Hut 8 Mining Corp. (HUT), a leading player in the mining industry, has released its financial results for the second quarter of 2024. The report shows a significant increase in revenue, but also a substantial net loss. Despite revenue growing by 72% year-over-year to $35.2 million, the company faced a net loss of $71.9 million, a stark difference from the $1.7 million loss reported in the previous year. Hut 8 highlighted its strategic efforts to expand its operations, including discussions of a major partnership in the Texas Panhandle and a focus on its vertically integrated platform.
Key Highlights
- Hut 8’s Q2 revenue surged to $35.2 million, a 72% increase year-over-year.
- The company reported a net loss of $71.9 million, significantly higher than the $1.7 million loss in the prior year.
- Adjusted EBITDA showed a loss of $57.5 million, down from a $14.8 million loss in the previous year.
- The company is concentrating on its vertically integrated platform and is in discussions for a significant partnership in Texas.
- Hut 8 is exploring AI compute opportunities and plans to upgrade its ASIC fleet.
- The company ended the quarter with substantial cash and Bitcoin holdings on its balance sheet.
Company Strategy
- Hut 8 aims to maximize long-term value through its vertically integrated platform, covering power, digital infrastructure, and compute layers.
- The company is making significant progress in its gigawatt-scale development pipeline.
- A large-scale partnership that could support up to 205 megawatts of Nvidia Blackwell GPUs or 16.5 exahash of next-generation ASIC miners is under consideration.
- Hut 8 plans to launch its GPU-as-a-Service vertical and expects to power up its Texas site in the first half of the following year.
Bearish Points
- The company’s substantial net loss of $71.9 million includes losses on digital assets due to a decrease in Bitcoin market value.
- Adjusted EBITDA was negative, with a loss of $57.5 million.
- Increased SG&A expenses contributed to the losses, driven by factors such as stock-based compensation and restructuring costs.
- The closure of the Drumheller site resulted in a loss for the company.
Bullish Points
- Hut 8 reported gross margin expansion in its digital assets mining business, despite a 71% increase in network difficulty.
- Other income improved significantly due to an unrealized gain on derivatives.
- The company has a strong pipeline for expansion, with approximately a gigawatt of developed megawatts, including joint ventures.
- Hut 8 is actively discussing large-scale co-location deals with customers.
Misses
- Hut 8’s losses were greater than the previous year, with a net loss of $71.9 million and an adjusted EBITDA loss of $57.5 million.
- The company faced an increase in SG&A expenses and losses on digital assets.
Q&A Highlights
- Asher Genoot clarified that the Texas Panhandle site is grid-connected with a substation ready for power.
- The company is considering a multi 100-megawatt size AI expansion and is focusing on operational efficiency and cost reduction.
- Hut 8 is exploring financing options for growth and expects to generate revenue in its GPU-as-a-Service vertical in the third quarter.
- The cost of power for mining Bitcoin was $0.032 per kilowatt-hour, with plans to significantly reduce this cost with new generation machines.
- The company anticipates $20 million annual run rate revenue from its GPU-as-a-Service business.
Hut 8 Mining Corp. remains dedicated to overcoming challenges in the cryptocurrency mining industry and pursuing strategic growth opportunities. With a focus on operational efficiency, cost reduction, and a strong development pipeline, the company is positioning itself for future success despite current financial setbacks.
InvestingPro Insights
Hut 8 Mining Corp. (HUT) has been navigating the complex cryptocurrency mining sector, as evidenced by its latest financial results. For a deeper understanding of the company’s financial health and market position, InvestingPro provides real-time data and expert analysis.
InvestingPro Data:
- Market Cap (Adjusted): $988.98M USD, indicating the company’s current valuation in the market.
- P/E Ratio (Adjusted) LTM Q1 2024: 3.51, suggesting the stock is trading at a low earnings multiple compared to earnings over the last twelve months.
- Revenue Growth (Quarterly) Q1 2024: -42.16 %, highlighting a recent decrease in revenue compared to the same quarter last year.
