Good day, and welcome to Bitfarms Third Quarter 2022 Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. Now, I’d like to turn the conference over to Mr. David Barnard, LHA Investor Relations. Please go ahead..

Thank you, Nick. Good morning everyone, and welcome to Bitfarms’ conference call for the third quarter of 2022. With me on the call today is Geoff Morphy, President and Chief Operating Officer; and Jeff Lucas, Chief Financial Officer. Before we begin, please note, this call is being webcast live with an accompanying presentation.

To watch along with the slides, you can log onto our website at www.bitfarms.com under the Investors Presentations section. If you prefer to listen to the call on your smartphone, you can download the presentation from there as well.

I would like to remind you this morning Bitfarms issued a press release announcing its third quarter 2022 financial results. Turning to slide two. I’ll remind everyone that certain forward-looking statements will be made during the call and future results could differ from those implied in this statement.

The forward-looking information is based on certain assumptions and is subject to risk and uncertainites and I invite you to consult Bitfarms MD&A for a complete list of these. Also during the call, reference will be made to supporting slides. And again, you can find the presentation on our website under the Investor Relations section.

The company will also refer to certain measures not recognized under IFRS and it did not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies.

We invite listeners to refer to today's earnings release and the company's third quarter 2022 MD&A for definitions of the aforementioned non-IFRS measures and the reconciliations to IFR measures. Please note that all financial references are emanated in U.S. dollars unless otherwise noted.

During today's call, President and COO, Geoff Morphy, will review our operations for the quarter; CFO, Jeff Lucas will follow with a detailed financial review and Geoff Murphy will return for some closing remarks after the Q&A. And with that, it's now my pleasure to turn the call over to Geoff Morphy..

Good morning. Thank you for joining us today. As we are excited to talk to you about our recent successes and why Bitfarms is well positioned to manage this crypto winter, and thrive in the long run. No one can control or predict the price of Bitcoin. It's a reality of this business. All miners' margins have been compressed.

However, Bitfarms continues to differentiate itself operationally and financially with its low cost structure, efficient operations and fleet, along with stable energy pricing resulting in superior mining profitability. We have worked hard to establish a consistent track record of execution against our stated goals and growth plan.

In fact, we have doubled our hashrate to 4.4 exahash per second year-to-date. However, to be direct in Argentina, while the construction of our farm in Rio Cuarto has moved along, on plan and on budget. There are macro developments within the country that impeeds importation of all foreign equipment, including our miners.

We are working to resolve these issues and I'll provide more details in a moment. Turning to our highlights of our results. In Q3 2022, Bitfarms mined fifteen 1,515 bitcoin, up 21% from Q2 2022 and we mined an additional 487 bitcoin in October.

Although the growth in Q3 2022 production was offset by weaker bitcoin prices, we continued to deliver solid performance metrics and reduced both our direct costs and total cash costs of production. As a result, we generated adjusted EBITDA of $10 million.

In addition to consistently being one of the largest producers of bitcoin, Bitfarms remains one of the lowest cost producers. And for the last two years, we have kept our direct cost of production under $10,000 per bitcoin and in fact lowered these costs by $500 in the most recent quarter.

Our costs have remained relatively stable as we benefit from a portfolio of geographically diverse hydropower contracts providing low cost energy. As new production came online in both Canada and Argentina, we increased our corporate hashrate 17% from the end of Q2 to 4.2 times a half per second at the end of the third quarter.

During the month of October, we were mining 15.7 bitcoin per day in daily production and slightly over 115 bitcoin per average exahash per second, which is the highest industry percentile in efficiency and performance. While the industry is facing challenges due to the sharp decline in the price of bitcoin.

We benefit from experience in managing through past industry cycles and we further benefit from stable electricity costs, while rising energy prices have an outsized impact on those peers that rely on fossil fuels generated electricity. We continue to take decisive actions to maintain our financial flexibility and increase our liquidity.

Jeff Lucas will cover details in a few moments. Slide four summarizes the overall status of our farms. We ended the quarter with 10 locations and 176 megawatts in capacity, an increase of 39 megawatts from nine locations and 137 megawatts in capacity as at June 30, 2022.

