Q3 2023 TeraWulf Inc Earnings Call

[music].

Greetings and welcome to the Taro Wolf, Inc, 2023 third quarter earnings call.

Speaker 1: Greetings and welcome to the Tara Wolf, Inc. 2023 third quarter earnings call at this time. All participants are.

At this time all participants are in a listen only mode.

Speaker 1: Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone.

A brief question and answer session will follow the formal presentation.

When should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Speaker 1: It is now my pleasure to introduce your host, Jason Asad, Director of Corporate Communications. Thank you, Mr. Asad. You may begin.

It's now my pleasure to introduce your host Jason Assad director of corporate Communications.

Thank you Mr. Assad you may begin.

Speaker 2: Thank you, operator. Good afternoon and welcome to Terre Will's third quarter 2023 earnings call. Thank you for joining us today for our call with me on today's call 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 risk and uncertainties that we may make additional forward looking statements during the question and answer session.

Thank you operator, good afternoon, and welcome to Terra Walsh third 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, Our Chief Financial Officer, Patrick Florida, 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.

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 well sure the project and similar expressions as they relate to terrible.

Speaker 2: These forward-looking statements are subject to risk and uncertainties, and actual results make different materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, in similar expressions as they relate to terawolf, are such forward-looking statements.

Such forward looking statements investors are cautioned that forward looking statements involve risks and uncertainties, which may cause actual results to differ materially from those anticipated by terrible at this time.

Speaker 2: Investors are cautioned that forward-looking statements involve risk and uncertainties which may cause actual results to differ materially from those anticipated by TeraWolf at this time. In addition, other risks are more fully described in TeraWolf's public funds to the U.S. Securities and Exchange Commission, which may be viewed at sec.gov and in the investors section of our corporate website at www.terawolf.com.

Dish and other risks are more fully described in <unk> public flashed the U S Securities and Exchange Commission, which may be due to S. S. U C dot Gov and in the investors section of our corporate website at Www Dot Sheryl Wolf Dot com.

Speaker 2: Finally, please note that on today's call, we'll refer to certain non-GAAP financial measures. Please refer to our company's periodic reports on Form 10-K and 10-Q and our website for 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 Paul and Patrick, then we'll proceed to Q&A. It's my pleasure to now turn the call over to Terre Wills CEO , Paul Breger. Paul.

Finally, please note that on todays call well refer to certain non-GAAP financial measures. Please refer to our company's periodic reports on Form 10-K, and 10-Q on our website for a full reconciliation of these non-GAAP performance measures to the most comparable GAAP financial measures will begin today's call with prepared remarks from Paul and Patrick and we'll proceed to Q&A.

It's my pleasure to now turn the call over to chairman and CEO Al Prager.

Yeah.

Thank you Jason Good afternoon, everyone and thank you for joining us on our third quarter 2023 earnings call.

Speaker 2: Thank you, Jason. Good afternoon, everyone. And thank you for joining us on that third quarter 2023 earnings call.

Speaker 2: During this third quarter, Tara Wolf continued to take proactive steps to execute on a

During the third quarter Terra Wolf continued to take proactive steps to execute on our strategic growth plan.

Speaker 2: with the goal of reaching 7.9 exahash of Bitcoin mining infrastructure capacity by year end, further positioning the company for long-term sustainable success.

The goal of reaching 7.9 extra half should bitcoin mining infrastructure capacity figure in further positioning the company for long term sustainable success.

Before turning the call over to our CFO, Patrick sorry for a review of our financial results.

Speaker 2: I would like to comment on some recent highlights from our business and on our continued confidence in the year ahead.

I'd like to comment on some recent highlights from our business and our continued confidence in the year ahead.

As a reminder to everyone joining us today terrible mindset going to utilizing predominantly zero carbon energy resources. Two data centers are wholly owned and operated Lake Merritt facility in upstate New York, which utilizes 91% zero carbon grid.

Speaker 2: Terrewolf Mines Bitcoin utilizing predominantly zero carbon energy resources.

Speaker 2: at two data centers, a wholly owned and operated Lake Mariner facility in upstate New York, which utilizes 91% zero carbon grid.

Speaker 2: and the jointly owned 100% nuclear-powered Dauntless facility.

And the jointly owned 100% nuclear powered gobble us facility in Pennsylvania.

Speaker 2: As of September 30th this year, these two industrial-scale projects had a combined self-mining hash rate of 5.5 exahash per second with approximately 50,000 miners deployed.

As of September 30 of this year. These two industrial scale projects had a combined shelf binding cash rate of 5.5 extra half per second with approximately 50000 miners deployed.

Speaker 2: That is more than triple where we were during the same period.

That is more than triple where we were during the same period last year.

Speaker 2: Further, that hash rate, even with difficulty reaching all-time highs, resulted in 994 bitcoins mined during the third quarter. Importantly, our operations are solidly free cash flow positive.

Are there that have rate have you been with difficulty reaching all time highs.

It in 994 Bitcoins mine during the third quarter.

Importantly, our operations are solidly free cash flow positive.

Solidly free cash flow possible.

Speaker 2: During the quarter, there have been many positive headlines for Bitcoin, most notably the anticipation of an imminent approval of the U.S. spot Bitcoin ETF, which has driven a rally in the price

During the quarter there had been many positive headlines for bitcoin, most notably the anticipation of an imminent approval of the U S spot pick quaint E. P F, which has driven a rally in the price of bitcoin.

Speaker 2: Currently, there has been a steady climb to an all-time high in overall network cache rate which continues to spread.

Currently there has been a steady climb to an all time high in overall network has rate, which continues to suppress mining economics.

Speaker 2: So what does this mean for how we are approaching the balance of 2023 and approaching the having?

So what does this mean for how we are approaching the balance of 2023 and approaching the happening next year.

Speaker 2: As energy infrastructure professionals, managing through cycles is fundamental to our

Its energy infrastructure professionals managing through cycles, it's fundamental to our approach and we remain steadfast in our strategy to leverage our resilient low cost infrastructure to maximize profits.

Speaker 2: And we remain steadfast in our strategy to leverage our resilient, low-cost infrastructure to maximize profits, repay debt, and return value to our shareholders.

Repay debt and return value to our shareholders.

In terms of executing our growth initiatives. The late Mariner infrastructure expansion is nearing final stage of construction.

Speaker 2: The Lake Mariner infrastructure expansion is nearing the final stage of construction.

Speaker 2: The third building is ready for racks to be installed, and we are advancing other preparatory works so that as miners are delivered, they can be racked and online without delay. Once fully energized, this 43-megawatt expansion will bring the company's total self-mining hash rate capacity to 7.9x.

Third building is ready for wax to be installed and we are advancing other preparatory works. So that as miners are delivered they can be whacked in online without delay.

Once fully energized. This 43 megawatt expansion will bring the company's total self mining halfway capacity.

7.9 actually ask for a second.

Speaker 2: or more than 200 megawatts of Bitcoin mining capacity.

Or more than 200 megawatts, a bitcoin mining capacity.

Speaker 2: That translates into a 58% increase in the company's total self-financing.

That translates into a 58% increase in the company's total self binding actually.

Speaker 2: Importantly, and I cannot emphasize this enough.

Importantly, and I cannot emphasize this enough.

Speaker 2: We will continue to prioritize accretive and capital efficient infrastructure investment and manage future capital outlays for mining equipment in a responsible manner to remain nimble during challenging markets and avoid unnecessary dilution to our future.

We will continue to prioritize accretive and capital efficient infrastructure investment and manage future capital outlays for mining equipment in a responsible manner to remain nimble during challenging market and avoid unnecessary dilution to our shareholders.

Speaker 2: To that end, we have strategically structured M-minus purchase agreements in a capital efficiency

Did that and we have strategically structured at minus purchase agreement in a capital efficient manner to enable the company the flexibility to monetize to pause and defer payment obligations early in the third quarter, we announced the purchase of 18500 S 19, Jacks B bitcoin.

