Earnings Call Transcript - MIGI Q4 2021

Operator, Operator

Ladies and gentlemen, the conference will now begin. I would like to turn the call over to management.

Nick Hughes-Jones, Chief Commercial Officer

Hello, everybody and thank you for taking the time to hear about Mawson Infrastructure Group. My name is Nick Hughes-Jones, Chief Commercial Officer of Mawson. And I will be taking you through the investor presentation. But first, I need to read you a short disclaimer around forward-looking statements. Please be aware today, we will be making forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks that could cause actual results to differ materially from those expected. Please be sure to refer to the cautionary text regarding forward-looking statements contained in this presentation on Slide 2. Okay, with that out of the way, Mawson at a glance. As of Friday night’s close, Mawson has a market cap of approximately $340 million, is listed on the NASDAQ under the code MIGI, M-I-G-I and has 4 Bitcoin mining sites across the USA and Australia. Now for those of you that aren’t aware of what an exahash is, abbreviated as EH in these slides, crudely speaking, an exahash is a measure of computing power. The more exahash you have online, the more Bitcoins you produce on a daily basis. As at the end of March 2022, we expect to be producing at approximately 1.5 exahash or approximately 7 Bitcoin per day. Based on current network difficulty and a Bitcoin price of $40,000, this equates to around $102 million in annualized revenue. Today, we are pleased to announce we are upgrading our exahash targets from 3.35 exahash in Q2 of 2022 to 4 exahash in Q3 2022 and from 5 exahash in early Q1 2023 to 5.5 exahash by the same date. You can see the respective number of Bitcoin produced per day at 4 and 5.5 exahash on Slide 3 based on current network difficulty. We have also upgraded our contracted energy infrastructure capacity from 220 megawatts to 350 megawatts and we are a net zero carbon miner, something I’ll touch on later in the presentation. With that, I will hand over to CEO and Founder, James Manning.

James Manning, CEO and Founder

Thanks, Nick. Q4 was an incredibly busy period for the Mawson team. Financially, we had a very solid quarter with revenue of $19.6 million, up 79% compared to Q3 2021. Gross profit rose to $16 million, up 89% compared to Q3 2021. And EBITDA rose to $10 million, up 203% compared to Q3 2021. Operationally, we hit several major milestones in Q4. Our self-mining hit a record of 0.83 of an exahash in December. We added 200 megawatts of energy infrastructure capacity. And we purchased an additional 4,000 latest generation ASIC Bitcoin miners. Additionally, we announced the expansion of our Sandersville, Georgia facility to 230 megawatts, which is capable of producing up to 7.5 exahash of operational capacity. We also materially expanded our hosting colocation business, led by a 12-megawatt hosting contract with Foundry Digital and a 100-megawatt hosting contract with Celsius Mining. We will host them at our Bitcoin mining facilities, generating additional revenue streams for Mawson. We also secured a $20 million debt facility with Celsius Mining to accelerate the rollout of our energy infrastructure. Turning to the full year results, 2021 was a transformational year for Mawson. Mawson generated a record of $43.9 million in revenue in 2021, up 886% compared to 2020. Our gross profit came in at a record $34 million, up 2,526% compared to 2020. And pleasingly, our EBITDA also came in at a record $17.9 million. Some of our operational highlights in 2021 included contracted hash rate growing up to 3.35 exahash. We expanded our energy portfolio by 220 megawatts. We added over 33,000 ASIC Bitcoin miners to our fleet, with our current fleet sitting at approximately 45,000 Bitcoin miners. We generated $850,000 in hosting colocation revenue from approximately 2 megawatts of hosting customers. And as a reminder, we have recently signed hosting for a total of 116 megawatts or 58 times their 2021 number, providing an additional revenue stream for the business as we head into 2022. Turning to the strategic highlights of 2021, at Mawson, we signed a 100-megawatt facility in Midland, Pennsylvania, capable of accommodating approximately 3.3 exahash of Bitcoin mining capacity, which in turn is capable of producing 15 Bitcoin per day based on the current network difficulty. We kicked off the 100-megawatt expansion of our Sandersville, Georgia facility. I am also proud to say we delivered our first Australian Bitcoin mining facility in late 2021, in partnership with Quinbrook Infrastructure Partners. As many of you know, we listed on the NASDAQ in September of 2021 and joined the Bitcoin Mining Council shortly thereafter. I encourage you to have a look at the sustainable energy use data that the Bitcoin Mining Council produces on a quarterly basis. Something else we will touch on later in this deck. And with that, I will hand over to our CFO, Hetal Majithia, to run through the financials in a little bit more detail.

