Bitfarms Ltd.

Good morning and welcome to the BITFARMS fourth quarter and full year 2022 financial results conference call. All participants will be in a listen-only mode. And should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to David Barnard with LHA Investor Relations. Please go ahead, sir.

Thank you, Joe. Good morning, everyone. Welcome to Bitfarm's conference call for the fourth quarter of 2022. With me on the call today is Jeff Murphy, President and Chief Executive Officer, and Jeff Lucas, Chief Financial Officer. Before we begin, please note this call is being webcast live with an accompanying presentation. To watch along with the slides, you can log into our website at www.bitfarms.com under Investors Presentations. If you prefer to listen to the call on your smartphone, you can download the presentation from there as well. I would like to remind you that this morning's BitFarms issued a press release announcing its fourth quarter 2022 financial results. Turning to slide two, I'll remind everyone that certain forward-looking statements will be made during the call. Future results could differ materially from those implied in the statement. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult Pitfarm's MD&A for a complete list of these. Also, during the call, reference will be made to supporting slides, and you can find the presentation again on our website at pitfarms.com under the investor relations section. The company will also refer to certain measures not recognized under IFRS and that do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies. We invite listeners to refer to today's earnings release and the company's fourth quarter 2022 MV&A presentation of the aforementioned non-IFR measures and their reconciliations to IFR measures. Please note that all financial references are denominated in U.S. dollars unless otherwise noted. During today's call, CEO Jeff Murphy will review our operations for the quarter, CFO Jeff Lucas will follow with a detailed financial review, and Jeff Morphy will return for some closing remarks after the Q&A. We've requested investors to send questions and events, which I may read to management, time permitting, after the call to analysts interested in the live Q&A. Now, turning to slide three, it's my pleasure to turn the call over to Jeff Morphy.

Thank you for joining us today, as we are excited to talk to you about our recent successes and why Bitfarms is well positioned in the current environment to take advantage of improving market conditions. As a leading publicly traded international Bitcoin mining company, we continue to carefully assess strategic decisions regarding geographic diversification, farm expansion, miner utilization, public and private company acquisitions, and capital allocation. We have created the following key differentiators. We ensure our competitive low-cost structure by maintaining strict discipline when evaluating expansion opportunities. We seek out and source stable and surplus sources of energy with attractive pricing to continue to expand with a view to reducing our production costs. We utilize and continue to enhance our proprietary mining management software and vertically integrated electrical subsidiary to yield and improve fleet and operational efficiencies. We set the standard for KPI reporting transparency, maintain the highest standards in financial controls and reporting, and have been audited by a big four accounting firm since going public in 2017. During the past year and one half, we have built an exceptional management team. Our international team has significant experience and enables us to scale our operations without additional resources. And for the past nine months, we have implemented and continue to improve on a highly disciplined approach to growth and capital preservation, including debt reduction. We will continue these efforts in 2023 by continuing to seek out accretive and cost-effective acquisition opportunities to bring further expansion, increase cashflow from operations, diversify our international footprint and leverage capabilities of our management team, and using our proprietary software to add immediate value. Industry consolidation will continue and BitFarms, as we have mentioned numerous times in the past, has a superior platform for this type of growth. Completing and integrating acquisitions prior to the next halving in Q2 2024 is strategically important. Also, in Rio Cuarto, Argentina, we plan to soon overcome recent impediments and execute on a plan to fully activate our new farm with 50 megawatts of low-cost electricity and adding well over 1x a hash of new production. Most importantly, this will be accomplished with very little capital outlay. On the development front, the pipeline is robust and there are emerging opportunities that may meet our fundamental criteria for transaction growth, which we are working to realize. Now I'll review our accomplishments since the beginning of 2022. Please turn to slide four, which shows some highlights. We more than doubled our hash rate in 2022 and increased it further so far in 2023, reaching 4.7 exahash per second at the end of February. We mined 5,167 Bitcoin in 2022, and in February, 2023 surpassed the 20,000 milestone for Bitcoin's mind by Bitfarm since its inception over five years ago. We generated $142 million in revenue and $52 million in adjusted EBITDA in 2022. Our costs remain amongst the lowest in the industry. With our all-in quarterly cash cost of production lower than the quarterly average Bitcoin price, we again posted positive cash flow from operations in Q4 2022 which is an accomplishment as the industry struggles. We also significantly increased our flexibility and liquidity by reducing debt by over 140 million during the last nine months and lowering capex commitments by almost 70 million. Slide five summarizes the status of our farms. We ended 2022 with 10 farms in four countries. we have 188 megawatts in operating capacity, 95% of which is powered by sustainable hydroelectricity and additional 40 megawatts of built capacity in Argentina is awaiting impending approvals, which will allow for substantially and timely expansion with electricity costs that we fully expect will bring down our overall corporate Bitcoin production costs. Turning to slide six. we show some of our particularly noteworthy achievements at our farms. Ahead of schedule, we successfully completed our ambitious Canadian expansion plan, increasing our hydro-powered megawatts. Specifically, at our three new farms located in Sherbrooke, Quebec, we achieved full capacity of 96 megawatts under our power purchase agreement. During Q4 2022, at our garlic farm, we energized 18 megawatts. At the bunker, we energized the remaining 12 megawatts capacity, bringing it to 48 megawatts. And as planned, we decommissioned and sold the Dillapoint facility for net proceeds of $3.6 million. In Paraguay, at our Villarica farm, we imported and installed 2,888 new micro BTM-30s, which added a net 168 petahash per second at the farm. bringing the total hash rate in Paraguay to 288 petahash per second at January 31, 2023, and improved our overall efficiency to 39 watts per terahash. The previous miners have been sold. In Washington State, we are operating 20 megawatts and generating approximately 600 petahash per second. Farm highlights are continued by turning to slide seven. In Rio Cuarto, Argentina, there are approximately 10 megawatts currently online and additional 40 megawatts of capacity built and awaiting approvals. We expect approval of our power permit very soon. Once we receive this approval, we can draw power under our power purchase agreement from our private power producer. Once activated, we expect this farm to benefit from the lowest cost power across our operations. When the importation of new equipment has been approved using some of our $22 million of hardware credits, we will purchase and import 8,000 to 9,000 miners. Based on current prices of miners, we expect the hard group credit to more than cover our capital expenditure requirements to bring this 50 megawatt warehouse into full production during 2023. When complete, this will increase our corporate hash rate to six exahash per second for our existing portfolio. After the first 50 megawatts are deployed, we can then ascertain the timing of the construction and build out of the second 50 megawatts on the same property with the same beneficial attributes. For a glimpse of our operations in Rio Cuarto, I encourage you to refer to the two minute video that was recently posted to our website. Please turn to slide eight, which summarizes and highlights our operations and positions as we proceed in 2023. With that, I will now hand the call over to Jeff Lucas for the financial review.

