Q2 2023 Marathon Digital Holdings Inc Earnings Call
Yeah.
Good day, ladies and gentlemen, and welcome to Marathon Digital Holdings second quarter earnings webcast and conference call.
I would now like to turn the call over to your host Chris <unk>, Vice President of Investor Relations. Please go ahead.
Thank you Darryl good afternoon, and welcome to Marathon Digital Holdings second quarter 2023 earnings call.
Thank you for joining us for our call today with me on today's call are chairman and Chief Executive Officer, Fred deal and our Chief Financial Officer, Tom and Tom.
Before we get started I'd 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 are as such a forward looking statements. Please refer to our earnings release for a full recitation of our forward looking statements investors.
You are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ materially 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 viewed at www Dot S E T Dot Gov.
And I R Dot Marriott Dot Com. Finally, please note that on today's call. We will refrain, let's start with the FERC FERC to certain non-GAAP financial lenders and which marathon excludes certain items from GAAP financial results. Please refer to our company's periodic reports on Form 10-K, and 10-Q and to our website.
For a full reconciliation of these non-GAAP performance.
Comparable to the most comparable GAAP financial measures.
We will begin today's call with prepared remarks from Fred and someone after their comments, we will be going through some of the more popular questions from investors before transferring to a live Q&A with our covering analysts.
That out of the way I will turn the call over to Fred to kick things off Brent.
Thank you Chris after a solid start to the year, we continued to make progress towards our primary 2023 goals, which include energizing our fleet to reach our 23 ex the hedge target while at the same time, increasing our operational efficiency.
Our recent results demonstrate we are near to completing our first goal and we're making consistent progress on the second.
During Q2, we increased our operational tax rate, 54% from 11.5 extra hashes on April one to $17 seven net cash as of June 30th those of you who saw the July production report, we published last week will have noticed that our operational cash rate is now approximately 19 extra hashes in 2023 alone the team at <unk>.
Marathon has more than doubled our operational cash rate and positioned us as the largest publicly traded itself miner on installed fast rate basis.
We've grown hash rate this year by successfully working with our various hosting partners to energize new facilities during the quarter. The facility Allendale, North Dakota was energized and officially became our largest operational bitcoin mining site, while growing hash rate has been our primary goal. It has been important for us at marathon that we do so in a sustainable manner.
Since I became CEO , we have made a concerted effort to transition marathon to more sustainable sources of power and I'm pleased to report that we have been successful in that endeavor.
In less than two years, we've evolved from a company that relied on a coal plant for its energy to one that is mostly powered by renewable energy during the first six months of this year approximately 58% of the energy our miners consumed was generated by renewable and sustainable sources, while we expect this mix to fluctuate depending on wind conditions curtailment and other factors.
We remain committed to 100 carbon 100% carbon neutrality in 2023 with the balance offset by renewable energy credits or similar instruments operationally, we hit another milestone. This week as of today. We are officially installed 23 extra ashes of minors and energy station of the final tranche to reach 23 X <unk>.
Cash of operating capacity appears to be imminent I am pleased to report that the final tie into the substation in garden City is complete therefore, barring any unforeseen delays energizing this site and reaching 23 ex ashes of operational capacity should be imminent.
Okay.
Because we've been growing our hatch rates faster than the rest of the network and simultaneously improving our uptime. We have continued to increase our bitcoin production.
We produced a record 2926 bitcoin during the second quarter, which is a 33% increase from Q1 of this year and last month, we won a record 179 blocks, which is a record for marathon and indicates that our improvements have continued into the third quarter.
In a few minutes I'll provide an update on our expanding capabilities and evolving growth strategy, but first I'm going to turn the call over to <unk> to discuss our financial results for the second quarter. As a reminder, sell non joined US as CFO in June and he has quickly become a valuable team valuable member of our team. He brings a wealth of valuable experience from several industries.
That are directly pertinent to marathon, including technology renewable energy oil and gas and big four public accounting and consulting with that please join me in welcoming sell them onto his first earnings call with marathon Selman.
Thank you Fred and thanks for the warm welcome.
I look forward to meeting and engaging with our analysts and investors over the coming months.
For now let's focus on the results for the quarter.
Proving bitcoin prices increased production and accounting gains on bitcoin sales were the main drivers of our operating results for the second quarter.
The company recorded a net loss attributable to common stockholders of $21 3 million or 13 cents per common share.
In the quarter.
Paired with a net loss of $212 6 million or a dollar and 94 cents per share in prior year quarter.
This represents a 191 $4 million favorable variance in net loss year over year.
