Mawson Infrastructure Group, Inc. (NASDAQ:MIGI) Q4 2022 Earnings Call Transcript

Mawson Infrastructure Group, Inc. (NASDAQ:MIGI) Q4 2022 Earnings Call Transcript March 25, 2023

Operator: Greetings. And welcome to the Mawson Infrastructure Group Fourth Quarter and Year End 2022 Earnings Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Broadfoot, Chief Corporate Officer. Thank you, Tim. You may begin.

Tim Broadfoot: Thank you, and hello, everyone. Welcome to Mawson Infrastructure Group, Inc.’s annual and fourth quarter 2022 earnings call. Joining me today on today’s call are our Founder and CEO, James Manning; our COO, Liam Wilson; and our CFO, Ariel Sivikofsky. We look forward to taking you through the investor presentation today. Firstly, I need to bring to your attention a short disclaimer around forward-looking statements. Please be aware today we will be making forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks that could cause actual results to differ materially from those expected. We may also make forward-looking statements as part of our Q&A at the conclusion of this presentation.

We will also discuss certain non-GAAP financial measures about the performance during today’s presentation and Q&A. You can find the reconciliation of GAAP financial measures at the end of our presentation, which is available on our website. Please be sure to refer to the cautionary text regarding forward-looking statements contained in this presentation on slide two, as well as the risk factors in our annual report on Form 10-K filed on March 23, 2023, under the subheading Risks Relating to Our Business. With that, I will hand it across to our CEO, James Manning.

James Manning: Thanks, Tim, and welcome, everybody. Q4 was a transitory period for Mawson as we closed the sale of the Georgia facility to CleanSpark and moved all our assets into our Pennsylvania facility expansion. During this time, our industry, in particular and the economy more broadly faced a little macro headwinds. Mawson has converted these headwinds with a continued focus on our diversified and total revenue model, particularly trade revenue shares; one being self-mining; two being hosting collocation; and three, our market-leading Energy Markets program. I want to provides a significant support to the company’s revenue and price profit through Q4 and through 2022. Some key highlights from the period include, the closing of our Georgia sale for over $40 million; completion of the build-out for Phase 1 of Midland, PA to 120 megawatts of capacity; securing some additional sites for growth, including firming up our 120-megawatt facility in Sharon, PA; and entry into a binding sale agreement for the Texas facility for $8.5 million, enabling us to continue our strategic focus on the PA region.

With that summary, I am going to hand over to Ariel Sivikofsky, our CFO, to run through the financials for the year.

Ariel Sivikofsky: Thanks, James, and thank you to everybody who has joined the call. Touching on some highlights of the full year results of 2022, Mawson has generated record revenue for year-to-date of $84.3 million, up 92% year-on-year; gross profit of $36.6 million, up 8% year-on-year; non-GAAP EBITDA of $30.4 million, up 70% year-on-year; and Bitcoin produced for self-mining increased 66% to 1,343 coins. Importantly, with the largest depreciation shared afforded to us, we have almost no tax burden in this EBITDA number. Pleasingly, our hosting colocation business also generated solid growth, rising 1,464% from 2021 to $13.3 million in 2023. In addition, to this Mawson had a new source of revenue in 2023, being the Energy Markets program that generated $13.7 million in revenue at a gross margin of 91%.

Mawson received $20.6 million of proceeds from the sale of the Georgia facility in quarter four, with additional share-based payments hitting the balance sheet subsequent to year end. These funds have been partially used to reduce debt as shown on the balance sheet with debt reduction payments of $11.93 million in quarter four. Some other balance sheet highlights from the quarter include; an addition of $11.3 million in assets associated with energy contracts referred to here as derivative assets; a $3.2 million increase in marketable securities; and a $5.4 million increase in assets held for sale. At the end of 2022, our net assets were $76.1 million, based on shares on issue as at March 6, 2023, of $14.1 million, our net assets per share sit at $5.34 per share versus a share price of $2.50.