In October, we increased our total corporate capacity by six megawatts, bringing the total current capacity to 182 megawatts. Now I'll take a moment to detail the operations, plans and recent progress at some of these locations. Turning to slide five. We have power supply commitments with Hydro Sherbrooke for a total of 96 megawatts.

The three facilities in our Sherbrooke campus are located in close proximity, which affords numerous efficiency advantages and we are in the final stages of completing our 2022 expansion plan. Leger continues to operate smoothly at its 30 megawatt capacity, delivering 740 petahash per second from 7,400 miners.

On November 10, we energized our first six megawatts in the 18,000 square foot Garlock farm with the full 18 megawatts expected to be in production in early December. Phase 3 of The Bunker is progressing as planned with six megawatts energized in late October and the remaining six megawatts expected to be online also in early December.

The Bunker first activated in March 2022 is currently drawing 42 megawatts and running 9,400 miners. In December at full build out, The Bunker will be at 48 megawatt farm, housing 12,400 latest generation miners and contributing over 1.2 exahash per second.

We expect to retire our de la Point farm by the end of this month and anticipate completing its sale by the end of December, which results in cash proceeds of $3.5 million to fund growth. The permit closure of this facility and replacement and full build out of our Sherbrooke campus in an industrial area is running three months ahead of schedule.

When completed shortly at 96 megawatts, up from 30 megawatts in 2021, the local community benefits from increased tax and other revenues, as well as higher employment.

As we stated in our press release on November 4, our hydraulic energy agreements in Quebec remain in place and we are excited about continuing to partner with local communities for future growth. Please turn to slide six. In Rio Cuarto, Argentina, as we announced on November 1, we have adjusted our plans for our Argentina build out.

We completed construction of warehouse number one during the past week, and we are continuing the process of commissioning. More specifically, the initial 10 megawatt module of the first 50 megawatt warehouse was completed in September and the final four 10 megawatt modules were completed in October and early November.

At present, we are operating almost nine megawatts capacity with 2,300 miners delivering 237 petahash. Earlier this month, we adjusted our year-end guidance from 6 exahash per second to 5 exahash per second. Argentina's macroeconomic environment has impacted our ability to import miners.

We are working with the regulatory authorities and our logistic providers to remedy this matter. The country is wrestling with high inflation, currency devaluation and a significant debt burden.

Importation approval for mining and ID equipment has been delayed, which adversely affected our ability to bring in the additional 12,000 miners we need to operate the first warehouse at its full capacity. In addition, our private power producer in Rio Cuarto is still awaiting approval of its final operating permit to provide power to us.

In the meantime, our farm is drawing power during the start up and commissioning phase from the provincial electricity -- electrical utility at a higher cost than our agreement with the power producer. We continue to evaluate operations and these higher than anticipated energy costs on a daily basis.

At around 4% of total production, this temporary variance has limited impact on our total direct cost of production. While the power producer expects the necessary permit to be forthcoming before the end of 2022, we expect higher cost production at that facility until we can draw at least 26 megawatts. Please move on to slide seven.

Since launching in January, Paraguay operations continue to run smoothly, consistently contributing about 125 petahash. With this extensive hydropower infrastructure, we continue to look for new opportunities in the country. Turning to slide eight.

In summary, at the end of the quarter, we had 10 farms in production in four countries and are predominantly drawing power from three hydroelectric utilities that are geographically diverse.

We now have capacity of 182 megawatts, which is operating at 4.4 exahash per second, and we have a clear path to ending the year at 188 megawatts running at five exahash per second with considerable future upside from Argentina. At Bitfarms, we pride ourselves on our efficient operations, which is measured in a few ways.

First, uptime, we consistently achieve uptimes of 98% to 99% in our farms. This high utilization rate is a key revenue driver as bitcoin miners are not paid for downtime. Second, bitcoin per average at exahash, this is a measure of operating and production efficiency.

