Bitdeer Technologies Group - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to Bitdeer's Q4 and full year 2024 earnings conference call. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone.

You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker host, Yujia Zhai, of Investor Relations. Please go ahead.

Yujia Zhai (Investor Relations)

Thank you, Operator, and good morning, everyone. Welcome to Bitdeer's Q4 and full year 2024 earnings conference call. Joining me today are Jihan Wu, Chairman and CEO; Matt Kong, Chief Business Officer; Haris Basit, Chief Strategy Officer; and Jeff LaBerge, Head of Capital Markets and Strategic Initiatives. Haris will begin today by providing a high-level overview of Bitdeer's Q4 and full year 2024 results, and then cover the company's strategy and a detailed business update.

After that, Jeff will cover Bitdeer's Q4 financial results in more detail, and then we will open the call for questions. To accompany today's earnings call, we have provided a supplemental investor presentation. This presentation can be found on Bitdeer's Investor Relations website under webcasts and presentations. Before management begins their formal remarks, we would like to remind everyone that during today's call, we may make certain forward-looking statements.

These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially. For a more complete discussion on forward-looking statements and the risks and uncertainties related to Bitdeer's business, please refer to its filings with the SEC. Further, in addition to discussing results that are calculated in accordance with International Financial Reporting Standards, or IFRS, we will also make references to certain non-IFRS financial measures, such as adjusted EBITDA and Adjusted Profit.

For more detailed information on non-IFRS financial measures, please refer to our earnings release that was published earlier today, which can be found on Bitdeer's Investor Relations website. Thank you. I will now turn the call over to Haris. Haris?

Haris Basit (Chief Strategy Officer)

Thank you, Yujia, and good day, everyone. Welcome to our Q4 and full year 2024 earnings conference call. I'm excited to share the many developments happening at Bitdeer and walk you through the progress we've made since last quarter. Before diving in, I'd like to briefly highlight our Q4 financial results, for which Jeff will provide more details in a few minutes. Starting on slide three, for Q4 2024, total revenue was $69 million, gross profit was $5.1 million, and Adjusted EBITDA was negative $3.8 million.

This lower performance compared to Q4 2023 was primarily driven by the impact of the April 2024 halving, increased global network hash rate, lower hosting and cloud mining revenue, and higher R&D costs. These negative impacts were partially offset by higher year-over-year average self-mining hash rate and higher Bitcoin prices.

Over the last year, we made a deliberate decision to prioritize resources on the development of our own ASIC technology. This limited our hash rate growth but gives us massive advantages going forward that differentiate our business from the rest of the sector. As our mining machines become available in volume in the coming months, we will be able to rapidly increase our self-mining hash rate at a significant cost advantage, as well as sell our machines to external customers to begin penetrating the $4 billion-$5 billion annual ASIC market.

A core pillar of our strategy is to develop internal technologies and capabilities driven by our belief that this is the best way to maximize long-term shareholder value. To secure long-term success, we are committed to building a fully vertically integrated business. This includes developing our own power generation assets, globally diversified data centers, and leading-edge mining hardware.

As seen on slide five of our supplemental presentation, and in pursuit of our vertical integration initiative, we successfully acquired a 19-acre site that is fully permitted for construction of a 101 MW gas-fired power plant. This project is near Fox Creek, Alberta, and was acquired earlier this month for $21.7 million in cash. It also includes approval for a 99 MW grid interconnection with Alberta Electric System Operator. We plan to develop and construct the power plant in partnership with a leading engineering, procurement, and construction firm, with completion and energization expected by Q4 2026.

In parallel to the gas-fired generator, we plan to develop a 99 MW data center for Bitcoin mining as the first phase of this site's development. We estimate the total capital expenditure for constructing the gas-fired power plant to be approximately $19 million, with an additional $30 million allocated for electrical and data center infrastructure.

Upon completion, we intend to deploy approximately nine exahash of our SealMiner A3 mining machines, which are expected to deliver industry-leading efficiency of 11 to 12 joule per terahash. We estimate energy production costs at this gas-fired power plant to range between $20-$25 per MW hour, based on current gas prices. Additionally, as part of the acquisition, we plan to implement a carbon utilization system that captures CO2, making this project a net-zero carbon producer. This initiative is expected to help offset Canadian carbon tax obligations while also creating potential future revenue opportunities through the sale of carbon credits.

Further, as part of our energy optimization strategy, we plan to curtail and sell power back to the Alberta grid during periods of peak demand. This approach is expected to enhance cost efficiency while contributing to grid stability with minimal impact on Bitcoin production.