Thank you, Jeff. Network difficulty increases are raising the cost of production for everyone. As new miners continue to be added to the global network and complete for a fixed number of Bitcoin block rewards, only the most efficient players will succeed. Smith Farms continues to execute tactics to maintain an efficient cost structure and strong balance sheet. This positions us for intelligent growth, consistent with our strategy of carefully pursuing accretive growth opportunities, and our operational capabilities enable us to achieve the superior financial performance with efficient capital investments. I'll review our money economics, our performance, and our financial strategy. Please turn to slide nine. In the fourth quarter of 2022, we mined 1,434 Bitcoin compared to 1,515 Bitcoin in the third quarter. The difference is primarily due to the 20% increase in average total network difficulty from the third quarter to the fourth quarter. That said, over the full year, our hash rate expansion delivered mining growth from 3,453 Bitcoin in 2021 to 5,167 Bitcoin mined in 2022, an increase of 50%. Our fourth quarter revenue was $27 million, comprised of $26 million from our mining activities and about $1 million from our Volta electrical subsidiary. This compared to $33 million in the third quarter, reflecting a 15% decline in the average Bitcoin price quarter over quarter and about 5% fewer Bitcoin mined during the quarter as the network difficulty increase offset our average hash rate increase of 13%. These factors also impacted the full year in 2022 revenue was $142 million compared to $169 million in 2021. Focusing on Armani economics, please now turn to slide 10. In the fourth quarter of 2022, Bitfarm's direct cost of production per Bitcoin remained among the lowest reported in the industry, averaging just under $11,100, albeit up from $9,600 per Bitcoin per in the third quarter of 2022. The change reflects the increase in network difficulty, partially offset by greater efficiency from our miners, and a modest decrease in our total cost of electricity per kilowatt hour, primarily attributable to a favorable U.S. Canadian dollar exchange rate. While direct mining costs did increase this quarter, our hydropower electricity costs are not impacted by volatility in fossil fuel prices, and thus we continue to benefit from stable electricity costs. As a result, our direct cost of production for Bitcoin has remained relatively steady in the 10 quarters since the last having. Fourth quarter gross money and profit was $8 million, a 33% of revenue, compared to $17 million, a 52% of revenue in the third quarter. This reflects an average Bitcoin price in the fourth quarter of $18,100, which is 15% lower than the average price of $21,300, in the third quarter. Our total cash cost of production, including the direct mining cost plus the fixed cost of revenue, including rent, technician salaries, and cash general and administrative expenses, otherwise referred to as G&A or overhead, was $16,800. This increase of $2,300, or 16%, in the third quarter was again due primarily to the impact of the higher network difficulty on our direct mining cost. Importantly, our cash cost of production in the fourth quarter remained below the average Bitcoin price of $18,100, thus delivering positive cash flow from our mining activities. From an IFRS reporting standpoint, for the fourth quarter, we reported an operating loss of $20 million, which included a $29 million realized loss on the disposition of digital assets, a $23 million change in unrealized gain on the revaluation of digital assets, and a net impairment reversal of $9 million. This compares to the third quarter operating loss of $98 million, which included a $44 million realized loss on the disposition digital assets, a $46 million unrealized gain on the revaluation digital assets, an $84 million impairment charge to our property, plant, and equipment, and a $14 million foreign exchange gain associated with funding our Argentinian operations. Our net loss for the quarter was $17 million, or $0.08 per basic and fully diluted share. This compares to a third quarter 2022 net loss of $85 million, or $0.40 per basic and fully diluted share. Importantly, we continued to generate cash from our operations during the quarter and achieved a adjusted EBITDA of a positive $1.1 million, even with the low average Bitcoin prices the industry experienced in the fourth quarter of 2022. Turning now to slide 11, our balance sheet strength and flexibility continue to be our highest priorities. Our financing strategy is predicated on our principles of operational excellence, financial stability, and intelligent accretive growth. This supports our key goals of prudently funding financial commitments, planned growth, and selective opportunities at a relatively low cost of capital. Our approach to financial management is straightforward. We look to utilize the proceeds from the sale of our daily Bitcoin production to fund our operating expenses, contribute to our debt service requirements, and reduce our leverage while affording us the financial flexibility to continue our growth activities, even amidst the current period of Bitcoin price volatility. We use our ATM, our at-the-market program, judiciously to fund our growth investment so as to minimize shareholder dilution. Through our efforts to deleverage the balance sheets, we lowered total indebtedness from $165 million at its peak in early June 2022 to $47 million at December 31st and a further reduction to $23 million as of February 28th. We also reduced our CAATS commitments from over $100 million for 2023 to $32 million at the end of the year. During the fourth quarter, we renegotiated minor purchasing agreements, extinguishing without penalty payment obligations of $45 million and establishing a $22.4 million credit that's available for future purchases. Combined with our completed 40 megawatts of built-out and in-place capacity at Rio Cuerto, we have dramatically reduced our CapEx financing needs, creating financial flexibility to fund further growth. At December 31st, we had cash of $31 million and 405 Bitcoin valued at $6.7 million for a total liquidity of $38 million. During the fourth quarter, we generated $54 million of proceeds by selling a total of 3,093 Bitcoin, 1,434 from production and 1,659 from treasury. We received $3.6 million net cash proceeds from the sale of our Dilla Point Farm in December, and we raised $6 million in net proceeds from our ATM programs. For the first quarter of 2023 through March 20, we raised additional net proceeds of $14 million. In the fourth quarter, we also continued to lower our outstanding debt. We retired our three oldest and most expensive equipment debt financing facilities for $8 million. To fully extinguish our revolving Bitcoin-backed credit facility, we paid $23 million, which freed up over $8 million of Bitcoin that was otherwise collateralizing the loan and encumbered. We restructured our equipment financing with BlockFi, paying off the outstanding balance of $21 million for a settlement of $7.8 million in February of 2023. In addition to settling the BlockFi loan subsequent to quarter end, we paid off in full about $380,000 due to Realist Technology Group for about $118,000. As a result, we ended February 2023 with just $23 million of total indebtedness which is scheduled to mature by February of 2024, well in advance of the expected halving date as planned when we entered into the facilities. As a result, we successfully eliminated debt obligations of over $21 million, reducing principal and interest payments by $1.6 million per month, or about $20 million in total. Turning to slide 12, I'll now turn the call back over to Jeff. Thank you, Jeff.