Hetal Majithia, CFO

Thanks, James. Okay, turning to the balance sheet, property and equipment rose to $76.9 million in quarter four, up from $7 million 12 months ago, reflecting our ongoing expansion of our Bitcoin mining fleet and energy infrastructure across our Australian and U.S. facilities. Equipment deposits rose to $51.4 million in quarter four, up from none 12 months ago, reflecting the ramp-up and investment in our future Bitcoin mining capacity. Mining deliveries related to these deposits have been delivered consistently throughout quarter one to date in 2022, with a batch of Avalon A1246 delivered in February. Our total assets grew materially from $9.8 million in quarter four 2020 to $145 million at the end of quarter four 2021. Borrowing and other liabilities rose in quarter four from $300,000 to $18.7 million, up from none to $4.3 million respectively, split between an equipment finance facility and a corporate-level debt facility entered into over the period. We expect to continue to use equipment finance facilities where appropriate. This is a very capital-efficient way of expanding our Bitcoin mining fleet and expanding our facilities and, in turn, increasing the number of Bitcoin we produce on a daily basis. Subsequent to the full trend, we have also secured a $20 million debt facility with Celsius Mining LLC, the proceeds of which will be used to accelerate the rollout of our energy and hosting colocation infrastructure. With that, I’ll hand back to CEO, James Manning.

James Manning, CEO and Founder

Thanks, Hetal. Okay, I will spend some time on this slide as it is an important one to understand. As you can see, between March 2022 and Q3 of 2022, Mawson will deliver a large increase in our operational footprint, moving from 1.5 exahash to 4 exahash, that’s a 166% increase in our hash rate in just over 6 months. As Slide 7 demonstrates, this would increase the daily Bitcoin production from approximately 7 Bitcoin per day at the end of March to approximately 18 produced per day by the end of Q3 2022. It’s important to note that this is based on current network difficulty, Bitcoin at $40,000 and current expectations around mining and energy infrastructure deployment. What’s really exciting to us is as we move out into early Q1 2023, we expect to hit our 5.5 exahash target. At the 5.5 exahash level, we would expect to be producing approximately 25 Bitcoin per day or $365 million in annualized revenue based on the current network conditions and Bitcoin at $40,000. Pleasingly, our hosting colocation business has continued its rapid expansion. At Mawson, we have focused on building up our energy infrastructure from very early on in the journey. It’s in our DNA. Given we have energy infrastructure surplus to our own self-mining requirements, we are able to use this surplus infrastructure to generate additional revenue streams for the group. You might say we are turning our competitors into our customers. We now have 116 megawatts of hosting customer agreements in place, making us one of the largest NASDAQ-listed hosting colocation providers, and expect this to expand further to 140 megawatts by the end of 2022 and then up to 220 megawatts in 2023. In terms of hosting economics, we are committed to revealing the individual metrics of our underlying customers given their size, but we have been and will continue to report on our hosting revenue and cost of hosting revenues at the end of each quarter, enabling you to determine just how positive and profitable this additional business segment is to Mawson Infrastructure. Further, in 2021, we generated $850,000 in hosting revenue from just 2 megawatts of customer hosting contracts. As of today, with 116 megawatts of customer contracts, we have a healthy pipeline of future customer demand. Turning back to our own self-mining business, at Mawson, we have a very disciplined approach to infrastructure to ensure that we can deliver expansion on time and on budget. Slide 9 shows you more granular detail expected ramp-up schedule up to Q3 2022 and then on to early 2023. Having focused on securing energy infrastructure early, this ensures we are now amongst the lowest quartile cost producers of Bitcoin as well as one of the lowest cost deployers of infrastructure among NASDAQ-listed peers. The Mawson team is now focused on substantial operational expansion ahead of us. Turning to Slide 10, at Mawson, we spent considerable time and resources focusing on our energy and energy infrastructure. In an industry where energy infrastructure is in very high demand, this puts us at a strategic advantage. Central to our infrastructure-first thesis, we spent a lot of time focusing on securing long-term high-quality and low-cost energy infrastructure. This is evidenced by the 7 to 26-year terms we have across our global facilities, with the option to buy facilities in some locations. Our current energy infrastructure sits at 350 megawatts, with a pipeline of over 1,000 megawatts, providing Mawson with one of the largest genuine energy pipelines in the industry. It’s no accident we are at the forefront of the package in the energy infrastructure space, given the depth of experience at both board and management levels inside of Mawson. As a reminder, our Chairman, Greg Martin, who is the CEO of Australia’s largest energy infrastructure company AGL for 5 years and was there for 25 years. At Mawson, we understand the importance of building a solid infrastructure platform upon which to expand our Bitcoin self-mining and hosting colocation, evidenced by today’s upgrade of our self-mining targets. Now, securing our infrastructure pipeline is about more than just locking in land and energy. Slide 11 illustrates how we have focused on locking in the ancillary energy infrastructure required to stand up large scale low-cost and highly efficient data centers in the Bitcoin mining industry. We are in a very strong position to not only deliver on our guidance, but critically, we have the underlying infrastructure in place to take us to 5.5 exahash and beyond. We now have agreements in place for over 45,000 ASIC Bitcoin miners. We have purchased over 250 modular data center units, which could accommodate up to 20 exahash of ASIC Bitcoin miners. And we have purchased over 160 low-sign electrical transformers, which could accommodate up to 13 exahash of ASIC Bitcoin miners. As you can see, we have the infrastructure in place to scale well beyond our 5.5 exahash. With that, I will hand back to Nick to take you through our current mining facilities profile as well as our ESG and community engagement priorities.

