Marathon Digital Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

Key Takeaways

  • Operational Scale: In Q3 Marathon increased its energized hashrate by 8% to 19.1 EH/s, achieved 3,490 BTC production (up 19% QoQ), and improved uptime through proactive site-management and proprietary optimizations.
  • Financial Turnaround: The company delivered record Q3 revenue of $97.8 M, net income of $64.1 M versus a loss last year, and an Adjusted EBITDA of $43.7 M, while lowering all-in cost per coin by 12% QoQ and 41% YoY.
  • Strengthened Balance Sheet: Marathon exchanged $417 M of convertible debt (reducing debt by 56% and saving $101 M), sold 2,300 BTC for $65.6 M, raised $37 M via ATM, and holds some 13,716 BTC plus $156 M cash for a total liquidity exceeding $600 M.
  • Global Growth & Diversification: The firm powered up its first in-house international facility in Abu Dhabi, energized a second UAE site, formed a Paraguay hydro JV, launched a Utah gas-to-power pilot, and plans ~30% hashrate growth in 2024.
  • Risk Management & Halving Prep: Marathon began hedging a portion of its BTC holdings with costless collars, is pursuing low-cost (even zero-cost) energy and heat-of-ftake projects, and aims to reduce reliance on block subsidies ahead of next year’s halving.
AI Generated. May Contain Errors.
Earnings Conference Call
Marathon Digital Q3 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Marathon Digital Holdings Third Quarter Earnings Webcast and Conference Call. I would now like to turn the call over to your host, Chris Brendler, Vice President of Investor Relations. Please go ahead.

Speaker 1

Call over to the call.

Speaker 2

Thank you, Sherry. Good afternoon, and welcome to Marathon Digital Holdings Third Quarter 2003 Earnings Call. Call over to Mr.

Speaker 1

Chairman. Thank you

Speaker 2

for joining us for our call today. With me on today's call are Chairman and Chief Executive Officer, Fred Teal and our Chief Financial Officer, Saman Khan. Call over to Steve. Before we get started, I'd like to remind everyone that our prepared remarks may contain forward looking statements, which are subject to the risks and uncertainties call over to Steve. We may make additional forward looking statements during the question and answer session.

Speaker 2

These forward looking statements are subject to risks and uncertainties and actual results may differ materially. Call over to the operator. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project call over to the operator. And similar expressions as it relates to Marathon Digital Holdings are as such a forward looking statement. Please refer to our earnings release for a full recitation of our forward looking statements.

Speaker 2

Call over to Mr. President. All forward looking statements involve risks, which may cause actual results to differ materially from those anticipated by Marathon call over to you at this time. In addition, other risks are more fully described in Marathon's public filings with the U. S.

Speaker 2

Securities and Exchange Commission, call over to the operator, which can be viewed at www.cc.govandir.mera.com. Call over to the operator.

Speaker 1

Finally, please note that

Speaker 3

on today's call, we will refer to

Speaker 2

certain non GAAP financial measures in which Marathon excludes certain items call back to financial results. Please refer to our company's periodic reports on Form 10 ks and 10 Q and to our website for a full affiliation of call over to non GAAP performance measures to the most comparable GAAP financial measures. We'll begin today's call with prepared remarks from Fred and Saman. Call over to our operator questions from investors before transferring to a live Q and A with our covering analysts. Call over to Fred to kick things off.

Speaker 2

Fred?

Speaker 4

Thank you, Chris. Call over to Markham. The Q3 was a landmark quarter for Marathon as we achieved several key milestones. To start the quarter, our first international facility in Abu Dhabi call to powered up just 6 months after signing contracts, even though this is the first site that was designed and built by Marathon together with our JV partner. Call over to Mark.

Speaker 4

In August, we reached our stated goal of 23 exahashes and established Marathon as one of the largest Bitcoin miners globally. Call over to Bob. Then in September, we proactively restructured our convertible debt to further strengthen our balance sheet and prepare for opportunities that may be created by next year's outlook.

Speaker 1

Call over to Mark.

Speaker 4

In addition to these key milestones, we also reported strong financial results with record revenue, lower cost per coin mined and improving margins. Call over to Mark. Much of this success was the direct result of measurable progress on our 2023 priorities, which are energizing more capacity and optimizing our mining operations. Conference over to the operator. Let me provide some more detail.

Speaker 4

In the Q3, we increased our energized hash rate call over to 8% from 17.7 exahashes to 19.1 exahashes. Over the same period, our average

Speaker 2

call over to the call.

Speaker 1

The total Hash rate for the quarter increased 18%.

Speaker 4

The faster growth in realized Hash rate was due to improved uptime that helped drive record Bitcoin production call over to 3,490 bitcoin, up 19% from the prior quarter as well as lower cost per coin. Call over to the operator. The increase in uptime was driven by our optimization strategy and a more proactive approach to managing our domestic operations and hosting partners. Call over to the operator. Over the course of 2023, we have built up our operations team, adding key talent across site operations, power, call over to our Q1, hardware, software, networks, repair and cooling.

