Q1 2022 Marathon Digital Holdings Inc Earnings Call

Good day ladies and gentlemen. Welcome to Marathon Digital Holdings first quarter 2022 earnings webcast and conference call. I would now like to turn the call over to your host, Charlie Schumacher, vice president of corporate communications. Please go ahead.

Good day, ladies and gentlemen, welcome to Marathon Digital Holdings first quarter 2022 earnings webcast and conference call I would now like to turn the call over to your host Charlie Schumacher Vice President of corporate Communications. Please go ahead.

Thank you, Taryn. Hello, everyone, and welcome to Marathon Digital Holdings Inaugural Earnings Call. Today, we'll be reviewing our results for the first quarter and in March 31, 2022. We will begin with some prepared remarks from our Chairman and CEO , Fred Thiel, and our CFO , Hugh Gallagher. After their prepared remarks, we will be taking questions from our covering analysts. Before we start, a few remarks.

Thank you Darrin Hello, everyone and welcome to Marathon Digital holdings inaugural earnings call today, we will be reviewing our results for the first quarter ended March 31, 2022, we will begin with some prepared remarks from our chairman and CEO , Brett <unk> and our CFO Hugh Gallagher after their prepared remarks, we'll be taking questions from our.

Covering analysts before we start a few reminders.

I would like to remind you all that this call, management, that in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question and answer session.

I would like to remind you all that this call managements that in this call managements prepared remarks contain forward looking statements, which are subject to risks and uncertainties and management may make additional forward looking statements. During the question and answer session. These forward looking statements are subject to risks and uncertainties and actual results may differ materially when used in this call.

These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially.

When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to Marathon Digital Holdings are as such a forward-looking statement.

The words anticipate could enable estimate intend expect believe potential will should project and similar expressions as they relate to marathon digital holdings are as such a forward looking statements.

Please refer to our earnings release for a full recitation of our forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by Marathon at this time. In addition, other risks are more fully described in Marathon's public filings with the USC Securities and Exchange Commission, which can be reviewed at www.SEC.gov.

Please refer to our earnings release for a full recitation of our forward looking statements investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by marathon at this time. In addition, other risks are more fully described in marathons public filings with U S Securities and Exchange Commission, which can be.

We reviewed at Www Dot SEC Dot Gov. Finally, please note that on today's call management will refer to certain non-GAAP financial measures in which marathon excludes certain expenses from its GAAP financial results. Please refer to our company's periodic reports on Form 10-K, and 10-Q for full reconciliation of its non-GAAP performance.

Finally, please note that on today's call, management will refer to certain non-GAAP financial measures in which Marathon excludes certain expenses from its GAAP financial results. Please refer to our company's periodic reports on Form 10-K and 10-Q for full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures.

Measures to the most comparable GAAP financial measures. Once again this call in its entirety is being webcast on our Investor Relations website. A replay of this webcast will also be available on our website shortly and with that covered I am going to turn it over to Fred to kick things off Brent.

Once again, this call in its entirety is being webcast on our Investor Relations website. A replay of this webcast will also be available on our website shortly. And with that covered, I'm going to turn it over to Fred to kick things off. Fred?

Good afternoon, everybody. Thank you all taking the time to join US today for our first earnings call.

Good afternoon, everybody. Thank you all taking the time to join us today for our first earnings call. Marathon is a mission-driven company. Our purpose is to secure and support the development of the world's monetary network, which is the Bitcoin ecosystem.

Marathon is a mission driven company our purpose is to secure and support the development of the world's monetary network, which is the bitcoin ecosystem.

Today, we are supporting the adoption security and evolution of Bitcoin by building one of the largest most agile and most sustainably operated bitcoin mining operations in the world.

Today we're supporting the adoption, security and evolution of Bitcoin by building one of the largest, most agile and most sustainably operated Bitcoin mining operations in the world.

Miners like marathon are essential base layer infrastructure that enabled bitcoin to be distributed trustful insecure.

Miners like Marathon are essential base layer infrastructure that enable Bitcoin to be distributed, trustless and secure.

We perform a service to the network and for performing that service, we have the opportunity to earn bitcoin.

We perform a service to the network, and for performing that service, we have the opportunity to earn Bitcoin.

We operate in a nascent industry that has the potential to dematerialize traditional finance in the same way the Internet Dematerialize communications, and we believe the opportunity for innovation and value creation.

We operate in a nascent industry that has the potential to dematerialize traditional finance in the same way the internet dematerialized communications. And we believe the opportunity for innovation and value creation are immense.

We believe 2022 will be transformational for marathon as we're in the process of deploying nearly 200000 miners growing to represent potentially 70% of the total bitcoin mining network and transitioning our operations to be 100% carbon neutral.

We believe 2022 will be transformational for Marathon as we're in the process of deploying nearly 200,000 miners, growing to represent potentially 7% of the total Bitcoin mining network and transitioning our operations to be 100% carbon neutral. And to kick things off, we started the year with our most productive quarter to date in terms of Bitcoin producer.

And to kick things off we started the year with our most productive quarter to date in terms of bitcoin produced.

Some highlights from Q1 in Q1, we increased our bitcoin production, 556% year over year, and 15% sequentially and produced a record 1259 bitcoin in the quarter in dollars. This translates to $51 7 million in revenue for Q1, which is a 465.

Some highlights from Q1. In Q1, we increased our Bitcoin production 556% year over year and 15% sequentially, and produced a record 1259 Bitcoin in the quarter. In dollars, this translates to $51.7 million in revenue for Q1, which is a 465% increase from Q1 of last year.

<unk> increased from Q1 of last year.

The improvements in our Bitcoin production were tapered by the fact that the global hash rate increased by approximately 17% during the first quarter of this year.

The improvements in our bitcoin production were tapered by the fact that the global hash rate increased by approximately 17% during the first quarter of this year.

Holding the global hash rate and difficulty rates constant from the end of Q4, we would have produced approximately 1,282 Bitcoin in the first quarter.

Holding the global hash rate and difficulty rates constant from the end of Q4, we would have produced approximately 1282 bitcoin in the first quarter.

As of March 31st, we held 9,374 Bitcoin. And as you can tell from our monthly production report, that number continues to grow as we hodl all the Bitcoin produced, solidifying our position as one of the largest holders of Bitcoin among publicly traded companies.

As of March 31, we held 9374 bitcoin and as you can tell from our monthly production report that number continues to grow as we handle all the bitcoin produced solidifying our position as one of the largest holders of bitcoin among publicly traded companies.

Some strategic and operational highlights.

In Q1, we made substantial progress strengthening Marathon's competitive advantages to expand our position as the leading Bitcoin miner in North America. A year ago, when I transitioned from the board of directors to become CEO , we had 12,000 miners operating. Our hashrate was 1.3 exahash, and Marathon consisted of four full-time employees.

In Q1, we made substantial progress strengthening marathons competitive advantages to expand our position as the leading bitcoin minor in North America, a year ago, when I transitioned from the board of directors to become CEO . We had 12000 miners operating our hash rate was one three ex ash and marathon consisted of poor fulltime employees today.

Today, we have approximately 37,000 miners installed, our hash rate is more than three times higher, and we have 15 full-time employees, most of whom are in senior level positions that extend across technology, operations, strategy, and finance.

Today, we have approximately 37000 miners installed our hash rate is more than three times higher and we have 15 full time employees most of whom are in senior level positions that extend across technology operations strategy and finance.

Our philosophy is to maximize intellectual capital in house test everything and then outsource the muscle of our operation.

Our philosophy is to maximize intellectual capital in-house, test everything, and then outsource the muscle of our operation.

This industry is evolving quickly and we want to be agile and informed so that we can effectively adapt to changing circumstances and capitalize on new opportunities as they present themselves and hardware firmware immersion layer two protocols like lightning and elsewhere.

