HIVE Blockchain Technologies (HIVE) Reports Second Quarter Revenue of $29.6M, Net Loss of $37.2M
News and research before you hear about it on CNBC and others. Claim a 1-week free trial to StreetInsider Premium here.
HIVE Blockchain Technologies Ltd. (Nasdaq: HIVE) is pleased to announce its earnings report for the second quarter ended September 30, 2022 (all amounts in US dollars, unless otherwise stated).
HIVE achieved revenue of $29.6 million this quarter by mining 858 green and pure Bitcoin and 7,309 Ethereum, which were later sold to reinvest in new ASIC mining equipment. As such, HIVE’s Bitcoin production has increased by 4.5% quarter over quarter, while the company’s average daily Ethereum production increased from 84.3 ETH per day to 94.9 ETH this quarter, prior to September 15, 2022, the merger date when we exited to mine Ethereum. Last quarter, however, average prices for Bitcoin and Ethereum were higher, resulting in a $44.2 million increase in revenue over the previous quarter.
The company notes that HIVE’s production of 858 Bitcoin this quarter represents a 31% year-over-year increase, with the same period last year, having mined 656 Bitcoin, reflecting significant growth in our operational hashrate. This is largely a result of our facility in New Brunswick expanding from 30MW last year, to power approximately 17,300 new generation ASIC miners, operating at approximately 60MW capacity. This large increase in the amount of Bitcoin production stands even though network difficulties have doubled during this one-year period and prices have fallen by approximately 60%.
Frank Holmes, HIVE’s Executive Chairman, stated “”We again want to thank our loyal shareholders for having faith in our vision to mine both Ethereum and Bitcoin. We are sad to see that the higher margin from Ethereum mining is gone and now it will be easier compared to our Bitcoin miners. It was an extremely challenging quarter for the global digital asset ecosystem, where we saw the capitulation of crypto prices due to the proof of stake ‘PoS’ Luna token exploding in the spring and subsequent contagion from overleveraged ‘shadow banks’, hedge funds and offshore exchanges. Strategically, we have not borrowed expensive debt against our mining equipment or pledged our Bitcoins for costly loans, thus our balance sheet remains healthy to weather this storm. We believe our low coupon fixed debt; attractive green renewable energy prices and high-performance energy-efficient ASIC chips will help us navigate through this crypto winter.”
HIVE achieved a gross profit margin of $15.9 million for the quarter, a 41% decrease compared to the previous quarter of $27.0 million due to lower Bitcoin prices. This decrease in gross profit mining margin was mainly driven by significantly lower average cryptocurrency prices during this period, which adversely affected us as well as the Bitcoin mining industry.
In addition, the company’s gross margin of 54% this period is also a decrease from the gross margin from the previous quarter of 61%. On a relative basis, HIVE has been able to mine at healthy profit margins during periods of market volatility due to being globally diversified and enjoying low power costs in Sweden, Iceland and Quebec.
Furthermore, HIVE’s average production cost per Bitcoin was $9,894 (including cost of goods sold, not including SG&A) for the quarter ended September 30, 2022, a 23% reduction in costs from the previous quarter ended June 30, 2022. The company notes that as of Oct. 2022 and beyond, with Bitcoin mining hash rates and difficulty at all-time highs, Bitcoin production costs are expected to increase for the industry at large, as less Bitcoin per Terahash is rewarded at these difficulty levels.
According to Anthony Power’s monthly industry surveys, we are proud to have achieved and maintained the best uptime among all of our peers, with HIVE repeatedly emerging as one of the most efficient crypto miners based on digital assets mined per Exahash (usually measured as amount mined Bitcoin per Exahash of reported hashrate).
Mark-to-Market of assets and non-cash write-downs
There is greater pressure in the accounting world to charge non-cash fees against mining equipment required to create digital assets. The price of primary ASIC chips moves with the price of Bitcoin. On large quarterly downturns like the last couple of quarters, we reduce the value of Bitcoin held in treasury and the resale cost of the mining equipment, but when Bitcoin prices rise, they are written back up through inventory and flow through the income statement using mark-to-market -accounting, while equipment is often not written up again as the threshold for doing so is higher. This is a conservative accounting treatment that public crypto mining companies usually follow.
Our Adjusted EBITDA was strong for the quarter at $18.8 million, with the decline in digital asset prices in the quarter impacting our financial results by $2.4 million, in addition to a significant $26.2 million write-down on mining equipment. Digital assets continue to be much more volatile than the stock market, and thus our digital assets can move earnings significantly up and down each quarter.
