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spk01: Good evening and welcome to Stronghold Digital Mining's conference call for the third quarter ended September 30, 2022. My name is Carmen and I will be your operator this afternoon. Before this call, Stronghold issued its results for the third quarter 2022 in a press release, which is available in the investor section of the company's website at www.strongholddigitalmining.com. You can find the link to the investors section at the top of the homepage. Joining us on today's call are Stronghold's co-chair and CEO, Greg Beard, and CFO, Matt Smith. Following their remarks, we will open the call for questions. Before we begin, Jeff Gramp from Gateway Group will make a brief introductory statement. Mr. Gramp, please proceed.
spk00: Thank you, Colin. Good evening, everyone, and welcome. Today's slide presentation, along with our earnings release and financial disclosures, were posted to our website earlier today and can be accessed on our website at strongholddigitalmining.com. Some statements we're making today may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We expect to file our quarterly report on Form 10-Q with the Securities and Exchange Commission by the end of the week, which sets forth detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption risk factors in our quarterly reports on Form 10-Q and annual report on Form 10-K. You may get Stronghold Securities and Exchange Commission filings for free by visiting the SEC website at sec.gov. or Stronghold's investor relations website at ir.strongholddigitalmining.com. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of Stronghold's website. Now I would like to turn the call over to Stronghold's co-chairman and CEO, Greg Beard. Greg, please proceed.
spk08: Thank you, Jeff. Good evening, everyone, and thank you for joining us on our third quarter 2022 earnings call. For today's call, we're going to reference an associated slide presentation that is available through the webcast and on the IR portion of our corporate website. As I'm sure you are all aware, the entire cryptocurrency industry is experiencing extreme challenges. While no public miners are immune to the downturn, we believe that the current environment has allowed Stronghold to distinguish itself as the first vertically integrated crypto asset mining company with a focus on environmentally beneficial operations. In light of the recent downturn, we have taken steps that we believe will strengthen our balance sheet and liquidity position by transferring a portion of our Bitcoin miners back to the lenders in exchange for the extinguishment of debt. We have mitigated the impact of returning miners through selling power to the grid. With lower Bitcoin margins and higher grid prices, we have been consistently toggling between selling power to the grid and mining. This ability provides some insulation from Bitcoin market weakness without reducing our ability to capture upside in a Bitcoin recovery. Putting ourselves in this position did not come without significant effort from our entire team. And I'm extremely appreciative of all their hard work. The data center teams who aggregated over 20,000 miners in days to return to our lenders, our power plant teams who recently completed the plant upgrades and maintenance during our fall outage and got the plants back online successfully, and the finance team who executed on debt restructuring, cost cuts, and strategic deals. Thank you all. We'll go through all of these items on this call. So turning to slide three, we'll start there. We have been extremely busy the last several months executing on what we discussed during our last call in August. Our overarching goals with these moves were to reduce leverage, improve liquidity, cut costs, and opportunistically build our mining fleet. And we have had a lot of progress to report. First, we have fully extinguished $67 million of debt associated with our NYDIG equipment financing. Since our last call, we delivered back to the lenders approximately 26,000 miners including approximately 19,000 that had been operating at our facilities and 7,000 yet to be delivered. At the time of our last earnings call, we thought we could replace the miners we returned for between $40 and $50 million. Based on recent prices, we think it's closer to $30 to $35 million, and that does not reflect today's move lower. Even when factoring in costs associated with the return of the miners related to the equipment financing, We view the delta between the debt reduction and replacement costs as a material shift in value to our shareholders. Additionally, the day after closing of our debt extinguishment, we closed on our new credit agreement with Whitehawk based on the binding commitment letter disclosed in August. This restructuring with Whitehawk materially pushed out the amortization schedule, approximately tripling the weighted average maturity from 13 months to 36 months. The new credit agreement also provided $21 million of