Bit Digital - Earnings Call - Q1 2025

Transcript

Operator (participant)

Hello, and welcome to the Bit Digital First Quarter 2025 earnings conference call. Good morning, good afternoon, and good evening, depending on where you are joining us from. Thank you for being here. We are just giving a few more moments for attendees to dial in, so thank you for your patience. While we wait, please note that during this call, all participant lines will be in a listen-only mode. Following the officers' updates, we will open the floor for a question-and-answer session. If you have a question at that time, simply press star one on your telephone keypad. Also, as a reminder, today's conference is being recorded. I'll now hand it over to your host, Cameron Schnier, Head of Investor Relations at Bit Digital. Cameron, the floor is yours.

Cameron Schnier (Head of Investor Relations)

Thank you.

Good morning, and welcome to the Bit Digital First Quarter 2025 earnings call. Joining us on the call today are Sam Tabar, Chief Executive Officer, and Eric Huang, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to yesterday's 10-K filing and our other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our 10-K filing, which is on our website. After our prepared remarks, we will open the call up for questions. If you would like to ask a question, please hit star one on your keypad.

With that covered, I will turn the call over to Sam to discuss our performance. Sam.

Samir Tabar (CEO)

Thank you, Cam. Ladies and gentlemen, thank you for joining us on the call today. Today, I'll walk through our first quarter results and provide key updates across the different business units at Bit Digital. Let's start with the mining business. Our overall top-line results were dragged down by our mining segment, where first quarter 2025 revenue decreased 64% year-over-year and 26% sequentially. This contrasts greatly with our HPC business lines, which demonstrated solid growth. Mining results were affected by the 2024 halving event and by our fleet redeployment program as we exited coinment facilities at the end of 2024. These factors contributed to an 80% year-over-year decline in production to 83 bitcoins for the quarter. Despite the lower production, our mining operations remained gross margin positive. In fact, mining margins expanded approximately 500 basis points sequentially to 21%, reflecting improvements in fleet efficiency and cost structure.

Our active hash rate stood at approximately 1.5 exahash by the end of March 2025, and fleet efficiency was approximately 24.5 joules per terahash. We had a shipment of previously ordered S21 miners from Southeast Asia that we paused amid tariff uncertainty, as the prescribed import duties would have significantly increased payback periods. We have since begun taking delivery of those units and expect to return to approximately 2.5 exahash with fleet efficiency in the low 20s during June. Mining represented just 31% of our total revenue for the quarter, compared to 72% in the same period last year. This shift reflects both the growth of our HPC business and the reality that without heavy reinvestment, mining market share naturally declines, and we are fine with that.

While our hash rate stands to rebound in the second quarter, our primary focus remains on investing in our data center buildout and cloud services business. Turning to cloud services, revenue for the segment increased 84% year-over-year and 14% sequentially to $14.8 million. Gross margins rebounded, expanding approximately 700 basis points sequentially to 59%. We continue to expect segment margins to improve over time as revenue scales and as the impact from operating lease costs tied to our anchor customer contract is spread across a broader base. Based on our current contracted deployments, we expect stronger sequential revenue growth in the second quarter and continued growth in the third quarter of 2025. Several deployments commenced midway through the first quarter, so we expect a recognition of full quarter of revenue contribution in the second quarter.

Additionally, our initial deployment for a DNA Fund, a 576 H200 cluster, began generating revenue in April and represents approximately $10 million in annualized revenue. In May, we expanded our relationship with DNA Fund through two new contracts totaling 616 H200 GPUs under two-year terms, representing approximately $10.8 million of additional annualized revenue. The expansion with this customer reflects our strategy of building trust through execution and using that as the foundation for expanding relationships over time. Our procurement strategy remains focused on aligning GPU purchases with contracted demand rather than taking speculative inventory risk. We are effectively sold out of H200 capacity and have prioritized deployments backed by secured contracts. While overall demand for B200 GPUs remains healthy, uptake through our on-demand distribution partnership with Shadeform has been impacted by hardware reliability issues.