Speaker 2: to enable the company the flexibility to monetize deposits and defer payment obligations.

Speaker 2: Early in the third quarter, we announced the purchase of 18,500 S19-JXP Bitcoin mining machines from Bitmain, which are targeted

Machines from bit Nate.

Which are targeted to be delivered next month.

Speaker 2: preserve liquidity and avoid excessive dilution. We plan to convert our deposits on this purchase order.

Preserve liquidity and avoid excessive dilution.

To convert at deposits on the sports disorder and <unk>.

Roughly 5500 machines and will host to own the remaining 13000 machines forbidden me at a hosting fee of approximately 7.8 cents per kilowatt hour.

Speaker 2: and will host to own the remaining 13,000 machines for Bitmain at a hosting fee of approximately $0.078 per kilowatt hour.

Speaker 2: The company retains the option to purchase the remaining miners at any time and currently expects to complete purchase of the balance of all 13,000 machines by the fourth quarter.

Company retains the option to purchase the remaining minor jet anytime and currently expect to complete purchase of the balance of all 13000 machines by the fourth quarter 2024.

Speaker 2: We believe this arrangement not only reflects as strategic relationship with Bitmain, but also underscores as strategy to prudently invest in infrastructure while opportunistically expanding our mining fleet, thereby maximizing revenue potential to every dollar spent while avoiding unnecessary dilution at depressed share price levels.

We believe this arrangement not only reflect our strategic relationship with Maine, but also underscores our strategy to prudently invest in infrastructure, while opportunistically expanding our mining fleet, thereby maximizing revenue potential for every dollar spent.

While avoiding unnecessary dilution at depressed share price levels.

Speaker 2: To reiterate, the fact that we could plug all 18,500

To reiterate the fact that we can plug all 18500, that's 19 jacks B miners in building three immediately highlights the benefits of owning and prioritizing the development of our data center infrastructure, which then enables us to undertake these types of agreements without the.

Speaker 2: S19 JXB miners into building three immediately highlights the benefits of owning and prioritizing the development of our data center.

Speaker 2: which then enables us to undertake these types of agreements without the incurrence of meaningful upfront capital.

Encourage a meaningful upfront capex.

Speaker 2: Once these new machines are fully self-deployed, Terrol will have one of the most efficient and profitable mining fleets in the sector. By combining a

Once these new machines are fully felt at this point Carol will have one of the most efficient and profitable mining fleets in the sector.

By combining our fleet wide efficiency of 25.7, Jules precarious and a realized average power cost.

Speaker 2: 25.7 joules per terahash and a realized average power cost of three and a half

Three and a half cents per kilowatt.

Speaker 2: With that said, I'd like to pass it over to our CFO , Patrick Flurry, to further discuss our financials and results from the

With that said I'd like to pass it over to our CFO, Patrick flurry to further discuss our financials and results from the quarter.

Thank you Paul tariff performed exceptionally well in the third quarter, particularly as the summer months are seasonally the most challenging operating environment. However, the advantageous location of our assets in the north Eastern United States means we are blessed with temporary conditions limited high heat events and curtailments.

Speaker 3: Thank you, Paul. Tariff performed exceptionally well in the third quarter, particularly as the summer months are seasonally the most challenging operating environment. However, the advantageous location of our assets in the northeastern United States means we are blessed with temperate conditions, limited high heat events and curtailments, and less wear and tear on our miners versus our peers located in the southern U.S.

And less wear and tear on the miners versus our peers located in the southern U S D.

Speaker 3: The operating teams at Lake Mariner and Nautilus did an outstanding job of optimizing performance of our mining rigs, resulting in positive financial improvements reflected in our Q3.

The operating teams at Lake Mariner and Nautilus did an outstanding job of optimizing performance of our mining rates, resulting in positive financial improvements reflected in our Q3 financials.

Speaker 3: As Paul mentioned, with 5.5x a hash of operating capacity online for the entirety of the third quarter, we realized solid free cash flow generation with a debt repayment of approximately $7 million.

As Paul mentioned with five and a half X a hash of operating capacity online for the entirety of the third quarter, we realized solid free cash flow generation with a debt repayment of approximately 7 million.

Speaker 3: Before diving into the numbers for the quarter, a quick reminder, there is a key difference between our GAAP financials and the monthly operating reports and guidance presented in our investor presentation.

Before diving into the numbers for the quarter. A quick reminder, there is a key difference between our GAAP financials and the monthly operating reports and guidance presented in our investor presentation.

Speaker 3: 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 statement.

As a result of our 25% ownership in Nautilus the revenue cost of revenue operating expenses depreciation and amortization and 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 income.

Speaker 3: Instead, the financial impact of the Nautilus joint venture is reflected in the equity in net income and loss of investee net of tax line item on the gap income.

And loss of Investees net of tax line item on the GAAP income statement.

Speaker 3: In the third quarter of 2023, we mined 624 Bitcoin at Lake Mariner, and our net share of mined Bitcoin at Nautilus was $370.

In the third quarter of 2023, we mined 620 for Bitcoin and Lake Mariner and our net share of mind Bitcoin and Nautilus was 370 bitcoin for a total of 994 bitcoin or about 11 bitcoin per day, and a 10% improvement over the 908 the coin mined in Q2.

Speaker 3: for a total of 994 Bitcoin, or about 11 Bitcoin per day, and a 10% improvement over the 908 Bitcoin mined in 2Q20.

23.

Speaker 3: Our GAAP revenues also saw outstanding growth of 23% quarter over quarter reaching $19 million in 3Q23 from $15.5 million in 2Q2.

Our GAAP revenues also saw outstanding growth of 23% quarter over quarter, reaching 19 million to meet you 23 from $15 5 million in Q2 'twenty three.

Speaker 3: Our value per Bitcoin self-mined this quarter, a non-gap metric that includes Bitcoin mined at Nautilus, averaged $28,104 per Bitcoin for a total of $27.9 million, as detailed and defined in our monthly operating reports and press releases.

Our value per bitcoin self mine this quarter, our non-GAAP metric that includes a bitcoin mined at Nautilus averaged 28104 per bitcoin for a total of $27 9 million as detailed and defined in our monthly operating reports and press release.

Speaker 3: Looking now at our gross profit, we saw an increase of 3% quarter over quarter from $10.3 million in QQ23 to $10.6 million in 3Q23.

Looking now at our gross profit, we saw an increase of 3% quarter over quarter from $10 3 million in Q2, 'twenty three to $10 6 million and three Q23.

Speaker 3: Our total power cost per Bitcoin mined, a non-gap metric that includes Bitcoin mined at Nautilus, was $9,322 in 3Q23 compared to $7,197 in 2Q23.

Our total power cost per Bitcoin mine, a non-GAAP metric that includes bitcoin minded Nautilus was 9322 and three Q twenty-three compared to 7197 and <unk> 23, as a reminder, in our GAAP financials. Unlike our monthly operating reports the cause.

Speaker 3: As a reminder, in our GAAP financials, unlike our monthly operating reports, the company records proceeds received and to be received for demand response programs as a reduction in cost of revenue. These expected proceeds totaled $1.7 million in 3Q22.

Company Records proceeds received and to be received well demand response programs as a reduction in cost of revenue.

These expected proceeds totaled $1 7 million and <unk> 23.

Operating expenses remained stable quarter over quarter at approximately $1 2 million.

Speaker 3: Operating expenses remain stable quarter over quarter at approximately $1.2 million.

Speaker 3: SG&A expenses increased quarter over quarter from $8.6 million in Q2-23 to $10.3 million in 3Q-23.

SG&A expenses increased quarter over quarter from $8 6 million in Q2, 'twenty three to $10 3 million and <unk> 23.

Speaker 3: The increase was primarily due to an increase in non-cash stock compensation due related party for achieving a performance milestone.

The increase was primarily due to an increase in noncash stock compensation due related party for achieving a performance milestone.

Speaker 3: We are on track to achieve approximately 6 million of SG&A savings year over year, and I'm confident we can continue to drive down costs.

