Q3 2022 Stronghold Digital Mining Inc Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
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Good evening and welcome to stronghold digital mining <unk> conference call for the third quarter ended September 32022, My name is Carmen and that will be your operator. This afternoon before this call strong hold issued its results for the third quarter 2022 in our press release.
Which is available in the investors section of the company's website at Www Dot stronghold digital mining Dot com you.
Can find a link to the investors section at the top of the homepage joining us on today's call our strongholds co chair and CEO , Greg Beard and CFO , Matt Smith following their remarks, we will open the call for questions before we begin Jeff Grant from Gateway Group will make a brief introductory statement Mr. Graham.
Please proceed.
Thank you Colin and good evening, everyone and welcome today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on our website at stronghold digital mining dot com.
Statements, we're making today may be considered forward looking statements under securities law and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward looking statements.
More detailed risks uncertainties and assumptions relating to our forward looking statements.
Please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.
Disclaim any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law.
We will discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics we expect to file our quarterly report on Form 10-Q, with the Securities and Exchange Commission by the end of the week, which sets forth detailed disclosures and descriptions of our business as well as uncertainties.
Other variables circumstances, including but not limited to risks and uncertainties identified under the caption risk factors in our quarterly reports on Form 10-Q and annual report on Form 10-K, you may get stronghold Securities and Exchange Commission filings for free by visiting the SEC website at SEC Gov or strongholds Investor Relations website at IR.
<unk> stronghold digital mining dot com.
Like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of stronghold website now I would like to turn the call over to strongholds co Chairman and CEO , Greg Greg. Please proceed.
Thank you Jeff Good evening, everyone and thank you for joining us on our third quarter 2022 earnings call for todays call were going to reference and associated slide presentation that is available through the webcast and on the IR portion of our corporate website.
As I'm sure you are all aware the entire crypto currency industry is experiencing extreme challenges.
No public miners are immune to the downturn, we believe that the current environment has allowed stronghold to distinguish itself as the first vertically integrated crypto asset mining company with a focus on environmentally beneficial operations in.
In light of the recent downturn, we have taken steps that we believe will strengthen our balance sheet and liquidity position by transferring a portion of our bitcoin miners back to the lenders and exchange for the extinguishment of debt, we have mitigated the impact of returning miners through selling power to the grid.
With lower bitcoin margins and higher grid prices, we have been consistently toggling between selling power to the grid and mining this ability to provide some insulation from bitcoin market weakness without reducing our ability to capture upside and a bitcoin recovery.
Putting ourselves in this position did not come without significant effort from our entire team.
And I am extremely appreciative of all of their hard work the data center teams, who aggregated over 20000 miners and days to return to our lenders our power plant teams or recently completed the plant upgrades and maintenance during our fall averaging at the plants back online successfully and the finance team who executed on.
Debt restructuring.
Cost cuts and strategic deals. Thank you all will go through all of these items on this call.
So turning to slide three.
We will start there we have been extremely busy the last several months executing on what we discussed during our last.
Call in August are.
Our overarching goals with these moves or to reduce leverage improve liquidity cut costs and opportunistically or build our mining fleet and we have had a lot of progress to report.
First we are fully extinguished $67 million of debt associated with our <unk> equipment financing since our last call. We delivered back to the lenders approximately 26000 miners, including approximately 19000 that had been operating at our facilities and 7000 yet to be.
Delivered at the time of our last earnings call. We thought we could replace the miners, we return for between 40% and $50 million.
Based on our recent prices, we think it's closer to 30% to $35 million and that does not reflect today's move lower even when factoring in costs associated with the turn of the miners.
Related to the equipment financing, we view the delta between the debt reduction and replacement cost as a material shift in value to our shareholders.
Additionally, the day after closing of our debt extinguishment, we closed on our new credit agreement with White Hawk based on the binding commitment letter disclosed in August this restructuring with white hot materially pushed out the amortization schedule approximately tripling the weighted average maturity from the 30 <unk>.
