HIVE Blockchain Technologies Ltd

XTSX:HIVE

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Good afternoon, everyone, and welcome to the HIVE Q1 2025 Earnings Call and Webcast. [Operator Instructions]



I'd like to turn things over to Holly Schoenfeldt, Director of Marketing.

[Holly Schoenfeldt]

Hello, everyone, and welcome to today's webcast reviewing HIVE Digital Technologies' financial results for the quarter ended June 30, 2024. On slide #2, I would like to briefly note disclosures. Except for statements of historical fact, this presentation contains forward-looking information within the meaning of the applicable Canadian and U.S. securities regulations. These forward-looking statements are based on expectations, estimates and assumptions as of the date of this presentation.



On the next slide, I'm pleased to introduce today's presenters, Frank Holmes, Executive Chairman; Aydin Kilic, President and CEO; and Darcy Daubaras, Chief Financial Officer.



On the next slide, I would now like to hand the presentation over to Mr. Frank Holmes for a macro recap of the quarter.

[Frank Holmes, executive]

And it's great to see how dynamic we are, and then we're functioning in all these different jurisdictions from Vancouver to speaking for this conference, Aydin actually from the Canaccord small-cap, mid-cap biggest conference in the East Coast in Boston. I'm in San Antonio, Texas, and we function in 9 time zones in Bitcoin mining and running and managing data centers. So, I think it's really quite amazing how fluid this is.



But as we jump into the next slide, the [ DNA of ] volatility is to understand the risk, and I think this is a very important visual for investors to recognize all these external forces that do impact the daily volatility. And one standard deviation for Bitcoin is plus or minus 2% is normal, but over 10 days, it's 8%, which, as you can see, 4x greater over 10 days than the S&P 500; NVIDIA is 9%, and MicroStrategy is 21% and HIVE Digital Technologies is 23%.



On a daily basis, it is a nonevent for MicroStrategy or HIVE Digital to go up or down 6% a day. And that's predominantly because of external forces such as Bitcoin prices, geopolitics, geoeconomic events, which we see happen in Japan. But during all of this volatility in the next slide, I'd like to point out that HIVE is operating in 9 time zones, 4 languages, soon to be 5. We have locations in Switzerland and functioning facilities in Sweden and Iceland and Canada. We have offices in Bermuda and in Texas, and I'm calling in from San Antonio, and we are expanding into Paraguay in South America.



HIVE Digital is proud to be bolting ahead, in particular, sourcing green energy, which has been a big challenge to get size, like 100 megawatts, which we've been able to do in Paraguay. But we're the first to go public of all the crypto mining companies in 2017. And actually, we're first to HODL, we launched HODLing Ethereum and then Bitcoin. We were first to developed our own ASIC mining rig with Intel, first to buy data centers, first to be green energy focused, first to balance the electrical grid, in particular, hedging currency volatility and electricity prices when we look in Sweden. And then we're first to have an AI strategy repurposing our GPU chips.



HIVE announced plans to build on the next slide, a 100-megawatt hydroelectric data center in Paraguay targeting to double the revenue and increase the hash rate. And I think it's really important to recognize that when we look at this last quarter and the results, those results captured the halving? And how do they compare to the first quarter? And how do they compare to last year? It's really quite significant as we go through this presentation on the financial results, even with the halving taking place. That is the halving meaning that the amount of bitcoin eligible to be mined each day has gone from 900 to 450.



But what's really important is the Bitcoin during this period has gone from 30,000 to 60,000 and -- and that's been much more significant when you run a lean G&A operation like we do.



We also -- we're very happy to see B. Riley Securities to initiate coverage on HIVE and give a suggestion for a much higher stock price. And I think a lot of it has to take a look at the value metrics. And when you look at performance at 15x to 21x EBITDA for data centers, especially with HPC. So, if you take a look at this past quarter, even with the halving and you were to do a simple projection, it means that based on relative valuations to data center business that are not mining Bitcoin, HIVE is an extremely attractive asset to own in the portfolio.



Look at this volatility. From week hands to strong hands, understanding the yen Japanese carry trade. I've lived through it before; I saw what it did in '97. I was in Hong Kong at the time when it started to take place and all the countries in Asia had borrowed cheap money from Japan. Japan wanted a $250 billion back, but the money had gone into buildings and skyscrapers. So, countries had devalued their currency, like Indonesia by 70%, the Philippines had devalued their currency by 25%.



And so, you saw this currency devaluation of emerging markets take place. And you saw any asset that was speculative, all of a sudden be sold down. And we saw this only 10 days -- not even 10 days ago, with Japan raising rates and its carry trade is estimated to be $1 trillion. And a lot of Bitcoin was leveraged in owning and all of a sudden, Bitcoin falls from 60 to under 50 in this massive liquidation and panic. It was incredible last week for 4 days. I don't know if it's over; historically, it doesn't all end in 1 day, but it's just one of those factors that Bitcoin ecosystem of almost 20,000 nodes around the world continued to mine and function 24/7.



Brokerage firms in the U.S. basically had -- couldn't take trades, they had shut down. But Bitcoin network is continuing to function and so did HIVE. We continued through this storm, like other storms is to continue to produce and function like we do every day.



