Q3 2024 Bit Digital Inc Earnings Call
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Speaker Change: Hello and welcome to the BIT Digital 3rd Quarter 2024 Earnings Conference Call. Good morning, good afternoon, and good evening, depending on where you are joining us from. Thank you for being here. We're just giving a few more moments for attendees to dial in, so thank you for your patience.
Speaker Change: While we wait, please note that during the call, all participant lines will be listen-only mode. Following the officer's update, we will open the floor for a question and answer session. If you have a question at that time, please simply press star 1 on your telephone keypad. Also, as a reminder, today's conference is being recorded.
Speaker Change: I'll now hand the call over to your host, Cameron Schnier, Head of Investor Relations at BitDigital. Cameron, the floor is yours.
Cameron Schnier: Thank you. Good morning and welcome to the BitDigital third quarter 2024 earnings call. Joining us on the call today are Sam Tabar, Chief Executive Officer, and Erke Huang, Chief Financial Officer.
Cameron Schnier: Before we begin I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause the results to differ materially from those projected in these statements.
Cameron Schnier: I therefore refer you to our latest 20-F filing, yesterday's 6-A filing, and our other SEC filings.
Cameron Schnier: Our comments today may also include non-GAAP financial measures, additional details and reconciliation, and the most directly comparable GAAP financial measures can be found in our 20-F filing and today's 6-K filing, which are on our website.
Speaker Change: After our prepared remarks we'll open the call up for questions. If you would like to ask a question please hit star 1 on your keypad. With that important note covered I will now turn the call over to Sam to discuss her performance. Sam?
Sam Tabar: Thank you, Cam. Ladies and gentlemen, thank you for joining us on the call today.
Sam Tabar: Today, I will dive into our third quarter results, discuss some ongoing strategic initiatives, and provide some color on what we envision as the future for BitDigital.
Sam Tabar: Eric will then provide more detail on our financial results and then we will open the line for your questions.
Sam Tabar: The third quarter of 2024 and the last 12 months have revolved around laying the foundation for the future of BitDigital.
Sam Tabar: We've embraced a completely different mindset than when we previously had when we were strictly a Bitcoin miner.
Sam Tabar: We now make decisions that we think will bear fruit over a longer timeline.
Sam Tabar: We prefer this mindset over the near-term fixation and macrosensitivity inherent to Bitcoin mining decisions.
This was a transformational deal for BitDigital.
Why?
Speaker Change: because the transactions vertically integrated are HPC operations with an existing fully operational and fully leased Tier 3 data center in a major city.
We added co-location as the new business and revenue line.
Speaker Change: We also added a strong mix of existing and prospective customers.
Speaker Change: Further, we gained a strong pipeline of expansion site opportunities and an extremely experienced team with a proven track record to lead the development process.
Speaker Change: The benefit of adding a highly experienced team cannot be understated.
Speaker Change: Developing Tier 3 data centers was not a skill we possessed in-house.
Speaker Change: We solved this gap through M&A and now we have what we believe to be one of the best data center teams in the world.
Speaker Change: This is a huge advantage in terms of accelerating our time to market.
Speaker Change: The Antivim team is adept at bringing new sites online in an accelerated timeline.
Speaker Change: We are pushing forward with our development pipeline and expect to be able to add 8 megawatts by 2Q 2025 and reach a total of 32 megawatts by the end of the year.
Speaker Change: We will likely dedicate a portion of the near-term megawatts to bit-digital GPUs.
Our pipeline remains strong.
Speaker Change: We are conducting diligence on a location that has the potential to reach 40 megawatts by mid-2025, and an additional 100 megawatts in around 18 months.
Speaker Change: We're currently evaluating the viability of being able to bring this site online to meet a specific customer's timeline, and we will only pursue this project with a firm customer commitment and our own assurance that we can satisfy the timeline.
Speaker Change: In aggregate, we have seen around 90 megawatts of incremental customer demand since our initial end-of-announcement last month.
The demand is spread across 5-6 clients with various timelines.
Speaker Change: Right now, we are seeing that deployment time is the key factor in turning indications of demand into firm commitments.
Speaker Change: We are in the final stages of securing the real estate for our 2Q25 deployments and beginning to place equipment orders to meet that timeline.
I'll now move to our GPU cloud business.
Speaker Change: We announced a term sheet with Boosteroid, the third largest cloud gaming provider in the world, on our last earnings call.
