Marathon Digital Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

Key Takeaways

  • Marathon accelerated its operational hash rate by 54% in Q2 to 17.7 EH (now ~19 EH) and is on the verge of energizing the full 23 EH capacity target, making it the largest publicly traded self-miner by installed hash rate.
  • The company produced a record 2,926 BTC in Q2 (up 33% QoQ) and won a record 179 blocks in July, driving a 228% YoY revenue improvement to $81.8 M and a positive Adjusted EBITDA of $25.6 M versus a $167.1 M loss last year.
  • Marathon has transitioned from coal to mostly renewable energy, with 58% of miner consumption powered by renewables in H1 2023 and a 2023 commitment to 100% carbon neutrality via renewable energy credits.
  • The company is advancing vertical integration by developing proprietary mining firmware and pool technology, partnering on a 250 MW immersion-cooled facility in Abu Dhabi (sub-$0.04 cost basis), and expects to ramp this site before year-end.
  • Marathon maintains a strong liquidity position with $128 M in cash, ~12,538 BTC on the balance sheet (fair value ~$382 M), and $65.5 M raised via its ATM facility to fund growth capital.
AI Generated. May Contain Errors.
Earnings Conference Call
Marathon Digital Q2 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

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

Speaker 1

Thank you, Daryl. Good afternoon, and welcome to Marathon Digital Holdings' Q2 2023 earnings call. Thank you for joining us for our call today. With me on today's call are Chairman and Chief Executive Officer, Fred Kiel and our Chief Financial Officer, Toman Khan. Before we get started, I'd like to remind everyone that our prepared remarks may contain forward looking statements, which are subject Chris, to risks and uncertainties and 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 anticipate, Chris. Could, enable, estimate, intend, expect, believe, potential, will, should, project and similar and his team. 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 1

Chris. Investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ materially from those anticipated by Marathon at this time. Chris. In addition, other risks are more fully described in Marathon's public filings with the U. S.

Speaker 1

Securities and Exchange Commission, which can be viewed at www.sec.govandir.mera.com. Finally, please note that on today's call, Chris. We will refer to certain non GAAP financial measures in which Merit Fox excludes certain items from its GAAP Financial Results. Please refer to our company's periodic reports on Form 10 ks and 10 Q and to our website for Chris. A full reconciliation of these non GAAP performance measures to comparable to the most comparable GAAP financial measures.

Speaker 1

We will begin today's call with prepared remarks from Fred and Salman. After their comments, we will be going through some of the more popular questions from investors before transferring to a live Q and A with our covering analysts. And with that out of the way, I'm going to turn the call over to Fred to kick things off. Fred? Chris.

Speaker 1

Thank you, Chris. After a solid start to the year, we continued to make progress towards our primary 2023 goals, Chris, which include energizing our fleet to reach our 23 exahash target, while at the same time increasing our operational efficiency. As our recent results demonstrate, we're near to completing our first goal and we're making consistent progress on the second. During Q2, we increased our operational hash rate 50 4% from 11.5 exahashes on April 1st to 17.7 exahashes on June 30th. Those of you who saw the July production report We published last week, we'll have noticed that our operational hash rate is now approximately 19 exahashes.

Speaker 1

In 2023 alone, The team at Marathon has more than doubled our operational hash rate and positioned us as the largest publicly traded self miner on an installed hash rate basis. Chris. We've grown Hash rate this year by successfully working with our various hosting partners to energize new facilities. During the quarter, the facility at Ellendale, North Dakota was energized and officially became our largest operational Bitcoin mining site. While growing hash rate has been our primary goal, It has been important for us at Marathon that we do so in a sustainable manner.

Speaker 1

Since I became CEO, we have made a concerted effort to transition Marathon to more sustainable and I'm pleased to report that we have been successful in that endeavor. In less than 2 years, we've evolved from a company that relied on a coal plant first Energy, to one that is mostly powered by renewable energy. During the 1st 6 months of this year, approximately 58% of the energy our miners consume Chris. While we expect this mix to fluctuate depending on wind conditions, curtailment and other factors, We remain committed to 100 percent carbon neutrality in 2023 with the balance offset by renewable energy credits or similar instruments. Chris.

Speaker 1

Operationally, we hit another milestone this week. As of today, we have officially installed 23 exahashes of miners Chris. And energization of the final tranche to reach 23 exahash of operating capacity appears to be imminent. I'm pleased to report that the final tie in to The substation in Garden City is complete. Therefore, barring any unforeseen delays, energizing this site and reaching 23 exahashes of operational capacity Chris.

Speaker 1

Because we've been growing our hash rate faster than the rest of the network and simultaneously improving our uptime, We have continued to increase our Bitcoin production.

Speaker 2

We produced

Speaker 1

a record 2,926 Bitcoin during the Chris. Which is a 33% increase from Q1 of this year and last month we won a record 179 blocks, Chris. But first, I'm going to turn the call over to Salman to discuss our financial results for the Q2. As a reminder, Salman joined us as CFO in June And he has quickly become a valuable team a valuable member of our team. He brings a wealth of valuable experience from several industries that are directly pertinent to Marathon, including Chris, Technology, Renewable Energy, Oil and Gas and Big 4 Public Accounting and Consulting.

