BitFuFu Inc.

Q4 2023 Earnings Conference Call

4/11/2024

spk00: Ladies and gentlemen, thank you for standing by for Bitfufu's full year 2023 earnings conference call. At this time, all participants are in the listen-only mode. After the matchments give their prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I'll now turn the meeting over to your host for today's call, Ms. Yang Song, Managing Director of Christensen. Please proceed, Ms. Song.
spk01: Good day, ladies and gentlemen, and welcome to Bitfufu's full-year 2023 earnings conference call. The company's financial results were released earlier today and are available on IR website as well as Gold Newswire services. Joining me today on the call are Mr. Leo Lu, Chairman and CEO, and Chia-Jiao, Financial Controller, who will both be available to take your questions in the question and answer session that follows. Before we begin, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995, statements that are not historical facts, including statements about the company's beliefs and expectations are forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the management's current expectations. Potential risks and uncertainties include but are not limited to those outlined in the company's public findings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. I would like to now turn the call over to the company's CEO, Leo. Please go ahead.
spk04: Hello, everyone, and thank you for joining us today on our first Earnings Call as a listed company. We are extremely excited to have completed our business combination with a rise at the beginning of March and the joint ranks of the leading digital asset companies listed on Nasdaq. This was a huge milestone for us as we enter the next phase of growth. As of today, the price of Bitcoin has reached around $70,000. Bitcoin total market cap is now around $1.38 trillion. I remember when I was first introduced to the digital asset industry in 2017, when the price of Bitcoin was somewhere around $3,000. Over the years, despite having gone through several dumb cycles, the industry remains on the path of overall growth The number of Bitcoin holders and the adoption acceptance and the appreciation of digital assets continues to increase. I'm grateful that I was able to get involved in this industry back in 2017. I would like to take this opportunity on our first earning call to provide you with an overview of our business and highlight several key points. To begin with, what exactly is a cloud mining service? What does the offer to both customers and the industry? Why has it grown so fast and what has BitFufu done? In 2020, I founded BitFufu with the goal of creating a leading company that offers cloud mining service to digital assets customers worldwide. Traditionally, individuals looking to buy Bitcoin have had two options, purchasing it from spot prices directly from exchanges like Coinbase or Binance, or purchasing equipment to mine Bitcoin themselves. Both options require a substantial upfront investment mining typically offers lower acquisition costs but it requires precise control of cost and the efficiency these process challenges offer individuals such as purchasing mining machines and their arranging transportation installation hosting monitoring and maintenance to ensure consistent and stable operations while difficult for individual, this is easier, professional miners with a substantial scale and expertise. Bfufu offers a third and a more affordable option to customers with cloud mining services. All they need is a login to their Bfufu account and the purchase. Hash rate for the desired period of time. The platform then began to mine Bitcoin without any hassle. We believe this is the most efficient and convenient way for customers to obtain Bitcoin at a reasonable cost. Selling and purchasing cloud hashrates benefits both people and their customers. For the service providers, it generates upfront working capital to expand a scale of operations while at the same time hedge against the Bitcoin price volatility. Pre-selling hash rate at a fixed price allows Bitfufu to secure future revenue regardless of future prices. Customers benefit from potentially lower costs instead of purchasing Bitcoin directly from exchanges. For example, Let's see the cost to mine one Bitcoin over the next 180 days is $100, while the price of a Bitcoin is $200. In this scenario, we sell computing power to mine one Bitcoin for $150. This strategy allows us to lock in gross profit of $15 over the next 180 days. Regardless of Bitcoin's price volatility during that period, this allows the customer to secure the necessary computing power to mine one Bitcoin over a fixed period of time at a lower price than the spot market on the date of purchase. Throughout 2023, demand for cloud mining services grew consistently. Regardless of Bitcoin price movements, we dynamically adjusted service pricing as the price of a Bitcoin moves. This allows us to attract institutional and individual customers during periods of low prices and boosting user engagement when prices surge. Our advanced management and the real-time monitoring system ensure reliable and effective services. We maintain reserve of computing power to offset any service disruptions to guarantee stable mining operations for customers. Precise management of our computing power enables us to provide customers with computing power to cast profiles that meet their requirements. Our system also allows us to rapidly allocate hash rate between cloud mining and self mining. Thanks to our solid system and outstanding management, We consistently live up to our goal of delivering real and efficient