BitFuFu Q2 2024 Earnings Report

BitFuFu EPS Results

• Actual EPS: $0.01
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

BitFuFu Revenue Results

• Actual Revenue: $129.42 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

BitFuFu Announcement Details

• Quarter: Q2 2024
• Date: 8/20/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 20, 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 Q2 2024 Earnings Call Transcript

Key Takeaways

• Total revenue rose by 70% year-over-year to $129.4 million in Q2 2024, driven by strong performance in both cloud mining and self-mining operations.
• Cloud mining revenue grew 67% to $76.3 million, with registered users up 87% to 395,000 and a net dollar retention rate of 103%, underscoring robust customer loyalty and repeat business.
• Self-mining revenue increased 81% to $51.1 million despite a 23% drop in Bitcoin production post-halving, supported by cost-reduction initiatives such as ASIC overclocking and dynamic hosting contracts.
• Operational efficiency improved for the eighth consecutive quarter, with fleet efficiency reaching 21.1 J/TH and total mining capacity under management up 63% to 24.7 EH as of June 30, 2024.
• A non-cash fair value loss of $16.4 million on Bitcoin mark-to-market adjustments contributed to net income falling to $1.3 million and adjusted EBITDA declining to $8.3 million.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the BitFuFu Inc. Q2 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, Charlie Brady. Please go ahead.

[Charlie Brady, Head of Investor Relations at BitFuFu]

Thank you, operator. Good morning, ladies and gentlemen, and welcome to BitFuFu's Q2 2024 Earnings Conference 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 Liu, 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 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.

[Charlie Brady, Head of Investor Relations at BitFuFu]

Potential risks and uncertainties include, but are not limited to, those outlined in the company's public filings with the SEC. The company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. We were 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: Due to some time constraints, we will not be conducting a Q&A this quarter. However, 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 Liu, the company's Chairman and Chief Executive Officer.

[Leo Liu, Chairman and CEO at BitFuFu]

Good morning, everyone. Thank you for joining us today to discuss BitFuFu's operational and financial results for the second quarter of 2024. I'm pleased to share that we have once again demonstrated our ability to deliver strong financial and operational performance, even in the face of a dynamic and challenging market environment. Let me begin by providing an overview of our second quarter results. Total revenue for the quarter came in at $129.4 million, representing a 70% increase year over year. This growth was driven by strength in both our cloud mining and self-mining operations. Our cloud mining solutions have been a standout performer this quarter. Cloud mining revenue reached $76.3 million in the second quarter, up 67% from $46.2 million in the same period of 2023.

[Leo Liu, Chairman and CEO at BitFuFu]

The number of registered users on our cloud mining platform increased to over 395,000 by the end of June, an 87% increase compared to the same period last year. This significant growth in our user base is a testament to the value proposition that our cloud mining services offer to both individual and institutional investors. By providing a seamless and efficient way to participate in Bitcoin mining, we are maintaining our leadership position and capturing additional share of the global cloud mining market, which continues to grow. The current composition of our users consists of individual customers and institutional customers, majority of which are individual customers in terms of quantity. There are sophisticated customers with extensive mining experience, high-net-worth individuals, family offices, private equity funds, cryptocurrency exchanges, and some publicly listed companies that wish to invest in and hold Bitcoin.

[Leo Liu, Chairman and CEO at BitFuFu]

However, in terms of revenue contribution, institutional customers contribute the majority of our cloud mining revenue because their average contract amount may be 10 to even 100 times larger than that of individual customers. In the future, the growth of our cloud mining customer base will primarily come from increasing our outreach in low-penetration countries and regions. Additionally, we aim to attract more users who are interested in Bitcoin mining. By offering products that are easier to understand and cater to customers with different risk preferences, we are enabling more people to participate in mining activities. In addition to the expansion of customer base, which is increasingly turning to our platform as a trusted and reliable partner in the digital asset space, the strength of our customer relationships is reflected in our net dollar retention rate, which stood at 103% for the quarter.