Turning to our income statement, some other highlights from 2022 versus 2021 include; a 37% reduction in our selling, general and administrative expenses from the first half of 2022 to the second half of 2020, a $12 million increase in year-on-year in hardware sales to $14.2 million in 2022. Critically and with the challenge of 2022 behind us, Mawson is focused on ensuring that we have a strong balance sheet for 2023. Through strategic asset sales, increases in our operations and the capital raise in 2022 we are well placed to grow in 2023. I will now hand over to Chief Operating Officer, Liam Wilson, to provide an operational update.

Liam Wilson: Thanks, Ariel. As James touched on it earlier, Mawson has developed a diversified and highly flexible operating model. Through 2022, we saw this model pay dividends as extreme weather events, coupled with global social issues caused power prices to peak worldwide. Our infrastructure-first approach was highly favorable through 2022. Due to these events and the operating model, Mawson had the ability to 2022 included an average of 0.8 exahash online for the year with the top of 1.63 exahash online to self-mining reached in June 2022. We look forward to our self-mining ramping up significantly through Q2 and Q3 as our 120-megawatt Midland, PA facility and the first 12 megawatts of our 120-megawatt facility in Sharon, PA, come online.

We are actively watching the market for purchasing opportunities to add to and upgrade our self-mining fleet. The second arm of our diversified model hosting continued to pay dividends during 2022, which further justified our mining hosting split, a record $13.3 million of hosting revenue was earned through 2022, which run at a 24% margin. Mawson views hosting a stable revenue and an option to hedge against full Bitcoin exposure and we will continue to look for favorable and appropriate hosting partners in the future. Our third revenue stream, the Energy Markets program was a resounding success story of 2022. $13.7 million in revenue was earned during a period when our competitors would have otherwise been offline. This program ran at a 91% margin.

On top of this, our grid stability contribution was significant, particularly during the pre-holiday period winter storm, which hit across the U.S. In Q4, Mawson exited the Australian facility at Condon. This decision was made so that Mawson could focus all of our attention on Pennsylvania and Ohio. We firmly believe the climatic conditions in these areas are perfect for mining and hosting. They also provide the opportunity to participate in the Energy Markets program. With regards to the climate, winters are cold with some rare freezing events, summers are mild with very few extremely warm days. What you are left with is highly favorable air cooled mining weather to 99% of the year. Mawson now has our eyes firmly on what can be achieved in 2023 and this is underpinned by our secured energy pipeline.

Our infrastructure-first model and existing strategic relationships have given Mawson first access to multiple attractive sites and we look forward to announcing further growth in the near future. We will continue to search for deal on and develop sites, which we believe will be highly lucrative for either self-mining, hosting or a mix, and we will look to add to our Energy Markets program where applicable as well. Mawson’s ESG program is something we are incredibly proud of and we will continue to look for opportunities to further the program through 2023. Our proximity to the Beaver Valley nuclear station is a strategic advantage and we are very proud of our 100% nuclear certification. During 2022, we were welcome to the Midland, PA, community and we are extremely proud to have contributed to the arts, education and healthcare facilities with grants.

On top of this, we have been active supporters in the Sandersville community prior to our sale for three years and have recently become involved in the Sharon, PA, community. With that, I will pass back to James. Thanks, James.

James Manning: Well said, Liam. Continuing on an important part of our success today and to the future is our employee and team. Our operational team is led by our COO, Liam Wilson, driving the operational performance of the company. Craig Hibbard, our CDO, is overseeing the development of our portfolio facilities in the United States. We then have our corporate team consisting of Tom Hughes in General Counsel; Tim Broadfoot, our CCO; Dan Tuzzio, our CTO; and Ariel Sivikofsky, our CFO. This team brings a wealth of experience and knowledge and knowhow from many industries that give ultimately sales now and into the coming years. With this combination of personnel and structure, we are confident and excited to take on any challenges into 2022.

