Q2 2024 Gryphon Digital Mining Inc Earnings Call
Speaker Change: Greetings and welcome to the Griffin Digital Mining second quarter 2024 earnings call.
Speaker Change: On the call are Rob Chang, Chief Executive Officer of the company, and Simeon Salzman, Chief Financial Officer of the company.
Speaker Change: Before I turn the call over to Mr. Chang, please note that statements made on this call that are not historical facts may be forward-looking statements from the company's management.
Speaker Change: made within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, concerning future events.
Speaker Change: Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements.
Speaker Change: These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2023.
Speaker Change: as updated by the company's subsequent disclosures filed with the SEC.
Speaker Change: Copies of these documents are available on the SEC's website at www.sec.gov.
Speaker Change: Actual results may differ materially from those expressed or implied by such forward-looking statements.
Speaker Change: Any forward-looking statements made on this call are made only as of today's date and the company does not undertake any obligation to update or supplement any statements to reflect subsequent developments.
Speaker Change: Now I would like to turn the call over to Mr. Rob Chang. Rob, please proceed.
Rob Chang: Thank you operator and thank you everyone for joining us today to discuss Griffin Digital Mining's second quarter 2024 results.
Rob Chang: I'm excited to share that Griffin has achieved remarkable progress in both hash rate and energy efficiency during the second quarter of 2024, setting new benchmarks for the company.
Rob Chang: We recorded a quarterly average hash rate of 899 petahashes per second in Q2 2024, which represents a 20 percent increase from the same quarter in the previous year. Additionally, we reached a new peak in energy efficiency, achieving 28.5 joules per terahash in June. For more information, visit www.fema.gov
Rob Chang: We believe these accomplishments highlight our dedication to operational excellence and position us strongly for future expansion.
Griffin: Underpinning these fantastic operational results was our Q2 miner upgrade program coming in ahead of schedule, enhancing our operational efficiency while strengthening our competitive position. As a result, Griffin's self-mining hash rate has now reached approximately 0.94 exahashes per second.
Griffin: I'm also pleased to highlight that in Q2 we learned that Griffin was selected to join the Russell Microcap Index. We feel that our inclusion in this index reflects the significant progress we have made in the capital markets in the short time we've been public.
Griffin: Now.
Griffin: Shifting gears from the capital markets back to the Bitcoin market, recently we have seen some pullbacks in the price of Bitcoin, which is not uncommon. Historically, Bitcoin has tended to base around the $50,000 level during these pullbacks. However, if we overlay the price action following previous halvings, we see that Bitcoin has historically doubled within six months post-halving.
Griffin: If these patterns hold, we believe the current market represents the bottom of the upcycle, and we expect the price of Bitcoin to trend higher in the coming months.
Griffin: We believe that recent market weakness can be attributed to factors such as Germany selling off some of its Bitcoin holdings and the general perception of Bitcoin as a risk-on asset amidst instability in the Middle East.
Griffin: Despite these short-term fluctuations, we believe that the fundamentals of Bitcoin remain strong, with a fixed supply of 21 million coins against the ongoing devaluation of fiat currencies.
Griffin: We project that Griffin is well positioned to navigate these market conditions due to our uncommon cost structure.
Griffin: Our profit share based contracts with our host provider allow our production costs to flex downwards in correlation with Bitcoin prices providing downside protection. We expect that this gives us a competitive advantage over peers with fixed costs who may struggle to operate efficiently in a lower price environment.
Griffin: As we move further beyond the having, a clear distinction is emerging between companies that can operate efficiently and those that struggle. While some are considering sales or strategic options,
Griffin: Griffin is actively pursuing growth, positioning itself to take advantage of consolidation opportunities and strengthen its foothold during this industry transition.
Speaker Change: To that end, during the quarter, we remained focused on opportunities to grow our hash rate in a highly accretive manner. We have vetted over 25 prospects, conducting due diligence, legal analysis, and site visits.
Speaker Change: We are enthusiastic about the possibilities and will judiciously pursue ventures that align with our stringent criteria, emphasizing accretion and impact.
Speaker Change: Lastly, I would like to address the recent announcement regarding our CFO's decision to step down to spend more time with his family and to pursue other professional opportunities.