net incremental cash to our balance sheet to help solidify our liquidity position to manage through the industry downturn and opportunistically purchase miners at distressed prices. The principal amount of debt outstanding under WhiteHawk is approximately $58 million. Secondly, on the cost side, We continued to actively execute on material cost reductions across our business that we expect to begin to materialize in our results as soon as the fourth quarter of this year and throughout 2023. We have identified and already completed a majority of the $15 to $20 million of annualized total cost reductions through a combination of completing several one-time projects and right-sizing our business through insourcing certain functions and eliminating inefficiencies. We built a business focused on rapid growth, and much of this infrastructure is no longer needed in the current market conditions. The third point is that the combination of debt extinguishment, increase in Whitehawk's commitment to us, and cost cuts all contribute to maximizing our liquidity position and reducing our leverage, giving us flexibility to manage through this down cycle and be opportunistic but disciplined in growing our miner fleet. Since our last earnings call, we have reduced our total debt significantly, and as of November 7th, we have total cash of approximately $27 million. We will continue to manage our liquidity conservatively. Having said that, we expect to take advantage of this liquidity position as a central part of our strategy we laid out in August to rebuild our mining fleet at seemingly perpetually improving prices. We said we would be patient and opportunistic, a strategy we think has already proven to be quite prudent given the continued deterioration in pricing of mining equipment. However, we have not been stagnant in rebuilding our mining fleet as we aim to take advantage of our fully built-out data center slots. Since our last earnings call, we have procured or received approximately 10,000 Bitcoin miners with hash with a hash rate capacity of nearly an exahash, of which 6,000 are on site. Of the 10,000 machines, 4,500 are associated with a new strategic partnership with Foundry, who is a leader in the Bitcoin ecosystem and operated the largest Bitcoin mining pool in the world. We entered into a definitive hosting agreement with Foundry on November 7th. While hosting is not our core focus, we strive to be opportunistic and creative and we think this deal is highly beneficial for Stronghold. In addition to a $60 per megawatt hosting fee, we will receive half of all the Bitcoin mining profit and still have the option to curtail the miners to sell power to the grid without penalty. The hosting agreement with Foundry allows us to quickly get miners plugged in with no material capex while we work to finalize a new and more complex transaction to purchase the miners in exchange for a limited amount of cash plus stock and a profit share. Fifth, our last update relates to our power plant upgrades and maintenance that were conducted at both Scrub Grass and Panther Creek in late September and into October. Recall that we strategically elected to conduct this outage in late September when power prices were seasonally lower, giving us the opportunity to import power to mine Bitcoin if margins were sufficient. Since the plant maintenance was completed, we have been satisfied with the performance of our plants. Scrubgrass and Panther Creek have both successfully come out of their outages and have run at base load when power pricing from the grid was favorable. With Panther Creek and scrub grass maintenance and upgrades being essentially complete, we expect much more reliable power generation for the remainder of this year and into 2023. Looking ahead into Q1 2023, we expect our net cost of power to be $45 to $60 per megawatt hour, which we anticipate will provide for healthy margins for both Bitcoin mining and grid power sales. Moving to slide four, To bridge you to our current hash rate capacity as a result of recent transactions we have made to increase our Bitcoin mining fleet. Our August 16th hash rate capacity pro forma for miner returns was 1.4 exahash. As I previously mentioned, we've entered into agreements to receive or have received approximately 10,000 Bitcoin miners with hash rate capacity of about an exahash. The most significant of these agreements is our hosting agreement with Foundry. Foundry will supply 4,500 Bitcoin miners with 420 petahash of capacity to Panther Creek. We will charge a hosting fee of $60 per megawatt and will receive half of the Bitcoin mined net of the hosting fee. Importantly, we have also the option to curtail the miners and sell power with no penalty. We view this hosting deal as a short-term placeholder while we work on a definitive deal where we buy these machines using a mix of cash, stock, and profit share. I'd like to note that Foundry approached us, diligence us, and is moving forward to participate in our business model. After today, we expect