Q3 2023 Hut 8 Mining Corp Earnings Call

November 14, 2023

Welcome to Harte, H third quarter 2023 financial results analyst and Investor call. In addition to the immediate release issued earlier today, you can find hut eight financial statement and M. D N. A on the company's website at Www Harte H D.

I O.

Under the company set up loss profile on Www Dot set up plus got CA and under the company's Edgar profile at Www Dot S. E C Dot golf unless noted otherwise all amounts referred to during this call are denominated in Canadian dollars any comments made during this call may include.

Forward looking statements within the meaning of applicable securities legislation regarding the future performance of Hot eight mining Corp, and its subsidiaries. The statements made to reflect current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from.

Current expectations.

These risks and uncertainties include but are not limited to the factors discussed in hunt H I know information form for the year ended December 31st 2022, and the company's other continuous disclosure documents, except as required by applicable law.

<unk> undertakes no obligation to publicly update or review any forward looking statements.

During the call management May also make reference to certain non I F. R. S measures. There are not separately defined under Ifr S associates adjusted EBIDTA mining profit digital asset revenue per bitcoin mining and mining costs per bitcoin.

My belief that no one I FRS and financial information taken in conjunction with I F. R. S. In financial measures provide useful information for both management and investors reconciliations between I FRS and non I FRS results are presented in the tables accompanying our press.

Release, which can be viewed in our website.

I'd now like to turn the call over to Harte H C E O Jamie left Tun.

Thank you Carmen good morning, everyone welcome to day to todays call, where we will discuss how these results in the third quarter of 2023.

The third quarter, we continued to mine despite headwinds from seasonal energy fight, which drove some curtailment and increase network difficulties. We continue to work to mitigate the issues, we're seeing in drumheller and the team made good progress in repairs, but continued to see challenges upon re amortization.

So we made some progress and finishing the quarter with a 7% improvement in operating capacity over the end of the second quarter.

Medicine hat the team utilized mutually beneficial terms and the electricity supply agreement covering the site, which provides the opportunity for both parties to continue benefiting from high prices, Alberta power market.

In our agency business, we created some momentum in Q3 with new customer additions and growth among existing customers last week, we launched our on demand cloud service for customers seeking H P. C services from our Gpus with Kubernetes based applications that can support artificial intelligence machine learning.

Visual effects and rendering workloads.

This service puts control in our clients hands, while reducing provisioning time from days to minutes, which is particularly compelling for those seeking shorter term HCC projects.

This offering is currently available for our Mississauga data center, and we look forward to expanding this service to new regions and adding more services.

We also have data center capacity in both central and Western Canada that we can quickly allocate with minimal investment to accommodate clients that have up to an equivalent of 85 H class turbine chassis with GPU card.

We continue to see constrained infrastructure supply, especially for high performance computing capacity required for intensive workloads like AI and our unique in our ability to support clients that may have their own gpus on hand, but need access to built out infrastructure on a very quick turnaround.

We will continue to focus on capitalizing on these opportunities and HBC and cater to these growth areas in the coming quarters.

Moving onto to our Treasury strategy, you were all very well acquainted with our commitment to huddling, our bitcoin in mind and this year well, we worked to close the transaction with U S. DTC. We continue to have maintained our stock above 9000 decline only selling production at opportune points throughout 2023, when we thought prices were.

Particularly strong such as in the last month.

We have not dipped into anything minder huddled prior to 2023, which has been very intentional. We remained bullish on bitcoin are committed to our treasury strategy and know that it remains a powerful differentiator for us with up to 10 spot Bitcoin Etfs awaiting SEC approval. We believe it's a matter of time before we see an ETF approved.

Black Blackrock is one of the institutions on that list and has a near perfect ETF approval track record of 99, 8%.

We see institutions like Blackrock with approximately nine trillion dollars in assets under management as a meaningful bridge between traditional wealth and decline. Once Etfs are approved for example last month, we saw the price of Bitcoin Raleigh, 27% on optimism around Etfs and with these shares backed one one to one with bitcoin.

I'll leave that we should not only see increased demand, but also see value heading up into the right with these approvals.

Tying this back to our stack a lift in the value of our stock compared to the capital time and effort. It would take to mine. The same amount from this point going forward, especially 160 days or so out from that having is a very compelling scenario and reinforces our current treasury strategy as we have said in the past moving forward, we hope to see positive momentum.

And we will actively seek opportunities to responsibly work, our stock our stack to drive additional value.

At the beginning of the month, we were very pleased to share that we received court approval for our stocking horse bid for for natural gas power plants in Ontario.

Our 40 megawatt facility in Kapuskasing 110 megawatt facility in Kingston, a 120 megawatt facility in Iroquois falls and a bitcoin mining power facility in North Bay, which has 40 megawatts of capacity.

While the sale and investments solicitation processes underway. If our bid is ultimately declared successful a new subsidiary of the company will become the owner of the assets of the foresight our partner Macquarie will receive a minority equity interest in the subsidiary of approximately 20% and a subsidiary city area of hut eight will be the majority owner.

With the remaining approximately 80%.

We believe that the strategic addition of these assets would position <unk> as a vertically integrated mining operation allow us to utilize idle infrastructure and machinery provide access to energy pricing certainty and give us flexible energy capacity and properties for alternative uses such as traditional data center and or AI hosting.