<unk> to 36 months, the new credit agreement also provided $21 million of net incremental cash to our balance sheet to help solidify our liquidity position to manage through the industry downturn and opportunistically purchase miners at distressed prices.
Principal amount of debt outstanding under Whitehorse is approximately $58 million.
Secondly on the cost side, we continued to actively execute on material cost reductions across our business that we expect to begin to materialize in our results as soon as the fourth quarter of this year and throughout 2023.
We have identified and already completed a majority of the $15 million to $20 million of annualized total cost reductions through a combination of completing several one time projects and right sizing our business through in sourcing certain functions and eliminating inefficiencies, we built a business focused on rapid growth and <unk>.
This infrastructure is no longer needed in the current market conditions.
The third point is that the combination of debt extinguishment increasingly whitehouse commitment to us and cost cuts all contribute to maximizing our liquidity position and reducing our leverage giving us flexibility to manage through this down cycle and be opportunistic, but disciplined in growing our minor fleet.
Since our last earnings call, we have reduced our total debt significantly.
As of November 7th.
Have total cash of approximately $27 million, we will continue to manage our liquidity conservatively.
Having said that we expect to take advantage of this liquidity position as a central part of our strategy. We laid out in August to rebuild our mining fleet at seemingly perpetually improving prices. We said, we would be patient and opportunistic a strategy. We think has already proven to be quite prudent.
Given the continued deterioration in pricing of mining equipment. However, we have not been stagnant in rebuilding our mining fleet as we aim to take advantage of our fully built out data center slots.
Since our last earnings call.
We have procured or received approximate 10000, bitcoin miners with cash with a hazard rate capacity of nearly <unk> of which 6000 are on site of.
Of the 10000 machines 4500 are associated with a new strategic partnership with foundry, who is a leader in the bitcoin ecosystem and operate the largest bitcoin mining pool in the world.
We entered into a definitive hosting agreement foundry on November 7th.
While hosting is not our core focus we strive to be opportunistic and creative and we think this deal is highly beneficial for stronghold and.
In addition to a $60 per megawatt hosting fee, we will receive half of all the bitcoin mining profit and still have the option to curtail the miners to sell power to the grid without penalty.
The hosting agreement with foundry allows us to quickly get a minus plugged in with no material capex, while we work to finalize a new and more complex transaction to purchase of miners in exchange for a limited amount of cash.
Plus stock and a profit share.
Fifth.
Our last update relates to our power plant upgrades and maintenance that were conducted at both scrubbed drafts and Panther Creek in late September and into October .
Recall that we strategically elected to conduct this outage in late September when power prices were seasonally lower giving us the opportunity to import power to mine bitcoin if margins were sufficient.
The plant maintenance was completed we have been satisfied with the performance of our plants scrub grass and Panther Creek of bolt successfully come out of their outages and have run at Baseload when power pricing from the grid was favorable.
With Panther Creek, and scar breast maintenance and upgrades being essentially complete we expect much more reliable power generation for the remainder of this year and into 2023.
Looking ahead into Q1 2023, we expect our net cost of power to be 45 to $50 per megawatt hour.
Which we anticipate will provide for a healthy margins for both bitcoin mining and grid power sales.
Moving to slide four.
To bridge you to our current hash rig capacity as a result of recent transactions. We have made to increase our bitcoin mining fleet are August 16th hash rate capacity pro forma for minor returns was one for Axa hash as I previously mentioned, we've entered into agreements to receive or have received.
Approximately 10000, bitcoin miners with hash rate capacity of about an extra cash.
Most significantly as agreements is our hosting agreement with foundry foundry well supplied 4500, bitcoin miners with 420 Petter hash of capacity Panther Creek, we will charge a hosting fee of $60 per megawatt and <unk> have the bitcoin mind net of the hosting fee importantly, we have also.
The options to curtail the miners and sell power with no penalty.
We view this hosting deal as a short term placeholder, while we work on a definitive deal where we buy these machines using a mix of cash stock and profit share.
Like to note that foundry approached us.
Allergen stuff and is moving forward to participate in our business model.