We are extremely excited about this acquisition. This newly acquired site and power generation project represents a big step for Bitdeer, positioning us as the world's first fully vertically integrated Bitcoin miner at scale. With this development, we are on a path to achieve one of the lowest Bitcoin mining costs in the industry. In terms of our ASIC business, which is highlighted on slides six through eight of our supplemental presentation, we continue to execute on our advanced chip roadmap, positioning ourselves for a transformative 2025.

Owning and deploying our own mining ASICs is an integral part of our full vertical integration strategy. It will provide us distinct advantages, such as a lower cost structure, enhanced capital efficiency, and a dramatically improved supply chain compared to the broader industry.

In addition, commercializing SealMiner ASICs allows us to diversify our revenue streams into the rapidly growing ASICs market, where we see strong demand for alternative suppliers of ASIC solutions. I will now provide a detailed update on our ASIC roadmap. Starting with SealMiner A1, to date, we have energized 0.4 exahash of our SealMiner A1 miners, and they have demonstrated solid performance.

The mass production of the remaining 3.3 exahash remains on schedule and is expected to be completed in March 2025. For SealMiner A2, this miner represents a significant advancement in our technology roadmap, leveraging our proprietary SEAL02 chip. In Q4, we commenced mass production at TSMC to deliver approximately 35 exahash of SealMiner A2s by October 2025.

This represents a delay of approximately one month compared to our original expectation due to a 6.4 magnitude earthquake that struck Taiwan on January 21, 2025. The SealMiner A2 is our first commercial miner available for sale to external customers. So far, we have allocated seven exahash of the current 35 exahash for external sale. Initial customer demand has been extremely strong, with preorders for the seven exahash being oversubscribed by a factor of six.

We have already received 20% of the total price as down payments on all seven exahash. Volume shipments to these customers will commence in March 2025. The remaining 28 exahash of A2 capacity is currently intended to be used for our own self-mining. The first batch of air-cooled machines has been delivered to our mining data centers for testing and are running stably.

Building on the success of A2, our R&D efforts for SealMiner A3 are progressing smoothly. This next-generation model will feature the SEAL03 chip, which is expected to deliver industry-leading energy efficiency of 10 joules per terahash at the chip level. Finished wafers from the initial tape-out are expected in March 2025, with production readiness targeted for later this year. Achieving 10 joules per terahash chip efficiency would mark a major milestone for the industry, positioning SealMiner A3 as the most advanced and energy-efficient ASIC on the market.

As energy efficiency remains the most important single metric influencing buying decisions, we believe having the most efficient ASIC is the key factor to winning market share. Unlike other industries, such as smartphones, where switching costs include significant ecosystem frictions, Bitcoin mining ASICs operate in a highly fluid market, where transitioning to alternate machines creates little or no friction.

In this space, the most efficient and reliable machines win. With that in mind, we are eagerly awaiting the return of SEAL03 sample wafers scheduled for March. Looking ahead to the second half of this year, our SealMiner A4 project is a testament to our commitment to maintaining technological leadership and pushing past perceived limitations of ASIC design. The SEAL04 uses a revolutionary new digital chip architecture that significantly enhances energy efficiency and is projected to have a chip-level energy efficiency of five joules per terahash. Tape-out is planned for Q3 2025.

We believe SealMiner A4, along with our third-generation chip, will position Bitdeer as the leading supplier of the world's most energy-efficient mining machines, significantly strengthening our market position and unlocking substantial value for our customers and shareholders.

As we look to the remainder of 2025, we are fully committed to executing a successful entry into the multi-billion-dollar ASIC market while also rapidly ramping our self-mining hash rate. On slide eight of our supplemental investor presentation, we have laid out our expectations for self-mining hash rate into Q4 of this year. Given the significant amount of power capacity we have coming online, our plan is to initially prioritize our current ASIC production towards self-mining.

We plan to energize the remaining SealMiner A1s and 28 exahash of SealMiner A2s on top of our existing 8.7 exahash of self-mining hash rate as of January 31, 2025. Therefore, upon deployment of a combined 31.3 exahash of SealMiner A1 and A2 machines, we expect our total self-mining hash rate to be approximately 40 exahash.