Significantly the facilities are expected to give us the optionality to pursue revenue generating activity, including selling energy to the grid mining decline empowering high demand HPT applications like artificial intelligence.

This move is not only in keeping with our infrastructure for strategy, but also affords us very compelling flexibility ahead of the having.

In addition, we made considerable progress as we work toward closing our transaction with USB T C, which has been our north star since we first announced the merger on September 13th we announced that our shareholders overwhelmingly approved the transaction through a special vote, which is incredibly encouraging because it reflects how engaged and supportive they are of our merger of equals.

Five days later, we announced that we obtained a final order approving the plan of arrangement with USB D. C from the Supreme Court of British Columbia.

We also continued to fall updated amendments to our S. Four with the SEC and on November 9th the SEC declared headache Corp's registration statement effective which is a significant milestone that we've been collectively working towards now that we have the effectiveness declaration between the SEC. We are very pleased to share that we expect to close our transaction by November 30th.

Subject to U S PTC, obtaining its required stockholder approval and the satisfaction of other customary closing conditions before.

Before I turn it over to our CFO Shen at this time I would like to thank our investors for their continued commitment and their excitement for our merger our team for their ongoing hard work and dedication across the business and our board for their continued support and guidance. Thank you and over to you.

Thanks, Jamie and good morning, everyone.

During Q3, we continued to remedy the operational challenges that are drumheller site and pursue the stalking horse bid to address our suspension of mining activities at North Bay.

As both matters remain ongoing they affected our Q3 results.

We achieved revenue of $17 million for Q3 2023.

$14 $7 million decrease relative to the same quarter prior year of $31 $7 million. This year over year decrease was driven by a lower quantity of bitcoin mind, partially offset by an increase in the price of bitcoin.

Revenue from digital asset money activities was $12 $5 million as we mined 330, new bitcoin in the quarter. This compares with $27 $3 million of digital asset mining revenue in Q3 2022, when we mined 982 bitcoin.

The year over year reduction in new Bitcoin mine was driven by a combination of an increase in network difficulty impacts of electrical issues at the drumheller site, resulting in less mining activities.

Hope of GPU, a theory of mining, which we were doing in Q3 2022 until these cerium networks emerge.

And.

The suspension of mining activities at North Bay.

The impact of revenue of less Bitcoin mind was partially offset by the higher price of bitcoin reflected by the digital asset revenue per bitcoin mind of $37800 in the current quarter compared to approximately 27800 in the prior year quarter.

Our high performance computing business contributed an additional $4 $5 million of revenue in Q3, 2023 compared to $4 $4 million in Q3 2022.

Q3, 2023 results included revenue from new sales, which were partially impacted by client churn.

Revenue from the insurer health contract is expected to start in Q4 2023.

Cost of revenue for Q3, 2023 was $21 $4 million lower than prior year by $24 $2 million.

And consists of depreciation and site operating cost.

Depreciation expense decreased.

To $10 $2 million during the third quarter of 2023 compared to $25 3 million in the same quarter in 2022.

The decrease was due to the lower net book value of digital asset mining assets. After the recognition of a noncash impairment charge in Q4 2022.

Site operating costs of $11 $2 million was lower than the same quarter prior year by $9 $1 million.

Within the digital assets binding operation site operating costs reduced by $9 $3 million, mainly due to lower power costs.

The average mining cost per bitcoin for the third quarter of 2023 was approximately $26300 Canadian compared to approximately $18300 Canadian per bitcoin and the prior year for the same quarter.

The increase was due to higher power consumption per bitcoin mind.

And the ongoing electrical issues at the Drumheller facility, which were partly offset.

By the company's decision to curtail and lower average energy cost prices compared to prior year same quarter.

We incurred $2 $5 million and operating costs related to the high performance computing operation compared to $2 3 million in Q3, 2022 due to increased repairs and maintenance.

Fully offset by lower software costs.

In terms of margins, our digital asset mining operations generated mining profit of $3 8 million in Q3, 2023 versus $9 $3 million in the prior year same quarter.

The decrease in mining profit is due to the lower quantity of bitcoin mine during due to increased network difficulty.

Suspension of mining activity in North Bay, and the ongoing electrical issue that drumheller, partially offset by a lower average price of power in the higher price of bitcoin compared to Q3 2022.

General and administrative costs were $11 9 million for the quarter compared to $11 $2 million for the same quarter prior year.

The key driver in the increase was the inclusion of $2 4 million of onetime transaction costs and third quarter of 2023 related to the merger with U S BTC and the stalking horse bid.

Excluding these one time transaction cost our general and administrative costs were down $1 $7 million compared to Q3 2022 due to lower sales tax expenses and other expenses.

We recorded a net loss of $53 6 million for Q3 2023 compared to a net loss of $23 8 billion.

Q3 2022.

In Q3, 2023, we recorded a $20 million of imperative at work on our deposit related to the purchase power purchase agreements for the North Bay facility as a result of our powder providers receivership.

We also booked a $10 $1 million non cash loss in the third quarter on the reevaluation of our digital assets, the income or loss compared to a $7 $3 million noncash gain in the comparative quarter. Both as a result of changes in the average price of bitcoin during their respective.

Borders.

Q3, 2023 saw an increase of net finance income expense of <unk> $6 million, partly due to the increased interest expense from our lower coin. These credit that was first drawn in the second quarter of 2023.

Also Q3 2022 included a noncash loss on the revaluation of warrants liability of $2 $9 million.

