Q3 2024 Bitfarms Ltd Earnings Call
Michael Grondahl, David Knoblauch,
Speaker Change: Good day and welcome to the BitFarm's third quarter 2024 conference call. At this time, all participants are in listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Tracy Krumme, Senior Vice President of Investment Relations and Corporate Communications. Please go ahead.
Tracy Krumme: Thank you. Good morning, everyone, and welcome to BitFarm's third quarter 2024 conference call. With me on the call today is Ben Gagnon, Chief Executive Officer and Director, and Jeff Lucas, Chief Financial Officer.
Tracy Krumme: Before we begin, please note this call is being webcast with an accompanying presentation. Today's press release and our presentation can be accessed at our website, bidfarms.com, under the Investor section.
Turning to slide 2.
Tracy Krumme: I'd like to remind everyone that certain forward-looking statements will be made during the call, and that future results could differ from those implied in this statement. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult BitFarm's MD&A for a complete list.
Tracy Krumme: Please note that references will be made to certain measures not recognized under IFRS and therefore may not be comparable to similar measures presented by other companies.
Tracy Krumme: We invite listeners to refer to today's press release and our MD&A for definitions of the aforementioned non-IFRS measures and their reconciliations to IFRS measures.
Tracy Krumme: Please note that all financial references are denominated in U.S. dollars unless otherwise noted.
Tracy Krumme: I would also like to add that we will be attending the following upcoming Equity Conferences. Cantor Fitzgerald's Crypto, Digital Assets, and AI Infrastructure Conference in Miami tomorrow.
Tracy Krumme: Ross Technology Conference in New York City on November 19th and 20th
Tracy Krumme: B. Reilly's Crypto and Energy Infrastructure Conference in New York City on December 4th
Tracy Krumme: Northland's virtual growth conference on December 12th, and lastly Needham's growth conference in New York City on January 14th and 15th. If anyone would like to meet with us on those dates, please contact me or a sales representative from the firm.
Speaker Change: And now, turning to slide three, it is my pleasure to turn the call over to Ben Gagnon, Chief Executive Officer and Director. Ben, please go ahead.
Thanks Tracy, and thank you everyone for joining today.
Speaker Change: On today's call, I will be discussing an overview of our year-to-date accomplishments, our Q3 operational update, and an overview of the strategic moves we've made in the quarter.
Speaker Change: and our 2024 and 2025 goals and guidance. I will then hand the call over to Jeff to discuss the Q3 financials.
Turning to slide 4.
Twelve months ago, we outlined our transformational fleet upgrade.
Speaker Change: This involved upgrading nearly our entire fleet of miners across, at the time, our eleven data centers. We had always planned for 2024 to be a transformational year, but we underestimated just how transformational it would be.
Speaker Change: Year-to-date so far in 2024, we've upgraded 10 data centers and added three new data centers to our portfolio.
Speaker Change: unracked over 50,000 older generation miners and racked over 46,000 new miners, increased our hash rate by 83% to 11.9x a hash today.
Speaker Change: improved our efficiency 40% from 35 watts per terahash to 21 watts per terahash, reaching our year-end efficiency goal three months ahead of schedule.
Speaker Change: and most importantly significantly grew our megawatt pipeline from 324 megawatts today to 950 by year-end 2025 with a multi-year growth potential up to 1.6 gigawatts.
Speaker Change: These numbers speak volumes to our accomplishments and the commitment of our global team to grow the company and drive improved performance.
in addition to these tremendous quantitative improvements.
Speaker Change: which is the largest acquisition between two public companies in the Bitcoin mining sector yet and we significantly enhanced our board of directors and leadership team.
Turning to slide five.
Speaker Change: On our Q2 earnings call in August, I outlined several goals and initiatives as BitFarm's new CEO.
Speaker Change: These included, first, the continued diversification of our portfolio beyond Bitcoin mining.
Speaker Change: The aim here is to maximize utility of our strongest asset, our megawatts, in the most efficient and cost-effective way possible.
Speaker Change: by expanding into high-growth and high-value geographies and into synergistic business lines, such as hosting, HPC and AI, heat recapture and recycling, and energy generation.
Thank you.
a strong focus on U.S. expansion.
Speaker Change: particularly in the PJM region, which we identified as the most attractive energy market in the U.S.
Speaker Change: and third, building out an even stronger bench of operators and introducing a new organizational structure in order to evaluate, plan, and execute on the significant opportunity with HPC-AI and the upcoming anticipated Bitcoin Volt run.
Speaker Change: I'm pleased to say that over the past three months, we've made significant progress on each of our goals and laid a strong foundation to execute our growth strategy.
Speaker Change: I'll now dive into the Q3 operational update and talk through several strategic actions we've taken this quarter with these goals in mind.
Turning to slide six.
Speaker Change: in line with the first and second initiatives regarding continued diversification of our portfolio and expansion in the U.S.
Speaker Change: In Q3, we entered into an agreement to acquire Stronghold Digital Mining. This transformative combination ensures a multi-year strategic growth path that we are incredibly excited about.
Speaker Change: With this acquisition, we are integrating vertically by acquiring two strategically located power facilities in Pennsylvania.
