Quarterly revenue of $17.0 million including $4.5 million from the high performance computing business
9,366 self-mined Bitcoin held in custody or pledged as collateral on September 30
TORONTO - Nov. 14, 2023 (GLOBE NEWSWIRE) -- Hut 8 Mining Corp. (Nasdaq | TSX: HUT) ("Hut 8" or the "Company"), one of North America's largest, innovation-focused digital asset mining pioneers, and high performance computing infrastructure provider, announced its financial results for the quarter ended September 30, 2023 (“Q3 2023”). All dollar figures are in Canadian Dollars (“CAD”), unless otherwise stated.
“Our team continued to be laser-focused on closing our merger with USBTC in the third quarter, and made material progress in achieving key milestones, including securing shareholder approval of the merger and obtaining the final order approving the plan of arrangement from the Supreme Court of British Columbia,” said Jaime Leverton, CEO of Hut 8. “Now that the SEC has declared New Hut’s Registration Statement effective, we are working hard to close this transaction before the end of the month to form an organization that will be poised to capture upside by charting a new path in the industry as a uniquely diversified infrastructure-first company with increased access to more stable energy markets, new capex-light and scalable fiat-based revenue streams like hosting and managed services, strong high performance computing operations, and expanded proprietary mining operations across North America.”
“Throughout the third quarter, we weathered continued pressure on our mining business while realizing a modest increase in revenues from our high performance computing operations, which was driven by sales booked in the first half of 2023,” said Shenif Visram, CFO of Hut 8. “We have continued to focus on prudently managing our costs, which partially offset our mining results, while actively seeking ways to grow the business, including through opportunities like the court-approved stalking horse bid to acquire four natural gas facilities in Ontario totalling 310 MW which if successful, could provide us with both access to energy pricing certainty and future revenue generating optionality.”
Q3 2023 HIGHLIGHTS
- Revenue decreased by $14.7 million to $17.0 million during the quarter ended September 30, 2023 compared to $31.7 million during the quarter ended September 30, 2022 (“Q3 2022”).
- The Company mined 330 Bitcoin in the quarter ended September 30, 2023, an approximately 66% decrease compared to the quarter ended September 30, 2022, primarily due to an increase in average Bitcoin network difficulty causing a decrease in Bitcoin mined, the impact of the suspension of operations at the Company’s North Bay facility, a halt in the Company’s graphic processing units (“GPU”) mining activities due to the Ethereum network’s change in consensus mechanism from proof-of-work to proof-of-stake during Q3 2022, and ongoing electrical issues at the Company’s Drumheller facility.
- The Company’s high performance computing (“HPC”) operations generated $4.5 million of primarily monthly recurring revenue in Q3 2023 compared to $4.4 million in Q3 2022 as a result of new sales partially offset by customer churn. The new sales do not reflect the recently signed five-year agreement with Interior Health, as the revenue earned from the agreement will commence later in 2023.
- As previously reported, the Company encountered issues at the Drumheller site, primarily stemming from high energy input levels that have been causing miners to fail. This has materially reduced operations, which are currently at approximately 27% of our installed hash rate at the site. Throughout the remediation process, the team implemented new custom firmware across all miner models designed to lower the power supply's maximum output voltage, ensuring our equipment operates within safe limits; increased repair staff and added an additional repair centre shift; and procured new hardware to expedite repairs and accelerate the speed at which we bring miners back online. The electrical issues at the Drumheller site were compounded by high energy rates in the third quarter which further increased curtailment at the site.
- The Company’s installed hashrate was 2.6 EH/s (excluding the Company’s North Bay facility) as of September 30, 2023 compared to 2.6 EH/s as of June 30, 2023.
BITCOIN INVENTORY AND VALUE
As at September 30, 2023, the Company had a total self-mined Bitcoin balance held in custody or pledged as collateral of 9,366 with a market value of $341.4 million. During Q3 2023, 330 Bitcoin were mined and 100 Bitcoin were sold, for which the Company received proceeds of $3.9 million.
