Q4 2024 Bitfarms Ltd Earnings Call
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Speaker Change: Good day, and thank you for standing by and welcome to the bid farms fourth quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded after the speaker's presentation there'll be a question and answer session to ask a question. Please.
Speaker Change: Press Star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like to hand, the conference over to your speaker today Tracey grooming S V P of Investor Relations and corporate communications.
Speaker Change: Thank you.
Tracey Grooming: Everyone and welcome to the farmer fourth quarter 2020 for our conference call.
Brendan Yang: With me on the call today is Brendan Yang Chief Executive Officer, and director and Jeff <unk> Chief Financial Officer.
Brendan Yang: Before we begin please note that this call is being webcast with an accompanying slide presentation.
Brendan Yang: Today's press release and presentation can be accessed at our website the farms dot com under the investors section.
Brendan Yang: Turning to slide two 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 the statements.
Brendan Yang: The forward looking information based on certain assumptions and are subject to risks and uncertainties and I invite you to consult the farms MD&A for a complete list.
Brendan Yang: Please note that references will be made to certain measures not recognized under ifr Ias and therefore, it may not be comparable to similar measures presented by other companies.
Brendan Yang: We invite listeners to refer to today's press release, and our MD&A for definitions of the aforementioned non I have RF measures and their reconciliation to ifr measures.
Brendan Yang: Please note that all financial references are denominated in U S dollar unless otherwise noted.
Speaker Change: And now turning to slide three it is my pleasure to turn the call over to <unk>, Chief Executive Officer and director.
Speaker Change: Please go ahead.
Speaker Change: Thanks, Christy and thank you everyone for joining us today on today's call I will be discussing our 2024 and year to date 2025 accomplishments and providing an overview of what the new bed farms is focus on in 2025 and beyond.
Speaker Change: Turning to slide four.
Speaker Change: These farms is a completely different company than we were at the beginning of 2024 across nearly every dimension, we have rapidly transformed ourselves from the international Bitcoin miner to our North American energy and coffee company.
Speaker Change: Improvements speak for themselves.
Speaker Change: In our <unk> coffee portfolio since January one 2024, we've nearly tripled our tax rate to 18, six extra cash under management and improved our efficiency by 45%, reaching our Q2 2025 efficiency guidance at 19, one for Terry.
Terry: Three months ahead of schedule.
Terry: Both of these improvements were driven by our fleet upgrade which reduced the average age of our active minor fleet from approximately three years old to approximately one years old today.
Terry: In our energy portfolio over the same period, we've increased our energy capacity by over 90% to 461 energized megawatts today.
Terry: Built on energy pipeline of over 1.4, Gigawatts with nearly 80% based in the U S.
Terry: And we reduced our expected average pricing power to $4 three per kilowatt hour and achieved far greater control over energy costs through our PJM portfolio.
Terry: With higher efficiencies in our coffee portfolio and lower energy costs in our energy portfolio, we have driven nearly a 50% reduction in our house cost to roughly $22 per pet a hash this largely derisked our portfolio and provides a foundation of higher levels of profitability and cash flow through 2000.
Terry: <unk> 26 and beyond.
Terry: While we focus the company and our capital on new growth opportunities in the U S and with HBC.
Terry: Importantly, it firms is now a U S focused company with a vast majority of our pipeline in the U S. For the first time in her eight year history. The.
Terry: <unk> now represents 33% of the energized megawatts in our portfolio and this is expected to increase to nearly 80% over the coming years as we execute on our growth pipeline almost all of which is in the U S.
Terry: Our momentum has only accelerated during the first quarter.
Terry: We've closed our transformative acquisition of stronghold is remaining the largest M&A deal between two public miners in our industry.
Terry: We closed the strategic sale of our 200 megawatt equal to data center, our largest ever constructed.
Terry: We advanced our HBC and AI strategy with the engagement of two new advisors.
Terry: We hired two new critical team members and SVP of infrastructure and an SVP of HTS NII and we significantly improved our hatch rate, reaching 18, six extra hash and her management, which if ran at 100% 24, seven would be capable of producing over 10 bitcoins a day with current binding.
Terry: And which we expect to be competitive and generating free cash flow through 2026 and beyond.
Terry: We are a very different and a much stronger company today than when we started or even ended last year.
Terry: And I would now like to spend some time discussing how our two most recent transactions were such big drivers in our transformation and why they have set us up so strongly for an exciting future in 2025 and beyond.
Terry: Moving to slide five.
Terry: Just last week, we announced both the close of our acquisition of shrimp additional mining and the close of the strategic sale of our equals your site in Paraguay.
Terry: While these are two separate transactions they both fall under the same portfolio management strategy and so it is helpful to view their impact together completing these two transactions have completely transformed our portfolio and we are now bigger better and stronger as a result.
Terry: First our energy portfolio is both larger today enable to grow bigger and faster into the future.
Terry: Inclusive of the sale of our largest ever build equal do we still increased our enterprise megawatts and secured a growth pipeline of energy assets that could scale, our pennsylvania infrastructure portfolio to over a gigawatt in the coming years.
Terry: Second we are driving stronger operating economics across our portfolio.
Terry: By switching to more cost effective American energy and by managing our energy cost through the use of Pjm's robust power trading curtailment and demand response programs, we are able to reduce our number one operating expense energy.
Terry: Controlling our energy cost is critical to controlling our future and we are now able to do so with much greater scale precision and flexibility with our growing PJM portfolio.
Terry: Lastly, both of these accretive transactions have better capitalized us for 2025 and beyond for the following reason.
Terry: First the sale of Iguazu reduced our planned capex requirements for 2025 to less than $100 million 20.
Terry: 20% lower than we laid out at the start of the year.
Terry: And frees up the invested capital and profits from the sale of our <unk> site for reinvestment in the U S infrastructure.
Terry: Second we have avoided the additional significant expenses that would have been required to both complete construction energized and fill the 200 megawatt equals <unk> site with new miners, we estimate this to be a savings of $325 million in.
Terry: And third with stronghold, we acquired two fully operating sites, both of which have been upgraded over the last four months of their hosting agreements.
