BitFuFu Inc.

Good day, and thank you for standing by. Welcome to the Bitfufu's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Charlie Brady, Vice President of Investor Relations.

Please go ahead.

Thank you, Operator. Good morning, ladies and gentlemen. Welcome to Bitfufu's third quarter 2024 earnings call. The company's financial results were released earlier today and are available on the Bitfufu Investor Relations website at ir.bitfufu.com, as well as on the globalnewswire.com website. Joining me today on the call are Leo Liu, Chairman and CEO, and Cao Zhao, Chief Financial Officer. 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 filings with the SEC. The company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. We will be discussing non-GAAP financial information on this call. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release. One final note. Although we will not be recording a Q&A on this call, questions can be emailed to ir at bitfufu.com, and we will respond as quickly as possible, generally within 24 hours. I will now turn the call over to Leo Liu, the company's chairman and chief executive officer.

Good morning, and thank you for joining us. Today, I'm excited to share updates on Bitfufu's performance for the third quarter of 2024, along with the progress we've made on our strategic initiatives. In third quarter, Bitfufu delivered strong revenue growth with total revenue of $90.3 million, up 47.5% year over year. Our cloud mining solutions generated $68.9 million in revenue, representing 75% of our total revenue, fueled by new customer acquisitions and continued support from existing customers. in self-mining despite a challenging macro environment. Revenue reached $20.5 million, up 40.4% from last year. The third quarter was the first full quarter following the Bitcoin halving event in late April, which reduced the Bitcoin block subsidy from 6.25 to 3.125 Bitcoin per block. Despite the halving event, Bitfufu had another successful quarter generating positive adjusted EBITDA. In fact, I am proud to say that the third quarter of 2024 is the 11th consecutive quarter Bitfufu has generated positive adjusted EBITDA. This consistency demonstrates the profitability and resilience of our business model. Regardless of whether the price of Bitcoin is in a bear market or bull market, Like our peers, we faced some headwinds as well. The cost to mine Bitcoin from our self-mining operations rose to $59,452 per Bitcoin, primarily due to increased blockchain difficulty and the effects of the April halving event. However, it is important to note that our cost to mine a Bitcoin includes not only the electricity and hosting costs, but also the cost of hash rate we purchase from suppliers and the leasing cost of miners, which make up a majority of our mining fleet. As such, our $59,000 cost is likely not an apples to apples comparison to some of our peers, as they may exclude the depreciation cost of miners in their calculations. And depreciation, to some extent, is embedded in our cost of acquiring hash rate and leasing miners. to offset the increase in mining costs during and shortly after the third quarter. We strategically reallocated our fleet deployment, secured long-term lower-cost purchase agreements, and acquired our first owned mining site, all of which I will discuss further in just a minute. Beyond these actions, we are evaluating additional opportunities to acquire or cooperate with mining sites with lower electricity costs and are continuously focused on improving our operational efficiency. As of September 30th, Our total mining capacity under management stood at 26.2 exahash, marking a significant 88.5% increase year over year. Our hosting capacity was 556 megawatts compared to 339 megawatts a year ago, and 522 megawatts as of June 30th, 2024. as I mentioned in the third quarter of 2024, to meet the challenge of reduced mining output and fluctuations in the price of Bitcoin and to ensure long-term efficiency and profitability. Bitfufu took specific actions to improve our cost structure and increase our geographically diversity. Specifically, we gradually shifted the deployment of the leased and self-owned mining machines from high-cost facilities to low-cost facilities. While keeping the United States as a key strategic region for our mining sites, we expanded our search for additional hash rate supply globally. As a result, at the end of the third quarter of 2024, our 556 megawatt hosting capacity spanned 17 sites on three continents with 10 sites in the US, six in Ethiopia and one in Paraguay. Following this migration of locations, our average hosting costs charged by the facility operators in the third quarter of 2024 decreased to 6.8 cents per kilowatt hour. A 13% improvement compared to the second quarter of 2024. In October, we further reduced our hosting costs by an additional 5% to 6.5 cents per kilowatt hour. Our ability to quickly adjust to changes in the market is a testament to the advantages of our asset light strategy, particularly in the challenging period following Bitcoin halving events. However, as I have emphasized in previous earnings calls and discussions with investors, we believe owning some data centers is essential to Bitfufu's business. We are focusing on finding the optimal mix between a pure asset light strategy and an asset heavy strategy. An important strategic focus is vertical integration, and we continuously look at MN opportunities for mining facilities to secure cost-efficient and stable energy sources for operations. As part of this effort, during the third quarter, we signed a 10-year long-term lease agreement for a 22-megawatt site in the U.S. with an electricity cost of around 4.5 cents per kilowatt hour. And we have an option to acquire 70% ownership of this site by the end of 2024. Subsequent to the end of the third quarter in October, we entered into a definitive agreement to acquire a majority stake in an 80 megawatt mining site in Ethiopia with an electricity cost of around 3.6 cents per kilowatt hour. The site, which has the capacity to deploy 26,000 miners, is currently operating 8,000 Antminer S19J Pro miners with a combined 0.8 exahash. In the coming quarter, we plan to fill in the remaining capacity with the deployment of Antminer S19XP miners with combined mining capacity of 2.5 exahash. Longer term, we believe this facility could reach 4.6 exahash if running Antminer as 21 series miners. This acquisition not only increases the diversity of our mining portfolio, but also aligns with our strategic goal to build a sustainable energy platform. In addition to the sites I just mentioned, we have a potential M&A pipeline of over 100 megawatts that we are evaluating, which includes both traditional grid and off-grid options. Additionally, we're exploring opportunities in other regions where favorable energy rates can further reduce our costs and enhance long-term operational stability. With 90% of our computing power leased from the suppliers, we've secured hash rate of three exahash for the next two years with long-term purchase agreements. This strategic move will help lock in a portion of our hash rate costs. Before further increases in the price of Bitcoin and accordingly hash rate price, which we expect in the coming quarters, The long-term procurement also allows us to manage future expenses more predictably as we expand. Maintaining a mix of short-term and long-term supply allows us to better balance the flexibility and stableness of our portfolio. Our strategic response to industry-wide cost pressures also includes leveraging our proprietary technology to optimize our fleet and manage expenses. With these proactive measures, we believe Bitfufu is well positioned to navigate volatility in Bitcoin prices and mining challenges. As we head into the final quarter of 2024, we remain committed to driving growth and value for our shareholders. Our initiatives in vertical integration, global expansion, and operational efficiency are critical elements of our strategy. With continued investment in stable energy sourcing and capacity growth, we are confident in our ability to deliver resilient performance in the face of a dynamic market environment. And with that, I'll turn the call over to Kala to discuss our financial results in detail. Kala?