Total revenues for the quarter were $81 8 million.
Well above our prior year revenues of $24 9 million, representing a 228% increase year over year.
Well companies pick quite production at 32 bit quaint per day was 314% higher which was partially offset by a 14% lower average bitcoin price compared to last year's quarter.
Our hosting and energy costs for the three months ended June 32023 were $55 $2 million compared to $16 7 million last year.
The increase was due to increased bitcoin production, partially offset by lower production costs per coin and onetime exit costs for our hardened.
Montana facility last year.
Total cost of revenues, which includes depreciation and amortization was $92 5 million compared to $41 4 million last year, increasing by $51 1 million or 123%.
Depreciation and amortization this quarter was $37 3 million, increasing by $12 6 million compared to the same quarter last year.
We also had one time accelerated depreciation of our hard in Montana facility for $9 4 million last year.
Fred mentioned, we have grown our mining fleet significantly since last year.
And as a result increased our energized hash rates from seven <unk> in the second quarter of 2022 to $17 seven in the same quarter of 2023.
Gains on sale of digital assets was $23 $4 million in the current year quarter and in the prior year, we had a loss of $14 million for losses on digital assets loan receivable.
Impairment of digital assets improved by $123 $2 million year over year as bitcoin prices fell significantly.
Prior year's quarter.
Lastly, you'll remember last year, we had a bitcoin investment fund with a $79 $7 million loss and a $54 1 million gain on sale of equipment, both of which did not exist this quarter.
I want to note that the company's non-GAAP total margin, excluding depreciation and amortization was $26 $5 million this quarter.
Presenting an $18 3 million or 222% increase when compared to the same quarter last year.
This is representative of our increased cash rate and our strategy to systematically improve efficiency.
Adjusted EBITDA improved to $25 6 million.
Versus a 167.
$1 million loss in the prior year period.
The drivers of adjusted EBITDA include the previously mentioned accounting impacts and total margin improvement, excluding depreciation and amortization, partially offset by a $10 million a year over year increase in general and administrative expense to support the growth of our business.
General and administrative expenses, excluding stock based compensation were $60 million in the current period as compared with $4 3 million in the prior year period.
This increase in expenses was primarily due to higher cash compensation and benefits professional fees.
Property taxes charitable contributions and insurance costs I'm pleased to report we now have over 40 employees up from just 17 a year ago.
As we have built out our finance strategy communications legal and human resources teams and Opportunistically added talent across the organization.
Turning to our Bitcoin holdings in cash position.
Cash and cash equivalents totaled 128 million.
At June 32023, an increase of $15 $5 million compared to last year.
Also at June 32023, we held approximately 12538 point with a carrying value of $234 $4 million on the balance sheet with.
With a fair value of our holdings approximately $382 million at quarter end.
The company's combined balance sheet of unrestricted cash and cash equivalents and fair value of bitcoin was approximately $495 7 million.
We sold 1054 bitcoin during the quarter realized cash proceeds of $51 $3 million. Each proceeds were utilized to fund operating expenses during the quarter, including cost of revenues for energy hosting and other cash operating expenses.
During the quarter, we generated $65 5 million from at the market equity, which we intend to use for growth capital.
The combined cash and cash equivalents bitcoin and access to our at the market facility provides us ample amount of liquidity and optionality to execute our strategy.
So all in all a good quarter for the balance sheet as we maintained our strong cash position, while increasing our bitcoin holdings.
As mentioned in our July production report, our unrestricted cash balance at July 31 was $115 1 million and we held approximately 12964 bitcoin with a fair value of $379 million.
We expect our future Bitcoin holdings will generally increase but will fluctuate depending upon operating and market conditions.
We intend to add to our Bitcoin holdings, primarily through our production activity and we will also continue to sell bitcoin as a means of generating cash to fund monthly operating costs and for general corporate purposes.
And that completes my update so I will turn it back over to Fred who will take a little bit more about who will talk a little bit more about our operations and our ongoing plan right.
Thanks, Tom.
While all bitcoin miners fight to win blocks in Bitcoin Marathon has always done things differently.
We've achieved a number of firsts for the industry, we have set the pace for growing hash rate to improve our bitcoin production for navigating capital markets to efficiently scale the business for operating behind the meter of wind farms to improve our mix of sustainable energy and for geographically diversifying our operations domestically and internationally to reduce concentration risk.
Now we're continuing this trend by vertically integrating our technology stack, which can potentially reduce latency in our operations. If you can reduce latency and in theory, you can operate more efficiently and therefore potentially win more blocks efficiency is particularly important as you move closer towards next year's having when the block subsidy will be reduced by 50.
