Earnings Call Transcript - HIVE Q3 2025

Operator, Operator

Hello, everyone. Welcome to today's webcast on HIVE Digital Technologies Financial Results for the Quarter Ended December 31, 2024. My name is Nathan Fast, I'm the Director of Marketing and Branding at HIVE, and I'll be your moderator for today's call. Before we get started on Slide 2, I would like to briefly note the disclosures for today's presentation. 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. Further, in addition to discussing results that are calculated in accordance with International Financial Reporting Standards or IFRS, we will also make references to certain non-IFRS financial measures, such as adjusted EBITDA. For more detailed information on our non-IFRS financial measures, please refer to our Management's Discussion and Analysis of our financial results that was published earlier today, which can also be found on our Investor Relations website. On the next slide, I'm pleased to introduce today's presenters, Frank Holmes, Executive Chairman; Aydin Kilic, President and CEO; and Darcy Daubaras, Chief Financial Officer. I would now like to hand the presentation over to Mr. Frank Holmes for a macro recap of the quarter. Frank?

Frank Holmes, Executive Chairman

Thank you, Nathan, and welcome to the team. Before diving into the details of the financials and various factors we consider, I want to outline the broader context driving this industry and highlight some significant events from the past three months. It's essential to comprehend the nature of volatility in the market and the necessity of managing expectations. When we analyze the visual representation, we see that a standard deviation indicates an event occurs nearly 70% of the time. For the S&P 500, a 1% move in a day is typical, and over ten days, it translates to 2%. In Bitcoin's case, its volatility shows that 70% of the time, it fluctuates by 3% daily, which adds up to 8% over ten days. We can also observe that emerging stocks, especially those linked to AI and GPU chip developments, demonstrate increased volatility. For example, Nvidia shows a daily fluctuation similar to Bitcoin, but over ten days, it can vary by as much as 10%. Tesla showcases even higher volatility with daily changes around 4% and 13% over ten days. HIVE Digital experiences a daily variation of 6% and 17% across ten days. MicroStrategy exhibits the highest speculative volatility, with daily fluctuations of 7%, more than double that of Bitcoin, and three times greater over ten days. Understanding the nature of volatility is crucial before making any investment in these diverse asset classes. Often we hear phrases like "buy the dip" and "HODL," which are prevalent across social media platforms. However, this enthusiasm is not reflected in other stocks or coins outside this ecosystem. This evolving crypto environment is akin to a new metaverse that has transitioned from gaming to a global crypto ecosystem. There are currently 194 countries, but over 20,000 nodes are busy validating the Bitcoin network worldwide. So, what does "buy the dip, stock, and HODL" imply? If Bitcoin drops more than 3% in a day, it could be an opportune moment to buy, and the same applies for HIVE if it falls more than 6%. For traders, a 3% increase in Bitcoin or a 6% rise in HIVE might present a chance to take some profits. HIVE and Bitcoin share a high correlation, moving in sync like a flock of birds. Interestingly, I've engaged with registered investment advisors entering the ecosystem in pursuit of Bitcoin ETFs, and many are unfamiliar with simple calculations. For instance, one Bitcoin equals 100 million satoshis. If you purchase $1,000 of Bitcoin through platforms like Robinhood, you're effectively acquiring about a million satoshis. It's vital to understand that if a satoshi is valued at a penny, then one Bitcoin is worth a million dollars. This is crucial because I believe Bitcoin has the potential to reach $1 million faster than expected with increasing adoption. This adoption can take various forms, which I'll detail shortly. HIVE has been offered unique satoshi numbers of higher value tied to significant dates, illustrating how certain satoshis can command exceptional worth. When Bitcoin is trading near $97,000 today, one satoshi is just under a cent. As Bitcoin approaches $1 million, satoshis will likewise be worth a penny. The next visualization demonstrates that investing $1,000 when Bitcoin is at $100,000 allows you to buy one million satoshis. This illustrates the global adoption associated with Bitcoin ETFs. For example, buying into the HODL ETF for $1,000 should get you close to one million satoshis. Many registered investment advisors are not aware of these details. When the supply is capped at 21 million coins, and adoption occurs, what