HIVE Blockchain Technologies [HIVE] Conference call transcript for 2022 q1
2021-10-04 12:05:06
Fiscal: 2022 q1
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:
Operator: 00:00 slide number two up on your screen for the full disclosures. Moving on to slide number three, you will see one of our most popular visuals, which is the DNA of volatility, and we're always sure to include this table in our earnings presentations, particularly following the disclosure slide because we just think it's a wonderful reminder to investors about just how much these various asset classes can move up order over a one day and a ten day time frame. 00:30 And as you can see here, and I don't think it's a surprise to any of our shareholders that the volatility of Bitcoin and Ethereum is greater than say S&P five hundred or even gold stocks. And then if you look down at HIVE, it's even more volatile, and, of course, that's because we mine both Bitcoin and Ethereum. So it's just something to keep in mind. 00:50 So, as we move on to slide number four, I am pleased to welcome the presenters for today's program, Frank Holmes, Executive Chairman; Darcy Daubaras, Chief Financial Officer; and Aydin Kilic, President and Chief Operating Officer. And if we move to slide five, I would now like to hand the presentation over to Mr. Frank Holmes. Frank?
Frank Holmes: 01:11 Thank you, Holly. And thank you all shareholders for being resilient as this management team has overcome so many challenges since taken control, Darcy and myself in particular of Genesis Mining and repositioned the company in the past couple of years. So there's been so many challenges we've overcome just like getting. We apologize for your frustrations of getting financials out to you, but we've been able to say that we feel very safe and comfortable in our numbers and what we're doing. 01:48 And we've been doing that and here we are. We had record year-end in March numbers and now we have the end of June. HIVE achieved record revenue for the year ended March thirty one of sixty six million in earnings of forty three million and then we turn around for the quarter. 02:11 We turn around and show you that we have record quarter from April May and June, year end and this is sort of a nice visual of showing you. This is going up to June, those numbers, and when we compare them to our peers, you can see that we have the highest gross income for the June quarter in millions of dollars. So, our numbers are bigger than Bitfarm, they are bigger than Riot, they are bigger than Marathon. Marathon’s numbers came out today, but this is for the end of June. 02:46 They are bigger than or Argo and Argo’s numbers are every six months. So, what I'd like to point out to investors is that this difference is because we mind both Ethereum and Bitcoin and Aydin is going to walk through that if you did some back of the envelope conversions, etcetera, what our hash in part could be and what it would look like it was only Bitcoin, but Ethereum our has allowed us to weather down storms and also for the past year, be the most profitable company of all the crypto money companies as of now June of twenty twenty one. 03:25 Next, please, So, the proposition for investors is, who's the lease expensive, and when you look at Marathon, they are trading here before their other numbers up at the end of June at seventy times a revenue, market cap to revenue, is forty seven times, Riot is thirty eight, Argo is thirty five, Bitfarm is twenty five, and HIVE is fifteen. 03:52 We know that as machines come on stream for particular Marathon and Riot that will be compression, but there's a big disconnect between on a relative basis of the value proposition of revenue to market cap valuation metrics and going forward what our growth rates are. 04:12 Next please. So we're thrilled to be able to share with you the cash on hand of twenty six million, receivable paid eight point nine, digital currencies eighty two million. So the total current assets are one hundred and twenty six million, the liabilities are nine point six. Our Ethereum and Bitcoin, as you can see, the Bitcoin has been increasing rapidly as overall from the . Next please. 04:43 So I am a guy, fund manager, and quant discipline and always like work, he based on Toronto and he has a model that's based on the cash flow return on invested capital model that came out of Chicago from Holt Advisory, of the universe of all stocks and it does a relative valuation where our company's intrinsic value is. 05:09 So they believe that HIVE is worth a default valuation improved to five ten U.S. per share, trailing four quarters moved up to thirty five percent zero point six. When these numbers are gone through his computation system, I'm sure that HIVE even more attractive, but I think what's interesting for me to share with all of you is that there are many quant funds and others sort of quasi, quant discipline fundamentalist that are using HIVE because this methodology does not care what industry you and in, it just cares if you're generating high cash flow returns on invested capital. Next please. 