Speaker Change: expanding and rebalancing our portfolio with over 300 megawatts of US power capacity with the potential to increase our energy portfolio to over 950 megawatts by year 2025 and 1.6 gigawatts in the next two years.
Speaker Change: creating energy trading and demand response opportunities to minimize energy prices, and lastly, creating an opportunity to cost-effectively integrate HPC and AI into our portfolio with a merged HPC-AI and Bitcoin mining data center.
Turning to slide 7.
Speaker Change: Upon closing, the expected 307 MW available at these two locations would drive a 47% increase in our 2025 year-end MW from 648 MW to over 950 MW.
Speaker Change: including our Sharon Pennsylvania site. The combination of these three sites creates a PJM portfolio of approximately 427 megawatts in 2025, which is larger than our entire operational energy portfolio today.
Speaker Change: Importantly, these sites rebalance our portfolio back to the U.S. and North America, representing 47% and 65% of our year-end 2025 portfolio, respectively.
Speaker Change: Low LADAM exposure will scale down to 35%, significantly improving the size, quality, and distribution of our energy portfolio.
Speaker Change: We have already begun maximizing the utility of the stronghold sites with two hosting agreements, each for 10,000 miners.
Speaker Change: These 20,000 miners, initially scheduled for deployment in our Iguazu facility, are being deployed in Pennsylvania at Strongholds Panther Creek and ScrubRest facilities, supporting approximately 4X a hash.
Speaker Change: Redirecting these miners reduces our logistics, duties, setup, and energy costs, driving a more optimal deployment, and providing a pathway for continued profitable growth.
Speaker Change: With these two hosting deals, we anticipate that nearly 75% of our hashrate will come from our North American data centers in the first half of next year, reaffirming our commitment to grow in the U.S.
Speaker Change: In addition, we continue to actively pursue other site acquisitions and growth opportunities in the U.S.
Turning to slide eight.
Speaker Change: In line with our third initiative to strengthen our leadership team, we made significant progress by expanding our bench and reorganizing our operational structure in order to position ourselves for continued growth in 2025.
Speaker Change: Reflecting our commitment to operational excellence, we've recruited numerous industry experts with the following leadership appointments.
Speaker Change: Liam Wilson, as our Chief Operating Officer, a newly created role. Alex Brammer, who replaces me in mining operations as Senior Vice President.
Speaker Change: Benoit Goubet, promoted from EVP of operations and infrastructure to chief infrastructure officer, and Rachel Silberstein as general counsel, a newly created role as part of our emphasis on growing in the U.S.
Speaker Change: In addition, we reorganized our operations into two divisions, mining operations and infrastructure, with Alex and Benoit heading up the divisions respectively.
Speaker Change: These new divisions are already delivering greater scalability and accountability in data center construction, maintenance, and operations, and are laying the foundation for the establishment of HPC and AI operations.
Speaker Change: With these hires, we are laying an even stronger operational foundation, enabling us to execute our growth plan.
Turning to slide 9.
Speaker Change: In addition, we enhanced our corporate governance and strengthened our board of directors with the appointment of two new directors, including myself and with former lead director Brian Howlett, now serving as our board chair. Our board of directors now consists of five members, four of whom are independent.
Speaker Change: With the upcoming special shareholder meeting scheduled to take place next week on the 20th, the board is expected to increase to six board members with five independents.
Speaker Change: subject to shareholder approval. On a related note, in Q3, we were able to reach a settlement agreement with Riot Platforms, which we believe is in the best interest of the company and our shareholders.
Speaker Change: Importantly, this mutually beneficial agreement allows us to move forward as an independent company and to execute a growth strategy avoiding the costly and distracting proxy contest.
Speaker Change: Riot remains a shareholder of Big Farms, with current ownership of just under 20%.
Speaker Change: Analysts have noted that Bitfarm shares provide good value and significant upside to Bitcoin price relative to peers and Riot remaining a top shareholder is a positive market signal underscoring the value and potential of our growth.
Turning to slide 10.
Speaker Change: I will now take a few minutes to discuss our guidance.
Speaker Change: Well, we are now at 11.9 Exahash. We are behind schedule on delivering our mid-year 12 Exahash target for the following reasons.
Speaker Change: First, we have some minor construction delays at several sites that have been overcome, but delayed energization by weeks or a few months.
Speaker Change: Second, over the past few months we've experienced shipping delays and extended minor warranty servicing that goes beyond the 2,700 miners replaced a few months ago. Despite improvements in recent minor shipments, continued warranty servicing has impeded the achievement of our hash rate target.
Speaker Change: We've been working closely with Bitmain to address these issues and are implementing an efficient solution. We will be upgrading the remaining 18,853 Bitmain T21 miners to be delivered by Bitmain as part of our fleet refresh announced last year.
Speaker Change: FitBing will now be sending 18,853 more powerful and efficient S21 Pro miners.
Speaker Change: operating at 234 terahash and 15 watts per terahash, representing more than a 20% improvement from the T21 miners, both energy efficiency and hash rate.
Speaker Change: This capital-efficient upgrade allows us to expeditiously upgrade the remaining miners to be delivered for better performance with minimal impact on the cash, while preserving the full upside of the Bitcoin.
Speaker Change: While all of the miners are scheduled to shift before the end of the year, this significant upgrade and continued RMA servicing will push our year-end target of 21x a hash into the first half of 2025.