We are on track to achieve approximately $6 million of SG&A savings year over year and I'm confident we can continue to drive down costs. We.

Speaker 3: We are committed to achieving savings of $10 million relative to 2022. We have a number of cost-saving initiatives underway and remain steadfast in our objective to achieve these savings as we move into 2022.

We are committed to achieving savings of $10 million relative to 2022, we have a number of cost saving initiatives underway and remain steadfast in our objective to achieve these savings as we move into 2024.

Depreciation increased modestly quarter over quarter from $6 4 million.

Speaker 3: Depreciation increased modestly quarter-over-quarter from $6.4 million in 2Q23 to $8.2 million in 3Q21.

In Q2, 'twenty three to $8 2 million and three Q twenty-three the quarter over quarter increase was the result of an increase in mining capacity and infrastructure placed into service in the middle of <unk> 23.

Speaker 3: The quarter over quarter increase was the result of an increase in mining capacity and infrastructure placed into service in the middle of 2Q20.

Speaker 3: In 3Q23, we recorded a loss on disposal of property, plant, and equipment of $0.4 million related to disposals of miners at Lake Mariners.

And <unk> 23, we recorded a loss on disposal of property plant and equipment.

Point 4 million related to disposals of minors at like Mariner.

Speaker 3: Gap interest expense in 3Q23 was $10.3 million, which includes cash interest expense and amortization of debt issuance costs and debt discount related to the term loan financing.

GAAP interest expense and <unk> 23 was $10.3 million, which includes cash interest expense and amortization of debt issuance cost and debt discount related to the term loan financing.

Speaker 3: However, cash interest paid during the three and nine months ended September 30th, 2023 was $4.3 million and $15.5 million respectively.

However, cash interest paid during the three and nine months ended September 30th 2023 was $4 3 million and $15 $5 million, respectively, notably cash interest paid during the year to date nine month period actually include 11 months of interest payments due to accrued interest for the <unk>.

Speaker 3: Notably, cash interest paid during the year-to-date nine-month period actually includes 11 months of interest payments due to accrued interest for the fourth quarter of 2022 paid in January 2023 and eight months of interest payments made in 2023 as interest is paid monthly in arrears as of May 2023.

Fourth quarter of 2022 paid in January 2023, and eight months of interest payments made in 2023 as interest is paid monthly interferes as of May 2023.

Speaker 3: In 3Q23, we reported $0.9 million in equity and net income of investee, net of tax, as compared to negative $3.3 million in 2Q23.

And <unk> 23, we reported 0.9 million in equity and net income of Investees net of tax as compared to negative $3 3 million and <unk> 23.

Speaker 3: These amounts represent Terrell's proportional share of income or losses of the Nautilus joint vendor.

[noise] amounts represent terrible proportional share of income or losses of the Nautilus joint venture.

Speaker 3: Our gap net loss for the third quarter was $19.4 million, compared to a net loss of $17.8 million in QQ20.

Our GAAP net loss for the third quarter was $19 4 million compared to a net loss of $17 8 million and <unk> 23.

Speaker 3: Our non-gap adjusted EBITDA for 3Q23 was $9 million, an 18.5% improvement over $7.6 million in 2Q22.

Our non-GAAP adjusted EBITDA for three Q twenty-three was $9 million, an 18, 5% improvement over $7 6 million in Q2, 'twenty three and year to date 2023, adjusted EBITDA was $14 3 million.

Speaker 3: And year-to-date 2023 adjusted EBITDA is $14.3 million.

Speaker 3: Turning our attention now to the balance sheet, as of September 30th, we held $6.6 million in cash, with total assets amounting to $312 million and total liabilities of $150 million.

Turning our attention now to the balance sheet as of September 30th we held $6 6 million in cash with total assets amounting to $312 million and total liabilities of 158.

Speaker 3: With the achievement of our targeted 160 megawatts and five and a half extra hash of operating capacity exiting QQ23, we anticipate a consistent and rapid reduction in our long-term debt moving forward.

With the achievement of our targeted 160 megawatts and five and a half X a rash of operating capacity exiting Q2, 'twenty three we anticipate a consistent and rapid reduction in our long term debt moving forward.

Speaker 3: Furthermore, year-to-date, we have reduced our net working capital, excluding the current portion of long-term debt, from approximately negative $60 million at December 31st, 2022, to approximately negative $19 million as of September 30th, a substantial improvement, and one which will continue to normalize in the fourth quarter.

Furthermore year to date, we have reduced our net working capital excluding the current portion of long term debt from approximately negative $60 million at December 31, 2022 to approximately negative $19 million as of September 30th a substantial improvement and one which will continue to normalize in the fourth.

Quarter.

Speaker 3: As I've mentioned in previous quarters, you may note from our balance sheet that we do not hold our Bitcoin in Treasury, but rather execute a monetize-what-we-mine strategy, whereby we liquidate Bitcoin to pay operational expenses, and capital expenses, and overhead as needed, rather than dilute shareholders to fund these.

As I've mentioned in previous quarters. You mean, you may note from our balance sheet that we do not hold our bitcoin in treasury, but rather execute a monetize what we mine strategy, whereby we liquidate bitcoin to pay operational expenses and capital expenses and overhead as needed rather than do.

Shareholders to fund these costs.

Speaker 3: Our job as a bitcoin miner is to continue to mine bitcoin more efficiently and profitably than any of our peers and return that profit to shareholders in the form of debt paydown, organic growth, or dividends and share buybacks, not by hodling. As a 23 year veteran of Wall Street and longtime institutional investor in the energy power and commodity.

Our job as a bitcoin miner is to continue to mine bitcoin more efficiently and profitably than any of our peers and return net profit to shareholders in the form of debt pay down organic growth or dividends and share back buybacks not buy hold or.

That's a 23 year veteran of Wall Street, and long time institutional investor in the energy power and commodity sectors I find the whole strategy to be a simple marketing ploy, allowing peer management teams to gamble with shareholders' money.

Speaker 3: I find the HODL strategy to be a simple marketing ploy, allowing peer management teams to gamble with shareholders' money. What commodity business in the world, copper, coal, gold, oil and gas, mines a commodity and doesn't sell it because they think or speculate that prices will be higher in the future?

What commodity business in the world copper coal gold oil and gas mind, a commodity and doesn't sell it because they think or speculate that prices will be higher in the future.

Speaker 3: With Bitcoin ETFs likely available to the masses in 2024, thereby providing exposure to the price of Bitcoin, we believe the HODL strategy will soon be antiquated and not in shareholders' best interest.

With bitcoin Etfs likely available to the masses in 2024, thereby providing exposure to the price of bitcoin. We believe the hurdle strategy will soon be antiquated and not in shareholders best interests.

Speaker 3: Investors should own Wolf equity because number one, they're aligned with management, the board, and insiders owning roughly 50% of the company's equity. And number two, as an operating mining company, Wolf can mine Bitcoin more efficiently and profitably than any of our peers and return that profit to shareholders in the form of debt paydown, organic growth, or dividends and share.

Investors should own Wolf equity because number one they're aligned with management the board and insiders owning roughly 50% of the company's equity and number two as an operating mining company Woolskin mine bitcoin more efficiently and profitably than any of our peers and return that profit to shareholders in the form of debt paid.

Down organic growth or dividends and share buybacks not by holding my recommendation to the board will always be to monetize what we mined and distribute profits via dividend similar to the MLP Master limited partnership model in the energy industry.

Speaker 3: not by hodling. My recommendation to the board will always be to monetize what we mine and distribute profits via dividends similar to the MLP or master limited partnership model in the NRP.

Speaker 3: Lastly, with regard to our ATM and further to Paul's commentary on prioritizing accretive growth, since September 30th, we issued only 4.6 million shares for net proceeds of 5.3 million, as we do not think our current stock price represents fair market value for the company, and with 50 percent insider ownership, have no interest in material dilution of these.

Lastly, with regard to our E T M and further to Paul's commentary on prioritizing accretive growth.