Speaker Change: We appreciate everything Sim has done for the company and wish him well. He will be staying through November 15th to shepherd the transition process and we have initiated a search for his successor. Rest assured, this transition will be seamless and Sim will be on the next earning call as well.
Speaker Change: I'll now turn it over to Sim to review our financial results before closing with some additional remarks. Sim?
Sim: Thank you, Rob. I will now highlight our financial results for the quarter ended June 30, 2024.
Sim: Griffin mined approximately 84 Bitcoin, generating mining revenues of $5.5 million in Q2 2024, compared to $4.9 million in the same period in the prior year.
Sim: Break-even costs in Q2 2024 were approximately $45,452 compared to $34,000.
Speaker Change: and 63 in Q1 2024. The change in breakeven costs quarter over quarter reflect the halving event that occurred in late April whereas the Bitcoin rewards decreased by 50 percent combined with the increase in global hash rate.
Speaker Change: For the three-month period ending June 30th, 2024 and June 30th, 2023, the company incurred pass-through variable energy costs of $1.5 billion.
Speaker Change: six
Speaker Change: 0.0654 cents per kilowatt hour and 0.0569 cents per kilowatt hour, respectively, a change of 15 percent.
Speaker Change: In addition, the daily average global hash rate increased by 68% over that same period from 357.7 exahash to 602.1 exahash per day during each respective quarter.
Speaker Change: Please note that over the same period, Bitcoin's average price changed from $25,428 to $59,572, or an increase of 134%, resulting in a change in profitability for each Bitcoin mined.
Speaker Change: We believe Bitcoin costs and total cash costs at the mine level are the most relevant factors for assessing Bitcoin mining operations. Highlighting these metrics gives investors and analysts better transparency for comparative analysis across mining companies.
Speaker Change: Turning to our results of our consolidated statements of operations, our net loss of $4 million in Q2 2024 includes net non-cash expenses of $2.5 million.
Speaker Change: Net non-cash expenses consisted of items including depreciation.
Speaker Change: stock-based comp expense, fair value of common stock issued to consultants.
Speaker Change: unrealized loss on marketable equity securities, change in the fair value of notes payable, and unrealized gain on digital assets. This compares to a net loss in Q2 2023 of $2.6 million.
Speaker Change: which includes net non-cash expenses of $4.8 million. Our adjusted EBITDA, which we believe is an important gauge of our operational effectiveness and financial well-being, stood at approximately negative $3 million for the quarter, ended June 30th, 2024, compared to...
Speaker Change: $4.2 million for the quarter ended June 30, 2023. This loss was largely attributed to higher-than-normal marketing expenses as the company moved to showcase its recent merger and listing on NASDAQ.
Speaker Change: Net loss per basic and diluted share for Q2 2024 was negative $0.10 based on basic and diluted weighted average shares outstanding of approximately 39 million shares.
Speaker Change: This compares to net loss per basic and diluted share of Q2 2023 of negative 18 cents.
Speaker Change: Weighted average shares outstanding was approximately 14.4 million. Our average efficiency for our active fleet of approximately 88,825 Bitcoin mining machines was around 28 joules per terahash as of June 30, 2024.
Speaker Change: As of June 30, 2024, our balance sheet reports approximately $1.2 million of cash and cash equivalents, $1 million in Bitcoin, and approximately $19.1 million due for the note denominated in Bitcoin.
Speaker Change: As of December 31st, 2023, our balance sheet recorded approximately
Speaker Change: $0.9 million in cash and cash equivalents.
Speaker Change: 2.1 million in Bitcoin and 14.9 million due for the note denominated in Bitcoin.
Speaker Change: We would like to note that the change in the fair value of the note payable as of June 30, 2024 is due to its structure being denominated in Bitcoin and as such reflects a direct correlation to the price of Bitcoin as of the period end. We have not increased our position of Bitcoin due and we remain fully hedged to our production.
Speaker Change: To reiterate Rob's comments, we remain laser-focused on pursuing growth in a financially disciplined, accretive manner. With that, I'll turn it back to Rob to discuss Gryphon's 2024 strategy.
Rob Chang: Thank you, Sam. To sum up, the second quarter was another period of efficient performance for Gryphon, as we maintained above-average Bitcoin efficiencies and an increase in our hash rate.
