Canada Computational Unlimited Corp

XTSX:SATO

Earnings Call Transcript 2023-Q3

[Romain Nouzareth, executive]

Welcome to SATO Technologies, our new live cast in order to present our Q3 2023 Results and also to give you an update on the company and as a direction of where we are going to. I am joined today with Fanny Philip, our COO; and Kyle Appleby, our CFO. Before I start, obviously, how it works, looking forward statement. Everything that we present here is forward-looking information. I'm not going to spend more time. I know that everyone here know how it works. Again, today, we will talk about SATO, where we are, what we have achieved until now, and where we will go in the future. We will spend more time talking our Q3 financial results -- outstanding results. We will look at the comparables also in the industry, not only for publicly listed miners like SATO, but also on different kind of variables such as the price of electricity. And we will have a session of question and answer. For the people who doesn't know us, we are SATO Technology. We have been created in 2017, more than 6 years ago -- 7 years ago, and we are a Bitcoin miner at the core. We are managing 20 megawatts of energy that gives a Bitcoin power of 0.15% in the total -- in the world. That's what we present with our 20 megawatts. And to give you an idea, that's around 6,000 computers. In 2021, we decided to get listed on the public market in Canada, and we are listed on the TSXV, under the ticker SATO. And in the U.S., on the OTCQB: CCPU.F. Why we went listed is because we are infrastructure people. We are transforming energy into computing power. And in order to do that, it needs investment in CapEx in 2 parts, 1 for infrastructure. We transform energy. We build a data center, we create tags. We have a cooling system. It costs money. We need to invest in that.

The second CapEx that is important in our business is buying of the computer, this famous computing power. This is what you see on the screen in the image. We have 6,000 of those computers, and we need to also deploy capital in order to buy that. And being a publicly listed company is an extremely great vehicle in order to raise money at scale because we have big goals for the company. We went from 2 megawatts to 20 megawatts. We want to do another 10x our gross minimum in the next 15 -- 20 -- 25 months. This means that we will need to reach 200 megawatts of energy, and we will need to raise more capital.

Being listed, we have different ways of raising capital or having access to capital. So first thing is that we can do equity, as you know, on the stock market. We have different avenues in order to do it. We have a private placement, [indiscernible], ATM listing. And we are working on different kind of solution. We have always managed the company to really do positive division every time we were doing a raising of capital and equity.

The second way where we can have an access to capital is with debt. We have done in the past an amazing debt with our partner in Switzerland called Sygnum. And we will probably continue looking in that way to continue having access to more capital to go.

And the last thing that lots of people -- most of the people tend to forget is that we can use the capital that we produce for our own mining center. With 15% of the total network of Bitcoin, our company produces around 36 Bitcoin per month. You can see on our website, you can go on our website with www.bysato.com and subscribe to our newsletter. We publish our results every month -- our production results every month and you can see really in the detail what we produce in our company, and that's something that is great to continue using for developing the company and to hold as we also want to have Bitcoin on our balance sheet.

We are also now in a position where the market has evolved with something new that we have probably heard called AI and HPC. HPC standing for high-performance computer. We believe the domain will be very important, as everyone know for the start of computing power, and we believe that we Bitcoin miner has a role to play in this new evolution of the market. This role is to transform energy into computing power. This is our knowledge. This is what we do for a long time, being very efficient, and we will propose and give solutions to the market in this new vertical for the company.

It has also an interest for public listed miner like us is that it gives us another cycle. We are not only based on the Bitcoin cycle, we can now also work with the AI, HPC cycle that is less dependent on the price of the Bitcoin or the volatility of the Bitcoin. So what you can see here is really the strategy of growth for the company, going from 20 megawatts to 200 megawatts. One thing that differentiates us for other is that, again, we own our own infrastructure. We are not the only one, of course. But in the market, being efficient is the only way to survive the different events that are coming in Bitcoin such as the Halloween. The Halloween day, the Blockchain wildly being divided by 2, every 4 years. It's coming in around 7 months.