On September 30th we issued only $4 6 million shares for net proceeds of $5 3 million as we do not think our current stock price represents fair market value for the company and with 50% insider ownership have no interest in material dilution at these levels in.

Speaker 3: In conclusion, I hope that during this call today our financial objectives will make clear and

In conclusion, I hope that during this call today, our financial objectives and made clear and simple.

Speaker 3: maximize profits, repay debt, and return value to shareholders while providing investors access through transparency and accountability.

Maximize profits repay debt and return value to shareholders, while providing investors access to transparency and accountability.

Speaker 3: With that, I'll pass it back to Paul and look forward to answering your questions. Thanks, Patrick.

That I'll pass it back to Paul and look forward to answering your questions.

Thanks, Patrick.

To summarize what we've discussed today we are.

Speaker 2: We are executing on the objectives we have communicated to the market.

We're executing on the objectives, we have communicated to the market.

Speaker 2: We remain confident in the strength of the business and our growth process.

We remain confident in the strength of the business and our growth prospects.

Speaker 2: and we look forward to sharing additional operational updates in the future. Before we conclude today's remarks, I want to address our balance sheet and current valuation, as I believe that

Look forward to sharing additional operational updates in the future.

Before we conclude today's remarks, I want to address our balance sheet and current valuation as I believe they go hand in hand.

With free cash flow generated in the third quarter, we have reduced our debt to approximately $140 million, which I believe is certainly manageable in the context of our cash flow expectations.

Speaker 2: We've reduced our debt to approximately $140 million.

Speaker 2: which I believe is certainly manageable in the context of our cash flow expectations.

We also have no mandatory amortization until April 2024, and more likely until maturity of the loan.

Speaker 2: until April 2024 and more likely until maturity of the loan well past the halving if we achieve an incremental $33 million of principal pay down by

<unk> passed that having if we achieve an incremental $33 million of principal pay down by April.

Speaker 2: To put this in context, assuming the Bitcoin price of $35,000 and current network...

To put this in context, assuming a bitcoin price of 35000 and current network difficulties, we expect to sweep an incremental $30 million by end of the first quarter of 2024.

Speaker 2: We expect to sweep an incremental $30 million by end of the first quarter of 2021.

Speaker 2: And assuming a Bitcoin price of $40,000, the incremental paydown would be closer to $40 million by the end of the first quarter of 2021.

And assuming a bitcoin price of 40000, the incremental pay down would be closer to $40 million by the end of the first quarter of 2024.

Speaker 2: We are fortunate to have a seasoned and constructive lender group that has consistently and continuously demonstrated their support for the company's business by agreeing to modify the terms of the credit agreement to provide more liquidity and flexibility.

We are fortunate to have a seasoned and constructive lender group that has consistently and continuously demonstrated their support for the company's business.

By agreeing to modify the terms of the credit agreement to provide more liquidity and flexibility.

Speaker 2: I expect these collaborative efforts to continue, particularly as our lenders are highly incentivized to see our share price perform, given they own 15 percent of the fully diluted equity of the company.

I expect these collaborative efforts to continue particularly as our lenders are highly incentivized to see our share price perform given they own 15% of the fully diluted equity of the company.

Speaker 2: My executive team has managed through multiple power and credit cycles over the last 20 years, and I believe the company has several options with regard to considering our debt.

My executive team has managed through multiple power and credit cycles over the last 20 years and I believe the company has several options with regard to considering our debt.

Speaker 2: To reiterate, investors should consider the following.

To reiterate investors should consider the following.

Speaker 2: One, lenders are incentivized to see our share price perform given their sizable equity ownership.

One <unk>.

<unk> are incentivized to see our share price performed given their sizable equity ownership stake.

Speaker 2: Two, our lender group has proven to be supportive and constructive, having agreed to several amendments to increase the company's liquidity and flexibility.

To our lender group has proven to be supportive and constructive having agreed to several amendments to increase the company's liquidity and flexibility.

Sorry.

Speaker 2: Free cash flow will likely enable a reduction of close to $40 million in principal by April 2024.

Free cash flow will likely enable a reduction of close to $40 million of principal by April 2024.

Four.

NASA Con my COO and co founder and I own a portion of the debt a meaningful portion of the debt and we are studying the possibility of seeking a waiver from our lenders to convert to equity.

Speaker 2: Nazar Khan, my COO and co-founder and I own a portion of the debt, a meaningful portion

Speaker 2: And we are studying the possibility of seeking a waiver from the lenders to convert to equity at a premium to the current stock price.

Premium to the current stock price and principle I'm entirely comfortable coming out of a senior secured position to own equity alongside you our investors and terrible.

Speaker 2: In principle, I'm entirely comfortable coming out of a senior secured position to own equity alongside you, our investors, in Terawolf.

Five debt provides operating leverage and at 11, 5%. Our term loan is attractively priced relative to the high yield bond index of around nine 5%.

Speaker 2: Debt provides operating leverage, and at 11.5%, our term loan is attractively priced relative to the high-yield bond index of around 9.5%. With regard to...

With regard to valuation in no uncertain terms I believe terrible is undervalued relative to our peers we.

Speaker 2: I believe Terrewolf is undervalued relative to our peers. We are currently trading.

We are currently trading at a significant discount.

Speaker 2: as your fellow shareholder, with a material interest in our collective success, is frustrating.

As your fellow shareholder with a material interest in our collective success. This frustrates me entirely.

Speaker 2: However, I believe our valuation discount will narrow over time as we continue to perform and de-level.

However, I believe our valuation discount will narrow over time as we continue to perform and delever in.

Speaker 2: In the meantime, we will remain focused on growing the company accretively, including evaluating public and private M&A.

In the meantime, we will remain focused on growing the company accretively, including evaluating public and private M&A accrete.

Speaker 2: Creative growth reduces our cost to mine a Bitcoin and increases free cash flow.

Accretive growth reduces their cost of mine of bitcoin and increases free cash flow.

Speaker 2: In closing, I want to personally thank you for your invaluable trust and your investment.

In closing I want to personally. Thank you for your invaluable trust and your investment and your support as we build the leading sustainable Bitcoin mining company.

Speaker 2: your support as we build the leading sustainable Bitcoin mining company.

With that.

I'm prepared to open the call for questions operator.

Thank you.

Speaker 1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tool will indicate that your line is in the question queue.

We will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate that your line is another question Kim.

You May press star two if you'd like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment.

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One moment, please while we poll for questions.

Thank you.

Speaker 1: Our first question comes from the line of Josh Sigler with Cancer Fitzgerald. Please proceed with your question.

Our first question comes from the line of Josh Sigler with Cantor Fitzgerald. Please proceed with your question.

Speaker 4: Yeah. Hi, guys. Good evening. Thanks for taking my call today. I guess, first of all, I'd like to better understand the unit economics of this host-to-own agreement. So, I believe on the prepared remarks, you mentioned it would be 7.8 cents. Does that include a power cost flow?

Yeah, Hi, guys. Good evening, Thanks for taking my call today, I guess first of all I'd like to better understand the unit economics of this host to own agreement. So I believe on the prepared remarks, you mentioned that would be 7.8 cents does that include a.

Power power.

Hospital it through.

Speaker 3: Hey, Josh, it's Patrick and I got the whole management team here with me as well. No, so that's all in.

Hey, Josh, it's Patrick and I got the whole management team here with me as well no. So that's all in.

Speaker 3: So, it's effectively, you know, it's effectively fixed and then, as you know, our power cloth at Lake Mariner floats. And so.

Secondly, you know is effectively fixed and then as you know our power cost at Lake Mariner flows.

And so.

That's how it works.

Speaker 4: Okay. Understood on that front. And then when we're thinking about, you know, debt pay down as well as the potential option to purchase these rigs, given kind of the free cash flow sweep, I was curious if you expect to purchase any before really the back half of 24 in addition to the 5,500 or so.

Okay understood on that front and then when we're thinking about you know debt pay down as well as the potential option to purchase these rigs.