Speaker 1

With that, please join me in welcoming Salman to his first earnings call with Marathon. Salman?

Speaker 3

Chris. Thank you, Fred, and thanks for the warm welcome. I look forward to meeting and engaging with our analysts and investors over the coming months. For now, let's focus on the results for the quarter. Improving Bitcoin prices, Chris.

Speaker 3

Increased production and accounting gains on Bitcoin sales were the main drivers of our operating results for the Q2. Chris. The company recorded a net loss attributable to common stockholders of $21,300,000 or $0.13 per common share Chris. In the quarter compared with a net loss of $212,600,000 or $1.94 per share in prior year quarter. Chris.

Speaker 3

This represents a $191,400,000 favorable variance in net loss year over year. Chris. Total revenues for the quarter were $81,800,000 well above our prior year revenues of $24,900,000 representing a 2 28% increase year over year. The company's bitcoin production at 32 bitcoin per day was Chris. 3 14 percent higher, which was partially offset by a 14% lower average Bitcoin price compared to last year's quarter.

Speaker 3

Chris. Our Boasting and Energy costs for the 3 months ended June 30, 2023 were $55,200,000 compared to $16,700,000 last year. The increase was due to increased Bitcoin production, partially Chris. Offset by lower production costs per coin and one time exit costs for our Hardin, Montana facility last year. Chris.

Speaker 3

Total cost of revenues, which includes depreciation, amortization was $92,500,000 compared to $41,400,000 last year, increasing by $51,100,000 or 123%. Depreciation and amortization this quarter was $37,300,000 increasing by $12,600,000 compared to the same quarter last year. We also had one time accelerated depreciation of Chris. The Hardin, Montana facility for $9,400,000 last year. As Fred mentioned, we have grown our mining rig fleet significantly since last year.

Speaker 3

Chris. And as a result, increased our energized hash rate from 0.7 exahashes in the Q2 of 2022 Chris, to 17.7 exahashes in the same quarter of 2023. Gains on sale of digital assets was $23,400,000 Chris. In the current year quarter and in the prior year, we had a loss of $14,000,000 for losses on digital assets loan receivable. Chris.

Speaker 3

Impairment of digital assets improved by $123,200,000 year over year as Bitcoin prices fell significantly in the prior year's quarter. Chris. Lastly, you'll remember last year we had a Bitcoin investment fund with a $79,700,000 loss Chris, and a $54,100,000 gain on sale of equipment, both of which did not exist this quarter. I want to note that the company's non GAAP total margin excluding depreciation and amortization was $26,500,000 this quarter, Chris. Representing an $18,300,000 or 2 22 percent increase when compared to the same quarter last year.

Speaker 3

Chris. This is representative of our increased cash rate and our strategy to systematically improve efficiency. Chris. Adjusted EBITDA improved to $25,600,000 versus $167,100,000 loss in the prior year period. Chris.

Speaker 3

The drivers of adjusted EBITDA include the previously mentioned accounting impacts and total margin improvement excluding depreciation and amortization, partially offset by a $10,000,000 year over year increase in general and administrative expense to support the growth of our business. Chris. General and administrative expenses excluding stock based compensation were $16,000,000 in the current period as compared with $4,300,000 in the prior year period. Chris. This increase in expenses was primarily due to higher cash compensation and benefits, professional fees, Chris.

Speaker 3

I'm pleased to report we now have over 40 employees, up from just Chris. As we have built out our finance strategy, communications, legal and human resources teams Chris, and opportunistically added talent across the organization. Turning to our Bitcoin holdings and cash position. Chris. Cash and cash equivalents totaled $128,000,000 at June 30, 2023, an increase of $15,500,000 compared to last year.

Speaker 3

Also at June 30, 2023, we held approximately 12 1538 bitcoin with a carrying value of $234,400,000 on the balance sheet. With the fair value of our holdings approximately $382,000,000 at quarter end. The company's combined balance sheet of Chris. Unrestricted cash and cash equivalents and fair value of Bitcoin was approximately $495,700,000 Chris. We sold 1854 Bitcoin during the quarter, realizing cash proceeds of $51,300,000 Chris.

Speaker 3

These proceeds were utilized to fund operating expenses during the quarter, including cost of revenues for energy hosting and other cash operating expenses. During the quarter, we generated $65,500,000 from at the market sale of equity, which we intend to use for growth capital. Chris. The combined cash and cash equivalents, Bitcoin and access to our at the market facility provides ample amount of liquidity Chris and optionality to execute our strategy. So all in all, a good quarter for the balance sheet as we maintain our strong cash position while increasing our Bitcoin holdings.

Speaker 3

As mentioned in our July production report, our unrestricted cash balance at July 31 was $115,100,000 and we held approximately 12,964 Bitcoin at a fair value of Chris. We expect our future Bitcoin holdings will generally increase, but We intend to add to our Bitcoin holdings primarily through our production activities Chris. And we will also continue to sell Bitcoin as a means of generating cash to fund monthly operating costs and for general corporate purposes. Chris. And that completes my update.

Speaker 3

So I'll turn it back over to Fred, who will talk a little bit more about our operations and

Speaker 1

Chris. Thanks, Balmain. While all Bitcoin miners fight to win locks and earn Bitcoin, Marathon has always done things differently. We've achieved a number of firsts for the industry. We've set the pace for growing Hash rate to improve our Bitcoin production.