to receive the remaining approximately 1,500 miners from Foundry, as well as miners under contract from legacy agreements. This brings our total hash rate capacity to 2.8 exahash and we are guiding to three exahash for 2023, which we think is highly achievable in this oversupplied miner market. Turning to slide five, we issued a press release in October related to the mutual termination of the Northern Data Hosting Agreement, and I'd like to walk through why this is a favorable outcome for Stronghold. This termination allows us to take control of the operation gives us access to infrastructure that we can use to hash for ourselves, and most importantly, is materially accretive to our cash flow profile. Had we not terminated the agreement with Northern Data, we would have expected to pay close to $1 million per month in profit share payments, or approximately $14 to $28 million through September 2024. The amount is now zero. Northern Data has also forgiven a payable we owed, of approximately $2.6 million. Additionally, we are leasing their pods, which have an aggregate capacity of approximately 50 megawatts, for two years for $1,000 per year. So we are now using the pods to hash for ourselves with no profit share. At the end of the two-year term, we have the right to purchase the pods for between $2 and $6 million based on the prevailing hash price at the time. We believe that the market value of these pods is at least $15 million. Everything considered, we expect this termination to increase cumulative net cash flow over the next two years by approximately $10 to $22 million. Moving now on to slide six to provide an update on our power plants. Both plants successfully completed their planned fall outage and can operate at base load if power pricing is favorable enough to do so. The fall outage is represented as the last of the major planned investment cycle in Panther Creek and scrubgrass, and we expect to see more consistent and reliable power generation moving forward. Regarding scrubgrass, the focus has shifted to putting redundant systems in place, similar to what Panther Creek currently has, to avoid issues before they arise. We expect these plants to run at base load through the high power price winter months, with estimated net cost of power ranging from $45 to $50 per megawatt by Q1 2023. I'll now hand over the call to our CFO, Matt Smith, to discuss our financials in more detail.
spk09: Matt Smith Thank you, Greg, and good evening, everyone. Slide seven provides a high-level overview of our third quarter 2022 results. Keep in mind that third quarter results were greatly impacted by the returning of a significant portion of our Bitcoin mining fleet throughout the quarter, which were unplugged in mid-August and the planned downtime at both of our power plants associated with the previously disclosed maintenance. As a result, we do not think third quarter financials are particularly informative in the context of our go-forward capabilities. Revenue for the third quarter was $24.7 million, a 311% increase compared to $6 million in the same year-ago quarter, but down sequentially due to the lower power generation from the planned downtime and a lower overall hash rate associated with the returning of a portion of our mining fleet. During the quarter, we mined approximately 567 Bitcoin, an 11% decrease sequentially due to the higher network hash rate and the lower company hash rate associated with our igniting debt reduction efforts. Operating costs were elevated in the quarter as anticipated due to the planned maintenance events at both of our power plants. We estimate approximately $7 million of operating costs during the quarter were non-recurring in nature related to plant maintenance. Internally, we really view these as capital events since they ensure long-term plant performance but accounting treatment dictates that these items be expensed. Adjusted EBITDA during the quarter was approximately negative $3 million compared to an approximately zero EBITDA in the same quarter a year ago and negative $1 million in the second quarter of 2022. I would note that during the quarter, we recorded approximately $15.3 million non-cash loss related to debt extinguishment a $13 million loss on warrant revaluation, and approximately $4.2 million non-cash impairment on assets held for sale, both associated with our NYDIG equipment financing that was completely eliminated in October. During the quarter, we continued to operate in an environmentally beneficial way, removing approximately 218,000 tons of coal refuse from piles and returning approximately 122,000 tons of beneficial use ash to remediate these toxic coal piles in Pennsylvania. Moving now to slide eight to discuss our initial 2023 guidance, which represents our first initiation of guidance as a public company. We understand our business is dynamic given our vertical integration, so in an effort to be more transparent with our go-forward capabilities, we would like to provide a framework to aid in the modeling of