Given kind of the free cash flow sweep I was curious if you expect to purchase any before really the back half of 'twenty. Four in addition to the 500 or so.

Okay.

Yes.

Speaker 3: So I think what, you know, Josh, we're trying to message there is, you know, we think we're undervalued vis-a-vis the peers. And as we've kind of harped on time and time again, you know, we're focused on accretive growth. And so.

So I think but you know Josh we are trying to message. There is we think we're undervalued vis vis our peers in and as we've kind of harped on time and time again, we're focused on accretive growth and so.

Speaker 3: You know, I think you can look at various valuation metrics and see kind of, you know, where we might see accretion, right? And I guess what we're indicating to you is it's not here at $1 or sub $1.

I think you can look at various valuation metrics and see kind of where we might see accretion right and I guess, what we're indicating to you is it is not here at a dollar or so all of the dollar.

Speaker 3: Um, and so, you know, I think at, at the market.

And so you know I think as the market unfolds here, we have the option at any point in time, if we think it's accretive to add those machines in and we could add one machine or we can add thousands of machines and so I think as we move forward, we'll see kind of what happens with the market and what happens with our valuation.

Speaker 3: unfolds here, you know, we have the option at any point in time, if we think it's accretive, to add those machines in. And, you know, we could add one machine or we could add thousands of machines. And so I think as we move forward, you know, we'll see kind of what happens with the market and what happens with our valuation.

Speaker 4: Okay, understood on that front. If I could just sneak one more in real fast. I was curious if you could give us an idea on how you're thinking about the cost of power at the Lake Mariner site as we head into the winter months here.

Okay, I understand that Brian.

If I could just sneak one more in real fast.

I was curious if you could give us an update on how youre thinking about the cost of power is the lake Mariner side as we head into the winter months here.

Yeah look I think our guidance rate has been.

Speaker 3: Yeah, look, I think our guidance right has been, you know, four and a half cents there at Lake Mariner and then obviously two cents fixed for five years at Nautilus.

Four five cents there at like Mariner and then obviously <unk> fixed for five years and Nautilus I think you know you can see in our results I would say we are trending below four and a half cents.

Speaker 3: I think, you know, you can see in our results, I would say we are trending below four and a half cents.

Speaker 3: at Lake Mariner and I think Josh also, as you've probably seen in our monthly operating reports.

Mariner I think Josh also as you've probably seen in our monthly operating reports versus our GAAP financials, we do disclose our demand response proceeds in the 10-Q and then the GAAP figures. It's a reduction of our cost of revenue. So when you take into account I think are really.

Speaker 3: versus our GAAP financials, we do disclose demand response proceeds in the 10-Q and in the GAAP figures. It's a reduction of our cost of revenue. So when you take into account I think our realized

<unk> Powerplay price plus those demand response revenues and I think generally speaking we're coming in below that four five cents.

Speaker 3: power place price plus those demand response revenues and I think generally speaking we're coming in, you know below that four and a half cents Great

Great I appreciate your answers thanks very much.

Thanks, Josh.

Speaker 1: Thank you. Our next question comes from the line of Chase White with Compass Point. Please press star 1.

Thank you. Our next question comes from the line of Chase White with Compass point. Please proceed with your question.

Speaker 5: Thanks for taking my question, guys. How much CapEx do you guys have left in the Lake Mariner expansion in terms of just the infrastructure? And how do you expect that?

Thanks for taking my question guys.

So how much Capex do you guys have left on the Mariner east expansion in terms of just the infrastructure.

And how do you expect that to be split between <unk> and then I have a follow up thanks.

Yeah, Hey, a J. Thanks.

Speaker 3: Yeah, hey, Chase. Thanks for your question. So, I would say minimal remaining on Lake Mariner from an infrastructure perspective. It's really, at this point, just the minus.

To your question, so I would say minimal remaining.

On like manner from an infrastructure perspective, it's really at this point just a minor purchase.

Speaker 3: which, like we said, it's deferred into 2020.

But like you said, it's deferred into 2024.

Okay.

Got you that's helpful and.

Speaker 5: And, you know, any updates on the potential 50-megawatt expansion on Nautilus?

Any updates on the potential a 50 megawatt expansion on Nautilus is like is there any internal timeframe for making that decision and where does your JV JV partner stand on the issue.

Speaker 5: Is there any internal time frame for making that decision and where does your JV partner

Speaker 5: Yeah, so I'm just looking around the management team here and seeing if Nazar wants to comment. But I think in general, you know, nothing as of today. I don't know Nazar if you want to add to that. Hey Chase, it's Nazar here. That's correct, as of now, we haven't built out a schedule for that.

Yeah, So I.

Just looking around the management team here and seeing that the NASA wants to comment, but I think in general.

Nothing as of today I don't know they're feeling.

Hey, Jason it's not over here.

As of now.

We haven't built out a schedule for that.

Speaker 6: So in the near term, we see a lot more opportunity at the Lake Mariner site to expand. You know, we've put up Building 3, which is a 43 megawatt building. Building 4 is on the drawing board as well, which we could deliver in April or May of next year. So to the extent that we add another expansion beyond Building 3, it will likely be at the Lake Mariner facility before Nautilus.

The 50 megawatt expansion at the site and so in the near term, we see a lot more opportunities like Brown are set to expand you know we've put up building three which is a 43 megawatt building a building for us on the drawing board as well, which we can deliver.

April or may of next year, so to the extent that we add another expansion beyond building three there will likely be at the low credit facility before are anomalous.

Okay.

Got it thanks.

Speaker 1: Thank you. Our next question comes from the line of Lucas Pipes with B. Riley Securities. Please proceed with your question. Thank you.

Thank you. Our next question comes from the line of Lucas pipes with B Riley Securities. Please proceed with your question.

Thank you very much operator, good evening, everyone hi, good.

Good job.

Speaker 7: Paul, my first question is on the remarks and your prepared comments with the debt to equity.

Paul My first question is on your.

The remarks in your prepared comments.

With the debt to equity exchange.

You mentioned some some details there I couldn't catch all of them you mentioned a potential premium just wondered if you could maybe go back and revisit that and maybe also quantify.

Speaker 7: I couldn't catch all of them. You mentioned a potential premium. Just wondered if you could maybe go back and revisit that and maybe also quantify how much could...

How much could be exchanged thank you very much for any additional color.

Speaker 2: Hi, so Nazar and I own.

Hi, so NASCAR than I am.

Speaker 2: You know, I would guess around $10 million worth of the debt. I think that we're very comfortable and we are exploring the notion of.

You know I would guess around $10 million worth of the debt I think that.

We're very comfortable and we are exploring the notion of seeking.

Speaker 2: seeking a waiver from our lenders so that we could convert that debt into equity. We would want to do it at a premium to the market, meaning we think Airstock is so undervalued. I don't think it'd be right for us to come in.

Seeking a waiver for merrell lenders, so that we could convert that debt into equity.

We would want to do it at a premium to the market, meaning we think our stock is so undervalued I don't think it would be right for us to come in.

Speaker 2: at the current market price and we would expect to come in at a meaningful premium.

At the current market pricing.

We would expect.

To come in at a meaningful premium.

But that's something that the board has to negotiate.

Speaker 2: But that's something that the board has to negotiate. And we'd also have to get approval from our lenders to do that. But I'm inclined, I like.

And we'd also have to get approval from our lenders to do that but I'm inclined.

I like it.

Speaker 7: I like that trade a lot in the context of being further invested alongside the other shareholders.

I like that trade a lot in the context of being further investors alongside the other shareholders.

That's.

That's very helpful. Thank you Paul.

My My second question. This is sort of a little bit more on the industry.

Speaker 7: little bit more on the industry. With the halving around the corner, you mentioned M&A.

I wonder kind of with which to having around the corner you mentioned M&A.

Earlier.

Speaker 7: Is there a preference for infrastructure over...

Is there a preference for infrastructure over.

Speaker 7: Minors, is it equal, if you had to go long one or the other, which one would you choose or neither? We would appreciate it.

