Earnings Call Transcript - MIGI Q1 2023

Operator, Operator

Good afternoon and welcome to the Mawson Infrastructure Group First Quarter 2023 Earnings Results Conference Call. During the presentation, all participants will be in listen-only mode. Afterward, we will have a question-and-answer session. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Broadfoot, Chief Corporate Officer. Thank you, Tim. You may begin.

Tim Broadfoot, Chief Corporate Officer

Welcome ladies and gentlemen, to the Q1 presentation for Mawson Infrastructure Group. In this presentation, we look forward to updating you on the operating and financial performance of the company. In today's presentation, we may make forward-looking statements. We bring your attention to the disclosures on Slide 2 regarding these statements and encourage you to read our full disclosures in our most recently filed 10-K and 10-Q. In addition, some of the metrics in today's presentation use non-GAAP financial metrics. We bring your attention to Slide 13 for a reconciliation of those metrics. Mawson utilizes a dynamic three-pillar approach to revenue generation in its standard business operations. This allows for a robust revenue model to navigate the volatility in all associated markets within our industry. Firstly, we have our self-mining operation. Mawson currently has 13,500 miners deployed and hashing at its facilities. Secondly, we are entering into long-term hosting contracts, with 50 megawatts deployed and an additional 70 megawatts planned over the remainder of the year. Lastly, we have our Energy Markets program. That enables Mawson to mitigate energy pricing risk, support the local grid, and also earn high margin returns by strategically reducing load during high demand periods. I will now hand over to our Chief Operating Officer, Liam Wilson, to take you through the operational updates from the quarter.

Liam Wilson, Chief Operating Officer

Thanks, Tim. Mawson has started 2023 with a bang. We announced the sale of our Greenfield Texas land lease and transformers for $8.5 million. We complemented the strategic sale of Texas with the addition of our new facility in Corning, Ohio. This 24 megawatt facility has a further 26 megawatts of capacity, capable of holding just under 15,000 miners with two exahash equipment. We are actively looking for the right hosting partner for this site. The site will be a mixture of self-mining and hosting. On top of Corning, Ohio, we have secured an additional 20 megawatts at our live facility in Midland, Pennsylvania. Operationally, during the month we have begun the build-out of the next 70 megawatts at the Midland, Pennsylvania facility, as well as the first 12 megawatts with our Sharon facility. We are looking forward to having that power come online through Q2, 2023. We firmly believe that Mawson has best-in-class operations. Our uptime through Q1 was 92%, with the 8% being curtailed hours when we were driving revenue through another stream. We have 264 megawatts sewn up with 88 megawatts currently online. We foresee having 132 megawatts online through Q2. What makes our sites more impressive is that they are both carbon-free, being 100% nuclear, and also sit within Pennsylvania and Ohio with cool winters and mild summers. The average temperature through Q1 was 43 Fahrenheit or 6 Celsius, which is perfect peak point mining weather. Mawson strategically locates and acquires assets in specific locations that provide optimal operating conditions in a variety of different ways. We like our sites to be located in deregulated markets where curtailment is an option. However, we need a reliable grid. We like our energy to be low and accessible to a readily accessible workforce near major cities. Most importantly, we love a cool climate, which means air cooling is the preferable operating model at both inflated and deflated Bitcoin prices. Our strategic decisions to operate in cooler climates in certain parts of the U.S. allow us the advantage of not having to concentrate our efforts on immersion. This is a huge advantage when it comes to the efficient deployment of capital. Our in-house designed mining data center solution is manufactured in-store for $527 per miner, which is a market-leading price. This is in comparison to approximately $3,635 per miner, which is the immersion systems needed to effectively operate mining farms in warmer climates. Mawson has one of the most solid and robust energy pipelines in the industry. Our flagship facility in Midland Pennsylvania is supported by the Sharon and other facilities. We are also in deep final discussions for additional sites in our region, which we are excited about hopefully announcing to the market soon. Not only is our pipeline solid, but our history of execution is reliable and market-leading. With our secure energy pipeline and ability to execute, Mawson has set itself up for a very successful and fruitful 2023 and beyond. We are aiming for 7.2 Exahash units installed by the end of 2023, with our targets set on 10 Exahash in 2024. Our mining fleet consists of 20,000 units at the moment, which is capable of producing up to 1.7 Exahash of computing power, which translates to approximately 4.45 Bitcoin per day. This equates to $124,000 a day at the current price of Bitcoin, or $45 million per year in revenue. We are actively looking to test new units at the moment, as we decide when and where to place our next large order. We have space in our pipeline for additional miners to be deployed and look forward to updating the market on this in due course. With that, I will pass it to the Chief Financial Officer, Ariel Sivikofsky, for further updates. Thank you.