05:52 HIVE’s total assets from the balance sheet, Darcy can go into more details on this for everyone, but you can see that from the end of twenty twenty it was approximately six point four million and now our Bitcoin Ethereum is eighty two million at the end of June, And the idea of launching the ATM in the first quarter of this year has allowed us to be able to huddle most of our production, at the same time is, take that cash flow from our existing business and upgrade our CPUs on swaps from four gigabyte cards to eight gigabyte cards. 06:36 Memory cards was very critical for the AMD five eighty cards, but other things that we've made announcements on major Nvidia purchases, which is for the future. So, we're continuously upgrading and that's – we're in a great financial position to continue that. Next please. 06:57 During this period – with Johanna has joined us in the first half of the year, as a Managing Director of Sweden has now taken on the role as the President of the Swedish operations, which we're happy with. We've made press releases regarding her credentials and her experiences both explicit and asset knowledge. 07:18 Next please. So you can visit our website. And the new addition to the team we'll be speaking today is, Aydin Kilic, he’s the President and Chief Operating Officer. He has lots of experience in Crypto mining, data centers, construction, and in particular you need to have lots for experience in construction because of the site that we're building out in New Brunswick. I was just there last week, and I was so impressed our whole team, we visited Lachute, which is thirty megawatt facility in Quebec. And then we also up to New Brunswick to visit the campus that we're building out and is really quite impressive and thrilled, and that's also helped with our Bitcoin mining print. 08:00 And then coming back on that only green energy is key to it, owning our own facilities and assets on the balance sheet. They're very, very valuable. So, we're thrilled with that of Aydin coming along and helping execute and build out going to, you can talk more from fifty to seventy megawatts and where the future potential is from this. Next please. 08:24 So, we get this question quite often and I asked regarding the difficulty rate, and for those shareholders to recognize is that it's a fixed amount of Ethereum mine each day. The algorithms just like in Bitcoin, every ten minutes, there's a six point two five coins of where so nine hundred Bitcoins a day and if he can get your hockey stick on and get a piece of that action with the faster computers, then you're going to produce Bbitcoins every day, and the same thing happens with Ethereum. 08:54 Ethereum just produces more coins and one thing because of a fixed amount there's more and more people competing especially the gamers coming in and switching their machines and what we've noticed is that this difficulty rate fell dramatically for Bitcoin, but it didn't fall that much for Ethereum. And Ethereum difficulty is basically been rising. So you can see that we produced a lot less in the quarter Ethereum. 09:24 However, the price action of the Ethereum has gone up thirty fold in the past couple of years, and in the past year, it's up a little more than twenty four. And the reason for that is not just the technology, we've solved that problem with upgrading our memory cards, but the real issue is there's just more people turning on their Ethereum chips, maturing on their GPU chips that are gaming and as what we're seeing is that, Ethereum is actually much more decentralized in Bitcoin mining. And I thought that was really an interesting dilemma that took place when China shut down everything in China. 10:05 The difficulty did not fall very much for Ethereum mining, it fell substantially for Bitcoin, Ethereum difficulty has risen to a new level, but Bitcoin is far from that. So, I think it's just for shareholders asking, some people expect us to produce more for them to just recognize that the new GPU cards that are out there and many of these cases are switching over short term, mining and then going back and spending the money. Next, please. 10:37 Important part, at the end of June going into July, we got listed with the HIVE ticker on NASDAQ. So, we're excited about that. As you can see, we had about three eighty four million shares of outstanding. We've had the least amount of dilution against all the mining companies. So, we had the greatest revenue. When you take a look on per share basis, we have the greatest increase in revenue per share and cash flow per share relative to our peers. Next please. 11:09 We get great coverage of particular monthly falls out of the Canada. And once again, they're very earnings driven revenue driven on a per share basis. So, here's an article last week by Andrew Button, recommending ETFs in HIVE Blockchain. Next, please. 11:28 Now, I’m going to turn over to our new President and Chief Operating Officer, Aydin Kilic.