This industry is evolving quickly and we want to be agile and informed so that we can effectively adapt to changing circumstances and capitalize on new opportunities as they present themselves in hardware, firmware, immersion, Layer 2 protocols like Lightning, and elsewhere.

In regards to deployment, and perhaps most important, in Q1, we began deploying with our hosting partner, Compute North, at their new facilities in Texas.

In regards to deployment and perhaps most important in Q1, we began deploying with our hosting partner compute north that their new facilities in Texas, we increased our tax rate, 15% from the prior quarter, which drove our record BTC production, but the timeline has admittedly shifted from the original targets we set for ourselves.

We increased our hash rate 15% from the prior quarter, which drove our record BTC production. But the timeline has admittedly shifted from the original targets we set for ourselves. Deploying and effectively operating miners, which drives our hash rate and our Bitcoin production, is our primary focus at Marathon today. However, before discussing our deployment and outlook for the rest of 2022 in detail, I'm going to turn it over to our new CFO , Hugh Gallagher, to discuss our financial results. Hugh?

<unk> effectively operating miners, which drives our hash rate in a bitcoin production is our primary focus at marathon today, However, before discussing our deployment and outlook for the rest of 2022 in detail I'm going to turn it over to our new CFO Hugh Gallagher to discuss our financial results Q.

Thanks, Bret and welcome again to everyone for joining us on our initial earnings call today.

Thanks Fred and welcome again to everyone for joining us on our initial earnings call today.

My focus will be to comment on some of the highlights of the quarter and to provide additional color on our financial performance before I turn it back to Fred to discuss operations and the outlook for the business in a bit more detail.

The focus will be to comment on some of the highlights of the quarter and to provide additional color on our financial performance before I turn it back to Fred to discuss the operations and the outlook for the business in a bit more detail.

Given the dynamic growth in business activity over time, I'm going to provide color on our results for the current quarter compared to both last year's quarter. The period ended March 31, 2021, which is also outlined in the earnings release and the last calendar quarter, which we sometimes refer to as the sequential quarter Q4 of 2021.

Given the dynamic growth in business activity over time, I'm going to provide color on our results for the current quarter compared to both last year's quarter, the period ended March 31, 2021, which is also outlined in the earnings release, and the last calendar quarter, which we sometimes refer to as the sequential quarter, Q4 of 2021. That information is not in the release, but we think it's an important data point.

That information is not in the release, but we think it's an important.

Data point.

Revenues for the quarter were $51 7 million, an increase of $42 6 million from the prior year quarter.

Revenues for the quarter were $51.7 million, an increase of $42.6 million from the prior year quarter. A significant increase in mining activity during the quarter accounted for $50.9 million of this increase in revenue. And that $50.9 million increase was partially offset by the impact of lower average Bitcoin prices versus the prior year period, which had the effect of reducing revenue by about $8.3 million.

A significant increase in mining activity during the quarter accounted for $59 million of this increase in revenue.

That increase that $50 9 million increase was partially offset by the impact of lower average bitcoin prices versus the prior year period, which had the effect of reducing revenue by about $8 3 million.

Revenues compared to Q4 decreased by $8 6 million. Despite the 15% increase in mining activity that Fred discussed earlier as the positive impact of that higher mining activity, which was about $8 8 million in revenue was more.

Revenues compared to Q4 decreased by $8.6 million, despite the 15% increase in mining activity that Fred discussed earlier, as the positive impact of that higher mining activity, which was about $8.8 million in revenue, was more than offset by a decline in average Bitcoin prices, which reduced revenue by about $17.4 million.

More than offset by a decline in average bitcoin prices, which reduced revenue by about $17 4 billion.

It's also worth noting that there were two fewer days in Q1 and that, as we said earlier, had a slightly negative impact on production results and therefore revenue.

It's also worth noting that there were two fewer days in Q1 and that as we said earlier had a slightly negative impact on production results and therefore revenue.

Our cost of revenues during the quarter were $26 4 million, that's an increase of $24 million from the prior year period, and $12 4 million from Q4 <unk>.

Our cost of revenues during the quarter were $26.4 million. That's an increase of $24 million from the prior year period and $12.4 million from Q4. The increase in cost of revenue was largely due to the increase in mining activities versus the prior period with higher depreciation and amortization expense as the primary drivers of this costing.

The increase in cost of revenue was largely due to the increase in mining activity versus the prior year period with higher depreciation and amortization expense as the primary drivers of this cost increase.

I also wanted dimension that we have updated our non-GAAP disclosures this quarter as the means of providing additional information to investors.

I also wanted to mention that we have updated our non-GAAP disclosures this quarter as a means of providing additional information to investors. Specifically, we've added adjusted EBITDA as a non-GAAP metric in addition to adjusted net income. Just a few quick reminders on these non-GAAP metrics.

But typically we've added adjusted EBITDA non-GAAP metric in addition to adjusted net income just.

Just a few quick reminders on these matches these non-GAAP metrics.

They are intended to be used in conjunction with our GAAP financial statements and our quarterly FCC reports.

<unk> intended to be used in conjunction with our GAAP financial statements and our quarterly SEC reports and it's really important to note that our definition of these non-GAAP measures may vary significantly from similar terms that may be used by other companies, including our competitors.

And it's really important to note that our definition of these non-GAAP measures may vary significantly from similar terms that may be used by other companies, including our competitors. So please refer to our earnings release and our SEC reports for more detailed information on the reconciliation and the definitions of the non-GAAP measure.

So please refer to our earnings release, and our SEC reports for more detailed information on the reconciliation and the definitions of the non-GAAP measures.

Turning to this adjusted EBITDA, adjusted EBITDA for the quarter was $39.4 million. This was an increase of $33.3 million from the prior year period. This was primarily related, as I said earlier, to the significant increase in Bitcoin mining year over year, which increased net margin, excluding depreciation and amortization, again, we're talking about EBITDA, by $35.8 million.

Turning to as adjusted EBITDA.

Adjusted EBITDA for the quarter was $39 4 million. This was an increase of $33 3 million from the prior year period.

This was primarily related as I said earlier to the significant increase in bitcoin mining year over year, which increased net margin, excluding depreciation and amortization again, we're talking about EBITDA by $35 8 million.

As we mentioned earlier, we also had a 15% increase the production versus Q4, but in spite of this adjusted EBITDA declined $10 3 million, primarily due to the lower average price of bitcoin mine during the quarter.

As we mentioned earlier, we also had a 15% increase in production versus Q4, but in spite of this adjusted EBITDA declined $10.3 million, primarily due to the lower average price of Bitcoin mine during the quarter.

Turning briefly to the balance sheet cash and cash equivalents were $118 5 billion at the end of March a decrease of $150 million from December the primary drivers of this decrease.

Turning briefly to the balance sheet, cash and cash equivalents were $118.5 million at the end of March, a decrease of $150 million from December . The primary drivers of this decrease

were the significant increase in mining activities, including deposits for Bitcoin mining servers of $192.4 million, and to a lesser extent purchases of property plant equipment, $6.5 million, and deposits for co-hosting of $6.3 million. We also invested $10.5 million in equity investees during the period.

The significant increase in mining activity, including deposits for bitcoin mining servers of $192 4 million.

To a lesser extent purchases of property plant and equipment $6 5 billion and deposits for co hosting of $6 3 million. We also invested $10 5 million and equity investees during the period.

These uses of cash were financed with a combination of cash on hand and proceeds from the issuance of common stock of 85.6 million. And that cash used by our operating activities was 19.7 million during the quarter.

Uses of cash were financed with a combination of cash on hand, and proceeds from the issuance of common stock of $85 6 million.

Net cash used by our operating activities was $19 7 million during the quarter.