Speaker 4

We are now directly managing our hosting partners to improve efficiency and increase uptime. Call over to our operator.

Speaker 2

Our approach has included on-site

Speaker 1

Marathon resources to direct operations,

Speaker 4

upgrade equipment, optimize network design, as well as deploy our proprietary firmware. Call over to our Q3. Our way of example, uptime in Miami, Texas increased by approximately 20% in the 3rd quarter, even with an approximately 84% increase call over to the Q2. This progress is critically important as the improved operating efficiency lowered our direct cost per call back to the Q3 of fiscal 2019. We expect to be in the range of $1,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000,000 call back to

Speaker 1

the call to our Q3 earnings call.

Speaker 4

Our all in cost per coin, which includes G and A without stock based comp, dropped call over to 12% quarter over quarter and 41% year over year. This material improvement is not just the result of optimization. Call over to Eric. It also reflects the significant scale benefits that we have achieved that helped lower our all in cost per coin. Call over to Eric.

Speaker 4

On a year over year basis, Bitcoin mined grew 467% in the 3rd quarter as Marathon's block rewards call over to the operator. Energization of more efficient mining rigs call over to our Investor Relations website. Our mining fleet is already among the most efficient in the industry call over to the operator.

Speaker 1

And growing our hash rate with ever more efficient machines

Speaker 4

will continue to lower our cost per coin. This process is encouraging. Our operational priorities remain unchanged,

Speaker 1

call over to Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 4

Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 1

Call over to Talman. In a few minutes,

Speaker 4

I'll provide an update on our growth plans and how we're innovating to drive lower costs. But first, I'm going to turn the call over to Salman call over to discuss our financial

Speaker 1

results for the Q3.

Speaker 5

Talman? We had an excellent call over to the 3rd quarter with record Bitcoin production and higher margins. The company reported net income attributable to common stockholders of call over to $64,100,000 or $0.35 per diluted common share in the quarter compared with a net loss of $72,500,000 call over to $0.62 per share in the prior year quarter. On a sequential basis, we grew net income $85,400,000 the call over to the Q2 of 2023. The sequential improvement in profitability was partially due to a one time net gain call over to the next few quarters.

Speaker 5

We will now turn the call over to the Q3 of fiscal 2019. Call over to Chris. 3rd quarter revenues were a record $97,800,000 significantly higher than prior year revenues of $12,700,000 call over to the operator. Average daily bitcoin production grew to 38 bitcoin per day versus 7 bitcoin in Q3 of 2022 call over to the operator and up 18% from prior quarter levels. Revenue also benefited from a 32% higher average bitcoin price call over to last year's Q3.

Speaker 5

Our hosting and energy costs for the 3 months ended September 30th were call over to $59,600,000 compared to $13,800,000 last year. The increase was due to significantly higher Bitcoin production, call over to the operator for questions. Partially offset by lower production costs per coin and one time exit costs for our Hardin, Montana facility last year. Call over to the operator. Total cost of revenues, which includes depreciation and amortization was $113,200,000 call over to the operator to review the financial results.

Speaker 5

Call over to Steve. Depreciation and amortization this quarter was $53,500,000 increasing by $27,300,000 compared to the same quarter last call over to Fred. As Fred mentioned, we have grown our mining rig fleet significantly since last year. Call over to the operator. And as a result, increased our energized hash rate from 3.8 exahashes in the Q3 of 2022 call to 19.1 exahashes in the Q3 of 2023.

Speaker 5

We also had one time accelerated depreciation of our Hardin, Montana facility of $5,700,000 last year. Gain on digital assets call back to the call back to the call back to the call back

Speaker 2

to the call back to the call back

Speaker 5

to the call back to the call back to the call back to the call back to the call back to the call back to the call back to the call back to call over to $10,500,000 year over year to $11,900,000 reflecting the increased size of our Bitcoin holdings, call over to you, which was up 29% year

Speaker 1

over year.

Speaker 5

I want to note that the company's non GAAP total margin excluding depreciation and call over to the operator. Amortization was $38,200,000 this quarter, up $39,300,000 from compared with the same quarter last year. Call over to Steve. This is representative of our increased hash rate and our strategy to systematically improve efficiency as mentioned by Fred earlier as well call over to the operator for questions. As higher Bitcoin prices in 2023.

Speaker 5

Adjusted EBITDA improved to $43,700,000 versus a 6 call. Excuse me, total margin improvement excluding depreciation and amortization and the net realized gains on Bitcoin sales net of impairment,

Speaker 1

call over to you, partially offset

Speaker 5

by an $8,000,000 year over year increase in general and administrative expenses to support the growth of our business. Call over to the operator. General and administrative expenses excluding stock based compensation were $14,600,000 in the current period call over to the operator for the call over to Mr. President, as

Speaker 1

compared with $8,700,000 in the

Speaker 5

prior year period. This increase in expenses was primarily due to the increasing scale of business, call over to our operator, including payroll and benefits, professional fees and other costs. At the end of the Q3, we had 48 employees, call back to the call to be up from 20 a year ago as we continue to opportunistically add talent across the organization. Call over to our Bitcoin holdings and cash position, unrestricted cash and cash equivalents call over to the operator to review our financial results. Thank you, Steve.