Aydin Kilic: 11:35 Thank you Frank for the introduction, and it's been a very active quarter with a lot of milestones, I'm happy to talk about them. And so let's get to it. Next slide, please. 11:49 So, Frank was talking about increasing difficulty and Ethereum mine, and one thing to keep in mind is that we also have a great descendance in the price. So, this slide here provides a great historical context of, what Ethereum Mining itself has looked like over the past couple years. And so, throughout fiscal twenty twenty and twenty twenty one, you could see that you know, HIVE was mining twenty five, almost thirty thousand Ethereum per quarter, but of course, Ethereum prices were hovering around two, three, four hundred dollars in fiscal twenty twenty one, so calendar year twenty twenty one for HIVE. 12:37 We saw that increase substantially. And so, we saw Ethereum hit four thousand dollars several times. So, you know, a massive increase and the quantity produced about ninety seven hundred Ethereum period and June 30th. We had a solid Ethereum price between three thousand and four thousand U.S. So that's almost a ten x in price with production roughly one third. 13:10 So still on a revenue basis and if you have ten x the price, but difficulty is going up three times, you're overall still tripling your revenue, right. So, the Ethereum mining business is actually very lucrative and it's specialized, it requires more operational excellence when it comes to your data center management. And this is again, HIVE being the first area of mining industrial scale company as well as the first crypto miner, you know it's now got a very remarkable track record here. 13:48 And so the reason why I actually wanted to focus on this is for most shareholders and investors who want understand the value proposition of Ethereum mining as it relates to Bitcoin mining, we're going unpack that little bit here. And let's go to the next slide, please. 14:08 So, if you convert Ethereum mining to Bitcoin hashing, how do you do that right, as an investor? And so, the Ethereum mining, obviously, you know, we're running GPUs, you look at things, you know, what's your per gigahash in Bitcoin mining, you know you're operating at the Petahash level and you're wondering how many Petahash per megawatt is my data center . 14:36 You know, at the end of the day, we're in the hash rate business. We produce hash rate as a commodity and then we exchange that for our coins. So, the common denominator, of course is, what we report our financials and then that is the . 14:54 So if you –take any given day, and if you had a megawatt of Bitcoin mining, for example, or megawatt of Ethereum mining, you will know how much Bitcoin Ethereum that you've produced and you'll know what the market prices is on that day. And then you will know what your revenue will do on that day. And that's actually, you know, in North American accounting standards. That's how you evaluate, right. 15:19 SO, you’ve got IFRS, you've got GAAP, generally accepted accounting principles. That's a good measuring stick for investors because at the end of the day, our cap rate, our enterprise value, these are valued in Canadian and U.S. dollars. So, if you use this postulate and you evaluate, you find some really interesting numbers. 15:39 Now, I actually focused on September twenty twenty one. We're doing obviously the Q1, which was peered in June thirty, but we get so many questions. People are wondering about Ethereum mining, post London Fork and where things are today. So just a little bit of an outlook section here. 15:59 So, in September twenty twenty one, HIVE mined two hundred and twenty one Bitcoin. So, that's about ten point two million USD of revenue. In addition to that HIVE mined over two thousand five hundred Ethereum, right, which is an additional eight point six million dollars in revenue. 16:19 So, as you could see right off the bat between ten point two million and eight point six million USD, Ethereum mining actually makes a very substantive portion of this revenue basis. And so, if you take that and you also convert into – on a daily basis, so what is the amount to Bitcoin equivalent you would have minded per day based on the Bitcoin price that day. 16:47 And you total adopt – you actually get an equivalent of four hundred and seven Bitcoin equivalent mined for the month of September, which on a daily basis is about thirteen point six point nine per day. And other companies recently have come out and you know, hit a milestone of ten Bitcoin per day being mined. Well, at over thirteen Bitcoin mined per day that's over thirty percent what some of our peers are producing, and so it actually shows how strong of the value proposition this is for shareholders. 17:23 Another thing I’m going to point out. And again, this is September. So this is recent, this is both London Fork, which by the way, we still seem very strong and healthy economics in the two months following London at compared to the three months preceding London. We've seen very consistent very strong economics. The only change has been the high fees transaction fees in Ethereum that we saw in May and April of twenty twenty one. 17:52 Those are no longer those have been designed out of this system because they want to make the Ethereum Blockchain accessible whether it's for D5, for people maintaining , and of course, and, of course, for people, you know, using Ethereum as a form of a digital currency, right? So, more adoption and consistent use of Ethereum has provided the bedrock for excellent Ethereum mining economics. 18:15 So, if you take all this and you just…
Frank Holmes: 18:20 I just like to really add, sorry to interrupt on that, but this is a wonderful hypothetical model. This is not for financial reporting directly, but this is what our ability is because it's public what our hashing power is and we're trying to inform investors that this is what it would look like if we were only mining Bitcoin. But what’s interesting is that Ethereum actually outperformed Bitcoin. 18:48 If you just look at the price actions, so it's been an important part of our HODL as Ethereum continues to go through like having for Bitcoin, Ethereum hasn't gone through a having, Ethereum has gone through all these upgrades and people escaping their Ethereum. So they're taking supply out of the system at a very rapid rate, which then affects the supply demand equation, which has led to a high Ethereum price for us. 19:18 So that strategy is down the road we'll be able to do proof up state, but we think that several years down the road, but this is an idea for some people I know they’ve been able to do this conversion. And I just done a wonderful job creating this hypothetical for you. Thanks, Aydin. Keep going.
