HIVE Digital Technologies Ltd. (HIVE) Earnings Call Transcript & Summary

Powering the future of blockchain computing, HIVE Blockchain Technologies, the first crypto mining company launched in September of 2017. I am Frank Holmes, Executive Chairman, HIVE Blockchain Technologies, and I've been involved with the launch, the creation of HIVE back in 2017, and have seen an incredible rollercoaster ride, both surging and crashing and then the reborn, which I'm going to walk you through what's driving our success. So before I jump into that, I want to talk about -- I'm so often asked this question, what is the difference between Bitcoin and Ethereum? and let me explain to you from this 1-minute video. [Presentation]

So I hope that helps you understand the difference because HIVE Blockchain is the only crypto mining company that mines both Ethereum and Bitcoin. And that strategy of mining Ethereum you're going to discover has been extremely rewarding to the shareholders. But what's happened to this sort of ecosystem of shareholders that we have from retail to institutional? Well, what we found now recently in the past year, in particular, as Google searches, it shows up a sentiment, and there's lots of what funds that use for sentiment. And as you have to see people looking up crypto prices, that's usually pretty predictive that crypto prices will rise. If people all of a sudden get board and stop looking at the price than historically, then prices fall. So we've been using this as an interesting tool for you to understand that the Google searches for investing in crypto have been hitting an all-time high. Now I think as most fascinating is last year was 2020 that all the information was sort of focused on Bitcoin. Bitcoins list on the CME since December of 2017, when it hit $19,000. And last year, it was up 300%. Ethereum get much publicity. It was a 475%, but interesting enough this year in 2021, on February 8, it became also a futures contract, listened on the CME, like Bitcoin, and that has been growing rapidly, and we're seeing lots of hedge funds use that as a proxy to go in rather than buying new Ethereum coins on an exchange -- on the crypto exchange, they're buying the futures market to get representation. Now let me talk about this right. We had a phenomenal right of launching 2017 in 3 tranches. We raised $200 million. Institutions like Fidelity gave us $100 million. We deployed always green energy. We're focused originally in Iceland, mining Ethereum, then we went to Sweden with 20-megawatt facility and became the base industrial scale miner of Ethereum in the world. And then we went into Bitcoin mining. But what happened in 2018 was called the winter and we saw during that winter, lots of investigations, lots of negative news, especially from JPMorgans of the world. And crypto prices fell from $19,000 Bitcoin down to under $3,000, Ethereum from $1,400 down to under $100. And then we saw when JPMorgan announced that they are getting into the crypto space with a stable coin, which is very important because it uses Ethereum as its backbone of that infrastructure because, as you know, Ethereum is a smart contract. So all these stable points being announced by banks are going to use the Ethereum protocol, which is very bullish for demand for Ethereum. And so we saw the bottom take place and Ethereum prices rallied from under $100 to over $300 and fell back down. And it sort of went sideways, same thing with Bitcoin and Bitcoin also had a big rally, that summer when Facebook announced their Libra claim and it surged to $14,000, then it quickly fell back to $7,000 because the G20 Finance Ministers, central bankers became very worried about Facebook basically become the Central Bank of the world with a decentralized mechanism. So they turn around and pushed it back and Libra is now coming with a more sort of cooperative and collaborative approach with all these central banks. But really what took place last year in 2020 was May that having a Bitcoin and it's important for you to recognize when Bitcoin was launched over a decade ago, it was basically you were receiving a reward every 10 minutes that you validate a transaction, then you receive 50 new Bitcoins. And each 4 years, it has, so we're from 50 coins down to 25 coins, then it went to 12.5 coins and now with 6.25 points. So every 10 minutes, if you can have fast technology, you get a chance to validate the transaction, you receive new Bitcoins. So what's happened in this sort of journey is that we've seen a supply halved, and I've seen this one on gold. If the supply of gold did half from 100 million ounces produced a year to 50 million, gold would be at 10,000. So what we saw last year was all of a sudden, Bitcoin supply halved, and it only took about 6 months, they woke up and all that additional supply was being absorbed by the new addresses, very important concept is called Metcalfe's law. And what this visual is showing you is that we had these new wallets that hit 33 million new people trusting the ecosystem, very important concept because as you get more and more people trusting and that's where the currency is all about, do you trust the government, their policies, their government monitoring fiscal policies, basically the support for trust, and that's what behind paper money. But they print unlimited, whereas Bitcoin is basically limited to 21 million coins. And now we're seeing more and more people believe it then Metcalfe's law kicks in. And I've been asked so often, again, what is Metcalfe's law? And now, what explain to you. [Presentation]