Recently, we were at the Nashville Bitcoin convention, which is incredible for many reasons. This event was extraordinary. The Nashville Bitcoin Conference was Epic, and I think it's because you have high-profile speakers participating. The conference attracted as you can see here, President Trump and Robert F. Kennedy Jr. and both endorsing and supporting Bitcoin as a strategic asset.



Then you saw a global representation, a networking group of 20,000 people from 50 countries showcase their global reach and the adoption of Bitcoin and many ideas and collaborations were taking place. And the focus on Bitcoin's future innovations, the conference, it featured cutting-edge discussions in the future of Bitcoin. And I think it was an incredible epic presentation by Michael Saylor, which is like 42 minutes. And we had Holly, who started this presentation of today, she has done a 3-minute YouTube summary, if you don't have time to watch the full 42 minutes off that slide presentation by Michael Saylor, and I think it's just fantastic and informative and timely.



Last week, we saw during this volatility -- Morgan Stanley on the next slide says it is allowing 15,000 wealth advisers to sell Bitcoin ETFs to their clients. This is all a part of that slow adoption process that's significant in the Bitcoin ecosystem. And then we saw what really drives a lot of alternative asset classes on the next visual. The idea of owning an asset like gold or art from original painters, the growth of art like Andy Warhol or Picasso, Prince is -- the original signed Prince has gone up 30, 40-fold over time since the '60s and '70s. And I think it's important that a lot of that [indiscernible] has to do with money supply.



And a lot of the original gold bugs that went into gold as an alternative asset class, they articulated this. And we've seen this growth in the Bitcoin ecosystem that the adoption of young smart mines into Web3, all understand why you want to own an asset class like Bitcoin, capped 21 million coins and something like 93% has already been mined. But as the money supply continues to grow to all-time high, that is as extremely bullish for the global network, for the Bitcoin global network. And as we see the adoption taking place, I think we can see Bitcoin trade at much higher prices over time. But during all of this, I mentioned earlier, we, in the next slide, we function 24/7, and the team meets every morning in 9 time zones to make sure that the machines are plugged in. And why do we do that? Well, when we look at Bitcoin mined to the average active hash rate, we saw ourselves being up there with one the highest rankings, and we're very proud of that. Now there's a couple of other companies that have shown up in this data set, but they're less than an exahash, I've not included them or they have a lot of -- where they basically have other people using their data centers.



So, it's really not reflective of them mining Bitcoin for themselves. And that's something that HIVE does, and we HODL, as you can see, on a regular basis, as much Bitcoin on our balance sheet as possible. And that has had a significant impact. Like I mentioned earlier, Bitcoin a year ago was 30,000 and now it's 60,000, but our total position has increased substantially. So that is creating wealth for the long-term shareholders of HIVE.



Ranked by utilization, we have a 95% ranking, and that is just from our self-mining, not from other people using our facilities. I think that, that's just really important in this equation. And then revenues energized by petahash for July, as I said, I look at the big miners out there and HIVE is an incredible number, and it's on a consistent basis being a leader in revenues that are energized for petahash, and we do it with green energy. We're not dealing with other sources of energy that are coal-related. And it's been a big challenge to find reliable green energy, and that's a big reason why we said we're going to expand and double our footprint in Paraguay because we're able to source a competitive, inexpensive on a relative basis, but competitive green energy for our future.



As you can see, ranked by BTG production per exahash, but I find it interesting that Marathon, who I have the greatest respect for, the company and the CEO, that their number would be bigger when you look at it. So, they must have other sources of revenue showing up. But still, it really is important for investors to look at how lean our team is having the lowest G&A to mine a Bitcoin when you look at relative market caps. With Aydin, we'll go into greater detail and granularity about -- for you and how we function because most of these other companies function in one country or just in one state, they are not diversified and they do not have to rely on sourcing green energy.



And during all this journey of being the first crypto mining company of September 2017 to date, this visual highlights about being lean and functioning, and we have not had this experience of negative big losses. We do not leverage our equipment. We've never leveraged our equipment. We have not gone through the bankruptcies of many of our peers have, and we have been able to, even during the worst of times, when FTX blew up, we were able to come in and buy machines at great, great prices because we had cash on the balance sheet. And we've already received our money back on buying them at a great, fantastic price.



So, this is an important visual that it's not just last quarter, this is showing you going back quarter in, quarter out, year in, year out, up cycles, down cycles, Ethereum, which was a big profit center leaving us and how we repositioned the company and to continue to prosper.



Positive corporate margins through the bear market. This is just another visual highlighting the previous one, showing you quarter-over-quarter of what we've been able to do, and this is an important indication of our capacity to adapt to these external forces that happen. So, you can see here that we have about 117 million shares outstanding. We've done an analysis that our peers have in this time period in the past year increased their number of shares out by 300%. So, we have amongst the lowest G&A and the number of shares issued to attract and retain great employees, to expand and buy new equipment, to increase our global footprint.



Now I'd like to turn it over to the longest-standing CFO in the Bitcoin industry, a snapshot for growth by our CFO, Darcy Daubaras.

[Darcy Daubaras, executive]

At this point of the presentation, I'll be taking you through a snapshot of the period, as Frank had mentioned, looking at the most recently completed quarter and some financial indicators. We are providing certain non-IFRS measures in our presentation today, and the company believes that these measures, while not as a substitute for measures of performance compared in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the company.