Reflecting the operating results discussed previously achieved adjusted EBITDA of negative $11 6 million in Q3 2023 compared to a positive adjusted EBITDA of $9 4 million in Q3, 2022, primarily driven by a lower digitally.

That said mining profit.

And a noncash revaluation loss on our digital assets.

Our balance sheet remains healthy with manageable levels of debt and a cash balance of $21 1 million as of September 32023.

As previously announced the company entered into a $50 million U S.

Credit facility with Coinbase credit on June 26, 2023, which has drawdowns available in three tranches at the end of Q3 2023. The company had 20 at $47 million Canadian of loans outstanding net of deferred financing costs related to this facility.

Our bitcoin holding are marked at fair value and totaled $341 $4 million as at September 32023, based on 9366 Bitcoin held in reserve.

This total seven.

269, bitcoin valued at $265 million remain unencumbered.

As previously announced the company has continued to sell that claim production to help fund operations, while we work on closing the merger with U S. DTC in the current quarter, we mined 330, bitcoin and sold 100, resulting in our bitcoin held in reserves increasing by 230.

Thank you.

That I will turn the call back to our operator.

Thank you and I will like to open the call for your questions to ask a question press star one one to get into queue to withdraw your question Press Star one again.

While we compile the Q&A roster.

And our first question comes from the line of Mike colonies with H C. Wainwright. Please proceed with your question.

Good morning, Mike.

Hi, good morning, Jamie and team and congrats on all the progress you've made on the merger really exciting to see there.

First one for me, we're seeing a growing number of the coin miners announced plans to enter the high performance computing space in recent months and I know you and your team Jamie have really been in this space for much longer. So I was hoping to get your views on this recent trend and really what differentiates Hudson approach to HBC offerings versus its peers.

Yes, I think my great Great question.

As you alluded to we've been at this for a very long time kicked off with the closing of R. R.

Our <unk> data center acquisition, almost two years ago and really we've spent the last.

The last number of months.

Updating the facility the updated updating the product stack and.

And really really getting ready for what we anticipated to see.

An increase in market demand, particularly as it relates to artificial intelligence and and Thats something that is certainly borne out over the past number of months.

I think I think really what differentiates how hot is looking at the business.

We purchased.

A business that was that was fully built out. So if you recall, we have five data centers across Canada and two in the greater Toronto area, two in downtown Vancouver, and one in Kalona.

With a number of enterprise customers.

On both a colocation cloud and managed services space, we've got a very very robust.

Infrastructure and staff.

<unk> seen these clients in these product offerings.

Much of my leadership team, including myself comes from the traditional high performance computing and data center space, though.

It's a business that we know well understand well and the ecosystem that plays in that space is also.

Very well understood by myself and the management team. So we really have seen this trend coming and and believe it is important to tackle as as a robust enterprise grade solution. It is very very different compute from a bitcoin mining data center both.

And how it how it's operated how it needs to be managed.

How customers expect and should be serviced.

It's really a different business model altogether, and we think we are incredibly well poised to be at this intersection between these two types of high performance computing.

That's great I appreciate that and definitely I heard the fact on this one so it's good to see and just as a quick follow up if I may. So if you could just speak to the market rates and pricing dynamics, you're seeing out there right now for co location services and cloud or GPU as a service type offerings and really.

How your product stack is.

Positioned against that sort of market backdrop.

Yes, I mean I touched on it in my comments earlier.

We were really excited to launch our on demand.

Cloud portal, which which kicked off a few weeks ago and that will continue to be an area that we continue to invest in and expand.

Because that that type of on demand.

Capability I think is really important for our clients and for for customers looking at these types of these types of workloads just the the ability to be able to self provision within seconds. We think is critically important.

Our Super excited from from the early feedback that we're getting on the on the launch of that portal.

As I touched on we do have about a megawatt readily available capacity and infrastructure across our datacenter fleet.

And we continue to see data center leases totaling tens of Gigawatts be signed across North America. So far this year.

And we believe that we're going to over time, we're going to see capacity.

Start to come at a premium because it does take a long time as you know to build out these types of enterprise grade data centers. So we're.

We're very bullish on.

The assets that we have we love.

That our data centers in Ontario, and in D. C are almost entirely zero emission and renewable energy powered which we think will continue to be an advantage at an advantage in this space as well with respect to pricing dynamics.

Can't get into specifics of that but what I will say is as.

It's very much a supply and demand conversation.

Available supply for compute.

Starts to become constrained, we expect that to see to put upward pressure on pricing in the market as well.

Got it thanks for taking my questions.

Thanks, Mike.

One moment for our next question please.

It comes from the line of Joseph <unk> with Canaccord. Please proceed with your question.

Hey, guys. Good morning, nice to see progress here on the U S BTC merger.

Really great news, maybe you could kind of outline for us the playbook there.

I mean, it's been a while I'm sure you have got some good plans in place.

Do you have an outline or a playbook that you could share with us over the next few months.

As that merger closes.

I would imagine you start to ramp some of that excess capacity.

The U S. BTC facilities, and then I'll have a quick follow up thanks.

Yeah, I mean, we we've got to have quite a bit of information about about the deal which we've shared in the past and then continues to be available on our website.

Encourage those of you that want to recent though you're either yourselves with the details of the deal too.

To refresh that that deal back.

U S.

As we touched on so.

Very very critical milestone.