After today, we expect to receive the remaining approximately 500 miners from foundry as well as miners under contract. Some legacy agreements. This brings our total <unk> capacity to $2 eight axa hash and we are guiding to three extra hash.
For 2023, which we think is highly achievable in this.
Oversupplied miner market.
Turning to slide five we issued a press release in October related to the mutual termination of the northern data hosting agreement and I'd like to walk through why this is a favorable outcome for stronghold. This termination allows us to take control of the operation.
Give us access to infrastructure that we can use the hash for ourselves and most importantly is materially accretive to our cash flow profile.
Had we not terminated the agreement the agreement with Northern data, we would have expected to pay close to $1 million per month and profit share payments.
Approximately $14 million to $28 million through September of 2024, the amount is now zero.
Northern data has also forgiven their payable we owed of approximately $2 6 million. Additionally, we are leasing their pods, which have an aggregate capacity of approximately 50 megawatts for two years for $1000 per year. So we are not using the pods the hash for ourselves with no profit share at the end of the.
Two year term, we have the right to purchase a proud for between two and $6 million based on the prevailing cash price at the time.
We believe that the market value of these pods is at least $15 million everything considered we expect this termination to increase cumulative net cash flow over the next two years by approximately $10 million to $22 million.
Moving now on to slide six to provide an update on our power plants. Both plants successfully completed their planned fall outage and can operate at Baseload power pricing is favorable enough to do so the fall outages represented the last of the major planned investment cycle, and Panther Creek, and scrubbed brass and we.
Expect to see more consistent and reliable power generation moving forward regarding the scrub breath. The focus has shifted to putting redundant systems in place similar to what Panther Creek currently has to avoid issues before they arise we expect these plans to run a baseload.
Through the high power price winter months.
With estimated net cost of power ranging from $45 to $50 per megawatt by the Q1 2023.
I'll now hand over the call to our CFO , Matt Smith to discuss our financials in more detail.
Thank you, Greg and good evening everyone.
Slide seven provides a high level overview of our third quarter 2020 results keep in mind. The third quarter results were greatly impacted by the returning of a significant portion of our bitcoin mining fleet throughout the quarter, which were unplugged in mid August and the planned downtime at both of our power plants associated with the previously disclosed maintenance.
As a result.
I think third quarter financials are particularly informative in the context of our go forward capabilities.
Revenue for the third quarter was $24 7 million, a 311% increase compared to <unk> 6 million in the same year ago quarter, but down sequentially due to lower power generation from the planned downtime and a lower overall hash rate associated with the returning of a portion of our mining fleet.
During the quarter, we mined approximately six 567, bitcoin, an 11% decrease sequentially due to the higher network hash rate and the lower company hash rate associated with our debt reduction efforts.
Operating costs were elevated in the quarter as anticipated due to the planned maintenance events at both of our power plants. We estimate approximately 7 million of operating costs. During the quarter were nonrecurring in nature related to plant maintenance internally, we really view these as capital events since they ensure long term plant.
<unk>, but accounting treatment dictates that these items will be expense.
Adjusted EBITDA during the quarter was approximately negative $3 million compared to an approximately zero.
EBITDA in the same quarter a year ago.
And negative $1 million in the second quarter of 2022.
Yes.
I would note that during the quarter, we recorded approximately $15 3 million noncash loss related to debt extinguishment of $13 million loss on warrant revaluation and approximately $4 2 million noncash impairment on assets held for sale both associated with our <unk> equipment financing that was completely <unk>.
Limited in October .
During the quarter, we continued to operate in an environmentally beneficial way removing approximately 218000 tonnes of coal refuse from piles and returning approximately 122000 tons of beneficial use ash to remediate these toxic coal piles in Pennsylvania.
Moving now to slide eight to discuss our initial 2023 guidance, which represents our first initiation of guidance as a public company.
We understand our business is dynamic given our vertical integration. So in an effort to be more transparent with our go forward capabilities, we would like to provide a framework to aid in the modeling of our business.