we call Metcalfe's law can lead to exponential price increases. Under Metcalfe's law, when Bitcoin reaches the million-dollar mark, satoshis will be valued at a penny. Transitioning to recent developments, last July saw President Trump address a packed audience and express his understanding and embrace of Bitcoin, highlighting its importance in terms of freedom and property rights. It's critical to note that the crypto ecosystem has contributed significant funding to congressional races, resulting in the election of several pro-crypto lawmakers. This signals a new era for U.S. digital asset policy. Trump's executive order reveals a commitment to crypto, with swift moves expected in the coming two years. Recent fluctuations in Bitcoin prices illustrate the dynamic market conditions we’re in. Observations from around the globe, such as Argentina’s executive decisions to curtail government expenditure, indicate broader changes that could impact the crypto landscape. As Trump promotes blockchain and cryptocurrency mining, he's positioning the U.S. dollar favorably by supporting stablecoins and streamlining regulations for the crypto industry, aiming to turn the U.S. into the world’s crypto capital. The SEC's crypto task force now has leadership that supports crypto advancements. All these transitions have given HIVE the ability and confidence to relocate its headquarters from Vancouver to San Antonio and initiate an audit process for GAAP compliance, which Darcy will elaborate on. Being in a pro-crypto environment like San Antonio enhances our operational security. Additionally, Trump appointed David Sacks, a former PayPal executive, as the AI and Crypto Czar to reshape U.S. policy on digital currency following Bitcoin's recent surge past $100,000. Despite tariff discussions introducing some noise, I view these as opportunities. The auditing potential through blockchain could streamline oversight of U.S. aid and address issues of fund misallocation in foreign assistance. Next, let’s examine Bitcoin’s trading. Remember that Bitcoin operates independently without a CEO or board, driven by global participants. HIVE was the first crypto mining company to go public, seizing the early opportunities as Bitcoin's trading volume expands to around $42 billion daily. This signifies the rising influence of Bitcoin compared to traditional financial institutions like JP Morgan, which often criticize the Bitcoin ecosystem due to their desire to control financial transactions and associated fees. Bitcoin's daily trading volume is growing and is poised to outpace traditional firms like JP Morgan and possibly Apple as adoption escalates. It's essential to understand technological principles such as Moore’s Law and Metcalfe’s Law when considering investments in equipment or technology associated with Bitcoin and AI, as these will shape future developments. Reflecting on the timeline, I attempted to launch a Bitcoin ETF in 2017 but shifted focus to founding HIVE. BlackRock successfully launched its Bitcoin ETF last January, marking a significant milestone with $120 billion in assets now in Bitcoin ETFs, with a substantial portion from BlackRock. The recent adoption is exemplified by Costco now accepting Bitcoin in all its stores. In Paraguay, we are strengthening our ties with President Santiago Peña, who has a solid economic background and a favorable bond rating. Paraguay’s leadership, alongside pro-American stances, highlights its potential in the crypto ecosystem, particularly due to its abundant renewable energy resources, which benefit our Bitcoin mining operations. A key recent development for HIVE is the acquisition of Bitfarms facilities, which will significantly boost our operations in Paraguay. This expansion is set to grow our mining capacity from 6 exahashes to 25 exahashes, positioning us strongly in the market. As this unfolds, we are also laying the groundwork for potential inclusion in major index funds, which could enhance our visibility and market strength. Research coverage for HIVE has increased considerably, with new analysts joining the fold and issuing price targets indicating significant growth potential. With our model as a data center business, we are poised for substantial financial growth, enhancing our value proposition dramatically. In summary, HIVE’s move to San Antonio aligns with the America First agenda, facilitating operational efficiency and transitioning to transparent U.S. GAAP reporting. I encourage interested investors to visit us in Texas during our retail investor day and ribbon-cutting ceremony. Now I'll turn the presentation over to our CEO and President, Aydin Kilic, for further insights into our financial operations and value proposition, followed by our CFO, Darcy Daubaras, for a detailed financial analysis.

