Bitfarms Second Quarter 2022 Financial Results Recap
The second quarter of 2022 saw Bitfarms continue to generate superior operating results, despite the bitcoin price drop. I am pleased to share highlights from our financial results call on August 15th and where our Q2 performance has put the business thus far.
Bitfarms mined 1,257 bitcoin in Q2, up 31% from our first quarter of 2022 and we followed that by mining another 500 bitcoin in July alone. Our increase in production momentum completely offset weaker bitcoin prices, allowing us to grow revenue sequentially to $42 million. We also generated cash from mining operations, as defined by Adjusted EBITDA, of $19 million. Compared to the results of other publicly traded bitcoin miners, our results ranked significantly higher than most.
The Bitcoin mining industry has experienced challenging trends in thus far in 2022, including the accelerating decline in bitcoin price since November 2021, with the most severe impact to prices starting in early May 2022. Yet, Bitfarms continued our growth trajectory and expanded operations.
We increased our corporate hashrate 33% from the end of Q1 to 3.6 exahash per second at the end of Q2. We are now just shy of 4 exahash per second, which means we continued to gain market share. We estimate we now represent approximately 2% of the Network hashrate—a company record.
In June and July, we took decisive actions to maintain our financial flexibility and increase our liquidity. In doing so, we reduced the balance of our bitcoin-backed loan facility from $100 million to $23 million as of the end of July and secured new equipment financing of $37 million.
Since quarter end, we increased total electrical capacity across all locations by 29 megawatts to 166 megawatts. Today, we are approaching 18 bitcoin/day in daily production, and we are running at 135 bitcoin per average exahash per second in July, which is in the top quartile of efficiency and performance.
We ended the quarter with 9 locations and 137 megawatts in capacity, up from 8 locations and 121 megawatts in capacity in March 2022. Leger started production in April, initially adding 16 megawatts of capacity, which has since expanded to its full capacity of 30 megawatts and, in conjunction with The Bunker Phase 2, increased our total corporate capacity to 166 megawatts as of August 2022. Construction continues on two facilities in Canada and the first two warehouses in Argentina.
We continued expanding operations in Q2 by bringing online The Bunker Phase 2 in the City of Sherbrooke, Quebec, which added 18 megawatts of new capacity, and installing 10,300 miners. These key contributing factors boosted production in the quarter and led to a total of 1,257 bitcoin mined in Q2. Our contracted power with Hydro-Sherbrooke within the City of Sherbrooke is for a total of 96 megawatts. With the creation of The Bunker, Leger and Garlock, we expect to be fully operational at these farms by the end of December, two months ahead of schedule.
The Bunker, first activated in March 2022, is currently drawing 36 megawatts, and running 9,000 miners from its first two Phases. Phase 3, which is targeted for completion in the fourth quarter of this year, will add another 12-megawatts. Leger contributes 30 megawatts and is operating 7,400 miners delivering over 740 petahash per second. With Garlock, we completed the warehouse clean-up and building improvements, and plan for electrical infrastructure, louvers, fans, racks, and miners to follow in September. We expect Garlock to be fully operational by year end. With 18 megawatts at Garlock, 48 megawatts at The Bunker, and 30 megawatts at Leger, we will fully utilize our 96-megawatt power contract in the City of Sherbrooke.
De la Point is presently operating at 18 megawatts and is planned to come offline, coincident with the commissioning of Garlock, by the end of 2022, two months ahead of schedule. With its earlier than expected termination, we can begin the sale process for this property and plan to convert this unencumbered real estate into cash in early 2023.
In Rio Cuarto, Argentina, we are building out the first two warehouses of the contracted plans for up to 210 megawatts. Two other warehouses remain under consideration for future expansion, utilizing available capacity and otherwise stranded power.
During Q2, we made significant progress on construction of our first two 50-megawatt warehouses and associated infrastructure. The initial electrical supply line is nearing completion, with the connection expected to take place soon. We have already imported over 4,800 miners, and the installation of racking, miners, servers, and data cabling in the first warehouse is underway, with miners expected to be installed in mid-September. We anticipate beginning production at the first 50-megawatt warehouse in the fourth quarter of 2022 and expect to complete construction at the second 50-megawatt warehouse in the first quarter of 2023.
To better align our capital plan with our production schedule, we successfully renegotiated the timing of some miner deliveries for our second 50-megawatt warehouse. The net effect shifted $39 million in scheduled capex from Q4 2022 to the first nine months of 2023.
In Paraguay, we are building on our experience from constructing 8 farms in North America and continue to believe this jurisdiction is ripe with opportunities for expansion.
In total, we have 9 farms in production in three countries and are drawing power from five hydro-electricity providers. Today, we have a capacity of 166 megawatts and an additional 63 megawatts under development that are expected to come online this year, for a total planned capacity of 229 megawatts by the end of the year, representing 89% growth in nine months.
One of our tools for continuous improvement is our recently revamped proprietary miner management system, called MGMT-2. It enables us to manage at an individual miner level the hundreds of thousands of miners across our globally decentralized farms with a focus on maximizing uptime.
