Gryphon Digital Mining, Inc

And welcome to the Gryphon Digital Mining Second Quarter 2024 Earnings Call. On the call are Rob Chang, Chief Executive Officer of the company, and Simeon Salzman, Chief Financial Officer of the company. Before I turn the call over to Mr. Chang, please note that statements made on this call that are not historical facts may be forward-looking statements from the Company's management made within the meanings of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the risk factor section of the company's Form 10-K for the year ended December 31, 2023. as updated by the company's subsequent disclosures filed with the SEC. Copies of these documents are available on the SEC's website at www.sec.gov. Actual results may differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements made on this call are made only as of today's date and the company does not undertake any obligation to update or supplement any statements to reflect subsequent developments. Now I would like to turn the call over to Mr. Rob Chang. Rob, please proceed.

Thank you, Operator, and thank you, everyone, for joining us today to discuss Griffin Digital Mining's second quarter 2024 results. I'm excited to share that Griffin has achieved remarkable progress in both hash rate and energy efficiency during the second quarter of 2024, setting new benchmarks for the company. We recorded a quarterly average hash rate of 899 petahashes per second in Q2 2024, which represents a 20% increase from the same quarter in the previous year. Additionally, we reached a new peak in energy efficiency, achieving 28.5 joules per terahash in June, We believe these accomplishments highlight our dedication to operational excellence and position us strongly for future expansion. Underpinning these fantastic operational results was our Q2 miner upgrade program coming in ahead of schedule, enhancing our operational efficiency while strengthening our competitive position. As a result, Griffin's self-mining hashrate has now reached approximately 0.94 exahashes per second. I'm also pleased to highlight that in Q2, we learned that Griffin was selected to join the Russell Microcap Index. We feel that our inclusion in this index reflects the significant progress we have made in the capital markets in the short time we've been public. Now, shifting gears from the capital markets back to the Bitcoin market, recently we have seen some pullbacks in the price of Bitcoin, which is not uncommon. Historically, Bitcoin has tended to base around the $50,000 level during these pullbacks. However, if we overlay the price action following previous halvings, we see that Bitcoin has historically doubled within six months post-halving. If these patterns hold, we believe the current market represents the bottom of the upcycle, and we expect the price of Bitcoin to trend higher in the coming months. We believe that recent market weakness can be attributed to factors such as Germany selling off some of its Bitcoin holdings and the general perception of Bitcoin as a risk-on asset amidst instability in the Middle East. Despite these short-term fluctuations, we believe that the fundamentals of Bitcoin remain strong with a fixed supply of 21 million coins against the ongoing devaluation of fiat currencies. We project that Griffin is well-positioned to navigate these market conditions due to our uncommon cost structure. Our profit share-based contracts with our host provider allow our production costs to flex downwards in correlation with Bitcoin prices, providing downside protection. We expect that this gives us a competitive advantage over peers with fixed costs who may struggle to operate efficiently in a lower price environment. As we move further beyond the having, a clear distinction is emerging between companies that can operate efficiently and those that struggle. While some are considering sales or strategic options, Griffin is actively pursuing growth, positioning itself to take advantage of consolidation opportunities and strengthen its foothold during this industry transition. To that end, during the quarter, we remain focused on opportunities to grow our hash rate in a highly accretive manner. We have vetted over 25 prospects, conducting due diligence, legal analysis, and site visits. We are enthusiastic about the possibilities and will judiciously pursue ventures that align with our stringent criteria, emphasizing accretion and impact. Lastly, I would like to address the recent announcement regarding our CFO's decision to step down to spend more time with his family and to pursue other professional opportunities. We appreciate everything Sim has done for the company and wish him well. He will be staying through November 15th to shepherd the transition process, and we have initiated a search for his successor. Rest assured, this transition will be seamless, and Sim will be on the next earning call as well. I'll now turn it over to Sim to review our financial results before closing with some additional remarks. Sim?