Aydin Kilic, President and CEO

Thank you, Frank, for that introduction. It provided an excellent overview of the industry. Now, let’s take a closer look at HIVE’s executive summary highlights for this quarter. It was a strong quarter for us, achieving $29 million in revenue and a gross operating margin of $6.1 million, resulting in a 21% operating margin. Additionally, we reported $17.3 million of adjusted EBITDA and mined 2,805 Bitcoin using green, clean energy, with no debt associated with those assets. I am also proud to share that we achieved an annualized return on invested capital (ROIC) of 37% this quarter, which is exceptional and leads the entire industry. We will later review some comparison charts to see how we perform relative to peers. HIVE is currently the best value in Bitcoin investments. For every HIVE share purchased, investors are receiving 78% Bitcoin per share. We will also present a comparison table prepared by VanEck that highlights our leading position in the sector. Smart investors are now recognizing that HIVE offers the best value proposition for Bitcoin exposure with the highest growth rate in the sector and the best ROIC, which we will further elaborate on in the next slide. So, how have we achieved this? It’s through our unique growth strategy, where we prioritize ROIC in our capital deployment. In January, our HODL was 2,657 Bitcoin, and we strategically sold some Bitcoin to finance the acquisition of the Bitfarm site in Yguazú. Despite this, we have still grown 37% year-over-year. We are actively utilizing our balance sheet and ensuring that any capital used is accretive and offers the best value to our shareholders while keeping our capital costs low. Consequently, we are providing the best enterprise value in terms of Bitcoin mined and adjusted EBITDA in the sector. Our goal is to capture 3% of the global hashrate this year, aiming for 25 exahash by September 2025. We will show slides that detail our cash flow projections, which look very promising. Additionally, our HPC and AI business has garnered interest from many institutions as the Bitcoin mining sector evolves. We achieved $10 million in annualized revenue this quarter and are on track to reach $20 million; more details will follow. We are also a partner with Nvidia and will be attending the Nvidia Global Tech conference in March, so feel free to come say hello if you are there. Now let’s discuss our Bitcoin growth. We have a binding letter of intent to acquire a 200-megawatt site in Yguazú, which is progressing well towards completion. This site is pivotal to our strategy of achieving 25 exahash by September. We will also be updating our fleet with the latest generation equipment, achieving a global fleet efficiency of 16.5 joules per terahash, which will help reduce our production costs. The power costs we enjoy in Paraguay are reducing our average global electricity costs, which is very exciting. The rollout will start with 100 megawatts forecasted to be air-cooled, resulting in 6 exahash, followed by another 100 megawatts at our Valenzuela site, utilizing hydro power for another 6.5 exahash, and the final 100 megawatts at the Yguazú site will also add another 6.5 exahash, bringing us to our target of 25 exahash. In December, we confirmed two major orders with Bitmain and Canaan, securing 15 exahash of hashrate at excellent prices. The Bitmain purchase was for S21 plus hydros at $14 per terahash, with a quick 10-month ROI after operating expenses. Although we cannot disclose the Canaan deal price, it also has a strong return on investment. We are excited to announce more strategic ASIC orders as we work towards the 25 exahash target. Now, let’s present the numbers for the analysts and investors focused on specifics. Our current operating footprint reaches 140 megawatts across Canada and Sweden, with an additional 300 megawatts planned in Paraguay, taking our total to 440 megawatts. Currently, we have 6 exahash of installed hashrate, and once completed, our pipeline reaches 25 exahash. While the exact number may total 25.5 exahash, we will keep our target at 25 for simplicity. Additionally, we operate 2.2 megawatts of Tier 3 facilities in Stockholm and Montreal. As we've highlighted, all of this is powered by 100% green energy. This leads us to project a fourfold growth in our current hash rate of 6 exahash. The accompanying bar chart demonstrates this growth visually. The upgrade to 6.5 exahash from our internal efficiency upgrades, alongside 6.5 exahash from our hydro-powered expansion, further enhances our productivity and cost efficiency. The final tranche will add another 6.5 exahash, culminating in a global fleet efficiency of 16.5 joules per terahash, which should be useful for those drawing up forecasts. Next, let’s examine the projected cash flows once we reach the 25 exahash goal. We’ve outlined three cash flow scenarios based on Bitcoin prices at $100,000, $125,000, and $150,000. At 25 exahash, we’ll account for 3% of the global network, yielding about 13.5 bitcoin daily, translating into daily revenues ranging from $1.4 million to $2 million. If we look at the broader picture, this suggests a potential annualized mining margin of