Third Quarter 2021 Earnings

corporate participants

Nick Hughes-Jones, Chief Commercial Officer

James Manning, Chief Executive Officer and Founder

conferencec all participants

Kevin Dede, H.C. Wainwright

Angus McGeoch, CLSA

PRESENTATION

Operator

Greetings. Welcome to the Mawson Infrastructure Group Incorporated Third Quarter 2021 Earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero, on your telephone keypad. Please note this conference is being recorded.

I will now turn the conference over to your host, Nick Hughes-Jones. Thank you. You may begin.

Nick Hughes-Jones

Hello, everyone, and thank you for joining the Mawson Infrastructure Group Third Quarter Results presentation.

The call today will be hosted by CEO and founder, James Manning, as well as myself, Chief Commercial Officer, Nick Hughes-Jones. James and I will take you through Mawson’s third quarter results and November investor presentation. Following this there will be a Q&A session open to participants on the call. We appreciate the opportunity to review the third quarter financial results and discuss recent business highlights.

Before we get started, please be aware this call is being recorded and webcast. During this call, management will make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in this presentation on Slide 2 and the third quarter earnings release summary issued yesterday, both of which apply to the content of this call.

I would like to now turn the call over to James Manning, CEO and founder of Mawson Infrastructure Group. James, please proceed.

James Manning

Thanks, Nick. Hello, everyone, and thank you for joining.

We’ve decided to run through our Quarter 3 highlights and provide investors with an operational update. Starting with Slide 3, Q3 has been very busy for Mawson. During the period, we have listed on the NASDAQ Capital Market in late September. We’ve purchased over 17,000 additional bitcoin miners. We signed a new 100-megawatt facility in Pennsylvania. We kicked off the expansion of our 100-megawatt facility in Georgia. Finally, we generated our first meaningful revenues from our Hosting Co-location business.

By the end of November ‘21, Mawson will have 0.80 of an exahash of bitcoin mining capacity online, well on our way to our recently upgraded guidance of 3.35 exahash online by Q2 2022.

We have now secured 220 megawatts of energy infrastructure across all sites and are continuing to roll out towards our corporate target of 5 exahash by early Q1 2023.

Turning to Slide 4, and our financial and operational highlights for Q3. I am pleased to report that revenue for the quarter was $10.9 million, up 1100% from Q3 2020 and up 85% from the second quarter of 2021. The trend of strong margins has continued with gross profit of $8.4 million for the third quarter. After raising $45 million as part of our NASDAQ listing, cash and cash equivalents were $51 million at period end.

We also saw our first meaningful revenues from our Hosting Co-location business, generating $800,000 in the third quarter. The trend of strong demand for hosting has continued into the fourth quarter, and we are balancing demand with our own (phon) rollout strategy.

Subsequent to period end, Mawson announced a partnership with Quinbrook Infrastructure Partners, a global green energy infrastructure fund, to jointly develop sites in Australia and the U.S. Our first site on Australia’s East Coast is now operational. It will scale up to full capacity in Q1 next year.

Mawson’s investment in Cosmos Asset Management launched a Bitcoin Miner ETF. DIGA, which is listed on CHI-X’s stock exchange in Australia, was the best-performing ETF in Australia in the last five years, up 30% in the first five days, reflecting the strong returns seen by investors in the bitcoin mining space.

Turning to Slide 5, we can see the steady growth in both our revenue and gross profit as we scale up our Bitcoin Mining and Hosting Co-location businesses. Similarly, our strong balance sheet is growing and currently has minimal leverage. I am proud of the discipline we have shown to date in strategically raising capital when required and building a strong business focused on investor returns.

On Slide 6 you can see between November ’21 and Q2 2022 Mawson will deliver a massive increase in exahash, moving from 0.80 to 3.35 exahash. This reflects a 4X increase in our bitcoin mining production and in turn, our annualized revenue. Importantly, we are currently enjoying strong gross profit margin across our facilities in Australia and the U.S.

What really excites us, however, is our corporate target of 5 exahash online by early Q1 2023, which would see a 6X increase in our bitcoin production capacity from today.

