HIVE Digital Technologies Ltd.

Hello, everyone, and welcome to today's webcast reviewing Hive Digital Technologies financial results for the first quarter ended June 30th, 2023. On slide number two, I would like to briefly note disclosures. Except for statements of historical fact, this presentation contains forward-looking information within the meaning of the applicable Canadian and U.S. securities regulations. These forward-looking statements are based on expectations, estimates, and assumptions as of the date of this presentation. On the next slide, I'm pleased to introduce today's presenters, Frank Holmes, Executive Chairman, Aidan Killick, President and CEO, and Darcy Dubaris, Chief Financial Officer. I would now like to hand the presentation over to Mr. Frank Holmes for a macro recap of the quarter. Frank?

Thank you, Holly. And thank you all of our loyal shareholders. I hope you find this informative, timely, and a little bit entertaining like this DNA of volatility, which I really like to always use as a case study opportunity. that every asset class has its own DNA of volatility. And what I thought was really surprised is looking at Hive, over 10 days is 26%. In over a month, rolling 20 days, it pushes 50% volatility. And I find that just incredible. But we've become a proxy for so many gold investors at the beginning. And then along comes crypto investors, especially those who are interested in the adoption, but they're reluctant after blowups like Celsius and FTX. Hive has become that proxy. So Please, when you look to invest in Hive, recognize that the DNA of volatility is six times that of gold, of the S&P 500, and substantially over any 10-day period. So the idea of buy the dip is wisely thought through here. now what's also interesting to us is that it appears a quant fund maybe a citadel or someone else that the the crypto stocks trade is a basket by the minute uh i do not believe that retail people jump in and out collectively like this but uh the correlations as you can see are very very high um hive is at 0.86 uh to riot is 0.96 to bit farms To HUT 8, it's 0.94. And I just think to Bitcoin, as you can see, Hive has this very strong correlation. The next one is to show you that we do offer like gold stocks, high-quality gold stocks due to the price of gold, that they give you two to three times the leverage on the upside, but they also give it to you on the chin on the downside on corrections. This is showing over year-to-date, and it's quite significant, gold surged to mid-July up to 81%. Gold this year was only up 7%. The S&P was up 17%, but Hive was up 315%. So it has done a positive 12-month rate of return, especially because of the rebound this year. Live Digital Technologies debuts a new name and strategic expansion to power the future of the artificial intelligence with its NVIDIA GPU cards. When we bought our NVIDIA cards, we bought them with a card that was not just mining Ethereum, but had the capacity to grow as we've Over three years ago, we started this journey of building out a B2B AI functionality using our chips. And so it's really come to fruition and quickly picked up the speed with the chat GBT. But I think that's what's interesting is that several of our peers bought NVIDIA chips, but they were single-purpose. Ours are not. Now, when it comes to this new space, it is very complex. And I've noticed several of our peers jumping in, making announcements, et cetera. But it is – Hive is the only one that has experience of mining with GPU chips. and branching out into offering AI services. And when you mine for Bitcoin, it's really simple. The quality of the chip, is it new? Is it more efficient on the energy consumption per hour? And you plug it in and you run it and you need a few people in managing a facility. When it comes to a data center where you're using for AI, it's much more complex. And I want to give you a simple metaphor I've learned on this journey. It's like going to McDonald's with three to four kids in the car, and you're trying to order, do you want a Happy Meal, do you want a Super Fries, what do you want, et cetera. And so when you go into this space, of artificial intelligence, those that want to use our services, they will look at, well, what type of short-term memory RAM do you have? We'll pay an extra 10 cents a minute. Long-term memory, we'll pay 8 cents a minute. Oh, this chip of 840, okay, we'll give you 70 cents a minute. 