We believe the crux of that issue is tied to the early iterations of servers we received, and we're working with the OEM to address that issue. We expect this dynamic to improve over time as early hardware issues are hopefully resolved. We are currently marketing this cluster to customers for a multi-year contract. Separately, our anchor customer exercised their right to adjust the start date on their 464 B200 deployment from June 30th to August 20th, the latest allowable date under the agreement. As a result, this contract represents approximately $15 million of annualized revenue for 18 months. If we don't secure an acceptable customer contract for our existing B200 cluster, we will likely use those GPUs to fulfill our anchor customer contract. We continue to prioritize securing multi-year deployments with creditworthy counterparties as the foundation for our growth strategy.

Looking ahead, we're engaged in several large contract discussions with a focus on securing multi-year agreements that are financeable and aligned with our capital efficiency objectives. Currently, we are conducting diligence and negotiating on four separate deployments with creditworthy counterparties. Each opportunity carries an annualized revenue potential above $100 million and a three-to-five-year contract term. These are the types of contracts that we believe would support attractive financing structures, and we're working on those financing options in parallel with negotiations. It's too early to say whether we'll ultimately win any of those deals, but we're encouraged by the progress and the fact that we're increasingly included in these processes. We believe this reflects the strength of the platform that we've built and are continuing to build through disciplined investment and execution. Finally, we are investing in proprietary software development to enhance our platform capabilities.

A key milestone was the launch of our API layer for external provisioning of bare-metal GPU servers, with Shadeform as our first integration partner. This development not only expands our ability to integrate with third-party platforms, but also streamlines operations for our direct customers. Over time, we expect that this will position Bit Digital as a premium cloud infrastructure offering focused on maximum performance and reliability. Turning to colocation services with our data centers. Development activity continues across our sites. While the segment represents a small portion of Q1 revenue, we are laying the foundation for this segment to be a major growth engine in the coming years. At Montreal Two, development timelines have shifted modestly, and we now expect initial capacity to come online around early to mid-third quarter.

The delay is largely due to the timing of debt financing, which we had expected to secure quicker, but we're now in the very, very final stages. We recently completed the physical installation of a pilot GB200 liquid-cooled system at Montreal Two. While not yet operational, the project supports collaboration between our cloud services and colocation teams, providing our cloud team a platform to test next-generation hardware and our data center team early exposure to advanced liquid-cooled systems. We secured our third data center site, Montreal Three, in April under our lease-to-own structure. Development remains on track, with the cerebrous deployment expected to commence about two months from now. As a result, this is a built-to-suit deployment for a customer with very sophisticated technology requirements, and we're really proud to partner with them and help accelerate their growth plans.

We are making progress on both sites and remain confident in our ability to meet key customer commitments. In April, we disclosed via an AK filing that we signed a purchase agreement to acquire a roughly 95-acre property in North Carolina intended for data center development. This transaction remains subject to customer closing conditions, and we're actively working through those processes. While it is too early to provide additional details, we are very excited about the potential strategic significance of this site for our platform, and we look forward to providing further updates as appropriate. In addition to our active projects, our broader development pipeline remains robust. We continue to pursue additional data center opportunities across Canada and the US, with over 500 megawatts of potential capacity under evaluation or negotiation.

Customer demand for high-performance, AI-optimized colocation remains strong, and we're engaged in multiple active discussions that could drive incremental leasing at our existing and planned sites. On the financing side, we are now nearing finalization of a mortgage financing package for our Montreal Two facility with a leading global banking partner. We expect to be in a position to announce the terms shortly. We believe this financing will validate the scalability and capital efficiency of our data center development model and provide a very strong foundation for future growth. Our data center platform is a critical pillar of our strategy to build a durable, diversified, and high-margin infrastructure platform. We're very excited about the opportunities ahead as we continue to expand capacity and deepen relationships with high-quality customers. I'll now hand over the line to Eric, who will discuss our financial results.

Eric Huang (CFO)

Thank you, Sam.

I will now walk through our financial results for the first quarter of 2025. Total revenue for the quarter was $25.1 million, a 17% decrease compared to the same quarter last year, and slightly below the $26.1 million reported in the fourth quarter of 2024. The decline was primarily due to the lower Bitcoin mining revenue, which was partially offset by growth in our cloud services business, and a full quarter of colocation revenue. Bitcoin mining revenue was $7.8 million, down 64% year-over-year and 26% sequentially. This decline reflects the impact of April 2024 halving, increased network difficulty, and a temporary decrease in operational hash rate as we exited our main facilities. We also retired and replaced older units during this transition to optimize fleet efficiency. Cloud services revenue was $14.8 million, an increase of 84% compared to the first quarter of 2024 and 14% sequentially.