Percent.
Bitcoins difficulty raises dynamic someone will always make mining sorry, it make money mining bitcoin.
But what matters is that you are more efficient than the average mining there and if you are on the low end of the cost curve. Then you can keep operating when others cannot and we believe the technology is one of the keys to improving efficiency and operating even in those toughest of times.
Marathon is the only bitcoin minor that directly controls or influences each aspect of the mine and the tech stack.
Starts at the top with the mining pool, which is the orchestration layer between the miners in the blockchain and it runs all the way down to the assets.
Over the past few months, we've made several upgrades tomorrow pool, which seem to have contributed to an improvement in the number of blocks, one and therefore bitcoin earn however, developing our own proprietary firmware for our miners is making an even larger impact.
There are several companies that sell firmware, but given our experience and our technology technological expertise.
We thought we might be able to build a superior solution and so far the feedback indicates that we have.
We recently Benchmarked, our proprietary third we're against some of the leading alternatives and saw several advantages in performance protection and security.
So far our firm where it seems to have demonstrated better curtailment times better over clocking improved temperature and voltage protection and encrypted communications with the mining pool and it allows for security audit, which is a very valuable tool for us as a publicly traded company.
Moving down the tech stack to the hardware we've been heavily focused on upgrading our fleet of <unk> 19 expertise to not just grow hatch rate, but to also reduce our energy expenditure per cash our mining fleet now operates at $25 three jewels per Terawatt Terra hash, which makes it one of the most efficient fleets in the industry.
The infrastructure level, we're clearly demonstrating our competency in designing and building immersion called mining farms in February we signed an agreement to jointly build a 250 megawatt facility in Abu Dhabi for referenced the climate in Abu Dhabi is one that is extremely hostile towards bitcoin miners. The temperature often is above the typical.
Off temperature for bitcoin miners and air meaning over 40 degrees C very high humidity.
And it's a very demanding environment.
The sites in Abu Dhabi, where marathon today is partnered and its joint venture were designed and built and are operated by Jim trained by marathon and it really exemplifies the ability that marathon has been building these sites and as a matter of fact, our pilot site operated for over 100 days without human intervention.
Which shows how sophisticated our operations can be so we clearly believe that this demonstrates our ability to now become truly a leader in the owned and operated space as well as third party hosted.
So the whole 250 megawatts in Abu Dhabi is expected to be online before the end of this year, but already in July 1st of the two sites began hashish and produced for 17, Bitcoin, which we received $3 four bitcoin due to our 20% ownership in the project.
Even the highest rate that is currently online has already proven to be helpful to the region as a load balancer and preliminary reports have shown the site's ability to dynamically ramp ramp up and down during the day when grid energy demands change. This type of flexible demand response is an excellent case study for how bitcoin mining can benefit utilities. It also true.
So we can now mine big quite successfully in parts of the world there were inaccessible even a year ago given their climates.
While we have not announced any significant growth plans beyond 'twenty three extra ashes.
Our intention is to continue to grow and maintain our leading position in this space.
Our scale operational expertise flexible approach to implementing the right business model for a given deployment and our ever increasing portfolio of technological innovations are all key to drive rapid expansion of efficient operations.
With the having coming up next year optimism may not be the dominant emotion for every bid point miner and many in our industry. Today are focused on how they are going to survive, which is not easy to do given how dynamic the spaces.
Marathon and our focus is not just staying alive, but driving even in the most challenging times, we remain focused on conscientiously growing our hatch rate and consistently improving our technology and remaining a leader in this industry.
We have been setting the pace in this industry for the past three years and we have every intention to keep that trend going this industry is still young it is full of potential for those who are willing to shape. It.
And we therefore believe the most exciting news for marathon and for Bitcoin buy ahead.
This.
Thanks, Brian at this time or to commence the Q&A section of todays call.
Start by answering some of the most popular question submitted by investors to our Q&A platform.
Our first question comes from CK less.
Regarding <unk> and Mero number one what percent of <unk> Mehra one two how should we think about the pricing slash benefits that having a stake in Oregon will provide tomorrow as you continue scaling cash rate and three is Oregon, providing AI capabilities tomorrow within the tech stack great question.
CK I'm not sure how much of that was disclosed at this point Craig can you add a little color on <unk>.
Sure.
Great question so.
Marathon today owns about 12% of argon, so we're a minority shareholder.
There are a large venture capital firms that on a much larger percentage than the founders of <unk> or buying the bonds.
