Keel Infrastructure Corp. (BITF) Earnings Call Transcript & Summary

Welcome, everyone, to the Annual General and Special Meeting of Bitfarms Ltd. Please note that this meeting is being recorded. [Operator Instructions] I would like to introduce Nicolas Bonta, moderator of today's meeting. Mr. Bonta, please go ahead.

[Foreign Language] Good morning, ladies and gentlemen. I'm Nicolas Bonta, Co-Founder and Chairman of the Board of Directors of Bitfarms Ltd., and I will act as Chair of the meeting. On behalf of the Board, I would like to welcome you to the 2023 Annual General and Special Meeting of Shareholders of Bitfarms Ltd. We have 5 items of business to conduct today. Number one, to place the company's audited financial statements for the year ended December 31, 2022 and 2021, together with the auditor's report thereon before the meeting; number two, to elect the directors of the company; number three, to appoint PricewaterhouseCoopers LLP as the auditors of the company for the ensuing year and to authorize the directors to fix their remuneration; number four, to consider and if deemed advisable, pass a special resolution approving an amendment to the articles of the corporation for the future consideration of the common shares on the basis of 1 post-consolidation common share for up to 10 pre-consolidation common shares, if and at such time following the date of the meeting, as may be determined by the Board of Directors of the corporation in its sole discretion as more particularly described in the circular; and number 5, to transact any other business that may probably come before the meeting. At the meeting, registered shareholders and duly appointed proxy holders will have an opportunity to vote. TSX Trust shall open the polling momentarily, which will remain open for the duration of the meeting. We'll go through the items of business one by one, but shareholders may vote on each of the items at any time prior to the polls being closed. Please follow the instructions on screen or as provided by the operator. Once the formal business of the meeting has been completed, there will be an opportunity to ask questions. General shareholders' questions that are not relevant to a particular discussion may not be addressed. Depending on the number of questions received, we may not be able to address them all. Nonetheless, we always appreciate comments and feedback from our shareholders and encourage you to reach out to our Investor Relations department with any questions that may not have been addressed today. The meeting will now come to order. And unless there is an objection, I ask Patricia Osorio to act as Secretary and TSX Trust through its representative, Kieran Webb to act as scrutineer. The notice calling this meeting and accompanying the Management Information Secular from the proxy and the consolidation financial statement of the corporation together with the Auditor's Report of their own have been made available to each of the shareholders of the corporation. The corporation utilized a notice-and-access mechanism under the National Instrument 54-101 communication with beneficial owners of securities of a reporting issuer and National Instrument 51-102, continuous disclosure obligations. Additional copies of such materials are available on the corporation's website and on sedar.com. An affidavit of mailing of the documentation required to be made under the notice-and-access provisions has been provided by TSX Trust to the corporation, and I direct that this affidavit be annexed to the minutes of the meeting. Accordingly, unless there is an objection, I will dispense with regarding of the notice of the meeting. Based on the preliminary report on the attendance provided by the scrutineer, there are 376 shareholders represented by proxy holding 72,262,470 shares and representing 30.076% of the total issued and outstanding. There is a quorum present and proof of notice calling this meeting has been given in accordance with the cooperation by laws and the Ontario Business Corporation Act. I now declare that the meeting is regularly called and properly constituted for the transaction of business. I direct that the scrutineers complete the report on attendance be annexed to the minutes of the meeting together with the declaration of mailing. As indicated, all registered shareholders and our proxy nominees who have logged in to the meeting and are virtually present at the meeting and who have not previously submitted a proxy will be able to vote using their control number by following the instructions included in the management information circular dated April 4, 2023. I now instruct TSX Trust to open the polls, which shall remain over the course of the meeting. Shareholders may vote on any of the items of business while the polls are open. The scrutineer shall close the polls and tally the votes towards the end of the meeting once we have put forward each of the items of the business to be voted on. There are several matters that must be dealt with during this formal part of the meeting. In order to expedite these matters, I have requested that certain persons make and second the formal motions, and I will call on these persons at the appropriate time. Shareholders may comment specific to those motions prior to the vote, but should hold any comments on general matters until the question period to be held following the termination of the meeting. The financial statements of the corporation as at December 31, 2022, together with the report of auditors thereon have been mailed to all shareholders of the corporation and are also available on the corporation's profile on SEDAR. It is not proposed to ask the shareholders to approve the financial statements. However, after my remarks on the operation of the corporation and after any formal business of the meeting, we will be pleased to answer any relevant questions concerning the financial statements. It is now in order to proceed with the election of the directors for the ensuing year. The number of directors to be elected at the meeting is 6. Are there any questions from the shareholders on the election of the corporations? If there are no questions, I declare the meeting open for nominations. The number of directors to be elected at the meeting is 6. Management nominates the following persons specified in the management information circular delivered with the notice of the meeting, namely Nicolas Bonta; Andres Finkielsztain, Emiliano Joel Grodzki, Edith Hofmeister, Brian Howlett, and Geoffrey Morphy to be elected to serve as director of the company, to hold office until the next Annual Meeting of Shareholders or until their successor are duly elected or appointed in accordance with the articles and by law of the corporate of the company. Are there any further nominations? I have been advised by the scrutineer that the proxies deposited for the meeting have been positively voted for the election of each of the directors, and I would ask someone to move the following resolution, which I will now read. We hereby resolve that the 6 persons nominated by management to be elected as director of the company to call office until the close of the next Annual Meeting of Shareholders or until their successors are duly elected or appointed in accordance with the articles and by laws of the company.