6,000, okay, we're going to give you $1.20 a minute. And so each client and each user is looking at a host of of services that you have to provide in this space. And to me, it was just such an interesting learning curve that it reminded me of this B2B business strategy is not easy and it is complex. And so investors have to recognize that very few people, except for pure data center providers, have this skill set. Hive does, and Hive has over six years of experience in GPU mining. So let me give you a macro recap of things that I think are important in the crypto ecosystem. Bitcoin is a decentralized portable wealth. And I always get concerned when I've seen this in the gold space that using J.P. Morgan's quote, which is here, J.P. Morgan said, gold is money and everything else is credit. Well, this is before the U.S. government basically changed the rules in 1933 and only allowed America's own numismatics. This is before the GLD ETF. Today, I am sure Jimmy Diamond would never say this because governments and the Bank of International Settlements get really upset that gold is not money, that gold is a wealth, an alternative asset class and wealth. And I think that that's as important. So is Bitcoin. Bitcoin is portable digital wealth. And that's what's really important to see how the adoption and Bitcoin has validated the ecosystem that's ushered in so many countries now trying to come up with their own central bank money. And I think that that's what's important for investors to recognize that transition. But let's talk about this. Let's talk about something that I've learned in my journey as a top-ranked gold fund manager and recognize that it's all about government policy. It doesn't matter if it's a Democrat or Republican at the helm. It doesn't matter who the prime minister of the country is. The responsibilities when you're that leader is basically fiscal policy. And what's interesting is the internet bifurcation to zeros and ones. And when you look at government policy, it also keeps this binomial model that is monetary or fiscal. And monetary are real interest rates and money supply. They have a big impact on the overall currency. And so do fiscal policies. Where is taxation going and regulations? And then where's the spending going? And historically, whenever there's a big imbalance between any country's monetary and fiscal policy, or you can get what's called monetary drag or fiscal policy drag due to regulations they're implementing, then gold becomes, on a historical basis, an important asset class to balance that. And Bitcoin has now taken over, this is important with millennials in particular, as their choice as the balancing factor between the imbalance between monetary and fiscal policy. When you understand that, you get a better appreciation. It's not just political parties, it's policies. so what i do believe in a macro trend that's happened this material this week is paypal's announcement and and this just really impacts the global adoption of bitcoin uh and the crypto ecosystem when paypal launches a stable coin it's to over 400 million global accounts uh That's not as big as when Facebook came out with its Libra coin, and there was such a big backlash by the Bank of International Settlements and the G20 central bankers and finance ministers that did a real pile-on to Facebook. It ended up being so damaged by it, they lost hundreds of millions of dollars, and they ended up changing their name. And I think it's sort of an interesting exercise to It's different today. I wish that the government had created policies and some basic framework for the crypto ecosystem, because that will still become a concern. But PayPal is already in digital payments. They already have a global footprint and a strong reputation. And so now after the Ripple lawsuit, the win by Ripple against the SEC gives them a new confidence to come out with this. And I think it just helps with the global adoption. I do believe... that the crackdown by the SEC was a huge speed bump to the adoption. And in particular, because it became so political with Sam Bankman-Fried and his FTX implosion and Celsius CEO getting arrested and put away in jail. I think these things are all part of a slowdown to the adoption, and now PayPal feels more comfortable, and this is important for the overall adoption. Coupled with, and very significant, they must have got a phone call with BlackRock, coming out with feeling confident enough that only six months ago had nothing but basically trash talk towards Bitcoin and the ecosystem and now is in full support of it and is trying to fast track their own spot Bitcoin ETF. So I think these are all positive parts in this global adoption process. But let's talk about Hive and how we've been the first. And we look upon ourselves as being a technology company. And we're the first to go public in Canada in September 2017. We were first to buy data centers. We were first to go and balance electrical grid. We were first to develop our own ASIC mining rig with Intel chips. And then we were first to have a green energy focus and first to have an AI strategy in how we were buying our GPU chips. And our last