Welcome to the Hut 8 Mining third quarter results call. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Andrew Kiguel. Sir, you may begin.
Thank you very much, Paulette. Welcome everyone to the Hut 8 Q3 conference call. As per all previous conference calls, this is being recorded and gets posted on our website, hut8mining.com, and it's under the investors tab and reporting. I'm going to start the call, then I'm going to turn it over to Jimmy Vaiopoulos, our CFO, to review the financials. I'll have some concluding remarks, and then we'll turn it back over to the operator for Q&A. Diving right in, some of the highlights for the quarter were revenues of CAD 26.7 million for the quarter, CAD 67.1 million for the year. In terms of EBITDA, CAD 14.7 million for the quarter and CAD 30.7 million for the nine months ended for the third quarter.
In terms of other things in the quarter, we mined 1,965 Bitcoin in the quarter, 7,187 for the first 3 quarters of the year, and our cost per Bitcoin in the last quarter was CAD 4,363. I'll note that's inclusive of electricity, mining pool fees, and all other production costs. I say that because I just noticed some other companies that report in the space only use the price of electricity divided by the amount of Bitcoin they mine. We think it's a more transparent way to show it, is to show all the mining costs associated with mining a Bitcoin. Through the quarter, we strengthened our balance sheet, significantly reduced debt and payables. We increased our petahash capacity, at least announced the increase in petahash capacity by 19.6%.
Increased our balance from the previous quarter, and I think also significantly we're the first company to be approved for listing on the blockchain space on the TSX Senior Exchange. With that, I'm going to turn it over to Jimmy Vaiopoulos, our CFO, and he's going to review the financials in more detail. Jimmy?
Thank you, Andrew. This is Jimmy Vaiopoulos speaking, CFO of Hut 8. Before continuing, I'd like to remind everyone that all amounts in the financial statements and discussed on this call are in Canadian dollars unless otherwise stated. This is another strong quarter for us as we mined 1,965 Bitcoin with revenue of CAD 26.7 million while maintaining a mining profit margin of 58%. This is despite industry headwinds during the quarter as the Bitcoin price dropped 30% and the network difficulty rate increased by 61%. This level of volatility is expected. We are consistently monitoring our ongoing operations to keep electricity prices down while maximizing our hash rate output. The cost per Bitcoin for the quarter was CAD 4,364 inclusive of electricity costs, mining pool fees, and all other mining production costs. This is favorable when compared to the average Bitcoin price for the quarter of CAD 10,382.
Our strategy of mining and holding Bitcoin while trying to sell at peak prices continued to pay off this quarter with a realized gain from the sale of Bitcoin of CAD 514,000. The Bitcoin price dropped nearly 20% in the last two weeks of the quarter, causing an unrealized loss from revaluation of Bitcoin of CAD 10 million. Despite this, we recognized a gain of CAD 8.2 million in unrealized revaluation of Bitcoin for the nine months ended September 30th, 2019. With two strong back-to-back quarters, we focused on strengthening our balance sheet by repaying CAD 2 million of debt to Galaxy Digital and $2.3 USD of debt to Bitfury since the beginning of the year. We also significantly brought down our accounts payable since the beginning of the year, down by CAD 14.8 million. Together, this puts Hut 8 on stronger footing to move forward.
In addition to strengthening our balance sheet, we also invested in new equipment from Bitfury, upgraded with their latest chip technology. This includes nine BlockBoxes for CAD 7 million, for which we already placed a CAD 3.5 million deposit. This will add 113 terahash per second and 9.9 megawatts of capacity to our operations. Combined with the increase by 4.3 megawatts at the City of Medicine Hat facility, this combines to an increase of 19.6% to our overall hash rate output. We used cash and Bitcoin to pay down debt, accounts payable, and expand operations, we were still able to increase retained Bitcoin by 7.6% to 3,496 Bitcoin at September 30th, 2019, from the prior quarter of 3,250 Bitcoin at June 30th, 2019. Expenses including non-cash share-based compensation for the quarter was CAD 707,000, a slight increase from Q2 2019 of CAD 637,000 and a decrease from CAD 747,000 for Q1 2019.
Adjusted EBITDA for the quarter was CAD 14.7 million, with a 55% adjusted EBITDA margin. The difference between the mining profit margin and the EBITDA margin of 3% also shows the cost of corporate overhead. We've kept costs consistently lean, and we are focusing on finding new ways to further lower our operating and overhead costs while maintaining a high standard in our operation. I will now pass the call back over to Andrew.
