Q3 2024 Gryphon Digital Mining Inc Earnings Call
Speaker Change: Greetings and welcome to the Griffin Digital Mining third quarter 2024 earnings call.
Speaker Change: On the call are Steve Gutterman, Chief Executive Officer of the company, and Sim Selvman, Chief Financial Officer of the company.
Speaker Change: Before I turn the call over to Mr. Gussman, please note that the statements made on this call that are not historical facts may be forward-looking statements from the company's management made within the meaning 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-Q and 10-K, as updated by the company's subsequent disclosures filed with the SEC.
Speaker Change: Actual results may differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements made on this call are made only as of today's date, and that company does not undertake any obligation to update or supplement any such statements to reflect subsequent developments.
Speaker Change: Now I would like to turn the call over to Steve Gutterman. Steve, please proceed.
Steve Gutterman: Thank you, Jenny, and thank you, everyone, for joining us today to discuss Griffin Digital Mining's third quarter 2024 results.
Steve Gutterman: We believe we have made tremendous progress over the past few months in positioning Griffin for long-term success in both our core Bitcoin mining operations and our planned strategic expansion into AI infrastructure hosting.
Steve Gutterman: As outlined in our recent shareholder letter, we believe that we now have a team, the strategy,
Steve Gutterman: and the balance sheet strength to drive significant value creation across these two high-growth verticals. So, let me highlight a few key developments.
first.
Importantly, we enhanced our leadership team to accelerate growth.
Steve Gutterman: My role was expanded from director to CEO. Jimmy Vapoulos, former CEO and CFO of HudApe, was added as chairman.
Steve Gutterman: Dan Gregorin of Anchorage Digital was appointed to the board, and we are thrilled. I know I'm personally thrilled that Sim Salzman, former CFO of Marathon, decided to continue as CFO of Griffin.
Steve Gutterman: This expanded team brings deep expertise that we expect to be instrumental as we execute our growth strategy.
Steve Gutterman: Second, we completed what we believe is a transformative debt restructuring with Anchorage Digital that has significantly strengthened our financial position.
Steve Gutterman: by converting $13 million of debt to equity at a substantial premium to our stock price.
Steve Gutterman: restructuring the remaining five million on highly favorable terms, we have increased net equity and expect to have much greater flexibility to invest in growth.
Steve Gutterman: The monthly interest payment on the remaining 5 million of debt is now just $17,708, a substantial reduction from our previous obligation.
Steve Gutterman: Additionally, the mandatory sweep of excess cash and Bitcoin to Anchorage is now gone, giving us even greater flexibility.
Steve Gutterman: Importantly, Anchorage has become our largest shareholder and Dan has joined our board and we expect them to be a key advisor going forward.
Steve Gutterman: This debt restructuring showcases the belief of a sophisticated investor in Griffin's true value and potential.
Steve Gutterman: The market appears to share this confidence as reflected in our market capitalization moving north of $40 million this week, exceeding NASDAQ listing requirements.
Steve Gutterman: Our ultimate vision is to maximize shareholder value, and we have set ambitious, but we believe achievable goals to build substantial market value while maintaining strong price per share fundamentals.
Steve Gutterman: On that note, we recently announced a small acquisition of ultra-low cost power mining operations at around one cent a kilowatt hour.
Steve Gutterman: Securing power in the $0.01 range is a competitive advantage in the current Bitcoin mining environment. The acquisition has not yet closed, but we expect to have an announcement about that soon.
Steve Gutterman: In short, we have taken significant steps to create a strong foundation for growth. And now that we have added to our team and transformed our balance sheet, we look forward to building on that foundation in the quarters and years to come.
Sim: I'll now turn it over to Sim to review our financial results before closing with some additional remarks. Sim?
Sim: Thank you, Steve. I will now highlight our financial results for the quarter ended September 30, 2024.
Sim: Griffin mined approximately 61 Bitcoin and generated mining revenues of $3.7 million in Q3 2024 compared to $176 Bitcoin and $5.2 million in the same period in the prior year.
