TeraWulf Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 11 speakers on the call.

Operator

Greetings, and welcome to the Terra Wolf, Inc. 2023 Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

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

Speaker 1

Thank you, operator. Good afternoon and welcome to Terra Wolf's 3rd 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 Our prepared remarks may contain forward looking statements, which are subject to risks and uncertainties that we may make additional forward looking statements during the question and answer session.

Speaker 1

These forward looking statements are subject to risks and uncertainties and actual results may differ materially. When used in this call, the words Great, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions as they relate to TeraWolff are 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 Terra Wolf at this time. In addition, other risks are more fully described in Terra Wolf's public filings with the U. S.

Speaker 1

Securities and Exchange Commission, which may be viewed at sec.gov and in the Investors section of our corporate website at www.terawolf.com. 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 ks In 10 Q and on our website, we'll have 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 Paul and Patrick, then we'll proceed to Q and A. It's my pleasure to now turn the call over to TeraWold's CEO, Paul Prager.

Speaker 2

Paul? Thank you, Jason. Good afternoon, everyone, and thank you for joining us on our Q3 2023 earnings call. During the Q3, Terawolf continued to take proactive steps We execute on our strategic growth plan 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. Before turning the call over to our CFO, Patrick Flurry, For a review of our financial results, I would like to comment on some recent highlights from our business and on our continued confidence in the year ahead.

Speaker 2

As a reminder to everyone joining us today, Terawolf Mines Bitcoin utilizing predominantly 0 carbon energy resources At 2 data centers, our wholly owned and operated Lake Mariner facility in Upstate New York, which utilizes 91% 0 carbon grid power and the jointly owned 100 percent nuclear powered Dauntless facility in Pennsylvania. As of September 30 this year, These 2 industrial scale projects had a combined self mining hash rate of 5.5 exahash per second With approximately 50,000 minuteers deployed. That is more than triple where we were during the same period last year. Further, that hash rate even with difficulty reaching all time highs resulted in 9.94 bitcoins mined during the 3rd quarter. Importantly, our operations are solidly free cash flow positive solidly free cash flow positive.

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 of Bitcoin. Concurrently, There has been a steady climb to an all time high in overall network cash rate, which continues to suppress mining economics. So what does this mean for how we are approaching the balance of 2023 and approaching the halving next year?

Speaker 2

As energy infrastructure professionals, managing through cycles is fundamental to our approach 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. In terms of executing our growth initiatives, The Lake Mariner infrastructure expansion is nearing the final stage of construction. The 3rd 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 ash rate capacity to 7.9 exash per second for more than 200 megawatts of Bitcoin mining capacity. That translates into a 58% increase in the company's total self binding cash rate.

Speaker 2

Importantly, And I cannot emphasize this enough. We will continue to prioritize accretive and capital efficient infrastructure and manage future capital outlays for mining equipment in a responsible manner to remain nimble during challenging markets and avoid unnecessary dilution to our shareholders. To that end, we have strategically structured our mine purchase agreements In a capital efficient manner, to enable the company the flexibility to monetize deposits and defer payment obligations, Early in the Q3, we announced the purchase of 18,500 S19JXP Bitcoin Mining Machines from Bitmain, which are targeted to be delivered next month. To preserve liquidity and avoid excessive dilution, We plan to convert our deposits on this purchase order into roughly 5,500 machines and will host To own the remaining 13,000 machines for Bitmain at a hosting fee of approximately $0.078 per kilowatt hour. 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 Q4 2024.

Speaker 2

We believe this arrangement not only reflects our strategic relationship with Bitmain, But also underscores our 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. To reiterate, the fact that we could plug all 18,500 S-nineteen JXD Miners into Building 3 immediately highlights the benefits of owning and prioritizing the development of our data center infrastructure, which then enables us to undertake these types agreements without the incurrence of meaningful upfront CapEx. Once these new machines are fully self deployed, Terra Wolf will have one of the most efficient and profitable mining fleets in the sector by combining a fleet wide efficiency The 25.7 joules per terahash and the realized average power cost of $0.035 per kilowatt. 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.