In October, we recorded 115.7 bitcoin mined per average exahash, which several analysts have noted being market leading and a figure in which we consistently rank high. Third, joules per terahash, which is the measure of energy efficiency for bitcoin miners and our corporate average continues to show steady improvements.

For Q3 2022, we had an average of 40, improving 12%, compared to 45.5% during Q3 2021. For more information on our mining fleet, I encourage you to visit our website, bitfarms.com to learn more about the miners we operate and how they are deployed. Please turn to slide nine.

Moving on from metrics to financials, I will now hand the call over to Jeff Lucas..

we sold a total of 2,595 bitcoins, comprised of 1,515 bitcoins from production and 1,080 bitcoins from treasury generating proceeds of $56 million, reducing indebtedness, further deleveraging our balance sheet and lowering our interest expense.

We paid down $15 million of our revolving bitcoin back credit facility, reducing borrowings into this facility to $23 million and freeing up about $5.5 million of bitcoin, those otherwise collateralized loans. We paid down $12 million in equipment debt financing and in the quarter with a total of $55 million in equipment indebtedness.

During the quarter, we paid off in full two of our oldest highest interest rate facility and we raised $13 million in net proceeds from our ATM program that we launched over a year ago. This commencement of the ATM program on August 16, 2021 we have issued approximately 45 million shares of gross proceeds of $200 million or $4.48 per share.

So to repeat, we ended the third quarter with total liquidity of $76 million, comprised of $36 million of cash and 2,064 bitcoin valued at $40 million. That's again to the quarter, we paid down a further $3.2 million on our equipment backed facilities and paid off from 12 and most expensive loans.

Secondly, we raised another $1.9 million net of expenses under our ATM; and third, we’ve reached an agreement to sell a [indiscernible] property for $3.6 million of which we expect to receive net proceeds of about $3.5 million to supplement our cash balance that being during the fourth quarter.

I'll wrap up my first and today's remarks with two additional highlights.

First, when we amended our BTC back facility to extend the maturity to December 29, 2022, we were able to improve the terms including reducing the collateral coverage requirements from a 143% of the loan value to a 135% of the loan value without any change in the stated interest rate, despite the increase in general level of interest rates.

This is a testament to Bitfarms’ credit quality in the eyes of our lenders. Second, it’s worth noting that we grow and manage our business with a 2024 having in our site. All of our current indebtedness is scheduled to be mature on or before February ’24 in advance of the expected time and date.

Before turning the call back over to Geoff Murphy, I would like to mention that we have a number of Investor Conference coming up, including the Ladenburg Thalmann Second virtual Crypto Expo 2022 Conference in December and the Needham 25th Annual Growth Conference in early January. Turning now to slide 13. I'll now turn the call back over to Geoff..

Canada, the United States, Paraguay and Argentina. We are sustainable. Currently, 95% of our fleet is powered by hydro electricity. We are transparent.

We have continuously led the industry in transparency from establishing the monthly production report standard to our corporate website, which provides unparalleled information about our mining operations. And we are proud of the fact that we have been audited by a big four firm since becoming public.

We have maintained consistently low direct cost production. Our Q3 2022 direct mining cost of $9,400 is amongst the lowest in the industry. As these direct mining costs consistently consist mostly of electricity, this goes to our preferred strategy of finding and securing PPAs in areas of surplus, and stable hydro electricity.

In fact, since our inception over five years ago, our gross mining cost per bitcoin has never exceeded $10,000. Keeping our costs down on a consistent basis is a testimonial to our experienced team and our contracts. Our performance metrics are consistently industry leading.

In October, we recorded 115.7 bitcoin mined per average exahash, placing us at the top of the industry performance from our assets. Even at recent bitcoin price levels, we continue to generate positive cash from mining operations.

We have decreased our financial leverage and maintain a flexible balance sheet and financing resources, while continuing to meet our financing obligations and have done so, since inception.

The experienced internationally based management team at Bitfarms has demonstrated their highly capable of finding and building new farms in a cost effective manner and capable of generating sector leading results.