Quarterly overview for Q2 – 30 September 2022
- Generated revenue of $29.6 million, with a gross margin for mining[1] of 15.9 million dollars
- Mined 858 Bitcoin and 7,309 Ethereum, equivalent to 1,380.2 Bitcoin Equivalent during the three month period ending September 30, 2022
- Adjusted EBITDA1of 18.8 million dollars for the three-month period
- Increased working capital by $3.3 million during the three month period ended September 30, 2022
- Digital currency assets of $64.9 million as of September 30, 2022
- The average production cost per Bitcoin was $9,984, where the average Bitcoin price was $21,237, during the three-month period ending September 30, 2022. This also represents a 23% decrease in Bitcoin production costs from the previous quarter of $12,823 for the three months which ended on June 30, 2022 (the average price of Bitcoin was $32,511 during this period).
- Impairment of mining equipment of $26.2 million during the three-month period ended September 30, 2022
- Pre-tax net loss of $37.2 million for the three-month period attributable to impairment from the value of ASIC chips that fell with the fall in Bitcoin and Ethereum prices and the mark-to-market Bitcoin HODL position
Q2 F2023 Economic review
For the three months ended September 30, 2022, digital currency mining revenue was $29.6 million, down approximately 45% from the prior year, primarily due to significant global hash rate growth combined with much lower average cryptocurrency prices, partially offset by increased production of Bitcoin due to the acquisitions of the facilities in Quebec and Atlantic (New Brunswick), in addition to expansions at the company’s European flagship in Boden, Sweden.
Gross mining margin1 in the period was $15.9 million, or 54% of digital currency mining revenue, compared to $46.0 million, or 86% of digital currency mining revenue, in the same period last year. The company’s gross margin for mining1from digital currency mining depends in part on external network factors, including mining difficulty, the amount of digital currency rewards and fees it receives for mining, as well as the market price of digital currencies. The decrease in gross margin1is heavily influenced by the price of digital currencies which is about 50% of what it was in the previous quarter.
The company notes that while adjusted EBITDA1 this quarter was $18.8 million, due to market accounting practices, net loss for the quarter ended September 30, 2022 was $37.0 million, or a loss of $0.45 per share, compared to a net income of 38.9 million dollars, or 0.51 dollars per share, same period last year. The year-over-year decrease was primarily driven by higher non-cash charges such as depreciation, unrealized valuation losses on digital currencies and investments, and write-downs on equipment and equipment deposits, which in turn were impacted by lower Bitcoin and Ethereum prices seen in the current quarter. Adjusted EBITDA is a non-IFRS financial measurement and should be read in conjunction with and should not be seen as an alternative to or substitute for measures of operating profit and liquidity presented in accordance with IFRS.
Mr. Holmes noted “At HIVE, we strive to maintain a high-performance culture, which means we always adapt to unexpected headwinds, and do our best to maintain operational excellence in the process.”
To view an enhanced version of this graphic, please visit:
https://images.newsfilecorp.com/files/5335/144284_433fb68ec46cca29_001full.jpg
EBITDA and adjusted EBITDA
The Company uses EBITDA and Adjusted EBITDA as a metric that is useful in assessing operating results on a cash basis before the impact of non-cash items and acquisition-related activities.
EBITDA is net income or loss from operations, reported in the result, before financial income and expenses, tax and depreciation and amortization.
Adjusted EBITDA is EBITDA adjusted to remove other non-cash items, including stock-based compensation, the non-cash effect of the revaluation of digital currencies and non-recurring transactions.
To view an enhanced version of this graphic, please visit:
https://images.newsfilecorp.com/files/5335/144284_433fb68ec46cca29_002full.jpg
The company emphasizes that “adjusted EBITDA” is not a GAAP or IFRS measurement and is included for comparison purposes only.
Non-cash fees
A non-cash cost is a write-down or accounting expense that does not involve a cash payment. Depreciation, amortization, depletion, stock-based compensation and impairment are common non-cash costs that reduce earnings, but not cash flows.
Annual accounts and MD&A
The Company’s consolidated financial statements and management’s discussion and analysis (MD&A) for the three and six months ended September 30, 2022 will be available on SEDAR at www.sedar.com under HIVE’s profile and on the Company’s website at www.HIVEblockchain.com.
Webcast details
The management will host a webcast on Tuesday 15 November 2022 at 4:30 PM Eastern Time to discuss the company’s financial results. Presenters on the webcast will be Frank Holmes, Executive Chairman; Darcy Daubaras, CFO; and Aydin Kilic, President and Chief Operating Officer. Click here to register for the webcast.
