Q2 2023 Hut 8 Mining Corp Earnings Call

Good morning ladies and gentlemen. Welcome to HUT8's second quarter 2023 Financial Results Analyst and Investor Call.

For bitcoin for the second quarter of 2023 was approximately $29600 Canadian compared to approximately $25600 per bit coin in the prior year for the same quarter. The increase was due to higher power consumption for bitcoin mined and the <unk>.

Ongoing electrical issues Drumheller facility, which was partly offset by the company's decision to curtail lower average energy prices and increased efficiencies in our miners deployed compared to prior year same quarter.

We incurred $2 $5 million in operating costs related to the high performance computing operations compared to $2 $3 million in Q2, 2022, due to increased repairs and maintenance to improve the company company's facilities.

The $200000 increase is attributed to improving our preventative preventative maintenance regime to align with industry standards and drive higher capacity and customer service.

In terms of margins, our digital asset mining operation generated mining profit of $3 $2 million in Q2, 2023 versus $14 $9 million in the prior year same quarter. The decrease in mining profit due to the decrease in the price of bitcoin lower quantity.

Good coins mined due to increased network difficulty suspension of mining activity North Bay, and the ongoing electrical issues that drumheller offset partially by lower average price of power.

General and administrative costs were $12 $5 million for the quarter compared to $12 $3 million for the same quarter prior year.

The key drivers in the increase was the inclusion of one time transaction costs in the second quarter of 2023 related to the merger with U S. PTC. Excluding these onetime transaction cost our general and administrative costs were down $2 $6 million comp.

<unk> to Q2 2022, due to lower sales tax expenses lower professional fees and other expenses.

We recorded a net loss of $16 7 million for Q2 2023 compared to a net loss of $88 1 million in Q2 2022.

In Q2, 2022, we booked a noncash loss on the revaluation of our digital assets of $104 $9 million of income or loss due to a reduction in bitcoin prices during the quarter.

Also Q2 2022 included a noncash gain on the reevaluation of warrant liability for $43 $3 million.

Reflecting the operating results discussed previously hut eight achieved adjusted EBITDA of negative $2 $7 million in Q2, 2023 compared to a negative adjusted EBITDA of $98 $1 million in Q2, 2022, primarily driven by a lower loss on.

The reevaluation of digital assets partially.

Offset by a lower digital asset mining profit and the aforementioned electrical issues at the Companys Drumheller facility.

Our balance sheet remains healthy with manageable levels of debt and a cash balance of $26 $7 million as of June 32023.

As previously announced the company entered into a $50 million U S credit facility with Coinbase credit inked on June 26th 2023, which has drawdowns available in three tranches at the end of Q2 2023, the company has $19 1 million.

Canadian of Outstay of loans outstanding net of deferred financing costs related to this facility.

Our bitcoin holdings are marked at fair value and totaled $368 $7 million as of June 32023, based on 9136 Bitcoin held in reserve.

This total 8289 bitcoin valued at $334 $5 million remain unencumbered.

As previously announced the company has continued to sell bitcoin production to help fund operations, while we work on closing the merger with U S. PTC in the current quarter, we mined 399, bitcoin and sold 396, resulting in our bitcoin held in reserve increasing by three.

Thank you with that I will turn the call back to our operator for analyst Q&A.

Thank you.

Ladies and gentlemen, we will now conduct the question and answer session.

If you would like to ask a question. Please press star followed by the number one on your telephone keypad.

If your question has been answered and you would like to withdraw from the queue. Please press star followed by the number too.

If you are using a speaker phone please lift your handset before pressing any keys.

One moment. Please for your first question.

Your first question will come from Mike colonies at H C. Wainwright. Please go ahead.

Hi, Good morning, guys and thank you for taking my questions. Today first one for me I know you guys are actively working to bring miners back on line is from color with your efforts. There. If you could just give us a timeline as to when do you think the electrical issues will be fully resolved and all miners back online and hashing out the facility.

And it's really difficult to give a timeline we do expect.

Full resolution within the within the calendar year, but it's difficult to get more specific than that Mike.

Got it got it fair enough and second one for me if you could just provide a little more color on the transaction support agreement you recently entered into here what needs to happen for that transaction to actually go through to potentially acquire assets from Validus and what specific assets would you be acquiring and.

Proximate cause of those assets.

Right.

Soon to to disclose more than we already have in the press release, but rest assured Mike as soon as.