These measures do not have any standardized meanings prescribed under IFRS and therefore may not be comparable to other issuers. Further details can be found in our management discussion and analysis for the 3 months ended June 30, 2024.



Moving on to the next page. I'd like to remind our stakeholders that our earnings are comprised of our operational earnings or cash flow plus our investment earnings, which includes realized and unrealized earnings, which often includes noncash charges.



Taking a look at the next page. Mark-to-market is an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions. The market value is determined based on what a company would get for the asset if it was sold at that point in time. Mark-to-market losses or gains or paper losses or gains generated through an accounting entry rather than the actual sale of the security. The swings in digital assets impact our paper profits and losses each quarter. So, our Bitcoin digital assets do generate unrealized gains and losses each quarter.



It is important that investors understand the differences in operating earnings or losses in addition to mark-to-market paper gains and losses each quarter. Speaking about noncash charges, those are the write-downs or accounting expenses that does not involve cash payment, items such as depreciation, amortization, depletion, stock-based compensation and asset impairments are just a few of the common noncash charges that reduce earnings but not cash flows.



Moving on to the next slide, taking a look at the financial review. During this most recently completed quarter of June 30, 2024, we recorded $32.2 million of revenue and $14.9 million profit in adjusted EBITDA. This was driven by a production of 449 EPC equivalent mined during this most recent period. And to remind our listeners, as Frank had mentioned, this is following the April halvening event that we all experienced.



Moving on to the next slide, taking a look at the healthy balance sheet that we continue to have. Our cash position stood at $25.6 million as at June 30, 2024, along with an additional $153.9 million in digital currencies, comprised almost entirely of our Bitcoin HODL position. We also had $4.4 million in amounts receivable and prepaids, a slight decrease from the prior period. The total market value of our strategic investments increased by 118% to $15.2 million at the end of the period.



We've maintained a strong net cash position and healthy working capital position to fund our ongoing operations and growth objectives with the current ratio being our current assets divided by our current liabilities of 7.35.



Looking at the next slide and switching gears, taking a look at our gross operating margin on a year-over-year basis, comparing the first quarter as completed to the first quarter of our fiscal 2024, our gross operating margin, which equates to our total revenues minus direct operating and maintenance costs, increased in absolute dollars to $11.4 million in the most recent quarter compared to $8 million in the prior year comparative quarter.



Gross mining margin is also partially dependent on various external network factors, including the high mining difficulty we are experiencing, the amount of digital currency rewards miners receive and the market price of the digital currencies at the time of mining, which were on average higher than the prior comparative period.



As you can see in this most recently completed period, we are reporting a net income of $0.03 per share compared to a net loss of $0.19 per share reported in June 30, 2023, last year.

Moving on to the next slide, taking a look at our year-over-year revenue. We generated total revenue in the first quarter of fiscal 2025 of $30.2 million versus $23.6 million in the previous year's first quarter. The increase in revenues versus the same quarter in fiscal 2024 can be attributable mostly to the average bitcoin price, which was double what it was last year, even with the ever-increasing Bitcoin difficulty hash rate over the past 12 months.



As mentioned previously, our gross mining margin, which equates to our revenues minus direct operating and maintenance cost, increased in absolute dollars to $11.4 million or 35% in the most recent quarter compared to $8 million in the prior year comparative, which had a 34% operating margin.



Turning to the next slide. Comparing our current fiscal Q1 quarter to the previous Q4 quarter, we generated revenue in this first quarter of $30.2 million versus $36.9 million in the previous quarter. As has been talked about previously, this decrease in revenues versus the prior quarter was impacted substantially by the April halvening, leading to less Bitcoin produced, and this was partially offset by an increase in the price of Bitcoin.



Our operating gross margin also in absolute dollars was $11.4 million in the most recent quarter compared to $16.3 million in the prior quarter comparative. This decrease in gross mining margin versus the prior quarter was negatively impacted by the halvening that took place earlier in the quarter. As we continue to talk about, we have been extremely strong in our operations, but as a result of the halvening we have been able to adjust, and we've done a very good job of that.



Looking at the next slide, our adjusted EBITDA in this first quarter of fiscal 2025 was $14.9 million versus an adjusted EBITDA of $16.2 million in the prior quarter. I will highlight again that adjusted EBITDA is a non-IFRS figure.



In the first quarter, we experienced net income of $3.3 million compared to a net loss of $3.5 million in the prior quarter. I want to again thank our loyal stakeholders and shareholders that are listening.



And at this time, I'd like to turn the presentation over to our President and CEO, Aydin Kilic for an executive update.

[Aydin Kilic, executive]

Thank you for that excellent summary. It has been a solid quarter, and we are going to start off actually by looking at our production in Bitcoin over the last 12 months. So, we have mined almost 2,600 bitcoin with green energy over the last 12 months. As Frank and Darcy both mentioned, this is the first fiscal quarter for all of the public miners, where we are post halving.



And as you could see here, we've delivered solid and consistent production since the halving, 119 bitcoin in May, June and 116 in July and particularly a time when we've seen difficulty really maintain high levels in the $80 to $85 trillion range, and how we continue to have consistent production is we had new machines coming in from our S21 and S21 Pro orders to reach our target 5.5-exahash installed.



