Welcome to the Year-End F inancial Results C onference C all. My name is John, I'll be your operator for today's call. At this time, all participants are in listen only mode. Later, we will conduct a question- and- answer session. During the question- and- answer session, if you do have a question, press star then one on your touch-tone phone. Please note the conference is being recorded. Now I'll turn the call over to Jaime Leverton. Good morning, everyone. First and foremost, thank you for taking the time to join us today. This is my first earnings call since taking the helm here at Hut 8 on December 1st. I want to thank you all as investors and members of the Bitcoin ecosystem for such a warm welcome into the role. I also want to thank the board of directors for putting their faith in me to lead Hut 8 through this next evolution of our innovation and growth journey. Most importantly, I want to thank the entire team here at Hut 8 for making me feel so at home since my arrival, and for continually throwing themselves day and night into helping drive this company forward at a truly remarkable rate. Without further ado, I will now hand it over to Jimmy to walk us through our Q4 and 2020 audited year-end financials. Over to you, Jimmy. Thank you, Jaimie. Hi, everyone. This is Jimmy Vaiopoulos, CFO of Hut 8. Before continuing, I'd like to remind everyone that all amounts in the financial statements and discussed on this call are in Canadian dollars, unless stated otherwise. 2020 was a transformational year for Hut 8 and the Bitcoin industry. Hut 8 became the first company to successfully enter and exit the TSX Sandbox program, and was actually the first cryptocurrency company to the TSX. We restructured the legacy Bitfury agreements to provide Hut 8 more autonomy and the ability to purchase Bitcoin mining equipment from any manufacturer, and Hut 8 also transferred the site operations from being run externally by Bitfury to bring all operations and staff in-house to Hut 8. This reduced costs significantly for the company and increased the quality and control of our operations. On June 25th, 2020, we closed an oversubscribed prospectus offering for gross proceeds of CAD 8.3 million. The net proceeds were used to purchase over 300 PH/s of latest generation equipment from MicroBT, which was installed between September 2020 and January 2021, and is all running today. For Bitcoin, we saw the price drop significantly mid-March to below $4,000 due to the aftermath of the COVID-19 shelter in place orders. It took almost until May 2020 for the Bitcoin price to recover, at which point the Bitcoin halving event took place, where the block reward was cut in half. We saw a subsequent drop in the network difficulty rate by 15%, but it recovered quickly in pre-halving levels in June 2020. Although we currently have record level Bitcoin prices creating incredible Bitcoin economics, it is easy to forget that most of 2020 was a difficult year for many Bitcoin miners, including Hut 8. Hut 8's revenue for the year ended December 31st, 2020, was CAD 40.7 million from mining 2,798 Bitcoin and including hosting revenue of CAD 1.7 million. This compares to the prior year of 8,618 Bitcoin mined with revenue of CAD 82 million, of which there was no hosting revenue. The reason for the decrease was due to a difficult year for Bitcoin economics, including the halving event, as mentioned. The site operating costs for the year were CAD 39.7 million compared to the prior year of CAD 45.4 million, a reduction of 13%. When comparing the operating cost against the number of Bitcoin mined for the year, the average cost of mining each Bitcoin in 2020 was CAD 14,195 compared to CAD 5,273 in 2019. We note that there are significant differences in how the industry calculates average cost of mining, and Hut 8 takes a conservative stance of using all operating costs, which is an audited figure. During the tight Bitcoin economics of 2020, Hut 8 focused on maintaining a lean operation and reduced expenses by 45% on a corporate level from CAD 6.1 million in 2019 to CAD 3.4 million in 2020. The company was able to maintain a CAD 2.9 million gain on the use of Bitcoin throughout the year, despite the volatile Bitcoin price, by timing any sale of Bitcoin to the best of their ability. This compared to the prior year gain on the use of Bitcoin of CAD 4.1 million. The unrealized gain on digital assets increased by 221% to CAD 13.7 million in 2020 from CAD 4.3 million in 2019 due to the increase in the Bitcoin price, but did not include a CAD 60.7 million unrealized gain on Hut 8's Bitcoin holdings that wasn't recognized on the income statement, but instead was accounted for directly on the equity section of the company's balance sheet. The company reduced its net finance expense by 49% to CAD 2.4 million in 2020 from CAD 4.8 million in 2019 due to a reduction of the interest rate and finance expense related to Hut 8's Bitcoin collateralized loan. This loan was fully repaid in February 2021, and all Bitcoin collateral was returned. Hut 8 recognized a gain of CAD 13.2 million related to the reversal of an impairment from the year ended December 31st, 2018. This was primarily due to the positive change in the Bitcoin economics throughout to the end of the year of 2020. Hut 8 recognized a - CAD 2 million