Note, we are not making any heroic assumptions about bitcoin economics dramatically changing although we are constructive on bitcoin pricing long term normalizing to a sustainable cash price.
Understand that many of these assumptions embedded in guidance are outside of our control, including bitcoin hash price and market power prices, which could have a material impact on our performance.
But we believe these are reasonable assumptions for us for 2023.
Our guidance assumes a hash price of $8.05.
Which is higher than current market conditions and after the last several days, but we believe this represents a normalized environment.
Cash price for those of you not familiar with this metric it takes into account both bitcoin price and network cash rate for a more accurate depiction of bitcoin economics than bitcoin price alone.
We also assume average around the clock benchmark power prices of $64 per megawatt hour for 2023 based on forward market prices as of November seven 2022.
Based on our ability to curtail power consumption from our miners and increased grid sales during periods of higher power prices.
We expect to realize more like $72 a megawatt on that same forward power curves.
We also expect the average power output of 135 to 140 megawatts, implying an uptime rate and our two power plants of between 80% and 85%.
On the bitcoin mining side, we assume an average cash rate capacity of three exit hash for 2023, and an average effective hash rate of two point forward exit hash.
Which reflects the fact that we expect to curtail miners at times of higher power prices to optimize for profitability and cash flow.
While the three exit hash is above our current capacity of $2 eight exit has laid out on slide four we expect to either purchase machines at extremely depressed prices or enter into incremental hosting a profit share agreements given the total quantity of unplugged.
Machines landed in the United States.
As it relates to costs we have.
We are seeing recurring fuel operations and maintenance costs.
Between 46% and $52 per megawatt hour.
Serial improvement from most of 2022, given the investments being made and recurring cash G&A costs of between 18, and 21 million, yes, that's approximate reduction of $10 million annualized year over year.
Almost all of those changes have already been made and taken undertaken during the fourth quarter.
These cost assumptions reflect the benefits of many of the reductions as Greg discussed and we're not finished.
These assumptions result in an adjusted EBITDA range for 2023 of approximately 29% to $34 million with.
With much improved debt service and minimal obligatory future capex, given our past investments and our power assets.
<unk> centre infrastructure and mining fleet, we expect this adjusted EBITDA generation to result in further strengthening of our financial position throughout 2023, despite industry headwinds.
Additionally, given the ever changing market pricing we provided.
Sensitivity to our financials at different hash price cases, ranging from seven to 11 assets.
I will now turn the call back over to Greg for his closing remarks. Thanks.
Thanks, Matt we are pleased with the meaningful progress we've made and the positioning of stronghold for long term success.
We have significantly reduced our leverage and our liquidity has been meaningfully improved our cost structure has been materially reduced and our power plant assets are performing as designed.
Lastly, we are expanding our bitcoin mining fleet in an accretive manner.
Our vertical integration and power market Optionality continues to provide us with strategic advantages over many of our peers.
As does our datacenter infrastructure that is fully built out with additional slots open.
The entire stronghold management team and I are motivated to see a strong hold succeed and are excited to execute against the 2023 plans we have laid for today.
Thank you everyone for taking the time here story, we're now ready to take your questions.
Operator.
Thank you and as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Alright, and our first question comes from the line of Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much operator, good afternoon, everyone and good job on many different fronts.
My first question and this is one of them.
Positive.
The foundry agreement great great to see that.
You noted in the press release you can.
Curtailed mining activity on the hosting side with no penalty.
I assume that if mining is on economic call that they also have an exit.
Can you speak to that.
Great great job on that.
Thank you very much for your color.
Yes, Tom Tyree is here he is wanting to lead the foundry discussing to let him answer precisely.
Lucas.
So if.
Power basically.
Basically mining economics are worse than that at $60 per megawatt hour hosting fee than the Myers will be curtailed regardless of grid prices. So it's not a.
They are not forced to pay if the miners had operated at a loss. So does that answer your question.
That's that's very helpful. Thank you.
And then my second question I did this a little bit on the fly but but.
Thank you very much for the guidance for 2023 that.
That's really great to see.
And so I think that's a little bit on the fly I tried to back into kind of what amount of your of the 100.