Terry: This transaction was primarily paid for an equity and all stronghold loans have been paid in full savings significant interest expense and preserving our financial flexibility to work with strategic financing partners for potential HBC Nat projects.
Terry: To summarize the strategic rationale for both buying stronghold and simultaneously selling equal to our two sides of the same coin.
Terry: Through these transactions, we have rebalanced our portfolio to the U S, where we expect to achieve greater yields per megawatt.
Terry: We have reduced our average cost of power across our portfolio, we have minimized capex requirements, while improving both liquidity indirect operating margins to help finance new infrastructure investments and lastly, we have secured what we believe to be highly desirable sites for HCC.
Terry: That enable us to diversify beyond bitcoin mining energy generation trading and HBC NII.
Terry: This level of portfolio management is unheard of in our industry.
Terry: Closing, a large public M&A deal simultaneously with a large strategic sale was a heavy lift and I'm incredibly proud of the <unk> team and what we have accomplished here in this quarter.
Terry: We have transformed this company in short order and is truly a testament to how much stronger the new bid farms is today and what we can accomplish in the future.
Terry: Turning to slide six.
Terry: As we look towards our future. It now looks very different than it did a year ago today with our vertical integration into power generation and having secured the largest growth pipeline in the company's history. We now need to think about our megawatts a little differently than we have in the past I.
Terry: I believe the simplest way to think about it in three buckets. The first bucket consists of 461 energized megawatts and tracks megawatts currently being monetized today. This primarily means the bitcoin mining, but as we diversify beyond decline mining. It will eventually include other use cases like HBC.
Terry: NII for.
Terry: For investors, who are interested in bid farm's current operating footprint and current cash flow out of operations. This would be the most important metric.
Terry: The second bucket consists of over 131 megawatts under development and measures megawatts that are secured for near to medium term growth. These are megawatts at or approved for development and don't require any further regulatory approvals for permits to begin development or energize for.
Terry: For investors, who are interested in near term growth potential this metric best captures that.
Terry: Third bucket consists of over 800 megawatts and the megawatt pipeline and measures the megawatts that are in process, but still require more regulatory work approvals certainty or clarity before they can be developed over a multiyear timeframe for.
Terry: For long term investors, who are interested in our growth potential through 2028. This metric best represents the company's long term potential direction and strategy.
Terry: Turning to slide seven.
Terry: This slide shows the path to over one four gigawatts of power capacity and how our growth efforts to transform our portfolio into one comprised of nearly 80% U S megawatts and 90% North American megawatts.
Terry: As you will see we have 461 megawatts energized today growing to 500 megawatts by year end the results of plant megawatts under development at both Sharon and Panther Creek Likewise.
Likewise in 2026, we anticipate growth of 92 megawatts for a total of 592 megawatts coming from Sharon Panther Creek and Washington.
Finally growth from year end 2026 through 2028.
<unk> to come from megawatts currently under study in application at Panther Creek, and scrub grass for a total of one four gigawatts.
Terry: As we look to the future and execute on our growth pipeline, we will continue to improve our portfolio composition by prioritizing the U S, Canada and those energy assets that have opportunities beyond the bitcoin. We expect this will drive both lower overall energy cost and better yields per megawatt, creating lasting value for shareholders.
Terry: Holders.
Terry: Turning to slide eight.
Terry: The largest and most exciting part of our megawatt pipeline is the gigawatt of potential in the U S. Our new focus on the U S and our American energy assets are attracting a lot of interest from investors.
Terry: Through these assets, we are opening up exciting new opportunities for bit farms in areas beyond bitcoin mining, including energy generation trading and HBC and AI that weren't possible in Latin America, and we will define this company's future for many years to come.
Terry: This gigawatt of potential is easiest to understand when separated into the tranches discussed on slide six and separating out the generation as we have done here on this slide.
Terry: At both Panther Creek and scrub grass, we have two operating power plants that are capable of producing power and selling power into the grid.
Terry: They are also able to draw down and consumed from the grid a similar quantum power that the power plants can produce.
Terry: As of today, it's not possible to monetize 100% of the power generated from the power plants and the power from the grid simultaneously.
Terry: So we will need to make further investments into the data center infrastructure and get greater clarity from FERC.
Terry: We have strong confidence that this regulatory clarity is coming and will support our site plans and while this regulatory approval processes ongoing we can choose to provide 142 megawatts of power for the existing data centers from either of the power plants or the grid at our discretion currently our datacenters are being supplied by the <unk>.
Terry: Our plants are still lower cost option.
Terry: Beyond this we also have six different power applications across the two sites that are well underway at various stages in the approval process, but cumulatively have the potential to scale. Both of these sites between 405 hundred megawatts by 2028.
Terry: Lastly, with 120 megawatts of potential Sharon is the smallest Pennsylvania site, but still bigger than any of our sites outside of Pennsylvania.
Terry: Sharon has 12 megawatts operating today, increasing to 30 megawatts in the second quarter.
Terry: Sharon also has 80 megawatts actively under development for 2026, and 10 megawatts in the pipeline that is subject to additional reviews studies and approvals for a total of 120 megawatts to three sites add up to a cumulative one gigawatts of potential.
Terry: Turning to slide nine.
Terry: I'd like to take a minute now to touch on our <unk> strategy in more detail and discuss a few key strategic moves we've made in the last few weeks that have positioned us very well to capitalize on this massive growth opportunity.
Terry: Just last week seven members from our team participated in the annual and the video GTC Conference in San Jose.
Terry: Our team was booked back to back with potential partners in this space from all angles, including financing development infrastructure and end use customers.
Terry: Most of the interest was focus on three things power land and fiber and that's what we have in spades at all three Pennsylvania sites.
Terry: Having met one on one with over a dozen respected counterparts in the space the feedback was incredibly positive and exciting.
Terry: Each site has power availability in the short term long term growth potential and multiple sources of power, including onsite generation at <unk> and Panther Creek.
Terry: Having multiple sources of energy improves reliability and reduces anticipated capex and opex for HBC and makes these sites are very appealing for potential HBC customers, especially hyper scaler.
Terry: This message was reinforced and Jensen farms address at GTC.