Speaker 5

Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 5

Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 5

Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 1

Thank you, Steve. Thank you, Steve. Call over to Steve.

Speaker 5

Also at September 30, we held approximately 13,716 Bitcoin with a carrying value of $287,000,000 call over to the balance sheet. Fair value of our holdings was approximately $370,000,000 at quarter end. Call over to the operator. The company's combined balance sheet of unrestricted cash and cash equivalents

Speaker 1

call over to the

Speaker 5

operator. The company's combined balance of unrestricted cash and cash equivalents and fair value of Bitcoin call back to the call back to the call back to the call. We sold 2,300 Bitcoin during the quarter, realizing cash proceeds of $65,600,000 call over to Mr. Chairman. These proceeds were utilized to fund operating expenses during the quarter, including cost of revenues for energy hosting and other cash operating expenses.

Speaker 5

Call over to Mr. Earnings. During the quarter, we generated $37,000,000 from at the market equity sales, which we intend to use for growth capital. Call over to you. Also during the quarter, we took advantage of an opportunity to strengthen our balance sheet by exchanging $417,000,000 in call over to convertible notes for approximately $329,000,000 in equity.

Speaker 5

This transaction reduced our debt by 56% call over to Steve. And we'll save approximately $101,000,000 or $0.55 per share in cash for our shareholders for principal and interest reduction. Call over to Steve. The combined cash and cash equivalents and bitcoin on our balance sheet along with reduced debt and access to at the market facility provides us ample amount of liquidity call over to the operator and optionality to strategically evaluate opportunities as we approach next year's having. The increased value of combined cash call back to the operator.

Speaker 5

And Bitcoin along with reduced debt is prudent risk management and a source of strength for the company's balance sheet as we enter a potentially call

Speaker 1

over to the operator and

Speaker 5

undercapitalized miners looking to be acquired prior to the having. As mentioned in our October production report, our unrestricted call over to our financial results. Cash balance at October 31 was $156,000,000 and we held approximately 13,396 bitcoin call over to the operator for the Q4 of fiscal 2019. In total, we had over $600,000,000 in unrestricted cash and Bitcoin at end of the last call over to Mark. In addition, during Q3, we began making enhancements to our treasury management strategy.

Speaker 5

Call over to Mr. Chairman. Specifically, we began hedging a portion of our Bitcoin holdings. For those who are less familiar with the concept, call over to Steve. Our next question comes from the line of call over to the operator.

Speaker 5

It is designed with predefined risk terms and protects Marathon from sharp downward price movements, call over to the operator to take advantage of upside gains. Hedging is likely to have an impact on our earnings going forward call over to the operator to discuss the financial results as we recognize gains or losses from such hedging activity. Given Bitcoin's historical volatility, call over to the operator. We believe this strategy is integral to improving the resilience of our organization, providing downside risk

Speaker 1

call over to our operator for

Speaker 2

questions during volatile market

Speaker 5

conditions and maximizing our Bitcoin valuation potential. We expect our future Bitcoin holdings will generally call over to Chris. But will fluctuate depending on operating and market conditions. We intend to add to our Bitcoin holdings primarily through our production activities call over to our operator. And we will also continue to sell Bitcoin as a means of generating cash to fund monthly operating costs and for general corporate purposes.

Speaker 5

Call over to Fred, who will talk more about our operations and our ongoing plans. Call over to Ed.

Speaker 4

Thanks, Salman. Our strong results this quarter represent the culmination of several years of hard work. Call over to you. When we first detailed our asset light strategy in 2021, we believed investing in mining hardware over infrastructure was the most capital efficient way to scale quickly. Call over to you.

Speaker 4

Today, we are proud to say this strategy has worked as Marathon is now the leading public miner public Bitcoin miner in the U. S. Call over to Mark. In Q3, we mined 18% more Bitcoin and ended with 27% more Hash rates than our closest competitor.

Speaker 1

Call over to you. This outstanding growth would not have

Speaker 4

been possible without our asset light strategy. We estimate the company was able to invest 30% more capital in Hash rate growth, call over to our shareholders for building infrastructure. Marathon has now entered a new phase, one that prioritizes both capital and operating efficiency. Call over to you. Early in Q3, our joint venture in Abu Dhabi powered up, marking our first designed and operated site as well as our first international location.

Speaker 4

Call over to the operator. This site began hashing less than 6 months after we signed the contract, a testament to the strength of both our operations team and our joint venture partner, 2. Call over to you. Last month, our 2nd site in Mazar City began energizing and the entire 2 50 megawatts from both UAE call over to the operator. In addition to proving out Marathon's technical expertise and execution capabilities, call over to our Q1 earnings call.