With bitcoin prices down, this is indeed impressive performance and positions the company very well for future growth to jump on distressed and underperforming companies or to consolidate on a larger scale.

Looking at where we are today, we have a strong balance sheet, and financing resources, non-dilutive and otherwise, including positive cash flow from operations to fund our continued growth. And we're following a path of growth with discipline as evidenced by our track record of operating excellence.

We are truly well positioned to take advantage of emerging opportunities and be a consolidator in the industry. Operator, we can now open up the call for questions. Please go ahead..

Thank you. We’ll begin the question-and-answer session. [Operator Instructions] All right. The first question comes from Alexander Smith of [Quint Shares] (ph). Please go ahead..

Hi, everyone. Thanks very much for your time and congratulations on the good results. I just would like to understand a little bit more about your financial flexibility on your commitments.

First is -- are the agreements in Quebec take-or-pay, I mean, the electricity agreements? And do you have the ability to downscale your operations if needed? And also the flexibility, could you talk about how flexible your CapEx bills are? Whether you have to own a newer machine deals or your site building contracts as well? Thanks very much..

Okay. Let's start with Quebec. Quebec, we have eight contracts within the province and we have the rights to receive power. There is electricity capacity and demand charges each month, but on a monthly basis, we can reset those accordingly.

So I think you're probably really digging in is -- if we were to shut down miners or to underclock them if circumstances were more severe, could we adjust down our electricity charges and our associated costs? And the answer is yes. But I will also say that we've already reported on our efficiencies.

We have a fleet of modern current generation miners in that province that are operating very, very well. It's air cooled, so the capital costs are down in that province. These are some of the most efficient mining operations in the world. We were generating positive cash flow and this might be different for others.

But for us, the bitcoin price would have to drop, not a lot further, but further before, like, we’d have to even consider something like that.

Jeff Lucas, do you have something more? Do you want to add on that before we go into CapEx builds and minor deals?.

No. I think, but I wasn't glad to talk to some of the CapEx that we do have in place for the miners. Let me start there if I may. Alexander, I'll then respond to your question, we enjoy very good relationships, you know, with the miners.

With the miner manufacturers here, and as we announced about two months ago that we worked out a arrangement with the manufacturer where we could actually better align both the timing and delivery and also the payments for the miners here to be more in alignment with that as our infrastructure becomes on -- gets online and becomes available.

So we've had that flexibility we continue to have ongoing discussions with the manufacture going forward, we continue to refine and make sure that we are indeed aligned between our infrastructure spend and what our miner spend as well, so that's actually moving along pretty well.

But on your note, I'll add if you were to look at our financial statements, you will see what the projected commitments are for the next three quarters, that doesn’t stands currently. And I do wanna point out that with that flexibility that we do enjoy, with a manufacturer to make it some variability there.

So we can actually work towards fine tuning that very closely to what our actual needs are, add the infrastructure becomes available to deploy those miners..

Thank you. Our next question will be from Kevin Dede, H.C. Wainwright. Please go ahead..

Good morning, gents. Thanks for taking my question. Dr. Morphy, can we peel the onion back a little bit more on the Argentina situation. I know Mr. Lucas gave us great insight on what was going on the currency side.

I was just kind of wondering how you think we should look at things going forward? And maybe dig in a little bit on how you see the import side resolving itself and some sort of timeline on that?.

Good morning, Kevin. Yes, Argentina is a fabulous place for our growth opportunity. We enjoy great contract down there at some of the lowest prices. It's just taking us a little longer to really see the benefits really unfold there.

We could not have forecast that the government was going to go through some of the economic turmoil that it is with some of the IMF issues, debt and inflation. And they've had to pull in their reins. And we can control what we control. We can't control what we can't control.

And Argentina is a situation where they are protecting their economy right now, and they've made moves. And we have to follow a government's lead on this, and we're watching it very closely. And we've just had to adjust our operations for the first warehouse and then the second warehouse accordingly.

But when the door is open, which we are very hopeful will take place in the near future, but we don't know that, then we will react and move forward. But we're spending our money very prudently there and we are getting output.