Terry: Power opportunities are in short supply and are the primary bottleneck on growth.
Terry: At that firms we've known this for a long period of time and it's one of the many reasons why our team was so bullish on the Pennsylvania site.
Terry: On the back of our pivot into HBC. We've also made two critical hires James bond, new SVP of HBC, and Craig Hibbard, our new SVP of infrastructure.
Terry: James is a subject matter expert in HBC NII with over 20 years of experience and joins us from Hewlett Packard, where he spent 15 years, leading our north American HBC and our infrastructure platforms category, which grew to $2 billion in 2024, representing 168% year over year growth at HPE North America, James was responsible for all.
Speaker Change: <unk> <unk> go to market activities and his experience implementing HBC solutions at scale, making the ideal candidate to lead this new chapter of that farm.
Speaker Change: <unk>, our new SVP of infrastructure has extensive experience leading large scale digital infrastructure projects and recently spearheaded the rapid design and construction of over 200 megawatts of digital infrastructure for our U S firm specializing in digital assets and Hps in AI.
Speaker Change: <unk>, Pennsylvania, Craig will play a critical role in leading the development of a rapidly expanding PJM portfolio.
Speaker Change: James and Craig will be working intimately with our strategic partners ASC and worldwide technology.
Speaker Change: To complete this comprehensive feasibility analysis and all of our North American sites and advise on our global <unk> strategy.
Speaker Change: In parallel ASC and WWE <unk> will help build accelerated sales and development strategies and market our sites on behalf of their farms to potential customers.
Speaker Change: Both of these initiatives are well underway and Asti has already delivered initial high level feasibility reports for our three PJM sites.
Speaker Change: All three reports confirm that the Pennsylvania sites are both well suited for HBC any conversion and high potential.
Speaker Change: All three are strategically located in your other data center campuses and peering hubs and they have the necessary power land and fiber infrastructure to support HBC.
Speaker Change: The cooler climate in Pennsylvania should also be expected to improve power efficiency and cost, which for HBC makes Pennsylvania megawatts more valuable per unit than the same megawatts in Texas.
Speaker Change: These three maps show the fiber connectivity at our three Pennsylvania sites Panther Creek, <unk> and Sharon.
Speaker Change: Each site has robust fiber infrastructure within 10 miles of each facility.
Speaker Change: Fiber infrastructure is one of if not the first question asked when meeting with Hyperscale and other potential partners square for US the seven Metro Networks Panther Creek has eight and Sharon has nine in close proximity.
Speaker Change: Also important to note the proximity of these PJM facilities to metro areas and long haul infrastructure like peering and interconnection hubs.
Speaker Change: <unk> and Sharon are both approximately one hour from Pittsburgh and Panther Creek, just two hours away from both New York City and Philadelphia.
Speaker Change: We expect to receive full detailed feasibility studies from our partners in Q2, our remaining North American sites.
Speaker Change: Which point, we will provide an update regarding our plans with Hp's NII.
Speaker Change: With these recent actions we now have the properties the internal team and the strategic engineering and marketing advisors in place, taking a holistic approach to advancing our HBC and AI business.
Speaker Change: Turning to slide 10.
Speaker Change: Shifting gears a bit I will now discuss our new strategy, we recently initiated <unk> one.
Speaker Change: This is a continuation with a few strategic changes of our synthetic auto program, which was launched as a pilot program in Q4 of 2023.
Speaker Change: As a reminder, that strategy involves selling bitcoin to fund the opex and capex, while preserving upside to that going through long dated bitcoin call options for between 10 and 20% of each pick one sold.
Speaker Change: This program enabled us to utilize excess bitcoin generated each month to fund our growth at a far lower cost of capital than external or dilutive funding sources, while maintaining upside to bitcoin.
Speaker Change: This program was a key source of low cost capital, enabling superior returns and outperformance to bitcoin.
Speaker Change: Since the program's inception in Q4 of 2023 through December 31, 2024, it outperformed bitcoin price and we achieved a 135% return in U S. Dollar terms generating a trading profit of approximately $18 million.
Speaker Change: Building off this proven success, we developed a more robust program, which we initiated in Q1.
Speaker Change: <unk> one.
Speaker Change: This is a quantitative investment multi strategy program that employs a disciplined approach to bitcoin accumulation through diversification and strategic leverage and market timing.
Speaker Change: Hey, Quinn one focuses on active <unk> treasury management through discretionary and rules based trading algorithms and an active managed volatility targeting program that trades crypto volatility as an asset class and harvest the risk premium that arises from that volatility.
Speaker Change: This program is positioned for the ongoing maturation, the digital asset ecosystem, providing a scalable in a risk managed solution for bit farms to monetize bitcoins volatility.
Speaker Change: We believe that the combination of the clean one and a predictable cash flow a bitcoin from our mining operations gives us a unique advantage in both markets that enable us to drive better probably stick returns and accumulate more bitcoin faster and cheaper.
Speaker Change: Turning to slide 11.
Speaker Change: In summary, we've made significant progress year to date and expect this momentum to continue throughout the rest of 2025.
Speaker Change: All of the strategic moves we've made in the last few months have been carefully considered and made with two main goals in mind.
Speaker Change: To grow our operations in the U S and to utilize our megawatts and the most value add cost effective way possible, whether that be through bitcoin mining where hp's nai.
Speaker Change: Our key strengths is acquiring and managing valuable property assets and maximizing the value of those assets through our operational excellence.
Speaker Change: I'd now like to highlight four main takeaways before I pass the call over to Jeff.
Speaker Change: First we are now in an extremely strong position, we've completely transformed our growth pipeline over the past 15 months from Latin American energy to a cheaper bigger and better U S based pipeline.
Speaker Change: Our <unk> business is strong and we remain bullish on mining economics for the mining fleet that we have.
Speaker Change: With our lower cash cost derived from a competitive energy prices and greatly improved efficiency from the fleet upgrade program, we anticipate that our bitcoin contract portfolio largely derisked the business through 2026 and should provide a strong cash flow and low Capex Foundation for the company as we look to diversify beyond the clean mining.