Sim: Breakeven costs per Bitcoin in Q3 2024 were $59,213 compared to $21,501 in Q3 2023. The change in breakeven costs...
Sim: year-over-year reflects the halving event that occurred in 2024 where the Bitcoin rewards decreased by 50% combined with the increase in global hash rate.
Sim: Our adjusted EBITDA stood at approximately negative $2.5 million for the three months ended September 30, 2024, compared to negative $4.7 million for the three months ended September 30, 2023.
Sim: We believe breakeven costs and adjusted EBITDA are important gauges of our operational effectiveness and that highlighting these metrics gives investors and analysts better transparency for comparative analysis across mining companies.
Sim: Reconciliations to the nearest gap measures can be found in our earnings released disseminated prior to the call.
Sim: The company recognized a net loss of $5.9 million in Q3 2024, which includes net non-cash expenses of $3.2 million.
Sim: Net non-cash expenses consisted of items including depreciation, employee stock-based compensation expense, fair market value of common stock issued to consultants, unrealized loss on marketable equity securities, change in the fair value of notes payable, and unrealized gain on digital assets.
Sim: This compares to a net loss in Q3 2023 of $8.1 million, which included net non-cash expenses of $3.2 million.
Sim: As of September 30, 2024, our balance sheet reports approximately $0.4 million of cash and cash equivalents.
Sim: $0.6 million in Bitcoin, and approximately $19.3 million due for the note denominated in Bitcoin. As Steve noted, Griffin has completed a debt restructuring with Anchorage Digital, converting $13 million of debt to equity at a premium, and restructuring the remaining $5 million with very favorable terms.
Sim: As of December 31st, 2023, our balance sheet reported approximately $0.9 million in cash and cash equivalents.
Sim: $2.1 million in Bitcoin and $14.9 million due for the note denominated in Bitcoin. As mentioned during prior quarters, the change in the fair value of notes payable as of September 30, 2024 reflects a direct correlation to the price of Bitcoin as of the period end.
Speaker Change: We have not increased our position of Bitcoin due, and we remain fully hedged to our production. Following the restructuring, the remaining debt due to Anchorage is no longer denominated in Bitcoin. With that, I'll turn it back to Steve for some additional comments.
Thanks, Tim.
Thank you.
Speaker Change: While we're laser focused on methodically building our core Bitcoin mining business through singles and doubles, we're also keenly aware of the transformational potential in the rapidly evolving AI space.
Speaker Change: Just as we saw in the dot-com boom in the early 2000s, cannabis in 2018, there are unique windows of opportunity where being in the right place at the right time with the right capabilities and the right company can be game-changing.
Speaker Change: we believe we're in such a moment with AI right now. And importantly for Griffin, this is not some disconnected pivot. Fundamentally, our business is about securing low cost power, plugging computers into that power and asking those computers to perform valuable computing work.
Speaker Change: This is equally applicable to Bitcoin mining and to AI computing. So we believe we are well positioned to be an early mover in providing AI hosting services, leveraging our mining infrastructure and expertise to capitalize on the growing demand for AI compute.
Speaker Change: we see a substantial opportunity to diversify our revenue, accelerate our growth, and create substantial value for shareholders by becoming the leading provider of high-performance computing for AI applications.
Speaker Change: And to be clear, this isn't about chasing hype. It's about pragmatically assessing the market landscape, understanding our strengths, and making calculated but deliberate bets on where we believe we can drive outsized returns.
We will be diligent and thoughtful in this approach.
Speaker Change: And we also recognize the need to move with purpose to seize this window of opportunity.
So in the coming months.
in addition to advancing our core Bitcoin mining operations.
You can expect to see us making meaningful progress towards
Speaker Change: the AI hosting space, both through organic development and potentially strategic M&A. We believe this two-pronged approach
Speaker Change: the steady build out of our mining business, and the aggressive pursuit of AI opportunities is the right strategy to maximize shareholder value.