Nick Hughes-Jones, Chief Commercial Officer

Thanks, James. Expanding on our established energy pipeline from Slide 10, our current exahash capacity plus potential brownfield expansion opportunities at current sites leaves us with the potential to be producing at approximately 17.8 exahash over time. Critically, Mawson is committed to being a long-term sustainable Bitcoin miner. We target carbon-free and renewable energy to our sites with our current mix being about 75% carbon-free energy. In Pennsylvania, we are using 100% nuclear energy, and we source our nuclear power from Energy Harbor, which operates three of the local nuclear power plants in Ohio and Pennsylvania: Beaver Valley, Davis-Besse, and Perry nuclear plants. The Beaver Valley nuclear power plant is a mile from our Midland Pennsylvania facility. In Georgia, the vast bulk of our energy comes from nuclear and hydro. Importantly, at our largest facility in Sandersville, Georgia, which at the end of March we will be operating at 80 megawatts, was recently approved for expansion to 230 megawatts, making it one of the largest Bitcoin mining facilities in the state of Georgia and in the United States. As a reminder, there are two brand new nuclear reactors coming online in the state of Georgia in the next 12 months, Vogtle 3 and Vogtle 4; two 1,100 megawatt Westinghouse pressurized water reactors, which is one of the major reasons why we selected this site, as we expect a lower carbon footprint and potentially lower energy prices as these new reactors come online. To give you an idea of how difficult it is to bring our large-scale energy infrastructure in this industry, while we think having a large energy infrastructure pipeline is such a strategic advantage, Vogtle 3 and 4 are budgeted at $14 billion in capital expenditure over 10 years and counting on the construction side. Our third facility is located in Australia, and it is a 100% renewable energy asset, where we are co-located next to the power generation asset. As we said before, Quinbrook is a green energy infrastructure fund, and they have 17 gigawatts of green energy across their global portfolio, providing us a fantastic partner to jointly develop green energy sites over the coming years. Turning to Slide 13, our strict selection process ensures we are targeting long life, low cost, and high-quality sites. We have long-term leases on all of our sites: 26 years in Sandersville, Georgia, 15 years in Midland, Pennsylvania, and 7 years in Australia. We use our internally designed modular data centers, which make us one of the lowest cost deployers in the industry. We also assess all our sites through our net-zero carbon 2020 and 2030 ESG strategy lens, ensuring our energy mix is low carbon. At Mawson, ESG is a core priority for us. Our integrated model is based on a long-term strategy to assist in the global transition to a digital and decarbonized society. We have already touched briefly on our focus on carbon-free energy. In addition, we offset any residual carbon footprint using carbon offset credits. In 2020, we offset over 22,000 tons of carbon supporting wind and native biodiversity projects in the process. We are currently assessing and offsetting our 2021 carbon footprint. By the end of 2022, we will have planted over 100,000 trees across the U.S. and Australia, with 75,000 trees planted in 2022 alone. That’s approximately 1.5 trees planted every time a block is created on the Bitcoin blockchain. Mawson is also a very active member of the local communities in which we operate. We sponsored both the school football teams in Sandersville, Georgia, have academic scholarship programs in place, and are active supporters of the Washington County Regional Medical Center for COVID relief as well as the local Chamber of Commerce. In late 2021, we sponsored Buhl Park in Midland, Pennsylvania, and supported the local community college of Beaver County, the Lincoln Park Performing Arts Center, Beaver Falls Park, and the Heritage Valley Health System. Importantly, in Pennsylvania, we recently announced a partnership with Voltus, whereby Mawson has committed to deliver up to 100 megawatts back into the local electricity grid in times of need, further supporting the local communities in which we operate. Slide 15 touches on our team briefly. Our U.S. team is led by our Chief Operating Officer, Liam Wilson, and a recent high-quality addition is Craig Hibbard, who oversees the development of our portfolio facilities in the U.S. Joining us here are Hetal Majithia from our Sydney office. Two recent additions to our expanding team include Tom Hughes, our General Counsel, who joins us from Macquarie Bank, ANZ Bank, and HUB24, and Heath Donald, our Chief Marketing Officer, who joins us from No Names Digital and brings with him 20 years of experience across IT, telecommunications, and marketing. Our Board is chaired by Greg Martin, who was the CEO of Australia’s largest energy business, AGL Energy; Michael Hughes, another one of our independent non-executive directors, has extensive experience across capital markets, governance, and audit; and Yossi Keret has substantial experience across NASDAQ-listed businesses. With that, I will hand it back to James to bring the presentation home and run through the last couple of slides.

