Bitfarms Ltd

XTSX:BITF

Earnings Call Transcript 2020-Q2

[Operator]

Welcome to the Bitfarms Second Quarter 2020 Results. [Operator Instructions] At this time, I would like to turn the meeting over to John Rim, Chief Operating Officer and Chief Financial Officer.

[John Rim]

Good morning, everyone. Welcome to our webcast of the Q2 2020 financial results of Bitfarms Ltd. Presenting today will be Emi Grodzki, our Interim CEO; and myself, John Rim, the Chief Operating Officer and Chief Financial Officer of Bitfarms.Before we begin, I'd like to point everyone to the cautions on Slides 3 and 4 on forward-looking statements and the use of non-IFRS performance measures that will be referred to in this presentation. In addition, please note that all financial figures are presented in U.S. dollars unless otherwise noted. References to Bitfarms are to be construed as a reference to Bitfarms Ltd., including all of its consolidated entities, unless otherwise stated. I will now turn the call over to Emi.

[Emiliano Joel Grodzki, Founder, CEO & Director]

Thank you, John. On Slide 6, we summarize our Bitfarms mining production in Q2 2020. We mined 815 bitcoin in Q2 2020 compared to 974 bitcoin in 2019, a decrease of 60%. The Q2 2020 mining production decreased compared to Q2 2019 primarily due to the bitcoin halving event in May 2020, resulting in block rewards to miner dropping from 12.5 to 6.25 per block. The bitcoin halving event was highly anticipated by everyone in the crypto mining industry and while the block reward has decreased by half. We are encouraged in recent [ industry ] mining economics as it starts to normalize as anticipated. On the right of the slide, we summarize the period hashrate for the company for the past 5 quarters. The company hashrate capacity in Q2 2020 under standard configuration remained at 780 terahash compared to 308 terahash in Q2 2019.Moving to Slide 7. Overall, for our crypto mining operation, approximately 98% of all electricity consumed by the company was used for computing power. The charts on the right of the slide shows the power use efficiency of each of the company's farms as well as the total company average compared to an external benchmark study on the data center power efficiency. As is shown, each of the company farms continue to operate well above the benchmark of efficiency for top tier data center, which is approximately 83%. We consider our power use efficiency as the competitive advantage and the reason why we remain the leader in terms of breakeven cost of production per bitcoin amongst all [ publicity ] trader miners. I'll now turn the call back to John.

[John Rim]

Thank you, Emi. On Slide 8, starting from the top left, the company generated consolidated revenue of $7.4 million in Q2 2020 compared to $8.5 million for Q2 2019. The decrease in revenue in Q2 2020 compared to Q2 2019 was primarily due to the bitcoin halving. The impact from this halving was approximately a $2.3 million decrease in revenue in Q2 2019. However, this was partially offset by an increase in average bitcoin price of 20% as well as the increase in Bitfarms' hashrate in excess of average network difficulty in Q2 2020 compared to Q2 2019. The company's consolidated Q2 2020 EBITDA on the revenue of $7.4 million remained positive at $0.4 million. And the company's adjusted EBITDA in Q2 2020 was $1.4 million or 19%. The company achieved a gross mining margin of 36% in Q2 2020, and despite the challenges presented by the halving, our competitive hydroelectric grade and operating efficiency resulted in achieving an average breakeven cost of production per bitcoin of $5,075 for Q2 2020. For reference, this compares very favorably to the average realized sales price per bitcoin by the company in Q2 2020 of $8,624.On Slide 9, we summarize the financial results for 6 months period ended June 30, 2020 compared to the same period in the prior year. The company generated consolidated revenue of $16.6 million in the year-to-date Q2 2020 period compared to $12.1 million for the year-to-date Q2 2019 period, an increase of $4.4 million or 37%. The company's consolidated EBITDA under revenue of $16.6 million was $2.2 million, which results in an EBITDA margin of 14%. Adjusted EBITDA was $4.3 million or 26% compared to $2.9 million or 24% over the same period in 2019.Overall, despite the difficulties in general market conditions presented by the COVID-19 pandemic and the bitcoin halving in Q2 2020, Bitfarms continued to generate positive cash flows from operations. We're pleased that the 36% gross mining margin achieved by the company in Q2 remains ahead of our Canadian competition, and we believe the strength of Bitfarms' operational efficiency will continue to position the company well as the entire industry adjusts to the new market conditions presented by the bitcoin halving that occurred in May.Slide 10 summarizes the financial position and ownership structure of the company. As of the end of Q2 2020, the company maintained cash and cash equivalents of $1.4 million and its total assets of approximately $48 million. I'll now turn the presentation back to Emi.

[Emiliano Joel Grodzki, Founder, CEO & Director]

Thanks, John. Moving to our growth strategy on Slide 12. You will see our expansion pipeline with 87 megawatts of contracted hydroelectricity within traffic. This pipeline is capable of producing approximately 3 extra hash of additional computing power based on the current computing power and efficiency of the latest generation of miners. [ Caret ] remains one of the leading jurisdictions for ongoing investment in bitcoin mining. We also continue to evaluate a sizable energy in order [ to compete ] with the prices jurisdiction to expand our power portfolio.Moving to Slide 13, we summarize a number of operational updates. One, we are pleased to increase our operational capacity by 250 terahash or approximately 25% year-to-date, through both internally generated cash flow from operations and through equipment lease financing. With our next batch of 1,000 new generation miners due to arrive in few days, we estimate that our operating efficiency will be approximately 17 terahash per megawatt, and we are proud to be leaders in this key performance indicator. Two, we have also continued to grow our infrastructure capacity with our 5-megawatt expansion at our St. Hyacinthe facility as well as rightsize our operating cost structure, the change that we made have allowed us to reduce run rate, general and administrative expenses by approximately 20% per month.Three, we are also extremely pleased to have reached an agreement with our lending partner, Dominion, to amend the loan terms to provide time and flexibility, which will allow us to continuous growth.Four, finally, we are proud to have secured PricewaterhouseCoopers as our auditors and to bolster our Board with key addition to add a tremendous amount of practical business experience as another field in the industry. We are the only public crypto mining company with a North American base, [ big for ] CPA firm, and we have worked exceedingly hard to build our system process and control to provide quality reporting and transparency.2020 has been an eventful year with many challenges, but we are pleased that Bitfarms has continued to make great progress. We are excited and optimistic about the future as we carry out our growth plans. This concludes the webcast operator. I will now open the line for questions. Thanks.