Speaker 3

Thank you, Paul. TARO performed exceptionally well in the Q3, 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. 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 financials.

Speaker 3

As Paul mentioned, with 5.5x with a debt repayment of approximately $7,000,000 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. 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 income and loss of investee net of tax line item on the GAAP income statement. In the Q3 of 2023, We mined 6.24 Bitcoin at Lake Mariner and our net share of mined Bitcoin at Nautilus was 370 Bitcoin for a total of 9.94 Bitcoin or about 11 Bitcoin per day and a 10% improvement over the 908 Bitcoin mined in 2Q 'twenty three. Our GAAP revenues also saw outstanding growth of 23% quarter over quarter, reaching $19,000,000 in 3Q 'twenty three from $15,500,000 in 2Q 'twenty three.

Speaker 3

Our value per Bitcoin self mined this quarter, a non GAAP metric that includes Bitcoin mined at Nautilus, averaged $28,104 per bitcoin for a total of $27,900,000 as detailed and defined in our monthly operating reports and press release. Looking now at our gross profit, we saw an increase of 3% Quarter over quarter from $10,300,000 in 2Q 'twenty three to $10,600,000 in 3Q 'twenty three. Our total power cost per bitcoin mined, a non GAAP metric that includes bitcoin mined at Nautilus, was 9,322 in 3Q 'twenty three compared to $7,197 in 2Q 'twenty three. 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 $1,700,000 in 3Q 'twenty three.

Speaker 3

Operating expenses remained stable quarter over quarter at approximately $1,200,000 SG and A expenses increased quarter over quarter from $8,600,000 in 2Q 'twenty three to $10,300,000 in 3Q 'twenty three. The increase was primarily due to an increase in non cash stock compensation due related party for achieving a performance milestone. We are on track to achieve approximately $6,000,000 of SG and A savings year over year, and I'm confident we can continue to drive down costs. We are committed to achieving savings of $10,000,000 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.

Speaker 3

Depreciation increased modestly quarter over quarter from $6,400,000 in 2Q 'twenty three to $8,200,000 in 3Q '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 2Q 'twenty three. In 3Q 'twenty three, we recorded a loss on disposal of property, plant and equipment of $400,000 related to Disposals of miners at Lake Mariner. GAAP interest expense in 3Q 'twenty three was $10,300,000 which includes cash interest expense and amortization of debt issuance costs and debt discount related to the term loan financing. However, cash interest paid during the 3 and 9 months ended September 30, 2023 was $4,300,000 $15,500,000 respectively.

Speaker 3

Notably, cash interest paid during the year to date 9 month period actually includes 11 months of interest payments Due to accrued interest for the Q4 of 2022 paid in January 2023 and 8 months of interest payments made in 2023 as interest is paid monthly in arrears as of May 2023. In 3Q 'twenty three, we reported $900,000 in equity and net income of investee, net of tax, as compared to negative $3,300,000 in 2Q 'twenty three. These amounts represent Terel's proportional share of income or losses of the Nautilus joint venture. Our GAAP net loss for the Q3 was $19,400,000 compared to a net loss of $17,800,000 in 2Q 'twenty three. Our non GAAP adjusted EBITDA for 3Q 'twenty three was $9,000,000 an 18.5 percent improvement over $7,600,000 in 2Q 'twenty three and year to date 2023 adjusted EBITDA is 14,300,000 Turning our attention now to the balance sheet.

