Gryphon Digital Mining, Inc. (NASDAQ:GRYP) Q4 2023 Earnings Call Transcript

Gryphon Digital Mining, Inc. (NASDAQ:GRYP) Q4 2023 Earnings Call Transcript April 2, 2024

Gryphon Digital Mining, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Gryphon Digital Mining FY Financial Year 2023 Earnings Call. On the call are Rob Chang, Chief Executive Officer of the Company and Sim Salzman, Chief Financial Officer of the Company. Before I turn the call over to Mr. Chang, please note that statements made on this call that are not historical facts may be forward-looking statements from the company's management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, concerning future events. Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements.

These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2023, filed with the SEC. Copies of these documents are available on the SEC's website at www.sec.gov. Actual results may differ materially from those expressed or implied by such forward-looking statements. Any forward looking statements made on this call are made only as of today's date and the company does not undertake any obligation to update or supplement any such statements to reflect subsequent developments. Now, I would like to turn the call over to Rob Chang, CEO of Gryphon Digital Mining. Rob, please proceed.

A close-up of a laptop with a Bitcoin ecosystem monitor running in the background.

Rob Chang : Thank you, operator, and thank you, everyone for joining us today. At Gryphon Digital Mining, our mission is to create a financially nimble, highly profitable and environmentally responsible bitcoin mining operation. Currently, we have a self-mining hash rate of 0.9 exahash, but we have -- we envision a trajectory where we will propel us to reach 10 exahash, thereby transitioning us from a smaller player to a significant industry presence. As a testament to our operational efficiency and management experience, we had positive net cash flow in 2023 with a breakeven cost per bitcoin of approximately $18,200. For clarity, we define breakeven as the cost of revenues, excluding depreciation divided by the total bitcoin generated and received from the hash rate contributed to a mining pool operator.

I will proceed by giving some background information on Gryphon Digital Mining, including operational highlights from 2023 and our vision to become a leader in the bitcoin mining industry. Following that, I will hand it over to Mr. Salzman to discuss the financials. And after a few closing remarks, we will open the floor for questions and answers. First, let me review my background. I was previously a commodities analyst and formally held the position of Managing Director, Head of Metals and Mining at Cantor Fitzgerald, where my focus was primarily on traditional commodities such as gold, precious metals and uranium. In the first quarter of 2016, Bloomberg recognized me as a top precious metals analyst. Currently, I serve on the boards of two uranium companies, which has helped in my gaining knowledge and experience in carbon neutral energy.

Given my extensive experience, I feel confident in my understanding of commodities industry and the dynamics of companies operating in these industries. I view bitcoin as a commodity and believe it should be managed accordingly. Gryphon was created with the goal of becoming a leader in the bitcoin mining industry. We believe that we are developing a business, which we hope will be a leader in bitcoin efficiency, prioritizing downside protection and flexibility within our capital and contract structure. We are beginning to realize the benefits of this approach. During the recent downturn, we navigated through it smoothly, never experiencing a single month of negative operational cash flow. This is an achievement of which we are immensely proud.

In contrast, some of our peers have encountered significant challenges, resorting to asset sales or even declaring bankruptcy. We believe we have a strong and experienced team at Gryphon Digital Mining. I served as the former CFO of Riot, pioneering publicly traded bitcoin miner also listed on the NASDAQ. Our CFO, Sim Salzman served as the CFO of Marathon Digital Holdings, a leading bitcoin miner. Our Chief Technical Advisor, Chris Ensey also served as the Chief Operating Officer and Interim CEO at Riot and brings valuable expertise to the company. We have built an executive team that has experience in the Bitcoin mining industry at larger companies and which we believe will provide us with the experience needed to grow our business quickly.

When evaluating bitcoin companies, bitcoin efficiency stands out as the primary operational metric. Defined as the number of bitcoin generated divided by a miner's deployed hash rate, it is a popular metric to evaluate the company's operational execution. Since we began operations in September of 2021, we have claimed or shared top spot of bitcoin efficiency for over half of our existence since. In the last 12 months, we secured the number one position in bitcoin efficiency in 6 out of 12 months and never falling below the top four. We believe this demonstrates our consistent operational execution, ensuring the machines we have optimally rather than attempting to get as many machines as possible online without the underlying infrastructure and standards to support the hash rate growth.

