Q2 2023 TeraWulf Inc Earnings Call
[music].
Ladies and gentlemen.
Morning, and welcome to the Tetra, Inc. Second quarter 'twenty to 'twenty three earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star and Seattle on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Jason <unk> director of corporate Communications. Please go ahead.
Thank you operator, good morning, and welcome to <unk> second quarter 2023 earnings call. Thank you for joining us today for our call with me on today's call are chairman and Chief Executive Officer, Paul Prager, and our Chief Financial Officer, Patrick Flurry 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 tariff walls are as such forward looking statements.
Investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ materially from those anticipated by <unk>. At this time. In addition, other risks are more fully described in <unk> public filings with the U S Securities and Exchange Commission, which can make which might be viewed at www dot FCC dockyard.
And in the investors section of our corporate website at Www Dot <unk> Dot com.
Finally, please note that on today's call, we will refer to certain non-GAAP financial measures. 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 measures to the most comparable GAAP financial measures.
We'll begin today's call with prepared remarks from Palm Patrick then we'll proceed to Q&A.
My pleasure to now turn the call over to Tara will CEO Paul Prager.
Paul.
Thank you, Jason and good morning, everyone.
Thank you for joining us on our second quarter 2023 earnings call.
We've accomplished quite a lot since our last formal call and I would like to review a few key milestones that we've achieved during the first half of 2023.
One.
We successfully executed a rapid growth plans, we launched terrible just over a year and a half ago and as promised achieved five and a half ex of ash and 160 megawatts of power capacity by the end of Q2 'twenty three.
This past March we began the energy station and deployment of 50 megawatts of zero carbon mining capacity at our jointly owned 100% nuclear powered Nautilus facility.
In June we completed building two at our Lake Merritt facility housing an additional 50 megawatts.
To exceed the accomplishments of our peers and such an abbreviated period of time is testament to the excellence perseverance and professionalism of the tear wolf team and especially our folks on the ground.
Two we assembled one of the most efficient minor fleets in the sector and as we continue to scale remain confident our price and efficiency metrics.
Metrics will prove even more impressive.
Our recently announced expansion plan involving 18500 <unk> the latest generation S 19, J X P bit main miners will only further establish wolf as one of the most efficient mining fleets in the sector and an efficiency of $25 seven Joel for Gary as you should rest assure.
Sure our development and operations teams will continue to work to differentiate <unk> as the preeminent miner.
Three we are setting the standard for financial and operational transparency.
Our CFO Patrick flurry.
Our former partner 20 year, Investor and lender Youll hear from him in a moment.
He has significantly raised the bar on reporting financial metrics by setting the standard for the industry with our operational and financial transparency, we hope investors will constantly evaluate us alongside the other miners.
Four.
We've greatly enhanced our Investor Communications in April we were fortunate to welcome Jason Assad onboard a respected 20 year communications veteran to our team investors may recognize him as one of the first team members a marathon digital holdings upon your initial pivot into bitcoin mining.
Thanks to this New addition, we have advanced our Investor communications by implementing a comprehensive strategy that includes regular updates increased transparency and enhanced engagement opportunities. In addition, we released the virtual site tour in June providing our investors in it.
Inside look at our state of the art mining facilities and remarkable operations team.
After highlighting some of our accomplishments so far in 2023 I would like to underscore what we believe continues to unquestionably set terrible apart from our peers.
First we have the best assets.
Our mining facilities are arguably the best in class in the industry with unmatched power cot.
Ideal climate and significant expansion capability.
In energy markets location is everything and our facilities are located in robust well developed markets, where we are able to service the grid and the surrounding communities as the zero carbon miner, we are strategically positioned relative to our peers and what we believe will be an increasingly.
Stringent regulatory environment.
Second we have the energy advantage.
Our team has been working together in the energy infrastructure sector for decades.
<unk> is all about energy and we are experienced in procuring low cost energy both at term and at scale our to send power at Nautilus and abundant low cost power in upstate New York translates into a power cost put bitcoin that is among if not the lowest in the sector.
We are one of only few bitcoin miners that discloses our true power cost each month, and if you check our monthly production and operations reports you will find us unrivaled in this metric.
Third we have organic expansion capability when it comes to bitcoin mining size matters. Our two sites were developed with expansion potential as a key element in everything from a power import capacity to the layout of their warehouses is designed to grow.
We're in the process now of expanding our Lake Merritt facility by another 43 megawatts scalability and adaptability are vital in our linked Mariner and Nautilus facilities at both the time and cost to replicate these facilities is substantial and represent a significant barrier to entry.
Okay.
Fourth we are uniquely aligned with our investors.
As a significant shareholder in terrible myself and the Investor My goals are in complete alignment with yours.
Only the last year I have personally invested over $12 million of my own money and collectively are insiders own approximately 55% of the company's shares why does this matter because you can bet that if we ever did look the stock it will only.
B.
Creatives and in the very best interest of the company and its shareholders.
In short we only win if you will.
Every move from this point forward is about advancing our mission and pushing the boundaries of what is possible.
Our vertically integrated business and our shareholders.
We remain laser focused on scaling mining operations at our existing sites, while opportunistically pursuing strategic opportunities in a financially responsible manner.
Importantly, we believe that not all xa ash is created equal and that the upcoming having it in April is likely to lead to a changing of the guard.
We have positioned ourselves for profitability, both now and post Capex, we look forward to taking advantage of what we expect may happen as the fundamental flaws.
And some of our peers are illuminated an acknowledged by investors.
Tariff is led by an accomplished diverse management team with 30 plus years of experience in developing and managing energy infrastructure.
Our core management team has been together and working side by side with one another for the last 15 plus years.
I believe it is this unique experience and perspective that is paying and we will continue to pay dividends as we build out our operations focused squarely on building shareholder value.
As a fellow shareholder with a material interest in our collective success I want to thank you for your invaluable trust and support as we focus on building the leading mining company.
I will now hand, the call over.
Two our CFO Patrick flurry for a more detailed financial review.
Patrick.
Thank you Paul as Paul highlighted in the beginning of this call tariff performed exceptionally well in Q2 this year showcasing consistent growth both year over year and quarter over quarter.
Notably our production has seen a steady increase in the first half of 2023, resulting in positive operational outcomes reflected in our Q2 financials.
These results demonstrate our continued upward trend in revenue enhanced liquidity and free cash flow positive momentum, we're committed to sustaining moving forward.
Quick reminder, there is a very key difference between our GAAP financials in the monthly operating reports and guidance presented in our July investor presentation.
As a result of our 25% ownership in Nautilus the revenue cost of revenue operating expenses depreciation and amortization at Nautilus are not consolidated into our GAAP financial statements.
Instead, the financial impact of the Nautilus joint venture is reflected in the equity and net loss of Investees net of tax line item on the GAAP income statement.
Diving into the numbers for the second quarter of 2023, we mined 506 bitcoin at Lake Mariner and our net share of mind Bitcoin a novelist was 403 bitcoins for a total of 909, we're about 10 bitcoin per day nearly double our bitcoin production of 533.
Coins in Q1 of this year.
Our revenues so on outstanding growth of over a 1000% compared to the same period last year, reaching $15 5 million and our revenue from hosting also saw a notable rise.
Our revenue per bitcoin this quarter averaged 27912 for a self mining revenue equivalent of $25 3 million as detailed and defined in our monthly operating reports and press release.
Looking now at our gross profit we saw an increase of over 200% to $10 3 million compared to last year's second quarter as well as an increase in our gross profit margin from 57% to 67%.
Our total power cost per Bitcoin mine was approximately 7200 and QQ compared to approximately 8400 in <unk> of this year a decrease of approximately 15% that can be attributed to the full QQ contribution of Nautilus is.
Fixed <unk> tower.
I want to note. These power costs are fully loaded and include taxes capacity fees and transmission costs.
Unlike nautilus power costs do float at our Lake Mariner facility, where we are confident that we will achieve an average annual power cost a four and a half cents per kilowatt hour or lower despite the facility's subjectivity to seasonal power price fluctuations.
Operating expenses remained stable year over year at approximately $1 1 million.
SG&A expenses increased year over year from $6 8 million and <unk> 22 to $8 6 million and <unk> 23. This.
This increase was primarily due to increases of $1 3 million and $1 6 million in stock based compensation and employee compensation and benefits, respectively, offset by decreases of $1 $1 million, and 500000 and legal fees and insurance expenses respectively.
We continue to expect to realize SG&A of about $22 million to $23 million in 2023 per page 12 of our latest investor presentation, which reflects cost savings of over $10 million compared to 2020 twos actual SG&A of about $36 million.
Depreciation for the three months ended June 32023, and 2022 was $6 4 million and 200000, respectively and the increase was primarily due to the increase in mining capacity due to infrastructure constructed and placed into service.
Interest expense for the three months ended June 30 of 2023, and 2022 was $8 5 million and $4 1 million, respectively, an increase of $4 4 million.
The increase in interest expense year over year is primarily due to an increase in the average principal amount outstanding from 123, and a half million dollars in June of 2000 $20 million to $146 million in June of 2023, and an increase in amortization of debt issuance costs and debt discount related to the term loan financing.
Importantly, cash interest paid during the six months ended June 30th 2023 was $11 3 million, which included eight months of interest payments due to accrued interest for the fourth quarter of 2022 paid in January of 2023, and five months of <unk>.
<unk> payments made in the first half of 2023 as interest is paid monthly in arrears as of May 2023.
Equity and net loss of Investees net of tax for the three months ended June 32023, and 2022 was negative $3 3 million of negative $1 1 million respectively. For <unk> 23. This amount includes an impairment loss of $4 6 million on the distribution of miners from Nautilus to the.
Company, whereby the miners were marked to fair value from book value on the date distributed.
The impairment loss was the result of a reduction in the price of the miners between initial purchase and distribution.
The remaining amounts represent terrible proportional share of income or losses of Nautilus, which commenced commercial operations in February 2023.
Our GAAP loss for the second quarter was $17 8 million compared to $13 9 million in the same quarter of last year.
Our non-GAAP adjusted EBITDA for Q2, 'twenty three was $7 6 million, increasing by $14 7 million this quarter over the same quarter last year due to the ramp up of operating capacity at both of our mining facilities.
Turning our attention now to the balance sheet as of June 30th we held $8 2 million of cash with total assets amounting to approximately 300 million and total liabilities of approximately $165 million.
With the achievement of our targeted 160 megawatts and 5.5 extra hash of operating capacity exiting <unk> 'twenty three we anticipate a consistent and rapid reduction in our long term debt moving forward.
Regarding our most recent expansion announcement I'd like to emphasize for a moment just how significant this announcement is terrible.
The purchase of 18500, a bit means latest generation S 19, J X P miners is meaningful not only because it is the first of its kind worldwide, but also because of the significant operating efficiencies. It will drive ahead of next year's having event.
These miners will reduce our unit economic costs mine bitcoin by over 17% immediately.
Come 2024, we believe that our fleet efficiency will be among the most efficient in the sector at $25 seven Jewelsburg carrier ash and when coupled with our realized average power cost of three and a half cents per kilowatt positions us to maximize profits both before and after the having.
For a more detailed analysis of our unit economic costs. Please see page 12 of our latest investor presentation.
In conclusion I hope that during this call today, our financial objectives were made clear and simple Max.
Maximize profits repay debt and return value to shareholders, while providing investors access through transparency and accountability.
With that I'll pass it back to the operator, and I look forward to answering your questions.
Thank you.
Ladies and gentlemen, even in I'll be conducting a question and answer session.
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Ladies and gentlemen, we will wait for a moment, while the question queue assembles.
Our first question comes from the line of Lukas.
Pipes with B Riley's security. Please go ahead.
Yeah. Good morning, everyone. This is Nick childs on for Lucas.
Really really appreciate all the color.
It would be great to just hear an updated view on organic growth opportunities that you have yeah. How should we think about organic growth beyond the next 50 megawatts that you've outlined maybe just from a from a site perspective and timing. Thank you very much.
Hey, Nick it's Patrick and I'm here with Paul.
Good question I think.
As we mentioned.
This expansion, which is about 43 megawatts and then we will also be replayed.
Replacing the machines that we are hosting at Lake Mary nurse about 5000 slots with with the new order.
The S 19, J X piece as well so that's obviously right in front of Boston will be done by year end. We also have an additional 50 megawatts of potential expansion at Nautilus, that's shovel ready.
And then obviously the lake Mariner site can be expanded.
Up to 500 megawatts, if and when we'd want so I think we're as you know we are very focused at staying at sites, where we know and can control power cost I mean that is the number one focus of our team.
And these sites are very scalable theres a lot of economies of scale in this industry as you know and so were pretty pleased with the two sites that we have yeah. The only thing that I'd want to add is we have the team to do that right. Our team's been together 15, 20 years and we've done all sorts of M&A as well.
In the in the energy infrastructure space. So if you look around the public miners in the kind of want to scratch. Your head sometimes some of these deals that have been announced and some of the crazy valuations that people would come to and some of the stock for stock deals that's not going to happen here any acquisition, we do has got to be accretive.
It's got to be right for the business and we have the team with the experience.
To negotiate those deals value them properly and execute on them.
Thank you both for sure for that maybe just just on the M&A front would be great to just maybe get some some additional color. There would you say youre seeing more opportunities come up is as we approach to having.
You know how would you describe the size of some of these opportunities.
Thank you very much.
Yeah sure.
Could start and then Patrick again, our focus is going to be on some of the internal.
Panic, because it's a it's the low hanging fruit and it's the one where.
We don't have to worry about merging teams or other sites that we we don't know quite as well as our own.
But certainly theyre going to be winners and losers covenants that are happening and it's all going to be about you know efficiency and the cost to mind, but it's also about the thesis you know were very rare.
Regulatory sensitive and therefore, we built our business to be focused on zero carbon mining. So anything we do has got to be accretive in gotta be consistent with our thesis, but go ahead, Patrick Yes, Nick I would just add look I think.
You know as we've talked to.
20, something public companies in the space I mean, that's just too many and anybody that's been around commodity markets long enough as seen consolidation whether it was in the early two thousands with the independent power producers of the 'twenty turns with oil and gas companies right. So I think that's a really natural.
As the as the sector becomes more mature there's got to be consolidation in the natural cycle, we haven't bitcoin mining, but having every four years I think will drive that so so certainly a lot of discussions on that front both public private.
But I think the as Paul mentioned, there will be very natural winners and losers post having you know and so I think that will like what our view is we're really getting our house in order and preparing for that event and trying to position the company.
As strongly as we can so that's why there's an emphasis on you know we're now free cash flow positive and paying down debt, so you're going to see us chip away at the debt over the next few quarters to put the company in a really strong position I think going into the habit.
And then I think just one other thing Paul mentioned it I mean, given again, we have such a high ownership.
Of the management board of directors and insiders I mean, we're literally I think over 55% Theres no. Other there's one other peer that has even double digits ownership and so we are very aligned with our shareholders and as Paul pointed out anything that we look at it has to be accretive so.
That is the bar is set very high end and I think for US right now as Paul mentioned, the easiest low hanging accretive route is really expansion at our existing sites.
Got it got it makes sense that thanks again for for those comments.
Congrats on the flip to free cash flow positivity here, maybe just just one last one for me.
Do you have any agreement.
In place with Maine for for minor procurement beyond what you already have contracted you know I I know the relationship is strong there, but just wanted to get a sense for how we should think about minor purchases beyond what <unk> already announced.
Yes. This is Paul we have a great relationship with Maine.
And I really value them I think they think of us in many respects as a partner.
They've helped us.
To scale here, but we don't have agreements that you don't know about I mean, obviously, we'd have to report that but we.
We are constantly evaluating our fleet.
And how we continue to scale, our mining activities and what are the right machines.
But everything that we've contracted for you're aware of and.
Anything going forward would be a new contract and we negotiate the depth to make sure. We got the best deal for our shareholders.
Got it got it well pulp Patrick Thank you so much for all the color and tune the team continued best of luck.
Thanks, Nick Thank you.
Our next question comes from the line of Mike Grondahl with Northland Securities. Please go ahead.
Okay.
Hey, guys congratulations on the progress three.
Three questions for me I'll, just ask them upfront here.
One on the power cost with Lake Mariner is there anything we should think about there sort of late summer fall.
Secondly, Paul I'd kind of love to get your thoughts.
Just on the having in general kind of if you've got a crystal ball kind of what what you think may happen.
And then maybe lastly for for Patrick.
Sort of how are you feeling about the balance sheet.
The debt levels some of the warrants that go with the debt and kind of overall liquidity now that you're generating free cash and there was some.
Some thoughts that maybe you guys were in the market a couple of weeks ago. If you could kind of round that out maybe that would be helpful.
Yeah sure. So I guess, let me let me take those in reverse order Mike just one other last one specialist in our mind.
So look yeah, I think we got a lot of phone calls there were some speculation I think that we were contemplating a capital markets transaction I think what I will say to you and I think you guys are hearing loud and clear from Paul and I and this call is we will not do a dilutive transaction at a big discount to the market those.
Days are past US we are now in a very strong liquidity position you can see our cash building on our June 30 balance sheet. We are now that we have full 160 megawatts and finding out that actually as we are generating free cash flow. We've also given you.
You you that disclosure and our latest presentation. So you can see all of our unit economic costs. So we will you know obviously the board and the management team will look at certainly opportunistic ways to Derisk the company, but again that has to be.
Accretive.
And we would like I said, I mean, just to be really clear and Paul can reiterate we will not do a discounted deal capital markets transaction and a dilutive want those days are behind us. Thank goodness and we are in a position of strength. So.
Mike to your point on liquidity I mean, we feel really good news come a long way.
Those of you that know me I've been here now for about a year and a half and now last year was a very tricky year debt that we navigated and finally got things kind of squared away in February of this year. So no I think now everyone.
A renewed energy and excitement as we kind of hit our target here and are now going on to the next phase in and paying down debt. So if I could just add to that.
I think it's Patrick's job as CFO to constantly evaluate capital markets opportunities from as the market must reads the notion of an evaluation as opposed to.
Doing a deal or not doing a deal. That's just that's just classic retail gossip and it's unfortunate it at times, but the answer is if it's not accretive and ain't going to happen here.
We're certainly not going to sell our stock convenience at a discount you know, it's just not what we wanted to do especially.
Especially in a dilutive transaction or if shareholders had been unbelievably supportive and loyal to us and I have a fiduciary duty to do that so that's the way we're going to go from here on out.
Mike Your other two questions.
The second was I think on the happening for Paul.
Yeah, right and then power costs, just late summer like Mariner and the fall Yeah. Sure go ahead, but you know I don't have a crystal ball and in fact I don't want to have one I think you know.
Sometimes some of our peers in the public miner sector think their investment managers and they want to decide what the direction of bitcoin is gonna be on any given day I'm in the business of binding bitcoin and in that regards you know I think I need to be better than everyone.
Else at it by doing it at the lowest possible cost at the highest possible efficiency.
And it's the largest possible scale.
I think baidu that this company when we go into the having really strong we've come out of it on the other side, making a ton of money naturally I am very constructive with respect to the long term price of bitcoin.
But I think that if we just have them. The most efficient outfit will always make money.
And and we'll be in a position to continue to scale up.
And and and and and then we will have our shareholders went so.
I think you've just got to keep your head to the grindstone and really work at you've got to constantly watch the costs. What's your energy cost you want to you know.
Make sure that you are the most efficient guy out there.
That's all we're doing.
Mike and lastly on your on power question look I think we're coming out of <unk>.
July and August year, where we had a little bit of heat in upstate New York, which is rare. So I think for September October November you know, you'll see our cost I think they're kind of go back to what they were in kind of March April may you know the shoulder months that that's the beauty of Lake Mariner as you know we do get.
A couple of weeks in the summer that are warm and so we have the elevated power cost and you've got a couple of weeks in the winter that or cold, but the beauty right as being you know 25, 30 miles east of Niagara Falls right I mean, the river's running 24 to $3 65. So.
I think we're coming actually out of what has been some higher priced months and will revert back to that that shoulder season. So you should see I think our power price is going to fall meaningfully.
Got it hey, thanks, guys.
Mike I just want to add.
We and our other lives as tower investors and owners had this facility for decades, So we're pretty familiar with the pricing up there.
And we've seen the range of it. So we're very very excited about you know what we think is there is there a cost profile there for energy.
At that facility and it's what makes it really work as a bitcoin mining and it's what made it not work released power supplier because it was it was you know it was right there on the highway the all that green power coming down.
From an accurate so we're pretty bullish on that.
Okay.
Well that's it for me guys. Thanks.
Thank you.
Our next question comes from the line of Josh Fig Law with Cantor Fitzgerald. Please go ahead.
Yeah, Hi, Thanks for taking my questions today, a lot of iron in the buyer right now so definitely wanted to follow up on some things first I'd love to get some more color on the decision to purchase the latest generation brake and Jay He is.
I'm curious have you had initial absolute these rigs and how they're comparing to older legacy rigs and also if you could walk through a little bit around the decision around the payback period for these rigs as well that'll be helpful.
Yeah sure. So I don't know if another.
You are are you able to answer that first part.
And some technical issues there yeah. So.
So Josh let us see if we can get.
<unk>.
One of Wolf's cofounder CLO to kind of answer that first first one but yeah on the second one look I think the short answer is you know every single investment decision. We take we're running you know return on invested capital calc and look that that Cal because you know depends on.
A couple of key items. One is you know equipment cost right. Two is power cost and then three is bitcoin price right and network cash rate and so.
Well I would say when we're looking at equipment now just kind of I would say like any of our peers.
Generally speaking, we want to see any equipment payback term of somewhere between nine and kind of 18 months and so you know.
In addition, I mean, even given the newest generation.
Generation of equipment, I mean, I think generally speaking.
What we use for GAAP and otherwise, but you know the lives of these equipment is probably somewhere in the sort of four to six year range right and so I think we feel like the average life of our equipment given the location and then more temperate zone and we're not obviously using using immersion cool.
Link will be on the longer end of that spectrum, whereas a lot of we think equipment that's used in in <unk>.
Hotter with emerging cooling will have a lower average life. So I would just say those are the parameters that we look at and then NASA are you are you on are enabled to answer that first part its not just we'll get back to you on that.
It was he was doing okay.
Neither.
Yeah.
Hello, Hi.
Hi measure to me here.
Can you hear me.
Good morning, Josh.
So on your first question on testing of the units.
The architecture to similar to the last 19 X P.
And the S 19 X P. We've been running now for quite some time and the results that we've had a L M D and almost both.
Have been very strong.
You've heard in the market that the <unk> have been finicky.
From what we understand a lot of that comes from operations kind of been hotter industrial environments.
Both of our facilities.
Northeast Insular moderate so we've had.
A very strong performance on the xps and the architecture for the Jacks B similar so we are expecting a similar if not better performance out of the jacks piece.
In terms of how we're thinking about it and and as Patrick said.
From a payback perspective.
If you look at you know.
I think the cost of the kind of a 30 jewel Portera hashed machines are particularly as we're kind of getting closer and closer to having us trending you know it's kind of been in that low double digit high single digit range and we expect that to kind of continue to trend downwards closer we get to that.
And the big part of that is just again, just so you know, it's almost a 40% to 50% difference on the efficiency.
Coming into the having that's going to be extremely valuable. So as we've thought about where the market is today and again I think Paul said earlier, you know, we don't have a crystal ball and trying to think through.
So the market will be next year is tricky, but just you know kind of the the price of bitcoin remain in the same range it's been.
And we go through having you know we're expecting somewhere in that 12 to 18 month period payback with execution without crashing and so to the extent that the market does better than that that that window should be shortly but as we think about it you know we're in a kind of a 12 to 18 months payback period, right because of having that new equipment.
Yeah, absolutely I appreciate the color and looking forward to more updates as we start plugging in these regs.
For my follow up I'd actually like to switch gears talk a little bit about the energy demand response programs that you've been testing.
By you know load relief moving forward I was curious if you can give us an update in terms of how that's progressing and potentially what the upside to your energy cost could be.
Now is there do you want to you want to talk about those programs.
So we're currently participating in.
You kept your principal programs.
And both.
Both of those programs depend upon a total capacity of megawatts that we bid into them.
And so this has been the first summer that we've been able to bid in a meaningful amount of capacity into those programs and there's two revenue streams that we get you know one is a effectively a you're right to be called so it's kind of a fixed capacity payment and the second is we earn.
Effectively an energy payment when we are curtailed and so the bulk of the revenue comes from those fixed capacity payments and in in this year.
We're gonna recognize you know I would say kind of you know the way, we think about it as an offset to a total energy costs and that will probably come in somewhere in the.
A low kind of single digit per dollar per megawatt hour level. So as we think about you know there's energy costs, plus our transmission and distribution costs less the revenue that we earn from the demand response and so from this summer we think there'll be an offset kind of in that you know.
Low kind of single digit figure.
Figure in terms of you know when you're thinking about it on a dollar per megawatt hour basis, as we kind of get into next summer and we're able to bid the entire capacity of the facility you know as we've been wrapping them. This.
This summer that number should be in the kind of in that mid mid to high single digits in terms of a dollar per megawatt hour offsets to our total energy costs.
Great. Thank you very much for the color I appreciate it.
Thanks, Josh.
Thank you.
Our next question comes from the line of Stacy <unk> with Stifel. Please go ahead.
The questions.
My first question is just hoping to gain a little bit more color on the quality of the infrastructure assets.
Within the terrible portfolio.
Hoping you'd be able to compare.
The New York and Pennsylvania.
Location.
With other areas other key mining areas in the United States with respect to costs in off time.
While we've seen a lot of curtailment in Texas.
I'm, hoping to get some more color about Ams.
Yes, we love that question Yeah. The first thing is I invite you to come visit our sites.
I think.
You'll walk away with absolute clarity with respect to the Taro Wolf advantage.
Clearly, we believe and regional diversity.
Separately.
We believe.
In zero carbon because I think that ultimately you you've got far greater volatility in fuel resource pricing.
When you're dealing with.
With some of the fossil fuels third off you know.
It's getting kind of crowded really really hot and I think you've seen a real extreme range, it's what happens to the minors when the temperatures become extreme.
And their inability to really be as responsive to the grid.
And how that's driving their efficiency and ultimately their pricing.
So.
You know where to send power Nautilus and as Patrick mentioned earlier.
In the summer for very short period of time, and I mean, we're talking about a couple of weeks, we'll see pricing sensitivities due to climate where temperature.
But that's it and so we're steady Eddie.
And we're low cost and we want to continue to be that way.
Yeah.
Great. Thank you and then my second question is just hoping to get some more color.
With respect to the plans of the $200 million ATM.
Do you foresee any of the proceeds being used towards paying down the term loan.
My understanding is that $40 million will be paid down by April next year in order to continue the cash flow sweep.
Any color you can provide there.
Yeah, Great Great question Bill So yes, so the.
Term loan has to be reduced by $40 million by April of 'twenty 'twenty four for us to kind of keep that free cash flow sweep through the maturity.
Like I said I think given we are now free cash flow positive you guys will start to see that on a quarterly basis, where we sweep that term loan down. So we feel confident that you know around current economics today that that we will achieve that and we'll continue to update you every quarter as we.
Progress on that.
And with regards to the ATM you know I think those that look at our financials, you'll see we did use the ATM a little bit.
You know and we hadn't used it for quite some time before so it is a tool that we have bill and and and you know we'll use it when we think.
It's accretive and in the end.
Our cost of capital as such again that it is accretive but you know unlike many of our peers you will never ever ever see us issue hundreds of millions of dollars on the ATM in the quarter.
That is just.
That's just not our game and we're focused as Paul mentioned on process profitability paying down debt maximizing shareholder value and then obviously returning capital ultimately to shareholders, whether that's in the form of dividends or share buybacks I think we've all been around the energy tower space for a long time.
Time, and I've seen model succeed like the MLP model Master limited partnership and energy and so I think that.
More interesting of a route for us to kind of go down yeah, and I guess, the you know.
The low hanging fruit of this explanation is insiders own over 55% of this company I'm just not interested in diluting shareholders.
Unless it is.
For.
A very legitimate purpose like expansion.
Or or an activity that is accretive.
And and so I think that you can be sure that we will be responsible and judicious with their use of the ATM.
As we have them.
Great. Thank you and if I can just tuck in one more question how is the company looking at kind of.
Weighing the option of.
Hum.
Ramping and scaling the lake Mariner facility to full capacity I think you said 500 megawatts versus you know.
Very concentrated in one region.
Terrible potentially consider other areas.
States are in North America for that matter.
Yeah, So hey, Bill it's Patrick so.
Yeah look and again I think Paul kind of alluded to it in the prior question and you know I don't.
I don't want to pick on any of my peers, but I think we all come from personally I come from a 20 plus year institutional investor background, right and so I think Paul mentioned geographic diversity right. There when I think of commodity companies that I invested in no one not one company that I ever invest in has all of their assets.
In one region right and that's for Reg.
Regulatory reasons pricing reasons, you have to have diverse geographic diversity and so your point I think it's a very good one where where what we see as the best strategy and look we may go to Texas, ultimately and we May go to other regions. I think you know you won't see us in regions of the world.
There is not a definitive rule of law and Theres a regime change all the time, we won't go to those regions, regardless of how cheap the powers. So I think.
We kind of are found.
Between the sort of 15 megawatts.
300 ish megawatts, it's kind of the right size to where you don't have a bulls eye on your back because you're getting tens of millions of dollars in demand response curtailment revenues.
Not enough really to push the grid, one way or the other that's kind of the sweet spot as we all know when you become really big and are having a big impact on the grid that becomes politically untenable, particularly if it's not zero carbon and and you're utilizing fossil fuels. So those are the things that we will be.
Very mindful of Bill as as we look to expand beyond our sites, which is a I think a very natural ultimate.
Place to go for the company, but I don't think we'll do that certainly pre having I think we'll kind of wait and see pick up the pieces. You know I think there'll be a lot of carnage on the other side, Yeah, and I would also add to that but again, it's got to be <unk>.
<unk> with their thesis, which is zero carbon mining.
And you got to manage the risk or the opportunity. If you will of geographic diversity with the knowledge of 10 to 15 years experience at a particular site and or region. So it all goes into our evaluation, but I think.
Going into the having we're very comfortable with the sites, we have plenty of room to grow on them.
Really low cost pricing.
And.
We're scaling not just on the energy side and on the infrastructure side, but on the people side and their experience in building out. These facilities. So I think that's what you'll see from us through that.
Thank you I appreciate the detailed responses and congrats again on the the impressive margins this quarter.
Thank you thanks, Phil.
Thank you.
Our next question comes from the line of my tail left with parabolic venture the holiday. Please go ahead.
Good morning, guys and congratulations on your scale in growth this quarter.
A question for you would you mind opining on the key differences between what our total versus no hardware revenue model is in your sector as it relates to enhancing shareholder value.
I'm sure Mikael.
This is Paul.
I want to be thoughtful in response as an individual investor right, who believes in bitcoin I think you you could buy it put it in your wallet you can buy into an ETF you can buy you know Mike sellers stock you could you could bind to fund.
Their business is all about holding bitcoin.
But I am chairman and CEO of an operating company and the business of Wolf is to mine Bitcoin and we're supposed to mine at a profit.
And I think unfortunately this is lost on some of the other public miners who.
Again, they see themselves either investment managers, maybe they don't know how to operate or maybe their pioneering wizards of AI and high Tech. It's not what we do we are an operating company. We are in the business of mining Bitcoin, we make money our shareholders make money when we mine.
At the lowest cost highest efficiency at scale.
That is our mission, we have the people to do it.
We have the assets or infrastructure to do it.
And since I and I think every member of our management team is right there alongside.
Our investors and shareholders.
Our exclusively incentivized to do it.
Hotaling is you know, it's an investment strategy.
But.
As a CEO with fiduciary duties to two shareholders.
I'm obliged to listen to my CFO , Patrick I take guidance from the board our advisors and I always will try and evaluate what are the best alternatives for our bitcoin.
At this time I'm confident our shareholders are best served by using our bitcoin to facilitate growth and expansion paying down debt.
And after that.
Probably want to look at declaring dividends or distributions I.
I think all of those at this time, a more compelling arguments then hotline.
And I hope that.
The complete response to your questions.
No that was a great response, I, especially like the dividend part up in there. So I hope you guys get there soon and I appreciate the.
The efforts and efficiency are you putting into this business. So thank you.
Thank you.
Ladies and gentlemen, if you wish to ask a question Please press star and one.
Our next question comes from the line of Lucas pipes with B I D Securities. Please go ahead.
Thank you very much operator, and good morning, everyone. Congratulations on all the progress sorry, I had to Argos.
Although some some color earlier, but I caught most of the call really appreciate all the color you provided already a quick follow up question for Patrick just just in terms of your targeted capital structure over time like where do you ultimately.
We'd like to be when it comes to debt equity mix. Thank you very much.
Yeah sure look at so I think.
Definitely as you're hearing us say I mean, the number one focus right now is profitability and then I think we're going to reduce that debt down as much as we can pre having so I think the target is to get that certainly you know well below 100 million.
And then I think.
Beyond that.
You know look I think there's there the reality is right. There were a lot of debt providers to this space that were doing secured financing against machines, they're all gone and I think you know the the the reality is there's just not much debt available out there for the space.
That being said, we have pretty good pretty attractive financing terms mute the high yield market at eight 5% or 300 basis points behind that at 11, 5%, which is pretty good for something deemed scrip, though so.
I think from a rate perspective, and then having some level of debt on the company kind of in the future yeah.
I think that makes sense, but I think the goal right now is again to sort of position us to be playing offense and then a very strong position post having to take advantage of either additional expansion at our sites or you know what I think will be more likely is M&A.
And particularly distressed competitors, you know or just specific sites that we find attractive and so I think you will see our focus over the next few quarters and pre having and we will update you obviously every quarter, but a very important focus on just reducing that debt down to two.
Well below $100 million.
Thank you very much Patrick are.
Your entertainment keep up keep up all the good work. Thank you.
Thank you.
Thank you.
As there are no further questions I'll now hand, the conference silver to Paul Craig Hill for closing comments.
Okay.
Thank you very much.
Again as stated our goal here is to mine bitcoin at the lowest cost highest efficiency at scale.
Insiders are over 55% of the shareholders in this vehicle, we will not be looking to spend money unless it is accretive we have no interest in diluting our own holdings, unless it's accretive and we see a path.
For our collective success.
Thank all of you for your invaluable trust and support as.
As we focus on building the leading mining company.
The entire team and I look forward to speaking to you on our third quarter call in November .
And we are always available any time up until those.
Time.
So again, thanks for attending this morning.
And we appreciate your loyalty to terrible thank you.
Yeah.
The conference off 10 novels, Inc. Has now concluded. Thank you for your participation you may now disconnect your lines.
Okay.
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