ABTC - NASDAQ

Greetings, and welcome to the Gryphon Digital Mining Third Quarter 2024 Earnings Call. On the call are Steve Gutterman, Chief Executive Officer of the company; and Sim Salzman, Chief Financial Officer of the company. Before I turn the call over to Mr. Gutterman, please note that the statements made on this call that are not historical facts may be forward-looking statements from the company's management made within the meaning 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 Factors section of the company's Form 10-Q and 10-K 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 that company does not undertake any obligation to update or supplement any such statements to reflect subsequent developments. Now I would like to turn the call over to Steve Gutterman. Steve, please proceed.

Thank you, Jenny, and thank you, everyone, for joining us today to discuss Gryphon Digital Mining's third quarter 2024 results. We believe we have made tremendous progress over the past few months in positioning Gryphon for long-term success in both our core Bitcoin mining operations and our planned strategic expansion into AI infrastructure hosting. As outlined in our recent shareholder letter, we believe that we now have the team, the strategy and the balance sheet strength to drive significant value creation across these 2 high growth verticals. So let me highlight a few key developments. First, and importantly, we enhanced our leadership team to accelerate growth. My role was expanded from Director to CEO; Jimmy Vaiopoulos, Former CEO and CFO of Hut 8 was added as Chairman. Dan Grigorin of Anchorage Digital was appointed to the Board, and we are thrilled. I know I am personally thrilled that Sim Salzman, Former CFO of Marathon, continue -- decided to continue as CFO of Gryphon. This expanded team brings deep expertise that we expect to be instrumental as we execute our growth strategy. Second, we completed what we believe is a transformative debt restructuring with Anchorage Digital that has significantly strengthened our financial position. By converting $13 million of debt to equity at a substantial premium to our stock price and restructuring the remaining $5 million on highly favorable terms, we have increased net equity and expect to have much greater flexibility to invest in growth. The monthly interest payment on the remaining $5 million of debt is now just $17,708, a substantial reduction from our previous obligation. Additionally, the mandatory sweep of excess cash and Bitcoin to Anchorage is now gone, giving us even greater flexibility. Importantly, Anchorage has become our largest shareholder, and Dan has joined our Board, and we expect them to be a key adviser going forward. This debt restructuring showcases the belief of a sophisticated investor in Gryphon's true value and potential. The market appears to share this confidence as reflected in our market capitalization moving north of $40 million this week, exceeding NASDAQ listing requirements. Our ultimate vision is to maximize shareholder value, and we have set ambitious but we believe achievable goals to build substantial market value while maintaining strong price per share fundamentals. On that note, we recently announced a small acquisition of ultra low-cost power mining operations at around $0.01 a kilowatt hour. Securing power in the $0.01 range is a competitive advantage in the current Bitcoin mining environment. The acquisition has not yet closed, but we expect to have an announcement about that soon. In short, we've taken significant steps to create a strong foundation for growth. And now that we have added to our team and transformed our balance sheet, we look forward to building on that foundation in the quarters and years to come. I'll now turn it over to Sim to review our financial results before closing with some additional remarks. Sim?

Thank you, Steve. I will now highlight our financial results for the quarter ended September 30, 2024. Gryphon mined approximately 61 Bitcoin and generated mining revenues of $3.7 million in Q3 2024 compared to 176 Bitcoin and $5.2 million in the same period in the prior year. Breakeven costs per Bitcoin in Q3 2024 were $59,213 compared to $21,501 in Q3 2023. The change in breakeven costs year-over-year reflects the halving event that occurred in 2024, where the Bitcoin rewards decreased by 50%, combined with the increase in global hashrate. Our adjusted EBITDA stood at approximately negative $2.5 million for the 3 months ended September 30, 2024, compared to negative $4.7 million for the 3 months ended September 30, 2023. We believe breakeven costs and adjusted EBITDA are important gauges of our operational effectiveness and that highlighting these metrics gives investors and analysts better transparency for comparative analysis across mining companies. Reconciliations to the nearest GAAP measures can be found in our earnings release disseminated prior to the call. The company recognized a net loss of $5.9 million in Q3 2024, which includes net non-cash expenses of $3.2 million. Net non-cash expenses consisted of items, including depreciation, employee stock-based compensation expense, fair market 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 Q3 2023 of $8.1 million, which included net non-cash expenses of $3.2 million. As of September 30, 2024, our balance sheet reports approximately $0.4 million of cash and cash equivalents, $0.6 million in Bitcoin, and approximately $19.3 million due for the note denominated in Bitcoin. As Steve noted, Gryphon has completed a debt restructuring with Anchorage Digital, converting $13 million of debt to equity at a premium and restructuring the remaining $5 million with very favorable terms. As of December 31, 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. As mentioned during prior quarters, the change in the fair value of notes payable as of September 30, 2024, 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. Following the restructuring, the remaining debt due to Anchorage is no longer denominated in Bitcoin. With that, I'll turn it back to Steve for some additional comments.

