HIVE Blockchain Reports Third Quarter Financial Results

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HIVE Blockchain Technologies Ltd. (TSX.V:HIVE) (OTCQX:HVBTF) (the “Company” or “HIVE”) announces its results for the third quarter ended December 31, 2019 (all amounts in US dollars, unless otherwise indicated).

“I am pleased to report a healthy profit in the third fiscal quarter driven by our ongoing efforts since the end of 2018 to increase transparency, accountability and profitability across our mining operations,” said Frank Holmes, Interim Executive Chairman of HIVE. “Notably, our decision to restructure operations at our flagship Ethereum mining facility in Sweden paid off as we generated a strong increase in gross mining profitability vs prior periods under our previous service provider relationship, which ceased in November. Additionally, we benefited during the quarter and subsequently from our prudent decision to suspend Bitcoin cloud mining operations to avoid mining at a loss due to the significant increase in mining difficulty combined with declining Bitcoin prices in the second half of calendar 2019.

“These decisions have strengthened our balance sheet; we also recently lowered our cost base while increasing our cost certainty by entering into hedging arrangements related to our electrical expenses in Sweden. Combined, these will enable us to make appropriate investments to drive future growth.

“We are extremely excited as we look ahead in 2020 and the potential for further improvements to the profitability of our Ethereum mining operations,” added Mr. Holmes. “Institutional adoption of blockchain technology, including Ethereum, is rising. And Ethereum market conditions for miners have improved thus far this year: daily block rewards increased in January and coin prices have rebounded significantly over the past few months while the network hash rate has been relatively stable. Additionally, it is anticipated the Ethereum network will implement Programmatic Proof of Work this year, which would effectively eliminate ASIC mining on the network, thereby increasing the relative efficiency of GPU mining facilities such as HIVE’s.

“We continue to evaluate expansion opportunities globally, with a preference towards maintaining 100% green energy, and look forward to providing further updates on our progress through the year.”

Q3 F2020 Highlights

  • Generated income from digital currency mining of $5.0 million
  • Generated gross mining margin of $3.8 million from mining of digital currencies
  • Mining output of newly minted digital currencies:
    • 23,175 Ethereum
    • 33,190 Ethereum Classic
    • 127 Bitcoin
  • Generated net income of $3.4 million for the period
  • Net cash less loans payables decreased to $3.2 million due to cash used in operations, reflecting upfront energy costs paid during the quarter in Sweden for which the Company anticipates receiving energy rebates in the future, with digital currencies assets at $3.4 million, as at December 31, 2019
  • Working capital increased to $11.8 million

Financial Review

For the quarter ended December 31, 2019, income from digital currency mining was $5.0 million, a decrease of approximately 41% from the same period in the prior year primarily due to the Company’s suspension of 200 PH/s of its ASIC cloud mining capacity at the beginning of October, 2019 and the remaining 100 PH/s in December 2019 due to worsening Bitcoin mining market conditions as coin prices declined while mining difficulty and network hash rates increased to a record high. Third quarter income from digital currency mining was produced from 24.2 MW of GPU production capacity, and 100 PH/s of cloud mining capacity for a partial quarter.

Gross mining margin during the third quarter of fiscal 2020 was $3.8 million, or 77% of income. It was approximately $1.1 million excluding the reversal of a value added tax (“VAT”) provision in Switzerland related to historical periods originally recorded in the second quarter of fiscal 2020, as well as upfront energy costs paid during the quarter in Sweden for which the Company anticipates receiving energy rebates in the future. This compares to ($2.2) million, or -27%, in the same period in the prior year. Excluding the impact of the reversal of VAT and upfront energy costs noted above, the increase in mining margin was driven by an improvement in the profitability of the Company’s Ethereum mining operations in Sweden due to a change in its service provider relationship, as partially offset by a reduction in Bitcoin mining profitability.