computing power to each customer who opts for BitfuFu's cloud mining services. Since inception just four years ago, BitfuFu has grown substantially. I believe this reflects increasing recognition of the value we offer customers through cloud mining solutions. Bitfufu today is one of the world's leading digital asset mining service providers. Our hash rate surged over 100% to 22.9 extra hash as of December 31, 2023 from 11.1 at the end of 2022. Revenues also grew 43% year-over-year in 2023, reaching $284 million. At the end of 2023, our hosting capacity increases to 515 megawatts across 24 sites and three continents. We believe that we are one of the most diversified miners in the industry. Our innovative approach has attracted interest from some of the most notable companies in the industry. Early on, Bitmain, the manufacturer of the market leading on the miner, invested in Bitfufu and continued to support us with an additional pipe investment in connection with our business combination last month. Our partnership has evolved over the past two years. We acquire computing power and mining hardware from Bitmain and distribute them to our clients. This collaboration has promoted us to the status of Bitmain's S-class client for mining machinery and its exclusive strategic partner for cloud mining solutions. Additionally, Enpool, a world-leading Bitcoin mining pool, also participates in the PIBE investment. We are excited to expand our partnership with Enpool We believe that we are ideally positioned to forge additional partnerships with leading industry players in the coming years. Our business model offers significant competitive advantage over traditional Bitcoin mining business. When mining costs are low, traditional mining business self-mines. But when mining and power costs increase, these cells spare power capacity instead of mining. Selling computing power typically generates higher returns than selling power. Our unique combination of cloud mining and self-mining allow us to generate high profit margins when compared to traditional Bitcoin miners. We believe that the demand for cloud mining services will continue to grow going forward. This business provides us with substantial and stable revenue streams, a stable supply of computing power, and a minimized risk in a highly volatile market. Our ability to allocate mining capacity between self-mining and cloud mining services, between leased and owned miners, based on our assessment of market dynamics and strategic predictions, drove the rapid growth in our cloud mining business in 2023. Building on the movement we gained over the past year We will continue to leverage our advantages in this sector to expand operations and cultivate new partnerships with industry players. We have developed expertise in mining facility management and maintenance. Our partnerships with BIMEN and others has also enhanced our team's hosting and operations capabilities. Building on this deep knowledge we have accumulated, we plan to expand our offerings going forward by offering mining facility management services. We have allocated resources and are developing a mining facility management platform which we plan to integrate with our current monitoring system to increase operating efficiency We will also offer these to third-party mining facilities. Our business model going forward will include cloud mining solutions, self-mining operations, hosting services, and the management system solutions. Our goal is to grow alongside the industry, continually serving the global digital asset mining industry and delivering value to our customers and the shareholders. I look forward to updating you on the progress we are making in the coming quarters. I will now turn the call over to Kala to go over our financial for 2023.
spk02: Thank you, Leo. Let me start the part of financials. Bitfufu grew across the board with revenues, net income, and adjusted EBITDA. all increasingly significantly in 2023. Our strategic focus during this past year was on developing cloud mining solutions and self-mining operations, given the market dynamics. In addition, we implemented various investments, user acquisition, and operational optimization initiatives, which helped increase our profitability. Let's dive right into our financials for the year 2023. Revenue was $284.1 million, 43.3% in the last five years, primarily driven by the increase in revenue from cloud mining solutions and self-mining operations. Total mining capacity from self-owned miners and leased miners was 22.9% extra cash as of December 31, 2023, and 106.3% increase from 11.1% at the end of 2022. Specifically, revenues from cloud mining solutions were $179 million, an increase of 79.1% from 2022. Primarily, driven by increase in repeated purchase by existing customers and increase in new customers, as well as increase in average selling price. Revenue from existing customer surged to $138.9 million from $66 million last year. accounting for 78% of revenue from cloud mining solutions in 2023. This reflects the resilience of this business during a period of volatility, where the price of Bitcoin decreased from $46,000 at the end of 2021 to $16,600 at the end of 2022, before increasing back to $42,000 by the end of 2023. Demand for cloud mining solutions continues to grow, reflecting in the year-over-year increase in number of users. This validates our business model of establishing online and mobile platforms in high-demand markets that offer value to customers through our one-stop services We plan to continue to grow our presence in certain geographic markets where we currently have low penetration rate. Revenue from Bitcoin self-mining