HIVE Digital Technologies Ltd (HIVE) 2021 Q4 法說會逐字稿

I'd like to welcome you to today's webcast reviewing HIVE Blockchain Technologies' financial results for the year-ended March 31, 2021. My name is Holly Schoenfeldt.

If we go to Slide #2, the disclosure slide, except for the statements of historical fact, this presentation contains forward-looking information within the meaning of the applicable Canadian securities legislation that is based on expectations, estimates and assumptions as the date of this presentation, and you can see the corresponding slide up on your screen for the full disclosures.

Moving on to Slide #3. 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.

We move on to Slide #4. This is one of our most requested visuals, which we call the DNA volatility. And I think this is the perfect opportunity to hand the presentation off to Executive Chairman of HIVE, Mr. Frank Holmes.

Thank you, Holly, and thank you, everyone, for your patience and particularly who kept the faith in our unique complexity of having the focus on an ESG strategy, be it green-only, takes us to many regions of the world that are not in North America, unless you go far north to Canada or you go to the Nordic countries. And pulling all that data in different languages and reconciling financials and going back and forth over time zones. And we thank you for all keeping the faith as we sort of push through that process of getting into these financials. But we are very thrilled about the numbers. And as I walk through this, that really doesn't -- it is really key for you to recognize this DNA volatility.

It's my favorite forward-looking curve because it's truly all about managing expectations. Life is about managing expectations. And as you can see, so often on television, they say gold's so volatile, but in fact, it's the same volatility of the S&P 500, but gold stocks are much more and Bitcoin is 4x more volatile on a daily basis than gold or the S&P 500. And on a 10-day basis, it's 14. As you can see, the number there is about fivefold difference increase.

And then I hop over and I take a -- compare to Ethereum. Ethereum is substantially more volatile than gold or the S&P, and this translates and impacts HIVE. As you can see, gold drives gold stocks. Gold stocks are more volatile than gold, and Ethereum and Bitcoin drive HIVE and, therefore, HIVE has a higher volatility. This is my over 30 years of experience in capital markets, trying to look at cause and effect. Now short term, like today, we have that China is overreaching into Hong Kong and now going after Bitcoin funds, and so with that, it's really -- because they have many Chinese nationals that have funds in Hong Kong, and there appears to be a sell-off. I think it's well orchestrated. It's on a Friday. And it's just sort of a short-term noise for us. But we're going to power through this today in this phenomenal year-end and quarter.

Next, please. Next, please. So HIVE was, first of all, public in September 2017. First, to mine Bitcoin Ethereum. First to buy its own data centers, which Aydin will talk about in more detail, the build-out in New Brunswick. First to have a 100% green ESG strategy and first to be interlisted with Canada, U.S. and Germany.

Next, please. So about HIVE blockchain. For those who have recently become a shareholder, we welcome you, and it was the first public company listed. It was September 2017. In that quarter, we raised over $200 million. And we thank Fidelity because they were very important in that -- those raises, there are 3 different raises, and they had committed to us the $100 million to build on our vision. And we've really been focused on providing shareholders with exposure to digital currency, mining as well as a portfolio of crypto coins by hodling Ethereum and Bitcoin.

We have low working capital requirements and doesn't require immediate sale of mine coins. That's been a real sort of creative process of, do we sell coins a day, do we raise capital? What do we do to try to have the minimum amount of dilution and still have a very robust growth program, and operations are situated in cool jurisdictions with access to low-cost 100% green renewable energy.

And as I said earlier, it's difficult to find this that -- where you want to be in a safe jurisdiction. You can find it in Russia, but that's not our program to go into Russia. So I think that the complexities and the moving parts are important for shareholders to appreciate.

Next, please. So HIVE beats cryptos and S&P in 2021. I'm happy to show you this. The Bloomberg Galaxy Ethereum Index at the end of August against the S&P 500. So you can see a huge difference in having a waiting into this alternative asset class. We have a lot of investors that are gold investors that are reluctant to go and buy on a crypto exchange Bitcoin, Ethereum, so HIVE has become their proxy, in addition to other people that are really caught up with this new technology, and how it decentralized and where security is going to grow.

Next, please. It's another visual of showing that relates to the DNA of volatility in a rising scenario, where Ethereum is rising and Bitcoin is rising. HIVE historically outperformed, and this is just a classic to show you. Not every day, not every week, but over these time periods, you can see, we've delivered this performance for the shareholders. This is a 12-month return.

Next, please. And performance in 2020 was unbelievable. We were up -- when you take a look at that year from March of 2019 to -- sorry, 2020 to 2021, that was a period of COVID. And we just far outperformed, and there's some fundamental reasons by these record earnings and cash flow.

Next, please. So HIVE gross income over 3 years. As you can see, it goes from $31 million down to $29 million at March of 2020, and that was basically covering a lot of the bear cycle that was taking place in Ethereum and then it exploded in the past 12 months ended March 31. It more than doubled.

