Hut 8 Corp.

Welcome to Hut 8's fourth quarter and full year 2022 financial results, analyst and investor call. In addition to the press release issued earlier today, you can find Hut 8's financial statements and MD&A on the company's website at www.hut8.io. Under the company's CEDAR profile at www.cedar.com and under the company's EDGAR profile at www.sec.gov, Unless noted otherwise, all amounts referred to during this call are denominated in Canadian dollars. Any comments made during this call may include forward-looking statements within the meaning of applicable securities legislation regarding the future performance of Hut 8 Mining Corp and its subsidiaries. The statements made 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 the factors discussed in HUD-8's annual MD&A and annual information form for the year ended December 31, 2022. Except as required by applicable law, HUD-8 undertakes no obligation to publicly update or review any forward-looking statements. During the call, management may also make reference to certain non-IFRS measures that are not separately defined under IFRS such as adjusted EBITDA and MindProfit. Management believes that non-IFRS financial information taken in conjunction with IFRS financial measures provide useful information for both management and investors. Reconciliations between IFRS and non-IFRS results are presented in the tables accompanying our press release, which can be viewed on our website. I would now like to turn the call over to HUD-8 CEO, Jamie Leverton. Please go ahead.

Thank you, Joelle. Good morning, everyone, and thank you for joining us to discuss HUD-H's results for the 2022 fiscal year. I will start by restating the obvious. 2022 was a challenging year for our entire industry. For us, this meant that pivoting and changing was essential. This is where our balance sheet first approach, which has been in place since the early days of the previous bull market, enabled us to continue pursuing opportunistic moments throughout the year. Closing our acquisition of five high-performance computing data centers and integrating them into our business operations. Managing through the eSmerge last fall. Expanding our leadership team and growing our team members to over 100 across British Columbia, Alberta, and Ontario. Continuing to advance our ESG goals by finding innovative ways to e-recycle our miners and computing infrastructure. And self-mining Bitcoin throughout 2022 at modest costs despite challenges. fluctuating power prices, resulting in a 28.1% year-over-year increase in Bitcoin mines and a 25% year-over-year increase in hash rate, thanks to steadily plugging in new miners throughout the year. We continue to believe in our expansion into the high-performance computing business as we renovated our flagship data center in Kelowna and refreshed our data centers in the Greater Toronto Area and Vancouver. We welcomed new customers, including Enthusiast Gaming, Venlayer, and Luxor, We're replacing our networks with new Cisco carrier-grade routing and switching hardware. We're re-architecting our network carrier uplinks to provide increased resiliency, diversity, and capacity. We recertified the organization under our SOC 2 compliance program, ensuring security best practices across 158 unique operational controls. As we look ahead, we are confident that 2023 will be a year of extraordinary growth. As announced last month, we look forward to the future where HUD-8 Mining Corp and U.S. Bitcoin Corp will combine in an all-stock merger of equals to grow into a highly diversified U.S. domiciled publicly traded organization. The combination will see us with established self-mining operations at five mines, two in Canada and three in the U.S., running a total of 5.6 exahash with 244 megawatts of total energy available. It will give us six exahash of installed hosting capacity powered by 220 megawatts of hosting infrastructure at our site in Texas with clients that include some of the largest miners in the industry. It will take us into the very nascent space of managed infrastructure operations at two U.S. sites where USBTC has pioneered a new business model to capture untapped value from the mining ecosystem, which is incredibly exciting. With managed infrastructure operations, the team goes into a miner's existing site or site and runs the day-to-day operations manages the property, performs maintenance, and importantly, optimizes performance using USBTC's purpose-driven software, which provides real-time monitoring capabilities to optimize the energy consumption of thousands of machines across the site. It also enables profitable participation in demand response programs and can help to balance the grid, improving grid stability while reducing energy costs. And speaking of energy, the U.S. Bitcoin team brings outstanding energy sourcing, management, and hedging capabilities to new huts, significantly enhancing our ability to better plan around stable and predictable energy usage and mitigate fluctuating prices across markets. We look forward to the expected completion of the business combination in Q2 and beginning to work together as a team. I'm very proud of our team's commitment to operational excellence across the business and the trajectory of HUD-8. We look forward to continued success in 2023 as a further diversified digital asset mining, hosting, manage infrastructure operations, and high-performance computing organizations. Before I turn it over to Shanif Bisram, our CFO, who will review our key financial results, I would like to thank our board for their support and guidance, our executive team for their incredible leadership, and our team across the country for their execution across all of our business lines. I would also be remiss if I didn't take a minute to thank our investors for their continued commitment to HUD-8, 2022 is an incredibly dynamic time for Bitcoin and the broader industry, and your support of our organization is very much appreciated. Janice, over to you.

