Bitfarms Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 10 speakers on the call.

Operator

Good morning, everyone, and welcome to Bitfarms' 2nd Quarter 2024 Financial Results Conference Call. At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Tracey Krumi, Senior Vice President, Head of IR and Corporate Communications. Ma'am, the floor is yours.

Speaker 1

Thank you. Good morning, everyone, and welcome to Bitfarms' Q2 2024 conference call. With me on the call today is Ben Gagnon, Chief Executive Officer and Jeff Lucas, Chief Financial Officer. Before we begin, please note this call is being webcast with an accompanying presentation. Today's press release and our presentation can be accessed at our website, fitfarms.com, under the Investors section.

Speaker 1

Turning to Slide 2. I'd like to remind everyone that certain forward looking statements will be made during the call and that future results could differ from those implied in this statement. The forward looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult Bid Farm's MD and A for a complete list. Please note that references will be made to certain measures not recognized under IFRS and therefore may not be comparable to similar measures presented by other companies. We invite listeners to refer to today's press release and our MD and A for definitions of the aforementioned non IFRS measures and their reconciliations to IFRS measures.

Speaker 1

Please note that all financial references are denominated in U. S. Dollars unless otherwise noted. Importantly, I would like to highlight that we are unable to comment on the ongoing legal process with RIOT platforms outside of what has already been disclosed. I would also like to add that we will be attending the following upcoming equity conferences: H.

Speaker 1

C. Wainwright's 26th Annual Global Investment Conference taking place in New York City from September 9 to 11 and the AIM site in Dubai taking place from October 21 to 22. If anyone would like to meet with us on those dates, please contact me or a sales representative from the firm. Now turning to Slide 3, it is my pleasure to turn the call over to Ben Gagnon, Chief Executive Officer. Ben, please go ahead.

Speaker 2

Thank you, Tracy, and thank you everyone for joining us today. I am so excited to have stepped up into the Chief Executive Officer role. This has been my personal ambition for the past several years and it is truly an honor. As this is my first conference call as CEO, I would like to give a quick background on myself for those of you who may not know me. 14 years ago, I discovered Bitcoin.

Speaker 2

And 9 years ago, I began working full time in the mining industry. I started from the very bottom, investing every dollar I add to build and operate a mining facility in Mainland China of my own design. Since then, I've been through multiple bull and bear markets, 3 have an epochs and have seen and been involved with every aspect of this industry, from the mining floor to the C suite of 1 of the largest publicly traded mining companies globally. I've been with Bitfarms for 5 years and for the last 3 years served the company as Chief Mining Officer, where I oversaw mining operations and strategy and work intimately with every department in the transition into this new role has been smooth and well received among our team and external stakeholders. Turning to Slide 4.

Speaker 2

Over the past 30 days since my appointment, I set aside time to speak with every key employee at Bitfarms. In addition to all of our key partners and many of our investors. From these conversations and from my 1st months in the new role, I would like to share the following key points. We are excellent builders and operators. Our team is highly skilled and passionate, but more importantly, they believe in the bid farms vision.

Speaker 2

From site teams through senior management, we are happy to stay up late and get up early in the morning to do the hard work that is necessary as a miner. Bitfarms is a meritocracy and a lot of our staff have risen through the ranks due to their proof of work. Everyone here is incredibly excited to be a part of building the new Bitfarms And there is so much energy in the air right now that we could probably mine a block with it. This energy and excitement is also shared by our external stakeholders. Over the last few years, I have had the pleasure of representing the company with sell side analysts, institutional investors and in public speaking forums during which time I've gone to know many of you and many of you have gone to know me.

Speaker 2

I am a known and trusted entity. Our energy portfolio and strategic approach to growth sets us apart. We manage what I believe is the best and largest internationally diversified portfolio of energy contracts in the Bitcoin data center business. We have been able to organically grow our footprint globally, while adhering to the decentralization ethos that is core to Bitcoin and the profit maximalism that is core to Bitfarms. Our exposure to different geographies, different sources of energy and providers, different climates, different government authorities significantly de risk our portfolio and we lead nearly every market we operate in at scale.

Speaker 2

Lastly, the opportunities ahead of us to continue to grow and create value for shareholders are second to none. We believe that we represent one of the best opportunities for investors to gain high quality exposure to Bitcoin's upside through our fleet upgrade program as we continue to scale up our highly efficient operations and as we continue to gain market share. That being said, there are always ways to improve and to grow more efficiently and more effectively. And while we are growing at a tremendous rate, I have identified areas where our organizational structure can be revamped to better match the scale at which we are operating as well as our ambitions to grow into the future. In the coming weeks, we will be reorganizing some of our teams to provide an even stronger foundation that supports an accelerated growth trajectory.

Speaker 2

Additionally, sometimes in the pursuit of growth, it is easy to miss out on smaller optimization opportunities. One question I asked every employee was what is the low hanging fruit that you see? Numerous team members throughout the organization have suggested sometimes simple, but powerful ideas to improve and optimize performance. In addition to our focus on growth, we are also implementing systems that will drive continuous optimizations throughout the organization with a focus on cost effectiveness. It is important to highlight that our 2024 growth plan and growth targets are not changing with my appointment to CEO.