in adjusted EBITDA for 2020 compared to a + CAD 33.5 million in the prior year. It is important to note that the adjusted EBITDA for Q4 2020 in that quarter alone was a + CAD 1.4 million, meaning that the negative adjusted EBITDA in 2020 resulted primarily from the first three quarters. Net income before tax increased by 87% to CAD 4 million in 2020 from CAD 2.1 million in 2019. This is the second year in a row that Hut 8 has been able to achieve positive bottom-line profits. Hut 8 recognized a CAD 15 million deferred income tax recovery, which had a net zero effect between the income statement and balance sheet, as there was an offsetting amount recognized against the unrealized gain to Bitcoin of CAD 60.7 million through the equity section of Hut 8's balance sheet. This resulted in net income of CAD 19 million. Working capital as at December 31st, 2020, was CAD 75.7 million, a 246% increase from the prior year working capital amount of CAD 21.9 million. Looking forward into 2021, the company announced the March 24th, 2021, Bitcoin balance as 3,233 Bitcoin, which at a price of $52,000, the Bitcoin balance was approximately CAD 210 million. This Bitcoin balance is a 17% increase from the December 31st, 2020, balance, showing Hut 8's confidence in Bitcoin and ability to grow its Bitcoin holdings. This has put Hut 8 on great footing for 2021, as it has fully repaid its debt and has one of the strongest balance sheets and established operation in the space. Back to you, Jaime. Thank you so much, Jaime. Despite an incredibly difficult year for Bitcoin mining economics, I couldn't be more pleased with how the team at Hut 8 performed, proving once again that prior experience navigating Bitcoin market bull and bear cycles is paramount to success in this industry. The team demonstrated the criticality of timing and reduction of expenditures, thoughtful debt restructuring, and seized the opportunity to strengthen the balance sheet without sacrificing our core Bitcoin assets. I'd also like to take this opportunity to highlight some of the key progress made so far in the early days of 2021. In January, we closed a private placement offering for gross proceeds of CAD 77.5 million with institutional investors. As part of the proceeds from that financing, as Jimmy mentioned, we were able to fully repay the $20 million US dollar loan with Genesis Global Capital, with all Bitcoin collateral returned to Hut 8 at that time. In January, Hut 8 also confirmed an additional 5,400 WhatsMiner M30S units to be shipped between January 2021 and July 2021, with an $11.8 million US dollar equipment financing loan with DCG Foundry, 400 units of which are already installed and hashing, bringing our total self-mining hash rate in production today to just under 1.1 EH/s. We have also announced the creation of a yield account for 1,000 of our Bitcoin holdings, which generate yield at a rate of 4% per annum with Genesis Global Capital, thus adding a third revenue line for Hut 8 and further building on our revenue diversification strategy. Since my arrival in December, we've expanded the depth of talent on our leadership team, including a new head of investor relations, Sue Ennis, a new head of technology, Jason Zaluski, and a new general counsel and executive vice president of regulatory, Tanya Woods. In addition to a number of fabulous new team members in the field in Alberta, as well as the welcoming of two incredible new board members in Sanjiv Samant and Chris Eldredge. Last month, we were honored to be recognized as 11th out of 10,000 in the 2021 OTCQX Best 50, which ranks the top performing companies traded on the OTCQX Best Market last year. Year to date, we are thrilled to have increased our social media followers by 134% since the end of 2020, as we work to increase our focus on engaging more directly with our investors and with the marketplace. While it has been a busy start to the year already, rest assured we are still just getting warmed up. I will now open up the call to Q&A. Thank you. We'll now begin the question- and- answer session. If you do have a question, press *1 on your touch tone phone. Once again, if you have a question, press *1 on your touch tone phone. Our first question is from Deepak Kaushal. Please go ahead. Hi, guys. Good morning. I've got a handful of questions. I'll ask a few, and then I'll jump back in the queue, maybe do follow-ups. Thanks for taking them this morning. Jaime, welcome to the conference call. Just curious, you mentioned that you have some capacity that's coming over the next several months. What do you guys expect in terms of your self-mining hash rate when that's all installed? I assume that should be fully installed by the end of June. Is that what you said? End of July is our expectation to have it fully installed. The hash rate that we expect is 1.3 EH/s, assuming that we replace some of our older equipment with the new equipment coming from MicroBT. Okay. What would be the ratio or what would be the amount of exahash on top of that you're hosting? Our hosting business right now hosts just under 9 MW. Yeah, we haven't publicly stated the exahash involved in the hosting business, but it's just under 9 MW of the 109 MW that we have in production today. Got it. Are you expecting what kind of ratio are you guys targeting