Speaker Change: Since then, we've executed an MSA, and we've placed an initial order for about 300 GPUs.
Speaker Change: These GPUs are in the process of being delivered to data centers in the U.S., and we expect revenue generation to begin by the end of this month.
This is just the starting quantity of GPUs.
Speaker Change: It is smaller than the initial quantity that we outlined, as this deployment does not include the GPUs to be delivered to European data centers, though we expect that deployment to begin in the near term.
Speaker Change: Overall, we now expect our deployment with Boosteroid to reach around 10,000 GPUs through the course of 2025.
Speaker Change: The deployment cadence should be gradual, though there may be some lumpiness depending on the size of search and purchase orders.
Speaker Change: We are extremely proud to formally begin our relationship with Boosteroid, and we look forward to going alongside them in the years to come.
Moving to what we refer to as our anchor customer.
Speaker Change: Recall that we currently have a contract with this customer to deploy an additional 2,000 H100s, but we disclosed that our customer is considering upgrading the contract for newer generation NVIDIA chips.
Speaker Change: While nothing has yet been formalized, we expect our customer will likely upgrade the contract for Blackwells.
Speaker Change: Based on our conversations with NVIDIA and OEMs, we are confident in receiving a relatively early allocation of B200s and GB200s.
At this stage,
Speaker Change: Timing for starting the next tranche of the contract is subject to when we will be able to receive those chips. We don't have much greater visibility beyond publicly available information from NVIDIA, but we do think that 2Q25 is a decent bet for when we'd be able to receive the black whale chips.
We made significant hires during the third quarter and beyond.
Speaker Change: Our GPU cloud business is now run by a world-class team.
Speaker Change: We hired an extremely experienced and proven head of revenue and an extremely experienced and proven CTO and multiple new hires on the engineering and business development side for the respective business and technology teams.
Speaker Change: Our collective intelligence in the HPC industry has gone up exponentially.
Speaker Change: This is particularly beneficial given that the GPU as a service market has become more competitive since the end of 2023 when we launched this business.
Speaker Change: In the current market, it's become increasingly difficult to pre-sell GPU capacity, similar to what we did with our first customer.
Speaker Change: The supply of H100s in the market has increased and it has become more challenging to win deals without an available inventory on hand.
Speaker Change: The sales cycle has compressed from months to weeks in some cases.
Speaker Change: We are evaluating pre-ordering more GPUs prior to having them contracted to better compete for the types of customers where deployment speed is the key determinant.
Speaker Change: However, we are more inclined to build inventories of the newest GPU models to reduce the risk of absolutes.
We are currently in the queue for GB200s and B200s.
Speaker Change: Our pipeline has continued to grow in tandem with the institutionalization of our sales process.
Speaker Change: We are now actively vetting and negotiating anywhere between 5 to 10 deals at any given time.
The pipeline is dynamic in the current market.
Speaker Change: We have passed on various deals based on pricing or certain customer nuances and missed out on different deals due to not being able to meet deployment timelines.
We have several deals that are being finalized.
Speaker Change: Last week we signed term sheets with two new customers and executed an MSA and purchase order with a third new customer.
Speaker Change: The MSA pertains to 64 GPU deployment that commenced last week on a month-to-month contract worth about $1.2 million of annualized revenue. We fulfilled that deployment using GPUs we had on inventory, having purchased 42 H200s or 336 GPU cards in October for around $9.7 million.
Speaker Change: And another new customer term sheet is for 576H200s for a 12-month period representing $10 million of revenue.
Speaker Change: The MSA has been executed with this client, and an initial two-server purchase order was executed, and those units have begun earning revenue.
The remainder of this deployment is expected prior to year-end.
Speaker Change: We are also actively negotiating several other deals that have the potential to
Speaker Change: We are also actively negotiating several other deals that have the potential to begin generating revenue by year end.
Speaker Change: In the rapidly evolving cloud computing landscape, many competitors have entered the market.
Speaker Change: viewing it simply as a matter of deploying capital, racking and stacking GPUs, and then just handing over the access keys.
Speaker Change: This oversimplification has led to solutions that fall short on performance and reliability, resulting in a wave of cautious buyers who have been burned by underperforming platforms.
BitDigital recognizes this challenge and sees it as an opportunity.
Speaker Change: We've assembled top-tier talent to build future-proof, performance-first solutions engineered to meet and exceed the needs of the most demanding machine learning and AI workloads.