James Manning, CEO and Founder

Thanks, Nick. Slide 16 spells out some of the achievements we have had recently across our innovation portfolio. As we alluded to earlier, in February, we announced two large co-location customers: a 100 megawatt agreement with Celsius Mining and 12 megawatts with Foundry Digital. These two deals illustrate the tightness in the industry around energy infrastructure at present and how well-placed we are to capitalize on them. Secondly, following the Cosmos Asset Management’s first product in the Australian market in late 2021, the Cosmos Global Digital Miners ETF. Cosmos recently announced a partnership with Purpose Investments Inc., a $14 billion asset manager, as this is the world’s first spot Bitcoin ETF. For our penultimate slide, I wanted to highlight just how Mawson’s Board and Senior Management are aligned with our fellow shareholders. The Board of Management currently owns approximately 24% of Mawson, ensuring we all have a significant stake in the game. This is unique among our NASDAQ-listed peers and ensures we are extremely focused on shareholder returns. And lastly for me, before we move to questions, in summary, why invest in Mawson Infrastructure Group? Well, over the next 12 months, we expect to grow our operational footprint by 400%. We are an infrastructure-first business, which is a strategic advantage in the current environment. We are one of the most sustainable Bitcoin miners on the NASDAQ, with over 75% of our energy coming from sustainable sources. We have strategic partnerships in place with Quinbrook Infrastructure, Purpose Investments, Celsius Mining, and Foundry Digital. We are one of the most efficient and lowest cost operators in the industry. We have very high insider ownership, meaning we are incredibly focused on shareholder returns. With the bulk of the presentation now complete, we wanted to take this opportunity to thank all of our shareholders for their ongoing support in 2021. I will now hand back to the floor for any questions.

Nick Hughes-Jones, Chief Commercial Officer

And that’s our final slide before we will add it back to the questions. Thank you, operator.

Operator, Operator

Thank you. Our first question comes from Kevin Dede with H.C. Wainwright. Please proceed.