long term hosting versus self-mining? We have not released a ratio that we're targeting, Deepak. Got it. I'm just curious, we're hearing about lead times of well over nine months for new equipment. I'm just curious as to what levers you see you have to be able to expand capacity in 2021. Is this really a 2022 timing for a new expansion beyond the current planned rollout? We are exploring a number of options, Deepak, and when I have something that I can publicly share, I will absolutely do so. Okay. Can you comment just in general what you're hearing in the industry in terms of lead times or prices of new equipment? In general, the lead times are definitely significant. We've seen orders with delivery dates well into 2022. As you know, we were able to work with Foundry, our partner, to get equipment installed in the first half of 2021 with our January order. We do expect to look for various areas of optionality, but certainly, general lead times are currently going into 2022. Okay. Got it. I noticed that there was a good OpEx reduction for the full year, versus the prior year. It looks like it creeped up again in Q4, and you've hired some new bodies. What should we expect for a quarterly run rate for OpEx? CAD 1 million a quarter? CAD 1.5 million a quarter? How would that split between cash versus non-cash OpEx? Yeah, I think we can't give guidance on that right now, Deepak. As you know, we are in a phase of transformation and high growth. I can't give you guidance on a steady state OpEx run rate. Okay. In a phase of transformation and high growth, that would suggest you're going to invest more, so that number should directionally be going up. Is that a fair assumption? I wouldn't make that assumption because we're looking at all parts of our business on both sides of the line. Okay. Just the last question on expansion, and then maybe I'll jump back in the queue to give others a chance. After the equity raise and the debt repayment, is it just simple math here? You have about just over CAD 50 million to spend on new capacity expansions. Is that how we should think about it? We haven't announced a use of proceeds, obviously, for the full CAD 77.5 million, so I can't speak to it directly, but directionally. Okay. Can you comment on your current liquidity position today, as of today, in terms of cash? Not in terms of Bitcoin mined. I'll turn that over to Jimmy. Yeah. We're not going to comment on the specific number, but you have a general idea by seeing how much we had on cash at year-end, how much cash we just raised, which was announced, and our Bitcoin that we just announced as well. Looking deep, I'm sure, Deepak, it can paint a pretty strong picture for you. Got it. Just to reiterate, you have just over 3,000 Bitcoin on the balance sheet. You put 1,000 with Genesis. Should we assume that the other 2,000 is something that you might liquidate to fund expansion, or are you fully committed to holding that full balance on your balance sheet? At this time, we have no intention of liquidating that balance. We are committed to our HODLing strategy. Okay. That's helpful. Thanks again. I'll pass the line and maybe jump back in the queue. Any time, Deepak. Our next question is from Stuart Sklar. Hi, Stuart. Good morning, everybody. Just a couple quick things. First of all, the big elephant in the room, I think everybody wants to know if there is anything that you can talk about as far as NASDAQ uplisting is concerned. Stuart. We are aware that others in our space are making announcements regarding their moves toward NASDAQ. As you know, the road to NASDAQ is very uncertain, and applications to list do not guarantee listing success. In short, the outcome of being listed is not guaranteed. We recognize that our shareholders are encouraging us to announce intentions and listing commitments, and we can assure you that we're exploring our options and will inform the market once we have more information to share. Next, noticed in your statement today that basically, your cost of producing Bitcoin seems awfully high compared to the competition. Is there a reason for that? Obsolete machinery, potentially? What's going on? I can touch on that, Jaime. I was over high level in my discussion, but there's significant differences in what different issuers are including in their calculation for cost of mined Bitcoin. There's not a consistent way, especially given this is a non-IFRS number. We've taken a conservative approach, which we see as a requirement under IFRS to use an audited number that is the operating costs, so the full amount there. We've seen a varying amount of inclusion in the cost of mining. Really, the key is in the detail for the cost of mining number. Although ours may look high, it's just inclusive of far more. It's not really comparing apples to apples. Are you including G&A? Are you including G&A? Are you including your G&A expenses in that? Everything on-site. All site expenses, electricity, everything that happens at the site level is included. Okay. The last question, basically from what we are hearing from Jaime at this point is 1.3 EH/s seems to be where you guys are going to be for the entire year. Am I wrong in assuming that or do you have other things that potentially could happen? That's the number that we expect to be at by the end of July