Mawson Infrastructure Group Inc (MIGI) 2021 Q3 法說會逐字稿

Greetings. Welcome to the Mawson Infrastructure Group Incorporated third-quarter 2021 earnings call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Nick Hughes-Jones. Thank you. You may begin.

Hello, everyone, and thank you for joining the Mawson Infrastructure Group third-quarter results presentation. The call today will be hosted by CEO and Founder, James Manning; as well as myself, Chief Commercial Officer, Nick Hughes-Jones. James and I will take you through Mawson's third-quarter results and November investor presentation.

Following these, there will be a Q&A session open to participants on the call. We appreciate the opportunity to review the third-quarter financial results and discuss recent business highlights.

Before we get started, please be aware this call is being recorded and webcast. During this call, management will make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in this presentation on slide 2 and the third-quarter earnings release summary issued yesterday, both of which apply to the content of this call.

I'd like to now turn the call over to James Manning, CEO and Founder of Mawson Infrastructure Group. James, please proceed.

Thanks, Nick. Hello, everyone, and thank you for joining. We're excited to run through our quarter three highlights and provide investors with an operational update.

Starting with slide 3, Q3 has been very busy for Mawson. During the period, we have listed on the NASDAQ Capital Market in late September. We purchased over 17,000 additional Bitcoin miners. We signed a new 100-megawatt facility in Pennsylvania. We kicked off the expansion of our 100-megawatt facility in Georgia. And finally, we generated our first meaningful revenues from our hosting co-location business.

By the end of November 2021, Mawson will have 0.8 of an Exahash of bitcoin mining capacity online, well on our way to our recently upgraded guidance of 3.35 Exahash online by Q2 2022. We have now secured 220 megawatts of energy infrastructure across both sides and a continued rollout towards our corporate target of 5 Exahash by early Q1 2023.

Turning to slide 4 and the financial and operational highlights for Q3, I am pleased to report that revenue for the quarter was $10.9 million, up 1100% from Q3 2020 and up 85% from the second quarter of 2021. The trend of strong margins has continued with gross profit of $8.4 million for the third quarter. After raising $45 million as part of our NASDAQ listing, cash and cash equivalents were $51 million at period end.

We also saw our first meaningful revenues from our hosting co-location business, generating $800,000 in third quarter. The trend of strong demand for hosting has continued into the fourth quarter, and we are balancing demand with our own rollout strategy.

Subsequent to period end, Mawson announced the partnership with Quinbrook Infrastructure Partners and Global Green Energy Infrastructure Fund to jointly develop sites in Australia and the US. Our first site on Australia's East Coast is now operational. It will scale up to full capacity in Q1 next year.

Mawson's investment in Cosmos Asset Management launched that Bitcoin Miner ETF. DIGA, which is listed on CHI-X's stock exchange in Australia, was the best-performing ETF in Australia in the last five years, up 30% in the first five days, reflecting the strong returns gained by investing in the Bitcoin mining space.

Turning to slide 5, we can see the steady growth in both our revenue and gross profit as we scale up our Bitcoin mining and hosting co-location businesses. Similarly, our strong balance sheet is growing and currently has minimal leverage. I am proud of the discipline we have shown today. It's strategically raising capital where required and building a strong business focus on investor returns.

On slide 6, you can see between November 21 and Q2 2022, Mawson will deliver a massive increase in Exahash moving from 0.8 Exahash to 3.35 Exahash. This reflects a four times increase in our Bitcoin mining production and in turn, our annualized revenue.

Importantly, we are currently enjoying strong gross profit margins across our facilities in Australia and the US. What really excites us, however, is our corporate target of 5 Exahash online by early Q1 2023, which would see a six times increase in our Bitcoin production capacity from today.

Slide 7 helps you see more granular detail of our ramp-up schedule after Q2 2020 and then onto early 2023. At Mawson, we have a very disciplined approach to ensure that we can deliver our expansion on time and on budget. Underpinning this is our Infrastructure First approach to growing our business. I am genuinely excited about the work our team has put into the facilities to date and to get us to where we are today.