Rob Chang: The halving event is distinguishing the resilient players in our industry, and we believe we are well-positioned to emerge stronger. Our cost-efficient operations and growth-oriented strategies set us apart from others.
Speaker Change: I particularly would like to highlight our leadership in the cost to mine of Bitcoin.
Speaker Change: As Sim noted, our breakeven cost to mine a single Bitcoin in the second quarter was approximately $45,000.
Speaker Change: While this does signify an increase from prior quarters, it is important to note two things. First, the cost to mine Bitcoin generally trends upwards as the price of Bitcoin increases and the global network hash rate increases.
Speaker Change: As such, costs will always march higher with the price of Bitcoin as market participants mine at lower costs and sell at higher prices.
Speaker Change: Second, we believe a miner's relative position on the cost curve is what matters. According to the MacroMicro website that cites the usage of Cambridge University data, the average cost to mine Bitcoin is currently $77,879 per Bitcoin, which places our $45,000 cost in a favorable light.
Speaker Change: Looking forward, we continue to focus on growth and have expanded our target set in response to the realities that we have noticed during our review of over 25 different acquisition opportunities.
Speaker Change: Mining operations that are up for sale are those that generally do not have attractive cost profiles.
Speaker Change: While we may have been able to acquire several high-cost miners to grow our hash rate, we believe those would have only been temporary solutions, as high-cost operations are not a recipe for success.
Speaker Change: As such, our attention has expanded towards acquiring low-cost power that we believe will position Gryphon not only for success in the near term, but also for the next few havings.
Speaker Change: We continue to maintain our leading cost structure while enhancing operational efficiencies and will still look to seize opportunities for acquiring distressed assets at favorable valuations to accelerate our growth. We remain dedicated to upholding our rigorous standards and will not compromise our standards for the sake of expediency.
Speaker Change: Ahead of that we look forward to opening the lines for Q&A. If there are any questions we can certainly answer those at this time. Operator?
Speaker Change: Thank you. Ladies and gentlemen, the floor is now open for your questions.
Speaker Change: If you have any questions or comments, please press star one on your telephone keypad at this time
Speaker Change: If you would like to remove your question, you may press star 2.
Speaker Change: We ask that while posing your question you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions.
Speaker Change: Thank you. Our first question is coming from Kevin Dede with HC Wainwright. Your line is live.
Kevin Dede: Thank you, Arab Isim. Thanks for taking the questions.
Kevin Dede: Hey, Kevin. Thanks.
Kevin Dede: So, Rob, could you just give us some background again on the power draw at your hosting facility, how much room you have, and what you're thinking about in terms of fleet upgrades as the year goes on? Are we looking at a pretty consistent...
Speaker Change: 940 petahash.
Rob Chang: Yeah, thanks Kevin, great question. So currently we're drawing approximately 28 megawatts from our facility located in upstate New York, which of course is hydropowered.
Kevin Dede: We have a standing understanding with them that as more space comes free, we put our hands up among the first to take it. As a note, when we first started with them, we started at around 23 megawatts and now we're at 28, so we have been taking as much as we can get, and that's ongoing.
Kevin Dede: So that will always be there. And of course, as our comments have noted, we are looking outside of that location to get chunkier amounts of power so that we can grow.
Kevin Dede: In terms of our fleet upgrades, we're looking to be opportunistic, and if we find good pricing, we would like to upgrade continuously our machines and are looking to do that. Also noting, though, that we are saving some powder so that when we do those chunkier acquisitions, we have capital to put new machines there. So it's a bit of a push-pull between upgrading what we existently have and also adding entirely new, which we're looking forward to do so as soon as possible.
Speaker Change: Okay, so the last order that you put has been filled and there aren't any outstanding orders, just to be clear, for machines? As of what we've noted to the market, correct.
Speaker Change: Okay. Okay. Perfect. Sim...
Speaker Change: I think you spoke to general and administrative expenses and the sequential increase. Can you give me a ballpark on where you think those sort of fall out for the balance of the year?
Speaker Change: Yeah, absolutely. Kevin, great question. Good talking to you. Essentially, our normal expenditures are around $2.2 million cash out.