Dated information publicly available it will we'll press release accordingly.

Got it well thank you for taking the questions and best of luck with completing the merger.

Thanks, so much Mike.

Your next question will come from Bill pop on the Scotts Hill at Stifel. Please go ahead.

Hi, good morning, James.

Good morning, James.

Look there's a lot of work in the Hopper I just wanted to.

Getting your outlook, Jamie on how the mining industry is going to evolve beyond the hub.

It was one of the first public monitors to obviously diversify into more stable recurring.

Business segments, and I'm curious to hear whether you believe.

We could see more of this type of activity follow suit.

No.

How do you look at.

See the way that miners will kind of be positioned in the future. While we gradually move away from a complete self pure play mining model.

Yes.

So I think it's I think it's really difficult to predict.

At an industry level and certainly.

We'll see.

More diversification among the miners.

Which which has started to play out more significantly in the last in the last quarter in particular, and but I think certainly for the.

As we go into that having on this.

This next cycle I think we'll continue to see some miners remain as pure pure play self miners.

And as he mentioned, we diversified early into the HDD space in one of the things, we really really liked about.

The the the U S PTC business or their fee based revenue lines with with their hosting business as well as their managed infrastructure operation So far.

For us we're very much we're bullish on it on a diversified strategy and but I think I think across across our space Youre going to just continue to see miners and.

Evolve and evolve their businesses in different ways and I think it's really important.

That.

That when people look at this space. They they looked at really the differences that are starting to emerge and become an increasingly significant with within the names of our space.

Thanks for that detail and for my last question was just hoping to get a little bit more color on those newly signed five year agreement with interior health.

How should we look at modeling contribution from this contract.

And how much colocation capacity remains pro forma of this contract.

That's a terrible facilities.

Yeah, so be.

That revenue as we mentioned book will start to see in Q4 and it is a five year contract so you'll get more detail.

And our keep our financials with respect to that contract specifically and we did we did press release.

That deal when it was signed.

A number of weeks ago as far as just the broader capacity within the HBC business. We do obviously believe there's a lot of opportunity in this market. We have just over a megawatt of readily available capacity and infrastructure and within within the R. H P C suite and <unk>.

And if you're if you're kind of thinking about the market and we see across the north American industry more than two gigawatts of data center leases have been signed in the past 90 days and we believe that providers, who have large wholesale capacity online in less than 24 months, we'll be able to charge a prime.

Liam given how how much demand we're seeing in the space.

And we believe that our operators with access to economical and zero emission and renewable energy such as our Colonna and British Columbia.

<unk> is a distinct advantage for us.

Thanks, Jamie look forward to hearing more details transaction support agreement and hopefully soon.

Being one of the truly vertically integrated monitors. Thank you.

My pleasure anytime thank you.

Your next question will come from Joseph <unk> at Canaccord. Please go ahead.

Good morning, Joe.

Hey, Jamie Good morning, Hey, everybody just on U S. PTC merger I know you mentioned Jamie.

You're going to distribute the management circular.

I guess, maybe coming up here soon just wondering if you have confidence on getting that.

That's one effect and that's why you're moving forward with.

Got it and the circular ready to distribute.

We and as I mentioned, we continue to make good progress.

And Phil.

Feel confident that confidence.

We could send out the circular scheduled to vote for September September 12, and we we continue to target them, having it close by.

By the end of September .

Okay great.

Great. Good luck with that and then secondly, I know you said you bumped up the expect good.

Extra shall put in some document sure think about southern corn for this.

Just curious where you know where that extra extra extra may have come from here.

And perhaps where the capital came from.

Yeah.

Are you acquiring more miners there relative to what's in that document.

Yeah. So that came from the U S. PTC side, they had and they had already ordered miners that that were just being delivered and coming online and so that's where that incremental extra hajj came from at their at their existing assets.

Mining facility.

Yes, we do.

We did reference that and and one of our updated S. Four registration statement.

Great.

Thanks, very much and good luck with.

Getting somewhere.

These various transactions.

Thanks, Joe I appreciate it.

Ladies and gentlemen, once again, if you would like to ask a question. Please press star one now.

There are no further questions at this time I will turn the conference back to your hosts for any closing remarks.

Thank you so much everyone again for joining today and we look forward to continuing to update you as things progress over the coming weeks and months.

Back to you.

Michelle.

Thank you ladies.

Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank you all for participating and ask you to please disconnect your lines.

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Yeah.