At March 31, we held 4,579 self-mined Bitcoin with a book value of $155.6 million. We also held Bitcoin in an investment fund with a book value of $218.2 million. That investment fund is carried at fair value.

At March 31, we held 4579 self mine bitcoin with a book value of $155 6 million. We also help bitcoin in an investment fund with a book value of $218 2 million that investment fund is carried at fair value.

The market value of all of our Bitcoin holdings at March 31 was $427.7 million.

The market value of all of our fifth point Holdings at March 31 was $427 7 million.

We expect to increase our Bitcoin holdings over time, primarily through mining activities, though we may purchase or sell Bitcoin in future periods as needed for treasury management or general corporate purposes.

We expect to increase our bitcoin holdings over time, primarily through mining activities, though we may purchase or sell bitcoin in future periods as needed for Treasury management or general corporate purposes.

Finally, we had zero borrowings outstanding under our revolving credit line at March 31, but we have since drawn about $70 million on that line to fund additional deposits related to some orders of Bitcoin mining servers.

Finally, we had zero borrowings outstanding under our revolving credit line at March 31, but we have since drawn about $70 million on that line to fund additional deposits related to some orders of bitcoin mining servers.

And with that as my update, I'll turn it back over to Fred for his update. Right.

And with that as my update I will turn it back over to Fred for his update.

Thanks Hugh.

Our primary focus for 2022 is the deployment of our miners. This year is all about execution.

Our primary focus for 2022 is the deployment of our miners. This year is all about execution at.

At marathon, we're constantly pushing boundaries to propel our business and our industry forward, but it is Q1 and subsequent events have demonstrated not every industry operates at the same pace in Sweden. There is no playbook for building bitcoin mining operations behind the meter at our scale, nor with our strategy and innovation is not a linear process.

At Marathon, we're constantly pushing boundaries to propel our business and our industry forward, but as Q1 and subsequent events have demonstrated, not every industry operates at the same pace as we do. There is no playbook for building Bitcoin mining operations behind the meter at our scale nor with our strategy, and innovation is not a linear process. No one has deployed 23x a hash behind the meter with renewable power companies before.

No one has deployed 23 extra hash behind the meter with renewable power companies before it.

It takes immense effort to drive progress, especially in an entirely new industry, as anything new is inherently met with some level of friction.

It takes immense effort to drive progress, especially in an entirely new industry as anything new is inherently met with some level of friction.

Building one of the largest and most sustainable Bitcoin mining operations in the world is no exception.

Building, one of the largest and most sustainable bitcoin mining operations in the World is no exception.

In our case, the friction is manifested primarily in the form of regulation and permitting, which we made great progress overcoming during Q1 and which we continue to proactively address. As we've discussed in our prior monthly production reports, our deployments were delayed by approximately 45 days during the first quarter.

In our case the friction is manifested primarily in the form of regulation and permitting which we made great progress overcoming during Q1, and which we continue to proactively address.

As we've discussed in our prior monthly production reports our deployments were delayed by approximately 45 days during the first quarter.

These temporary delays have nothing to do with procuring equipment or operational competency last year, we provided compute north with a bridge loans. So that we could preorder the infrastructure containers transformers et cetera for us.

These temporary delays have nothing to do with procuring equipment or operational competency. Last year, we provided ComputeNorth with a bridge loan so that we could preorder the infrastructure, containers, transformers, et cetera, for us. And historically, the miners they have operated for us have performed at nearly 100% uptime for over two years. Rather, the friction relates to breaking the mold and deploying our miners behind the meter at power facilities operated by some of the largest renewable energy companies in the United States.

And historically the miners they have operated for US are performed at nearly 100% uptime for over two years, rather the friction relates to breaking the mold and deploying our miners behind the meter at power facilities operated by some of the largest renewable energy companies in the United States.

This strategy provides many benefits to our business into the local community and grid, but its implementation comes with unique challenges that we have.

This strategy provides many benefits to our business and to the local community and grid, but its implementation comes with the unique challenges that we're progressing.

Progressing given the.

The challenge with renewable power, particularly wind and solar, is that it is intermittent and our objective is for our miners to operate as close as possible to 100% uptime.

The challenge with renewable power, particularly wind and solar is that it is intermittent and our objective is for our miners to operate as close as possible to 100% uptime.

To ensure our miners perform when the renewable power sources dip a grid connection needed to be established at our new facilities feeding over 200 megawatts of power from the grid back into a power station was a new process for the grid operators no. One had done it before therefore, there was a learning curve and it took longer than originally anticipated for the various parties involved.

To ensure our miners perform when the renewable power sources dip, a grid connection needed to be established at our new facilities, feeding over 200 megawatts of power from the grid back into a power station was a new process for the grid operators. No one had done it before. Therefore, there was a learning curve and it took longer than originally anticipated for the various parties involved to coordinate and complete the permitting and approval process.

To coordinate and complete the permitting and approval process.

Since then we have encountered some additional hurdles related to our energy partners need for third party consent before energizing, our installed miners, which we expect to be resolved in the coming weeks.

Since then, we have encountered some additional hurdles related to our energy partners' need for third-party consent before energizing our installed miners, which we expect to be resolved in the coming weeks. We do not anticipate this impact.

We do not anticipate this impacting future deployment.

Regardless, we're in the process of strengthening our relationships with our power providers to ensure that we have more influence over the timeline going forward. While the power provider was working through this process, construction of Compute North facilities continued unimpeded.

Regardless, we are in the process of strengthening our relationships with our power providers to ensure that we have more influence over the timeline going forward, while the power provider was working through this process construction of computing or its facility continued unimpeded.

On schedule approximately 4200 miners were installed in containers in April . These miners are currently ready to be energized and thousands more being installed as construction progresses.

On schedule, approximately 4,200 miners were installed in containers in April . These miners are currently ready to be energized, and thousands more are being installed as construction progresses.

It's our expectation that our hash rate, which is available for anyone to see online, should start to reflect this progress later this month.

Our expectation that our hatch rate, which is available for anyone to see online should start to reflect this progress later this month.

Encouragingly in March the grid operators in Texas granted permission for all 280 megawatts of the first major facility to be energized. When you consider that Texas may begin slowing down the rate of deployment for all miners in the states.

Encouragingly, in March, the grid operators in Texas granted permission for all 280 megawatts of the first major facility to be energized. When you consider that Texas may begin slowing down the rate of deployments for all miners in the state,

To monitor bitcoin mining has impact on the grid. The fact that we have 280 megawatts preapproved to energize places us in a uniquely advantageous position relative to our competitors. Additionally, once we are finished working through some of these initial hurdles with the regulators and power providers. We will have our model. We can use for all sites going forward, which should make future deployments.

to monitor Bitcoin mining's impact on the grid, the fact that we have 280 megawatts pre-approved to Energize places us in a uniquely advantageous position relative to our competitors. Additionally, once we have finished working through some of these initial hurdles with the regulators and power providers, we will have a model we can use for all sites going forward, which should make future deployments much more efficient.

Much more efficient.

We are committed to working through the process and expediting as much as we can to achieve our targeted $23 three ACA hashed by early next year, we recognize that we do not control all the variable tied to deployment, most notably the regulatory process and the pace at which large regulated entities preferred operator.

We are committed to working through the process and expediting as much as we can to achieve our targeted 23.3 EXA hash by early next year. We recognize that we do not control all the variables tied to deployments, most notably the regulatory process and the pace at which large regulated entities prefer to operate. Currently, the pace of deployment is predominantly determined by the power providers and the pace of construction. As a result, we believe we may be through a backlog of miners and fully back on track with deployments before the end of this year.

Currently the pace of deployment is predominantly determined by the power providers and the pace of construction as a result, we believe we may be through our backlog of minors and fully back on track with deployments before the end of this year.