[John Rim]

Good morning, everyone, John Rim, Chief Operating Officer and Chief Financial Officer of Bitfarms. [Operator Instructions] Just received our first question says, when do you believe we will return to breakeven? As noted on the slide, we are actually -- our breakeven cost for Q2 was $5,075 on an electricity basis for all of Q2. I believe that we're leaders and industry leaders in that metric. So we are already mining very profitably. In terms of going forward, obviously, the halving event was in the middle of May, so that number will tend to increase. But I think everyone is pleased and encouraged to see that bitcoin price also gaining traction. And we tend to look at things on a revenue per terahash basis. That is how much revenue is there per terahash of computing power. That has trended very well as well since the halving in mid-May when it literally went to $0.069 revenue per terahash, that has improved now by approximately 38% and it looks like it's trending positively as we're moving forward. So hopefully, that answers your question.Next question. Are you looking on expanding mining to other cryptocurrencies? I believe it is only BTC and litecoin that you are currently mining.The answer to that is we are focused on bitcoin. Bitcoin is the dominant cryptocurrency. And in our view, is the only true decentralized cryptocurrency. So all of our efforts, our infrastructure, our mining gear is focused now solely on bitcoin. The gear that we have for litecoin has been sold. And so we only mine bitcoin now and it's definitely the most profitable at this point for our operations in terms of stability and overall profitability.Next question. Does the USD 5,000 breakeven mining price include the cost of employees, mining computers, et cetera? So generally, when the bitcoin price breakeven is quoted by us and our competitors within the industry, it's only on a variable-cost basis only because the fixed costs and the investment costs are considered some costs. When we look at the overall fixed cost in terms of the cost of the miners themselves, we look at it over a longer time horizon because the equipment has a useful life, obviously, greater than the period that we're reporting. These days with the decreases in the chip sizes that are being used as well as software improvements that continue to be available for the mining gear, the equipment has a useful life of at least 4 years. The greatest example of that is the Bitmain Antminer S9, that came out in July of 2016. And with the various firmware upgrades on low-power load, it's actually still profitable to this day. So that has lasted over 4 years now. So we will -- we tend to measure the full cost of investment by measuring our ROI over the period and breakeven prices are normally just on electricity.Next question. Are you having trouble getting new equipment? Which manufacturers do you use? So all of the mining gear that we use is fully disclosed in our financial statements. We have purchased in the past from Bitmain, from MicroBT, from Innosilicon and Canaan. And those are generally recognized as the 4 largest mining gear manufacturers. We have not used Bitfury. Bitfury tends to have their own equipment. And just from a competitive specification perspective and mining efficiencies, the computing power relative to the electricity, we have focused on the ones that are the most efficient and cost effective at the time purchased.So right now, we're focused on Micro BT and the WhatsMiner miners. And the reason for it is, now we have a great deal of operating history with the mining rigs. And so beyond just the initial cost and the computing power, we can evaluate the durability of the machines, the reliability of the machines, the stability of the machines as they perform the computing power. And so we just found that the WhatsMiner product works best for us in our set up.To answer the original question, though, are we having trouble? I mean this year alone, despite the halving, despite COVID-19, we've grown 25%. Most of that through internally generated cash flow, but as we just announced, we've entered a partnership with Blockfills, and they just provided us 1,000 -- a lease for 1,000 new miners. We continue to look for financing partners. And leasing, we believe, is a great option for us. It works well with our existing lending agreement. And we're going to continue to look to expand and fill out all of our capacity as well as continue to grow our capacity. So we're excited about that. Just looking through some of the other questions. Any plan to hire an investor relations firm to increase our visibility? Well, I think as we previously announced, we work with hybrid financials and IR firm. And so that is gaining traction. Our price tends to float with bitcoin price, and that's pretty normal. And I think that's pretty consistent with everyone else in the industry as well, too. But our volumes have started to increase a little bit as more and more shares get into our float and as we gain more exposure. So we're getting very positive feedback from our Investor Relations firm as they reach out to the retail network. But I think with the volatility in bitcoin and it's still being relatively new, it is still something that's relatively new to the regular investor out there.We're going to continue to have significant efforts to increase that, increase our exposure, and -- but right now, we have been focused on just growing our operations. That's first and foremost. We are producing, I believe, objectively, the best financial results in terms of EBITDA, adjusted EBITDA, breakeven bitcoin price, mining efficiency. And we've worked very hard to be transparent and provide all of that information to the public investor. But I think over time, that is going to continue to start to be more and more transparent, more and more understood and we're going to start to see traction there.Sorry, I'm just looking through the rest of the questions. I think that is all the questions that we have received. So if there are no further questions, we will conclude the Q&A period. Of course, we're always available through our contact details at the end of this presentation to respond to investor questions.So we'd like to thank everyone for joining us on our call today, and we look forward to presenting our Q3 results. Thank you very much.Thank you, everyone, for listening to our Q2 2020 webcast. We are excited for the future of Bitfarms and look forward to updating the market with our progress in Q3.

[Operator]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.