We manage our business with 2024 having clearly in our sights. While no one can predict or control the price of Bitcoin, only the most efficient mining companies will succeed. Our performance metrics are consistently industry leading. We have maintained low direct costs of production, and we are working diligently to reduce our corporate overhead costs. Even at Q4 2022 Bitcoin price levels, we continue to generate positive cash from mining operations. We substantially reduced our debt, capex, and monthly cash obligations. Also importantly, our debt obligations are scheduled to be fully repaid in February 2024, over two months ahead of the next halving. With our existing infrastructure and $22.4 million in available credits for mining purchases, we expect to substantially cover our capex requirements to achieve 6x a hash per second by the end of 2023 from our current portfolio of farms. In addition, we expect a cash tax recovery in mid 2023, which will further improve our liquidity and ability to quickly execute on a rising opportunities. Our experienced global management team is highly capable of finding, negotiating and integrating new international opportunities, and then to design and build new farms in a cost effective manner. Having vertically integrated operations developed over the last, over the past five years, continues to be a key competitive strength. We are following a path of growth with absolute discipline. And as evidenced by our track record of operating excellence, we remain well positioned to take advantage of emerging opportunities and be a respected consolidator in the industry. Before the Q&A session, I would like to mention that we will present at the SIDOTI Small Cap Conference being held virtually on March 22nd and 23rd. and the Ladenburg-Fellman Technology Expo in New York on April 27th. Operator, we can now open the call for questions. Please go ahead.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause just momentarily to assemble our roster. And our first question here will come from Kevin Deedy with HC Wainwright. Please go ahead.