[Leo Liu, Chairman and CEO at BitFuFu]

This metric highlights the loyalty of our customers and their ongoing engagement with our platform. As our cloud mining platform continues to scale with an expanding user base, we are increasingly positioned to unlock new opportunities within the digital currency ecosystem. This growth enables us to strategically explore and introduce additional products and services that can diversify and strengthen our revenue streams. We are actively evaluating potential avenues to enhance our offerings and drive long-term value for our shareholders. Moving on to our self-mining operations, we also saw substantial growth in this area, with revenue increasing 81% year-over-year to $51.1 million. This increase was largely driven by a significant rise in the average price of Bitcoin and the expansion of our mining capacity, partially offset by increased blockchain difficulty and the recent halving event.

[Leo Liu, Chairman and CEO at BitFuFu]

It's important to note that while our Bitcoin production from self-mining operations decreased by 23% to 780 Bitcoins, this was an anticipated outcome due to the impact of halving. That was already factored into our internal forecasts and long-term strategy. We recognize that following the April halving event, investors may be focused on operational performance and profitability post-halving. Mining companies, including our competitors, face the impact of reduced mining rewards and the recent Bitcoin price decline. Should the price of Bitcoin remain at the current level without increasing, profit margins in the mining space will be significantly pressured. In response, we have implemented several measures to reduce costs and improve profit margins. First, technological leadership has always been a competitive advantage for BitFuFu. Since April, we have applied technology to overclock the hash rate of our ASIC mining machines.

[Leo Liu, Chairman and CEO at BitFuFu]

For air-cooled machines, overclocking can increase computing power by 10%-30% over the theoretical mining capacity of a mining machine. Importantly, it is worth noting that we have the ability to provide this technical service to other miners and charge a portion of the mining output as technical service income, which could be a future source of revenue for us. Second, the mining facility management system we developed has helped us improve the management efficiency of our self-owned mining machines and leased mining machines, as well as that of our partners. Currently, this software is being used to manage approximately 400,000 machines and has the ability to scale significantly higher. Third, we have strategically adjusted the operating mode of our mining machines in certain facilities, where electricity and hosting fees are higher.

[Leo Liu, Chairman and CEO at BitFuFu]

This adjustment has allowed us to enhance fleet efficiency and reduce electricity costs. While this decision did lead to a temporary reduction in the operating mining capacity of these machines, it resulted in an improvement in their gross profit margin. Fourth, as part of our strategy to manage costs, a floating price mechanism was implemented in our hosting contracts with certain mining facilities. This allows us to adjust costs in line with Bitcoin price fluctuations, reducing expenses and ensuring profitability during periods of lower Bitcoin prices. Additionally, we are actively exploring mining facilities globally that offer lower electricity costs and are confident that we will soon finalize some agreements. Finally, given our long-term bullish outlook on Bitcoin, we are taking advantage of the current downturn in Bitcoin pricing to secure lower cost.

[Leo Liu, Chairman and CEO at BitFuFu]

Long-term computing power, specifically, we intend to sign a two-year purchase agreement for computing capacity, enabling us to lock in a portion of our mining costs over the next two years. In terms of our operational metrics, our total mining capacity under management grew by 63% to 24.7 exahash as of June 30, 2024, compared to the second quarter of 2023. This significant expansion is a clear indication of our ongoing commitment to scaling our operations and enhancing our market presence. Similarly, our hosting capacity increased year over year by 40% to 522 megawatt, underscoring our position as a leading player in the digital asset mining industry. On a sequential basis, total mining capacity under management and hosting capacity declined from the first quarter of 2024.

[Leo Liu, Chairman and CEO at BitFuFu]

This temporary decline was the result of our deliberate decision to decrease our leasing of mining machines, and purchasing of computing power in order to minimize the uncertain impacts. Following the Bitcoin halving, this approach is consistent with the strategy we employed in the second and third quarters of 2023, where a similar temporary reduction in our mining capacity under management was followed by a recovery and growth in the fourth quarter. One of the key highlights of the quarter was the continued improvement in our fleet efficiency. For the eighth consecutive quarter, we made strides in optimizing our operations, with our average fleet efficiency reaching 21.1 joules per terahash. This improvement is a direct result of our ongoing investments in technology and our continuous focus on operational excellence.