And in order to be efficient, you need to have no intermediary between your energy and your computing power. This is what we have built. Now that we are efficient and that we have proven to be efficient, we just want to go as big as we are because in the market, it's not the biggest who survive, it's the most efficient. But once you are efficient like us, we want to go as big as we can.

We will do it in 2 ways, in 2 tracks, 1 Bitcoin mining. It's our story, it's our knowledge. We are a big believer of the Bitcoin network and what Bitcoin is offering as a tool, and we will continue growing and scaling this part. And as I was saying, we will also have computing power for AI and HPC. We will make announcement in the coming months as it arise. We have also on the side, we are working on 2 infrastructures, I'm not going to spend too much time here, but it's also something that is very important and interesting for Bitcoin miner to be involved with, because it brings technology and computing software technology around Bitcoin, and we have seen the recent development around BIP-300 or BIP-301, where Bitcoin miners by having capacity of software development will be more performant in the future. It's a way for us [indiscernible] infrastructure, I'm talking about lighting network ordinal, for example. It's a way for us also to get more fees in the transaction and to be more performant considering the next Halloween and the next Halloween and the next Halloween. Again, you can go to our website, www.bysato.com. look at the product and the project that we have developed in this part. The vision and -- that we have put in place has proven to be extremely beneficial for us and our shareholders over the years. As you can see here in this chart, we are showing the increase of value of our shares since the beginning of the year. So from January to 1st of November or 3rd of November of this year, November 20th, sorry, of this year, we took 308% growth on our stock price. It means that if you had invested $100,000 at the beginning of the year, you would have $308 today.

What is interesting is also in this chart is not only the value production on our share price, but it's also that we have more performance than Bitcoin. And truth to be told, it's a case for most of the publicly listed miners. We are following Bitcoin. When the Bitcoin is up, we are going up. When the Bitcoin is down, we are going down. However, we are over performing with all of the Bitcoin miners or most of the Bitcoin miners. This is also a trend that is very interesting. And this is also a trend that makes people very interested in to investing more into publicly listed miners like at SATO Technologies. There is an index [indiscernible] Bitcoin miner that is trading different kind of public miner or publicly listed miners like us. And you can see we are also over-performing. What I would like to add in this slide is that, again, we are at -- this transition in this pivot time where we are right before the Halloween. We are in a position where we see the end of the bear market. Maybe we have even started a new bull market, we don't even know. But we are in this unique position in time, where the market is possibly, and it's, of course, my vision, but it's really possible that we will see a huge increase of the Bitcoin price and by extension the publicly listed miner.

Why? We have the Halloween event. We are going to create [ twice a big curve ], meaning that the supply will be divided by 2. At a time where people are going to start buying Bitcoin again even more mainly with the possibility of the ETF being approved in some point, billions of dollars will be injected into buying Bitcoin. At the time where the bit supply will be divided by 2. That's why people think the price of the Bitcoin will increase because there will be less to buy and more people buy.

So this time is important for us because we think we are going to be the next big Bitcoin miners who are listed on the NASDAQ or senior miners. We are junior today. If you look at our cap table, we are junior miners, we're on like a $40 million, $50 million valuation. But we are quantifying, we are in the direction of going senior. And we believe we are going to become a senior in the next role. We have been preparing for that for the past 7 years. The time is now. This is a slide you can look at it on the live cast giving more precision on all of the Bitcoin miners. You can see we are ranking #1, such as most of the ratio, when you look at the other publicly listed miners such as efficiency, we are most of the time in the top 3 or the top 4 performing Bitcoin miner. I will now let the stage to Kyle, our CFO, to go over the Q3 financial results. But before, one last thing. Q3 for us was a pivot quarter -- pivotal quarter. We became a 100% self-mining for Bitcoin. It was a huge achievement for us for our 20 megawatt. We have managed to do it with managing a very low dilution for our shareholders, again, what I was saying -- talking about. We have long-term vision. We are committed to the company. I'm personally one of the biggest shareholder. I'm not selling my shares. I'm here for the long run. And we are really working to the shareholders that creating value for the shareholder.