Given the progress we've made at the start of this year breaking the mold on deploying behind the meter and the unique advantages we maintained from our asset light model. We are cautiously optimistic that we are still on pace to hit $23 three extra half early next year.

Given the progress we've made at the start of this year, breaking the mold on deploying behind the meter, and the unique advantages we maintain from our acid light model, we are cautiously optimistic that we're still on pace to hit 23.3 exaHash early next year.

There's no denying that the macro environment has become turbulent. The broader market and Bitcoin are all down year to date as investors work to navigate market volatility, inflation, changing interest rates and the impact of the war on Ukraine.

There is no denying that the macro environment has become turbulent the broader market and bitcoin are all down year to date as investors work to navigate market volatility inflation changing interest rate and the impact of the war in Ukraine.

The bitcoin mining industry has felt these effects as well.

The Bitcoin mining industry has felt these effects as well. We've seen some large miners start selling their Bitcoin or sign deals for equipment financing with double-digit interest rates, indicating that they're becoming capital constrained.

We've seen some large miners start selling their bitcoin or signed deals for equipment financing with double digit interest rates, indicating that they're becoming capital constrained.

Pricing on mining machines has also started to come down indicating that miners may not be able to grow at the rate at which some analysts have predicted.

Pricing on mining machines has also started to come down, indicating that miners may not be able to grow at the rate at which some analysts have predicted.

The cost of natural gas is increasing which may be problematic for miners, who buy exclusively from the grid and are subject to fluctuations in power pricing given.

The cost of natural gas is increasing, which may be problematic for miners who buy exclusively from their grid and are subject to fluctuations in power pricing. Given that Bitcoin mining is a zero-sum game, the miners who are most agile and well-equipped to adapt to changing circumstances will ultimately benefit in the long run. And that's exactly how we've positioned Marathon.

Given the bitcoin mining as a zero sum game, the miners, who are most agile and well equipped to adapt to changing circumstances will ultimately benefit in the long run.

Exactly how we positioned marathon.

For marathon, we arent immune to the macro environment, but our asset light model does make us fairly well insulated.

For Marathon, we aren't immune to the macro environment, but our acid light model does make us fairly well insulated.

Due to our size and scale, we have several options available to us to efficiently finance our growth and we still have a large war chest of bitcoin as well.

Due to our size and scale, we have several options available to us to efficiently finance our growth. And we sit in a large war chest of Bitcoin as well.

We have fixed pricing for power and industry-low Bitcoin production costs. We aren't under pressure to finance the construction of data centers or maintain customers since we aren't in the hosting business.

We have fixed pricing for power and industry low bitcoin production costs, we arent under pressure to finance the construction of data centers were maintained customers since we arent in the hosting business.

And we have a lean team of industry experts, who are focused on efficiently scaling marathon and opening doors for new expansion opportunities in the future.

And we have a lean team of industry experts who are focused on efficiently scaling Marathon and opening doors for new expansion opportunities in the future.

I am very proud of what the team at marathon has accomplished so far we're incredibly excited for what 2022 has in store for our business and we very much appreciate all your support as we continue to set the pace for innovation in our industry and established marathon is one of the leading bitcoin miners in the world with that we'll open the call for questions.

I'm very proud of what the team at Marathon has accomplished so far. We're incredibly excited for what 2022 has in store for our business, and we very much appreciate all your support as we continue to set the pace for innovation in our industry and establish Marathon as one of the leading Bitcoin miners in the world. With that, we'll open the call for questions.

Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if youre using a speaker phone, we ask that while posing your question you pick up your handset to provide the best sound quality.

Thank you. The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. If you're using a speakerphone, we ask that while posing your question, you pick up your handset to provide the best sound quality.

Again, if you do have a question or comment, please press star 1 on your telephone keypad at this time.

Again, if you do have a question or comment. Please press star one on your telephone keypad at this time.

We'll take our first question from Lucas Pipes with B. Reilly Securities. Sir, the floor is yours.

We'll take our first question from Lucas pipes with B Riley Securities Sir the floor is yours.

Thank you so much and thank you very much for this format.

Thank you so much and thank you very much for this format. It's really helpful. Fred, I really appreciate the outlook and maintaining, I think you mentioned maybe cautiously optimistic or maybe that's more the spirit, growth target of 23.3 early next year. How should we think about kind of the cadence of minor deployment between here and there? Thank you very much for your perspective.

It's really helpful.

Fred.

Really appreciate the outlook and maintaining I think mentioned, maybe cautiously optimistic or maybe that's more the spirit.

Gross target of $23 three early next year, how should we think about kind of the cadence of minor deployment between.

Kieran there. Thank you very much for your perspective.

Sure.

Sure, you know, you should see a significant ramp start as we begin deploying now and energizing again, as I mentioned on the call on the my prepared remarks.

You should see a.

Significant.

Ramp start as we begin deploying now and energizing again as I mentioned on the call.

My prepared remarks.

we, you know, construction is not slowing down. So construction and installation of miners in containers is continuing at pace regardless of what's happening with the power provider being able to flip the switch.

Construction is not slowing down so construction and installation of miners in containers is continuing at pace, regardless of what's happening with the power provider being able to flip the switch.

Um, so that's continuing. So what you're going to start seeing.

So thats continuing so what youre going to start seeing a pretty significant ramp.

pretty significant ramp as we get to the end of this quarter and then through Q3 you'll see an even more significant ramp through Q3 and in Q4 you start seeing it tapering down as we fully catch up to all the backlog of miners that we have and it's really we're back in a mode of waiting for Bitmain to deliver you know the orders which are predominantly s19 XP's in the

As we get to the end of this quarter and then through Q3, Youll see an even more significant ramp.

Through Q3 and in Q4, you start seeing a tapering down as we fully catch up to all the backlog of miners that we have and it's really we're back in a mode of waiting for <unk> to deliver.

The orders, which are predominantly EF 19 xps.

And.

towards the end of the year and into early next year. So, hopefully, that provides you some more color. But, yeah, we're very bullish on kind of catching up to our original targets here towards the end of Q3 and then being fully on track from then on.

Towards the end of the year and into early next year. So hopefully that provides you some more color, but we're very very bullish on kind of catching up to our original targets here.

Towards the end of Q3 and then.

Being fully on track from then on.

That's that's helpful. Thank you Fred and and in terms of the number of megawatts that are Completed and from a construction perspective, so I I understand 280 megawatts are approved from the grid to be energized. What's the amount of Power capacity that's that's been completed from an infrastructure

That's that's helpful. Thank you Fred and.

In terms of the number of megawatts that are.

Completed from a construction perspective.

I understand 280 megawatts are approved from the grid to be energized, what's the amount of.

Power capacity, that's that's been completed from an infrastructure perspective.

I don't have that exact number so I don't want to quote something that is going to be incorrect.

I don't have that exact number, so I don't want to quote something that's going to be incorrect. I don't think in megawatts so much as in actual miners, in the thousands of miners, and containers that are ready on the ground. But our container deployment, if you would, is going fully on schedule, so we don't foresee any

I don't think in megawatts, so much as an actual miners.

Thousands of miners, so and containers that are already on the ground, but our container deployment if you would.

As.

Going fully on schedule, so we don't foresee any.

Any issues with that.

Got it got it. Thank you and then one last one for me then I'll turn it over.

Got it. Got it. Thank you. And then one last one for me, then I'll turn it over.

So we try we try to model capital outlays diligently, it's not always easy when considering.

So we try to model capital outlays diligently. It's not always easy when considering minor deposits that you've made to Bitmain. Can you guide us to kind of what?

Considering minor deposits that you've made.

Can you can you guide us to kind of what.

what do you still need to pay cash USD for bitmain deliveries this year? I would really appreciate that guidance. Thank you. Sure. I'll send that one this year.

Why do you still need to pay cash USD four.

Main deliveries this year.