Speaker Change: Our platform is designed not only to address today's market complexities, but also to anticipate where the industry is heading.
Speaker Change: Our focus on a performance-first design means that buyers can trust us to deliver a reliable long-term solution built for even the most advanced applications.
Speaker Change: This commitment not only restores buyer confidence, but also fosters high retention rates, resonating with customers who are looking for a stable partner in their journey towards innovation.
Speaker Change: By delivering on these promises, BitDigital aims to be the platform of choice for machine learning and AI pioneers who require infrastructure as forward-thinking as they are.
Speaker Change: While we are in the early stages of this build-out, we believe we have the right framework to create a platform that will expand our revenue and margin opportunities, improve customer retention, and reduce churn based on industry-leading reliability and performance.
The third quarter was challenging for our mining business.
Speaker Change: It was the first full quarter following the April halving event and hash price reached new all-time lows.
Speaker Change: This coincided with a period in which our electricity costs increased due to normal seasonal patterns.
Speaker Change: Seasonal increases were most acute in Texas and, to a lesser extent, in upstate New York.
Speaker Change: These factors coalesce to produce underwhelming mining margins for the quarter.
Speaker Change: But, Bitcoin prices have since rallied about 50% compared to the 3Q average.
Also, our variable electricity costs have subsided from summer highs.
Speaker Change: However, network hash rate continues to grow, which will partially offset the benefits of higher Bitcoin prices.
Speaker Change: During the quarter, we were informed that Quayment, our largest hosting provider, was acquired by a third party and we received notice of termination for our hosting contracts at those sites.
Speaker Change: At the end of the third quarter, we were using approximately 46 megawatts from deployment sites.
Speaker Change: Notably, we are running more than 10,000 S19 type miners with CoinMint.
Speaker Change: Those units run at an average of 31 joules per terahash, which is inefficient in the current market, and are close to the end of their operational lives.
Speaker Change: For context, our fleet-wide efficiency was approximately 28 joules per terahash. So the S19s were a considerable drag on our fleet efficiency.
Speaker Change: We plan on selling those units and replacing the hashrate with newer generation machines.
Speaker Change: By doing so, we can replace the lost hash rate with around 50% less megawatts.
Speaker Change: We have already signed term sheets for more than enough hosting capacity to replace that lost hash rate.
Speaker Change: We've been very cautious about fleet growth this year, but see this time as a golden opportunity to high-grade our fleet and improve our mining margins.
Speaker Change: That said, mining CapEx will remain a relatively small portion of our company's spend given our plan to develop our data center pipeline and increase our GPU fleet.
Speaker Change: We're currently assessing different hosting and minor purchase opportunities through the lens of maximizing cost efficiency and compressing payback periods.
Speaker Change: The price of eats has since recovered and is up 20% quarter to date.
We hold a significant position in both Bitcoin and ETH.
We are not Bitcoin or ETH maximalists.
We are shareholder maximalists.
Speaker Change: We believe that both Bitcoin and ETH will increase in price on a structural basis over time.
Speaker Change: We think the broader market is starting to understand that Bitcoin and ETH serve different purposes and carry different value propositions.
Speaker Change: We're still early in terms of awareness, but we expect EAST will continue to benefit from a rising public understanding of its underlying utility.
We remain bullish on diversification.
Speaker Change: I'll now hand over the line to Eric who will discuss our financial results.
Thank you, Sam.
Eric: I will now discuss certain financial results for the third quarter of 2024.
Eric: Total revenue was $22.7 million, a 96% increase compared to the prior year.
Eric: The revenue increase was driven by the contribution of our HBC businesses and partially offset by decreased mining revenue.
Bitcoin production decreased 59% year-over-year to 165.4 bitcoins.
Eric: Despite more than doubling our hash rate growth, the impact of having coupled with higher network density led to decreased production.
Eric: Bitcoin mining revenue decreased 11% from the prior year to 10.1 billion dollars. With higher Bitcoin prices
partial offsetting that decreased in production.
Eric: Our HPC services business recognized $12.2 million of revenue during this quarter.
Eric: As a reminder, this business began generating revenue in early 2024.
Eric: And we earned 161.90 theorems from natives taking rewards during the quarter, representing approximately $450,000 in revenue.
Eric: Our total cost of revenue was $15.5 million compared to $8.8 million the prior year.
Eric: The increase was driven by an increase in our active mining fleet, higher Bitcoin network difficulty, and the start of our HPC business.
Eric: Gross profit increased by 162% from the prior year to $7.2 million.
