Bitfarms Ltd.

and answer 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, Tracy Crumie, Senior Vice President, Head of IR and Corporate Communications. Ma'am, the floor is yours.

Thank you. Good morning, everyone, and welcome to BitFarm's second quarter 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, bitfarms.com, under the Investor section. Turning to slide two, I'd like to remind everyone that certain forward-looking statements will be made during the call and that future results could differ from those implied in this statement. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult BidFarm's MD&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&A for definitions of the aforementioned non-IFRS measures and their reconciliations to IFRS measures. 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.C. Wainwright's 26th Annual Global Investment Conference, taking place in New York City from September 9th to the 11th, and the AIMS site in Dubai, taking place from October 21st to the 22nd. 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 three, it is my pleasure to turn the call over to Ben Gagnon, Chief Executive Officer. Ben, please go ahead.

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. Fourteen years ago, I discovered Bitcoin. And nine years ago, I began working full-time in the mining industry. I started from the very bottom, investing every dollar I had 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, three-halving epochs, and have seen and been involved with every aspect of this industry, from the mining floor to the C-suite of one of the largest publicly traded mining companies globally. I've been with Bitfarm for five years, and for the last three years served the company as chief mining officer, where I oversaw mining operations and strategy, and worked intimately with every department in the company. I am a proof of work CEO, and the transition into this new role has been smooth and well received among our team and external stakeholders. Turning to slide four. Over the past 30 days since my appointment, I've set aside time to speak with every key employee of BitFarms, in addition to all of our key partners and many of our investors. From these conversations and from my first 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 BitFarms vision. 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. 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. 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 shares. 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. 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. As Chief Mining Officer, I was the key architect behind our fleet upgrade and growth plan this year, and we remain committed to reaching 21x a hash and 21 watts per tera hash by year end. That being said, we are not stopping at 21x a hash. 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 their standalone plan. 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. I am 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. 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. Second, Over the past two years, we have focused on developing our international portfolio. In 2025 and beyond, we will be largely focusing on increasing our U.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. Third, we will be pursuing more minor purchases with creative structures that give strategic advantage to bid farms. By way of example, last year, we were the first mining company to negotiate and announce a miner purchase option with Bitmain. They 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 and 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 in utilizing and developing new, highly accretive structures that maximize flexibility and value creation for our shareholders. Turning to slide five. 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 two. Here you will see a snapshot of where we are and where we plan to be by year-end 24 and year-end 25. In Q2, we increased our 2025 power capacity 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 2024 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 million total liquidity at the end of Q2, over a thousand Bitcoins at the end of July, and a 2024 growth plan that is fully funded. Turning to slide six, let's talk a little bit more about our new US site, Sharon. We are so excited about this site for a number of reasons. First, Sharon will be our first mega site in the U.S. With over 120 megawatts of total capacity, this single location will increase our U.S. footprint sevenfold, from 20 megawatts to 140 megawatts, and kickstart our aggressive U.S. growth plan. Second, 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. Third, 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. Fourth, for Bitcoin mining specifically, the site supports over 8x a hash with the latest generation miners, and there are significant curtailment, demand response, and energy trading opportunities available to effectively hedge your 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. 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 HBC and AI. One, the PJM market has very reliable power, and the grid is much less prone to the weather-related stresses that you'll see in Texas. Two, accessible fiber lines support connectivity and redundancy in close proximity to the four major metropolitan areas I mentioned previously. Three, the site is located in a deregulated market and is not tied to any one power provider, providing unparalleled flexibility. Four, we have not yet started construction on the site, and so we maintain 100% 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 US 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 seven. 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 billion in 2022, growing to $420 billion in 2027, with related AI infrastructure growing eightfold from $26 billion $195 billion over the same time period. We own and operate a portfolio of high-quality energy assets that are currently monetized for Bitcoin mining. 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 boasting revenues from approximately $140 to $210 per megawatt hour. These are potentially very attractive and stable high margin revenue streams not correlated to Bitcoin prices. Comparatively, Bitcoin mining with T21 miners yesterday on August 7th 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 HBC and AI due to their materially lower CapEx requirements and upside exposure to Bitcoin prices. That said, we believe that the most attractive opportunity is a combination of the two, with a potential integration in Q4 2025 or Q1 2026. This would potentially provide us increased diversification and exposure to varied revenue streams at 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 was constantly assessing new energy assets, are now evaluating all opportunities through multiple lenses, including the HPC and AI lens. 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 in value for our shareholders in line with historical market cycles. Moving to slide eight. I would now like to switch gears and tell you about our progress to 21 ExaHash and 21 Wasp for TerraHash year-to-date. While we did experience temporary delays in hitting our mid-year target 12 ExaHash, we did hit our efficiency target, 25 Wasp for TerraHash, 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 miners representing approximately 700 PETA hash that underperformed in even low temperatures. 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 miners with new units at their expense. These new miners are expected to arrive and be installed in three 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 seven of 11 data center upgrades now complete, the only remaining facilities to be upgraded are Villarica, Magog, Washington, and Argentina. PDUs are currently being shipped to Villarica and Magog, and new T21 miners 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 to 62 megawatts. With this expansion to 62 megawatts, we now expect this upgrade to be finalized in December or January. The first 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 miners 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 four 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 hash rate growth to 21x a hash. 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 Pei is now fully online and is our largest site by both megawatts and hash rate. 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. In terms of construction progress, we have now completed all of the necessary purchase orders and broken ground on seven of the warehouses. We expect 100 megawatts to come online in December, contributing approximately 5x a hash with 20 watts per terahash efficiency and an additional 100 megawatts to come online in the first half 2025. 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. Four months ago, this was just a soy field. And in five months, it is expected to be between one half and three quarters of a percent of the entire Bitcoin network, powered entirely by renewable energy. From breaking ground to energization, the construction schedule is only nine months, far faster than what is possible in the US. 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 Phillips to our board of directors. 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&A. Her skill set will be invaluable as we continue to drive organic and inorganic growth. Fannie represents our fifth director, four 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 and 2025. 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 220 megawatts to our energy portfolio, supporting over 35x a 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.