OPERATING AND FINANCIAL OVERVIEW
| For the periods ended September 30 | Three Months Ended | Nine Months Ended | ||||||||||||||||
| (CAD thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| Operating results | ||||||||||||||||||
| Digital assets mined | 330 | 982 | 1,204 | 2,870 | ||||||||||||||
| Financial results | ||||||||||||||||||
| Total revenue | $ | 16,980 | $ | 31,671 | $ | 55,184 | $ | 128,849 | ||||||||||
| Net (loss) income | (53,580 | ) | (23,786 | ) | 38,210 | (56,145 | ) | |||||||||||
| Mining Profit(i) | 3,802 | 9,300 | 9,592 | 57,113 | ||||||||||||||
| Adjusted EBITDA(i) | (11,620 | ) | 9,418 | 121,720 | (61,609 | ) | ||||||||||||
| Per share | ||||||||||||||||||
| Net income - basic | $ | (0.24 | ) | $ | (0.12 | ) | $ | 0.17 | $ | (0.31 | ) | |||||||
| Net income - diluted | $ | (0.24 | ) | $ | (0.12 | ) | $ | 0.17 | $ | (0.31 | ) | |||||||
| (i) Non-IFRS measure - see "Non-IFRS Measures" section below. Certain comparative figures have been restated where necessary to conform with current period presentation. | ||||||||||||||||||
| As at | ||||||||||||||||||
| (CAD thousands) | September 30, 2023 | December 31, 2022 | ||||||||||||||||
| Financial position | ||||||||||||||||||
| Cash | $ | 21,140 | $ | 30,515 | ||||||||||||||
| Total digital assets | 341,660 | 203,627 | ||||||||||||||||
| Total assets | 496,629 | 412,937 | ||||||||||||||||
| Total liabilities | 99,250 | 61,547 | ||||||||||||||||
| Total shareholders’ equity | 397,379 | 351,390 | ||||||||||||||||
| Working Capital (ii) | 297,281 | 215,490 | ||||||||||||||||
| (ii) Calculated as current assets less current liabilities. | ||||||||||||||||||
- Revenue decreased by $14.7 million to $17.0 million during Q3 2023 compared to $31.7 million during Q3 2022. The Company mined 330 Bitcoin in Q3 2023, an approximately 66% decrease compared to Q3 2022, primarily due to an increase in average Bitcoin network difficulty resulting in a decrease in Bitcoin mined, a halt in the Company’s graphic processing units (“GPU”) mining activities due to the Ethereum network’s change in consensus mechanism from proof-of-work to proof-of-stake during Q3 2022, the impact of the suspension of operations at the Company’s North Bay facility, and ongoing electrical issues at the Company’s Drumheller facility which continued from the fourth quarter of 2022. The decline in revenue from the Company’s digital asset mining operations were also partially offset by a higher Digital Asset Revenue per Bitcoin Mined(i) due to the increase in the daily average closing Bitcoin price in the current quarter versus the comparative quarter. The Company’s HPC operations generated $4.5 million of primarily monthly recurring revenue in Q3 2023 compared to $4.4 million in Q3 2022 as a result of new sales partially offset by customer churn. The new sales do not reflect the recently signed five-year agreement with Interior Health, as the revenue earned from the agreement will commence later in 2023.
- Cost of revenue consists of site operating costs and depreciation. The cost of revenue was $21.4 million for the third quarter of 2023 compared to $45.6 million in the period year period. Site operating costs consist primarily of electricity costs as well as personnel, network monitoring, and equipment repair and maintenance costs at our digital asset mining and HPC operations. Site operating costs for Q3 2023, were $11.2 million, of which $8.7 million were attributable to our mining operations and $2.5 million were attributable to our HPC operations. The site operating costs for Q3 2022 were $20.3 million, of which $18.0 million were attributable to our mining operations and $2.3 million were attributable to our HPC operations. The Mining Cost per Bitcoin(i) for Q3 2023 was $26,279 per Bitcoin, compared to $18,297 per Bitcoin in the prior year for the same quarter. The increase was due to higher power consumption per Bitcoin mined due to increased Bitcoin network difficulty, suspension of operations at the Company’s North Bay facility, and ongoing electrical issues at the Drumheller facility, which was partially offset by the Company’s decision to curtail, and lower average energy prices compared to prior year same quarter. The increase in site operating costs related to the HPC operations is primarily due to increased occupancy and repairs and maintenance to improve the Company’s facilities partially offset by lower software costs. Depreciation expense decreased to $10.2 million during Q3 2023 compared to $25.3 million in the same quarter of 2022, primarily driven by the lower net book value of digital asset mining plant and equipment after the recognition of a non-cash impairment charge during the fourth quarter of 2022 as part of annual impairment testing.
