Argo Blockchain plc Q2 FY2024 earnings call

Macro Environment: Second quarter 2024 macroeconomic environment influenced Bitcoin mining sector. Central banks' potential rate hike pause helped, but energy prices and inflation remained concerns. ### Q2 Highlights: Mined 188 Bitcoin, $12.4M revenue, $5M mining profit, 41% margin. Reduced debt by $7.2M, repaid Galaxy debt, ended Q2 with $4M cash, and had $8.3M equity raise post-quarter. ### Financials: Revenue decreased from Q1 2024, but mining margin improved. Recorded $22M non-cash impairment charge on mining machines. Non-mining operating expenses trended lower. Adjusted EBITDA was $2.6M in Q2 2024. ### Debt Repayment: Full repayment of $35M Galaxy debt achieved via asset sales, equity raises, and cash flow. Strengthened balance sheet. ### Growth Opportunities: Potential to expand Baie-Comeau site from 15MW to 23MW, increasing hash rate capacity. Evaluating energy-related growth opportunities and strategic partnerships.

In Q2 2024, Argo Blockchain mined 188 Bitcoin (about 2 Bitcoin per day), generated revenue of $12.4 million, and $0.8 million in power credits from economic curtailment in Texas. Mining profit was $5 million with a 41% mining margin and an average direct cost per Bitcoin mine of $38,989. They reduced debt by $7.2 million, ended the quarter with $4 million in cash, and completed an $8.3 million equity raise post-quarter. Revenue in Q2 was $12.4 million, a decrease from $16.8 million in Q1 2024, but mining margin was 41% in Q2 vs. 38% in Q1.

Q3 Expectations: Expect lower mining profits and margin due to lower hash price realized in Q3. ### Growth Plans: Focus on Baie-Comeau expansion analysis, exploring energy-related growth and strategic partnerships, leveraging balance sheet strength post-Galaxy debt repayment to pursue growth opportunities.

Macroeconomic Risks: Energy prices affected by geopolitical instability and supply chain disruptions. Bitcoin price fluctuations impacting mining profitability. ### Operational Risks: Shareholder lawsuit, as mentioned with motion to dismiss filed in March awaiting court ruling. Potential challenges in executing growth opportunities like Baie-Comeau expansion.

Q: Argo still has debt overhang, so curious about an update there and fleet expansion given the network cost rate continues to scale up as much as it has?

A: Regarding debt, main outstanding debt is baby bonds maturing in 2026. Focus on improving balance sheet. For fleet expansion, focused on efficiency rather than raw growth, testing more energy-efficient models.

Q: Obviously, you guys should have great things to talk about with regard to operations in Q2 on staying on point. But for investors, it's always what have you done for me lately? Anything you can add about expanding operations in Quebec, new site selection, partnerships, perhaps with private companies that no longer have access to capital.

A: We're looking at growth opportunities at Baie-Comeau, considering expansion from 15MW to 23MW. Open to M&A and other growth opportunities, keeping an open mind on where growth can come from.

Q: Please, can you elaborate on the impairment charge that you have reported?

A: Impairment charge of $22M due to decreases in fair market values of mining equipment and changes in mining economics since Bitcoin halving in April 2024, using a pre-tax discount rate of ~14% for cash flow calculations.

Q: Congratulations on paying off the Galaxy debt. When can we expect to get some more caller on when this financial discipline will begin to contribute to revenue and earnings?

A: Strength of balance sheet and repayment of Galaxy debt gives flexibility to pursue strategic opportunities, gains will flow through to bottom line as operations are optimized and cost structure improved.

Q: A number of your peers are talking about kind of using gigawatts megawatts to host GPUs. What does Argo think about this?

A: Argo is closely evaluating these opportunities, but priority is maximizing efficiency and profitability of core Bitcoin mining operations first before exploring additional diversification.

Q: Do you have a view on energy pricing going into Q3?

A: At Baie-Comeau, expect good uptime with stable hydroelectric power. At Helios, power prices have been lower recently, but hard to extrapolate if trend continues into Q3.

Q: Congratulations on the recent Galaxy debt payoff. I was just hoping you'd be able to share your outlook for Bitcoin mining economics over the near to medium term.

A: Recent payoff strengthens balance sheet and financial flexibility. Cautiously optimistic about Bitcoin mining economics as network and asset fundamentals remain strong.

Q: Can you speak about M&A pipeline or existing growth opportunities?

A: Argo keeps an open mind on M&A, engaged in conversations, and has Baie-Comeau growth opportunity and other early-stage opportunities.

Q: Do you see a world where the HPC AI stuff starts to become a competitive pressure to Bitcoin mining?

A: Competition is more about energy resources. Bitcoin miners can diversify revenue streams by selling energy access or compute power to HPC providers, analyzing opportunities in this space.

Q: Are there any plans to start paying a dividend?

A: No plans to start paying a dividend; excess cash will be used to pay down debt or invest in future growth.

Q: Could you give an update on the lawsuit?

A: Shareholder lawsuit, motion to dismiss filed in March 2024, currently awaiting court ruling.

Q: Could I please ask you for a few closing comments?

A: Appreciate everyone's interest, look forward to updating on next call.