uh, buy versus build? That's correct. Okay, thank

Yeah, Kevin I would think correct, yes, sorry go ahead.

Speaker Change: That's one of the attractive component of M&A on that side is that we would be able to acquire.

Speaker Change: Acquire an existing team in place to run the operation and also just acquiring an existing book of business and an existing pipeline of new leads.

Cam: So the idea then Cam I should think about it your expansion there as well.

Cam: Our buy versus build.

Speaker Change: That's correct.

Sam Tabar: Do I understand everything correctly, Sam, in that the next tranche for your existing customer, on the GPU side, is that all super micro equipment? Have you had any issues with gaining that? And are you okay on the InfiniBand side too?

Speaker Change: Okay. Thank you.

Speaker Change: Do I understand everything correctly, Sam and that the next tranche for your existing customer and the GPU side.

Speaker Change: Is that all supermicro equipment have you had any issues with getting that.

Speaker Change: And or are you, okay on the Infiniband side do.

Sam Tabar: We are indeed, and that's a great question because a lot of people think that the H100 is precious, but the InfiniBand is actually even more precious. So a lot of people got caught with their pants down just getting the H100, so I realized that you also need the InfiniBand, otherwise, they have very expensive paperweights. So yeah, we have that covered. We had that covered when we executed on the first tranche, so we already have that very well covered on the second tranche.

Speaker Change: We are indeed, and that's a great question because a lot of people think the press that I mean of course, the H one hundreds are precious but the intent is actually even more pressure. So a lot of people got caught with their pants down just getting each one hundreds and I realize it then you also need the infiniband otherwise they have very expensive paperweight. So, yes, where we have that covered we had that covered what we are.

Speaker Change: <unk> on the first tranche. So we'll have that we already have that very well covered on the second tranche.

Sam Tabar: And we haven't, would you mind, we haven't happened? So, I mean, that will be finalized in the terms, and they will announce it, but we're not necessarily bold to go with a single vendor. Okay.

Speaker Change: And we haven't we haven't.

Kevin Dede: Kevin So I mean that will be finalizing the terms they may announce it but.

Kevin Dede: We're not necessarily evolved into a single vendor.

Kevin Dede: Okay.

Kevin Dede: Would you gentlemen mind walking me through the lease versus buy decision on

Speaker Change: Would you just mind walking me through the lease versus buy decision on the next tranche.

Kevin Dede: I guess it will basically be the math I just mentioned, that you need much fewer megawatts to produce the same amount of revenue. No, no. I'm sorry. I'm sorry, Sam.

Speaker Change: Well I guess it will basically be the math I just mentioned.

There you need much less megawatts to produce the same amount of revenue.

Sam Tabar: I just mean in terms of, right, the next set of 2,000 H-100s and how you intend to finance them. We are looking at different things. We may use part of our balance sheet. You know, we're looking at different financing options. There are some credit options we're looking at. We want to make sure that we get the best terms. It's much easier to get credit financing on the AI side versus the Bitcoin mining side. There aren't that many counterparties who want to borrow money anymore for Bitcoin mining equipment, very understandably because that got a lot of people in trouble the past couple of years.

Sam: Oh, I'm, sorry, I'm, sorry, Sam I, just mean in terms of.

Speaker Change: The next set of 2008 to 100, and how you intend to finance it.

Speaker Change: We are looking at different things, we may use a part of our balance sheet.

Speaker Change: We're looking at different financing options. There's there are some credit options. We're looking at we wanted to make sure that we get the best terms, it's much easier to get credit financing on the AI side versus big query mining side, there aren't that many counterparties, who want to borrow money anymore for a bitcoin mining equipment barrier understandably, because I got a lot.

Sam Tabar: But on the HPC side, because it's so predictable in terms of free cash flow per month, we have a much better menu of options, but we want to just optimize that. But we haven't we haven't signed anything yet with respect to that kind of facility, but we're very much in deep, deep discussions with various parties to see where that goes. Kit will be announcing that as we move forward with that.

Speaker Change: People had trouble last couple of years, but on the H P. C side, because its so predictable on the on the free cash flow per month.

