Q3 2022 Marathon Digital Holdings Inc Earnings Call
Good day, ladies and gentlemen.
Welcome to Marathon Digital Holdings third 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 Diego Hello, everyone and welcome to Marathon Digital Holdings third quarter 2022 earnings call.
Joining me on today's call are our chairman and CEO , Brett <unk> and our CFO Hugh Gallagher before we get started I would like to remind everyone that our prepared remarks may contain forward looking statements, which are subject to risks and uncertainties.
And that we 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. The words anticipate could enable estimate intend expect believe potential will should project and similar expressions as they relate to marathon Digital Holdings, Inc. Are as such a forward looking statements. Please refer.
<unk> to our earnings release for a full reputation 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 the U S Securities and Exchange Commission, which can be reviewed at WWE.
W. Don SEC Dot Gov. Finally, please note that on today's call, we 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 a full reconciliation of its non-GAAP performance measures to the most comparable GAAP.
Financial measures.
We will begin today's call with prepared remarks from Brian view after their comments, we will be going through some of the more popular questions from our investors before transferring to a live Q&A with our covering analysts.
And with that covered I am going to turn it over to Fred to kick things off Brent.
Thank you Charlie and thank you all for joining us today for our Q3 2022 earnings call.
The third quarter was a transition and rebuilding period at marathon with the facility and hardened Montana offline and organization of miners in Texas delayed we entered the third quarter with only 6000 miners operational producing approximately seven <unk> per second.
Unsurprisingly the operational transition that occurred during the third quarter caused our financial results to dip both quarter over quarter and year over year, However, as our consistently improving bitcoin production substantiate our confidence in our ability to rebuild our hatch rates, while maintaining a healthy balance sheet was well founded.
Today, We believe marathon this a strong foundation on which we can continue to efficiently grow towards our goal of 20 <unk> per second by mid 2023, and expand our position as a leader in securing and supporting the bitcoin ecosystem.
Since the end of the second quarter, we have sequentially improved a bit corn production from 70 to bitcoin in July to 184. In August then 360 in September and then to a record 615 in October .
October was the most productive month in our company's history during which our production with almost equivalent to the entire third quarters.
We now hold approximately 11300, bitcoin, making marathon the second largest holder a bitcoin amongst publicly traded companies worldwide. According to various third party sites tracking this data.
The consistent improvement in our bitcoin production is the direct result of increasing our Ashford by bringing more bitcoin servers online and improving those servers uptime.
During the third quarter, we transitioned out of the data center in Montana, where our servers were drawing their electricity from our coal plants that have consistently incurred maintenance issues that negatively impacted our uptime.
This scheduled move was part of our broader strategy to become more operationally effective and more environmentally sustainable.
By transitioning away from the hardened facility, our renewable energy mix has increased our uptime has improved and our fleet has become more efficient on our fuels for taro hash basis.
While we were in the process of exiting harden new facilities, most notably the datacenter and Mccamey, Texas that is co located behind the meter at a large wind farm called Qin Mountain began coming online.
<unk> of this new site during the third quarter enabled us to increase our hatch rate from approximately <unk> <unk> per second on July one to approximately three eight <unk> per second on September 30th is over 30000 miners were brought online during the quarter and since the quarters end, we have increased our hatch rates an additional 80%.
4% to approximately seven extra ashes or 10 times greater from where we entered Q3 with approximately 69000 of our bit coin miners operating as of November one.
Not only have we been able to execute in line with our recent expectations, but we've been growing consistently at a time when many in our industry have been struggling however.
However, before discussing the current state of the industry and why do we believe it creates uniquely beneficial opportunities for marathon I'm going to turn the call over to Hugh to discuss our financial results for the third quarter.
Thanks, Brad.
This was a particularly eventful quarter as we energized our miners and King Mountain then completed the exit from the hard Montana site, a significant street strategic pivot for the company.
We also announced additional hosting capacity with supply digital and we added new term loan and revolving credit facilities.
Then in September we learned of the computer with bankruptcy process, which is still ongoing as we speak in which we'll comment on a little bit later.
Let me first turn to the numbers.
We recorded a net loss of $75 4 million during the quarter compared with a net loss of $22 2 million in the prior year period.
