Bit Digital, Inc.

Hello, and welcome to the BIT Digital first quarter 2024 earnings conference call. Good morning, good afternoon, and good evening, depending on where you're joining us from. Thank you for being here. We're just giving a few more moments for attendees to dial in, so thank you for your patience. While we wait, please note that during this call, all participant lines will be in listen-only mode. Following the officer's updates, we will open the floor for a question and answer session. If you have a question at that time, then simply press star 1 on your telephone keypad. Also, as a reminder, today's conference is being recorded. I'll now hand the call over to your host, Cameron Schneer, head of investor relations at BitDigital. Cameron, the floor is yours.

Thank you. Good morning. Welcome to the BitDigital first quarter 2024 earnings call. Joining us on the call today are Sam Tabar, Chief Executive Officer, and Eric Huang, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 20F filing, yesterday's 6K filings, and our other SEC filings. Our comments today may also include non-GAAP financial measures Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our 20F filing and yesterday's 6K filings, which are on our website. After our prepared remarks, we will open the call up for questions. If you would like to ask a question, please hit star 1 on your keypad. With that, I will turn the call over to Sam. Thank you, Cam.

Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I'll discuss three things. First, our first quarter results. Secondly, an update on our strategic initiatives. And third, our thoughts on the outlook for the remainder of 2024. Cam and Eric will then provide more detail on our financial results, and we will then open the line for your questions. We started the year off strong, and our first quarter results speak to the effort and execution by our team. Our Q1 revenue grew by over 250% from the prior year and by over 85% sequentially. We generated $58 million of adjusted EBITDA and a fully diluted gap EPS of 43 cents. The first quarter marks the first time that our two primary business lines coalesced to produce what we view to be an emphatic year to the start, emphatic start to the year, pardon me. Our active hash rate was approximately 2.6776 exahash as of March 31st, compared to 2.52 at the year end. The listing of certain curtailment programs should bring that figure above 3.0 in the near term. We employed a cautious approach to fleet expansion heading into the halving, and we are still evaluating the post-halving landscape for growing our mining fleet. Our goal, remains to reach six exahash by year end. We are in a number of discussions with counterparties for new hosting opportunities and fleet deployments, some of which we expect to be finalized imminently. However, we are still approaching fleet growth cautiously, and we will only implement new growth programs if the economics meet our criteria. Having two uncorrelated revenue streams allows us to be selective on the timing of deploying growth capital. Our average fleet efficiency for our active fleet was 28.3 joules per terahash as of March 31st, 2024, a slight improvement compared to the year end 2023. We aim to improve that metric considerably as we build out our mining fleet with more efficient miners. As of March 31st, 2024, our Bitcoin mining fleet was approximately 85% carbon free. a decrease from our year-end 2023 run rate of 93%. The decrease was driven by an increased consumption of power grids that use more carbon-based energy sources. We continue to strive for our operations to become entirely carbon-free, but we must weigh the economic trade-offs in each deployment. Ultimately, we do hope that the market starts to demand greater transparency on the power sources that miners use, This will help incentivize greater sustainability practices from the mining industry at large. As mentioned last quarter, we still need to secure around 40 megawatts to reach our six EXA hash goal. We are currently in late stage discussions with several potential hosting partners that would put a significant dent into that requirement if the respective agreements were consummated. We are also actively evaluating several M&A opportunities. both on the mining side and for high performance computing services or HPC. We've seen an increase recently in reverse inquiries from entities either looking to be acquired outright or from some sort of strategic partnership. We expect the M&A opportunity set will likely ripen further on the mining side if the hash price remains near current levels. Regarding potential M&A, We're not particularly interested in solely acquiring hash rate. We're more interested in opportunities that fill a strategic gap in our portfolio or improve pro forma margins and returns. One of the reasons that we have slow played our EXA hash build out this year is because we wanted to maximize our flexibility to capitalize on opportunities that might arise post-having. I believe one reason that prospective sellers have approached us is the strength of our balance sheets. We had over $160 million worth of cash and digital assets at the end of March and zero debt. However, we are actively evaluating debt financing options to accelerate the growth of our bid digital AI business. Our first quarter 2024 results represent the first time that the contribution from this business, referred to as high-performance computing services within our financials, has impacted our income statement. For the quarter, this business produced $8.1 million in revenue and a gross profit of $3.2 million. You may notice that the revenue number is about $1.3 million lower than the sum of the monthly revenue numbers we published in our monthly reports for the first three months during the first quarter. The delta is driven by a one-time $1.3 million credit that we issued to our customer as compensation for reduced utilization during the initial deployment period, which included testing and optimization phases. To be clear, this is a non-recurring charge. For illustrative purposes, if we add the credit back to revenue, gross margins for the HPC segment would be approximately 72.5% compared to the reported 61% that includes the one-time customer credit. I would also like to point out that the gross profit includes our lease expense as we treat that as an operating lease for accounting purposes. As previously disclosed, our anchor client for our BitDigital AI business has requested that we double the size of the GPU deployment and contract another 2,048 GPUs. We are in process of finalizing the terms with our customer and respective vendors. and we hope to announce the final terms in the coming weeks. We also continue to progress in our discussions with other prospective customers. Our goal to grow the HPC business segment to $100 million of annualized revenue by year-end remains intact. Given the market pricing trends and volume-based discounts, it's unlikely that we will achieve this run rate from only an additional 2048 GPU deployment from our existing customer, assuming that the contract is finalized. However, we expect to be able to procure the GPUs at a reduced rate relative to our initial purchase. This should help us maintain a similar returns profile and payback period relative to our initial deployment. Nonetheless, Based on our conversations with prospective customers and the overall view of the market, we continue to believe that we will achieve our revenue goal for the year. We are set up for a strong multi-year growth in this business. To date, we have invested minimally in the business development or customer acquisition side of the HPC business. However, it's become clear to us that we need to expand our team and add dedicated headcount to support the growth of this business. So we are now actively working on making very key hires that will help us accelerate that growth.