Thank you, Rob. I will now highlight our financial results for the quarter ended June 30th, 2024. Griffin mined approximately 84 Bitcoin, generating mining revenues of 5.5 million in Q2 2024 compared to 4.9 million in the same period in the prior year. Break-even costs in Q2 2024 were approximately 45,452 compared to 34,063 in Q1 2024. The change in breakeven costs quarter over quarter reflect the halving event that occurred in late April, whereas the Bitcoin rewards decreased by 50% combined with the increase in global hash rate. For that three months period ending June 30th, 2024 and June 30th, 2023, the company incurred pass-through variable energy costs of 6.0654 cents per kilowatt hour, and 0.0569 cents per kilowatt hour respectively, a change of 15%. In addition, the daily average global hash rate increased by 68% over that same period from 357.7 exahash to 602.1 exahash per day during each respective quarter. Please note that over the same period, Bitcoin's average price changed from 25,428 59,572 or an increase of 134% resulting in a change in profitability for each Bitcoin mined. We believe Bitcoin costs and total cash costs at the mine level are the most relevant factors for assessing Bitcoin mining operations. Highlighting these metrics gives investors and analysts better transparency for comparative analysis across mining companies. Turning to our results of our consolidated statements of operations, Our net loss of 4 million in Q2 2024 includes net non-cash expenses of 2.5 million. Net non-cash expenses consisted of items including depreciation, stock-based comp expense, fair value of common stock issued to consultants, unrealized loss on marketable equity securities, change in the fair value of notes payable, and unrealized gain on digital assets. This compares to a net loss in Q2 2023 of 2.6 million. which includes net non-cash expenses of 4.8 million. Our adjusted EBITDA, which we believe is an important gauge of our operational effectiveness and financial well-being, stood at approximately negative $3 million for the quarter ended June 30, 2024, compared to 4.2 million for the quarter ended June 30, 2023. This loss was largely attributed to higher-than-normal marketing expenses as the company moved to showcase its recent merger and listing on NASDAQ, Net loss per basic and diluted share for Q2 2024 was negative 10 cents based on basic and diluted weighted average shares outstanding of approximately 39 million shares. This compares to net loss per basic and diluted share of Q2 2023 of negative 18 cents. Weighted average shares outstanding was approximately 14.4 million. Our average efficiency for our active fleet of approximately 88,825 Bitcoin mining machines was around 28 jewels per terahash as of June 30th, 2024. As of June 30th, 2024, our balance sheet reports approximately 1.2 million of cash and cash equivalents, 1 million in Bitcoin, and approximately 19.1 million due for the note denominated in Bitcoin. As of December 31st, 2023, our balance sheet reported approximately 0.9 million in cash and cash equivalents, 2.1 million in Bitcoin, and 14.9 million due for the note denominated in Bitcoin. We would like to note that the change in the fair value of the note payable as of June 30th, 2024 is due to its structure being denominated in Bitcoin and as such reflects a direct correlation to the price of Bitcoin as of the period end. We have not increased our position of Bitcoin due and we remain fully hedged to our production. To reiterate Rob's comments, we remain laser focused on pursuing growth in a financially disciplined, accretive manner. With that, I'll turn it back to Rob to discuss Griffin's 2024 strategy.

Thank you, Sam. To sum up, the second quarter was another period of efficient performance for Griffin, as we maintained above average Bitcoin efficiencies and an increase in our hash rate. The halving event is distinguishing the resilient players in our industry, and we believe we are well positioned to emerge stronger. Our cost efficient operations and growth oriented strategy set us apart from others. I particularly would like to highlight our leadership in the cost to mine of Bitcoin. As Sim noted, our breakeven cost to mine a single Bitcoin in the second quarter was approximately $45,000. While this does signify an increase from prior quarters, it is important to note two things. First, the cost to mine Bitcoin generally trends upwards as the price of Bitcoin increases and the global network hash rate increases. As such, costs will always march higher with the price of Bitcoin as market participants mine at lower costs and sell at higher prices. Second, we believe a miner's relative position on the cost curve is what matters. According to the Macro Micro website that cites the usage of Cambridge University data, the average cost to mine Bitcoin is currently $77,879 per Bitcoin, which places our $45,000 cost in a favorable light. Looking forward, we continue to focus on growth and have expanded our target set in response to the realities that we have noticed during our review of over 25 different acquisition opportunities. Mining operations that are up for sale are those that generally do not have attractive cost profiles. While we may have been able to acquire several high-cost miners to grow our hash rate, we believe those would have only been temporary solutions, as high-cost operations are not a recipe for success. As such, our attention has expanded towards acquiring low-cost power that we believe will position Griffin not only for success in the near term, but also for the next few havings. We continue to maintain our leading cost structure while enhancing operational efficiencies and will still look to seize opportunities for acquiring distressed assets at favorable valuations to accelerate our growth. We remain dedicated to upholding our rigorous standards and will not compromise our standards for the sake of expediency. Ahead of that, we look forward to opening the lines for Q&A. If there are any questions, we can certainly answer those at this time. Operator?