Speaker Change: We have a we have a much better menu of options, but we wanted to just optimize that.

So we haven't we haven't signed anything yet with respect to that kind of facility.

Speaker Change: We're very much deeply deep deep discussions with various counterparties to see where that goes.

Speaker Change: Kick one you'll be announcing that if we move forward with that.

Kevin Dede: Right, right, right. Can you remind me how you handled the first tranche in terms of BitDigital owned versus leased? Yeah.

Speaker Change: Right right right can you remind me on how you handle the first tranche in terms of digital owned versus leased.

Eric Long: Yeah, I'll leave that to Eric. Yeah, for the first ones, we have 256 servers deployed, and 96 of them were through a lease financing arrangement. And we own 150. 156 owned and 96 leased, right Eric?

Speaker Change: Yeah, I'll leave that to Eric.

Speaker Change: Yes, we are.

Speaker Change: First once we have 256 servers deployed and.

Speaker Change: 96 of them were through a lease.

Speaker Change: Financing arrangements.

Speaker Change: And we own a 150.

Speaker Change: Thanks.

Eric Long: 156 owned and 96 leased, right, Eric? Okay. Yeah.

Speaker Change: 156 owned at 96 leased right Eric.

Speaker Change: Okay.

Speaker Change: Yes.

Yeah.

Eric Long: Eric, you mentioned a five cent per kilowatt hour power cost and potential changes to rev share. Can you maybe elaborate on that given you're still hunting around for 40 more megawatts? Is there a chance that we could see those prices go down?

Speaker Change: Eric you mentioned up five cents per kilowatt hour.

Speaker Change #100: Our power cost and potential changes to Rev share can you.

Speaker Change #101: Maybe elaborate on that given you're still hunting around for 40 more megawatts.

Speaker Change #102: Is there a chance that.

Speaker Change #103: We could see those prices go down.

Eric Long: So, five cents is the pass-through we got from our host. And

Speaker Change #104: So the <unk> or the pass through we got from our hosts and.

Eric Long: The majority of our agreements were through a profit-share arrangement, and the rest were what we paid on top of, besides the electricity, we paid directly as a pass-through. As a part of pricing, I think summer the price will be higher. But we should be able to see the pricing coming down and going forward because, you know, compared to last year, the gas price has come down quite a lot. So some of our portfolio hosts are giving us some better quotes for forward-looking.

Speaker Change #105: Majority of our agreements were through a profit share arrangements and the rest were you know while we paid on top of.

Speaker Change #105: Besides the electricity, we paid around C as a pass through.

Speaker Change #105: As a powder pricing I think summer the price will be higher.

Speaker Change #105: Higher.

Speaker Change #105: <unk>.

Speaker Change #105: We should be able to see.

Speaker Change #105: The pricing coming down.

Speaker Change #105: Going forward, because you know compared to last year, the gas price has come down quite a lot.

Speaker Change #105: So some of the other portfolio hosts.

Speaker Change #105: Giving us some battle quotes as forward looking.

Speaker Change #105: Yeah.

Kevin Dede: Okay, then. Then, Okay, yeah, yeah, I guess you offered, Sam, thank you. You offered a great explanation for Mike about following customers on the GPU side. So I'll cede the floor at this point. Thank you very much, gentlemen.

Speaker Change #106: Okay then.

Speaker Change #106: The.

Speaker Change #107: Ah Okay. Yeah, Yeah, I guess you offered Sam. Thank you offered a great explanation for for Mike on the on following customers on the GPU side. So I'll I'll cede the floor at that point at this point. Thank you very much gentlemen.

Kevin: Thanks, Kevin.

Operator: For our next question, we'll return to Mike Rundle with Northland Securities. Your line is now open. Hey, thanks again, guys.

Speaker Change #109: Our next question will return to Mike Grondahl with Northland Securities. Your line is now open.

Mike Rundle: Hey, thanks again, guys. Just a quick question. You reported 58.5 million of adjusted EBITDA. If I back out the revaluation of digital assets, it was $45.7 million. You know, I get to 12.8 million. Would you guys kind of think of that $12.8 million as kind of core for the quarter, kind of what the operations produced, X, revaluing those digital assets? I don't know. Can you help me with that a little bit?