Aydin Kilic: 19:37 Yeah. No, thanks for the color, Frank. And again, exactly this is an outlook. This is an outlook slide. Darcy will of course cover the actual financials for the period. And just to kind of build on what Frank had mentioned, on an annualized basis again with this interpretation, it's about two eighty four million dollars maybe in, just for the month, sorry, if you take the September revenue on a run rate basis. 20:06 So, again, that's a projection. But if you have a realized annualized run rate revenue of two eighty four million that actually puts price – HIVE’s market cap to revenue ratio at a six x multiple, which is an incredibly attractive for investors and on the previous slide looking at the earlier quarter, compared against our industry peers we were at a fifteen x. 20:35 If you look at the September numbers on this outlook slide, it's incredible. So, that's a great way for people to understand how you can compare. And really, if you think about at this point in time, on a per megawatt basis Ethereum, mining actually yields more dollars per megawatt. Just because the economics are so favorable, it's had great price action. 21:03 So, we want to help the investing public understand how you can realize the value proposition of each next slide. 21:14 So, some operational milestones, five in August, realized one Exahash of active Bitcoin mining capacity, which was great, and this is again, global company with operations in Quebec, New Brunswick, Sweden, and Iceland. We've got a little bit of Bitcoin mining everywhere, but primarily focused in Quebec and New Brunswick. And so, know, having the latest machines, you know, really high efficiency, MicroBT’s, and installed in our operations and we bought too an Exahash and it was great. 21:58 You know, clearly Bitcoin production recently has been, as you know, one can calculate on a Bitcoin mining calculator online, you that's about seven to eight Bitcoin per day produced with 1 Exahash and in fact we're beyond that now, constantly growing. And so, we expect to have another Exahash plugged in over the next three months. And so, we've got the infrastructure being developed in New Brunswick. 22:29 As Frank mentioned, originally it was a fifty megawatt campus. We've expanded it to become a seventy megawatt campus, thirty megawatts are operating today. And so, of that seventy, the remaining forty megawatts will be coming online, later this year, and early next year. 22:47 So, it's a very exciting time and our long term fiscal twenty twenty two is to have a Bitcoin mining capacity of 3 Exahash and then in addition to that, we have the Ethereum mining capacity, which we saw in the previous slide, how you could convert that into – on a U.S. dollar basis to Bitcoin mining capacity. 23:11 Again, we've kept a very strong pipeline of A6, we announced in just forty five days alone, fifty hundred next generation Bitcoin miners, you know S19J’s, M30S’s, M30S+’, really great hardware, you know, just those purchases alone, over half an Exahash of Bitcoin mining capacity. 23:39 So, here we go yes. So, next slide, perfect. Thank you. So, with all that Bitcoin mining capacity and having been operating, you know, for so long, you've got some great historical numbers here. So, even far during pre having HIVE mined one hundred and fifty three Bitcoin during that period and difficulty was actually much, much higher back than the last – both before and after the last having compared to where it is today. 24:15 You could see HIVE had consistently performed even producing eighty eight. It was, you know, Bitcoin mining difficulty was incredibly high during this period, but nonetheless, HIVE just continued to steadily grow two twenty six Bitcoin in the fiscal year June thirty period end, which is our Q1. 24:39 And again, this is the result of having constant and steady growth, you know, inch by inch, you know, new hardware coming online, it really just, trying to master the capital allocation understanding with the Iraq space where you're going to plug in your most efficient A6 miners on your watt per basis, if you have older S9s, which again are so profitable, but once you've deployed capital, and you have much faster more efficient chips plugging those in. And so this is how you get the steady growth. And so it's a very, it's a very exciting time. 25:18 And so, again, you know, not a lot of the publicly traded companies have been mining Bitcoin for that long. So with that operational overview, I will turn it over to Darcy Daubaras for the accounting and financial summary of the period. Thank you.