our business. Note, we are not making any heroic assumptions about Bitcoin economics dramatically changing, although we are constructive on Bitcoin pricing long-term normalizing to a sustainable hash price. Understand that many of these assumptions embedded in guidance are outside of our control, including Bitcoin hash price and market power prices, which could have a material impact on our performance. But we believe these are reasonable assumptions for us for 2023. Our guidance assumes a hash price of 8.5 cents, which is higher than current market conditions after the last several days, but we believe this represents a normalized environment. Hash price, for those of you not familiar with this metric, takes into account both Bitcoin price and network hash rate for a more accurate depiction of Bitcoin economics than Bitcoin price alone. We also assume average around-the-clock benchmark power prices of $64 per megawatt hour for 2023, based on forward market prices as of November 7th, 2022. Based on our ability to curtail power consumption from our miners and increase grid sales during periods of higher power prices, we expect to realize more like $72 a megawatt on that same forward power curve. We also expect an average power output of 135 to 140 megawatts implying an uptime rate at our two power plants of between 80 and 85%. On the Bitcoin mining side, we assume an average hash rate capacity of three exahash for 2023 and an average effective hash rate of 2.4 exahash, which reflects the fact that we expect to curtail miners at times of higher power prices to optimize for profitability and cash flow. While the three exahash is above our current capacity of 2.8, exit hash laid out on slide four, we expect to either purchase machines at extremely depressed prices or enter into incremental hosting or profit share agreements given the total quantity of unplugged machines landed in the United States. As it relates to costs, we assume recurring fuel operations and maintenance costs of between $46 and $52 per megawatt hour, a material improvement from most of 2022 given the investments being made. and recurring cash G&A costs of between 18 and 21 million. Yes, that's approximately a reduction of $10 million annualized year over year. Almost all of those changes have already been made and undertaken during the fourth quarter. These cost assumptions reflect the benefits of many of the reductions Greg discussed and were not finished. These assumptions result in an adjusted EBITDA range for 2023 of approximately 29 to 34 million. With much improved debt service, and minimal obligatory future capex given our past investments in our power assets, data center infrastructure, and mining fleet, we expect this adjusted EBITDA generation to result in further strengthening of our financial position throughout 2023 despite industry headwinds. Additionally, given the ever-changing market pricing, we provided sensitivity to our financials at different hash price cases ranging from 7 cents to 11.5 cents. I will now turn the call back over to Greg for his closing remarks.
spk08: Thanks, Matt. We are pleased with the meaningful progress we have made in the positioning of Stronghold for long-term success. We have significantly reduced our leverage and our liquidity has been meaningfully improved. Our cost structure has been materially reduced and our power plant assets are performing as designed. Lastly, we are expanding our Bitcoin mining fleet in an accretive manner. Our vertical integration and power market optionality continues to provide us with strategic advantages over many of our peers, as does our data center infrastructure that is fully built out with additional slots open. The entire Stronghold management team and I are motivated to see Stronghold succeed and are excited to execute against the 2023 plans we have laid forth today. Thank you, everyone, for taking the time to hear our story. We're now ready to take your questions. Operator.
spk01: Thank you. And as a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. All right. And our first question comes from the line of Lucas Pipes with B Riley Securities. Please go ahead.
spk07: Thank you very much, operator. Good afternoon, everyone, and good job on many different fronts. My first question, and this is one of the positives, the foundry agreement, great to see that. You note in the press release you can curtail the mining activity on the hosting site with no penalty. I assume that if mining is uneconomical, that they also have an exit. Can you speak to that? And again, great, great job on that hosting agreement. Thank you very much for your call.
spk08: Yeah, Tom Tyree is here. He's the one who led the foundry discussions. Let him answer precisely.
spk04: Yeah. Hey, Lucas. So if Bitcoin mining economics are worse than that $60 per megawatt hour hosting fee, then the miners will be curtailed regardless of grid prices. So it's not a – they are not forced to pay if the miners are operating at a loss. Does that answer your question?
