Hut 8 Mining p(HUT) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q2 2023 was $19.2 million, a decrease of $24.6 million compared to $43.8 million in Q2 2022, driven by lower Bitcoin mined and a reduction in Bitcoin prices [8] - Digital asset mining revenue was $15 million in Q2 2023, down from $39.1 million in Q2 2022, with 399 Bitcoin mined compared to 946 Bitcoin in the prior year [8] - Net loss for Q2 2023 was $16.7 million, compared to a net loss of $88.1 million in Q2 2022, which included a non-cash loss on digital asset revaluation of $104.9 million [10] - Adjusted EBITDA for Q2 2023 was negative $2.7 million, an improvement from negative $98.1 million in Q2 2022 [20] - The company held 9,136 Bitcoin in reserve as of June 30, 2023, with a market value of $368.7 million, of which 8,289 Bitcoin ($334.5 million) remain unencumbered [36] Business Line Performance - High-performance computing (HPC) revenue was $4.2 million in Q2 2023, down from $4.7 million in Q2 2022, due to client churn and discontinued low-margin products [23] - The company signed a five-year agreement with Interior Health for co-location services, with revenue expected to start in Q4 2023 [4][28] - Digital asset mining profit decreased to $3.2 million in Q2 2023 from $14.9 million in Q2 2022, impacted by lower Bitcoin prices, increased network difficulty, and operational issues [34] Market and Operational Data - The average Bitcoin price in Q2 2023 was approximately $37,600, down from $41,400 in Q2 2022 [23] - Mining operations at Drumheller were operating at approximately 20% of installed hash rate due to electrical issues, with remediation efforts ongoing [21] - The company curtailed mining activities at North Bay, which also impacted Q2 results [19] Strategic Direction and Industry Competition - The company remains bullish on Bitcoin and its treasury strategy, which has been a key differentiator, including securing a $50 million credit facility with Coinbase Credit Inc [5] - The company is focused on diversifying its revenue streams, including HPC and hosting services, as part of its merger with USBTC, which is expected to close by the end of September 2023 [22][55] - The company is exploring opportunities in the high-performance computing market, particularly for AI, machine learning, and visual effects workloads, with 200 GPUs available for rental [26] Management Commentary on Operating Environment and Outlook - Management highlighted challenges in Q2, including electrical issues at Drumheller and the suspension of mining at North Bay, but remains optimistic about the long-term value of Bitcoin and the company’s diversified strategy [5][19] - The company expects to resolve the electrical issues at Drumheller within the calendar year but did not provide a specific timeline [47] - Management emphasized the importance of the merger with USBTC, which will increase self-mining capacity to 7.5 exahash and provide additional fiat-based revenue streams [22][56] Other Key Information - The company entered into a transaction support agreement with Macquarie Equipment Finance Limited to potentially acquire assets of Validus Power Corp, which could resolve ongoing litigation [6][17] - General and administrative costs for Q2 2023 were $12.5 million, including one-time transaction costs related to the USBTC merger [31] - The company has a cash balance of $26.7 million and $19.1 million in loans outstanding under the Coinbase credit facility as of June 30, 2023 [36] Q&A Session Summary Question: Timeline for resolving electrical issues at Drumheller - Management expects full resolution within the calendar year but did not provide a specific timeline [47] Question: Details on the transaction support agreement with Validus - The company did not disclose further details but will provide updates as information becomes available [48] Question: Outlook on the mining industry and diversification - Management believes the industry will see more diversification, with some miners remaining pure-play while others, like Hut 8, pursue diversified revenue streams [42] Question: Expected exahash output and capital for additional miners - The increase in exahash output to 7.5 exahash comes from USBTC’s existing self-mining facilities, with miners already ordered and coming online [56] Question: Progress on the USBTC merger - The company is confident in closing the merger by the end of September and has scheduled a shareholder vote for September 12 [55]