Hey guys, welcome or welcome back to the channel McNoney, the official home of power mining analysis. Anthony and I have made our way down to Texas. We're officially kicking off our Texas site tour 2.0 tomorrow. But that hasn't stopped earnings week. We've got Asher Genoot on the channel. We're going to be slicing and dicing Q3 earnings, strategy and outlook moving forward. Before we get into it, take a second, smash the like button, guys. Big help to myself and the channel. If you're not already subscribed to McNoney, feel free to join and let us know in the comments section below what you thought of Hut 8's results and if you're currently holding shares. With that being said, let's get into today's interview.
Okay guys, away we go. We've got the CEO of Hut 8, Asher Genoot, back on the channel. We're going to be talking Q3 earnings, strategy and outlook. Very excited to get into today's interview. Asher, thank you so much for making the time.
Excited to always be on here, guys. Thanks for having me.
Yeah, it's great to see you again. Now, I wanted to kick off with kind of the standard earnings question. Q3 earnings highlights, but before we do, can you give us a quick rundown? ABTC, Hut 8, you're obviously closely involved with both of these companies. It's been a very transformative year for the organization. Can you just give us a bit of a lay of the land, kind of high-level overview here?
Sure. Hut 8, we've transitioned into a company that's long infrastructure and energy infrastructure. So if you believe that power is going to be more scarce, if you believe in data center capacity, digital infrastructure capacity, AI, that's where Hut 8 is. We actually took a lot of that Bitcoin mining exposure and we ended up forming a company with Eric and Donald Trump Jr. called American Bitcoin. That company is a Bitcoin accumulator. And so it's doing a bunch of different strategies to try to increase Bitcoin per share. It's not focused on trying to get to the most exahash. It's not focused on trying to get the most amount of Bitcoin on the balance sheet. It's just Bitcoin per share. Are you increasing a shareholder's ownership of Bitcoin through all these strategies or not? Because I think that's the only metric that really matters. Everything else is more of a kind of vanity metric in my mind, and I say all the time. And so with that, American Bitcoin launched April 1st. We took that company public in September and that company now has been operating and doing very, very well. And so in our financials this quarter, we showed kind of that transition of that story, right? And so it's been exciting because we beat every single kind of analyst estimate in terms of the street's. From a revenue perspective, from a profit perspective, American Bitcoin is what started in April. We're in November today, a company that's less than a year old, and in this quarter, I mean, it did over $60 million of revenue at a 56% margin, and that includes not only just the cost of energy, but Hut 8 builds the infrastructure and we charge an infrastructure fee to American Bitcoin, so that actually includes that fee, because most companies they build it and then it's a part of depreciation and amortization, everyone kind of ignores that, but this is like a real cost that they're actually paying and it kind of hits their cost that people look at. And so I think across all regards, the fundamentals have done really good for American Bitcoin. Bitcoin per share has continued to increase since the day we started. We're starting to show these charts on our socials of Bitcoin per share growth and how we're growing those satoshis per share. And then at Hut 8, we're extremely excited because we have a massive energy infrastructure platform. I think a lot of folks were like, 'Hey, are you about to announce a deal?' We had some deals announced last week. Super proud of all those guys. And we're working really hard and I think there's a lot of demand in the market today, which is great.
Yeah. I mean, it's come a long way. I mean, I remember when you formed the merge with Hut 8 and there were some skeptics out there at that point, even about your background, about Michael's, you know, and Hut 8 at the time had been this sort of like, you know, just waiting around, not really doing anything in terms of growth. A lot of frustrated shareholders. You said to the audience on one of those early podcasts, 'Judge me in Q3. Give me the three quarters to get this company off the ground where it needs to be.' And we gave you a report at Q3 and we gave you a very high scorecard there because you had achieved exactly what you said. Moving forward now, another period now, and look at where we are now in terms of the company and where it's gone. You've proved all the naysayers wrong there. In terms of the results, great results again there. I mean, obviously you can see now the focus of direction in terms of the power, the mining, the strategy, the hodl. I'm going to ask a question on Bitcoin mining as a whole here because we do ask it to all the companies at the moment. A lot of the direction we're seeing is towards high-performance compute, but can you sort of give us your interpretation of what opportunities, if that direction is moving towards HPC, that it gives to Hut 8 as the overarching company.