This $53 2 million increase in our loss.
$53 2 million increase in our net loss and I'm going to walk you through the components of it now.
As mentioned in our earnings release production was very low in July as we made the decision to exit harder than we were just starting to energize King Mountain.
This combination of factors, coupled with lower bitcoin prices resulted in a $39 million decline in revenues when compared to the prior year.
Decreased production accounted for $26 3 million of this variance and lower bitcoin prices accounted for $12 7 million of the revenue areas.
Cost of revenues increased a total of $29 8 million. This was primarily related to the impact of $28 million and accelerated cost recognition related to the early exit from hard this impacted both cost of revenues energy hosting and other by about $5 7 million and cost of revenues.
<unk> and amortization by about $15 $1 million during the quarter and Fortunately the recognition of these costs are now behind us.
Turning to the value of our digital currencies.
Experienced a $5 9 million impairment in the carrying value of digital currencies during the quarter compared with an impairment of $6 7 million in the prior year period.
However in last years quarter, we also experienced an increase in the fair value of digital assets, we held in our investment fund of $42 1 million.
Youll recall that we eliminated the investment fund during the second quarter of this year and we now hold all of our bitcoin as intangible as asset subject to impairment.
So overall the negative period over period impact was $41 3 million.
I mentioned earlier that it was an eventful quarter and next I'm going to I'm going to just touch on two of the more larger and more unusual items that we recorded during the quarter and.
In October we finalized our previously disclosed legal settlement of <unk> $25 billion. The expense to establish this reserve for the settlement was recorded during the quarter.
We also previously disclosed our exposure to compute north consisting of investments in preferred stock loans and operating deposits that this number was approximately $81 million during the quarter. We performed an assessment of where we stood with compute north and we recorded an impairment of $39 million related to the <unk>.
<unk> stock alone and certain deposits.
This bankruptcy process is ongoing and we will not be able to comment on the process further other than mentioning these financial impacts.
We also saw a $3 8 million increase in interest expense during the period, primarily related to the convertible notes issued late in 2021.
Now partially offsetting these unfavorable variances were the following items, we recorded gains on sales of assets of $31 $9 million during the quarter. These.
These gains included the previously disclosed sale of equipment related to the King Mountain development at.
And additional asset sales related to our exit from hard we sold approximately 22000 miners.
At Harding for proceeds of around $46 $5 million and we recorded a gain of around $4 million related to this transaction.
Operating expenses decreased significantly this was primarily due to a drop in noncash compensation expenses, partially offset by higher costs related to increased business activities from the growth of the company and we also recorded an income tax benefit of $5 $8 million in the current year period versus.
0.1 million benefit in the prior year period.
Adjusted EBITDA was a loss of $8 7 million compared with adjusted EBITDA of $78 8 million in the prior year.
This decline in adjusted EBITDA, primarily resulted from lower total margin again, this is EBITDA or excluding depreciation and amortization of $46 9 million to.
The $41 3 million impacted the carrying value of digital assets, the legal reserve and the increase in cash operating expenses of about $6 3 million and all of these negative variances were partially offset by the gain on sale of assets I mentioned previously.
Turning now briefly to our Bitcoin holdings and liquidity unrestricted cash was $55 3 million at the end of September and $52 1 million at the end of October .
Total Bitcoin holdings were 10670 <unk>.
Or a market value of $207 3 million at September 30, and 11285 or $231 3 million at October 31 <unk>.
Unrestricted Bitcoin holdings were 6842, that's about $133 million at September 30.
<unk> 3464, Thats about 71 million at October 31.
During the month of October we borrowed $50 million under our revolving credit line, which is why our unrestricted bitcoin went down.
And we intend to repay this by making the final draw on our term loan facility in November we don't expect.
Significant additional collateral requirements related to this transaction.
We expect to increase our bitcoin holdings over time, primarily through our mining activities and as our mining activities increase we will likely sell a portion of bitcoin produced in future periods to fund monthly operations for Treasury management purposes or for general corporate purposes.
We also expect to fund our operations through prudent use of our ATM facility.
Looking forward for the remainder of the year, we see modest modest cash needs for investment including shipping costs.
Related to previously ordered miners.