Speaker 1

For navigating capital markets to efficiently scale the business, for operating behind the meter of wind farms to improve our mix of sustainable energy Chris, for geographically diversifying our operations domestically and internationally to reduce concentration risk. Now we're continuing this trend by vertically integrating our technology Chris Zagg, which can potentially reduce latency in our operations. If you can reduce latency, then in theory, you can operate more efficiently and therefore potentially win more blocks. Chris. Efficiency is particularly important as you move closer towards next year's having when the block subsidy will be reduced by 50%.

Speaker 1

Because Bitcoin's difficulty raises dynamic, someone will always make mining sorry, make money mining Bitcoin. Chris. But what matters is that you are more efficient than the average miner. And if you're on the low end of the cost curve, then you can keep operating when others cannot. Chris.

Speaker 1

And we believe that technology is one of the keys to improving efficiency and operating even in those toughest of times. Chris. Marathon is the only Bitcoin miner that directly controls or influences each aspect of the mining tech stack. Chris. Starts at the top with the mining pool, which is the orchestration layer between the miners and the blockchain, and it runs all the way down to the ASICs.

Speaker 1

Chris. Over the past few months, we've made several upgrades to Marapool, which seemed to have contributed to an improvement in the number of Blocks 1 and therefore Chris. However, developing our own proprietary firmware for our miners is making an even larger impact. There are several companies that sell firmware, But given our experience and our technological expertise, we thought we might be able to build a superior solution. Chris.

Speaker 1

And so far the feedback indicates that we have. We recently benchmarked our proprietary third word against some of the leading alternatives and saw several advantages in performance, protections and security. So far, our firmware seems to have demonstrated better curtailment times, better overclocking, Chris. And it allows for security audit, which is a very valuable tool for us as a publicly traded company. Moving down this tech stack to the hardware, We've been heavily focused on upgrading our fleet of S19 XPs to not just grow hash rate, but to also reduce our energy expenditure per hash.

Speaker 1

Chris. Our mining fleet now operates at 25.3 joules per terahash, which makes it one of the most efficient fleets in the industry. Chris. At the infrastructure level, we're clearly demonstrating our competency in designing and building immersion cooled mining farms. In February, we signed an agreement to jointly build a 2 50 Megawatt facility in Abu Dhabi.

Speaker 1

For reference, the climate in Abu Dhabi is one that is Chris. The temperature often is above the typical shutoff temperature for Bitcoin miners in air, meaning over 40 degrees C, Chris. Very high humidity and it's a very demanding environment. The sites in Abu Dhabi where Marathon Today is partnered in its joint venture Chris. We're designed and built and are operated by a team trained by Marathon.

Speaker 1

And it really exemplifies the ability that Marathon has Chris, in building these sites. And as a matter of fact, our pilot site operated for over 100 days without human intervention, which shows Chris. So we clearly believe that this demonstrates our ability to now become Chris. Truly a leader in the owned and operated space as well as 3rd party hosted. So the whole 2 50 megawatts Chris.

Speaker 1

In Abu Dhabi, it is expected to be online before the end of this year. But already in July, 1st of the 2 sites began hashing and produced Chris. For 17 Bitcoin, of which we received 3.4 Bitcoin due to our 20 percent ownership in the project. Chris. Even the hash rate that's currently online has already proven to be helpful to the region as a load balancer and preliminary reports have shown the site's ability to dynamically Chris.

Speaker 1

This type of flexible demand response is an excellent case study for how Bitcoin mining can benefit utilities. Chris. It also proves that we can now mine Bitcoin successfully in parts of the world that were inaccessible even a year ago given their climate. While we've not announced any significant growth plans beyond 23 exahashes, our intention is to continue to grow and maintain our leading position in this space. Chris.

Speaker 1

Our scale, operational expertise, flexible approach to implementing the right business model for a given deployment and our ever increasing portfolio of technological innovations Chris. Are all key to drive rapid expansion of efficient operations. With the having coming up next year, optimism may not be the dominant emotion Kirby, Bitcoin miner. And many in our industry today are focused on how they're going to survive, which is not easy to do given how dynamic this space is. Chris.

Speaker 1

But at Marathon, our focus is not just staying alive, but thriving, even in the most challenging times. We remain focused on conscientiously growing our Hash rate Chris, and consistently improving our technology and remaining a leader in this industry. We've been setting the pace in this industry for the past 3 years and we have every intention to keep that trend going. This industry is still young, it's full of potential for those who are willing to shape it And we therefore believe the most exciting years for Marathon and for Bitcoin lie ahead. Chris?

Speaker 1

Chris. Thanks, Fred. At this time, we're going to commence the Q and A section of today's call. I'll start by answering some of the most popular questions Chris. Our first question comes from C.

Speaker 1

K. Who asks, Chris. Regarding Auradigm and Mera, number 1, what percent of Auradigm does Mera own? 2, how should we think about the pricingbenefits that having a stake in Auradigm will provide Tamara as you continue scaling Hashrate and 3 is Auradigm providing Chris. Great question, CK.

Speaker 1

I'm not sure how much of that we can disclose at this point. Fred, can you add a little color on Ardine? Chris. Sure. Great question.

