SATO Technologies Corp. (SATO) Earnings Call Transcript & Summary

All right. I think we can start. Thank you for being here. We are very happy to have you come to our presentation today. And for those who will follow us afterwards from our YouTube Link, welcome, too. Today, the presentation will mainly be about presenting our financial results. I'm here with Kyle Appleby, who will do the presentation very soon. First, information, as you know, the legal disclaimer. Everything you hear here is about forward-looking information. We are going to talk about different kinds of things, and you need to look at our press release and announcement for all the regular information. For those who doesn't know us, a few words about SATO. We started in 2017. I co-created the company back in the days. I'm, myself, an entrepreneur. Been in the technology world since 1995. And in 2017, I decided to start Bitcoin mining and we opened a 20-megawatt data center in Quebec. Today, we are running 100% self-mining operation. Since 2021, we decided to become a publicly listed company under TSXV. We are available under the ticker SATO, S-A-T-O, and also available in the U.S. on the OTCQB under the ticker CCPU.F. Over the years, we are very focused on efficiency, that means the efficiency on how we transform energy into computing power. And we are always ranking one of the best and most efficient Bitcoin miner who are publicly listed. Like many people in our industry, we are now focusing into using our energy for another type of compute power, this time for AI and HPC. The reason why is because we are a believer in blockchain, but we also want to provide and to service the industry for the intelligent Internet. And the intelligent Internet today, this is really AI and HPC . And we believe we have a unique position in the market in order to access and offer solutions for different kind of clients for everything related to AI and HPC. It also includes cryptography. We don't want to stop Bitcoin mining. We are still a believer in Bitcoin and we will continue using Bitcoin or we'll continue using some compute in order to mine Bitcoin. And the reason why is because we see that as a way to be more efficient with our energy in the coming months and years. The market for AI and HPC, I'm not going to teach you anything today, but it's huge in terms of CapEx. The provision from this study, for example, from Dell'Oro says that it will be $1 trillion just invested for CapEx of AI and HPC. That's a lot of money, but it's also because infrastructure for this kind of compute cost a lot of money, around like $10 million to $15 million per megawatt just for the infrastructure, not for the GPUs. And this is why you can see that the budget here is increasing very quickly. For example, I think year-to-year we're talking about more than 50% from last year to this year just for the CapEx of the AI and HPC infrastructure, $0.5 trillion already. You've seen big brands such as Blackstone, KKR investing a lot into this new lines of business. Why? Because it has an interest for the sovereignty of the country. It's like your efficiency as a country, as a citizen. And that's why we believe we, at SATO, we are uniquely positioned. Why? Because we can coexist into a universe of, on one side, legacy data center; on the other side, hyperscalers. We have been managing now for more than 8 years our energy and our cooling solution for like 6,000 computers. And we believe we're going to be able to do it extremely well also for AI and HPC. Different setup, different type of compute, but the bottom line is very similar to what we have been doing in the sense that we are really bringing expertise in how to manage power, expertise in how to develop infrastructure and how to be efficient with the computing or the compute that we are currently managing. One of our benefits also is that we are uniquely positioned in Canada, at least for our Center Number One, in order to bring solutions to specific clients, Canadian clients, who are now very much keen to find Canadian hosting providers like us in the sovereignty, new discussion that is arising between the political discussions that could arise between Canada and the U.S. or the U.S. with the rest of the world. It's a unique proposition that we are proposing with our data Center Number One. Also, our benefit is that we already own our 20 megawatts of energy. So for us, it's very easy to use some of it and to convert it for AI and HPC because we can do it without trying or waiting too long to get more energy, which is key in the industry. And we are also scaling the market to scale up and scale out of our infrastructure. Even so, we believe we're going to have more energy at some point in Quebec and in Canada. We are also looking for other sites that we can really grow from our 20-megawatt to bigger and other sites. The ideas that we are currently doing with AI and HPC in our Center One is really to create a playbook in which we convert the energy for Bitcoin mining to AI and HPC and from there being able to scale at the speed of light. I'm going now to give the floor to Kyle, who is going to go over the financial results, which is the reason why we are here today. So Kyle, please go ahead.

