Hello and welcome to the Bit Digital First Quarter 2024 Earnings Conference Call. Good morning, good afternoon and good evening depending on where you're joining us from. Thank you for being here. [Operator Instructions] Also, as a reminder, today's conference is being recorded. I'll now hand the call over to your host Cameron Schnier, Head of Investor Relations at Bit Digital. Cameron, the floor is yours.

Thank you. Good morning. Welcome to the Bit Digital first quarter 2024 earnings call. Joining us on the call today are Sam Tabar, Chief Executive Officer; and Erke Huang, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we have been making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. And therefore refer you to our latest 20-F filing, yesterday 6-K filings and our other SEC filings. Our comments today may also include non-GAAP financial measures, additional details and reconciliations. The most directly comparable GAAP financial measures can be found in our 20-F filings and yesterday's 6-K filings which are on our website. After our prepared remarks, we'll open the call for questions. [Operator Instructions] With that, I'll turn the call over to Sam.

Thank you, Cam. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I'll discuss three things. First, our first quarter results. Secondly, an update on our strategic initiatives. And third, our thoughts on the outlook for the remainder of 2024. Cam and Erke, will then provide more detail on our financial results, and we will then open the line for your questions. We started the year off strong and our first quarter results speak to the effort and execution by our team. Our Q1 revenue grew by over 250% from the prior year, and by over 85% sequentially. We generated $58 million of adjusted EBITDA and a fully diluted GAAP EPS of $0.43. The first quarter marks the first time that our two primary business lines coalesce to produce what we've used to be an emphatic year to the start, emphatic start to the year, pardon me. Our active hash rate was approximately 2.67 -- 2.76 exahash as of March 31 compared to 2.52 to at the year-end. The lifting of certain curtailment programs should bring that figure above 3.0 in the near-term. We employed a cautious approach to fleet expansion heading into the halving and we are still evaluating the post having landscape for growing our mining fleet. Our goal remains to reach 6 exahash by year-end. We are in a number of discussions with counterparties for new hosting opportunities and fleet deployments, some of which we expect to be finalized imminently. However, we are still approaching fleet growth cautiously, and will only implement new growth programs if the economics meet our criteria. Having two uncorrelated revenue streams allows us to be selective on the timing of deploying cap growth capital. Our average fleet efficiency for active fleet was 28.3 joules per…

Thank you, Sam. I will now discuss certain financial results for the first quarter of 2024. Total revenue was $30.3 million, a 266% increase compared to the prior year. The revenue increase was primarily driven by a higher realized bitcoin price and the start of our HPC services business. Our bitcoin production increased to 13% year-over-year to 410.7. The increase was driven by an increase in our action -- active hash rate and partially offset by an increase in bitcoin network difficulty. Our HPC services business began generating revenue in late January and recognized $8.1 million during the quarter. This is net of a one-time $1.3 million credit [indiscernible] customer as previously mentioned. I assume this strategy generated approximately $326,000 during the first quarter, and the total cost of revenue was $16.2 million compared to 5.2 the prior year. The increase was primarily driven by an increase of our active mining fleets, higher bitcoin network difficulty and the start of our services business. Our electricity price was approximately $0.05 per kilowatt hour for the quarter. Our production costs per bitcoin defined as electricity and other hosting fees divided by bitcoin production amounted to approximately $19,700 for the quarter. Profit [technical difficulty] amounted to around $10,300 per bitcoin for Q1. Profit sharing fees spiked due to the sharp increase in bitcoin price. However, following the halving and reduction of [technical difficulty] profit sharing fees should decrease materially in Q2, and current bitcoin prices, which should partially offset the margin impact from the halving. General and administrative costs were approximately $6 million compared to $5.2 million during the prior year quarter. The increase was mostly driven by higher personal and consulting expenses. Depreciation and amortization expense was $6.8 million for the first quarter compared to $3.6 million last year, with the increase…

Thank you, Erke. Bit Digital is focused on building a company that succeeds in all phases of the cycle. We gladly benefited from the run up in bitcoin prices, but we knew that the halving would offset that benefit, and it has, with the half price fall into all-time lows at the end of April. We were expecting a difficult mining environment post halving and we prepared accordingly. We have a formidable balance sheet, and an HPC business that already generates enough income to cover our cash overhead. It's also worth reminding ourselves that there is no halving event in AI. Look, we still run a profitable mining business at the current hash price, but the margin for error has been reduced. This is why we designed our business to be resilient to hash price as we don't want to find ourselves in a position of being held hostage by certain macro events we don't control. Bitcoin mining is speculative in nature, and we accept that risk reward tradeoff. But we don't want our entire business to be predicated on speculation. This is why we diversified into the HPC space. Bit Digital's AI business is not aspirational, it's real. And we see significant growth runway on the HPC side, and we are actively looking to capitalize on those secular tailwinds. We are starting to build out our team. And we've earmarked capital to expand our GPU fleet and also enhance the breadth of our offerings. Having two distinct business lines afford us optionality in terms of when and where we can allocate capital, we think this is a key advantage. We are not forced to always reinvest in a single business line regardless of the returns profile. We don't just have one lever, where we are able to weigh different…