Speaker Change: per month, so this
Speaker Change: three-month and six-month position was
Speaker Change: increased due to the advertising and marketing expenses. So for three months.
Speaker Change: We basically incurred an extra roughly $2.5 million for three months, ended June 30th. And then for the six months ended, we incurred an extra, in what we feel is one time, of about $3.4 million in excess of where we feel we would be moving forward. So, similar to our Q1 and...
Speaker Change: lower cost of GNA and things of that nature, we would be back in that realm.
Speaker Change: Ah, okay.
Speaker Change: Okay.
Rob Chang: All right, Rob, the...
Speaker Change: I appreciate that you offered insight on looking at 25 different locations, I mean you must rack up a lot of frequent flyer miles. I was just wondering if you could maybe peel the onion back a little bit and
Speaker Change: Give us more color on the things that you passed on.
Speaker Change: and maybe a little bit more on...
Speaker Change: you know, what specifically you're looking for. I mean, it's clear that there are plenty of large companies out there are using.
Speaker Change: You know, their stock is currency, and I know you have that flexibility to do that. I was just kind of curious to hear a little bit more about the specifics.
Speaker Change: Yeah, certainly happy to do so as best I can so yes, it's been a pretty intensive really post merger
Speaker Change: life for us, given that we've been looking at so many different opportunities. To peel back the onion a little bit, but without giving too much, because I certainly don't want to throw sand or throw mud at other companies.
Speaker Change: Generally speaking, what we have seen is everyone will trot out how big they are, but really only when you peel back the onion and get into the real details do you start noticing that their cost structures are not quite as good as ours. And it's a little unfair because we have been leading on our costs for so long that it's difficult to find something as good. But given the post-havenning environment, we were kind of forced to look that way because it seems like the market – well, it's not seems, it definitely is a market where lower cost is going to win. And so as we started looking at these opportunities, sure, they have lots of size.
Speaker Change: but they had higher cost profiles where it's like 7 cents, 8 cents per kilowatt hour, for example, or something like that.
Speaker Change: And that just won't work, especially when Bitcoin has those periods where it drops, and then those certainly won't work at all. So there's stuff like that. There are other situations, too, where, for example, if it's hosted, we found out that the hosting was ending very soon, and so what were you really buying? You're only just really buying the machines with no real guarantee that the hosting would be there, and the hosting would be expensive as well. So it's things like that of that nature.
Speaker Change: And so as we started going through those, we realized that the available opportunities, especially with the values that they were asking for, which we still believe were a little bit inflated.
Speaker Change: didn't quite make sense and and also just looking at how operations were going and how Bitcoin prices were going.
Speaker Change: it became very evident that the real gain here is finding low cost power. And that's where we've expanded our view. So not moving away from looking for acquisitions, still looking to do so, but we focused a lot more on finding effectively costs at 4 cents or lower.
Speaker Change: And so we've been making significant progress in having conversations with groups that have that and are looking forward to announcing a few things in the future once we get close enough.
Speaker Change: Could you offer some color on...
Speaker Change: sort of the geographies that you've been searching out.
Speaker Change: We continue to remain open-minded so any place that we consider politically safe we would take a look at but generally speaking most of our opportunities remain in North America.
Speaker Change: Okay. Well, thanks very much gentlemen. I appreciate the color.
Speaker Change: Thanks. Always great talking to you, Kevin.
Speaker Change: Thank you. Once again if you have any questions or comments please press star one on your telephone keypad.
Speaker Change: Our next question is coming from Merton Toner with ATB Capital Markets. Your line is live.
Merton Toner: Thanks so much for the question, and good morning. Just wondering, and you know I'm a public market, I'm a public
Merton Toner: public equity guy. So I don't, I'm not too familiar with how you get deals done and distressed.
Speaker Change: private situations, but it seems to me that there's like a bit of a behavioral aspect to it, i.e. it's tough to get people to
Speaker Change: come to grips with reality and what's a fair price. Just can you kind of like walk me through like your approach to getting some of these folks to say yes to what is actually like from their perspective should be a pretty good deal.