Very important, as you see, that we've gone to 33 million believers globally with these 10,000 nodes around the world of a decentralized mechanism that everyone knows is going to cap at 21 million coins and you get enough believers that it has value. It becomes valuable. This has happened many times, so you can have an intangible asset class that becomes tangible because you have belief. So I think it's important for people to recognize that you are in a decentralized finance world. And that's growing, and this DeFi world is known, is also very important for the Ethereum market. So we see stable coins used, we're seeing DeFi and we're seeing now the nonfungible assets, all of a sudden coming out. They're all using the backbone of Ethereum, which makes the Ethereum a very important, unique, stable necessary cryptocurrency. So what happened also in 2020 was the adoption by PayPal, allowing users to sell, buy and hold cryptocurrencies. You can't buy stocks with PayPal. You can't trade a stock, but you can basically buy a Bitcoin and then sell it, and then you could use it to turn around and buy goods at Amazon. So this adoption process really accelerated the number of wallets and then we saw the competition heat up with Visa allowing partners to settle via transactions with crypto. Another important factor that basically caters to the exponential growth in pricing with Metcalfe's law. So I hope you understand that how Metcalfe's law functions, the adoption of Bitcoin and the adoption of Ethereum, the smart contract, is growing rapidly. But then what drives the stock prices like high? So the daily price option of Ethereum and Bitcoin drive most of the daily information that shows up in the stock price. But the other part, which gave us a great performance last year was our current Hashi power. And our current power was the highest. And with the Ethereum, the amount of ethereal we're producing was equipment to what has they call for Bitcoin. So what happens, you can see is that we're the most profitable company in 2020, crypto mining company. Now what's important is the future and on new machines that you're buying and how many new facilities for megawatts of production, you're going to be able to get electricity, green electricity is only for us and be able to get it inexpensively to be able to mine. So the market is paying for future growth. Now what happened uniquely with us is to try to articulate this better-for-you to understand. The growth in DeFi increased the transaction fees. In fact, you earn more on transaction fees than you do validating an Ethereum contract. You basically get 2.3 for validating a transaction versus all of a sudden, validating a brand-new Ethereum, you're going to get 2 Ethereum. So the math is really interesting is that as DeFi exploded last year, we can see here in red, is the revenue growth exploded for us in the summer months and you can see in October, November, December, it slowed down. And then this year, in the year 2021 in the first quarter, it's been a huge win for HIVE Blockchain Technologies. Our transaction fees have been very, very important to us. So this is another way of looking at the significance that in the summer, we produced 32,000 coins, a lot came from validating these transactions and then those transactions that business slowed down in the fourth quarter of 2020 and our production slowed down, but then they picked up in the last quarter. So when we look at crypto, we look at HIVE Blockchain Technology, it's so important to respect the DNA of volatility. And what shocks a lot of people is gold. Gold, as you can see in this visual is at the very bottom, it's the least volatile. And what's most volatile is Tesla. On any 1-day basis, Tesla is equal to Ethereum, that is they can go up or down 6% is the normal DNA volatility. Bitcoin is 4%, but over 10 trading days, Tesla wins. So Tesla, now part of the S&P 500 is more volatile. And that's what happens when you have the adoption of a new industry, the adoption of the electric cars, just like the adoption of decentralized financing and using Ethereum is this brand-new idea of more people coming in to adopt to it, you're getting greater volatility. But I believe that as we go through 100 million people around the world, then the volatility will probably drop. But meet HIVE Blockchain Technologies, the first public infrastructure company, September 2017, it's providing shareholders with exposure to digital mining and a portfolio of crypto coins because we always own Bitcoin, Ethereum on our balance sheet. And that was part of our original vision in launching this company. And we had many gold investors use HIVE as a proxy. They were reluctant to go to a crypto exchange with all the negative narrative in the media about hackers. So HIVE Blockchain became the way to -- as a proxy for you to participate, then now we trade 100% correlation daily with the Ethereum and Bitcoin price action, in fact, even by the hour. So last share was a phenomenal year, as we saw earlier that Bitcoin was up approximately 300%, Ethereum was up 475% but HIVE was up 2,400%. And why is that because of the huge torque we had in growth in revenue and the growth in cash flow, which we showed up in our financials. There's another way of looking at the growth, when you look at the Bloomberg Galaxy Crypto Index, which is up 277%, we outperformed NASDAQ. We outperformed the S&P composite TSX Ventures Index and we outperformed the Bloomberg Galaxy Crypto index. So HIVE has clearly become a proxy for both crypto mining investors and those that are gold investors, we know globally that we have 100,000 shareholders in 80 countries. So also, we found that HIVE ranks higher