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Bitfarms Reports Financial Results for the Year Ended December 31, 2018

Bitfarms Reports Financial Results for the Year Ended December 31, 2018

BROSSARD, Quebec & RAMAT GAN, Israel–()–Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TASE:
BLLCF
) (OTCQX:
BLLCF
), one of the largest blockchain technology companies in the
world through its ownership of Backbone Hosting Solutions Inc., today
announced its consolidated results for the year ended December 31, 2018
(all amounts in US dollars, unless otherwise indicated).

2018 Financial Summary and Corporate Highlights

  • Consolidated revenue of $33.8 million; gross profit of $10.9 million
    (32% gross profit margin), operating loss of $18.0 million, EBITDA1
    loss of $5.5 million and net loss of $18.2 million;
  • Impairment of property plant and equipment and intangible assets of
    $19.1 million;
  • Mining operations segment revenue of $31.6 million, gross mining
    profit of $23.2 million (73% gross mining margin), gross profit of
    $10.3 million (33% gross profit margin), operating loss of $16.5
    million, EBITDA loss of $4.0 million and net loss of $16.6 million;
  • Coins mined in 2018: 3,252 Bitcoin, 2,577 Bitcoin Cash, 6,234
    Litecoin, 964 Ethereum and 611 Dash;
  • Completed merger with Backbone Hosting Solutions Inc. (operating as
    “Bitfarms”) and appointed key executives;
  • Completed acquisition of Volta électrique, an electrical services
    company in Quebec;
  • Completed the construction of a brand-new centralized repair lab in
    Saint-Jean-sur-Richelieu, supported by a team of technicians trained
    directly by leading hardware manufacturers;
  • Completed purchase and installation of approximately 6,500 ASICs at
    10MW facility in Saint-Hyacinthe, Quebec;
  • Negotiated and finalized energy purchasing agreements with
    Hydro-Sherbrooke to secure 98 MW of economic, green electricity;
  • Completed construction and commenced partial mining operations (1.5MW)
    at the new 10MW facility in Magog, Quebec;
  • Filed a preliminary prospectus with the Ontario Securities Commission
    in support of the Company’s Canadian Listing Strategy.

2018 was a volatile year for the cryptocurrency industry and crypto
miners. From the beginning of 2018 to December 31st, the
price of Bitcoin decreased by 73% while network difficulty increased by
288% to its peak in October 2018. Despite the challenges, through
continuous reinvestment of cash flow generated from our operations,
careful financial planning and disciplined execution, we were able to
achieve many operational growth objectives in 2018. We also successfully
secured a large pipeline of economical, renewable energy that will allow
us to continue to grow and scale going forward. With our recently
secured $20M debt facility, we are well-positioned to continue our
growth and build upon Bitfarms’ strong position in the crypto mining
space,” commented John Rim, Chief Financial Officer.

Financial Review

Consolidated Company Results (000’s)

 
      December 31, 2018     December 31, 2017
       
Revenue $33,805 $8,663
 
Energy and infrastructure 8,487 673
Depreciation and amortization 12,548 1,107
Other costs of goods sold 1,893 (431)
Cost of goods sold 22,928 1,349
 
Gross profit $10,877     $7,314
Gross profit margin 32% 84%
 
General and administrative expenses 8,815 171
Listing cost of reverse acquisition 1,000
Impairment of property, plant and equipment

and intangible assets

19,060

Other expenses 251
 
Operating income (loss) (17,998) 6,892
Operating income margin (53%) 80%
 
Finance expenses 179 4
 
Earnings (loss) before income taxes (18,177) 6,888
 
Income tax expense 59 1,983
 
Net income (loss)     ($18,236)     $4,905
 
EBITDA (loss) ($5,450) $7,999
EBITDA % (16%) 92%
 

For the year ended December 31, 2018 the Company had consolidated gross
profit of $10.9 million (32% gross margin) on consolidated revenues of
$33.8 million compared to gross profit of $7.3 million (84% gross
margin) on revenues of $8.7 million for the fifty-six day period ended
December 31, 2017. Revenue, cost of goods sold, and general and
administrative expenses all increased primarily due to the twelve-months
of operations in the period ended December 31, 2018 compared
to fifty-six days of operations in the period ended December 31, 2017.

Gross profit margin decreased from 84% to 32% as the Company realized
lower daily revenue in the year ended December 31, 2018 compared to the
fifty-six day period ended December 31, 2017 due to lower average
realized prices on Bitcoin sales and increases in network difficulty
that outpaced hash rate growth of the Company. The average Bitcoin price
at the time of mining decreased by approximately 27% from the fifty-six
day period ended December 31, 2017 ($10,754) when compared to the
twelve-month period ended December 31, 2018 ($7,904). Furthermore, while
Bitfarms’ average internal hash rate increased from approximately 106
peta hash per second (“Ph/s”) at the beginning of 2018 to approximately
220 Ph/s by the end of 2018, the average network difficulty increased by
as much as 288% during 2018 compared to the start of 2018.