Thank you. Ladies and gentlemen, the floor is now open for your questions. If you have any questions or comments, please press star 1 on your telephone keypad at this time. If you would like to remove your question, you may press star 2. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Thank you. Our first question is coming from Kevin Didi with HC Wainwright. Your line is live.

Thank you, Rob. Hi, Sim. Thanks for taking the questions.

Hey, Kevin.

So, Rob, could you just give us some background again on the power draw at your hosting facility, how much room you have, and what you're thinking about in terms of fleet upgrades as the year goes on? Are we... Or are we looking at a pretty consistent 940 petahash? Yeah, thanks, Kevin.

Great question. So currently we're drawing approximately 28 megawatts from our facility located in upstate New York, which, of course, is hydropowered. We have a standing understanding with them that as more space comes free, we put our hands up to be among the first to take it. As a note, when we first started with them, we started at around 23 megawatts and now we're at 28. So we have been taking as much as we can get, and that's ongoing. So that will always be there. And of course, as our comments have noted, we are looking outside of that location to get chunkier amounts of power so that we can grow. In terms of our fleet upgrades, we're looking to be opportunistic. And if we find good pricing, we would like to upgrade continuously our machines and are looking to do that. Also noting, though, that we are saving some powder so that when we do those chunkier acquisitions, we have capital to put new machines there. So it's a bit of a push-pull between upgrading what we exist and we have and also adding entirely new, which we're looking forward to do so as soon as possible.

Okay. So the last order that you put has been filled, and there aren't any outstanding orders, just to be clear, for machines?

As of what we've noted to the market, correct.

Okay. Okay. Perfect. Sim, I think you spoke to general and administrative expenses and the sequential increase. Can you give me a ballpark on where you think those sort of fall out for the balance of the year?

Yeah, absolutely, Kevin. Great question. Good talking to you. Essentially, our normal expenditures are around $2.2 million cash out per month. So this is three months and six months position was increased due to the advertising and marketing expenses. So for three months, we basically incurred an extra roughly 2.5 million for three months ended June 30th. And then for the six months ended, we incurred an extra and what we feel is one time of about 3.4 million in excess of where we feel we would be moving forward. So similar to our Q1 and lower cost of GNA and things of that nature, we would be back in that realm.

Okay. Okay. All right. Rob, I appreciate that you offered insight on looking at 25 different locations. I mean, you must rack up a lot of frequent flyer miles. I was just wondering if you could maybe peel the onion back a little bit and give us more color on the things that you passed on. And maybe a little bit more on, you know, what specifically you're looking for. I mean, it's clear that there are plenty of large companies out there are using, you know, their stock as currency. And I know you have that flexibility to do that. I was just kind of curious to hear a little bit more about the specifics.

Yeah, certainly happy to do so as best I can. So yes, it's been a pretty intensive really post-merger life for us, given that we've been looking at so many different opportunities. To peel back the onion a little bit, but without giving too much, because I certainly don't want to throw sand or throw mud at other companies. Generally speaking, what we have seen is everyone will try out how big they are, but really only when you peel back the onion and get into the real details do you start noticing that their cost structures are not quite as good as ours. it's a little unfair because we have been leading on our costs for so long that it's difficult to find something as good but given the post-having environment we were kind of forced to look that way because it seems like the market that what that seems it definitely is a market where lower cost is going to win and so as we started looking at these opportunities sure they had lots of size but they had higher cost profiles where it's like seven cents eight cents per kilowatt hour for example or something like that and that just won't work especially when bitcoin has those periods with drops and then those certainly won't work at all. So there's stuff like that. There are other situations too, where, for example, if it's hosted, we found out that the hosting was ending very soon. And so what were you really buying? You're only just really buying their machines with no real guarantee that the hosting would be there and the hosting would be expensive as well. So it's things like that of that nature. And so as we started going through those, we realized that the available opportunities, especially with the values that they were asking for, which we still believe were a little bit inflated, didn't quite make sense. And also just looking at how operations were going and how Bitcoin prices were going, it became very evident that the real gain here is finding low-cost power. And that's where we've expanded our view. So not moving away from looking for acquisitions, still looking to do so. But we focused a lot more on finding effectively costs at $0.04 or lower. And so we've been making significant progress in having conversations with groups that have that and are looking forward to announcing a few things in the future once we get close enough.

Can you offer some color on sort of the geographies that you've been searching out?

We continue to remain open-minded. So any place that we consider politically safe, we would take a look at. But generally speaking, most of our opportunities remain in North America.