We think this is temporary, and it really represents, because of the work we've done on the Rio Cuarto site, an opportunity when the door opens probably more so next year to really ramp up very efficiently and quickly there..

Then I think you mentioned what 26 megawatts before you can realize the power from the power station that's close by, I mean essentially that means switching from grid to you're behind the meter sort of situation there?.

That's correct..

Okay..

Because of their size that I think this is a wholesale utility size generation facility and we're located in their backyard. And yes, we're having to take grid power until we get to a certain size, because these are big turbines that they have. And so the government here has not given the approval for them to provide power to us.

And when they do provide power to us, it has to be at an industrial scale. And unfortunately, we don't have the number of miners there to take it at that level. The plant, the warehouse that we've built is capable of taking 50 megawatts. The five modules are constructed and ready to go.

We only have miners in the first module, because of the importation restrictions. So we have to take this in concert. We have -- we need to get the miners into the country and installed and we need the approval on the electricity contract. When we get them both done together, we'll be humming. In the meantime, we have to watch things very carefully..

Okay. That helps. Thanks. Mr. Lucas, can you dive in a little bit on the balance sheet.

I appreciate the slides that you offer with regard to how debt has changed, but could you give us some insight on what the levels are now?.

Sure. So at the moment, we have $23 million in our BTC backed facility, and we have $55 million of our equivalent backed facility, which the two largest components of that really is the indebtedness that we have and that we entered into this year.

At February, we entered into a $32 million facility and which was now paid down a substantial portion of that. We're only about $22 million left, and then in June, we entered into a $36 million facility with a different lender and either both by the way, non-recourse loans. I do want to point that out here.

About $36 million and right now, we're down to just over $31 million outstanding. And then we have an additional about $1.6 million of indebtedness out there, little under that, and some smaller loans that rented into about two years ago. And those of the loans that are up around that anywhere from the 17 to 18 percentage point level.

So we've asked you’ve done quite a bit in terms of tearing down our overall debt. But that's where we stand. So again, in summary, we have about $55 million now in equipment backed loans all non-recourse and $23 million outstanding on our BTC backed facility..

Okay.

So the equipment loan, you say non-recourse, that means they're not collateralized with equipment?.

No. Actually, excuse me. I mean, they are exclusively collateralized by the equipment that there's no general or corporate guarantee associated with it..

Okay. All right.

So sort of a separate financing vehicle?.

In essence, yes, it's not done that way from a corporate a structuring standpoint. But in terms of the loan agreement itself and the way the loan agreement is structured, the only collateral debt play, there's a modest amount a BTC under certain circumstances that can’t come into play here, but not currently.

It is predominantly just the equipment asset itslef..

Okay.

And what was the bitcoin that's collateralized on that $23 million loan?.

So we commented, what we said there is that the collateral percentage versus the loan value went down from 143% to 135%. So today, right now, there's a little over $30 million of big claim, that's collateralizing that $23 million facility..

Okay. Right, right. Got it. Okay, okay.

All right, so the terms on the equipment loan, you expect to have completely settled by the end or beginning early part of, say, is that what you said February 24?.

Yes, both. The two facilities that we entered into this year, the one in February for a $32 million, the one in June for $36 million both are scheduled to be entirely paid off before then by February comes right and paid off by February 2024, that's their maturity date. We have the option to pay them out sooner if that makes sense.

Obviously, we'll consider the cost of capital and other factors as we get consideration to that..

Okay. Then would you generally mind reviewing your order standing on the equipment side? I understand that you have flexibility there and it's a function of whether or not the infrastructure is available.

But could you just remind us what you have and total extra cash it represents?.

Well, let me start off here..

Starting to that. No, go ahead, Jeff..

Okay, okay. My comments here, so I think, this is predominantly point I think you're speaking to is the 48,000 unit order that we incident to it early last year and once you lock it, the price is there mid-year.

So in terms of where that stands at this point in time of the 48,000, we've pretty much in great shape now for about 36,000 of that, there are 12,000 units that we have not yet as we pay for.