big purchase were not – which we originally had were AMD chips – This has been now pivoting over 18 months ago, buying NVIDIA chips to fast-track our ability to build out our data centers for AI. The leadership team, it's small. It's a small team. The CEO and president is Aydin Kilik, who's an electrical engineer. We have Darcy DeBarris, who's a CFO, has probably the longest standing experience as a CFO of a public company in the crypto data center business. Johanna Thorblad, who is the president of Sweden, and Gabriel Ibge, who's our general counsel. Hive is green energy focused in Canada, Iceland, and Sweden. five is a community commitment which we've done in at sponsoring the hive arena to because hockey is such a key element and the funding of 12 kids hockey teams uh is important so kids are not on the street kids are out being active and and this is a community that has three players that have gone on to go into the NHL and win Stanley Cup. So it's a very proud small community, and we're so happy and proud to be able to be involved in that community. Also, our vision in that community is to provide food security to the local communities, take away a global footprint from having to ship produce from Spain and Italy. And the vision is building up a 95,000 square foot greenhouse and taking the heat away. from our facility and recycling that to have a huge production of vegetables. We are successfully recycling heat in La Chute, Montreal, where we heat a building five times – sorry, four times the – see, five times the size, because one building is about 40,000 square feet where we're mining Bitcoin, and we've been able to heat during the winter a building – 200,000 square feet. So the capital structure of Hive, this visual of AI relates to the name change and the rebranding, which we focused in particular Canada as a rebranding. The ticker stays the same except for on the German exchange, it changed to VOO.F. We have a very tight float. We have been very, very conscientious of doing everything to have the highest cash flow return on investment capital. Revenue for the last four quarters. Darcy is going to give you more granularity in the presentation. But as you can see, it does follow Bitcoin price is a big impact. Now, we have been challenged, the whole industry, by more people mining Bitcoin, which is very rare that you would see Bitcoin prices fall over the past 12 months and finally rebound, but that more people would enter the business. And so the thought process of companies like Bitmain, who is one of the biggest manufacturers of ASIC chips, are growing. actually co-hosting and mining uh to get their capital back faster and and they've driven up uh the competition and the other parts of countries in desperate of us dollars uh have with low-cost energy have been mining bitcoin But all I do know is that America has become the dominant player in this ecosystem and leaders in the innovation. So I'm very happy to be involved in that sort of growth profile. But through this whole journey since 2017, Hive has always had a very low SG&A per Bitcoin mined. As you can see, that means minimum dilution, how we issue stock options, how many employees we have. I believe we have the highest revenue per employee against this whole system. We have a very low fixed debt on our balance sheet. We do not pledge any of our equipment. And so you've seen some of these other countries blow up and implode because of these debt structures from Core Scientific, who is the biggest. It ends up imploding. Argo implodes. So we can see that this idea of having a very conservative balance sheet, because I mentioned earlier my experience in the gold industry, when you have a high volatile asset class, then you have to be very conscientious of your debt structure and what you collateralize against. So for your shareholders, we give you the biggest bang for your buck. Hash rate utilization, Hive continues by Anthony Power to be able to give you a very high rate hash rate utilization. And that's because of the team of how they function every day from daily meetings early in the morning from the West Coast to make sure they touch base with everyone in Sweden before they slow down. at 4 o'clock in the afternoon and 7 o'clock in the morning in Vancouver. Every day is a scrum call. Every day is a know-what machines, any challenges or difficulties, and take things offline so that we can help and huddle and find solutions to problems. That's led to this incredible hash rate utilization. Our Bitcoin production per exahash, we're right there. It always seems to be one, two, and three. Interesting enough, Bitcoin is very strong in Canada and have expanded into Latin America, and they have a great team. We can see the share price growth in the last 30 days. We do, Aydin's going to go