Okay. Well, thanks very much, gentlemen. I appreciate the caller. Always great talking to you, Kevin. Thank you.

Thank you. Once again, if you have any questions or comments, please press star 1 on your telephone keypad. Our next question is coming from Merton Toner with ATB Capital Markets. Your line is live.

Thanks so much for the question, and good morning. Just wondering, and You know, I'm a public market, I'm a public, you know, public equity guy. So I don't, I'm not too familiar with how you get deals done in distressed private situations. But it seems to me that there's like a bit of a behavioral aspect to it, i.e. it's tough to get people to come to grips with reality and what the fair price is. Just can you kind of like walk me through like your approach to getting some of these folks to say yes to what is actually like from their perspective should be a pretty good deal?

That's a great question and it's a little it's fun to say because we haven't done a deal yet and it's quite frankly more so because we stopped proceeding once we found out that there was more in here than we were willing to deal with with those projects but it does your question does point to an issue where many companies believe they're worth more than they are. And for example, I see many private companies looking at pubcos and the largest ones applying their evaluation and saying, that's what I'm worth. That's probably a negotiating tactic knowing that we're probably going to ask for something lower. But, uh, I, we have often seen asks that were so high that we didn't think it made sense regardless. Uh, so, uh, so it, At some point, I think what really needs to happen is more pain needs to be occurred and people will start realizing that they can't survive much longer doing things the way they are and they need to go to more reasonable valuations. But the bigger problem, as I just mentioned earlier, is not the number we settle at, but whether we believe it's a worthy enough investment to dig in the first place. And that's actually where the first stumbling block has occurred for us generally, is that we probably don't even want to get to that point once we peel back the onion enough and have seen what's actually there.

Thanks for that. That's great color Rob. Um, another question for you, um, given your low cost, um, operations, um, and the current current market should be, should be good for you, right? I mean, um, do you think that's going to help expedite, uh, doing some deals?

Well, relatively speaking, we are lower cost than everyone else. And I guess if Bitcoin was ripping, it's great for everyone. So I can't say I don't want that. But on a relative basis, given that we are one of the most efficient, highest usage of optimized, sorry, highest uptime operators as well, generally speaking, when things are weaker in the Bitcoin pricing, we tend to relatively outperform. That's true, especially also with our flexible cost structure where Bitcoin prices go down, so do our costs. So on a relative basis, yes, but I certainly wouldn't be against seeing a higher price of Bitcoin. And I think what you're implying, though, is the question on acquisitions. And yes, that's true. If we're in a tougher environment, it will bring others down to the reality more and lower their asks for a potential combination or some type of deal.

Super. That makes sense. Thank you. That's it for me.

Thanks, Martin.

Thank you. Our next question is coming from John Hinkman with Ladenburg-Fallman. Your line is live.

Hi, Rob. Just a quick question about the acquisition or potential. Out of the 25 that you've looked at, you are, I mean, there are some that you're still interested in.

I'm pausing because I'm wondering if I included that or not in the number. I would say yes. There are some that we still remain interested in. We actually have several very attractive ones that we're looking at right now and looking forward to potentially making some announcements off of those. But yes.

Okay. So you're still actively engaged with a few.

Absolutely. Correct. And it doesn't end. Just because we're looking at some doesn't mean we stop looking at new ones. Right. Hopefully I'll have announced a few, but maybe the next call will be up to 40 at that point.

Okay. And then if you were to, I don't know if you've done this math, but if you were to theoretically swap out all your machines for, you know, the latest, greatest out there, what would that do to your, I mean, that way you wouldn't need any more power, but what would it do to your hash rate?

That's a good question. I think it would also depend on which machines we're using. So I don't have that number off the top of my head, but I would expect that there would at least be a 30% improvement, if not higher, if we were to do something like that. Probably more, actually, depending on which machine we're using. So that's something we're considering, although the tradeoff really is that that capital will be used for an upgrade as opposed to something outright new. And our preference right now is to get something outright new and grow that way.

Okay. Thank you. Appreciate your comments. Thanks for your time.

Thank you. As we have no further questions in queue at this time, I will turn it back over to Mr. Chang for any closing comments.

Thanks, Operator. And thanks everyone for their time and joining us on this call. We are always available to answer questions and really do encourage everyone to do so. And they can certainly reach out to us through our website, griffindigitalmining.com. We also have a Twitter presence as well. And we'd like to actively engage with our investors to make sure they're as up to speed as we can happen. So again, thanks for everyone for their call and have a good rest of the day.

Thank you. This does conclude today's call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.