CleanSpark, Inc.

Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Isaac Holyoke, Chief Communications Officer. Please go ahead.

Thanks, Audra, and thank you for joining us today for CleanSpark's fiscal first quarter financial results call covering the period October 1st, 2022 through December 31st, 2022. Our press release was issued about 30 minutes ago and is available on our website at www.cleanspark.com forward slash investors. Today's call is also being webcast and a replay and transcript will be available on our website. I'm here with Zach Bradford, our Chief Executive Officer, and Gary Beccarelli, our Chief Financial Officer. Keep in mind that some of the statements we make today are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. We will also discuss certain non-GAAP financial measures about our performance during today's call. You can find the reconciliation of GAAP financial measures in our press release, which is available on our website. It is now my pleasure to turn the call over to Zach.

Thanks, Isaac. Good afternoon, and thank you for joining our call. The last time we spoke with you, we shared the results of our first fiscal year-end 2022. Today, we will discuss the results of our first fiscal quarter, which, as Isaac mentioned, covers the period of October through December 2022. During that time, our industry in particular and the economy more broadly faced significant macro headwinds. Even in the face of these headwinds, we persisted and we grew. Our average hash rate rapidly increased, outpacing global hash rate, resulting in significantly increased Bitcoin production for the quarter and the subsequent month. The number of machines hashing grew by over 20,000. We added a new mining campus to our portfolio, The growth and work from those dark winter days has since resulted in our highest Bitcoin production ever, last month, which was nearly 700 Bitcoin. We also grew our board, welcoming Amanda Cavallari, who is an expert in Bitcoin policy. No matter the measure, no matter how difficult the quarter, we grew. And we are just seeing the majority of the benefits of this growth today and beyond. In fact, we outpaced all of our peers. Every single one of them. Data recently published by the MinerMag, a research and data portal focused on institutional Bitcoin miners, placed us first amongst public miners in terms of percentage hash rate growth. As you can see from the visual, the network hash rate average grew by 46% since January 2022, while we grew over 200%. Not only did we outpace global hash rate, we did so at a tremendous clip. We started the quarter with a hash rate of 4.2 exahash per second. And by the end of the year, it had grown to 6.2 exahash per second for a 48% increase for the quarter. Since then, we've continued to grow, and our hash rate now stands at 6.6 exahash per second. We had 63,700 machines hashing as of December 31st. Our fleet was running at an average efficiency of about 31 watts per terahash. For perspective, we understand some of our peers come in at over 40 watts per terahash. Our fleet is tremendously efficient. Most of our machines come from Bitmain's S19 series, and we have started to acquire more XPs. The quality of the machines tells only part of the story. Our immersion-cooled facility has allowed us to test the limits of over- and underclocking as we leverage software and firmware to optimize performance. We are also testing additional software optimization techniques for our air-cooled fleet, which we expect to allow us to bring under and overclocking capabilities to all of our campuses. This optimization will prepare us to stay ahead of the curve when halving occurs in 2024. We mined a record number of Bitcoin for the quarter. a total of 1,531 Bitcoins. For comparison, in the first quarter of our last fiscal year, we mined 660 Bitcoins. This represents an increase of 131%, well outpacing global hash rate. We also increased production quarter over quarter by 25%. We have reliably grown as we execute on an operational strategy that we believe makes us one of the fastest growing, most reliable, and most efficient publicly traded Bitcoin miners in North America. The secret to our growth has been our proprietary mining model. There are many different mining models out there, from asset light on one side to proprietary mining on the other. In the asset light model, machines are owned by the company, but cared for and run by hosting companies that also take a cut of the profits. This model introduces less control over a company's destiny because the company is exposed to the risks and uncertainties of third parties, their ability to build facilities, procure power, operate the machinery, and importantly, stay solvent. We believe higher returns are consistently generated by actively participating in the mining process. Contrast that with proprietary mining. Miners like CleanSpark that operate almost exclusively as proprietary miners can exercise significant greater control over their own destinies. We believe this gives us a significant edge. First, it provides investors with predictability. Out of the various business models for Bitcoin miners, our proprietary mining model minimizes the impacts of unforeseen events. We can plan and react to the unexpected in real time. giving us greater optionality, even during difficult market conditions. We also have multiple sites in different jurisdictions that we own and operate with complete control. Second, it makes us more reliable. Last month, we had our highest uptime ever, over 98%. We believe we have one of the highest uptimes among publicly traded mining companies. We own our infrastructure. develop the teams and culture necessary to staff and run our campuses, and execute in very remarkable ways on our operational strategy. We exercise maximum control over timelines. Now, I want to underscore that 98% uptime only happens when you have a team of dedicated people who believe in the work and what we are doing and who share in the rewards of our successes. Third, our proprietary mining model introduces lower production costs. Many factors go into production costs, including staffing costs, power costs, and the cost of assets. But directly owning the infrastructure and other assets involved in producing Bitcoin means lower operating costs in the long run. We make long-term investments for long-term benefits. And those long-term benefits accrue to our shareholders directly, rather than being dispersed amongst a variety of service providers or third parties. We're very proud of these facilities and take every opportunity to open them up to the communities we operate in. Seeing our mining campuses has a transformational effect on Bitcoin enthusiasts and skeptics alike. We see