approximately $330 million in the base case, increasing to $450 million if Bitcoin is valued at $125,000, and exceeding $500 million if it reaches $150,000. With our current market cap sitting just below $400 million, there is substantial upside potential. If Bitcoin hits $150,000 and we are generating over $500 million in cash flow from operations, we could see our valuation rise significantly, potentially becoming a $2 billion company. It’s also important to note that our HODL includes over $250 million in Bitcoin on the balance sheet, making this an exciting year ahead. Historically, we’ve seen that every bull market trend typically begins a year post-halving. For context, after the 2016 halving in April, Bitcoin surged in summer 2017, peaking at $20,000 in December. Similarly, after the 2020 halving in May, we saw significant price increases in early 2021, reaching as much as $72,000 in November. With the upcoming halving in April 2024, many are speculating that Bitcoin could potentially reach $100,000 like never before, and discussions abound regarding next year's potential highs of $120,000 or even $180,000, driven by various influential factors, including the current administration's policies. HIVE is at the forefront of industry growth heading into 2025. Since our establishment, we have made significant strategic acquisitions, including a 30-megawatt facility in 2020 and a 70-megawatt operation in New Brunswick in 2021. With our latest venture in Paraguay adding 300 megawatts to our portfolio, we anticipate a fourfold increase in relevance, while our competitors are experiencing modest growth rates around 1.2 to 1.8 times. Notably, Bitfarms is also progressing but is targeting 3.5 times growth, indicating that HIVE and Bitfarms are positioned as the industry leaders. When considering enterprise value against projected hashrate, we remain an attractive investment opportunity. Savvy investors recognize that HIVE represents a superior value proposition at $5 million per exahash compared to peers that range from four to 16 times that price based on current growth. This strengthens our case as an optimal choice for investors looking for value in bitcoin mining. We remain committed to a data-driven approach, ensuring our capital is deployed effectively to maximize returns and minimize costs. We understand the importance of generating returns that surpass simply holding Bitcoin. A disciplined operational strategy is essential in navigating the volatile landscape of this industry, particularly when allocating capital for ASIC purchases. In terms of quarterly performance, we achieved an annualized ROIC of 37%, with improved efficiency compared to previous quarters. Only HIVE and CleanSpark have reported these figures so far, but we have consistently outperformed in terms of ROIC due to our disciplined capital deployment strategy. On the cost management front, HIVE also leads with the lowest G&A per Bitcoin mined. Comparative analysis indicates that even during bear markets, we manage to maintain lower G&A percentages relative to peers, underscoring our operational discipline. As HIVE approaches its eighth year in operation, having weathered three bear markets, we have honed our lean operational model to ensure we deliver consistent value for shareholders. Furthermore, our HODL has grown nearly fourfold, now totaling 2,805 Bitcoin mined using green energy, and we maintain a clean balance sheet with minimal debt. We are proud of our ability to grow our Bitcoin holdings while simultaneously upgrading our fleet to include more energy-efficient miners. We’ve also kept dilution rates low compared to industry peers. With significant investments, such as our $120 million order with Bitmain, we are strategic in capital deployment, ensuring low dilution while simultaneously achieving high growth. Our approach emphasizes optimal capital efficiency and earnings protection, positioning us favorably for what we expect to be a bullish cycle for Bitcoin mining in the future. Anthony Power leads our financial insights, and we are closely competing with Bitfarms as industry stalwarts. In 2024, we have outperformed in terms of efficiency, data-backed strategies, and performance measures. A summary from VanEck shows that we maintain a significant percentage of Bitcoin value relative to our overall enterprise value. This highlights our capacity to continue growing organically, with the added benefit of the lowest dilution in the sector affirming our strategy. Our January production report demonstrates the value proposition we offer. While we produce Bitcoin at a low cost, our peers often trade at a much higher dollar value per Bitcoin mined. This reinforces our position as an attractive investment choice, particularly for those focused on numbers. Lastly, in our AI focus, we achieved $10 million in annualized revenue this quarter and have significant upcoming projects, including H100 and H200 clusters expected to contribute substantially to our revenue targets. We anticipate turning over these clusters to clients soon, adding to our existing cash flow. I will now hand things over to Mr. Darcy Daubaras, our CFO, to provide further insights into our financial operations.