Now I do want to note, and we're going to start talking about this more, we are in a bearish cycle of crypto mining. It's obviously post halving we're seeing difficulty actually out of this last epoch, all-time high to $90 trillion. And so, what that means is we're in a bear cycle where you really want to manage profitability and have the best unit economics.



So. we're actually now operating at about 5.2 exahash where we improved the efficiency of some of our older machines by firmware optimization. And there's a very good reason why we do this. And that's on the next slide, profit.



Another quarter with positive gross mining margin. As you could see, this is $32 million of revenue this quarter with $11 million in gross mining margins. So, add another one to the chart. I think next quarter, we should have a slide that shows Hall of Fame Jersey hanging from the rafters. So, I'm not aware of any other public crypto miners that's mined profitably over the last 3 years.



And so, the reason why we're so meticulous with how we manage our hash rate, our firmware and we are extremely [indiscernible] paying attention to hash rate economics and also energy markets, again, as Frank mentioned, we [indiscernible] markets in Sweden, et cetera. This is how we have a multifaceted strategy to deliver quarter-over-quarter positive gross mining margins as a public company. And right now, we are in the $40 hash pricing. So, we're all-time low for hash price.



Post halving, we're in the $45 to $55 per petahash per day has price range. And what's interesting is you'll notice our mining margin was actually better this quarter than it was in the winter of 2022 bear market. And the reason why is because this is more of a macro commentary now for the Bitcoin mining industry, we have the new generation S21 and S21 Pro machine that exists in this post halving era that are allowing the miners to generate better revenues on the dollar per kilowatt ever basis, compared to the mining economics in late 2022, which were in the $50 to $55 per petahash per day range. But back then, the best machines on the market were just the XP and maybe a k Pro. And so, what does that mean?



So, you look at the advent of hardware innovation. And so, we have machines now that in the 15 to 18 Joule per terahash efficiency range, whereas a couple of years ago, the best machines, which weren't that prevalent by the way, right, like the S21 XP was very overpriced. Those were in the 22 Joule per terahash rate. We bought bunch of k Pros, they were phenomenal, $11 a terahash, 23 Joules a terahash. And so that's just a little bit of some of the notes of how we would hit these cadences of consistent [indiscernible] through the quarter. So that's on the operating side of the business.



So, let's flip to the next slide. This is corporate margin. So, I'm very proud of this slide as well. Our team works very hard in order to realize the numbers that you see here. Corporate margin is our gross operating margin minus our G&A as a public company. So, as a public company, we have a lot of different costs, as you can imagine, there's all the executive costs. There's travel to those conferences, sponsoring conferences, investor relations, marketing, lawyers, auditors, directors' and officers' insurance, there's a lot of overhead.



We have at HIVE Digital, the lowest G&A per Bitcoin mined in the industry, full-stop. And so, what you have is a company that is still making money fundamentally after you subtract these corporate operating cash costs. And this quarter, we did $8 million right? And so, year-over-year, by the way, we're up about 60%, right? A year ago, it's $5.2 million of corporate margin. And so, we believe that by having low G&A per Bitcoin mined. And by the way, this applies if you go back those 3 years, we've got positive corporate margin over the last few years as well.



We believe this gives investors the best access to Bitcoin as an asset class, almost functioning like a gold royalty streaming fund, which is a Frank's vision when he really founded HIVE. And so, strip away all the unnecessary [ blow ], have a high-octane, high-horsepower machine consistently go back to [ having ] the best hash rate utilization in the sector, green energy, globally diversified, low operating costs. And this is how you have a high-value company, not just looking at it [indiscernible] Bitcoin mining stock, but really just as a company whose creating fundamentals.



So, off to the next slide, you can look at the same ideology through a more accounting-focused lens. So, we talked about adjusted EBITDA. It was all for the analysts out there. So, a super solid quarter, $14.9 million of adjusted EBITDA and $18.8 million of EBITDA. Now if you tally that up for the year, what that works out to is an adjusted EBITDA of $47 million for the year and an EBITDA of $40.7 million for the year.



So, these are great numbers, and it's been another solid quarter, knowing how we're performing on an adjusted EBITDA basis, which is a good apples-to-apples comparison amongst our peers because some companies have different ways that they book noncash charges. We try to look at the business of how are you operating on adjusted EBITDA or at least that's what the analysts look at. And on the next slide, these are just some companies that have reported to date, right? So, some companies are still going to report in the next couple of days.



But for now, you could see that we are trading at an enterprise value, which by the way, as of last Friday, August 9, when we updated all the data, our enterprise value was only $154 million. Why? Well, our market cap is $300 million, but we're holding about $150 million of Bitcoin on the balance sheet. So, when you look at that enterprise value of $154 million, and you realize we did $14.9 million of adjusted EBITDA for the quarter. That's almost $60 million EBITDA annualized. That means your [ EV ] to adjusted EBITDA multiple is only 2.6.



Now first of all, that from first fundamentals, it's already attractive. But when you look at where our peers are trading upwards of 10x, 15x, 20x and more, we are an absolute bargain. So why is this I get [indiscernible] I think it's because our office is headquartered in Vancouver. So having the U.S. address is very important for getting for indexed on the Russell 3000, et cetera. And I think a lot of our peers spend a lot more money, which you can see from the G&A expenses on marketing and hire and PR. We're very proud of what we do. We do think -- we go to the conferences, we tell the story, we meet with retail investors, institutions, et cetera, but nevertheless, we believe we're trading at a discount to our peers, and that provides a great opportunity, in my opinion.



