- Revenue from bitcoin mining was $10.4 million.
- We earned 248.4 bitcoins. The decrease from 562.9 earned during the second quarter was due to miner migration and fleet reposition.
- We had no miners remaining in China. 100% of our miner fleet was deployed, in transit to, or awaiting installation in North America at September 30, 2021.
- We owned 27,744 miners including 851 miners acquired in the third quarter of 2021.
- Non-GAAP income from operations* was $4.8 million, or $0.09 per ordinary share.
- Non-GAAP net income** was $4.0 million, or $0.07 per ordinary share.
- We had cash and cash equivalents of $26.5 million, and total liquidity (defined as cash and digital assets) of approximately $61.5 million, as of September 30, 2021.
* Non-GAAP income from operations excludes the impact of depreciation of property and equipment, and share-based compensation expense.
** Non-GAAP net income excludes the impact of depreciation of property and equipment, impairment on digital assets, loss from disposal of property and equipment, and share-based compensation expense.
Forward Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this news release. Except for the statements of historical fact, this news release contains “forward-looking information” and “forward-looking statements reflecting our current expectations that involve risks and uncertainties (collectively, “forward-looking information”) that is based on expectations, estimates and projections as at the date of this news release. Actual results and the timing of events in this news release includes information about hash rate expansion, diversification of operations, potential further improvements to profitability and efficiency across mining operations, potential for the Company’s long-term growth, and the business goals and objectives of the Company. Factors that could cause actual results, performance or achievements to differ materially from those discussed in our such forward-looking statements as a result of many factors, including, but not limited to: continued effects of the COVID19 pandemic may have a material adverse effect on the Company’s performance as supply chains are disrupted and may prevent the Company from operating its assets; the ability to establish new facilities for bitcoin mining in North America; a decrease in cryptocurrency migrating and then operating its assets; a decrease in cryptocurrency pricing; volume of transaction activity or generally, the profitability of cryptocurrency mining; further improvements to profitability and efficiency may not be realized; the digital currency market; the Company’s ability to successfully mine digital currency on the cloud; the Company may not be able to profitably liquidate its current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on the Company’s operations; the volatility of digital currency prices; and other related risks as more fully set forth under “Risk Factors” and elsewhere in our Annual Report on Form 20-F for the year ended December 31, 2020 and other documents disclosed under the Company’s filings at www.sec.gov. The forward-looking information in this news release reflects the current expectations, assumptions and/or beliefs of the Company based on information currently available to the Company. In connection with the forward-looking information contained in this news release, the Company has made assumptions about: the current profitability in mining cryptocurrency (including pricing and volume of current transaction activity); profitable use of the Company’s assets going forward; the Company’s ability to profitably liquidate its digital currency inventory as required; historical prices of digital currencies and the ability of the Company to mine digital currencies on the cloud will be consistent with historical prices; and there will be no regulation or law that will prevent the Company from operating its business. The Company has also assumed that no significant events occur outside of the Company’s normal course of business. Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Bitcoin Mining Business
e are a bitcoin mining company with mining operations in the United States and Canada. We commenced our bitcoin mining business in February 2020. Our bitcoin mining operations, hosted by third party hosting providers, use specialized computers, known as miners, to generate bitcoins, a cryptocurrency. The miners use application specific integrated circuit (“ASIC”) chips. These chips enable the miners to apply greater computational power, or “hash rate”, to provide transaction verification services (known as “solving a block”) which helps support the bitcoin blockchain. For every block added, the bitcoin blockchain awards a bitcoin award equal to a set number of bitcoins per block. Miners with a greater hash rate have a higher chance of solving a block and receiving a bitcoin award.
We operate our mining assets with the primary intent of accumulating bitcoin which we may sell for fiat currency from time to time depending on market conditions and management’s determination of our cash flow needs. Our mining strategy has been to mine bitcoins as quickly and as many as possible given the fixed supply of bitcoins. In view of the long delivery lead time to purchase miners from manufacturers like Bitmain Technologies Limited (“Bitmain”) and MicroBT Electronics Technology Co., Ltd (“MicroBT”), we initially chose to acquire miners on the spot market, which can typically result in delivery within a few weeks. In parallel, we also enjoy strategic relationships with leading manufacturers, enabling us to access ASICs on advantageous terms. On October 7, 2021, the Company contracted to purchase an additional 10,000 Antminers from Bitmain under a Sales and Purchase Agreement (the “SPA”) at an estimated cost of $65 million. These miners are expected to increase the Company’s miner hash rate by approximately 1.0 Exahash (“EH/s”). Pro Forma for the announced purchases, our maximum total hash rate is expected to be approximately 2.603 EH/s.
We have signed services agreements with third party hosting partners in North America. These partners operate specialized mining data centers, where they install and operate our miners and provide IT consulting, maintenance, and repair work on-site for us. Our mining facilities in Texas and Nebraska are maintained by Compute North LLC. Our mining facility in Georgia is maintained by Core Scientific, Inc. Our mining facility in New York is maintained by BlockFusion USA, Inc. Our new mining facility in New York will be maintained by Digihost Technologies. Our former mining facility in Alberta, Canada was maintained by Link Global Technologies Inc.
Miner Migration and Geographic Distribution
In October 2020, we commenced our strategy of migrating our mining assets from China to North America. Following the announcement of the Chinese government’s decision to ban bitcoin mining, we immediately suspended our remaining mining operations in mainland China, effective June 21, 2021. Accordingly, we further accelerated our migration strategy that had been ongoing since October 2020. As a result, a greater proportion of our fleet was offline than in the prior quarter, due to more miners being in transit to or awaiting installation in North America. Prior to shipment, we generally refurbish our miners in a facility in Shenzhen, China, to ensure their resilience during transport and operability upon arrival. Miners are securely packaged and shipped by air or by sea, depending on market conditions.
As of September 30, 2021, we had no miners in China: 79.1% of our fleet was already deployed or awaiting installation in North America, and 20.9% was in transit. As of the date of this report, 100% of our fleet had arrived in North America.
Power and Hosting Overview
During the third quarter, the Company signed two new hosting agreements in the United States, representing 135 megawatts (“MW”) of additional power capacity. Both are expected to be powered by a substantial component of renewable and/or carbon-free energy, contributing to our ongoing efforts to decarbonize our mining operations.
On July 22, 2021, we signed a 100 MW agreement with Digihost Technologies (“Digihost”) that is expected to be powered by approximately half renewable and/or carbon free energy sources, subject to finalizing our energy procurement strategy with Digihost. This second agreement brings our total contracted hosting capacity with Digihost to 120 MW. Digihost is expected to deliver the first 20 MW of contracted power capacity during the fourth quarter of 2021. The remaining 100 MW is scheduled for delivery during the first and second quarters of 2022.
On August 25, 2021, we signed a 35 MW hosting agreement with Blockfusion USA (“Blockfusion”) that is expected to be powered primarily from zero carbon emission energy sources. As of the date of this report, Blockfusion had completed the first (of four) phases of miner deployments, representing approximately 5 MW of power consumption. The remaining three phases are scheduled for delivery in fourth quarter of 2021 and the first quarter of 2022. During the term of our agreement and for twelve months thereafter, Bit Digital has a right of first refusal to match any bona fide offer from a third party to finance or acquire securities and/or assets of Blockfusion, and to receive a credit or refund of certain expenses incurred in the development of…