37 megawatts of power would go towards.
BTC mining where sales to the grid.
APAC to roughly.
8%.
Power going to two mining in 2023 is that is that the right ZIP code. That's part one of the question and then part two of the question is I also backed again. This was on the slide to roughly $120 per megawatt hour on the revenue side for PTC mining embedded in this guidance and again just looking forward.
If you check and hopefully I'm not way off thank you very much for your color on this.
Yes, Eric as we might.
Have to get back to you on the revenue per megawatt hour hurtful that pulled out quickly here, but youre right on the.
The power of that is going to the.
Minors.
On the minority of our all the miners are operate a that'd be about I think it's absolutely just over 60% of the.
Power.
Terrific. Thank you for your color and do you have whenever.
Revenue side I appreciate the follow up there too, but again good job and continued best of luck.
Thank you one moment for our next question. Please.
And our next question comes from the line of Jacob Roberts with Tudor Pickering Holt. Please go ahead.
Afternoon, guys.
Just.
I'm just curious.
Cost of power in Q1, 2023 should we be thinking about that as an average rate and exit rate and then also.
Kind of speak to that as well as the <unk>.
Guidance on maintenance expenses.
Could it go lower than the 45 to 50 or can we think of that as kind of the price to be out in 2023.
Are the cost will be up.
Sure.
Answer to your question I think we.
Feel pretty strongly about the arrival.
For our quarterly average and <unk> 23 of that.
That kind of 46 to $52 a megawatt.
We pretty extensively describe the activities of the team the teams at the plants and the management team for the last.
Six weeks, we spend a tremendous amount of time at the plants working on improved processes purchasing efficiencies there have been unfortunately, some head count reductions related to some redundancies and I think I think youll find although.
Too many moving pieces in <unk>.
<unk> I think youre going to start to see.
Function already coming out of the outages related to some pretty extraordinary costs going away from the January .
The July August September period.
We hesitate to give <unk> guidance, but.
I think youll find that were.
Materially worked working towards that 46 to $52 range already.
That has to do with <unk>.
<unk> up 50% in the last two months from $10 a megawatt.
$15 a megawatt some of it has to do with that.
It can be dramatically reduced O&M costs, we'd like not to point to specific plant level cost with those are already down materially and.
So I think what we would like to do is.
Lay out a target.
Need it or beat it and then work towards an even better objective going forward and so we will give you an update in.
During the first quarter as we're finishing in preparing and providing you with four key financials.
It will be in a good place to share with you than what were what the run rate is and where we've arrived but I think I think you'll find.
We feel really.
A lot of conviction in this number and thankfully, it's something we can control and there's a lot of cost to take out. So we like having things that we can influence that had nothing to do with pick one prices.
I appreciate it.
I apologize if I missed it was there any.
Guidance or color given on the cadence to get to the <unk> three in 2020, Three's first half versus second half.
That number.
There's a bridge.
On the on slide four in our slide deck.
And I would just point you to.
It's not an ambitious targeted at all based on contracted minors already purchased earlier in the year or procured recently.
And again these incremental miners have been purchased in the mid single digit range on a dollar per taro hash basis. During this distressed period.
Incrementally in the recent weeks.
So we feel really.
Conviction in at least the two eight and then the three would come through further purchases, which are well within our liquidity and monitor prices today.
And to do that or beyond.
Alright appreciate the time guys.
Sure.
Thank you one moment for our next question. Please.
And it comes from the line of Chris <unk> with D. A Davidson. Please proceed.
Hi, Thanks, and good evening.
Again, congratulations from this as I'm sure a lot of hard work and so it seems like we've gotten.
The bottom here and certainly the right way.
I wanted to ask on the guidance.
Again on the power side I'm not sure I understand.
What gets you to 45 to 50 from where you are in the fourth quarter and does it continue to improve like what is the what is the sort of the constraint on your third quarter. There was maintenance and you weren't running at full capacity, but is it just that issue is there other things that should help your overall cost of power go down.
Yes, so so.