Mike Grondahl: Hey, Thanks again guys.

Mike Grondahl: A quick question you reported $58 5 million of adjusted EBITDA.

Mike Grondahl:

Speaker Change #110: Back out the revaluation of digital assets 45 point.

Mike Grondahl: 7 million.

Mike Grondahl: I get the 12.8 million.

Speaker Change #111: Would you guys.

Speaker Change #112: Kind of think of that $12 8 million as kind of core for the quarter kind of what the operations produced X revaluing those digital assets I don't know can you help me with that a little bit.

Speaker Change #111: Yeah.

Mike Rundle: Can you repeat the question, Mike, just so we understand it clearly?

Speaker Change #113: Can you repeat the question, Mike just so that we understand clearly.

Mike Rundle: Yeah, you guys reported an adjusted EBITDA of $58.5 million. And as I was reading through the financials, In the P&L, there's a line called gains on digital assets. It's 45.7. And so if I just take the $58.5 million minus the $45.7 million digital asset gain, I get $12.8 million. With you guys running the business, does that $12.8 million feel right to you as sort of core EBITDA if you didn't write up the BTC and the Ethereum, essentially?

Speaker Change #114: Yeah, you guys reported adjusted EBITDA of $58.5 million.

Speaker Change #113: Yeah.

Speaker Change #115: As I was reading through the financials.

Speaker Change #115: In the P&L, there's a line.

Speaker Change #115:

Speaker Change #115: Gains on digital assets, it's $45.7 million.

Speaker Change #115: And so if I just take the $58 5 million minus the 45.7 million digital yes.

Speaker Change #115: That gain.

Speaker Change #115: I get $12 8 million.

Speaker Change #116: You guys running the business does that $12 8 million feel right to you and sort of core EBIT. If you didn't write up the BTC and the theory them essentially.

Eric Long: Yeah, Mike, I think that's in the ballpark, certainly, in terms of what we would define as core, certainly depends on how you calculate EBITDA and what the reconciliations you make there are, but I think that is in the ballpark. Got it. I just-

Mike Grondahl: Yeah, Mike I think that's in the ballpark certainly in terms of what we would define as core.

Speaker Change #117: It depends on.

Speaker Change #118: Alright, you calculate EBITDA and what the reconciliation you make there are but I think that is in the ballpark.

Mike Rundle: Got it. I just want to figure out if that's how you guys think about it going forward. And then secondly... Any updated thoughts on selling Bitcoin or Ethereum to fund some of this growth?

Mike Grondahl: Got it I just wanted to figure out if it.

Speaker Change #119: That's how you guys think about it going forward.

Speaker Change #119: And then secondly.

Speaker Change #120: Any updated thoughts on selling.

Speaker Change #120: Bitcoin or in theory them to fund some of this growth.

Sam Tabar: I mean, we definitely use our balance sheet every now and again, but we do it judiciously. We don't have a formula; we don't have a preset formula, but we're, you know, we're strong believers in huddling our digital assets. Otherwise, why be in this space?

Speaker Change #121: I mean, we definitely look to use our balance sheet every now and again, but we do it judiciously.

Speaker Change #121: We don't have a formula we don't have a preset formula, but where we're strong believers in hotaling, our digital assets otherwise why it'd be in this space.

Sam Tabar: But we always liquidate some to fund our operations, but there is now an expansion into this lucrative business line. So, we're looking at different options that could be liquidating our digital assets, using our balance sheet, looking at these financing terms with these counterparties that we've been negotiating with. So, you know, we're looking at various things, various ways of pools of capital in which we could expand that business line.

Speaker Change #121: But we are we and we always liquidate some to opt to fund their operations, but there is now an expansion into this lucrative business lines. So we're looking at different options that could be liquidating, our digital assets using our balance sheet looking at these financing terms with these counterparties that we have been negotiating with so you know we're looking at.

Mike Rundle: Got it. And then just one last question for me to you, Sam.