when the equipment that we have ordered to date comes online. That is not the number for the entire year unless we don't make any incremental purchases in year. At this time, I'm not at liberty to speak to that. The 1.3 is based on what we have ordered to date, assuming that we replace existing hardware and that would be as at the end of July. Very good. Thank you very much for answering my questions and I wish this new management team success. Thank you, Stuart. Our next question is from Kevin Dede. Good morning, Jaime, Jimmy. Thank you very much for hosting the call and taking my question. Hi, Kevin. Sure. I was wondering, Jaime, if you could just sort of speak conceptually. I know you're exploring all options and everybody's sort of coming at you from different directions. obviously you structured this deal with Validus, and I was wondering if you just sort of speak conceptually to the power options that agreement might offer you or what other power options you might have in Alberta? Right What else might be on the table? You guys are relentless. You know that I will tell you what I can when it's available to be publicly released. What I can answer with respect to the MOU we signed with Validus is that we're absolutely exploring potential power options with Validus. Validus has a number of different options from a power perspective, primarily behind-the-fence generation. At this point, it is still exploratory, and when there is something official to announce, I promise I will do so immediately. Okay, fair enough. Appreciate the limitations you're forced to operate within. Jimmy, can you add a little more color on that reversal of impairment, please? I just want to make sure I understand the accounting background there. It was a big number, like CAD 13.2. That's correct. It's important to understand the historical context here. At the end of 2018, it was very tough. Bitcoin economics were in the heart of the crypto winter. Bitcoin was honestly hovering in the mid 3,000s, and there was a large impairment that took place then. Some of that impairment was to the actual infrastructure of the sites that we have. Because Bitcoin has recovered and the Bitcoin economics, especially in the past few months, have been so strong, we were able to recover some of the impairment that was allocated to infrastructure on site. It was a reversal of a prior impairment. CAD 13.2 million. Was it booked in 2018 or was it booked in 2020? An impairment was booked in for the year end in 2018. A reversal of that impairment was booked in 2020. I see. Okay. A portion of that impairment. Could either one of you sort of enlighten us on your plans for the equipment that's being phased out? I think maybe some of it is S9s. I'm just kind of wondering how you're handling it given in the current environment, an S9 can be run profitably, but given your power limitations, I'm just sort of wondering what sort of value you might be able to extract from things that are being replaced with the new MicroBT gear. Yeah. Great question. We're exploring our options there. Okay. That's how you walked in this morning, right? Jaime, our legal counsel instructed us to say, "Exploring our options. Yep. You got that right. We are staying very much on side here, my friend. Okay. Well, I appreciate that. Thank you for indulging me. Thank you, Jimmy, for the explanation. Anytime, Kevin. Our next question is from Greg Patrusky. Yes, kind of along the lines of the other questions. I'm trying to understand the nature of the business, I'm trying to understand what is the actual physical run life of these miners, what is their depreciation life, and what is CapEx per year requirement just to maintain existing mining capacity. Jimmy, do you want to start? I can touch on that. Yeah. Yeah. Exactly. I can pass it back to you on the last piece there. The way that we account for We have two different columns in our notes on how we separate our equipment. It's the chips and the infrastructure. The chips and the actual units themselves, we have taken a conservative approach and have the useful life at two years, where the infrastructure is at four years. We've already seen this equipment going past its useful life. In these economics where you see strong Bitcoin economics, a big run in the Bitcoin price, yet a constrained supply of new equipment, what we've seen is an elongated life on some of this older equipment. The infrastructure, a lot of this consists of various pieces like transformers, boxes, wires, and everything that took to put the site together. Most of that we expect to go past four years as well. Individually, a lot of these items have a life of more than four years. Maybe I'll pass it back over to Jaime to talk on that last point there. Sorry, Greg, remind me your last question? Well, I'm trying to understand. I think I understand that the infrastructure useful life is plus four years. Is that also true of the chip life? Is it plus two years? Is it the depreciable life plus an additional amount, or I'm trying to get an understanding of what is the CapEx requirement to maintain existing capacity production. There's that last question there, Jaime. Go ahead. Yeah, Greg, it's a really difficult question to answer. We use an extremely conservative depreciation schedule, as Jimmy spoke to, being a