Thanks, Jimmy. I think if I was to summarize what the quarter looked like, was that despite the Bitcoin price dropping, despite difficulty increasing, we still put out, I think, what is a very strong quarter. We managed to actually reduce our debt, strengthen the balance sheet, reduce our leverage. We increased our capacity by close to 20%, and despite all that, managed to increase our Bitcoin inventory. I think overall, despite the headwinds in the industry, it was a good quarter, and we accomplished a lot of things. Again, from the other aspect of being the first company to trade on the TSX, in the cryptocurrency space is quite significant. We received a lot of great media around that, and I think it's something that a lot of people took notice of.
With that, I'm going to turn it back over to Paulette, the operator, and open this up for questions.
Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. There will be a delay before the first question is announced. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Standing by for questions. We do have a question online. Can you please state your name, your company, and your question. Please go ahead.
Hi. Law from GMP Securities. My first question is on the update on the capacity expansion. I was wondering if there's any chance those nine BlockBoxes could come online before the slated end of the November timeline. From my understanding, those BlockBoxes were operational originally with Bitfury, and just needed to be upgraded to the newest chips.
Yeah. The target's still aligned. It's just a function, I believe, that the chips have been delivered, and then it's just a manual process of upgrading, of replacing the motherboards, and sliding the new chips in. We're still on target to do sort of towards the end of November. I don't see that happening earlier, and it's not really a delay, it's just a function of getting the chips over from Korea where they're manufactured.
3iQ just got approval from the OSC to list a publicly traded Bitcoin fund. I was wondering if you could talk about how this impacts HIVE, and what you think the benefits of owning a Bitcoin miner like HIVE versus a publicly traded Bitcoin fund now that they're available in Canada?
Right. There's a whole bunch of different things there. I think part of it is, for us, we own a significant amount of assets. We're an operating business. We're not a passive holder of Bitcoin and charging a fee. I think it's great what the 3iQ guys are doing. We consider them friends. There might even be some synergies there between us because as guys that mine and have the occasional need to sell, and they have the occasional need to buy, there might be some potential synergies there down the road. I think some of the differences are, A, we own the assets. B, we're mining at significantly below where the market price is. Our all-in price for this quarter was CAD 4,363.
In a sense, when you're buying into HIVE, you're mining into the ability that we're going to be able to produce at below the market price. When you're buying into a fund, it's just a passive holding. The other piece of it is that we're also able to take advantage of, call it spikes or different things in the market. During Q3, there was a period of time at the beginning of the quarter where the price spiked over CAD 13,000. We saw that and immediately took advantage of that, and were able to monetize and capitalize on that. Versus a passive fund, it's a very different operation that we're able to watch these spikes, and actively manage the Bitcoin inventory to our advantage, and then we can reinvest that for higher ROE.
If you were to think in the future, the price of Bitcoin was to, again, double, you would see that our margins would go up proportionately more because of that. If you're just holding the fund, either you're buying it at those higher prices or it's a passive holding. We have the ability to sort of look at what's going on, and either sell into the market, or continue to produce at a price that's significantly lower than the market. I'd say that those are the key differences.
Helpful. My last question is related to the network hash rate. China just announced that they're scrapping their plans to ban Bitcoin mining. What are you hearing on that front? For example, are people actively buying new equipment now that we're six to seven months away from the halving? Any color on the mining industry dynamics would be helpful. Thanks.
Yeah. My expectation is we always are looking at things in the most conservative way possible. The expectation from us is that hash rate will continue to increase. There's been some new Chinese equipment that's come to the market and is in the process, I think, probably being shipped, I think most of it in December. I think what you'll see is that that equipment will come online depending on how fast they can manufacture it and sell it in sort of January, February, March. We're also hearing things, for example, that a lot of the older equipment is going to come offline. It's a little bit of a give and take. There's still a ton of older equipment out there that's producing hash rate, and is maybe marginally profitable or on the way to becoming unprofitable that we see coming off market.
If you look at the current difficulty, it's projected to go down by close to 7% today, in the next few hours. That tells me that there's equipment that's coming offline. It's going to be an interesting mix. I think anybody who is looking to add new equipment in anticipation of the halving has to really look at their ROEs, their IRR, the cost of electricity, all of those things very carefully, because you just don't know what's going to happen come, call it, May 2020 when the halving occurs. Our perspective is to continue to try and grow our capacity in an accretive fashion, try and mine for the lowest cost we can, optimize our electricity costs, and hold the Bitcoin inventory because we're still Bitcoin maximalists here, and we think that it's going to go up.