our owned and operated facilities not only as a competitive advantage in the Bitcoin mining industry, but as the key to winning the hearts and minds of the people and communities we work with. One of the newest communities to be brought into the CleanSparks team is the city of Sandersville, GA, home to our most recent acquisition, an 80-megawatt facility that we closed in mid-October. And we've quickly ramped up our hash rate there, allowing us to exceed our 2022 calendar year-end guidance not just once, but twice. We are well into planning the expansion of the Sandersville facility and expect to add an additional 150 megawatts to the site by the end of 2023. for a total of 230 megawatts, supporting over seven exahash in total. Subsequent to the quarter, we also broke ground on our 50 megawatt expansion in Washington. I'm particularly proud of our teams and partners that are working tirelessly day in and day out to complete this buildup. As an example, our teams were working long before the sun came up last Saturday to start pouring the concrete pads for the building. Construction is proceeding according to timelines. We expect all four buildings, each of which will house 12.5 megawatts of miners, to be completed with all miners racked and ready by the end of May. Energization is then expected to take a few weeks more, being completed sometime in late June. We receive regular updates from our construction partners and the utility provider, and we will share relevant information in a timely way. I can also tell you that the City of Washington is glad to have us building in the community. The construction provides jobs and keeps resources in the community. We are very proud to have found great partners in the City of Washington. Allow me to transition to the future and share with you how we plan to continue the rapid growth we've witnessed over the past year that has allowed us to triple our hash rate from January 2021 to January 2023. Our past performance should be viewed as the best indicator of our future performance. During our last earnings call, we shared with you our guidance of 16 exahash per second by the end of calendar year 2023. I'd now like to take a few moments to talk about how we plan to meet the expectations by talking in greater detail about our growth strategy and the financial strategy that backs it. Essentially, how we plan to build it and pay for it. First, I'd like to talk about how we plan to build it. We have 6.6 exahash per second operating now, and we expect to squeeze out a bit more efficiency in the coming months, which will allow us to incrementally increase this hash rate. As I mentioned, the Washington expansion is underway, which will result in rack space for over 15,000 miners. We are finalizing the plan on the miner mix, and based on the latest plans, we expect the site to ultimately increase our hash rate by 1.9 exahash per second. This expansion brings us to 8.5 exahash in June, leaving 7.5 exahash per second to meet our year-end target. The Sandersville expansion will commence in the coming months with a target completion date of November 2023. This timeline is dependent on the completion of a substation that is being constructed by our utility partners. We intend to align our construction schedules to have our site complete in advance of the power handoff date with the expectation that we have our facility built and the miners racked so that we can go live as soon as the power is handed over. We expect the Sandersville expansion to add approximately 5.5 exahash per second, bringing our total portfolio to 14 exahash per second. Now, this leaves us with a 2 exahash per second gap to fill over the next 11 months. We are confident in our ability to do so. We are currently evaluating several greenfield and acquisition targets to fill the 2 exahash per second gap and expect to source or acquire an additional 50 to 75 megawatts of new opportunities. We have multiple candidates in the pipeline and will provide additional details as appropriate. Lastly, I've recently been asked about Lancium. At this time, we do not have any further updates other than we still hold the contractual rights to the power when completed. We are currently not expecting any of it to come online in 2023, and as soon as we have more information about the 2024 outlook and beyond, we'll let you know. Now, how do we plan to secure all the miners to fill these shelves? Over the last few months, we have sourced brand new, in box, latest generation miners at bottom dollar prices. We've gone to the spot market for the majority of these purchases. The spot market continues to be full of opportunities and we expect to rely on the spot market for at least a portion of our miners. We also expect to shift our strategy when the time is right and look towards future contracts once again for opportunities. We believe the tides are starting to shift and locking in prices for large orders will begin to be part of our strategy in the coming months. Lastly, let me share a few thoughts about how we plan to pay for it. Central to achieving our guidance is a path premised on accretive growth. That means we issue shares for growth, for assets that quickly generate free cash flow. This is why, at our upcoming annual meeting, we have proposed to increase the number of shares authorized for issuance from 100 million shares to 300 million shares. It is important to note that these shares are simply authorized, and it is not required that we ever issue them. Rather, this proposal gives us the flexibility to use equity for targeted growth. We believe these shares would provide us the flexibility to not only maintain market share, but to substantially grow market share, just as we have in the past. To continue to scale, we need full access to capital markets. Increasing our authorized shares provides that. I want to thank our shareholders for trusting us and taking this journey with us. I want to thank our teams for all their hard work this quarter, which has allowed us to move forward even in these challenging times. As I said in our last call, Bitcoin is a technological and financial advancement that grows year after year. Markets rise and fall. but Bitcoin adoption just keeps rising. It just keeps growing, and price, well, we strongly believe will recover. We are seeing indications that some of that is starting to happen. And as I remind my colleagues all the time, and I'd like to remind you as our shareholders, we are just at the beginning. Thank you for choosing to invest in CleanSpark. I do not take lightly to trust you as shareholders placing us. Thank you for your support. I'd now like to give the floor to Gary, our Chief Financial Officer, to discuss our financial results. Thank you, Zach.

