Good morning and welcome to Digihost Technology Inc. Third Quarter 2024 financial results conference call. My name is Robin and I will be your operator for today’s call. Joining for us today’s presentation are the company’s CEO, Michel Amar and CFO, Paul Ciullo. Following the remarks we will open the call for questions.

Please note that this event is being recorded and a transcript will be available on Digihost website. In addition to the press release issued earlier today, you can find the Digihost quarterly report on 6-K on the company's website at www.digihostpower.com and under the company's SEDAR Plus profile at www.sedarplus.ca.

Unless otherwise noted, all amounts referred to during the call are denominated in U.S. dollars. Any comments made during this call may include forward-looking statements within the meaning of applicable security laws regarding Digihost and its subsidiaries.

The statements may reflect current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations.

These risks and uncertainties include, but are not limited to, factors discussed in Digihost's Form 6-Ks for the 3 and 9 months ended September 30, 2024, and 6-K for the year ended December 31, 2023, as well as the company's other continuous disclosure documents.

Except as if required by applicable law, Digihost undertakes no obligation to publicly update or review any forward-looking statements. During the call, management may also make reference to certain non-IFRS measures that are not separately defined under IFRS, such as adjusted EBITDA.

Management believes that non-IFRS measures taken in conjunction with IFRS financial measures provide useful information for both management and investors. Reconciliations between IFRS and non-IFRS results are presented in the tables accompanying the press release, which can be reviewed on Digihost's website.

I'd now like to turn the call over to Michel Amar, CEO of Digihost. Sir, please proceed..

Good morning, everyone, and thank you for joining us for our third quarter earnings call. The digital infrastructure landscape is entering a pivotal era of change. As AI accelerates the need for scalable, high density computing power, we are seeing a fundamental reimagining of a data center lifecycle.

From energy sourcing to designing and building advanced infrastructure, this shift presents a powerful opportunity to tap into these enduring industry trends. Our strategy is to develop a robust platform that combines energy resources and digital infrastructure at scale.

Redefining our energy capacities acquired and deployed to support today's most advanced technologies. In the immediate term, our focus is on meeting the intense demand for mining colocation with a unique emphasis on energy as the foundation.

Over the longer term, we aim to build a versatile energy infrastructure platform for high-performance computing, one that we evolved instead with technological breakthroughs for years to come. Before discussing how we are positioning the business to achieve our goals, I will share some highlights from the quarter.

Our revenue grew 104% year-over-year to $31.4 million for the 9 months ended September 30, 2024.

Looking ahead, we anticipate continued top line growth driven by two initiatives from the quarter, an expansion of our existing megawatt footprint allowing for more energy to be utilized and an expansion in our existing colocation agreement with large publicly known U.S. based Bitcoin miners.

Our EBITDA for the 9 months ended September 24 was $5.5 million positive, representing nearly 3.5x increase compared to the same period ending in 2023. Our adjusted EBITDA was positive for the quarter and totals $3 million for the year.

Despite the rising difficulty, we have remained competitive in the market via our strategic partnership with prominent well-known U.S. Bitcoin miners.

These partnerships have allowed us to use top-end equipment for maximum cost efficiency, resulting in profitable mining JV between the parties, all for a fraction of the regular CapEx outlay required to mine with these margins.

This new business model strategy allows us to invest in upstream power assets, which will continue to serve our purpose and provide consistent revenue through multiple markets for years to come.

Digihost consolidated opening capacity across the three types currently represents approximately 100 MW of developed and available power and a mining gas hash rate of 3 EH/s.

The company experienced a brief maintenance period this quarter to increase the long-term efficiency at its flagship North Tonawanda power plant and the company expects to bring it back to full operational power in the fourth of 2024.

Looking ahead in the next 12 months, the company expects to significantly expand its total megawatt capacity as it has already completed a LOT study at Columbiana Alabama plant to expand its capacity from 22 megawatt to 55 megawatt and the company is expecting to hear back from New York regulators in the first quarter of 2025, which would allow the company to expand its capacity from 60 megawatt to 120 megawatt by pulling power from the grid.

This megawatt expansion will have a groundwork for achieving our 6 to 7 years goal by end of 2025 Q1 2026. As the company looks ahead, we remain laser focused on expanding our power portfolio and maximizing the optimal use of our energy resources.

The company has produced more revenue year-over-year through its colocation services than digital mining and we expect this trend to continue. This strategy enables us to invest in our power assets with a focus on deploying each megawatt where it can generate the most substantial returns.