Speaker 2

Our success in the

Speaker 4

UAE is also helping shape the energy debate. At the official ribbon cutting last month in Milestar City, call over to you. We heard firsthand how Marathon's UAE Ventures' ability to collaborate with the local grid operator has been a resounding success. Call over to Steve. But this is just the beginning.

Speaker 4

As more countries become aware of Bitcoin Mining's unique capabilities to support call over to grid stabilization and monetized stranded energy, we expect to see continued international growth towards our target of diversifying our Hash rate globally. Call over to Eric. In addition, our UAE success also demonstrates how our emerging technology can unlock stranded energy even in the most challenging climate. Call over to Bob. As a matter of fact, a number of leading competitors recently requested to visit our Abu Dhabi facility to see for themselves how we achieved 99% uptime call over to a challenging operating environment.

Speaker 4

Our success in UAE has opened up new international opportunities in Africa and Latin America, most call over to you shortly. This new joint venture is powered by the Itaipu Dang, one of the largest hydroelectric power plants in the world. Call over to Paraguay produces approximately 32 terawatt hours of surplus energy per year and Bitcoin miners have the unique ability to co locate call right at the source and take advantage of the stranded energy. This helps local power generators monetize excess energy, which otherwise would have been wasted or sold at a loss.

Speaker 1

Call back over to the operator

Speaker 4

for Q1. Without having to build expensive transmission lines and additional infrastructure. For Marathon, it provides attractive power cost for baseload renewable energy.

Speaker 1

Call over to Tom. It is truly a win win for both sides.

Speaker 4

Closer to home, we recently announced a pilot project in Utah that is call over to the operator for questions. Thank you, Eric. Thank you, Eric. Thank you, Eric. Thank you, Eric.

Speaker 4

Call over to you. Marathon is uniquely positioned to capture and convert this environmentally harmful gas into inexpensive renewable energy. Call over to the operator. This initial pilot is expected to have all in hosting costs below $0.04 per kilowatt hour, significantly below the average cost to mine in the U. S.

Speaker 4

Call over to Steve. But we think we can do even better. Our ultimate goal is 0 cost energy. You may ask how is this possible? Call over to Mark.

Speaker 4

In addition to creating innovative ways to leverage energy that was previously inaccessible, we can repurpose the heat generated by Bitcoin Mining toward call over to revenue generating projects such as heating greenhouses, shrimp farming and other forms of low grade industrial heat processes. Call over to sharing more of the innovative projects that we're exploring in the months ahead. Why are we so focused on low cost or even 0 cost energy? Call over to you. As many of you know, Bitcoin mining revenues are impacted by the halving events that occur every 4 years when block reward subsidies are reduced by 50% of Bitcoin terms.

Speaker 4

Call over to the operator. The next having is less than 6 months away. Over time, Bitcoin miners must reduce their reliance on block subsidies and increasing Bitcoin prices.

Speaker 1

Call over

Speaker 4

to Steve. We believe that long term, we can operate profitably by consuming wasted energy, while monetizing heat offtake. Call over to the operator. The early results of our initial pilots look very promising. By reducing our dependence on block subsidies, we greatly improved the long term viability of the enterprise.

Speaker 4

Call over to you. So what is Marathon doing to prepare? Our strategy has been to reduce costs call over to our financial results and lower our risk profile as we continue to grow our Hash rate. In addition to strong operating results, we also improved our financial profile this quarter.

Speaker 1

Call over to Salman.

Speaker 4

As Salman mentioned, we took advantage of the steep discount in our convertible debt to strengthen our balance sheet. We believe this traction was accretive to our existing shareholders the call over to the Q1 earnings webcast and conference call. I would now like to turn the

Speaker 1

call over to the 21% on the principal amount due

Speaker 4

more than offset the additional equity issue. It also positions Marathon to capitalize on any call over to the near term turbulence in the Bitcoin mining sector. Our balance sheet is now a source of strength that allows us to focus call over to the operator on further increasing efficiency and lowering costs. In the meantime, we're still focused on growth. We expect to reach call to 26x to Hash by the end of 2023 and plan to grow our Hash rate by approximately 30% in 2024.

Speaker 4

Call over to Mark. We will maintain a flexible approach, leveraging hosting providers and local experts to quickly test deployments in new geographies, call over to our operator. While we continue to prioritize owned and operated sites for major deployments, we will also continue to innovate and continue to seek new ways of lowering costs call over to our Chief Financial Officer by unlocking Stranded Energy and Leveraging HeatOptics. With our strong results and recent progress on these strategic priorities, call over to the operator.

Speaker 1

We believe we are on

Speaker 4

track to become one of the largest, most efficient and technically advanced Bitcoin mining operations in the world.