I think you should think about the reasons why we made the investment rather than talking about price advantages and things like that what we really were looking for was to find the ability to have a minor built that could really operate in all of the challenging environment, we need to be able to ramp up.
And overclock be able to ramp down and under clock be able to operate in immersion single trait is dual phase immersion have very efficient operations, but more importantly be able to be intelligent and one of the key things with the Oregon miners that the team at <unk> has clearly been able to achieve even beyond the expectations that marathon initially.
AD is to create a miner with a total cost of ownership that is significantly lower than most of the industry and that is so important as we move into an environment with very dynamic energy pricing and also the having an.
And dynamic energy pricing is critical because these miners essentially can operate in a way. So you can set a price target.
Energy or a price target of bitcoin if you would.
Hash price, if you would for bitcoin and a variety of other parameters and the miners will automatically adjust to operate within those parameters scaling up their capacity scaling down their capacity. It is a game changer for the industry, which again means that these miners can operate in large fleet managed from <unk>.
Cloud platform that makes it very unique so that's what we're most excited about as regards to our dine in we are very excited to be able to start incorporating those systems into our fleet.
Great. Our next question is from <unk>.
What's your future projections for mining production are there any things you were focusing on besides the equipment mining to also bring more revenue to your company.
I will take that one as well for them.
Sure. So while we haven't disclosed kind of what we're doing outside of pure bitcoin mining and I would just say stay tuned.
That we're going to continue to grow.
Our operations as I said in my prepared remarks, we intend to continue to remain a leader and we will continue to grow capacity.
Conscientious rate.
Over the coming years, we believe that its our duty to be one of the leaders in this industry and supporting and securing the bitcoin blockchain and supporting the industry and the infrastructure around it so.
So as you look towards the future expect to see marathon.
<unk> technologies that will help build the infrastructure for this industry to really thrive long term.
That's great. Yes, we have a question from Andreas who us.
They're having is rapidly approaching and with it a looming bull run what are your plans. Upon this rapid rise in bitcoin price what are you doing to separate yourself from other mining companies. So I appreciate your optimism and rates, but I don't think were to comment on bitcoin price predictions at this point Fred maybe you can provide some more color on how we are approaching the having and how we're different.
Getting ourselves.
So they're having is obviously.
A recurring event in this industry and all miners are very focused on making sure that there'll be able to operate profitably.
Not just at the having but beyond <unk>.
Through the next cycle until the next having in 2028, so as Chris mentioned, you know, we're not going to comment on where we think the price of bitcoin is going to be but we're obviously very focused on optimizing our operations. So that our cost to mine bitcoin will allow us to weather any sort of storm here.
As we get towards to having.
Bitcoin prices fluctuate.
Up and down kind of greatly.
Bitcoin price moves up obviously, there will be an increase in hatch rate because more miners, who want to be putting on more accurate the price of bitcoin doesn't grow into the having then you may even expect as some analysts have predicted the hash rate to actually decrease post having so we'll just all have to look and see how that is but we're very focused on just being the most optum.
<unk> minor from a cost perspective and.
While we still have some ways to go we're very focused on it.
And as our mantra has been this year energized and optimize and so we're very focused on doing both at the same time.
That's great.
Question comes from Bert F who us.
Washington, individual invest and Mara as opposed to a riot or buying bitcoin itself. What do you see as the benefits of Mara compared to other investing options.
Great question Bert.
On that front as well.
So I think riot runs a great operation I think the challenge with riot is.
They're not a bitcoin pure play in the sense that they operated or third party hosting business.
Were they rentech capacity to third parties and then they also are a salt miner.
They are also highly concentrated to a particular area in Texas.
Which makes them very susceptible to either regulatory changes in Texas aircraft changes in Texas.
Climate et cetera, So I think.
You have to look at each mine was operating model, we operate a very diversified portfolio. We operate some third party hosted sites. We operate some owned and operated sites. We operated in Texas, We operate in North Dakota, We're now operating in UAE and we will continue to expand internationally and continue to diversify our portfolio of sites.
And moved to a greater balance of owned and operated than we have today. So we we offer kind of more of a diversified play in that regard. We are also a bitcoin pure play and that we not only mine bitcoin, but we hold a lot of bitcoin and that generally tends to show itself in <unk>.
How you see.
Our stock react to increases in the price of bitcoin.
So I think.
Riot marathon, two very different companies and operating under different models.
How're you instead of always trying to create more shares in Duluth the value.
So perhaps you could provide some color in our strategy for you as an equity in growing the company.
Maybe you could start in Friday can finish it up.
Sure happy to do that thanks, James and severe for asking the question.
The way the way we see is that.