Good morning, Mr. Morphy and Mr. Lucas. Thanks for having me on. Good morning, Kevin. Maybe a little more granularity on the Argentina situation. You talked a lot about, I guess, power issues I'm just kind of wondering where the miners are, because I know that getting through customs was an issue in the past. Maybe you get sort of caught up on timing there. And maybe also while you're talking to that point, address the $22 million in credits and the opportunity that affords you in shipping more miners there. Sure.

Let me start. I'll tell you about the current climate environment in Argentina, and then Jeff Lucas can talk to you about the minor credits and the capex anticipated for Argentina. But Kevin, we're very excited about where we stand in Argentina right now. It came with some impediments and some slowdowns last year as a result of the government and some of their fiscal challenges, but they've made adjustments and we are moving with them. So the first situation was the power permit. The power permit, once the high voltage lines and the facility was made, they had six months to review the situation and provide approval to our private power contractor to be able to turn on and provide power to us. In the meantime, we've had to take and pay for power from the power grid at higher prices. We believe we are very soon going to get approval from the government to allow our private power producer to turn on the power. And as soon as that happens, we will start benefiting from lower cost power. As we get more miners into the facility, the cost will even get lower because right now With the power contractor being utility scale, they need to produce at least 26 megawatts of power. We're currently closer to 10 megawatts before we can start getting the full benefit out of the power being taken from that facility. So we are excited that that seems to be around the corner and that lower costs are going to be coming into us. We expect that The second challenge was importing miners into the country, which was stalled as a result of the country's balance sheet. And they have made changes, as I mentioned. And now we expect that probably within the next 30 to 45 days that it will be open to us to start bringing miners into the country. And initially that will be a few thousand, but then that will move up to 9,000 miners. And fingers crossed, it looks like we should be in full production during the third quarter of this year. And that facility will be at full production. And then depending on the markets and the prices and the hash price and all the other factors that will come into it, Along the way, we will make a decision about implementing the second 50 megawatt warehouse that we can put on the same site with all the same favorable attributes.

Okay, so you're hashing there now. About what level are you hashing now, and you're running completely off the grid? No.

we are pulling power exclusively from the grid right now because the private power producer doesn't have the green light to turn the power on for us. So the cost is higher because we're taking grid power. That will substantially reduce based on energy prices right now and our contract with the private power producer. So that should be around the corner. And I was remiss in my previous comment in saying that between the approximately 10 megawatts that we're drawing now and approximately 26 megawatts. When they turn on at utility scale, they will produce more power than we need and they will sell that power to the grid. That tends to be at a loss to them, so we'll have to make it up. But it'll be a blended power rate that'll take us down to what should be 3 cents per kilowatt expressed in US dollars or less once we're in production there. Yeah, we're drawing generally 8 to 10 megawatts right now. Okay. And with full sights on drawing a full 50 megawatts later this year.