Speaker 3

As of September 30, we held $6,600,000 in cash, with total assets amounting to $312,000,000 and total liabilities of $158,000,000 With the achievement of our in our long term debt moving forward. Furthermore, year to date, we have reduced our net working capital, Excluding the current portion of long term debt, from approximately negative $60,000,000 at December 31, 2022 to approximately negative $19,000,000 as of September 30, a substantial improvement and one which will continue to normalize in the 4th quarter. As I've mentioned in previous quarters, you may note from our balance sheet that we do not hold our Bitcoin and Treasury, Or 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 costs. 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 pay down, 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 sectors, I find the Hodul strategy to be a simple marketing ploy allowing peer management teams to gamble with shareholders' money.

Speaker 3

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. With Bitcoin ETFs likely available to the masses in 2024, thereby providing exposure to the price of Bitcoin. We believe the Hodul strategy will soon be antiquated and not in shareholders' best interest. Investors should own Wolfe Equity because number 1, they are aligned with management, the Board and insiders owning roughly 50% of the company's equity And number 2, as an operating mining company, Wolf can mine Bitcoin more efficiently and profitably than any of our peers and return that profit to shareholders distribute profits via dividend similar to the MLP or Master Limited Partnership model in the energy industry. Lastly, with regard to our ATM and further to Paul's commentary on prioritizing accretive growth, Since September 30, we issued only 4,600,000 shares for net proceeds of 5,300,000 In conclusion, I hope that during this call today, our financial objectives will be made clear and simple: maximize profits, We paid debt and returned value to shareholders while providing investors access through transparency and accountability.

Speaker 3

With that, I'll pass it back to Paul and look forward to answering your questions.

Speaker 2

Thanks, Patrick. To summarize what we have discussed today, We are executing on the objectives we have communicated to the market. We remain confident in the strength of the business and our growth prospects 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 they go hand in hand. With free cash flow generated in the 3rd quarter, we've reduced our debt to approximately $140,000,000 which I believe is certainly manageable in the context of our cash flow expectations.

Speaker 2

We also have no mandatory amortization Until April 2024 and more likely until maturity of the loan well past the having If we achieve an incremental $33,000,000 of principal pay down by April. To put this in context, Assuming the Bitcoin price of $35,000 and current network difficulty, we expect to sweep an incremental $30,000,000 by end of the Q1 of 2024. And assuming a Bitcoin price of 40,000 The incremental pay down would be closer to $40,000,000 by the end of the Q1 of 2024. We are fortunate to have a seasoned and constructive lender group that has consistently and continuously They demonstrated their support for the company's business by agreeing to modify the terms of the credit agreement to provide more liquidity and flexibility. 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 Credit cycles over the last 20 years. And I believe the company has several options with regard to considering our debt. To reiterate, investors should consider the following. 1, lenders are incentivized to see our share price perform given their sizable equity ownership stake. 2, our lender group has proven to be supportive and constructive Having agreed to several amendments to increase the company's liquidity and flexibility.

Speaker 2

3, Free cash flow will likely enable a reduction of close to $40,000,000 of principal by April 2024. 4, Nazzar Khan, 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 the lenders to convert to equity at a premium to the current stock price. In principle, I'm entirely comfortable coming out of a senior secured position to own equity alongside you, our investors In Tera Wolf. 5, debt provides operating leverage and at 11.5%, Our total loan is attractively priced relative to the high yield bond index of around 9.5%. With regard to valuation, in no uncertain terms, I believe Terra Wolf is undervalued relative to our peers.

Speaker 2

We are currently trading at a significant discount. As your fellow shareholder with a material interest in our collective success, This frustrates me entirely. However, I believe our valuation discount will narrow over time As we continue to perform and delever. In the meantime, we will remain focused on growing the company accretively, Including evaluating public and private M and A, accretive growth reduces our cost to mine a bitcoin and increases free cash flow. 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

With that, I'm prepared to open the call for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Josh Sigler with Cantor Fitzgerald. Please proceed with your question.

Speaker 4

Yes. 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 So I believe on the prepared remarks, you mentioned it would be $0.078 Does that include a power Costs flow 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. So it's effectively fixed.

Speaker 3

And then as you know, Our power cost at Lake Mariner floats, and so that's how it works.