into greater detail of showing you. The amount of dilution, though, that's taken place with the financing that's been done or the stock issuance in the SG&A is much higher for many of these other companies. So I think I'm proud to see that we've seen as Bitcoin went to 31,000, we with our AI strategy and the rebranding to high digital and our strategy there has seen good shareholder support. I have always believed that green and clean Bitcoins would over time become more valuable as a digital asset because the supply is capped at 21 million coins. Like any raw art, I have said when supply is capped and adoption expands over time, the value of its prints have gone up substantially. Now with the explosion in ordinals, we are experiencing new growth in special number Satoshis. And Aydin is going to go through in greater detail, but I think it's really important to explain to the shareholders that the utility of Bitcoin was long limited to storing and transferring value with minimal developer activity on the network. The developers were all focused on Ethereum when it was proof of work, and now it's gone on to proof of stake. So it's sort of interesting to see that these developers are going to the Bitcoin infrastructure. Now, the emergence of Bitcoin DeFi launched protocols like Wrapped Bitcoin, WBTC, Stacks, STX, and Rootstock, RBTC, brought crypto borrowing and lending to the Bitcoin network. opening up new cases for the cryptocurrency. Now the arrival this year of Ordinals, the protocol, has expanded the utility of the Bitcoin network even further. The Ordinal protocol enables developers and artists to create and store digital artifacts directly on the Bitcoin blockchain. The protocol has been a massive hit with over 100,000 ordinals already minted. The introduction of the technology has caused Bitcoin metrics to skyrocket with a number of non-zero Bitcoin addresses hitting a record 44 million following the launch of ordinals. Already, Bitcoin's block sizes have also increased, touching an all-time high of 2.5 megawatts on February 12th. And I think that so what the Bitcoin Ordinals and why they're causing such a stir earlier this year is the Ordinals protocol allows users to send and receive sats that carry optional extra data such as text, JPEGs, audio, and videos. Adding such data to a Satoshi is known as inscription, and the result has been considered a Bitcoin NFT or called an ordinal. Well, nearly 100,000 inscribed Satoshis have been minted since the launch of the Ordinal Protocol, including the collection of Ordinal Punks and Ordinal Penguins and Bitcoin Offshoots and popular NFT collections. It's important to note that Ordinals are only possible thanks to the witness section of the Bitcoin transactions that was introduced after the Taproot soft fork in 2021. This is where JPEG's audio files and videos are inscribed into the individual sats. Bitcoin ordinals can be considered NFTs, but they have some significant differences. Most NFTs are created and tracked through a smart contract with the assets they represented hosted elsewhere. In contrast, Ordinals are inscribed into the Satoshi, and therefore Bitcoin NFTs are stored on-chain. Traditional NFTs usually have metadata that allow creators to change the appearance and characteristics of an NFT, but since ordinals are stored on-chain, their data is immutable and cannot be changed. Also, unlike NFTs, ordinals do not provide traders with the option to receive royalties on subsequent sales. In short, ordinals are immutable and complete digital artifacts that cannot be tampered with and reside completely on the chain. So it's an important innovation. You're seeing money being created for two things to basically fast track the adoption into what in addition to what PayPal has been doing, it is the lightning network so they can get down the cost of transactions. and the idea of funding more culture, more artists, more bootstrap funding as now getting VC funding to attract developers into this ecosystem and really embrace art. Art is such a key component for global adoption in the space. So innovation, as we can see, the daily inscriptions I mentioned earlier exploded earlier this year. They've papered off, and I think we're going to see other waves coming. Bitcoin ordinals innovation. One Bitcoin is 100 million satoshis. And what I'm just going to talk about is that what we found is that something that's worth next to less than a penny, all of a sudden, if they're at an inflection point with a limited supply, that they're uncommon, they can become extremely valuable. And so I think it's important that you listen to what Iden as he goes through, gives you more granularity on this macro trend. But now I want to turn it over to a snapshot of financial growth by Darcy, our CFO. Thank you, everyone.