For us with achieving.

Sure.

Effectiveness declaration from the SEC and as I also mentioned earlier, assuming successful U S PTC stakeholder vote and other closing.

Items, we expect it to close by the by the end of <unk>.

November so really looking forward to getting things underway.

And as we've touched on it's very much a merger of equals our facilities, obviously entirely Canadian base between the mining side and the datacenter as USB PD team.

Just on on assets in the U S and both of US with a diversified strategy. When it comes to revenue. So a mix of fee based revenue streams for us in with respect to high performance computing.

And then as we think about the stock down the road as I as I touched on earlier as well and then U S PTC mix of.

South mining someday acquainted dominated revenue streams as well as their their managed services business or manage infrastructure operations as they have historically referred to it which is a fee based revenue stream as well as their hosting business. So really excited in a pro forma where we continue to have had the ability to kind of.

Flex between our different lines of business and really take advantage of.

The different momentum swings, we see in the market across.

Across high performance computing, and bitcoin mining going into having and then of course very excited.

About the potential here.

With the with the power assets.

We're working on in conjunction with Macquarie.

Great. Thanks, Jamie.

Following our bonds.

Following up on that.

On the on the power generation assets and that stalking horse bid.

Again could you perhaps provide us.

A little bit of a playbook.

If that deal.

If and when that deal gets.

What does it mean for your operations, what does that mean for <unk>.

Expansion of the business because I don't believe you were using all of that power.

Previously so any color there would be helpful too. Thanks.

Yeah, I don't know my my pleasure. It is it is something we're very excited about the only the only facility within.

The four assets.

That are covered within that stalking horse bid that we had prior association with has been North Bay facility. So if you recall.

We had just under 40 megawatts stood up at at North Bay, and so we would we would be looking to bring that data center capacity online as quickly as possible.

And we believe that.

If we're successful with the stalking horse bid.

We would we would be able to close that sometime in the next two to three months and so we would be looking to bring the north Bay facility back up as quickly as we could obviously infrastructure work needs to be completed we need to bring the miners back to site and we will be dealing with the dead of winter.

Say at that time, most likely as well so.

It will take some time to get us back up and running but our intention is certainly to bring that site back online.

And then the other three sites, we mentioned 40 megawatts of Kapuskasing 110 megawatts in Kingston, and 120 megawatt facility in Iroquois falls.

It remains to be seen.

What how how we would we would provision and work with with those assets, but as I as I touched on in my earlier commentary. It gives us a lot of Optionality, which we we love to have control directly over.

Or are the largest operating expense were a bit quick minor I think as everybody knows it is the cost of power so having.

Better control over power inputs with respect to these plants.

Very exciting I think theres a lot of upside as we as we look.

We look to the future with respect to how we see energy prices continuing to move in the market and our ability to to have power assets that we can that we can sell into the energy market and then also be in control of our own destiny with respect to how we want to.

To use that power when it is not being utilized are needed by the grid, whether it's for bitcoin mining high performance computing.

We've got a lot of Optionality there and.

Excited excited for how this this may progress for us.

Great. Thanks for that color Jeremy much appreciate it congrats on progress.

This quarter.

Thanks, so much Joe.

Thank you one moment for our next question. Please.

It comes from the line of George Sutton with Craig Hallum. Please proceed with your question.

Thank you and my congrats on getting through the FCC process I know how challenging that spin so.

Im curious from the USB PC side, they've made a lot of progress, including the Celsius network deal can you just walk through sort of what's your what they're bringing to the table that may have changed since the announcement and how that improves the value of the deal from your perspective.

Yeah, we're certainly very very excited with the progress that the team has made with the Celsis transaction.

I'm not going to get into the details on this call but.

It is public.

Publicly available information, where things stand with respect to the southeast.

The transaction certainly that.

If that is ultimately successful and closes out will be will be a nice addition to the new hot as we.

Loving.

Internally.

And again as I touched on earlier really really liked.

The diversified nature of the use cases.

Business is business and they've certainly been growing their fee base revenue lines. Since we first started talking to them almost a year ago.

With it with the managed services business as I reference.

And then the work that's being done on Sofia. So certainly very very pleased with the progress that the team has made over there and really looking forward to just bringing the whole thing together.

And and continuing the growth that we've been pursuing independently together as one team.

Jim I'm wondering you mentioned in your prepared comments that you are looking for opportunities to work your stack.

Have you contemplated synthetic swaps as well.

Alternative to bringing the bitcoin on your balance sheet in other words, taking 15% of the value buying a swap in taking the other 85% to redeploy.

I don't think there's anything.

And his team haven't looked at with respect to our options long term around the sack, but let me turn it over to Dennis If you wanted to speak in more specifics about the swaps Ratably suggest yes. Thanks for the question George I mean, obviously, we've looked at a lot of options with the ryzen bid claim price covered calls has obviously been something we've looked at.

Very diligently.

Once we close the transaction with U S. DTC will be in a better position to kind of move forward with some plans that we want to do but certainly it's.

On our list of items, we want to work on leveraging our stat, creating more value for our shareholders.

Leveraging that stack in a different way than we've done historically as a company. So actively in pursuit of these items and hopefully once we get the deal over the line and a bit more time, and then share with all of you what our plans are around that.

Understand thank you guys.

Okay.

Thank you one moment for our next question. Please.

It comes from the line of built up on our stature with Stifel. Please proceed.