This 20 megawatts that we are running is 0.5% of the total EBITDA network that we run. We made it with very low dilution, meaning low capital objective. We are probably one of the most performing miner in terms of investment made to achieve this kind of mining power, not only for our infrastructure because most of the miners are also not earning the infrastructure, they have a place somewhere. We own everything. There is no intermediary between us and our computing power. And at the same time, we own 100% of our computers. This is a unique position, and this quarter was pivotal, and this is now the beginning of a new era. Again, 100% self-mining 20 megawatts and now growing at least 10 times in the coming months. Kyle?

[Kyle Appleby, executive]

Thank you, Romain. As mentioned, I'm going to go through on this slide, a summary of our latest results for the 3 and 9 months ended September 30, 2023, compared to the same periods in 2022. We're really proud of our strong results, which you can see are positively trending in the right direction with the increase in mining equipment this year, and we have really increased our revenue. We increased 46% for the 3 months and 87% for the 9 months ended September 30 compared to the same period in 2022.

Revenues typically have been split between our self-mining and hosting revenue where we operated equipment on behalf of others. But since July 2023, as Romain mentioned, we are now 100% self-mining. So we mined -- we earned 93 Bitcoin for the 3 months and 152 for the 9 months ended compared to 32 and 57 for the 3 and 9 months ended September 30, 2022. You can also see the growth in our gross profit due to the growth in revenue, and we were really able to keep our costs down, which you can see our gross profit percentage increased to 18% and 26% for the 3 and 9 months ended September 30 compared to 6% and 15% for the 3 and 9 months ended September 30, 2022. So that shows our strong improvement in efficiency compared to the previous year quarters. Expenses in 2023, we are also focused on keeping our G&A down. We took the measures to reduce costs such as reducing hours for employees and consultants, a decrease in the marketing and travel and Investor Relations. For the 3 months ended costs, these expenses increased a little bit. That's specifically due to some professional fees where we refinanced our loan agreement, as well, we issued some warrants related to our center 2 with a value of $182,000. So that shows up in the Q3 expenses. But generally, they're down from the same period in 2022.

Other charges, the main components there being our finance costs on our loans and leases. And you could see at the end of the day, our operating income for the 9 months positively, $333,000 and we have significantly reduced our net loss for both periods, the 3 and 9 months compared to 2022 and achieving a strong EBITDA for the 9 months and positive EBITDA for the 3 months ended 2023. Our next slide here shows here, we have some of our key performance indicators, mining profit, which highlights the performance of our core business. EBITDA and adjusted EBITDA. Adjusted EBITDA is showing us EBITDA adjusted for noncash items as well as adjusted for nonrecurring onetime items. So in 2023, you can see our year-to-date numbers are really strong, again, positive trending in the right direction, really outperforming our year-to-date numbers from 2022 or full year in 2022 compared to so far in 2023. Okay. On this slide, you can see comparing December 31, 2022, to where we are at September 30, 2023. These are snapshots at a point in time. So you can see in December 31, 2022, the Bitcoin price in Canadian dollars, CAD 22,000, September 30, CAD 36,000 and now at November 27, CAD 51,000. So if we took the same snapshot now, our price of our digital assets would be significantly higher. More cash at the end of September 30, 2023, given that we had a loan refinanced in July. So more cash. There is a component of the loan that keeps restricted cash, 20% of our loan. So we have that cash component there as well. At the end of December, we had 44 Bitcoin. At the end of September 30, we had 35 Bitcoins. On this slide, you can see our strong capital structure, it's really tight. We try, as Romain mentioned, not to be dilutive and keep our share structure tight here. We have -65% of security are owned by insiders, officers and directors. So that shows their strong commitment to the company, and we're very proud of our structure here and not diluting our shareholders.