On the next slide, we look at [ EV ] to annualized revenue. And this is even more attractive, maybe even mind boggling with $32 million of revenue for the quarter and enterprise value of $154 million, our ED to annualized revenue is 1.2x. Again – and that's a bargain when our peers are trading at 2x, 4x, 6x. So again, we just like to point out -- I'm an engineer, by the way, so numbers, you live and die by them, but consistently how we've demonstrated high-performance, high-value, low overhead. I'd love to be at a higher multiple and sort of -- that's a nice place to be. I suppose the only way if you're really high multiple is normally maybe goes down. So, we're trading at a great discount right now. So, I think the only way it should go is up.



Now if we look at the next slide, I'm really excited about this one. So, this is our growth profile for next year. So, we've signed a PPA in Paraguay for 100 megawatts. And with S21 Pros, this would add another 6.6 exahash to our 5.5 exahash installed today, which will bring us to 12.1% exahash. And by the way, our efficiency globally, if we were operating at 12.1 exahash with S 21 pros, we'd come down to 19.3 joules per terahash. Today, we're 24.5. So that would give us -- I mean we already have one of the most efficient fleet basic miners on the joule per terahash basis, which, again, for all the enthusiasts out there, the better your efficiency on a joule per terahash basis, the lower your cost of bitcoin production. So, this, again, would take us to 12.1 exahash and a global fleet efficiency of 19.3 joules per terahash. So, this is very exciting. Our target is Q3 of 2025.



And by the way, our team is out there this year, hoping to slide out when you -- that's what 100 megawatts look like, right? So, a dedicated substation. So, we're really excited. The other attractive thing there, of course, is green energy. And as Frank mentioned, it is much tougher to find green energy at scale than if you just are willing to get grid mix or carbon emitting.



And so, what another -- a very compelling and exciting merit of our site in Paraguay is that we expect the cost of Bitcoin production to be about $22,000 with new generation equipment at the site on accord of the low power cost. So very exciting, a little bit more color. We'll be providing more updates in these releases to come.



On the next slide, a little bit more commentary on the post halving mining economics. So again, we've had solid production over the last 3 months. We're showing July here as well. Again, the interim year-end was June 30, but we included the July production report as well. So, our installed hash rate is 5.5 exahash, we've received all of our shipments of S21, S21 Pros.



In total, those are 9,500 ASICs that have been installed from January through to the end of July. But as I mentioned, we are operating our older machines, our 3 Joule per terahash machine. We've actually down-clocked them to go below their graded operating efficiency, an improvement to have better profitability and better unit economics. And again, when I showed that slide that we've been mining profitably for the last 3 years, how we do that is we're very analytical and very granular by how we manage our ASICs.



We're constantly looking at hash price, [ staggering ] what our electrical price is at every facility relative to the breakeven price of each machine. Can you improve the breakeven price of that machine by adjusting its firmware if you can, we absolutely do it. And when Frank talked about HODLing in 9 time zones, all our site captains, everyone's dialed into the program. And so that's how we function like a well-oiled machine.



Next slide. So, this is big news and this is great news. We have grown our HODL month-over-month since the halving, which I think is remarkable. So, we are at 2,533 Bitcoin mined with green and clean energy. Again, it makes us have an incredibly attractive enterprise value of only about $150 million.



And on the next slide, a quick update, got a great one on our milestones. So, we reached $10 million in annualized run rate revenue. Everybody was $2.6 million for the quarter, which, of course, would be $10.4 million for the year on annualized basis, it's very exciting. We broadcast this would be an interim target of ours in some of our earlier press release describing the growth of our AI businesses and our [ NVIDIA ] chips. So, we have over 4,000 NVIDIA A Series cards, the 84,000, 86,000 and 5,000, which were running in Tier 3 [indiscernible]. In addition to that, we have 96 H-100.



So very glad that we reached this interim milestone of $10 million of annualized run rate revenue. Our target for the second half of this year is still $20 million. And our target for next year, which is our blue sky is $100 million annualized run rate and that will be in from the AI business.



How are we going to get there? Stay tuned. We have some really exciting announcements. We've been very diligently pursuing expansions and procuring opportunities for having the absolute best GPU hardware available on the market for the next generation. And so, we will be providing the market more color on our plans for the second half of this year and 2025. So, stay tuned for more. Been a great quarter, and we look forward to more to come.

[Operator]

Thank you, Mr. Kilic. [Operator Instructions] We'll go first this afternoon to Mike Colonnese at H.C. Wainright.

[Michael Colonnese, analyst]

First, I'm curious, which site will you guys be converting over to HPC from Bitcoin mining? And what will be your strategy for the 20 megawatts? Do you think you'll purchase and deploy your own GPUs as you've done in the past? Or will you focus more on a colocation model here?

[Aydin Kilic, executive]

So, the sites which we are building for New Brunswick and then one of our sites in [Boden ]. So, these are -- I mean, all of our facilities are data centers. New Brunswick in particular and Boden I mean, Boden used to be a GPU mining facility and our facility in New Brunswick is what you call the military grade data center. So, it's -- you've got a structure there. You've got great bones. And of course, all the power distribution from high voltage down to 450 volts has already been done.