Good morning, good morning.

Hi, Good morning, it's Daniel on for Bill today.

My first question here is on your DTC Treasury strategy.

Are there any plans to change strategy, if we see an approval or spot.

<unk> ETF.

So Genesis just talked about.

Some of the research and exploration.

His team is doing around options to work the Sag I'm not sure that we have any more color to add there.

And with respect to the.

The Treasury management, and our and our historic and an ongoing commitment to holding the <unk> balance sheet.

I don't have any additional color to add versus what I touched on in my opening remarks.

Got it.

Switching gears quickly there that we've seen in.

An improvement in mining economics.

Can you speak to how it has our may potentially impact capital allocation decisions going forward.

Well, that's the one on one of the things I love about having a diversified business model, we get to we get to make those choices based on that.

The active.

Developments that we see in all of our businesses, whether it's the Gwen or high performance computing. So.

And.

I can't I can't answer that question, specifically, but that's one of the reasons. We have we have optionality. So really our focus is first and foremost on getting our transaction. When do you guys PTC closed off so that as a combined team we can.

We can look at what makes the most sense with respect to our next move from an organic <unk> inorganic growth perspective.

Thanks, that's helpful pipeline.

Thanks, so much.

Thank you.

I'm not showing any further questions in the queue. So with that I will conclude the call a transcript of this call will be available on the hut eight website in the investors section.

<unk> for joining us at the hut eight third quarter 2023 financial results analyst and Investor call.

Disconnect.

Thanks, Tom and thank you everybody.

Okay.

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Eight dot I owe.

Under the company set up loss profile on Www Dot set up plus got CA and under the company's Edgar profile at Www Dot F. E C Dot golf unless noted otherwise all amounts referred to during this call are denominated in Canadian dollars any comments made during this call may include.

Current expectations.

These risks and uncertainties include but are not limited to the factors discussed in hot H I know information form for the year ended December 31st 2022, and the company's other continuous disclosure documents, except as required by applicable law hut eight undertakes no obligation to publicly.

Update or review any forward looking statements.

During the call management May also make reference to certain non I F. R. S measures. There are not separately defined under Ifr S associated adjusted EBITDA mining profit digital asset revenue per bitcoin mining and mining cost per bitcoin.

My belief that non I FRS and financial information taken in conjunction with I F. R. S. In financial measures provide useful information for both management and investors reconciliations between I FRS and known I FRS results are presented in the tables accompanying our press.

Release, which can be viewed in our website.

I'd now like to turn the call over to Harte H C E O Jamie left Tun.

Thank you Carmen good morning, everyone welcome to day to todays call, where we will discuss how to resolve in the third quarter of 2023.

Throughout the third quarter, we continued to mine despite headwinds from seasonal energy site, which drove some curtailment and increase network difficulty.

You need to work to mitigate the issues, we're seeing in drumheller and the team made good progress in repairs, but continued to see challenges upon re energizing.

So we made some progress and finishing the quarter with a 7% improvement in operating capacity over the end of the second quarter at medicine hat. The team utilized mutually beneficial terms in the electricity supply agreement covering the site, which provides the opportunity for both parties to continue benefiting from high prices, Alberta power market.

In our agency business, we created some momentum in Q3 with new customer additions and growth among existing customers last week, we launched our on demand cloud service for customers seeking HPE services from our Gpus with kubernetes based applications that can support artificial intelligence machine.

Learning visual effects and rendering workloads.

This service puts control in our clients hands, while reducing provisioning time from days to minutes, which is particularly compelling for those seeking shorter term HCC projects.

This offering is currently available for our Mississauga data center, and we look forward to expanding this service to new regions and adding more services.

We will continue to focus on capitalizing on these opportunities and HTC and cater to these growth areas in the coming quarters.

Moving onto to our Treasury strategy, you were all very well acquainted with our commitment to huddling, our bitcoin in mind and this year, while we work to close the transaction with U S. DTC. We continue to have maintained our stock above 9000 decline only selling production at opportune points throughout 2023, when we felt prices were.

Particularly strong such as in the last month.

We have not dipped into anything minder huddled prior to 2023, which has been very intentional we remain bullish on bitcoin are committed to our treasury strategy and know that it remains a powerful differentiator for us.

With up to 10 spot Bitcoin Etfs awaiting FCC approval, we believe it's a matter of time before we see an ETF approved blocks Blackrock is one of the institutions on that list and has a near perfect ETF approval track record of 99, 8%.

Leave that we should not only see increased demand, but also see value heading up into the right with these approvals.

And we will actively seek opportunities to responsibly worker strike, our stack to drive additional value.

At the beginning of the month, we were very pleased to share that we received court approval for our stocking horse bid for for natural gas power plants in Ontario.

A 40 megawatt facility in Kapuskasing 110 megawatt facility in Kingston, 120 megawatt facility in Iroquois falls and a bitcoin mining power facility in North Bay, which has 40 megawatts of capacity.

While the sale and investments solicitation processes underway. If our bid is ultimately declared successful a new subsidiary of the company will become the owner of the assets of the four sites our partner Macquarie will receive a minority equity interest in a subsidiary of approximately 20% and a subsidiary city area of hut eight will be the majority owner.

With the remaining approximately 80%.

Move has not only in keeping with our infrastructure for strategy, but also affords us very compelling flexibility ahead of the having.