Having focused on security energy infrastructure early on in our journey, we have ensured that we are among the lowest quartile producers with the blended mining costs of approximately $5,321 that was per Bitcoin mined. The Mawson team is now focused on the substantial growth ahead of us.

The black bars in this chart illustrate our historical hash rate. The dark green bars are contracted cash rate. And the light green bars represent the mining hardware we are yet to order, but will to meet our 5 Exahash goal. We will be able to achieve this based on our current forecast and our strong operational cash flow.

Turning to slide 8 and in Mawson's DNA is our ability to identify and secure long-term, high-quality, low-cost energy infrastructure. It's no accident we are at the front of the pack in energy infrastructure, given the depth of experience at both Board and management levels in this space. Our secured energy infrastructure, currently at 220 megawatts, is complemented by our qualified pipeline of 870 megawatts, with a much larger prospective pipeline of sites in excess of 1 gigawatt.

Expanding on our established energy pipeline, Mawson is committed to being a sustainable Bitcoin miner. We target carbon-free and renewable energy at our site. And slide 9 goes into further detail on this front. We are intently focused on new site development, which meet our strict ESG criteria. And importantly, across all new sites, we have a focus on carbon-free energy, evidenced by our recently launched facility on the East Coast of Australia, which is 100% renewable energy.

Turning to slide 10, and as an investor, understanding what underpins our growth is important. Our focus on infrastructure is key to this approach. We have established four-key criteria when developing our infrastructure assets.

One, a strict return on capital approach to site development. This means we have focused on low cost, high-quality energy assets, combined with the target total cost of power sub $0.04 a kilowatt hour. Importantly, we consider the total infrastructure costs, so CapEx becomes a high priority.

Two, our modular design principles, our MBP technology enables us to scale rapidly, further improving deployment times and keeping CapEx low. This modular approach allows us flexibility to redeploy across sites should economics demand relocation, a key competitive edge.

Three, long-term agreements enable us to ensure longevity in our business. We focus on developing strong relationships with stable partners.

And four, finally, how ESG impacts on each investment. We consider how a site meets our corporate ESG targets, and especially how it aligns with our Net Zero Carbon 2030 strategy.

Importantly, energy isn't the only consideration. Slide 11 illustrates our focus on building on all aspects of our infrastructure. We are in a strong position to not only deliver the 3.35 Exahash contracted to date, but critically, we have the underlying infrastructure in place to take this to 5 Exahash and beyond. As previously disclosed, we have now purchased over 40,000 ASIC Bitcoin Miners, which gets us to 3.35 Exahash by Q2 2022. We have purchased over 200 modular data centers and we have purchased over 100 transformers. This provides us with the infrastructures to scale beyond 5 Exahash.

We are often asked how our business will perform under different bitcoin pricing scenarios. Slide 12 gives us some context around it. Here, we have modelled our business based on 3.35 Exahash online, providing investors with visibility on our revenues and gross profits from the various bitcoin pricing scenarios.

For example, with bitcoin trading around $60,000 overnight in Q2 2022, Mawson would generate monthly revenue of $35.5 million and gross profit of $32.7 million based on [visibility] as at November 12, 2021. Underpinning this is our low blended cost of power across the portfolio of less than $0.04 a kilowatt hour and our low deployment costs at each of our sites.

With that, I'll hand over to Nick.

Thanks, James. At Mawson, ESG is a core priority for us. Our integrated model is based on long-term strategy to assist in the global transition to a decarbonized society. Time to touch briefly on our focus on carbon-free energy.

In addition to this, we would offset any residual carbon footprint using carbon offset credit. In 2020, we offset over 22,000 tonnes of carbon supporting wind and native biodiversity projects in the process.