Ariel Sivikofsky, Chief Financial Officer

Thanks, Liam, and thank you to everybody who has joined the call today. Following on from the operational measures discussed already, some of the financial highlights of quarter one 2023: Mawson generated mining revenues of $2.8 million. Pleasingly, our co-hosting business continues to generate solid revenue growth at $4.3 million for the quarter, with the Energy Markets program contributing another $400,000 at a gross margin of 84%. The sale of assets contributed $1.59 million of revenue, primarily being the sale of marketable securities, specifically the CleanSpark stock. The cost of revenue amounted to $4.7 million. The net EBITDA result was a minor loss of $2 million, with an adjusted EBITDA loss of $400,000. Quarter one, U.S. GAAP net loss was $11.4 million, being a similar result for the same period last year. Moving to the balance sheet, as quarter one closed, the total assets in the group amounted to $116.7 million, primarily made up of fair value fixed assets of $84.6 million, derivative assets of $10.6 million relating to the energy markets program, and trade and other receivables of $10.6 million. The liabilities amounted to $50 million, with trade and other payables and borrowing being $24.2 million and $22.9 million, respectively. This results in a net asset position at quarter end of $66.7 million. Now, as a summary of the previous two slides, and in reconciling to our statutory reporting, from a net loss of $11.4 million, similar to the same period last year, a minor adjusted EBITDA loss of $400,000 was achieved. Further, total revenues of $7.7 million and cost of revenues of $4.7 million resulted in an overall growth with a profit margin of 40%, that is $3 million. As detailed previously, as at quarter one end, total net assets amounted to $66.7 million, from an asset base of $116.7 million, and total liabilities of $50 million. It must be noted that our liability was reduced by $8 million in this quarter, and with the subsequent events highlighted earlier by Liam, being the closure of the Texas asset transaction and the successful $5 million capital raising that strengthens our balance sheet further. Now, I hand over to Tim Broadfoot.

Tim Broadfoot, Chief Corporate Officer

During Mawson’s site development and operations, we like to have a responsible corporate perspective to decision making. This has led to an operational model that utilizes 100% nuclear, non-carbon emitting power for its mining and hosting operations. We also partner and support local initiatives that we believe align Mawson with the local community and support the people who support us in our mission to grow. At Mawson, we are very grateful for the local community, supplies, shareholders, and employees that enable us to be the company that we are today. I’ll now hand you over to our CEO and Founder, James Manning.

James Manning, CEO and Founder

Thanks, Tim. The cornerstone of our success at Mawson is the employees and the leadership team. The deep knowledge base of our diversified experience and expertise starts at the board level and takes down through the executive team to create a robust management team that drives the business. Each and every member brings a valuable addition to the operations of the company and we are excited to be able to drive the company through 2023 and beyond with this support in place. The shareholder base we have at Mawson is very important to us, and we are grateful for their support and trust. The team at Mawson brings real value to the company we have, and the market is undervaluing that. As we highlight on this slide, the trading value of the MIGI stock is at a 39% discount to the net assets, and there are large resources and tracking from the value of the base which can be recovered. We believe there is a solid opportunity to invest in Mawson. In summary, we look forward to the continued growth of Mawson, which the company has been working very hard on, and we hope to deliver value deployment to our shareholders in the next quarter and year. We look forward to achieving our forecasted operational goals the same way as we have historically and we started to grow our relations with all our stakeholders of the company. With the presentation now complete, we’d like to take this opportunity to thank all our employees, suppliers, and shareholders for their ongoing support throughout 2022 and into 2023. We will now take any questions.

Operator, Operator

Thank you. Our first question is from Josh Siegler with Cantor Fitzgerald. Please go ahead with your question.

Josh Siegler, Analyst

Yeah, hi guys. Good afternoon and thanks for taking my question today. I guess first of all, would love to get an update on how you're thinking about the company's long-term outlook on self-mining versus hosting.