Slide 7 helps you see more granular detail (inaudible) ramp-up schedule after Q2 2020 and then on to early 2023. At Mawson we have a very disciplined approach to ensure that we can deliver our expansion on time and on budget, underpinning it with our infrastructure first approach to growing our business. I am genuinely excited about the work our team is putting into the facilities today and to get us to where we are today. Having focused on security energy infrastructure early on in our journey, we have ensured that we are among the lowest quartile producers with a blended mining cost of approximately $5,321 per bitcoin mined.

The Mawson team is now focused on the substantial growth ahead of us. The black bars in this chart illustrate our historical hashrate, the dark green bars our contracted hashrate, and the light green bars represent the mining hardware we are yet to order, but will, to meet our 5 exahash goal. We will be able to achieve this based on our current forecast and our strong operational cash flow.

Turning to Slide 8. In Mawson’s DNA (phon) is our ability to identify and secure long-term, high-quality, low-cost energy infrastructure. It’s no accident we are at the front of the pack in energy infrastructure given the depth of experience at (inaudible) and management levels in this space. Our secure energy infrastructure currently at 220 megawatts is complemented by a qualified pipeline of 870 megawatts is a much larger prospective pipeline of sites in excess of 1 gigawatt. Expanding on our established energy pipeline, Mawson is committed to being a sustainable bitcoin miner.

We target carbon-free and renewable energy at our sites and Slide 9 goes into further detail on this (inaudible). We are intently focused on new site development which (inaudible) and, importantly, across all new sites we have a focus on carbon-free energy, evidenced by our recently launched facility on the East Coast of Australia, which is a hundred percent renewable energy

Turning to Slide 10, and as an investor, understanding what underpins our growth is important. Our focus on infrastructure is key to this approach. We have established four key criteria when developing our infrastructure assets.

One, a strict return on capital approach to site development. This means we are focused on low-cost, high-quality energy assets combined with a target total cost of (inaudible) $0.04 a kilowatt hour. Importantly, we consider the total infrastructure cost, so Capex becomes a high priority.

Two, our modular design principles, our MDC technology, enables us to scale rapidly, further improving deployment times and keeping Capex low. This modular approach allows the flexibility to redeploy across sites should economics demand relocation, a key competitive edge.

Three, long-term agreements enable us to ensure longevity in our business. We focus on developing strong relationships with stable partners.

Four, finally, how ESG impacts on each investment. We consider how a site meets our corporate ESG targets, and especially how it aligns with our Net Zero Carbon 2030 strategy.

Importantly, energy isn’t the only consideration. Slide 11 illustrates our focus on building on all aspects of our infrastructure. We are in a strong position to not only deliver the 3.35 exahash contracted to date, but critically, we have the underlying infrastructure in place to take this to 5 exahash and beyond.

As previously disclosed, we have now purchased over 40,000 ASIC bitcoin miners, which gets us to 3.35 exahash by Q2 2022. We have purchased over 200 Modular Data Centres, and we have purchased over 100 transformers. This provides us with the infrastructure to scale beyond 5 exahash.

We are often asked how our business will perform under different bitcoin pricing scenarios. Slide 12 gives us some context around this. Here we have modeled our business based on 3.35 exahash online, providing investors with visibility on our revenues and gross profit from the various bitcoin pricing scenarios.

For example, with bitcoin trading around $60,000 overnight, in Q2 2022, Mawson would generate monthly revenue of $35.5 million and gross profit of $32.7 million based on visibility as at November 12, 2021. Underpinning this is our low blended cost (inaudible) across the portfolio of less than $0.04 per kilowatt hour and our low deployment cost at each of our sites.

With that, I’ll hand over to Nick.

Nick Hughes-Jones

Thanks, James.

At Mawson ESG is a core priority for us. Our integrated model is based on long-term strategy to assist in a global transition to a de-carbonized society. James has touched briefly on our focus on carbon-free energy. In addition to this, we offset any residual carbon footprint using carbon offset credits. In 2020 we offset over 22,000 tonnes of carbon, supporting (inaudible) and (inaudible) diversity projects in the process.