Speaker 2

As Chief Mining Officer, I was the key architect behind our fleet upgrade and growth plan this year and we remain committed to reaching 21 exahash and 21 loss per teraash by year end. That being said, we are not stopping at 21 exahash. I am also laser focused on growth into 2025 and beyond. With our new strategic plan, the Board has determined to end the strategic alternatives review process. The company is certain that the best path forward to maximize value for all shareholders is to move forward with our standalone plan.

Speaker 2

While it is too early to provide specifics today, I'd like to comment on some of the key initiatives I will be focused on moving forward. 1st, I'm committed to continued diversification of our portfolio. This means both geographic diversification and diversifying beyond Bitcoin Mining. Our greatest asset is our portfolio of competitively priced energy assets. As portfolio managers, we are constantly reevaluating how to maximize the value of these assets.

Speaker 2

This doesn't mean pivoting away from Bitcoin, but expanding into synergistic business lines that will increase our profitability and make us better Bitcoin miners. Some examples include HPC and AI, heat recapturing and recycling, energy generation and of course, energy trading. To reiterate, these activities will not detract from our Bitcoin mining operations, but rather be integrated into our portfolio in order to make us more efficient and more profitable. 2nd, over the past 2 years, we have focused on developing our international portfolio. In 2025 and beyond, we will be largely focusing on increasing our U.

Speaker 2

S. Exposure. We anticipate that our recently announced deal in Sharon, Pennsylvania will just be the first of many new sites in the U. S. 3rd, we will be pursuing more minor purchases with creative structures that give strategic advantage to Bid Farms.

Speaker 2

By way of example, last year, we were the 1st mining company to negotiate and announce a minor purchase option with Bitmain that gave us the right, but not the obligation to purchase a significant amount of miners at locked in competitive prices. This structure was so advantageous that nearly every one of our peers followed suit with their own option in the weeks months after we announced. As we look to the new highly efficient miner models currently being announced, investors can expect Bitfarms to continue leading the industry and utilizing and developing new highly accretive structures that maximize flexibility and value creation for our shareholders. Turning to Slide 5. We are on track to deliver record Hash rate growth and efficiency improvements in 2024 And we continue to execute on this growth plan in quarter 2.

Speaker 2

Here you will see a snapshot of where we are and where we plan to be by year end 2024 year end 2025. In Q2, we increased our 20 by 220 megawatts with agreements in Paraguay and the U. S. We grew our Hash rate 70% from Q1 and Hash rate growth will continue to accelerate in the second half of twenty twenty four and into 2025. I'll let Jeff speak to the financial results in more detail, but I would like to highlight that we have a strong balance sheet with $195,000,000 total liquidity at the end of Q2, over 1,000 bitcoins at the end of July and a 2024 growth plan that is fully funded.

Speaker 2

Turning to Slide 6. Let's talk a little bit more about our new U. S. Site, Sharon. We are so excited about this site for a number of reasons.

Speaker 2

First, Sharon will be our 1st mega site in the U. S. With over 120 megawatts of total capacity. This single location will increase our U. S.

Speaker 2

Footprint sevenfold from 20 megawatts to 140 megawatts and kick start our aggressive U. S. Growth plan. 2nd, Sharon is located in Western Pennsylvania, which is close to major metropolitan areas like Cleveland, Pittsburgh, Philadelphia, and New York and is in close proximity to major fiber lines. Pennsylvania is a conservative business friendly jurisdiction with a notably pro Bitcoin and pro energy Democratic governor.

Speaker 2

3rd, the PJM grid is the largest wholesale electricity market in the U. S. Offering abundant access to competitively priced and flexible power that is attractive for multiple uses, including Bitcoin mining, energy trading and even HPC and AI. 4th, for Bitcoin mining specifically, the site supports over 8x of Hash with the latest generation miners and there are significant curtailment, demand response and energy trading opportunities available to effectively hedge our energy costs and bring down the total cost of power. Further, as PJM is rapidly adding renewable capacity and significantly contributing to the decarbonization of the grid, these grid stabilization programs make the site both economically and environmentally sustainable.

Speaker 2

Given these significant advantages, we are actively engaged in assessing additional new opportunities to expand our presence within the PJM region. In addition, based on numerous conversations with potential partners, we believe this site is very well suited for HPC and AI. 1, the PJM market has a very reliable power and the grid is much less prone to the weather related stresses that you'll see in Texas. 2, accessible fiber lines support connectivity and redundancy in close proximity to the 4 major metropolitan areas I mentioned previously. 3, the site is located in a deregulated market and is not tied to any one power provider, providing unparalleled flexibility.

Speaker 2

4, we have not yet started construction on the site and so we maintain 100 percent flexibility in terms of the build out plan. We have a clean slate and would not have to incur retrofitting expenses. This also allows for an expedited deployment schedule capable of meeting AI customers aggressive timelines. We have in fact received so much interest over the past few weeks for U. S.

Speaker 2

Sites in this 100 Megawatt speed spot that I'd like to spend a minute here discussing the HPC and AI opportunity. Turning to Slide 7. The HPC and AI opportunity is a very exciting one that has been monopolizing the headlines for the past few months and rightfully so. Bloomberg and UBS cite a total addressable market for the AI cloud GPU services of $28,000,000,000 in 2022, growing to $420,000,000,000 in 2027, with related AI infrastructure growing 8 fold from $26,000,000,000 to $195,000,000,000 over the same time period. We own and operate a portfolio of high quality energy assets that are currently monetized for Bitcoin mining.