So per your discussion, Jeff, regarding the government, do you think they've sort of backed off a little bit on the custom clampdown? Do you think machines flow in with less hiccups? in the future such that you can get to that sort of 26 meg consumption more near term than the full 50 in the third quarter?

No, a different lens, Kevin. Under the former program, they provided an advantageous exchange rate called the blue chip exchange rate. It's called a variety of things. that us and a variety of other foreign direct investors were taking advantage of to bring equipment into the country. It was a more favorable exchange rate, but that also impacted the country's balance sheet at a time when it really didn't have the wherewithal to be able to stomach that any longer. So it put a stop to that practice, and then it needed to bring in new channels to be able to allow foreign direct investors to invest in the country, which is now done. Because we've been there for two years, have employees in the country, have a track record of being able to build and pay suppliers, we now have what the application required to be able to submit the application and get approval to become a direct importer. When we're a direct importer, we can bring equipment in, we will pay not at the CCL or the blue chip exchange rate, but at the official exchange rate, but we will also have substantially less in brokerage charges to do it. They pretty much offset each other. But the best part of it is that under this new approval process, which we are in the queue and we feel very strongly that we're going to get approval within the next 30 to 45 days, that we'll be allowed to be a direct importer. while there's still be communications with the governments and smaller approvals, it's in their best interest because of the cash flows that we'll be bringing to the economy to approve that application and we'll be a good corporate citizen being able to do that. We're excited for that to happen.

Okay, now with regard to the 22 mil credit, you foresee dedicating It's used to going from the 26 level you're anticipating near term to 50 in the third quarter in terms of megawatts.

I'll let Jeff answer that, but it'll take us from the 8 to 10 that we're at now right up to the 50 and still have some credit left over. But go ahead, Jeff.

Yeah, sure. Thank you. Good morning, Kevin. So we have right now a little under 2,500 miners that are deployed here in Argentina. and we'll be looking at approximately $13,000 for the full 50 to 52 megawatts to take advantage of that. The capital cost for those miners is completely covered, and then some, as Jeff pointed out, with the $22.4 million of credits that we have there. So, in other words, we will be capping a large portion, but not the entirety of that credit to fulfill and meet our capital requirements for the miners fully for the first warehouse.

Okay, and that gets you to the sixth. X to hash target you're offering for the year?

Correct.

Correct.

Okay. In fact, there's probably more miners than that, so that if we were given other opportunities, we should be able to flex beyond six X to hash with that credit as well.

Well, so that's kind of where I was going. there's been some talk there's an opportunity for expansion in Washington, U.S. There's Hydro Quebec that's offering, I think, 260 to 280 megawatts. And then I think there's been some news out of Paraguay with more Bitcoin miners going there. And I was wondering if you could sort of round out anticipated expansion in those geographies.

Sure. In Quebec, which is our home base where we have seven operations, the RFP is still there but suspended by changes in the political government. We're still hopeful and we continue to participate in discussions to allow that RFP to roll out in a way that's beneficial for the province of Quebec as well as beneficial for us. We can't give you any estimate or any guidance on when that will come to play. In fact, there is some factions that would like to see that cancelled. We think we bring a considerable amount of value to the province of Quebec and we're supported by the towns and the mayors and the MPs where we do our operations and we see the opportunity to set up in towns and cities where there's a lot of surplus hydropower employment that is necessary, skilled labor that exists from the forestry and mining industry. So we're excited about Quebec. At the moment, we can't count on it, given the moves by the province to get the new rules of the RFP in place. So that's there. Washington is a wonderful area where we had successful operations. And once again, it's hydro power. And we're seeing... both greenfield opportunities, brownfield opportunities, and acquisitions in that area. Discussions continue. So that's a bright spot. Paraguay. Paraguay we were very excited about, and probably about this time last year I was telling you how excited we were for it. They've got a surplus hydro load there that we'd love to take advantage of. since then they brought in some rules that resulted in the tariff in that area increasing probably too much and it seems to have poured cold water on the interest of us and a variety of other miners going to paraguay we think this is a mistake in fact i am headed to argentina and paraguay later on tonight to have some of those discussions with those people to try to bring some more reasonable balance to what they want in exchange for power costs per kilowatt hour, the delistage or the curtailment factors and things like that. But Paraguay in the meantime, it's an election year and as such things are somewhat shelved until the election goes through. So we don't expect really much change in Paraguay until later this year. But yes, there is one Bitcoin company that's announced that they're going into Paraguay with 100 megawatt opportunity, and we wish them good luck. This time last year, we were working on multiple 100 megawatt opportunities in Paraguay, and they've been put on the shelf based on some of the current announcements. Hopefully that covers some of the geographies you asked about, Kevin.