Speaker Change: Importantly, with this new competitive fleet that we now operate we have no need nor plans for a large minor purchase in 2025 or 2026, and we'll instead focus our efforts and capital on developing the U S energy and HBC infrastructure.
Speaker Change: Third we are taking a long term view on how to best manage our energy assets, while we remain bullish on bitcoin mining and are confident in our core business, especially in the near term and the long term, we believe HBC NII presents a meaningful opportunity to create lasting shareholder value, which is why we are taking tangible steps towards.
Speaker Change: To answer HBC business.
Speaker Change: We have now secured the properties hired the best internal team and brought in the strongest external partners.
Speaker Change: Lastly, I'd like to emphasize the importance of the significant changes we've made to our team over the past few months.
Speaker Change: With the recent hiring of our SVP at HBC, and AI and our SVP of infrastructure. We have now filled all key management positions in the company.
Speaker Change: We've also completely revamped our operational structure and as evidenced by the accomplishments in Q1, we are now beginning to reap the benefits of the strong team worked incredibly hard to build I'd like to thank all of our team members for their commitment to the <unk> submission and I've never been more confident in our team and our ability to execute.
Speaker Change: Turning to slide 12, and with that I will turn the call over to Jeff for the financial update.
Speaker Change: Thank you Ben and thanks, everyone for joining us today.
Jeff: Before I review, our fourth quarter results I'd like to underscore just how transformational initiatives been reviewed will be for our company.
Jeff: First we are better capitalized for 2025 and beyond.
Jeff: The stronghold transaction was paid primarily with equity and his outstanding debt of approximately $45 million was paid in full.
Jeff: I'll be glad to reduced our planned capex requirements for 2025 to less than $100 million.
Jeff: 20% lower than originally planned freeing up of invested capital from the sale for reinvestment in U S infrastructure.
Jeff: A big claim money business remains strong with a lower <unk> cost of our new fleet, a bitcoin mining portfolio is largely de risked and positions us to build from any potential BTC upside.
Jeff: Importantly, we have no plans for large minus purchases in 2025 or 2026.
Jeff: Our third focus our capital on developing U S energy and HTC infrastructure.
Jeff: Third our highly valued north American assets and the cash flow from our mining operations will enable us to utilize debt financing to fund our energy in HCC infrastructure development at a lower cost of capital and with significantly less dilution and equity funding, creating long term shareholder value.
Jeff: Please now turn to slide 13, let's review, our fourth quarter financial results.
Jeff: In the fourth quarter, we added 654 that coin for total revenue of $56 million up 21% compared to the third quarter.
Jeff: Revenue from our mining activities was $55 million with a balance of $1 6 million earned our Volta, our electrical services subsidiary.
Our direct mining profit was $26 million representing.
Jeff: Representing a direct money margin of 47% and an average of $39000 per day coin mind.
Jeff: Cash general and administrative expense or G&A was $14 million and included unusual and nonrecurring professional service fees of about $1 $3 million in the quarter, primarily for expenses incurred in connection with the stronghold acquisition.
Jeff: Operating loss was $16 million in the quarter.
Jeff: For the quarter the company reported net financial income of $22 million.
Jeff: Inclusive of an $80 million gain on derivative assets and liabilities.
Jeff: Largely driven by our synthetic pilot program and a $6 million gain on the revaluation of warrant liability for warrants issued in earlier financings.
Jeff: As a result net income for the fourth quarter was $15 million or <unk> <unk> per share compared to a net loss of $37 million or <unk> <unk> per share in the third quarter.
Jeff: Turning now to slide 14.
Jeff: For the fourth quarter, our adjusted EBITDA was $14 million.
Jeff: 25% of revenue compared to $6 million or 12% of revenue in the third quarter.
Jeff: As we've noted in previous quarterly earnings call. Our adjusted EBITDA is very straightforward being purely a measure of the cash profitability of our mining operations and the profit contribution of our bolt the subsidiary, we do not reflect mark to market adjustments of our bitcoin holdings or any other balance sheet valuation adjustments in our adjusted.
Jeff: EBITDA.
Jeff: Now, let's turn our attention to fourth quarter operating performance and prepared Clinton metrics.
Jeff: Gross mining profit in the quarter was $26 million or 47% money revenue.
Jeff: Direct mining costs, but bitcoin in the fourth quarter with $40800 with all in cash cost to mine at a bitcoin as $60800 compared to revenue per bitcoin earned at $83400.
Jeff: <unk> cash profit perfect client or just over $22600.
Jeff: Turning now to slide 15, I'll review, our liquidity and anticipated capital needs as of March 26, we had total liquidity of approximately $135 million the product of cash and unencumbered bitcoin.
Jeff: In addition, we have $31 million in payments from high due over the next six months from the glasses sale and are buying in our mining business remained strong generating 8 million to $12 million per month in cash from our mining activities, providing more than sufficient liquidity to fund our identified capex for 2025.
Jeff: I wish to emphasize a few important points about our financial requirements going forward first 2024, representing a one off fleet wide upgrades and investments into new miners.
Jeff: The strategic sale of our 200 megawatt glass facility reduced our 2025 capex requirement significantly.
Jeff: Over $325 million incurred.
Jeff: Including $85 million on the Buildout of the facility and an additional $240 million or so for procuring installing miners.
Jeff: Third with the garage sale done in our fleet upgrade largely complete the company has no identified plans for large minor purchases in 2025 or 2026.
Jeff: So for the balance of 2025 identified capital expenditures, including infrastructure development and the remaining deployment of our minor upgrades are projected to be under $100 million.
Jeff: With the lion's share of that capital being invested in infrastructure to increase our megawatts under management reporting 60 megawatts a day to 590 megawatts in 2026.
Jeff: Lastly, with virtually no debt on the balance sheet and strong cash flows from our mining business. We believe we have a lot of options to finance potential HBC and AI projects and are engaged in active discussions for development of our North American sites.
Jeff: Turning now to slide 16.
Jeff: Before we proceed to Q&A I'd like to Echo Ben's enthusiasm about the strong position <unk> with some market commentary on bitcoin mining economics, while we recognize a big claim price pulled back during the first quarter. We believe the current mining sector represents a potential opportunity for vessels that both publicly traded miners.