Growth was supported by new cloud contracts signed in both late 2024 and during the first quarter of 2025. Colocation services contributed $1.6 million in revenue, up from $1.4 million in the fourth quarter. This reflects a full quarter of operations following our acquisition of Enovum in late 2024. Ethereum staking revenue was $0.6 million, slightly lower than the prior quarter. Our cost of revenue, excluding depreciation, was $12.8 million, down from $16.2 million in the same period last year, and flat compared to the first quarter. This included $6.1 million in cloud services costs and $6.1 million in mining costs. Gross profit was $12.3 million, representing a total gross margin of 49%, which compares to 47% in the same quarter last year and 40% in the fourth quarter of 2024. Cloud services gross margin expanded to 59% from 52% last quarter, reflecting improved utilization and scale.

Colocation services gross margin improved modestly to 67%. General and administrative expenses were $8.2 million, up from $6 million in Q1 2024, which reflects an increase in headcount as we invest in our HPC business lines. Depreciation and amortization was $7.2 million, up slightly from the prior quarter, mainly due to a larger GPU fleet. As a note, we adjusted our depreciation schedule for cloud services for three years from three years to five years, which we believe better reflects the useful lives of these assets. This accounting change decreased DNA by approximately $2.5 million for the quarter. Adjusted EBITDA was negative $44.5 million compared to a positive $58.5 million in the first quarter of 2024. This decline was primarily due to a $49.2 million mark-to-market loss on our digital asset holdings, reflecting lower BTC and ETH prices at quarter end.

These were non-cash charges and do not reflect changes in operating performance. GAAP net loss per share was $0.32 on a fully diluted basis compared to earnings of $0.43 per share in the first quarter of 2024. Now, turning to the balance sheet. As of March 31st, we held $57.6 million in cash and cash equivalents, and $3.7 million in restricted cash. The fair market value of our digital assets was approximately $80 million as of that date. Total liquidity, including digital assets and USDC, was approximately $141 million as of that date. Since then, the price of Bitcoin has increased by 25%, and the price of Ethereum has increased by 40%. The market value of digital asset position has appreciated on a mark-to-market basis. Total assets were $485 million, and the shareholders' equity was $417 million. We remain debt-free.

CapEx for the quarter was $65 million, approximately $36 million for the CapEx was spent on the GPUs, including our B200 deployment, with the remainder spent on data center infrastructure, networking, and storage equipment, and Bitcoin mining units. I will now hand it back to Sam for closing remarks.

Samir Tabar (CEO)

Thank you, Eric. Before opening the line for questions, I want to address our financing strategy and recent capital activity. We remain firmly committed to pursuing non-diluted financing structures to support the expansion of our HPC platform. We are actively working toward finalizing our first commercial mortgage financing, and we are confident that this will provide a strong foundation for scaling our data center business efficiently. We have also initiated the process for commercial mortgage financing in the U.S. Regarding the filing of a new ATM registration, I want to emphasize that this was a mechanical renewal of our shelf capacity.

It doesn't reflect any change in our philosophy. We continue to view equity issuance as a tool to be used selectively and strategically, with a strong preference for non-diluted financing wherever possible. During the first quarter, we raised approximately $10 million through our ATM program as part of our normal course of operations. Subsequent to quarter end, we raised approximately $48 million through the ATM. These proceeds strengthen our liquidity position and support certain strategic growth initiatives that we believe will be transformative for our business. We look forward to providing additional updates on these certain initiatives at the appropriate time. In parallel, we also sold approximately $32 million worth of Bitcoin holdings during the quarter to help fund growth while managing our use of equity issuance.

We did not sell any ETH during the quarter, but transferred $3,400 into an internally managed fund, which we do not count as treasury holdings. Maintaining a strong liquidity position is critical not just for executing on our expansion plans, but also for building trust with our customers. Prospective colocation tenants view financial strength as a key factor in selecting infrastructure partners, and our balance sheet reinforces our ability to deliver projects reliably. Our focus remains on executing our growth strategy, scaling our infrastructure platform, and pursuing disciplined, shareholder-friendly capital deployment. As our business continues to evolve, we are actively evaluating corporate structure and strategic initiatives to maximize long-term shareholder value.