Speaker 1

So Marathon today owns about 12% of Auradigm. So we're a minority shareholder. Chris. There are large venture capital firms that own a much larger percentage than the founders of Auradigm on the balance. Chris.

Speaker 1

I think you should think about the reasons why we made the investment rather than talking about price advantages and things like that. What we really were looking for was to find the ability to have a miner built that could Chris. Really operate in all of the challenging environments we needed, be able to ramp up and overclock, be able to ramp down and underclock, be able to operate Chris. In Immersion, single phase, dual phase immersion have very efficient operations, but more importantly be able to be intelligent. And one of the key things with the Auradyne miners that the team in Auradyne has clearly been able to achieve even beyond the expectations that Marathon initially Chris.

Speaker 1

To create a miner with a total cost of ownership that is significantly lower than most of the industry. And that is so important as we move into an environment with very dynamic energy pricing and also the having. And dynamic energy pricing is critical because these miners essentially can operate in a way so you can set a price target Chris. Of energy or price targeted Bitcoin, if you would, a hash price, if you would, for Bitcoin and a variety of other parameters. And the miners will automatically adjust Chris, to operate within those parameters, scaling up their capacity, scaling down their capacity.

Speaker 1

It is a game changer for the industry, which again means that these miners can operate Chris. In large fleets managed from the cloud platform that makes it very unique. So that's what we're most excited about as regards to Auradigm and we're Chris. Very excited to be able to start incorporating those systems into our fleet. Great.

Speaker 1

Our next question is from Tariq who asks, What's your future projections for mining production? Are there any things you are focusing on besides bitcoin mining to also bring more revenue to your company? You want to take that one as well, Fred? Chris. Sure.

Speaker 1

So while we haven't disclosed kind of what we're doing outside of Pure Bitcoin Mining and I would just say stay tuned Chris. To that, we're going to continue to grow our operations. As I said in my prepared remarks, we intend to continue to remain a leader and we'll continue to grow capacity Chris. At conscientious rate over the coming years. We believe that it's our duty to be one of the leaders in this industry in supporting and Sharing the Bitcoin blockchain and supporting the industry and the infrastructure around it.

Speaker 1

So as you look towards the future, Chris. Expect to see Marathon developing technologies that will help build the infrastructure for this industry to really thrive long term. Chris. That's great. Actually, I have a question from Andreas who asked, the having is rapidly approaching and with it a looming bull run, What are your plans upon this rapid rise in Bitcoin price?

Speaker 1

What are you doing to separate yourself from other mining companies? So I appreciate your optimism, Andres, but I don't think we're going to comment on Bitcoin price predictions at this point. Fred, maybe you can provide some more color on how we are approaching the having and how we are differentiating ourselves. Chris. So the having is obviously a recurring event in this industry and all miners are very focused on making Sure that they'll be able to operate profitably, not just at the having, but beyond and through the next cycle until the next having in 2028.

Speaker 1

Chris. So as Chris mentioned, we're not going to comment on where we think the price of Bitcoin is going to be. But we're obviously very focused on optimizing our operations that our cost Chris. To mine Bitcoin will allow us to weather any sort of storm here as we get towards to having Chris. Where Bitcoin price may fluctuate up and down kind of greatly.

Speaker 1

As Bitcoin price moves up, obviously, there will be an increase in hash rate Chris. More miners will want to be putting on more Hash rate. The price of Bitcoin doesn't grow into the having, then you may even expect that some analysts have predicted the Hash rate to Chris. Actually decreased post having. So we'll just all have to look and see how that is.

Speaker 1

But we're very focused on just being the most optimized miner Chris, from a cost perspective. And while we still have some ways to go, we're very focused on it. And as our mantra has been this year, it's energized and optimized. So we're very focused on doing both at the same time. That's great.

Speaker 1

The next question comes from Bert F. Who asks, Why should an individual invest in Mara as opposed to Riot or buying Bitcoin itself? What do you see as the benefits of Mara compared to other investing options? Chris. Great question, Bert.

Speaker 1

Let's turn the mic over to Fred as well. So, I think Riot runs a great operation. I think the Chris. The challenge with Riot is they're not a Bitcoin pure play in the sense that they operate a third party hosting business, Chris, where they rent out capacity to third parties and then they also are a self minor. They're also highly concentrated to a particular area in Texas, Chris.

Speaker 1

Which makes them very susceptible to either regulatory changes in Texas, air clock changes in Texas, climate, etcetera. So I think you have to look at each miner's operating model. We operate a very diversified portfolio. We operate some third party hosted sites. We operate some owned and operated sites.

Speaker 1

We operate in Texas. We operate in North Dakota. We're now operating in UAE, and we'll continue to expand internationally and continue to diversify our portfolio of sites Chris. And move to a greater balance of owned and operated than we have today. So we offer Kind of more of a diversified play in that regard.

Speaker 1

We are also a Bitcoin pure play in that we not only mine Bitcoin, but we hold a lot of Bitcoin. And that Generally tends to show itself in how you see our stock react to increases in the price of Bitcoin. So I think Chris. Right at Marathon, 2 very different companies and operating under different models. I think that if you compare Marathon to Chris.

Speaker 1

Just buying spot Bitcoin. I would recommend you look back at Chris. And you'll likely find that there were opportunities this year, for example, I think even on a year to date basis where Marathon has outperformed Bitcoin. So that may be a reason to invest in stock. Chris.