spk07: That's very helpful. Thank you. And then my second question, I did this a little bit on the fly, but thank you very much for the guidance for 2023. That's really great to see. And so I did this a little bit on the fly. I tried to back into kind of what amount of the 137 megawatts of power would go towards BTC mining versus sales to the grid. And I backed into roughly 58% of power going to mining in 2023. Is that the right zip code? That's part one of the question. And then part two of the question is, I also backed, again, this was on the fly, into roughly $120 per megawatt hour on the revenue side for BPC mining embedded in this guidance. And, again, just looking for a sanity check, and hopefully I'm not way off. Thank you very much for your color on this.
spk04: Hey, Lucas, we might have to get back to you on the revenue per megawatt hour. We'll try to pull that up quickly here. But you're right on the power that is going to the – miners, when all the miners are operating, that would be about, I think it's actually just over 60% of the power.
spk07: Terrific. Thank you for your color, and yeah, whenever on the revenue side, appreciate the follow-up there too. But again, good job and continued best of luck.
spk01: Thank you. One moment for our next question, please. And our next question comes from the line of Jacob Roberts with Tudor Pickering Holt. Please go ahead.
spk02: Good afternoon, guys.
spk01: Hi.
spk02: Just curious, looking at the net cost of power in Q1 2023, should we be thinking about that as an average rate, an exit rate? And then also if you could kind of speak to that as well as the guidance on maintenance expenses. Could it go lower than the 45 to 50, or can we think of that as kind of the price to be at in 2023, or the cost to be at, excuse me?
spk09: Sure. Thanks for your question. I think we feel pretty strongly about the arrival for a, you know, for a quarterly average in 1Q23 of that, you know, at least that, you know, kind of 46 to $52 a megawatt. We've, you know, we pretty extensively described the activities of the team, the teams at the plants and the management team for the last six weeks. You know, we have spent a tremendous amount of time at the plants working on improved processes, purchasing efficiencies. You know, there have been, unfortunately, some headcount reductions related to some redundancies. And I think you'll find, although there are too many moving pieces in 4Q, 4Q I think you're going to start to see a step function already coming out of the adages related to some pretty extraordinary costs going away from the July, August, and September period. And we hesitate to give 4Q guidance, but I think you'll find that we're materially working towards that $46 to $52 range already. Part of that has to do with RECs up 50% in the last two months from $10 a megawatt to $15 a megawatt. Some of it has to do with the dramatically reduced O&M costs. We'd like not to point to specific plant-level costs, but those are already down materially. And so I think what we would like to do is lay out a target, meet it or beat it, and then work towards an even better objective going forward. And so we'll give you an update during the first quarter as we're finishing and preparing and providing you with 4Q financials. And I think we'll be in a good place to share with you then what the run rate is and where we've arrived. But I think you'll find we feel really a lot of conviction in this number, and thankfully it's something we can control and there's a lot of costs to take out. So we like having things that we can influence that have nothing to do with Bitcoin prices.
spk02: Appreciate it. And then I apologize if I missed it. Was there any guidance or color given on the cadence to get to the two, eight or three in 2023? Is that a first half or second half type number?
spk09: Yeah, there's a bridge on slide four in our slide deck. And I would just point you to it's not an ambitious target at all based on contracted miners already purchased earlier in the year or procured recently. And again, these incremental miners have been purchased in the mid single digit range on a dollar per terahash basis during this distress period incrementally in the recent weeks. So we feel really high conviction in at least the two aid and then the three would come through further purchases, which are, you know, well within our liquidity and minor prices today, you know, to do that or beyond.
spk02: All right. Appreciate the time, guys. Sure.
spk01: Thank you. And one moment for our next question, please. And it comes from the line of Chris Brandler with DA Davidson. Please proceed.
spk06: Hi. Thanks, and good evening. Again, congratulations. This is, I'm sure, a lot of hard work, and so it seems like we've gotten past the bottom here and starting to go the right way. I wanted to ask on the guidance, again, on the power side, I'm not sure I understand, you know, what gets you to 45 to 50 from where you are in the fourth quarter and does it continue to improve? Like, what is the, what is the sort of the constraint on your, I know third quarter there was maintenance and you weren't running at full capacity, but is it just that issue? Is there other things that should help your overall cost of power go down?