With that, I would like to turn the call over to the operator for Q&A, but as a note, we have Billy Krassakopoupos, who leads our data center business, and Ben Lamson, head of revenue for our cloud business, on the line for Q&A.

Operator (participant)

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment. If you're on a speakerphone, you may need to pick up the handset to signal. A voice prompt on the phone line will indicate when your line is open. We ask that you please limit yourself to one question and then rejoin the queue for additional questions. Again, press star one to join the queue. We'll pause for just a moment to allow everyone an opportunity to signal.

We can take our first question from George Sutton with Craig Hallum.

George Sutton (Senior Research Analyst)

Thank you. Thank you, Ben. I'd like to address my question to you if I could. On the White 5 rebranding, can you just give us an update of how that's been received in the market? And then I know you're working on a lot of platform initiatives that are somewhat new to the market. Can you just give us any updates there?

Ben Lamson (Head of Revenue)

Yeah, happy to. So the rebrand has been really well received. We actually have gone through a few iterations on the website as we've gotten feedback from customers and partners. You may have seen we've recently launched a new version of the website about two weeks ago, a week and a half ago, and the reviews have been fantastic. Really, really happy with how that's been panning out for us.

In terms of on the platform layer, I want to be careful not to release anything a little too soon. We will have some news coming out here in the next couple of weeks that will be really exciting, some first-to-market technology that we're going to be releasing. We're just waiting on some independent third parties to publish some benchmarks around that. Look out for that. That's going to be coming in the coming weeks. We have some other developments coming later this year on the platform side around cross-data center workloads, which we believe is going to be a revolutionary technology in terms of us being first-to-market to productize that. I do not want to say too much just because I want to allow some of these independent third parties to release some of this data, and we'll be able to leverage the media splash there appropriately.

Just stay tuned in the next few weeks for some announcements.

George Sutton (Senior Research Analyst)

Understand. Thank you.

Operator (participant)

Thank you. Our next question comes from Brian Dobson with Clear Street.

Brian Dobson (Managing Director)

Thanks very much for taking my question this morning. Do you think that we could take maybe a step back and you could provide a 30,000-foot view on how you see demand from hyperscalers and enterprise users evolving over the next six months or so?

Samir Tabar (CEO)

Would that be for the data center side? If so, Billy, please feel free to weigh in. Just to clarify, that's with respect to data centers colocation, correct?

Brian Dobson (Managing Director)

Yeah, that's right.

Samir Tabar (CEO)

Okay. Billy, would you like to take that?

Billy Krassakopoulos (CEO)

We're seeing very strong and positive demand from not only hyperscalers, but medium-sized neoclouds as well for capacity that we're evaluating and looking to come online later on this year.

We should have some news in the next couple of months about that.

Brian Dobson (Managing Director)

That's very exciting. Thank you very much.

Operator (participant)

Thank you. Our next question comes from Mike Grandall with Northland Securities.

Mike Grandall (Analyst)

Hey, guys. Good morning. I think what you were describing is a delay for Customer One from June 30 to August 20. One, can you talk a little bit about why? And then I think you were saying how you were going to use maybe those GPUs for your own book. Just kind of walk us through the options you have there.

Samir Tabar (CEO)

Yeah, I think the maximal allowable date is the date they've exercised. And as you mentioned, Mike, we have the cluster to honor what they're looking for. So that's a good thing since we already have that cluster, and we could just use that if we don't score multi-year contracts for that current inventory.

Is your question about why they shifted the start date a couple of months?

Mike Grandall (Analyst)

Yes, just why they shifted. If so, what you're saying is, "Hey, the GPUs might not sit idle until August if you can put them in a new customer win?"

Samir Tabar (CEO)

Correct.

Mike Grandall (Analyst)

Got it.

Samir Tabar (CEO)

As for the reasons for shifting, I'm not familiar. Eric, do you have any color on the reasons they're shifting the start date for two months?