In summary,
Speaker Change: Griffin has made remarkable strides in the last few months. We have the right team in place. We have significantly strengthened our balance sheet. We are working on acquiring low cost power assets.
Speaker Change: And we have a clear roadmap to drive growth and create short shareholder value both in mining and in the rapidly growing and evolving AI computing space.
Speaker Change: While much work remains ahead, we are excited and energized by the opportunities ahead of us. So, with that, operator, let's please open the line for questions. Thanks.
Speaker Change: Thank you very much. At this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions.
Thank you very much. Your first question.
Speaker Change: coming from John Hickman of Leydenburg-Salmon. John, your line is live.
Thank you.
Speaker Change: Could you elaborate a little bit more on your efforts in the HPC? Are you talking about a new facility, I mean new to you?
You're not talking about converting.
what you have going in New York.
On the big screen side.
Speaker Change: Right, that facility is not ours and so I think it would be reasonable to say that we are looking for spaces where we could launch our AI.
Okay. Thank you.
And could you...
Speaker Change: Has anything happened with your cost of power in the last...
two or four months.
Out of the ordinary.
Speaker Change: Yeah, I'll let Tim jump in here. Our cost of power over the past several months at CoinMint has been...
relatively consistent. We are
Speaker Change: We are actively looking at several alternatives to lower our costs.
as we've stated previously.
that we'll be making subsequent announcements.
Speaker Change: on that prior to the end of December. Sim, did you wanna add anything to that?
Steve Gutterman: Yes, Steve. So what I'd like to add, John, is essentially for the past quarter, it's been averaging around 6.2, 6.3 cents a kilowatt hour versus the prior quarter where it was around 5.8 to 5.9. So as the Bitcoin global hash rate continues to go up and the mining space gets more,
Steve Gutterman: active, the profit share would go down. So even though we were pegged to a variable path rate of energy, the profit share would technically go down, and as such, we were looking for just a better alternative to power at this point.
Thank you.
Speaker Change: Okay, and one last piece on that, John, to be clear.
Speaker Change: This is something that we have have been actively engaged in for the past several months and so we're.
Speaker Change: We expect to have significant announcements about where we're relocating our fleet, like I said, between now and the end of the quarter.
Speaker Change: Okay, and just so I don't have to do the math.
What was the average?
What was your average Bitcoin price during the quarter?
Thank you.
All right, John, you're asking me for the call per?
Thank you.
Sorry about that. Um, okay.
Nevermind. 59,224.
Okay.
Speaker Change: Okay, so with the price of Bitcoin markedly higher, I think it's over $90,000 today.
Bye.
That doesn't change your...
I mean, that's all profit to you, right? There's no...
Speaker Change: I mean, it's cost you the same to mine Bitcoin at $50,000 as it does to mine it at $90,000.
Is that right?
I mean, actually, currently we have a, we have a.
Speaker Change: part of our contract is fixed and part of it has a profit share so our costs don't go up as as
Speaker Change: as the price goes up and so that's obviously something that if if you are long on Bitcoin and you believe that Bitcoin is going to increase then that's obviously something that you take a hard look at.
Bye.
So, your profit sharing with your hosting partner.
is kind of, some of it's not.
Speaker Change: I get it. So some of that will go up, those costs will go up with the more you meet. Correct.
gross profit is, right? Okay, correct.
Speaker Change: Okay, so when you say that, you know, we're going to get some news from you in the not too distant future, does that mean before the end of the year, or are we looking at early 2025?
Speaker Change: No, we will definitively have an update on where we are taking our fleet. We will provide an update by the end of the year.
Okay.
Well, thank you. That's it for me.
Speaker Change: I think our operator might be on mute, Kevin, I think you're in the line in the queue to speak.
Thank you. Can you hear me okay? Yeah.
Speaker Change: Thank you. Great. Great. Great. So, sorry, Steve. A little technical difficulty over here, and I may have missed a couple of responses.
Speaker Change: to John's question. So apologies if some of this is redundant. But I'm going to assume that you're referencing the Louisiana spot that the previous administration sort of teed up.
