SportsQuest, Inc. Q4 FY2022 earnings call

Galaxy Transaction: Sold Helios facility to Galaxy for $65 million, which paid down debt by $41 million, improved liquidity, streamlined operations, reduced headcount by over half, and secured a two-year hosting agreement at Helios. ### Key Pillars: - People and Retention: Ensured team retention, updated compensation/incentive programs, made all employees shareholders to align interests. - Financial Discipline: Controlling OpEx and general costs, maximizing cash flow, deleveraging, and considering equity raises for accretive projects. - Operational Excellence: Focused on optimizing fleet, improving yield, balancing machines between Helios and Quebec facilities, expecting ePIC miners in early Q3 2023. - Growth Strategy: Exploring financially viable projects using wasted/stranded energy, including greenhouse pilot in Baie-Comeau using waste heat from facilities. ### Q1 2023 Update: Mined 491 Bitcoin, generated ~$11 million revenue, average all-in cost per kilowatt-hour was ~$0.05, G&A expenses reduced by 44%, and BTC price up significantly year-to-date.

In 2022, Argo Blockchain mined 2,156 Bitcoin with an average mining margin of 54% and an average cost per Bitcoin mined of $12,118. Revenue was $58 million, down 36% from $90 million in 2021. They incurred a net loss of $240 million, but after adjusting for non-recurring items, EBITDA was $1 million compared to $68 million in 2021. The Bitcoin mining segment was the primary contributor to the company's performance.

Forward-Looking: - Expecting ePIC BlockMiners to be installed in Quebec facilities in early Q3 2023, increasing hashrate capacity from 2.5 EH/s to 2.8 EH/s. - Focus on maintaining a solid foundation while exploring growth opportunities with financially viable projects using low power costs. - Continued updates on growth projects utilizing innovative power and energy solutions.

Challenges: - 2022 was challenging due to Bitcoin price decrease, digital asset market softening, collapse of entities like Luna, Terra, Three Arrows Capital, Celsius, FTX, which led to liquidations and deleveraging. - Hashprice hit all-time lows in Q4 2022 due to increased network hashrate despite Bitcoin price increase. - Disruption in energy markets with geopolitical issues and U.S. natural gas spike causing higher electricity prices.

Q: Can you give us some more details on the Helios hosting agreement and the hosting fee you're paying Galaxy?

A: We have a two-year hosting agreement with Galaxy where we pay a pass-through power cost plus hosting fee, and share economics of demand response and economic curtailment. For Q1, all-in cost including sales tax, power, and hosting was around $0.05 per kilowatt hour.

Q: Does the cost of power implicit in Q1 reflect a long-term PPA under which Galaxy operates? Or is that also likely to change in the near-term?

A: Galaxy hedges their power costs at Helios, and under our hosting agreement, we benefit from their power strategy as they've publicly stated they hedge power costs.

Q: What are Argo's growth and development plans for 2023?

A: Focused on strengthening foundation and financial discipline, deleveraging, and exploring growth opportunities with financially viable projects using stranded or wasted energy, while also looking at future hashrate growth with ePIC miners and other innovative projects.

Q: Prior guidance on the ePIC machines was that the Blockscale chips would provide approximately 900 petahash of hashrate and be installed in the first quarter of 2023. What drove the lower hashrate and the delay in installs?

A: Delayed due to cash flow reasons and prudent cost-cutting decisions, resulting in a lower hashrate than initially expected but still excited about the machines which are running well.

Q: Argo is expecting delivery of 2,870 units of the ePIC BlockMiner machines. How does Intel discontinuing its production of the Bitcoin mining chips impact Argo's partnership with ePIC?

A: No impact to the relationship with ePIC as they have an innovative team, and Intel is still providing support and service throughout the process.

Q: What is the latest update on the Pluto investment?

A: Bullish on the investment, they're building games related to VR, XR, Web3, and we're supportive as shareholders, looking forward to their future projects.

Q: When will management be able to focus on a long-term plan for increasing hashrate capacity? And what is the likely shape of that thing?

A: Currently focused on perfecting operations and foundation, once deleveraged and with a healthier balance sheet, will look to grow hashrate, aiming for future production and growth opportunities.

Q: Can you shed some more light on how you think about hedging?

A: Balance between giving investors Bitcoin exposure and minimizing downside risk, hedging a portion of production to ensure good cash flow runway in case of price falls.

Q: How does Argo plan to take advantage of the strength of Bitcoin during this ongoing banking crisis? The crypto bull thesis seems to be taking shape in front of our eyes. Does this instill confidence within the Argo team?

A: BTC price increase is helpful, supports momentum, and the banking crisis strengthens Bitcoin's store of value thesis, instilling confidence, though we also have hedging strategies in place.

Q: You mentioned that you were being solicited for some partnership opportunities. Can you elaborate on the kind of opportunities that you'd be open to at this time?

A: Open to partnerships utilizing stranded power, working with power generators, utilities, and those with access to low power costs, focusing on power and energy innovation.

Q: Is there a possibility for an equity raise in the future?

A: Open to equity raises if projects are accretive and add value to the company, considering it for projects with higher returns than equity cost.

Q: Can you talk more about your HODL strategy or is there now a non-HODL policy in place?

A: Currently selling Bitcoin to cover costs and pay off debt, with the aim to build a HODL strategy once working capital needs and growth prospects are more stable.