Eric Huang (CFO)

I think they have some internal product development schedule change. They still want those compute, but they like to exercise the option to extend at a little later date. We had installed and deployed those equipments in our Atlantic data center already. Right now, we can sell those compute. I know Ben is working on that. There are a few counterparties we're negotiating with for multi-year contracts.

On top of that, we're putting this B200 compute on demand platform through Shadeform as well. It's already generating some revenue.

Mike Grandall (Analyst)

Okay. Okay. Great. Thank you.

Operator (participant)

Thank you. Our next question comes from Nick Giles with B. Riley Securities.

Cameron Schnier (Head of Investor Relations)

Hi, Nick.

Nick Giles (Senior Research Analyst)

Thank you, operator. Good morning, everyone. Guys, it's good to see you further expand into the U.S. with the North Carolina agreement. My first question is, how should we think about your desire to continue that expansion in the U.S. versus Canada? Secondly, apologies if I missed this, but can you just outline when those megawatts could be available, what the ramp will ultimately look like, and CapEx expectations?

Samir Tabar (CEO)

Yeah. As you know, we disclosed in an 8-K that we signed the purchase agreement to acquire a roughly 95-acre property in North Carolina. The transaction remains subject to some closing conditions.

It is too early for us to provide additional detail until it closes. I can tell you I am deeply excited about its potential strategic significance, and we will definitely update you and the markets as soon as this closes. The deal is not closed, so there is not much we can say, or frankly, or what we want to say until something is finalized in either direction. To your question about the broader colocation development pipeline, we are evaluating and negotiating over 500 megawatts of additional potential capacity across Canada and the US. These sites range from small sites in the 5-20 MW range to sites with over 100 MW. We continue to target those sites in adjacent to market cities or in proven corridors of customer demand. That is really important for us geographically. We focus on retrofits.

We look at sites that are not currently configured as data centers but would lend themselves well to redevelopment and reduce costs and timelines relative to a greenfield site. The team that we have, when we acquired Enovum last year, it was not just about an acquisition of a tier three data center, but more importantly, it was about a team that has been doing this their entire careers and also a huge pipeline that they have identified through LOIs and through a lot of work, but 500 MW worth. The secret sauce with respect to that particular acquisition was their experience in retrofit and how they could do it faster and cheaper. They have a track record of doing it faster and cheaper. This is really the secret sauce of we are not trying to sort of figure it out as we go.

We have acquired a team that's been doing this for a long time before this sector got hot. So we're really looking forward to developing that colocation pipeline. And there will be some exciting, definitely some exciting announcements in the medium-term future, if not the near-term future.

Nick Giles (Senior Research Analyst)

Sam, I appreciate all the color and look forward to the updates.

Samir Tabar (CEO)

Likewise. Thank you for asking.

Operator (participant)

Thank you. Our next question comes from Joe Gomes with Noble Capital.

Joe Gomes (Senior Research Analyst)

Good morning. Just wanted to kind of get your thoughts. If I look through the 10-K queue this morning, you've got $33 million on the balance sheet of investments. And at the same time, you're raising equity. And just trying to get your thought on how do you weigh that? Is it more is it a better opportunity to liquidate those investments and not have to sell so many shares in the ATMs?

Just trying to get your thought process on that.

Samir Tabar (CEO)

Yeah, absolutely. The recent filing was a mechanical renewal just to maintain flexibility and optionality. It does not reflect a change in our posture towards selective and strategic use of equity issuance. We understand. I completely understand. The optics are not great given the size of the ATM relative to our market cap. The market cap is transitory. Having the ATM on file is really just a tool we have access to. It is worth more to have that optionality in future years than to forego in favor of optics. Liquidity is critical for executing strategic initiatives and building customer confidence, as mentioned on the call earlier. We do balance raising equity with selling digital assets to fund growth responsibly. We did sell some Bitcoin. Fortunately, we did not sell any ETH.

As you know, the ETH has had a really great run. And we're still pretty strong believers. There's a lot of juice in there. We also are very excited to announce mortgage financing, which is really inexpensive capital in order to fund the growth of our data center business. We look forward to announcing the terms of that mortgage financing very soon. That will really help with respect to how we fund our growth. We want to use cheap sources of financing. We do not want to use the ATM. It has to be an option.

