BitFuFu Q3 2024 Earnings Report

BitFuFu EPS Results

• Actual EPS: -$0.03
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

BitFuFu Revenue Results

• Actual Revenue: $90.34 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

BitFuFu Announcement Details

• Quarter: Q3 2024
• Date: 11/5/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 5, 2024
• Conference Call Time: 8:00AM ET

BitFuFu (NASDAQ:FUFU) provides digital asset mining and cloud-mining services in Singapore. It also offers miner rental, and miner hosting and sales services to institutional customers and individual digital asset enthusiasts. The company is based in Singapore, Singapore.

BitFuFu Q3 2024 Earnings Call Transcript

Key Takeaways

• Revenue rose 47.5% year over year to $90.3 M in Q3, driven by a 51.4% increase in cloud mining revenue to $68.9 M and a 40.4% rise in self-mining to $20.5 M.
• Bitfufu achieved its 11th consecutive quarter of positive adjusted EBITDA at $5.8 M, with trailing nine-month adjusted EBITDA up 136% to $64 M.
• The average cost to mine one Bitcoin increased to $59,452 due to higher network difficulty and the April halving, pressuring self-mining margins.
• Hosting costs improved by 13% to $0.608/kWh in Q3, and Bitfufu signed a 10-year lease with a 70% purchase option on a 22 MW U.S. site plus a majority stake agreement for an 80 MW Ethiopia facility at $0.036/kWh.
• Strong liquidity of $142.7 M in cash, equivalents and digital assets (1,638 BTC) positions the company to fund growth, pursue M&A and support vertical integration initiatives.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the BitFuFu's third quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Charley Brady, Vice President of Investor Relations. Please go ahead.

[Charley Brady, VP of Investor Relations at BitFuFu]

Thank you, Operator. Good morning, ladies and gentlemen. Welcome to BitFuFu's third quarter 2024 Earnings Call. The company's financial results were released earlier today and are available on the BitFuFu Investor Relations website at ir.bitfufu.com, as well as on the globenewswire.com website. Joining me today on the call are Leo Lu, Chairman and CEO, and Calla Zhao, Chief Financial Officer. Before we begin, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the management's current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in the company's public filings with the SEC.

[Charley Brady, VP of Investor Relations at BitFuFu]

The company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. We will be discussing non-GAAP financial information on this call. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release. One final note: although we will not be recording a Q&A on this call, questions can be emailed to ir.bitfufu.com, and we will respond as quickly as possible, generally within 24 hours. I will now turn the call over to Leo Lu, the Company's Chairman and Chief Executive Officer.

[Leo Lu, Chairman and CEO at BitFuFu]

Good morning, and thank you for joining us. Today, I'm excited to share updates on BitFuFu's performance for the third quarter of 2024, along with the progress we've made on our strategic initiatives. In the third quarter, BitFuFu delivered strong revenue growth, with total revenue of $90.3 million, up 47.5% year-over-year. Our cloud mining solutions generated $68.9 million in revenue, representing 75% of our total revenue, fueled by new customer acquisitions and continued support from existing customers. In self-mining, despite a challenging macro environment, revenue reached $20.5 million, up 40.4% from last year. The third quarter was the first full quarter following the Bitcoin halving event in late April, which reduced the Bitcoin block subsidy from 6.25 to 3.125 Bitcoin per block. Despite the halving event, BitFuFu had another successful quarter generating positive Adjusted EBITDA.

[Leo Lu, Chairman and CEO at BitFuFu]

In fact, I am proud to say that the third quarter of 2024 is the 11th consecutive quarter BitFuFu has generated positive Adjusted EBITDA. This consistency demonstrates the profitability and resilience of our business model, regardless of whether the price of Bitcoin is in a bear market or bull market. Like our peers, we face some headwinds as well. The cost to mine Bitcoin from our self-mining operations rose to $59,452 per Bitcoin, primarily due to increased blockchain difficulty and the effects of the April halving event. However, it is important to note that our cost to mine a Bitcoin includes not only the electricity and hosting cost, but also the cost of hash rate we purchase from suppliers and the leasing cost of miners, which make up a majority of our mining fleet.