So, it's a matter of adding UPSs, chillers, generators, et cetera, everything you need to get to Tier 3 uptime. And the nice thing about the retrofit is a lot of the long lead time items are on the high-voltage side. And so, a greenfield, just in broad strokes, might take 2 years, retrofit is more in the 9- to 12-month range. And so, the CapEx on a dollar per megawatt basis, on a retrofit, you're looking at more in the $5 million to $8 million per megawatt range, whereas in a greenfield, you're more in the $10 million to $12 million per megawatt range. So that's that.

[Michael Colonnese, analyst]

And as far as the go-to-market strategy there, do you think you'll fill that capacity up with self-owned GPUs as you've done previously? Or do you think you'll take more of, again, that co-location model approach? And how should we think about the unit economics there?

[Aydin Kilic, executive]

All right. Yes. To put it into context, like one, like using the H-100 as an example, in broad strokes is about $30 million a megawatt, [indiscernible] right? So, it's very CapEx intensive. And the other ratio that's important to consider is that when you're building Tier 3, you have PV, power utilization ratio. And so, if you have 30 megawatts of power, you're going to end up with about 20 megawatts of IT load or compute. Whereas in crypto mining, you 30 megawatts of power, you're going to be using maybe 29 megawatts for buying. There will be very little ancillary overhead.



So, with 20 megawatts and $30 million, that would be approximately $600 million, again, in broad strokes. There's obviously [ blackball ] architecture coming up next year, there's H-200s coming out in Q4. I'm just talking about giving a high-level understanding of the economics of it.



Now it is, of course, attractive to purchase and operate your own GPU cloud because that's how you realize those $2.50 per kilowatt hour revenues when you're renting out H-100s.



On the colo side, we are seeing that rates could be anywhere from 25 to 50 per kilowatt hour. So, there are 2 different business models akin to mining crypto where if you offer hosting, margins are thinner, they more stable, it's more of a long-term ROI, whereas if you're self-mining, there's more CapEx involved, but you can realize potentially quicker ROIs based on crypto mining economics. So, I think it would be a hybrid, and we would want to bring the capacity on. I mean we have been generating revenue.



We hit $10 million of annualized revenue this quarter from leasing our own GPUs. So, we do expect -- plan to expand that, but 20 megawatts is a lot of CapEx to fill up with GPUs. So, we're evaluating the most accretive path forward right now.

[Frank Holmes, executive]

I just wanted to add that in Paraguay, we're about 1.5 hours to 2 hours from the capital, driving [ Melinzuela ]. And it's a nice beautiful green town, and we're so impressed with the infrastructure and the ease of being able to drive there. We took a chopper and visit all the other sites. And while they were just too far away for our initial -- we want to be able to drive and make it very functional and easy to build.

[Operator]

We'll take our next question now from Lucas Pipes of B. Riley.

[Unknown Analyst]

This is [ Peter] Sevelin asking questions on behalf of Lucas Pipes. And my first one is on your new third quarter '25 target. How should we think about cadence of deployment here? So, is it going to be skewed towards the end of 2025, let's say, quarter towards 2025? Or it's fair to assume a gradual ramp-up? And where things stays on financing side of this expansion? Just how much do you plan to spend on this 100-megawatt data center this year and maybe in 2025, if you can just provide additional color here would be great?

[Aydin Kilic, executive]

So we haven't disclosed the exact capital outlay plan. However, it is extremely attractive on a dollar per megawatt basis in Paraguay. And why we chose Paraguay was threefold the attractive dollar per megawatt build-out cost for us to complete a 100-megawatt site for the low cost of power and of course, the fact that it's green energy at scale. And so those 3 unique conditions are what make Paraguay very exciting, and we will be providing the market more details on capital allocation and build-out costs, et cetera, as the project moves forward.

[Unknown Analyst]

How should we think about ramp-up of hash rate?

[Aydin Kilic, executive]

Typically, in the first 6 months, you're doing high-voltage and substation work and you'll bring on capacity in that second half, perhaps in the third quarter of 2025 is when we would expect cash rate to start coming online.

[Unknown Analyst]

And my second one is on AI Cloud progress --

[Frank Holmes, executive]

I'd just like to add some color to that, is that we will do like a New Brunswick, you build a campus [Technical Difficulty] then you start putting in equipment to strike as fast as possible, get the cash flow. You don't wait until everything is finished and then turn on the machines. But like Aydin said, it will take 6 months to 9 months, but as soon as a facility of these buildings are built, we will start stocking – we're seeing some plugging in.

[Unknown Analyst]

And my second one is on AI cloud. So, with respect to this Paraguay expansion, will it affect your plans on purchasing latest-gen GPUs for your AI expansion?

[Aydin Kilic, executive]

So, the response I was providing Mike earlier, who asked some great question, those are actually -- the near-term AI conversion opportunities are actually in New Brunswick and Sweden, distinct operating facilities. And so, these have a 6- to 12-month construction time line on a retrofit. And so, if we were to purchase, which we've talked about, we've been very carefully going through an engineering procurement exercise, our next-generation GPU compute, it would go to those locations. And currently, 100-megawatt allocation in Paraguay is forecasted to more than double the Bitcoin mining capacity from 5.5 exahash to 12.1 exahash.