We expect that high-performance computing will become the primary driver of value for our power assets and we are positioning already the company to serve its high-demand market over the next 12 months.

The company has already initiated a development plan for existing assets to be developed into Tier 3 infrastructure and we are excited to begin our foray into traditional Tier 3 datacenter collection as demand in the market rapidly scales.

I'll summarize my remarks by reaffirming our dedication to disciplined fundamentals focused growth as we expand rapidly across Power Infrastructure and Tier 3 facilities. We remain committed to strengthening our balance sheet and upholding vigorous capital allocation standards.

This approach anchored innovation, strategic commercialization and operational excellence position us to deliver meaningful near-term value while building a resilient long-term enterprise at the convergence of Energy and Technology. With that, I will turn it over to Paul to discuss the impact of our strategy and our financial results in detail.

Paul?.

Thanks, Michelle and good morning, everyone. I'll start by reviewing our full year third quarter results by segment. Our colocation service segment, new to fiscal year 2024 produced revenue of $10.7 million compared to 0 in the same period in the fiscal year 2023. Our partnerships with large U.S.

based miners allowed us to leverage cost cutting edge mining infrastructure such as S21 miners paired with competitive energy costs, allowed for the proliferation of multiple profitable JVs with different mining counterparties in the United States.

The company expects to aggressively pursue this vertical as an immediate revenue growth while focusing on its future development of HPC infrastructure.

Our digital mining business experienced a year over year decline in revenue from $13.5 million to $10.3 million driven primarily by a reduction in Bitcoin mine following the having and an increased focus on its colocation service segment.

You recognize the capital-intensive nature of self-mining and as a result, a shift at our CapEx investment upstream in our power production assets. This shift upstream will allow us to focus on more profitable mining colocation and Tier 3 development in the future.

Our Energy Sales segment produced revenue of $10.3 million compared to $1.7 million in the same period in fiscal year 2023. This revenue medium is unique in our space as we can participate behind the meter generation bidding programs with the New York independent system operator.

This allows us to sell power back to the grid from our natural gas combined cycle power plant at peak kilowatt rates during heavy demand cycles. This ensures that no generated revenue ever goes wasted and we can consistently sign and apply power to the highest and best use case, whether through self-mining or power sales back to the grid.

Regarding our cash position, the company produced a net positive adjusted EBITDA for the quarter and generated positive working capital of close to $1 million.

This positive net working capital paired with the $4 million financing that took place early in the quarter provides us with a cash balance of close to $9 million poising the company to deploy meaningful CapEx for upstream power investment in Tier 3 data center expansion in the quarters to come.

Looking ahead to 2025, we expect further improvements to profitability as we roll out additional megawatt capacity at our existing energy sites. Our focus on finding the highest and best deployed case of power will continue to hold as we pursue future development.

To conclude my remarks, the digital infrastructure sector is on the brink of transformation. We believe our distinct power first approach to data center development positions us well to capitalize on these secular trends. With that, I'll turn over to the operator for Q&A..

Thank you. [Operator Instructions]. Our first question is from the line of Kevin Dede with H.C. Wainwright. Please proceed with your questions..

Good morning, Michel and Paul. I can't tell you how enthralled I am that you're hosting a call. I really appreciate it. Michel, I understood that I think you're operating at 3 EH self-mining and things turned down in the September quarter.

Could you just run through the detail of that, please?.

Good morning, Kevin. Nice talking to you. So every three years, we do a major maintenance program and we take the opportunity to not only maintain the turbines, but repay all the little defects that happened for three years.

It's a little bit like when you own a jet, you have to maintain your maintenance program every three years, every 10 years, every 20 years. So the finalizing should be done in a couple of weeks and we should be up again first week of December and run fully. So the results of Q3 are lower than what we were expecting because of that amendments..

Okay.

So how much of the September quarter was, the plan down?.

I would say 2/3 of it..

Yeah, 2/3 of it..

Okay.

And then it was down through October November and then up through the month of December?.

December, we resumed the full capacity.

So just to comment on our revenues and performances this year compared to last year, we have to also appreciate that the reality happened April 19, 2024, which cut everyone's production of coins in half and despite that 50% cut, we still managed to increase dramatically our revenues for the year to date compared to last year to date.

So it's really positive..

So just help me understand exactly how things are split up at your fleet, Michel and Paul.

How much of your mining capacity is at the North Tonawanda plant?.

You are talking about in a normal condition. I would say, we are still running at the power plant, but we are running partially from the utility instead of the generation. We have two sources of power at the power plant.