Energy and infrastructure expenses increased from $0.7 million in the
fifty-six day period ended December 31, 2017 to $8.5 million for the
year ended December 31, 2018. The increase in energy and infrastructure
expenses was due to increased Bitcoin mining capacity and a full year of
activity. Energy costs were partially offset by a firmware upgrade which
was implemented in October 2018, allowing the Antminer S9s to operate
using approximately 11 to 13% less electricity. Similarly, the Company’s
depreciation and amortization increased from $1.1 million to $12.5
million for the year ended December 31, 2018 compared to the fifty-six
day period ended December 31, 2017 primarily due to the acquisition of
more mining computers and infrastructure as well as twelve months of
amortization compared to 56 days. General and administration expenses
for the year ended December 31, 2018 and the fifty-six day period
December 31, 2017 were $8.8 million and $0.2 million, respectively.
Increased general and administration expenses are due to the full year
of operations in the period ended December 31, 2018, as well as the
Company’s operational growth, go-public transaction costs, professional
services and public company compliance costs.

Mining Operation Segment Results (000’s)

 
      December 31, 2018     December 31, 2017
       
Revenue $31,641 $8,663
 
Energy and infrastructure (8,466) (673)
Depreciation and amortization (12,491) (1,107)
Other costs of goods sold (392)     431
Cost of goods sold (21,349) (1,349)
 
Gross profit $10,292 $7,314
Gross profit margin 33% 84%
 
G&A and other expenses (7,510) (422)
Impairment on property, plant and equipment and intangible assets (19,254)    
 
Operating income (loss) (16,472) 6,892
Operating income margin (52%) 80%
 
Finance expenses 153     (4)
 
Earnings (loss) before income taxes (16,625) 6,888
 
Income tax expense (recovery) 6     (1,983)
 
Net income (loss)     (16,631)     $4,905
 
EBITDA (3,981) $7,999
EBITDA margin (13%) 92%
 
Gross mining profit $23,175 $7,990
Gross mining margin 73% 92%
 

Bitfarms’ mining operations form, by far, the majority of the Company’s
total operations.

For the year ended December 31, 2018, the Company’s cryptocurrency
mining operations segment had gross profit of $10.3 million (33% gross
margin) on revenues of $31.6 million, compared to gross profit of $7.3
million (84% gross margin) on revenues of $8.7 million for the fifty-six
day period ended December 31, 2017.

Gross mining profit was $23 million (yielding Gross mining margin of
73%) for the year ended December 31, 2018 compared to $8 million and
92%, respectively, for the fifty-six day period ended December 31, 2017.
The Gross mining margin decreased by 19% due to the increase in network
difficulty outpacing the increase in hash power achieved by the Company
during the year ended 2018 as detailed above.

EBITDA loss from mining operations was $4.0 million for the full year
ended December 31, 2018 compared to $8 million (92% EBITDA margin) for
the fifty-six day period ended December 31, 2017. Please refer to the
details in the analysis of the Consolidated Company Results for
explanations of changes in revenue and expenses.

About Bitfarms Ltd. (formerly Bitfarms Technologies Ltd. and
Blockchain Mining Ltd.)

Through its ownership of Bitfarms, the Company owns and operates
computing centres that power the global decentralized financial economy.
Bitfarms provides computing power to cryptocurrency networks such as
Bitcoin, earning fees from each network for securing and processing
transactions. Powered by clean and competitively priced
hydroelectricity, Bitfarms operates 4 computing centres in Québec,
Canada with 36MW of built-out infrastructure and approximately 220 Ph/s
of installed hash power. Bitfarms’ strong and experienced management
team is comprised of veteran industrial-scale data centre operators and
capital markets professionals, focused on building infrastructure for
the future by developing and hosting the ecosystem growing around
blockchain-based technologies.

Keep up-to-date on Bitfarms’ events, developments and online communities:

https://www.facebook.com/bitfarms/

https://twitter.com/Bitfarms_io

https://www.instagram.com/bitfarms/

https://www.linkedin.com/company/bitfarms/

Cautionary Statement

Trading in the securities of the Company should be considered highly
speculative.
No stock exchange, securities commission or other
regulatory authority has approved or disapproved the information
contained herein. The Tel Aviv Stock Exchange has neither approved nor
disapproved the contents of this press release.