In addition, we made considerable progress as we work toward closing our transaction with USB T C, which has been our north star since we first announced the merger on September 13th we announced that our shareholders overwhelmingly approved the transaction through a special boat, which is incredibly encouraging because it reflects how engaged and supportive they are of our merger of equals.

Five days later, we announced that we obtained a final order approving the plan of arrangement with U S. PTC from the Supreme Court of British Columbia.

We also continued to file updated amendments to our S. Four with the SEC and on November 9th the SEC declared headache Corp's registration statement effective which is a significant milestone that we've been collectively working towards now that we have the effectiveness declaration between the SEC. We are very pleased to share that we expect to close our transaction by November 30th.

Object to USB D C obtaining its required stockholder approval and the satisfaction of other customary closing conditions.

Before I turn it over to our CFO shot at this time I would like to thank our investors for their continued commitment and their excitement for our merger our team for their ongoing hard work and dedication across the business and our board for their continued support and guidance. Thank you and over to you <unk>.

Thanks, Jamie and good morning, everyone.

During Q3, we continued to remedy the operational challenges that are drumheller site and pursue the stalking horse bid to address our suspension of mining activities at North Bay.

As both matters remain ongoing they affected our Q3 results.

We achieved revenue of $17 million for Q3 2023.

<unk> thousand $14 $7 million decrease relative to the same quarter prior year of $31 $7 million. This year over year decrease was driven by a lower quantity of bitcoin mind, partially offset by an increase in the price of bitcoin.

Hope of GPU, a theory of mining, which we were doing in Q3 2022 until these scenario networks merch.

And.

The suspension of mining activities at North Bay.

Our high performance computing business contributed an additional $4 $5 million of revenue in Q3, 2023 compared to $4 $4 million in Q3 2022.

Q3, 2023 results included revenue from new sales, which were partially impacted by client churn.

Revenue from the interior health contract is expected to start in Q4 2023.

Cost of revenue for Q3, 2023 was $21 $4 million lower than prior year by $24 $2 million.

And consists of depreciation and site operating cost.

Depreciation expense decreased.

To $10 $2 million during the third quarter of 2023 compared to $25 3 million in the same quarter in 2022.

The decrease was due to the lower net book value of digital asset mining assets. After the recognition of a noncash impairment charge in Q4 2022.

Site operating costs of $11 $2 million was lower than the same quarter prior year by $9 $1 million.

Within the digital assets mining operation site operating costs reduced by $9 $3 million, mainly due to lower power costs.

The average mining cost per bid point for the third quarter of 2023 was approximately $26300 Canadian compared to approximately $18300 Canadian per good point in the prior year for the same quarter.

The increase was due to higher power consumption per bitcoin mind.

And the ongoing electrical issues at the Drumheller facility, which were partly offset.

By the company's decision to curtail and lower average energy cost prices compared to prior year same quarter.

We incurred $2 $5 million and operating costs related to the high performance computing operation.

<unk> to $2 $3 million in Q3, 2022, due to increased repairs and maintenance.

Fully offset by lower software costs.

In terms of margins, our digital asset mining operations generated mining profit of $3 $8 million in Q3 2023.

Versus $9 $3 million in the prior year same quarter.

The decrease in mining profit is due to the lower quantity of bitcoin mine during the due to increased network difficulty.

Suspension of mining activity in North Bay, and the ongoing electrical issue that drumheller, partially offset by a lower average price of power in the higher price of bitcoin compared to Q3 2022.

General and administrative costs were $11 9 million for the quarter compared to $11 2 million for the same quarter prior year.

The key driver in the increase was the inclusion of $2 4 million of onetime transaction costs and third quarter of 2023 related to the merger with U S BTC and the stalking horse bid.

Excluding these one time transaction cost, our general and administrative costs were down $1 $7 million.

Compared to Q3 2022, due to lower sales tax expenses and other expenses.

We recorded a net loss of $53 6 million for Q3 2023.

<unk> to a net loss of $23 8 billion in Q3 2022.

This quarters.

Q3, 2023 saw an increase of net finance income expense of zero point $6 million, partly due to the increased interest expense from our lower coin. These credit that was first drawn in the second quarter of 2023.

Also Q3 2022 included a noncash loss on the revaluation of warrants liability of $2 9 million.

Reflecting the operating result discussed previously achieved adjusted EBITDA of negative $11 $6 million in Q3 2023 compared to a positive adjusted EBITDA of $9 4 million in Q3, 2022, primarily driven by a lower digital app.

And mining profit and a noncash revaluation loss on our digital assets.

Our balance sheet remains healthy with manageable levels of debt and a cash balance of $21 1 million as of September 32023.

As previously announced the company entered into a $50 million U S.

Our bitcoin holding are marked at fair value and totaled $341 $4 million as at September 32023, based on 9366 Bitcoin held in reserve.

This total 7269 bitcoin valued at $265 million remain unencumbered.

As previously announced the company has continued to sell that claim production to help fund operations, while we work on closing the merger with U S DTC and.

In the current quarter, we mined 330, bitcoin and sold 100, resulting in our bitcoin held in reserves increasing by 230.

Thank you with that I will turn the call back to our operator.

Thank you and I will like to open the call for your questions to ask a question press Star one one to get into Q2 withdraw your question Press Star One again, one moment, while we compile the Q&A roster.

And our first question comes from the line of Mike colonies with H C. Wainwright. Please proceed with your question.