Speaker 4

Okay. Understood on that front. And then when we're thinking about 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

Speaker 3

So I think what Josh we're trying to message there is, we think we're undervalued visavis the peers and And as we've kind of harped on time and time again, we're focused on accretive growth. And so 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's not here at a dollar or sub a dollar. And so, 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 1 machine or we could 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 4

Okay. Understood on that front. And if I could just sneak one more in real fast. I was curious if you could give us an update on how you're thinking about the cost of power at the Lake Mariner site as we head into the winter months here?

Speaker 3

Yes. Look, I think our guidance rate has been $0.045 at Lake Mariner and then obviously $0.02 fixed For 5 years at Nautilus, I think you can see in our results, I would say we are trending below $0.045 At Lake Mariner, and I think, Josh, also, as you've probably seen in our monthly operating reports 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 PowerPlays price plus those demand response revenues, I think generally speaking, we're coming in below that $0.045

Speaker 4

Great. I appreciate your answers. Thanks very much.

Speaker 3

Thanks, Josh.

Operator

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

Speaker 5

So 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 to be split between 4Q and 1Q? And then I have a follow-up. Thanks.

Speaker 3

Yes. Hey, Chase. Thanks for your question. So very, I would say, minimal remaining on Lake Mariner. From an infrastructure perspective, it's really at this point just the minor purchase, which like we said is deferred into 2024.

Speaker 1

Got you. That's helpful.

Speaker 5

And any updates on the potential 50 megawatt expansion On Nautilus, is there any internal timeframe for making that decision? And where does your JV partner stand on the issue?

Speaker 3

Yes. So I'm just looking around the management team here and seeing if Nazar wants to comment. But I think in general, Nothing as of today. I don't know, Nazzar, if you want to add to that. Yes.

Speaker 6

Hey, Chase. It's Nazzar here. That's correct. As of now, We haven't built out a schedule for that. There'll be 50 megawatts bench at the site.

Speaker 6

So in the near term, we see A lot more opportunity at the Lake Barreneurs site to expand. We 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 Baroness facility before Nautilus.

Operator

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

Speaker 7

Thank you very much, operator. Good evening, everyone. Good job. Paul, my First question is on the remarks in your prepared comments with the debt to equity exchange. You mentioned some details there.

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 be exchanged? Thank you very much for any additional color.

Speaker 8

Hi. So Nazir and I own, I would guess, around $10,000,000 worth of the debt. Think that we're very comfortable and we are exploring the notion of 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 our stock is so undervalued. I don't think it'd be right for us to come in at the current market price, and we would expect To come in at a meaningful premium.

Speaker 8

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 that trade a lot in the context of being further invested alongside the other shareholders.

Speaker 7

My second question is, so a little bit more on the industry and I wondered kind of with the having around the corner, you mentioned M and Earlier, is there a preference for infrastructure over Miners, is it equal? If you had to go long one or the other, which one would you choose or neither? Would appreciate your

Speaker 3

Yes, I think hey, Lucas, it's Patrick. I'll answer quickly and then looking around the room here, I know Nazzar has a strong view on this. But I think we've been pretty public with our view Not all exahash is created equal. And so as you know, power is the number one cost input here. And When you look at our unit economic structure, we have very low power.

Speaker 3

And so, for us growing, right, either organically Inorganically, accretively 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 Ex a Hash that doesn't have low power, particularly as we come into the having right when costs double. And on that, Nazar, if you want Yes.

Speaker 6

Good evening, Lucas. Nazzar here. To echo Patrick's comments, infrastructure is the key. And as we look at M and 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. So to the extent that it would dilute our direct mining costs, it's not of interest to us.

Speaker 6

And as Patrick said, we believe we can organically grow At Atlantic 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 M and A or Fodder type of activity.

Speaker 3

Yes. 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, right? A lot of our competitors based in the South are not.