Speaker Change: It will also improve our energy efficiency by an additional 10% from 21 watts per terahash to 19 watts per terahash
Speaker Change: The majority of the upgraded miners will be deployed in Pennsylvania and Quebec. Amidst the backdrop of rapidly improving macro conditions, we believe this is a rare opportunity to upgrade miners for better performance before miner prices increase.
Turning to slide 11.
Speaker Change: Looking ahead to 2025, demand for immediate capacity for both HPC-AI and Bitcoin data centers is surging, and turnkey assets are highly sought after.
Speaker Change: Data center development continues to accelerate, driving more scarcity and making access to power very valuable.
Speaker Change: KKR estimates that $250 billion will be spent annually on the data center boom.
Speaker Change: The U.S. is the biggest developer of data centers, consuming about 16 to 18 gigawatts of power, compared to about 6 gigawatts each in Europe and Asia.
Speaker Change: KKR's global head of digital infrastructure believes over the next three to four years that the 18 gigawatts could double, if not triple.
Speaker Change: We have just over 500 megawatts of secured power and infrastructure for 2025, which represents one of the largest portfolios of flexible megawatts amongst any publicly traded miners.
Speaker Change: This gives us unparalleled flexibility to approach this bull market and take advantage of strategic opportunities.
Speaker Change: With this in mind, we've taken important steps to ensure we're getting the best value from our assets.
Speaker Change: First, we've changed our deployment plans by reallocating the miners from Iguazu to the U.S. with the stronghold hosting agreements.
Speaker Change: In doing so, we have freed up the 200 megawatts at the Iwo Zuu site entirely, and have applied for a delay in energization 60 days to March 1, 2025, in line with the contract.
Speaker Change: With 200 megawatts of cost-effective, high-up time, renewable energy, and new infrastructure, Iguazu is a marquee asset going into a Bitcoin bull market that is capable of producing approximately 15x a hash if filled with the latest S21 XT miners.
Speaker Change: Management is currently evaluating all strategic options to best monetize the site.
Speaker Change: Second, in Q3 we assumed control of our site and share in Pennsylvania. This is a 120 megawatt site strategically located in the PJM interconnection market.
Speaker Change: providing access to low-cost flexible power. The site is very well suited for both Bitcoin mining and HPC and AI. We are currently evaluating the best way to monetize these megawatts.
Speaker Change: Third, and as discussed a few minutes ago, we acquired high value megawatts in Pennsylvania through Stronghold. Of the 307 megawatts available in 2025, these sites are currently contracted to utilize approximately 100 megawatts for hosting, and we are evaluating the best way to monetize the remaining 200 megawatts.
Speaker Change: We now have sufficient megawatt capacity to go well beyond the previously guided 35x a hash a year in 2025 However, as we continue to refine our 2025 plans and actively rework around Bitcoin mining and HPC and AI, we believe it would be premature to maintain the 35x a hash guidance
We will issue updated guidance once these strategies are finalized.
Turning to slide 12.
Speaker Change: We own and operate a portfolio of high-quality energy assets that are monetized through Bitcoin mining.
At BitFarms, we are not growing at any cost.
Speaker Change: We are focused on getting the best utilization and driving the maximum value of our energy assets for our shareholders.
Speaker Change: When we take a step back and look at how we do this, we believe that a combination of self-mining, hosting, energy trading, and HPC and AI creates a more powerful and resilient portfolio.
Speaker Change: We're conducting a thorough evaluation of all of our energy assets, looking at a host of different metrics, both qualitative and quantitative, to determine which sites would be best suited for which activities.
Speaker Change: That said, we're pleased to announce that we have two different U.S. sites for a 1 to 2 megawatt HVC and AI pilot.
Speaker Change: While still in early stages, we have the land and power secured at both sites and are in active conversations with potential partners and suppliers discussing potential accelerated deployment in 2025, and are currently in the process of finalizing terms, equipment, plans, and budgets.
Speaker Change: We believe both of these sites are well suited for development for a number of reasons.
Speaker Change: First, they are well located within a few hours from major metropolitan centers on major fiber trunk lines, and are in or near data center clusters.
Speaker Change: Second, the power is secure and cost-effective, with high uptime and no curtailment requirements. And third, the land is clear and ready for accelerated construction.
Speaker Change: We believe that initiating work at a pilot site will allow us to prudently and cost-effectively evaluate this significant opportunity and to get a firm handle on the space, technology, and infrastructure before committing a significant amount of capital on a larger HPC and AI site.
Speaker Change: This pilot reinforces our commitment to diversifying beyond Bitcoin mining and is an important first step into an exciting new business line. We expect to provide an update on our progress in 2025.
Turning to slide 13.
Speaker Change: Before I turn the call over to Jeff, I want to reiterate the significance of what we've accomplished over the past 10 months.
Speaker Change: We've refreshed nearly our entire fleet of miners, significantly improved our mining economics, built from the ground up a 70 megawatt state-of-the-art data center, acquired three new sites in the U.S., embarked on an HPC and AI strategy, and completely revamped our operational structure and strengthened our leadership team.