[Leo Lu, Chairman and CEO at BitFuFu]

As such, our $59,000 cost is likely not an apples-to-apples comparison to some of our peers, as they may exclude the depreciation cost of miners in their calculations, and depreciation, to some extent, is embedded in our cost of acquiring hash rate and leasing miners. To offset the increase in mining costs during and shortly after the third quarter, we strategically reallocated our fleet deployment, secured long-term lower-cost purchase agreements, and acquired our first owned mining site, all of which I will discuss further in just a minute. Beyond these actions, we are evaluating additional opportunities to acquire or cooperate with mining sites with lower electricity costs and are continuously focused on improving our operational efficiency. As of September 30th, our total mining capacity under management stood at 26.2 exahash, marking a significant 88.5% increase year-over-year.

[Leo Lu, Chairman and CEO at BitFuFu]

Our hosting capacity was 556 MW, compared to 339 MW a year ago and 522 MW as of June 30th, 2024. As I mentioned, in the third quarter of 2024, to meet the challenge of reduced mining output and fluctuations in the price of Bitcoin and to ensure long-term efficiency and profitability, BitFuFu took specific actions to improve our cost structure and increase our geographic diversity. Specifically, we gradually shifted the deployment of the leased and self-owned mining machines from high-cost facilities to low-cost facilities. While keeping the United States as a key strategic region for our mining sites, we expanded our search for additional hash rate supply globally. As a result, at the end of the third quarter of 2024, our 556 MW hosting capacity spanned 17 sites on three continents, with 10 sites in the U.S., six in Ethiopia, and one in Paraguay.

[Leo Lu, Chairman and CEO at BitFuFu]

Following this migration of locations, our average hosting cost charged by the facility operators in the third quarter of 2024 decreased to $0.068 per kWh, a 13% improvement compared to the second quarter of 2024. In October, we further reduced our hosting cost by an additional 5% to $0.065 per kWh. Our ability to quickly adjust to changes in the market is a testament to the advantages of our asset-light strategy, particularly in the challenging period following Bitcoin halving events. However, as I have emphasized in previous earnings calls and discussions with investors, we believe owning some data centers is essential to BitFuFu's business. We are focusing on finding the optimal mix between a pure asset light strategy and an asset-heavy strategy.

[Leo Lu, Chairman and CEO at BitFuFu]

An important strategic focus is vertical integration, and we continuously look at M&A opportunities for mining facilities to secure cost-efficient and stable energy sources for our operations. As part of this effort, during the third quarter, we signed a 10-year long-term lease agreement for a 22 MW site in the U.S., with an electricity cost of around $0.045 per kWh, and we have an option to acquire 70% ownership of this site by the end of 2024. Subsequent to the end of the third quarter, in October, we entered into a definitive agreement to acquire a majority stake in an 80 MW mining site in Ethiopia with an electricity cost of around $0.036 per kWh. The site, which has the capacity to deploy 26,000 miners, is currently operating 8,000 Antminer S19j Pro miners with a combined 0.8 exahash.

[Leo Lu, Chairman and CEO at BitFuFu]

In the coming quarter, we plan to fill in the remaining capacity with the deployment of Antminer S19 XP miners with a combined mining capacity of 2.5 exahash. Longer term, we believe this facility could reach 4.6 exahash if running Antminer S21 series miners. This acquisition not only increases the diversity of our mining portfolio but also aligns with our strategic goal to build a sustainable energy platform. In addition to the sites I just mentioned, we have a potential M&A pipeline of over 100 MW that we are evaluating, which includes both traditional grid and off-grid options. Additionally, we're exploring opportunities in other regions where favorable energy rates can further reduce our costs and enhance long-term operational stability. With 90% of our computing power leased from the suppliers, we've secured a hash rate of three exahash for the next two years with long-term purchase agreements.

[Leo Lu, Chairman and CEO at BitFuFu]

This strategic move will help lock in a portion of our hash rate costs. Before further increases in the price of Bitcoin and, accordingly, hash rate price, which we expect in the coming quarters, the long-term procurement also allows us to manage future expenses more predictably as we expand. Maintaining a mix of short-term and long-term supply allows us to better balance the flexibility and stableness of our portfolio. Our strategic response to industry-wide cost pressures also includes leveraging our proprietary technology to optimize our fleet and manage expenses. With these proactive measures, we believe BitFuFu is well-positioned to navigate volatility in Bitcoin prices and mining challenges. As we head into the final quarter of 2024, we remain committed to driving growth and value for our shareholders. Our initiatives in vertical integration, global expansion, and operational efficiency are critical elements of our strategy.

[Leo Lu, Chairman and CEO at BitFuFu]

With continued investment in stable energy sourcing and capacity growth, we are confident in our ability to deliver resilient performance in the face of a dynamic market environment. And with that, I'll turn the call over to Calla to discuss our financial results in detail. Calla?