With that summary, I will turn it back to Fred for the rest of the call Fred.
Thank you there is no doubt that the macro environment presents challenges for bitcoin miners bitcoins price has been relatively flat for the past four months.
Power prices have increased in the global hatch rate has climbed to over 260 <unk> per second these forces have depressed margins across the industry and so far hosting providers seem to have felt the largest impact while these variables present challenges for some they also present opportunities for others, including marathon.
We believe there's no better time to be scaling our bitcoin production and to be commencing the installations of our previously purchased S. 19, XP, which are the most energy efficient machines available in approximately 30% more energy efficient than the prior generation S 19, J pros predominantly being installed today by many of our competitors.
Today, It is unprofitable to mind with <unk>, 17th unless Youre energy pricing at below <unk>.
And $6.05 per kilowatt hour respectively.
Even with US 19, J pros the breakeven cost of mine is approximately $8.05 per kilowatt hour given the current global hash rate for these reasons, we believe on a marathon <unk> unique strategic advantages is that over 60% of our hatch rate is expected to be generated by S. 19, xps by the time, we achieve our primary target of 20.
Three <unk> per second in mid 2023.
Given the large mix of xps in our mining fleet, we believe the efficiency across our fleet will measure approximately $24 two jewels portera ash when fully operational to put this in context, it's been estimated that global Bitcoin mining fleet are currently operating at an average of $45 nine jewels for Terra House.
Another way by mid next year, we expect marathons mining operations will be consuming 47% less energy than the Bitcoin network is today on a per <unk> basis.
Why does this matter it means we're positioned to keep the lights on when others cannot and since bitcoin mining as a zero sum game in which the difficulty of mining is dynamic and be able to survive. The winter while others are out in the cold provides us with excellent downside protection and it also provides us with more leverage should bitcoin begin to turn in a positive direction.
Installing and energizing our miners in achieving 23 ex that Hasnt per segment remains our primary goal for the upcoming quarters.
Based on conversations we've had with apply digital and our other hosting provider. We believe we are still on pace to achieve this target the middle of 2023 as previously stated.
The most recent construction and deployment schedules indicate that minor should start to be energized and apply digital facility in Texas during the fourth quarter of this year, while our deployments to their facility in North Dakota should mostly occurred during the second quarter of next year.
And is now nearly fully operational and depending on the outcome of the ongoing compute north bankruptcy second phase <unk> will follow me occur in Q4 with final amortization potentially in Q1. These timelines are always subject to change and we continue to provide updates on this progress in press releases quarterly filings and elsewhere.
With production scaling our hash rate becoming more consistent.
Questions asking us what's next.
In marathon, we don't speak in detail about our growth plans until we have contracts in place. However.
However, today I do want to share part of our philosophy to give you all a sense of how we see the company evolving over the coming quarters.
To drive value, we believe it is imperative to become effective and more efficient over time to maximize optionality and to be proactive rather than reactive.
And as part of that strategy were constantly evaluating new technologies and searching for new hosting arrangements.
This past year, we significantly reduced our reliance on fossil fuels as we broke the mold on deploying behind the meter of renewable energy sites.
The majority of our hatch rate will be located in your sustainable power sites by this time next year Marathon is always striving to set the pace to make bitcoin mining more energy efficient and environmentally sustainable.
While we believe there are several innovative opportunities in North America to increase our geographic diversity decrease our power costs and drive further towards carbon neutrality. We are also investigating international markets, which are becoming increasingly more interesting, especially as we look to deploy emerging technology.
Bear markets are a great time to bill if you can do so and we believe <unk> remains well positioned for growth.
We look forward to building on our current momentum through the end of the year and beyond to become the largest self mining bitcoin miner and to improve our position as a leader in supporting and securing the bitcoin ecosystem with that I'll turn it back to Charlie So we can begin taking questions Charles.
Thanks, Brian at this time, we're going to commence the Q&A section of today's call. We will start by answering some of the questions submitted by investors on our Q&A platform.
The first question comes from Eugene who asked it.
Typically in continued sideways between 18 to 21000 for the next six to 12 months as marathon currently in a financial position to weather the storm and come out on top if the value of that claim against the increase in the future Brad would you like to take that one sure.