- Net loss for Q3 2023 was $53.6 million and net loss per share was $0.24, compared to net loss of $23.8 million and net loss per share of $0.12 in the prior year’s quarter. The increase in net loss from Q3 2022 to Q3 2023 is primarily driven by the $20.0 million impairment of deposits related to the power purchase agreement with Validus Power Corp. (“Validus”) recorded in Q3 2023, and a loss on revaluation of digital assets recorded to income or loss with a change of negative $17.5 million, partially offset by an increase in gross profit of $9.5 million.
- Mining Profit(i) was $3.8 million for Q3 2023, compared to $9.3 million in the prior year’s quarter. The decrease in Mining Profit(i) compared to the prior year’s quarter is mainly due to the lower quantity of Bitcoin mined due to increased Bitcoin network difficulty, halt in the Company’s GPU mining activities due to the Ethereum network’s change in consensus mechanism from proof-of-work to proof-of-stake during Q3 2022, the impact of the suspension of operations at the Company’s North Bay facility, and the ongoing electrical issues at the Company’s Drumheller facility noted above, and was partially offset by lower average power prices and a higher daily average closing Bitcoin price.
- Adjusted EBITDA(i) was negative $11.6 million for Q3 2023, compared to a positive Adjusted EBITDA(i) of $9.4 million in the prior year’s quarter, primarily driven by a loss on revaluation of digital assets of $10.1 million versus a gain on revaluation of digital assets of $7.3 million in the comparative quarter, a lower digital asset Mining Profit(i).
For more information, please refer to the Company’s management's discussion & analysis (the “MD&A”) and the Company’s unaudited condensed consolidated interim financial statements for the nine months ended September 30, 2023 and 2022. These documents are available on the Company's website at hut8.com, under the Company's SEDAR+ profile at www.sedarplus.ca, and under the Company's EDGAR profile at www.sec.gov.
NON-IFRS MEASURES AND RATIOS
This press release makes reference to certain measures and ratios that are not recognized under IFRS and do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS”). They are therefore not necessarily comparable to similar measures or ratios presented by other companies. The Company uses non-IFRS measures and ratios including “Mining Profit”, “Adjusted EBITDA”, “Digital Asset Revenue per Bitcoin Mined”, and “Mining Cost per Bitcoin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from Management’s perspective and should not be viewed as alternatives to, or replacements of, measures of operating results and liquidity presented in accordance with IFRS.
The following tables and definitions reconcile non-IFRS measures and ratios used by the Company to analyze the operational performance of Hut 8 to their nearest IFRS measure and should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements for the nine months ended September 30, 2023 and 2022.
________________________
(i) Non-IFRS measure or ratio - see "Non-IFRS Measures and Ratios" section below. Certain comparative figures have been restated where necessary to conform with current period presentation.
Mining Profit
“Mining Profit” represents gross profit (revenue less cost of revenue), excluding depreciation and revenue and site operating costs directly attributable to hosting services and high performance computing operations. Mining Profit shows profitability of the Company’s core digital asset mining operation, without the impact of non-cash depreciation expense. Mining Profit measure provides investors the ability to assess the profitability of the mining operations exclusive of general and administrative expenses.