In 2021 we have planted 25,000 trees across Australia and the U.S., and in 2022 we will plant over 53,000. That’s a tree planted every time a block is created on the bitcoin blockchain.

Mawson is also a very active member of the local community, responsive both to local athletics teams in Sandersville, Georgia, and are active supporters of the Washington County Regional Medical Centre and Chamber of Commerce.

Turning to Slide 14, Mawson has a fantastic team headed by our founder, James Manning. Our U.S. team is led by our Chief Operating Officer, Liam Wilson, and is supported by a recent high-quality addition, Craig Hibbard, who overseas development of our portfolio of facilities in the U.S. Our finance team is headed by CFO Hetal Majithia, who joined us from PwC and brings a wealth of large listed company experience to the Mawson team.

Our Board is chaired by Greg Martin, who is the CEO of Australia’s largest energy business, and our other independent non-exec directors are Michael Hughes and Yossi Kerret, who both bring extensive experience across capital markets, governance, and audit (phon).

On Slide 15 I want to touch briefly on Mawson’s innovation portfolio. James has touched briefly on our Bitcoin Miner ETF, DIGA, the first listed product from Cosmos Asset Management, which is up 35% since inception only 18 days ago.

Our Filecoin mining business, Distributed Storage Solutions, which Mawson owns a 20% stake in, is expected to grow significantly in 2022.

Finally, Luna Squares, our Co-hosting Location business, generated $800,000 in revenue in Q3 and is seeing insatiable demand from bitcoin mining hosting services out of North America and globally.

Last slide for me is Slide 16, which illustrates the high insider ownership in this business. The Board and management team own approximately 24% of Mawson. This is unique amongst our NASDAQ listed peers and ensures we’re extremely focused on shareholder returns.

Over to you, James.

James Manning

Thanks, Nick.

Slide 17 summarizes the Mawson Investment Thesis. Over the next 18 (phon) months, we will grow our operations by over 600%, expanding into a $20 billion annualized revenue opportunity with a clear focus on sustainable bitcoin mining and shareholder returns. We are very excited about the rapid scale-up and growth of our business. Our infrastructure first approach has given us a fantastic platform to now take Mawson to the next level.

Thanks for taking the time to hear about our third quarter results. (Inaudible), I’ll hand it over to you now to take any questions.

Operator

Thank you. Our first question is from Kevin Dede of H.C. Wainwright. Please proceed with your question.

Kevin Dede

James, Nick, thank you so much for having me on the call, great to be here. Could you help me understand the difference between qualified and prospective pipeline?

James Manning

Sure. Thanks, Kevin, for joining. It’s great to have you on the line.

The difference between the qualified and the prospective is the qualified pipeline are sites where we’ve got—either we’re in contractual negotiations or we’ve contracted but we’re expanding the facility. So, we might have a toehold on the facility, and we expect to get it from a smaller megawatt capacity to a larger megawatt capacity.

The prospective pipeline, the entire pipeline are sites that we have that—some of those are (inaudible) earlier stage and they’re not at a point that we would be comfortable in representing to investors that we have that additional capacity in a point that we would be able to contract in the near term.

Kevin Dede

Okay, thank you.

The Luna opportunity seems very interesting, especially given hot demand. Five customers, I think you noted. Can you talk about revenues?

James Manning

Yes, so this quarter was our first quarter where we decided to take some substantial revenue. We saw $800,000 this quarter in hosting revenues. Obviously, it’s a margin business and it’s not as lucrative as bitcoin mining, but we think it’s an important part of the mix long term and part of that infrastructure play.

We’ve got insatiable demand for hosting, and really, it’s a balance between how much hosting we’d like to take on and what we’re going to reserve for our (inaudible) mining operation.

Kevin Dede

As you know, the Canaan call was this morning, and obviously, you stand out as a critical customer for them. Given there were lots of shady bars in the forecast and Canaan seeing great demand, can you speak to the assurances you have given the long-term nature of your relationship that you’ll be able to secure the machinery that you need to generate 5?

James Manning

Yes, I mean, without giving anything away with our ongoing discussions we’re having with Canaan, we were an early adopter and backer of the Canaan team, and we believe their equipment is very good equipment, at the end of the day. They’re as good as anyone else manufacturing equipment, and we saw that early on and we supported them. I think the relationship there is one that both parties appreciate that we’re working together, and there’s mutual cooperation on a number of fronts.