Eric: Our HPC services business was the main driver of gross profit.
contributing $6.7 million towards the total.
while if staking added $435,000 and mining contributed $112,000.
Eric: The total gross margin expanded 800 bps from the prior year to 32%.
Eric: with the addition of HPC offsetting lower mining margins related to increased Bitcoin network difficulty and reduced product rewards.
Eric: General and administrative costs were approximately $13.7 million compared to $4.9 million during the prior year's quarter.
Eric: Third quarter 2024 G&A expenses includes $5 million of a stock-based compensation and $4.8 million of professional consulting expenses.
Eric: The increase related to the prior year can be partially attributed to expense related to our acquisition of M&M as well as expenses related to hiring new employees for HPC business.
Eric: Depreciation and amortization expense was $8.4 million for third quarter compared to $3.6 million last year.
Eric: with the increase driven by a larger mining fleet and our GPU fleet that was deployed in early 2024.
Eric: Adjusted EBITDA was negative $21.8 million per quarter compared to negative $2.9 million last year.
Eric: Adjusted EBITDA for 3Q includes $21.9 million unrealized losses on digital assets as well as certain costs for our M&M's transaction and new hire that we would expect to be non-occurring.
Eric: We expect normalized going forward GIA to be more along the lines of prior quarters with slightly upward adjustments for additional headcounts.
Eric: Gap earnings per share was a loss of 26 cents for the quarter compared to a loss of 8 cents the prior year, with the change in digital assets prices being the primary driver of the decrease.
Turning to our balance sheet.
Eric: We held approximately $106 million dollars of cash and restricted cash as of September 30th, 2024 and our digital assets requisition was worth approximately $118 million.
Eric: Total assets amounted to $376 million at end of the quarter, while shareholders' equity was $315 million.
Eric: Our balance sheet remains debt-free, but we continue to evaluate potential debt financing options to accelerate the growth of our HVAC business.
Eric: The algorithm transaction and planned CAPEX related to data center infrastructure opens new possibilities for financing that we are actively exploring.
Eric: PAPACS was approximately 1.6 million dollars during the quarter. The PAPACS was used for deposits on certain HPC equipments.
Eric: As a note, this will be the last quarter that we file as a foreign private issuer, and we will soon transition to a domestic filer and plan on filing at 10K when we publish our 2024 annual results.
Speaker Change: I'll now turn the call back to Sam for closing remarks.
Thank you. Bye-bye.
Sam Tabar: Thank you, Eric. We are extremely excited about the direction of BitDigital.
Speaker Change: The company has been completely transformed relative to where we were just a few years ago.
Speaker Change: We believe we are on a credible path towards becoming one of the preeminent players in the HTC industry.
Speaker Change: We entered the HPC market in 2023 with our existing team at the time.
and relied on our core competencies to launch that business.
Speaker Change: We continue to believe that there are overlapping skill sets between Bitcoin mining and HPC and that they can be synergistic or complementary businesses under the same umbrella.
That said...
Speaker Change: The overlapping scale is like comparing the basic skill sets of a taxi driver and a Formula 1 driver.
Both Bitcoin mining and HPC require capital.
Speaker Change: But deploying capital is just the beginning of the HPC lifecycle.
Speaker Change: HPC isn't just about winning customers, it's about keeping those customers happy and retaining them.
Speaker Change: Unreliability is a critical issue in the HPC market and it creates churn.
Speaker Change: TURN creates opportunity for a customer-first business model, which is what we are driving towards.
Speaker Change: We learned quickly that we need to augment our talent base to really compete in this industry.
Speaker Change: The GPU as a service market has become more competitive and we needed to recruit top talent to effectively compete.
Speaker Change: We solved that need by hiring a head of revenue and CTO in addition to other two team members across the sales and technical functions.
Speaker Change: We then acquired one of the best HPC data center teams in the business through our acquisition of Enevum.
Speaker Change: We are only scratching the surface on the operational synergies we can achieve between our GPU cloud business and our HPC data centers business.
Speaker Change: There has never been a more exciting time to be a part of the digital.
Speaker Change: As for our mining fleet, we are planning to opportunistically high-grade our fleet to lower production costs and enhance our competitive position.
Speaker Change: However, it's clear to us that simply maintaining market share requires significant capital given the explosive growth in network hashrate.
Bitcoin mining is an arms race.