In 2021, we have planted 25,000 trees across Australia and the US. And in 2022, we'll plant over 53,000. That's a tree planted every time a block is created on the bitcoin blockchain.

Mawson is also a very active member of the local community. We sponsored both the local athletics teams in Sandersville, Georgia, and are active supporters of the Washington County Regional Medical Center and Chamber of Commerce.

Turning to slide 14. Mawson has a fantastic team headed by our founder, James Manning. Our US team is led by our Chief Operating Officer, Liam Wilson, and is supported by recent high-quality addition, Craig Hibbard for overseas development of our portfolio of facilities in the US.

Our finance team is headed by CFO, Hetal Majithia, who joined us from PwC and brings a wealth of large listed company experience to the Mawson team. Our Board is chaired by Greg Martin, who is the CEO of Australia's largest energy business. And our other Independent Non-Exec Directors are Michael Hughes and Yossi Kerret, who both bring extensive experience across capital markets, governance, and audit.

On slide 15, I wanted to touch briefly on Mawson's innovation portfolio. James has touched briefly on our Bitcoin Miner ETF, DIGA, the first listed product from Cosmos Asset Management, which is up 35% since inception only 18 days ago. Our Filecoin mining business distributed storage solutions, which Mawson owns a 20% stake in, is expected to grow significantly in 2022. Finally, Luna Squares, our co-hosting location business, generated $800,000 in revenue in Q3 and is seeing insatiable demand for Bitcoin mining hosting services out of North America and globally.

Last slide for me is slide 16, which illustrates the high insider ownership in this business. The Board and management team own approximately 24% of Mawson. This is unique amongst our NASDAQ-listed peers and ensures we are extremely focused on shareholder returns.

Over to you, James.

Thanks, Nick. Slide 17 summarizes the Mawson investment thesis. Over the next [18] months, we will grow our operations by over 600% expanding into a $20 billion annualized revenue opportunity with a clear focus on sustainable Bitcoin mining and shareholder returns. We are very excited about the rapid scale-up and growth of our business. Our Infrastructure First approach has given us a fantastic platform to now take Mawson to the next level.

Thanks for taking the time to hear about our third-quarter results. Brett, I'll hand over to you now to take any questions.

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Kevin Dede, H.C. Wainwright.

Thanks, Kevin Dede, H.C. Wainwright. James, Nick, thank you so much for having me on the call. Great to be here. Could you help me understand the difference between qualified and prospective pipeline?

Sure. Thanks, Kevin, for joining. It's great to have you on the line. So the difference between the qualified and the perspective is the qualified pipeline are sites where we've got either a -- we're in contractual negotiations or we're contracted but we're expanding the facility. So we might have a toehold on the facility and we expect to get it from a smaller megawatt capacity to a larger megawatt capacity.

The prospective pipeline, the entire pipeline of sites that we have that some of those are doing earlier stage, and they're not at a point that we would be comfortable in representing to investors that we had that additional capacity in a point that we would be out of contracted in the near term.

Okay, thank you. The Luna opportunity seems very interesting, especially given hot demand; five customers, I think you noted. Can you talk about revenues?

Yes. And this quarter was our first quarter where we started to see some substantial revenue. We saw $800,000 this quarter in hosting revenues. Obviously, it's a margin business and it's not as lucrative as Bitcoin mining, but we think it's an important part of the mix long term and part of that infrastructure play. We've got insatiable demand for hosting, and really, it's a balance between how much hosting we'd like to take on and what we're going to reserve for our own self-mining operation.

Look, as you know, the Canaan call was this morning and obviously, you stand out as a critical customer for them, given there were lots of shady bars in the forecast and Canaan seeing great demand. Can you speak to the assurances you have, given the long-term nature of your relationship that you'll be able to secure the machinery that you need to generate five?

Yes. I mean, without giving anything away with ongoing discussions we're having with Canaan, we were an early adopter and backer of the Canaan team, and we believe their equipment's -- very good equipment at the end of the day. They're as good as anyone else manufacturing equipment. And we saw that early on and we supported them. So I think the relationship there is one that both parties appreciate that we're working together and there's mutual cooperation on a number of fronts.