Finally, we want to be sold to the market price of our share versus several other metrics. 2022 for Mawson shareholders observed a material decline in the share price. Having take into consideration the current market price versus our peers and other external factors, such as, Bitcoin, we prepared the final slide to help everyone to reflect upon the value proposition we at Mawson see in the share price. In summary, 2022 was a pivotal year from the Mawson team. We simultaneously expanded our large scale on low-cost Pennsylvania facilities, which today stand at 240 megawatts of capacity or approximately 8 exahash of computing power. We also completed the sale of one of our non-core facility to CleanSpark approximately $40 million. And we intend to expand our Pennsylvania facilities with self-mining and hosting throughout 2023 and into 2024, and look forward to sharing more information on this expansion in early Q2 this year.

With that, I just want to take a moment to thank shareholders for their continued support of Mawson and we look forward to answering any questions and giving you updates in the future. Thank you.

Tim Broadfoot: Thank you, gentlemen. With this presentation now complete. We wanted to take this opportunity to thank all of our employees, suppliers and shareholders for their ongoing support in 2022 and into 2023. We will now answer any questions.

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Q&A Session

Operator: Thank you. Thank you. Our first question is from Josh Siegler with Cantor Fitzgerald. Please proceed with your question.

Josh Siegler: Yes. Hi, guys. Thanks for taking my question today. I think for my first one, I’d love to get an update on what you are seeing in terms of hosting demand and the progress you have made in finding a hosting partner moving forward? Thank you.

James Manning: Hi, Josh. Good to hear from you. I might pass that one to Liam, who’s sort of been dealing with the day-to-day hosting inquiries. He would be best positioned to answer that.

Liam Wilson: Thanks, Josh. Thanks for the question. I guess the simplest answer is, there’s a ton of inquiry coming through. We are seeing plenty of the large miners looking for hosting now that the other facilities through the market have dropped off through 2022 and we are seeing plenty of new demand for hosting come through from players that we previously hadn’t heard of before. So in short, there’s a large pipeline of hosting customers ready. With regards to us nailing down a hosting partner, we are going through some pretty stringent day-to-day with a number of parties at the moment and we hope to be announcing some exciting news on hosting in the near future, but we are in the final stages of that now.

Josh Siegler: Understood. That’s helpful color. And then I’d love to circle back to the build-out of Sharon, and kind of what CapEx are you assuming will be required to finish construction of that site?

Liam Wilson: James, do you want to a take that.

James Manning: Hi, Josh. Yes. Yeah. You are more than delighted .

Liam Wilson: Thanks. Josh, the first 12 megawatts for that facility are already fully funded. So that’s the first six NDCs, the transformers and all the polls and wires to get that online. The balance of the 108 megawatts, we will be looking for a partner to execute that site.

Josh Siegler: All right. Understood. Thank you.

Operator: Thank you. Our next question is from Kevin Dede with H.C. Wainwright. Please proceed with your question.

Kevin Dede: Hi, James. Thanks for taking my call. Your objectives look pretty appetizing and I was wondering what all was behind them? We are 50 megawatts now, hoping to go to 4.5 exahash and then 8 exahash on a mix of self-mining and hosting. Can you give us a little more detail on how you expect that mix to break down?

James Manning: Sure. So what I’d say is, we are at 50 megawatts online and within sort of the next 30 days, we expect to be 120 megawatts online. So that’s the first one. So think about us is 50 megs is probably not giving us full credit where credit is due to the balance of the facility built out at Midland, the whole 120 meg of infrastructure there and we are just in commissioning phase on that. So we probably need to — we were intending to come to market and when we start turning those cans on over the next couple of weeks. But the containers are on site, the substation is built and we are in the testing phase of commissioning. So to think about it as more 120 megs online is probably close to the mark where we are. So, and that’s, obviously, being funded and built out to-date.

The next one is Sharon, which we are, obviously, as Liam alluded to is, currently already been — and the process being finalized from a construction perspective, but is also fully funded. So we are more like 132 megawatts, 135 megawatts of built out infrastructure. That obviously gives us a good head start on total infrastructure build and where we are. I think on one of the slides, we alluded to, I think, it’s slide 10, you will see there’s sites one, two, or three. There are some other sites that we have got a very low CapEx, but in some site we can turn on another almost 50 megawatts there very quickly after a very, very little small capital outlay. And we have got those sites locked up already with some LOIs and some binding agreements.