Darcy Daubaras, CFO

Thank you, Aydin. At this point of the presentation I will take taking you through a snapshot of the period, looking at the most recent completed quarter and some financial indicators. We are providing certain non IFRS measures in our presentation today. The company believes that these measures, while not a substitute for measures of performance prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the company. These measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to other issuers. Further details are found in the management discussion and analysis for the three and nine months ended December 31, 2024. As you can see on this slide, HIVE ended December 31, 2024 quarter with 140.2 million common shares, 3.3 million options, 6.2 million RSUs and 3.2 million warrants outstanding. Onto the next slide. During this most recently completed quarter of December 31st we recorded $29.2 million of revenue and a $17.3 million profit measured in adjusted EBITDA. This was driven by the production of 322 bitcoin equivalent being produced. Onto the next slide. We always, and have since day one, taken pride in maintaining a healthy balance sheet, our cash position was $9.8 million as of December 31, 2024, in addition to $260.8 million in digital currencies, a healthy increase from the prior quarter, driven by higher HODL balances and higher bitcoin prices. And as we know, our HODL is consistent of Bitcoin. We also had $8.9 million in amounts receivable and prepaids. This is an increase from the prior period. The total market value of our strategic investments increased by 26% from the prior quarter to $30.7 million. We have a strong net cash position and healthy working capital to support our operations and growth objectives with a current ratio of 10.4 calculated as current assets divided by current liabilities. Moving on to the next slide, let's shift our focus to our gross operating margin on a year over year basis, we'll be comparing the third quarter of this year to the third quarter of last year. Our gross mining margin, which is calculated as total revenues minus direct operating and maintenance costs and high performance computing service fees, decreased in absolute terms to $6.1 million or 21% in the most recent quarter compared to $11.3 million in the same quarter last year. One significant factor to consider and remember is the impact of the halving event that occurred in April of 2024. This event led to rewards earned by miners in the third quarter of this year being halved compared to the same period last year. The gross mining margin is influenced by several additional external factors. These include the high mining difficulty currently being experienced and the reduced amount of digital currency rewards received by miners. As I mentioned, which is now half of what it was a year ago and the market price of the digital currencies at the time of mining, which is how our revenue is recorded, which has been higher compared to the previous quarter. Taking a look at basic income or loss per share in the most recently completed quarter, we are reporting a net profit of $0.01 per share compared to a net loss of $0.08 per share reported for the quarter ending December 31, 2023. And looking at the nine month period, year-to-date we are reporting a net loss of $0.03 per share compared to a net loss of $0.55 per share in the nine months ended December 31, 2023. The net loss reported by HIVE is in accordance with the regulatory requirements of IFRS, as we are Canadian listed entity rather than following US GAAP. However, we are going through the process to get a transition to US GAAP. One of the things that will do is allow our investors and our listeners of this session to have greater comparability of ourselves to our peers. Onto the next slide and looking at our year-over-year revenue, we generated total revenue in the third quarter of fiscal 2025 of $29.2 million versus $31.3 million in the previous year's quarter. The steady revenues compared to the same quarter in fiscal 2024 can primarily be attributed to the higher average bitcoin price, which is more than double what it was last year. However, this increase is offset by a rise in Bitcoin difficulty hashrates over the past year, as well as the impact of the halving event on the current period results. It's a huge badge of honor for our operations team and the company as a whole to be able to maintain these high revenues even with receiving half of the rewards that we were receiving a year ago as an effect of the halving event. As previously mentioned, our gross mining margin, which equates to our revenues, miners, direct operating and maintenance costs and HPC service fees decreased in absolute dollars to $6.1 million or 21% in the most recent quarter compared to $11.3 million or 36% in the prior year. Moving on to the next slide, comparing our current fiscal Q3 quarter to the previous Q2 quarter, we generated revenue in this third quarter of fiscal 2025 of $29.2 million versus $22.6 million in the previous quarter. This increase in revenues versus the prior quarter was impacted by an increase in the price of Bitcoin resulting in higher revenue from digital currency mining. We also saw a 35% higher HPC revenues quarter-over-quarter. Our gross operating margin, also in absolute dollars, decreased to $6.1 million or 21% in the most recent quarter compared to $1.2 million or 5%. That increase is great on a quarter-over-quarter basis and it was greatly due to the higher comparative bitcoin prices and resulting revenues. Looking at our adjusted EBITDA on the next slide. In this third quarter of fiscal 2025 was $17.3 million versus an adjusted EBITDA of $5.6 million in the prior quarter. I will highlight again, that adjusted EBITDA is a non IFRS figure. In the third quarter of fiscal 2025, we experienced a net profit of $1.3 million compared to a net loss of $7.7 million in the prior quarter. At this point, as I always like to do, I want to thank our loyal shareholders that have been with us over this period of time. It has been an incredible journey and it has been incredible what HIVE has been able to achieve and announce over the last three months. And at this time I'd like to pass it to Nathan who will be running our Q&A portion for our covering analysts.