I so move, Mr. Chairman.

May I have the motion seconded?

I second the motion, Mr. Chairman.

Thank you. As previously indicated, online participants are able to vote on the resolution at any time prior to the polls being closed. The next item of business is a resolution appointing auditors for the ensuing year and authorizing the directors to fix their remuneration. Are there any questions from shareholders in regards to this resolution?

There are no questions in the chat.

I have been advised by the scrutineer that the proxies deposit for the meeting has been positively voted appointment of the auditor, and I will ask someone to move the following resolution, which I will now read. We hereby resolve that PricewaterhouseCoopers LLP be and they are hereby appointed as auditors of the company to hold office until the close of the next annual meeting of shareholders or until their successors are appointed, as such remuneration as may be fixed by the directors and the directors be and they are hereby authorized to fix such remuneration. Would someone so move?

I so move.

And I second the motion, Mr. Chairman.

Thank you. Online participants may vote on a motion anytime until the polls are closed. The next item of business is to approve a special resolution to consolidate all of the corporation issued and outstanding common shares on the basis of a maximum ratio of 10:1, meaning not more than 10 pre-consolidation common shares for 1 post-consolidation common share. According to the proposed special resolution, if the share consolidation resolution is approved the consolidation will be implemented only upon a determination by the Board that the consolidation is in the best interest of the corporation and its shareholders at that time. In connection with any determination to implement the consolidation, the Board will set the timing for such consolidation. A special resolution authorizes the board to elect not to proceed with and abandon the consolidation at any time if it's elected in its sole direction discretion to do so. The consolidation is subject to approval by the shareholders and accepted by the TSX. No further action on the part of the shareholders will require in order for the Board to implement the consolidation when the resolution is approved. The consolidation resolution requires the approval of not less than 2/3 of the votes cast by shareholders at the meeting. Are there any questions from shareholders in regard to this resolution?

No questions.

I've been advised by the scrutineer that the proxies' deposit for the meeting have been overwhelmingly voted for the approval of the consolidation. I would ask someone to move the following resolution, which I will now read. Be it hereby resolved as special resolution that the articles of the corporation be amended to change the number of issued and outstanding common shares of the corporation, by consolidation the issued and outstanding common shares on the basis of 1 post-consolidation common share for up to 10 pre-consolidation common shares of the corporation or for such other lesser whole of fractional number of existing common shares that the directors in their sole discretion determined to be appropriate. And in the event that the consolidation would otherwise result in a holder of common shares holding a fraction of a common share, such holder shall not receive a whole new common share or any cash consideration for each subtraction such amended to become effective at a date in the future to be determined by the Board of Directors of the corporation, to any director or officer of the corporation be and is hereby authorized for and on behalf of the corporation to execute and deliver or cause to be delivered Article of Amendment to the directors under the Business Corporation Act of Ontario at such time as the Board determines the implementation implement the consolidation. Notwithstanding that this special resolution has been duly passed by the holders of the common shares, the Director of the corporation are hereby authorized in their sole discretion to revoke this special resolution in whole or in part at any time prior to its being given effect without further notice to, or approval of, holders of the common shares. Any one director or officer of the corporation be and the same is hereby authorized for and on behalf of the corporation to execute or cause to be executed and to deliver or cause to be delivered, all such documents and filings, and to do or cause to be done all such acts and things as in the opinion of such director or officer may be necessary or desirable in order to carry out the terms of this resolution, such determination to be conclusively evidenced by the execution and delivery of such documents or the doing of any such act or thing. Will someone so move?