two-year schedule for the mining hardware itself. Although, again, as Jimmy mentioned, the actual useful life of the hardware is certainly beyond that. With the newest generation of equipment, we expect it to be significantly beyond that two-year window. It's really difficult to give you a CapEx projection based on where things are in the cycle, the very limited supply of the current generation of chips, and the fact that Bitcoin mining economics has extended the useful life, and it's difficult to predict how long that useful life will be, given how difficult it is for the hash rate to come up with the supply constraints. Okay. Maybe to ask the CapEx question a different way, how much does it cost per year just to maintain existing production level? I mean, that's a pretty basic maintenance CapEx number. On an ongoing basis. Yes. It would be in a normal industry. I'm happy to answer, Jaime, but go for it. Well, I'll give my answer and then Jimmy, you can chime in. Greg, in a normal industry, it would be a pretty standard answer to give you, but the reality of what we've seen for the CapEx requirements for the current newest generation of mining hardware, the price point has gone up about 6x in the last six months. It's really difficult to give you a number. The pricing of that equipment changes so significantly in such a short period of time. Any annual CapEx guidance I gave you would be very heavily assumption based, and it's difficult to give you a firm number, again, based on the volatility of the pricing involved in the hardware itself. Okay. Thank you. Our next question is from Rob Alloway. Good morning. Congratulations on the great numbers from last year, which was easy to forget was a difficult year. My question is much broader than the previous ones. Bank of America had a note out called Bitcoin's Dirty Little Secrets. I just wondered if you could speak briefly to kind of what you see as the ESG challenges for mining going forward for the next year. Yeah. It's a really difficult question to answer. We are doing a lot of work on building out our ESG narrative and our ESG strategic plans. That is something that we're looking at quite aggressively as a new leadership team. The Bitcoin mining industry in general, because it's so focused on the lowest possible cost of energy, tends to focus on energy that otherwise isn't being used. Wasted energy, stranded energy. That's really the lion's share of energy consumed by the Bitcoin network. The other comment I will make, and I made this one last week, it's funny for me how this narrative comes at the Bitcoin industry so aggressively, but it doesn't come at the mainstream data center world, the cloud computing world. There are all kinds of really heavy consumers of data and therefore of power. This narrative seems quite targeted towards Bitcoin itself. Again, because Bitcoin cares most about the lowest cost of energy, it's usually using energy that would otherwise be wasted. Certainly a narrative that we're working on. You're going to see more and more come from us in this space. That's kind of my thoughts at a very high level, Rob. Jimmy, I don't know if you have anything to add. No, that's great. We hear a lot about the stranded power, but if you're running from the grid, then you are taking kind of available power or a miner is. There is a carbon dioxide toll for that for the mining community. Do you see any concerns about regulation? Do you see any concerns that beyond the price of power, that the renewable power miners are going to have some sort of edge on a go-forward basis? I think it's not something I can speak to directly at this time. Again, it's something we're spending a lot of time and energy focusing on, and we will be building out a strategy and sharing it over the next few months. Great. Thank you very much. Anytime, Rob. Our next question is from Matt Szymanski. Hi. I noticed the majority of that revaluation gain is ran through AOCI and not net income. Can you explain why? Sure. There's been guidance from the regulators on how to approach Bitcoin and other cryptocurrencies. The guidance is to classify Bitcoin as an intangible asset. Under IFRS, the way that it works is that if you have a loss on an intangible asset, then it goes through the income statement. If any of that loss is reversed, then it goes through the income statement as a gain, as it did for us for a portion of that gain. Anything above that goes straight to the equity section of the balance sheet. We're constrained with the requirements under IFRS and the guidance given by the regulators in Canada, which we have to follow. Okay. Is it safe to say for future revaluation in quarters ahead for the appreciation in Bitcoin will be ran through AOCI going forward? Yes. Unless there is a period where we mark our Bitcoin down, we will be able to reverse that through the P&L. Anything more will, exactly as you say, go through AOCI. Okay. Thank you. We have no further questions at this time. Okay. In that case, again, I want to thank everyone so much for joining and for your support. We look forward to speaking to you again in the not-too-distant future on our Q1 financials. Thanks so much. Have a great day, everybody. Thank you everyone. That concludes today's call. Thank you for participating, and you may now disconnect.