spk09: Yeah, so we haven't provided 4Q, but what you have before you is the sort of ability to back into 3Q with some decent efficacy. Obviously, when you have two weeks in September where there are zero revenues and we're importing power to run the data centers and you have $5 or $6 million of costs, that dollar per megawatt is infinite. But coming out of that period, put some extra attention by the teams to lower costs meaningfully. Consultants and extra overtime go away. We reduce headcount. We've completely changed how we plan and procure parts and stage that and think ahead about what redundant systems we need to fix next. And I think you'll find, again, we're not formally providing 4Q guidance, but I think we feel pretty confident that we can arrive at that one Q23 number at the latest to average that in the first quarter, if not sooner than that. Now, importantly, fixed cost absorption is an element of the reduced cost. If the plants are running below base load, And in this case, I would just describe 80 to 85 megawatt plants, the fixed cost absorption starts to be optimal at 68 to 70 megawatts. And, you know, I can fortunately say coming out of the outages that we've seen both plants perform in excess of that, and the sample is growing and we're gaining conviction. And so I think we are looking forward to the fixed cost absorption that wasn't necessarily there. at Scrubgrass earlier in the year to our disappointment. But I think we're, I think Scrubgrass is gonna be something that we look forward to demonstrating that fixed cost absorption going forward. And then RECs are up $5 a megawatt in the fourth quarter so far. And we've taken advantage of that opportunity to lock that in. And 2023 RECs have been up meaningfully. And so I think there are a fair number of moving parts but virtually every single one of them since the end of September have gone in our favor. I can't think of a single one that's not gone in our favor. We have been able to procure a lower-cost limestone than we were in previous quarters. We've been able to source with improved trucking availability. Since mid-October, we've been able to source a significant more of Russellton coal, which is materially lower cost than the blend of coal we were you know, procuring in the prior two quarters. And so, again, it's virtually every component of cost that's moving in our favor. And that's not to say that inflation has improved for the sector. It's really just been a lot of hard work by our teams to align coming out of the outage and a lot of fixed costs going away. So, we'll look forward to updating you further when it makes sense.
spk06: Obviously, a lot of great work with the CFO there cutting all those costs. So, congrats. I wanted to ask, I don't want to nitpick, but it's obviously a bad day, but your guidance has really some great detail on hash rate, hash price, and Bitcoin price. And slide eight, we're below $0.06 right now. The hash rate is currently $2.65. So I'm hoping that you know something that I don't know, and this is going to come crashing down, but I've been really worried about the hash rate and you know, sort of thinking that it needs to come down. It hasn't yet. How much does that change your outlook if it does not come down?
spk08: The market's obviously dynamic. I think our view is when you change the hash rate like we've seen in the past couple days, you're going to see a change in the amount of people running miners. So I think right today, we think that... it's probably unsustainably low. And you're going to see that the global hash rate decline to adjust, or we're going to see Bitcoin prices recover. But you really can't have it both ways. If Bitcoin prices deteriorate further, you're going to see global hash rate decline. So, hey, it's our best guess, but I think our job is to... give you the ability to put in your assumption for Bitcoin price, your assumption for global hash rate. And when you do that, you should then have your own view as to what our financial performance will be. I think we're going to do our best to deliver operationally. And hey, tough to control Bitcoin price or global hash rate, but that's where you analysts can can make your best guesses and plug those assumptions into our model and come up with your estimate. Was that helpful?
spk06: Yeah, absolutely. I also appreciate that you've got an opportunity to sell power if the hash price is below six cents that a lot of your competitors don't have. So I'll have to work on the sensitivities myself, but yeah, appreciate the call, Greg. Thanks a lot.