Speaker Change #121: Various things various ways of pools of capital in which we could expand that business line.

Speaker Change #122: Got it and then just last question for me to you Sam.

Sam Tabar: You know, throughout this call, you've kind of described the HPC business. You're pretty excited about it. And you've referenced, you know, some of the challenges and the volatility in the BTC mining business. Is it fair to assume? That the bar on the mining side is pretty high for incremental capital and things you're looking at, you know, over the next year or two to invest in Bitcoin mining.

Speaker Change #123: Throughout this call.

Speaker Change #124: You've kind of described the.

Speaker Change #125: The H P C.

Speaker Change #125: This.

You're pretty excited about it.

Speaker Change #125: And you've referenced some of the challenges and the volatility in the.

Speaker Change #125: In the mining BTC mining business.

Speaker Change #126: Is it fair to assume.

Speaker Change #126: That the bar on the mining side is pretty high for incremental capital and things you're looking at over the next year.

Speaker Change #126: Year or two to invest on the on the bitcoin mining side.

Sam Tabar: Well, look, as mentioned, we run a counter-cyclical growth strategy. And so, we prefer to expand on the Bitcoin mining side when the prices for equipment and the deals that we get with the contracted partners are good. We just make decisions based on economics. And fortunately, we're in a very unique position in our sector to have capital allocation decisions. It's not just one lever going forward, just expound on Exahast regardless of the price. And we are in a very lucky position to have that option, but at the same time, the markets I move forward on one of those two things.

Well look I've mentioned, we run a countercyclical growth strategy.

Speaker Change #126: And so we prefer to expand on the bitcoin mining side when the prices for equipment.

And the deals that we get with our contracted partners are good we just make decisions based on economics and Fortunately, we're in a very unique position in our sector to have.

Speaker Change #126: Capital allocation decisions.

Speaker Change #126: It's not just one lever going forward just expound on extra house, regardless of the price and we were very lucky position.

Speaker Change #126: To have that option, but at the same time the markets.

Speaker Change #126: Have not given us credit for being able to run this business judiciously and profitably we have a profitable bitcoin mining business, we have a very profitable H P. C business and we have the ability to be dynamic on the capital allocation towards both.

So we just look at the returns profile and if it makes sense you know we move forward on one of those two things.

Mike Rundle: Got it. Helpful. And I think you pointed out it takes four megawatts on the HPC side to run the same amount of revenue versus 40. So that's probably a helpful way to think about it going forward. Okay. Thanks, guys.

Speaker Change #127: Got it helpful and I think you pointed out.

Speaker Change #127: It takes four megawatts on the H P C side to run the same amount of revenue versus 40. So.

Speaker Change #127: That's probably a helpful way to think about it going forward too.

Speaker Change #128: Okay. Thanks, guys.

Speaker Change #129: Thank you.

Operator: For our next question, we'll return to Kevin Deedy with H.C. Wainwright. Please go ahead. Hi again.

Speaker Change #130: Our next question will return to Kevin Dede with H C. Wainwright. Please go ahead.

Kevin Dede: Hi again, Sam. The April production update included a reference to unaudited $4.1 million in HBC related revenue. I'm just wondering if that's a fair proxy for, you know, consistent, I guess consistent production for that business going forward, at least until, you know, that second tranche is finalized.

Speaker Change #131: Hi, Sam.

Kevin Dede: The April production update included a reference.

Sam I: Unaudited $4 1 million and HBC related revenue.

Kevin Dede: I'm just wondering if that's a fair proxy for.

Sam I: Consistent.

Sam I: I guess consistent production for that business going forward at least until.

Speaker Change #133: You know that that second tranche is finalized.

Speaker Change #134: That's right.

Sam Tabar: Yes, and that second sponsor is going to be finalized within the next week. So that number is going to change quite materially.

Speaker Change #135: Yes, and now European sponsors is gonna be finalized any week now.

Speaker Change #135: So that number is going to change quite materially and a very wonderful way.

Speaker Change #135: Yeah.