Speaker 1

Call back over to

Speaker 4

the operator. Combined, Marathon is well positioned for the having regardless of where Bitcoin prices are heading next year. Let me be clear, call over to you. We've never been more bullish on Bitcoin. The sustained growth in adoption, use cases and overall acceptance is very encouraging for the long term prospects call

Speaker 1

over to Steve. Thanks, Greg.

Speaker 2

At this time, we're going to commence the Q and A section of today's call. Call over to Steve. Our first question comes from C. K. Call to ask actually the 2 part question.

Speaker 2

So the first part is, why do analysts still favor Riot and CleanSpark over Marathon call over to the operator after taking extreme steps to extinguish long term debt in Q3. Fred?

Speaker 4

Call. Marathon still has more debt than our peers and we're transitioning our business model. Our reported cost per Bitcoin is also higher and we aim to close this gap in 2024. Also, as you look at our business, call over to Steve. We believe that optimizing our costs through the benefit of some of the opportunities that will be available call to having here will enable us to continue to drive costs down significantly.

Speaker 1

Call over to Steve.

Speaker 2

Great. The second part is, if diluting to reduce debt in the mid-nine dollars range is accretive to shareholders, call. Why have no insiders bought common stock when the stock has dipped into the 8s?

Speaker 1

You also

Speaker 2

want to take that one Fred?

Speaker 1

Call over to you.

Speaker 4

Sure. So SEC rules restrict insider buying under certain conditions, especially when executives and insiders are party to material call over to the operator. Typically, public companies like Marathon would have a window that is open to buy stock call over to the operator. It starts typically a few days after earnings release and would close typically somewhere around 1 month before end of quarter, which is a very small window. Call over to Steve.

Speaker 4

As we stated before, we have a lot of major initiatives underway, which means that the management team is currently call back to the operator to discuss the question and answer session.

Speaker 1

Thank you very much in hold of or

Speaker 4

have knowledge of material non public information, which potentially call over to the operator. Would be a violation if we were in the market buying. That being said, we remain very bullish on the stock and we continue to call back to see how we can drive shareholder value going forward.

Speaker 2

Call over to

Speaker 4

Gary A. Our next question

Speaker 2

comes from Garrett A. Who asked, why has Mera stock not increased to the degree that Bitcoin has in the past month? Call over to a timely topic. Fred, do you mind giving your thoughts?

Speaker 4

Well, again, as we said earlier,

Speaker 1

call over

Speaker 4

to you. We're very focused on lowering our costs and leveraging our strong balance sheet. We believe that call over to our shareholders are starting to look at the having. And as you look across the whole mining sector, many of our peers have also seen their share prices declining, call over to the operator. Especially in the most recent few weeks, we believe that there's certain concerns regarding the ETF call to launching and the impact that that may have on Bitcoin miners as well.

Speaker 4

But as I said earlier, we remain very bullish

Speaker 1

call over to Mark.

Speaker 4

And we think that this is going to be an excellent opportunity for Marathon to continue to grow.

Speaker 2

Call over to our 3rd question from Logan W. Who asks, will you continue to dilute the shares? Call over to you. I heard this one a lot recently. Saman, you want to start on this one?

Speaker 5

Sure. Logan, thank you for the question. Call over to Eric. We use equity capital for accretive growth capital growth projects. And as Fred had mentioned earlier in the call, call over to Bob.

Speaker 5

We have a very strong pipeline of growth projects that we as a company and management team are very excited about. Call over to you. We have the obviously, we have the option to source the growth either through selling Bitcoin or call to accessing Capital Markets. And what our internal analysis shows is a combination of Bitcoin sales to fund operating costs call back to the operator for growth capital to be the best source of capital. Any additional shares that we sell through our at the market call back to the ATM are for accretive growth projects.

Speaker 5

And look, those projects have to meet call over to our internal double digit hurdle rate, which means the rate of returns have to be accretive to the shares that we issue. Call over to our management team meets once a month to revisit our source of capital. And this strategy has worked well for our company, but call back to the call.

Speaker 1

Can be changed with changing market conditions and Bitcoin pricing

Speaker 5

situation for which we will adjust accordingly.

Speaker 1

Call over to Steve.

Speaker 5

Now, this has allowed us to grow our Bitcoin holdings. As you know, we now have call back to approximately $500,000,000 worth of bitcoin on our balance sheet or dollar equivalent. Call over to Steve. And we have proven our ability to find and invest in attractive growth opportunities as Fred has alluded to earlier. Call over to Mark.

Speaker 5

In summary, everything we do has only one or our team goal, which is to maximize shareholder value. Hopefully, this answers your questions.

Speaker 2

Call over to Eric Gee who asked, why did management choose to buy back the convertible debt instead of buying call back to the question. Good way of looking at it. Maybe, Simon, you can start on this one and Fred, you can finish it up. Call

Speaker 1

over to Eric.