Absolutely, all of them. Thanks, Jeff. One last question for me before I turn the floor over. Can we talk about mining efficiencies? You noted on the slide deck, you're now at about 39 joules per terahash, I think as of February. I'm wondering, you know, if you look across the fleet and the leftover credit that Mr. Lucas has spoken to, is there thinking internally about how you might consider optimizing machine performance to push that efficiency lower or higher, depending on your perspective?

Exactly. Kevin, we're doing that every day. We utilize all the latest generation miners. We have a over concentration of the M30 micro VTs, but we also have the S19s. They're all very good miners and we are able to achieve amongst the best efficiencies in the industry right now based on our software system and our operations and our technicians. And that comes from making sure that you have all your machines up and running, fully running and fully optimized. and we're very good at that, and that's why we continue to achieve these great efficiencies. Now, sure, there are great sort of high-performance S19s and M50s that are achieving even better efficiency, but they're two or three times the cost, and this has been a challenging environment. We think that you can't just take a look at the watts per terahash or joules per terahash in isolation. You need to take it combined with how well you operate your fleet and your power costs. Because at the end of the day, what you need is cash flow from operations to provide a return on investment. And I think there's a lot of other people out there that are growing for gross sake. And clearly with our targets of 6X a hash, we're not doing that. We have prudent growth, very disciplined, because we want to provide value to our shareholders. And as Jeff Lucas has mentioned with these hardware credits, we're able to roll out a substantial increase in production without a substantial cash outlay, which means far less dilution to shareholders. We think this is key. We think this is important for our shareholders to know that we can substantially grow without a substantial outlay. And we have been achieving positive cash flow from operations even through some pretty lean times. So, Kevin, when you look at the joules per terabyte, for these miners, you also have to look at power costs and take them into conjunction with that and your payback periods and your ROI. So that's what we do with our, our, our computational, at least our calculations on how to do it is a mixture of the performance of the machine, the capital cost of the machine, and then the expected output in terms of cashflow. So it's, it's more complicated than just looking at the joules per tera hash. But when you get that figured out, you can generate good returns.

But let me add a comment to that, if I may. You know, we're also, as we look at ROI and payback, we're also very aware that we have a halving event coming next year. And so while a lot of our peer companies may be investing in higher performing and more expensive miners out there, you know, I think people have to be very attuned to things that go beyond a one-year payback, recognizing that year two or year three would be impacted by the halving event, which, of course, is a great element of uncertainty. Thank you.

Well, thank you, gentlemen. Appreciate you taking the time.

Thanks, Kevin. Our next question will come from Bill Pippinastasio with Stifel. Please go ahead.

Hi, gentlemen. How are you? Thanks for taking my questions. And congrats again on the recent efforts to reduce the indebtedness and the renegotiation of those purchase contracts. My first question is related to treasury management. You know, in the first couple of months this year, the company has maintained a huddle balance of just over 400 Bitcoin, but we continue to see positive price action for the digital asset. And, you know, based on the macroeconomic outlook, it seems like things are only going to improve from here, figures crossed. Just wondering, whether you can share your outlook on terms of, you know, treasury management strategy as we progress into 2023 with the halving in the back of our minds.

Sure. So let me start off with that, and then Jeff can send me a fill-in as well here. We made the conscious decision last year, actually, to use our Bitcoin holdings to pay down a lot of our debtors for a deleveraged company overall. We recognized and adopted the... strategic contention at that point in time, that we feel investors describe greater value to our financial performance than they do in our results, certainly into building up treasury of Bitcoin, which they, of course, any investor can do on his or her own here. The important point to keep in mind going forward is that while we're looking at growing the business, we want to do so to be as creatively and with as minimal dilution to our shareholders as possible. With that in mind, Bill, what's going to drive our treasury strategy going forward is utilizing the Bitcoin from production to meet, of course, our operating expenses and our debt service requirements, and to the extent it makes sense to contribute to our capital expansion plans as well. As we continue to see, and if we continue to see an improvement in the hash price, that is, of course, the amount of revenue that we derive from our TerraHash here, we may be in a position here where we'll be generating greater post-revenue above and beyond our operating expenses and our debt service requirements. At that point in time, we may give consideration to begin to build up our treasury reserves. But again, the overarching goal here is to minimize dilution of shareholders, would rather use our actual BTC proceeds than we would actually engage in the ATM to fund the growth of our business going forward.