And Canaan have been great to us and I think we're being a great partner to them. They've delivered early. They're on time. Sometimes, they've delivered early to us. And we've got great transparent relationship with them. I mean, if you look at the mining universe, they're the only listed manufacturer, so you've got a real sense of the quality of your counterparty there. And I think that's really important.

So Bitmain, obviously, after the big conference in Dubai, talked about their XP. That's the S19 JXP using a five-nanometer chipset and pump and terahash up to I think, what was it, 120 or 140? I don't remember.

It was in probably 145, yeah.

Yeah, so I was wondering if you could speak to Canaan's roadmap and how close you might be to seeing where they're going and whether or not -- I think they're reliant on TSMC as well. If their plans include a five-nanometer chipset upgrade and -- how comfortable you are in seeing them getting the wafers that they need for those chips?

Yes, so I think there's two questions there. And I think that Canaan development pipeline and what they've got in their product development pipeline, while we are aware of it, I don't think it's appropriate that we comment on Canaan's equipment and their new equipment pipeline. But we're very comfortable is what I can say with what they're building and what that pipeline looks like. And we do have those discussions with them.

The second part of the question is delivery and how that relationship works and how comfortable we are around them getting chip supply. We're very comfortable with the kind of relationship and we're very comfortable with their supply chain. We've looked at and had discussions with them, not only about their chipset supplies, but the manufacturing facilities, what their contingency plans are around China, if there's anything to occur there. We're very, very comfortable about that risk and how that risk would be mitigated by payments should anything arise in the future. I think that they're very considered in their view about how to manage this -- manage both supply chains and other external risks.

Okay. Last question for me, if you can take a deep breath, James, just a little bit more on the Quinbrook relationship. Obviously, there's more to come there. I was wondering if you could zero in on a timeline, maybe how many other projects you're looking at, what the scope of them may be? You alluded to working with them in the US.

I just know it's critical for Bitcoin miners to be joined at the hip with powers -- generators. So I think this is a great step for you, folks. Just maybe you could dig in on that a little bit.

Yeah, I'll want to be a little bit careful there, Kevin. I don't want to preempt any commercial arrangements. So I'll speak fairly broadly on that. But I think both Quinbrook and us have a mutual understanding around the desire to build out Bitcoin mining and distributed computing-based mining around the world across a variety of the Quinbrook portfolio.

We're obviously really proud to have launched the first project in Byron Bay in New South Wales, Australia. There are opportunities to do additional sites here in Australia. The initial site -- the initial 20 megawatts is really a tea that was like the entree to a main meal from our perspective and from Quinbrook's perspective, and it's really about building a great relationship with them and a long-term relationship. And I think that goes to us having a very strong partner and them having a very strong partner in us.

So Quinbrook's great to work with and we think that that's a relationship that we'll be able to build on with a couple of thoughts. As to total scale, I think it would be inappropriate for me to tell you the number. Though needless to say, we will be looking to come to market in the near term with the additional sites that we're looking at and what some of those numbers are. That really goes to some of the earlier question you raised about the qualified pipeline sites. We have sites and we have some understanding here about them.

Very good. Okay. Thank you, James. I appreciate you entertaining my questions.

Thanks, Kevin.

(Operator Instructions) As we poll for more from the phone audience, we turn to next hearing some questions that have come in from our webcast.

We have a question from Thomas [Schumacher] around the makeup of the blended mining costs. When we talk about blended mining costs, we talk about across the portfolio. So we have different contracted power rates across the different sites. And so we like to average that across all the sites to get an overall cost of mining across the entire portfolio. So some sites are slightly cheaper on a per megawatt basis, and some sites are slightly more expensive. So a blended cost provides that measure of that metric.