Next, please. And then taking a look at each quarter for you to get an idea for the growth. And this is important to appreciate. One of the biggest headwinds that we have in mining Ethereum is that it's more decentralized than Bitcoin. And it has many more gamers around the world that every time Ethereum rises, they start mining, it appears. And that decentralized mechanism means more people are coming in to compete and mine. And so what happens is that you may be getting less Ethereum, but by doing simple math, a year ago, we were producing about 300 coins a day, and now it's just slightly under 100 coins a day. And that has even re-upgrading and better systems, et cetera. It really has to do with the difficulty, which Darcy is going to comment more on in his presentation. But what we believe is that it's driving higher Ethereum prices. And this is showing up at us being able to deliver a higher gross income each quarter. And now it's expanding dramatically with our Bitcoin production.

Next, please. So last great chapter in the mobile wave is a digital transformation of property, and Bitcoin is a dominant digital property network as Michael Saylor. Michael Saylor has been a phenomenal leader in the industry and the stewardship and educating people that what you have in your pocket is cash, and cash is bare. You own it. If you own gold 24-karat bracelet on your arm, you can take it off, it's money, it's also jewelry, and Bitcoin and Ethereum, it's really digital, and it's digital wealth, and it's a store of value.

So I think it's really important to recognize this creates its own dynamics of concern by centralized governments. In particular, the more left government is, the more socialist or communist as China is, they do not want any competition for their digital money or their paper money, and in particular in China, like I mentioned earlier, they impacted Bitcoin today. It's off today, all because of their pronouncements of overreaching going into Hong Kong. But I think it's important for investors to recognize this ecosystem has 13,000 nodes around the world validating in a decentralized mechanism Bitcoin and Ethereum is even bigger when you take a look at the number of scientists and people that are involved with it. It's a much bigger and broader distribution network.

Next, please. So what happened earlier when these crypto mining stocks peaked, it came out that Elon Musk attacked the industry for his coal consumption. And really, that was a lot of disinformation or they like to call it FUD, F-U-D.

False, and that's really important to recognize, it used to be the propaganda mechanism for governments. But you see that there's just a lot of naysayers coming out, and they basically have incorrect facts and then particularly on the consumption of energy.

But China was the biggest producer of Bitcoin. They shut it down, which helped the coal consumption. A lot of those miners tried to move over, and they've been moving over to Kazakhstan, which is also coal. But I think what's interesting is there's a huge boom in the state of Texas. And one of our directors is booming in this business of building out for 1.3 gigawatts of consumption of electricity from natural gas, and it's not on the grid.

So I think that when something is negative out of Asia, whose ends are benefiting as America is a transition for that. But we joined this Bitcoin Mining Council, even though we are only green-only, and we're actually the most pure green-only vision and strategy with the strongest right at the beginning ESG strategy because we just want to make sure that everyone's informed because what happens here is if all the crypto stocks, even though we're green and clean, even though we have a very pronounced ESG strategy, we got tagged and pulled down with all of them. And education is the best way to deal with all the FUD.

Next, please. So as you can see here is a healthy balance sheet. Darcy, our CFO, is going to go into a much more granular analysis of this for you. But at year-end, we had lots of cash. We had additional amounts receivables, and digital currencies have grown. It's almost $60 million. This has grown to over $100 million, but it's very volatile with Bitcoin, Ethereum as we continue to try to mine. Now what's interesting is, the dollar value of Bitcoin has been growing as we continue also to hodl our Bitcoin.

Next, please. I was thrilled about this real assets adviser which goes to Registered Investment Advisors, was very curious about our interest in launching high blockchain because we couldn't launch a Bitcoin ETF 4 years ago, and it's amazing success. This goes out to tens of thousands of registered license investment advisers in America at this particular publication, that's written a bonus before in the world of gold, but now it's got the Bitcoin story.

Next, please. So we currently hold over 1,000 green and clean Bitcoins. The company is pleased to provide the following update on its global BTC growth in production for the current 2020. As you can see in April's 64, May was 73, 86, 200, 234. And Aydin's going to give you more, our new President and Chief Operating Officer, more granularity into what our vision is, and how we're achieving this.

Next, please. So HIVE's total assets on the balance sheet. As you can see, it's been phenomenal growth in our Ethereum and Bitcoin. And what we did is we did launch an ATM at the market prospectus and raising capital, and that capital allowed us to expand to buy new equipment, and I will go through more detail on some of those acquisitions for future growth. And this also, at the same time, allow us to hodl Ethereum and our Bitcoin, in particular, to get our Bitcoin up. And we're thrilled that we've quickly got up to 1,000 Bitcoin that are green and clean coins. So this will -- Darcy will also give you more detail on this visual. But I think it's very -- I'm very proud of it that we've grown almost twentyfold.

Next, please. So factors. Factors that move these cryptomining stocks. So the daily coin prices -- what is Bitcoin, Ethereum doing? It's up 7% today because of China's pronouncements of overreaching in Hong Kong. That always has a short-term movement. We move over 95% of the time with the daily price actual Bitcoin, Ethereum and what's your current hashing power? So clearly, this current hashing power is that HIVE has the highest current hashing power as of the March 31. And the future potential hashing power is where the market seems to put greater volatility and put bigger market caps. And I'm going to comment on that, which I find most interesting in the sort of short term (inaudible) part of the cycle, but the valuation metrics on the future potential hashing power is appearing to get a higher valuation than with your current hashing power.