[Operator Instructions] We'll take our first question from Mike Grondahl with Northland Securities. Your line is now open. Please go ahead.

Hey, thanks, guys. First question, you received that letter about the second 2,000 GPUs back in late March. What's kind of taking so long there for final terms or final contract? And then do you think those GPUs will still be sort of installed and live by June 30?

This is Erke speaking. I'm so sorry, I was on mute. I apologize for that one.

Go ahead, Erke. I was on mute by accident. But go ahead, Erke.

Okay. Yes. So, why it took so long was a combination of preparing other vendors for the deployment. And the ultimate as we're working with the vendor and [indiscernible] for deployment. So it took a little bit more time. And we are expecting to see installation by June 30 or around that time. So that's still the target.

Yes, Mike, so we're finalizing this in basically weeks.

Got it. And June 30 is still a -- I don't know your best guess of installation and one is generating revenue?

Give or take a week.

Okay. Okay.

We're talking weeks here, not more.

Got it. Got it. And related to that, you talked a little bit about a volume discount, which I think the customer is getting because it's a second 2,000. But I think you also referred to like a purchase discount. Are you finding what the market competitive for GPUs? So you're getting them at a lower price also? Could you just kind of explain that a little bit?

Yes. Erke, do you want to take that? I can -- either one of us.

Yes. So for the one-time credit was due to the backing up and installation than we give the customer [indiscernible]. And yes, we're seeing more competitive pricing for those servers as of the manufacturing production of shapes [indiscernible] OEMs are coming up. So we should be seeing better pricing for our procurement -- from our procurement perspective as well.

Got it. I think on the first 2,000 it was about 60 million for the GPUs and the networking equipment. Is it meaning -- meaningly below that, or I don't know, can you kind of give us a sense of direction.

Yes, it's going to be [indiscernible] but as previously said it's been finalized. So it's now [indiscernible]. We should be able to announce that in the coming weeks.

Got it. Got it. And then in regards to potential customer, two, three and four, you said you're hiring a team -- a sales team, I think you said to help with that process. Has that process slowing down? Or is that still moving rapidly? I guess I'm trying to understand what your message is there about getting like a second or third customer.

I'm happy to take that. So yes -- so the process with potential clients is moving forward. But nobody owns that process at the moment. And that's why we're hiring ahead of revenue. We've been -- we're pretty much in final discussions with a very experienced people in the relevant space. And we need somebody who actually owns the sales process to accelerate and unleash the business. And so we intend to do that key hire and announced that and in the medium term built that team. But there is absolutely zero salespeople at Bit Digital. Everything has been done with the existing -- with the existing management team so far. But in order to unleash and grow this business, and to take on all the inquiries that we're getting, it's important that somebody owns that process, which is why we are in the process of interviewing this head of revenue person, and we look forward to making that announcement soon. But in the meantime, Mike, there's the clients, the potential clients that is moving forward. But frankly, it could move forward faster if we had a head of revenue, and that way so much on a sales process.

Got it. I mean, it's hard to draw a timeline. But do you think you could announce something summer, fall about a second or third customer? What's your best guess?

For customer, well, certainly we will -- I believe and this is just my view. We'll certainly be announcing the head of revenue hopefully soon. And I would prefer to get that answer from the question you just asked from our head of revenue because he or she will have to look at the landscape of all the inquiries we have and where the status quo is with these clients. But it still remains a pregnant pipeline as just again, we need somebody to own that process to accelerate the sales cycle. It doesn't work for management to be running the business and also owning the sales cycle as you could imagine. This is a sales business and we need that sales team. And that's one of the reasons why hiring a sales team will help unleash and accelerate all these leads that we have right now.

Got it. Got it. And then just lastly, on the last call, you guys talked about getting a credit facility put in place to kind of help finance GPU purchases. Where does that stand? Is there a timeline for getting that done?