Speaker 1

Okay. And then we have one last question from our or we have time for one last question from our platform Good afternoon. I'm going to actually combine 2 of the most popular ones into 1 and try to hit them both. James R. Asked, are you thinking about or planning a reverse split?

Speaker 1

Chris. And then, Savir T. Asks, why do you continue to wish and try to dilute the shares of your shareholders? Why not do a split, Chris. Take a loan or do something similar to advance shareholder value instead of always trying to create more shares and dilute the value.

Speaker 1

So perhaps you can provide some color on our strategy for U. S. Equity in growing the company. Smedes, maybe you can start and Fred, you can finish it up.

Speaker 3

Chris. Sure. Happy to do that. Thanks, James and Savita for asking the question. The way we see as from Equity on a capital stack standpoint is, our eyes are focused on shareholder value creation.

Speaker 3

So any decision that we make, we will always Chris. Think about shareholder value creation first. And when it comes to whether it's debt or shares, we already have Chris. Convertible debt on our balance sheet, which is low interest rate and certainly that is evidence that we have that capital stack in the Chris. That creates the value for our stockholders.

Speaker 3

In terms of growing and raising capital and the Strategy to grow the Exahash. When we look at the growth here, we're not growing just for the sake of growing. We're growing with the intention Chris. Of creating value for the stockholders. As long as it's accretive to our existing stockholders, we will continue to raise capital to grow from that perspective.

Speaker 3

So Chris. Hopefully that answers your questions. In terms of reverse stock split, I'm not certain if I understood the question. We don't have the intention At this stage, given our stock price and given our company size, we don't see a value in our stock split at this stage. Hopefully, that answers your question.

Speaker 3

Chris.

Speaker 1

Yes. I would just add the comment that if you look historically, splitting a stock is something you do when your stock price is Very, very high. I mean Apple did it when their stock was between $600 $700 a share because it makes it look like a share is more affordable. Chris. And they dropped their share price down to they did a 7 split, so they dropped it down to about $90 Chris.

Speaker 1

Trading in the $15 to $20 range where we trade, it doesn't make sense to do a split and that doesn't create any shareholder value. And doing a reverse split, Chris. You only really ever do if your stock price gets below $1, so I don't see any value in doing that. But just as you look at our Chris. Every exahash that we add, adds shareholder value because it produces a certain amount of Bitcoin and that amount of Bitcoin or certain Benjamin Chaddag will continue to hold on the balance sheet and that continues to add shareholder value.

Speaker 1

We have been selling Bitcoin to cover our operating expenses Chris. This year, so we're not diluting our shareholders to maintain operating expenses in that degree. So I think our growth plans Chris. Are going to be very consistent with doing things that drive shareholder value accretion. Chris.

Speaker 1

Okay. On this time, we'll have to wrap up this section of the Q and A. Again, we really appreciate all the questions and interest and thanks for Chris. I'm now going to turn the call back to the operator to open the line for questions from our covering analysts. Daryl, back to you.

Operator

Chris. Thank you. We're now going to open the call to questions from Marathon's covering analysts. Chris.

Speaker 1

Chris.

Operator

Chris. Our first questions come from the line of Lucas Pipes with B. Riley. Please proceed with your questions.

Speaker 2

Thank you very much, operator. Good afternoon, everyone. Thank you for taking my questions. My first one is also on the having side. Chris.

Speaker 2

With it rapidly approaching, I kind of get a sense for the flexibility you have. Just for argument's sake, if a given data center is not economical on a variable basis, do you have the flexibility to curtail miners there temporarily at least or are there kind of take or pay commitments Chris. If you were to take that step that you would still have to pay for a dividend amount of power, would really appreciate your color on that dynamic. Thank you. Chris.

Speaker 1

Thanks, Lucas. It varies by site and I'm not going to go into each site 1 by 1. But it depends on if at the site we Chris. The PPA or we're doing pass through power. And that happens to be the case in some of the sites.

Speaker 1

There are other sites that have Chris. Very low cost fixed power and other sites that just have fixed pricing, which is power and hosting. So it's a broad mix Chris.

Speaker 2

That's helpful. Thank you, Fred. And just to follow-up on that, kind of as a percentage of Chris. Ex the Hash rate today, assuming installed ex the Hash rate, roughly what percentage would fall under fixed commitments and where which ones would be more flexible?

Speaker 1

Chris. I think you would find the installed about a third today is flexible Chris. And the balance is most probably, yes, I'm not going to guess, but it's Chris. Most probably somewhere 40% fixed and then the balance is very low cost fixed.

Speaker 2

Chris. Really appreciate that. Thank you. Thank you very much for that. 2 quick follow-up questions, Chris.

Speaker 2

Not directly related, but first, in terms of the utilization rate on the operating Hash Chris. What are kind of your expectations on that metric going forward? We calculated in house, but would appreciate how you approach that question. And then, yes, somewhat not directly related, but Garden Chris Iddy. You mentioned you expect to start up imminently.

Speaker 2

I guess imminently is pretty clear, but if you could maybe share your update on the site and when you would expect it to turn online, I would really appreciate it. Thank you so much for your color.