Operator, Operator

I'm not sure if I've been unmuted for the question, but it seems like I have been with respect to the Paraguay expansion strategy. Curious if you guys could share some details in terms of whether you see further opportunity to expand in the region now that you've established a foothold in the market with the 300 megawatts expected to come online in roughly eight months. Thank you.

Frank Holmes, Executive Chairman

Sorry, Bill, I can't hear anything on my end. Can you repeat the question? I apologize.

Bill Papanastasiou, Analyst

Yes, no worries. Good morning, everyone, and thanks for having me here. So my first question was with respect to the Paraguay strategy. I'm just curious to hear the team's thoughts on further opportunity to expand in the region, now that a 300 megawatt foothold will be established in roughly eight months. Just curious to hear on general thoughts on Paraguay. Thank you.

Darcy Daubaras, CFO

Thank you for the question, Bill, and I apologize for the silence. I wasn't sure if the issue was on my end. Our team, including Frank, Aydin, and Luke, our Chief Operating Officer, have been in the region exploring opportunities. We're seeing more interest and having discussions with current miners there. I believe there's significant potential for additional bitcoin mining in Latin America. However, we are currently focused on this major transformational announcement, the most significant since HIVE's inception in 2017. We want to ensure we execute this properly without overwhelming ourselves with plans for another 300 megawatts. As the cautious CFO, my priority is getting this done effectively and having it operational. With the Bitfarms project, we will be able to bring it online quickly once we close the deal, and the timeline is quite tight. There’s much to learn, and while we have all our plans in place, the excitement truly begins once we start operating. We are consistently evaluating opportunities in Latin America and elsewhere, remaining open to incoming proposals. Furthermore, the access to green energy from large dams with stranded power suggests ongoing opportunities, which will continue to align with our corporate development strategy. We are assessing these possibilities but our main focus through 2025 is to successfully launch our operations and add bitcoin to our balance sheet.

Bill Papanastasiou, Analyst

Awesome. Thank you for the color there. And then if I may ask a second one, how should we think about the ramp in SG&A expense going forward and the impact of operating leverages as the business scales here?

Darcy Daubaras, CFO

I believe that SG&A will remain very efficient. It won't increase linearly as we grow from 6 exahash to 25 exahash. There will be economies of scale. Personally, I prefer having a single large 200 megawatt facility, like the one we are considering in Paraguay with Bitfarms, instead of multiple smaller 20 megawatt facilities. This approach helps keep overhead costs lower and maximizes economies of scale. We do plan to hire additional staff for our strategy, accounting, and auditing, and we will also need to bring in some personnel in Paraguay to manage operations. However, the increase in SG&A won't be fourfold. We aim to keep it lean even as our revenues increase significantly.

Bill Papanastasiou, Analyst

Really appreciate the color. Congrats again on the quarter.

Darcy Daubaras, CFO

Great, thanks Bill. I appreciate you calling in.