The following table reconciles gross (loss) profit to our non-IFRS measure, Mining Profit:
| For the periods ended September 30 | Three Months Ended | Nine Months Ended | |||||||||||
| (CAD thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||
| Gross (loss) profit | $ | (4,469 | ) | $ | (13,940 | ) | $ | (15,327 | ) | $ | (1,326 | ) | |
| Add (deduct): | |||||||||||||
| Revenue from hosting | – | – | – | (751 | ) | ||||||||
| Revenue from high performance computing | (4,506 | ) | (4,403 | ) | (13,193 | ) | (12,404 | ) | |||||
| Site operating costs attributable to hosting and high performance computing | 2,540 | 2,304 | 7,524 | 6,986 | |||||||||
| Depreciation | 10,237 | 25,339 | 30,588 | 64,608 | |||||||||
| Mining Profit | $ | 3,802 | $ | 9,300 | $ | 9,592 | $ | 57,113 | |||||
Adjusted EBITDA
“Adjusted EBITDA” represents EBITDA (net income or loss excluding net finance income or expense, income tax or recovery, depreciation, and amortization) adjusted to exclude non-cash share-based compensation, fair value gain or loss on revaluation of warrants, non-recurring impairment charges or reversals of impairment, and costs associated with one-time or non-recurring transactions. Adjusted EBITDA is used to assess profitability without the impact of non-recurring non-cash accounting policies, capital structure, taxation, and one-time or non-recurring transactions. This performance measure provides a consistent comparable metric for profitability of the Company across time periods.
The following table reconciles net (loss) income to our non-IFRS measure, Adjusted EBITDA:
| For the periods ended September 30 | Three Months Ended | Nine Months Ended | |||||||||||
| (CAD thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||
| Net (loss) income | $ | (53,580 | ) | $ | (23,786 | ) | $ | 38,210 | $ | (56,145 | ) | ||
| Add (deduct): | |||||||||||||
| Net finance expense | 2,487 | 1,865 | 5,356 | 4,700 | |||||||||
| Depreciation and amortization | 10,413 | 25,683 | 31,118 | 65,524 | |||||||||
| Impairment of deposits related to power purchase agreement | 20,000 | – | 20,000 | – | |||||||||
| Share based payment | 2,258 | 1,895 | 7,770 | 5,171 | |||||||||
| Foreign exchange loss | 1,024 | 844 | 733 | 1,528 | |||||||||
| One-time transaction costs | 2,423 | – | 17,598 | 1,611 | |||||||||
| North Bay decommissioning costs | 140 | – | 1,059 | – | |||||||||
| Deferred income tax expense | 3,127 | – | – | 9,593 | |||||||||
| Sales tax expense | – | – | – | 913 | |||||||||
| Loss (gain) on revaluation of warrants | – | 2,917 | (212 | ) | (94,504 | ) | |||||||
| Gain on lease liability remeasurement | (339 | ) | – | (339 | ) | – | |||||||
| Loss on sale of plant and equipment | 427 | – | 427 | – | |||||||||
| Adjusted EBITDA | $ | (11,620 | ) | $ | 9,418 | $ | 121,720 | $ | (61,609 | ) | |||
Digital Asset Revenue per Bitcoin Mined
“Digital Asset Revenue per Bitcoin Mined” represents revenue, excluding revenue from hosting services and high performance computing operations, measured on a per Bitcoin mined basis during a period. Digital Asset Revenue per Bitcoin Mined is used and provides investors the ability to assess the average revenue earned per Bitcoin mined during a period by the Company’s digital asset mining operations.
The following table reconciles revenue to our non-IFRS ratio, Digital Asset Revenue per Bitcoin Mined:
| For the three months ended (CAD thousands, except per Bitcoin amounts) | September 30, 2023 Q3 | September 30, 2022 Q3 | ||||
| Revenue | $ | 16,980 | $ | 31,671 | ||
| Deduct: | ||||||
| Revenue from high performance computing | (4,506 | ) | (4,403 | ) | ||
| Digital asset revenue | 12,474 | 27,268 | ||||
| Divided by: | ||||||
| Number of Bitcoin mined | 330 | 982 | ||||
| Digital Asset Revenue per Bitcoin Mined | $ | 37,800 | $ | 27,768 | ||
Mining Cost per Bitcoin
“Mining Cost per Bitcoin” represents the cost of revenue, excluding site operating costs attributable to hosting services and high performance computing operations, and depreciation, measured on a per Bitcoin mined basis during a period. Mining Cost per Bitcoin is used and provides the investors the ability to evaluate the efficiency of the Company’s digital asset mining operations exclusive of general and administrative expenses.