Speaker Change: as having that one cent kilowatt hour power, but my understanding is that there's not a lot of power there.
Speaker Change: I think you're probably using close to 30 megawatts of coin mint to power, you know, almost a full extra hash.
So help me understand...
Bye for now.
how you see that transition as you move minors.
Speaker Change: from coin mint, is that something that you'd expect to happen through the course of this quarter or something that might?
Speaker Change: take until the end of the March quarter, and what would you expect your hash rate to be between, say, now and the foreseeable future?
Thank you.
Yeah. So, I'll actually let...
Speaker Change: give our assumptions on hash rate, what I would tell you is that you're 100% right, that we are, we've previously announced.
Uh, the.
Speaker Change: that transaction in Louisiana that is much smaller than what we
Speaker Change: currently are operating or what we're currently using, it's a great first foray into that power source, and we believe that it's expandable over time. And so what that means is that
Speaker Change: Between now and the end of the year, and this is what you missed from the last set of questions, is that between now and the end of the year, we will be announcing where we are relocating our current fleet.
Speaker Change: And, to your point, it won't all go in the aforementioned transaction, which, if and when we complete it, would be much smaller.
Okay.
Speaker Change: I'm sorry, Kevin, did you want to answer anything about the, about.
Speaker Change: our assumptions. Oh, yeah, yeah, yeah. Thanks, Steve. I heard he forgot. Thanks, Sam. Appreciate it.
Speaker Change: No, no worries, Kevin. Yeah, so very long story short, our projection that we put together, you know, a few months ago, and we keep updating it, we pegged the global to be ending around 727 exahash, and it's already kind of creeping up on there and passing it every now and then, right, with just all of the
Speaker Change: hype and the Bitcoin price. Also our model was calling for Bitcoin's price to cap out around $70,000 which clearly that has been blown away. So our production wouldn't really...
Speaker Change: change much, given the 30 megawatts, it's just like kind of we alluded to before, a more beneficial deal, i.e. maybe removing a profit share, going somewhere that you're at a static six cents, five cents, four cents, would yield profitability in a much better spot than we currently are at at Coitman's facility.
Speaker Change: So, that's kind of what we've been looking at, and that's kind of where we are trending in that direction.
Okay.
As you look at the fleet now, are you...
Speaker Change: Do you consider it efficient enough? I mean, obviously with Bitcoin at 93, it's a different story, but, you know, two months ago, yeah, two months ago would have been an issue, right? So just give me your perspective on where you see the fleet and what you might have to do to...
to improve efficiency.
Steve Gutterman: Very good question, and so, sorry, Steve. Go ahead, and I'll give it to you first.
Steve Gutterman: With this current fleet, we are looking at being fully depreciated over the next 12 months. However, as the Bitcoin price is where it is and the global hash rate is where it is, we're roughly about 0.15% of the global hash rate. So those revenues...
even around 75,000, anything above 65,000, you're still.
Steve Gutterman: breaking even if not making a decent margin at those respective prices in this current environment. So as we are at 90,000, you are getting that additional upside with this current fleet of let's say 6,000 S19 J-PROs.
So Simmons, you were in my shoes, how...
Do you think?
Speaker Change: I should look at what happens to, I appreciate the insight on the global hash, I really do. Every little bit helps in trying to figure that. But I'm more concerned about dialing in on what Griffin's.
going to be able to generate.
through the balance of this quarter, given
Speaker Change: changes in infrastructure access you're anticipating and how long that transition period might take before you could see almost that one extra hash up and running again.
Evan, I'll answer that.
So, our current agreement with
Speaker Change: with climate runs through the end of the year. And so it would be our expectation that we would.
Speaker Change: Keep everything in place through the end of the year in less
Speaker Change: we see a significant reason to do otherwise and a significant reason would be if we can move the the fleet with the least amount of disruption as quickly as possible and into a place where we had significantly lower cost.
Makes perfect sense, Steve, makes perfect sense.
Speaker Change: I understand you talked to Dan joining your board from Anchorage.