Jeff: Bed farms and here is why.
Jeff: This has price sensitivity table shows our best current estimate of money economics for 2025, and 2026 on the Y axis at different price on the X axis is current network difficulty in our forecast of narrow cash rate at the end of every quarter through 2026 with these two variables we can create a <unk>.
Jeff: Price sensitivity table.
Jeff: To make the chart more impactful, we overlaid on product directly implied direct money margin relative to the <unk> costs of $22 potato hash and our best forecast unexpected big point price range per quarter through 2026 as represented by the highlighted sections outlined in black.
Jeff: This table make it clear that when combined with competitively priced electricity like France has new Gen miners are largely insulated from big claim price pullback and are expected to generate free cash flow and even challenging macro conditions during 2025 and 2026.
Jeff: Assuming a bitcoin at $80000 today with 20 watts of <unk> efficiency and politically does for megawatt hour electricity costs and minor would achieve a direct margin of roughly 50% with substantial potential upside to rising bitcoin prices.
Jeff: A bitcoin is able to stay over $100000 or $125000 for most of 2025 direct money margins to range between 50 and 75% for the year. This is the industry that could perform quite well in 2025.
Ben: With that I'll turn the call over to Ben before we commence Q&A.
Ben: Thanks, Jeff.
Ben: Just like to reiterate for everyone that our original investment thesis on bitcoin remains unchanged.
Ben: We continue to believe that 2025 will be bullish for bitcoin mining economics, and it has high potential to create a lot of shareholder value in 2025 from our existing fleet and footprint.
Ben: We expect a probable correction and mining economics in 2026, driven by continued network cash rate growth and a correction in bitcoin price from a new all time high which we expect to set later in 2025.
Ben: This dovetails well with a more realistic expectation for bringing in HCC revenues in 2026.
Ben: Even with a 2026 correction under these conditions it would likely bring us back to similar levels of hash price economics, and direct margins that we see today.
Ben: Our healthy.
Ben: <unk> is the base case, and there is a lot of upside potential and exposure comprising bitcoin prices, especially in 2025.
Ben: Thank you and with that I'll pass the call back to the moderator for Q&A.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Ben: One moment for questions.
Speaker Change: Our first question comes from Brett <unk> with Cantor Fitzgerald you May proceed.
Brett: Hi, guys. Thanks for taking my question and congrats on the two new hires.
Speaker Change: Okay.
Maybe you can look at the stronghold sites.
Speaker Change: Clearly there is a plan for you guys to potentially.
Speaker Change: Use those were more AI HBC capacity, rather than bitcoin mining I.
Speaker Change: I guess can you just give us an update on timing there from a regulatory sense of what you guys need when do you expect to get those approvals.
Speaker Change: And to what extent this site as is today.
Speaker Change: Of interest to potential partners without those approvals or do we need those approvals.
Brett: Thanks, Brett.
Brett: Yes, so there's a couple of different buckets of energy there at the stronghold site.
Brett: As I spoke to on one of the earlier slides.
Brett: For the existing generating capacity in the existing grid import capacity there is no further regulatory approval.
Brett: To operate either of those right now we can either provide.
Brett: Our directly from the generating assets to the data center, where we can draw down a similar quantum of power from the grid.
Brett: Aware regulatory approvals come into play is when we're trying to look at a configuration for.
Brett: All of the megawatts on those sites so thats the.
Brett: The additional megawatts at or under study and application.
Brett: Which can be as fast as maybe 12 months and as long as 36 months.
Brett: Across the six different applications in the two different sites, but I think what's really interesting for.
Brett: The HBC.
Brett: To share here is that.
Brett: Immediate power capacity now in 2025.
Brett: Please.
For ACC would be available on our clients.
Our multi year growth potential and web quantities hyper scaler or HBC customers are looking to invest.
Brett: Megawatts, I think I'm sorry.
Brett: Round Alliance.
Brett: Thinking about it.
Brett: I'm going to make investment into site a year timeframe I don't want to note that Lindsay.
Brett: And our growth.
Brett: That 100 megawatts.
Brett: We're in this vertical.
Brett: Lay on a larger scale.
Brett: On a scale.
Brett: Awesome really appreciate it and then just maybe a question for you just on the Capex side.
Brett: I know you guys said you were expecting less than 100 million Capex for this year can you maybe just.
Brett: Bucket that.
Brett: I guess, how much of that is going towards bitcoin mining versus maybe how much of that is going towards infrastructure that could potentially be leveraged or used for AI.
Brett: Sure very glad to do that here. So as I mentioned, we have less than $100 million of capital expenditures more like around $95 million for the year really bread only a small portion of that is going to be going towards minus that's really more of a logistics costs associated with implementing and completing out the upgrade program that we began nationally in 2024, so around 10.
Brett: <unk> million dollars of the 95 is going towards that the balance of the money really is going towards building out the infrastructure predominantly regarding stronghold in the Shannon facilities here with a smaller portion actually happening in the Bay Cuomo and the Quebec area and some final work that's being done in Argentina as well.
Brett: Perfect. Thank you guys really appreciate it.
Brett: Thank you.
Speaker Change: Our next question goes from my colonies with HC Wainwright <unk> Company you May proceed.
Speaker Change: Good morning, Ben Jeff and team Congrats on all the progress you guys have made over the recent months here.
Speaker Change: First one the Hec side, and then you alluded to.
Speaker Change: Online on the approval and available energy, but.
It sounds like the early findings from the ACC feasibility studies are going really well.
Speaker Change: I was just curious based on conversations youre, having with prospective customers, albeit hyperscale orders or other parties.
Speaker Change: Or there are due diligence timelines like and all with a customer or most likely utilize your energy assets at those facilities would it be more of a powered shell type setup, where we can shut the data center just trying to get a better sense of the timeline to monetization if a deal were to be secured over the near term.
Speaker Change: Thanks, Mike.
Speaker Change: Yes, it's a great question when Youre looking at.
Speaker Change: Potential deals with with hyper scaler. These are not big coin miners they're not.
Speaker Change: Asking with the same sort of.
Speaker Change: Kind of aggressive growth stance, where you could get a deal done in a couple of days.
