Earnings Labs

HIVE Digital Technologies Ltd. (HIVE)

Q2 2022 Earnings Call· Tue, Nov 16, 2021

$2.32

-5.51%

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Transcript

Operator

Operator

Good morning, everyone. I would like to welcome you to today's webcast, reviewing HIVE Blockchain Technology's financial results for the 3 months ended September 30, 2021. On Slide number 2, except for the statements of historical facts, this presentation contains forward-looking information within the meaning of applicable Canadian Securities Legislation that is based on expectations, estimates and assumptions as the date of this presentation and you can see the corresponding full disclosure up on the screen right now. On Slide 3, you will see 1 of our most popular visuals we included this last time for the DNA of volatility. And we're always sure to include this table in our earnings presentation, especially following the disclosure, because it's a really great reminder to investors and shareholders on how much various asset classes can move up or down over a 1-day and 10-day timeframe. And as you can see here, the volatility of Bitcoin and Ethereum is much greater than the S&P or gold stocks. And then of course, if you look at HIVE, it's even more volatile and that's because we mine both Bitcoin and Ethereum. If we move on to slide number 4, I'm 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 will have guests for today which we are really excited about. Representatives from DeFi Technologies, which HIVE owns 4.9% of the Company, and then Network Media Group, which Hive owns 3.4% of the Company. And then if you move to Slide number 6, representing DeFi Technologies for today's presentation is Russell Starr, Executive Chairman and CEO. And on the next slide representing Network Entertainment for today's presentation is Derick Murray, Producer, Director, CEO, and Tom Lombardi, Strategic Advisor for NFT, R&D research. On the next slide, I would like to hand it over to Frank Holmes, Executive Chairman for our corporate update.

Frank Holmes

Management

Thank you, Holly. This is a recent magazine, Real Assets Adviser and it talks about real estate to goals, but the next big thing is Bitcoin and HIVE being where it is as a position in that space. So I thought this was fitting because it really is our big growth. If you take a look at it as I walk through the story today is Bitcoin. Next please. Bitcoin mined in HODL by HIVE continuous momentum due to the BTC having it would -- fell to 88 and then as we increased our footprint, our production, which I'm going into greater detail later in the presentation. You can see that our production has been increasing each quarter. This translates to revenue, not only is Ethereum the stealth part of our revenue model, but our revenue continues and we still are as of the end of September, the highest revenue Company of all the crypto mining companies. And a big part of that is not only the huge growth in our Bitcoin production and footprint, but in the back of that is the theory in the steady Eddie revenue, high gross profit margin of mining Ethereum, particular in Sweden, and also in Iceland. Strong profit and earnings per share, income was up 5-fold gross mining margin Q/Q. If you take a look at the data points. Darcy is going to go into much more explicit detail on this. But what's really important for investors is basic income per share. Ended September 30 was $0.16; the previous year was $0.03. I did compare the previous year to many of the peers in the crypto mining space, they were actually losing money. But we made money and then not only did we make money to previous year, we expanded dramatically with the…

Aydin Kilic

Management

Thank you, Frank for that introduction and it's been a phenomenal quarter for HIVE. I'm going to get into some of the operational numbers here that represent how we got to the best revenue this quarter amongst our peer group. Right off that is because we have 1.25 exahash of Bitcoin mining active right now. It's about 0.8% of the entire network. And in addition to that 4200 GIGA hash Ethereum mining. On a composite as equivalent, if you convert the Ethereum of mining, which is about -- each thousand gigahash Ethereum mining works out to about 220 Petahash of Bitcoin mining. So that actually put our total to -- over to exahash of equivalent Bitcoin mining about 2.1 exahash of equivalent Bitcoin mining. So that's good for the investing public to understand out did HIVE get to best revenue in the quarter. Now, we're looking at the difficulty rate here, the big news out of China earlier this year where we had the difficulty drop as a result of the miners coming offline. Well, it underscores the importance of having a politically stable jurisdiction. In addition to HIVE having green and clean energy. All of our power sources are hydro or geothermal. Again, of course, we've got our operations in Sweden, ice and in Quebec. They're also politically stable jurisdiction, and that's I think what gets overlooked sometimes as people just are focused on the megawatts or the dollar per kilowatt hour. It also shows how centralized Bitcoin mining was. Over 60% of Bitcoin mining hash rate used to be operating out of China. Cryptos both are decentralized. We're seeing a very centralized spirit in Bitcoin mining. But what you've seen -- so hash rate drops significantly down to about half of what it was from $180 million Terahash…