Would really appreciate that.

That guidance. Thank you.

I'll hand that one this year.

So, for the remainder of the year, when I look out at our investment needs, we're looking at including not just orders that have been made, but orders that we're planning, we're looking at around half a billion dollars of investment need for the remainder of the year.

So for the remainder of the year.

When I when I look at it our at our investment needs we're looking at.

Including.

Not just orders that have been made but orders that we're planning we're.

We're looking at around a half of $1 billion.

Of investment needs for the remainder of the year.

Got it so could you break that down. Thanks. Thank you very much for that could you break that down between.

Got it. So, could you break that down? Thank you very much for that. Could you break that down between things that are already booked versus what might still be contemplated in the future?

Things that are already booked.

Versus what might still be contemplated in the future.

I don't think I can.

Okay, Alright, well, thank you very much and best of luck.

Okay, alright, well, thank you very much and best of luck.

Thank you.

We will take our next question from Jon Petersen with Jefferies. Please go ahead.

We'll take our next question from John Peterson with Jeffries. Please go ahead. Oh, great. Thanks.

Oh, great. Thanks.

So.

So you have Compute North lined up for the stuff that's coming online through mid-year. I mean, can you remind us, is Compute North also your hosting provider for that next 10 megawatts that gets you to 23?

So you have compute <unk> lined up for the stuff that's coming online through mid year. I mean can you remind us as compute north also you're hosting provider for that next 10 megawatts that gets you to 23 point.

6.3 by early 2022, or are you guys still in negotiations with various hosting providers? So we haven't disclosed that yet, but we will over the course of this quarter. But Compute North will have definitely a piece of it. They're our primary partner, and then we are going to have some diversification in the mix.

Three by early 2022 or are you guys still in negotiations with various hosting providers. So we haven't disclosed that yet, but we will.

Over the course of this quarter.

But compute north will have definitely a piece of it there are primary partner and.

And then we are going to have some diversification in the mix.

Okay, and then if we think about the cost of hosting.

Okay. And then if we think about the cost of hosting, I mean, I know you guys kind of address the cost of power and how that moved for those that are connected to the grid. Just curious if, you know, how much of that you think is impacting your business and if the, your hosting costs might increase on that, those next contracts you sign.

You guys kind of addressed.

The cost of power.

And how that moved for those that are connected to the grid just curious if how.

How much of that you think is impacting your business and if.

Your hosting costs might increase on that.

Next contracts you signed.

Sure. Yeah, so all the existing contracts are at a fixed price that we've already disclosed. Future contracts...

Sure, Yes, so all of the existing contracts are fixed price that we've already disclosed.

Future contracts.

we're seeing energy prices with the resulting power price that's coming up a bit. We think there are some things we can continue to do to mitigate some of that, but I would estimate that depending on where the energy markets are over the next few months, you may see an increase in the energy cost. You're not going to see a doubling or anything like that, but you'll see some increase in the energy cost.

We're seeing energy prices with the resulting power prices coming up.

A bit.

We think there are some things we can continue to do to mitigate some of that but I would estimate that depending on where the energy markets are over the next few months you may see an increase in energy costs.

Youre not going to see a doubling or anything like that but you will see some increase in the energy cost.

Okay. All right. That's fair. And then just a couple of high-level questions on the industry. So, you know, any thoughts, any updated thoughts on immersion cooling? Is that seems to be coming somewhat more mainstream? Have you guys spent more time looking at that? Is that something we could see you do on future deployment? Sure.

Okay, Alright, Thats fair and then just a couple of high level questions on the industry. So.

Any thoughts any updated thoughts on immersion cooling as that seems to be coming somewhat more mainstream or have you guys spent more time looking at that is that something we could see you do on future deployment.

Yes, great question.

Yeah, great question. I couldn't have teed it up better.

Couldnt have teed it up better.

So we.

So we are very actively looking at immersion. We have spent pretty significant time and resources in evaluating a number of different solutions. You know, not to go into any deep technical descriptions, but there are a variety of different ways of doing immersion. There's single-phase, dual-phase, and then you can do individual tanks per minor. You can do totally new.

We are very actively looking at immersion, we have spent significant time and resources and evaluating a number of different solutions.

Not to go into any deep technical descriptions, but.

There are a variety of different ways of doing immersion their single phase dual phase and then.

You can do individual tanks per miner, you can do.

Totally new Tam.

tank designs where you essentially deconstruct miners and build higher density, you're going to see...

Tank designs, where you essentially deconstruct minors and build higher density.

Youre going to see.

Some new miners come to market, new mining hardware companies come to market with solutions that are designed specifically for immersion based on non-Bitmain chips. So you could infer Intel or one of the three or four other new vendors coming to market later this year, early next year. But I think our focus is to deploy as much as we can.

Some new miners come to market, new mining hardware companies come to market with solutions that are designed specifically for immersion based on non <unk> chips. So you could infer Intel or one of the three or four other new and new vendors coming to market. Later this year early next year.

But I think.

Our focus is to deploy as much as we can.

where it makes sense with immersion. There are a number of benefits with that. Immersion extends the life of a miner because you're not operating with air cooling, where you have wide temperature cycles, and where you get a lot of dirt in the miner. And so some early tests have shown that the reliability for a miner is greater when it's in immersion. So that's one reason to do it. The other reason to do it is you have the ability to potentially overclock the miner.

It makes sense with immersion.

There are a number of benefits with that immersion.

<unk>.

Life of a minor because.

We're not operating with air cooling, where you have wide temperature cycles, and where you get a lot of dirt in the miner and so some early tests have shown that the reliability for our minor is greater when it's an emerging so that's one reason to do it. The other reason to do it is you have the ability to potentially overclock the miner.

And in some cases, we're seeing significant improvements where you could get up to a 40% boost.

And in some cases, we're seeing significant improvements where you could get up to a 40% boost in.

in minor performance, if you would. So, obviously, there's a linear increase in power consumption as well, so it's not free, that boost. But what it does is, if you pay, let's just say, a round number, $10,000 for a minor, if you can get 40% boost out of it, well, you know, that saves you $4,000 of extra capital for buying additional minors to give you that boost.

Minor.

<unk> if you would.

Obviously, there is a linear increase in power consumption as well so it's not free that boost but what it does is if you pay let's just say round number of $10000 for minor if you can get 40% boost out of it well.

<unk> $4000 of extra capital for buying additional miners to give you that boost.

Then you also have the capital cost for the immersion tanks.

Then you also have the capital cost for the emerging tanks and so what we're seeing is it can range from the kind of low.

So what we're seeing is it can range from the kind

say sub $1,000 per minor for immersion up to a couple of thousand to almost $3,000 per minor immersion depending on the tank vendor the solution and how it works and then lastly you have capacity constraints you know most immersion vendors can't deliver 10,000 tanks

Say sub $1000 per miner for immersion up to a couple of thousand to almost $30000 per miner immersion, depending on the tank vendor the solution and how it works.

And then lastly, you have.

Capacity constraints, most emerging vendors can't deliver 10000 tanks.

a year. It's in the, you know, hundreds per month most probably for most vendors. So what I think you're going to see is a gradual kind of use of immersion starting really next year and as we go through the year you'll see a greater and greater percentage of miners deployed with immersion and as we get into 2024 even more that continues to develop. But there's this combination of

A year it's in the.

Hundreds per month, and that's probably for most vendors. So what I think youre going to see is a gradual.

Use of immersion starting.

Really next year and as we go through the year Youll see a greater and greater percentage of miners deployed with immersion and as we get into 2020 for even more.

That continues to develop but there's this combination.

Of.

Supply constraints.

you know, supply constraints. Obviously, it's more expensive. And so, you want to make sure that your operating model supports that additional expense. And then, you have to have a way to be able to, you know, overclock the miners as well if that's what you're going to do. So, hopefully, that answers your question.