InvestingPro Tips:
- Analysts anticipate sales growth in the current year, which may signal potential recovery and expansion efforts bearing fruit in the near future.
- The stock has experienced a large price uptick over the last six months, with a 33.53% total return, showcasing investor confidence and market momentum for HUT.
For investors seeking a comprehensive analysis, InvestingPro offers additional insights, including 11 more InvestingPro Tips for Hut 8 Mining Corp., available at https://www.investing.com/pro/HUT. These tips provide valuable context for understanding the company’s performance and future prospects, helping investors make informed decisions.
Full Transcript – Hut 8 Corp (NASDAQ:) Q2 2024
Operator: Good morning and welcome to Hut 8’s Q2 2024 Financial Results Conference Call. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded and a transcript will be available on Hut 8’s website. In addition to the press release issued earlier today, you can find Hut 8’s Quarterly Report on Form 10-Q on the Company’s website at www.hut8.com under the Company’s EDGAR profile at www.sec.com and under the Company’s SEDAR+ profile at www.sedarplus.ca. Unless otherwise noted, all amounts referred to during this call are denominated in U.S. dollars. Any comments made during this call may include forward-looking statements within the meaning of applicable securities laws regarding Hut 8 Corp. and its subsidiaries. The statements may reflect current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include but are not limited to factors discussed in Hut 8’s Form 10-Q for the three and six months ended June 30, 2024 and Form 10-K for the year ended December 31, 2023, as well as the Company’s other continuous disclosure documents. Except as required by applicable law, Hut 8 undertakes no obligation to publicly update or review any forward-looking statements. During the call, management may also make reference to certain non-GAAP measures that are not separately defined under GAAP, such as adjusted EBITDA. Management believes that non-GAAP measures taken in conjunction with GAAP financial measures provide useful information for both, management and investors. Reconciliations between GAAP and non-GAAP results are presented in the tables accompanying the press release which can be viewed on Hut 8’s website.
I would like to pass the call over to Asher Genoot, CEO of Hut 8, for his remarks. Thank you. We prioritize quality over scale in building our portfolio, utilizing our market expertise and deal flow to be highly selective. By optimizing critical value drivers like scale, cost of acquisition, and power terms, we have constructed a portfolio that commands a market premium and drives long-term value creation. Our gigawatt scale pipeline demonstrates the effectiveness of our strategy, with 268 megawatts of greenfield capacity converted since our merger, expanding our total power footprint to 1,322 megawatts.
Our recent partnership with Coatue, backed by a $150 million investment, will accelerate the growth of our power portfolio through efficient development and enhanced deal flow. We are actively exploring multi 100 megawatt projects in AI compute, leveraging our infrastructure development capabilities to capture rising demand. While Bitcoin mining remains a key part of our strategy, we are focused on maximizing returns on each project and transitioning capacity to other use cases like AI as opportunities arise.
In the Texas Panhandle, we are finalizing plans for a 205 megawatt greenfield site that can support digital infrastructure at scale. With low locational wholesale power prices and reliable power access, this site exemplifies our portfolio development approach. We are also reevaluating our managed services business to align incentives and drive economies of scale.
Looking to the future, we are closely monitoring emerging technologies in the compute layer to capture new market opportunities. Today, we believe Bitcoin mining and AI compute offer the highest returns on our power assets, and we are confident in our ability to establish a strong position in both markets. With disciplined capital deployment strategies and a focus on maximizing returns, we are continuously optimizing our portfolio for long-term success. Our initial cluster, consisting of 1000 Nvidia 100 GPUs, will be located at a tier 3 data center in Chicago, reducing the upfront investment needed for market entry. Our customer and AI cloud developer have secured exclusive access to this cluster under a 5-year agreement, which includes fixed infrastructure payments and revenue sharing. To execute our strategic priorities effectively, we must allocate capital wisely and maintain a strong balance sheet. At the end of the quarter, we had $175.5 million in cash and $570.5 million in Bitcoin, totaling nearly $750 million on our balance sheet.