The following table reconciles cost of revenue to our non-IFRS ratio, Mining Cost per Bitcoin:
| For the periods ended September 30 | Three Months Ended | Nine Months Ended | |||||||||||
| (CAD thousands, except per Bitcoin amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||
| Cost of revenue | $ | (21,449 | ) | $ | (45,611 | ) | $ | (70,511 | ) | $ | (130,175 | ) | |
| Add (deduct): | |||||||||||||
| Site operating costs attributable to hosting and high performance computing | 2,540 | 2,304 | 7,524 | 6,986 | |||||||||
| Depreciation | 10,237 | 25,339 | 30,588 | 64,608 | |||||||||
| Mining cost | (8,672 | ) | (17,968 | ) | (32,399 | ) | (58,581 | ) | |||||
| Divided by: | |||||||||||||
| Number of Bitcoin mined | 330 | 982 | 1,204 | 2,870 | |||||||||
| Mining Cost per Bitcoin | $ | (26,279 | ) | $ | (18,297 | ) | $ | (26,909 | ) | $ | (20,411 | ) | |
CORPORATE UPDATES
Hut 8 and U.S. Data Mining Group, Inc., doing business as US Bitcoin Corp (“USBTC”) continue to make progress on the proposed business combination pursuant to which the two companies will combine in all-stock merger of equals (the “Transaction”). The combined company will be named “Hut 8 Corp.” (“New Hut”) and will be a U.S.-domiciled entity. The Transaction is expected to establish New Hut as a large scale, publicly traded Bitcoin miner focused on economical mining, highly diversified revenue streams, and industry leading environmental, social, and governance (ESG) practices.
On September 13, 2023, Hut 8 announced that at a special meeting of the Company’s shareholders, shareholders voted in favour of the resolutions, approving the Transaction. On September 18, 2023, the Company announced that it obtained a final order approving the plan of arrangement with USBTC from the Supreme Court of British Columbia.
On July 17, August 24, and September 19, 2023, respectively, the Company announced that it filed further amendments to its registration statement on Form S-4 (as amended, the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”).
On November 9, the Registration Statement was declared effective by the SEC.
The Transaction is particularly strategic as it will establish New Hut with geographic diversity across its self-mining business, which will include differentiated energy sources in a variety of markets and improve efficiencies at the miner level by using proprietary, purpose-built software that can identify and mitigate machine and energy price issues in real-time. Notably, it will further diversify capex-light fiat revenue lines of business by adding USBTC’s 220 MW hosting and 680 MW managed services businesses to Hut 8’s existing HPC and repair centre operations. Completion of the Transaction is subject to USBTC stockholder approval and other customary closing conditions. Hut 8 expects the Transaction to close by November 30, 2023.
On August 11, 2023, the Company announced that it entered into a transaction support agreement (the “Support Agreement”) with Macquarie Equipment Finance Ltd. (“Macquarie”) a subsidiary of Macquarie Group Limited, a global financial services group, in support of an opportunity to potentially acquire certain assets of Validus and Validus’ subsidiaries (collectively, the “Validus Entities”). Validus was previously a supplier of energy to the Company’s mining facility in North Bay, Ontario. Macquarie is a secured creditor of the Validus Entities under an existing secured lease and participation agreement.
Pursuant to an order of the Ontario Superior Court of Justice (Commercial List) (the "Court") issued on August 10, 2023, on application by Macquarie, KSV Restructuring Inc. (“KSV”), a licensed insolvency trustee with extensive experience in receivership mandates, was appointed as receiver of the property, assets, and undertakings of the Validus Entities (KSV in such capacity, the "Receiver").
Subject to the satisfaction of certain conditions, under the terms of the Support Agreement, a stalking horse bid (the “Stalking Horse Bid”) is to be submitted to the Receiver in support of a proposed sale and investment solicitation process to be carried out in respect of the Validus Entities.
On November 3, 2023, the Company announced that it received approval from the Court to submit a stalking horse bid as part of the Support Agreement. In connection with the Stalking Horse Bid, the Court has also approved the implementation of a sale and investment solicitat