We haven't we haven't provided for <unk>, but what you have for four years.
Sort of ability to back into <unk> with some decent.
Efficacy, obviously when you have two weeks in September where there are zero revenues and we're importing power to run the data centers and you have.
Five or $6 million of costs.
The dollar per megawatt is infinite.
But coming out of that period with some extra attention by the teams to do.
Two lower.
Lower costs meaningfully.
Solvents and extra overtime go away, we reduced head count.
We've completely changed how we plan and procure parts and stage that and think ahead about what redundant systems, we need to fix next and I think you'll find.
Again, we're not formally providing <unk> guidance, but I think we feel pretty confident that we can arrive at that <unk> 23 number.
At the latest by buyback.
Average that in the first quarter.
If not if not sooner than that now importantly fixed cost absorption is.
An element of the reduced cost.
When the plants, if the plants are running below base load.
In this case I would just describe 80 to 85 megawatt plants the fixed cost absorption that starts to be optimal 68 to 70 megawatts and.
Unfortunately say coming out of the outages that we've seen both plants perform in excess of that.
And the sample is growing and we're gaining conviction and so I think I think we are looking forward to the fixed cost absorption that wasn't necessarily there its progress earlier in the year to our disappointment, but I think we are I think <unk> is going to be something that we look forward to demonstrating that fix cost absorption going forward and then Rex are up $5 a megawatt.
In the fourth quarter, so far and.
Taking advantage of that opportunity and lock that in and into 2023 <unk> have been up meaningfully.
And so I think there is.
There are a fair number of moving parts, but virtually every single one of them since the end of September have gone in our favor.
I can't think of a single one that is not going in our favor.
We.
We.
<unk> been able to procure lower cost limestone than we were in previous quarters, we've been able to source with improved trucking availability since mid October we've been able to in source.
A significantly more russert and coal, which is materially lower cost than the coal we were the blend of coal we were.
<unk> in the prior two quarters and so again, it's virtually every component of cost that's moving in our favor.
That's not to say that inflation has improved for the sector. It's really just been a lot of hard work by our teams to align coming out of the outage and a lot of fixed costs going away.
So we'll look forward to updating you further when it makes sense.
Obviously, a lot of great work with the CFO theyre cutting those costs.
Congrats.
I just wanted to ask.
I want to nitpick, but it's obviously a bad day, but.
Your guidance.
Really some great detail on hash rate.
Is price.
And Nick one pricing.
Slide eight we are below <unk> right now.
<unk> is currently 265, so I'm, hoping that you would know something I don't know and this is going to come crashing down, but I've been really worried about the <unk>.
Sort of thinking.
Just to come down and it hasnt yet does that how much does that change your outlook if it does not come down.
Hey.
The market is obviously a dynamic I think our view is when you change the hash rate like we've seen in the past couple of days.
You're going to see a change in the.
Amount of people.
Running miners.
I think bright yet today, we think that.
It's probably an unsustainably low.
And youre going to see that the global ash rate declined to adjust.
Or are we going to see bitcoin prices recovered, but you can't you really can't have it both ways. If a bitcoin prices deteriorate further deteriorate further youre going to see global hash rate.
Decline.
So it's our best cast that we can.
I think our job is to.
Given the ability to put in your assumption for for Bitcoin price Euro assumption for global hash rate and when you do that you should you should then have your own view as to what are our financial performance will be I think what we're going to do our best to deliver operationally.
And hey, tough to control bitcoin price of global hash rate and that's why you analysts can can make your best guesses and plug it plugged as assumptions into your into our model.
And come up with your estimate.
Is that helpful.
Yes, absolutely.
I appreciate that you've got an opportunity.
Brazil power if the highest price is below <unk> a lot of your competitors don't have.
So.
Work on our sensitivities myself, but I appreciate the color Greg Thanks, a lot.
Sure Hey, Chris I would just add when we prepared the guidance two to three days ago.
We were right on top of where price was for the most part or within.
Very close distance.
It's really hard to.