operations was $100.2 million, representing an increase of 66.2% from 2022. The increase was mainly due to an 88.4% year-over-year increase in the average hash rate used for self-mining operations and a 9.5% increase in the annual average price of Bitcoin produced. This was partially offset by an increase in blockchain difficulty over 2023. We produced almost 3,600 bitcoins in total from self-mining operations during the year. We didn't generate any revenue from sourcing agent service, leasing service, or sales of mining equipment in 2023. This was due to our strategic shift towards the development of our cloud mining business. In 2022, we generated $18.8 million $1.3 million and $10.4 million from sourcing services for mining equipment, leasing services and sales of mining equipment respectively. We will continue to assess the opportunities in sourcing, leasing and selling of mining equipment business based on market dynamics. The total cost of revenue was $271.4 million in 2023, representing an increase of 67.5% from 2022. The increase was in line with the expansion of cloud mining solutions and self-mining operations in the year. The average cost to mine Bitcoin from self-mining operation in 2023 was $28,200 per Bitcoin versus $21,500 per Bitcoin in 2022. The increase in the average Bitcoin mining cost was mainly attributable to the temporary suspension of certain miners during the third quarter of 2023 due to bad weather, power curtailments, and the relocation of miners between facilities. We plan to reduce electricity costs and increase uptime rates in 2024 through the vertical integration of upstream mining facility resources. Gross profit margin for our cloud mining business was 7.6% in 2023, representing a decrease from 20.5% in 2022. This was due to our competitive price strategy throughout 2023, which allowed us to outperform peers in terms of market share and become one of the few large-scale cloud mining service providers in the global market. Sales and marketing expenses in 2023 were $1.9 million, representing a decrease of 5% from last year. Compared to the 43.3% increase in revenue in 2023, the decrease in sales and marketing expenses reflects how growing demand alone was strong enough to drive enough revenue growth without the need for unnecessary advertising and promotional champion. General and administrative expenses were $3.7 million. representing an increase of $32.1 million year-over-year, primarily due to an $0.5 million increase in payroll costs associated with the recruiting of additional talent and an $0.3 million increase in consulting expenses associated with our business development. Research and development expenses were $1.7 million An increase of 13.3 from 2022, primarily due to the increase in payroll costs of technical and development employees. Impairment lost on digital assets in 2023 was $7 million, a decrease of 45.7% from $12.9 million in 2022. Decrease was primary due to the increase of Bitcoin price in 2023. We did not implement the early adoption of FASB fair value accounting rules for 2022 and 2023. So we calculate impairment on digital assets whenever the carrying value of our digital asset exceeds the fair value of the digital asset on the daily basis. Starting from January 1st, 2024, we will begin early adopting the new FASB fair value accounting rules, which will be reflected in our Q1 financials of 2024. Gains on sales of digital assets were $18.2 million in 2023, compared with $4.9 million in 2022. The increase was primarily due to a 50% year-over-year increase in the amount of Bitcoin sold in 2023, and an increase in the difference between the selling price and the carrying value of sold Bitcoin, which was driven by the increase in Bitcoin price during the second half of 2023, when the sales were made. We recorded $10.6 million gap net income in the year, representing and 334.7% increase from $2.4 million in 2022. The adjusted EBITDA improved to $41.8 million from $39.6 million in 2022. Lastly, as of December 31, 2023, Bitfufu had $76 million cash and cash recurrence as well as digital assets, which were measured at carrying value. In addition, we raised $75.1 million through our business combination and listing on Nasdaq in March 2024. We plan to use the proceeds from our business combination for operations and growth in the near term. We sold some Bitcoins during the year to fund our operations. including covering our energy costs, hosting and other operating expenses. We continue to actively managing and optimize our Bitcoin management strategy and asset allocation in order to mitigate impact of extreme volatility of Bitcoin price and enhance the resilience of our business. The quantity of Bitcoin we hold is expected to fluctuate depending on operating divisions and market conditions. But generally speaking, we currently expect it will increase over time. With that, now I would like to turn the call back over to the operator to begin the Q&A section. Thank you.
spk00: Thank you. Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Once again, it's star 1 1 for question. Our first question comes from the line of Kelvin Wong from Alpha Research. Please ask your question, Kelvin. Kelvin, your line is open. Please go ahead.
spk03: Good evening, management. Did you hear me?
spk04: Yes.
spk03: Okay, great. Thank you for taking my question and congrats on your I'd like to have three questions if I could. Maybe I'll ask the question one by one. The first question is about Bitcoin halving. So how is Bitfufu preparing for the potential impact of the upcoming Bitcoin halving on mining rewards and what strategies are in place to mitigate any negative effects?