Speaker 3

We're not mining With Immersion there, right? We're mining air cooled because of those temperate conditions. And not only that, but we're 30, 35 Miles East of Niagara Falls. So there's a lot of abundant excess cheap power. And I think you can see that I mean our results Thus far this year are proving that.

Speaker 8

The only thing I'd want to add to that is, Josh, you had asked earlier, 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 Has to be mindful of an important element to everything we do, which is We're environmentally correct. We're focused on 0 carbon Bitcoin mining. So one should assume That to the extent we're growing, we're growing consistent with that goal.

Speaker 8

And also we're going to be acquiring Things that are keep us the focus of everybody who's interested in 0 Bitcoin Mining. I think this is important because when the ETFs are approved and you 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 in. And so we could look at opportunities from acquisition of ex Ash, but it has to be consistent With how we're built as a company, which is very much focused on Bitcoin mining from a 0 carbon perspective.

Speaker 7

That's very helpful. Thank you. And I'll try to squeeze one last one. And Patrick, you mentioned additional cost saving Opportunities. And I wondered if you could maybe share a little bit of where you're looking to squeeze out additional Savings here.

Speaker 7

Thank you so much.

Speaker 3

Yes. 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 our directors and officers insurance, our 1st year Was over $6,000,000 of premium, okay. I won't even get into the specific details of what that covered. But Last year, we were able to reduce that down to around $4,000,000 to $5,000,000 And this year, we're going to get another really material reduction in that, right?

Speaker 3

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 or renews, sorry, in December.

Speaker 3

The other thing is, we've looked at whether it's candidly like the debt amendments in the We've also looked at some strategic transactions. Our 3rd party legal fees are definitely decreasing. 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. I mean, as we get more experience operating, Our teams are getting more experience operating.

Speaker 3

We're able to 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 and O, 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.

Speaker 7

Thank you so much. Patrick, Paul, Nazar, team, continued best of luck.

Speaker 8

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

Operator

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

Speaker 9

Hey, guys. Thanks. Two questions. 1, my takeaway on the operations at Lake Mariner And Nautilus, was that it was a pretty clean quarter. Was there anything to call out operationally?

Speaker 9

And then secondly for Patrick, it sounds like SG and A and especially interest expense in 4Q Kind of revert back closer to the 2Q levels, just those were a little bit cleaner quarters. Any directional comment on that would be helpful.

Speaker 3

Yes, sure, Mike. So, I think the quarter was pretty clean. I'm looking at Nasr. We did have an outage

Operator

1st October.

Speaker 3

Okay. Yes. Well, that was that's for Q4. We had And how did In August. Yes, in October, but then in August, we were down.

Speaker 3

And then I think we had a lightning strike or

Speaker 2

something? Yes.

Speaker 6

So Mike, to your point, it was operationally, it was a fairly clean quarter. We did have a couple scheduled outages That occurred as we continue to build up the site and getting Building 3 ready, there was some work that we had to do to tie in that site to the rest of the site. There was an outage in August sorry, August that was in the quarter. And as Patrick said, there was And this year just with the lending strike, but that was only a few hours. And so, but overall, it was a fairly clean operational quarter.

Speaker 6

Again, the time that we were down was Mostly or vastly due to scheduled outages in Building 3.

Speaker 3

Yes. And Mike, on your SG and A point, so I look at SG and A in our financials and I take out stock based comp, Right. 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, yes, I think 2Q, if I take out stock based comp, I think was closer

Speaker 4

To $6,800,000

Speaker 3

3Q, if I take out all the stock based comp in there, We did have a performance incentive that was triggered. It's kind of closer to $6,300,000 I think in 3Q. But 4Q should be one of our lowest quarters for SG and A. And as you know, Q1 tends to be higher just because we have to file 10 ks, 10 Q work, proxy work, there's a lot of filings and other things that renew obviously in the Q1. So, yes, I think if you kind of extrapolate out that trend, I think that's appropriate.