Sure. So as you can see from the queue.
Our prior remarks, sorry from the earnings release and our prior.
Production reports our cost to produce bitcoin remains very competitive in the marketplace. We think as we've been saying, we expect bitcoin to trade in this kind of 18 to 22000 range for some time and we think we're very well positioned to weather the storm and come out the other side very attractively as bitcoin goes.
There have been price to date, we haven't yet sold any of our bitcoin.
We will hold up bitcoin unless we deem its.
Necessary to cover operating expenses or other expenses.
At the same time as we were going to continue to look at a <unk> price behavior today was a unique today in the market. This news with.
Little Battle between <unk>, and Tim Backman fried has already caused some turmoil in the price of bitcoin, but we think that the current electric come back within the range that we've spoken about and that's a range we feel very comfortable with.
Great.
Connie Shen H and Mohammed and more about curious about some of the potential risks to the business.
I guess the question is essentially where does marathon currently face any threat to bankruptcy or other major risks associated with it and what are the company's plans to avoid those risks.
Although lots of.
Risks that we cant control price of bitcoin global hash rate things like that.
But we think that barring those things, we're very well positioned to weather through this winter and come out the other side and definitely harvest as the environment improves.
Our next question is from Harp and.
Fred This is probably one for you as well what is the future of marathon and 2023 and sort of a follow up question to that from the Sun S is.
Well marathon consider diversifying its business beyond that coin mining in the foreseeable future.
So 2023 is going to be an important year today, we're operating at a little over $7 <unk> per second by mid 2023, we'll be at 23 ex the hatches that's pretty substantial growth.
In a very short period of time.
If you look at the balance of the year and if you remember the comments I just recently made.
Earlier on this call.
We're beginning to look at international opportunities and other opportunities, which we believe will provide us with very attractive energy pricing.
Very consistent energy sources, very well capitalized hosting partners in energy partner as we continue to.
Evolve kind of our strategy.
Around renewables and driving that renewable mix as high as 100%.
Our next question is from Jacob <unk>, who asks is marathon considering an acquisition of another mining operation or data center. So Fred maybe you can talk about your ideas around.
Potential consolidation that may occur within the mining space.
The big challenges.
And I've said this many conferences.
My stock answer to this question.
In this industry when times get tough.
Cost to replace assets goes down as well.
So in traditional industries, if youre going to build a factory whether the industry is doing well or not that cost differential is marginal.
Our industry when the price of bitcoin drops the price of Bitcoin miners drops and then you have the technology cycles, and we've just gone through a technology upgrade cycle and so if we were to go acquire.
Another minor they likely will have.
Machines that are S 19, J pros are older and they may have hosting agreements that don't fit our mix, which is why we prefer to buy the latest state of the art miners deploy them. So we have an energy consumption advantage or an efficiency advantage if you would.
And the industry and then.
It really drive the types of hosting agreements that fit our model ideally so with that as I've said to many people I don't foresee us going in consolidating the industry necessarily but that being said there may be unique opportunities and it will obviously be open to looking at things.
And our next question comes from Brian <unk>, who asks what is your energy diversification strategy to avoid over exposure to any one provider like a compute north <unk> avoid another heart an incident is there any consideration of hosting some of your own miners.
So.
If by hosting some of our own miners. It means owning hosting infrastructure sites ourselves in contracted power are directly our model currently as asset light, where we don't like to invest in the infrastructure that being said there are potentially new solutions for energy that would cause.
Marathon to potentially invest in developing those further which could drive our energy costs down substantially in the future.
I think one of the most important thing for miners to have control over is not their infrastructure, but its the power price.
And if you can control your cost of power and drive that down then you'll have better competitive position than they had as a reminder.
At this point in the interest of time I think we'll wrap up this section of Q&A again, we really appreciate the questions and interest from all the investors who added to the Q&A platform.
Now going to turn the call back to Diego, our operator to open the line for questions from our covering analysts Diego the mic is yours.
And we're now going to open the call to questions from marathon covering analysts if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Jon Petersen with Jefferies. Please go ahead.
Great. Thanks, Good afternoon, guys maybe to pick up on the comment you just made Fred on the importance of controlling your power I'm wondering if you could just give us some more details.