Good morning, Mike.

Hi, good morning, Jamie and team and congrats on all the progress you've made on the merger really exciting to see there.

First one for me, we're seeing a growing number of bitcoin miners announced plans to enter the high performance computing space in recent months and I know you and your team Jamie have really been in this space for much longer. So I was hoping to get your views on this recent trend and really what differentiates Hudson approach to HBC offerings versus its peers.

Yeah, I think my great Great question.

You alluded to we've been at this for a very long time.

With the closing of our.

Our tear ago datacenter acquisition, almost two years ago and really we've spent the last.

The last number of months.

Operating the facility the updated the updating the product stack and.

And really really getting ready for what we anticipated to see.

An increase in market demand, particularly as it relates to artificial intelligence and and that's something that is certainly borne out over the past number of months.

I think I think really what differentiates how hot is looking at the business.

We purchased.

A business that was that was fully built out. So if you recall, we have five data centers across Canada and two in the greater Toronto area, two in downtown Vancouver, and one in Kalana.

With a number of enterprise customers.

On both a colocation cloud and managed services space, we've got a very very robust.

Infrastructure and staff.

Of course these these clients in these product offerings.

Much of my leadership team, including myself comes from the traditional high performance computing and data center space, though.

It's a business that we know well understand well and the ecosystem that <unk>.

And that space is also.

Very well understood by by myself and the management team. So we really have seen this trend coming and and believe it is important to tackle as as a robust enterprise grade solution.

Very very different compute from a bitcoin mining data center, both and how it how it's operated how it needs to be managed.

How customers expect and should be serviced.

It's really a different business model altogether, and we think we are incredibly well poised to be at this intersection between these two types of high performance computing.

That's great I appreciate that.

And definitely I heard the fact on this one so it's good to see and just as a quick follow up if I may. So if you could just speak to the market rates and pricing dynamics, you're seeing out there right now for co location services and cloud or GPU as a service type offerings and really how your product stack is.

Positioned against that sort of market backdrop.

Yeah, I mean I.

Touched on it in my comments earlier.

We were really excited to launch our on demand.

Sure.

<unk> portal, which which kicked off a few weeks ago and that will continue to be an area that we continue to invest in and expand.

Because that that type of on demand capability.

Our capability I think is really important for our clients and for for customers looking at these types of these types of workloads just the the ability to be able to self provision within seconds. We think is critically important.

And our Super excited from from the early feedback that we're getting on the on the launch of that portal.

As I touched on we do have about a megawatt readily available capacity and infrastructure across our datacenter fleet.

And we continue to see data center leases totaling tens of Gigawatts be signed across North America. So far this year.

And we believe that we're going to over time, we're going to see capacity.

Start to come out of premium because it does take a long time as you know to build out these types of enterprise grade data centers. So we were very bullish on.

The assets that we have we love.

That our data centers in Ontario, and in D. C are almost entirely zero emission and renewable energy powered which we think will continue to be an advantage and advantage in this space as well.

With respect to pricing dynamics.

Can't get into specifics of that but what I will say is as.

It's very much a supply and demand conversation.

Available supply for compute.

It starts to become constrained, we expect that to see to put upward pressure on pricing in the market as well.

Got it thanks for taking my questions.

Thanks, Mike.

One moment for our next question please.

It comes from the line of Joseph <unk> with Canaccord. Please proceed with your question.

Hey, guys. Good morning, nice to see progress here on the U S BTC merger.

Really great news, maybe you could kind of outline for us the playbook there.

I mean, it's been a while I'm sure you have got some good plans in place.

Do you have an outline or a playbook that you could share with us over the next few months.

As that merger closes.

I would imagine you start to ramp some of that excess capacity.

The U S. BTC facilities, and then I'll have a quick follow up thanks.

Yeah, I mean, we we've got quite a bit of information about about the deal, which we've shared in the past and it continues to be available on our website.

Encourage those of you that want to resubmit your eyes or yourselves with the details of the deal too.

To refresh that that deal back.

As we touched on so.

Very very critical milestone.

For us was achieving.

Yeah.

Effectiveness declaration from the SEC and as I also mentioned earlier, assuming successful U S PTC stakeholder vote and other closing.

Items, we expect it to close by the by the end of November.

November so really looking forward to to.

Getting things underway.

And as we've touched on it's very much a merger of equals.

Our facilities, obviously entirely Canadian base between the mining sites and the datacenter as USB PD team focused on on assets in the U S and both of us with.

A diversified strategy when it comes to revenue so a mix of fee based revenue streams for us in with respect to high performance computing.

And then as we think about the stack down the road as I as I touched on earlier as well and then U S PTC mix of.

South mining from the acquainted dominated revenue streams as well as their their managed services business or manage infrastructure operations as they have historically referred to it which is a fee based revenue stream as well as their hosting business. So really excited and a pro forma where we continue to have had the ability to kind of.

Flex between our different lines of business and really take advantage of.

Of the different momentum swings, we see in the market across.

Across high performance computing, and bitcoin mining going into having and then of course very excited.

The potential here.

With the with the power assets that we're working on in conjunction with Macquarie.

Great Thanks, Jamie and following our bonds.

Following up on that.

On the power generation assets and that stalking horse bid.

Again could you perhaps provide us.

A little bit of a playbook.

If that deal.

If and when that deal gets done what does it mean for your operations what does that mean for.