From an equity in a capital stack standpoint is.
Eyes are focused on shareholder value creation.
So any decision that we make we will always think about shareholder value creation first and when it comes to whether it's that or shares we already have convertible debt on our balance sheet, which is.
Low interest rate and certainly.
<unk> <unk> <unk>.
That is evidence that we have that capital stack and the balance sheet that treats the crease the value for our stockholders in terms of growing and raising capital in the strategy to grow.
<unk> when we look at the <unk>, we're not going just for the sake of growing or drawing with the intention of creating value for the stockholders as long as it's accretive to our existing stockholders. We will continue to raise capital to grow from that perspective, so hopefully that answers your questions into in terms of.
Reverse stock split.
I'm not certain if I understood. The question, we don't have the intention.
At this stage, given our stock price and.
Given our <unk>.
<unk>, we don't see a value in a stark restock split at this stage actually that answers your question.
Yeah, I would just add the comment that if you look historically splitter.
Splitting a stock is something you do when your stock prices very very high I mean, apple digit when their stock was between six and $700 a share because it makes it look like a shares more affordable.
And they drop their share price down too.
Seven split so they dropped it down to about $90 trading in the 15 to $20 Angel retreated it doesn't make sense to do a split and that doesn't create any shareholder value in doing a reverse split you only really ever do if your stock price gets below a dollar so I don't see any value in doing that but.
Just as you look at our growth.
You know every exit hash that we add add shareholder value because it produces a certain amount of bitcoin in that amount of bitcoin a certain percentage of that will continue to hold on the balance sheet and that continues to add shareholder value. We have been selling bitcoin to cover operating expenses. This year. So we're not diluting our shareholders.
To maintain operating expenses.
That degree so I I think are gross plans are going to be very consistent with doing things that drive shareholder value accretion.
Okay.
You should plan will have to wrap up this section of the Q&A again, we really appreciate all the questions and interest.
And thanks for somebody those questions.
And a call back to the operator draw the line for questions from our covering analysts Darrell back to Ya.
Thank you, we're now going to open the call to questions from marathons covering analysts you would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line isn't the question queue.
Press start to if you would like to remove your question from the queue and if you're using a speaker equipment and it may be necessary to pick up your handset before pressing this darkies one moment, probably Paul for your questions.
Our first questions come from the line of Lucas Parks with be Riley. Please proceed with your questions.
Thank you very much operator, good afternoon, everyone. Thank you for taking my questions.
My first one is also on the having site so so.
With it rapidly approaching I kind of get a sense for the flexibility you have.
Just for argument's sake, if a if a given data center is is not economic on a on a on a variable basis do you have the flexibility.
To curtail minor stare temporarily at least are or are there kind of take a pay commitments.
If you were to take that step that he would still have to pay for a given amount of power, which would really appreciate.
Color on that dynamic thank you.
Thanks, Lucas it varies by sight and I'm not gonna go into each site.
One by one but it depends on if at the site, we control either the P. P a or we're doing pass through power.
That happens to be the case.
And some of the sites there are other sites that have.
Very low cost fixed power and.
And other sites that just fixed pricing, which is power and hosting so it's a broad mix between the three.
That's that's that's helpful. Thank you Fred and just to follow up on that kind of as a percentage off.
<unk> right today.
Swimming install to exaggerate roughly what percentage would would fall under fixed commitments and <unk>, which ones would be more flexible.
I think you would find of the installed about a third today is flexible.
And the balance is most probably.
You know I'm, not gonna guess, but it's.
And it was probably somewhere 40 per cent to extending the balance is very low cost fixed.
Really appreciate that thank you. Thank you very much for that two quick follow up questions.
Not directly related but first in terms of the utilization rate on the operating hash right, what what what what what I kind of your expectations on on that metric going forward and.
<unk> calculated in house, but would appreciate how how you approach that question and then yeah somewhat not directly related but garden City. You. You mentioned you expect the startup imminently.
Yes, imminently, it's pretty clear, but if you could maybe sure sure you update on the site and and and when you would expect it to turn on line I would really appreciate it. Thank you so much for your color.
Yeah. So the physical tie you into decided is complete and the last documents between our hosting provider in the energy provider or being passed back and forth with the final red lines.
And as soon as that document assigned.
<unk> started energizing.
The last step.
No other approvals or any other regulatory.
Issues holding that site up from going on so you know our hosting providers publicly said they expect it to happen imminently. We believe the same based on the current status of <unk>.
Discussions with the power company.
And double rank and kind of 20 megawatt steps over a short period of time.