[Calla Zhao, CFO at BitFuFu]

Thank you, Leo. Good morning, everyone. I'm pleased to provide a deeper dive into our financial performance for the third quarter of 2024, which reflects both the strategic investments we're making and the impact of external market conditions on our operations. Total revenue for the third quarter was $90.3 million, a 47.5% increase compared to the same period last year. This growth was driven by strong double-digit growth in both our self-mining and cloud mining operations. I also want to highlight that the accumulated revenue for the first three quarters of this year already achieved $364 million, representing an 86.7% increase compared to the same period of 2023. Revenue from our self-mining operations reached $20.5 million, representing a 40.4% increase over third quarter 2023 and accounting for approximately 23% of third quarter revenue.

[Calla Zhao, CFO at BitFuFu]

Despite a 34% decline in Bitcoin production due to increased blockchain difficulty and the residual effects of the April 2024 halving, this segment's growth was bolstered by a significant year-over-year increase in the average price of Bitcoin. By securing additional hash rate and locking in three exahash per second under a long-term contract, we are in a strong position to manage costs and support future growth in this segment. As a reminder, BitFuFu's cloud mining business is a key differentiator from other public Bitcoin mining companies and provides us with a more stable revenue stream as it mitigates the inherent price volatility in the price of Bitcoin. So, let me provide a closer look at our cloud mining segment, which continues to drive growth and underscore BitFuFu's leading position in the Bitcoin cloud mining space.

[Calla Zhao, CFO at BitFuFu]

In the third quarter, revenue from cloud mining solutions rose to $68.9 million, representing a 51.4% increase over the same period last year despite the April halving event. The increase in revenue was driven by a combination of new customer acquisitions and strong repeat business from existing users. In fact, recurring revenue from customers who were active in the same period last year accounted for 63% of our cloud mining revenue, underscoring the loyalty and engagement of our customer base. Additionally, revenue from new customers acquired after September 2023 contributed the remaining 37%. Our cloud mining platform saw a substantial increase in registered users, reaching over 455,000 as of September 30th, 2024, up 75.3% year-over-year and 15.4% sequentially from the second quarter, highlighting the effectiveness of our customer acquisition efforts and marketing strategies.

[Calla Zhao, CFO at BitFuFu]

Cloud mining accounted for just over 76% of our total third quarter revenue, reflecting both the demand for our services and the strength of our recurring revenue base. Our net dollar retention rate in the cloud mining segment came in at 96% this quarter. This metric reflects both our ability to retain and expand customer spending over time, a testament to our strong customer relationships and the quality of our mining services. The retention rate is especially noteworthy considering the market volatility, indicating that customers see our platform as a stable and attractive choice within the broader industry landscape. We are also seeing evolving customer demographics within cloud mining. Our platform is attracting a more diverse range of participants, from individual digital asset enthusiasts to sophisticated institutional investors.

[Calla Zhao, CFO at BitFuFu]

Institutional customers, including high-net-worth individuals, family offices, and private equity funds, now make up a significant portion of our revenue due to their larger average contract sizes. Meanwhile, our individual users, representing the majority in terms of customer count, continue to benefit from our user-friendly platform and flexible contract options, which make mining accessible to a much broader audience. To cater to this diverse customer base, we are focused on product innovation and customer experience. For instance, we enhanced our platform's interface and introduced new features and products that meet the demands of different customers and provide greater transparency to the customers. We believe these enhancements are strengthening customer loyalty and will encourage long-term engagement. Looking ahead, we see significant potential for further expansion in the cloud mining segment, particularly in under-penetrated markets where we have not previously offered cloud mining services.

[Calla Zhao, CFO at BitFuFu]

We are analyzing the regulatory environment of those markets and are actively scaling our outreach efforts in other regions where digital asset adoption is on the rise, positioning BitFuFu to capture market share and drive user growth globally. In summary, our cloud mining segment is not only a substantial contributor to revenue but also a critical part of our growth strategy. We believe the ongoing investment in this area will enable us to maintain and expand our market leadership, leveraging our technology and operational scale to deliver stable, high-quality mining services to a global customer base. As of September 30th, 2024, total mining capacity under management was 26.2 exahash, an 89% year-over-year increase from 13.9 exahash at the end of the third quarter of 2023. Of the total 26.2 exahash, 24 exahash were from leased miners, and two exahash were from our self-owned miners.