Yes. I mean, in the past we never took on debt, because taking on debt and borrowing money for a bitcoin mining equipment is a fool's errand, you can't predict the cash flows, because you don't know where bitcoin is going to be. But, of course, we're -- we remain very open minded to looking at credit facilities with respect to the AI business, because it's very predictable cash flow every month, we're drawing cash from the client. So that makes a lot of sense. We have been looking, there's a menu of options we’ve been looking at. There are certain terms that we want. And we just want to optimize the very best financing term. But until that is signed, we have to look at all our options. But for now, we're just -- we're speaking very aggressively with investors and counterparties, who are enthusiastic to get involved in this business from a financing perspective. But we just want to make sure we optimize the best term.

Okay. Hey, I'll jump back in the queue.

Thanks, Mike. Good questions.

[Operator Instructions] We'll move to our next question from Joe Gomes with Noble Capital Partners. Please go ahead.

Good morning, and thanks for taking the questions.

Hi, Joe.

I want to start off on the HPC adjusted gross margin there. I think you said it was about 72.5. Should we expect that similar type of a margin going forward? Or do you think that margin could possibly even increase from there?

Erke, do you want to take that? It's more of a finance question.

Yes, so for the first batch, it's going to be the same margin before. Going forward, we do see some pricing compressing as well for [indiscernible] per hour pricing. So I would say the margin would be decrease, but yes, it's going to be until the contracts being finalized and the market.

And yes, margins remain great.

The gross margin that we [technical difficulty] does include the lease expense for this first batch. So the second batch whenever those terms are finalized, the gross margin will also be dictated whether there is some extent to the lease expense in that as well.

Okay. And then professional consulting expenses increased to $2.6 million from a $1 million. Just maybe you could just give us a little more color on what was driving those costs?

Yes, I can take that. So those costs were related to the sales process for appraising the deal. And like -- and professional services related to installation of the equipment.

Okay. And then as [indiscernible] some more color on what you've been seeing as kind of the overall environment since the halving, kind of maybe you can give us a little more color detail on what you're seeing out there today.

With respect to how it relates to the HPC business, or the bitcoin mining business or just [multiple speakers]?

The mining business. The mining business.

Well, I mean, everything is dictated by the hash price. And I think that the sector is sometimes myopic, and that they only have one lever. There's an old saying, if all you have is a hammer everything you see are nails. And so with respect to our sector, they only have one lever and that lever is growth at all costs. And that is dangerous. And we've been able to avoid that because we have a real related -- we have a real business on the HPC side, that were able to leverage our existing know-how with respect to procurement of specialized machines and identifying data centers. And so we were able to establish that business lines. And I just want to emphasize, it's only a business if you have the following three things. If you have access to these machines, which are difficult to get. If you have access to a data center to [indiscernible] those machines, and lastly, you have clients. If you don't have all those three, it's just an aspiration. So we have all those three, we have a real business, we're drawing revenue every month. And that is really important with respect to the bitcoin mining business, because we're able to allocate at the right time and not overpay for things. Bit Digital historically has always ran a counter cyclical growth strategy. And that has worked out very well so that we're not overpaying just to get sexy headlines. So we're really comfortable with our position. We have levers and hopefully the market will understand that and begin to normalize our price.

Okay. And then one more for me and I'll jump back in queue. I'm assuming with the agreement so close for the second batch on the HPC side, you already have the hosting capacity. But once that is done if you were to get customer 2, 3, 4, do you need additional hosting capacity? Or do you already have under contract enough hosting capacity to add on a customer two or customer three on the HPC side?

Yes, we have enough capacity for sure to accommodate that client demand. And I will add that we are in the market to potentially even acquire and get vertically integrated on the HPC side. The reason why that's interesting for us is basically the margins on the business, it's basically you require just basically 90% less energy to produce the same amount of revenue on the HPC side than the bitcoin mining side. So it's an interesting vertical integration that we're seriously considering. And we are talking to various counterparties to potentially get vertically integrated on that side of the business. But to answer your question directly, once again, we definitely have enough capacity to meet client demand. That is something we already have. But we are looking to vertically integrate on that side of the business.

Great. Thanks for taking my questions.

Thank you.

We'll move to our next question from Kevin Dede with H.C. Wainwright. Your line is now open.

Thanks. Good morning, Sam. Hi, Erke, Cam. Thanks for having me on. Sam, just to go back to your last touch which was on my question list and about building or acquiring your own infrastructure. Can you kind of just go through your rationalization of that given your commentary regarding investments and timing, I guess you're just more comfortable there because you can see return right regardless of hash price. But that's right. Yes, maybe -- for example, 4 megawatts on the HPC side produces the same amount of revenue as 40 megawatts on the bitcoin mining size. So the math is nice. So can you give us some insight on the expertise that you think you'd need to do that the what you'd have to do on the management team side to be able to accommodate that expertise and what kind of timing you had in mind.