I so move, Mr. Chairman.

And I second the motion, Mr. Chairman.

Thank you. I will now call for a brief adjournment of the meeting in order to allow the TSX Trust to tally the votes received online. I will call the meeting to order. TSX Trust has reported that the resolution respect the election of Nicolas Bonta, Andres Finkielsztain, Emiliano Grodzki, Edith Hofmeister, Brian Howlett, Geoffrey Morphy and the appointment of the auditors have been carried by a majority of vote cast at the meeting. The resolution respecting the consolidation has been carried by a majority of 2/3 of the votes cast at the meeting. If any shareholder is interested in the exact number of votes cast in favor or against the resolution, which have been voted on, particulars may be obtained on inquiry from the corporation secretary and will be published by the corporation following the meeting. Unless there is a further business to come before the meeting, I will entertain a motion to terminate this meeting.

I move that the meeting -- this meeting will be terminated, Mr. Chairman.

And I second the motion, Mr. Chairman.

Thank you. I hereby declare the meeting terminated. Thank you all for the attending of the meeting. This concludes the formal business. I will now turn the meeting over to Geoffrey Morphy, who will present the corporation's activities and provide an update. The presentation will be posted on our website. Over to you, Geoff.

Thank you, Nico, for your kind introduction. Good morning everyone and welcome to our Fifth Annual Meeting of Shareholders. I am Geoff Morphy, following 3 years of service to Bitfarms, 5 months ago, the Board of Directors appointed me as CEO. I respect and am monitored by their decision. Similarly, I am honored today to be voted by the shareholders back on to Bitfarms' Board of Directors. As I have done since joining Bitfarms 3 years ago, I will continue to give our company and in turn our shareholders, employees and other stakeholders everything I have to offer. I want to begin by extending my gratitude to you, our shareholders, for your ongoing faith in Bitfarms' leadership team and in our vision for the future of the company. I also want to sincerely thank all the employees of Bitfarms, including our Backbone and Volta electric subsidiaries for their hard work and commitment over the past year. As a reminder, certain statements, including any mention of financial forecast made in the course of this speech are considered forward-looking statements and forward-looking information covered by the safe harbor provisions under United States and Canadian securities laws and reflect the company's or management's plans, intentions, hopes, beliefs, expectations or predictions for the future. These statements and information are based on information currently available to the company. And the company's actual results may differ materially from the plans, intentions, hopes, beliefs, expectations and predictions contemplated in these forward-looking statements and information. As a result of various risks, uncertainties and other factors including those discussed in the company's latest financial -- latest filings on SEDAR and with the U.S. Securities and Exchange Commission. All available on the Investor Relations section of our website. Please also note that the information provided in this speech should be considered current only as of today. Except as expressly required by the applicable securities laws, we undertake no duty to update that information. In addition, today's remarks refer to non-IFRS financial measures that are intended to supplement but not be a substitute for the most directly comparable IFRS measures. The financial and other quantitative information to be discussed today as well as the reconciliation of the non-IFRS measures to the most comparable IFRS measures are available on the Investor Relations section of our website. Our website is bitfarms.com. Since the beginning of 2022, we have experienced 2 very different extremes. We started 2022 with Bitcoin prices around $46,000, which generated very healthy margins and cash flows. Taking full advantage, we entered the year specifically focused on the 2 most ambitious expansion projects in our 5-year history. The first project involved the complete overhaul and construction of 3 new facilities in Sherbrooke, Quebec, representing 96 megawatts. The second was the 50-megawatt project in Rio Cuarto, Argentina also included the construction of our first high-voltage substation. These major projects were substantial in cost and scope. While we possessed an experienced team in Quebec, our expansion in South America meant not only hiring new employees -- fully trading training our new LatAm team members, expanding from a regional operation in Quebec to having full operations in 4 countries, including 2 in South America, was ambitious while undertaking it. To accomplish our goals, we created a comprehensive recruiting and training program, which involved transferring employees from LatAm to Quebec for weeks at a time. And involve many of our experienced managers spending substantial amounts of time in Argentina and Paraguay, educating employees on operations, systems and how to succeed and thrive with our ethics and open corporate culture. Fortunately, our efforts unfolded very well. First, both construction projects were completed as planned. This is a testimony to