Speaker Change: We are now uniquely positioned with a strategic pipeline of over 950 megawatts in 2025, with nearly half a gigawatt of power infrastructure that is highly flexible, representing a massive, secured, and cost-effective growth opportunity.
as we enter into the anticipated 2025 Bitcoin bull cycle.
We are now a stronger company.
Speaker Change: with a significantly expanded energy portfolio with up to 1.6 gigawatts available over the coming years. And we are well equipped to take advantage of the significant opportunities in front of us.
Speaker Change: It's an exciting time in the Bitcoin industry on the heels of the election and with Bitcoin hitting new record highs And I've never been more excited or confident in our growth prospects and our ability to execute
Speaker Change: Turning to slide 14, I'll now turn the call over to Jeff.
Jeff Lucas: Thank you, Ben, and thanks, everybody, for joining us today. I will provide an overview of our third quarter financial performance and position.
Turning now to slide 15, let's start with Q3 results.
Jeff Lucas: During the quarter, we earned 703 BTC, 14% more than the 614 BTC mined during the second quarter.
Jeff Lucas: The increase is driven by the 54% growth in our average hash rate from 6.7 exa-hash in the second quarter to 10.3 exa-hash in the third quarter. It's more than offset the impact of the April 2024 halving and a 3% increase in the average network hash rate quarter over quarter.
Jeff Lucas: Total revenue was $45 million in the third quarter, a $3 million or 8% increase in the second quarter, and a 30% increase year-over-year.
Jeff Lucas: Revenue from mining activities was $43 million compared to $40 million in the prior quarter, an increase of over 7%.
Jeff Lucas: The balance of the revenue was earned by our electrical subsidiary, Volta, which provides commercial services in addition to cost-effectively supporting our data center operating activities.
Jeff Lucas: General and Administrative Expense, or G&A, excluding non-cash stock-based compensation and a second quarter Canadian sales tax refund, was $22 million dollars in comparison to $11 million dollars in the prior quarter.
Jeff Lucas: The $11 million increase is due largely to one-time non-recurring costs, which totaled $12 million in the quarter and accounted for $9 million of the quarter-over-quarter increase.
Jeff Lucas: These one-time, non-recurring charges include the riot requisition, expenses for the settlement of the employment dispute with the former CEO, and expenses associated with the acquisition of Stronghold Industry on a Pennsylvania site.
Jeff Lucas: The balance of the increase was due to higher compensation expense as the company made several key management hires to build on our leadership team.
Jeff Lucas: as well as higher insurance, duties, and other expenses associated with the company's growth.
Jeff Lucas: For Q3, our operating loss was $44 million, up from $24 million in the second quarter, driven by the factors I just referenced.
Jeff Lucas: This operating loss reflects non-cash depreciation expense of $29 million, including $10 million for accelerated depreciation on older minors, compared to the prior quarter depreciation of $57 million, of which $46 million was accelerated depreciation.
Jeff Lucas: In Q3, the reported financial income and expense includes a $6 million non-cash gain in the revaluation of the financial liability for warrants issued in earlier financing.
Jeff Lucas: compared to a $1 million non-cash loss on the revaluation of this financial liability in the second quarter.
Jeff Lucas: Under IFRS, we are required to recognize the liability for these warrants even if they cannot be settled for cash.
Jeff Lucas: Net loss for Q3 was $37 million, or a loss of $0.08 per share. And we do a net loss of $27 million, or a loss of $0.07 per share, in the second quarter.
Jeff Lucas: Now let's turn our attention to Operating Performance and Per Bitcoin Metrics.
Jeff Lucas: Gross mining profit was $17 million, that's 38% of mining revenue, down from $21 million at 51% in the prior quarter.
Jeff Lucas: Our overall corporate electricity rate for the quarter was 4.7 cents per kilowatt hour, an increase from 4.3 cents per kilowatt hour in the second quarter.
Jeff Lucas: The increase was driven largely by higher winter electricity rates in Argentina, and a rate increase in PEG rate instituted at the beginning of the third quarter.
Jeff Lucas: Importantly, with our improvement in electrical efficiency from an average of 28 watts per terahash in the second quarter to 23 watts per terahash in the third quarter, our electricity cost per terahash decreased over the quarter by 10% to 2.7 cents from 3 cents per terahash per day.
Speaker Change: I'll add that in September, we achieved our year-end target of 21 watts per terahash, three months ahead of schedule, which equates to about 2.4 cents per terahash, an additional 11% reduction in electricity cost per terahash.
Speaker Change: Our direct mining cost for Bitcoin in the second quarter was $36,000.
Speaker Change: Our total cash cost to mine Bitcoin was $52,400, and our revenue per Bitcoin was $61,000, resulting in a cash profit per Bitcoin of about $8,500.
Turning now to slide 16.
Speaker Change: For the third quarter, our adjusted EBITDA was $6 million, our 14% of revenue compared to $12 million at 28% of revenue in the second quarter.
Speaker Change: The lower-adjusted EBITDA largely reflected the impact of the halving, along with higher G&A expense associated with the expansion of our operating activities.
Speaker Change: As we've noted in previous quarterly earnings calls, our adjusted EBITDA is very straightforward, being purely a measure of the cash profitability of our mining operations and the profit contribution of our vaulted subsidiaries.
Speaker Change: We do not reflect mark-to-market adjustments of our Bitcoin holdings or any other balance sheet valuation adjustments in our adjusted EBITDA.