Sure. Well, with respect to the expertise in the way we're doing it now, which is pretty successful, we have a track record already. We've contracted with that data center in Iceland and things are going very well. If things were not going very well, the client would not be asking to grow the fleet. So things are going pretty well there and our expertise is pretty good on that front. But if we were to acquire a datacenter to accommodate and vertically integrate this business, of course, there's going to be a management team attached to that particular infrastructure. And we'll be leveraging that management team very, very deeply, in order to expand the margins on this business once we're vertically integrated, if and when we become vertically integrated on that side of the business.

Do I have everything …

Yes, sorry, go ahead.

That's sort of the attractive component of M&A on that side is that we would be able to acquire an existing team in place to run the operation and also just acquiring an existing book of business and an existing pipeline of new leads.

So the idea then, Cam, I should think about it your expansion there as buy versus build?

That's correct.

Okay, thank you. Do I understand everything correctly, Sam, in that the next tranche for your existing customer GPU side. Is that all super micro equipment? Have you had any issues with gaining that and are you okay, on the InfiniBand [ph] side too?

We are indeed and that's a great question because a lot of people think the press that, I mean, of course, the H100s are precious, but the InfiniBand is actually even more precious. So a lot of people got [indiscernible] down just getting H100. And I realized that they also knew the InfiniBand otherwise, they have very expensive paperweights. So yes, we're -- we have that covered. We had that covered when we executed on the first choice. So we'll have that -- we already have that very well covered on the second tranche.

Would you mind …

[Indiscernible]. So that will be finalized in the terms and they announced that but we're not necessarily balled into a single vendor.

Okay. Would you gents mind walking me through the lease versus buy decision on the next tranche?

I guess it will basically be the math I just mentioned there. You need much less megawatts to produce the same amount of revenue.

No, no, I'm sorry. I'm sorry, Sam. I just mean in terms of right, the next set of 2,000 H1 hundreds, and how you tend to finance it.

We are looking at different things we may use part of our balance sheet. We're looking at different financing options. There's some credit options we're looking at, we want to make sure that we get the best terms. It's much easier to get credit financing on the AI side versus bitcoin mining side. There aren't that many counterparties who want to borrow money anymore for bitcoin mining equipment very understandably, because that got a lot of people in trouble last couple of years. But on the HPC side, because it's so predictable on the free cash flow per month. So we have a much better menu of options, but we want to just optimize that. So we haven't signed anything yet with respect to that kind of facility. But we're very much deeply -- deep discussions with various counterparties to see where that goes.

Can you …

… [indiscernible] announcing that if we move forward with that.

Right, right. Can you remind me on how you handle the first tranche in terms of Bit Digital own versus leased?

Yes, I'll leave that to Erke.

Yes, we -- for the first rounds we have 256 servers deployed and 96 of them were through a lease [ph] financing arrangement. And we own 156 owned and 96 leased, right, Erke.

Okay.

Erke, you mentioned a $0.05 per kilowatt hour power cost and potential changes to rev share. Can you maybe elaborate on that given you're still hunting around for 40 more megawatts? Is there a chance that we could see those prices go down.

So they -- so $0.05 are the pass through we got from our hosts. And majority of our agreements were to a profit share arrangements, and the rest were what we paid on top of besides the electricity, we pay directly as a pass through. As of higher pricing, I think summer, the price will be higher. But we should be able to see the pricing coming down going forward because compared to last year, the gas price has come down quite a lot. So some of our portfolio hosts are giving us some better quotes as forward looking.

Okay. Then the -- okay, yes, yes. I guess you offered Sam, thank you -- you offered great explanation for [indiscernible], and following customers on the GPU side. So I'll cede the floor that point -- at this point. Thank you very much, gentlemen.

Thanks, Kevin.

For our next question, we'll return to Mike Grondahl with Northland Securities. Your line is now open.

Hey, thanks again, guys. Just a quick question, you reported $58.5 million of adjusted EBITDA. If I back out the revaluation of digital assets, 45.7 million, I get to 12.8. Would you guys kind of think of that 12.8 million is kind of core for the quarter, kind of what the operations produced X revaluing those digital assets? I don't know. Can you help me with that a little bit?

Can you repeat the question, Mike, just so that we understand clearly.