Next, please. So crypto miners' share dilution. It's -- you can see here that Marathon has been through the greatest of all dilution, from 10 million to over 100 million shares outstanding. They take in the cash and then make all these great statements of buying more equipment from Bitmain, and the markets put a bigger valuation. However, we still make more money than them. And they have to get their build out. They have to have their energy correct. They have to have their hedging program that is what they're doing with their carbon taxes and all these issues they have to deal with, and they have a great management, great leader. But still, it is, will the equipment come on time? Will it be able to get the electricity? Will -- these are all risks that seem right now at this stage not to be priced into the capital markets.

And Riot's another one that's had massive dilution in their number of shares outstanding. And then once again, it's for future growth. Bitfarms and Hut 8 -- Hut 8's number is probably going to change because of the recent financing, and according to Bloomberg data, we've had the least amount of dilution. We've tried to use mechanisms up besides the ATM of how we've used or sold our Ethereum to upgrade and how we used our cash flow and then total again. So we've been sort of more using the balance sheet to sweat our growth until the ATM came along.

Next please. So our gross income for our March quarter in millions of dollars, as you can see, Marathon is the least. At the end of March, they made $9 million. Their market cap is substantially bigger than all the rest of us. Riot was $23 million. Hut 8 was $24 million. Bitfarms was $28 million, and we were $33 million. And that's because of our Ethereum and our Bitcoin production, that combination. But what's growing most rapidly since that year-end number has been our Bitcoin production. And so I think that that's sort of an interesting factor.

But for shareholders, I'm really thrilled with the fact that we had the least amount of dilution and we've been able to deliver you the biggest growth in income for the year -- our year-end, for 4 quarters, against the peers. And the future will prevail, and we'll see how if other people can get their equipment on time and get their machines hooked up on time. That's the big race for all of us.

Next, please. So YouTube analysts, more so than you see on the street, it's interesting for me to see so many people I do not know that are out there that call up to do interview. Some do not do interviews and some do. But it's interesting that so many of these new investors are going to YouTube to get information and insight into this sort of industry. And I think it's -- YouTube has become, along with podcast, the new analyst. Now we've got research out of Wainwright, which has been great. We are told that research will be coming out of the other firms like Canaccord and thrilled to see that Bank of Montreal is now getting in the business. They have coverage on the industry. So this is all very positive and constructive.

But I think that this is a new phenomenon of YouTube's opinion makers, in particular the next visual, one that I have a lot of respect for, is BLONITY, who is an energy analyst with Mercedes Benz in Germany. He's been in the industry from day 1 when HIVE went public, and he has his BMX index. It's basically looking at your future hashing power from pronouncements to what your current is, but more in the future. And are you undervalued or overvalued on a relative basis to your market cap.

And so I find that sort of an interesting indicator. And if you're not a subscriber, then I highly recommend that you can go and log on, go to YouTube and you can also get other information from him because he's very agnostic and he uses his technical -- fundamental technical indicators to do relative valuations and comment every day on this industry.

Next, please. So the other one is Seeking Alpha. Seeking Alpha has been another important platform for many more analysts covering and analyzing the balance sheets and income statements of this industry. And I also would share with you that I'm a member of organization called YPO, and YPO has less than 30,000 members out of almost 8 billion people globally, but we represent about 10% of global GDP. And when I first got in the business, there was like only 5 out of this number. And today, there's over 600 that are investing or involved in this industry. It's a really interesting phenomenon. And then still the analysts, the Main Street analysts are not grasping what's happening globally.

But I think that Seeking Alpha has several analysts. And this is a report that came out in high blockchain disruption. And we've heard this narrative so many times over the past 4 years that we shouldn't be mining Ethereum, we should be only Bitcoin, and Ethereum is going to go to proof of stake, and it's going to happen like next quarter, and it just hasn't happened. And every time there's an upgrade, all it does, for me, is it shrinks the supply. Just like the having of Bitcoin in May of 2020 had the daily supply of coins from 1,800 to 900 coins a day that took 6 months, and all of a sudden Bitcoin took off. And Ethereum has basically been shrinking the number of supply outside as people come and start actually putting up for proof of stake to earn an income, and we've made more money by hodling on our balance sheet. Just like Michael Saylor has done a remarkable job of owning Bitcoin on his balance sheet. We've done it with Ethereum and now with Bitcoin.

So I think that this proof of stake is going to take several more years, and we remain committed to Ethereum. We -- I will talk about how we have the ability to pivot on it, but we have upgraded. We're right now in the process of upgrading with the best technology in the world for mining Ethereum and then the ability to pivot.

Next, please. So one of the analysts that our funds use is [Matt Kaser], as a CFA in Toronto. He uses this cash flow return on invested capital model to compare all stocks. And he called me a couple of weeks ago, and he said, you know that HIVE shows up as one of the highest returns of invested capital and that return really related to when we took over the facilities, and there are basically 3 of us. And I really want to make sure that -- as Darcy, our CFO, and there was Toby in Europe and myself, when we took over the responsibilities.

And then we had some critical stakeholders [with block based] out of Austria and [Barrage], the [sort of] Croatia that helped us in navigating the turnaround of this company and driving our cost with, which Darcy can talk more and more in great detail, but we substantially dropped the cost as we took over these facilities. And it shows up on his model we have generated in the top 10% of all Canadian companies for high cash flow returns on invested capital. And I think after our March year-end and quarter numbers come out, it will even be more attractive on a relative basis. So this is important when you have people like quant funds like Matt Kaser are covering us.