Thank you, Romain. I'm very pleased to be able to present to you our 2024 financial results. The results are reported in Canadian dollars, unless I state otherwise. And all our financial statements are in accordance with IFRS accounting standards, and full financial statements and management discussion and analysis can be found on SEDAR+. So please go ahead and download those documents to read as well. So for the year ended December 31, 2024, we earned 190 Bitcoin, representing approximately $16 million compared to 260 Bitcoin in 2023, representing approximately $10.8 million. The balance of the revenue earned in 2023 was from hosting services that we were providing, which stopped in July of 2023, and that represented a $6.6 million for 2023. There were 3 items that negatively impacted the number of Bitcoin we earned in 2024 compared to 2023. Those being the halving event in April of 2024 and the related increase in network hash rate. As well, we had a fire at our facility in June, which damaged operations, and we lost 413 machines, which were not replaced. We did repair the facility and was fully operational again in Q4 of 2024. Those negative items were offset by the positive impact of the increase in price of Bitcoin from USD 44,000 January 1, 2024, to USD 92,000 at the end of the year. We also had a small -- another item that helped increase revenues in 2024. There was a reduction in load shedding and downtime hours, which we are required for the extreme cold winter months by Hydro-Joliette to reduce our power. So those lost hours in '23 were 276 hours compared to 128 hours in 2024. So this was a small item that also helped increase revenues. Cost of revenue, majority of that would be electricity. We also had salaries and depreciation in the cost of revenue to result in a strong net gross profit of $3 million. Getting to operating income. From gross profit incorporates a realized gain of $918,000 on the sale of Bitcoin used for working capital operations as well as an unrealized gain of $1.6 million as we revalue all the Bitcoin that we hold at December 31 for the current price. So that resulted in an unrealized gain of $1.6 million. We also had operating expenses comprised of share-based compensation, which represents the value of stock options that vested during the period. So we had $176,000 versus $899,000 in 2023. And then operating expenditures of $3.1 million in 2024 compared to $3.4 million in 2023. In 2024, we implemented some cost-saving measures, mainly personnel and salary related to help us reduce costs there. From operating income down to net profit, which we had $1.1 million in 2024, which represented a 51% increase. The main item getting down to the net profit is our interest, finance costs on our borrowings, which was approximately $1 million. So we end up in 2024 with a strong positive EBITDA of approximately $5 million, which is one of our main key performance indicators that we look at, and we're very pleased with the results there. On the next slide, it shows, as you can see, 3 of our other -- or 3, including EBITDA, of our key performance indicators. The first one is compute power profit, which is mainly a gross profit on solely our mining pool operations and then excludes depreciation. So in 2022 and 2023, we exclude all the hosting and other related items. So it's representing solely our mining pool operations. So we ended up with a strong number, almost $6 million there. You can see the increasing trend and ended up being 10% increase from prior year. We also have there our EBITDA, as mentioned, $5 million and adjusted EBITDA of almost $3 million. To get to adjusted EBITDA, the main items there that would reduce adjusted EBITDA from EBITDA or the realized gain on the Bitcoin sold during the year and the unrealized gain as mentioned earlier. On our next slide, you can see our unrestricted and restricted cash and digital asset position, which helped to give us a strong balance sheet at the end of the year. We had 34 Bitcoin held. So the 34 Bitcoin represented approximately $4.5 million at the end of the year. We are required to hold 20% of our borrowings as collateral. So the main items would be 10 Bitcoin. And then we also held $90,000 in cash as restricted. So you can see when you look at our financial statements, you'll see unrestricted -- our restricted cash and restricted digital assets. So that was what that would represent. Our next slide discusses the capital structure of the company at December 31. As you can see, we have a low share count, tight capital structure. Shares outstanding of 73 million at the end of the year and fully diluted, approximately 80 million. Our share price at the end of the year was $0.22. And you can follow us, our tickers are SATO on the TSXV and CCPU.F on the OTCQB.

Thank you, Kyle. This concludes the presentation. Thank you, everyone, for being here. We are open now to take questions. If you have any, you can chat. It's open. We're going to wait a few minutes, if you have any. This is -- this was a very interesting presentation. Thank you again, Kyle. I think what we are showing here is that we have managed our costs in a very difficult year, the year of the halving, which is always difficult for Bitcoin miners, not to mention that we have the difficulties that was increasing the price of the Bitcoin that was not going completely crazy. So it's really a good outcome, showing net profit for the year. Also positive EBITDA. And now we are really focused on our AI initiative and how we can and how we will bring more revenues, less volatility because that's also the beauty of doing HPC and AI, you're less exposed to Bitcoin in some ways. And we're going to do announcements as soon as they arrive. If you are not already, please follow us on our X or LinkedIn. We are publishing regular information about where we are and where we're going to.

I have a question that I see online, which is about our market cap. It's true that it's very low in comparison to the market value. It's also low in comparison to what we think we should be. But truth to be told, I don't know any CEO would tell you that their company is over-valuated. So I believe we are under-valuated. Unfortunately, the market being the market, we see lots of volatility linked to the price of the Bitcoin. Sometimes the difficulty also the market itself, any kind of announcement creates difficulties, not only for our stock, but for all of the stock and more than the stock today, I would say, in the industry. I think it was Warren Buffett who said that it's elevator down and escalator up. So we are feeling this. When there is a bad news in the market, our stock goes down and then it takes time for us to build it up. But we are extremely confident in the future. We are not here for the short term. We are here for the long term. I've been co-founding the company since 2017, and we are really here to build something great even if it takes time. We have time for more questions. And if we have no more, we will conclude this presentation. It will again be available online very soon. Thank you very much, everyone.