Diving into the numbers for the first quarter of our 2023 fiscal year, I want to draw your attention to the orange bar chart on this page. You will note that our Bitcoin production increased 130% over the same quarter of the prior year as we mined over 1,500 Bitcoin. This was due to the rapid growth we experienced over the past 12 months, deploying an additional 45,000 miners in that period. However, you will see that we recognized about 10 million less in revenue compared to that same period. This is strictly due to the steep decline in Bitcoin price. For reference, the price of Bitcoin was over $46,000 at December 31st, 2021, and Bitcoin was just over $16,000 at the end of our most recent quarter. Looking at the immediate prior fourth quarter, you will see a similar story as we mined approximately 25% more Bitcoin between the quarters yet only saw 6% greater revenue. This is also due to the decline in Bitcoin prices, as the price of Bitcoin was approximately $19,000 at September 30, 2022. This bar chart puts into context how far we have come as a company, despite headwinds of Bitcoin prices. Turning to gross profit on the right-hand side of the slide, our gross profit was $7.4 million, which declined from over $31 million in the same quarter of last year. This decline was directly attributable to the decline in Bitcoin prices. When compared to the immediate prior fourth quarter, we saw a decline in gross profit, despite seeing incremental revenue growth between the periods. This shows how profitable our business model can be when Bitcoin prices are just slightly elevated, which they were in the fourth quarter. Moving on to the next slide, we recognize a gap net loss of $29 million compared to net income of $14.5 million in Q1 of last year. Again, the high margins due to record Bitcoin prices in the prior year mostly dropped to the bottom line. In the current quarter, we recognize a large net loss, primarily due to two non-cash items. Depreciation and amortization was approximately 19 million, and stock-based compensation was 5.9 million. These two items comprise almost 25 million of the $29 million net loss in the current period. I want to point out that with respect to depreciation, we have recognized depreciation of miners with acquisition costs as high as $107 a terahash. Additionally, as I mentioned in previous quarters, our stock-based compensation was expected to come down, as this number was relatively flat compared to the stock-based compensation expense in Q1 of last year and decreased from $14 million in the immediately preceding fourth quarter. Regarding the fourth quarter, you'll see our net loss decrease from over $42 million. which was partly attributed to the significant reduction in stock-based compensation and non-cash charge related to Goodwill, which was recognized in the fourth quarter. Looking at adjusted EBITDA, you'll see we recognize a slightly negative adjusted EBITDA of $1.4 million. This was indicative of how challenging of a quarter it was, as lower Bitcoin prices resulted in compressed margins. And while our operations team did a fantastic job operating on a profitable basis and forecasting in advance high energy prices during December, we still recognize negative adjusted EBITDA due to corporate overheads. While we're printing negative adjusted EBITDA this quarter, I feel very comfortable in saying that this is not a trend we expect to continue into the second quarter. As you're aware, Bitcoin prices increased almost 30% since the end of our first quarter, and that increase in price has expanded our margins significantly. While we can't predict where Bitcoin prices will go in the future, I will say that we are operating comfortably at a profit in the second quarter as energy prices are some of the lowest prices we've seen in a long time. So we expect the second quarter numbers to be much better, so as long as Bitcoin prices cooperate and our operations teams maintain extremely high uptimes. Looking at the balance sheet, we had over $2 million of cash on hand on December 31st and $228 Bitcoin. That brought our total liquidity to $6 million. We also have over $6 million in assets held for sale. I want to point out that this week we closed a deal with a third party to sell almost $5 million of our legacy energy assets. This is further described in the subsequent event footnote for Form 10-Q, which will be filed today. On a final note, our total debt is less than $20 million. During the first quarter, we paid down $1.6 million of our debt, which is approximately 8% of the total balance. Many of our peers have higher debt balances However, I'm happy to report that we have a rather clean and healthy balance sheet, one that could take on additional leverage in the future, which I will speak to in a few minutes. For right now, I want to discuss CapEx. As you're aware, we are in an industry which requires significant investment in capital expenditures. As of December 31st, we had almost 64,000 machines deployed, representing 6.2 exahash. While the company encouraged significant CapEx to get to this point, I want to share what CapEx looks like for the remainder of this calendar year. As we discussed on the last earnings call, we have stated that we will be at 16 exahash by December 31st of this year. That will require an additional 9.4 exahash