Got it. So so so this was kind of ramp up over the course of 10 weeks or so.
Probably somewhere between six to 10 weeks.
Alright.
And then in terms of utilization rates more broadly.
You mean uptime, so I'll be asking what you mean, but yeah, yeah, sorry, I meant with with with that I mean, yes, uptime, obviously like.
That garden City miners don't run that's that's understood, but kind of in terms of the operating.
Face kind of what what what would uptime is is is is a good benchmark.
So it's it's seasonal as you're well aware, Texas is a lot of curtailment in the summer.
And so could Pat operating in Texas uptime is going to be lower in Texas.
In North Dakota by contrast, we've been operating well over 90, 394% even in the summer.
So that's why it's been offering very high uptime. So I think you'd have to kind of look at the west Texas sites.
Being very seasonal you're gonna be in the mid nineties in the core times of the year and depending on curtailment and temperature issues you may be in the 60 to 75 per cent sharing some of the hotter months in the summer.
Super Fred I and team I really appreciate it then best of luck.
Yep.
Thank you. Our next question is coming from the line of Chase White with Compass point. Please proceed with your questions.
Thanks, Good evening guys. So how should we think about aggregate power costs across across the entire portfolio as you Energize Garden city and and that's eight starts to come online.
And then I have a follow up yeah. So what what complicates. This is that the a P. L. D sites, we pay essentially a fixed price for power and hosting so power isn't broken out in that cost its power and hosting.
So that makes it a little bit harder to give you just a power costs.
But I think you could look generally speaking across sites.
You would find US if you include power and hosting across all the sites, they're gonna be in this kind of six cent branch patrols or.
Gotcha and and.
Switching gears, a little bit I mean.
Are you able to provide us any additional details about the economics for the Abu Dhabi Jamie.
It's an 80 20 joint venture we just started production. So we don't even have the first month's financials.
So I couldn't tell ya.
I can tell you is it's a fixed price.
Sub four cent fixed price energy and then we split the operating cost 80 20.
Gotcha. So sub four cents is that and that's fixed just off the top gotcha.
Perfect.
And then any updates on the recoveries from the computer north bankruptcy.
No one dimensional.
Got it fixed.
Thank you. Our next question has come from the line of John Peterson with Jeffries. Please proceed with your questions.
Oh, great. Thank you very much I'm, just curious on the the <unk> or the the X PS that you're putting into place right now at today's economics, what do you estimate like the payback period is on what you paid for those machines.
At today's economics.
Well those machines were significantly discounted.
By the time, we finally paid to them right. So when we ordered them. It was at a high price and by the time, we ended up paying for them. It was significantly below that this can be seen by then.
You know the.
Limited amount Capex, we've had to do to to pay off those so I think you're gonna find it somewhere between 13 and 18 months probably.
Okay, Alright, that's that's helpful and then.
And this is a hard question to answer I'm. Just curious you know in terms of having next year do you have any estimate of what percent of the X a hash that's online right now would would come off.
Post having well you tell me what the price of Bitcoin, it's gonna be and then you can touch [laughter], let's just let's just pretend it's today today's practice bitcoin and today is exercise.
There was a lot of leverage to figure this stuff out of work.
If we're talking about the price of $30000 for.
For bitcoin that would mean essentially the having you're talking about.
The $15000.
Which would be right around our marginal cost to produce don't know we would shut off necessarily.
Oh, I I didn't mean any I'm, sorry, I didn't mean any of yours I meant the market overall, what do you have any any sense of how much. It the total network cash right might come offline Oh Wow.
Well if you look at it this way our fleet operates.
Roughly 25 jewels portera hash the average for the industry is somewhere in the mid thirties.
Yeah. Your colleagues are estimated 20 to 30 per cent.
Would come off.
Yep, Okay. So if you're in the during the lower third of the minors from an efficiency perspective, I think you're gonna do fine I think it's.
Yeah.
If you're above average or above you're going to be challenged.
Yeah, that's Sir Alright, that's all for me. Thank you.
Mmm.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad or.
Our next questions come from the line of Kevin D D with H D. Wainwright. Please proceed with your questions.
Hi, Fred Thanks for taking it I I was curious about yours your software integration.
Mhm, how much how much progress have you made on that how much have you implemented what sort of efficiency gains have you seen can you talk to that at all.
I can talk a little bit too it.
So we're running.
We've just transition to our.
Generation of cool software.
Which is.
Fully kind of developed.
<unk>.
That is the one that's been driving a logging efficiency gains I won't say, how much but let's just say that it's been driving efficiency gains.
Our firm where is running in a subset of minors and we continued to expand.
