Argo Blockchain Q2 2023 Earnings Call Transcript

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August 29, 2023

There are 4 speakers on the call.

Operator

Good afternoon, and welcome to the Argo Blockchain Plc Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Given the large attendance of this call, the company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so.

Operator

Before we begin, I would like to submit the following poll. And I would now like to hand you over to Tom Devine, Vice President of Investor Relations. Good afternoon to you.

Speaker 1

Will be available. Thanks, Alex. Before we begin, I'd like to remind everyone that today's presentation and remarks may contain forward looking statements. Will be available for our full Risk Factors, please see our Form 20 F filed with the Securities and Exchange Commission for the year 2022.

Speaker 2

Will be available. With us today for our discussion of

Speaker 1

Q2 and First Half twenty twenty three results are Seif L. Bakley, Fargo's Interim Chief Executive Officer and Jim McCallum, Argo's Chief Financial Officer. And now, I'll turn it over to Saif.

Speaker 2

Call. Thanks, Tom. Good morning, everyone, and good afternoon to our shareholders in the U. K. It's great to have you with us today to discuss our Q2 earnings and first half of twenty twenty three results.

Speaker 2

As mentioned in previous calls, ever since Jim and I took the helm at Argo, we focused on 3 key priorities, which are financial discipline and deleveraging, will be available on the Investor Relations website. In my comments, I'll provide updates on our progress as they relate to these will be key pillars. With that, let's look at how Q2 shaped up. In the Q2, we mined 4.56 bitcoin and generated revenue of $12,600,000 are down from the 49% mining margin we achieved in Q1. There are a couple of drivers for this, so I'll take some time to address that now.

Speaker 2

Helios now has a fixed price PPA for a significant portion of the facility's power load. Because we get access to this fixed power price on a pass through basis, it provides us with greater certainty over power costs going forward, And it also allows us to participate in economic curtailment. This means that during periods of the day when power prices are really high, Helios can curtail operations and sell that power back to the grid in real time. This generates power credits for us, which ultimately reduces our power will discuss the results. In Q2 alone, we generated $1,100,000 worth of power credits.

Speaker 2

This is equivalent to mining an additional 38 Bitcoin. In certain instances where power prices spike, it can be more profitable to curtail and monetize that fixed price PPA than it is to mine, and that's something we're closely monitoring. And with the ongoing heatwave in Texas, we are expecting significantly more power credits in Q3. For those of you who live in North America, you know that the summer has been exceptionally hot, Texas especially, it has several weeks of temperatures over 100 degrees. So that led to very high power prices at Certain times and although we were hedged for the majority of our load, we were still exposed to those prices for the portion of the load that is not covered by the fixed PPA.

Speaker 2

But the fixed PPA is ultimately a good hedge and is proving itself to be very valuable so far for the Q3. All in, our average power and hosting cost for the first half of the year was slightly over $0.05 per kilowatt hour. For the second quarter, we generated an adjusted EBITDA of are $1,100,000 bringing our half year adjusted EBITDA to $2,300,000 As I said on the last call, cash generation is top of mind for us. We ended the 2nd quarter with just over $9,000,000 of cash on the balance sheet. So now, I'll let Jim provide some additional comments on our financial results for the quarter.

Speaker 3

Thank you, Seys. We generated $12,600,000 of revenue for the quarter with $4,500,000 of mining profit will be responsible for a mining margin percentage of 36%. As Saif said, we faced higher power costs in the Q2 relative to the Q1, But the fixed price PPA at Helios provides us with greater certainty over our power costs going forward. We expect significant power credits from economic curtailment in the 3rd quarter. Our core business operations remain profitable, And we generated adjusted EBITDA of $1,100,000 In comparison to Q1, we saw higher revenues and lower non mining operating expenses.

Speaker 3

We reduced our non mining operating expenses by 21% over the Q1. At the end of June, we had $9,100,000 of cash on hand. As you can see on this chart, our operating cash flow remained positive in Q2. Debt service makes up a sizable portion of our cash outflows, which is Why we are continuing to focus on deleveraging the balance sheet. In May, we sold roughly $1,000,000 worth of Ethereum at an average price of $1900 and we use those proceeds to pay down debt.

Speaker 3

In July, subsequent to the period end, We completed the share placement and raised $7,500,000 of gross proceeds. Of this, dollars 1,800,000 was used to pay down the Galaxy loan. On a pro form a basis, after the equity raise and the Galaxy debt pay down, our June 30 cash position would have been $14,500,000 and our Galaxy debt position was 30,000,000 Moving to the next slide, we continue to scrutinize all of our non mining operating expenses and find ways to reduce costs. In Q2, we reduced these non mining operating expenses by 21%. This means that since the second half of twenty twenty two, we've cut our non mining operating expenses by 75%.