Thanks, Sim. While we're laser-focused on methodically building our core Bitcoin mining business through singles and doubles, we're also keenly aware of the transformational potential in the rapidly evolving AI space. Just as we saw in the dot-com boom in the early 2000s, cannabis in 2018, there are unique windows of opportunity where being in the right place at the right time with the right capabilities in the right company can be game changing. We believe we're in such a moment with AI right now. And importantly, for Gryphon, this is not some disconnected pivot. Fundamentally, our business is about securing low cost power, plugging computers into that power and asking those computers to perform valuable computing work. This is equally applicable to Bitcoin mining and to AI computing. So we believe we are well positioned to be an early mover in providing AI hosting services, leveraging our mining infrastructure and expertise to capitalize on the growing demand for AI compute. We see a substantial opportunity to diversify our revenue, accelerate our growth and create substantial value for shareholders by becoming the leading provider of high performance computing for AI applications. And to be clear, this isn't about chasing hype, it's about pragmatically assessing the market landscape, understanding our strengths and making calculated but deliberate bets on where we believe we can drive outsized returns. We will be diligent and thoughtful in this approach. And we also recognize the need to move with purpose to seize this window of opportunity. So in the coming months, in addition to advancing our core Bitcoin mining operations, you can expect to see us making meaningful progress towards the AI hosting space, both through organic development and potentially strategic M&A. We believe this 2-pronged approach, the steady build-out of our mining business and the aggressive pursuit of AI opportunities is the right strategy to maximize shareholder value. In summary, Gryphon has made remarkable strides in the last few months. We have the right team in place. We have significantly strengthened our balance sheet. We are working on acquiring low cost power assets, and we have a clear road map to drive growth and create shareholder value, both in mining and in the rapidly growing and evolving AI computing space. While much work remains ahead, we are excited and energized by the opportunities ahead of us. So with that, operator, let's please open the line for questions. Thanks.

[Operator Instructions] Your first question is coming from Jon Hickman of Ladenburg Thalmann.

So could you elaborate a little bit more on your efforts in the HPC? Are you talking about a new facility? I mean, new to you. You're not talking about converting what you have going in New York on the Bitcoin side?

Right. That facility is not ours. And so I think it would be reasonable to say that we are looking for spaces where we could launch our AI.

Okay. And could you -- has anything happened with your cost of power in the last 3 or 4 months that's out of the ordinary?

Yes, I'll let Sim jump in here. Our cost of power over the past several months at Coinmint has been relatively consistent. We are actively looking at several alternatives to lower our costs. We -- as we've stated previously, that we'll be making subsequent announcements on that prior to the end of December. Sim, did you want to add anything to that?

Yes, Steve. So what I'd like to add, Jon, is essentially for the past quarter, it's been averaging around $0.062, $0.063 a kilowatt hour versus the prior quarter where it was about $0.058 to $0.059. So as the Bitcoin global hashrate continues to go up and the mining space gets more active, the profit share would go down. So even though we're pegged to a variable [ past ] rate of energy, the profit share would technically go down. And as such, we're looking for just a better alternative to power at this point.