[Fanny Philip, executive]

Hi, everyone. I'm going to discuss on a question that came frequently is the gross margin, how much it cost to produce 1 Bitcoin in our centers? So as Romain mentioned at the beginning, we produce monthly result where you can have a chart I mean, future the chart with historical electricity cost. So it's an information that we provide every month. One of our focus is to be very transparent in every data that we provide. So obviously, in our monthly report, but in the MD&A that -- we have as well to give more detail, more explanation on every number that are in our company. So as you can see on the right, you have the all in electricity costs. So when we said all in, it includes the cost per kilowatt hour. So the cost option of 20-megawatt center, plus the premium that we have to pay. On the top of this, we have a site operation, which include obviously the rent of the building, insurance of the building because as we own our infrastructure, electrical infrastructure we need to enter and have a proper insurance coverage for our assets and some operating salary. As you know, we are very a very lean team, but it shows here the operating salary. So it's the people that work in our center.

So as of another example that -- I mean, another thing that you see, it's the gross profit for July was around $11,000, $10,000 in August and $7,000 in September. Why we have this small decrease is because between June and September this year, the total hashrate network increased for more than 10%. So obviously, that has an impact for all the public -- not public, but all the miners. That means for the same compute power, we produce a bit less Bitcoin every day. On the average, year-to-date, our weighted average. So you have at the bottom right, you have the cost to mine 1 Bitcoin. So on the next slide, please -- thank you, Romain. So that's another slide where you see this impact on the increase of the total network. So you see the curve that decrease over the time. But because on the opposite, you have an increase in the total network hashrate through the month. As I said, between only this year, June to September, it's an increase of 10%.

What we show in this slide is the Bitcoin produce are generated per equivalent of Exahash. So when we do the calculation, that's something that we do in our monthly report as well is we calculate how much Bitcoin we produce per Exahash. And this metric is used and commonly used to compare the efficiency on our peers. So as you can see on the right, for the year-to-date, so for the year-to-date 2023, we are ranked #3. So for an equivalent of 1 Exahash, we produced 83.59 Bitcoin. So we have, on the left, some of our peers but just to show you the trend and that the decrease over the months is something that we all have. It's linked to the increase of the network.

If you have any question, I'm looking, we could ask some of them. But again, to conclude, we are not narrator, as Romain explained, we own our infrastructure. So the mining equipment, the transformer all the electrical components that need to be installed to run a facility. On the top of the 20 megawatts that we are currently running, we also own 6 megawatts of electrical components ready to be deployed, so that's something you might have seen in our financial statements and in the MD&A. So we are currently in a current position where we can actually deploy because we have the electrical equipment to do so.

We have a track history since 2017, listed since September 2021. We -- at the end, what we do we produce compute power, as Romain explained, and that's our expertise to manage electricity in order to convert this electricity to compute power. Again, you can find us on TSXV, ticker SATO and on the U.S. OTCQB CCPU.F. And as you know we are at the end of the month, 29, so stay tuned for our November monthly update. As you know, the price of the Bitcoin increase, there was an incremental increase in fees during the month as well. So all the miners enjoy the month of November. And that's, I think, the conclusion of my part. Romain, if you have any...

[Romain Nouzareth, executive]

Thank you, Fanny. Thank you, Kyle. Look, that was a very good wrap-up and conclusion for this presentation. One thing I would like to add is we have an amazing team. Behind every success, this is a team and you've shown, and we've seen today what kind of results it can give. On the screen, you can see [ Charrel Sebastien ], he's our employee #1 since 2017. He runs our data center in Joliette, where we mine in Quebec. Fanny is bringing also a long-term experience with our team with Ben, with Lydia. We are also working in our team, [ Cedric, Daniel ], of course, developing all the software that we have. [ Simon ] quite mathematician. Kyle, our CFO. We have an amazing board members, who are very professional, very keen into making us going to the next step. And that's really one thing that I wanted to stress. We have an amazing team, and we are a team made for the next growth of the company.