spk04: Okay, that's a great question. Well, based on our experience, this haven't even tricks a huge reshuffle within the industry, presenting challenges and opportunities. It has consistently served as a critical juncture for stronger players to outperform. while profoundly affecting the ROI of smaller operators which are phased out. Due to poor operational efficiency and lack of diversification and the vertical integration capabilities, the weaker ones either get emerged as we are currently observing were all together taken over. Our team, I must say, is mainly made up of OGs within the sector. Together, we've navigated through the last Halving event in May 2020 and achieved great success since then. Yeah. During that time period, we have not just increased our revenues. We've dramatically boosted them from $100,000 to the impressive $284 million in 2023. This truly underscores our team's remarkable capabilities to drive a sustained growth and durability in the face of industry challenges. We also believe that over time, as market demand for Bitcoin expands, disease-having events are likely to further reinforce the narrative of Bitcoins as a digital goal. As the new supply becomes increasingly limited, from a historical standpoint, limited supply further supports the upwards trend in Bitcoin prices, offering a cushion against the short-term declines in online outcomes, with halving of block rewards. So we are closely monitoring market dynamics as the next Bitcoin halving approaches. Our strategy involves diversifying mining operations, optimizing mining efficiency, and exploring renewable energy resources to reduce operational costs. We are also planning to invest in the next generation of mining equipment to enhance our expertise in the industry. Yeah.
spk03: Sounds great. OK. Sounds great. And my second question is, How do B2Foods products compare to similar offerings like sports BTC and BTC ETFs, and what advantages do they offer?
spk04: Well, certainly, yeah, there is a lot to mention on this point, you know, and thanks for asking, yeah. Actually, when it comes to sports Bitcoin trading and ETFs, based on spot Bitcoin, you've got a couple of main options. These are about buying and selling Bitcoin. You can buy Bitcoin straight up through an exchange, which we can call spot Bitcoin trading. Or you can go for something like Bitcoin ETF based on spot Bitcoin to benefit from the potential price movements from Bitcoin in the future. But now Bitfufu step in with something different. The card mining products offers by Bitfufu provide customers with computing power to generate a Bitcoin. User obtain Bitcoins through a real mining process over a period. which is essentially mining by the customers themselves. And what's great about B2B is that we make it super, super easy, almost as easy as just buying Bitcoin directly. But of course, that is a bit different when it comes to cost and how long things take. Mining Bitcoin, like we offer, might take a bit longer than just buying it, because you are actually producing new Bitcoin every day. But it definitely ends up being faster than if you try to set up your own mining rigs at home, since we handle all that heavy lifting. Well, in reality, the time spent on Cloud mining is not a concern for users. We intend to hold Bitcoin for a certain period of time. These are people with a deep faith in the future of Bitcoin. What really matters to them is how much it costs to get a Bitcoin. As long as the cost of obtaining Bitcoin through cloud mining is lower, than buying a spot Bitcoin directly. Well, that's when it gets really interesting for people looking to jump into mining.
spk03: Yeah. Oh, seems very attractive to mine Bitcoin. Anyway, my final question is about more on the strategy and future plan. What are Bitfufu's strategic plans for future development? considering the evolving landscape of the crypto mining industry?
spk04: Well, within this rapidly evolving marketing landscape, we are evaluating ways to further amplify our business footprint and influence. Our approaches focus on our core capabilities in cloud mining solutions and self-mining options, but also extends to leveraging our strengths in sales of mining equipment under developing software systems customized for mining sector. Our efforts will be put towards growing our hash rate and mining capacity, investing in low-cost mining infrastructure, as well as improving operational efficiency to stay ahead in this game. BFUFU has been on a pretty impressive growth path over the past three years. And we are aiming to keep that energy going for the next three. We are extremely optimistic about Bitcoin and our role in Bitcoin mining driven by the bullish outlook and our strategic projects in Bitcoin mining cloud services. We are also committed to providing an easily accessible one-stop service, lowering the barriers to entry for the average person to participate in mining, and allowing more people worldwide to get involved in this space. Yeah, decentralizing the cryptocurrency mining industry, yeah. and building a better future hand-in-hand with our industry partners. Thank you.
spk03: Very clear. Thanks.
spk00: So thank you, Kelvin, for your question. We have reached the end of the question and answer session. I'll now turn the conference back to Ms. Yang Song for any additional closing comments.
spk01: Thank you once again for joining us today. If you have any further questions, please feel free to reach out to us and we look forward to seeing you again next quarter. That concludes today's conference call. Thank you for participating.
spk00: You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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