MGMT-2 features improved controls, tracking, sensors, alarms, visualizations, and performance metrics, enabling increased efficiency in operations. As noted earlier, we are at 135 bitcoin per average exahash per second in July, which is top quartile efficiency and performance. Another measure of efficiency, Joules per terahash is realizing steady improvements. At the end of July 2022, we were at 40.6, improving 17% compared to 49.1 in June 2021.
Looking ahead, we plan to further optimize the performance of our fleet by prioritizing the most economic repairs, thus maximizing cash flow. Additional features, such as variable load, hashrate control and under clocking are under development. Along with integrating bitcoin mining economics, we also will be incorporating external data to better optimize our operations, such as grid load balancing and market pricing, taking our operational control to the next level.
Regarding fleet activity during the quarter, we installed 10,300 latest generation miners. The first 4,800 were imported into Argentina and are being staged for our first 50-megawatt warehouse, which will be made operational in the coming months. Year to date, we have installed over 25,000 miners, bringing our total installed base to over 44,000 active miners. 4,000 miners currently in transit, in addition to the 25,000 installed, account for approximately 80% of our planned miner deliveries for 2022.
Based on current infrastructure construction and miner deliveries schedules, we are targeting:
● 4.2 exahash per second as of September 30, 2022
● 6.0 exahash per second as of December 31, 2022
In addition, with the contracted miner deliveries scheduled we expect to add 1.2 exahash per second when fully operational in the first half of 2023.
Q2 Financial Results
Growth in mining operations and strong execution benefitted our top and bottom lines in a difficult bitcoin market environment. We executed certain financing activities to maintain financial liquidity and flexibility to best sustain our growth plan.
Our quarterly revenue was $42 million, up 4% from the prior quarter as our higher bitcoin production offset the decline in bitcoin prices. In comparison to the prior year quarter, our revenues were up 14%, reflecting almost 500 more BTC mined than the prior year period.
Bitfarms' average direct cost of production per bitcoin in Q2 2022 was $9,900, among the lowest reported in the industry. This is a 14% increase in production cost from $8,700 in Q1 2022. Gross mining profit was $27 million, impacted by the decline in the price of bitcoin, compared to $28 million in Q2 2021.
We continued to generate cash from mining operations, with Adjusted EBITDA margin of 45% of revenue and Adjusted EBITDA of $19 million. Our financing strategy continues to focus on maintaining the strength and flexibility of our balance sheet and protecting shareholders’ investment, while supporting our key financial goal of funding our planned growth at a relatively lost overall cost of capital.
As part of this, we adjusted our bitcoin management strategy to sell a portion of our bitcoin production and treasury holdings to partially fund our operating needs and ongoing growth investments. We also secured $37 million in equipment financing during the quarter, which is in addition to the $32 million in equipment financing we obtained in February. We raised $9.6 million in net proceeds from the judicious application of our ATM program that we launched a year ago.
In all, we ended the second quarter with cash of $46 million and 3,144 bitcoin valued as of June 30th at $62 million, for total liquidity of $108 million. In addition, after quarter end, we paid down a further $15 million on our bitcoin-backed facility and raised another $4.1 million, net of expenses, under our ATM.
The End of Bitfarms’ Second Quarter
Bitfarms was able to maintain a strong market position and maintain our growth strategy even during market volatility this past quarter. While other bitcoin mining companies struggled to keep a lid on costs of electricity fueled by commodities, our long-term hydroelectric contracts sustained the cost of production among the lowest in the industry, giving us the edge we needed to stay ahead of the curve.
Bitfarms is following a path of growth with discipline, and as evidenced by our track record of operating excellence, we are well positioned to take advantage of emerging opportunities and be a consolidator in the industry.
We look forward to our future industry events coming up, including the Needham 2nd Annual Virtual Crypto Conference on September 8, the HC Wainwright 24th Annual Global Investment Conference from September 12-14, BTIG 2nd Annual Digital Assets Conference from September 19-20, and the B. Riley 2nd Annual Crypto Conference on September 29.
We will also be launching our new website soon. In addition to an improved look and feel and easier navigation, it includes many metrics from our operations and monthly production reports that will be useful in tracking our results and progress. Additional functionality is envisioned and will be added to the website in the future. Please be sure to visit Bitfarms.com in the next several days.
We look forward to updating you with our monthly production reports as well as other developments and on our Q3 conference call in November.
Disclaimer Regarding Forward-Looking Information:
This blog presentation has been issued as a matter of interest to investors and other followers of Bitfarms Ltd. This presentation contains forward-looking information and Bitfarms cautions readers that forward-looking information is based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of Bitfarms. Readers should not place undue reliance on forward-looking information. Please refer to those risks set out in the public documents of Bitfarms filed on https://www.sedar.com/. Securities regulators including the Toronto Stock Exchange and Nasdaq have not reviewed the information disclosed in this blog presentation and no securities regulator accepts responsibility for the adequacy or accuracy of this content.”