Just on this why when when you go through extraordinary deleveraging or industry shock systemic risk type of events risk off type of events.
We provided the sensitivity if we need to update the sensitivity of simple goodwill, but we are approaching the floor for power only EBITDA and so I think we feel pretty strongly that the model will be resilient.
As you move towards the lower end of this range.
That's 0.1 0.2 is greg's got 25 years in energy power investing.
Mine is not that far off Tom parity on our team.
Sure in the energy sector experience.
I would maybe just point to that as an analog that whenever.
In the second quarter of 2020 for instance, if the market is starting to try to price in our extrapolate.
20, or $30 oil prices the entire industry would have been bankrupt.
Immediately.
Outside of Saudi Arabia, and maybe some other low cost oil producers.
We are unlikely to be logically willing to extrapolate the current ash price because the current <unk> virtually the entire United States.
Bitcoin mining industry, which has been an extraordinary amount of a global hash rate is underwater and broken and especially when you layer in the interest cost burdens and other and so I think we.
We'll provide updates, but <unk> got a framework at least for the first time and what we're focused on and we would point you to is.
Towards the end of 'twenty, three we think we're going to be approaching or less than two times leverage.
Which we think is the result of.
Some some foresight by the team and a lot of hard work from our operations folks to get those monitors back to the lender and I think we would point you to.
The current valuation of the company at the enterprise level with some of the dilution.
And the new prevailing debt I think we feel like the company's move to a place where the market's pricing in bankruptcy and we're just so we're so far from that.
Eager to lay out how this.
Improvement in cash flow is going to manifest in value for everybody. So.
I think we would just point you to those of the reasons, we gave you guidance and.
And stick by and hopefully beat it.
And hopefully we see some resolution real soon because it's been frustrating I agree. Thanks, so much I appreciate it.
Thank you one moment for our next question. Please.
And he comes from the line of Chase White with Compass point. Please proceed.
Thanks for taking the questions.
So a couple of questions. So.
Much.
Just curious the redundancy upgrades at scrub grass in the fourth quarter.
Any costs associated with that and also any downtime associated with that.
No we don't we don't we're not.
Yeah, we're not we're not paying I get big severance package to give people some of the and we can go through like a line item for where all these the redundancies and cost savings have come from a big portion of it is.
We spent money on kind of a onetime upgrades and.
In the past quarter that were not having to do.
<unk> next year again.
So the one time.
We have we had contracts with sort of consulting people and we've terminated dose.
And as a part of those agreements, we had probably 10 extra people.
<unk>.
That after.
Six months of that work, we're able to to sort of take over those roles ourself.
There will not be a one time charge related to the cost cuts that don't you don't all of that and then additionally, so we talked about some redundant system additions.
There is a.
Theres, a pug mill fix that we're putting in place in November that expense was already accrued as a part of the outage.
And ancillary part of the power plant that.
Enhances the containment of the Ash and you mix it with water and you can put it into a truck and potentially go selvey ashburn or packages for sale or.
Control ash as it relates to the impact on the datacenter and filters and so that <unk> was on order. It should have gone in in July ended up getting pushed to the September outage and that expense was already accrued and.
And affected the third quarter.
And then we ended up getting pushed in November , but we do not expect any further material expenses, it's not to say that.
Powerpoint is don't break down and you have costs come up but.
We feel really strongly about the run rate of fixed cost and maintenance costs coming out of September .
Got it.
And that actually dovetails pretty nicely into my next question.
Any updates on the potential revenue opportunity from selling fly ash or at least any guidance on how to think about that opportunity.
Yes.
We work on it every day, just let us have it as upside.
Yes, I think we have.
We do have a customer that is.
<unk> asked from us that is both saving giving us cash for it and it's also reducing our cost and working on expanding that relationship.
Going into new ones.
Yes.
Our upside for us too.
We'd rather be rewarded for what to deliver that have you baked it in and has potential to miss it.
I'd say, it's hard to.
Until the plants were running at a base load capacity like they are now.
And we didn't have a reliable stream of ash to sell.
Now we do know its tests that we have a much better handle on what the inputs are.