Speaker Change: Essentially, companies like us that are investing heavily in HPC can't compete with pure plain miners on an exerhouse basis given that capital is finite.
Speaker Change: But, we are comfortable with this dynamic. We view HPC as a better long-term investment for our company and are comfortable viewing our mining business as a non-capital intensive call option on higher Bitcoin prices.
Speaker Change: It doesn't seem realistic to us for a company to maintain material market share in mining while also developing a highly competitive HPC platform.
Speaker Change: Eventually, hard choices on where to invest capital will need to be made.
Speaker Change: The predictability of HPC cash flow can be helpful in smoothing out the volatility inherent to Bitcoin mining.
HPC provides stable revenues. Digital assets offers spicy asset appreciation.
Stable and Spice is the perfect balance for our company.
Speaker Change: However, an unrealized loss on our digital asset position caused our headline results to appear underwhelming.
Speaker Change: This dynamic in our digital asset position looks like it could reverse during the fourth quarter based on current asset prices.
Speaker Change: Our perception is that the market doesn't describe proper sum-of-parts value to a company that has both an HPC business and a digital assets business.
Speaker Change: We suspect that separating the two businesses may result in a more appropriate valuation for each discrete business line, and that is something we are continually studying internally.
Speaker Change: We believe our HPC business is primed for an exciting and prosperous future.
Speaker Change: and that we have exposure to the most promising and exciting asset class of the 21st century with our digital asset position.
Speaker Change: If the market continues to underappreciate that concept, we may proceed with a separation of the business lines.
For now, we are laser-focused on prudent capital allocation.
Speaker Change: We currently have a wide menu of options for capital deployment compared to where we were as a company 18 months ago.
Speaker Change: Capital is finite and we fortunately have three distinct options to choose from for deploying capital at any given time.
Speaker Change: Funding needs for our data center business enables us to be more selective in terms of the GPU contracts we pursue and vice versa.
Speaker Change: These new business lines have opened an array of financing options that weren't available to us previously as a Bitcoin miner.
Speaker Change: We're actively assessing these options and looking to understand what the most cost-effective sources of capital we can reasonably pursue.
specifically
Speaker Change: We're looking at potential commercial mortgage financing options for our data center buildout.
Speaker Change: We're also looking at various vendor-based financing and leasing options on the GPU side.
Cost-effective and non-dilutive growth financing is the goal.
Speaker Change: We continue to evaluate more traditional corporate credit options and were recently closed to a deal with a prominent counterparty, but decided to hold off until we had a fuller understanding of the financing options available to us in the wake of the NFM deal.
Speaker Change: We will continue to prioritize long-term value creation for all stakeholders as we evaluate options for sustainably growing our business.
Lastly, to reiterate Eric's point from earlier,
Speaker Change: This will be the last quarter that we file a 6K.
Speaker Change: We will convert to domestic issuer status and our next annual filing will be in the form of a 10-K.
Speaker Change: We believe that this move should incrementally help our stock become more accessible for certain investors.
Speaker Change: With that, I would like to open the line for some questions.
Speaker Change: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name and company before posing your question. Again, that is star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: We will take our first question from Mike Randall with Northland Securities.
Hey guys, thanks.
Hey guys, it's Mike. Can you hear me?
Yes, we can now. Go ahead, Mike.
Hey, your pipeline...
Mike Randall: on the GPU rental business and with Enovum is pretty robust.
in that business, the GPU rental business.
Speaker Change: How are you getting to like 8 million at the end of the year? I think, you know, that gets you to your 100 million annual run rate target roughly. Can you kind of help me with that bridge?
Speaker Change: Yes, so it's late November. We reaffirmed that by year-end, our revenue target will hit $100 million.
Speaker Change: I'll discuss why. First of all, we're pretty confident and we were expecting the term sheets that we announced today on the call to commence prior to year-end and combined with Enevum, that gets us to about 90% of the way there and we still have a very busy sales cycle.
Speaker Change: As shown this week, deals can come in bunches, and we now have the institutional bandwidth and processes to manage sales.
Speaker Change: Deployment timelines will effectively determine whether we reach the run rate in December or January. But currently, we're almost 90% there with the term sheets and the MFA that we announced today, including the end-of-term contribution.
Speaker Change: Okay, and if I remember right, the Inovim contribution was like 1.6 million in the fourth quarter. Is that number still accurate?
Speaker Change: I believe it's about 7 million by the year end. Eric, who's on the line, RCFO, can you confirm that?