Speaker Change: Dated simply, our adjusted EBITDA of $6 million in the third quarter equates to cash profit per Bitcoin of $8,500 multiplied by 703 Bitcoin mined during the quarter, plus approximately $4,000 of profit for a Volta electrical subsidiary.
Turning now to slide 17.
Speaker Change: At September 30th, we had total liquidity of $146 million, consisting of cash of $73 million and Bitcoin also valued at $73 million.
Speaker Change: At October 31st, we held 1,188 Bitcoin, up from 1,147 Bitcoin at the end of September, and 905 Bitcoin at the end of June.
Speaker Change: Our higher BTC treasury balance reflects a solid cash position and strong cash flow from operations.
Speaker Change: As a reminder, our synthetic HODL strategy enables us to utilize excess Bitcoin generated each month to fund our growth at a far lower cost of capital than external funding sources, while maintaining upside potential by applying a portion of the proceeds towards the purchase of long-dated Bitcoin call options.
Speaker Change: In regard to our ATM facility, which we initiated in March and used solely to fund our growth initiatives and complete upgrades, we raised net proceeds of $66 million in the third quarter and made subsequent $39 million since September 30th.
Speaker Change: Lastly, I wish to point out that the growth and diversification initiatives that Ben has spoken about are all done with a keen eye on accretive growth, and we have and will continue to weigh financing options that provide the greatest shareholder return in minimal dilution.
Speaker Change: Before I hand the call back to the operator for Q&A, I'd like to echo Ben's enthusiasm about the strong position BitFarms is in.
Speaker Change: We've laid a solid foundation in 2024 that sets us up nicely to execute on our growth strategy into 2025 and beyond. Our entire team, including the recent leadership additions, are aligned and working towards these goals, and we look forward to keeping everyone updated on our progress.
Speaker Change: With that, I'll hand it over to the operator for Q&A.
Speaker Change: Thank you. If you would like to ask a question, please press Star 11.
Speaker Change: If your question has been answered and you would like to remove yourself from the queue, please press star 11 again.
Speaker Change: Our first question comes from Mike Colonese with H.C. Wainwright & Company. Your line is open.
partner.
Speaker Change: Hi, good morning, Ben, Jeff, and team, and thank you for taking my questions today. First one for me, if you could provide more detail on the discussions you're having with prospective customers for the HPC AI vertical. I know you announced your intentions of entering the space last quarter, so it'd be great to get more color there. And, you know, what could investors really expect as it relates to the potential economics from an HPC AI hosting deal?
Speaker Change: When you look at what it takes to deploy an HPC and AI site, there's a few different things that we need to bring into our wheelhouse from other parties. And really, it's the specialized expertise on what is effectively very, very different infrastructure and very, very different equipment.
Speaker Change: We have a number of different parties calling us. Our phone is very busy right now because we have a huge pipeline of megawatts available for us in the near term.
Speaker Change: And really, when you look at the revenues that you can get on an HPC and AI deal relative to Bitcoin mining, the effective value, I think that most of these
Speaker Change: are looking at, we're going to be in the $100 a megawatt hour plus kind of revenue before you start adding on these other services and fees. So it is more revenue right now than Bitcoin mining, but one of the things that we've been talking about for several months now, Mike, is that
We believe and we still believe
Speaker Change: that the next maybe 15 to 18 months, we're gonna have better economics and a better return on our invested capital with our Bitcoin mining efforts than we will on the HPC and AI. And it's really towards the tail end of 2025 or towards the tail end or the beginning of 2026.
Speaker Change: that we want to begin integrating HPC and AI into our portfolio in a meaningful way that's contributing to revenues.
Speaker Change: When looking at the one megawatt HPC and AI site, that's really for us not to be a meaningful contributor of revenues, but for us to properly develop this technology and bring these expertise into our company and into our portfolio.
and Benjamin Gagnon.
Speaker Change: That's great, Colorben. Appreciate that. And just one more from me. How should we think about the cadence of hash rate expansion from where we are today at 11.9 exahash and as we progress through the first half of 2025 to get to the 21?
Speaker Change: We're continuing to plug in minors regularly. We've received and deployed the first minors at the hosting.
Speaker Change: agreements that we've announced with Stronghold just this week so we're receiving the first minors and plugging in. We should see you know continued progress on the hash rate but it's really that you know
Speaker Change: Toward the end of the new year and with the holidays and everything else.
Speaker Change: as well as us just trying to be a lot more conservative in our guidance strategy. What I think you should just expect is kind of regular, linear growth that you can track with our monthly production reports.
Speaker Change: and the progress is going to be, or sorry, the 21 ExaHash target is going to be hit, you know, in that first half of 2025.
Great. Thanks, Seth.
Thanks, Mike.
Thank you.
and Benjamin Gagnon.
Speaker Change: Thank you. Our next question comes from Mike Rondall with Northland. Your line is open.
Speaker Change: Hey, thanks, guys, and congrats on the HPC progress. In terms of the two pilots, the one to two megawatts,
Are there megawatts?
Behind those
Speaker Change: So those sites could be used for, you know, larger projects once the pilots, you know, have proceeded and you've learned what you needed to learn. Any number you can give us at each site, like how many other megawatts are available, if any?