In April 2021, we made a significant investment by purchasing 7,200 S19j Pros. This purchase garnered attention from Cointelegraph and other industry publications, recognizing us as a top 15 miner immediately after the purchase. Since then, our operations have expanded considerably. Shortly after the purchase, we entered into a hosting agreement that secured 23 megawatts of carbon neutral energy and today have 28 megawatts of power running on approximately 9,000 machines. This agreement ensured that 100% of energy consumption remained renewable. We continue to uphold our commitment to sustainability and renewable energy sources at our current location. In fact, just this past week, Gryphon told a bold step in ESG leadership by publishing its carbon emissions data publicly.

This release of the full report, which includes two annual carbon emissions assessments undertaken with partner carbon chain, we believe is the first time a bitcoin mining company has provided a granular accounting of its carbon -- of a company's carbon footprint. We use carbon chain for third-party measurement annually and recently proved that Gryphon is using 100% renewable energy. We believe this transparency is what will drive the industry forward as a partner for achievement of both climate goals and responsible corporate decision making. As previously reported, in fiscal year 2023, we used over 98% renewable energy and started 2024 with 100% renewable operations ahead of our merger with a NASDAQ listed public company. This news follows Gryphon's receipt in 2023 of the sustainable bitcoin certification by Energy Web, an independent non-profit that develops open source software for clean energy solutions.

This certification known as Green Proofs for bitcoin is believed by Energy Web, as stated on its website, as a first of its kind initiative to establish an independent standardized energy management system for the bitcoin mining industry represents over two years of collaborative work between Gryphon, Energy Web and some of the world's largest asset managers and clean energy research organizations. We believe that Gryphon's demonstration of renewable energy usage sets a precedent that can encourage industry wide adoption as bitcoin gains prominence. Turning to hash rate. As of the end of 2023, we operated 0.9 exahash of hash rate, which grew from 0.6 exahash at the end of 2022. We have been adding additional machines in 2024 and look to continue to do so in a cost effective manner.

I'll now turn it over to Sim Salzman to report Gryphon Digital Mining's audited financial statements for the year ended December 31, 2023.

Sim Salzman : Thank you, Rob. I will now highlight our financial results for the year ended December 31, 2023. Please note that because our business combination closed in February of this year, the financial statements in our annual report on Form 10-K for the years ended December 31, 2023 and 2022 are the financial statements for the company's predecessor business, Akerna Corp. Gryphon Digital Mining's audited financial statements for the years ended December 31, 2023 and 2022 are filed with our current report on Form 8-K, which was also filed on April 1, 2024, and is available on the SEC's website at www.sec.gov. Gryphon mined approximately 739 bitcoin, generating mining revenues of $21.1 million in 2023 compared to $21.4 million in the prior year.

Breakeven costs in 2023 were $18,217 compared to $14,964 in 2022. These costs continue to rank among the lowest among publicly traded miners. On a per kilowatt basis, this translates into a cost of approximately $0.066 for 2023. We wanted to stress our focus on breakeven costs, which we believe is the best measure of what it costs to mine bitcoin on an operating basis. We believe that a focus on the total cash costs to produce bitcoin at the mine level offers better transparency, which we believe is required to better understand the operations of bitcoin mining companies on a comparative basis. We believe that this metric is crucial for investors and analysts because it provides a clearer picture of the operational efficiency and cost effectiveness of a mining company's core operations.