the experience, creativity and tenacity of our employees. Second, the knowledge transfer programs went exceedingly well, and we now have fully trained and collaborative teams in both hemispheres while working fluidly in 3 languages. Unlike the start of 2022, we entered 2023 in a completely different world. Inflation was approaching levels not seen since the early 1980s. In reaction, governments around the world raised interest rates aggressively and repeatedly to try to tame inflation. With an economy contracting quickly and fears of a recession abounding, investors revise their investing criteria and move their investment funds on mass into more conservatively -- into more conservative holdings. Your management realized that it needed to pivot quickly and comprehensively to adjust to the new reality. Management teams are measured by their performance and ability to read and respond to changing conditions. Going from full throttle acceleration to cost containment and a very [ bridalled ] outlook, took determination and support of -- support from many of our partners. It was very clear as macro conditions continue to deteriorate that we needed to take several significant actions to reduce cash commitments as we were encountering mining margins that were insufficient to cover not only our operations, but also debt repayment and our CapEx commitments on previously ordered miners and new production facilities. The results of our actions were, frankly, better than we expected. We converted significant scheduled CapEx payment commitments coming due in 2023 and over $20 million of hardware credits to be utilized at our discretion, and we were able to defer commitments on equipment for our second warehouse in Rio Cuarto. We made the difficult but appropriate decision to use our Bitcoin holdings to pair our indebtedness to a conservatively manageable level. We also, after careful and thorough consideration took advantage of the bankruptcy of one of our lenders to purposely negotiate a full payoff of $22 million of indebtedness for less than $8 million. Unlike similar efforts by many of our peers, we accomplished this without the loss of any hash reproduction rate or forfeiture of mining machines. Our overall debt reduction efforts, including the negotiated settlement, lowered our corporate indebtedness from $165 million in mid-'22 to less than $19 million now. Favorably, this remaining debt will be repaid monthly from cash flow from operations and should be fully retired in February 2024 well before halving. We have also very intentionally reduced our cash overhead expenses. As a company with a long-term outlook, these moves were vital to our short-term viability and to position us for long-term success. The fourth quarter of 2022 was generally considered to be the coldest part of the crypto winter. However, the moves we took resulted in Bitfarms generating a positive adjusted EBITDA during the fourth quarter of 2022. We were one of very few companies in the sector to register this accomplishment. With improving Bitcoin prices and our continued careful eye on our cash expenses, our adjusted EBITDA improved to over $6 million in the most recently completed fiscal quarter. Adjusted EBITDA is an important measure of the profitability and success of any company. At current Bitcoin prices, and this level of performance, we can fulfill all our ongoing obligations, including principal repayments and as we did in March and April, use surplus profitability to start rebuilding our Bitcoin stack. As a low-cost producer with relatively stable energy costs and a fixed operating structure, Bitfarms is positioned to achieve asymmetrical upside with financial performance that exceeds Bitcoin price performance. Bitfarms is now 5.5 years old. And unlike many of our peers, we have experienced and weathered having events. This experience and positioning should not be undervalued. We have built a management team and employ company strategies that fully under -- the coin is still in its infancy, and extreme volatility will remain as further adoption and maturity evolves. We know that it is critically important to keep costs and our cash obligations under control. When companies get ahead of themselves, the results can often be a sharp financial contraction, leading to bankruptcy filing or other substantial restructuring. What this means to you, as our shareholders, is that you will benefit positively whether we are experiencing tight margins because Bitcoin prices are low or when Bitcoin prices are at all-time highs. During the crypto winter, we saw some companies fall into bankruptcy. After the halving takes place in about late April of 2024, we fully expect a number of other companies to struggle and fail. Companies in our sector that possess good power purchase contracts have efficient operations and have manageable cash commitments will not just survive but will be the ones best positioned to outperform when Bitcoin prices regain their upward trajectory. We fully intend to be in that elite group. As evidence of this progress, numerous investment banking firms who are very familiar with our sector have been carefully assessing the landscape in recent months and are making decisions about which companies to follow. As a result, some companies are losing equity research coverage, whereas GMP Stifel, launched coverage on Bitfarms in late March. And last