We have utility power and we have generation power, except that the utility is limited until we get this approved load study that should come first quarter of 2025 where we would have a 60 MW utility available power. So in normal time the power plant represents 55% of the total.

Now it's reduced because of the maintenance, but we are still running partially from Utility..

Okay. How should we think about the way that you categorize your revenue? Obviously, the September quarter marked an important shift to colocation services and our revenue was $7.1 million in the quarter.

But I struggle to figure how much EH is contributing to that, right? Can you give us a ballpark on how much you're hosting for your co location customers and how that revenue splits between Digi Host and your customers?.

So, it's more like a JV than a hosting. We have a split profit formula, which we signed NDA not to give the details for reasons of secrecy, but we have a split of revenue from the coins revenues, the coins mined and with the latest minus S21 as you saw.

And then we also get revenues from our generation of energy where we get a markup margin on top of it. So we have a dual revenue on that and it looks like we are increasing our ratio of energy revenues independently of the Bitcoin Mining.

I think we are 25% Paul?.

Yes..

Okay..

So, if I remember correctly, you have the ability to take the Alabama facility to, what about 50 MW, I think was the number.

I'm wondering how much of that is running?.

55 MW..

Okay.

How much of Alabama is running now?.

No, we have currently a developed setup for 22 MW. We are running about 14 MW as of today and we started the process to develop a master plan for 20 MW of Tier 3 data center but in increments of 5 MW. So, we started the process of 5 MW of Tier 3. It's kind of a retrofit and that should be down by Q4 '25, early '26..

Okay.

So, we could expect 5 MW of HPC to come online in the end of next year, probably '26?.

That's correct..

Okay.

And then for the balance of that 20 MW that you've set aside, would it be fair to assume that you add 5 MW incrementally through the course of '26?.

Correct..

I know we're looking way out, I'm just, yes, I just kind of like get your feel for your plan..

That's correct. So we can have a 20 MW HPC Tier 3 setup there. And the reason is that the market value multiples are way different for Tier 3 than for what we call a Tier 0, Tier 1 mining operation. Tier 1 mining operation is about $500,000 a megawatt to set up infrastructure value and a Tier 3 site is about $15 million a megawatt.

So by developing 20 MW, the value compounded with 20 MW at 15 should be about $300 million value just for the infrastructure..

Okay. Before we go talk a little bit more about that, I was wondering if you could highlight whether or not you finalized plans for your North Carolina site. I understand you have access to 200 MW there.

I'm just wondering what your latest thinking is?.

So North Carolina is an amazing asset. We own the site. We bought it few years ago. It's graded. We have an understanding with Duke Utilities which is a very large utility company in North Carolina and we got an allocation of 200 MW.

So our strategy or plan is to initially develop Alabama first Tier 3 and then expand in North Carolina via debt financing, because we have predictable income way different than the crypto mining income or JV with a large HPC operator.

So, we are either going to JV, either we are going to self-develop that site through debt financing upon a large customers colocation, 5-year plan. So that's our goal. That will be a great asset to develop. It's near one of the largest Google center in North Carolina. We have a 200 megawatt there nearby.

So we feel really excited that that's our second step and it's our growth plan for 2026, 2027..

Okay. How are you working to build a customer base in HPC? Or are you more concerned now just getting your infrastructure in place? Given what we've seen for demand in power, Michel, it would seem to me that you might find partners to help you develop North Carolina tomorrow versus 2026, 2027.

And I'm just wondering what you might be looking at on the business development side to maybe help you on that development or at least find customers?.

So basically, Kevin, the Alabama execution of the Tier 3 will be our stepping stone to venture from North Carolina. And we already proved the power plant feel that we are capable of operating a power plant and it was against a lot of odds. And operating a power plant, the standards are pretty high and even higher than operating a Tier 3 center.

So we have the expertise, we have the team to execute on building a Tier 3. We believe that while we are building our Tier 3 within the next 12 months, we will get opportunities to venture for North Carolina site and we will start to plan it so we can finalize or build and be ready by 2026, 2027. That's our plan.

And I agree with you, we are open for opportunities.

As far as HPC customers, we already are connected and in relationship and in colocation with at least one market cap -- $100 billion plus market cap company that is allocating and investing a lot of dollars in the AI chips and we believe that our current relationship on the mining side will transfer to the AI side.

So we feel comfortable that we get five years program orders consistent and predictable and that will allow us to find capital and do the financing. So we don't dilute the shareholders..

Thank you. At this time, this concludes our question-and-answer session. Thank you for joining Digihost's third quarter conference call. [Operator Closing Remarks]..