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

Thank you, everyone, for being here with us today. We are going to present the Q2 2025 financial results with Kyle Appleby, our CFO, who is with me today, and I will start by giving you a company overview about what we've been working for the past months. First slide, obviously, disclaimer and forward-looking information. What we are going to discuss today are forward-looking information. Please, if you want to invest in the company, read this disclaimer. You can also find it online on our website on www.bysato.com, and you will be able to find this presentation. For those of you who doesn't know us, we are SATO Technologies. We started in 2017 as a Bitcoin miner. We signed a contract of 20 megawatts of energy in Joliette, in Québec. One of the best energy in the world, not only it's an energy that is stable and green because hydro-powered, but it's also very well-priced with a full price all-in of $0.043 a kilowatt hour for mining and for AI and data centers. This is one of the best energy you can find and very much in demand. We have been also a public company -- publicly listed company since 2021 on the TSXV. Our ticker, obviously, is SATO and also available on the OTCQB with a ticker CCPU.F. Since the beginning of the company, we've been striving and making sure that we are very efficient because the business of data center, Bitcoin mining, AI factories about efficiency, the efficiency not only for the energy, for the cooling, but also for the compute that we are providing. And we are always ranking in the top 3 most efficient Bitcoin miners who are publicly listed, and we are making sure that we can continue developing our operation, not only in Canada, but also in North America in order to grow and to expand our operation from what we have today available in Joliette, in Québec. Myself, my name is Romain. I'm the CEO and Co-Founder of the company. I'm in the tech world since 20 -- more than 25 years. I created my first company when I was 18 years old, I think, or 19 years old in France. And I'm fully devoted to the success of SATO, not only for Bitcoin mining, but also for the AI strategy and also for everything related to digital asset treasury strategy that we will talk about in a few minutes. Our vision is simple. We are compute people -- compute power people, we are managing energy, transforming it into computing power. We started and we have acquired lots of expertise, lots of experience for the past 7 years now. We are running our data centers at full capacity, 20 megawatts, extremely performant, extremely efficient. And what we have learned and what we have done in the past, we are now applying it to any type of compute. We don't want to do only Bitcoin mining. We are big Bitcoin miners or Bitcoin believers, but we also want to do any kind of compute, mainly developing an AI Factory in our center number one. At the same time, we are focusing on developing our digital asset treasury strategy probably and mainly in Bitcoin so that we can increase our Bitcoin holding over time with the profit made from Bitcoin mining, which is our core business, but also from the profit from AI Factory that we will be developing. So we will give you more information on this part very soon. The strategic focus for the company has been very simple also. We are making sure that our core business, Bitcoin mining is providing the most and the best results possible. So we are keeping a positive mining profit with our mining operation, 20 megawatts. It's making money. The number of Bitcoin we make is superior of the cost it is to make those Bitcoin. It's very important for us because it's a way for us to make sure that we can continue and sustain the company while at the same time, invest in other part of the -- other solution of the company, mainly the AI Factory, which we have been doing for the past few months since, I would say, end of the year of last year. The digital asset strategy -- treasury strategy is also something that is important for us to focus on. Very early on, we decided to have Bitcoin on our balance sheet. We are using this Bitcoin sometimes, but we are also trying to keep as much Bitcoin as we can. And we feel there is a way for us to develop this strategy even better and stronger and will be announced in the next weeks and months as soon as we have something to share with you all. For the AI Factory, we've invested our money, as I was telling earlier, and with great results so far that we will also explain in more detail in the coming slides. The reason why we are moving into AI Factory is because we want to use the benefit and the knowledge we have acquired from running compute for the past 7 years. And we really believe that as it is said here into this quote from Jensen Huang, the CEO of NVIDIA, that in the future, every company will have their own AI Factory. What is an AI factory? It's a data center -- kind of a data center that is only running AI compute, and it should be made for one company. This is essential for the business today, but also in the future. And we want to be part of this revolution, and we want to bring something to the market. And we believe with our data center, our first data center in Québec with 20 megawatts, we are extremely well positioned to be able to address this market. Why? Because we already have a 20-megawatt line dedicated -- directly connected to Hydro-Joliette and Hydro-Québec. It's something that has been working since 2017. We already have a building that is in place. So it means that the design for our AI Factory is very much advanced, and we can go very quick to market for developing this first AI Factory. We are already in touch with lots of contractors, and we have a short list of contractors that are ready to start working to do the development of this transformation for our center. In terms of financing, an AI Factory is way more expensive than developing Bitcoin mining. We're talking in the range of $10 million to $12 million per megawatt just for the infrastructure. The way we want to finance it is to do a mix of debt and equity, and we have created a subsidiary only dedicated to our AI initiative called Qritical.ai. You can come again on our website on www.bysato.com or Qritical.ai and know more about this subsidiary. The other part by which we want to raise money is to get access to debt with traditional banks who are understanding that what we are building, our long-term infrastructure that will work for the next 10, 15, 20, 30 years because, again, it's about transforming energy into compute. And whatever happens in the next 20 to 50 years, what we are building will be needed. So far, we have made extremely good progress with one equity investor who has sent us an expression of interest to invest up to $25 million in equity in this project. And the same way, we have received an expression of interest from a big large bank in Canada who wants to put $100 million in debt into this AI transformation. Now it's about finding clients in order to use the energy and the AI Factory load that we are developing. And we have made also pretty good progress, but nothing we can announce so far, but please stay tuned, follow us on Twitter, follow us on LinkedIn, and we will announce something as soon as we can. This is our most focused project right now for the transformation of the company. We are not stopping Bitcoin mining. We are still believing in Bitcoin and Bitcoin mining. We just want to make sure that we can bring something that is hybrid in some sort. And what we are developing at the company level is a playbook of transforming this energy from Bitcoin mining to AI compute. And once we have done it, we want to be able to scale up and scale out in our data centers. We have already identified a lot of sites outside of Québec and even outside of Canada. We have more than 800 megawatts of energy that are aligned. But first, we are focusing on this first site. We believe that we can succeed because we are different in the market than traditional data centers and also from hyperscalers. One of the benefits that we have is because we are Bitcoin miners and because we are self-Bitcoin miners -- self-Bitcoin mining, we are deciding on where and how to manage our compute load. So if today, I want to reduce my Bitcoin mining to add more AI, it's our own choice, and we don't have contracts to respect like a traditional data center has. At the same time, we have this power expertise that we have developed since 2017. We know how to innovate in the infrastructure and to be quick and nimble into developing new infrastructures. And we are very efficient on the compute part of the business, which are the three models that are important to have into the business. An important point also is that we are extremely well located in Canada. As you know, the sovereignty of data is a big subject everywhere in the world. And Canada is obviously one of this part where it's very important for the Canadian companies, the Canadian administration, the Canadian research, the military to have compute that are -- that is sovereign for Canada, and we are answering to that demand right now. At the same time, Canada is pushing companies like us with grants helping developing AI infrastructures. We are also participating in this program. Nothing has been announced yet, but we are hoping we could get positive results into having the help of the Canadian government at some point. I will now leave the stage to Kyle, who will present you the financial results for Q2 2025. Again, what is important is that our core business makes money, and we're investing into new lines of business, the digital asset treasury strategy on one side and mainly the AI Factory transformation that we are developing. Kyle?