Speaker Change: Yeah, that's Samir and A.R. going forward, starting, you know, the fourth quarter this year.
Speaker Change: Okay, I guess I was asking about the fourth quarter of 24, the contribution from the acquisition. I had in my notes a million six.
Yeah, but we look at it from an annual...
Speaker Change: Go ahead. Yeah, Blake, you are right. It's 1.6. It's the aggregate.
Speaker Change: sort of revenue that we'd recognize, but the December run rate would just be slightly higher. So I've been 1.6 annualized versus 7. There's not a huge delta. It's just that certain contracts commencing toward the end of B are higher. So a higher run rate in 1Q.
Yeah, I was giving the annualized number.
Thank you. Thank you.
It sounds like you've replaced that.
How should we think about average ExaHash?
4Q, 1Q, and 2Q25 for your Bitcoin business.
Speaker Change: Yeah, well, as mentioned, we will get to three by the first half of next year. We were running about 1.4 extra halves with coin mint.
Speaker Change: But just as a reminder, claimant cost of production was slightly above our company-wide average on a year-to-date basis.
Speaker Change: Lower production costs and increase our margin of safety from a production cost perspective in a low hash rate price environment.
Speaker Change: We're still not interested in owning mining infrastructure or vertically integrating our mining given the volatility of Bitcoin. That remains our position.
Speaker Change: And did you say 3.0 by the end of February or by mid-year?
Speaker Change: Well, it's somewhere between conservatively by the end of the first half of the year and potentially by the end of February. So it's going to be somewhere in that range.
Speaker Change: in that window. Okay. And then lastly, I don't know, since July 1st or the end of June, how much did you guys pull off the ATM, maybe number of shares?
you know, up until last Friday in total dollars raised.
Speaker Change: Well, I think we issued 38 million shares on the ATM since the end of June. We have, you know, we have massive CapEx plans and the equity issuance has been the bridge gap.
Speaker Change: Fortunately, we need to ensure that we have enough capital to get the ball rolling in our data center build-out and to provide for near-term GPU ramp, and we've been careful on the credit side.
being risk-adverse has always been in our DNA so
Speaker Change: You know, getting acclimatized to new industries where more risk is appropriate and can be under-ridden confidently is something that we, basically it's been our North Star.
Speaker Change: As mentioned on my call, we're very, very close to a massive debt deal, but we didn't feel like we had a firm enough handle on all the available financing options.
Speaker Change: and the deal would have made alternative options difficult and we were very, very wary of maintenance covenants.
Speaker Change: So, we are looking at commercial real estate loans, we're evaluating other financing avenues and we're just being very thorough as we evaluate financing options. Our North Star is to not dilute, rather go on the dead side. We will get there.
Speaker Change: or dollar amount raised, and then just what is the pro forma new share count, fully diluted?
I don't have that information in front of me.
Speaker Change: I can try and get that for you perhaps after the call.
Okay, hey, thanks guys.
Speaker Change: Hi Sam, Eric, Kim. Thanks for having me on. Sam, you went through a couple of the new HPC deals that I think total to about 20 million on an annual basis. One MSA and two signed. Could you just kind of
Speaker Change: Give us a little more detail on that again because it wasn't really clear to me. Apologies.
Speaker Change: No, that's okay. Perhaps the confusion is I'm using the annualized run rate number as opposed to the absolute contribution. Kim or Eric, why don't you drill down a little bit on giving the information on the client one, Boosteroid, client three, client four, and client five, and how that gets up to 90 million.
Hey, Kevin. I mean, I could just, uh...
Speaker Change: sort of walk through the term sheets. So there's three total term sheets, two of them have converted into AS, the typings all that.
Speaker Change: Two have already moved to the MSA, so there's one that has a one-term sheet.
Thank you. Bye. Bye.
Speaker Change: is for 576 H200s for 12 months. That's around $10 million of revenue. The other is 512 H200s for a period of at least six months. The six-month period represents around $5 million of revenue annualized.
Speaker Change: to round 10. The MSA for this has been signed and an initial purchase order, a small one, went through.
Speaker Change: We expect the remainder of that to be through year-end. And the third is a month-to-month contract. That's term sheet and MSA.
Speaker Change: 64 GPUs representing 1.2 million of annualized revenue, around 21 to 22 ARR total across those three. Two to three are already at the MSA stage, one we still have to ink that MSA.
and based on what we have.
Speaker Change: on hand. I mean it's a total of 1160 HH200s across those three we already had.