Speaker 2

But when we take a step back and look at how we get the most value and utilization out of this portfolio, we believe that HPC and AI has real potential. Recent HPC and AI deals are posting revenues from approximately $140 to $2.10 per megawatt hour. These are potentially very attractive and stable high margin revenue streams not correlated to Bitcoin prices. Comparatively, Bitcoin mining with T21 minuteers yesterday on August 7, yielded approximately $80 per megawatt hour. Properly timed, we still believe that investments in Bitcoin mining provide a better return on invested capital compared to HPC and AI due to their materially lower CapEx requirements and upside exposure to Bitcoin prices.

Speaker 2

That said, we believe that the most attractive opportunity is a combination of the 2 with a potential integration in Q4 2025 or Q1 2026. This would potentially provide us increased diversification and exposure to varied revenue streams and what this has historically been the top of the Bitcoin bull market cycle and aligns with HPC customers' timelines. We are still in the early stages of evaluating the opportunities here, but we believe that our North American sites have the potential to be very well suited for these activities. To help us evaluate and develop this vertical, we are currently recruiting for HPC and AI talent, ensuring we have the expertise to capitalize on this huge opportunity. Additionally, our very active corporate development team who is constantly assessing new energy assets are now evaluating all opportunities through multiple lenses, including the HPC and AI lens.

Speaker 2

The key thing to drive home here is that HPC and AI will not replace Bitcoin mining for us, but rather seek to complement our current operations in order to create the most upside and value for our shareholders in line with historical market cycles. Moving to Slide 8. I would now like to switch gears and tell you about our progress to 21 exahash and 21 wasp perterahash year to date. While we did experience temporary delays in hitting our mid year target 12 exahash, we did hit our efficiency target 25 wells per terraash, representing a 19% improvement quarter over quarter and a 29% improvement year to date. The 12 exahash milestone was delayed due to some temporary equipment delays as well as a batch of nearly 3,000 minuteers representing approximately 700 petahash that underperformed in even low temperatures.

Speaker 2

The delayed equipment has since been received and installed and these issues have been addressed with Bitmain and are not expected to be present in future batches of miners including our August deliveries. Bitmain is also rapidly replacing these 3,000 minuteers with new units at their expense. These new miners are expected to arrive and be installed in 3 weeks. Our facility upgrades have also progressed rapidly and nearly all of our sites in Canada have now been upgraded, resulting in up to a 52% improvement in energy efficiency per site and a 29% improvement in energy efficiency across the company. With 7 of 11 data center upgrades now complete, the only remaining facilities to be upgraded are Villa Rica, Magog, Washington and Argentina.

Speaker 2

PDUs are currently being shipped to Villa Rica and Magog and new T21 minuteers are scheduled to be sent in the coming days with upgrades at both sites scheduled to be completed in September. Works are also progressing in Washington, which is both a data center upgrade and an expansion. Final works are scheduled to be completed in November. Lastly, in Argentina, we are currently working on a revised data center upgrade to marginally expand the total capacity of the site from 54 megawatts to 62 megawatts. With this expansion to 62 megawatts, we now expect this upgrade to be finalized in December or January.

Speaker 2

The 1st batch of PDUs and miners are being shipped to Argentina this month, and we are scheduled to begin seeing improvements in hash rate and efficiency as early as October. On miner deployments, we have now deployed approximately 48% or 42,000 of the 88,000 minuteers that we ordered for 2024. These miners were mostly deployed in facility upgrades and this replacement of our older less efficient hardware is largely responsible for a rapid improvement in energy efficiency year to date. Roughly half of the remaining miners will be deployed in the 4 remaining data center upgrades just mentioned, further improving our energy efficiency down to our target of 21 watts per terahash. The other half will be deployed in our new constructions and will be responsible for most of the remaining hatch rate growth to 21 exahash.

Speaker 2

In terms of construction progress, we've made significant strides to date in 2024. I am pleased to report that our 70 megawatt site at Paso Pay is now fully online and is our largest site by both Megawatts and Hashrate. Our 12 Megawatt expansion in Bay Como is well underway and is on track to be energized in September. In Iguazu, we started the year with 100 megawatts contracted and have since doubled the contracted capacity to 200 megawatts. This site will represent the largest site in our portfolio in 2025.

Speaker 2

In terms of construction progress, we have now completed all of the necessary purchase orders and broken ground in 7 of the warehouses. We expect 100 megawatts to come online in December, contributing approximately 5x of Hash with 20 watts per Terahash efficiency and an additional 100 megawatts to come online in the first half twenty twenty five. Turning to slide 9. I would like to share with you some beautiful aerial photos of Iguazu that show the tremendous progress we have made. 4 months ago, this was just a soy field and in 5 months it is expected to be between 1 half and three quarters of a percent of the entire Bitcoin network powered entirely by renewable energy.

Speaker 2

From breaking ground to energization, the construction schedule is only 9 months, far faster than what is possible in the U. S. The rapid scale at which we are developing the site is unparalleled and is an incredible testament to our amazing team and capabilities. Turning to slide 10. I'd like to take a quick moment to welcome Fannie Filip to our Board of Directors.

Speaker 2

Fannie is a recognized expert in the blockchain technology field and an accomplished financial executive with an extensive background in audit, public company reporting and M and A. Her skill set will be invaluable as we continue to drive organic and inorganic growth. Fannie represents our 5th Director, 4 of which are now independent. Turning to Slide 11. I will close out with a summary of our impressive growth stats and trajectory for 2024 2025.