Kevin Dede: You also mentioned hoping to improve fleet efficiency, and I'm wondering on the Bitcoin mining side, I'm just wondering, how you're thinking about that time-wise. From what I've seen, you know, half... Machine costs on a per hash basis seem to be fairly..., low relative, relatively compared to other points in previous cycles.

Speaker Change #136: You also referenced hoping to improve fleet efficiency and I'm wondering on the bitcoin mining side I'm just wondering.

Speaker Change #137: How youre thinking about that time wise I mean.

Speaker Change #138: From what I've seen go ash.

Machine costs on a per <unk> basis seem to be fairly.

Speaker Change #138: Low relative.

Speaker Change #138: The relatively compared to other points in previous cycles. So.

Sam Tabar: Maybe you could give us some insight on that. Yeah, and we've been in the market to buy, you know, the latest generations of our fleet to upgrade our fleet. You know, that's going to be announced in the medium term, perhaps the short term. But yeah, of course, we're looking at the pricing very, very closely, and we have noticed that the market is softening up, which is what we like.

Speaker Change #139: Maybe you could give us your insight on that.

Speaker Change #138: Yep.

We've been in the market to buy.

Speaker Change #138: The latest trends of our fleet to upgrade our fleet.

Speaker Change #140: It's going to be announced in the medium term, perhaps the short term, but yeah of course, we're looking at the pricing very very closely and we have noticed that the market is softening up which is what we like.

Speaker Change #140: That's what we want.

Sam Tabar: But, you know, look, we've been, as mentioned during the call, more judicious on growing the fleet because we just wanted to see how things would shake out for us. Nobody has an accurate crystal ball on that. You have to kind of wait and see, and we just wanted to be judicious on that. And now that the market is softening for the equipment, this is kind of a good time to start doing some buys on that.

Speaker Change #140: But you know look we've been as mentioned during the call we've been more judicious on growing the fleet because we would just wanted to see how things would shake out post having nobody has an accurate crystal ball on that you have to kind of wait and see and we just wanted to be judicious on that and and now that the market is softening for the equipment. This is kind of a good time to.

To start doing some buys on that.

Kevin Dede: Are you thinking about staying on the air-cooled side or considering, you know, using hydros or immersion? How are you thinking about technology choices as you evaluate equipment and hosting partners?

Speaker Change #141: Are you thinking about staying on the air cooled side or considering using I grows our immersion.

Speaker Change #142: Or are you thinking about technology choices as you evaluate equipment and.

Speaker Change #143: And hosting partners.

Sam Tabar: Well, look, we're not in Texas, so it's nice to be in Iceland; it's nice to be in Canada. We have our machines parked in cold, crisp places that don't have too much dust, so the air cooling works pretty well for us. Iceland is a very cold place, right?

Speaker Change #144: Well look we're not in Texas. So it's kind of it's it's it's it's nice to be in Iceland, It's nice to be in Canada, we have our machines parked and cold Crisp places that doesn't have too much stuff. So the air cooling works pretty well for us Iceland is a very cool place.

Kevin Dede: Right. Okay.

Kevin Dede: Thank you, Sam. I appreciate it. Congratulations on the quarter. Thank you.

Speaker Change #145: Right. Okay. Thank you Sam appreciate it.

Speaker Change #146: Congrats on the quarter.

Speaker Change #147: Thank you.

Operator: It appears there are no further questions at this time. I'd like to turn the conference back over to you for any additional or closing remarks.

Speaker Change #148: It appears there are no further questions at this time.

Speaker Change #149: Like to turn the conference back over for any additional or closing remark.

Sam Tabar: Well, if there are no more further remarks, thanks very much for joining us today; we welcome your participation, and we value our shareholders. Thank you very much for today, and I conclude the call.

Speaker Change #150: Well if there are no more further remarks, thanks very much for joining us today and we welcome your participation.

Speaker Change #150: And we value our shareholders. Thank you very much for today and I conclude the call.

Operator: Again, this concludes today's call. We thank you for your participation. You may now disconnect. Have a great day.

Speaker Change #150: Again. This concludes today's call. We thank you for your participation you may now disconnect and have a great day.

Speaker Change #150: [music].