Canaan have been great to us, and I think we’ve been a great partner to them. They’ve delivered early. They’re on time. Sometimes, they deliver a little bit early to us, and we’ve got a great transparent relationship with them. I mean, if you look at the mining universe, they’re the only listed manufacturer, so you’ve got a real sense of the quality of your counterparty there, and I think that’s really important.

Kevin Dede

Bitmain, obviously after the big conference in Dubai, talked about their XP—that’s the S19K (phon) XP using a 5-nanometre chip set and pump and terahash up to, I think, what was it, 120 or 140—I don’t remember.

James Manning

(Inaudible) 145, yes.

Kevin Dede

Yes, so I was wondering if you could speak to Canaan’s roadmap and how close you might be to seeing where they’re going and whether or not—I think they’re reliant on TSMC as well—if their plans include a 5-nanometre chip set upgrade, and—or how comfortable you are in seeing them getting the wafers that they need for those chips.

James Manning

Yes, I think there’s two questions there. I think the Canaan development pipeline and what they’ve got in their product development pipeline, while we’re aware of it, I don’t think it’s appropriate that we comment on Canaan’s equipment and their new equipment pipeline. But we’re very comfortable, what I can say, what they’re building and what that platform looks like, and we do have those discussions with them.

The second part of the question is, you know, delivery and how that relationship works and how comfortable we are around it, them getting chip supply. We’re very comfortable with the Canaan relationship, and we’re very comfortable with their supply chain. We’ve looked at and had discussions with them not only about their chip set supply at the manufacturing facilities, what their contingency plans are around China if there was anything to occur there. We’re very, very comfortable about that risk and how that risk would be mitigated by Canaan should anything arise in the future. I think they’re very considered in their view about how to manage both supply chain and other external risks.

Kevin Dede

Okay, last question for me, so you can take a deep breath, James. Just a little bit more on the Quinbrook relationship. Obviously, there’s more to come there. I was wondering if you could zero in on a timeline, maybe how many other projects you’re looking at, what the scope of them may be. You alluded to working with them in the U.S. I just know it’s critical for bitcoin miners to be joined at the hip with power generators, so I think this is a great step for you folks. Just maybe you could dig in on that a little bit.

James Manning

Yes, I want to be a little bit careful there, Kevin. I don’t want to pre-empt any commercial arrangements. I’ll (inaudible) fairly boldly on that, but I think both Quinbrook and us have a mutual understanding around the desire to build out bitcoin mining and distributed computing base (phon) mining around the world across a variety of the Quinbrook portfolio.

We’re obviously really proud to have launched the first project in (Inaudible) in New South Wales, Australia. There are opportunities to do additional sites here in Australia. The initial 20 megawatts is really a tea that was like the entrée to a main meal from our perspective, and from Quinbrook’s perspective, and it’s really about building a great relationship with them and a long-term relationship. I think that goes to us having a very strong partner and them having a very strong partner in us. Quinbrook’s great to work with, and we think that that’s a relationship that we’ll be able to build on with a couple of sites.

As to total scale, I think it would be inappropriate for me to tell you the number. But needless to say, we’ll be looking at coming to market in the near term with the additional sites that we’re looking at and what some of those numbers are.

That really goes to some of the earlier questions you raised about the qualified pipeline sites. We have sites and we have some understanding about them.

Kevin Dede

Ah, very good. Okay, thank you, James. I appreciate you entertaining my questions.

James Manning

Thanks, Kevin.

Operator

As we poll for more from the phone audience, we turn to Nick to read some questions that have come in from our webcast.

Nick Hughes-Jones

We have a question from Thomas Shoemaker (phon) around the makeup of the blended mining cost. When we talk about blended mining cost, we talk about across the portfolio. We have different contracted power rates across the different sites, and so we like to average that across all the sites and get an overall cost of mining across the entire portfolio. Some sites are slightly cheaper on a per megawatt basis, and some sites are slightly more expensive. A blended cost provides the nature of that metric.