We expect to be able to deliver this with machines fully racked and energized by Q4 2025. Please note that this forecast does not include anticipated additional wafer allocations for SEAL02 or for SEAL03. Depending on the exact manufacturing schedule, these anticipated additional wafer allocations could increase our self-mining hash rate well above the 40 exahash guidance for Q4 2025. In addition, I'd like to address the recently published U.S. Department of Commerce Bureau of Industry and Security ruling regarding advanced computing integrated circuits.

Based on our preliminary review, we do not expect that the application of the BIS rules will have any impact on the delivery of Seal chips, as the Outsourced Semiconductor Assembly and Test (OSAT) companies for Seal chips are approved OSAT companies under BIS regulations.

Next, I'd like to talk about our energy infrastructure and pipeline that's highlighted on slides nine and ten of our supplemental investor presentation. We have secured one of the largest globally diversified power portfolios in the industry, with over 2.6 GW of total power capacity. About one gigawatt is scheduled to be newly energized over the course of 2025. This massive power portfolio allows us to deploy our SealMiner machines for self-mining and also capitalize on the significant demand for HPC and AI data center power. Based on a third-party feasibility study, many of our sites are suitable for HPC and AI data centers.

In particular, our Clarington, Ohio site is a strong contender given its near-term access to power, scale, and fiber and water resources. We are actively working with leading data center developers on long-term partnerships for selected sites.

The shortage of reliable power for AI data centers is a critical challenge for the industry, and we believe Bitdeer can play a significant role. We look forward to providing an update to our shareholders in the near future. In summary, we made significant strides across all of our strategic initiatives to close out 2024, and we couldn't be more proud of the entire Bitdeer team. We expect 2025 to be a pivotal year as our efforts start to bear fruit, and we look forward to sharing updates on our progress. I'll now turn it over to Jeff LaBerge, our Head of Capital Markets and Strategic Initiatives, to go over financial results for the quarter.

Jeff LaBerge (VP of Capital Markets and Strategy)

Thank you, Haris. Before I go over Bitdeer's Q4 and full year 2024 results, I'd like to remind everyone that all figures I refer to today are in U.S. dollars and that all comparisons are on a year-over-year basis unless stated otherwise. I would like to also note that these results are unaudited and preliminary, and we are working to file our 2024 annual report and 20-F with the SEC by the end of March 2025. Starting with Q4 results, consolidated revenue was $69 million versus $114.8 million.

Self-mining revenue was $41.5 million, down 11.5%, primarily due to impact from the April 2024 halving and higher global network hash rate. This was partially offset by an increase in our average self-mining hash rate to 8.4 exahash from 7 exahash and higher year-over-year Bitcoin prices. Cloud hash rate revenue was $2.3 million versus $16.2 million. This decline was primarily due to long-term cloud hash rate contracts rolling off and our decision to reallocate nearly all of this hash rate to our self-mining operations over the course of 2024.

General hosting revenue was $8.5 million versus $25.2 million. Membership hosting revenue was $12.4 million versus $23.4 million. The decrease in hosting revenue was mainly due to the expiration of certain hosting contracts, as well as the removal of older and less efficient machines by other hosting customers following the halving in April 2024. Compared to Q3 2024, total hosting revenue and gross profit improved by 7.2% and 106.7%, respectively, due to higher margins of profit sharing in Q4 and more efficient mining rigs.

Total gross profit for the quarter was $5.1 million versus $27 million, and gross margin was 7.4% versus 23.5%. The decrease in our gross margin was primarily a result of the April 2024 halving and the expiration of contracts from our high-margin cloud hash rate business.

Going forward, as we begin to rapidly grow our hash rate with new, much more efficient SealMiners, we expect our margins to improve significantly, assuming all else equal in terms of Bitcoin price and network difficulty. Total operating expenses for the quarter were $42.5 million versus $27.4 million. The increase was primarily driven by higher engineering staff and other costs related to the R&D of our ASICs roadmap and non-cash amortization expenses of intangible assets related to the acquisition of FreeChain. Sequentially, versus Q3 2024, total operating expenses decreased by approximately 1%.

This was primarily due to no tape-out costs in Q4, which was almost entirely offset by increases in the non-cash amortization expenses related to the acquisition of FreeChain, year-end bonuses, and consulting expenses for capital markets activities and compliance activities.

Other net gain loss for the quarter was a net loss of $479.8 million versus a net gain of $1.1 million due to a $55.8 million non-cash derivative loss on the Tether warrants and a $413.7 million non-cash derivative loss on the convertible notes issued in August and November. This loss was caused by the significant increase in our stock price during the quarter. IFRS net loss for the quarter was $531.9 million versus $5 million. Adjusted Profit and adjusted EBITDA for the quarter was negative $36.9 million and $3.8 million, respectively.