Speaker 5

Sure. Thank you, Derek for the question. We are the largest Bitcoin HODLer in the public company mining space. Call over to the operator. So, we truly believe in Bitcoin and we hold to that huddle with that strategy as much as we can after paying for our operating costs.

Speaker 5

Call over to Steve. And we continue to grow our Bitcoin holding beyond meeting our operating cash cost moves.

Speaker 1

Call over to Steve.

Speaker 5

As we went through the bear market analysis last year, it became important to reduce our debt and prepare for the next bear market. Call over to Steve. And we felt it was prudent balance sheet risk management to reduce the debt to prepare for turbulent times. Call over to you. As I said earlier, we are long on Bitcoin price, yet we want to be prepared to weather the volatility call back to the call.

Speaker 5

That could result during the having given concerning macroeconomic environment. Call over to Paul. While we hope the Bitcoin price will act like previous having, the

Speaker 1

data shows

Speaker 5

us otherwise. Hope is never a good strategy call over to Eric. As it said, and certainly, we hope that the prices behave like they did in the previous halvings, but certainly, we want to be prepared call for any beer market while being prepared to grow as the pricing stabilizes. Call over to Mr. President.

Speaker 5

With that stronger balance sheet with reduced debt provides us options and ability to strategically act when call back to questions or undercapitalized miners may not be able to survive. And the short term drop in Bitcoin could be devastating for company is not appropriately capitalized as we talked about earlier. In addition to risk management, the economics of the notes exchange were attractive for us call back to the call and resulted in over $100,000,000 shareholder value creation and real cash cost savings, which was icing on the cake.

Speaker 1

Call over

Speaker 2

to Craig Hallum. Okay. Fred, do you want to add anything to that, just given all the

Speaker 4

Yes. I think the call to the point of why didn't we buy bitcoin with equity, I think then we would just be emulating MicroStrategy's strategy, call over to where they lever up their balance sheet to buy bitcoin and that really is the primary driver of the value of that company. We believe as a bitcoin miner, call over to Eric. We generate much more value by using capital to drive growth. Call over to Steve.

Speaker 4

I think if you look at where we are positioned today with the growth we have ahead, initiatives that we're working on, call over to Mr. President. We're very well positioned today to take advantage of organic and inorganic opportunities as they present themselves. Call over to Steve. And as we've said before, we believe there will be many inorganic opportunities to acquire very low cost call back to the Q1 of

Speaker 1

2019. Call

Speaker 2

over to Tom. Great. That leads right into our last question from our shareholders, which is from Edgar M. Who asked, call over to the operator. What makes this company the best option when it comes to Bitcoin mining?

Speaker 2

What makes you different? I'll let you do that one, Fred. Call over to you.

Speaker 4

So I think really it comes down to a combination of things. Scale call over to the largest Bitcoin miner out there from a self mining perspective and will continue to grow. Call back over to you. That also gives us certain advantages in that partners want to work with us and it gives us the ability to do joint ventures call over to the excellent partners like we have in Abu Dhabi and other places. And as you'll continue to see call over to Eric.

Speaker 4

As we grow, especially in these new market areas, whether it be landfill, natural gas or other places like that, call over to Steve. We will continue to leverage this concept as a way to grow in an accelerated way, being able to optimize the leverage on our balance sheet in the most capital efficient way. Call over to Steve. The other thing is our tech stack. We're very unique in the mining space in that we have a fully vertically integrated

Speaker 2

call over

Speaker 4

to Tech Stack. As can be seen by what we've done in Abu Dhabi, our ability to deploy single phase immersion technology

Speaker 1

call back over to the operator

Speaker 4

for cooling in most probably the most grueling environment in the world for Bitcoin miners has been a resounding success. Call. Excellent uptime and very efficient mining. We believe that sets the stage for how we'll expand call over to the operator. But that's not all.

Speaker 4

We also have proprietary firmware where we now have the ability post having call back to take our miners and run them in a more power efficient way, lowering our cost to mine Bitcoin

Speaker 1

call over to the

Speaker 4

operator for other people who have to run stock firmware on their miners and not be able to dial back the power consumption call and keep their miners running even though it may not be profitable to mine. Our balance sheet is extremely strong call over to Eric. With $600,000,000 between cash and Bitcoin at today's prices.

Speaker 1

Call over to Steve.

Speaker 4

And we have great liquidity in our stock, which gives us the ability to be very opportunistic should accretive and attractive growth opportunities the We also have optionality, because we're continually focused on lowering our cost per call over to the operator. As we transition, we can grow, energize new capacity and optimize our existing capacity, call over to Kevin, which has an excellent effect on our results as you can see in the most recent quarter. Call. And I think lastly, our people. I believe we have one of the best management teams in the industry and have some of the best talent across our organization call over to the operator.

Speaker 4

There are not many companies who can execute the way our team has executed this year call over to the operator for questions. With as few people as we have generating the results that we've done. And I'm very, very proud of our people and very grateful call over to all the hard

Speaker 1

work that they put in.

Speaker 2

Couldn't agree more. Well done. In the

Speaker 5

interest of time, I think we'll wrap up this section

Speaker 2

of the Q and A. Again, we really appreciate the questions and interest. Call back to our operator to go over the line to questions from our covering analysts. Terri, back to you.

Operator

Thank question to the operator. Our first question is from Chase White with Compass Point. Please proceed.

Speaker 2

Call over to you. Thanks for taking my questions.

Speaker 6

So my rough math suggest your hosting costs in the quarter on at least on a dollar per kilowatt hour basis, something like $0.057 which is much better than prior quarters. I mean you can see the call over to you. You grew average operating hash rate by 18% and costs only grew by 8%. So call back to the line. How should we think about that hosting cost on a per kilowatt hour basis going forward for the U.

Speaker 6

S. Fleet as we head into 2024?

Speaker 4

Call over to Steve. Great question. So, obviously, when you begin an optimization effort like we did

Speaker 1

call over to the operator.

Speaker 4

Recently, there's some low hanging fruit and we've been able to take advantage of that, hence the great results we had. There's still more call over to Harvest. We think as we continue to work with our hosting partners and actively manage them, there's still opportunities call over to Steve to provide further efficiencies in what we're doing. There are also opportunities for us to work with hosting partners renegotiate some of the agreements, especially as now we are taking on a greater and greater responsibility for the operation call over to the operator. And I think the combination of more owned and operated together with more efficiently managed sites It's going to continue to drive decrease in cost of mine bitcoin.

Speaker 1

Call back over to you.

Speaker 6

Got it. That's helpful. And you mentioned 30% Hash rate growth in 20.24 from the expected 26 exahash at the end of this year. Could you just give us a sense of a roadmap of that 30% cash rate growth in 2024 and what pieces kind of drive that?

Speaker 4

So, we've already talked a little bit about the Paraguay expansion. There are other opportunities. We haven't announced that we're pretty far down the road call back over to the operator for questions. And then, I'll turn the call back over to the operator for questions. And then, I'll turn the call back over to the operator for questions.

Speaker 4

And then, call back to the call back to the call back to the call back to

Speaker 1

the call back to the call back to the call back to

Speaker 4

the call. So I think it's going to be a little lumpy to be fair. You'll see a few extra Hash call back to the first half of the year and then the balance kind of backloaded towards the second half of the year. But the goal is really focusing on the cost side of it as we

Speaker 2

call back to you. Got you. Very helpful. Thank you.

Operator

Call over to you. Our next question is from Lucas Pipes with B. Riley Securities. Please proceed. Call over to you.

Speaker 7

Yes. Hi. Thank you very much, operator. This is actually Nick Giles on the call asking a question for Lucas. Call.

Speaker 7

Fred and team, just wanted to get your sense of how would you frame up a hurdle rate for the sector in terms of new projects? Call

Speaker 4

over to you. Oh, gosh. I think each miner has their own individual call back to the operator. And so I'm not going to opine on kind of our colleagues in the industry. Call over to Steve.

Speaker 4

We're looking typically at projects that we would in an ideal world Should return north of 20%.

Speaker 7

Call back over to Fred. I know one of your peers had called out a hurdle rate of around closer call to 30% or 35%. So, just was trying to understand what your take was. But, yes, call. Thank you very much for that.

Speaker 7

I'll return to the queue for now.

Speaker 1

Call over to

Speaker 5

you. I'm sorry, I want to follow-up and clarify a little bit on the answer. The hurdle rates the call over to the operator. It's a funny business in the sense that depends on what kind of pricing assumptions you have. And obviously, our pricing may be a call back over to the operator for the Q1 earnings webcast and conference call.

Speaker 5

I would now like to turn

Speaker 1

the call back over to the operator for the Q1.

Speaker 5

Hopefully that answers the question.

Speaker 2

Call over to you. That's fair. I appreciate that follow-up.

Speaker 1

Yeah. Call

Operator

over to questions. Our next question call over to Kevin Tiete with H. C. Wainwright. Please proceed.

Speaker 3

Hi, Fred, Saum and thanks for taking my questions.

Speaker 2

Call over to you Fred. I'll try to restrain myself. Can you give

Speaker 3

us some more insight on the 5x to Hash call

Speaker 1

over to you. You just

Speaker 3

bought and where you think that's going to go and what sort of I mean that's kind of a parallel to Chase's question. Call over to you. And then maybe you could offer a little bit more on your hedging strategy.

Speaker 4

Call. Just to start. I'll defer the hedging question to Salman. But on the growth perspective, call. You've gotten a little bit of a taste of what we're doing as we look at these pilots.

Speaker 4

Call over to Steve. We have a number of growth initiatives we're doing. And instead of call. Committing large amounts of capital to an initiative before it's proven. We're doing lots of pilots.

