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

Okay. I think we are ready to start. Thank you, everyone, for joining us today. We are here to talk about our Q1 2025 financials. I'm here with Kyle Appleby, who is our CFO since 2021 when we went listed on the stock market. We had a presentation less than a few weeks ago about our financial for 2004 (sic) [ 2024 ]. So we're going to go fast on the presentation of the company. Obviously, the first slide is a disclaimer about the forward-looking information. If you're a lawyer, please read this carefully. Most of you, I'm sure, know about the company. We started as a Bitcoin miner in 2017. We mined from Québec in Canada. We have an energy deal for 20 megawatts from Hydro-Joliette, which is a city where we are in. It's very near Montreal. One of the best energy in the world, not only it's very stable energy, it's a clean energy because it's not producing any carbon. It's mainly 96%, it's hydro energy in Canada and Québec, sorry. And it's also very well priced. All in, we pay USD 0.043 a kilowatt hour, which is one of the best price we could find in the world. We are also 100% self-mining. We operate around 0.5 exahash currently. And we have always been focusing on being ultra-efficient in the way we are managing our energy and transforming the energy into compute power. As you know, the business of Bitcoin mining and compute in general is very CapEx intensive, both on the infrastructure, meaning everything related to transforming the energy into computing power and also everything related to cooling. And the other part that is very CapEx intensive is buying the compute itself, the mining rigs for Bitcoin mining or the GPUs for AI and HPC. We are now focusing on making sure that we can evolve into our business model by developing more compute and not focusing only on Bitcoin mining. So like many Bitcoin miners, we are working on developing our AI and HPC solution. Mainly we are tackling the problem or tackling the issue by the infrastructure prism, meaning that we want to develop an AI factory in order to host GPUs for clients. So that's what we've been working on for the past few months, and we will make more announcements as they come. Why do we do that? Because the market is booming, as you know. There is more than $1 trillion that is planned to be invested in the infrastructure for AI and HPC by 2028. 2028, it's really tomorrow in our world, it's in less than 2 years. And it's not only in the U.S., it's also everywhere in the world. And we believe that Canada and Québec is a very strategic place for this kind of solution. And we think that our Center 1 in Québec will be a good first platform for us to operate and develop our first AI and HPC factory. And from there, being able to scale up and scale out in different places, not only in Canada, but also in the U.S. that we are currently looking at. We think we're going to be able to thrive in the industry because we have a power expertise. We know how to innovate in developing infrastructure and how to be efficient with managing our computing. And also, if you look at the different kind of players in the world today working on that, we are kind of all at the same point because AI factories are so new and so different than anything that was built before that we are almost at the same space or the same place than any other legacy data center on one side or hyperscaler on the other side. Why? Because data center is so different from what is required for an AI factory that you really need -- everyone need to start from scratch to some extent. So we believe we have a role to play and our position strategically based in Québec, near city center in Montreal totally makes sense. And once we have developed and make what we call a playbook for our center #1, we'll be able to scale in other different kind of places. I'm now going to give the floor to Kyle to talk more specifically about our financial results for Q1 2025. Don't forget, this is only Bitcoin mining. Q1 was a very specific quarter into the mining world, post halving, as you know, so the division of 2 of our venues in the middle of the year and last year, but also Q1 had a very low or relatively low price of the Bitcoin in the $70,000 range and a very high difficulty. So it has impacted our results, plus also a change into our infrastructure that we had to repair and make some upgrades. So we had to stop our center or part of our center a little bit more than we usually do. So Kyle, I'll let you comment on this financial.

Thanks, Romain. So as mentioned, this is for Q1 2025 3 months ended March 31, reported in Canadian dollars. Our financials are in accordance with IFRS accounting standards. And for the quarter, they are unaudited. You can see our revenue for Q1 2025 just under $3 million, Q4 '24, just over $3 million and Q1 '24, $5.9 million. That was from the earning of Bitcoin for mining pools. In Q1 '24, we earned 83 Bitcoin, Q4 '24, 29 Bitcoin and Q1 '25, 22 Bitcoin. As Romain briefly mentioned, there were some negative impacts compared to the previous quarter, the halving event in April of '24. There was a continuous network -- increase in the network hashrate. And as well in June of '24, we had a fire, which reduced our operational capacity from that point on. So some of the machines were not replaced. In addition, the downtime hours were 268 hours, which represented 12.4% of our operational hours for Q1 '25 compared to 47 hours in Q1 '24. 71 of those hours were for the maintenance of our substations to improve their longevity and 197 load shedding hours to support the electrical grid during the extreme cold winter months. So those negatively impacted our operations during the quarter. And these were partially offset by the price increase of Bitcoin from Q1 '24 to Q1 '25. Our cost of revenue basically mainly comprises of our electricity costs as well as repairs and maintenance, salary and depreciation. The decrease in cost of the cost of sales were mainly from the reduction of miners from the fire and more downtime hours, as mentioned. During the year -- during the quarter compared to Q1 '24, we also had a reduction of our operating expenses from $898,000 down to $769,000, mainly for reductions in salary and some other expenses. So we're always conscious of costs and reviewing where we can cut back without impacting our operations. So you can see our gross profit of $298,000 for the quarter and then resulting in operating loss for the quarter of $550,000 and a net profit of $885,000. We also had an EBITDA loss of $134,000 during the quarter, which, as you can see, compared to our previous quarters as well. The next slide, you can see here our key performance indicators that the company looks at each quarter. So we have our compute power profit, which is basically profit from the mining pools and excluding depreciation. So for Q1 2025, we had over $835,000. Our EBITDA, as mentioned, was a loss of $134,000 and adjusted EBITDA, which is EBITDA, which also excludes noncash items like share-based compensation, unrealized revaluation of digital assets and unrealized foreign exchange gains losses. So we ended up with a positive $164,000 of adjusted EBITDA. In this slide, you can see our cash and digital asset position at Q1 '25. So we've maintained a strong position here of over $3 million. That mainly comprises of the digital assets of the $2.9 million and the cash of $180,000. So we had about just over 24 Bitcoin at the end of the quarter with the price of Bitcoin being over CAD 117,000 and over USD 81,000. Our capital structure at March 31 remains consistent. We have a low share count outstanding of 73.3 million, and we have a few warrants and options outstanding for a fully diluted of 82.2 million. You can also see our ticker symbols on the TSXV:SATO and on the OTCQB:CCPU.F.

Thank you, Kyle. So this is concluding the presentation of our financials for Q1. Don't forget that the market and the condition of the market are completely different, mainly because of the price of the Bitcoin. Also the AI and HPC market is still continuing booming. So we will do another presentation, obviously, for Q2 and for the following quarter. And we're going to open the floor for questions if you have any. If you could add them into the chat. See If we have any, I don't see anything yet. I'm going to wait for a few minutes. And if there is no questions, we will close this presentation. All right. No questions. Thank you very much for joining us. We will put this presentation online available from our website, www.bysato.com. You can also subscribe to our mailing list and receive news as soon as they happen. Thank you very much, everyone. You have a good day.