Miners is it equal if if you had to go long one or the other way, which one would you choose or or neither would appreciate your thoughts on that thank you.

Yeah.

Speaker 3: Yeah, I think, you know, hey, Lucas, it's Patrick. I'll answer that quickly and then looking around the room here. I know Nazar has a strong view on this, but I think we've been pretty public with our view that, you know, not all exahash is created equal. And so, as you know, you know, power is the number one cost input here. And.

Yeah, I think you know hey, Lukas, it's Patrick I'll answer that quickly and then looking around the room here is I know knows or has a strong view on this but I think we've been pretty.

Public with our view that not all ex ash is created equal and so as you know power is the number one cost input here and.

Speaker 8: you know, when you look at our unit economic structure, we have very low power.

When you look at our unit economic structure, we have very low power.

Speaker 8: And so for us growing, right, either organically or inorganically, accretively.

And so for us growing right either organically or Inorganically accretively.

Speaker 8: is terrific because it lowers our unit economic cost. That being said, growing at our existing sites where we know we have very low cost power per term, that's a lot more attractive to us than just buying X a hash that doesn't have low power, particularly as we come into the halving right when costs double. I don't know, Matt and Ezra, if you want to add to that.

<unk> is terrific because it lowers our unit economic costs that being said growing at our existing sites, where we know we have very low cost power for term that's a lot more attractive to us than just buying X a hash that doesn't have low power, particularly as we come into the housing right when.

When cost double that and is there if you want to add to that.

Speaker 6: Good evening, Lukas Nasrahir. To echo Patrick's comments, infrastructure is the key.

Evening Lucas here.

To Echo Patrick's comments.

Infrastructure is the key and as we look at M&A activity and consolidation. We are very focused on looking at infrastructure that is at the same cost structure that we have on direct costs are lower and so to the extent that the Duluth.

Speaker 6: M&A activity and consolidation, we are very focused on looking at infrastructure that is at the same cost structure that we have on direct costs or lower. And so, to the extent that it would dilute our direct mining costs is not of interest to us. And as Patrick said, we believe we can organically grow at our site in Lake Mariner. We think over time that site can get up to 500 megawatts of total capacity. And so, it's at that site that's kind of our benchmark in analyzing any, you know, M&A

Dilute our direct mining costs not of interest to us and as Patrick said, we believe we can organically grow at a site like Mariner. We think over time, that's how you can get up to 500 megawatts of total capacity and so it's that that site, that's kind of our benchmark and analyzing any.

M&A or consolidation type of activity.

Speaker 3: Yeah, Lucas, I would just add to, I think Paul's gonna jump in too, but as, you know, I think you've been to the site, but, you know, we are.

Lucas I would just add too I think Paul is going to jump in too, but as you know.

I think you've been to the site, but we are blessed there with temporary conditions laid a lot of our competitors based in the south.

Speaker 3: blessed there with temperate conditions, right? A lot of our competitors based in the South.

Speaker 8: you know, are not. We're not mining with immersion there, right? We're mining air cooled because of those temperate conditions. And not only that, but, you know, we're 30, 35 miles east of Niagara Falls. So there's a lot of abundant excess cheap power.

Are not we're not mining.

With immersion there right, we're mining air cooled because of those temporary condition and not only that but where we're.

30% 35 miles east of Niagara Falls, So there's a lot of abundant excess cheap power.

Speaker 3: And I think you can see that, I mean, our results thus far this year are proving that.

I think you can see that our I mean, our results. Thus far this year are proving that.

Speaker 2: The only thing I'd want to add to that is, Josh, you had asked earlier, you know, given the winter is coming, winter is coming, but we're at the place where it's the source of generation for power, not the end user. So our facility is very well located up north. The other thing is, I think strategic activity,

The only thing I would want to add to that is Josh you had asked earlier you know given the winters coming winter is coming.

But we're at the place where it's the source of generation for power.

I'm not it's not the end user so our facilities very well located up north.

The other thing is I think strategic activity.

<unk> has to be mindful of you know an important element to everything we do which is you know we're environmentally correct we're focused on.

Speaker 2: has to be mindful of an important element to everything we do, which is we're environmentally correct. We're focused on zero carbon Bitcoin mining. So one should assume that to the extent we're growing, we're growing consistent with that goal. And also, we're going to be acquiring things that keep us.

Zero carbon pitch like mining so once you assume that to the extent, we're growing we're growing consistent with that goal and also we're going to be acquiring things that are you know keep us.

Speaker 9: the focus of everybody who's interested in zero Bitcoin mining. I think this is important because, you know, when the ETFs

The focus of everybody who is interested in zero bitcoin mining I think this is important because you know when the Etfs.

Speaker 9: are approved. And you see more and more institutions come to the space. You know, this is a big focus for institutions if it's not a binary determination of who they can invest in. And so, you know, we could look at opportunities from, you know, acquisition of ExaHash, but it has to be consistent with how we're built as a company, which is very much focused on Bitcoin mining.

Our approved and you'll see more and more institutions come to the space. This is a big focus for institutions. If it's not a binary determination of who they can invest it and so.

We could look at opportunities from it.

The acquisition of SaaS, but it has to be consistent with how we're built as a company, which is very much focused on the bitcoin mining.

Zero carbon perspective.

Speaker 7: That's very helpful, thank you, and I'll try to squeeze one last one in. Patrick, you mentioned additional cost-saving opportunities and I wondered if you could maybe...

That's very helpful. Thank you and now I'll try to squeeze one last one and Patrick you mentioned additional cost saving opportunities and I wondered if you could maybe.

Speaker 7: Share a little bit of where you're looking to squeeze out.

Share a little bit of what where are we where are you looking to try to squeeze out additional savings here. Thank you. Thank you so much.

Yeah, I mean, I'll give you an example look at and.

Speaker 8: Yeah, I mean, I'll give you an example, Lucas, and it's just like this is an example of low hanging fruit in an industry that's maturing. But, you know, our directors and officers insurance, our first year was, you know, over six million dollars of premium. Okay. I won't even get into the specific details of what that covered. But, you know, last year, we were able to reduce that down.

Just look like just as an example of low hanging fruit in an industry, that's maturing, but our directors and officers insurance our first year was.

Over $6 million of premiums, Okay, and I like won't even get into the specific details of what that covered.

But last year, we were able to reduce that down.

To around $4 million to $5 million and this year, we're going to get another really material reduction in that rate so that that policy renews in December so there.

Speaker 8: you know, to around four to five million, and this year, you know, we're gonna get another really material reduction in that, right? So, and that policy renews in December . So, there's like those things, right, where again, there's public company costs, right? And as we sort of have more experience and more track record, there's a lot of juice still to squeeze out of those grapes. And that's, those are, I think, examples of what we're focused on. And right, that's obviously not in the numbers you're seeing today, because like I said, that matures.

Like those things right, where we're again, there's public company costs right and then as we sort of have more experience and more track record. There is a lot of juice still the squeeze out of those grapes and that that's those are I think examples of what we're focused on and that's obviously not in the numbers you're seeing today, because like I said that.

That matures.

Speaker 8: or renew, sorry, in December . You know, the other thing is.

Or renew sorry in December the other thing is we've looked at whether it's candidly like the debt amendments in the past. We've also looked at some strategic transactions are third party legal fees are definitely decreasing.

Speaker 8: we've looked at, you know, whether it's candidly like the debt amendments in the past. We've also looked at some strategic transactions. You know, our third-party legal fees are definitely decreasing. And that, again, comes with just, you know, getting our sea legs on us on things like SEC filings and other things. And then also workforce efficiencies. I mean, as we get more experience operating, you know, our teams are getting more experience operating. We're able to just kind of squeeze more out of the, you know, existing folks that we have. So I think it's all of those things, but like there's some really big-ticket items like the DNO, which is a good example, that are going to allow us to keep cutting costs that I can see in the future, and I'm pretty confident, which is why I said that in my remarks.