[Calla Zhao, CFO at BitFuFu]

In third quarter 2024, 68% of the average daily mining capacity was used for our cloud mining solutions, with the remaining 32% used for self-mining operations. Our total cost of revenue rose by 46.1% to $89.4 million, in line with the expansion of our cloud and self-mining operations. Gross margin declined quarter over quarter due to several factors. In addition to the impact of the halving event, gross margin was negatively impacted by the temporary downtime of mining machines as we strategically migrated miners from high-cost to low-cost hosting facilities. During the migration, self-owned machines did not contribute enough revenue to cover their depreciation. However, the migration nearly completed in October and ultimately positions the company for greater long-term efficiency and profitability. To mitigate cost pressures, we are actively pursuing additional opportunities to optimize our fleet network power costs by acquiring mining sites.

[Calla Zhao, CFO at BitFuFu]

Furthermore, we're exploring additional floating price mechanisms in our hosting contracts that align with Bitcoin price fluctuations, allowing us to optimize our cost structure during periods of price volatility. These strategies are part of our broader focus on sustainable cost management to maintain profitability in various market conditions. Our operating expenses also rose this quarter. Sales and marketing expenses, general and administrative expenses, and R&D expenses were $6.5 million in total, up $5 million compared to the same period of last year. This increase was largely due to the addition of share-based compensation expense of $4.3 million, which we have previously not had to record. We expect share-based compensation expense in the Fourth Quarter to be approximately $17 million due to initial grants of restricted stock to a larger group of employees. Thereafter, we expect a modest level of share-based compensation expense.

[Calla Zhao, CFO at BitFuFu]

In addition, there was a $0.3 million increase in legal and consulting costs related to business development activities and a $0.2 million increase in employee-related costs compared to the same period of last year. Adjusted EBITDA for the third quarter was $5.8 million, up 48% from $3.9 million in third quarter 2023. This improvement was driven by our disciplined approach to cost control and the scaling of our cloud mining operations, which helped offset some of the pressures we're experiencing in self-mining costs. Due to the consecutive gain in adjusted EBITDA, the accumulated adjusted EBITDA for the first three quarters of this year already achieved $64 million, representing a 136% increase compared to the same period of 2023. As of September 30th, 2024, we had a strong liquidity position with cash, cash equivalents, and digital assets totaling $142.7 million, up from $76 million at the end of 2023.

[Calla Zhao, CFO at BitFuFu]

This growth was supported by proceeds from our Nasdaq listing and an increase in digital assets from our self-mining operations. We held 1,638 Bitcoins as of quarter end, reflecting our prudent approach to capital management and ability to capitalize on favorable market conditions. Our balance sheet strengths and liquidity position provide us with the flexibility to pursue growth opportunities and make strategic investments in line with our long-term objectives. This includes expanding our mining footprint in regions with low-cost electricity, optimizing our cost structure at leased facilities, and advancing our vertical integration initiatives by increasing our hash rate at owned facilities. Our third quarter results underscore the progress we're making toward creating a resilient, growth-focused business model. Through disciplined cost management, strategic energy investments, and robust revenue generation across our segments, we are building a foundation for long-term success and sustained profitability.

[Calla Zhao, CFO at BitFuFu]

Thank you all for your continued interest and support. I'll now turn the call back over to Leo for his closing remarks.

[Leo Lu, Chairman and CEO at BitFuFu]

Thank you, Calla. As we reflect on our performance this quarter, I'm encouraged by the progress we've made in a challenging and rapidly evolving market. BitFuFu's focus on strategic investments in vertical integration, securing long-term hash rate, and expanding our geographic footprint is creating a stronger, more resilient business model that can thrive in various conditions. Our recent acquisition in Ethiopia exemplifies our commitment to growth and operational efficiency, and we're excited about the additional opportunities this new market holds for us. As we continue our journey, we are looking at off-grid and low-cost energy solutions as potential avenues to further stabilize our cost structure and enhance profitability.

[Leo Lu, Chairman and CEO at BitFuFu]

Our team remains focused on executing our strategy with discipline and agility, and we are deeply committed to driving sustainable, long-term value for our shareholders. With a solid financial position and a clear strategic roadmap, BitFuFu is well-prepared to navigate future challenges and seize new opportunities in the digital asset mining industry. I'd like to thank our employees for their dedication, our customers for their trust, and our shareholders for their continued support. We look forward to sharing further updates with you as we close out the year and move into 2025 with strong momentum. Thank you all for joining us today, and we look forward to speaking with you again in February when we report our Fourth Quarter and full year 2024 results.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Charley Brady, VP of Investor Relations
• Calla Zhao, CFO
• Leo Lu, Chairman and CEO