We believe in using debt strategically to maximize returns while minimizing shareholder dilution. Our goal is to maximize shareholder value by structuring our business efficiently, reducing our cost of capital, and delivering strong returns. Our team is crucial to our success, and we prioritize building a talented and experienced team. We recently welcomed Sean Glennan as our Chief Financial Officer and Victor Semah as our Chief Legal Officer, both bringing extensive industry knowledge and expertise to our management team.
We are grateful for the contributions of our outgoing CFO, Shenif Visram, who has helped establish a foundation of operational excellence and financial discipline for our business. Moving forward, we remain focused on driving growth, creating value for our shareholders, and building a market-leading energy infrastructure platform. Thank you, Shenif, for your dedication and hard work.
Now, I will hand it over to Shenif one last time to review the detailed financial results for the quarter. The $3 million decrease in costs was driven by the completion of relocating the fleet to owned sites, such as the new Salt Creek site, which has lower energy costs. Additionally, the implementation of a proprietary curtailment system and participation in demand response programs helped in managing energy costs more efficiently. Despite facing increased network difficulty, digital asset mining gross margins increased to 46% from 34% in the prior year. Cost of revenues for managed services saw a significant increase to $3.1 million from $1.5 million, primarily due to higher reimbursable payroll and site operating costs, driven by the addition of five Ionic sites. Cost of revenues for high performance computing co-location in the cloud was $2.5 million compared to nil in the previous year.
Depreciation and amortization expenses increased to $11.5 million from $4.1 million, primarily due to property and equipment acquired through mergers and acquisitions. General and administrative expenses rose to $17.9 million from $5.2 million, driven by increases in stock-based compensation, salary and benefits, marketing, insurance, professional fees, investor relations, and restructuring costs. Losses on digital assets amounted to $71.8 million, attributed to the decrease in the market value of Bitcoin holdings. Other income increased to $14.4 million from a $2.3 million expense, mainly due to unrealized gains on derivatives and foreign exchange gains.
Adjusted EBITDA for the quarter showed a loss of $57.5 million compared to income of $14.8 million in the prior year, primarily due to the loss on digital assets. The company closed the quarter with $175.5 million in cash and $570.5 million in Bitcoin holdings. Total debt, excluding leases, was $328.8 million as of June 30, 2024, with additional financing through a convertible note purchase agreement and an amended Coinbase loan agreement during the quarter. Total debt outstanding is $328.8 million, with $114.3 million to be repaid based on cash generated from assets acquired with the debt. The company believes this debt level is manageable as they focus on growth plans and operational efficiency. During the second quarter, efforts to improve operational efficiency and reduce costs are reflected in financial results. A 205 megawatt site in Texas Panhandle has been announced, and revenue is expected from the new GPU-as-a-Service vertical in the third quarter. The company aims for disciplined growth and capital allocation to maximize shareholder value. The CFO will step down for personal reasons, and a new CFO, Sean, will join the team. Sean brings experience in financial services and sees Hut 8 as well-positioned in the power and digital infrastructure sectors. He plans to uphold a disciplined approach to capital allocation and work on building partnerships to address challenges in the power market. Sean aims to drive value for shareholders through disciplined growth and data-driven decision-making. I would like to express my gratitude to Asher, Shenif, and the entire team for giving me the opportunity to play a crucial role in Hut 8’s upcoming chapter. I strongly believe that this is just the beginning of a period of significant growth for the company, and I am excited to provide an update on our progress next quarter.
Operator: [Operator Instructions] Our first question is from John Todaro with Needham. John, go ahead.
John Todaro: Thank you for taking my question. Congratulations on the positive developments at Hut 8. I have a couple of questions regarding the HPC business. Firstly, could you provide an update on grid interconnect approval for the 1.1 gigs in the pipeline? And secondly, is the 205 megawatt site primarily for HPC, and when can we expect groundbreaking on that site and future plans through 2024?