And those are being discussed, of course, with the manufacturer in terms of the timing of those, because they're in connection with the warehouse number two for Argentina.

But separate from that, for the other 36,000 we paid for roughly 93,000 of those in full and it is remaining about 3,000 or so or 4,000 or so for which we have a balance of around 40%, which is about $6 million and that we have reflected in our payment schedule on our financial statements that you see for the fourth quarter that is in quarter right now, whether we actually make the payments in or whether it gets pushed off a little bit in the first quarter.

It depends again on the timing of the infrastructure, our implementation of miners to make sure that we're in alignment that we're actually getting those miners and putting them to play concurrent with the availability of the infrastructure..

Okay..

Kevin, because of our size, we maintain direct relationships with the largest minor manufacturers. And because of the size of our orders, that relationship has paid dividends and that they are working with us to make sure that to the best we can that we build the infrastructure and then provide the miners at the same time.

And I guess we have negotiated the deferral of some of these miners, because of the situation in Argentina and the second warehouse build up.

They're absolutely working with us, and in fact, as they are developing even better machines and miners, like depending on when we get to activate or continue further, we may get some of those better miners as a result of our relationship with them, because of the time and the development of their new equipment.

So there could be some real upside in terms of better efficiencies and the cost of miners as we move into the next year and explore the opportunities with them..

So Geoff, help us understand how -- I guess how many miners are sitting on the dock in Argentina? And I know you can't really give us timing on that understandably, but I'm just wondering how that relates to the 36 units or 36,000 units that you have paid for?.

Yes. It's not as much of they're sitting in the dock in Argentina. This has been a widespread Argentina importation issue.

So it's not miners, it's not just IT equipment, it's all formed direct investment coming into the country, that are feeling the pain of these measures, because they're trying to balance their budgets and their debt and everything else going in there. It's quite the macro effect.

There has been some political changes with ministers and those are now settled and they're in discussions with the international community in terms of loans and balances and fiscal restraints, and they're going to get those figured out. It's really just a matter of time. And so we have miners that we had to slow down.

So they are not like all these miners for the first warehouse that we're short with now are actually in China. We just haven't given the shipping instructions to move across the ocean yet for entry in Argentina..

Okay. As you look at that fleet and you look at your 40 joules per terahash for the entire fleet.

Is there some thinking internally about continuing an upgrade path and changing out maybe some of the older machines for the ones that you have bought?.

Kevin, excellent idea and we're already there. We had an upgrade fleet program that's been ongoing, vast majority of our last generation miners have already been retired. Some sold, we did move a bunch of them late last year and into January of this year in Paraguay.

But we're not achieving these type of efficiency records with taking advantage of older machines. So in Washington, we've got the latest generation machines, pretty much all of Quebec are latest generation machines. And what's going into in Argentina is the latest generation machines.

So yes, we have some of these miners, but we're quite confident that the government in Argentina will soon reopen and then we'll be back to the plant..

Okay, gentlemen. That's all I can think of at the moment. Thank you so much for taking my questions..

Thanks, Kevin..

Thanks, Kevin..

Thank [Operator Instructions] At this time, we have no further questions. We'll turn the call back over to Mr. Geoff Morphy for closing remarks. Please go ahead..

Thank you, Nick. We are living and working in very challenging times. Context and results are paramount when you consider what Bitfarms has achieved quarter and this year. In an industry where there are many performance metrics and comparisons, I would like to reiterate three points about Bitfarms. Year-to-date, we've mined 4,219 bitcoin.

This places us third in total production amongst the public miners, a testament to our ability to scale the business. Two, benefiting from stable low energy costs, we've maintained profitable mining operations each quarter as evidenced by our generation of $10 million in positive adjusted EBITDA in the third quarter of this year.

Third, we've delevered our balance sheet, reducing financial risk and better positioning us to consider the increasing number of opportunities within the industry. Thank you all for attending today's conference call. We look forward to updating you on our monthly production reports, as well as other developments.

And on our Q4 conference call in March 2023. Thank you very much..

Thank you. Conference is now concluded. Thank you for attending today's presentation. You may now disconnect..