Speaker Change: And I was wondering if you wouldn't mind sharing just a little background on what he brings to the table, given you're entertaining the HPC slash AI agenda? Yeah.
Speaker Change: Let me step back just for a second and talk about Anchorage and then I'll talk specifically about Dan.
Speaker Change: With Anchorage, as you know, we've talked about the Anchorage debt was a significant thing for us and certainly it was
Speaker Change: A significant liability. We originally took out a loan in Bitcoin of about 900 Bitcoin. We paid off 600 of the 900, but because the price of Bitcoin kept increasing,
the notional amount that we had left on the $300,000
Speaker Change: was still about $18 million, even though the original notional amount was $28 million, and we had paid about $18 million worth of Bitcoin. So it was kind of like paying that back in an environment where Bitcoin kept increasing in value.
Kind of like walking through quicksand
that.
So it was very important to us.
from the financial standpoint.
Speaker Change: to transform the balance sheet. We were really gratified to be able to structure the transaction the way that we did, where we've taken that $18 million of notional debt and converted 13 million of it into equity, where Anchorage is converting at a 100 percent premium to the previous VWAP.
Speaker Change: And then the remaining $5 million is on really favorable terms, it's a three-year term, 4.25% interest, interest only during the term, so the amount that we're paying
Anchorage per month over the next three years.
Speaker Change: unless we decide to start pre-paying and accelerating is $18,000 a month. So from a financial standpoint, we've turned what was a significant liability into a significant area of strength. We've added much more equity to the balance sheet, and we've
Speaker Change: completely transform the amount of cash out every month. So if it was just that, I think we would have been pleased.
Speaker Change: The thing that I think is even more exciting is that Anchorage really believes in us and in the story and in our vision and in where we can go. And they're now our largest shareholder. And so we've transformed this relationship from
Speaker Change: one where we have a lender to one where we have a partner. And Anchorage obviously is incredibly experienced in mining and we're really grateful to have them as a partner.
Speaker Change: Specifically on Dan, Dan has co-led the portfolio for a long time at Anchorage and he is incredibly well versed.
in the mining space.
And so already, as a...
Speaker Change: As a member of the board, he's been adding significant value.
Speaker Change: He may be sick, in fact, of me calling him, because we talk several times a day. He's giving great ideas on everything from where to find cheap machines to interesting ideas on power to where the industry is going. So we're real grateful to have Anchorage in general and Dan specifically as partners and as a board member.
Steve Gutterman: I appreciate the color, I appreciate the color Steve, yeah it's it's
You know, when we first spoke, I noted Anchorage,
only play one game, and they
Steve Gutterman: You can't say that they didn't make a plenty of money on that under Bitcoin loan, too So but kudos to you for for
making that transition is there
Steve Gutterman: Are there any slots in the team that you think you'll need to fill in order to be able to handle the HPC endeavor?
Yes, absolutely. The first is, as we identify
significant power opportunities, we will be adding power experts.
Steve Gutterman: We have a handful of people that we have been working with on a consultative basis, and as appropriate we would bring them on board. And these are real experts. These are people who have 20 plus year significant leadership roles in relevant power.
Steve Gutterman: Then after that, after you lock down the power, yes, you absolutely would need, we will need to add people who are HPC experts, same thing. We've been talking to people, they've been consulting with us, and as...
Steve Gutterman: And the sequencing is lockdown power and then, as appropriate, add to the AI team. So the answer is...
Steve Gutterman: 100% yes, as we move forward and if we are successful, which we hope and believe we will be, we will be adding to the team as appropriate.
Speaker Change: Well, thanks. Thanks again, Steve. Thank you too, Sim, for your call. I appreciate it. Thanks for taking my questions. Anytime. Have a great evening, gentlemen. Thanks, Kevin.
Speaker Change: Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand back over to the management team for any closing comments.
Speaker Change: Right, well thanks everybody for your time on the call. We look forward to communicating future updates and thank you very very much for the time.
Speaker Change: Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful rest of the day. Thank you for your participation.