Despite that, we will take advantage of spikes that we see in the marketplace, especially if we think they're temporary in light of the price of Bitcoin being volatile, although on an upward trajectory. That's my answer. I don't know. Operator.
Thank you.
No.
Once again, if you have a question, please press star then one on your touch tone phone. Our next question comes from Brett. Please go ahead.
Hi, Brett here, private investor. Excellent quarter. Hats up, guys, on the execution. Andrew, I just want to level set into 2020 with what you've mentioned of maximizing efficiency. You're approximately 8.8 petahashes per megawatt right now based on your current exiting out of the quarter this year and into the new year. Do you foresee being able to get better efficiency through your partnership with Bitfury to get that petahash efficiency up, or are you just going to, like you say, just focus on electricity and just really sweat the assets that you have with those BlockBoxes? I guess is my question, if that makes sense.
It's both. Obviously we're very carefully looking at ways to maximize our efficiency, and lower costs, which I think we've done a good job at. One of the advantages of the BlockBoxes versus other equipment is that you can just sort of slide new motherboards in and out. We are in discussions. I think the one thing that we do have is this large Bitcoin inventory that will help us finance any expansions going forward without the need to do anything potentially dilutive. We're not going to force anything, but absolutely, we are looking at the halving that's coming and our petahash per megawatt and finding ways to improve that, either organically through things we can do internally, but also, obviously, on a daily basis, we're evaluating the different technologies that are out there and finding ways to sort of prepare.
My perspective is as long as the equipment is making money and is profitable, we want to be ready to sort of upgrade as quickly as possible, within a matter of weeks. You don't want to necessarily upgrade too quickly. We also want to be cognizant of the fact that if the price of Bitcoin goes up, so does the price of equipment and the upgrades. We're carefully evaluating it from both sides, but we're certainly cognizant of it and working on it daily.
Just a follow-up to that, again, I know everything's dynamic in the mining industry, would you say your ideal target is you have a two-year window on most of the CapEx that you spend on a BlockBox? It looks like about 73 of the BlockBoxes you initially launched the company with are coming up to give or take two years in Q1 of 2020. Is that kind of what you're focused on, like sweat the asset to two years if you can run it?
Yeah.
The two years was really a metric that was put in by the first companies, and it's not a bad metric, and that's where we depreciate the chips inside the BlockBoxes.
The real answer is that the life of the chip is longer than two years. The function is what's the useful life of the chip? To me, the useful life of the chip is as long as it can continue to be profitable, you're going to continue to run it.
Yeah.
If the price of Bitcoin was to, again, these are all the variables that have to be considered. Let's say the price of Bitcoin was to double, the hash rate difficulty took seven or eight months to catch up. Those existing chips don't need to be upgraded. They're going to be just spinning out Bitcoin in cash and revenue on our behalf. If the difficulty continues to increase faster than the price of Bitcoin, in that case, then we have to look at upgrading them quicker. There's a lot of moving parts here that we have to evaluate, and that's why, as I said before, we're sort of getting ready to be in a position to upgrade very quickly, in order to get us there.
You don't necessarily want to do it too soon, because then that is not really in the best interest of the way we want to use our capital. We just don't know. Again, we're ready to do the upgrades. As long as the equipment is making money and there's something sort of uncertain here, we'll continue to use them until they're no longer useful.
Yeah, absolutely. Yeah, you kind of answered what I was looking for, so I appreciate that. Just, this is more for the CFO question, just so I can model correctly on my side. When you post out your mining income numbers, are you using the daily number on that? The $26 million revenue that you posted, was that based on your total mined coin for the day based on the U.S. exchange rates? Just so I know. Thank you.
Yes. That is all based on, let's just say we mined a Bitcoin yesterday. The Bitcoin price that day would be the price we use.
Then we use the daily exchange rate, and then that gets mark-to-market through the unrealized gain at the end of the quarter.
Great. All right, thanks, guys. That's all my questions. I appreciate it. Thank you.
No problem.
Thank you, Brett.
Once again, that's star one for questions. We are showing no further questions at this time.
Great. Well, thank you very much, everyone. Management is always available to answer questions through our website. There's an email where questions can be answered. Thank you very much.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.