Speaker 1

Yes. So the physical tie in of the site is complete and the last documents between our hosting provider and the energy provider Chris. Are being passed back and forth with the final red lines. And as soon as that document is signed, they start energizing. So Chris.

Speaker 1

That's the last step. There are no other approvals or any other regulatory issues holding that site up from going on. Chris. Our hosting providers publicly said they expect it to happen imminently. We believe the same based on the current status of Chris.

Speaker 1

And that will ramp in kind of 20 megawattsets Chris. Over a short period of time.

Speaker 2

Got it. So this would kind of ramp up over the course of Chris.

Speaker 1

It was probably somewhere between 6 to 10 weeks.

Speaker 2

Chris. And then in terms of utilization rates, more broader.

Speaker 1

Chris. You mean uptime? So help me understand what you mean by that.

Speaker 2

Yes. Sorry, I meant with that, I mean, yes, uptime. Obviously, like Chris. That Garden City Miners don't run, that's understood. But kind of in terms of the operating Chris, base kind of what uptime is a good benchmark.

Speaker 1

So it's seasonal. As you're well aware, Texas has a lot of Chris. And so operating in Texas, uptime is going to be lower in Texas. Chris. In North Dakota, by contrast, we've been operating well over 93%, 94% even in the summer.

Speaker 1

And so that site has been operating with very high uptime. So I think you have to kind of look at the West Texas sites as being very seasonal. Chris. You're going to be in the mid-90s in the core times of the year. And depending on curtailment Chris.

Speaker 1

And temperature issues, you may be in the 60% to 75% during some of the hotter months in the summer.

Speaker 2

Chris. Super. Hey, Fred and team, I really appreciate it and best of luck.

Speaker 1

Yes. Chris.

Operator

Thank you. Our next questions come from the line of Chase White with Compass Point. Please proceed with your questions. Chris.

Speaker 2

Thanks. Good evening, guys. So how should we think about aggregate power costs Chris, across the entire portfolio as you energize Garden City and that site starts to come online. And then I

Speaker 1

have a follow-up. Yes. So what complicates this is that the APLD sites, we pay essentially a fixed Chris Price for power and hosting. So power isn't broken out in that cost, it's power and hosting. So that makes it a little bit harder to give you just the power cost.

Speaker 1

But I think you could look generally speaking across sites Chris. And you would find us if you include power and hosting across all the sites, you're going to be in this kind of $0.06 range per total Chris. Got you. And

Speaker 2

switching gears a little bit, I mean, are you able to provide us any additional details about Chris, the economics for the Abu Dhabi JV.

Speaker 1

It's an eightytwenty joint venture. We just started So we don't even have 1st month's financials yet. So I couldn't tell you. But what I can tell you is it's a fixed price Chris. Sub $0.04 fixed price energy and then we split the operating costs eighty-twenty.

Speaker 2

Chris. Got you. So sub $0.04 and is that and that's fixed

Speaker 1

just all the time. Got you. Perfect.

Speaker 2

Chris. And then any updates on the recoveries from the Compute North Bank Rusty?

Speaker 1

None to mention.

Operator

Chris. Thank you. Our next questions come from the line of Jon Peterson with Jefferies. Please proceed with your questions.

Speaker 2

Great. Thank you very much. I'm just curious on The ex Hash or the XPs that you're putting into place right now at today's economics, what do you estimate like the payback period is Chris, on what you paid for those machines at Today's Economics.

Speaker 1

Well, those machines Chris. We're significantly discounted by the time we finally paid for them, right? So when we ordered them, it was at a Chris. And by the time we ended up paying for them, it was significantly below that. This can be seen by the limited amount of CapEx we've had Chris.

Speaker 1

Due to payoff those. So I think you're going to find it somewhere between 13 18 months most probably.

Speaker 2

Chris. Okay. All right. That's helpful. And then

Operator

and this is a hard question to answer.

Speaker 2

I'm just curious, in terms of the halving next year, do you have any estimate of Chris. What percent of the exahash that's online right now would come off Chris Posthalving.

Speaker 1

Well, you tell me what the price of Bitcoin is going to be and then you can calculate it.

Speaker 2

Let's just Chris. It's today's price of Bitcoin and today's Exahash. I know there's a lot of leverage to figure this stuff out.

Speaker 1

Yes. I mean, if we're talking about a price of $30,000 per Bitcoin, that would mean essentially at the halving you're talking about Chris. The equivalent was $15,000 which would be right around our marginal cost to produce. So don't know if we would shut off necessarily.

Speaker 2

Chris. I didn't mean any of yours. I meant the market overall. Like, do you have any sense of how much of the total network cash Ray, might come offline.

Speaker 1

Well, look at it this way. Our fleet operates at roughly 25 joules per terahash. The average for the Chris. Your colleagues are estimating 20% to 30% Chris. Would come off?

Speaker 1

Yes. Okay. So if you're in the lower third Chris. The miners from an efficiency perspective, I think you're going to do fine. I think it's Chris.

Speaker 1

If you're above if you're average or above, you're going to be challenged.

Speaker 2

Yes, that's fair. That's all for me. Thank you. Chris. Thank you.

Operator

Our next questions come from the line of Kevin Dede with H. C. Wainwright. Please proceed with your questions.

