Earnings call transcript: SATO Technologies Corp posts Q1 2025 loss, stock dips

SATO Technologies Corp (SATO) reported a challenging Q1 2025, with an earnings per share (EPS) of -0.01 and revenue of CAD $3 million, mirroring the previous quarter but significantly lower than the same period last year. The company’s stock dropped 12.5% in after-hours trading, reflecting investor concerns over its financial performance and strategic transition from Bitcoin mining to AI and HPC infrastructure. InvestingPro analysis reveals a concerning financial health score of 1.69 (Weak), with revenue declining 32.83% over the last twelve months.

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Key Takeaways

• SATO reported a Q1 2025 EPS of -0.01, aligning with forecasts but indicating ongoing financial challenges.
• Revenue remained stable quarter-over-quarter at CAD $3 million but dropped significantly from Q1 2024’s $5.9 million.
• The company is transitioning to AI and HPC infrastructure, aiming for a $1 trillion market by 2028.
• Stock fell 12.5% post-earnings, nearing its 52-week low.

Company Performance

SATO Technologies Corp’s performance in Q1 2025 highlights the challenges of transitioning from Bitcoin mining to AI and HPC infrastructure. The company maintained its revenue from the previous quarter but saw a significant decline compared to the same period last year. The number of Bitcoins mined also dropped sharply, reflecting operational and market challenges. According to InvestingPro data, the company’s current ratio stands at 0.67, indicating potential liquidity concerns, while its debt-to-equity ratio is 0.98.

Financial Highlights

• Revenue: CAD $3 million, stable from Q4 2024 but down from CAD $5.9 million in Q1 2024.
• Earnings per share: -0.01.
• Gross profit: $298,000.
• Operating loss: $550,000.
• Net profit: $885,000.
• Adjusted EBITDA: $164,000 (positive).

Earnings vs. Forecast

SATO’s EPS of -0.01 was slightly better than the future forecasted EPS of -0.02, indicating a minor positive deviation. However, the revenue of CAD $3 million did not meet past performance levels, showing a significant year-over-year decline.

Market Reaction

Following the earnings announcement, SATO’s stock price dropped by 12.5% in after-hours trading, from $0.2 to $0.175, reflecting investor concerns about the company’s financial health and strategic direction. The stock is now closer to its 52-week low of $0.08. InvestingPro analysis indicates the stock is currently trading below its Fair Value, though with high price volatility and negative free cash flow yield of -109%. The company’s market capitalization stands at just $9.36 million, reflecting significant market skepticism about its transition strategy.

Outlook & Guidance

SATO is focused on expanding its AI and HPC infrastructure, with plans to scale its AI factory model across Canada and the US. The company expects market conditions to improve with fluctuations in Bitcoin prices, aiming to capture a share of the projected $1 trillion AI infrastructure market by 2028.

Executive Commentary

"There is more than $1,000,000,000,000 that is planned to be invested in the infrastructure for AI and HPC by 2028," stated Raveen, CEO, highlighting the company’s strategic shift. "We believe we have a role to play and our position strategically based in Quebec near city center in Montreal makes sense," he added.

Risks and Challenges

• Operational challenges, including downtime and reduced capacity due to past incidents.
• Market volatility in Bitcoin mining and AI infrastructure sectors.
• Financial losses and negative EPS impacting investor confidence.
• Competition in the emerging AI infrastructure market.
• Dependence on clean, cheap hydro energy for competitive advantage.

Q&A

No questions were asked during the earnings call, leaving some analyst concerns unaddressed.

Full transcript - SATO Technologies Corp (SATO) Q1 2025:

Raveen, CEO, Bisato: Okay. I think we are ready to start. Thank you everyone for joining us today. We are here to talk about our Q1 twenty twenty five financials. I’m here with Caliper B with our CFO since 2021 when we went listed on the stock market.

We had a presentation less than a few weeks ago about our financial for 02/2004. So we’re to go fast on the presentation of the company. Obviously, the first slide is a disclaimer about the forward looking information. If you’re a lawyer, please read this carefully. Most of you, I’m sure, know about the company.

We started as a beacon miner in 2017. We mined from Quebec in Canada. We have an energy deal for 20 megawatt from Hydro Juliet, which is a city where we are in. It’s very near Montreal. One of the best energy in the world, not only it’s very stable energy, it’s a clean energy because it’s not producing any carbon.

It’s mainly 96%. It’s hydro energy in Canada in Quebec. Sorry. And it’s also very well priced. All in, we pay 4.3¢ a kilowatt hour, which is one of the best price we could find in the world.

We are also 100% self mining. We operate around 0.5 exahash currently. And we have always been focusing on being ultra efficient in the way we are managing our energy and transforming the energy into complete power. As you know, the business of bitcoin mining and compute in general is very CapEx intensive, both on the infrastructure, meaning everything related to transforming the energy into computing power and also everything related to cooling. And the other part that is very CapEx intensive is buying the compute itself, the mining rigs or the mining on the GPU, so AI and HPC.

We are now focusing on making sure that we can evolve into our business model by developing more compute and not focusing only on Bitcoin mining. So like many Bitcoin miners, we are working on developing our AI and HPC solution. Mainly, we are tackling the problem or tackling the issue by the infrastructure prism, meaning that we want to develop an AI factory in order to host GPUs for clients. So that’s what we’ve been working on for the past few months, and we will make more announcement as they come. Why do we do that?