Speaker Change: These companies really spend a lot of time on their due diligence and I think an aggressive timeline would be six to nine months I think a more realistic timeline is nine to 12.
Speaker Change: And it could go beyond that as well.
Speaker Change: <unk>.
Speaker Change: Conversations are such though with our hyperscale or that you are going to know fairly early on if the if the site is not of interest to them, they're not going to spend six months too to do a quick devaluation theyre going to do a quick evaluation and see whether or not the site is worth investing time into.
Speaker Change: But to complete the full bill to <unk>.
Speaker Change: Probably a nine to 12 month estimate now when Youre looking at how do you build out the timeline and what does an actual structure look like.
Speaker Change: The opportunity here is that especially on the powered land unempowered shell components.
Speaker Change: Those are things that you can start in advance of the deal taking place and it's something that's going to be helpful for advancing the deal while the deal is going through their process and also accelerate the timelines and the expected valuation of it because the timeline to energize Asian here is really what's driving value in HBC deals.
Speaker Change: This year the.
Speaker Change: Potential capex and potential returns that you get across the scenarios.
Speaker Change: You can think of it as like a spectrum.
Speaker Change: And theyre not really mutually exclusive when you start on the lowest capex side, which is just powered land capex requirements are pretty modest.
Speaker Change: And you can get.
Speaker Change: A fairly decent.
Speaker Change: From a development.
Speaker Change: Perfect.
Speaker Change: Ashish.
Speaker Change: Operator.
Speaker Change: Al.
Speaker Change: Or the end customer lined up to start working on our powered shell.
Speaker Change: And then beyond that you have full build to suit. So really you have a spectrum of options from our perspective, you would start we'd start on powered land.
Empowered land construction can start in advance of the deal being signed and.
Speaker Change: And it would be helpful for advancing a deal with a potential hyperscale or client.
Speaker Change: Got it that's super helpful. I appreciate that and on the bitcoin mining side.
Speaker Change: As laid out to 'twenty, one extra hush target last year, just curious as to when you would expect to achieve that and then you mentioned 18 six currently operating.
Speaker Change: And then is there a potential to or is there a market environment in which you could potentially expand beyond that number I know you guys are really focused on developing the tower assets and infrastructure and just curious if let's say decline in house prices will really to saw here. If you would have.
Speaker Change: Willingness to go ahead and extending beyond 'twenty one.
Speaker Change: Yes, it's a good question, we have been making a lot of progress here on our hatch rate, especially this quarter.
Speaker Change: We're at 18 to $18 six ASIC yesterday and that number is continuing to track upwards.
Speaker Change: We're expecting to see continued progress here on our operational hatch rate over over the second quarter.
Speaker Change: The big gap here between where we are where we are today and 21 extra hash.
Speaker Change: As largely due with the minor repairs the rma's and the upgrades that have been going forward. We recently signed a smaller upgrade deal.
Speaker Change: So we're upgrading about 4000 of the miners.
Speaker Change: That'll be done in the second quarter, and it's really going to be a function of when the rma's are completed and when these upgrades are done for us to be able to push that number.
Speaker Change: Closer to 'twenty, one as possible.
Speaker Change: When it comes to future minor purchases as I said on the call. We don't have any plans right now for future minor purchases, we're really happy and confident with the fleet that we have now we think it positions us really well.
Speaker Change: For 2025 and 2026.
Speaker Change: We do have opportunities here for potentially increasing our axa hash under management.
Speaker Change: If.
Speaker Change: Other companies or customers would like to pay for the miners.
Speaker Change: Through through hosting and we can achieve I think better returns on investment.
Speaker Change: With potential hosting customers and bitcoin mining, but our focus here is really on <unk>.
Speaker Change: Directing capital to source longer.
There was more sticky long term assets like the energy infrastructure and the HBC infrastructure and we just think Thats a better allocation of capital for for 2025 and 2026.
Speaker Change: Yeah.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thanks, Mike.
Speaker Change: Our next question comes from Mike Grondahl with Northland You May proceed.
Mike Grondahl: Hey, Thank you guys.
Speaker Change: Then you said something in your prepared remarks.
Speaker Change: I just want to make sure I heard it right I think related to the Pennsylvania sites, you said 142 megawatts.
Speaker Change: We're currently available.
Speaker Change: And then you needed that clarity from FERC over the next 12 months to 36 months on the remaining.
Speaker Change: Is that correct. The 142 are available today across those three sites sites.
Speaker Change: So let me break that down a little bit more specifically, so we have a 142 megawatts of active data center capacity.
Speaker Change: Across Panther Creek, and scrub grass today, and got 142 megawatts can be provided or it can be powered up by either at the power plants or the grit and thats done at our discretion whichever is the more cost effective option.
Speaker Change: Is the one that we can we can use and we can switch back and forth as needed or as necessary over time.
Speaker Change: Expansion beyond $1 42.
Speaker Change: Is really going to be dependent on two things one investing in more data center infrastructure. So that we can consume.
Speaker Change: Power more than 142 megawatts of compute at those two sites.
Speaker Change: There is more power available at both of those two sites to build out more data center compute in 2025, and 2026 and it is part of the plans there for.
Speaker Change: For us to reach 500 megawatts by the end of this year is to develop additional power and capacity at the Panther Creek site specifically.
Speaker Change: With regulatory approvals come into place is.
Speaker Change: With regards to a configuration, where we use the <unk>.
Speaker Change: Grid connection to provide a primary power source for the data centers and then use the power plants to provide a redundant source of power to the data centers and this is something thats going through the regulatory approval process with a lot of large scale data centers.
Speaker Change: Amazon and Microsoft I think are the big ones, who are driving this effort.
Speaker Change: Berke.
Speaker Change: And Thats kind of what is going on there with the regulatory approval processes for running both of those simultaneously and then with regards to be six power applications.
Speaker Change: That's less of a regulatory approval process and more of just a standard applications process.
Speaker Change: No.
Speaker Change: Power applications in these large interconnection agreements they take time to work through the system and Theres a bureaucracy in place there.