Friday, Cantor Fitzgerald also initiated research coverage on Bitfarms with an overweight recommendation. Macroeconomic conditions remain challenging, but I can assure you that your company continues to be fully engaged. One month ago, we finally overcame 2 significant hurdles in Argentina that delayed our announced expansion plans. The first challenge was overcome when the private power producer finally received approval to generate and deliver electricity to us. This wholesale power arrangement brings us many benefits, including electricity costs, which we believe will be amongst the lowest in the industry. Second, we began receiving approvals to directly import miners into Argentina. With the 2 victories in hand, we are now aggressively and very cost effectively working to accomplish full production of our first 50-megawatt facility in Río Cuarto. We expect our Rio Cuarto production facility to become the lowest cost and one of the best-performing farms across the entire company. With these gating items behind us, 1 week ago, we accelerated our corporate guidance of 6x a hash from year-end 2022 to September 30, 2023. Beyond the first warehouse, in LatAm, we are evaluating further expansion on this site as well as other low-cost opportunities in Argentina and Paraguay. We also hope within the next month to close our previously announced acquisition of a company in Baie-Comeau, Quebec. This company owns a contract that would allow us to pursue a further 22-megawatt expansion. As for further expansion moves in Quebec, we are cautious with our expectations. Announcements by Hydro Quebec, the provincial government and Canada's federal government during the past 2 years have added costs, bureaucracy and considerable uncertainty. Until we get better clarity, expansion elsewhere makes more sense. We will continue to seek out and then assess new opportunities very carefully. While we have looked at many opportunities to date, most simply have not measured up. Between ESG concerns, higher cost electricity or structural issues, they have not met our criteria. We will not seek growth for growth sake. We will continue to remain disciplined. If we are going to deploy our efforts and use precious capital, the opportunity needs to make sense. As our CFO, Jeff Lucas, likes to say, it needs to be accretive and represent intelligent growth. Our plan for the next 2 years is as follows: we have about 11 months before the halving. If we can find and execute organic or inorganic growth opportunities such that they bring value and accretive cash flow to us ahead of the halving then we will actively consider them. The strategy includes finishing our 50-megawatt facility in Rio Cuarto and our first 11 megawatts of the 22 megawatts in Baie-Comeau. Over the same period, we intend to continue to build liquidity so as to be well positioned to not only survive the halving, but to be in a position to jump on opportunities for equipment and sites as others struggle or fail. As evidenced by the experience of other miners, inefficient and poorly capitalized companies rarely make it through the halving. This is good for Bitcoin and good for Bitfarms. As these companies shut down miners and fail, the network hash rate reduces and our market share increases. As our market share increases, our proportion of the block rewards increases, which in turn increases revenues, margins and cash flow. The other benefit is that attractive assets with deeply discounted values should emerge. While there is no certainty as to what the future will bring, historically, 5 to 9 months after halving Bitcoin prices begin to increase slowly then rapidly. We are prepared for this to reoccur and our plan is to be ideally positioned to take full advantage of the opportunities it may present. The Bitfarms team is excited for the future, and I hope you are, too. In summary, we possess vertically integrated operations in which costs are well controlled. We build and operate some of the lowest cost operations with the highest efficiencies when compared to all our publicly traded peers. We are diversified with 10 and soon to be 11 farms located in 4 countries. We have industry-leading proprietary mining and facilities management software. We have over $20 million of hardware credits to help fund expansion without placing full reliance on our precious liquidity position. We possess a pipeline of acquisition-based expansion opportunities. We possess a strong balance sheet and most important, we have a seasoned, experienced and talented management team committed to driving our profitable expansion and growth. In conclusion, we have been building a highly ethical company possessing a strong foundation over the past 5 years. Bitfarms now employs one of the strongest operationally focused teams in the industry with one of the lowest cost operating structures. We have never been better positioned and we feel confident that we are well positioned to capitalize on the challenges and opportunities that lie ahead of us. Thank you for your attention and your time. We would be pleased to take and answer any questions.

Thank you, Geoff. There are no questions in the chat.

Thank you, Patricia. There being no further questions or any questions. I would now like to thank everyone again for participating. Thank you, and have a good day and a good year.

Thank you, everyone, for attending. You may now disconnect.