of machines. Just to remind you, we went from 1.9 exahash at December 31st, 2021 to 6.2 exahash all in 12 months. As Zach said, we have confidence we will get there, primarily through the 200 megawatts of additional capacity coming online. We expect the total CapEx for miners for the additional 9.4 exahash will be in the range of $140 million to $200 million at current prices before coupons and discounts. With respect to our expansion efforts in Washington and Sandersville, our construction costs are expected to be approximately $70 million, which represents approximately $350,000 a megawatt to build out those sites. Of that amount, we've already paid $10 million, and we expect to make announcements in the coming weeks regarding purchases of miners as well. Our miner purchases throughout 2023 could be comprised of several different models to help us to get to our 16XH goal and could range between 75,000 to 95,000 miners in total, depending on the speed and model of the miners. However, we remain very focused on purchasing and deploying miners which have the greatest ROI. As we previously mentioned, there's still a value disconnect between the current cost of new Bitmain Antminer XPs and other models. So we keep a careful eye on our CapEx as we get the proverbial more bang for our buck and thus greater hash rate by optimizing the mix of non-XP and XP models. Before I wrap up, I want to take a minute to follow up on a few of Zach's comments. Now, CleanSpark has seen explosive growth in the last 12 months. We feel very comfortable with our plans. As Zach discussed, we're laser-focused on executing the clear path to our current goal of 16 exahash by December 31st of this year. We are in this for the long term, and we maintain a long-term vision and strategy, one that has us all rowing in the same direction towards our calendar year-end guidance. With respect to our strategy regarding M&A, we have been one of the most active miners to date in acquiring infrastructure and machines, and we will continue to be active. While deal flow decreased going into the holiday season, we have seen activity pick up since the new year, We are still buyers in this market, and our strategy has not changed. That strategy is to find accretive acquisitions which meet our ROI metrics and start producing free cash flow shortly after the deployment of capital. To finance these acquisitions, we will continue to use the levers available to us, which right now include the sale of Bitcoin and equity. And as Zach mentioned, we have a shareholder proposal to increase the outstanding share count to 300 million shares. On that note, I want to emphasize that we will continue to be methodical and calculated when raising capital and deploying that capital as we're conscious of responsible equity management and want to be as efficient as possible when pulling any of our three levers. Additionally, the recent increase in Bitcoin prices have allowed us to build back our HODL balance, a balance we will use to be opportunistic in the marketplace. Therefore, our HODL balance may fluctuate from month to month depending on the opportunities we take advantage of. So while we expect our HODL balance to increase over time, there may be fluctuations in our month-to-month reports, where decreases in our HODL are strictly for CapEx purchases that drive hash rate and cash flow. On a final note, we haven't talked much about the debt lever, but we continue to have conversations with lenders in this market. When the time is right, we do expect to apply a small amount of leverage to our balance sheet, and when we do so, we believe it will be at reasonable cost of capital. On that note, I want to take a few minutes to also discuss what we believe differentiates CleanSpark from other mining companies. Exactly one year ago, Zach and I shared our vision and strategy with the goal of being a top five miner. Not only did we achieve that goal rather quickly, but we have also set the tone for other miners about what a proper and prudent business model looks like in this industry. You may remember, we stated that 100% HODL strategy was not sustainable and that our plan was to strategically sell Bitcoin and it was the prudent business decision. As we now know, miners who were previous 100% hodlers have sold much of the Bitcoin balance in 2022 and even recently in 2023, oftentimes at a loss compared to what they minded at or even purchased Bitcoin at. We believe that our selling of Bitcoin is strategic, not idealistic, and it is that strategy which has helped us experience the high growth we've reported over the last year. We have thoughtful and calculated buyers in this market, seeking out accretive acquisitions. And as you can tell from the deals we have completed in the past 12 months, we have been successful in sourcing and closing transactions, which not only grow our percentage of the total global hash rate, but also produce meaningful Bitcoin and cash flow. In closing, we can't underscore enough the value of human capital and that of our team members. They're the secret sauce that make this work. While there have been macro headwinds over the last quarter, I'm personally very excited to see what 2023 brings, as we believe this will be a year of continued execution and growth. Thank you for your time. Isaac, back to you.