Speaker Change: Hey Mike, good question. So we've got the two different sites, the goal would be to finalize on one of the two as opposed to building out two similar pilots.
Speaker Change: Both sites have expansion capacity in different quantums. One of the sites has an expansion capacity of about 20-ish megawatts, and the other one is in the triple figures.
Thank you.
Speaker Change: Got it, okay, so one's small and one's large, okay. Correct.
Speaker Change: When do you think you'll decide on one site or the second site and when you do that will you communicate if it's you know if it's the 20-ish or the triple-digit site?
Thank you. Thank you.
Speaker Change: That's going to be dependent, I think, largely on the strategic partner that we end up working with.
Speaker Change: The different sites have different advantages for the different strategic partners based on their proximity to different metropolitan centers. So hard to determine which site would be the final choice because it really is dependent on which strategic partners we're going with.
and Benjamin Gagnon.
Speaker Change: It sounds like you've made some progress with strategic partner or customer. Have you been able to explore the financing availability kind of terms? Do you feel like you understand that well?
Speaker Change: You know the the opportunity here for both Bitcoin mining and HPC AI is very very hot And I think capital is is very much available right now Maybe I can pass off to Jeff Lucas to provide a little more color Yeah, I think Ben covered it pretty well here just a couple comments
Jeff Lucas: We are seeing a large number of opportunities here to take advantage of what we're doing in HPC-AI here in terms of our own financing needs.
Jeff Lucas: But I think it's also very important to understand here that as we go forward in establishing our partnerships here, you know, we recognize that a lot of these parties here bring a lot more to play in terms of capital raising than we do as efficiently and as effectively.
Jeff Lucas: In summary here, a lot of opportunities that we're looking at right now, you know, in several hundred million dollars, should we pursue that path. But secondly, we'd be looking to work with the partners to have them play a pretty instrumental role in whatever capital raising to take advantage of their more efficient cost of capital.
Got it. Okay. Hey, thanks guys.
Thank you.
Jeff Lucas: And yeah, just is that more related to the machine delays or you know, maybe on unexpected problems in Paraguay? Thanks
Speaker Change: Thanks for the question. The decision to move the inventory from Paraguay off to the stronghold sites
It was due to a number of...
Speaker Change: different factors. You know, at the end of the day, we are portfolio managers, and we are constantly looking at our portfolio of assets and our growth pipeline and working to, you know, manage our positions in order to drive
you know, an optimum outcome.
Speaker Change: When we were looking at the decision to deploy in Paraguay versus the United States, effectively by deploying in the United States, we were able to do a couple of things really quickly. One, we were able to focus on deployments as early as this month, which started, as I mentioned, a few minutes ago. We had our first few miners plugged in this week.
Speaker Change: But the second thing is, you know, really, it's more optimal deployment around the T21 specifically, so we're able to save on logistics, duties, we end up getting a lower all-in power cost in the stronghold sites.
Speaker Change: and one of the advantages with the T21, which is not prevalent in the other minor models, is the ability for them to be overclocked and so the
Speaker Change: PSU on those miners are capable of doing, you know, well over five kilowatts
Speaker Change: And at the stronghold sites, we have the ability to do a lot of energy demand response programs and energy trading. And having that greater flexibility with the T21s means that we can get a lot more utility out of those assets.
Speaker Change: then we would be able to deploy them in Paraguay where we've got a static fixed cost of electricity.
Speaker Change: When we look at Paraguay and Iguazu specifically, how do we get the best value for that site?
and many more. Thank you. Thank you.
Dapsite
Speaker Change: We could either have 100 megawatts, you know, accounted for and 100 megawatts that we would need to fill out or allocate to some strategy, or we could have a full site of 200 megawatts. And to have the full site clean, ready, and strategically flexible provides a lot more value to the EcoZoo site when we're looking at what are the strategic opportunities to either deploy more miners or host or do something else with that site.
Speaker Change: Thanks, I just appreciate the color. And then, you know, looking forward into 2025, I think you mentioned, you know, you're still, you know, deciding ultimately how to put the best, you know, deployment of the megawatts, but I guess related to the integration of Stronghold site,
Speaker Change: Do you have all necessary approvals to ultimately generate power through the plants or take power from the grid? And just how do you guys think about that mix between importing and your own generation?
Speaker Change: Yes, so those sites are active. They've been active power plants for, you know, at this point over three decades
Speaker Change: they also have the ability to actively draw down power from the grid. So those sites have been, you know, in operation doing both those things, generating power and drawing down power from the grid for several years. When we're looking at, you know, how do we get the best utility and value out of those sites, you know, we were doing things like...
Speaker Change: refining the equipment deployment schedules so that we can get more utility out of those out of those miners and out of those sites but there's a lot of strategic flexibility there for the 200 megawatts which which remains.
And when you're looking at...
Speaker Change: a Bitcoin bull market and HPC and AI really the answer is is there's no shortage of opportunities to monetize those 200 megawatts right now
Speaker Change: And just like the Iguazu site, they have 200 megawatts of near-term capacity in 2025, cost-effectively. That is a unique asset going into a Bitcoin bull market or when you're in discussions with HPC and AI hyperscalers.
Great, thanks.
Thank you.