Next, please. So there's a quick valuation of showing of why things we were undervalued. The market value at the time was 257. His model says that enterprise value on a relative basis is 466. So I think that this will -- the numbers get that we released last night will make this even more attractive.

Next, please. We're thrilled. We got finally listed on NASDAQ. They have been an incredible experience. And thank you for all of the shareholders that kept urging and pushing us to do it. We're there. We're listed. And now we have the HIVE ticker. It's both in Canada and, very important, it's also in NASDAQ, and it helps us with the branding of the HIVE name and ticker globally.

Next, please. HIVE names new leadership roles. Johanna Thörnblad is President of our Swedish operations, which is our biggest concentration of Ethereum, where we source electricity mining Ethereum in the cloud. And Johanna came to America on a D1 basketball scholarship, all-American academic, also with her MBA at the University of Chicago, lives in Europe, so is originally from Sweden and is very important for the overall ESG strategy, what we're building out in Sweden. So we're thrilled about her joining us and the team.

And then we also have -- just recently, the next slide is Aydin Kilic. Aydin is our President and Chief Operating Officer. He's an electrical engineer. He has built data centers. He's involved in this industry and real estate and the build-out, and he's going to walk you through, which I'm so excited about our New Brunswick acquisition of GPU.One and the team that's joined us from GPU.One are excellent. We have internal counsel now, Gabe. We have relationship for buying equipment and managing all these relationships with Iggy. So when we take a look at Bill Gray as our CTO, we have Luke as a new addition to the team for network building. We have a phenomenal team now to take us the $10 billion market cap and take us to this special number, which everyone sees us gearing now for is 10x hash.

Next, please. Now I want to turn it over to Darcy Daubaras, and Darcy is our CFO. Darcy has been under a lot of pressure getting these numbers out and navigating through all the complexities. So he can give you more granularity in our financials. Darcy, it's your show.

Thanks, Frank, and thank you to everybody for coming on to the call this morning. We really appreciate it. We appreciate your patience. It has been a tough ride being one of the only companies in the crypto space that are operating in multiple jurisdictions, has its issues, has its challenges. We knew it going in. Sometimes these things come up a little bit out of the blue, but it's working well and we're going strong, and the future looks really good for the reporting, and HIVE continues to push forward.

Next slide, please. Right. So on this one, we're taking a look at the mining income increase as Frank has said, year-over-year for the fourth quarter. Last year, we were talking about some real challenges in the industry, having really low coin prices. As we can see, this is where a lot of it comes out this year. In Q4, $33.4 million versus the $3.1 million in the prior quarter a year ago, and gross mining margin. This is incredible, $27.7 million versus $1.7 million last year. One of the things that we've been doing is getting away from our former service providers and controlling our own destiny, and that means controlling our ability to hedge. In Sweden, as everybody knows, Ethereum has been our backbone. That's where we started. We're continuing to be strong there. And when we have our flagship Ethereum mining center in Sweden, costs are the #1 thing, and this is what we're seeing here in the gross mining margin. And we're going to continue to keep those costs low. We can't control the market, can't control Bitcoin or Ethereum, but what we can control is cost, and that's what we always focus on.

Mining income quarter-over-quarter, we continue to have this moving forward. What this is showing is the large capital that we put into our operation. Q3 of this year, a little bit lower, $13.7 million. A lot of this has to do with the hard work that we've been doing in Sweden and Iceland with upgrading all of our GPU chips from the 4 gigabyte to the 8 gigabyte. We had this DAG file issue that we were having to deal with within the Ethereum marketplace. We've worked through that. We're almost completely done. We've run into some issues like everybody in the world has with supply of chips and also shipping delays coming out of China. Those trip delays aren't just affecting us. It's affecting every industry, and cars are having -- car manufacturers are having to pull back on what they're doing there to be able to get their cars out with lower production. And again, the gross mining margin, extremely strong quarter-over-quarter.

Next slide, please. Adjusted EBITDA, this is one of the metrics that we use, taking a look at our earnings and our results pulling a lot out of those outliers, $5.1 -- sorry, $5.0 million this quarter versus $3.2 million last year. And the net income, you can barely see where the 2020 was compared to what we're doing here in 2021 at $14.3 million.

Next, please. As we've always talked about, our core has been Ethereum. They continue to drive a lot of our mining margins, while we diversify into doing some Bitcoin here within Canada. We've made that acquisition in Quebec back in April of 2020. And just recently, which we'll be able to see moving forward, is this incredible data center that is being built in New Brunswick, a 50-megawatt facility and the capacity within the land and the community that we've got there is willing to work with us to make this just a world-class facility on the Bitcoin side.

Net income dropped down a little bit quarter-over-quarter. A lot of that has to do with some of the onetime charges that we're running into. We did have a loss on the sale of our subsidiary this year. That had to do with a very structural change that we made within HIVE in Sweden. What we're moving towards is more of a data center so that we can diversify, move into some potential HPC and be more nimble to sort of change to markets. One of the things we were able to do as we were going through the DAG file issue at the third quarter and into the fourth quarter of 2021 is shift out of Ethereum mining into Ethereum Classic and being able to get some revenues and some cash from there to help pay our electricity and some of our other overhead bills, while we were able to hodl our Ethereum and Bitcoin as we were building it up within Canada.