Darcy Daubaras: 25:39 Great. Thank you very much Aydin and good morning to all of our investors and shareholders. Next slide please. It's on this slide, slide twenty six, it’s showing, we generated revenue from digital currency mining in the first quarter of fiscal twenty twenty of thirty seven point two million from a coin production as we've gone over approximately ninety seven sorry nine thousand seven hundred Ethereum and two twenty six Bitcoin. 26:13 The increase in the revenues versus the same quarter in fiscal twenty twenty one was primarily due to the increase in the production of Bitcoin mining that Aydin had just shown in the previous slide and much higher coin prices than we were experiencing a year ago. Part of this as we've talked what was offset by a decrease in the number of Ethereum mine driven my difficulty rate increase and the fewer number of cards that we've got installed as part of our GPU card upgrade from the four to the eight gigabyte cards, but as we've talked about and covered, this was all offset by the huge increase in the price of these coins year over year. 26:55 The gross mining margin during the quarter was thirty one million, compared to two point six million in the prior year comparative quarter. Our production of Bitcoin as you talked was increased month over month and we are continuing to do this following our acquisition of our two data centers in Canada. 27:14 To our point of the gross mining margin, which equates to our revenues, minus our direct operating and maintenance costs increased in absolute dollars and stayed strong as a percentage of revenues at eighty three percent. The gross mining margin is also partially dependent on various external network factors and we've all talked about this including mining difficulty, the amount of the digital currency rewards the miners are receiving before and after the and the market price of the digital currencies at the time of mining. 27:47 On this slide, we're looking at the quarter over quarter and can see our revenue from digital currency mining has increased to thirty seven point two million dollars from thirty three point four million in the fourth quarter of fiscal twenty twenty one. Our gross mining margin has increased again to thirty one million from twenty seven point two million in the prior quarter. 28:11 Next slide, please. So our adjusted EBITDA increased massively here in the first quarter of fiscal twenty twenty two to twenty nine point six million versus two point six million in the prior year comparative quarter. The Ethereum and Bitcoin mining margins that we have experienced through our efforts of reducing our costs have enabled us to continue to expand our business. This has to do with the two acquisitions we've made within Canada and the continuous upgrade of the GPU cards in Sweden and the large number of orders that we've put in for miners, they're going to be coming in over the next eighteen months. 28:58 We've got orders of those A6 miners coming in each and every month. It's a very scheduled way that we've got it coming in. So, we don't have a big truckload or a container load sticking all at once. We've spread it out so that we can get our operations up and running and make a nice and smooth transition. 29:20 Other net income eighteen point six million this quarter versus the one point eight million dollars year over year. Ethereum mining margins as we've talked about our adjusted EBITDA at twenty nine point six million dollars versus twenty nine point one million dollars in the prior quarter. Net income is doing incredible eighteen point six versus fourteen point three. Just note here that it's not as big of a gap there. It is large over four million just the scale that we're using there. 29:55 The gross profit margin, thirty one million dollars versus twenty seven point seven million. I always like to highlight that to be gross mining margins and the adjusted EBITDA are non-IFRS figures which we try to remember to point out each and every quarter when we announce our results just to remind our shareholders and investors. Next slide please. 30:24 And this is just looking at our continued gross mining margin income per share, it's zero point zero five dollars for the three months just ended of June thirty twenty twenty one and this is compared to the prior year of two point six million dollars gross mining margin and we had an income per share of pretty much zero for the comparative year over year at June thirty twenty twenty. 30:52 And I've flown by the financials pretty quickly. I know that we had a call just about ten days ago, but now I'd like to turn it back over to Frank. But before I do that, I just want to thank all of our investors for all of your patience, your ongoing support, and I look forward to seeing you guys and speak and you when we do release our Q2 financial twenty twenty financial results in November. Frank?
Frank Holmes: 31:21 Thank you, Darcy and thank you, everyone. Please, if you have questions you can send them in to HIVE and we'll answer them all. Thank you everyone, and this is a wrap.
Q -:
