Steven Kwok

Steven Kwok at KBW inquired about Hut 8's growth plans for its Highrise AI cloud business, specifically regarding a potential scale-up from 1,000 to 20,000 GPUs, and how the company envisions scaling this trajectory.

Answer

CEO Asher Genoot explained that Highrise AI, a private company, is building a cloud network and software stack offering bare metal and multi-tenant solutions. He noted that Highrise AI can provide financing for the GPU stack and services for data center deals, aligning with Hut 8's strategy to build and scale the company for future growth.

Steven Kwok asked for more details on Hut 8's growth plans for its Highrise AI cloud business, specifically regarding the potential scale-up of its GPU platform from approximately 1,000 GPUs to 20,000.

Answer

CEO Asher Genoot clarified that Hut 8, the parent company, focuses on power and digital infrastructure, while Highrise AI is a separate private company that builds and funds compute (GPUs) and offers cloud services. He highlighted Highrise AI's unique cloud network and software stack, emphasizing its potential to provide financing and services for GPU stacks in data center deals, aligning with the company's strategy to build and scale for future growth.

Steven Kwok, on behalf of Sanjay Sakhrani, asked for clarification on the quarter's credit impairment, questioning what drove the charge given that underlying credit metrics appear stable. He specifically asked about the 2023 vintage and sought expectations for Q4 impairments.

Answer

CFO Evangelos Perros explained the impairment was not due to deteriorating credit performance but rather the structure of 2023 vintage ABS deals. These were created in a challenging funding environment, making them highly sensitive to even minor performance changes. He stated that today's structures have a much larger cushion. While declining to provide a specific Q4 forecast, he noted the remaining 2023 portfolio value is approximately $275 million and expects the majority of any remaining adjustments to be booked in Q4 2024.

Steven Kwok, on behalf of Sanjay Sakhrani, questioned the macroeconomic assumptions embedded in the company's guidance and asked for an update on the M&A pipeline, including potential verticals and product capabilities of interest.

Answer

CFO Tim Murphy stated that macro assumptions are unchanged, with a healthy consumer in non-discretionary markets. He confirmed a healthy M&A pipeline, likely for tuck-in acquisitions, aiming to keep net leverage around 4.0x to 4.5x. CEO John Morris emphasized a disciplined approach to valuation. Murphy added they look for targets with strong software partnerships and large supplier networks.

Steven Kwok of Keefe, Bruyette & Woods asked for more detail on the revenue slowdown, including sequential trends within Q2, the impact of discretionary spending, and the expected contribution from initiatives like Payment Accelerator and spend management.

Answer

CFO Joel Wilhite attributed the volume pressure to continued caution in discretionary spending areas like advertising, professional services, and capital projects. CEO Michael Praeger added that Payment Accelerator 2.0 is scaling prudently with a significant ramp expected in 2025, while the spend management product is about a year behind, targeting a late Q4 2024 initial customer introduction.