Next, please. And a strong profit and earnings per share as we're seeing -- we've got a $0.12 per share for the 12 months just ended March 31, 2021 versus a loss last year. And we were up at $0.04 for the last quarter. I believe the Q3 quarter was $0.05, but a lot of this has to do with just the market changes. So very incredibly strong on the gross mining margin. That's -- as we talk about all the time, can't control the price. Price obviously helps this with our coins, but it's the cost. And that cost focus, keeping that stuff down will help us as we go through a bear market. It's going to come. We know this industry is extremely volatile, and we want to make sure that we have the metrics, do what we need to do for that "rainy day" because it's going to change, get the cost structure in now so that when the crypto winter comes, we're going to be ready for it.

Next, please. And this is one Frank had mentioned a little bit earlier. Just the change in difficulty over the last 2 years. This is to the new miners plugging in their computers, all the gamers that are getting their cards, starting to mine Ethereum and just driving the difficulty up. When people see prices go up, they think that they can just plug in and make some money, and it's great. So you've got a lot more nodes and people getting on to the network, and this is what we're seeing, but we're continuing to be able to mine our Ethereum as we see it's come down a little bit. That has to do with this change over from the 4 gig to 8 gig, which we're very excited to almost have completely finished.

Next one, please. As we can see historically here, the Ethereum mined by HIVE, we have had a drop in the last couple of quarters. And once again, that has to do with the switch from the 8 gigabytes -- or from the 4 gigabyte to the 8, the problems that we experienced with shipping and getting the chips out of China. It was a lot more challenging than I thought it was going to be. You run into a lot of issues over there, whether it's their extended vacations, shutdowns, and the shipping cost is astronomical. And when you run into situations where you've got your 8-gigabyte chips, they're sitting somewhere in the factory, ready to be shipped and someone else comes along and says that they'll pay a little bit extra, those chips are gone. So we could see continuous communication with them, trying to get those chips as quickly as possible so that we can have our complete switchover within Iceland and within Sweden.

Next, please. As we talked about just a moment ago, this is a chart showing the Ethereum network difficulty and just how it's exploded, that's probably the best word I can use, over the last 12 to 18 months.

Next, please. This is the Bitcoin that we've been able to mine. As we can see back in March of 2020, it was 0. At that time, we were in cloud mining, had just finished off cloud mining agreements, and then we started to our acquisition. So you can see in the first quarter of 2021, we're having to see the 153. There was a little -- and that was when we acquired the Quebec facility in Lachute, the 30-megawatt Bitcoin mining facility. We got a lot of production out of it in the first half of that quarter. And then we hit the halvening. We knew this was coming, and we had invested a lot of money to bring in new miners, and we've been doing that continuously, upgrading our machines.

But we're also really glad that we hang on to a lot of those S9s that some of the other people had sold because when we saw that the Bitcoin price went up, we plugged those things in. Everyone else around the world did the same thing. And we've been able to continue to build up our Bitcoin mining capacity. And as we talked about -- we've been hodling the Bitcoin through the beginning of 2021, where we're over 1,000, and also with Ethereum, which we had spoken on just a moment ago, we're over 25,000 of the hodl of the Ethereum.

And we've been able to do this, as Frank had said, because of this ATM. It's a beautiful structure we've got, having that $100 million ATM that started in February of this year and being able to bring money in that way. It's been very advantageous to us. And it's a lot cheaper to be able to do this than going out and doing some of the bought deals that some of our competitors have done, where they're paying 6%, 8% on their money. We're being able to do it for a fraction of that, under half of what they're paying. So it's amazing what we've been able to do here.

Next, please. We talked about this earlier, just the impact of the Bitcoin mining network due to China's crackdown. It came very hard with a very big hammer. And this is something that we're seeing coming up a little bit, where it sounds like some rogue people are plugging stuff in, in China, but we continue to see this as being advantageous to North America. We've been getting calls, not as many now, but when this happened, on a daily basis asking if we had facilities for hosting. We don't. We've been doing our own Bitcoin mining, but it just shows the kind of pent-up demand that there is there and where people are willing to ship their equipment over from China into North America to take advantage of the strong markets we're seeing.

Next, please. This is our capital structure, 384 million shares outstanding, 6.25 million warrants. We've got some options out there, [14 1] million, and the RSUs of 1.3 million. So continue to have a strong balance sheet, and we're going to continue to move forward very strongly.

Next, please. Touching on a couple of things I had already said. We've gotten to our goal of having 1,000 Petahash in Bitcoin mining capacity. We've exceeded that. Right now, we're sitting at 1.1 with all the equipment that we have coming in, and I'm sure Aydin will touch on it, is continuing to build upon this to try to get to over 2.1 Exahash and up to 3 by the end of our fiscal 2022. And we continue to purchase new miners next generation as we build up because we want to make sure that we're going in filling our facilities as needed but not having to go out and purchase $200 million of equipment all at once. We're doing this in a staged approach, which we think is the best for our facilities in the way that we're building.

Next, please. And this is our strategy, hold on for dear life. We touched on this, and we can probably flip past it, please.