And we've got another question here from Curtis Larson from Norse Capital. Can you give your view on where you see the global mining volume typically going in the near future with mining repurchase announcements across the Bitcoin mining industry?

Hi, Curtis. Thanks for your question. Look, it's a difficult one to answer. I think Kevin's actually got some good research out on where he thinks the global hash rate is going to be end of next year and potentially the year after.

Based on what I can say from public disclosures, my guesstimate, and it is only a guesstimate, would be circa 250 Exahash by the end of next year. But as we've seen this year, there's an incredible amount of volatility. We saw the Chinese miner rate that was taken from 180 down to 80 and back to, I think, circa 150, 160 today. So it's only a guesstimate, Curtis.

And the third question is from Angus McGeoch of CLSA. Could you please talk through the ramp-up execution risks as you move from 0.8 of an Exahash as at today, to 3.35 Exahash in six months' time? Also, are there any supply chain concerns that could impact your ability to achieve the 5 Exahash level on early 2023?

Thanks, Angus, for that question. Look, there are a number of -- or there's always execution risks when you build out a scale like we are over the next six months. I think we very well mitigated most of those risks by being focused on getting the infrastructure right first. So in Georgia, we have spent a lot of time making sure we've got supply to most of the data centers. We've got the transformers lined up; we've got the equipment. So we're in a position where we are at the moment that we have actually got the infrastructure and the equipment all on the ground. And we're waiting to commission the power, and that's actively happening as we work with the local city to get that done. So we're running ahead.

We've also recently added a couple of additional staff on the ground with deployment expertise and in materially reducing our -- the time to deploy the equipment. So we've seen our time to deploy to modular container drop by about 75%, 80%, which materially increases our ability to scale without adding headcount. And I think then the last thing is we're looking at how we can add some additional technology into the business to facilitate and bring that time to deploy a little bit faster again.

With respect to the supply chain, Angus, we've got a lot of competitive advantage, I think, in supply chain. And I've come from a background where we've had a lot of experience in logistics. And we've been running logistics well out of China, and we're getting our equipment on time and to our deployment plan. So we're currently comfortable around that. We've been utilizing [slot] out of China the entire time. Our freight costs are a little bit higher, but we get them deployed faster and I think that the benefit of being online far outweighs any costs.

Our next question is from Mark Skurnik at Perpetual. Currently, 75% renewable non-carbon. Can you talk about the pathway to net zero carbon emissions?

Thanks for the question, Mark. So in 2020, we offset 22,000 tons of carbon, and we had 75% of our energy mix from non-carbon emitting sources. The latest two sites we've announced, the first in Pennsylvania is actually 100% nuclear energy. And the site that we've announced up on the East Coast of Australia is also 100% renewable energy. So new sites looked at through the lens of our 2030 Net Zero Carbon Strategy, and any residual carbon footprint we have this year will be offset with carbon credits.

Do we have any more questions from the webcast?

Nothing that I can see there.

Okay, we do have another phone question from -- this is from Angus McGeoch from CLSA. Please proceed with your question.

Thanks, guys. I think you addressed my question on the webcast, but just following on from that, and hopefully I'm not misreading this. But it does appear that you've brought your ramp-up timeline forward, just in terms of how you're executing towards that expanded capacity. So in terms of the ability to continue to do that on a forward-looking basis, do you think there's further room to move to hit higher Exahash rates at an earlier time than currently expected?

Yeah, thanks, Angus. I think there's two factors there. I sort of want to under-promise and over-deliver on this result. So what we're presenting here, I think, very deliverable. There's always opportunities to bring things forward. And it goes to our strong relationship with Canaan that they're supportive of us. They had to bring these things forward as well. So where we see opportunities to do so, we do that.

A great example of that is we've changed some of the infrastructure in Georgia so that we can bring some of that online date forward than what we originally envisaged. And I think that it will also give us the capacity to continue to expand that.