Thanks. So as mentioned, I'll present our financial highlights for our 3 and 6 months ended June 30, 2025, all in Canadian dollars and in accordance with IFRS. For the 3 and 6 months ended June 30, we earned each quarter approximately 22 Bitcoin compared to 129 Bitcoin in the same period in 2024. Main reasons for the reduction in earning Bitcoin was, number one, the main reason the halving event in April of 2024, reducing the block reward by half. There was an increase in the network hash rate compared to '24, reflecting an increase in competition, which reduces the number of Bitcoin earned per unit of computing power. And three, last summer in 2024, there was a fire at our facility, and we lost 5.5% of our capacity that has yet to be replaced. Cost of revenue, we continue to have low costs of revenue in terms of our electricity, low repairs and maintenance. And as a reduction, we have a gross profit in Q1 of $298,000. We had a loss of $110,000 in Q2 and a gross profit for the 6 months of $188,000. Operating income takes our gross profit and then again, adds in our G&A expenses, our salaries, professional fees, regulatory and other administrative costs. We've managed to reduce our G&A costs about $300,000 in Q2 compared to 2024 Q2 and about $480,000 for the 6 months ended June 30, 2025, compared to the same period in '24. So we're always conscious of reducing costs where we can and keep our costs low. In the next slide here, we have our compute power profit, which shows how much we're earning at our operations, not reflective of depreciation. So you can see we're profitable. Q2, $431,000 and Q1, $835,000. And we continue to remain profitable at our operations and keeping our costs low. EBITDA. And we have also our adjusted EBITDA, which takes EBITDA and reflects non-cash items out of EBITDA, such as share-based compensation and unrealized foreign exchange gains or losses. In this slide, you can see for as at the end of the quarter, we had $151,000 in cash and $3.1 million in digital assets, primarily Bitcoin, approximately 21 Bitcoin held at the end of June 30. Our capital structure at June 30, we had low shares outstanding at 73.3 million, fully diluted, 80.4 million shares outstanding. And our share price at June 30 was $0.14. Our tickers on the TSXV are SATO, and OTCQB CCPU.F.

Thank you, Kyle. So again, as a sum up, as Kyle explained, we reduced our cost, mainly on the G&A, reducing our debt and every liabilities. We have also continuing developing and being efficient at the operation level, making gross profit as it was explained. And we are now investing into AI and into the digital treasury strategy. Finally, please meet us if you're in New York on September 8 to 10, we are going to present at the H.C. Wainwright Investment Conference. You can go online on the link that is available here, and you will be able to take a one-to-one meeting with us face-to-face. This is concluding our meeting. Thank you very much for watching us today. And if you want to follow us, you can do it on Twitter, X now or LinkedIn. You can scan this QR code, and this will make you go directly to us. Thank you very much.