Great. And I'm extremely pleased to turn this over to Aydin Kilic to do an operations update. We're very glad to have him on board as our new President and Chief Operating Officer. Aydin?

Thank you for the warm welcome. Hi, everybody. This is the first time earnings call that I'm participating in. It's an honor and a pleasure to be here. I'd like to thank Frank Holmes for having me join the HIVE team. It was remarkable experience in the New York City for the ringing the bell at NASDAQ. So I'm going to provide an operational update, get a little bit into the granularity. And so let's go on the next slide.

So we've got a video here.

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So that was a video of our site in New Brunswick, which was announced earlier this year. So originally, it was announced as a 50-megawatt acquisition when HIVE acquired GPU.One. And I've got 2 incredible things with this acquisition. First was, this amazing 50-megawatt substation, 30 megawatts of military-grade Bitcoin mining infrastructure had been built out by the GPU.One team. And I say that having traveled and seen Bitcoin mines all over the world, all over North America, different levels of sophistication, and that's why it's sort of military-grade.

The other amazing thing that HIVE acquired in that acquisition was the intellectual capital, the entire GPU.One team, Frank mentioned earlier, Gabe, Iggy, Bill, Luke -- just incredibly talented, intelligent guys, and I'm so happy to be working with them. And so the future is very bright. And so under our collective leadership, with Frank Holmes as a visionary, we've actually increased the footprint of that original 50 megawatts, now just 70 megawatts. And so what this slide talks about is 20 megawatts being deployed by the end of the year, right? So we had 50 -- sorry, we had 30 that was complete. The additional 20 by the end of this year will bring us to the 50 of the original substation, but then we got a second substation. We have some really cool pictures of that, which will allow us to build another 20 megawatts in Q1 that will bring this to a 70-megawatt single-site green and clean military-grade crypto mine, which HIVE owns the land, and we operate.

Next slide, please. This is a video.

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So that video was actually of the Sweden site, our 20-megawatt facility there. And so that just serves as a reminder that HIVE is a truly global diversified crypto mining company, the first crypto mining company that went public. In my opinion, the first truly global company with operations throughout Canada, Iceland and Sweden, all jurisdictions with green and clean energy, renewable, politically stable and cool dry climate.

So this slide here, you've got this wonderful picture straight out of sci-fi. This is the second substation I was referring to that's allowing us to bring our 50-megawatt site to 70 megawatts. So these are major infrastructure projects, right? I mean this is big business. This is sophistication. This is the intersect of networking construction management, engineering of different facets, structural, electrical, thermodynamics.

You see the building on the right-hand side. So this is a passive high-efficiency building. You've got the intake louvers on the front. And the second set of louvers up top are actually the exhaust louver. So it's this incredibly thoughtful, incredibly efficient passive design, and that's one of the buildings in our New Brunswick facility.

So this slide is titled capital allocation priority. So I'm just going to give a quick summary here and point out. We currently have 1.1 Exahash of active current Bitcoin mining capacity. And this is right now, like this is -- we're making over 7 Bitcoin a day. A lot of the other companies in the industry, they're all about pipelines and [dreams] , and we ordered machines, but (inaudible) actually plugged in and hashing today, right? So 1.1 Exahash.

In addition to that, we have almost 4 Terahash Ethereum mining active right now, right? And so that's equivalent to almost 800 Petahash in Bitcoin mining capacity if you convert it based on U.S. dollar income. And so that puts us currently to an equivalent of almost 2 Exahash of Bitcoin mining capacity equivalent, right?

And so on the following slides, we're going to talk a little bit about how we got there. But what I'm going to mention is we've got shipments of more ASICs coming all throughout 2022, and that will put our pipeline of Bitcoin mining capacity at over 2 Exahash by the end of 2022, plus we have the Ethereum mine pipeline as well, which we'll talk more about.

Next slide, please. So as I mentioned, we're currently hashing 1.1 exahash, and we've got a great pipeline throughout 2022. So this was the order announced September 10, 2,292 M30S+. These are the MicroBT Ferraris. This order alone, 229 Petahash. And so we order our machines, and we ensure that we've got a steady supply of chips despite all of the supply chain challenges that people perceive. We've got a steady growth in sync with the development of our infrastructure of our green and clean megawatt infrastructure. And so again, you see pictures of the inside of our New Brunswick facility, just so streamlined, efficient. On the right, you could see that's the hot aisle where the upper louvers have all the hot air, which exhausts.

And next slide, please. And so just 2 days before that, we announced the order of 3,000 MicroBT ASICs, and that's another 294 Petahash, right? And so the key here is, why did we announce 3,000 machines one day and another 2,300 a couple of days later? The point is that we're always seeking a good return on capital. When there's an opportunity to acquire ASICs, good quality ASICs, high efficiency, meaning low watts per Terahash, right, at very attractive dollar per Terahash figure, we act and we acquire, and we do our best to ensure the ASICs that we have incoming, we have a place to plug them in, so we can realize a good return on our capital. We can realize good free cash flow as a business and be able to hodl our as coin reserves as well. So it's not just about taking a huge order of machines. It's about understanding how to strategically allocate that capital to ensure good performance.