Speaker 4

Call. When a pilot proves itself out, then we can have the confidence to deploy capital. It also lets us compare and contrast different potential opportunities. Call back to the next question. So we've talked about the Paraguay call back to the call.

Speaker 4

Expansion, we've taken an approach more recently where we're not going to go out there and talk loudly about our plans, call over to Joe. We're doing lots of things and we prefer to really talk to the market when things have been cemented and we're actually executing.

Speaker 1

Call over to

Speaker 4

you. I think that we set a pretty high hurdle for this year to hit our 23 exahash goal. Call

Speaker 1

over to Tom.

Speaker 4

I think we learned a lesson that clearly the market would appreciate us to talk less about our growth plans in specifics and more about actual growth execution. Call over to you. With that, I'll let Salman answer the question about the hedges.

Speaker 5

Sure. Thank you, Craig. Call. Thanks, Kevin, for asking this question. Look, our hedging strategy is pretty it's normal business practice call from a financial risk management standpoint.

Speaker 5

This is a newer industry, if you like, but call over to more established sophisticated industries that are commodity price exposed like oil and gas, natural gas, call over to Gold. You see hedging strategies deployed by companies to manage their portfolio. And in our case, call over to Steve. We view that as a good risk management practice from a balance sheet management standpoint. As we have a sizable, call.

Speaker 5

One of the largest huddle of Bitcoin on our balance sheet, it certainly requires us to deploy call to deploy certain prudent practices and this is part of that. So the way to view that is that we look at call over to Steve. From a hedging standpoint, our next month's moves and essentially next couple of months needs from a cash flow perspective call back over to you. And we try to target a certain percentage of our holding and use costless callers that protects us from the downside risk, call over to Steve. While keeping the upside potential on our side and these are costless callers, so which means that within the range of the price, call over to the operator.

Speaker 5

If the price remains within a range, we will end up pretty much being costless. Call back to the operator. Now in a situation where the price lands between the downside protection and the ceiling between the swaps call over to the options or the costless callers. There could be a cost to us and that goes through the P and L, call over to Steve. Yes, providing us the upside on the Bitcoin on the balance sheet and also protecting the downside risk.

Speaker 5

Call over

Speaker 3

to you. Got it, Selman. Costless callers, that's kind of

Speaker 4

what I was looking for.

Speaker 3

Fred, last one, I'll hold myself back. Call over to the operator. The October production report showed, I think, maybe 4 sorry, 3 call over to the operator. Three of the 4 operating facilities you have in North America were hashing at rates below 90%. Call over to Steve.

Speaker 3

And I'm just I know you talked about maybe being more involved in the management, the direct management of those sites, call. Look, maybe you can add a little bit more color on how you might see you move those efficiencies further call back. I mean that to me would be probably the most instrumental move you can make in improving your cost per coin. Call over

Speaker 4

to Steve. Yes. So obviously, we're very focused on the lowest performing site call. And the McKamy, Texas site has clearly been that site. That's the site where we've had to apply the most amount of resources.

Speaker 4

Call over to our Ellendale site has been a very good performer as is the Jamestown site. Call. There have been some infrastructure downtime for maintenance issues at call to some of the sites as well. But I think what you'll tend to find is provided call back to the call. We are in a period where there is not a lot of curtailment due to requirements of the grid.

Speaker 4

We're going to keep pushing the performance number to 90 and above as much as possible.

Speaker 3

And

Speaker 1

call over to you. What do you think your timeline is

Speaker 3

to that? Should we see that step up incrementally? Or do you think there should be a nice jump before we get to call over to maybe a higher power consumption season in January February?

Speaker 1

Call over to Steve.

Speaker 4

So I think it's going to be a little seasonal, but I think it'll be call over to a gradual move. Part of this is you implement a change, you test it, you iterate, you make sure it sticks And then you broaden it out. It's kind of like when we deploy firmware in our miners. We do it in a limited number of miners initially, make sure everything is operating call over to the operator. And then we scale it as we go across the site.

Speaker 4

Same thing with any changes whether it's a network optimization, whether it's call. Deploying cooling for switchgear. There are a whole series of different things we're constantly experimenting with call to try to optimize and something that works at one site may not work at another site. And so call. It's very much an iterative process and I have a background in lean from a manufacturing perspective call back over to you.

Speaker 4

And we've really applied a Kaizen sort of lean approach to this where constant never ending improvement is one of our core values call back to what we're doing here and we hold the operations teams to metrics where they need to continually improve performance of the sites. Call back to the operator.

Speaker 3

Understood. Thank you so much, Fred, and really appreciate indulging me. Call back in the queue. Thank you.

Operator

Thank you. At this point, there are no further questions. I'm going to turn the call back over call over to Chris Brendler for closing remarks.

Speaker 2

Okay. Well, thank you all for your time today. If you have any questions the call over to questions. Please feel free to contact our Investor Relations team at irmero.com. Thank you and enjoy the rest of your day.

Speaker 1

Call over to you.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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