[Leo Liu, Chairman and CEO at BitFuFu]

By steadily enhancing the efficiency of our mining fleet, we are able to reduce our cost per unit of Bitcoin mined, which in turn supports our profitability and long-term sustainability. As we look ahead to the next six to twelve months, we remain confident in our ability to continue growing our mining and hosting capacity. However, similar to our approach in the second quarter, any decisions regarding additional mining capacity will be driven by our profitability forecasts. Our business model's inherent flexibility, whether by increasing or reducing purchases of computing power, matching short-term and long-term procurements, or optimizing the mix between cloud mining and self-mining computing power, enables us to sustain growth and profitability in a complex and volatile market environment.

[Leo Liu, Chairman and CEO at BitFuFu]

That said, considering that total revenue of $274 million in the first half of 2024 nearly matches our full year revenue for 2023, and with combined Q1 and Q2 Adjusted EBITDA reaching $58 million, we expect substantial growth in both revenue and Adjusted EBITDA in 2024 compared to 2023. Our strategy of acquiring or building our own mining farms is progressing well, and we believe this will be a key driver of our future growth. We are currently evaluating several opportunities in regions with favorable energy costs and regulatory environments, which we believe will provide us with the competitive advantage needed to succeed in this highly competitive industry. HPC and AI data centers present a compelling growth prospect. We are carefully evaluating potential opportunities, given the significant capital expenditures required to enter the market.

[Leo Liu, Chairman and CEO at BitFuFu]

Our focus is on identifying the right strategy and entry point to ensure that even with the significant costs, we can achieve healthy profit margins. In conclusion, the Q2 of 2024 was another period of strong performance for BitFuFu. We delivered solid financial results, made significant progress in expanding our operational capacity, and continued to enhance our efficiency and profitability. As we move forward, we remain focused on executing our growth strategy, optimizing our operations, and delivering long-term value to our shareholders. With that, I'll now turn the call over to our CFO, Calla, who will provide a more detailed review of our financial results. Calla?

[Calla Zhao, CFO at BitFuFu]

Thank you, Leo. We continue to see strong growth across our key metrics, reflecting the successful execution of our strategy and the increasing demand for our services. Starting with our top line, total revenue for the quarter was $129.4 million, representing a 69.7% increase from $76.3 million in the same period of 2023. This strong performance was driven by growth in both our cloud mining solutions and our self-mining operations. Our ability to allocate hash rate between cloud mining and self-mining allows us to mitigate the impact of Bitcoin price volatility. Cloud mining revenue of $77 million in the second quarter was up 66.8% year over year. This growth was primarily driven by the continued expansion of our user base, as well as strong repeat business from existing customers.

[Calla Zhao, CFO at BitFuFu]

In fact, recurring revenue from customers who were active in the same period last year accounted for $47.4 million, or approximately 62% of our cloud mining revenue. The addition of new customers contributed $29.3 million, or 38%, to our cloud mining revenue, underscoring the effectiveness of our marketing and customer acquisition efforts. Turning to our self-mining operations, revenue for the quarter was $51.1 million. An 81% increase compared to the second quarter of 2023. This growth was largely driven by a 135% year-over-year increase in the average price of Bitcoin, which had a significant positive impact on our revenue. However, it's important to note that this was partially offset by a decrease in Bitcoin production, which fell by approximately 23% to 780 Bitcoins.

[Calla Zhao, CFO at BitFuFu]

The decrease in production was primarily due to the increase in blockchain difficulty and the halving event in April 2024, which reduced the block rewards for miners. As of June 30, 2024, total mining capacity under management was 24.7 exahash, among which 22.1 exahash were from leased miners, 2.1 exahash were from our self-owned miners, and 0.5 exahash were from customer-hosted miners. In second quarter 2024, 64% of the average daily mining capacity was used for our cloud mining solutions, with the remaining 36% used for self-mining operations. As a percentage of total revenue during the second quarter of 2024, cloud mining solutions accounted for approximately 60%. Bitcoin self-mining operations accounted for just under 39%, and hosting services accounted for 1%. Now, let's take a closer look at our costs.