Hosting agreements you have with applied digital and this next wave with compute nor it's like how are those power.
Agreements are structured.
And are they structured in a way that.
I guess, maybe a continued low price of bitcoin or rising network cash rate, coupled with rising energy costs kind of protects you guys from these hosting providers having few.
Future issues, such as what compute north of having right now with their bankruptcy.
So the applied digital hosting agreements are at fixed price, so rising cost of energy.
<unk>.
It doesn't impact our hosting costs in those circumstances.
In the case of the King Mountain site as we've talked about before we have a PPA on the wind side that is extremely attractive energy price that also gives us the ability to sell that energy to the grid.
Eric pop music, and we get 100% of that upside.
And for the balance.
Of the energy there we're buying from the market.
Following traditional principles of dealing with energy cost risk mitigation, if you look at the future.
What's important is.
We are being really at the point of power generation as opposed to being on the grid at all.
<unk>.
Don't really want to kind of open the kimono too much on this because it's a strategy we haven't talked publicly about a lot, but suffice it to say that.
We believe that good coin miners in the future will.
We will be very intertwined with the energy industry and.
And more directly in energy generation than before but this is kind of an extension of that.
That we have had regarding partnering directly with the power industry.
And.
In those circumstances hosting is really just an outsource service you procure from somebody.
Long as you control your input costs. The rest is really just a question of deciding what do you want to own what 31 of them.
Right, Okay, and then maybe a question for you on.
So you guys use some of your bitcoin as collateral.
I guess on your line of credit I know you said you were taking out a term loan, but I guess the bigger question is why.
With these debt cost today and in these uncertain markets like why take out an additional term loan and more debt and why not just pay down debt coin in and use that to fund your business.
Just to just a treasury management decisions that we made.
Keeping our flexibility.
For the price depreciation of bitcoin.
There's really nothing more to it than that.
The term loan we put in place last quarter.
And it's a $100 million term loan for two years.
Will we consider that part of our sort of a longer term cap structure.
Evaluation.
And we try to balance kind of the <unk>.
Short term needs.
Ultimate long term needs of the company when we come up with those decisions and that's oriented up.
Okay Alright.
Alright, that's it for me thank you.
Our next question comes from Chase White with Comcast Research and training. Please state your question.
Thank you.
Could you just give us a bit more color on kind of the regulatory issues with ERCOT at the Wolf Hollow site and any idea when those could be resolved and what options do you have if there continues to be delays.
So our understanding is that <unk> is going to give a decision on <unk>.
Great.
Don't believe it will be a negative.
But the number of miners we have.
Installed there.
In the scope of our overall.
Minor fleet, it's quite small.
Obviously in today's marketplace, there are a lot of opportunities to plug holes.
5000 miners here 10000 miners there very cost efficiently. There are a lot of people, whose miners have been shut off and we can't run at peak.
To cover and so we're seeing ample opportunities to.
Essentially cover that makes if we need to and we don't believe at all it's going to impact our delivery of our 23 ex ash.
Okay. That's helpful. Thank you and then.
How much in.
And prepayments do you guys have left for the year I might have missed that but.
For the year and just in total on the main orders that you have or the 23 ex ash.
We said that.
Very modest when I look at our investments for when you look at what we've spent.
So far this year.
And I look at where we are where we're going we spent about $200 million in the first quarter 207 in the second quarter around 96 in the third the fourth quarter is going to be pretty light, it will probably be 20 or $20 million or $30 million.
Great. Thanks, guys.
Thank you. Our next question comes from Steven <unk> with Cowen. Please state your question.
Hey, Thanks for the question just first Fred can you just clarify for me did you did you say that the PPA with applied as a fixed TCE.
Tpa.
Yes.
Okay.
I'm just curious in light of that comment we saw like from document on July July 20 July of this year excuse me some verbiage around the ability for applied to pass through.
Some higher power cost up to.
Certain thresholds and then.
I just was curious is that document just disregard it or anything you can say around that.
Let me go back and look at the document the fully executed MSA prior respond to them.
Okay I appreciate that and then and then my other question with regards to guidance for.
You reiterated the $23 three but and I know you don't really explicitly give near term guidance, but I didn't notice.