And that again comes with just getting our sea legs on us on things like SEC filings and other things and then also workforce efficiencies as we get more experience operating.

Our teams are getting more experience operating we're able to you just.

Just kind of squeeze more out of the existing folks that we have so I think it's all of those things, but like there's some really big ticket items like the D&O, which is a good example of that are going to allow us to keep cutting cost that I can see in the future and I'm pretty confident which is why I said that in my remarks.

Speaker 7: Thank you so much, Patrick, Paul, Nazar, team.

Thank you so much.

Patrick It's Paul.

Our team.

Continued best of luck.

Speaker 2: Lucas, before I let you go, I've been led to believe that you've just recently had another child, a son, so congratulations.

Lucas before I, let you go.

Been led to believe that you've just recently had another child the sun so congratulations.

Speaker 7: A girl. A girl. A girl. Yeah.

There are so much the girl a girl yeah, three golfs now.

Okay.

Thank you Paul.

Okay.

Thank you. Our next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.

Speaker 10: Our next question comes from the line of Mike Rondall with Northland Securities. Please proceed with your question. Hey guys, thanks.

Hey, guys. Thanks, two questions one.

Speaker 11: My takeaway on the operations at Lake Mary.

My takeaway on the operations at Lake Mariner and Nautilus was that it was a pretty clean quarter.

Speaker 11: and Nautilus, was that it was a pretty clean quarter, was there anything to call out operationally?

Was there anything to call out operationally.

And then secondly for Patrick it sounds like SG&A.

Speaker 11: It sounds like SG&A, and especially interest expense, in four...

And especially interest expense for Q2.

Speaker 11: kind of revert back closer to the 2Q levels.

Kind of revert back closer to the two Q levels.

Speaker 11: Those were a little bit cleaner quarters. Any directional comment?

Those were a little bit cleaner quarters, just any directional comment on that would be helpful.

Speaker 6: Yeah, sure, Mike. So I think the quarter was pretty clean. I'm looking at NASA. We did have an outage. That's the first week of October . OK, yeah. Well, that's the fourth quarter we had an outage in October . But then in August , we were down. And I think we had a lightning strike or something. Yeah, so Mike, to your point, it was operationally a fairly clean quarter. We did have a couple of scheduled outages.

Yeah sure Mike So I think the quarter was pretty clean I'm looking at it now than we did have an outage.

Think of October Okay, yes, the well that was that for the fourth quarter we added.

It's August.

In October but then in in.

August they were down and I think we had a lightning strike or something yeah. So Mike do you have to your point. It was operationally it was a fairly quick clean quarter. We did have a couple of scheduled outages.

It occurred.

To build off the site.

Speaker 4: you to build up the site and getting building three ready there was some work that we had

Getting building to be ready there was some work we had to do.

Speaker 4: that site to the rest of the site. So there was an outage in August that was in the quarter and as Patrick said, there was a...

And that type of the rest of the site and so there was an outage in August or sorry August that that was in the quarter and as Patrick said, there was initiatives with a lightning strike without was only a few hours and so but overall it was a fairly clean operational quarter and again the timing of a data was was mostly erratic due to scheduled outages.

Speaker 4: initially just with a lightning strike, but that was only a few hours. And so, but overall, it was a fairly clean operational quarter. And again, the time that we were down was, was mostly or vastly due to.

Hum.

I am building three.

Speaker 8: Yeah, Mike, on your SG&A point, so I look at SG&A in our financials, and I take out stock-based comp, right, because we, as you know, the management team here has a very big stake, so we really don't have much stock-based comp, but there is a little bit in there. So yeah, I think QQ, if I take out stock-based comp, I think was closer to 6.8%.

Yeah, and Mike on your SG&A point, so I I look at SG&A.

In our financials and I take out.

Stock based comp right. It did we as you know the management team here has a very big states. So we really don't have much stock based comp, but there is a little bit in there. So.

Yeah, I think yeah.

Q2, if I take out stock based comp I think was closer.

To $6 8 million.

Speaker 8: 3Q, if I take out all the stock-based comp in there, because we did have a performance incentive that was triggered, it's kind of closer to 6.3 million, I think, in 3Q. But 4Q should be, you know, one of our lowest quarters for SG&A. And as you know, first quarter tends to be higher just because we have to file 10K.

<unk>, if I take out.

All of the stock based comp in there because we did have a performance.

Incentive that was triggered.

It's kind of closer to $6 3 million I think in <unk>, but <unk> should be one of our lowest quarters for for SG&A.

And as you know the first quarter tends to be higher just because we have to file 10-K.

Speaker 3: tend to work, proxy work, there's a lot of filings and other things that renew obviously in the first quarter. So yeah I think you know if you kind of extrapolate out that trend I think that that's appropriate.

10-Q work proxy work Theres, a lot of filings and other things that renew obviously in the first quarter. So yeah. I think if you kind of extrapolate out that trend I think that that's appropriate.

Got it Okay, hey, thank you.

Speaker 9: Mike, the one other comment I'd want to just mention in terms of operations is just please recall that we're vertically integrated, you know, we operate our own facilities. So, I think we're a little bit unique relative to a lot of the other folks in the mining space.

Mike the one other comment I'd Wanna just mentioned in terms of operations. He says please recall that we're vertically integrated we operate our own facilities.

So I think we're a little bit unique relative to a lot of the other.

Folks in the mining space.

Okay, Hey, thanks.

Speaker 1: Our next question comes from the line of Josh Sigler with Cancer Fitzgerald. Please proceed with your question.

Thank you. Our next question comes from the line of Josh <unk> with Cantor Fitzgerald. Please proceed with your question.

Speaker 4: Yeah, hi guys, thanks for taking my follow-up here. Just real fast, I saw on your queue that you put down a deposit for potential S21s in the future. I was wondering if you could walk us through kind of that rationale and how you're thinking about the S21s versus the 19JXPs, thank you.

Yeah, Hi, guys. Thanks for taking my follow up here just real fast saw in your Q that you put down deposits or potential F. 'twenty ones in the future I was wondering if you could walk us through kind of that rationale on how you're thinking about the ethylene ones versus the 19 Jack's team. Thank you.

Yeah.

Speaker 6: So, the S21s came out, better efficiency machine, lower price out the gate that Bitmain had put out there. And so, I think this – there was a question earlier from Lucas just around kind of miners versus infrastructure. And so, when we think about it, we think the infrastructure is unique, particularly the ability to –

Hey, Josh it's it sounds are here.

So you know the 'twenty ones came out.

Low you know better efficiency machine.

Lower.

Rice out the gate that that means that they had put out there and so.

This you know I think there was a question Lucas just trying to kind of miners versus infrastructure. So when you think about what do we think about it we think the infrastructure is unique.

Your ability to procure low cost power for term and miners are available and so what we see is is that you know the F. 'twenty what's out there today.

Speaker 6: procure low-cost power for term, and minors are available. And so what we see is that the S21s out there today, again, under the structure that Bitmain rolled out, 80% payable for delivery, and the remaining 20% a year out.

Again under the structure that they have been rolled out 80% payable before delivery and the remaining 20% figure out.

Speaker 6: Inevitably, you know, 12 months from today, there's probably going to be another more efficient machine that comes out. And so, our current fleet efficiency is 27.5 joules per terahash. Once we fully incorporate the full 18,500 JXPs, we'll be pretty close to 25 joules per terahash. And our long-term goal and trend is to continue to drive that overall fleet efficiency into the low 20s. And so, that will mean that, you know, we'd be looking at the S21s.

Inevitably you know 12 months from today, it is probably going to be another more efficiency that comes out and so our current fleet efficiencies twenty-seven have tools for Terra hash once we fully incorporate the full 18500 jacks piece will be pretty close to $25 per tire hash and our Lora long term goal and trying to continue to drive that over.

I'll sweep efficiency until about twice and so that will mean that you know we'd be looking at 'twenty ones.

T21s, those types of machines to kind of further drive down that incremental.