Yeah. So when we think about kind of the value of an electron and the value of power, we think that will only increase. You had Bitcoin, which was a large consumer of that power. Now AI is a large consumer and the value per megawatt is a lot higher, right? And so there's a lot of focus on monetizing electrons for that business model. I think there will continue to be other business models as well, but our focus is, I think we have one of the largest Bitcoin mining platforms in the world today. And instead of saying, hey, we're going to pivot out of this business, we said, you know what, we're going to structurally spin out a company so we can keep on being the leader in the world there. And then for the data center market, we look to be leader in the world in that business as well. Everything we want to compete at, we want to compete at the highest skills. And then once we've done that and we feel comfortable about our position, then we can look at other opportunities. And so today, data centers is an area that we're spending a lot of time on. We're spending time on commercializing the sites we have, building the relations with the customers, and being able to show the market our ability to grow and scale with those customers.
That's great. Hey, now transitioning back to the Q3 results here, can you walk us through a couple of the highlights, whether operational or financial? Then I'll let our good friend Anthony, the accountant, dig into those numbers a bit.
Yeah, happy to do so. So, revenue numbers obviously went up both year-over-year, quarter-over-quarter, and beat analyst estimates. Our costs actually and the gross margins actually did better as well. And so across the board, again, I'm looking at it from a quarter-over-quarter and year-over-year basis, our SG&A, our costs went down, which is great, quarter-over-quarter. And we had some transaction costs last year, last quarter when we were spinning out American Bitcoin. And so that's another element. Net income obviously was very, very strong. I think people don't really expect net income from companies in our sector. And I think we've shown net income a couple times these last couple of quarters. And so the overall kind of story and I think strategy to what you said, Anthony, when I took over, look, when I took over, Hut 8, American, US Bitcoin and Hut had just merged together, right? No one knew who we were. We were pretty low-key as operators because when we were private, we said, look, we don't need PR. Like, we don't have customers. We already have all the investors we need. Let's just focus on building a great business. And Hut 8, I think investors lost a lot of confidence because they couldn't execute and operate, and that's why they wanted to merge with us in the first place. But it took us about a year to come together as a company. And so patience started winning out. And when we merged together, obviously it was about two months, and then I ended up taking over the CEO. And that was right after a short report. And so when I took over, the stock was at $7, $6.77, right, February 7th. And I came in, I said, look, these companies have not been merged yet. There's a lot of cleanup that we have to do on the Hut operations and business, and the market will get to understand who the US Bitcoin team was, and we'll go and we'll prove it out. And so I think we've done a lot of that in last year, and then this year was a year about growth, and this year is a year about seeing the financial results from all the fruits of that labor that we put the foundation for. I think this quarter was just yet another kind of example of we're growing past expectations where we have really strong fundamentals. Obviously, the focus for a lot of folks is, are you signing a deal? Are you signing a deal? Right? But I think at the end of the day, are we building a strong foundational and fundamental business, and as we add more opportunities onto that foundation, will only grow more and more and more. So I think that's really, really important. Our balance sheet is really strong. Our debt-to-equity ratios are really great. And so that's something I also think about as well during times of goodness like right now. You want to think about your balance sheet because if we look back in 2021, everyone was going crazy, market was great, etc. 2022, the market spun around and we were in a position where we were able to acquire other assets. We were able to restructure. We had some debt that we had to restructure as well that we learned a lot from. And so I think right now it's being excited about all the opportunities of growth, but also making sure we're positioning ourselves for all kind of market dynamics that may or may not come.
Yeah, I mean, there are a good set of results. So it's nice to get an income there. Obviously, some of that is helped by the fact you have got one of the largest balances of Bitcoin in any of the public companies out there, and the benefit of the fair value accounting rules do help that obviously in times of the Bitcoin price drops, and we hope there's not too many of those in the future. It has a sort of like the reverse impact. Obviously, the mention there about sort of G&A costs coming down, that's, you know, music to my ears as a chartered management accountant dealing in cost for the last 35 years. And also obviously the fact that, you know, you've not decided to take the same route as maybe some of the peer miners in growing that sort of stock compensation like we've seen there. I mean, for a relatively, and I'm going to say it's still a relatively new industry, the oldest Bitcoin miners are around about the eight-year mark now. So it's not really a sort of like an old industry, but we're seeing from sort of like a number coming out this stock compensation, I think from a retail investor, it looks like, you know, is it getting out of hand? I mean, I understand the principles about, you know, you're driving to make sure that individual goals are with the company goals, and you want to reward people, you want to maintain, keep people like that, but do you see, you know, this as being used as a sort of like a tool to sort of like, you know, to overcompensate people in a short-term thinking that, you know, this might not be here forever, so let's make the running where we can. And I've done comparisons with some of the big seven, you know, but the big seven companies in the world, they're delivering net profits with all the, you know, net in terms of cash and everything in quarter after quarter, and I'm not quite sure everyone in the industry that we're in at the moment is sort of delivering at that level at the moment. When they do and the shareholders see that share price rise, you know, great. Then I think there's more aligned to that. But what's your view on that at the moment?