Thank you, Leo. Good morning, everyone.

I'm pleased to provide a deeper dive into our financial performance for the third quarter of 2024, which reflects both the strategic investments we're making and the impact of external market conditions on our operations. Total revenue for the third quarter was $90.3 million, a 47.5% increase compared to the same period last year. This growth was driven strong double digit growth in both our self mining and cloud mining operations. I also want to highlight that the accumulated revenue for the first three quarters of this year already achieved $364 million, representing 86.7% increase compared to the same period of 2023. Revenue from our self mining operations reached $20.5 million, representing a 40.4% increase over third quarter 2023 and accounting for approximately 23% of third quarter revenue. Despite a 34% decline in Bitcoin production due to increased blockchain difficulty and the residual effects of the April 2024 halving, this segment's growth was bolstered by a significant year-over-year increase in the average price of Bitcoin. By securing additional hash rate and locking in 3 exahash per second under a long-term contract, we are in a strong position to manage costs and support future growth in this segment. As a reminder, Bitfufu's cloud mining business is a key differentiator from other public Bitcoin mining companies and provides us with a more stable revenue stream as it mitigates the inherent price volatility in the price of bitcoin so let me provide a closer look at our cloud mining segment which continues to drive growth and underscore beat fufu's leading position in the bitcoin cloud mining space in the third quarter revenue from cloud mining solutions rose to 68.9 million dollars representing a 51.4 increase over the same period last year despite the april having event The increase in revenue was driven by a combination of new customer acquisitions and strong repeat business from existing users. In fact, recurring revenue from customers who were active in the same period last year accounted for 63% of our cloud mining revenue, underscoring the loyalty and engagement of our customer base. Additionally, revenue from new customers acquired after September 2023 contributed the remaining 37%. Our cloud mining platform saw a substantial increase in registered users, reaching over 455,000 as of September 30, 2024, up 75.3% year-over-year and 15.4% sequentially from the second quarter, highlighting the effectiveness of our customer acquisition efforts and marketing strategies. Cloud mining accounted for just over 76% of our total third quarter revenue, reflecting both the demand for our services and the strength of our recurring revenue base. Our net dollar retention rate in the cloud mining segment came in at 96% this quarter. This metric reflects both our ability to retain and expand customer spending over time, a testament to our strong customer relationships and the quality of our mining services. The retention rate is especially noteworthy considering the market volatility, indicating that customers see our platform as a stable and attractive choice within the broader industry landscape. We are also seeing evolving customer demographics within cloud mining. Our platform is attracting a more diverse range of participants, from individual digital asset enthusiasts to sophisticated institutional investors. Institutional customers, including high net worth individuals, family offices, and private equity funds, now make up a significant portion of our revenue due to their larger average contract sizes. Meanwhile, our individual users representing the majority in terms of customer count continue to benefit from our user-friendly platform and flexible contract options, which make mining accessible to a much broader audience. To cater to this diverse customer base, we are focused on product innovation and customer experience. For instance, we enhanced our platform's interface and introduce new features and products that meet the demands of different customers and provide greater transparency to the customers. We believe these enhancements are strengthening customer loyalty and will encourage long-term engagement. Looking ahead, we see significant potential for further expansion in the cloud mining segment, particularly in under-penetrated markets,

where we have not previously offered cloud mining services.