We are now going to take questions, if we have more...

[Fanny Philip, executive]

Yes. And I think we answered one link to the cost, monthly production, again, that we're going to publish November 1 in few days. On the growth plan, that's what Romain exposed at the beginning. And I think that cover the different points that we have here.

[Romain Nouzareth, executive]

Okay. We are going to maybe give another minute if someone is typing and want to add a question. And then we will conclude this live cast. Again, thank you for being here, if you are following us for a long time. And if you are new, thanks a lot for listening to us. We are on the verge and the path of a new chapter for growth of our company. We are all very excited or energized that fit more in line with what we do. It's also an amazing time for Bitcoin for technology, and we are very, very happy to participate in this. You can follow us also with our company code. Yes. Thank you...

[Unknown Analyst]

It's Bermie here. Hi?

[Romain Nouzareth, executive]

Okay. Bermie wants to take a question.

[Unknown Analyst]

I just wanted some clarity. I did DM Kyle. But in your slide with direct costs, you have a weighted average that shows USD 14.65 and then a weighted average of USD 91.196, is that supposed to be split between Canadian dollars and U.S. dollars, or am I missing something there?

[Romain Nouzareth, executive]

No. This is split between the energy consumption and the energy power that we have. Most of the time, I mean, in different places in the world, you can pay for your kilowatt hour, and you can use for the total power that you're using at 20 megawatt, and that results in 2 kilowatt that needs to be added. So we are showing the pick-up.

[Fanny Philip, executive]

And to add some understanding in Quebec, I mean, we are -- our site is in Quebec, Canada and all the electrical contract in Quebec, our government contract. So all the miners that are in Quebec, we have the same contract, and we have some of our peers and public listed that are based in Quebec as well. So that's the same energy and the same type of contract because it's government.

[Romain Nouzareth, executive]

And also we do the split because some Bitcoin miners are only talking about the kilowatt-hour price. So we wanted to be able to compare April with April.

[Unknown Analyst]

That makes sense. And my next question is also on the next 12 to 18 months in terms of expansion. Do you have a path forward there and the strategy? I mean, I know an equity raise is coming. So I'm just curious what your strategy is and the path forward...

[Romain Nouzareth, executive]

Well, the path is to -- yes, yes. The path is to acquire more power, to develop more power. So we have different ways by doing this. We can sign PPAs. We can find sites who are already working by workup acquisition. We can develop our new sites. We are working on lots of things. Obviously, I can't announce anything yet. But again, follow us on our Twitter, go on LinkedIn and follow us. We are publishing. We are very open all the time. But yes, we have a path for growth. We have proven in the past that we were pretty successful doing what we said we would do. But now let's see where we go in the next growth phase.

[Fanny Philip, executive]

I will jump again on the electricity. Maybe Romain, you can just put the slide #12, please. Just to make sure -- I mean, left to have the all in electricity costs. So that includes the kilowatt-hour cost. So for the 9K is including the 15K and the difference between the 2, it's that you have the premium, as Roma explained. So just to make sure it's clear.

And again, what -- the reality why we split as Romain explained in usual in the U.S. when they have PPAs, they're only talking about the kilowatt hour cost. So in order to help to compare our peers, it's a data that we provide in order to be more specific.

[Romain Nouzareth, executive]

Thank you, Bermie. And by the way, Bermie follow also -- Bermie on Twitter is also one of the few analysts following the market, and I'm giving great information about publicly Bitcoin miners. So this is -- if we don't have any more questions, we will end this webcast. Again, thank you for being here. Subscribe to our news, and we have done, and we will continue doing regular update [indiscernible]. Thank you very much.

[Fanny Philip, executive]

Thank you.

[Kyle Appleby, executive]

Thanks, everyone.