This quarter's losses were primarily due to the year-over-year revenue declines in our cloud hash rate and hosting businesses and lower gross profit margins in our self-mining business as a result of the April 2024 halving and higher R&D expenses, as described previously.

Quickly touching on our full year 2024 results, revenue was $349.8 million, gross profit was $66.4 million, and Adjusted EBITDA was $39.4 million. A detailed breakdown of our full year results by business line can be found in our earnings press release that was issued today. In terms of Q4 2024 ending balance sheet, there were several notable items that I would like to highlight. Prepayments and other assets were $310.2 million, up from $97.1 million. This change was primarily driven by our advanced payments to TSMC for our SEAL02 mass production.

Inventories were $64.9 million, up from essentially zero. This mainly included wafers, chips, WIP, and finished SealMiner inventory. Intangible assets of $83.2 million and goodwill of $35.8 million are mainly from our 2024 acquisition of Troll Housing and FreeChain.

In liabilities, derivative liabilities were $763.9 million, which relates to the Tether warrants and August and November convertible senior notes. These are non-cash fair value adjustments driven by the significant increase in our stock price and do not impact our liquidity or operations. Under IFRS, certain derivative instruments, such as warrants and convertible debt, are required to be revalued at fair market value each reporting period. As our stock price increases, the fair value of these instruments rise, resulting in a higher reported liability.

The recorded liability will ultimately be netted at settlement, either upon conversion to equity or expiration of the underlying securities, and do not represent an actual cash outflows. With respect to liquidity, we ended the year in a strong financial position with $476.3 million in cash and cash equivalents, $77.5 million in cryptocurrencies, and $208.1 million in borrowings, excluding derivatives.

In Q4, we began to hold a portion of our Bitcoin mined, and we anticipate to continue this strategy for the foreseeable future at management's discretion. Please note our P&L and adjusted EBITDA does not include any fair value gains or losses related to cryptocurrencies on our balance sheet due to IFRS accounting rules that require cryptocurrencies holdings to be accounted for on a cost basis, net of impairments, rather than fair value basis. Moving on to our cash flow statement, Q4 2024 cash used in operations was $325.1 million compared to $67.1 million.

This material change was primarily driven by payments of $190.6 million to TSMC for SEAL02 wafers, which represent more than half of the required wafers for the previously announced 35 exahash, and payments of $52.8 million to TSMC for tape-out of SEAL03, including initial risk wafers.

Please note that while the SEAL03 tape-out costs were paid in Q4 2024, they will be expensed on the Q1 2025 P&L. Further, I think it is important to highlight that our cash inflow from the sale of Bitcoin related to our Bitcoin mining business are classified in the investing section of our cash flow statement.

Net cash used in investing activities was $10 million, including $48.4 million of capital expenditure for infrastructure construction and mining rigs, offset by $38.8 million of proceeds from the sale of cryptocurrencies received from our principal business. Net cash generated from financing activities for the quarter was $522.8 million and was primarily related to the proceeds from our convertible note issued in November and our ATM program.

In terms of our 2025 capital expenditures, we anticipate CapEx, including Fox Creek, Alberta, to be in the range of $340-$370 million and could be fully funded by the existing balance sheet. It should be noted that this infrastructure spend assumes the sites are developed for Bitcoin mining and does not include CapEx for SealMiners used for self-mining. Finally, I'd like to provide some context on the $1 billion ATM shelf registration that we filed on January 3, 2025. I want to emphasize that we will continue to utilize our ATM in a disciplined manner that we believe will add value to existing shareholders.

Our management team's ownership in the company is among the highest in the industry, thus aligning our interests with our shareholders. On slide 12 of our supplemental investor presentation, you can see our ATM usage for 2024 and January of 2025.

Notably, we did not begin meaningfully utilizing our ATM until the Q4 of 2024, when our stock price had risen significantly. As a result, our total ATM usage in 2024 plus January 2025 accounted for only 14.4% of our shares outstanding as of January 31, 2025. The primary objective of this ATM is to enhance balance sheet flexibility and provide us with the necessary liquidity to secure additional wafer allocations from TSMC, which typically require large advance payments.

This flexibility will enable us to significantly scale SealMiner production to meet growing demand and position us to capture significant market share in the multi-billion-dollar ASIC market. Thank you, everyone. That concludes the prepared remarks sections of our earnings call. Operator, please open the call for questions.