Speaker 2

In 2024, we will be tripling our Hash rate, increasing our operating capacity by 83% and improving our efficiency by over 40%. These are industry leading benchmarks and numbers that I am incredibly proud of. We will continue to build on this growth in 2025. We've already added an additional 2 20 megawatts to our energy portfolio, supporting over 35 ex of Hash and stay tuned because there is more to come. And with that, I will turn to Slide 12 and turn the call over to CFO, Jeff Lucas.

Speaker 3

Thanks, Ben, and thanks everyone for joining us today. I want to underscore the great advantage of having Ben as our CEO. As a long standing veteran of Bitfarms and the architect of our growth and profitability improvement programs, we are under his leadership positioned to develop and act quickly in our initiatives. In such a fast evolving environment, this is essential to keeping bit farms on the cutting edge of our industry. Now let's begin with an overview of our Q2 financials.

Speaker 3

2nd quarter revenue of $42,000,000 was down 16% quarter over quarter and up 17% year over year. The change was due primarily to the decrease in block rewards following the April halving. During the quarter, we earned 6 14 Bitcoin, 35% fewer quarter over quarter, primarily the result of the having and a 10% increase in average network difficulty. Mining revenue was $40,000,000 compared to $49,000,000 in the prior quarter. Gross mining profit was $21,000,000 or 51 percent of mining revenue, down from $31,000,000 or 64% last quarter and up from 48% in the prior year quarter.

Speaker 3

General and administrative expense, excluding non cash stock based compensation and the sales tax refund was $13,000,000 a comparison of $10,000,000 in the Q1. The $3,000,000 increase pertained primarily to unusual costs associated with the strategic alternatives review process, our response to Riot Platform's hospital takeover bid and the shareholder rights plan, as well as fees associated with the employment competition dispute with the former CEO. For the Q2, our operating loss was $24,000,000 largely unchanged from the Q1. The operating loss includes $57,000,000 of depreciation expense and older miners made the $39,000,000 depreciation in the Q1. Under our upgrade program, our existing miners are being depreciated on an accelerated basis over the remainder of their expected operating life as they are replaced with more efficient miners.

Speaker 3

As such, a higher level of depreciation was expected in the first and second quarters of this year. Depreciation expense is projected to normalize during the 3rd 4th quarters as the minor replacement program was largely completed by the end of June. In the Q2, financial expense includes a $1,000,000 non cash expense for the revaluation of financial liabilities or warrants issued in earlier financings compared to a $9,000,000 non cash gain and the revaluation of this financial liability in the Q1. Under IFRS, we are required to recognize the liability for these warrants even though they cannot and will never be settled for cash. Net loss for the Q2 was $27,000,000 or a loss of $0.07 per share compared to a net loss of $6,000,000 or a loss of $0.02 per share in the Q1.

Speaker 3

Now let's turn our attention to operating performance and per bitcoin metrics. Our corporate cost of electricity for the quarter was $0.43 per kilowatt hour. That's an increase from $0.041 per kilowatt hour in the Q1. Quarter over quarter, we benefited from the Canadian Revenue Agency ruling that allows us to recover the 15% VAT on our Canadian electricity purchases, which we calculated reduced our overall electricity cost by about 0.4 10ths of a 10 per kilowatt hour. This savings was offset by higher electricity costs in Argentina as we shifted from lower summer to more expensive winter rates beginning in May and also a 3.2% increase in Canadian electricity rates effective April 1.

Speaker 3

Importantly, with our improvement in electrical efficiency from an average of 35 watts per terra hash in the Q1 to 28 watts per terra hash in the 2nd quarter, our electricity cost per terahash decreased by 17% from $0.06 per terahash per day to $0.03 per terahash per day. Our direct mining cost per bitcoin in the 2nd quarter was $30,600 Our total cash cost to mine bitcoin was $47,300 and our revenue per Bitcoin was $65,800 resulting cash profit per Bitcoin of $18,500 Turning now to Slide 14. For the 2nd quarter, our adjusted EBITDA was $12,000,000 or 28 percent of revenue compared to $23,000,000 or 46 percent of revenue in the Q1. The lower adjusted EBITDA largely reflected the impact of the having along with higher G and A expense associated with the expansion of our operating activities. As we've noted in previous quarterly earnings calls, our adjusted EBITDA is very straightforward being purely a measure of the cash profitability of our mining operations and the profit contribution of our Volta electrical subsidiary.

Speaker 3

As an IFRS filer, we do not mark to market our Bitcoin Holdings and we do not include this or any other balance sheet account valuation changes in our adjusted EBITDA. Stated simply, our adjusted EBITDA of $12,000,000 in this quarter equates to cash profit per Bitcoin of $18,500 multiplied by the 614 Bitcoin we mined during the quarter, plus approximately $300,000 of profit from our Volta Electrical subsidiary. Turning now to Slide 15. At June 30, we had total liquidity of $195,000,000 consisting of cash of $139,000,000 in Bitcoin valued at $57,000,000 As you've noted previously, our program to achieve our year end 2024 targets of 21 exahash and 21 watts per terahash is fully funded. At July 31, we held 1016 Bitcoin, up from 905 Bitcoin at the end of June.