Okay. And one last piece on that, Jon. To be clear, this is something that we have been actively engaged in for the past several months. And so we're -- we expect to have significant announcements about where we're relocating our fleet, like I said, between now and the end of the quarter.

Okay. And just so I don't have to do the math, what was the average -- what was your average Bitcoin price during the quarter?

Jon, you're asking for the per -- sorry about that. $59,224.

Okay. So with the price of Bitcoin markedly higher, I think it's over $90,000 today. That doesn't change your -- I mean, that's all profit to you, right? There's no -- I mean it costs you the same to mine Bitcoin at $50,000 as it does to mine it at $90,000. Is that right?

Actually, currently, we have -- a part of our contract is fixed and part of it has a profit share. So our costs do go up as the price goes up. And so that's obviously something that -- if you are long on Bitcoin and you believe that Bitcoin is going to increase, then that's obviously something that you take a hard look at.

So your profit sharing with your hosting partner is kind of -- some of it's not -- I get it. So some of that will go up -- those costs will go up with the more you make, the more your gross profit is, right?

Correct.

Okay. So when you say that we're going to get some news from you in the not-too-distant future, does that mean before the end of the year? Or are we looking at early 2025?

No, we will definitively have an update on where we are taking our fleet. We will provide an update by the end of the year.

I think our operator might be on mute. Kevin, I think you're in the queue to speak.

Can you hear me okay?

Yes.

Great. So sorry, Steve, a little technical difficulty over here, and I didn't -- I may have missed a couple of responses to Jon's question. So apologies if some of this is redundant. But I'm going to assume that you're referencing the Louisiana spot that the previous administration sort of teed up as having that $0.01 per kilowatt hour power. But my understanding is that there's not a lot of power there. I think you're probably using close to 30 megawatts of Coinmint to power almost a full exahash. So help me understand how you see that transition as you move miners from Coinmint. Is that something that you'd expect to happen through the course of this quarter or something that might take until the end of the March quarter? And what would you expect your hashrate to be between, say, now and the foreseeable future?

Yes. So I'll actually let Sim give our assumptions on hashrate. What I would tell you is that we -- you're 100% right that we are -- we've previously announced that transaction in Louisiana that is much smaller than what we currently are operating or what we're currently using. It's a great first foray into that power source, and we believe that it's expandable over time. And so what that means is that between now and the end of the year, and this is like what you missed from the last set of questions, is that between now and the end of the year, we will be announcing where we are relocating our current fleet. And to your point, it won't all go in the aforementioned transaction, which if and when we complete it, would be much smaller. I'm sorry, Sim, did you want to answer anything about the -- about our assumptions?

Yes. Thanks, Steve. I heard him, forgot. Thanks, Sim. Appreciate it.

No worries, Kevin. Yes. So very long story short, our projection that we put together a few months ago, and we keep updating it, we pegged the global to be ending around 727 exahash. And it's already kind of creeping up on there and passing it every now and then, right, with just all of the hype and the Bitcoin price. Also, our model was calling for Bitcoin's price to cap out around $70,000, which clearly that has been blown away. So our production wouldn't really change much given the 30 megawatts. It's just like kind of we alluded to before, a more beneficial deal, i.e., maybe removing a profit share, going somewhere that you're at a static $0.06, $0.05, $0.04 would yield profitability in a much better spot than we currently are at, at Coinmint facility. So that's kind of what we've been looking at, and that's kind of where we are trending in that direction.

Okay. As you look at the fleet now, are -- do you consider it efficient enough? I mean, obviously, with Bitcoin at $93,000, it's a different story, but 2 months ago -- yes, 2 months ago would have been an issue, right? So just give me your perspective on where you see the fleet and what you might have to do to improve efficiency.

Very good question. So sorry Steve. [Technical Difficulty] with this current fleet, we are looking at being fully depreciated over the next 12 months. However, as the Bitcoin price is where it is and the global hashrate is where it is, we're roughly about 0.15% of the global hashrate. So those revenues even around $75,000, anything above $65,000, you're still breaking even, if not making a decent margin at those respective prices in this current environment. So as we are at $90,000, you are getting that additional upside with this current fleet of, let's say, 6,000 S19j Pros.