Thank you, Gary. Audra, this concludes our prepared remarks. We would now like to open the line for questions from analysts.

Thank you. Ladies and gentlemen, at this point, we'll begin the question and answer session. To ask a question, you may press star and then one. To withdraw your questions, you may press star one again. If you are using a speaker phone, we do ask that you please pick up your handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star one. We'll go to our first question from Mike Colonies at HC Wainwright.

Hi, guys. Thank you for taking my questions today. My first question is on your capital management and allocation strategy. In our view, Bitcoin prices still look subdued at these levels. So at what point do you think you might start holding on to a larger portion of

the bitcoin you're mining and what factors would you need to see uh before making uh that call great hey mike it's uh good to talk again thanks for joining the call you know just like we said um we always approach this very strategic rather than with an ideological approach we will look to measure this really by the market indicators we agree with you i think that bitcoin is as i said the tides are turning And I expect to see a change of direction, which is why we do intend to see that hodl balance grow. But again, strategy over ideology is how we want to approach this on a real-time basis. With that said, I'm going to let Gary add a little bit to that.

Yeah. Hey, thanks for the question, Mike. I think you can look at the hodl balance, particularly at these Bitcoin price levels, to be directly reflective of what our margins are. So as the margins expand, I'd expect the HODL balance to accelerate. But right now, we're really managing on a day-to-day basis because Zach sees a lot of deal inflow, whether it's infrastructure or Bitcoin miners that are available on the market. And by having that balance of Bitcoin, we can quickly strike and close a deal with a matter of a couple of days if need be. So we'll continue to use that opportunistically, but really that huddle balance is going to be reflective of Bitcoin prices directly and the margins thereof.

That's great. I appreciate the color. And any additional color you can provide on the Greenfield sites you're evaluating to support the growth plans for the year, specifically if you could talk to any of the locations that you're considering and if these sites offer an opportunity to lock in any PPAs.