Dash across the fleet and our expectation is to have the vast majority of the fleet transition to our framework here over the balance of this year.
[noise] [noise].
<unk> additional efficiencies, which I think will be very beneficial.
The emerging technology that we're running in U a E and we're also running a tiny bit of it in some other places in the U S.
We've done for testing purposes was developed by a third party with some direction from marathon and we're very focused on <unk>.
Expanding.
The development efforts were doing an immersion.
Get even better efficiencies in the efficiency immersion.
I have more to do with being able to operate not just an extreme environments, but also require fewer touches about human beings, because that's where you get the operating efficiencies.
An immersion is if you don't have to touch it.
And you can have fewer engineers on site.
And so we've been very focused on putting a lot of instrumentation into the system. So that they can be managed remotely and if you recall my comments regarding Oregon to a prior question.
With the capabilities that those miners spring over time will have the ability to really manage.
Manage a fleet from a profitability standpoint, where the machines.
And the orchestration, they're really manage themselves. If you are based on Sept profit targets and cough points. So.
Yeah, that's kind of what we're very focused on and that's why we felt it was so important too.
Make the investment in Oregon, So we could have the.
The ability to influence the design of a minor all the way down to the basic level. So we could get specifically what we felt was the right solution to the marketplace.
<unk>.
So so fred to load the firm were and are dying software do you need to pull the minor from the rack take it to the shop.
Well so the order in software will run on the Oregon minor so it won't run a bit me.
So let's be clear about that.
Okay. The load the software we do over the air software upgrades.
[noise] okay.
And how how flexible.
Do you think this software development is and will be two changes in your fleet.
So far it's been.
Very flexible.
Yeah.
Think about it this way our fleet consists of two types of machines today. It's S 19, J pros and that's 19 X P.
Predominantly.
As we add other machines will add different versions of Shimmer as it makes sense. So if if a if a machine comes with a firm where that's as good as ours and has the same capabilities. There's no reason for us to change the frame on the machine.
It just so happens that bit means machine don't come with.
Particularly when.
When it comes to the ability to overclock on the clock at 10 point things like that it just.
It's very vanilla and the other third party firm worse.
You know it might be good at one or two things, but not good at everything so that was why do we made the decision to develop around.
Okay. Thanks for the detailed appreciate I appreciate you taking the questions. Thanks right Yep.
Yep that's it.
Thank you our next questions come from the line of Lucas pipes with be Riley. Please proceed with your questions.
Thank you operator, thank you for taking my follow up questions.
First can you remind us about the.
Fleet at Garden City those.
So <unk> got it so kind of we should expect the efficiency to take up S Garden City turns online.
Yep.
Yeah. So I think we've said previously that are once fully deployed we would be at about.
22, or 23 joules per <unk> 25 today, so that gives you kind of cool.
I'd feel for that got.
Got it.
Mary helpful. Thank you for that I know you said it before I just wanted to make sure I remembered it right and then at <unk>.
<unk> D S thoughts on what makes sense here.
The industry, obviously kind of came through so some of the most challenging times and I could imagine there are players might be looking for liquidity and and and and so S. As a leader you might have a role to play I would appreciate your thoughts on that.
Sure you know I think.
You said a number of times that M&A in this industry is challenging because the replacement cost tends to be about the same as the acquisition cost when you think about.
Most minors because the hardware has a fairly short life and depending on the age of whatever fleet. The miners running you always have to weigh what am I going to pay for these machines versus buying new and.
Everyone's aware today, the cost of new miners as a rock bottom level.
You're paying single digit dollars per.
<unk>.
<unk> four S 19, J Pro class machines, and you know X PS or in the mid 20th somewhere.
So.
Yep, it's almost better today too if you're going to acquire somebody it's gotta be somebody that has an absolute amazing P. P a or access to a very low energy cost in a facility, where you can essentially pull up old machines and put in brand new Super efficient machines, there's gotta be a reason why the cup.
Tony is for sale typically right so either the miners in trouble or they will be in trouble with the having and therefore, they're trying to sell themselves now and I think you know, there's certainly a lot of activity in the marketplace right now with people who work.
To solve that issue.
Because you know these miners that are in trouble today are gonna be in even more trouble come pattern.
And.
So I think they're gonna be even more opportunities come next year, but.
Yeah, if I were to advertise for a minute what would marathon want to buy.
They have a minor it's somebody with.
Great access to very low cost power and great infrastructure, where they have yet to put in any minors.
And how we can build the site and we can.
<unk>.
Alright, Thank you Fred.
The perspectives.