Speaker Change: That's a great question and it's a little, it's fun to say because we haven't done deals yet and it's quite frankly more so because we stopped proceeding once we found out that there was more in here than we were willing to deal with, with those projects. But it does, your question does point to
Speaker Change: an issue where many companies believe they're worth more than they are. And for example, I see many private companies looking at pubcos and the largest ones applying their valuation saying, that's what I'm worth. That's probably a negotiating tactic, knowing that we're probably going to ask for something lower. But
Speaker Change: We have often seen asks that were so high that we didn't think it made sense, regardless.
Speaker Change: At some point I think what really needs to happen is more pain needs to be occurred and people start realizing that they can't survive much longer doing things the way they are and they need to go to more reasonable valuations.
Speaker Change: But the bigger problem, as I just mentioned earlier, is not the number we settle at, but whether we believe it's a worthy enough investment to dig in the first place. And that's actually where the first stumbling block has occurred for us generally, is that we probably don't even want to get to that point once we peel back the onion enough and have seen what's actually there.
Speaker Change: Thanks for that. That's a great call, Rob.
Speaker Change: Another question for you, given your low cost
Speaker Change: operations and the current market should be should be good for you right? I mean do you think that's going to help expedite doing some deals?
Rob Chang: Yeah, well relatively speaking we are lower cost than everyone else and I guess if Bitcoin was ripping it's great for everyone So I can't I can't say I don't want that
Rob Chang: but on a relative basis given that we are one of the most efficient, highest usage of, sorry, uptime.
Rob Chang: Operators as well. Generally speaking, when things are weaker in the Bitcoin pricing, we tend to relatively outperform. That's true. Especially also with our flexible cost structure, where Bitcoin prices go down, so do our costs.
Rob Chang: So, on a relative basis, yes, but I certainly wouldn't be against seeing a higher price of Bitcoin. And I think what you're implying, though, is the question on acquisitions, and yes, that's true. If we're in a tougher environment, it will bring...
Rob Chang: others down to the reality more and lower their asks for a potential combination or some type of deal.
Speaker Change: Super. That makes sense. Thank you. That's it for me.
Martin: Thanks, Martin.
Speaker Change: Thank you. Our next question is coming from John Hinkman with Ladenburg Falmond. Your line is live.
John Hinkman: Hi, Rob, just a quick question about the acquisition or potential. Out of the 25 that you've looked at, you are, I mean, there are some that you're still interested in?
Rob Chang: I'm pausing because I'm wondering if I included that or not in the number. I would say yes. There are some that we still remain interested in. We actually have several very attractive ones that we're looking at right now and looking forward to potentially making some announcements off of those.
Rob Chang: But yes
Speaker Change: Okay, so you're still actively engaged with a few.
Speaker Change: Absolutely. And it never ran out quite often.
Speaker Change: Correct and it doesn't end just because we're looking at some doesn't mean we stop looking at new ones so
Speaker Change: Hopefully I'll have announced a few but maybe the next call will be up to 40 at that point.
Speaker Change: Okay, and then if you were to...
Speaker Change: I don't know if you've done this, Matt, but if you were to...
Speaker Change: theoretically swap out all your machines for the latest, greatest out there, what would that do to your – I mean, that way you wouldn't need any more power, but what would it do to your –
Speaker Change: Hashrate.
Speaker Change: That's a good question. I think it would also depend on which machines we're using. So I don't have that number off the top of my head, but I would expect that there would at least be a 30% improvement if not higher.
Speaker Change: if we were to do something like that? Probably more actually, depending on which machine we're using. So that's something we're considering, although the trade-off really is that that capital will be used for an upgrade, as opposed to something outright new. And our preference right now is to get something outright new and grow that way.
Speaker Change: Okay. Thank you. Appreciate your comments.
Speaker Change: Yeah, thanks for your time.
Speaker Change: Thank you. As we have no further questions in queue at this time, I will turn it back over to Mr. Chang for any closing comments.
Mr. Chang: Thanks operator and thanks everyone for their time and joining us on this call. We are always available to answer questions and really do encourage everyone to do so and they can certainly reach out to us through our website www.gryphondigitalmining.com. We also have a Twitter presence as well and we'd like to actively engage with our investors to make sure they're as up to speed as we can as we can have them.
Mr. Chang: So again, thanks everyone for their call and have a good rest of the day.
Speaker Change: Thank you. This does conclude today's call. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.