Operator (participant)

Finally, ladies and gentlemen, to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the Q&A requests. Our first question coming from the line of Mike Colonnese with H.C. Wainwright & Co. The line is now open.

Hi, good morning, guys. Great update today, and thank you for taking my call. We're going to be focused on the mining rigs here. So there have been several media reports out there that suggest some U.S.-based miners are experiencing delays in receiving their ASICs from your biggest competitor amid the trade tensions between the U.S. and China here. It'd be great to hear your thoughts on this and if this has changed the demand for your SealMiners.

Haris Basit (Chief Strategy Officer)

I'll take a quick try at that. We are just watching the news the same as you in terms of what's happening with other folks' miners. We have not had any direct experience of that ourselves. I don't know if Jihan, if you want to elaborate on that. Well, I think that this issue, according to the recent news, has been solved quite well by the lobbyists and by other industry associations' efforts to communicate with the White House. I think we consider this issue as well because our mining rig will need to export to the market of the United States. Hopefully, this issue can be resolved quite smoothly.

Got it. Thanks for the color there. Staying on the proprietary mining rigs here, so how should we think about manufacturing capacity you have available to produce your next batch of A2s and the next gen A3 rig? I know you're shipping 35 exahash of the A2s this year. Just trying to think through total capacity to produce your next batch of rigs here.

We do expect the capacity to continue to go up. TSMC is really a trusted and very good partner for us on this, but we don't really pre-announce any of those. And so as we get more allocation from TSMC, we will make those announcements in the future. We're optimistic, and our relationship with TSMC remains strong.

Got it. Helpful. Just one more to slip in. How do we think about the revenue recognition and ASIC sales? I know you received a 20% payment for the full 7 exahash, but how do the payments progress through the stages of the delivery?

Sure. So I'll take that. So revenue is typically going to be recognized upon delivery of the ASICs. So the down payments right now are being held on just on the balance sheet, and will be recognized once they're fully delivered to the customer.

Great.

Thank you for taking the question.

Operator (participant)

Thank you. Our next question coming from the line of Nick Yako with B. Riley. Your line is now open.

Fedor Shabalin (Equity Research Analyst)

Good morning, everyone. This is Fedor Shabalin asking a question on behalf of Nick Yako. I want to touch on CapEx outlook for 2025. Jeff, you mentioned some number, but could you outline the allocation? Just kind of if you may specify the sites involved for this or this part and intended uses of these funds. So what is the breakdown between self-mining CapEx and, say, HPC or AI spending? Thank you.

Jeff LaBerge (VP of Capital Markets and Strategy)

Sure. So the CapEx numbers that we discussed on the call are specifically for assuming the sites are used for Bitcoin mining. And that reflects just the infrastructure costs of those. So that infrastructure cost could obviously change if we were to pivot it to, for example, HPC, AI. It also does not include the cost of the SealMiners that we would put in there for self-mining.

So of the numbers that we referenced earlier, those would cover our expansions in Rockdale, Texas, the hydro expansion there, full buildout in Bhutan, Massillon, Ohio, and Phase I of Clarington, Ohio, and would also cover the generation portion of the new facility in Alberta. And again, assumes all those will be going to Bitcoin mining. Obviously, if one of them were to be pivoted to something else, that would change.

Fedor Shabalin (Equity Research Analyst)

Got it. Thank you for that. And then on Clarington’s side, what will be ready by the outlined date in Q3 2025, so this year? And the same question from Massillon’s side. Just infrastructure-wise, what will be done by this?

Jeff LaBerge (VP of Capital Markets and Strategy)

So the Clarington site, the Phase I of 266 MW is expected to be available in 2024, excuse me, 2025. Same with Massillon, Ohio. The full 221 MW should be available there as well.

Fedor Shabalin (Equity Research Analyst)

Yeah. I mean, yeah, but it’s just going to be energized or substation in place? And what about the shed or data center?

Jeff LaBerge (VP of Capital Markets and Strategy)

So that would just cover the power infrastructure. So again, we are under construction in Massillon, Ohio. That will be ready. That is targeted for the second half of this year. Again, if we continue down with Bitcoin mining, we should have that completed by the end of the year. And the Clarington substation, we are currently still in the development stage right now. So we would expect construction on the substation this year.

Fedor Shabalin (Equity Research Analyst)

Got it. Thank you for the color. I turn it over for now.