You are now expecting to reach nine extra cash by the end of the year and that was the downward revision from October 19th presentation of 11, five extra hash, which was a downward revision from prior to that at $13. Four. So can you maybe just talk through what's driving.
The lower near term.
Guidance on cash tax rate for the company.
Sure. So it's driven by a couple of things one is when you contract for the hosting and when they actually have it ready and life to go there can sometimes be 30, or 60 day lag and that what youre seeing is.
US being a little bit more prudent regarding the full <unk> of the first supply digital site in Texas, and how that slips over into the new year, but again, we're not changing our and number for mid year.
At all.
I appreciate the question. Thank you.
Our next question comes from Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much operator, and good afternoon, everyone.
My first question is on some modeling.
Question in terms of modeling uptime in Q4, and then also in 2023.
When you hit benign X a hash thresholds when you then hit the $23 <unk> threshold.
Range to models for more equipment minor uptime. So that's my first question. Thank you very much.
So.
With Wolf Hollow, we have a very short period of experience. So far we're seeing very good uptime, though as that site actually exceptional uptime.
So it's a little too early to tell most probably on that but we've not had a lot of curtailment there at all.
In comparison to other sites in Texas that we've been monitoring so.
I think youre going to see that remaining quite high.
Let's get back to you with a better number.
On that.
The other applied digital sites, we expect to have very good uptime too as well, especially the North Dakota site, just because climatology is much better there and there is an opportunity for us to overclock miners.
During the right times of the year.
But again for the Texas sites, you are going to have to look at some seasonality because of temperature.
We're still very early on in that so.
More than happy to work with you on kind of coming up with a model and a way to look at that.
I appreciate the color. Thank you and then second question is more strategic.
Obviously, there is a ton of distress in the space minor prices are way down on a dollar per carat harsh basis and.
Fred how are you looking at the opportunity set here is this.
Time to raise more capital be more aggressive or would you say look.
You have $23 three as a target for the middle of next year, let's kind of stick to that I'm, just kind of trying to get a sense for your.
Strategic priorities given given the distress in the industry. Thank you very much for your perspective.
Sure so.
Stated in the call our primary priority remains getting the $23 three extra cash deployed and operational.
Beyond that.
So as you look at the back half of next year.
<unk>.
We're obviously continuing to evaluate opportunities for expansion and I think over the next couple of months, you'll see us talk more broadly about that.
But obviously this is a time period, where you.
You can acquire miners at very low cost.
And then there is.
More and more hosting opportunities becoming available each day.
But we're also thinking more about the long term and really it's not a question of just <unk>.
Grow for Growth's, sakes, but how do we grow strategically.
That we're getting better and better leverage on energy cost.
And we're getting better and better uptime and availability as we transition to things like immersion.
Operating in locations, where we get very good.
Opportunities for energy arbitrage.
Thank you. Thank you Fred and then.
I'll squeeze in one last one if I may.
What is the current mix between X decent J pros.
And if you want to pick the Nymex ash figure for it for the end of the year. That's fine tune just trying to get a sense of what the current breakdown is.
Between <unk>.
<unk> <unk> <unk> and then <unk>.
Secondly.
How are the next piece performing.
Versus the.
That's 19 J pros are there are there any notable.
Performance differences other than of course the specified.
Performance metrics and just in terms of their uptime and things like that thank you for your perspective.
Yes.
So today I would say that so the Kings Mountain site has all its 19 J grows.
So thats the bulk of our capacity today.
We have a couple of other smaller sites running 19, J pros as well and the first XP is really go into production.
Apollo and then apply digital is 100% ex fees.
So.
You'll see a little bit of XP is coming online in Q4.
But really it's in the first six months of next year that Youll see the bulk of those xp's come online. So the mix when fully deployed 66% of our hatch rate will come from XP.
I think it might actually be 65 point something but.
Generally speaking about two thirds of our tax rate will be XP.
By mid next year.
If you look at it from a performance perspective, so anecdotally what I would say is the XP is a better quality machine in the 19 J pro.
It operates at.
He has a cooler operating range.
So if youre looking at the difference between the input air temperature and the output air temperature, we're seeing definite advantages on the XP.