Yeah, so everything we look at, I, of course, can't speak to the specifics because it just wouldn't be appropriate to do so. The one thing I can say is we do have a criteria that they have to meet, and that is, of course, it's going to have a PPA that will give us access to low-cost power on a long-term basis. It needs to be in a community that we want to put investment into, but ultimately, We're looking at a lot of opportunities in a lot of regions, and we're going to pick the very best, but they have to meet a very strict criteria we have. I can tell you that we say no to a lot. And, you know, all kinds of factors that go into that, not least of which, of course, important to us is the energy mix in addition to the cost.

Great. I appreciate it. You guys take my questions.

We'll go next to Josh Ziegler at Cantor Fitzgerald.

Yeah. Hi, guys. Thanks for taking my question today. Congrats on the continued execution and really great results in January. It's always great to see. You know, for my first question, I'd love to dive into energy costs. Can you speak to how they trended during the quarter and what you're seeing so far into 2023? Thanks.

Hey, Josh. Great question. I'll jump into that. So, you know, 2022 was a challenging year. Everybody knows it on the energy side. Our third fiscal quarter, we had prices right around the $0.04 range on average. And all these prices I'm going to name are across our entire portfolio, owned and operated, and the hosting. Q4 fiscal, ending September, we saw those rise, and they were right around the $0.05. And last quarter, we did see prices start to average around $0.06 is where they rose to. With that said, we were able to navigate those really well because of our active energy management strategy. But also most importantly, we've been put in a position and we've recently seen power prices as low as 1.8 cents at our facilities. We're consistently seeing prices in that two cent range. And, you know, right now, if you do a look back at, for example, the last seven day average, we are seeing across all in our entire portfolio, an average price at 3.1 cents. So we really saw December be a tough month. And then January was, was look, it looked great. It was kind of the godsend that we needed to shift tides and bring the margins back where we wanted them to be.

Understood. That's very helpful color. Appreciate that.

And then looking forward to the rest of 2023, can you provide an update in terms of your relationship with MEAG right now and how you're thinking about power costs for the rest of the year? Thank you.

Yeah, absolutely. We're having really constructive conversations. One of the things we're finding is the active energy management strategy we're deploying, we're actually outperforming the fixed priced opportunities that we have in front of us. Based on that, we feel like patience is going to be part of our strategy in dealing with them. The reason that is, is because when you buy a locked-in power strip, for example, the other side of that, the hedge, is really making a bet on the upside or the downside. Our ability to manage and avoid a few hours here, a few hours there, Again, our average power price is outperforming this. So I think that there will be the right time. And that right time is going to come as the energy markets continue to drop in energy prices. We follow the energy markets very closely. And we think that wholesale prices, especially where we operate, but probably the country as a whole, are on a really positive trajectory. And this winter being a mild winter and what we're seeing happen with natural gas prices, We think it's a little early to strike, and we're going to wait and cool our heels until we pick it, because it's going to lock in something for a long term, and we want to make sure it's as low as possible. And that's going to happen as the energy providers really do see this impact their long-term forecast of what they're going to generate on their side as energy providers and revenue.

Understood. That's very helpful. Thanks for taking my question.

We'll move next to Greg Lewis at BTIG.

Hey, thank you, and good afternoon. Good evening, everybody, and thanks for taking my questions. Zach, thanks for all your detail around the path towards that 16x hash. I did kind of want to talk about or kind of get your thoughts around you know, clearly there's a lot of opportunities on the M&A side, it sounds like, of physical assets. But just given the fact that, you know, CleanSpark, you mentioned the low leverage, you kind of have differentiated or started to differentiate yourself as an operator. What is potential appetite, you know, from CleanSpark and what type of opportunities are you seeing to kind of continue to go down the co-hosting route? And is that something that you have any interest in doing just as you think about whether getting to 16 or even potentially higher later this year?

No, that's a great question. And I think it's an important question to ask. And as we spoke to in there, we really think that the proprietary mining model provides us with the reliability and efficiency that we really want to see. great hosting partner, but I can tell you that our team is dedicated to things that are going to directly benefit us in a way that produces better results. And I think that that's just a natural human thing that happens. And the human component of what we do, we think, as Gary said, is the secret sauce. So our growth, we really plan to push directly towards being proprietary mining. We do see being hosted and to have a time and a place, but that should really be when we seek out flexibility or when we have opportunities for miners without a place to give them a home. But even then, I would say we would look to rotate that into a proprietary mining model on a long-term basis because we truly believe we can produce better results.