Because the market is booming as you know. There is more than $1,000,000,000,000 that is planned to be invested in the infrastructure for AI and HPC by 2028. ’20 ’20 ’8, it’s really tomorrow in our world, it’s less than two years. And it’s not only in The US, it’s also everywhere in the world. And we believe that Canada and Quebec is a very strategic place for this kind of solution.

And we think that our center one in Quebec will be a good first platform for us to operate and develop our first AI and HPC factory. And from there, being able to scale up and scale out in different places, not only in Canada, but also in The US that we are currently looking at. We think we’re going to be able to thrive in the industry because we have a power expertise. We know how to innovate in developing infrastructure and how to be efficient with managing our computing. And also, if you look at the different kind of players in the world today working on that, we are kind of all at the same point because AI factories are so new and so different than anything that was built before that we are almost at the same space or the same place than any other legacy data center on one side or hyperscaler on the other side.

Why? Because data center is so different from what is required for an AI factory that you really need everyone need to start from scratch to some extent. So we believe we have a role to play and our position strategically based in Quebec near city center in Montreal to very makes sense. And once we have developed and make what we call our playbook for our center number one, we will be able to scale in other different kind of places. I’m now going to give the floor to Kyle to talk more specifically about our financial results for Q1 twenty twenty five.

Don’t forget, this is only Bitcoin mining. Q1 was a very specific quarter into the mining world, post housing, as you know, so the division of two of our revenues at the middle of the year and last year, but also Q1 had a very low or relatively low price of the Bitcoin in the $70,000 range and a very high difficulty. So it has impacted our results plus also a change into our infrastructures that we had to repair and make some upgrades. So we had to stop our center or part of our center a little bit more than we usually do. So Kyle, I’ll let you comment on this on this financial.

Kyle, CFO, Bisato: Thanks, Raveen. So as mentioned, this is for q one twenty twenty five, ’3 months ended March 31 reported in Canadian dollars. Our financials are in accordance with IFRS accounting standards, and for the quarter, they are unaudited. You can see our revenue for Q1 twenty twenty five just under $3,000,000 Q4 ’twenty 4 just over $3,000,000 and Q1 ’twenty four ’5 point ’9 million dollars That was from the earning of Bitcoin from mining pools. In q one twenty four, we earned 83 Bitcoin.

Q 4 20 4, 20 9 Bitcoin. In q one twenty five, ’20 ’2 Bitcoin. As Romaine briefly mentioned, there was some negative impacts compared to the previous quarter, the halving event in April of twenty four. There was a continuous network increase in the network hash rate. And as well in June of twenty four, we had a fire which reduced our operational capacity from that point on.

So some of the machines were not replaced. In addition, the downtime hours were two sixty eight hours, which represented twelve point four percent of our operational hours for Q1 twenty five compared to forty seven hours in Q1 twenty four. ’70 ’1 of those hours were for the maintenance of our substations to improve their longevity and 197 load shedding hours to support the electrical grid during the extreme cold winter months. So those negatively impacted our operations during the quarter. And these were partially offset by the price increase of Bitcoin from Q1 twenty twenty four to Q1 twenty twenty five.

Our cost of revenue basically mainly comprises of our electricity costs, as well as repairs and maintenance, salary and depreciation. The decrease in cost of the cost of sales were mainly from the reduction of miners from the fire and more downtime hours as mentioned. During the year during the quarter compared to Q1 ’twenty four, we also had a reduction of our operating expenses from $898,000 down to 769,000 mainly for reductions in salary and some other expenses. So we’re always conscious of costs and reviewing where we can cut back without impacting our operations. So you can see our gross profit of 298,000 for the quarter and then resulting operating loss for the quarter of 550,000 and a net profit of $885,000 We also had an EBITDA loss of $134,000 during the quarter, which as you can see compared to our previous quarters as well.

The next slide, you can see here are key performance indicators that the company looks at each quarter. So we have our compute power profit, which is basically profit from the mining excluding depreciation. So for Q1 twenty twenty five, we had over $835,000 Our EBITDA, as mentioned, was a loss of $134,000 and adjusted EBITDA, which is EBITDA, which also excludes noncash items like share based compensation, unrealized revaluation of digital assets and unrealized foreign exchange gains losses. So we ended up with a positive $164,000 of adjusted EBITDA. In this slide, you can see our cash and digital asset position at Q1 twenty twenty five.

So we’ve maintained a strong position here of over 3,000,000 And that mainly comprises of the digital assets of the 2,900,000.0 and the cash of a hundred and 80,000. So we had about just over 24 Bitcoin at the end of the quarter with the price of bitcoin being over CAD117000 and over US81000 dollars Our capital structure at March 31 remains consistent. We have a low share count outstanding of 73,300,000.0. Then we have a few warrants and options outstanding for a fully diluted of 82,200,000.0. You can also see our ticker symbols on the TSXV SATO and on the OTCQB CCPU.

F.

Raveen, CEO, Bisato: Thank you, Kyle. So this is concluding the presentation of our financial for q one. Don’t forget that the the market and the condition of the market are completely different, mainly because of the price of the Bitcoin. Also, the AI and HPC market is still continuing booming. So we will do another presentation, obviously, for q two and for the following quarter.

And we’re going to open the floor for questions if you have any. If you could add them into the chat. See if we have any. I don’t see anything yet. I’m gonna wait for a few minutes.

And if there is no questions, we will close this presentation. All right. No questions. Thank you very much for joining us. We will put this presentation online available from our website, www.bisato.com.

You can also subscribe to our mailing list and receive news as soon as they happen. Thank you very much, everyone. You have a good day.

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