Speaker Change: That just takes it just takes time so the fastest that we could expect I think any of these applications to be approved and move from the megawatt pipeline to the megawatts under development would be about 12 months.
Speaker Change: And on the long end for the force a full scale of the six applications, it's about 36 months.
Speaker Change: Got it thank you.
Speaker Change: And then you also mentioned.
Speaker Change: Our Q2 feasibility study.
Speaker Change: I think that related to other sites.
Speaker Change: Not Panther Creek scrub grass and Sharon, but could you just clarify that too.
Speaker Change: Yes, so we we've engaged our two strategic advisors to help us run feasibility assessments.
Speaker Change: Across all of our North American site. So they've first prioritize the Pennsylvania sites Panther Creek scrap brass and sharing but Theyre also doing Washington, and our Quebec portfolio. So.
Speaker Change: So in the second quarter, we expect to receive all of these reports for all of the sites from both of the partners and that's really going to be a crucial step in milestone here for us advancing our HPE C&I strategy because thats when we should have the full suite of information.
Speaker Change: In hand for us to be moving forward more aggressively.
Speaker Change: Got it got it okay, great. Thanks, guys.
Mike Grondahl: Thanks, Mike.
Speaker Change: Our next question comes from Brian Kinsinger with Alliance Global Partners You May proceed.
Brian Kinsinger: Hi, great. Thanks for all the details on new capital allocation strategy.
Brian Kinsinger: With the key hires in place and maybe I missed it can you update us on the HP see pilots you talked about November and maybe the timeline you expect for those projects.
Brian Kinsinger: So.
Brian Kinsinger: Yes. Good question, we haven't made.
Brian Kinsinger: Any announcement on the HBC pilot and the reason for that is because we had one potential customer who is very interested in.
Brian Kinsinger: A small 1% to two megawatt pilot project, particularly at our Washington locations.
Brian Kinsinger: That pilot project was largely going to be driven by that customer demand.
Brian Kinsinger: As we move forward with those conversations their scope and their interest went from more of a pilot project.
Brian Kinsinger: Site potential increasing the capacity for about one to two megawatts too.
Brian Kinsinger: <unk> 815 megawatts.
Brian Kinsinger: Potential capacity.
Brian Kinsinger: But it's taking it's going to take more time in order to build out whether or not that's a viable alternative for those sites and whether or not they've got the financing on their end in order to move forward. So as of right now we don't have any timeline or any plan for.
Brian Kinsinger: The pilot and when that could be developed or energized and we're going to be focusing our efforts and our capital on the.
Brian Kinsinger: Powered land and the probably the powered shell potential here and the Pennsylvania assets.
Ben: Great. Thanks, Ben.
Ben: Thank you.
Speaker Change: Our next question comes from Nick <unk> with B Riley you May proceed.
Ben: Okay.
Ben: Hey, Thanks, operator, good morning, everyone.
Speaker Change: Ben you noted the longer due diligence process for Hyperscale or his notes wondering if you could just expand a little more on customer preference should should we think about hyperscale or at the very top and.
Ben: Would that require more of the built to suit model or.
Speaker Change: Yes, I'll start there.
Ben: Yes.
Ben: It's going to be specific to the hyper scaler customer.
Ben: Certain customers.
Ben: Hyperscale errors are much more interested in build to suit certain hyperscale orders are much more interested in powered land and doing everything all themselves. It really depends on the hyper scaler in their strategy, but I think the hyper scaler.
Ben: It is the preferred way.
Ben: Way to go.
Ben: It is a bit of a trade off with a non hyperscale or.
Ben: Client you could probably achieve higher margins, but you have a less strong credit with the counterparty youre going to have higher cost of capital associated with financing the project with the non hyperscale or tenant and so when you look at the tradeoff between.
Ben: Margins and cost of capital on a project like that I think the all in blended.
Ben: Blended figure favors the hyperscale errors over.
Ben: Another counterparty, but it's really going to be site and deal and counterparty specific and so it's hard to say anything definitively one way or the other I would say in general.
Ben: The creditworthiness of a hyperscale customer in the lower cost of capital associated with the financing a hyperscale customer in the infrastructure for them.
Ben: Is likely going to provide a better <unk>.
Ben: Return and value for shareholders.
Ben: Okay.
Ben: I appreciate that.
Ben: You noted no large capex plans for bitcoin mining in 2025, but you guys have made some pretty timely minor purchases in the past. So could we see you be opportunistic gifts machines were to trade at a discount or should we think about something like that is off the table at this point.
Ben: Yes.
Ben: That's a really good question.
Ben: <unk>.
Ben: Way that we approach minor purchases I think pretty different than the way a lot of the industry does.
Ben: We've never been focused on growth for growth's sake, we've always been a company that focuses on.
Ben: Return on invested capital and trying to get.
Ben: A better.
Ben: Better deal for shareholders through not buying the most expensive miners were the most efficient miners and really focusing on those miners, where we can get a little bit of an ash and a better return.
Ben: Minor prices today, we still have not seen minor prices.
Ben: It just really at all over the last maybe 15 18 months and they stayed flat as bitcoin has gone up or down in mining economics.
Ben: Fluctuated here.
Ben: If if economics change, it's certainly something that we would we could look at but we don't expect that too to happen.
Ben: And we still think that over.
Ben: 2025, and 2026, our fleet is really competitively positioned from an efficiency and a cost perspective, we expect that.
Ben: <unk>.
Ben: <unk> price and the way that the network cash rate is going to grow at those sites are going to be generating nice margins and free cash flow for for quite some time. So there is not going to be any financial pressure.
Ben: For us to upgrade the fleet.
We're going to.
Ben: Just focus on optimizing the fleet running at the best we can and achieving those diversification.
Ben: Beyond that client objectives that we've outlined.
Speaker Change: And I really appreciate all the all the color. This morning, So you and the team keep up the good work.
Ben: Thank you.
Nick: Thanks, Nick.
Speaker Change: Our next question comes from Bill <unk> with <unk> you May proceed.
Speaker Change: Good morning, and congrats on all the progress recently for my first question, perhaps you can speak to the terms that you would expect to secure from AI HBC hosting opportunities.
Speaker Change: Maybe draw some parallels to how they may differ.