Thanks, Jamie, and good morning, everyone. Let's begin with the full year results for 2022. We achieved revenue of $150.7 million for the year, a $23.1 million decrease relative to the prior year of $173.8 million. This year over year decrease was driven by the reduction in price of Bitcoin, which more than offset the expansion of our Bitcoin mining fleet and incremental contributions from the high performance computing business we acquired in Q1 of 2022. Revenue from digital asset mining activities was $133 million as we mined 3,568 new Bitcoin. This compares to $165.4 million of digital asset mining revenue in 2021 when we mined 2,786 Bitcoin. We increased our mining production by 28% compared to 2021, and our average cost to mine each Bitcoin reduced by 7% relative to the prior year, reflecting more efficient miners deployed, partially offset by higher energy prices in the year. Our high-performance computing business contributed an additional $16.9 million of revenue in 2022, the majority of which is monthly recurring revenue. Cost of revenue for the year was $175.6 million compared to $85 million in the prior year and consists of depreciation and site operating costs. The increased depreciation expense from $23.3 million in 2021 to 93.9 million was driven by the increased number and overall cost of miners deployed during the year and $5.1 million of additional depreciation from the newly acquired HPC business. Site operating costs increased by 20.1 million to 81.8 million from 2021. Within the digital asset mining operation, site operating costs increased by $11.7 million consistent with our expansion of mining fleet and increased power costs. We incurred $8.4 million in operating costs related to the high-performance computing operation, all of which are incremental year over year. In terms of margin, our digital asset mining operation generated profit of $60.4 million versus $108.1 million in the prior year, reflecting the combination of lower Bitcoin prices, and increased electricity costs. General administration costs for the year were $49.8 million compared to $40.3 million in the prior year. The increase was primarily due to the combination of higher personnel costs, insurance premiums, and other costs largely in support of the high-performance computing line of business. We recorded a net loss of $242.8 million for the year, compared to a net loss of $72.7 million in the prior year. In the fourth quarter of 2022, the company conducted impairment testing of its three digital asset mining cash generating units, also known as CGU, Medicine Hat, Drumheller, and North Bay. Due to depressed digital mining economics, specifically the decline in price of Bitcoin throughout periods during the year ended December 31st, 2022, the company recorded an impairment charge on its digital asset mining CGUs. The difference between the pre-impairment carrying value and the recoverable amount of the company's digital asset mining CGUs is $98.6 million. In addition, due to Ethereum merge during the year ended December 31st, 2022, where the Ethereum network changed its consensus mechanism from proof of work to proof of stake, the company recorded an impairment charge on its GPU mining group assets as a result of being unable to find an alternative digital asset to mine with profitable mining economics. The difference between the pre-impairment carrying value and the recoverable amount of the company's CGU mining group of assets is $15.2 million. The combined impairment booked in 4Q 2022 was 113.9 million. As a reminder, this is a non-cash entry. Also impacting the net loss, we recorded a 134.8 million non-cash loss on the reevaluation of our digital assets as a result of a decrease in the price of Bitcoin. We incurred a non-cash gain of $98.8 million on reevaluation of our warrant liability compared to a $114.2 million non-cash loss in 2021. The remainder of the net loss was primarily driven by the lower revenue from digital asset mining operations and higher cost of revenue in 2022. Reflecting the operating results discussed previously, HUD 8 achieved adjusted EBITDA of $32 million for 2022 compared with $96.6 million in the prior year. Our balance sheet remains healthy with minimal debts and a cash balance of 30.5 million as at December 31st, 2022. On August 17th, 2022, we entered into an equity distribution agreement pursuant to which we established an at-the-market equity program with maximum proceeds of up to $200 million U.S., approximately 270.9 million Canadian. As of December 31, 2022, we raised $32.8 million U.S. net proceeds, approximately 44.1 million Canadian under this program. We have now seized issuance under the ATM program given the currently proposed business combination with U.S. BTC. Our Bitcoin holdings are marked at fair value and totaled $203.7 million as at December 31st, 2022, based on 9,086 Bitcoin held in reserve. I will now turn to our Q4 results and provide some additional commentary. Our fourth quarter results for 2022 were impacted by the reduction in Bitcoin prices and our ongoing dispute with Validus related to our North Bay mining facility where we stopped mining in mid-November. We achieved quarterly revenue of $21.8 million compared to $57.9 million in the prior year's quarter. Revenue was impacted by a substantial drop in Bitcoin prices. The average Bitcoin price in the quarter was approximately $24,600. compared to approximately $70,400 in the same quarter a year prior. We mined 698 Bitcoin this quarter, compared to 789 Bitcoin in Q4 2021. The reduction in mined Bitcoin is due to electrical issues at the Drumheller location and a higher than normal level of curtailing due to a sharp increase in power rates. We also generated $4.5 million in revenue from the high performance computing business in the quarter, while we generated $2.4 million in revenue from hosting during the same period in 2021. Cost of revenue was $45.2 million in Q4 2022 versus $27.3 million in Q4 2021. with the increase driven by increased depreciation expense as a result of our expanding our mining fleet. The cost of mining each Bitcoin for Q4 2022 was approximately $20,100 compared with approximately $22,800 in the same period a year ago. General and administrative expenses were $14.8 million for the fourth quarter versus $14.1 million in the prior year period. We had a reduction in sales tax due to lower purchases in Q4 compared to Q4 2021. This was offset by the inclusion of SG&A related to the HPC business. We reported a loss for the fourth quarter of $186.7 million compared to a loss of $99.1 million in the prior year's quarter. As previously discussed, we took an impairment charge of $113.9 million this quarter. In addition, we recorded a $37.2 million non-cash loss on the reevaluation of our digital assets as a result of a decrease in the price of Bitcoin. In Q4 2021, we booked a $114.2 million non-cash loss on the reevaluation of warrant liability. compared to a gain of $4.3 million in the current quarter. Adjusted EBITDA was a loss of $3.9 million versus a positive EBITDA of $35.3 million in the prior year's quarter. For the three months ended December 31st, 2022, adjusted EBITDA was negatively impacted by three factors. Firstly, the shutdown of North Bay mining site impacted our Bitcoin mind in the quarter. Secondly, we saw a sharp increase in power rates at our Drumheller site in the quarter, which resulted in lower profitability, higher than normal levels of curtailing, and fewer Bitcoin mined. Lastly, a further reduction of Bitcoin prices had a negative impact on our revenue and adjusted EBITDA. Our balance sheet remains healthy. We closed the year with $30.5 million in cash. Our debt continues to be relatively low. Our Bitcoin holdings are marked at fair value in total $203.6 million as of December 31st, 2022 with 9,086 of Bitcoin in custody. Thank you for joining us. With that, I will turn the call back to our operator for analyst Q&A.