Yeah. So I have a very kind of deep philosophy on this. I think how compensation is structured is really, really important because you can have PSUs, you can have RSUs, but how do they actually structure these, when do you get the shares? Right? So I'll do a quick education for everyone listening. Okay, so if you think about stock-based compensation, there's really, there's options, but as a public company right now, really it's RSUs and PSUs. And what are those? RSUs is restricted stock units, which is time-based usually. And you say, okay, if you work at a company for X period of time, you're going to get these shares. And the standard is a three-year RSU package. And so what is that is if you get granted X dollar, you get X divided by three. And every single year, you get a third, a third, a third, right? And that's kind of the typical, whether you create value, whether you don't create value, as long as your ass is in the seat, you're getting that RSU package, right? And so that's kind of the first structure. Then you have PSUs, which are performance-based stock units, and those are based on metrics. And I think the nuances there are really important, which is what are the metrics? Do people agree that those are good metrics? Right? And the second is how do those get granted? Usually how that works as well is if you hit the metric, then they grant you kind of a third, a third, a third. So you can kind of get those across the board. When we started, last year was our first kind of comp year. And originally I went to the board and I was like, look, I don't want these kind of like annual kind of structured packages. Like give me big lofty goals, right? Like I'm a big believer, like I'm super proud of what Elon has accomplished at Tesla. Like I'm a huge supporter of the whole trillion-dollar package because if you can go and drive value for shareholders, like you should be able to create value. Otherwise, you'll have folks like him say, 'You know what? I'm just going to go start a new business. Like why drive all the value here rather than go start something new?' Right? And so when we first started, I was like, look, the company's not in a good spot right now. Just give me big goals and let me go hit those, and that's what I want to be driven by. And at the time, the board was like, look, you just took over. We're not in a position to do that. Let's think about how to do something kind of middle and down the fairway. And so actually last year, and we talked about this, I said we're not going to take, so me and Mike, we're not going to take any RSUs. No time-based. It's only going to be PSUs. And the goal at the time was we would increase the share price by 50% or 100%. And the way that we structured it is really important because of the volatility of our stock. We said if we hit the goal in the first year, it doesn't count. It only counts if we hit it after the first year. And the reason was because like we have to come and prove that we're fixing this business. So if we have some price appreciation, did we actually fix that business and get sustainable growth? And so if we hit it in the first year, we should be able to hit it again. Otherwise, we shouldn't get anything. But not only that, once we hit the goal, we only get the stock at the end of the three-year period. We get nothing in between. And so that was a mechanism to say we're performance-based. We don't get paid unless we drive value. And if we hit the goals, we actually are retention-based as well, where we don't get anything until the end of the period. So let's say we hit it in year two. If the stock price goes down, what we receive at the end of the three years is way less valuable, right? So there's an incentive to hold and continue to grow that value. And so I think the way to think about, like when you look at some of the information out there, it's like, okay, we have this time-based and we have this performance-based. It's really important to understand like what is the performance, what is the retention of that performance, how does it come out, and does it drive and incentivize the proper and right behaviors? Because if you're just going to get paid to be there, that's not that interesting, right? And I think that's not that great from a shareholder perspective. If you're paid to deliver and you're paid to grow, I think that's really, really important. We live in a world today where it's really competitive to bring on great talent. And look, we had two guys that I literally trained from out of college and they poach, XAI poached them, and now one of them leads power and one of them leads infrastructure engineering for XAI, and they're 24, 25 years old, got paid eight-figure packages, right? And I mean, that's the world we live in. But the reality is, think about the scale of these projects. We're talking about multibillion, if not tens or hundreds of billions of dollars of infrastructure. And so if you can go and you can actually drive that value, we should be able to reward folks in order to drive that value. And I think tying compensation to driving value is critically important. I think it's worked unbelievably well for Tesla to date. I think it will continue to work well with their new package. And so that's where my philosophy is a little different because it's, are you rewarding people just for being there, or are you rewarding them for driving value to shareholders? If they're driving the value to shareholders and they're getting a percentage of that value creation, then I think that that's fair and that's fine, right? And so like the conversations we've had a lot internally is historically my ownership in the company has been good but not huge, right? And I said, 'Look, if I were to start a company, I can own 100% of that company, plus dilution and so forth. I want this to be the company that I'm at for the next one to two decades, right? I just turned 31 a couple days ago. I've got a lot of juice in the tank to keep on building and driving.' And I shared with our board, give us goals where we can be meaningful owners of this company, where all of our wealth can be in this company, and let us go and achieve and go hit those goals. And so that's kind of my philosophy there, where I do agree historically this industry has not been great fiduciaries of how they manage compensation. I think it's primarily around structuring incentives. And I think if that changes, people can make a lot of money if they drive a lot of value, but they should not if they don't drive a lot of value. And that's kind of my overall perspective on compensation.