Speaker Change: From agreements that have been signed by some of your peers I think theres a lot of confusion out there in the market today.
Speaker Change: And just based on your discussions with some of these counterparties curious if you anticipate any material changes to economics or demand given the recent headlines. Thank you.
Phil: Thanks, Phil.
Speaker Change: I'm not surprised that investors are a little bit confused because there is there's been a lot of numbers thrown out there over the last couple of months.
Speaker Change: I would think that or it's our position that kind of core scientific quarterly deals are probably not likely to be repeated.
Speaker Change: And especially as you look towards potential hyper scalar customers.
Speaker Change: Deal structures can can vary wildly based on how you actually want to position yourselves for how the hyperscale and want to position themselves.
Speaker Change: Triple net leases I think are pretty common.
Speaker Change: Structures and pretty attractive structures from our perspective, when we're trying to focus on the infrastructure and.
Speaker Change: The energy aspects.
Speaker Change: It's little early and premature for us to provide any sort of specifics as to what those economics look like other than to say that.
Speaker Change: With the cost effective energy and the scale that we have in Pennsylvania as well as the <unk>.
Speaker Change: Various kind of geographical and infrastructure features of those three sites.
Speaker Change: We have no shortage of interest for those sites and I think if you look at kind of how the industry has actually performed.
Speaker Change: You have a lot of sites that have been under development, but you also have a pretty healthy ratio of sites that are being signed up for leasing the market doesn't seem to be overheated at all on the infrastructure side at least in our opinion or appear.
Speaker Change: Opinion that we've gotten from a lot of our strategic advisors. It seems to be a very healthy market and robust market and if you've got a good site and if you are able to develop the infrastructure for it on a timely basis.
Speaker Change: You are likely to youre likely going to be able to find a tenant for that site over the next year or two.
Speaker Change: That seems to be the general.
Speaker Change: Kind of.
Speaker Change: Census on where the market is I know the market.
Speaker Change: It was a little bit concerned around Microsoft's comments, but really I think thats one player amongst many.
Speaker Change: Really the opportunity here on the <unk> infrastructure has not slowed down at all.
Speaker Change: I appreciate that color.
Speaker Change: For the second question.
Speaker Change: Obviously, we've seen a shift in focus towards the North American portfolio.
Speaker Change: With plans to develop energy and HPE infrastructure.
Speaker Change: Perhaps you can speak to the remaining portfolio in South America is there a potential for further divestment in that region to fund growth in Pennsylvania.
Speaker Change: Yes. So these.
Speaker Change: It's nice that we have in Latin America are up and running they're profitable sites generating free cash flow.
Speaker Change: Besides that we have here with with equal so there was a bit of a different situation right because it wasn't it wasn't up and running it wasn't generating free cash flow. It didnt already have minor secured for it and so there was a lot of.
Speaker Change: Costs associated with securing the miners and building that side up to the full 200 megawatts and.
Speaker Change: And that's a very different proposition than keeping a profitable and free cash flow generating site online.
Speaker Change: That we don't have.
Speaker Change: An unhealthy emotional attachment to any particular site I think if the economics were compelling we're obviously going to look at it and look at all of those opportunities for creating shareholder value.
Speaker Change: That come our way.
Speaker Change: But it's a bit of a different basket to be looking at a an operating free cash flow generating site versus a site that.
Speaker Change: As nonoperating and had substantial costs associated with bringing it up and running.
Speaker Change: Thank you.
Brian Dobson: Our next question comes from Brian Dobson with clear Street you May proceed.
Brian Dobson: Hey, thanks very much for.
Brian Dobson: For taking my question.
Brian Dobson: So I mean in our view the coal miners.
Speaker Change: Cologne experience for HBC development, but as you're as you're speaking with potential clients I guess, how do you frame that.
Speaker Change: What's the reaction been about the company and so I guess past experience.
Speaker Change: Yes, it's a good question.
Speaker Change: I think when you.
Speaker Change: We have a decline in minor you're used to doing deals pretty quickly and pretty aggressively you are very opportunistic.
Speaker Change: When you are looking at the HBC.
Speaker Change: Base.
Speaker Change: Very different space people are taking a lot more effort. They take a lot more time and they do a lot more diligence before they move forward on a deal and it's very important that they do all of that because these are significantly more capital intensive projects than bitcoin mining rate for 2024, our rough cost to deploy.
Speaker Change: A megawatt.
Speaker Change: Miners and infrastructure was about $1 million, a megawatt, whereas for HBC NII youre looking at probably anywhere between 30% and $40 million depending on.
Speaker Change: The Gpus and the servers and other equipment that you're choosing to operate in and so that level of capital intensity of the does require a more stringent diligence process.
Speaker Change: If you go into these conversations without having the right resources in hand.
Speaker Change: Without being knowledgeable it's pretty easy to.
Speaker Change: Sure.
Speaker Change: Just not have that go anywhere and for the potential hyperscale or just stop taking your call. So that's why it's so important for us to engage with.
Speaker Change: If the right strategic advisors and recruit the right people internally to help us manage these processes and present, a very strong footing forward.
Speaker Change: With potential HBC customers and so far it's gone very well with our strategic advisors.
Speaker Change: And our team Barry are filling in the knowledge gaps and really bringing us up to speed very quickly on that.
Speaker Change: Educational perspective.
Speaker Change: As to what we need to do what we need to learn and how we can take our core competencies as they claim miner and apply them.
Speaker Change: This new industry with HBC NII with the greatest efficiency and outcome.
Speaker Change: Great. Thanks very much.
Brian: Thanks, Brian.
Brian: Thank you I would now like to turn the call back over to Ben <unk> for any closing remarks.
Speaker Change: Okay, well, thank you everyone for joining today.
Speaker Change: I'd just like to reiterate one more time, just how significant the strategic moves we've made over the last few months are.
Speaker Change: Nearly every dimension we have rapidly transform this company and are now a U S focused energy and come to your company with a strong underlying decline line business and exciting potential to expand into HBC in AI in 2025 and beyond.
Speaker Change: We look forward to keeping you up to date on our progress.
Thank you very much.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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