The Pennsylvania site's well positioned. We have a public deployment time. We have our internal deployment time. And then we have our real target deployment time, and those numbers will vary. And sure enough, we always try and hit the internal one first. And if we can continue to do that, I think we'll be in a very strong position because we will always be in a position to outperform, and that's our real focus of the business.

Okay. Thanks, James. And sorry, just one last question. You've provided a lot of transparency there just around bitcoin pricing and revenue forecast, which is great. And you talk to being fully funded to that 5 Exahash level. Could you disclose at what bitcoin price you may not be fully funded and you might need alternate source of funding to achieve on that extended execution rate?

Sorry, I got -- could you just repeat that? The line broke up there a little bit.

Sorry. I mean, you guys are obviously talking to be fully funded to the 5 Exahash rate, notwithstanding the fact that you need to order some more miners. Is there a bitcoin price at which the ability to internally fund with what you -- the cash reserves you currently have plus the cash that you're generating, is there a bitcoin price that might say that become problematic? Or do you think there's just a lot of margin of safety based on where you are today?

Look, I don't know the whole model in front of me at the moment, and I'm happy to take that on notice. What I would say to you though, Angus, is we're obviously experiencing a period where we've got incredible margins in our operating business.

The existing pipeline -- one of the great things we did with the capital we've raised to date is we paid a 50% deposit on all the equipment that we've ordered. So we're more than cash flow accretive every month. So given that, it really gives us a position to go and acquire additional equipment. Now we saw a need to get into the market and do those things.

And so for us, it's a combination of just watching the market and being opportunistic when we buy equipment as well. So if we see a pullback, we'll go and pounce on that pullback for delivering the future of equipment. I think we've done that quite well in the past, and we'll continue to do that.

So now there is a combination of factors there and being very disciplined about how we do that. When the markets are very bullish for equipment, we also look to resell or sell down some of our older generation of equipment and replace it with newer equipment. So there's definitely a capital recycling program there for us as well.

So now we'd like to add both of those things into the mix, and they do vary a lot. And so we're looking at constant ways to target -- maximize the balance sheet and a little bit, we're there. But at the same breadth, we feel very comfortable around the current operating environment that we'll get to that 5 Exahash mark.

Okay, great. Thanks, guys, and congrats on a strong quarter.

We have reached the end of the question-and-answer session. I will now turn the call back over to James Manning for closing remarks.

One last question which I might take from Mark at Perpetual. He asks, can you talk through the SG&A costs and how they should scale as you grow?

I think this quarter was a unique quarter for us obviously, as we listed. There were a number of SG&A costs that were one-off and not reoccurring in nature. We took up a number of accruals during the period as well. So we're comfortable with that. We have taken some feedback on in the last couple of days, a lot of [benefit] around breaking that SG&A number down.

And so I think you'll see from us more additional detail on the SG&A and a further breakdown of what the labor components in that are moving forward. And we're always welcome to take any other feedback on that point. So we're more than happy to answer any other questions around SG&A and go through those details. But we're fairly comfortable that the SG&A that we've incurred in these quarters is really once-off in nature and higher than it should be but reflective of the IPO process with that deck.

Given that we're due to conclude this, I just want to thank everyone for taking the opportunity to jump online and hear the live presentation. Now over the next 18 months, we will grow our business by -- in excess of 600%. And the bitcoin mining market's a huge opportunity with more than $20 billion of annualized revenue opportunity.

We've got our focus on sustainable mining, and we are incredibly focused on those shareholder returns. I think the Infrastructure First approach is giving us a fantastic platform to take it to the next level and we're really excited. I'm really proud of the team. I'm really proud of about what we've done to date, and I'm just so excited and pumped (inaudible) to deliver not just the 3.35 Exahash to that 5 Exahash number and beyond. And really, we really see, well, (inaudible) at this point in time. And now I'm hoping next call that we're talking about our next material upgrades.

So thanks, everyone, for joining and look forward to talking to you next time. Thanks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.