By comparing the breakeven costs across different companies or projects, we believe that stakeholders can gauge which operations are more economically viable and have lower production costs, which is particularly important in industries subject to fluctuating commodity prices. Turning to our results of our consolidated statements of operations. Our loss from operations in 2023 of $19.2 million included non-cash expenses of $23.4 million inclusive of impairment of digital assets of $275,000, impairment of our mining fleet pursuant to ASC 360 of $8.3 million and depreciation expense of $15 million, partially offset by stock based compensation income of $152,000 related to the voiding of a previous employee's RSU grant. This compares to a loss from operations of $16.6 million in the year ended December 31, 2022, which included non-cash expenses of $24.5 million inclusive of stock-based compensation expense of $3.3 million impairment of digital assets of $8.7 million and depreciation expense of $12.5 million.

Net loss for 2023 of $28.6 million includes non-cash expenses of $36.7 million, which is inclusive of noncash operating expenses of $23.4 million as well as non-cash other expenses stemming from the noncash notional valuation of our BTC loan, which resulted in a change in fair value of notes payable in the amount of $13.3 million and is partially offset by unrealized income on marketable securities of $168,000 and realized gain from use of digital assets of $3.9 million related to the payback of the bitcoin denominated loan. This compared to a net income position in 2022 of $3.5 million, which included non-cash income items of approximately $21.9 million comprised of net gain on extinguishment of debt of $10.2 million and change in fair value of notes payable of $11.6 million.

Those items were offset by the non-cash operating expenses of $24.5 million mentioned previously consisting of stock-based comp, impairment of digital assets and depreciation expense. Our adjusted EBITDA, a critical gauge of our operational effectiveness and financial well-being stood at approximately $4.8 million for the year ended December 31, 2023 compared to $7.4 million for the year ended December 31, 2022. This metric signifies not only our profitability but also our capacity to produce substantial cash flow while dedicating resources to fuel future expansion. Net loss per basic and diluted share for 2023 was $1.15 based on weighted average shares outstanding basic and diluted of approximately $25 million. This compares to net income per basic share in 2022 of $0.14 and net income per diluted share of $0.10 based on basic weighted average shares outstanding of approximately $24.9 million and diluted weighted shares outstanding of approximately $36 million.

Our average efficiency for our active fleet of approximately 8,500 bitcoin mining machines was 29.3 joules per terahash as of December 31, 2023. Since then, we have deployed a batch of newer generation S19j Pro bitcoin mining machines and have improved the fleet efficiency to 28.9 joules per terahash. As of December 31, 2023, our balance sheet reports approximately $915,000 of cash and cash equivalents, $2.1 million in bitcoin and approximately $14.9 million due for the note denominated in bitcoin. As of December 31, 2022, our balance sheet reported approximately $267,000 of cash and cash equivalents, $6.7 million in bitcoin and $12.6 million due for the loan payable. I'll now turn it back over to Rob to discuss Gryphon's 2024 strategy.

Rob Chang : Thank you, Sim. We believe that 2024 has started off strongly for bitcoin and we're seeing higher prices relative to 2023. In terms of 2024 gross profit guidance, Page 15 of the presentation located on our website shows a sensitivity table based on various bitcoin prices in global hash rates. Based on a $70,000 bitcoin price and a network hash rate of 550 exahash, we currently expect 2024 gross profit to be approximately $16.6 million. Using this table, readers can estimate what Gryphon's 2024 gross profit may be based on their view on bitcoin prices. We are actively scouting potential targets for acquisition, particularly focusing on several private miners facing challenges. However, we are not currently in any negotiations to acquire other miners.

If we are successful in executing our acquisition and machine procurement plans, we believe this will position us to achieve a capacity of 10 exahash. This could help us to transition from a smaller player to a prominent industry contender. However, it's crucial to acknowledge that such ambitious goals rely not only execution but also on a degree of good timing. We believe that our growth strategy for the upcoming year demonstrates our commitment to transitioning into a legitimate large scale player within the bitcoin mining landscape. With our recent business combination bringing our Gryphon Digital Mining business into a NASDAQ traded public company, we continue to look towards aggressively expanding inorganically through M&A opportunities and organically through purchases of the latest generation mining equipment.

With the halving expected this month, our strategy is to maintain our focus towards staying on the lower end of the mining operation cost curve. I will now turn the call back to the operator to open up the call for Q&A.

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