[Calla Zhao, CFO at BitFuFu]

The cost of revenue for the second quarter was $118.4 million, including depreciation and amortization of $6.1 million, representing an increase of 74.2% from $68 million in the same period of 2023. This increase was in line with the expansion of our cloud mining and self-mining operations as we scaled up our activities to meet growing demand. The increase in cost was also driven by higher electricity and hosting fees, which are directly correlated with the scale of our operations. Our gross profit margin was 8.5%, decreased from 11% in the same period of 2023, which was primarily attributable to the combined effect of growth in Bitcoin price and decline in Bitcoin production.

[Calla Zhao, CFO at BitFuFu]

Sales and marketing expenses for the quarter were $0.6 million, compared to $0.4 million in the same period of 2023. This increase reflects our ongoing investment in advertising and promotional activities to support the growth of our cloud mining user base. However, despite the increase in absolute terms, sales and marketing expenses as a percentage of cloud mining revenue remained stable at 0.8%, demonstrating our ability to scale efficiently. General and administrative expenses rose to $1.4 million from $0.6 million in the same period last year.

[Calla Zhao, CFO at BitFuFu]

The increase in G&A expenses was driven by a $0.5 million rise in legal and consulting fees associated with our business expansion, as well as a $0.3 million increase in staff costs and other expenses related to being a public company as a result of our listing on Nasdaq in March 2024. Research and development expenses were roughly flat at $0.3 million for the quarter, consistent with the same period of 2023. We continue to invest in innovation and technology development to enhance our mining operations and maintain our competitive edge in the market. During the quarter, we also recognized a non-cash fair value loss on Bitcoin of $16.4 million, following the early adoption of FASB fair value accounting rules. This loss reflects the unfavorable mark-to-market adjustment of Bitcoin prices in the second quarter.

[Calla Zhao, CFO at BitFuFu]

We also recognized a gain of $9.9 million on the sale of digital assets, compared to $2.9 million in the second quarter of 2023. This increase was driven by the higher volume of Bitcoin sold during the quarter, as well as a favorable spot rate when the Bitcoins were sold. Similar to previous quarters, we continued to sell part of mined Bitcoins to cover our electricity and hosting costs. But unlike previous quarters in which we sold Bitcoin consistently on a daily basis, in the second quarter, our sophisticated quantitative trading team strategically sold relatively more Bitcoins at a price of around $70,000 to cover our near-term hosting costs. Net income for the second quarter was $1.3 million, compared to $5.1 million in the same period of 2023.

[Calla Zhao, CFO at BitFuFu]

Earnings per share were $0.01, down from $0.03 in the second quarter of last year. The decline in net income was primarily due to the non-cash fair value loss on Bitcoin. Adjusted EBITDA for the quarter was $8.3 million, compared to $13.8 million in the same period of 2023, largely driven by the fair value loss on Bitcoin. Turning to the balance sheet, as of June 30, 2024, we had cash and cash equivalents of $48.4 million, and digital assets totaling $106.6 million, up from $32 million and $44 million, respectively, as of December 31, 2023.

[Calla Zhao, CFO at BitFuFu]

This increase was largely due to the funds raised in connection with our business combination and Nasdaq listing, as well as the Bitcoin mined and received from our operations in the first half of the year. Our strong liquidity position provides us with the financial flexibility to pursue growth opportunities and navigate market volatility. Now, I will turn the call back over to Leo for some closing remarks.

[Leo Liu, Chairman and CEO at BitFuFu]

Thanks, Calla. To sum up, BitFuFu had a strong second quarter and is well-positioned for continued growth in the second half of 2024. We remain focused on our strategy to increase our mining capacity, while also improving fleet efficiency to grow revenue and profitability and drive long-term shareholder value. Thanks for joining us today. We look forward to updating you with our Q3 results in November. Thank you.

[Operator]

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

Participants

Executives

• Leo Liu, Chairman and CEO
• Charlie Brady, Head of Investor Relations
• Calla Zhao, CFO