Thanks, that's some great color. Just moving gears, shifting gears to Argentina. Can you speak a bit more to the opportunity there and why the team remains so bullish? My understanding is that there's a significant amount of natural gas and it trades at a discount. Can you add some more color to that? We've recently seen natural gas prices reduced this year, and I'm wondering if you're able to comment whether this reduction in natural gas could have an impact to the power costs that you'll be drawing on in the future through Albanese or the energy provider at the site?

Absolutely. Yes, the lower natural gas prices will help us as well as any other miners that are describing power from natural gas field electricity. In Rio Cuarto, Argentina, the whole country benefits from the fact that I think it's the It's the country with the third largest reserves of natural gas in the world. I think they're second or third in oil reserves as well. So they're energy rich. And what's also a benefit to us, not necessarily a benefit to them, is being in the southern hemisphere, a long way from the population centers of the world. There's no LNG terminals. It's hard to move that. oil and natural gas anywhere else. So just like what we look for in hydro, surplus hydro, they have surplus energy in the form of natural gas. And we can help monetize that, which is good for the country, and it's good for us. And as we said in the script, we expect when this facility is fully activated that it's going to be our lowest cost energy of any of our sites. Right now, where natural gas prices are, we think it's going to be $0.03 US per kilowatt or less. It's an eight-year contract. The first four years, 60% is at $0.02 per kilowatt, and the rest is at market prices, which we do not expect to exceed much over $0.03 per kilowatt. So we are very hopeful that this will be sub-$0.03 power which will bring our total cost across our whole fleet down, and down quite significantly. So this is a strategically important area for us, strategically important for our shareholders. And we know it's taken longer to put in place, and it's been a bit of a black cloud for our shareholders and our valuation. So we are excited to hopefully pass this hurdle soon and show everybody that this is going to be activated and a very successful project.

Thanks, Jeff. Lastly, I just want to circle back to the equipment credit that Kevin was asking on and just expand on it a bit more. If I do some back-of-the-envelope math, it appears that if we were to consider $15 per terahash pricing for 86, you'd get to about 6.2 exahash off the existing 4.7 and drastically reduce the machine efficiency. Are you able to comment on whether, you know, there's a particular make that you like in terms of what you'd select to deploy into the Argentina facility? Does the credit pertain only to microBT, or can you purchase other types of equipment? And, you know, my understanding is that microBT has been – significantly utilized all their ASICs have been significantly utilized at the farms and you know you continue to get very high efficiency it's just any colour on there.

You're right it's been a good portion of our fleet is micro BTE M30 series miners they are a workhorse they've been tried and true when they do falter we can we have the knowledge at a repair shops to fix them and get them back in action and they have amazing longevity they're not a super high performance unit but they they truck along with very good efficiencies and yes your math in terms of calculating exahash years some of our calculations as well. So it really represents an opportunity should an acquisition come along that we can utilize that credit elsewhere. But yes, these credits are all for micro BT units. We have the flexibility that we don't have to put them all in Argentina, but that seems to be the low hanging fruit right now. So that's where we will go, but we're open sort of beyond that six X a hash to putting them elsewhere as well. But as we look at expansion opportunities, we'll be happy to use the Bitmain equipment as well. As I said earlier to Kevin, it's just a mix of the circumstances at the particular site and the capital cost that goes with the miners versus their performance, and then when we make the decision.

So about 85% of our miners are micro-BT. We've had a great track record, as Jeff pointed out. And the repair record of these things is excellent. Thank you.

I appreciate the color, guys. That's all my questions. Thanks, Bill.

And our next question will come from Dylan Heslin with Roth MKM. Please go ahead.

Hey, thanks for taking my question. First, I wanted to talk a little bit about Argentina again. Talk a little bit about this – the next steps of the build out sort of being on pause. What exactly do you think you need to see to give you confidence that you can continue to pursue that opportunity?