Forward-Looking Statements

This news release contains certain “forward-looking information”
within the meaning of applicable Canadian securities laws that are based
on expectations, estimates and projections as at the date of this news
release. The information in this release about future plans and
objectives of the Company, are forward-looking information. Other
forward-looking information includes but is not limited to information
concerning: the intentions, plans and future actions of the Company, the
listing of the Common Shares on stock exchanges, as well as Bitfarms’
ability to successfully mine digital currency, revenue increasing as
currently anticipated, the ability to profitably liquidate current and
future digital currency inventory, volatility in digital currency prices
and the resulting significant negative impact on the Company’s
operations, the construction and operation of expanded blockchain
infrastructure as currently planned, and the regulatory environment of
cryptocurrency in the Provinces of Canada.

Any statements that involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions,
future events or performance (often but not always using phrases such as
“expects”, or “does not expect”, “is expected”, “anticipates” or “does
not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”,
“estimates”, “believes” or “intends” or variations of such words and
phrases or stating that certain actions, events or results “may” or
“could”, “would”, “might” or “will” be taken to occur or be achieved)
are not statements of historical fact and may be forward-looking
information and are intended to identify forward-looking information.

This forward-looking information is based on reasonable assumptions
and estimates of management of the Company at the time it was made, and
involves known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking information.
Such factors include, among others, risks relating to the global
economic climate; dilution; the Company’s limited operating history;
future capital needs and uncertainty of additional financing; the
competitive nature of the industry; currency exchange risks; the need
for the Company to manage its planned growth and expansion; the effects
of product development and need for continued technology change;
protection of proprietary rights; the effect of government regulation
and compliance on the Company and the industry; network security risks;

the ability of the Company to maintain properly working systems;
reliance on key personnel; global economic and financial market
deterioration impeding access to capital or increasing the cost of
capital; and volatile securities markets impacting security pricing
unrelated to operating performance.
In addition, particular
factors which could impact future results of the business of Bitfarms
include but are not limited to: the construction and operation of
blockchain infrastructure may not occur as currently planned, or at all;
expansion may not materialize as currently anticipated, or at all; the
digital currency market; the ability to successfully mine digital
currency; revenue may not increase as currently anticipated, or at all;
it may not be possible to profitably liquidate the current digital
currency inventory, or at all; a decline in digital currency prices may
have a significant negative impact on operations; the volatility of
digital currency prices; the anticipated growth and sustainability of
hydroelectricity for the purposes of cryptocurrency mining in the
Province of Québec, the ability to complete current and future
financings, any regulations or laws that will prevent Bitfarms from
operating its business; historical prices of digital currencies and the
ability to mine digital currencies that will be consistent with
historical prices; and there will be no regulation or law that will
prevent Bitfarms from operating its business. The Company has also
assumed that no significant events occur outside of the Bitfarms’ normal
course of business.
Although the Company has attempted to
identify important factors that could cause actual results to differ
materially, there may be other factors that cause results not to be as
anticipated, estimated or intended. There can be no assurance that such
statements will prove to be accurate as actual results and future events
could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking
information. The Company undertakes no obligation to revise or update
any forward-looking information other than as required by law.

Non-IFRS Measures

This news release makes reference to certain measures that are not
recognized under IFRS and do not have a standardized meaning prescribed
by IFRS.
They are therefore unlikely to be comparable to similar
measures presented by other companies.
The Company uses non-IFRS
measures including “EBITDA,” “EBITDA margin,” “Gross mining profit,” and
“Gross mining margin” as additional information to complement IFRS
measures by providing further understanding of the Company’s results of
operations from management’s perspective.

EBITDA and EBITDA margin are common measures used to assess
profitability before the impact of different financing methods, income
taxes, depreciation of capital assets and amortization of intangible
assets.
Gross mining profit and Gross mining margin are measures
used to quantify power and infrastructure costs in cryptocurrency
production, the single biggest expense in mining.
Management uses
non-IFRS measures in order to facilitate operating performance
comparisons from period to period and to prepare annual operating
budgets.

“EBITDA” is defined as net income (loss) before: (i) finance
expenses; (ii) income tax expense; and (iii) depreciation and
amortization. “EBITDA margin” is defined as the percentage obtained when
dividing EBITDA by Revenue.
“Gross mining profit” is defined as
Revenue minus Energy and infrastructure expenses for the Mining
Operations segment of the Company.
“Gross mining margin” is
defined as the percentage obtained when dividing Gross mining profit by
Revenue for the Mining Operations segment of the Company. These measures
are provided as additional information to complement IFRS measures by
providing further understanding of the Company’s results of operations
from management’s perspective. Accordingly, they should not be
considered in isolation nor as a substitute for analysis of the
Company’s financial information reported under IFRS.

1 EBITDA, EBITDA margin, Gross mining profit and Gross mining
margin are non-IFRS measures; please refer to the note at the end of
this press release regarding the use of Non-IFRS Measures.

Published at Sun, 31 Mar 2019 14:49:00 +0000