Thank you, Frank. As usual around this time of the presentation, I will be taking you through a snapshot of the part year, looking at the most recently completed quarter and some indicators. Next slide, please. First of all, I'd like to remind our listeners that our earnings are comprised of our operational earnings plus our investment earnings, which includes realized and unrealized earnings, a lot of which include non-cash charges. Mark-to-market and accounting is an accounting practice that involves – actually, we can take it to the next slide. There we go. Mark-to-market is an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions. Market value is determined based on what a company would get for the asset if it was sold at that point in time. Mark-to-market losses are paper losses generated through an accounting entry rather than the actual sale of the security. Swings in digital assets impact paper profits and losses each quarter. So our Bitcoin digital assets do generate unrealized gains and losses each quarter, depending on the price of Bitcoin compared to the prior reported period. And it's important that investors understand the differences in operating earnings or losses in addition to mark-to-market paper gains and losses each quarter, as it can swing the results drastically. Non-cash charge. is a write-down or accounting expense that does not involve a cash payment. Depreciation, amortization, depletion, stock-based compensation, and asset impairments are common non-cash charges that reduce earnings but not cash flows. Next slide, please. During this most recently completed quarter of June 30th, 2023, we recorded $23.6 million of revenue and 5.3 million in adjusted EBITDA. This was driven by production of 834 Bitcoin equivalent mined at an average cost of 18,687 US dollars per Bitcoin. Turning to the next slide, our cash position stood at 4.5 million at June 30th, 2023, along with an additional 59.5 million in Bitcoin digital currencies. We also had $9 million in amounts receivable and prepaid. Amounts receivable mainly consisted of sales tax receivables this quarter. The market value of our strategic investments decreased during the quarter by approximately $630,000 as a result of the mark-to-market accounting spoken about, bringing it to $2.2 million. We did not acquire or dispose of any investments during this period. We maintain a strong net cash position and healthy working capital to fund our operations and growth. Going on to the next slide. Our Bitcoin holdings at June 30th, 2023 was 1,957 Bitcoin down from the June 2022 month end period of 3,231. We have strategically sold some of our Bitcoin over this quarter to invest in higher efficiency ASIC machines to get prepared for the halvening in the first half of 2024. And also using these funds to invest in high performance computing equipment. Next slide, please. Our gross operating margin, which equates to our total revenues minus direct operating and maintenance costs, decreased in absolute dollars to $8 million or 34% in the most recent quarter compared to $27 million or 61% in the prior year comparative quarter. Gross mining margin is also partially dependent on various external network factors, including the high mining difficulty we continue to experience. the amount of digital currency rewards miners receive, and the market price of the digital currencies at the time of mining, which are on average lower than the prior comparative period. In addition, the company is no longer mining Ethereum since the merge took place on September 14, 2022, which has contributed to the decrease in gross revenue from digital currency mining by approximately 47%, but operating costs decreased by only 9%. In this most recent quarter, we are reporting a loss of $0.19 per share compared to a net loss of $1.41 per share reported in Q1 last year. Taking a look at our year-over-year revenue on the next slide, we generated total revenue in the first quarter of fiscal 2024 of $23.6 million versus $44.2 million in the prior year fourth quarter. The decrease in revenues versus the same quarter in fiscal 2023 can be attributable to three main headlines, and these might sound familiar. The ever-increasing Bitcoin difficulty hash rates over the past year, the significant drop in the price of Bitcoin, and to an extent, the Ethereum merge in September 15, 2022, as this quarter and operations moving forward does not include any Ethereum revenues. This triple punch contributed strongly to the significant drop in revenues that we experienced. As mentioned previously, our gross mining margin, which equates to our revenues minus direct operating and maintenance costs, decreased in absolute dollars to $8 million in the most recent quarter compared to $27 million in the prior year comparative. Moving on to the next slide, comparing our current fiscal Q1 quarter to the previous Q4 quarter, We generated revenue in this first quarter of fiscal 2024 of $23.6 million versus $18.2 million in the previous quarter. The increase in revenues versus the prior quarter was impacted by a stronger price of Bitcoin and 42 more Bitcoin mined this quarter. As the Ethereum merge took place on September 14th, 2022, which was in Q2 2023 of our reporting cycle, neither of these quarters had any Ethereum mining revenues. Our gross mining margin increased in absolute dollars to $8 million in the most recent quarter compared to $4 million in the prior quarter comparative. Increase in gross mining margin versus the prior quarter was impacted for the same reasons as stated above for revenues. Operating and maintenance costs only marginally increased by 9%. Moving on to the next slide. Our adjusted EBITDA increased in this first quarter of fiscal 2024 to positive 5.3 million versus a negative adjusted EBITDA of 1.4 million in the prior quarter. I will highlight again that adjusted EBITDA is a non-IFRS figure. In the first quarter of fiscal 2024, we experienced a loss of $16.3 million compared to a profit of $6.6 million in the prior quarter. The main reason for the profit in the prior quarter and loss in the current quarter, other than the reasons mentioned earlier, is the increase in Bitcoin price in Q4 2023, leading to a significant drop revaluation of digital currencies gain, whereas the BTC price did not fluctuate too much in the current period. I'd like to thank our loyal stakeholders, and at this time, I would like to turn the presentation over to our CEO and President, Aydin Kilik. Aydin?