James Manning, CEO and Founder

Thanks, Josh. James here, apologies for my cough. Josh, we definitely know that we're commissioning and turning on Midland and we've been at some other sites and there are a couple of others that are in the midterm to be announced. We're definitely refocused on the mining aspects. Obviously, hosting served us well, and we'll continue to host some customers at our site. But we are definitely looking to get that mix up and get some of the self-mining online. So part of that commissioning we do see in the equipment we have. And part of that is looking at how we apply the digital equipment at the right time and whether that’s in some mining joint ventures or some hosting arrangements with public shares. We're definitely looking to get that proportion of our infrastructure online with mining or self-mining equivalent online at Ohio. We realize that quarter one was the toughest for us in many ways as we moved out of Georgia, and we haven't had the time lag between Georgia and Pennsylvania coming fully online, but we’ve been commissioning Pennsylvania, and we’ll have the whole 100 megawatts online and running this quarter. So we're really excited to have that on. You'll see a large jump in our online hash accordingly.

Josh Siegler, Analyst

Yeah, understood in that regard. And then for my follow-up, I'd like to focus a little bit on the new Ohio facility. Specifically, if you could dive a little bit into how you're thinking about the cost of power at Ohio and do you have access to similar energy demand response programs there. Thank you.

Tim Broadfoot, Chief Corporate Officer

James, I’m going to take that one.

James Manning, CEO and Founder

Perfect.

Tim Broadfoot, Chief Corporate Officer

Good day, Josh. So firstly, the site in Corning, Ohio sits within the PJM market. So we're going to be pulling index pricing at the moment. We think it's cheap enough. It’s certainly attractive at these levels and we're very confident in that as a whole. So we'll be pulling it directly up from the index. We won't be looking to hedge at the moment. With regards to the split of the sites, that'll be a mixture of self-mining and hosting. We are in significant conversations with a number of parties who are interested in the site and would like to move forward on it. And Josh, I've just forgotten the second part of your initial question.

Josh Siegler, Analyst

Thank you very much. I appreciate it.

Tim Broadfoot, Chief Corporate Officer

Sorry, I believe you asked about the curtailment programs that we have, and yes, it’s exactly the same curtailment program that we have in Midland, Pennsylvania. So we have access to all the same, through energy management and research and energy, we have access to all the same demand response programs. So we're pretty bullish on that as an operating model as well.

Josh Siegler, Analyst

Got it. Understood. Thank you.

James Manning, CEO and Founder

I'll add to that answer with another question I've also been – a sort of posted question here online, just asking about power rates. So as Liam alluded to, we're in the PJM market. And so we are taking market path. In Midland we have some of that power hedged to $0.036 a kilowatt-hour, but beyond that we're in market power rates and obviously at the last year we’ve seen some old volatility and power of our power pricing and we are looking at how we hedge some of that power over time. But to give you a bit of a good feel, you know we're seeing power as low as $0.017 per kilowatt-hour and as high as you know $0.04 a kilowatt-hour in today. So we’ve got really competitive power in the PJM market. It’s cheap, it's reliable and we strategically contracted that result as nuclear energy. So zero carbon power as well from our perspective, which I think contributes to the quarter from an overall, you know from our agency perspective but also from an overall industry power needs perspective. So we’re trying to look ahead to some of those regulatory risks that may be on the horizon, but you know I think where we’ve got contracted when you have clean energy, I think that’s a really important part of the mix in the story there.

Josh Siegler, Analyst

Great. Thanks for all the color, guys. I appreciate it.

Operator, Operator

We are considering the overall contributions from our agency and the industry's power needs as we look ahead to potential regulatory risks. I believe having contracted clean energy is a crucial element in our narrative.

James Manning, CEO and Founder

Alright, we've got several questions that have come in via the web interface. What will be the final mix of pricing in the self-mining coin? Liam, do you want to take that one?

Liam Wilson, Chief Operating Officer

Absolutely James, that was what is the final mix in your – the final mix is our self-mining and hosting visit.

James Manning, CEO and Founder

Correct.