James Manning

We’ve got another question here from Curtis Larson from Norse Capital. “Can you give your view of where you see the global mining (inaudible) going in the near future with mining (inaudible) across the bitcoin mining industry?”

Hi, Curtis, thanks for your question. Look, it’s a difficult one to answer. I think Kevin’s actually got some good research out on where he thinks the global hashrate is going to be end of next year and potentially the year after. Based on what I can see from public disclosures, my guesstimate, and it is only a guesstimate, would be circa 2.50 (phon) exahash by the end of next year. But as we’ve seen this year, there will be an incredible amount of volatility. We saw the Chinese mining rate (inaudible) taken from 180 down to 80 and back to, I think 150, 160 today. It’s only a guesstimate, Curtis.

The third question is from Angus McGeoch with CLSA. “Could you please talk through the ramp-up execution risks as you move from 0.80 (inaudible) exahash as at today to 3.35 in (inaudible) six-month time? Also, are there any supply chain concerns that impact your ability to achieve the 5 exahash level by early 2023?”

Nick Hughes-Jones

Thanks, Angus, for that question. Look, there are a number—there’s always execution risks when you build out a scale like we are over the next six months. I think we’ve very well mitigated most of those risks by being focused on getting the infrastructure right first. In Georgia we’ve spent a lot of time making sure we’ve got supply to most of the data centres, we’ve got the transformers lined up, we’ve got the equipment. We’re in the position where we are at the moment that we’ve actually got the infrastructure and the equipment all on the ground and we’re waiting to commission the power, and that’s (inaudible) happening as we work with the local city to get that done. So, we’re running ahead.

We’ve also recently added a couple additional staff on the ground with deployment expertise, materially reducing the time to deploy the equipment, so we’re seeing our time to deploy each modular container drop by about 75 percent, 80 percent, which materially increase our ability to scale without adding headcount.

I think then the last thing is, we’re looking at how we can add some additional technology into the business to facilitate or bring that time to deploy a little bit faster, again.

With respect to the supply chain, Angus, we’ve got a lot of competitive advantage, I think, in supply chain. I come from a background where we’ve had a lot of experience in logistics. We’ve been running logistics well out of China, and we’re getting our equipment on time and to our deployment plan. We’re currently comfortable around that. We’ve been utilizing (inaudible) out of China the entire time. Our freight costs are a little bit higher, but we get them deployed faster and I think the benefit of being online far outweighs any cost.

James Manning

Next question is from Mark Skurnik at Perpetual. “Currently 75 percent renewable non-carbon. Can you talk about halfway to net zero carbon emissions?”

Thanks for the question, Mark. In 2020 we offset 22,000 tonnes of carbon, and we had 75% of our energy mix from non-carbon-emitting sources. The latest two sites we’ve announced, the first in Pennsylvania is actually 100% nuclear energy, and the site that we’ve announced up on the East Coast of Australia is also 100% renewable energy. New sites are looked at through the lens of our 2030 Net Zero Carbon strategy, and any residual carbon footprint we have this year will be offset with carbon credits.

Operator

Do we have any more questions from the webcast?

James Manning

Nothing that I can see there.

Operator

Okay, we do have another phone question from Angus McGeoch from CLSA. Please proceed with your question.

Angus McGeoch

Thanks, guys. I think you addressed my question on the webcast, but just following on from that, and hopefully I’m not misreading this, but it does appear that you’ve brought your ramp-up timeline forward just in terms of how you’re executing towards that expanded capacity. In terms of your ability to continue to do that on a forward-looking basis, do you think there’s further room to move to hit higher exahash rates at an earlier time than currently expected?

James Manning

Thanks, Angus, I think there’s two factors there. I sort of want to under-promise and over-deliver on this result, so what we’re presenting here, I think, is very deliverable. There’s always opportunities to bring things forward, and it goes to our strong relationship with Canaan, that they’re supportive of us. They had to bring things forward as well. Where we see opportunities to do so, we do do that.