336 on hand. That's basically solving for an additional 800.
Samir Tabar, William Schnier, Samir Tabar
Speaker Change: And you might look at vendor financing for that, as you have in the past.
Speaker Change: yeah perhaps I mean I think for the initial or for the
Speaker Change: We certainly could look to other options or take it down on the balance sheet based on the cash, still working through that. We'll provide those details when we finalize the respective deals.
Speaker Change: Great, thanks Cam. And what about the power side? I think Sam alluded to having data center optionality in the U.S. versus building Inovum. Is that sort of the way to think about it?
Speaker Change: Because Inova won't be ready to handle that capacity at this juncture?
I'm not sure I understand that question.
Speaker Change: for the 4Q deployments. Some of those will be going to Iceland with the capacity we already have.
And there's...
I think the...
Speaker Change: and Nova capacity issue that you were referring to just like building additional by 2Q and then note that we might take some of that capacity for our own this would that would pertain to separate contracts not the three term sheets mentioned today.
Speaker Change: The GPUs required for Boosteroid aren't the high-end NVIDIA type. Am I right in assuming that? Can you give us some cost ballparks on that?
Yeah, they're lower.
Speaker Change: Those are gaming GPUs and specifically made by AMD, so certainly a huge cost differential.
but I mean for that initial 300 GP deployment
It's a very small number.
Samir Tabar, William Schnier, Samir Tabar
Okay, and.
Obviously, you're very confident that
Speaker Change: You're referring to our target run rate or something else? Yeah, no, the Boosteroid GPU deployment getting you to your target run rate. Yeah, we're pretty confident. I mean, like just last week, three deals in a row. So, you know, we still have November and December, half of November and December. We're pretty confident. Right now, we're almost at 90% of our target. Yeah, I understand that. I'm more curious about Boosteroid specifically.
Speaker Change: because there seem to be pretty pretty big targets there. I just was wondering about your confidence there and when you might be able to give us more insight on that.
Speaker Change: Yeah, I mean there our MSA has been, yeah, the MSA there has been signed, there's been a purchase order of about 300 GPUs.
Speaker Change: Another deployment is expected in Europe this year. It's going to be a gradual buildout, and it's going to be lumpy based on orders. It could also be lumpy based on orders and market conditions. But based on our order book for other customers, a gradual and slow deployment cadence would, frankly, be the best scenario for us just in terms of capital deployment.
Speaker Change: So, you know, margins are very high. We don't have the precise number, but it meets our threshold for this sort of contract. Our capex for the first deployment is about $2 million.
Speaker Change: Right, but that doesn't include your, I guess, the payments you need to make to secure power and space racks, right?
That was in the form of pastors to the client.
Speaker Change: Ah, okay, okay. On coin mint and your hash rate changes...
Speaker Change: understand you're not going to take the s19s but you look to something like maybe an s21 where for the same power you use half the machines and get the same hash rate is is that the right way to think about it?
I think so, yeah, that is the right way.
Speaker Change: I would love for Eric to confirm, but just before that, I just want to mention that we are the exclusive partner to Boosteroid. Just worth mentioning. But going back to your question, Eric, do you want to confirm that number?
Speaker Change: I mean, if it's about an ex-ash, you could look at.
Speaker Change: Yeah, market price has been probably closer to 10 to 15 for that deployment, Kevin.
Speaker Change: Okay. All right. Well, thanks, gentlemen, for answering my questions. Appreciate it a lot.
Congrats on the HPC growth.
Thank you. Bye-bye.
Speaker Change: We will take our next question from Brian Dobson with ClearStreet.
Brian Dobson: Thanks very much for taking my questions. Hey, good morning. So you had mentioned potentially separating the Bitcoin mind business, and that's understandable. I guess at its core, do you see that potential move as an effort to make the company's new focus easier to understand for investors?
Speaker Change: Yeah, absolutely. We have two different conversations going on these days, one with retail, one with institutions. They both want different things.
Speaker Change: We continue to study it. It seems it's a very viable way to unlock the value of the HPC business. The valuations and multiples on that are much higher than Bitcoin mining. This also has...
Speaker Change: massive benefits from a financing perspective. So, some banks are reluctant to deal with anything crypto.
Speaker Change: So, this makes it a much cleaner story for lenders if we were more pure play HPC company than having that crypto business, which limits.
Speaker Change: are financing options. But again, from an evaluation perspective, it is night and day. It does make sense to, frankly, pursue this option sooner rather than later.