Operator (participant)

Thanks. Thank you. Before we take our next question, just a reminder to our audience that is star one to ask a question. Our next question comes from Kevin Dede with H.C. Wainwright.

Cameron Schnier (Head of Investor Relations)

Hi, Kevin.

Kevid Dede (Managing Director)

Hi. Good morning, Sam. Eric, thanks for having me on the call.

Eric mentioned changing the depreciation schedule. Apart from that, Sam, can you walk through the levers that you can pull or the variables that you see changing the gross margin profile of your cloud and colo business? Maybe layer in a little discussion on the GPU procurement strategy and filling the Shadeform and DNA Fund business.

Samir Tabar (CEO)

There are a few questions there. Let me rephrase a couple of those questions. With respect to, I am not sure if it was a question or a comment about changing the depreciation schedule, but three years was just overly conservative and way too aggressive. If you look at others in the industry, they do five. Some even do more than five. Even being at five at this point is still, we believe, responsible and conservative.

I think the next question you had in there was, what are the different levers to increase the margins of our cloud business and our data center business? Is that what I is that correct?

Kevid Dede (Managing Director)

Yes, absolutely, Sam. Thank you very much. I apologize for the connection that I'm working with here.

Samir Tabar (CEO)

Yeah. No, all good. I mean, besides charging more, of course, to the customers, I'd love for Billy to weigh in on the different levers to increase margins. Go ahead, Cam, please.

Cameron Schnier (Head of Investor Relations)

I can jump in, Sam. I mean, Kevin, the biggest thing on the cloud side is really just spreading the operating lease for our anchor customer over a larger revenue base because that's one of the major cogs items right now. It's effectively a financing structure, but it's above the line.

Just getting more revenue, the absorption across that will naturally drive gross margin up. Any increase in revenue is broadly gross margin accretive. Billy can add in on the data center side, but I think the way we look at it is pretty much every leading-edge contract that we sign and revenue that goes on will lift gross margins as well.

Billy Krassakopoulos (CEO)

On the data center side, margins are very predictable and can be relied on. Long-term contracts with clients who are very sticky give us great insight on what the numbers will be over the next couple of years. We're aiming for minimum five-year contracts on that segment. The predictability and the reliability of those are very certain.

Kevid Dede (Managing Director)

Yes, Sam, could you just touch on your procurement thinking, your GPU procurement thinking? I mean, I knew in the past you both bought and leased.

I'm just wondering if that thinking and philosophy has altered in any way.

Samir Tabar (CEO)

I think Eric is closer to that workstream than I am. I'd love to, the procurement for on the cloud side, just to clarify, which side of the business are you referring to? Procurement for equipment for data centers or procurement for the GPUs on the cloud?

Kevid Dede (Managing Director)

Yeah. Yeah. GPU for cloud, right? Because Bit Digital is responsible for providing the compute for both Shadeform and DNA, at least as I understand it.

Samir Tabar (CEO)

Yeah. I'd love to, yep. I'll pass that question to Ben and to Ben and Eric.

Eric Huang (CFO)

Yeah. We still remain the same strategy, try to sign a contract and tie it to a procurement so that minimize our exposure to speculative procurement.

At the same time, we did procure some GPUs prior to signing a definitive agreement that would allow us to do some R&D and do some benchmarking and testing as well. We had completed our deployments in Iceland. Right now, there are a couple of deployments we are working on in Canada at different sites as well. At a higher level, if I may add, we tend to procure those most advanced technologies or GPUs, which are more attractive to end users at an early stage as well. We had those relationships with OEMs and NVIDIA to get those chips at a faster or more accelerated timeline.

Kevid Dede (Managing Director)

Right. Thank you. I appreciate it. Thanks, Sam.

Samir Tabar (CEO)

Yeah. Thank you.

Operator (participant)

Thank you. It appears that we have no further questions at this time. Mr.

Tabar, I'll hand the call back to you for closing remarks.

Samir Tabar (CEO)

Okay. That is it. Thank you for joining us on the call today, everybody. We appreciate your continued interest and support. We look forward to speaking with you again in the next quarter. This officially concludes our call. Have a great day, everybody.

Operator (participant)

This concludes today's call. Thank you for your participation. You may now disconnect.