So Sim, if you were in my shoes, how do you think I should look at what happens to -- I appreciate the insight on the global hash. I really do. Every little bit helps in trying to figure that. But I'm more concerned about dialing in on what Gryphon is going to be able to generate through the balance of this quarter, given changes in infrastructure access you're anticipating and how long those -- that transition period might take before you could see almost that 1 exahash up and running again.

Kevin, I'll answer that. So our current agreement with Coinmint runs through the end of the year. And so it would be our expectation that we would keep everything in place through the end of the year unless we see a significant reason to do otherwise. And a significant reason would be, if we can move the fleet with the least amount of disruption as quickly as possible into a place where we had significantly lower cost.

Makes perfect sense, Steve. Makes perfect sense. I understand you talked to Dan joining your Board from Anchorage. And I was wondering if you wouldn't mind sharing just a little background on what he brings to the table given you're entertaining the HPC/AI agenda?

Yes. Let me step back just for a second and talk about Anchorage, and then I'll talk specifically about Dan. With Anchorage, as you know, we've talked about -- the Anchorage debt was a significant thing for us. And certainly, it was a significant liability. We originally took out a loan in Bitcoin of about 900 Bitcoin. We paid off 600 of the 900. But because the price of Bitcoin kept increasing, the notional amount that we had left on the 300 is still about $18 million, even though the original notional amount was $28 million, and we had paid about $18 million worth of Bitcoin, right? So it was kind of like paying that back in an environment where Bitcoin kept increasing in value, it's kind of like walking through quicksand. So it was very important to us from a financial standpoint to transform the balance sheet. We were really gratified to be able to structure the transaction the way that we did, where we've taken that $18 million of notional debt and converted $13 million of it into equity, where Anchorage is converting at a 100% premium to the previous VWAP. And then the remaining $5 million is on really favorable terms. It's a 3 year term, 4.25% interest only during the term. So the amount that we're paying Anchorage per month over the next 3 years, unless we decide to start prepaying and accelerating is $18,000 a month. So we've -- from a financial standpoint, we've turned what was a significant liability into a significant area of strength. We've added much more equity to the balance sheet, and we've completely transformed the amount of cash out every month. So if it was just that, I think we would have been pleased. But the thing that I think is even more exciting is that Anchorage really believes in us and in the story and in our vision and in where we can go. And they're now our largest shareholder. And so we've transformed this relationship from one where we have a lender to one where we have a partner. And Anchorage obviously is incredibly experienced in mining, and we're really grateful to have them as a partner. Specifically on Dan, Dan has co-led the portfolio for a long time at Anchorage, and he is incredibly well versed in the mining space. And so already, as a member of the Board, he's been adding significant value. He may be sick, in fact, of me calling him because we talk several times a day. He's giving great ideas on everything from where to find cheap machines to interesting ideas on power to where the industry is going. So we're real grateful to have Anchorage in general and Dan specifically as partners and as a Board member.

I appreciate the color, Steve. It's -- when we first spoke, I noted Anchorage's skin in the game conversion. But you can't say that they didn't make plenty of money on that under Bitcoin loan, too. So -- but kudos to you for making that transition. Is there, or are there any slots in the team that you think you'll need to fill in order to be able to handle the HPC endeavor?

Yes, absolutely. The first is, as we identify significant power opportunities, we will be adding power experts. We have a handful of people that we have been working with on a consultative basis. And as appropriate, we would bring them on board. And these are real experts. These are people who have 20 plus year significant leadership roles in relevant power. Then after that, after you lock down the power, yes, you absolutely would need -- we will need to add people who are HPC experts. Same thing. We've been talking to people. They've been consulting with us. And as -- and the sequencing is lock down power and then as appropriate add to the AI team. So the answer is 100% yes, as we move forward. And if we are successful, which we hope and believe we will be, we will be adding to the team as appropriate.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for any closing comments.

Right. Well, thanks, everybody, for your time on the call. We look forward to communicating future updates, and thank you very, very much for the time.