Speaker Change: Yeah, that makes a lot of sense and, you know, I like your description of the business as stable and spicy because at this point, I think it's fair to say that HPC is the core of the business, future of the company going forward.
So, I guess on that note, we don't disagree.
We don't disagree.
Speaker Change: So, on that note, as you're looking at Inovum, the acquisition there, as you peer into that pipeline, which is attractive that you brought that over, what are you most excited about?
How about any of them?
Yeah, I mean, I don't know.
Speaker Change: I'll be CEO of NNM on the line, I'd love for him to pipe in, no pun intended.
Speaker Change: But with respect to our pipeline development schedule, that's one of the things I'm extremely excited about. We kept the total pipeline constant at 288 megawatts in our deck. We noted that we see an additional 100 megawatts based on conversations from the utility at a site we are reviewing.
Speaker Change: But we won't include that in the pipeline for now. If capital was unlimited, we'd break ground on it today, but we're not ready to formalize that site quite yet. We're still studying timelines internally.
Speaker Change: And we are, you know, planning on moving ahead with our plans and Billy, I would love to perhaps hear from you on that.
Billy, the floor is yours. Bye.
Good morning, everyone.
Speaker Change: It's just been just over 30 days since the acquisition, so we're formalizing procurement processes. We have a good line of sight on major long lead time items. What excites us the most is bringing all of this capacity online to meet the customer demands that we have for 2025.
We're evaluating
Speaker Change: different amount of large amount of projects sites it's a bit of a dynamic process right now but like I said we have a very good line of sight and we're looking we're very anxious to deliver
Yeah, very good. Thanks for that color.
We will take our next question.
Speaker Change: Just to mention, as the next question comes on, I also have a Head of Revenue on the line on the GPU as a service business, in case there are questions related to that.
Speaker Change: We will take our next question from Joe Gomes with Noble Capital Markets.
Hi, Joe.
Good morning, guys. It's Josh filling in for Joe.
Speaker Change: Hey, so, you know, you guys were talking about just, you know, obviously the HBC side of the business and I wanted to see kind of just an update just kind of on the site pipeline, you know, you guys mentioned on the call earlier but, you know, have you guys really secured any power outside the Montreal area, you know, you guys were talking about, you know, going to Western Canada, Ontario, maybe the British Columbia, but, you know, can you kind of expand on that?
Speaker Change: Billy, why don't you take that on? The floor is yours.
Okay perfect and you know
Speaker Change: You guys talked about, yeah, obviously having, you know, the 3x hash, maybe by the end of February, potentially, and then, you know, going into maybe the end of the second quarter, middle of the year, you know, with Bitcoin kind of trading at where it's at.
Speaker Change: Well, I think the Bitcoin price going up is kind of sometimes misleading because there is another the other part of the equation which is hashrate difficulty.
Speaker Change: And that obviously has an effect on the margins of Bitcoin mining.
Speaker Change: of the business of Bitcoin mining, which makes it a little bit more complicated than just the price of a Bitcoin. We think that, you know, capital is finite and we have, you know, huge ambitions and we're, frankly, executing on those ambitions on our GPU cloud and data center business.
Speaker Change: And so that's where we have to really kind of put the capital.
We still remain an incredible call option on digital assets.
Speaker Change: As I mentioned earlier, our company is stable in SPICE. We have the stability of HPC revenues and we have the SPICE of our digital assets position both in Bitcoin and Ethereum.
Thank you for watching. See you next time.
And this is Eric speaking, if I may add.
Speaker Change: with the most recent happening happened in April. So we see, you know, this increase of Bitcoin price as opportunity to upgrade the fleet. So what we're gonna do is we're gonna sell, you know, some of the older models rather than keep them running and replace them with newer generations miners because, you know, we,
Speaker Change: a way of storing Bitcoin. When the Bitcoin price is higher, we can sell them at a relatively higher price.
Speaker Change: And with the happenings that happened, we wouldn't necessarily have a happening in the next, you know, three and a half years.
Speaker Change: So that gives us more stable, predictable revenue for this cycle.
So, upgrading and, you know...
Speaker Change: liquidating older models will be the strategy we're taking for the next a couple quarters.
Okay, great. Thanks for answering my
Thank you. Bye-bye.
Speaker Change: This concludes today's call. Thank you for your participation. You may now disconnect.
[music]
I'm going to be a little bit more tired.