Argo Blockchain plc: Q1 2023 Form 6-K Summary
Business context and reporting period
Argo Blockchain plc, a dual-listed cryptocurrency mining company, reported unaudited results for the three months ended March 31, 2023. The company operates mining facilities in Quebec and Texas and states that its operations are predominantly powered by renewable energy. The Form 6-K was filed on June 6, 2023.
Key financial and operating metrics
| Metric | Q1 2023 | Comparable period |
|---|---|---|
| Revenue | $11.438 million | $19.515 million in Q1 2022; $24.979 million for the six months ended December 31, 2022 |
| Mining margin | 49% | 35% in Q4 2022 |
| Gross profit/(loss) | $(0.556) million | $1.919 million in Q1 2022 |
| Net loss | $(8.710) million | Net income of $2.066 million in Q1 2022 |
| Adjusted EBITDA | $1.585 million | $14.019 million in Q1 2022 |
| Bitcoin mined | 491 BTC, or 5.3 BTC per day | The filing does not provide a comparable Q1 2022 figure |
| Cash and cash equivalents | $14.244 million | $20.092 million at December 31, 2022 |
Operating cash flow was negative $2.895 million, investing cash flow was negative $0.329 million, and financing cash flow was negative $3.092 million. Cash decreased by $6.316 million during the quarter, including a $0.468 million favorable foreign-exchange effect.
At March 31, 2023, total assets were $99.003 million, total liabilities were $93.519 million, and total equity was $5.484 million. Reported debt comprised current loans and borrowings of $12.499 million, a $37.824 million bond, and non-current loans of $24.848 million. Digital assets on the balance sheet were $20,000, while the company separately reported 85 BTC or Bitcoin Equivalent in its HODL holdings.
Material changes versus prior periods
- Revenue increased 15% from Q4 2022 but declined approximately 41% from Q1 2022.
- Mining margin improved to 49% from 35% in Q4 2022, supported in part by lower-than-guided all-in power and hosting costs.
- Operating costs and expenses were reduced by 70% compared with the quarterly average in the second half of 2022.
- Finance costs declined by 63% compared with the quarterly average in the second half of 2022, although Q1 finance costs remained $3.313 million.
- The company moved from a $2.066 million profit in Q1 2022 to an $8.710 million loss in Q1 2023. The change included lower revenue, depreciation of mining equipment, and a $3.313 million finance-cost burden.
- Cash fell from $20.092 million at December 31, 2022 to $14.244 million at March 31, 2023, while total equity declined from $13.748 million to $5.484 million.
Guidance, outlook, commentary, and risks
Management stated that the Helios facility was successfully transitioned to Galaxy Digital during the quarter. Argo expects to receive and install BlockMiner machines later in 2023 at its Quebec facilities, which is expected to increase total hashrate to approximately 2.8 EH/s.
Management emphasized financial discipline, operational excellence, growth, and strategic partnerships. It appointed Jim MacCallum as Chief Financial Officer and stated that it was evaluating options to strengthen the balance sheet and further reduce non-mining operating expenses.
The filing identifies material uncertainties, including whether Argo will realize the expected benefits of its transactions with Galaxy, secure sufficient additional financing to meet operating needs, or generate enough working capital to fund operations for the next twelve months. Cryptocurrency prices, mining difficulty, energy and hosting costs, financing availability, and the implementation of planned mining equipment remain significant business risks.
Adjusted EBITDA and mining margin are non-IFRS measures. The company cautions that these measures exclude or adjust for items including depreciation, digital-asset valuation changes, foreign exchange, stock-based compensation, and certain one-time costs, and should not be treated as substitutes for IFRS net income or gross margin.
Facts investors should verify
- Liquidity and near-term funding requirements given $14.244 million of cash, negative operating cash flow, and approximately $75.2 million of reported loans and bond debt, excluding lease liabilities.
- The terms, timing, and expected benefits of the Galaxy Digital transaction and Helios transition.
- The delivery, installation schedule, financing, and expected performance of the BlockMiner machines and the approximately 2.8 EH/s hashrate target.
- The sustainability of the 49% mining margin and whether lower power and hosting costs continue.
- The distinction between the 85 BTC or Bitcoin Equivalent HODL balance and the $20,000 of digital assets reported on the balance sheet.
- Exposure to cryptocurrency price volatility, network difficulty, energy costs, additional financing needs, and the company’s ability to fund operations for the next twelve months.