Darcy Daubaras

Management

Thank you, Aydin. And I'll continue on with the financial review of the Company for the second quarter ended September 30th, 2021. Next slide, please. Turning to Slide 36, we generated revenue from digital currency mining in the second quarter of Fiscal 2022 of $52.6 million versus $13 million in the prior year second quarter. The increase in revenues versus the same quarter in fiscal 2021 was due to an increase in the production of Bitcoin mining as you've seen to 656 from 88 in the prior year, driven by the acquisition of the 2 Bitcoin mining data centers in Canada. This was bolstered by the revenues driven by the Ethereum mining that took place during the recent quarter, even though the number of coins mined fell from 32,800 in the prior year, to 8,688 in the current year. This is the power of the close to 10 times increase in the price of Ethereum compared to a year ago. Our gross mining margin, which equates to our revenues minus direct operating and maintenance costs, increased in absolute dollars to $45 million in the most recent quarter compared to $9.2 million in the prior-year comparative. Gross mining percentage also increased to 86% from 71%. Gross mining margin is also partially dependent on various external network factors, including mining difficulty, the amount of digital currency rewards miners received, and the market price of the digital currencies at the time of mining. Next slide, please. Turning to slide 37, comparing our current Fiscal Q2 quarter to the previous Q1 quarter, we generated revenue from digital currency mining in the second quarter of Fiscal 2020 of $52.6 million versus $37.2 million in the previous quarter. The increase in revenues versus the prior quarter, again, was due to an increase in the production of…

Operator

Operator

Thank you so much, Darcy. And now we will see a presentation from Russell Starr, Executive Chairman and CEO from DeFi Technologies.

Russell Starr

Management

Thank you everyone for joining. Thank you to HIVE and Frank Holmes for inviting us. I think this is going to be very, very interesting and compelling presentation for anyone attending this HIVE update. HIVE and DeFi Technologies to the share swap many months ago, it has resulted in tremendous value creation for both companies. Obviously, their business lines outside of DeFi and HIVE are generating tremendous revenues for both companies. However, the synergies between the two in my opinion are geometric. So thank you very much for listening and attending. My name is Russell Starr; I'm the CEO and Executive Chairman of DeFi Technologies. What is DeFi? Simplified, it is the evolution in change of almost everything that you encounter in your financial world. It's bridging the gap between traditional capital markets and the new decentralized finance world. And DeFi Technologies is changing the way that people can invest in DeFi protocols themselves. What exactly do we do? It's very simple. We create equity wrappers. And we put them around DeFi protocols that change trade on alternative exchanges and allow your average every day investor to buy a DeFi protocol on a traditional listed regulated equity exchange. And this is a very powerful proposition because to date most of the world hasn't been able to benefit from truly one of the most innovative and compelling investment opportunities since the Internet revolution. Who are we and who is building this amazing Company? As you know, I'm the CEO and Executive Chairman. My background is in traditional finance. I helped build and found and create a broker dealer in Canada. I've built and sold several junior companies. Litter is one of the co-founders, created a private Company called SEC 5, he is our President. Diana Biggs is now our Chief Strategy…

Derick Murray

Management

I'd like to thank all of you for joining us today. And I want to thank Frank Holmes and HIVE for inviting us to this form. My name is Derick Murray; I'm the CEO of Network Media Group. Today and with Tom Lombardi, who many of you may have seen our press release, where Tom has recently joined the network team as our NFT strategic advisor. I'm going to hand the microphone over to Tom.

Tom Lombardi

Management

Thanks, Derick. It's a pleasure to be here. NFTs present an amazing opportunity to transform finance, media, and culture. And with $10.7 billion in platform revenue at the end of Q3 2021, this technology has gone mainstream and we certainly see that growth continuing into the future. And where we go from here and what we use these for, were really only limited by our imagination.

Derick Murray

Management

Thanks, Tom. I really appreciate you mentioned the word imagination. That's something that really resonates with me. For many years, I had up in my wallet a quote from Muhammad Ali, "a man who has no imagination, has no wings ". And that inspired our Academy Awards shortlist of film Facing Ali that our entire team at Network is very proud of. I'm going to show you just a short clip, just to give you a sense of this film and this great man, Muhammad Ali.

Movie Audio

Management

This is the motion picture event that will change the way you see Muhammad Ali, forever. Boxing is a strange sport. You can overstay your welcome and you can get physically hurt. Brian is going to take so many shots to the head. You can lose your life giving the people what they want to see.