Operator, Operator

Bill, thank you for the question. For our next question, we'll go to the line of Darren from ROTH. Please unmute.

Darren Aftahi, Analyst

Hey guys, can you hear me?

Aydin Kilic, President and CEO

Yes, Darren.

Darren Aftahi, Analyst

Great, good morning. Thanks for my questions. Congrats on the progress. So I guess my first question, appreciating all this stuff sort of occurs linearly. Can you just walk through what logistically needs to occur in order to: one, close the Paraguay site from Bitfarms. And then two, With respect to the aggregate 300 megawatt project kind of where of the biggest obstacles between once you close the Bitfarms transaction and getting up to 25 exahash by the third quarter target?

Frank Holmes, Executive Chairman

I think the target is 25, but I don't know where the extra 25 will get to 35. I think it's well on its way. We're having numerous calls with Bitfarms every week. We've got a very good relationship, a very good open communication with them because, both ourselves and Bitfarms want to make this transaction successful to be able to close on time. So they've been incredibly accommodating, sharing information with us on what's happened. We are working with people that have already built and are continuing to build down there. So the synergies that we've been able to have been very beneficial. I don't see any big rocks or stumbling blocks that we need to get over. It's just continuing that communication with Bitfarms to be able to get to the energization. We already had a good relationship with the energy provider and they down there when we hooked up our and had the relationship for the 100 megawatts. So it's more just working with the existing team that's there, continuing to check things off the box from both a due diligence point of view and making sure that we've got operational people that are ready to run the facility. From what I understand, our imports that we have to come in for the remaining equipment to get that facility up and running is all working well. We are looking at the purchases of ASIC equipment that we already made for our existing facility and taking a look at both our 200 megawatts with Bitfarms and our 100 megawatt that we had announced for our own, what's the most strategic and best utilization of that equipment to get energization as quickly as possible across the two facilities in Paraguay.

Darren Aftahi, Analyst

Great. Appreciate that detailed response. If I could sneak one more in, just maybe for Aydin. On the AI cloud business, since the DeepSeek stuff kind of came out, I mean, have you seen any changes in the demand environment, good, bad, and different? Just kind of curious on your thoughts there. Thanks.

Frank Holmes, Executive Chairman

I think Aydin might be having some audio problems, unless he's talking and I can't hear him.

Operator, Operator

All right, We'll go ahead to our next question. Apologies for the audio difficulties. Brett from Cantor. If you would please unmute yourself and proceed with your question.

Nick Giles, Analyst

Hey, Nathan, thanks a lot. My first question, guys, congrats on the progress so far, first of all, but Frank, you talked about the change in administration giving you the comfort to move the head office to San Antonio. Obviously, you have an impressive growth pathway in Paraguay, but has the change in administration impacted your desire to own operating assets in the US?

Darcy Daubaras, CFO

I don't believe Frank was able to join the call this morning, but there has definitely been a shift in HIVE's perspective on the United States since the new administration took office. As we all know, it was quite challenging in the past to navigate regulations in the U.S. There was a lot of scrutiny from Gensler towards anyone involved in blockchain or crypto, which made it very difficult to make progress. The current administration clearly has a positive stance towards crypto; they are attempting to introduce their own ETFs and have appointed a more friendly SEC chair towards blockchain and cryptocurrency. They even have a dedicated crypto czar. This increased focus on the sector will likely lead to greater adoption in the U.S. and help make it more mainstream. With various states exploring how to address crypto, a more supportive national environment will only enhance opportunities for Bitcoin miners. Throughout my seven years with the company, HIVE has evaluated various aspects in the U.S. We were the first to have a dual listing, but I must admit there was a lingering discomfort due to the uncertainty of the regulatory landscape in the U.S. I believe that over the next four years, there is a tremendous chance for clearer regulations, making the industry more mainstream. Regardless of future political leadership, having established guardrails will make this industry very promising following Trump's presidency. From a CFO's perspective, I actually welcome regulation; it may not always be pleasant, but at least it provides clarity on what is permissible. In the previous administration, the absence of clear rules made it difficult to determine the boundaries, as the regulations were often reactive and inconsistent.