Asher Genoot: Thank you for your question, John. All the assets in our pipeline, including those currently in operation, are grid connected. The Texas Panhandle site, for example, is Air-Con approved with a substation available for power connection. We are in discussions with customers about potential HPC AI projects at this site and others in our pipeline. We are actively exploring opportunities for AI expansion in the multi 100 megawatt range across our current fleet and future sites.
Operator: Our next question is from George Sutton with Craig Hallum Capital.
Unidentified Analyst: Regarding the GPU-as-a-Service vertical, has there been any changes in the agreement structure? Will you be looking to expand this in the future, and are you considering financing options for growth?
Asher Genoot: The agreement structure remains the same as previously announced. We are on a 5-year contract with a fixed AC and revenue sharing model. We are exploring financing options for future growth and will provide updates on our growth plans and financing as they develop.
Unidentified Analyst: Additionally, can you provide insight into the fleet upgrades and the trajectory of mining margins going forward?
Asher Genoot: We have made significant progress in reducing our power costs and increasing fleet efficiency. We are actively discussing fleet upgrades with newer generation machines that offer a substantial improvement in efficiency. Our focus is on optimizing our infrastructure, replacing older machines, and expanding our power footprint to drive growth in the Bitcoin mining sector.
Operator: Our next question is from Mike Colonnese with HC Wainwright.
Mike Colonnese: Congratulations on the progress, Asher and team. Can you provide more details on the fleet upgrades mentioned in the press release?
Asher Genoot: Thank you, Mike. We are actively considering fleet upgrades with newer, more efficient machines to improve our mining margins and drive growth in the Bitcoin mining sector. Our goal is to continue growing our power infrastructure and remain a leader in both the AI and Bitcoin mining sectors.
Operator: [Operator Instructions] Thank you for your questions. If you could kindly offer more specific details regarding the timing perspective of the site upgrade after signing a purchase order, that would be greatly appreciated. Asher, could you provide an estimate of how long it will take for a full upgrade of your sites post-purchase order? Additionally, could you remind us of the total developed megawatt in Hut’s portfolio that is wholly owned?
Asher Genoot: Thank you, Mike. We are currently engaged in discussions with manufacturers and exploring different financing options to facilitate the fleet upgrade in the most cost-effective manner. Considering the fluctuations in hash price over the last three months, ranging from $60 per hash per day to as low as $36, it is crucial for us to enter at the right price point with the right financing for this new generation machine. In terms of our total megawatt capacity, we have a strong pipeline, including a gigawatt in wholly owned assets, as well as joint ventures like the one with King Mountain. This includes our operational sites, expansion site, and the King Mountain joint venture, all actively mining Bitcoin.
Mike Colonnese: Understood. Shifting focus to the HPC business, could you share the current utilization rate of your deployed GPUs? And regarding the projected $20 million annual revenue from the business, does that assume full utilization?
Asher Genoot: The $20 million revenue projection does not assume 100% utilization and is based on the demand rates from our partners and their historical utilization levels. We will provide more detailed information as we progress into future quarters and start reporting on the financial performance of the business.
Mike Colonnese: Thank you for that clarification. One last question, Asher, regarding the GPU-as-a-Service model and potential expansion opportunities. Could you elaborate on your go-to-market strategy and whether you are leaning towards co-location or ownership of GPUs for future endeavors based on market dynamics?
Asher Genoot: We see two distinct opportunities in the HPC space. Our GPU-as-a-Service model is well-established with a dedicated team managing operations and exploring expansion avenues. On the other hand, at a parent level, we are focusing on catering to large-scale customers with significant power and data center requirements. We are actively engaging with potential clients for co-location deals where we would provide customized data center solutions on a long-term lease basis.
Mike Colonnese: Thank you for the insights and responses to my questions.
Operator: There are no further questions at this time. This concludes today’s conference call. Thank you for your participation. You may now disconnect.