I'm going to say that's probably one of the most transparent responses we've had on the subject actually, because we do ask it regularly. It is a challenging topic and you've highlighted the real benefits there if the shareholders are benefiting, and those shareholders at Tesla will significantly benefit if he gets that pay package, because to get that pay package, the company has to be worth something like $8.5 trillion, and that's about five or six times more than it's worth at the moment. So for every... that's...
That's the thing is if you have, like, I'm very much in that mindset, right, is if you have entrepreneurial, like, founders and people who are leading these companies, usually how kind of compensation works is you hire a compensation consultant, they come in, there's a list of names, and it's like, okay, these are the names within your revenue, market cap range, this is what everyone else is making, and you can kind of make in the 25th, 50th, 75th percentile, and then that's your comp. So you basically get that without having to actually drive the growth and the value. And like for myself as a leader, like, okay, so do I spend the next 10 years and I'm just put into this box of whatever this consultant comes up with, and like, that's what I can achieve? Like, that's not going to work for a guy like Elon, right? Because then it's like, why go and sacrifice my whole life? I mean, he works every single waking moment. Why go and create those sacrifices if there's not these goals you can grow and you can achieve? And I think similarly, I mean, I'm in the office till like midnight, 1:00 a.m. most days. We just got a place in New York. My fiance is like, 'Hey, are you going to be home much this week?' And I was like, 'I'll probably be in the office.' Like, 'All right, I'm going to go hang out with some friends in New York. I'll see you there this weekend.' And so, like, I think that's really important because it's, you want to give people goals. It's similarly, let's just break it down. Imagine if you had a salesperson in a company. They're incentivized by commission when they close deals. If you told them, 'Hey, I'm going to give you this fixed salary no matter what. You close 100 deals, you close zero deals, this is what your comp is.' I can promise you, you'll have less aggressive salespeople out there going and hustling and making it happen. So I think that's where, like, everything in my opinion is all about how things are structured. Does it drive the right incentives or not? And going one layer deeper into how things are structured ultimately is a determination of is this good or is this bad. That comes to compensation, that comes to how you raise capital, that comes to how you actually get some of these deals that are announced done. Like, all the devils are in the details, and I think that's, and only time, unless you're super deep in the weeds, only time will have those things come out into fruition.
Yeah, that's music to both of our ears. In my former job before YouTube, I was in compensation design for sales teams. So I can 100% attest to what you say there. Now, another unique kind of spin you guys have entertained at Hut 8 is this development flywheel. So can you talk to us a little bit about this structure? It seems like you guys have really got this system in place now, kind of rinse and repeat, which is exactly what we want to see as Hut 8 scales. Can you walk us through what the idea is, how it works, and where you see this going down the road?
The idea behind the development flywheel is in order to create a very valuable, meaningful company, we have to have the ability to originate new sites, develop those sites, commercialize and operate. It is not about can we just change over our Bitcoin mining sites to AI campuses, but the ability to have this pipeline of growth. And so from kind of day one when we started the business, we started talking about, I think when everyone started talking about exahash, we were talking about megawatts. People like, 'What are you talking about? Why are you talking about megawatts? Talk about exahash, right?' And we're like, 'No, this is the kind of the underlying thing we're really working on.' And if you look at our sites today in our development pipeline, we have about a gig and a half of new sites. We have a site in Louisiana, site in Chicago, bunch of sites in Texas. And none of those sites actually existed in our Bitcoin mining days. All of those are net new sites that we've developed and we've grown and now we're commercializing. I think that's unique because the gigawatt that we have in addition to the 1.5 gigawatts, those are operating, whether it be power plants or Bitcoin mines, and we haven't changed or converted those. We just said, hey, that business will operate there. Let's go find net new growth and net new power. And so what we'd like shareholders to see and understand is the development flywheel that we reference is really important because it's a structural foundation for the growth of the company. Because if we just focus on these are the sites that we have, once you commercialize them, then what's next? Where do you grow from there as a company? And so that's where, like, yes, we've taken a little bit longer than others in announcing deals into the market, and obviously would have loved to announce deals earlier. And once we kind of announce, we'll talk through all the stories of the twists and turns and the delays and the customer signing, etc. We'll go through all that, and I'll come back on when, and we can do a deep dive on all that. But what I think is unique for people to understand is, wow, they saw the demand in the market. They have an extremely experienced power team, and they went and found new sites in a market that was extremely hyper-competitive, and they were able to commercialize those new sites. Because if, like us, finding sites four years ago was obviously a lot easier because there wasn't demand. It was all Bitcoin mining folks that were competing for it. Today you have the whole world competing against buying power and demand, and being able to continue to do so, I think, is really important for the growth of the company and the stable kind of year-over-year growth that we want to deliver.