Jeff LaBerge (VP of Capital Markets and Strategy)

Thanks. Best of luck.

Operator (participant)

Thank you. Our next question coming from the line of Darren Aftahi with ROTH MKM. Your line is now open.

Darren Aftahi (Managing Director and Senior Research Analyst)

Hey, good morning. Good evening. Thanks for taking my questions. I'm just kind of curious with the full vertical integration with the acquisition in Alberta. How are you guys kind of strategically thinking about Bitcoin mining for sites you currently have where you're maybe? I guess the question is in the vein of full vertical integration behind the meter versus not. And then my second question, how do we kind of think about your strategic decisions about self-mining versus selling those rigs to third parties, just given Haris' comments about the six-time oversubscription? Thanks.

Haris Basit (Chief Strategy Officer)

Okay. I think I can take a fresh crack at that. So with regards to our existing sites, we haven't changed our position there. We're still very bullish on Bitcoin mining. And for the most part, you can assume that we will continue allocating Bitcoin mining resources to our existing sites. As we pivot any one of those sites, we'll definitely announce that. But it hasn't really. The acquisition of the site in Canada or Alberta has not really changed our thoughts on the other sites. The allocation between selling the machines versus using them, until we have satisfied most of our own spare capacity, we will have a strong preference for using the machines for self-mining.

But as our capacity fills up, and especially with the A3, we will lean further and further towards sales versus self-usage. So you can expect that transition to happen sometime in 2026, probably where we'll have more emphasis on sales than on self-usage. But for now, we're focusing very much on using the A2s in particular for our self-mining.

Darren Aftahi (Managing Director and Senior Research Analyst)

Helpful. Thank you.

Operator (participant)

Thank you. Our next question is coming from the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open.

Kevin Cassidy (Senior Research Analyst)

Thanks. Thank you for taking my question. My question also is around the SealMiner rigs. You're going to start shipping in March for the A2. How long will it take your customers to qualify and say that they have accepted it? And what's the next stage after that?

Haris Basit (Chief Strategy Officer)

So it typically doesn't take very long for a mining rig to be qualified, but maybe I'll ask either Matt or Jihan too, who are closer to some of these customers that are qualifying it, if they have a time frame in mind.

I think the time we committed has already included the time to do everything, including the qualification required. We committed the time we're shipping out the mining rig.

Kevin Cassidy (Senior Research Analyst)

Okay. Maybe as a follow-up. Yeah. I was just wondering, as you go to the A3, if that's going to be the larger model for sales, is that a quicker qualification stage?

From the verification of the chip to mass production, that really happens, usually it will take six months. I think this is quite a fast speed in the industry to bring the chip into mass production.

Okay. Great. And maybe just one other question. How many customers will you be shipping to the A2?

Haris Basit (Chief Strategy Officer)

I think we have said in an earlier earnings call that it was more than 60 customers.

Kevin Cassidy (Senior Research Analyst)

Okay. Great. Thank you.

Operator (participant)

Thank you. Our next question coming from the line of Brian Kinstlinger with Alliance Global Partners. Your line is now open.

Brian Kinstlinger (Senior Technology Analyst)

Great. Thanks so much for taking my questions. As it relates to external sales for SealMiner, how are you thinking about the short-term pricing strategy and medium-term given the efficiency? And then can you call out the maybe total expected tape-out costs by quarters if you know them roughly for 2025?

Haris Basit (Chief Strategy Officer)

Okay. So our existing pricing for the A2s we announced earlier was $15 per terahash. And we think that's a very competitive price based on our being a new entrant into the market and just wanting to get a large market presence initially. So I think as we get our A3s and our energy efficiency is leading of any other vendor, we have much more flexibility in our pricing, and we expect that our pricing will reflect the energy efficiency of the machine. So you can expect to see that. And then what was the second part of your question?

Brian Kinstlinger (Senior Technology Analyst)

It was just the tape-out cost. I think you mentioned the Q1 is when you'll see some. Just maybe for modeling purposes, you can kind of discuss what you already know.

Haris Basit (Chief Strategy Officer)

Yeah. So the tape-out costs for A2 and A3 are already paid for. So those have obviously already been paid. The tape-out costs looking forward are primarily for the A4. And so that should be in line with A2 and A3 costs. We will incur that most likely in Q3. So there may be other small tape-out costs for other things, but I don't think those are going to be as meaningful as what we've already incurred for the A2 and A3.

Brian Kinstlinger (Senior Technology Analyst)

Great. My second question. Sorry.