Nick Giles, Analyst

Thanks for those comments. My second question, if I may, was, correct me if I'm wrong, but I think you alluded to the potential for some site conversion in the existing portfolio more geared towards the HPC side. So just was hoping to get any additional color on what kind of work has been done for potential co-location opportunities or have you come up with any capex per megawatt estimates, any additional color you might add? Thanks a lot.

Darcy Daubaras, CFO

Yes, in regard to the specifics, I would need to refer to the operations team, but I can mention that we have been evaluating our main facility in Bowden, Sweden. There is a small site adjacent to our flagship facility where we’ve conducted analyses with a consultant to determine the costs of transforming that site from basic cryptocurrency mining to high-performance computing (HPC). We have also assessed our New Brunswick facility to explore the available energy and optimize its use. We could choose to keep it entirely separate and only collaborate with external parties for our Tier 3 operations. However, we are considering how to best utilize our existing facilities in relation to the electricity we have – deciding whether it is more advantageous for high-performance computing or Bitcoin mining. It's crucial to remember that if we proceed with HPC, it must be operational 100% of the time. Therefore, in addition to the operational expenses needed to elevate it to a Tier 3 standard, which includes power redundancy and fiber optic redundancy, we must ensure that the environment provides stable and affordable energy. We cannot operate in a location where power limitations would affect us, as we need to maintain reliability at a high percentage. We have had engineers assess this and provide us with estimates of what would be required. We are eager to implement these changes in our facilities and are also exploring opportunities to establish our own HPC sites, acquiring our own properties to avoid dependence on landlords.

Nick Giles, Analyst

Thanks again, Darcy, and keep up the good work.

Darcy Daubaras, CFO

Thanks, Nick.

Operator, Operator

In the interest of time, we will accept one more question from the line of Joe from Canaccord. Please go ahead and unmute yourself, Joe.

Unidentified Analyst, Analyst

Hey, Darcy. And I'm not sure if Aydin and Frank are still on, but nice to see. Yes, nice to see you all.

Frank Holmes, Executive Chairman

I hear a technical question coming, so I'm glad Aydin is here.

Unidentified Analyst, Analyst

I may not delve into a technical question, but it’s great to see all the progress and the anticipated growth in exahash. I'll just ask one question. As the business is poised to expand significantly and generate more profit, I’m curious about your thoughts on potentially using debt as a funding source to accelerate growth, compared to utilizing the ATM. While that approach is effective, employing some debt could allow for potentially more accretive growth, and with a larger profit and loss statement, servicing that debt could be feasible. I would like to know your updated views on leveraging more of the capital structure on the balance sheet. Thank you.

Aydin Kilic, President and CEO

We observed a significant number of convertible debt deals completed in the last quarter of 2024. We have engaged with various institutions regarding these transactions. However, we found that many of these debt deals had their proceeds reduced compared to the total amount borrowed. For instance, we have seen convertible deals valued at $500 million or $600 million, but these also included funds for cap calls and share buybacks. As detailed in their press releases, a $600 million deal might only allocate $350 million to $400 million for purchasing Bitcoin, if that was the intended use. Ultimately, at the end of the term, the total $600 million must still be repaid. These deals appear to be trendy due to the increased liquidity available, but we must consider the potential risks. Many of these deals were aimed at purchasing Bitcoin, which raises questions about outcomes if Bitcoin does not reach expected highs. Currently, we maintain a strong balance sheet, with just under $100 million remaining on the ATM, an additional $100 million on the base shelf, and over $250 million in Bitcoin on our balance sheet. We continually evaluate options for the lowest cost of capital, and if a beneficial debt deal arises, we will explore it. This is particularly important given that the HPC sector operates within a different ecosystem compared to financing Bitcoin expansions or operations. Therefore, there might be opportunities to utilize more traditional debt financing options.

Unidentified Analyst, Analyst

Great. Thanks very much, Aydin. Congrats on all the progress.

Operator, Operator

Thank you, Joe. Thank you to all of our analysts, all of our attendees. That concludes our Q&A session and our Q3, 2025 earnings call. Thank you very much for joining. We look forward to speaking to you again soon.