I mean, in terms of those sites that you've already got ready and the ones in development, I mean, that takes you probably close to that 3 gigawatt. But in your presentation pack, you have this sort of aspiration, you know, to grow, you know, over 8 gigawatt. I mean, I've seen some large increases in some of the miners there with this portfolio of power, and it can be sort of like any number, but you've created this really big number. How confident are you getting towards that in the next few years in a very commercial, competitive landscape, as you just highlighted?
We are a big believer of showing people how we're going to grow and giving that information. So we were the first, I think, to talk about megawatts. We were the first to release a megawatt pipeline of sites that are not existing, and then more and more people joined on. What we're doing now is actually going even more granular. So if you think about this funnel and this flywheel, we start at the top, which is the most amount of megawatts, is what is called our capacity or megawatts under diligence, which are sites that our energy origination team is out there negotiating, diligencing, and figuring out if it works for us. Then we get into a category called megawatts or capacity under exclusivity. That's where we said, you know what, we like the site, we've done the initial diligence, we like the overall economics of the deal. Let's get into exclusivity. You can't talk to anyone else now, and let's try to get a deal done. Right? So those are an active discussion, negotiation to get a deal done. We released a new category recently called capacity under development. Those are sites where we signed on the dotted line. We either own the power, or sorry, we either own the power, the energy service agreement, the interconnect agreement, the land, the options to the land, etc. But we have site control and we have power control and access to it. So now we're doing pre-construction work, land, civil, fiber, starting commercialization conversations with customers. There's going to be a new category that we're going to come out with called capacity under construction, which is a site has been commercialized. We're no longer trying to figure out who's going to go there and what the economics are going to be. We've announced that to the market, and now we're just in construction phase until it starts generating revenue. And then we have the category which is our capacity under management, which is the megawatts we're currently managing that generates revenue for us. And so what I expect for shareholders to do is look at all of those layers. Look at the megawatts within each layer. You'll start seeing megawatts transfer. Right? We had a lot go from exclusivity to development and drop in. And so the higher you go, people give a bigger discount because the higher it is in the sales funnel. Right? The lower you go, you'll give a higher value to because you're like, 'Okay, well, if they've already started spending money locking in the land and the power, this seems a lot more real.' And so I think that level of transparency, like what I believe our job is, is go build a great company, go build a great company with our philosophy and our strategy, and be super transparent about how we're doing it. And then we'll get the shareholders we deserve. The ones that will look at that information, say, 'This is super exciting. This is undervalued.' Great. If the shareholders say, 'Hey, I don't like this. I like another company.' Then great. They should put their money in what they believe in. I think by being transparent, I think we're leading the market in how they should think about how they should disclose to folks. And I want us to continue to do that across the board. And I think that's really important. You guys have seen this. Like, I've been very close to the chest on talking about new data center deals. We have, we essentially haven't, right? Louisiana got leaked. That's why that came out earlier in the year. And so, if you look at the business today, like our value in our ownership of ABTC, the value in our Bitcoin, plus the value in the megawatts we have in our expansion capacity, I mean, I think we're probably one of the lowest traded megawatt per EV multiple out there. And I'm a believer that short-term stock price, like, is not going to matter because the real value will be appreciated as more and more people appreciate the story. And we saw that when we were at $6.77. We're about 40 to 50 now. And we'll see the same thing when we're much higher.
I was just going to say that's a great breakdown of that pipeline. And we specifically wanted to double-click on some of that future expansion. We've heard from other management teams, Patrick Flury specifically, that the Texas backlog is fairly significant. You and I were chatting about the SB6 impact on that prior to starting recording here. Can you talk to us a little bit? I know you have sites all over the states. You do have a large concentration in Texas. How does this SB6 impact future capacity coming online?