Speaker 9

Got it. Okay. Hey, thank you.

Speaker 8

Mike, the one other comment I'd want to just mention in terms of operations Please recall that we're vertically integrated. We operate our own facilities. So I think we're

Speaker 6

a little bit unique relative to

Speaker 8

a lot of the other Folks in the mining space.

Operator

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

Speaker 4

Yes. Hi, guys. Thanks for taking my follow-up here. Just real fast, saw in your queue that you put down a deposit for potential S-21s in the future. I was wondering if you could walk us through kind of that rationale and how you're thinking about the S-twenty 1s versus the 2019 JXPs?

Speaker 4

Thank you.

Speaker 6

Hey, Josh, it's Nazzar here. 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's a question earlier from Lucas just around the kind of

Speaker 1

miners versus infrastructure. So when

Speaker 6

we think about it, We think the infrastructure is unique, particularly the ability to procure low cost power for term, and Miners are available. So what we see is that the S-twenty one is out there today, again, under the structure that Bitmain rolled out, 80% Payable for delivery and the remaining 20% the year out. Inevitably, 12 months from today, there's probably going to be another more efficient machine that So our current fleet efficiency is 27.5 joules per terahash. Once we fully incorporate the full 18,500 JXBs, 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.

Speaker 6

And so that will mean that we'd be looking at the S-21s, C-21s, those types of machines to kind of further drive down That incremental efficiency.

Speaker 3

Yes. And 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 We've got, I think, about $14,300,000 of deposits that we made on the F-nineteen JXPs. So that along with the $1,200,000 of deposits that we made on the S-twenty one, we'll roll all that into so that's about $15,500,000 We We'll roll that into the all into the JXP order. So that kind of converts 2 machines, if you will, at just under $19 a terra ash and then we'll host the remainder.

Speaker 3

So the difference, which is roughly 13,000 of the 18,500 in 2024 And when the time is right, we'll buy some or all, if that makes sense. Does that answer your question?

Speaker 4

Yes. That's very helpful. Really do appreciate the candor and

Operator

Our next question comes from the line of Matteo Levy with Parabolic Ventures. Please proceed with your question.

Speaker 10

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.

Speaker 10

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 I would love to get some feedback from you on this.

Speaker 8

Hi, Matteo. This is Paul, thanks for your question. Part of the short position in the space, but I don't think 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 outperform its peers.

Speaker 8

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 On the cash flows, we have free cash flow until April and then once we've paid down a certain amount, which we're We're clearly going to be able to do here and get it for the duration of the loan. They don't appreciate as well That we have built our facilities to scale pretty rapidly and we could do that internally. So I think they're just looking right now at debt maturity as a primary issue and And they're being a little heavy handed and short in the stock. I think they're making the wrong bet.

Speaker 8

I've continued to purchase throughout. 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 its 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 is supposed to focus on how our stock trades. But I think it's pretty thin out there and 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 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.

Speaker 8

So I think they're wrong. I think it's our job to prove them wrong, and that's what we intend to do.

Speaker 10

And you're the low cost producer, so going into the Hamlin, that should resonate. So is there any other actions that the company intends to take To really put exclamation point behind Terawolf as a leader in the space?

Speaker 8

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 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.

Speaker 8

And separately, we're already scaling here, Building 3 got up real fast. We've got a very building force on the way and I think that we are Opportunistically structured in terms of our agreements with Bitmain to sort of Pay for new machines whenever we want to. As opposed to right now, we are paying for some and we're hosting some. So I think we'll get there. I have a lot of confidence in the approach.

Speaker 8

And again, I think the shorts out there are just too focused On the debt maturity, which is 9 months or currently as it stands, it's 9 months past the having. And we're free cash flow Sweet till then. So I think we're in pretty good shape.

Speaker 10

All right, Paul. Thank you very much. Thank you, Tera Wolf team.

Operator

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.

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Earnings Conference Call
TeraWulf Q3 2023
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