Maybe at one last follow up question is.
A little bit of a higher level question, but I would appreciate your thoughts mmm.
Kind of when I when I look back over the history of Bitcoin mining every couple of years, the new new mining that came out fairly relentless March upwards in the efficiency that wonder what what what are you seeing today as the as the pace of technological advancement stable decelerating accelerating.
And with with some of the developments you're seeing on the AI front with very efficient chips is that.
A positive or possibly a negative because it increases the overall demand.
For for new computing system. So so so kind of two double at 2222 pronged question here.
Thank you yeah. So.
The bitcoin mining space is apart from AI is.
Space and the Bitcoin my new space.
We went through pretty significant increase in efficiency with the advent of the X P.
Taking a stream basically what was an industry average of around 30 tools for Tara hash down to about 21, Joseph Rich R. Hatch. So that's a pretty significant increase in efficiency thirtyish per cent.
What we're seeing now is a raft of new.
Machines coming from whereas Michael B T. Whether it's Oregon Desi minor was a company that was sharing a machine that might disrupt which are all in that twentyish.
<unk>, but if you overclock them or under clock them et cetera, you can get down to that if you <unk>. If you can get maybe down into the high teens.
Getting from there to the next level of efficiency and bitcoin money he's gonna require.
Pretty big step.
I fully expect most of the.
You know, especially people like that man or MS started working on next generation technologies and so it wouldn't surprise me, if we called him something new from them before the end of this year.
But I think it's gonna be the.
The returns on efficiency are gonna start becoming smaller from a <unk>.
Minor hash right perspective, where the real efficiency gains are gonna come as in the software not just in the minor meaning the ability to totally tuned the operation of the minor to either a target hash price or energy cost or.
Global hash rate et cetera. So the minor can literally tuned itself to operate do I overclock two o'clock, what do I do so that I can maximize the amount of the.
Bitcoin a mining and then you start getting into a lot of AI driven cloud orchestration for fleets of minor so large operators like ourselves could read very large benefits from that more so than increasing the efficiency at the hardware level by one or two <unk>.
That are you know.
Think higher level.
Sorry go ahead.
I was just gonna say as you look at the AI side of this business meeting bitcoin miners moving to running a I compute versus mining bitcoin.
You know I see there are a number of miners who were.
Actively focused on that holiday would apply to cetera.
Very focused on that and.
You know what that does is I looked at it relatively bitcoin mining.
Is it means those companies will have less capital to invest in growing hash rate.
Which means global how straight from players that go that route won't be growing I think we're gonna continue to see the growth in global hash rate is from sovereigns, who want it might've bitcoin.
And I think you're gonna continue to see the trend of sovereigns mining bitcoin as a way to potentially use bitcoin as a reserve asset.
That I think it's gonna be a much more important trend to this industry going forward.
Thank you. Thank you for a couple of interesting.
There on on on on the comment regarding a smaller advance in the.
Machine efficiency.
Where would be where would you put the next generation at 15 jewels tangibles, what what what would be your best guess today.
Yeah. So the next big jump will be a <unk>.
<unk> change so for example.
<unk> X P. As a five nanometer if they've already jumped to four.
You may see come down to a <unk> if they jump all the way down to three which would be expensive you may see it come to 17, maybe 16, but again, that's gonna be a very expensive minor.
Because of the cost of three nanometer wafers today. So that's why I keep thinking you know the the real benefits are gonna come in software as opposed to hardware over the next two to three years.
And then we'll have to see.
[noise] advancements in compute.
And and technologies typically take awhile to flow through and.
And at the end of the day Bitcoin mine is a fairly small volume industry for technology companies. When you think about it.
Hundreds of millions of minor soldier here.
So it it's hard to justify development effort and I think it's the type of market, where it's typically students for one or two players to kind of dominate the hardware side of it and then the small marginal players yourself to eke out whatever little things that can.
Very helpful lots of food for thought there Friday I really appreciate your perspective.
Yep. Thanks.
Thank you at this point there are no further questions I'm Gonna turn the call back over to Chris Brown for closing remarks.
Thank you Darryl and just a quick clarification on the question around or exclude efficiency when fully deployed it actually put in our press release on July production last week that we're expecting 24.2 <unk> forward deployed.
That thank you all for your time today and if you have any questions are not answered during today's call. Please feel free to contact our investigation team at I R. Dot.
<unk> Dot <unk> dot com and that's thanks.
<unk> enjoy the rest of your day.
Thank you. This does conclude today's teleconference. We appreciate your participation may disconnect. Your lines at this time enjoy the rest of your day.