And that means you can run them potentially in slightly warmer climates without them having to shut down.
And it also speaks very positively about the opportunities for over coffee them. So to date, we're very happy.
Pleased with.
Yeah.
What we're seeing out of the expertise that we've been operating our labs and as we begin to deploy them.
Thank you Fred I appreciate the color on TNT team best of luck.
Thank you. Our next question comes from Greg Lewis with <unk>. Please go ahead.
Hi, everyone. This is Tyler on for Greg Thanks for taking the question.
Most of mine have been answered, but I just wanted to follow up on the immersion.
Comments, Fred could you maybe provide a little bit more color on how youre viewing emerging today, realizing at DXP are going to be rolled out and then you alluded to the 60% of the <unk>.
Fleet I think by the Middle of next year, just trying to get a sense as to you know.
Where immersion is really going to come into play and as we start to get a real meaningful incremental benefit just just any other color on that front would be appreciated. Thank you.
Sure so.
Immersion is ideal for use in places like Texas.
Or was this a warm climate because it provides for a more stable operating environment for the minor so youre not having to shut down the minor due to temperature issues. You still have if you have to curtail for power issues you have to curtail regardless.
We believe.
That immersion allows the minor to operate narrow where temperature range, which then extends potentially its life and decreases the amount of times you have to touch a minor. So your total cost of ownership with immersion in theory should be less.
And I'd say in theory, because with air cooled miners youre, having to really clean the miners and touch them at least once a month.
And with.
Liquid immersion.
That need for cleaning kind of disappears and so it then down too.
Failure rates of components and things like that and again, the operating temperatures arent as extreme.
Youre keeping them immersed in fluid than in theory, there should be less of that so we believe that the advantage of an immersion.
Excluding the ability to overcome.
Our longer life span on the minor and lower cost of ownership to maintain and manage them.
In regards to the overclock.
There are certain vendors who have.
Published results of over clocking at 19, J pros as much as 60% to 70%.
And to date with Xps.
There is still.
Some firmer hurdles, but those have been solved for the most part I think and so we'll see kind of what the test results are talking.
Talking with DXP.
But we believe that there's very good opportunities just based on how they perform in error.
Will it be able to perform exceptionally well and immersion.
Okay, Great. That's all I have I'll turn it back to the queue. Thank you.
Thank you.
Our next question comes from Brian Dobson with Chardan capital. Please state your question.
Oh, Hi, good evening, So you mentioned.
Global geographies, becoming more appealing for mining.
Can you elaborate on which geographies, you're you're seeing becoming more appealing and as Africa, an area that you see as an area of opportunity.
So.
I'll answer it in this way.
You have certain geographies, where you have very good energy infrastructure.
You have no risk of regime shift you have a good legal system.
But you may have energy a symmetry due to seasonality, where you need a lot of energy in one season to provide cooling or heating in and the opposite end of the calendar you don't need as much energy. So theres a lot of idle energy sitting there.
Those locations are very interesting.
You have areas like Latin America, where you've got ample hydro electricity.
<unk>.
As for the.
The most part not utilized perfectly and so that makes it available to bitcoin mining.
You have parts of the Middle East, where you have this temperature a cemetery and seasonality.
And you have.
Some opportunities potentially in Asia Africa. Unfortunately today outside of North Africa, the Middle East.
<unk>.
You have.
Too much issues around regime risk and while you have for example in Kenya very ample geothermal opportunities.
I think Ken you have published data about up to 17 gigawatts of geothermal energy being available to be developed.
You have issues with regime risk getting infrastructure in place and other things so.
At this point as we're looking around the world.
Really predominantly kind of Latin America middle East parts of Asia.
Okay. Thanks, that's interesting.
Turning to global difficulty I guess, where do you see it now and what are your thoughts on next year, given the price of bitcoin.
Well the beauty of the Bitcoin network is that it is constantly looking for spaces right and so when the price of bitcoin drops.
We'll have to unplug miners because they can operate profitably as we said on the call the cost to operate and S 19, J Pro if your energy cost.
Energy and hosting costs. If you put those two together is north of $8.05 Youre getting to a point where you.
You are most probably nonoperating profitably in the future.
Look at the most recent price drop a bitcoin now down to kind of 18000 range.