Speaker 1

Hi, Fred. Thanks for taking it. I was curious about your software integration. How much progress have you made on that? How much have you implemented?

Speaker 1

What sort of efficiency gains have you seen? Can you talk to that at all? Chris. I can talk a little bit to it. So we're running we've just transitioned to our Chris.

Speaker 1

3rd generation of cool software, which is fully kind of developed Chris. Marathon, that is the one that's been driving a lot of efficiency gains. I won't say how much, but let's just say that it's been driving efficiency gains. Chris. Our firmware is running in a subset of miners and we continue to expand Stav across the fleet and our expectation is to have the vast majority of the fleet transition to our firmware here over the balance of this year.

Speaker 1

Chris. That summer gives us additional efficiencies, which I think will be very beneficial. Chris. The Immersion technology that we're running in UAE and we're also running a tiny bit of it in some other places Chris, in the U. S.

Speaker 1

That we've done for testing purposes. We've developed by a third party with direction for Marathon and we're very focused on Chris. Expanding the development efforts we're doing in Immersion to get even better efficiencies. And the efficiency in Immersion Had more to do with being able to operate not just in extreme environments, but also requires fewer touches by human beings because That's where you get the operating efficiencies in Immersion is if you don't have to touch it and you can have fewer engineers on-site. Chris.

Speaker 1

And so we've been very focused on putting a lot of instrumentation into the systems so that they can be managed remotely. And if you recall my Chris. Kind of comments regarding Oradyne to a prior question. With the capabilities that those miners bring Chris. Over time, we'll have the ability to really manage a fleet from a profitability standpoint where the machines Chris.

Speaker 1

And the orchestration there really men and themselves, if you would, based on set profit targets and cost points. So Chris. Yes. That's kind of what we're very focused on. And that's why we felt it was so important to make the investment in Auradigm, so we could have Chris.

Speaker 1

The ability to influence the design of a miner all the way down even to the ASIC level, so we could get specifically what we felt was the right Chris. So Fred, to load the firmware and the Ardine software, Do you need to pull the miner from the rack, take it to the shop? Well, so the Auradyne software will run on the Auradyne miners. It won't run on the Bitmain, so let's be clear about that. Okay.

Speaker 1

To load the software, we do over the air for updates. Okay. And how flexible Do you think this software development is and will be to changes in your fleet? Chris. So far it's been very flexible.

Speaker 1

You got to think about it this way. Our fleet consists of Two types of machines today, it's S19 J Pros and S19 XT Chris. Predominantly. As we add other machines, we'll add different versions of firmware as it makes sense. Chris.

Speaker 1

So if a machine comes with a firmware that's as good as ours and has the same capabilities, there's no reason for us to change the firmware on the machine. Chris. It just so happens that Bitmain's machines don't come with particularly good firmware when it comes to the ability to Chris. Overclock, underclock, set 10 points, things like that. It's just it's very vanilla.

Speaker 1

And the other 3rd party firmwares Chris. Yes, might be good at 1 or 2 things, but not good at everything. And so that was why we made the decision to do all of our Chris. Chris.

Operator

Thank you. Our next questions come from the line of Lucas Pipes with B. Riley. Please proceed with your questions.

Speaker 2

Thank you, operator. Thank you for taking my follow-up Chris Schantz. First, Fred, can you remind us about the fleet at Garden City? Are those Chris.

Speaker 1

All XPs.

Speaker 2

Got it. So kind of we should expect the efficiency to tick up Esgaard in Citi, turns online.

Speaker 1

Yes. So I think we've said previously that our once fully deployed, we would be at about Chris. 22 or 23 joules per terra hash and we're at 25 today. So that gives you kind of a feel for that.

Speaker 2

Got it. Very helpful. Thank you for that. I know you had said it before. I just wanted to make sure I remembered it right.

Speaker 2

And then Fred, on M and A, do you have thoughts on what could make sense here? The industry obviously kind of came through some of the most challenging times and I could imagine that our players might be looking for liquidity Chris. And so as a leader, you might have a role to play. I would appreciate your thoughts on that.

Speaker 1

Sure. Yes. I think I've said a number of times that M and A in this industry is challenging because the replacement cost miners, because the hardware has a fairly short life. And depending on the age of whatever fleet the miner is running, Chris. You always have to weigh what am I going to pay for these machines versus buying new.

Speaker 1

And as everyone's aware today, Chris. The cost of new miners is at a rock bottom level. You're paying single digit dollars Chris. Pertera Hash for S19J Pro class machines and XPs are in the mid-20s somewhere. Chris.

Speaker 1

So, yes, it's almost better today to if you're going to acquire somebody, it's got to be somebody that has an Chris. Amazing PPA or access to a very low energy cost and a facility where you can essentially Chris. Pull out old machines and put in brand new super efficient machines. There's got to be a reason why the company is for sale typically, right? So Chris.

Speaker 1

Either the miner is in trouble or they will be in trouble at the having and therefore they're trying to sell themselves now. Chris. And I think there's certainly a lot of activity in the marketplace right now with people who are trying to solve that issue. Chris. Because these miners that are in trouble today are going to be in even more trouble compounding.

Speaker 1

And So I think there are going to be even more opportunities coming next year. But if I were to advertise for a minute, what would Marathon want to buy Chris. It's in the way of a miner. It's somebody with great access to very low cost power and Chris. Great infrastructure where they've yet to put in any miners.