[Frank Holmes, executive]

And I think just to add to that, once you explain about this continuous process that we're spending every month and taking equipment that's for delivery immediately and upgrading the suite, lowering our costs and improving our exahash, we have a -- like -- and I like the best example is that I'm in South Texas, is like oil and gas and gas you're drilling and your fracking, you have to always be drilling. So, we are always upgrading our suite of ASIC chips. And I think that after we've completed our spin, it will add with the new and more efficient machines, Aydin is it about 1.5 exahash?

[Aydin Kilic, executive]

Yes, that's right, Frank. So, we have -- our global fleet average is 5.5 exahash installed with an efficiency of 24.5 joules per terahash. That constitutes approximately 8,030 joules per terahash machines. If we upgrade those 3 joules per terahash machines to S21 Pros that would yield an additional exahash and bring our average efficiency down closer to approximately 22 joules of terahash. So that can be the upgrade within our existing facility. And by doing -- we always like -- as Frank mentioned earlier, we like to have capital performing. So, when we order machines, it's for immediate delivery so they can get plugged in. We have seldom, if ever, do large machine orders where they come in 6 months later. We like to have rolling, if not immediate deliveries of ASICs. So, we always target a 1-year ROI. Now of course, that's variable, that stretches out a bit in a bear market, but it also shortens a lot in the bull market.

So, our whole business model is based on cash flow, return on invested capital. So, we see it as a success if the ASICs we purchase or GPUs for that matter, when we run them, after you subtract your operating costs, have you made a profit? Have you made a handsome profit in the time that you've been running them. And if you even sell them, sometimes on the secondary market, you can add that back. And one golden example I like to point to in the bear market of 2022 is we bought J Pros, S19 J Pros for 10 bucks a terahash. And even in that bear market, because we've gotten them for such a great deal, they has fully repaid themselves off in a year and continued to free cash flow after that. So that's sort of the methodology of how we upgrade the site. We don't necessarily do massive orders. We're constantly evaluating the landscape. Yes, we talk to all the big 3 manufacturers, but we also talk to every broker in the industry. And whenever there's an attractive immediate delivery deal, we pull the trigger. That's why you'll notice we did 7,000 machines, another 1,000, another 1,000, another 500 to [ prep ] for the halving in the last 6 months.

[Operator]

We go next now to [ Mike Grondahl ] of Northland Capital Markets.

[Unknown Analyst]

I just wanted to follow up on the HPC strategy. How have demand been from customers? And what type of customers have you talked to regarding the 20-megawatts?

[Aydin Kilic, executive]

So the 20-megawatt is, first and foremost, an infrastructure project for us. And as we work to build that out, typically larger customers like to see the project underway before you start negotiating pre-leases. So, what we've been doing is focus on getting scheduling down. So, customers who are wanting compute to come online, we want to know when they can expect that compute to come online. And because there are so many new iterations of NVIDIA hardware, the engineering procurement exercise, I alluded to earlier, you kind of have to have -- it's like matching 2 puzzle pieces to make sure they're the right fit. So, the data center capacity are going to be air cold, we can be liquid cold next-generation stuff will likely be liquid cool if not all liquid cool. And then are you going to be working with [ Blacklo H-200 ], et cetera.



So, we'll be able to provide more color on that as we provide more announcements, but that's just the methodology of the process that you go through when you're doing these larger build-outs. I hope that's helpful.

[Unknown Analyst]

Yes, sure. And then just secondly, what are your top 3 priorities for the second half of calendar '24 now?

[Aydin Kilic, executive]

So, we hit our $10 million ARR for AI revenue this quarter, which very proud of our team for realizing that milestone, which we broadcast previously. Our target for H2 this year is $20 million of ARR. So that is one target and that's working with bringing more GPUs in our cloud business online. The other target is to have both Paraguay construction underway and the 30-megawatt conversion into 20 megawatts of HPC underway.



So, the completion of the latter 2 infrastructure projects will fall into 2025, of course, but to have those projects broken ground would be a goal that we would be very pleased with this year.

[Frank Holmes, executive]

I would just like to add some color to what Aydin is saying is that when people make these announcements, from crypto mining all of a sudden, they're going to HPC, it's very, very complex. And it's much more complex than I ever expected. But what Aydin is saying is that we've hit 10 million. That's basically the same team that's been building that out and repurposing those chips.



So that's a heck of accomplishment because that's almost like free cash flow when it flows off. And what we're finding is that when we go to order [ block wells ], et cetera, the cost, the engineering is much different. It's much -- you're building a brain. And it's like a bunch of neurosurgeons are brought into the room. The engineers at the beginning just don't believe how much energy is going to be consumed, how heavy is the steel infrastructure to hold up these [ Blackwell ] servers. There's a litany of complexity that goes into these expansions.



So, one of the things which we said is that we have 6 megawatts of electricity in Boden. We own the land; we own the facility. Let's start -- it's a military town. Let's start right away there. And then we said, hey, in New Brunswick, we have this additional electricity that we have ability to, we have variable and we have fixed and let's take a portion of the fixed. And as we're in that journey of getting the engineering, et cetera, -- and we are discussing with NVIDIA, these various chips, all of a sudden, it becomes that we're in conversation with NVIDIA engineers that we have to rethink the structure, the building. Do you need reinforcement? Do you need this or that?



So, it is phenomenally fascinating, but it's much more challenging than what people think. But what sweet about it is that you can be making $4 an hour versus $0.15 Bitcoin mining. That's the real big difference when you look at the business.