Haris Basit (Chief Strategy Officer)

For the A3, we tape it out two types of designs simultaneously. So for the A3 R&D, there may be an extra spending expenditure on the design and R&D cost. I'm not sure whether this has been delivered to the analyst quite clearly or not. So I think we spend two months R&D expenses.

Brian Kinstlinger (Senior Technology Analyst)

Got it.

Haris Basit (Chief Strategy Officer)

Yeah. Just to emphasize that, that A3, we had two different competing designs. And so the tape-out costs for the A3 were almost double because of that.

Brian Kinstlinger (Senior Technology Analyst)

Makes sense. And then my other question, I guess a larger HPC AI question that I'm sure investors are thinking about. Since the DeepSeek moment, if you will, obviously suggesting anyway that they were able to perform with unusually low cost and power. And then we've seen some of the hyperscalers kind of have some uncertainty about their plans. Have you seen any changes in conversations about HPC AI opportunities, or has there been zero change?

Haris Basit (Chief Strategy Officer)

So we have, after each of those events, queried our connections and the people that we're discussing partnerships with. And we have not seen any pullback from the people that we're speaking with.

Brian Kinstlinger (Senior Technology Analyst)

Great. Thank you so much.

Operator (participant)

Thank you. Our next question coming from the line of Mike Grondahl with Northland Capital Markets. Your line is now open.

Mike Grondahl (Head of Equities and Director of Research)

Hey, guys. Two questions. At a high level, how would you describe the demand environment for HPC AI? And specifically, how many megawatts of your power are you offering? And then two, post the 35 exahash for A2, do you have a rough sense when we should expect the next batch or when you'll get some insight as to when you'll get another batch?

Haris Basit (Chief Strategy Officer)

I'll take the first part of that. For how many megawatts we're looking at for HPC AI, it's more about which sites we're looking at. And once a site is allocated to HPC AI, it's likely to be the entire site. One of the first sites we're really looking at is our Clarington, Ohio site. So the size of that site, the initial phase is 266 MW. The total is 266 plus 304, so 570 MW. Those are still in discussion. So it's really site-by-site basis rather than a partitioning of the MW. And I think your next question was about the next allocation of A2s or A3s. Is that correct?

Mike Grondahl (Head of Equities and Director of Research)

Yeah. Roughly. I mean, is it a spring, summer? I know you don't know exact timing, but I don't know. How are you thinking about it at a high level?

Haris Basit (Chief Strategy Officer)

So we have said that we could have 40 exahash by the end of this year. And we're optimistic that that might be increased. So we expect that there may be more allocation that hits even this year in order to increase that. But as we said earlier, we really don't want to pre-announce anything until we have it securely in hand.

Jeff LaBerge (VP of Capital Markets and Strategy)

And Mike, just to clarify that, that 40 exahash includes the 35 and the 3.5 or four of the A1s that we already had allocated. And that allocation has already been given to us, and those are under production right now.

Mike Grondahl (Head of Equities and Director of Research)

Got it.

Jeff LaBerge (VP of Capital Markets and Strategy)

Okay. Thank you.

Operator (participant)

Thank you. Our next question coming from the line of Greg Lewis with BTIG. Your line is now open.

Gregory Lewis (Managing Director)

Hey, thank you. Good morning and good evening, everybody. Thanks for taking my question. I just was hoping to talk a little bit more about the decision to go vertically integrated with the acquisition in Alberta. I guess as you think about building out your Bitcoin mining footprint and maybe your HPC footprint, should we kind of look at this as kind of a one-off, or is this something where this was the first one that kind of met all of our wants and needs? And but, don't be surprised if we're back in the market acquiring more infrastructure to do this longer term.

Haris Basit (Chief Strategy Officer)

When we look at the Canadian site, what attracts us is that this site is not only about the 100 MW. We are quite sure right now we can build. We already got the license. Almost everything ready. We just need to spend the money, time, and team on the site to construct it. But we are also very passionate about the potential future to build a gigawatt-level of power plants and data center or mining facility infrastructures on that site because that site got lots of gas production that right now have low royalty pipe to sell to the outside world.

So potentially, we can expand the site to really large operations. Our strategy is like a very large giga mining operation or a giga site to gain the economic scale. So I think we will be quite careful to expand into new sites. But I think we will always be interested in looking for new sites to develop.

Gregory Lewis (Managing Director)

Okay. Great. Super helpful. Thanks. Oh, go ahead.