Next slide, please. So in July 30, we mentioned that we reached a $200 million annual run rate. Again, that was a purchase of 4,000 next-generation miners. And at that time, our Bitcoin was 925 Petahash, and we had an Ethereum equivalent of 750 Petahash. It was a total of 1.675 Exahash of Bitcoin mining equivalent. And that was just a couple of months ago, and we've already increased both of those figures. So again, showing the steady incremental growth as we have machines constantly coming in, constantly being deployed into our facilities, getting the half freed up, realizing free cash flow on the orders that we've secured.

Next slide, please. So earlier in July, again, further to the point, constant flow, ensuring that we've got a secured pipeline. This announcement -- this increased our operating Petahash back then from 566 Petahash to 830 Petahash again showing constant incremental growth, right? So HIVE is very well positioned with executives that have very diverse set of business experiences. And so we've got a great think tank. And so we are constantly evaluating the best way to scale this business, realizing that we're a company that has a long-term vision to show value to shareholders. And so we're always communicating with the market and making very thoughtful investment.

Next slide, please. So this is a very exciting slide actually. We have announced a partnership with NVIDIA, and we secured a large purchase of next-generation GPU cards, which are HPC-capable. And one thing that's worth noting is upon the deployment, as a very large order that would be sequenced over time, but on deployment of all of these NVIDIA chips, if you just looked at the Ethereum mining capacity, it would bring us to over 6 Terahash of Ethereum mining capacity. Keep in mind, we're about 3.9 Terahash now. So this alone, it does two things. One, it provides us a much greater footprint in our Ethereum mining capacity. However, it also allows us to get into the HPC space and have diversified streams of income in a very rapid growth emerging sector, and we'll have more on that later.

But another point I'm going to make here is that in addition to the 2 Exahash of pure Bitcoin mining capacity by the end of '22 -- sorry, 2022, we would have 6 Terahash of Ethereum mining capacity. So again, when you consider the equivalent Bitcoin mining capacity and of the Ethereum and add that to pure Bitcoin mining capacity with all of this hardware, it puts our road map around the 3.5 Exahash range by the end of 2022. So very exciting and also diversified.

Next slide, please. So I talked about HPC, and so you see Facebook has a data center in Boden, Sweden. HIVE were very engaged with the community here. I was in Boden with Frank and [Barrage] and [block base] our operating partners there, always so much great intellectual capital when the team meets. We met with the Boden Business Agency. We recently made a contribution to the local hockey league. The -- we're going to have the HIVE hockey arena, and that's just a little bit about the community engagement there.

But getting back to the point about HPC, if you do the market research, you'll find how incredibly expensive Amazon's AWS service is, and yet HPC has double-digit growth for the next 10 years. And so again, I talked about diversity. We've got the Bitcoin mining, we've got the Ethereum mining, but we've also got these very prized and hard-to-get next-generation NVIDIA GPU cards, which allow us to set up our HPC. And so we're experimenting with this both in Sweden and also in Canada. So we're very excited about this R&D initiative. We got capital allocated and -- stay tuned to the station for more on that.

Next slide, please. So everyone is asking nowadays, what can you do to become a green and clean miner? Well, you can what HIVE is doing, right? So all renewable power, either hydro or geothermal, right? So no combustion of fossil fuels. You're not generating that carbon footprint. I just did an interview with the CoinPayments podcast yesterday. Jason Butcher asked some excellent questions, and he did say, well, what can miners do to become sustainable and environmentally conscious? Well, unfortunately, for people who've already sent millions into coal-fired electricity, they could buy carbon credits, which will cost upwards of $5,000 per Bitcoin. But again, from day 1, with Frank Holmes as steward and visionary of HIVE, it's the original ESG Bitcoin liner, right? And so just to recap, that's a coupled with low electricity cost, cool dry climate, politically stable jurisdictions, of course, in Iceland, Sweden and Canada.

Next slide, please. And so there's been some remarkable educational content on HIVE, which you'll find on YouTube. So we've got an interview with BLONITY tomorrow, who Frank mentioned earlier, highly intelligent, quantitative YouTuber that follows the HIVE story, in addition to all these other great community members that are very fascinated about the HIVE story. So lots of great collateral, a lot of great visuals, a lot of great narratives.

Next slide, please.

Thank you. It's Frank here. I just want to jump in for a second, and I want to try to explain to people what is a -- couple of things, a DAG file and the nature of Bitcoin, Ethereum. But most important is I really want, I think, mention some of these names that -- we purchased Lachute during COVID in Quebec, and [Rami Ganeshvili] is running that. He's done a phenomenal job, another electrical engineer.

And then Bill Gray has joined the team coming from GPU.One as our CTO, and Luke Rossy. And then not to forget, our in-house counsel is Gabe Ibghy. And Iggy Lai is our relationship and -- important in the relation of securing new equipment from around the world or selling some of our S9s that we acquired for next to nothing, and then we sold them for over $200. So we've been able to keep some of the S9s, as I mentioned, plug them in, make cash flow. And then as new equipment comes in that is much more energy-efficient, much more competitive and basically securing a block for us a Bitcoin or Ethereum, we just upgrade. We sell our old equipment. We upgrade with the newest and the greatest. And I think that, that's important. But really important, these people are the new team in addition to Johanna that's joined us and Aydin that's joined us to be able to build out the future vision for HIVE.