Obviously, it's more expensive and so you want to make sure that your operating model supports that additional expense and then you have to have a way to be able to overclock the miners as well if thats, what youre going to do so hopefully that answers. Your question, that's really great and just one last question and you kind of mentioned more.

Yeah, that's that's really great. And just one last question. And you kind of mentioned.

more chip manufacturers. So Intel has, everybody's talking about Intel coming into the industry. I guess if we fast forward a year or two from now, I mean, how do you think that we're going to be talking about the cost per terahash for these ASICs? Will it become more disconnected from the price of Bitcoin and kind of a more realistic and, I guess, more favorable number for somebody like Marathon?

More chip manufacturers, so Intel has.

Everybody is talking about and telecom into the industry I guess, if we fast forward a year or two from now I mean, how do you think that where it's going to be talking about the cost per <unk>.

For these asics will it become more disconnected from the price of bitcoin and kind of a more.

Realistic.

Yes, more favorable number four.

For somebody like marathon.

Yeah. So, you know, at the end of the day, the price of Bitcoin does end up driving it because it drives demand. So if the price of Bitcoin, let's just say it's in the $40,000 to $50,000 range at the end of this year, then I think you're going to see continued in the macroeconomic environment remaining kind of as is. I think what you're going to find is miners

Yes so.

At the end of the day the price of Bitcoin does end up driving it because it drives demand. So if the price of bitcoin, let's just say it's in the $40 to $50000 range at the end of this year, then I think youre going to see continued.

And the macroeconomic environment.

Environment remaining kind of as is.

I think what youre going to find as miners.

may be capital constrained and not able to grow as quickly as they expected and so you're going to see a glut kind of equipment like in prior cycles.

May be capital constrained and not able to grow as quickly as they expected and so youre going to see a glut of equipment like in prior cycles.

And so pricing, you know, the buyer is going to have pricing power.

And so pricing the buyer is going to have pricing power.

If Bitcoin goes to 100K and everybody is like, grow, grow, grow, grow, grow, then demand will outstrip supply and pricing will be based on the market. So I think in a normal environment, what you're going to see is two new factors impacting price. One is today only Bitmain arguably has 65% of the market.

If bitcoin goes to 100, K and everybody is like grow grow grow grow grow then.

Demand will outstrip supply and pricing will be based on the market. So.

I think in a normal environment, which youre going to see is two new factors impacting price. One is today of any bit main arguably has 65% of the market.

I think you're going to see that number come down to about 50 percent and then, you know, potentially lower as these new vendors scale. You know, Intel is still early in the game. They're only partnering with four OEM.

I think youre going to see that number come down to about 50%.

And then potentially lower as these new vendors scale Intel is still early in the game there are only partnering with for Oems as the first stage.

at the first stage. But there are new people coming to market with some really exciting designs.

But there are new people coming to market with.

With some really exciting designs.

that are both more energy efficient and designed specifically for immersion high-density, which will lower the CAPEX cost of an immersion tank. And so now you have specialization. So if you were to go back to the early days of the server industry, you started out with these desktop boxes and then you had rack-mount boxes, and then eventually you had very specially designed, purpose-built servers for different types of applications, and then you eventually got to the place where...

That are both more energy efficient and.

Designed specifically for immersion high density, which will lower the capex cost of an emerging tank and.

So now you have specialization. So if you were to go back to the early days of the server industry. You started out with these desktop boxes and then you had rack Mount boxes and then eventually you had very specially designed purpose built servers for different types of applications and then you eventually got to the place where Facebook and Google today in their data centers operated.

Facebook and Google today and their data centers operate immersion type solutions that are all custom built hardware.

<unk> type solutions that are all custom built hardware. So I think youre going to see the industry go through that same transition the large industrial miners like ourselves will likely over time move from Shoeboxes too.

So, I think you're going to see the industry go through that same transition. You know, the large industrial miners like ourselves will likely over time move from shoeboxes

let's just say industrially designed application-specific immersion systems that give us high density, maximum performance, and the ability to control every aspect of the operation of the miner through our own software.

Let's just say industrially designed application specific immersion systems that give us high density <unk>.

<unk> performance and the ability to.

Every aspect of the operation of the miner to our own software systems.

So as you look at how companies like Marathon will add value in the future and differentiate themselves from other miners who just wanna be data center operators effectively, we are gonna focus very much on the technology of mining and how we can add more and more value to that as a way to make our mining operations more efficient and more productive. All right.

So as you look at how companies like marathon will add value in the future and differentiate themselves from other miners.

Who just want to be data center operators effectively.

We are going to focus very much on the technology of mining and how we can add more and more value to that as a way to make our mining operations more efficient and more productive.

Alright, it sounds good well. Thank you so much I appreciate your time.

Yes.

We will take our next question from Kevin Dede with H C. Wainwright, Sir the floor is yours.

We'll take our next question from Kevin Deed with H.C. Wainwright. Sir, the floor is yours.

Thank you Fred Hu I appreciate you holding the call upfront you didn't really address the move from harden. So I wouldn't I would appreciate if you could just spend a little time on.

Thank you, Fred. I appreciate you holding the call. Fred, you didn't really address the move from Hardin, so I appreciate if you could just spend a little time on

On whether or not that's going.

on how that folds into your deployment plan.

That folds into your deployment plans.

Sure.

So, the move from Hardin will be done as a phased move because we don't want to take down more operating capacity than absolutely required as we transition. So, it's about, you can figure 7 to 10 days door to door for moving miners. And you'll see in Q3, us kind of take.

So the move from Hardeman will be done as a.

Phased move because we don't want to take down more operating capacity then absolutely required as we transition so it's about.

You can CAGR.

7% to 10 days door to door.

Moving miners.

And you'll see in Q3.

Take care.

Just kind of 7% 8% of the capacity Harden down 10 days later that capacity will pop up at a new site and then we will phase that across.

kind of 7% to 8% of the capacity hardened down, 10 days later that capacity will pop up at a new site and then we'll phase that across.

Q3, so that we're hopefully never going to see more than a 10% decrease in hardens capacity at any one time. So that's how that'll happen. And that's, you know, those units are already calculated in our deployment for this fall.

Q3, so that we're hopefully never going to see more than a 10% decrease in hardens capacity at any one time.

So that's how that will happen and thats.

Those units are already calculated in our deployments for this fall.

Okay does.

Because you're planning there.

<unk> does.

Does that mesh with your expectations for your power partners to deliver and your infrastructure to be in place? Yes.

Does that mesh with your expectations are for your power partners to deliver and yet your infrastructure to be in place.

Yes.

And do you foresee any issues with transportation?

And.

Do you foresee any issues with transportation.

No I think we've worked out a very good plan.

No, I think we've worked out a very good plan on how to do this, essentially.

On how to do this essentially.

The miners are.

The miners are taken out of the existing containers, they're cleaned, they're essentially a QA. You know, are there any repairs that need to be done to any service that's required in the miner? And then they are put in boxes and loaded into large semis.

Taken out of the existing containers they are cleaned.

Essentially <unk>.

Is there any are there any repairs that needed to be done with any service that is required in the miner.

And then they are put in boxes and loaded into large.

Semis.

And essentially you can kind of figure it's one container full of minors filled semi.

and essentially you can kind of figure it's one container full of miners fills a semi. And so each day you'll have roughly two trucks coming and going from the facility and traveling away and then the miners are installed.

So each day youll have roughly two trucks coming and going from the facility and traveling away and then.

The miners are installed.

You know, and the ability to install miners that they can install about 1000 miners a day. So that's perfectly with that kind of 2 trucks a day model. So, we don't.

The ability to install miners as they can install about a thousand miners a day, so thats fits perfectly with that kind of two trucks a day model.

So we don't foresee an issue there.