Expansion of the business because I don't believe you were using all of that power.

<unk>.

Previously so any color there would be helpful too. Thanks Scott.

Yeah, I don't know my my pleasure. It is it is something we're very excited about the only the only facility within.

The four assets that.

Our covered within that stalking horse bid that we had prior association with has been North Bay facility. So if you recall.

We had just under 40 megawatts stood up at at North Bay, and so we would we would be looking to bring that data center capacity online as quickly as possible.

We believe that.

If we're successful with the stocking horse bid and we would we would be able to close that sometime in the next two to three months and so we would be looking to bring the north Bay facility backup as quickly as we could obviously infrastructure work needs to be completed we need to bring the miners back to site.

We will be dealing with the dead of winter.

In North Bay at that time, most likely as well so.

It will take some time to get us back up and running but our intention is certainly to bring that site back online.

And then the other three sites, we mentioned 40 megawatts of Kapuskasing 110 megawatts in Kingston, and 120 megawatt facility in Iroquois falls.

It remains to be seen.

What how how would we would provision and work with with those assets, but as I as I touched on in my earlier commentary. It gives us a lot of Optionality, which we we love to have control directly over.

Or are the largest operating expense for a bitcoin minor I think as everybody knows it is the cost of power so having.

Better control over power inputs with respect to these plants.

Very exciting I think theres a lot of upside as we as we look.

Use that power and when it's not being utilized are needed by the grid, whether it's for bitcoin mining high performance computing.

We've got a lot of Optionality there.

Excited excited for how this this may progress for us.

Great. Thanks for that color Jeremy much appreciate it congrats on progress.

This quarter. Thanks.

Thanks, so much Joe.

Thank you one moment for our next question. Please.

Comes from the line of George Sutton with Craig Hallum. Please proceed with your question.

Thank you and my congrats on getting through the SEC process I know how challenging that spin so.

I am curious from the USB PC side, they've made a lot of progress, including the Celsius network deal can you just walk through sort of what's your what they're bringing to the table that may have changed since the announcement.

And how that improves the value of the deal from your perspective.

Yeah, we're certainly very very excited with the progress that the team has made with the southeast transaction I.

Im not going to get into the details on this call but.

If it is public.

Publicly available information, where things stand with respect to the southeast.

And transaction certainly that.

If that is ultimately successful and closes out will be will be a nice addition to the new.

The new hot as we.

Loving.

And currently.

And again as I touched on earlier really really like.

The diversified nature of the use cases.

Business is business and they've certainly been growing their fee base revenue lines. Since we first started talking to them on the almost a year ago.

With it with the managed services business as I reference.

And then the work that's being done on Sofia. So certainly very very pleased with the progress that the team.

Has made over there and really looking forward to just bringing up working together.

And and continuing the growth.

We've been pursuing.

Together as one team.

Jim I'm wondering you mentioned in your prepared comments that you are looking for opportunities to work your stack.

Have you contemplated synthetic swaps is.

Alternative to bringing the bitcoin on your balance sheet in other words, taking 15% of the value buying a swap in taking the other 85% to redeploy.

I don't think there's anything signed up.

And his team haven't looked at with respect to our options long term around the sack, but let me turn it over to Dennis If you wanted to speak in more specifics about the swap rate of Pacific Yes. Thanks for the question George I mean, obviously, we've looked at a lot of options with the ryzen bid claim price covered calls has obviously been something we've looked at.

Very diligently.

Once we close the transaction with U S. DTC will be in a better position to kind of move forward with some plans that we want to do but certainly it's.

On our list of items, we want to work on leveraging our stat, creating more value for our shareholders.

Leveraging that stack in a different way than we've done historically as a company. So actively in pursuit of these items and hopefully once we get the deals over the line and it's been a bit more time, and then share with all of you what our plans are around that.

Understand thank you guys.

Okay.

Thank you one moment for our next question. Please.

It comes from the line of built up on our stature with Stifel. Please proceed.

Good morning, good morning.

Hi, Good morning, it's Daniel on for Bill today.

My first question here is on your DTC Treasury strategy.

Are there any plans to change strategy, if we see an approval of our spot.

<unk> ETF.

So Genesis just talked about.

Some of the.

Research and exploration.

His team is doing around options to work the Sac I'm not sure that we have any more color to add there.

And with respect to there.

Management, and our and our historic and an ongoing commitment to holding the <unk> balance sheet.

I don't have any additional color.

First of all what I touched on in my opening remarks.

Got it.

Switching gears quickly there now.

An improvement in mining economics, I mean can you speak to how it has our may potentially impact capital allocation decisions going forward.

Well, that's the one on one of the things I love about having a diversified business model, we get to we get to make those choices based on that.

The active.

Developments that we see in all of our businesses, whether it's <unk> or high performance computing. So.

I can't answer that question, specifically, but that's one of the reasons. We have we have optionality. So really our focus is first and foremost on getting our transaction. When do you guys PTC closed off so that as a combined team we can.

Can look at what makes the most sense with respect to our next move from an organic <unk> inorganic growth perspective.

Thanks, that's helpful pipeline.

Thanks, so much.

Thank you.

Not showing any further questions in the queue. So with that I will conclude the call a transcript of this call will be available on the hut eight website in the investors section. Thank you for joining us at the hut eight third quarter 2023 financial results analyst and Investor call you may disconnect.

Thanks, Tom and thank you everybody.

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