A great example of that is we’ve changed some of the infrastructure in Georgia so that we can bring some of that online date forward from what we originally envisaged, and I think that the (inaudible) capacity continue to expand that the Pennsylvania site is well positioned. We have the public deployment time, we have our internal deployment time, and then we have our real target deployment time, and those numbers all vary, and sure enough, they always try and hit the internal one first. If we can continue to do that, I think we’ll be in a very strong position. We’ll always be in a position to outperform, and that’s our real focus of the business.

Angus McGeoch

Okay, thanks, James. Just one last question. You’ve provided a lot of transparency there just around bitcoin pricing and revenue forecast, which is great, and you talked about being fully funded to that 5 exahash level. Can you disclose at what bitcoin price you may not be fully funded and you might need alternate sources of funding to achieve on that expanded execution rate?

James Manning

Sorry, can you just repeat that? The line broke up there a little bit.

Angus McGeoch

Sorry. I mean, you guys are obviously (inaudible) to be fully funded to the 5 exahash rate, notwithstanding the fact you need to order some more miners. But is there a bitcoin price at which the ability to internally fund with the cash reserves you currently have plus the cash that you’re generating, is there a bitcoin price that might become problematic, or do you think there’s just a lot of margin of safety based on where you are today?

James Manning

Look, I don’t have that whole model in front of me at the moment, but I’m happy to take that on notice. What I would say to you, though, Angus, is we’re obviously experiencing a period where we’ve got incredible margins in our operating business. The existing pipeline—one of the great things we did with the capital (phon) rate today is we paid a 50% deposit on all the equipment we’ve ordered, so we’re more than cash flow accretive every month. Given that, it really gives us the position to go and acquire additional equipment.

We saw a need to get into the market and do those things, and so for us it’s a combination of just watching the market and being opportunistic when we buy equipment as well. If we see a pullback, we’ll go and pounce on that pullback for delivering the future of equipment. I think we’ve done that quite well in the past, and we’ll continue to do that.

Now, there’s a combination of factors there and being very disciplined about how we do that. When the markets are very bullish for equipment, we also look to resell or sell down some of that older generation equipment and replace it with newer equipment, so there’s definitely a capital recycling program there for us as well. We like to add both of those things into the mix, and they do vary a lot.

We’re looking at constant ways to target—maximize the balance sheet and (inaudible) that we’re there, but at the same breath, we’re still very comfortable around the current operating environment that we’ll get to that 5 exahash mark.

Angus McGeoch

Okay, great. Thanks, guys, and congrats on a strong quarter.

Operator

We have reached the end of the question-and-answer session. I will now turn the call back over to James Manning for closing remarks.

James Manning

One last question which I might take from Mark at Perpetual. He asked, “Can you talk to the SG&A costs and how they should scale as you grow?”

I think this quarter was a unique quarter for us. Obviously, as we listed there were a number of SG&A costs that were one-off and not really (inaudible) in nature. We took up a number of accruals (phon) during the period as well. We’re comfortable with that. We have taken some feedback on in the last couple of days (inaudible) around breaking that SG&A number down, and so I think you’ll see from us more additional detail on the SG&A and a further breakdown of what the (inaudible) components in that are moving forward, and we’re always welcome to take any other feedback on that point.

We’re more than happy to answer any other questions around SG&A and go through those details, but we’re fairly comfortable with the SG&A that we’ve incurred in this quarter. It’s really once-off in nature and higher than it should be, but reflective of the IPO process (inaudible).

Given that we’re due to conclude this, I just want to thank everyone for taking the opportunity to jump online and hear the live presentation. Now, over the next 18 months, we will grow our business in excess of 600%. The bitcoin mining market’s a huge opportunity with more than $20 billion of annualized revenue opportunity. We’ve got our focus on sustainable mining, and we’re incredibly focused on those shareholder returns. I think the infrastructure first approach has given us a fantastic platform to take it to the next level, and we’re really excited.

I’m really proud of the team. I’m really proud about what we’ve done to date, and I’m just so excited and pumped to deliver not just the 3.35 exahash, but that 5 exahash number and beyond. We really see (inaudible) at this point in time, and I’m hoping next quarter that we’re talking about our next material upgrade.

Thanks, everyone, for joining and we lookJames Manning forward to talking to you next time. Thanks.

Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.