You mentioned an emphasis on technology and I know that's something you've stressed over the past year.

You mentioned, an emphasis on technology and I know, that's something you've stressed over the past year.

I mean, you offer great insight on immersion. Could you talk a little bit to software optimization? I don't necessarily know that's, you know, well understood across the industry. And how are you working with your, the managers, your pool and other vendors to...

I mean, we offer great insight on immersion could you talk a little bit to software optimization.

Not necessarily no that's well understood across the industry.

How are you working with your.

The managers of your tool and other vendors too.

generate the greatest return you can on your hat.

Generate.

Greatest return you Ken on your hash.

So.

So, you know, as you know, we operate our own pool, so we're not dealing with a third party.

As you know we operate our own pool, so we're not dealing with a third party.

And I think what you could expect to see is there are a number of levers you can pull with technology and mining.

And I think what you could expect to see is there are a number of levers you can pull with technology in mining. You can do things at the chip level, which if you're big enough in scale and you have enough purchasing power from a vendor, you can drive certain aspects of that.

Can do things at the chip level.

Which if youre, a big enough and scale and you have enough purchasing power from a vendor.

Can drive certain aspects of that.

There are things you can do in the firmware of the miner itself regarding how it allocates and operates to optimize the use of the ASICs, especially in an immersion system. There are some unique things you need to be thinking about with those ASICs.

There are things you can do in the firmware of the minor itself regarding how it allocates.

And operates to optimize the use of da.

Especially in a an immersion systems.

There are some unique things you need to be thinking about with those asics.

Then you have and the controller board for the miner.

Then you have in the controller board for the miner, again, some opportunities to get some small incremental benefits. And then you have at the pool level some opportunities to get some incremental benefits.

Some opportunities to get some small incremental benefits.

And then you have at the pool level.

Some opportunities to get some incremental benefit.

So you have.

let's just call them architectural and algorithmic advantages you can eventually create. And, you know, these are in very small percent numbers of efficiency gains and performance gains, but it does add up in the long run. But you also have

So, let's just call them architectural and algorithmic advantages you can eventually create.

And.

These are in very small percent numbers of efficiency gains and performance gains, but it does add up in the long run.

But you also have.

an important factor is the ability to go down and control directly at an ASIC level the performance of the miner. And that can give you a couple percentage points of benefit as well. So, the whole key is, how do I maximize the amount of productivity I get out of a miner across its life?

An important factor is the ability to go down and control directly at an <unk> level the performance of the miner.

And that can give you a couple of percentage points of benefit as well. So the whole key is how do I maximize the amount of productivity I get out of a miner.

Across its life.

such that it's producing the maximum amount of Bitcoin based on kind of what's going on.

Such that it's producing the maximum amount of bitcoin based on kind of what's going on.

Not just the data center.

not just at the data center, in the individual miner, at the individual ASIC level, but also more globally, how it interacts with the overall global network. So, let's kind of think of it as a whole technology stack.

And the individual minor at the individual ASIC level. So it also more globally, how it interacts with the overall global network.

Think of it as a whole technology stack.

Yes.

And.

And are you at a point where you have many of these adjustments implemented? I mean, did you run it, the marathons run at hardening?

Are you at a point, where you have many of these adjustments implemented.

Youre running the marathon is run at hardening.

I guess, offer enough time to make some of these improvements.

I guess offer enough time to make some of these improvements.

Yes.

So we have a lot of things that are work in progress certainly operating the hardened facility taught us a lot of lessons not least of which was we don't want to own our own facility.

So, we have a lot of things that are work in progress. Certainly, operating the hardened facility taught us a lot of lessons, not least of which was we don't want to own our own facility, but it has taught us a lot of lessons about how one can potentially get some benefits. So, we're doing a lot of testing.

But.

It has taught us a lot of lessons about how 110.

Potentially get some benefit so we're doing a lot of testing.

and we'll implement things as we feel confident that it makes sense to implement them. And obviously that's going to be, you know.

We will implement things as we feel confidence that it makes sense to implement them.

And obviously that's going to be.

pre-proprietary information, so we're not going to share too much details about the what and the how, and we're just going to let the numbers speak for themselves.

Pretty proprietary information, so we're not going to share too much details about the what and how.

And we're just going to let the numbers speak for themselves.

Yes fair enough I.

Yeah, fair enough, Fred. I would expect that. Okay. Aside from some of the immersion working you're doing and the, obviously, the software work, what other aspects of technology improvement are you considering or testing?

I would expect that okay.

Aside aside from some of the immersion working youre doing and the obviously the software or what other aspects of technology improvement are you.

Considering or testing.

So.

One is the operational efficiency and productivity of the miners.

One is operational efficiency and productivity of the mine.

There's some interesting things, potentially a little bit beyond the base layer as we look at layer two, where we're seeing what we can do

There are some interesting things.

Potentially a little bit beyond the base layer as we look at layer two.

Where we're seeing what we can do.

to help provide better infrastructure for some Layer 2 implementations, and we'll share more about that later on this year as those plans move into execution mode. You're also going to see...

To help provide better infrastructure for some layer two implementations and we will share more about that later on this year.

Those plan move into execution mode.

Also going to see.

Some new ways of leveraging the work that proof of work does.

some new ways of leveraging the work that proof of work does.

relative to validating transactions such that we can leverage all the existing investments we're making and operating costs that we're incurring.

Relative to validating transactions.

Such that we can leverage all of the existing investments, we're making and operating cost that we're incurring in.

In ways that can drive some additional revenues by leveraging.

Some of the space in block.

To provide an immutable record for non bitcoin blockchain.

Yes.

And I can't really share too much more about that because.

Okay.

Development going on there and we don't kind of want to spill the beans on that quite yet but.

Let's just say that there are ways that the bitcoin blockchain can actually help other blockchain become.

Immutable and provide better validation.

Obviously, that's something that.

Miners can charge for.

Another revenue source.

I see.

Yes.

The.

Yeah.

Okay.

The infrastructure in place now.

As your facility.

Behind the meter.

But also attached to the grid.

And I'm wondering if the.

The green sources of power.

Are directly attached to your facility.

And wet.

What stage of construction they might be in.

So all of the renewable power is in place already its been operating for a while so that's not new so the think of it this way the power generation equipment has been operating.

Yes.

It takes years to build those sites, so thats all operating fully functional.

The challenge as I said earlier in my comments was.

Our power plants.

<unk> generates electricity and pushes it to the grid.

It does not take electricity off the grid.

And all of this infrastructure of the Transformers et cetera are all designed for Repower moving from the generator to the grid. So if youre going to do it the opposite way you need to put in place infrastructure. That's all in place.

Aercap has already approved the load.

You've heard this term of a loan studies. So they have approved 280 megawatts of loads.

To the facility so that's not an issue.

The problem the last little gating problem, we have right now is a concern.

A third party consents and as soon as that.

We can go lives. So we're continuing to keep north is.

<unk> built out the sites are continuing to deploy containers are continuing to stuff miners in containers and everyday that goes by more miners are built into our put into containers.

When we flip the switch they all come online.

Okay.

One thing I will say is as you look at it.

Renewable energy.

And this was a.

Renewable energy operators.

Getting additional benefit from having us behind the meter and we've talked a lot about.

Bitcoin miners being like a capacitor or a buffer to the grid and being able to be a customer.

For the renewable energy operator to suck up the excess energy that they can sell to the grid.

But the other thing that.

Miner, we can do is.

We can enable a renewable energy generator, who let's just take wind for example.

If they're a wind generator and they have the right type of leases for the land under their wind turbines. They can deploy solar as well and they don't have to get additional capacity.

Permits from the grid, because theyre not going to push that extra energy out to the grid, because typically solar and wind to operate at different times of day, especially in Texas.