[Operator]

We'll go next now to Bill Papanastasiou at Stifel.

[Bill Papanastasiou, analyst]

For my first one, I was hoping you'd be able to share your outlook for the Bitcoin mining landscape and how that plays into your philosophy to scale operations going forward as you look to double the hash rate capacity here with Paraguay?

[Aydin Kilic, executive]

Well, we have always tried to utilize cash flow from the business to grow the business. And of course, adhere to the green energy mandate, which makes it a lot [indiscernible. We could have -- there was a lot of opportunities we've looked at. We could have gone nuclear; we could have just gone grid mix. And even within the realm of renewable energy, we did look at some interesting opportunities in the U.S. where you could have gotten $0.025 power, but then you're spending $2 million a megawatt getting on the energy production side contributing to the CapEx in the solar farm.



When you look at those ROIs, they really start to stretch out very long, and it doesn't make the economic sense. And so, getting back to the 3 pillars of why I think Paraguay is such a home run is because you have the cheap dollar per megawatt CapEx to build out the attractive electricity costs. We'll provide more details on these specifics in due course and then, of course, the green energy at scale.



Now of course, to do a 100-megawatt site, that will require capital, but this is what we believe a truly accretive use of capital. So, we're excited about this project.

[Bill Papanastasiou, analyst]

And then just shifting gears to the GPA as a Service business, how are you seeing or assessing the sustainability of prevailing market compute prices for the GPU hardware that HIVE has in the fleet over the next 12 to 24 months? And can you share some more color on utilization rates?

[Aydin Kilic, executive]

Yes, that's a good question. Like with all technology, whether it's your home computer, your iPhone, ASIC miner for Bitcoin or an NVIDIA GPU, they'll have economic life cycles, right? And really, the H-100 , right, the Amper series was still in using is still in use is still considered very viable. And the H-100 came out, the hopper architecture. And so, what happened was people were paying a premium for the hopper architecture, but it would still pay a lower amount to get compute using the H-100. When the [ Blackwell ] comes out, we'll have the same effect. So, I would say, if you use a melting ice cube analogy, the hourly rate for GPUs melts at a much slower rate than Bitcoin mining ASICs, right?



And I think that a big part of being able to be a true player in this space -- we haven't really touched on yet on this call. So, your question is a good one because it brings it to light, is uptime, right? So, in crypto mining, when you look at the Bitcoin per exahash, [indiscernible] in the top 3 consistently, usually, but consistently. And we're talking 98%, 99% uptime that's a home run in crypto mining. And then some of the peers are like 95%, 90% uptime. There's no room for 90% uptime in AI, right? Like Tier 3 is 99.998% uptime.



So, I think what the aspiring crypto miners that want to get into this sector will wrestle with is delivering that uptime for people that want to train foundational models to do fine-tuning, and we've done a lot of that. I think we still have about 120,000 GPUs in the East mining era -- and we've been -- we've grown our AI compute revenue from $1 million to $10 million ARR in the last 1.5 years.



So, we've been building that -- building on our pedigree of operating GPUs. And we do a ton of stuff on the R&D side, looking at fine-tuning data sets, et cetera. So, making sure that when we work with researchers that they have a good, curated user experience because you do have a user, right? You're not just submitting hashes to the Bitcoin network and if your server gets disconnected, reboots and then it tries again.



So, I think the key is good uptime and a good user experience will allow you to realize those long-term contracts. Because once you sign a contract for a year or 2, what have you, you've got to deliver. There's SLA, service level performance requirements. And we're seeing long-term contracts for H-100s roughly in the $2.50 per hour in some $2.20. It's all a negotiation, right? So, I hope that answers the question.

[Operator]

And gentlemen, it appears we have no further questions today. Mr. Kilic, I'd like to turn things back to you, sir, for any closing comments.

[Aydin Kilic, executive]

Yes. I just want to thank my whole team. As Frank pointed out, we function across 9 time zones. We are the longest scanning crypto miner. We used to mine Ethereum. That business did $150,000 a day. It was a 90% profit margin business, and we never got a premium for it. Instead, we always contended with the [indiscernible] that the merger was coming. And then when the merge came, we pivoted, and we started mining all [indiscernible] the GPUs, and then we started reversing some GPUs for HPC compute.



This is now highest second Bitcoin halving event. And as Darcy pointed out, we've got $150 million of green and clean Bitcoin on the balance sheet, unlevered, unencumbered. We've not taken on any debt to purchase ASICs. So, I think that we've really emerged as a best-in-class performer. But when you look at the comp tables, the enterprise value to EBITDA, we're trading at a discount. So, for all the analysts that are here, thank you so much for dialing in and ask these excellent questions. And I think that we really just focus on [indiscernible] being the most profitable, best unit economics. We realize scale is important, that's why I've been telling people, we know the market doesn't care about 5 to 6 exahash. That's why we said, okay, we need to go from 5 to 10 to 15. So, stay tuned. And I think it's going to be an exciting year ahead. We always see that bull market comes about 9 to 12 months after the halving if history is any indication, which it usually is. Thank you, everybody.

[Operator]

Thank you, Mr. Kilic. Ladies and gentlemen, that will conclude the HIVE Q1 earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great evening. Goodbye.