But the other part is what Darcy talked about was a DAG file. And I'm going to try to explain the DAG file for everyone for Ethereum mining. As you know, the blockchain is transparent. And there are thousands of nodes out there looking at every transaction on Bitcoin. At the same time, there's thousands, in fact, more looking at Ethereum. Every day, there is approximately 900 Bitcoins. And I always like to use example: it's like a jump ball. Can you get a piece of that 900 Bitcoins a day, and there's approximately 6,000 Ethereum every day. So for Canadians and Swedes, they love hockey.

So I like to say that every 20 seconds or the drop puck to try to be able to get that Ethereum and get our stick on and get a piece of that puck. And so when you take that sort of metaphor and apply it, the hashing difficulty has grown up dramatically more for Ethereum. And I think this sort of upgrade of new NVIDIA equipment will allow us to do two parts: one, to pivot, but important is to allow us to be much more efficient and produce more Ethereum when we do the complete upgrade. And so there are other important parts just to recognize that this DAG file is like a long piece of lasagna. And that long piece of lasagna is getting so big that a 4-gigabyte memory card just can't cut it.

And the math suggested that in April of 2021, it would no longer be viable. So we had switched what cards we had to mine Ethereum Classic. And then we started selling that to help the system pay electrical bills and any overhead because it was a real challenging process of sending old 580 GPU chips over to China, take out the memory card, upgrade it from 4 to 8 gigabytes, send them back, upload them into the machinery and being highly productive.

So that's an incredible experience because each time we saw the shipping cost going up each month and just delays and disappointments over China are so difficult for people to relate to. But very, very good starting it many times, but we did the majority of it, and then we start buying new equipment to upgrade. So I think we've been able to cover that transition very, very well. We have -- the majority of our 580 GPU cards from AMD are upgraded to 8 gigawatts -- sorry, giga memory cards, so that means they are productive every day, making money for us every day. And the new machines are just much more efficient as we continuously buy. And we're looking at this vision of every month making an acquisition of equipment so that we can digest it. We don't want to have too much equipment and not have electricity. We don't want to have too much electricity, not have equipment. And so we've been trying to merge that together.

So now, I'd like to jump over to Holly because we've talked for 1 hour. You have a few questions, Holly.

Yes. I think we have time for 1 or 2 questions. The first one, maybe, Frank, you can address. People have been asking if you could discuss your growth plans for HIVE, specifically perhaps reaching 10 Exahash in Bitcoin mining.

Well, the big goal is 10 Exahash by the industry if you reach for it. And we just want to make sure that we do it in a prudent, rational way of securing green and clean energy in addition to buying chips. So we've not made any big financings as of yet to dilute to aggressively go and buy lots of chips, which are not showing up on time for a lot of people. So we're just going to be more prudent the way I think we're doing it.

But the vision is to get the 10x Exahash. That would take the company to about $10 billion and then build out our H -- our high-performance computing vision because the idea of data centers is evolving today. It used to be -- like it's just a few years ago, you needed data centers, high-performance computing to do artificial intelligence for facial recognition. Well, now they're embedding facial recognition inside the camera lens. So therefore, the use of how you use these high-performance computing for rendering, for making animation movies, or smart cities or the biggest is gaming around the world is changing. And we think we're going to participate in that. But that's going to be a slow, gradual process. But what's going to be faster is buying more equipment every month, securing more electricity and building out our franchise.

And we probably have about 30 seconds left. People have been asking about HIVE HPC strategy. You briefly touched on it, but maybe Aydin, you can wrap up by commenting on that as well.

Yes. So again, having the NVIDIA GPU cards, which are unlike your typical GPU cards, you just have a much greater capacity, a greater library for tool sets in the HPC world. We have strategic software partners that are helping us build APIs. We have the infrastructure as well to operate it. And so it's -- I don't want to give away the secret sauce, so I should say, stay tuned and watch. But we've also got the capital allocated for it as well. So it's a very exciting project. And just great people working with us to help.

Aydin, It's Frank here. I've got a question. When do we expect to get the next Exahash, Bitcoin mining?

Well, Frank, we've got over 1 Exahash of miners coming throughout 2022. Right now, we've got 1.1 Exahash operating with our shipments that are arriving, and the next month will be at 1.2 Exahash and all the shipments from 2022 put us at about over 2 Exahash with the shipments at the end of 2022.

But then, on top of that, we have our Ethereum mining grade, right? So our 4 Terahash of Ethereum mining is equivalent to approximately 800 Petahash of Bitcoin mining capacity. So that should always be added on top. So if we're at about 1.2 Exahash by the end of -- in the next month, plus our 800 Petahash [of closing], we're essentially at 2 Exahash equivalent as is. And then on top of that, you've got the additional Exahash of chips that are arriving in 2022, which are orders that we've secured diversified from MicroBT and Bitmain. We've got the Ferrari 100 Terahash high-efficiency ASICs. And on top of that, of course, we've got the infrastructure in New Brunswick coming online, 20 megawatts later this year and another 20 megawatts in early 2022. So that all kind of comes in sync and in tandem.

Thanks, Aydin. Just as a reminder, I know we definitely didn't get to everyone's questions, so you can always submit those by e-mailing us at info@hiveblockchain.com.

And this concludes HIVE Blockchain's webcast for the year ended March 31, 2021. Thank you, everyone.