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

Hi, everyone, and welcome. Thanks for joining us today. I'm Romain Nouzareth, the Co-Founder and CEO of SATO Technologies. For the past 8 years, we've been 1 of the most efficient providers of high-performance computing power in North America. And as a public company listed on the TSX.V Venture Exchange, we've done it with transparency and discipline. Today, before Kyle walks you through the financial results, I want to take a few minutes to frame the big picture. What is happening in our industry. How the market has evolved. And while SATO is now uniquely positioned to expand from Bitcoin mining into the next major growth era, AI compute infrastructure. As always, our presentation includes forward-looking statements. Please reflect our expectations -- I mean these documents reflect our expectation an assumption for future events and of course, they involve risks and uncertainties. We encourage everyone to review our full filings on SEDAR+ and nothing here should be taken as a guarantee of future performance. SATO has been operating in Quebec since 2017. And today, we run a fully built, permitted and grid-connected 20-megawatt hydropower data center. Over the years, we've become 1 of the most efficient public miners in the world, constantly ranking near the top in industry PUE and Bitcoin produce per unit of power. We've built deep expertise in uptime, in cooling and power management, the same skills required today for high-density GPU computing. This infrastructure gives us a unique advantage as we expand into AI compute. Our vision is simple. We want to deliver scalable, ultra-efficient digital infrastructure built on renewable energy. The world now runs on compute and the most energy-intensive workloads from AI to cryptography to HPC require exactly what we have mastered, reliable power, cooling and operational excellence. At the same time, our digital asset treasury strategy aligns us with long-term value creation in both Bitcoin and AI. This combination, hard infrastructure plus a strategic digital treasury is what positions SATO for the next decade. Before we get into the numbers, I want to highlight the work the team has done this year. First, we maintained positive mining profit even in 1 of the toughest post-halving environment ever recorded. Network difficulty, it's new time highs and our cost structure and efficiency allowed us to stay profitable. Second, we continued disciplined cost reduction, lower OpEx, lower repairs and lower depreciation. Third, we continue to execute efficiently. Downtime remained around 1% in Q3, consistent with the strong performance we delivered in Q2. Now let's talk about the transition. Our AI initiative is well underway. We've completed the early design work for AI Factor 1, a high-density GPU facilities that repurposes up to 20 megawatts of hydro power. And subject to the financing we are actually working on, our first step will be to deploy 8 GPU nodes. The segment where demand is exploded for inference, fine-tuning and enterprise AI workloads. It's fast to deploy, capital efficient and revenue generating from day one. At the same time, we continue building our digital asset treasury. The strategy centered on Bitcoin and AI narrative networks like Bittensor, which further strengthens our long-term positioning. And finally, we secured a 3-month grace period on our loan, giving us a runway needed to advance this entire plan. To understand why this transition makes sense, you have to look at what's happening in Canada and especially in Quebec. We have some of the cleanest, cheapest electricity on earth. 99% renewal hydro and all-in energy prices around $0.04 per kilowatt hour, that is unmatched in North America. We also have high-speed fiber, political stability and 1 of the strongest AI ecosystem in the world anchored in Montreal. And now, as announced by the Premier, Quebec is actively pushing for the development of AI data centers. This is a clear signal. The province wants to attract the next wave of computer infrastructure. We are already here. We are already built, and we are ready. SATO is 1 of the very few public companies globally that already control large-scale operational megawatts that are fully energized today. We have 20 megawatts of secured hydro power with a clear path to expand toward more megawatts, probably 45, and longer term even more with HydroQuebec. We have a fully permitted grid-connected facility, no construction time lines, no delays, no waiting for approvals. We run on 100% of renewable energy in a province that is pro-infrastructure and actively supporting AI. And again, our all-in power cost around $0.04 gives us a structural advantage against almost every data center operator in North America. This is why we can move fast and why we shift into GPU compute is not theoretical. It is real and it is happening. I'm now going to leave the floor to Kyle, and he will go through the Q3 number we have released yesterday.

Thanks, Romain. So as mentioned, I'm going to go through with you the Q3 results, which are the three months ended September 30 and the 9 months ended September 30 for '25 compared to '24. These are all in Canadian dollars and in accordance with IFRS, except for 3 performance indicators, which we'll talk about, compute power, EBITDA and adjusted EBITDA. So those are non-IFRS measures. And also, as Romain mentioned, we encourage you to read our full financial statements and MD&A on SEDAR+ for the full details and narratives. We're going to just go through some of the highlights here. Start with for revenues for the 3 months ended September 30, we had $3.3 million compared to $2.6 million in '24. And for the 9 months ended September 30, we had $9.3 million compared to $12.8 million in the same period in '24. So for the 3 months, we earned 21 Bitcoin compared to 31 in '24. And for the 9 months, we earned 65 Bitcoin compared to 161 in the same period in '24. So the major impacts on the Bitcoin mining operations for the periods are one, as Roman mentioned, in April of '24, the halving event occurred basically cutting the rewards in half. Throughout '25, network hash rate continued to reach all-time highs. So that also reduced the number of Bitcoin earned per unit of computing power. Both those obviously impacted the entire industry negatively, not just us, just including us and our peers. In June '24, we had a fire at our facility, which resulted in approximately damaging some of our equipment, and there was a loss of 5.4% in operating capacity, which has not been replaced yet. So those all negatively impacted the Bitcoin in revenue. Now the price of Bitcoin did increase although it's been very volatile and subsequent to September 30, it's decreased. But throughout '25, it was a lot higher than in '24. So the reduction in Bitcoin earned was offset by the increase in the price of Bitcoin. So you can see our -- for the third quarter, our revenues increased. Cost of revenue, the main items in there. The biggest item is electricity, which we have a good low cost there. So the reduction you can see in both the 3 months and the 9 months are mainly due to a decrease in depreciation and noncash item and resulted in a -- if you want to go back to the previous slide here, our gross profit for Q3, a positive gross profit of $381,000 compared to a negative gross profit or gross loss of $544,000 in the third quarter of '24. Looking at our operating income, we're always continuing to monitor our costs and reduce costs where we can without impacting operations. So you can see from the third quarter we had a small loss of $60,000, significantly reducing our loss from the Q3 in '24 of $1 million. Finally, the net loss for the period. We had $284,000 loss reduction from operating income is basically our interest on our loans as well as some unrealized foreign exchange and realized foreign exchange losses on conversion from USD to Canadian dollar. So you can see again, in Q3, we significantly reduced our loss from '24 in Q3 of 1.72, a marginal loss of $284,000 in Q3 '25. And we ended up with a positive EBITDA, which we'll look at here. You can see this slide represents our key performance indicators, compute power profit, which mainly takes our gross profit and then removes depreciation, EBITDA and adjusted EBITDA for any noncash items like share-based payments and unrealized gains or losses. So if we look at '25 quarter-to-quarter from Q1 to Q3 in each of our key performance indicators, we have a positive trend. So we're very encouraged by that up until Q3. But again, the crypto environment and Bitcoin environment has been extremely volatile with the price of Bitcoin increasing and decreasing as well as the increase in the hash rate. This slide shows our cash and digital asset position at the end of Q3 totaling $2.1 million split between our digital assets is about 70% and cash, 30% split. And another slide here is just showing our capital structure at September 30. Our share price was about $0.155. Basic shares outstanding, we continue to have a low share count of 73.3 million, fully diluted 80.4 million. And then you can see our tickers on the TSX.V, S-A-T-O, SATO and on the OTCQB, CCPU.F.

Thank you, Kyle. As we close, I want to take a moment to look at the journey we've taken over the past 8 years. We built a 20-megawatt renewable powered compute center from scratch. We operated it efficiently through multiple Bitcoin cycles. We listed the company publicly and proved our ability to deliver reliable computing power at scale. Now we are entering the next phase, a phase where Bitcoin, AI and high-density compute converge, and where SATO is positioned to play a meaningful role. Our strategy is simple, keep operating efficiently, keep transforming power into value and expand into AI in a disciplined, focused way. Thank you for being here today, and thank you for your continued support as we build the next chapter of SATO Technologies.