See 'twenty one are those types of machines to kind of further drive down that that incremental efficiency.

Yeah, I guess, Josh, it's Patrick. So just to touch on the financial aspect of that, I think the right way to think about it is.

Yeah, and I guess, just it's Patrick so just to touch on the financial aspect of that I think the right way to think about it is.

You know, we've got, I think, about 14.3 million of deposits that we made on the F-19 JXPs. So that, along with the 1.2 million of deposits that we made on the F-21s, we'll roll all that into, so that's about, you know, 15 and a half million. We'll roll that into the, all into the JXP order. So that kind of converts.

We've got I think about $14 $3 million of deposits that we made on the EF 19, J X PS so that along with the $1 2 million of deposits that we made on the F. 'twenty one we'll roll all of that into so that's about $15 5 million, we'll roll that into.

It all into the J XP order, so that kind of converts to machines. If you will at just under 19 Bucks a tear ash and then will host the remainder so the difference which is roughly 13000.

to machines, if you will, at just under 19 bucks a terahash, and then we'll host the remainder to the difference, which is roughly, you know, 13,000 of the 18,500 in 2024, you know, and when the time is right, we'll buy some or all, if that makes sense. Does that answer your question? Yeah, that's very helpful, I really do appreciate it.

Of the 18500 in 2024 and when the time is right, we'll buy some or all that.

That makes sense does that answer your question.

Yeah. That's that's very helpful. I really do appreciate the candor and thanks for taking my follow up.

Thank you.

Yeah.

Our next question comes from the line of Mateo Levy with Parabolic Adventures. Please proceed with your question.

Thank you. Our next question comes from the line of Matteo Levy with parabolic ventures. Please proceed with your question.

Hey everybody, first of all, congratulations on your hash rate expansion to 5.5. I'm not aware of another miner who's achieved that as quickly as you, so I just want to applaud that. But meanwhile, my question relates to the short interest. What is the market missing?

Hey, everybody first of all congratulations on your house for expansion to 5.5, I'm I'm not aware of another minor whose achieve that as quickly as you. So I just want applaud that.

But Meanwhile, my question relates to the short interest what is the market missing.

What are the misunderstanding and how do you intend to prove them wrong? Because the short interest has grown. Meanwhile, all your other metrics are looking amazing. So we'd love to.

And what are the misunderstanding and how do you in.

Intend to prove them wrong, because the short interest has grown. Meanwhile, all your other metrics are looking amazing.

Amazing So would love to get some feedback from you on this.

Hi, Matteo, this is Paul. Thanks for your question. You know, part of the short position in the space, but I don't think it's it's it's it's

Hi, Matteo.

This is Paul.

Thanks for your question.

You know part of the short position in the space, but I don't think it's it's it's it's it's a close even 50% part of that short interest would appear to be some of our lenders.

It's close to even 50%. Part of that short interest would appear to be some of our lenders. And I think, by the way, they have been entirely supportive and remain, again, long the stock and willing to continue to help the company.

And I think by the way they have been entirely supportive and remain.

Long, the stock and and and willing to continue.

To help the company.

outperform its peers. I think the other shorts, part of it is, I don't think they understand the debt. So they look at the debt and don't appreciate that, you know, when a cash flows, you know, we have free cash flow until, you know, April . And then once we've paid down a certain amount, which we're clearly gonna be able to do here and get it for, you know, the duration of the loan.

Outperform its peers I think the other Schwartz.

Part of it is I don't think they understand the debt so they.

They look at the debt and don't appreciate that.

When the cash flows we have free cash flow until you know.

April and then once we've paid down a certain amount, which where we're clearly going to be able to do here and get it or the duration of the loans they.

They don't appreciate, you know, as well that.

They don't appreciate you know as well that.

We have built our facilities to scale pretty rapidly and we can do that internally.

our facilities to scale pretty rapidly and we could do that internally. So I think they're just looking right now at...

I think theyre, just looking right now at.

Our debt maturity as a primary issue and they are being a little heavy handed in in shorting the stock I think theyre, making the wrong bet.

at debt maturity as a primary issue and they're being a little heavy-handed in shorting the stock. I think they're making the wrong bet. I've continued to purchase throughout. And again, as I've indicated earlier, I'm prepared to move my debt, which is the senior secured position with lender's approval into our stock at a premium to its current market. So I think at some point, it provides a great opportunity for those invested in this stock.

I've continued to purchase drought and again as I've indicated earlier I'm prepared to move my debt, which is a senior secured position with lenders approval into our stock at a premium to current market. So I think at some point it provides a great opportunity for those invested in the stock.

to squeeze the shorts. I mean, I don't know if his CEO really is focused on how our stock trades. But I think, you know, it's pretty thin out there and with Bitcoin prices going up, with ETF approval, I think that you'll see that, you know, we're the most levered play out there. I think a lot of folks will roll out of.

To squeeze the shorts.

No if it's a C O really spoke to focus on how our stock trades.

But I think it's pretty soon out there and with with bitcoin prices going up.

With ETF approval I think that you'll see that we're the most levered play out there I think a lot of folks will roll out of our companies.

companies that are sort of into the whole strategy as opposed to companies that mine at reduced costs and generate lots of Bitcoin, particularly with the ESG component on top. So I think they're wrong. I think, you know, it's our job to prove them wrong and that's what we

Companies that are sort of into the whole strategy as opposed to companies that mines.

It reduced costs and generate lots of bitcoin, particularly with ESG component on top so I think they're wrong I think you know.

It's our job to prove them wrong and that's what we intend to do.

All right, Paul, thank you. That makes sense. I mean, the debt is a function of how you scale so quickly, and you're the low-cost producer. So going into the halvening, that should resonate. So is there any other actions that the company intends to take to really put an exclamation point behind Per Wolf as a leader in the space?

All right Paul. Thank you that makes sense I mean, the debt is a function of how you scale, so quickly and near the low cost producer so going into the happening.

It resonates. So is there any other actions that the company intends to take to really put an exclamation point behind terrible says as a leader in the space.

Listen we're looking at everything.

Listen, we're looking at everything, all the tools in the toolkit. So as we think about our debt, we talk to our lenders routinely. Patrick has a great working relationship there. If there are ways to optimize that in the best interest of the company and our shareholders, we'll do that. We look at strategic acquisition opportunities all the time, consistent with our ESG core focus. And separately, we're already scaling here, building three got up.

All the tools in the tool kit, so as we think about or that we we we we talked to our lenders routinely Patrick is great working relationship. There. If there are ways to optimize that in the best interest of the company and our shareholders. We will do that we look at strategic acquisition opportunities all the time.

Consistent with their ESG core focus and separately we're already.

Gail I'm here building free got up real fast.

Um, you know, we've got a very, um, building fours.

We've got a very.

Building for us.

on the way, and I think that we are opportunistically structured in terms of our agreements with Bitmain to sort of, you know, pay for new machines whenever we want to, as opposed to right now we are paying for some and we're hosting some.

Well on the way in and and I think that we are.

Opportunistically structured in terms of our agreements with Maine to sort of.

Pay for new machines, whenever we want to as opposed to right. Now we are paying for salmon. We're hosting so so I think we'll get there I have a lot of confidence in the approach and again I think the shorts out there are just too focused on on the debt maturity, which is nine months.

So I think we'll get there. I have a lot of confidence in the approach. And again, I think the shorts out there are just too focused on the debt maturity, which is nine months. Currently, as it stands, it's nine months past the half.

Currently as it stands at nine months past the having an.

And we're a free cash flow sweep until then. So I think we're pretty good shape. All right, Paul.

And we are free cash flow.

Sweep until then so I think we're pretty good shape.

All right Paul Thank you very much thank you tear Wolfgang.

Yes.

Thank you we have reached the end of our question and answer session and with that this will conclude today's teleconference. You may disconnect. Your lines at this time.

We have reached the end of our question and answer session. And with that, this will conclude today's teleconference.

You may disconnect your lines at this time. Thank you for your participation.

Thank you for your participation.

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