than competitors, we ranked #4 is the best 50 OTC QX stocks listed, we were ahead of Grayscale's Bitcoin Trust, which is ranked 29 and HIVE 8 mining was #11. We were #4, most liquid stock trading in the U.S. on the over-the-counter market. But in Canada, we traded an astounding 1.7 billion shares. So clearly, very liquid. It's another visual representation. I'm showing you that in 2019, we traded over 0.5 billion shares. And then we exploded in trading around the world, over 1 point -- over 2.4 billion shares. Why is that? Keep coming back to digital currency mining income, $13.7 million, up 174% year-over-year, gross mining margins $10.6 million up from $5.7 million, net income, $0.05 a share from $0.01. Working capital is $23 million. And now at the end of March, we've made representations that our Ethereum coin holdings now have exploded this past quarter. And it's -- our value is over $60 million of working capital and cash is also pushing another close to $36 million. So we have $100 million of liquidity. Bitcoining mining by HIVE, as you can see, in the first quarter of last year until we made the acquisition in Québec, Canada. We were not producing any Bitcoin mining, and then we put on 153 coins, then it dropped because of the having, and then we bought more machines, and we expanded our footprint. So now we're producing more Bitcoins. Now looking for future growth, Bitcoin mining capacity. We're building it up. As you can see, we're ranked here #4. I think we're pushing up to when you include Ethereum, we'd be equivalent to be ranked #3 for fastest growth. But I think on a per share basis, we will have the greatest growth because companies like MARA have gone from less than 10 million to over 80 million shares outstanding. [indiscernible] gone from 25 million over 75 million, and HIVE has barely gone up a 15% number of shares outstanding over the past year. So where it's a big risk for this industry? It's getting equipment on a timely basis, and that's been -- Bitmain is the biggest producer of it. There's been a dispute with management and controlling shareholders. I believe that's being resolved, which is great for the industry. But we know from last year, several of our Bitmain equipment was delayed and disappointment and getting to us. So that's one reason why we diversify in our providers for other equipment so that we can mine Bitcoin. We've had incredible representation, especially Motley Fools, where they said BlackBerry or HIVE stock, why HIVE is a better buy and I think that for investors, what we've seen is a long-term HIVE shareholder. He's a brilliant energy analyst or Germany, Lukas Schubert, and he's done a great approach of explaining every day, the basket of all the crypto mining stocks and it's another visual, and he shows you that based on operating margins today and what the potential in the future is, who's the most profitable? Currently, it is HIVE in the future. It looks like MARA will be bringing on a right more machines. But stay tuned to our vision because right now, if we were at full production, our revenue would be over $300 million, up from $100 million. And we'd be having cash flow well over $200 million. But that's a pro forma. That's forward-looking, and it's always got risk with associated with it. But how much power does it take to create a Bitcoin, it's different. And there's lots of negative news out there on Bitcoin mining. But I can share with you that most of the real bad coal energy is coming out of China and Kazakhstan. So the Chinese are the dominant players in mining in Inter Mongolia. We, at HIVE are only green energy and only inexpensive energy. We've been very focused on having a very strong ESG footprint. Low cost energy, low temperatures, fast Internet connections and our software is state of the art, where we can basically use 20 megawatts of energy go down to 1 megawatt during peak periods in the morning and late in the evening, in Sweden. So there's no big demand from the local areas as the economy is booming, and it's worked out wonderfully. We're exploring how we can fast-track to develop own greenhouses so we can take those 10,000 hair dryers I'd like to use as an example and use that heat to recycle in a greenhouse in Northern Sweden, which is only a short distance from the Arctic Circle, where you would have to have food shift up particular produce, carrots and tomatoes and lettuce from Spain and from Italy, we'd be able to grow it in Northern Sweden with our own greenhouse. So that's how we're looking at. We're fossil fuel free. We are using -- we'll also use solar energy, and we'll use recyclable wind energy, but we like right now geothermal in Iceland and hydroelectricity in Québec, Canada, in New Brunswick, Canada and also in Northern Sweden. This is an image of showing where we are, close to the Arctic circle, and this is another visual that who's up there in this areas Facebook. And so is Google with massive facilities because of the inexpensive electricity, which is a surplus in Northern Sweden. This is Boden, as you can see, it's pretty in the summer and the winter is gorgeous. HIVE Blockchain, please, I recommend you go to our website and subscribe to our our letters and go to YouTube and type HIVE Blockchain and become a subscriber and see some of the great content. We provided very short, high-impact information explained to the industry and how we're trying to explain definitions and where we are positioned in this crypto industry. Thank you for listening to me, ladies and gentlemen. And hopefully, you find this enjoyable and useful and become a shareholder of HIVE Blockchain. Thank you.