Speaker 3

This cost reduction is important because it improves cash flow generation And allows us to continue deleveraging. One of the key themes that Saif and I have been emphasizing is deleveraging. In Q2, we reduced our debt by $3,000,000 and in Q3, we expect a further reduction of approximately $5,000,000 In addition to that, we've also discussed the possibility of selling non core assets. We are in advanced discussions regarding the sale of certain of these non core assets, And we anticipate providing more details in due course. With that, I'll pass it back to Saif.

Speaker 2

Quebec, we continue the installation of our EPIC block miners. In July 23, we deployed 12 42 block miners representing about 130 petahash of additional hash rate capacity. Will be able to deploy the remaining block miners by the end of the year. Additionally, our operations team has been collaborating very closely with Galaxy on ways to improve the operational efficiency of the fleet at Helios, so we expect to see the results of that work in the coming months. And finally, we continue to explore some interesting growth opportunities to maintain our market share as the Hatch rate network continues to grow.

Speaker 2

We continue to engage with energy and power providers looking for opportunities to pair Bitcoin mining with underutilized or excess will be in the range of $0.06 We're thinking about ways that we can partner with energy companies in an asset light manner and bring our expertise in Bitcoin Mining to a strategic partnership. So that's it for now. Jim and I are open to take your questions. Alex and Mark actually not Mark, but Alex, back to you.

Operator

Are safe. Jim, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner can view your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and a published Q and A, can be accessed via our investor dashboard. Dave, Jim, Tom, as you can see, we have received a number of questions throughout today's presentation.

Operator

And Tom, if I may hand over to you to read out the questions, where appropriate to do so, and I'll pick up from you at the end.

Speaker 1

Great. Thank you, Alex. Our first question comes from Chase White at Compass Point. Can you give us some color on the details of your arrangement with Galaxy in terms of The size of the markup on the pass through cost of power and how you go about sharing the economics of curtailment?

Speaker 2

Yes. Thanks, Chase. So under the current hosting agreement that we have with Galaxy, there is no markup on the power cost. So basically, what we have is a pass through power agreement So there's a fixed power price, and then there's a pass through agreement and a hosting charge on top of that. And in regards to curtailment, we essentially split the proceeds from Any economic curtailment that we get from Galaxy and we split that evenly.

Speaker 2

So hopefully that answers your question.

Speaker 1

Great. Our next question comes from Darren Aftahi at ROTH MKM. Safe, how is management positioning itself ahead of the having next year?

Speaker 2

Yes. Hey, Darren, good question. I mean, look, Like all of our peers, what we're trying to do is we're trying to essentially have the least amount of fixed costs as possible. We're trying to reduce our OpEx as much as possible. We're trying to delever.

Speaker 2

We're thinking about growth opportunities. We're thinking about are sort of continuing to take advantage of the fixed price PPA that we have with Galaxy. We're thinking about positioning and really we're just thinking about the health of our balance sheet and the market share that we have From a Hash rate perspective. And so I think the less obligations that you have,

Speaker 1

Great. Seth, the next question comes from a couple of folks, including Bill Papinostacio at Stifel, as well as Matthew R. From The webcast, can you give an update on the asset divestitures that you mentioned?

Speaker 2

Yes. So we've met in the past, we've mentioned Excess inventory in real estate is examples of non core assets that we can potentially monetize to generate additional cash. And Bill, We're currently in advanced discussions with some of those as well. So I think we're We're in a good place. We're in a good position.

Speaker 2

And back to sort of Darren's question, we're thinking about Using that cash flow to delever some more and reduce our obligations, balance sheet has been top of mind for Gemini. And so we're happy with where we are. We're happy with the discussions that we're having. They're advanced. And I'm confident that we'll get something going in the near future.

Speaker 1

Great. Thanks. Our next question is for Jim and this comes from Shigar S. Can you talk a little bit more about Your plans for debt reduction?

Speaker 3

Payments on the Galaxy Debt, we've used the proceeds of our Ethereum sale, as well as a portion of the equity raise that we just completed. There's additional levers that we continue to look at, including the sale of non core assets to further reduce the debt. It's a key focus for Saif and I, and we've done a had a big reduction since June 30 last share in our debt reduction goals. Thank you.

Speaker 1

Thanks, Jim. Next question comes from someone in the chat. For Saif, what impact does the hot temperatures have on mining Bitcoin in Texas?

Speaker 2

Yes, it's a good question. So a lot of people have asked us, This is probably the best time for Bitcoin prices to be depressed for us. Like obviously, Bitcoin prices being depressed is not a good thing. But generally, if there was a good time for Bitcoin prices to be depressed, it would really be now. And the reason is, is because When you essentially have a fixed PPA or where you're dealing with a counterparty that has a fixed PPA, You can pretty much use those power blocks and sell it back to the grid.