We are analyzing the regulatory environment of those markets and are actively scaling our outreach efforts in other regions where digital asset adoption is on the rise. Positioning Bitfufu to capture market share and drive user growth globally In summary, our cloud mining segment is not only a substantial contributor to revenue, but also a critical part of our growth strategy. We believe the ongoing investment in this area will enable us to maintain and expand our market leadership, leveraging our technology and operational skill to deliver stable, high-quality mining services to a global customer base. As of September 30, 2024, Total mining capacity under management was 26.2% exahash, an 89% year-over-year increase from 13.9% exahash at the end of the third quarter of 2023. Of the total 26.2 exahash, 24 exahash were from leased miners and two exahash were from our self-owned miners. In third quarter 2024, 68% of the average daily mining capacity was used for our cloud mining solutions with the remaining 32% used for self-mining operations. Our total cost of revenue rose by 46.1% to $89.4 million in line with the expansion of our cloud and self-mining operations. Growth margin declined quarter over quarter due to several factors. In addition to the impact of the halving event, Gross margin was negatively impacted by the temporary downtime of mining machines as we strategically migrated miners from high-cost to low-cost hosting facilities. During the migration, self-owned machines did not contribute enough revenue to cover their depreciation. However, the migration nearly completed in October and ultimately positions the company for greater long-term efficiency and profitability. To mitigate cost pressures, we are actively pursuing additional opportunities to optimize our fleet network power costs by acquiring mining sites. Furthermore, we're exploring additional floating price mechanisms in our hosting contracts that align with Bitcoin price fluctuations, allowing us to optimize our cost structure during periods of price volatility. These strategies are part of our broader focus on sustainable cost management, to maintain profitability in various market conditions. Our operating expenses also rose this quarter. Sales and marketing expenses, general and administrative expenses, and R&D expenses were $6.5 million in total, up $5 million compared to the same period of last year. This increase was largely due to the addition of share-based compensation expense of $4.3 million, which we have previously not had to record. We expect share-based compensation expense in the fourth quarter to be approximately $17 million due to initial grants of restricted stock to a larger group of employees. Thereafter, we expect a modest level of share-based compensation expense. In addition, there was a $0.3 million increase in legal and consulting costs related to business development activities and a $0.2 million increase in employee-related costs compared to the same period of last year. Adjusted EBITDA for the third quarter was $5.8 million, up 48% from $3.9 million in third quarter 2023. This improvement was driven by our disciplined approach to cost control and the scaling of our cloud mining operations, which helped offset some of the pressures we're experiencing in self-mining costs. Due to the consecutive gain in adjusted EBITDA, the accumulated adjusted EBITDA for the first three quarters of this year already achieved $64 million. representing 136% increase compared to the same period of 2023. As of September 30th, 2024, we had a strong liquidity position with cash, cash equivalents, and digital assets totaling $142.7 million, up from $76 million at the end of 2023. This growth was supported by proceeds from our NASDAQ listing and an increase in digital assets from our self-mining operations. We held 1,638 Bitcoins as of quarter end, reflecting our prudent approach to capital management and ability to capitalize on favorable market conditions. Our balance sheet strength and liquidity position provide us with the flexibility to pursue growth opportunities and make strategic investments in line with our long-term objectives. This includes expanding our mining footprint in regions with low-cost electricity, optimizing our cost structure at leased facilities, and advancing our vertical integration initiatives by increasing our hash rate at owned facilities. Our third quarter results underscore the progress we're making toward creating a resilient, growth-focused business model. Through disciplined cost management, strategic energy investments, and robust revenue generation across our segments, we are building a foundation for long-term success and sustained profitability. Thank you all for your continued interest and support. I'll now turn the call back over to Leo for his closing remarks.

Thank you, Gala. As we reflect on our performance this quarter, I'm encouraged by the progress we've made in a challenging and rapidly evolving market. Bitfufu's focus on strategic investments in vertical integration, securing long-term hash rate, and expanding our geographic footprint is creating a stronger, more resilient business model that can thrive in various conditions, Our recent acquisition in Ethiopia exemplifies our commitment to growth and operational efficiency, and we're excited about the additional opportunities this new market holds for us. As we continue our journey, we are looking at off-grid and low-cost energy solutions as potential avenues to further stabilize our cost structure and enhance profitability. Our team remains focused on executing our strategy with discipline and agility, and we are deeply committed to driving sustainable, long-term value for our shareholders. With a solid financial position and a clear strategic roadmap, BitfuFu is well-prepared to navigate future challenges and seize new opportunities in the digital asset mining industry. I'd like to thank our employees for their dedication, our customers for their trust, and our shareholders for their continued support. We look forward to sharing further updates with you as we close out the year and move into 2025 with strong momentum. Thank you all for joining us today, and we look forward to speaking with you again in February when we report our fourth quarter and full year 2024 results.

This concludes today's conference call. Thank you for participating. You may now disconnect.