Speaker 1

And so we can build the site and we can equip it.

Speaker 2

Chris. Thank you, Fred, for the perspectives. I'll maybe have one last Follow-up question is, it's a little bit of a higher level question, but I would appreciate your thoughts. Fred, kind of when I look back over the history of Bitcoin Mining, every couple of years, the new mining rig came out, a fairly relentless March, I wondered what are you seeing today? Is the pace of technological advancement stable, Decelerating, accelerating.

Speaker 2

And with some of the developments we're seeing on the AI front with very efficient ships, is that Chris. Positive or possibly a negative because it increases the overall demand Chris, for New Computing Systems. So kind of a double edged, 2 pronged question here. I would appreciate it. Thank you.

Speaker 1

Yes. So in the Bitcoin mining space as apart from AI space, but in the Bitcoin mining space, Chris. We went through a pretty significant increase in efficiency with the advent of DXP Chris. Taking us from basically what was an industry average of around 30 joules per terahash down to about 21 joules per terahash. So That's a pretty significant increase in efficiency, 30 ish percent.

Speaker 1

What we're seeing now is a raft of new Chris. Machines coming from whether it's Micro BP, whether it's Oradyne, Desi Miner, it was a company that was showing the machine that might need to disrupt, Chris. Which are all in that 20 ish joules per terahash. But if you overclock them or underclock them, etcetera, you can get down into them. If you underclocked him, you can get maybe down into high teens.

Speaker 1

Getting from there to the next level of efficiency in Bitcoin mining is going to require A pretty big step. I fully expect most of the especially people like Bitmain are most likely working on next generation technologies. And so it wouldn't surprise me if we heard something new from them before the end of this year. Chris. But I think it's going to be the returns on efficiency are going to start becoming smaller from a Chris.

Speaker 1

Minor Hash rate perspective, where the real efficiency gains are going to come is in the software, not just in the miner, Chris. Meaning the ability to totally tune the operation of the miner to either a target hash price or energy cost or global hash rate, etcetera. So the miner can literally tune itself to operate. Do I over talk? Do I under talk?

Speaker 1

What do I do so that I can maximize the amount of Bitcoin on mining? And then you start getting into a lot of AI driven Chris. Cloud orchestration for fleets of miners. So large operators like ourselves could reap very large benefits from that more so than increasing Chris. The efficiency at the hardware level by 1 or 2 joules per terahash.

Speaker 1

That's that area. Chris Clinkick. Higher level.

Speaker 2

Yes, sorry, go ahead.

Speaker 1

I was just going to say, as you look at the AI side of this business, Chris. Meaning, Bitcoin miners moving to running AI compute versus mining Bitcoin. I see there are a number of miners who are Actively focused on that, HUD Aid, Applied, etcetera are very focused on that. And what that does, as I look at it Relative to Bitcoin mining is it means most companies will have less capital to invest in growing hash rate, Chris, which means global hash rate from players that go that route won't be growing. I think where we're going to continue to see the growth in global hash rate is from sovereigns who want to mine Bitcoin.

Speaker 1

Chris. And I think you're going to continue to see the trend of sovereigns mining Bitcoin as a way to potentially use Bitcoin as a reserve asset. And Chris. Yes, I think it's going to be a much more important trend to this industry going forward.

Speaker 2

Thank you. Thank you for the couple of interesting Chris. On the comment regarding a smaller advance in the Chris. Machine Efficiency. Where would you put the next generation at 15 joules, 10 joules, what would be your best Chris Guest today.

Speaker 1

So the next big jump will be a geometry change. So for example, Bitmain's XP is a 5 nanometer. If they were to jump to 4, Chris. You may see it come down to 18 joules of terahash. If they jump all the way down to 3, which would be expensive, Chris.

Speaker 1

You may see it come 2017, maybe 2016, but again that's going to be a very expensive miner Chris. Because of the cost of 3 nanometer wafers today. So that's why I keep thinking the real benefits are going to come Chris. Software as opposed to hardware over the next 2 to 3 years. And then we'll have to see Chris.

Speaker 1

Advancements in compute and in technologies Typically take a while to flow through.

Speaker 2

And at the end of

Speaker 1

the day, Bitcoin mining is a fairly small volume industry for technology companies when you think about it. Chris. They're not 100 of 1,000,000 of miners sold a year. And so it's hard to justify development effort. And I think Chris.

Speaker 1

It's the type of market where it's typically suited for 1 or 2 players to kind of dominate the hardware side of it. Chris. And then the small marginal players just have to eke out whatever little things they can.

Speaker 2

Very helpful. Lots of food for thought there, Fred. I really appreciate your perspective.

Speaker 1

Yes. Thanks.

Operator

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

Speaker 1

Chris. Thank you, Daryl. And just a quick clarification on the question around our fleet efficiency when fully deployed. We actually put in our Chris. Press release on July production last week that we're expecting 24.2 joules per terahash when fully deployed.

Speaker 1

So With that, thank you all for your time today. If you have any questions that were not answered during today's call, please feel free to contact our Investor Relations team at chris.mero.com. And with that, thanks and enjoy the rest of your day.

Operator

Thank you. This does conclude today's teleconference. We appreciate your participation. You

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