Speaker 2

So essentially, when it gets really hot there, We curtail, meaning we just shut down our machines and the power that we're essentially not using, we can sell that power back to the grid. And so when bitcoin prices are high, sometimes when prices spike and it gets really hot in Texas and prices start spiking, We essentially turn off our machines, but the higher the bitcoin prices are, the more of an opportunity cost it is for us not to mine. And at times, it's actually more beneficial for us not to mine and sell that power back to the grid rather than keep mining. And so in those in the last weeks and in the coming sort of weeks when temperatures are really hot and bitcoin prices are low, It lowers our opportunity costs and it gives us the opportunity to sell our power back to the grid. So ultimately, that's the impact it's been having That we are curtailing, but we are getting rewarded for curtailing at a low opportunity cost.

Speaker 1

Great. Thanks, Dave. Next question comes from Jeff H. It's for Jim. Can you give some more color on our current cash balance and liquidity?

Speaker 3

Thanks, Jeff. As I mentioned on the call, at the end of June, Our cash balance was $9,100,000 We completed the equity raise in July for $7,500,000,000 Through the share placement in the UK, so that strengthened our cash and balance sheet. Of that $7,500,000 that we raised, approximately 25% of that proceeds went to pay down the Galaxy debt. So our pro form a cash balance at June 30 would have been $14,500,000 or was 14,500,000 If you take the $9,100,000 and then the net cash after the debt pay down.

Speaker 1

Great. Thanks, Jim. Another one for you. This came from a couple of folks in the chat. Can you give an update on Argo's investment in PlutoEmergent?

Speaker 3

Yes. No, we are taking a more active role in our investment in Emergent. We've recently joined the Board. We've taken a position on the Board. So we're just we're being more active, and we'll give updates as we have them moving forward.

Speaker 1

Thanks, Jim. I think our last question It's going to be from Chase White at Compass Point. This is for Saif. You mentioned getting to 2.8x the Hash by the end of the year. Could this come earlier?

Speaker 1

What sort of time range are you targeting internally?

Speaker 2

Yes. Thanks, Chase. The team has been doing a really, really good job at installing our teams in Quebec and Baixomo have been doing our ops team, just the entire ops team have been doing a really good job at installing Those miners at a really good pace and good rate. Right now, our total capacity is around 2.6 exahash. And so We are confident that by the end of the year, all of the nearly 2,900 machines will be deployed, Which should bring us back around the 2.8 exahash target that we have.

Speaker 2

Given the current deployment rate, I'm confident that we can likely deploy them before Q4 of 2023.

Operator

Seif, Jim and Tom, thank you for that. And I think you have addressed those questions you can from investors today. And of course, the company will review all questions submitted today, will publish those responses on the Investor Me Company platform. But before redirecting investors to provide you with their feedback, which are most particularly important to the company, are safe. Could I please ask you for a few closing comments?

Speaker 2

Sure. Thanks, Alex. Just want to thank everyone for tuning into our earnings call today. Again, just to reiterate, we're really focused on deleveraging and strengthening our balance sheet, and we're focused on reducing costs and being opportunistic with financing will be in touch soon. Thank you.

Speaker 2

That's great, Seif. Jim, I will will be in touch soon. Thank you.

Operator

That's great. So if Jim and Tom, thank you once again for updating investors today. Could I please ask investors not to close this session ask you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Argo Blockchain Plc, we'd like to thank you for attending today's presentation, and good afternoon to you.

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Key Takeaways

  • Argo mined 4.56 BTC in Q2, generating $12.6 million of revenue at a 36% mining margin and delivered an adjusted EBITDA of $1.1 million (H1 adjusted EBITDA of $2.3 million).
  • The Helios facility’s fixed-price PPA allows Argo to pass through power costs and earn $1.1 million in power credits during Q2 (equivalent to mining 38 BTC), with further credits expected amid the Texas heatwave in Q3.
  • Argo closed Q2 with $9.1 million in cash, raised $7.5 million gross in July equity, and cut non-mining opex by 21% QoQ (75% since H2 2022), achieving a pro-forma cash balance of $14.5 million and reducing Galaxy debt to $30 million.
  • Mining capacity continues to expand: 1,242 Block miners (≈130 PH) deployed in July, bringing total capacity to 2.6 EH with a target of 2.8 EH by year-end, likely before Q4.
  • The company is pursuing asset-light growth by exploring strategic partnerships with energy providers to deploy bitcoin mining at underutilized or excess power sites.
AI Generated. May Contain Errors.
Earnings Conference Call
Argo Blockchain Q2 2023
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