Derick Murray

Management

Facing Ali was foundational in positioning Network Entertainment to be globally recognized premium content provider of documentary series and feature documentaries. Network celebrates the lives of the world's most iconic personalities and enduring legacies, and dives deep into fascinating and inspiring cultural topics from the worlds of music, film, comedy, fashion, sports, politics, and business. The Network premium brand of content delivers world-class casts combined with visually cinematic and richly crafted storytelling. As you know, the content universe demand for content has exploded over the last few years, and Network has been front and center in creating content for these media and tech companies who have launched these new streaming services. Our relationship with Ayla's talent in front of the camera, or his producing partners is unparalleled. A-list talent and industry leaders across the spectrum are equally enthused about the NFT platform and its endless opportunities. Embracing the new platform and aligning networks NFT initiatives with top talent and IP owners is a natural fit for the Company. I often stated that our network or content is platform agnostic, simply put, we create content that is distributed and formatted for every possible media. We look at NFTs as a new and exciting digital content platform. Every day at Network, we create and work with illustrations, animation, graphics, film, music, video, or photography, to tell stories and engage audiences worldwide. I think you could see why our entire team at Network are really excited about the apparent synergies between what we do every single day and what we will be doing in the future on this new and exciting NFT platform. And on that front, I am going to hand the mic over to Tom, get him to dig in a little further with you on NFTs.

Tom Lombardi

Management

Thanks, Derick. But let's talk about what are NFTs. NFTs are non-fungible tokens. The best way to understand non-fungible tokens, we can talk about a fungible token. Everyone understands like Bitcoin and Ether, these are digital assets. These are fungible tokens. Much like a commodity, one is like the other. And we can use the blockchain to validate that. A non-fungible token, something that is unique. And NFT on a blockchain allows us to now associate digital property ownership to these objects such as photos and videos and music, and essentially anything that is digitally made. The value proposition is really this is digital uniqueness. Before this level of scarcity for digital content that we've never had before. How they are used today, NFTs are used what we call the NFT Flex. We're using an profile pictures. It's a place where we can show our friends and show the public that we own this individual image. Probably the most famous one is the Crypto-Funk. Some of them are selling for $7 million but on average, they sell for $0.5 million. What really kicked off NFTs were -- was the people sale. People as in the digital artist. People sold work of art at $69 million at an auction. I think once that happened, eyes opened, the media got evolved. The other really good application is the project called the NBA Top Shot. NBA Top Shot is a collection of essentially, if you think of collectible playing cards, these were collectible videos of dunks and moves by basketball players. There was $500 million of revenue in the first 6 months from close to 800,000 users. Not only do they have this cultural connection, but now there's an investment thesis behind the clubbers. The tech major’s large companies are certainly diving in head-first. So we saw the big Facebook re-branding to Meta, short for the metaverse. Mark Zuckerberg said it in the speech, "We will be supporting crypto and NFT projects in the community." And then there are countless other projects. Quentin Tarantino, EA Sports saying the NFTs are the future gaming. McDonald's, Simpsons, Disney; there's a lot of adoption from global companies around the world. And we think that this unlocks so many opportunities within media, entertainment, and

Derick Murray

Operator

As a pioneer in the blockchain industry, HIVE is the ideal strategic partner for Network. HIVE support alongside our commitment to be a market leader in the rapidly evolving NFT ecosystem is foundational. It also allows us to expand our IP pipeline with additional NFT rights in collaborations on the horizon. When I think of our relationship with HIVE, I start to do the math. HIVE, plus Network, plus Aseerium, plus NFTs, equals a global NFT content strategy. There has been tremendous success already in this new NFT universe. We're really excited by the prospect of bringing together community; tie it into investment, and packaging it with culture, pop culture. Network NFT studios, built on success, designed for now. Thank you everybody for joining us, and thank you, Frank Holmes and HIVE for having us here today. And there will be no presentation that will be complete without the pitch. Pretty simple pitch really. An investment in Network NTE.B provides access to the NFT revolution. Kind of sexy. That's it. That's all I got. Thanks so much everybody. Goodnight. End of Q&A: I want to bring everyone's attention to some of our new YouTube videos on the HIVE YouTube page, be sure to check those out as well as be sure to follow us across social media. We're quite active, not only on Twitter, but also on Instagram. And then as I mentioned, on YouTube as well. Be sure to subscribe for updates. And thank you, everyone. That will conclude high blockchain technologies webcast for the three months ended September 30, 2021. And just as a reminder, you can read the full earnings press release on our website. And you can email any questions to info@hiveblockchain.com. Thank you.