We are very advanced, Dylan. The first 50 megawatt site was completed in October. It's ready for miners. All the equipment, all the IT connections, they're all in place. It's just that we had the setback from the government government approval changes so as soon as we can get the miners in there and the power turned on we're golden and it seems that both of those approvals are imminent so as soon as miners arrive at site they can be plugged in and we'll increase our hash just like that right up to 50 megawatts so really after that it's considering like as you recall we have a 210 megawatt contract there Uh, we had initially planned on building all that out, but then when conditions in the market, uh, deteriorated, we, we really focused on two warehouses rather than four warehouses. So we're really looking at a hundred megawatts. So if like the what's happened in the industry over the last, uh, few weeks and, and even really last couple of months is very encouraging. If that hash price can, can continue to improve. and the economics look good and the payback periods look good, we will view the timing with having in mind it's probably about April 30th or 24th, see if we can build that facility and have it contribute to accretive growth for our operations and our shareholders. Those are some of the factors that we're looking into, but we're not going to jump into it quickly. We're going to evaluate all the variables. and make a smart and prudent decision when the time comes. But the gating items is getting the power turned on at the power plant with the government approval and the ability to bring miners into the country. If we can get both of those things achieved in the next number of weeks, then we will have the good fortune of being able to make those decisions.

Got it. Thanks. Yeah, I understand with what's existing. I guess what I'm referring to is more so what you haven't built yet. Sort of if you get what you're talking about online and the machines in, like, do you see any more potential hiccups that could exist with the government if you did decide to go through? Or you think once you get the first building online, then it's sort of a bit more smooth sailing from there?

oh, it should be smooth sailing. See, the power permit will allow for not just the power of the first facility, but should be the lion's share of the second facility as well. So that should be covered all with the power permit approval. In terms of bringing miners into the country, we think that's imminent. The government's made their changes. It's good for the government that our application should be clear we're able to then layer on additional applications very quickly for additional amounts to come into the country. I think over the last two years, we've learned a lot. And we've learned that this is a country that's not quite as nimble as what we're used to in North America. But we have now approximately 40 people on the ground there between technicians and our regional office. And we know the system a lot better. We know the people a lot better. Uh, we were probably a bit naive to start with, but we've overcome those things. We're on the ground. Um, the government is well aware of us and is supportive of us. So I think we paid our dues and now we're going to get the benefits of it.

Thanks. And then as, as a follow-up, uh, talk a bit about potentially looking at strategic acquisitions. Um, do you think that's in markets where you already operate? IE countries, or is it something where you're looking at net new countries? Um, just sort of what, what are your thoughts, um, in terms of something that might already be built out or something that you're just buying access to land and power?

Let me give you a little background on that and, uh, some metrics at the beginning of 2022. We decided because we thought consolidation was coming and acquisitions would be coming that we should develop a corporate development group. We have three talented individuals within that group. And over the last 14 months, they have reviewed 80 opportunities in 17 countries with over 6,500 megawatts of power. We have issued 15 LOIs. We are very busy in looking at opportunities, but very disciplined at what might work for us. Often there is a mismatch of our value expectations versus their value expectations. But I think given the tightness of the marketplace in the fourth quarter last year, the difficulty rises so far in this quarter, people have realized that this is a very challenging business and sector. and that you need industrial scale and experience to be able to do it successfully. And we are seeing better opportunities, more realistic pricing, and we are hoping that we're going to be able to complement our organic expansion with some acquisitions. And just to follow on with your question, yes, they are particularly good if they are already in geographies that we reside in because we have people there. That just makes sense. And there are also areas in which we know the laws and the rules far better. But it doesn't keep us out of looking at other jurisdictions that might be favorable for growth as well.

Great. Appreciate the comments. That's it for me.

Very good.

And this concludes our question and answer session. I would now like to turn the conference back over to Jeff Morphy for any closing remarks. Thank you.

I would like to reiterate three points about BitFarms. First, we mined 5,167 Bitcoin in 2022, placing us high in total production for the year and further validating our capabilities to scale the business. Second, we've maintained profitable mining operation each quarter as a result of our determination to maintain stable low energy and operating costs. Three, We've delivered our balance sheet as of February with 22.4 million in available equipment credits and just 23 million in total indebtedness. We have ample flexibility to grow in 2023. Organically with little capital outlay, we expect to reach six X a hash per second by year end from our existing portfolio. And we expect that one or more acquisitions will bring us even further value to shareholders. Thank you all for attending today's conference call. We look forward to updating you with our monthly production reports as well as other developments and our Q1 conference call in May. Thank you very much.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.