There's some minor two are definitely about to become or are marginal operators.
Which is why we believe it's so important to really push hard to use has 19 ex piece because of the energy efficiency there.
Yeah.
Thank you very much.
Our next question comes from Kevin Dede with H C. Wainwright. Please state your question.
Hey.
You mentioned 20 to 30 million, perhaps right payment in the fourth quarter is that the last payment that you have to make on the XP.
Batch.
Yes.
Our forecast for <unk> for the fourth quarter.
Of this year and there is there is not much after that now.
And that's an all in number Kevin.
Payments that shipping that's everything.
Okay.
Can you give us.
Our balance sheet perspective on that.
But to that leavers.
Where were they at the end of September and what do you expect them to be at the end of the year.
What are you talking about our level of debt.
Well, yes, you said yet.
Offsetting the revolver with the term loan I just wanted to make sure I understood.
So we've got we've got $50 million on the term loan right now we borrowed $50 million revolver, we're going to borrow 50 on the term loan and pay off the revolver. So all that we're going to have as we're going to have a $100 million of debt outstanding.
And that all happens before the end of the year.
That will happen in November .
Okay. This month okay.
Right. So my whole point of that was the collateral is already outstanding for the revolver. So there's no additional.
Additional collateral needed.
That revolver into a term loan.
Right. So what was the total amount of bitcoin as collateral and then what are what's your interest rate payment of associated with that.
The rate of the term loan as the Wall Street Journal Prime plus 175, so it's a floating rate.
The the.
The bitcoin that we used to.
The two collateralized, it's around I think it's around 3800.
Around 7600 for the whole $100 million.
Okay.
Okay.
Alright, yes.
That's kind of what drove me up I appreciate the detail. Thank you for providing it.
No no no problem at all.
Thank you.
Our next question comes from Gus Gallo with true of Securities. Please state your question.
Hey, guys. Thank you for taking my question.
I just wanted to understand what were the biggest.
I mean, what's the biggest roadblock potential roadblocks to.
To the 23 ex midyear 'twenty three outlook.
As Stephen pointed out earlier, we've pushed now it can be 14 extra harsh call.
All of it in six months.
What is maybe help me size of that Fortinet is what's going to be like.
Maybe plugged in but not energized at the beginning of the year.
Just help me with the cadence there a little bit.
So you've got the apply digital site in Texas.
Which.
We will be deploying now in Q4.
So part.
Part of that will be potentially energized this side of the year and with the balance really in January potentially.
Put it energize all of this side of new year, possibly but we prefer not to put that out there. So we're just taking a very prudent approach on that.
Relative to the North Dakota site.
There has been very good construction progress to date, so right now we're feeling very good.
With the.
Deploying outside completely in Q2.
And energizing that site, so its really construction and potentially final approval from the electrical regulator.
In each location, but we don't think there'll be any issues with the Texas site.
Because we're so close in on that they're already miners being put on shelves there so thats.
Moving ahead.
North Dakota site construction is moving ahead very nicely, we don't see any delays there currently.
Got it thank you very much.
As we think about just wondering how you think about running it.
<unk> remained sideways, let's say.
Bearish case leak through Midway 24, how do we think about running the business to have.
Depressingly pretzels.
Well as long as we can mine profitably, we will continue to mine profitably.
Alright.
Aren't a lot of reasons to operate your miners if youre, losing money with every bitcoin there mining.
So it's just something we have to keep a very watchful eye on right now our margins are still quite nice.
So we don't believe there's a lot of risk, we think pricing or margin would support bitcoin dropping below this current range and still allowing us to operate.
Question is really more.
As we get closer to the having.
How bitcoin is going to perform and nobody can project that.
Nobody would know that but I think that bitcoin, we're at a price.
Price in the teens.
When we come to having I think that would have big implications for the whole industry.
Got it thank you very much.
Thank you at this point there are no further questions I'm going to turn the call back to Charlie Schumacher for closing remarks.
Thank you all for your time today do you have any questions that were not answered during today's call. Please feel free to contact our investor relations team at IR at <unk> Dot com. Thank you and enjoy the rest of the day.
Thank you.
This concludes today's conference.
You may disconnect have a great day.