Speaker 3

Our higher bitcoin treasury balance reflects our solid cash position and strong cash flow from operations. Further, our synthetic HODL continues to grow, increasing from 2 8 equivalent bitcoin at the end of June to 333 bitcoin currently. As a reminder, under our synthetic HODL strategy, we utilize excess Bitcoin generated each month to fund our growth at a low cost of capital while maintaining upside potential by applying a portion of the proceeds towards the purchase of long dated Bitcoin call options. In regard to our ATM facility, which we initiated in March and used solely to fund our growth initiatives and fleet upgrade, we raised $136,000,000 in the Q2. Since June 30, we have raised an additional $68,000,000 under the facility.

Speaker 3

Moving on to Slide 16, I'll turn the call back over to Ben for a quick summary.

Speaker 2

Thanks, Jeff. Turning to Slide 17. Before opening up the call for questions, I want to drive home a few key points. We continue to dramatically alter our operating profile via ongoing fleet upgrades and our geographic expansion. This transformation will only accelerate as I work with the team to continually diversify our assets.

Speaker 2

We are taking a close look at all of our megawatts and evaluating several opportunities to expand beyond Bitcoin mining including HPC and AI. We have industry leading Bitcoin mined for Exahash and industry leading efficiency. We will continue to distinguish ourselves by improving our operational efficiency and growing our profitability in this highly competitive industry. I am very confident in our growth prospects and look forward to updating you as we 1, continue to execute on our 2024 growth plan and 2, continue to build out our team and expertise to ensure we are well positioned to capture additional market share both within Bitcoin Mining as well as within synergistic and additive business lines. With that, I will hand the call back to the operator for Q and A.

Operator

Certainly. Everyone at this time, we're conducting a question and answer Your first question is coming from Mike Colenese from H. C. Wainwright. Your line is live.

Speaker 4

Hi, good morning guys and congratulations again on your So then for me, my first question and follow-up really around market trends here. You always have great insights. So I wanted to get your views on hash prices here, which just hit all time highs excuse me, all time lows last week at around $0.035 a terahash. Do you think we've reached the bottom here? And as a follow-up to that, how does the current market environment influence your decision and timing to execute on some of these non mining related opportunities over the near term, if at all?

Speaker 2

Thanks, Mike. Yes, it's a great question. Obviously, the pullback in Bitcoin price has an effect on Hash price. And something that we've been talking about for a very, very long period is hash cost, right? Simply put, that's a very simple measure.

Speaker 2

We're combining the watt per terahash efficiency of the miners or our fleet combined with the electricity cost that's powering it. And when you look at our $0.043 average electricity cost that we had in Q2 and you combine it with the $0.25 loss per terahash that we entered the quarter, that gives you a direct cash cost around $0.027 So even with those pullbacks, we still remain cash flow positive in our operations on a direct mining basis. When we look towards how the market is responding, what we said for a long time is we think that the market starts responding in between $0.04 $0.05 And that's exactly what we've seen happen. If you keep track of kind of how the blocks are progressing and what that implies for difficulty changes at the end of the cycle, What you can see is that on Friday prior to the major pullback, we were expecting a difficulty adjustment kind of around negative 1%, and now we're trending significantly upwards, I think it's somewhere between 3% 4%. This is happening halfway through the difficulty adjustment cycle, which means that to have that impact, it requires that much more hash rate in order to have a meaningful reduction.

Speaker 2

So yes, now we're between negative 3.8 and negative 4.7. So the market is responding by either turning off miners or under clocking those miners. We think that with our fleet upgrade and our competitively priced electricity, we've positioned ourselves very, very well and have shielded ourselves from a lot of these events. And short term Bitcoin price is going to do what it's going to do. But long term, we believe that our growth and Hash price is going to be well justified.

Speaker 2

And we're potentially if the historical cycles play out, we're going to still see significantly higher hash prices in the months to come.

Speaker 4

That's really great color. And just as the follow-up there, does this influence or accelerate your decision to start to look at executing some of these non mining related opportunities in the pipeline, be it HPC, AI?

Speaker 2

When we look at the HPC and AI opportunity, we see a lot of potential here achieve a high value revenue stream. But just to be clear that the timelines for integrating and building out that infrastructure is at least 12 months away. Personally, I think that is actually a very advantageous timeline, because when you look at the value that you would get out of a T21 for instance, with current hash price at $0.04 it's roughly $80 a megawatt hour. But if hash price were to go up to $0.08 it would be $155 a megawatt hour. If it went up to $0.12 it would be $2.30 a megawatt hour.

Speaker 2

And if it went up to $0.16 it would be $31 $3.10 a megawatt hour. So there's still a lot of potential for Bitcoin prices and Bitcoin mining economics in a Bitcoin bull run. And we don't necessarily want to rush and pay a premium to diversify away from that. But continuing with the same timelines of roughly 12 ish plus months, really means that we might be able to integrate these diversified revenue streams towards what we would expect to be the top of the Bitcoin bull market cycle according to historical trends. And that timeline is something that I think is very, very compelling.

Speaker 2

Great.

Speaker 4

Thank you for taking my questions.

Speaker 2

Thanks, Mike.

Operator

Thank you. Your next question is coming from Mike Grondahl from Northland Securities. Your line is live.

Speaker 5

Hey, guys. Thanks and congrats, Ben. On the HPCAI strategy, what pieces do you still have to put in place there to kind of execute on that? You talked about recruiting a team. Do you have you had discussions with hyperscalers?

Speaker 5

And kind of give us a sense of the timeline and some of the pieces you still need to put together.