Speaker Change: Thank you. Our next question comes from Brian Dobson with ClearStreet. Your line is open.
Hi, good morning. Thanks so much for taking my question.
Speaker Change: So, I guess if we can maybe take it up to 30,000 feet and take a view of the broader industry for a second, how do you think an administration change in Washington
Speaker Change: could potentially impact regulations in the United States and I guess how are you viewing that and have you gotten any additional color of what regulations might look like? I know it's early stages but if you could perhaps just contribute a little bit to the conversations going on in the industry right now that would be appreciated.
Speaker Change: Thanks, Brian. Yeah, it's a good question. You know, when you look at what happened there with
Speaker Change: the election and kind of where things fell out. I think one of the clear things that happened is Pennsylvania, you know, which is a a big swing state voted very clearly in favor of Trump and I think energy policies
Speaker Change: The ability for us to, you know, tap into the energy assets that we have there at the Stronghold sites as well as the Sharon, Pennsylvania sites, I think are a lot more favorable and a lot more valuable now that the election is over and Trump has been
you know, victorious in his campaign here.
Speaker Change: That bodes really, really well for energy assets, energy infrastructure, regulatory environment, regulatory red tape.
Speaker Change: and moving forward there with our expansion plan. So we're very, very bullish.
Speaker Change: on our U.S. energy assets is part of the reason why we've done such a strategic refocus on the U.S. and our North American portfolio. But surely, you know,
Speaker Change: the future for energy in the United States, especially in Pennsylvania and really specifically at our stronghold assets.
He's looking brighter than ever now under a Trump administration.
Speaker Change: Let me add one comment here, if I can also, in terms of the capital raising side, sticking the obvious, you know, there's expected to be a different playing field here with the SEC. We actually enjoy a very constructive relationship and a dialogue with the SEC, particularly as we're working through our filings in connection with a stronghold acquisition. Naturally, we only expect that to get a little easier, if anything, going forward.
Speaker Change: Can you also add a little bit of color on how you're thinking about potential returns on, call it, growing out or building out your mining facilities versus HPC given the recent run-up in Bitcoin? Has that changed the math for you as far as where you'd like to take the company?
Speaker Change: Benjamin Gagnon, Nicolas Bonta, Benjamin Gagnon, Nicolas Bonta, Benjamin Gagnon, Nicolas Bonta,
Speaker Change: You know, it's a great question. I think one very, very relevant today with Bitcoin almost at 90,000. The math is really has not changed at all because these were the exact economic situations that we've been talking about for at this point.
Speaker Change: six, nine, maybe even 12 months now. You know, we've been talking about how hash price equates out to an equivalent revenue on a per megawatt hour basis. What do we expect for hash price to do, you know, post halving? And what we've outlined is, you know, historically every single halving cycle
you know, that's happened other than the first one.
Speaker Change: has been that we've seen a 300 to 400% increase in hash price from the first month exiting the halving to the peak of that Bitcoin bull market.
Speaker Change: and you know what I outlined here was the if historical cycles repeat that we should see anywhere from on the very very conservative and a 12 cent hash price
Speaker Change: on the moderate end, a 15, and on the high end, a...
Speaker Change: even as high as 20. Now that's assuming that history would repeat itself. There's no guarantee that history would repeat itself.
Speaker Change: but those are the situations that we as a Bitcoin miner are working towards.
Speaker Change: and when you look at the value that that hash price would equate to on a megawatt hour and you you know convert it over into the the T21 or an S21 Pro or what have you, you'd see that once hash price starts doing what it's doing it's up about 10% this week.
Speaker Change: with the Bitcoin price, we'll see that the hash price is actually going to drive a much better return on invested capital in 2025 than an investment in Bitcoin mining, or sorry, an investment in HPC and AI would today.
Speaker Change: But that doesn't mean that the HPC and AI is not a great a great technology and a great business line to add in it just means that in the Near immediate future, you know the next 12-15 months. We still believe Bitcoin mining is going to be the best
Speaker Change: use for capital. And we think that there's going to be maybe a phase shift that happens kind of at that 12-15 mark, right? Where then HPC and AI is really the more attractive place to be getting better returns on your invested capital. And so that's what we've outlined for
Speaker Change: Quite a few months now, and that's still consistent today with Bitcoin price rallying.
Thank you.
Thank you.
Glad to be here. Thanks so much.
Thank you.
Speaker Change: Thank you. Our next question comes from Lucas Pipes with B Raleigh. Your line is open.
Speaker Change: Thank you very much, operator, and good morning, everyone. This is Fedor Shabalin asking questions on behalf of LucasPipe.
Speaker Change: and my first one is on HPC side technically about slide 12. You pointed on accelerated deployment for HPC and AI side and what exactly is this and what is the timeline and associated CAPEX for this pilot project? Thank you.
Speaker Change: Thank you for watching. If you have any questions or comments, please feel free to contact me. I'm happy to answer any of your questions.
Speaker Change: Thanks, this is a good question. You know, what we previously outlined with regards to HPC and AI is that the earliest that we could have something online is at the end of 2025 or at the beginning of 2026. You know, that was a timeline that worked out well, both from an infrastructure and construction timeframe, but also from, you know, most of the HPC and AI client timeframes for when they would expect.
to get their GPUs deployed and online.