With the waste coal to get a certain spec on the output of that so I think we're in a better position to be able to do it but just let us have it as we.
As we.
As we earn it rather than putting it in the model.
Got you fair enough. Thank you.
Yes.
Thank you one moment for our next question. Please.
And he comes from the line of Steven Nicola with Cowen. Please proceed.
Hi, Thanks for the question.
Just on the 21500 self miners you have I'm getting that around 18% to 8000 or <unk> with the addition of the 420 miners you. Just received so just was curious if you could break out or just discuss the economics of these rigs individually and the current depressed cash price.
<unk>.
And then I had one more follow up please.
Okay.
Yes.
Comment I think we'll take out the exact economics on them are of us.
But the.
I think our.
We have received.
Both the nerve of minors and Minerva has sent us.
Both at nine nine.
19, J pros and there was <unk>.
<unk> in lieu of the normal miners have done in the past that are now sending us as they're sort of getting our production of our nerve is back online they are sending us more of those miners now as well.
<unk>.
We have we have confidence that that we have we have thousands of these things.
And their reliability has been low looking backward.
There are the fixes are identifiable.
And we are implementing them so as we receive.
The problematic parts will replace from them, So I'll, hey, I'm not sure they're going to get up to the reliability of a macro BT or or big name, but they are certainly not going to be as.
As poor as poor performance as it has it had been in the past.
I'm talking about economics.
Yes so.
The economics.
As it relates to comparing to a $1 per megawatt hour basis.
We haven't really seen any material deteriorate deterioration inefficiency or large part of the fix has been related to.
Is it certain parts that have really impacted the miners shutting off and we think they were making a lot of progress in getting back online, but in terms of the economics.
Today, they are kind of around $65 $70 per megawatt hour.
The real focus for US has been the percent of the time that we have them on and so we're making a lot of progress.
Good progress there.
On our engineering front, if you're going to model allow modeling the same as in <unk> plus.
They are pretty close to an aflac team.
I appreciate the color Greg Thanks, Tom and Matt also one more on the acute on the Q2 call last quarter I believe you guided to outstanding.
Principal debt of $45 million by year end and $21 million by end of 'twenty. Three currently at $82 million just curious what other levers.
Are you going to pull to reduce debt.
By an additional $37 million by year end or if that's still on the.
Sure.
The plan here.
Yes, so we that was a net debt number.
Principal amount outstanding because everything that we said last quarter, we've executed on and in fact, when our Upsized.
Our access to liquidity.
$2 million that was a net debt number.
I would just refer to our convertible notes were.
There are $22 $5 million right now in an 11 15 there'll be $17 million in terms of principal amount outstanding.
So we set ourselves up to be able to continue to deleverage.
Using a number of different tools at our disposal and.
And I think we got 45 <unk>.
Net debt I think we still feel we still feel pretty good about obviously.
Power prices fell some in October .
Although 2023 forward power curves is still up 60% year to date.
Versus bitcoins down 65% year to date, and so we still really like the business model and our spreads but.
Some of the net debt will be impacted by investment decisions and we will be impacted by improvements some of it will be impacted by.
For power curve and pick one price but.
I think we still feel pretty good about.
We are going to arrive.
<unk>.
We're going to arrive at.
<unk>.
Just very quickly that's $45 million was.
Assuming we did if we did not draw on the 20 million from White Hot.
And so I'll be honest.
We've drawn on that is when you just have to adjust from that slide four.
For the.
'twenty one.
And change million that we drew.
Thanks for all the color I appreciate it.
Sure.
Thank you and at this time. This concludes our question and answer session I would like to turn the call back to Mr. <unk> for his closing remarks.
Okay I have not accept thanks for those who listen thanks.
Shareholders. The few of you that's hung with us so far and.
Hopefully we have we've got I can tell we have a plan to execute in the fourth quarter in 2023.
And we hope to hit the plan and be rewarded with equity values.
That's all I've got for Tonight. Thank you.
And thank you for joining us today for strong host earnings call you may now disconnect.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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