Speaker 2

Thanks, Mike. Yes, it's a great question. We are great builders and operators of electrical infrastructure. So when it comes to building out the facility and building out the substations and doing the interconnection work and doing the maintenance, we're fantastic at that. The area where we need to bolster our bench here is the area of HPC and AI specifically because the data centers required for HPC are fundamentally different than the Bitcoin data centers that we are specialized at building and operating.

Speaker 2

So we do need to bring in more talent in order to help us properly evaluate and develop these opportunities, which we're actively recruiting for now. But this is more specifically regarding the data center engineering for HPC as well as the data center management. It's going to require different systems, different technology, different equipment, different software. And those are things that we either need to bring in house or partner with a third party. We have had numerous discussions with both hyperscalers and third parties to work with on different projects.

Speaker 2

But we're still in the early days of evaluating that. And I think for us, that timeline that most of the HPC, NAI and hyperscalers are targeting of kind of a Q4, 'twenty five, maybe Q1, 'twenty 26 is ample timeline for us to bring the proper expertise into their arms, integrated into our team, evaluate the various partners to be working with and identify and start working towards the right deployment at the right location for a target maybe at the end of next year or the beginning of next year or beginning of 2026, sorry. Got it. And then just

Speaker 5

one more, with the 120 Megawatts in Pennsylvania, do you have a goal, something aspirational like you would, I don't know, like to get another 100, another 300 of committed megawatts in 25 in the U. S. How do we think about what you want to do next in the U. S?

Speaker 2

Yes, it's a great question. When you look at our portfolio of energy assets, what you'll see is that right now the U. S. Is very underrepresented. We only have currently active and hashing the 20 megawatts that we have in Washington.

Speaker 2

But we do have, I think, the best developed international portfolio. What we'd like to do next year is rebalance that portfolio with much greater emphasis on United States. But we're not going to pursue growth opportunities that are too expensive or don't make sense for us. We're very, very disciplined and selective in choosing growth opportunities that we think are long term economically sustainable. And that means that we're not targeting a specific megawatt.

Speaker 2

What we're targeting is a specific profile. And that profile is a long term competitive energy profile that is not just suitable for Bitcoin, but is suitable for multiple applications. And so I can't provide a specific megawatt number that we're targeting, but what we are looking to do is constantly integrate competitive energy prices that are going to help us manage our energy price and drive those costs lower across the entire portfolio.

Speaker 5

Got it. That's helpful. Hey, thank you.

Operator

Thank you, Mike. Thank you. Your next question is coming from Lucas Pipes from B. Riley. Your line is live.

Speaker 6

Thank you very much, operator, and good morning to everyone. This is Fedor Sabolene asking questions on behalf of Lucas Pipes. First of all, Dan and Jeff, congrats on the good progress this quarter. And my first one is on your Sharon site in Pennsylvania. So last week, PJM held an auction and prices in 2025, 'twenty six was roughly 10 times higher compared to 2023, 2024.

Speaker 6

And so the question is where are you right now in terms of power supply for this site and how are you going to negotiate it? Is it going to be PPA or something else? And what pricing range do you anticipate per megawatt hour here? Thanks very much for your perspective.

Speaker 2

Thanks, Fedor. When we're looking at the Sharon site, one of the benefits there is that we do have, as we said in the call, we have multiple different power providers that we can work with at that site. We haven't locked in prices or power provider yet. But what we do know is that because of the reduction of thermal generating assets in PJM and because of the increase in renewable assets, what that means is that there's a lot more opportunity around the energy trading specifically. The capacity auctions that you're referencing are referencing what is the value that these very reliable baseloads are able to secure.

Speaker 2

And the reason why that has increased so much is because of the massive reduction in thermal assets that is taking place and replacement with those renewables. And so we haven't locked in a fixed price, and it would be hard to guarantee exactly what that price will be because the prices are subject to a lot of change. But what we do know is that it increases the amount of opportunity around trading the energy.

Speaker 6

Got you. Thanks very much. And my follow-up is on HPC signed, just a little bit more details here. But beyond what you mentioned in the release, you touched on cadence and things in that segment, but other players already building HPC capacity, some AI cloud. And what is your perspective on how you're going to use some of your capacity for this purpose just potentially?

Speaker 6

Is it going to be HPC or AI cloud you're going to purchase GPUs for your own use or going to be just kind of mix of it? And where it will be possibly deployed additionally to Sharon? And what's your plan? And the important one is what's your plan to finance this capital intensive segment? How are you going to use ATM or debt?

Speaker 6

Thank you.

Speaker 2

Another great question, Fedor. I mean, when you look at the different compute markets, very clearly the capital requirements associated for HPC and AI are significantly different. When we look at what is our rough cost to build out 1 exahash of compute power sorry, 1 megawatt of compute power with T21, so it's roughly $1,000,000 a megawatt. Just to build out the infrastructure for HPC and AI, most estimates are putting it at $10,000,000 a megawatt or more. When you include the value of the compute in that, it can easily go up to $30,000,000 to $40,000,000 a megawatt.

Speaker 2

We don't have any interest in buying the actual HPC and AI compute, but we have an interest in is developing, owning and operating the infrastructure that provides the power to the HPC NAND compute. And there are so many hyperscalers and so many companies right now trying to deploy GPUs that we don't have to worry about how those we don't have to worry about the actual value of the Compu hardware and who's going to pay for it because there are so many parties who want that space and who are valuing the infrastructure. Our core competencies and strengths is on building and operating energy infrastructure. So that's where we're going to focus our efforts. When it comes to the financing question, I mean, this is still very much open to very different structures.