Liam Wilson, Chief Operating Officer

Sure thing. So I’ll speak to much of what you spoke about earlier. Over the past three months, I would say that self-mining has certainly become a lot more attractive for Mawson, and as we're continuing to turn on our Midland and Sharon facilities over the next two months, I think we'll see a larger percentage of self-mining throughout Mawson. It's hard for us to categorically say what is going to be the final split for Mawson with respect to self-mining and hosting at the moment, because we do it on a case-by-case basis and I think that’s very important to note. Mawson has always been the best buy in the mining business, and if a particular site means that we will have a hosting customer, and have a site fully funded, then that could be the correct operating model for us at that site. If a site demands self-mining, for example, we're looking at a few now that are better suited for self-mining, then we will opt for self-mining. If it means it's going to be a mixture, then it will be a mixture. But certainly I will say that over the past 60 to 90 days, there’s been a lot more robust conversation around expanding our self-mining fleet and really getting involved there again. Thanks, James.

James Manning, CEO and Founder

At the present since I've got you, I might ask another one that's come through. I saw that Stronghold did a deal that came in – where the Stronghold wheelhouse came and bitcoin knowledge and upset the Bitcoin production 50-50. Is that something that we’re looking at?

Liam Wilson, Chief Operating Officer

Yeah, sure. Absolutely. We read that article as well. Congratulations to the Stronghold team for pulling that deal together very, very well. We would certainly entertain and are entertaining deals like that sooner. I guess you would call that a mine of the equity deal over miners and a miners currency deal, depending on how you look at it. We've spoken to the major players in the industry about something like this and as we continue to add sites, again just to what I said before, it’ll be based on the agreement and we will run our numbers to decide whether it's hosting, self-mining, or something like this which is jumping in basically with an asset manufacturer and their miners as currency while we bring the structure. So it was a great deal and that's something that we're interested to pursue.

James Manning, CEO and Founder

Right, thanks. Thanks Liam. This one is probably for Ariel. I see that you have sold Texas for $8.5 million in April and around $5 million in May subsequent to the end of Q1 for a total of $13.5 million. What part of these categories are going to the existing business and facilities if they are in Ohio and some of these areas still will pay this whole bit? Ariel?

Ariel Sivikofsky, Chief Financial Officer

Hi James! Thanks for the question. Look, it's something that you've alluded to before and following on from Liam's last question. I guess, we're marking our cash. We are actively looking to add equipment and work with the operations team on procurement strategies, whether that's in joint ventures or partnerships and deployment timing. We're also looking to obviously move the balancing mechanism where we use the cash that we've received as servicing our debt commitments in the near future. But it's really looking to expand our operations, finance them, and looking to add new equipment. Thanks, James.

James Manning, CEO and Founder

Thanks, Ariel. I see no call come through – let me check that. I’ve got no one else in the queue. I've got one last question that’s come through. Can you shed more light on the details? Can you shed more light on the details regarding the recent stock offering? It’s come from Aaron. Sure, Aaron, I'll take that one. Look, the company's recently secured the facility in Corning and we're shortly putting out an additional facility. So from a total CapEx and turning on sites perspective, we've put it in the company and need some additional capital to facilitate the deployment of these additional sites. We've got thousands of machines that are coming from Georgia that we've already paid for and we are now preparing to turn on, and the combination of Midland. Even with just Midland coming online, we have enough capacity, so we secured some additional sites and those sites will be coming on within this quarter and some of them will come on early next quarter as well. So the capital raise is fundamentally around ensuring we have enough working capital and capital for infrastructure to turn those facilities up. And that actually covers the next question that came on, which is how long do you think it will take to deploy the 20,000 miners you already have? Liam, do you want to take that about the turn-on time for the miners that we have?

Liam Wilson, Chief Operating Officer

Yeah, absolutely. So the – I can say as of today 13,500 units are deployed and operational for Mawson. We have the next stage of our deployment which will be the Sharon deployment, which will be 12 megawatts coming online in Sharon, and we’re to see that happening over the next three weeks. So call that early June that will come online, and then the balance of those units will be coming on through another Mawson asset in the very near future as well. So by the end of June, by the end of Q2 as we’ve already stated, we'll have our whole fleet deployed.

James Manning, CEO and Founder

That's great. Thanks Liam. I've got no other questions coming through guys. So, unless someone else pops one though, at this point I think we'll be wrapping up the call. I'll just leave it a minute to see if there are any other questions that are coming through. No, and on that basis I think we will wrap up the investor call today. Just wanted to thank those investors and analysts that have jumped on the call. We really appreciate your continued support and we look forward to presenting the next call results in the near future. Thank you very much.

Operator, Operator

That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.