Haris Basit (Chief Strategy Officer)

Greg, I would just add to that too. What's unique about this site also is that not only do we have the ability to produce behind the meter for ourselves, but it also comes with the interconnection to the grid, which is increasingly more difficult to find. So that gives us the ability to sell power back to the grid, help balance the Alberta grid, and potentially reduce our power costs even further there.

So we think it's a very unique asset. Yeah. And I can just chime in there that Alberta is a location that has really a surplus of engineering and construction talent related to the energy industry. And so it's a very easy place to build these kinds of assets because there's a lot of engineering and construction talent available locally.

Gregory Lewis (Managing Director)

Okay. Great. And then just one quick one for me. You've mentioned all the customers that are going to be getting the SealMiners. Is there plans or are there thoughts around selling rigs to companies which then you will then host? Or is it really just going to be third-party other companies that are going to go then take those rigs and mine them elsewhere?

Haris Basit (Chief Strategy Officer)

Yeah. We have no objection to that. But those are two separate businesses. And there is some advantage in this vertical integration that we can, in many cases, sell mining rigs and possibly host them as well. I don't think it's going to be a major thrust that we're going to try to get a lot of that business, but I think that we're open to it.

Gregory Lewis (Managing Director)

Okay. Great. Super helpful. Thank you very much.

Operator (participant)

Thank you. Our next question coming from the line of John Todaro with Needham & Company. Your line is now open.

Great. Thanks, guys. For the purchase orders for new ASICs, could you remind us just how much folks are paying for the deposits, maybe what's come in so far? And then on HPC, would you guys be open to partnering with another peer in the space to develop the Ohio sites for HPC? Thank you.

Haris Basit (Chief Strategy Officer)

Yeah. So we collected 20% deposit from everybody that's ordered. So that's already been collected. And again, we'll collect the balance before shipment. And on the HPC side, I mean, look, we're always open to any strategic opportunity that makes sense that would add value to our shareholders. So I don't think we've closed out any potential partnerships.

Thank you.

Operator (participant)

Thank you. And as a reminder, if you have a question, please press star one one on your touch phone. Our next question coming from the line of Rocky Wang with Yong Rong HK Asset Management. Your line is now open.

Okay. Thank you. Good morning and good evening. So my first question is, could you tell how long is the wafer prepayment cycle to the TSMC? I mean, how many months does your $200 million advance payment correspond to the TSMC wafer?

Haris Basit (Chief Strategy Officer)

Can you repeat that one more time?

You kind of broke up. I mean, how long is your wafer payment cycle to the TSMC?

So wafer is four months.

Yeah. So your $200 million advance payment is for four months wafer in plan?

Yeah. It's the TSMC schedule. So we have the payment in advance by four months.

Okay. Thank you. So my second question is, so I see you have $1 billion ATM plan. So just from the current stock price, it seems that if you want to get all the financing from the ATM plan, it will dilute the stock price greatly. Will your ability to obtain cash affect your process in acquiring the wafer capacity from TSMC? And what are the main factors considered by TSMC when you obtain wafer capacity from TSMC?

I guess with respect to the ATM, is your question, are we planning to use the ATM to finance this, or?

I mean, your stock price, will that affect your obtained money from the market? And will that affect your ability to acquire the wafer capacity from TSMC? I mean, if you don't have that much cash, you can't get the wafer capacity from TSMC.

The way we finance the wafer is not only one way because selling shares at the market. We've got multiple ways to finance it. We can swing comparable amount. We can borrow money. We already got $17 million of credit line from Singapore Bank. We can also sell our mining rigs as we showcased that we already got 30,000 units of mining rigs from the market. And we can also deploy those mining rigs and mine Bitcoin and sell it on the market. And we can get the cash flows to finance future wafer ordering from fab. So we are not owning. We have more than one way to finance the wafer ordering.

And so what? I think essentially it's because if you look at the mining activity with our advanced design and super effective mining rig production, it's a very high return asset business.

I think, of course, there can be challenges, for example, for the Bitcoin price crashes and the stock price crashes. But if you look at our cash balance at the end of the year, we already financed a lot of money. And we already built up inventories. And we already have lots of mining capacities ready. So I think it will be okay for us to venture into the future and to see how the situation goes. Definitely, we will need to finance the money through multiple ways. But we not solely rely on the ATM.

Okay. Thank you. That's all my questions.

Operator (participant)

Thank you. And there are no further questions at this time. This concludes today's conference call. Thank you all for participation. And you may now disconnect.