Yes, you guys reported adjusted EBITDA of 58.5 million. And as I was reading through the financials, in the P&L, there's a line gains on digital assets. It's 45.7 million. And so if I just take the 58.5 million minus the 45.7 million digital asset gain, I get 12.8 million. You guys running the business? Does that 12.8 million feel right to you as sort of core EBITDA if you didn't write up the BTC in the Aetherium essentially?

Yes, I think that's in the ballpark. Certainly, in terms of what we define this core. Certainly it depends on how you calculate EBITDA and what the reconciliations you make there are, but I think that is in the ballpark.

Got it. I just want to figure out, if that's how you guys think about it going forward. And then secondly, any updated thoughts on selling bitcoin or Aetherium to fund some of this growth.

I mean, we definitely love [indiscernible] our balance sheet every now and again, but we do it judiciously. We don't have a formula. We don't have a preset formula. But we're strong believers in huddling our digital assets. Otherwise, why be in this space. But we -- and we always liquidate some to [indiscernible] fund our operations. But there is now an expansion into this lucrative business line. So we're looking at different options. That could be liquidating our digital assets using our balance sheet, looking at these financing terms of these counterparties that we've been negotiating with. So, we're looking at various things, various ways of pools of capital in which we can expand that business line.

Got it? And then just last question for me to use Sam. Throughout this call, you've kind of described the HPC business. You're pretty excited about it. And you've referenced, some of the challenges and the volatility in the in the mining BTC mining business. Is it fair to assume that the bar on the mining side is pretty high for incremental capital, and things you're looking at over the next year or two to invest on the Bitcoin mining side?

Well, okay, as mentioned, we run a counter cyclical growth strategy. And so we prefer to expand on the bitcoin mining side when the prices for equipment. And the deals that we get with our contracting partners are good, we just make decisions based on economics. And fortunately, we're in a very unique position in our sector to have capital allocation decisions. We -- it's not just one lever going forward, just expound that x a half, regardless of the price. And we are in a very lucky position to have that option. But at the same time, the markets have not given us credit for being able to run this business judiciously and profitably, we have a profitable bitcoin mining business, we have a very profitable HPC business. And we have the ability to be dynamic on the capital allocation towards both. And so we just look at the returns profile. And if it makes sense, we move forward on one of those two things.

Got it. Helpful. And I think you've pointed out, it takes four megawatts on the HPC side to run the same amount of revenue versus 40. So that's probably a helpful way to think about it going forward to. Okay, thanks, guys.

Thank you. Our next question will return to Kevin Dede with H.C. Wainwright. Please go ahead.

Hi, [indiscernible] Sam. The April production update included a reference to unaudited 4.1 million and HPC related revenue. I'm just wondering if that's a fair proxy for your consistent, I guess, consistent production for that business going forward, at least until that second tranche is finalized.

That's right. Yes, and …

[Indiscernible] is going to be finalized any week now. But that number is going to change quite materially in a very wonderful way.

You also referenced hoping to improve fleet efficiency. And I'm wondering, on the bitcoin mining side. I'm just wondering how you're thinking about that time wise? I mean, from what I've seen, hash machine costs on a per hash basis seem to be fairly low relative, relatively compared to other points in previous cycles. So maybe you could give us some insight on that.

Yes. We've -- and we've been in the market to buy the latest trends of our fleet to upgrade our fleet. That's going to be an announcement in the medium term, perhaps the short-term. But yes, of course, we're looking at the pricing very, very closely. And we have noticed that the market is softening up, which is what we like, that's what we want.

But look, we've been as mentioned during the call, we've been more judicious on growing the fleet because we would just wanted to see how things would shake out close to having nobody has an accurate crystal ball on that. You have to kind of wait and see. And we would just want it to be judicious on that and now that the market is softening for the equipment, this is kind of a good time to start doing some buys on that.

Are you thinking about staying on the air cooled side or considering using AI grows or immersion? How are you thinking about technology choices as you evaluate equipment and hosting partners. So it's kind of it's nice to be in Iceland. It's nice to be in Canada, we have our machines parked and cold, crisp places that doesn't have too much dust. So the air cooling works pretty well for us. Iceland is a very cool place.

Right. Okay. Thank you, Sam. Appreciate it.

Congrats on the on the quarter.

Thank you.

It appears there are no further questions at this time. I'd like to turn the conference back over for any additional or closing remarks.

Well, if there are no more further remarks, thanks very much for joining us today. And we welcome your participation and we value our shareholders. Thank you very much for today and I conclude the call.

Again, this concludes today's call. We thank you for your participation. You may now disconnect, and have a great day.