Speaker 2

But what I can say is that based on the numerous conversations we've had with different parties so far, there is no shortage of different financing opportunities and financing structures available to help finance the construction of these different infrastructures and these different opportunities.

Speaker 6

Got you. Thank you. Thanks very much for your perspective and best of luck in 3Q.

Speaker 2

Thank you so much.

Operator

Thank you. Your next question is coming from Martin Toner from ATB Capital. Your line is live.

Speaker 7

Good morning. Thanks so much for taking the question. You mentioned not having broke ground in Sharon and that that creates some flexibility for you. Can you talk to how long you're willing to wait before you need to start committing to Bitcoin specific infrastructure development in Sharon? And the possibility of that putting pressure on your 2024, 2025 exahash target?

Speaker 2

Sure. So there's 2 different components to Sharon. 1, there's an immediately available 12 megawatts, which we're going to be we're still finalizing the electrical plans for that and the site plan, but we'll be dropping in containers for that site to quickly deploy 12 megawatts by the end of the year. For the remaining capacity for that 120 megawatts, we have to build out the substation. We're expecting to break ground on that at the beginning of next year.

Speaker 2

And when we look at when we naturally need to start building out and finalizing what we're doing there with the data center and the allocation of those megawatts, we really need to have that decision or be working towards that decision within Q4 with hopefully a final decision sometime at the end of Q4 or at the beginning of Q1 if we want to meet those timelines at the end of 2025.

Speaker 7

That's great. Yes, I mean, put your words in your mouth. Some of the initial build out is the same regardless of HPC or Bitcoin mining?

Speaker 2

Yes. For the first 12 megawatts, since there's already location since there's already capacity there, it's a very, very quick build out. We are just going to drop to containers for the both for the convenience, the speed and also the flexibility that if we do want to convert those 12 megawatts later, they can be repurposed at a different location.

Speaker 7

Fantastic. And can you talk about whether or not you have the building capability in Pennsylvania and the necessary materials like access to materials for the substation, transformers, switches, etcetera, to be able to deliver that HPC compute in your stated timeline, which starts at 12 months?

Speaker 2

For HPC and AI compute specifically, no, we do not have on hand the necessary equipment for that. And the reason for that is because we haven't determined the final plan there. When we have determined the final plan for what we're going to do with the share in megawatts, that's when we'll go out and start procuring that equipment. So no, currently we do not have the necessary equipment for an HPC and AI build in Sharon specifically.

Speaker 7

Okay. Thanks so much. Do you see that as being a potential bottleneck? Or are you guys confident that you have the relationships and access to necessary materials and equipment?

Speaker 2

We have at this point over 12 months, 12 to 16 months if we wanted to get that energized by the end of the year. And I think the most realistic That gives us, I think, sufficient timeline to go out and procure those equipment given our position, in our existing industrial relationships with suppliers.

Speaker 7

Okay. Fantastic. That's great. Just wondering on the I mean, I think we're all very, very curious on the pipeline of development opportunities. I mean, wondering, I mean, what are the chances that there's another share in out there?

Speaker 7

Is it possible that it could be in a different U. S. ISO? And is it possible it could be somewhere in some other countries?

Speaker 2

Yes, it's a great question. We have a we do have a global view towards new opportunities and growth opportunities, again, with a focus on securing the right energy profile and securing something that we believe is going to be economically sustainable for many years to come. And certainly, there are opportunities all around the world. But what we're going to be focusing on over the 2025 beyond and even currently right now in our development pipeline, what we're currently focusing on is increasing our U. S.

Speaker 2

Exposure. We think that there are tremendous opportunities in the United States and we do really like the PJM region. It's got numerous benefits in terms of its curtailment programs, demand response programs, opportunities for hedging and energy trading. We think there are more opportunities like Sharon out there, and we would love to pursue more opportunities in PJM.

Speaker 7

That's great. Thanks very much. Is it fair to say the market has tightened since early June for power development opportunities?

Speaker 2

There's always power available. Sites are constantly turning over. What I don't know if necessarily the market's tightened, but certainly the demand and the interested parties for more power is increasing rapidly. So I don't know if market conditions have necessarily tightened so far.

Speaker 7

They've given the call to me and talked to you. You had a nice

Speaker 2

Sorry, can you repeat that?

Operator

Your next question is coming from Joe Flynn from Compass Point Research and Trading. Your line is

Speaker 8

live. Hi guys. Thanks for the question. It looks like you built up pretty strong balance sheet here, but maybe you could walk us through the remaining CapEx spend to get to the ex Hash targets in 2024 2025? And ultimately, how we think about usage of the ATM going forward?

Speaker 8

Thanks.

Speaker 3

Sure. Joe, I'm more than glad to answer that question here. So let's first talk about where we are here regarding the 2021 ex Hash and playing with Muscutera Hash goals and targets that we have for the year end here. So we've already pointed out that we are fully funded for that. And let me give you some hard context to that.