Kevin Dede, Analyst

Gentlemen, James, Nick, thanks so much for having me.

James Manning, CEO and Founder

Thanks, Kevin. We always love to hear from you.

Kevin Dede, Analyst

Okay. Could you just talk a little bit about your hosting objectives? James, I think you said if I understood correctly that you are targeting 220 megawatts? And is that by the end of 2023? And if so, can you talk about what you might need to do to facilities beyond what you have discussed in order to accommodate that?

James Manning, CEO and Founder

Sure. So, the 220-megawatt hosting is the 2023 target. As we alluded to, we currently have a pipeline of sites in late stage negotiations or under letters of intent that we will be looking forward to bringing to the market and letting everyone know about in the near future. The combination of the existing infrastructure we have on order and these additional sites that we are bringing on between now and the end of 2023 gets well and truly comfortable to that target of 320 megawatts. But it also gives us the expansion capacity for our own self-mining at the same time.

Kevin Dede, Analyst

Okay. Now, I understand that at least, I think I understand, that you wanted us to maybe sit back and see financials as they come up in order to get a better read on the profitability. But I was wondering if you could speak to some of the deals that you have announced with Celsius and Foundry? Are they revenue-sharing at all, or how do they sort of work in broad terms?

James Manning, CEO and Founder

Yes. They are not revenue shares; they are traditional hosting co-location agreements, much like those traditional data centers year-to-date. We have a cost model where we understand our costs and our infrastructure costs. We see the recovery, cost recovery, and a healthy margin on those, so ultimately, to develop our hosting business. We very much look at them on a conservative basis, the hosting business, and while we won’t detail contract specifics, we are really comfortable building out the first 116 megawatts that we have got, which are in Celsius and Foundry. In fact, we have already delivered a portion of that equipment for Foundry, while Celsius will be coming online this month with some of that equipment. So, they are staggered deploys over the next couple of months, and we are very comfortable about what they will add to the bottom line. I think that will help diversify our revenue streams and reduce any Bitcoin risk attached to the traditional hosting business.

Kevin Dede, Analyst

Last question for me, James. Thank you for that. Last question for me, just on Quinbrook, your relationship there, how has Quinbrook embraced the flexibility that Bitcoin mining offers a power producer and maybe reducing your costs in exchange for the flexibility that you can offer on controlling their load?

James Manning, CEO and Founder

That’s a great question. The way the Quinbrook Power Purchase Agreement (PPA) works, and I think what has evolved in a lot of mining PPAs, is their ability to curtail. We have the ability to curtail, and that curtailment helps the value proposition for both us as a miner and for Quinbrook as a power provider. They understand that, and that ability to curtail power and hit spot demand is important. It’s not just about power and the power price; it’s also about how miners interact with the community. When power prices are high, it’s beneficial to be able to give that power back to the grid in times of need. I think you’ve seen that with our Voltus agreement in the U.S. and we have definitely got that with Quinbrook in Australia. So, that curtailment process is important not just from an economics perspective but also from a community perspective in the broader industry.

Kevin Dede, Analyst

Excuse me. I lied, James, one last one; could you just offer a little more insight on, I guess, just for those of us who are less familiar with Quinbrook, what their core competencies are and how you think they might be looking at expanding their own power development operations?

James Manning, CEO and Founder

So, Quinbrook is a global green energy infrastructure fund, and they have approximately 17 gigawatts of energy that they manage and operate. I would encourage you to visit their website; they have quite comprehensive information about what they have in their pipeline. They operate in the U.S., Australia, and globally, including the UK. Working with them to develop future sites for green and renewable energy projects is one of our key focuses in 2022 and 2023.

Kevin Dede, Analyst

Thanks very much, James. Appreciate the opportunity to speak with you again. Congratulations on the results.

James Manning, CEO and Founder

Thanks, Kevin.

Operator, Operator

Our next question comes from Michael Khorassani with Orion. Please proceed. Michael, your line is now live.

Nick Hughes-Jones, Chief Commercial Officer

There is nobody on microphone and there are no further questions, so I will hand the call back to management.

James Manning, CEO and Founder

Thank you.

Nick Hughes-Jones, Chief Commercial Officer

Thank you.