Speaker Change: What we're looking at is, can we make that timeline even faster than the Q4 or the Q1 with the pilot project so we can get that understanding, we can get that skills and the expertise in hand before we start allocating more capital onto a more meaningful lease size deployment.
and so that's that's really what that
Speaker Change: accelerated deployment timeframe is from. When it comes to the CapEx requirements, I think I'll pass it off to Jeff Lucas here in a second, but just to reiterate something that we said before, when it comes to HPC and AI, we're really much more focused on the infrastructure side as opposed to the compute side. And so by focusing on the infrastructure as opposed to the compute, you cut out up to 75% of the CapEx.
Speaker Change: associated with an HPC and AI deployment if you're only doing the infrastructure.
Speaker Change: You're probably the first one who described the performance of Bitmain T21 minor and mentioned it could work better than statement characteristics. Can you tell maybe the same about...
Speaker Change: S21 ProMiner if you had a chance to test this machine.
How efficient they are.
Speaker Change: The S21 Pro is even more efficient and powerful. It's about 20% more efficient and about 20% more powerful.
Speaker Change: So this is a very, very capable machine. The main difference, I think, between
Speaker Change: a T21 and an S21 besides just the stated hash rate and the efficiency, which is higher in both categories.
Speaker Change: is the fact that the T21 has a lot more flexibility in terms of its power consumption.
Speaker Change: but the S21 Pro is a fantastic unit. Everybody who's been deploying them on market has had nothing but positive things to say and we look forward to receiving our first S21s here, S21 Pros here next month.
Speaker Change: And specifically, have you seen their performance kind of beyond 234 terahertz per second or they didn't cross the line?
Thank you.
and I'm going to talk to you about the story.
Speaker Change: I'm sorry, are you asking about overclocking on the S21 Pro? Yeah, overclocking, like you talked previously about the T21.
Speaker Change: So, on the T21, the difference here is that because the T21 was specifically designed around that energy flexibility, so it had, by the manufacturer's default, a normal energy mode and a high energy mode.
Speaker Change: So on the T21, it wasn't actually overclocking, we were actually using the miner according to its specifications from the manufacturer.
Speaker Change: You know, we haven't done this in testing and we don't actively do this in operation. But yeah, most of these miners can do better performance in overclocking. And I think most of the industry numbers that I've seen on the S21 Pro, they can do well over 260 terahash quite reliably.
Speaker Change: That's very helpful. Thank you. And if you allow me to squeeze the last one, the short one. Sorry if I missed this. What was the main reason behind increase in SG&A expenses quarter over quarter?
Speaker Change: So the the largest driver the increase were us in non-recurring expenses many associated With some of the one-time events including the riot requisition here We had a settlement with the former CEO and others. So we actually incurred roughly around 11 million dollars of expenses that are non-recurring during the quarter here 11 or 12 million
Speaker Change: I don't anticipate recurring. To a small degree, there were also some of the expenses associated with the acquisition of Stronghold. You know, we're going to incur M&A costs as we're pursuing new opportunities going forward here, but nothing of the magnitude that we incurred in the third quarter.
Speaker Change: Thank you, Jeff. I turn it over for now and continue to best of luck to you. Thank you.
Speaker Change: Thank you. Our next question comes from Martin Toner with ATB Capital Markets. Your line is open.
Martin Toner: Good morning, thanks for taking my question. Can you, I know you talked about it a bit already, but can you reiterate the source of caution?
Martin Toner: around Paraguay and the build-out and Exahash there and just give us a sense for like where that could fit into your, you know, plans going forward into next year.
Sure. First, I'd like to rephrase, you know, what
Martin Toner: It's not that we are exercising caution, I would say, towards Paraguay. It's really more about managing our portfolio to try and create the most optimal scenarios with our minor deployment schedules and our capital allocation.
Martin Toner: And so, you know, the original plan with Paraguay was originally devised before the stronghold transaction had materialized. As the stronghold transaction, you know, moved forward and was announced,
Beep
ability for us to drive an optimal
Martin Toner: result out of our portfolio meant that, you know, you shouldn't stay static in your positions. We needed to move miners around, we needed to adjust the schedules.
Martin Toner: We needed to do things like upgrading some of the miners in order to drive that optimal performance So I'd really strongly state it wasn't a caution around Paraguay It's really more about managing the portfolio to try and create those optimal scenarios For our minor deployment schedules and our investors, you know, we still remain very long on Paraguay and LATAM We have 280 megawatts about to be
Martin Toner: ready there in Paraguay 340 across the entire LATAM region and we still remain very very bullish on that area because the power is renewable, cost-effective and high uptime.
Martin Toner: But how do we optimize the existing minor deployments given the characteristics of the minors and and various other factors? That was really what was coming into play here
Thank you.
Thank you.
That's great. Thank you very much. That's all for me.
Thank you. Thank you.
Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the call back over to Ben Gagnon for closing remarks.
Thank you very much.
Speaker Change: Thank you everyone for your time today. Again, I'd like to restate I've never been more excited about our future. I really look forward to updating you all on our progress as we continue to execute our transformation and growth plan to capture additional market share within both Bitcoin mining and expanding into synergistic value-added business lines.
Thank you very much. Thank you all.