Speaker 3

We pointed out that we have almost $200,000,000 of liquidity and that our cash flow from operations over the next several months is projected to be around anywhere between $8,000,000 to $12,000,000 a month or roughly $50,000,000 to $55,000,000 here. In terms of what we have left to spend here for the year end targets here, we've figured out we have roughly at this point in time, we need to spend about another we figure another $50,000,000 what we have remaining here for the infrastructure build out. And that's primarily really with Wazoo and finishing that completion. And then secondly here for the miners, we have remaining payments of roughly about $67,000,000 from miners and we're figuring out the $20,000,000 to $25,000,000 just for imports duties insurance into that store. So overall, we're envisioning an additional CapEx requirement for this year, roughly around $140,000,000 which again, we're very well positioned here forward.

Speaker 3

Now what we are not reflecting here yet is what our plans are for next year in terms of our CapEx. And that's still unfolding, particularly as things move ahead with sharing other opportunities here. So while we feel we're pretty well positioned at this point in time, that's something that we'll be addressing more in the future here. In reference to our ATM here, we've actually given the fact that our shares are now below $2 we've actually stepped back very, very dramatically in what we're doing here in the ATM, because we're going to be very selective going forward here. We again have the benefit of a strong cash flow from operations to fund ourselves going forward here.

Speaker 3

And secondly, I think given the fact that we are now well positioned to be fully funded for this year and have actually a kitty for next year as well here, we are going to continue to be very judicious, more so I think with the ATM over the next several months.

Speaker 8

Thanks. And maybe if you could comment on the ending of the strategic alternatives process, just really any color there would be helpful.

Speaker 2

Sure. Happy to. The special committee, obviously, in consultation with its financial and legal and strategic advisors did conduct a thorough review of all the different strategic alternatives in an effort to match my shareholder value. Really following the completion of this process based on the new strategic plan that we're moving forward with, the special committee has unanimously determined that and really is certain that given all of the compelling opportunities ahead for value creation, the best path forward to maximize value for all shareholders is to just move forward with their standalone plan. Obviously, the Board and management team remain open to any and all opportunities that may deliver value to shareholders.

Speaker 2

But right now, by far, the best opportunity is moving forward to stand alone. Great. Thanks.

Operator

Thank you. Your next question is coming from Brett Knoblauch from Cantor Fitzgerald. Your line is live.

Speaker 9

Hi guys. This is Thomas Shinsky on for Brett. Congrats Ben on the new position within the team. I guess on Sharon and new site acquisitions, you mentioned that Sharon being close to a bunch of metropolitan areas is a good characteristic for the AIHPC. I guess, as you're looking in the PGM region, are you considering this characteristic for future site acquisitions?

Speaker 6

Yes, I guess that's my question.

Speaker 2

Thanks, Tom. Yes, it's one of many things that we're looking at now with the different energy assets with the corporate development team. We're not only looking for sites that are good for Bitcoin mining, we're looking at sites that will help us, as we said, diversify and expand beyond Bitcoin mining itself. So this means we're looking for sites that have more than one good application. Sometimes a site may only be good for 1 of the 2 applications.

Speaker 2

Maybe it's only good for Bitcoin mining, maybe it's only good for HPC and AI, ideally, and it's much harder to find those opportunities, but ideally you find an energy profile that's good for both.

Speaker 9

Awesome. And then, just on the customer front, I know this is a little bit of ways down the road. But do you have your idea on an ideal co location customer on the AIHPC front? I know there's talk of hyperscalers, enterprises, AI startups who are a bit of a more risky play because you don't know the longevity of the hosting contract. So just your thoughts there.

Speaker 2

Yes. It's a good question. One of the things that we like about Bitcoin mining is that we have no customers, right? When we plug in Bitcoin mining compute, the customers, the network itself, and it becomes very, very easy for us to operate our business. When we look at HPC and AI, we don't want to get into the business of developing a sales force and building out a software platform and marketing out to individual customers.

Speaker 2

Our primary focus here is again on developing, building and operating the high quality electrical infrastructure. And so our ideal customer would be a hyperscaler probably or somebody with a very, very strong credit profile and strong balance sheet, that we can work with to take all the capacity and only work with 1 customer and leave them to handle how they're going to sell off the compute or monetize the compute on their end.

Speaker 9

Awesome. Thank you.

Speaker 2

Thanks, Don.

Operator

Thank you. Your next question is coming from Martin Toner from ATV Capital. Your line is live.

Speaker 3

Welcome back, Martin.

Operator

Once again, Martin, your line is live.

Speaker 7

Sorry for the mix up there. My last question, was the result of the PJM reserve auction that you were more confident about what your cost of mine would be in that region?

Speaker 2

We're still working on locking in our power provider there in Sharon. So the auction that just took place really is primarily for people who are providing a baseload capacity to the grid. That doesn't necessarily directly impact what we do here. What it means is that those thermal generating assets and those more stable baseline assets are increasingly more valuable, and that's due to the increase of amount of renewables on the grid and the increasing value associated with grid stabilization programs. So it's not entirely clear the exact math and the exact uptimes for these different sites given the auction that took place.

Speaker 2

But what it is certain of is that these energy trading and grid stabilization opportunities have tremendous and increasing value in the light of a changing energy profile in PJM.

Speaker 7

Great. Thank you, Vamir. Thanks. That's it for me.

Operator

Thank you. That concludes our Q and A session. I will now hand the conference back to Bin Yan Yan from closing remarks. Please go ahead.

Speaker 2

Thanks. Just want to thank everyone really briefly for joining us on today's call and reiterate, I'm very excited about our growth opportunities and look forward to updating you on all future developments. Thank you very much.

Speaker 3

Thank you all.

Operator

Thank you. Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Bitfarms Q2 2024
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