And so all of a sudden we're now providing an incentive for renewable operator to double down and add solar in addition to wind.

At the same facilities.

Significantly increasing their total capacity, but their capacity on an hour of the day basis remains sustained if that makes sense, but the benefit to us.

It means we have to take even less energy off the grid.

Yes.

Yes.

Absolutely.

I hadn't expected to hear that Fred so thanks for sharing I appreciate it.

Thanks for entertaining all my questions.

Yes, absolutely appreciate it Kevin.

We will take our next question from Chase White with Compass point you May proceed.

Thanks, guys.

So.

How do you guys think about.

Financing your Buildout going forward in terms of with capital needs and also sources.

Is there going to be a focus on.

Kind of non dilutive sources of capital like that and <unk> potentially selling bitcoin or.

As the at.

At the market offering that you guys have out there.

Going to be kind of the main source I'm, just trying to get an understanding of.

The needs and where it's going to come from going forward. Thanks.

Sure I'll, let you answer that question sure.

I think what you have to do is look at the.

Look at the long term.

Our long term financing plan, what's the right capital structure for the business.

So when you really look at that it's a combination of debt and equity over the long haul I don't want to get into timing of when we're going to issue debt. When we're going to issue equity, whether we're going to do leasing or not.

But we're looking at all of that at this point.

I said.

We may we may buy yourself bitcoin for general corporate purposes, I'll say, we don't really have an intention to do that.

In the near term.

We're looking at financing things like term loans revolvers equipment financing.

And and the shelf all or part of the mix and we we have to focus on getting to a long term balance of what's an appropriate long term capital structure and the way you get to that as you pull different levers at different times.

But I don't think we want to quote we want to go into details of how we're going to how we're going to finance in the very near term and the midterm and the long term other than to say all of those things are part of it part of our plan.

Sure makes sense.

Just on the kind of debt slash equipment financing side.

I mean is it getting is it getting easier out there are you finding that there's more competition and therefore capital cost can start coming down for.

For those who can obtain it or how does the debt.

Good luck.

Well.

While one month and so it's pretty hard for me to talk conclusions sure whether it is getting easier I would say without question I think bitcoin is getting more readily acceptable.

There's clearly been a pullback in the whole the whole the whole.

Before today, the whole industry and the whole stock market.

I think the.

It's becoming a little bit more.

Theres more sources coming approaching us now.

And the folks that we're working with are open for business then.

Willing to continue.

We continue to work with us so I feel like the.

It feels to me like the.

The.

The environment is constructive.

For me to draw a hard and fast conclusion as to is it better than a year ago was it worse than a year ago.

Because I'll just subject to new in the chair.

Fair enough fair enough.

And.

Following that up I mean is there any I mean, how does the landscape for hosting providers look right now do you see that impacting your ability to grow beyond sort of the $23 three eggs hash that you guys have contracted.

In the future and following on to that I mean is there any concern that.

To the extent you go for geographic diversification that regulatory delays like you saw in Texas might start popping up in other states that maybe.

Currently don't have a machine like that.

So I think let me answer the question in two parts one is.

If anything we're seeing more and more.

Opportunities for hosting everyday.

<unk>.

And you could say well.

That's just part of the trend and I think there are enough people, who have now understood kind of the nature of this business, who either have access to flare gas or who have access to.

Renewable energy.

Or hydro or geothermal or other sources solar et cetera.

That now are looking at Hey, we've got 10 2030 megawatts, we'd love to.

Have you guys come in and.

Ron miners.

And our facilities.

And we're not at all.

Against having.

A lot of hosting partners, we obviously prefer having.

Handful of larger hosting partners.

Your next to choke if you would fewer operations to be babysitting.

Because we are very active in the kind of.

Oversight on our miners and how they're operated but there's definitely a benefit to having a broad dispersion and certainly there is much easier access to smaller chunks of hosting then there are big chunks, it's pretty hard to find 300 megawatts of power.

At a time and so our strategy now is broadening out and looking at a lot of site diversity lot of geographic diversity to your point to avoid.

Over establishing in Texas.

In the prepared remarks.

I mentioned that.

The environment in Texas, while it is very open to mining.

There comes a point where enough is enough and the load on the grid just becomes too much and we don't want to be in a position, where we have all our eggs in one basket and some of our colleagues in the industry have everything in Texas.

Everything in Aercap and <unk>.

Aercap may decide depending on what happens to go one way or another and do things differently and so we just don't want to have that risk of having all our eggs in a single basket.

So youre going to see us having more geographic diversity over time, and you will likely start seeing some international deployment over time as well.

Got you thanks, guys.

Our next question will turn to Zack <unk> with D. A davidson.

Hey, guys. Thanks for taking my question Zach on for Christopher <unk>.

It looks like cost per Cohen came down a bit from last quarter is that a function of improved operations at hardened.

And then if you could remind us what we should expect for cost per corn as you transition to Texas.

Okay.

I'll, let you address kind of the difference if we looked at our kind of cost per coin.

I think our cost in Q1 was up a little bit over Q2.

As we look at.

Go ahead chip yes.

Yes so.

So is that what I.

What I typically do as I just look at the if you just look at the face of the <unk>.

The financials.

I looked at the cost of revenue.

And I back out DNA.

How I sort of work my way through this.

And when I do that compared to the fourth quarter.

You do have a slight increase in cost.

Perfect <unk>.

And that makes sense, because the global hatch rate increased and so therefore, the amount of energy required to mine a bitcoin should in theory have increased strength.

<unk>.

That's right, yes makes total sense.

And then.

Maybe some additional color on the <unk>.

Oral issues and if that was sort of related to the heart and facility add if you expect those to subside in may.

Yeah. So we've had this ongoing issue with the Heartland facility.

Unlike.

Our compute north facility in Texas, There is no grid connection at heart. So if the power plant goes down we can't pull power off the grid.

And the power plant and hardened though.

It's quite knew it was built in 2007.

Just look at our past production reports and you can see that had been consistent issues and unfortunately in the case of a coal fired plant there are mechanical issues such as Youre ingesting coal it gets ground up turned into a slurry that then get combusted.

General heat boilers water generate steam electricity is generated lots of mechanical parts well, sometimes it can be rocks in the call that mess up a grinder it could be a turbine issue it could be all sorts of issues and.

With the supply chain issues out there today when something breaks you don't necessarily always have spare parts available and you have to wait for them to come in and.

And so the hardened facility.

In April was really limping essentially.

Was operating at about 60% of capacity.

So hopefully those issues are kind of the.

Hind us, but I don't think we have.

Believed they were behind US a number of times in the past and.

Issues keep cropping up.

And uptime as it <unk>.

Important to us so.

We are eager to do this transition away from harden and into an environment, where we can have.

Much higher performance.

Tom.

Yes.

Super helpful. Thanks, and then my last question is sort of pertaining to that transition can you give any color.

On how many rigs you may expect to be up in Texas. This month and then.

Throughout the year I'm, sorry, if I missed that.

Yes, I mean, we're not giving specific numbers.

For this month, but you could think of it.

If you were to look at Q2, I think youre going to see.

Essentially.

Another.

Three extra hash come online.

And then a significant increase over that in Q3.

And then.

Q4, you start seeing the increases.

Decrease because they are now driven by.

Receipt of miners, but the big Youre going to see a think of it as a snake, where you've got kind of the tale in the mouth.

The middle of the snake as the fattest, well Q3 is by far our absolute status deployment quarter.

Thanks.

Super helpful. Congrats guys.

Yes.

At this point there are no further questions Im going to turn the call back over to Charlie Schumacher for closing remarks.

Thank you all for your time today, if you have questions that were not answered during today's call. Please feel free to contact our investor relations team at IR at Marathon D H Dot com.

And enjoy the rest of the day.

This does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.

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Okay.

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Okay.