Okay, and to that point, there was a slide where you kind of had your progression, and maybe it was just the optics of the slide, but it looked like the amount of hosting or co-hosting, I guess, it looked like in 24-25 that comes down. Is that related to existing contracts you have that potentially roll off?

You know, we don't plan on, right now we have 50 megawatts of capacity hosted. And we don't plan on that increasing in the near terms or anything that we put up on the slide. So really, maybe it's just scale showing our increase in proprietary mining, but we really plan on holding status quo. Okay. It's really the game plan now. We don't really plan on changing anything in our current relationship because we're going to keep those miners running and hashing. We'll probably keep them there until their end of life or until we make a different decision.

Okay. And then just... Realizing it's still a developing technology, but it seems like it's gaining traction. As you think about opportunities to continue to build out your infrastructure, any kind of leanings or thoughts around immersion and the potential, how you think about maybe deploying that at future sites?

Yeah, we've had a great experience with our immersion facility right now in Norcross. And we are absolutely evaluating that at the Sandersville site, maybe incorporating that into part of it. In our expansion in Washington, we're not. And I'm going to tell you why. It really comes down to capital. It takes more capital to build the infrastructure that supports immersion cooling. Now, in the current market, that hasn't been as supported. In the next bull market, I think that that changes a little bit. What we really like, though, about immersion mining is that it does give you flexibility, overclocking, underclocking. There's a lot we can do with it. But we're also seeing advances in what we can do overclocking and underclocking in an air-cooled environment. So what this ultimately comes down to, and there are opportunities we're evaluating, closing that gap for the capital it takes to build air-cooled versus build immersion. And as technologies improve and get better and that gap begins to close, that's when we'll likely make bigger moves towards immersion cooling.

Perfect. Thank you very much for the time.

And we'll go next to Brian Dobson at Chardon Capital Markets.

Thanks very much for taking my question.

So, I guess taking a little bit of a longer-term view, how are you positioning the company ahead of the 2024 halving, and how do you see that impacting the competitive landscape?

Yeah, our positioning is to always increase the efficiency of our miners. You know, you'll see in the 10Q, we identify that a year ago, our average fleet efficiency was about 35 watts or joules per terahash. And we've improved that to close to 31. And we plan to continue to improve that. So, you know, always staying in a place where you're upgrading and improving the efficiency is really step one. Step two, this is where we think investing and building our own infrastructure matters. It's a one-time, long-term investment that puts us in a position where those long-term costs of operating are lower. That will give us a better advantage into halving. And then lastly, it's making sure we're pulling every single string we can on the technology side to be in the right position. Because I think from a competitive landscape, there's going to be a lot of hash rate that drops off when it occurs for the low-performing or the least efficient miners. And it's important that we are not only just the most efficient at the time as we can be, but we are deploying technologies, as I mentioned, to both underclock and overclock. And when you underclock, you can actually take a machine, bring down its hash rate a little bit, but add significantly more efficiency than it removes hash rate. And so making sure we're on the cutting edge of all three of those factors is what's going to be really, really important.

Yeah. Hey, Brian, I just want to add a few things to that, too. Well, you know, we talked about our base case this year is executing that 16 exahash. Like, we don't feel compelled to go out and have to do M&A, but obviously, if we see a good deal, we'll take advantage of that. But really looking into having, if Bitcoin's not at, call it, you know, close to $40,000, we think that there's going to be a lot of smaller miners and potentially private miners that can't access the capital markets are going to have trouble. So we really want to position the company to be able to pick off infrastructure and assets at good deals, similar to what we've done the last six months or so. So really, from a position standpoint, we really are looking forward to some opportunities right around the halving of some other companies that want to get out of the game.

Excellent. That's very helpful. And I look forward to having you at the conference next month. Thank you.

All right. I'd like to thank you for your questions and for joining us today. We wish everyone listening a good afternoon and a good evening. Back to you, Audra.

Thank you. Ladies and gentlemen, with that, we'll conclude today's conference. We thank you for attending. You may now disconnect your lines.