Net income and comprehensive income during the third quarter of fiscal 2020 was $3.6 million, or $0.01 per share, compared to a loss of $36.2 million, or $0.12 per share, in the same period in the prior year. The increase was driven primarily by the improvement in gross mining margin, an impairment charge taken in Q3 of fiscal 2019, and a decrease in depreciation expenses in fiscal 2020 stemming from impairments taken in the prior fiscal year.

Three months ended December 31,

Nine months ended December 31,

2019

2018

2019

2018

Income from digital currency mining

$

5,003,944

$

8,449,545

$

26,135,552

$

25,633,426

Operating and maintenance costs of digital currency mining

(1,170,145)

(10,694,763)

(19,296,937)

(19,574,719)

Gross Mining Margin1

3,833,799

(2,245,218)

6,838,615

6,058,707

Gross Mining Margin %1

77%

-27%

26%

24%

Depreciation

(1,345,212)

(9,392,790)

(3,850,241)

(19,220,035)

Gross gain (loss)

2,488,587

(11,638,008)

2,988,374

(13,161,328)

Revaluation of digital currencies2

(727,064)

(4,602,879)

(2,639,579)

(13,772,008)

Gain (loss) on sale of digital currencies

107,960

(1,825,637)

261,681

(2,925,350)

General and administrative expenses

(1,125,864)

(967,656)

(3,791,320)

(3,225,862)

Impairment

(15,967,785)

(30,714,205)

Foreign Exchange

2,860,408

(895,312)

(302,211)

(2,745,910)

Share-based compensation

(62,220)

(531,587)

(371,119)

(789,949)

Realized gain on investment

Unrealized gain on investments

1,531,464

Finance expense

(153,792)

4,886

(261,314)

(11,856)

Tax expense (recovery)

(50,000)

Net income (loss) from continuing operations

$

3,388,015

$

(36,423,978)

$

(2,584,024)

$

(67,396,468)

EBITDA1

$

4,887,019

$

(27,036,074)

$

(3,933)

$

(48,114,577)

Adjusted EBITDA1

$

5,676,303

$

(21,901,608)

$

3,006,765

$

(33,552,620)

Diluted income (loss) per share

$

0.01

$

(0.12)

$

(0.01)

$

(0.22)

Net cash inflows (outflows) from operating activities

$

(2,404,273)

$

(6,448,079)

$

(1,216,180)

$

(1,583,101)

Net cash inflows (outflows) from investing activities

$

$

$

$

(7,305,432)

Net cash inflows (outflows) from financing activities

$

$

19,253

$

306,712

$

355,437

As at

December 31, 2019

 March 31, 2019 

Total assets

$

26,176,194

$

27,761,197

Total non-current liabilities

$

290,915

$

(1)

Gross mining margin equates to income from digital mining less operating and maintenance costs and is a non-IFRS measure; see Non-IFRS Measures in MD&A for reconciliation

(2)

Revaluation is calculated as the change in value (gain or loss) on the coin inventory.  When coins are sold, the net difference between the proceeds and the carrying value of the digital currency (including the revaluation), is recorded as a gain (loss) on the sale of digital currencies

(3)

EBITDA and Adjusted EBITDA are non-IFRS measures; see Non-IFRS Measures in MD&A for reconciliation

Financial Statements and MD&A

The Company’s Condensed Interim Consolidated Financial Statements and Management’s Discussion and Analysis (MD&A) thereon for the three and nine months ended December 31, 2019 will be accessible on SEDAR at www.sedar.com under HIVE’s profile and on the Company’s website at www.HIVEblockchain.com.

Webcast Details

Management will host a webcast on Tuesday, March 3, 2020 at 9:00 am Eastern Time to discuss the Company’s financial results. Presenting on the webcast will be Frank Holmes, Interim Executive Chairman and Darcy Daubaras, Chief Financial Officer. IMPORTANT- Click here to register for the webcast.

 

SOURCE HIVE Blockchain Technologies Ltd.