spk09: Hey, Chris, I would just add, When we prepared guidance two and three days ago, we were right on top of where hash price was for the most part or within a very close distance. It's really hard to adjust on the fly when you go through extraordinary deleveraging or industry shock, systemic risk type of events, risk off type of events. So we'll, you know, we provide the sensitivity if we need to update the sensitivity, at some point we will, but we're approaching the floor for power-only EBITDA, and so I think we feel pretty strongly that the model will be resilient as you move towards the lower end of this range. That's point one. Point two is, you know, Greg's got 25 years in energy power investing. You know, mine's not that far off. You know, Tom Tyree on our team has some extraordinary energy sector experience. I would maybe just point to that as an analog that whenever, you know, in the second quarter of 2020, for instance, if the market started to try to price in or extrapolate, you know, $20 or $30 oil prices, the entire industry would have been bankrupt immediately. You know, outside of Saudi Arabia and maybe some other low-cost oil producers. We're unlikely to be logically willing to extrapolate the current hash price because the current hash price Virtually the entire United States Bitcoin mining industry, which is an extraordinary amount of the global hash rate, is underwater and broken, especially when you layer in the interest costs, burdens, and other. And so I think we'll provide updates, but you've got a framework at least for the first time. And what we're focused on, or we would point you to, is towards the end of 23, we think we're going to be approaching or less than two times leverage, which we think is the result of some foresight by the team and a lot of hard work from our operations folks to get those miners back to the lender. And I think we've pointed to the current valuation of the company at the enterprise level with some of the dilution and the new prevailing debt. And I think we feel like the company's moved to a place where the market's pricing in bankruptcy and we're so far from that and eager to lay out how this Improvement in cash flow is going to manifest in value for everybody. So I think we would just point you to those as the reasons to give you guidance and stick by it and hopefully beat it.
spk06: Yeah, and hopefully we see some rationalization real soon because it's been frustrating. I agree. Thanks so much. We appreciate it.
spk01: Thank you. One moment for our next question, please. And it comes from the line of Chase White with Compass Point. Please proceed.
spk05: Thanks for taking the questions. So a couple of questions. So how much, just curious, the redundancy upgrades at scrub grass in the fourth quarter, any costs associated with that and also any downtime associated with that?
spk08: No, we don't, we're not, you know, we're not paying like a big, you know, severance package to people. Some of the And we can go through a line item for where all these redundancies and cost savings have come from. A big portion of it is we spent money on one-time upgrades in the past quarter that we're not having to do next year again. They're truly one-time. We had contracts with consulting people, and we terminated those contracts. And as a part of those agreements, we had probably 10 extra people that after about six months of that work were able to sort of take over those roles ourselves. There will not be a one-time charge related to the cost cuts. So don't model that in.
spk09: And then additionally, so we talked about some redundant system additions. You know, so there's a, you know, there's a pug mill fix that we're putting in place in November. That expense was already accrued as a part of the outage. You know, it's kind of an ancillary part of the power plant that, you know, enhances the containment of the ash and you mix it with water and you can put it into a truck and potentially go and, you know, sell the ash, for instance, or package it for sale or, you know, control ash as it relates to the impact on the data center filters. And so that pug mill was on order. It should have gone in in July. It ended up getting pushed to the September outage. And that expense was already accrued and affected the third quarter. And then we ended up getting pushed to November. But we do not expect any further material expenses. It's not to say that power plants don't break down and you have costs come up. But I think we feel really strongly about the run rate of fixed costs and maintenance costs coming out of September.
spk05: Got it. That actually dovetails pretty nicely into my next question. Any updates on the potential revenue opportunity from selling fly ash or at least any guidance on how to think about that opportunity?
spk08: We work on it every day. Just let us have it as upside. But, yeah, I think we do have a customer that is buying ash from us that is both giving us cash for it and it's also reducing our costs. and working on expanding that relationship and growing into new ones. But that's sort of upside for us to, we'd rather be rewarded for when we deliver it than have you make it in and have us potentially miss it. I would say it's hard to, until the plants were running at a base load capacity like they are now, we didn't have a reliable stream of ash to sell. So now we do. Now it's tested. We have a much better handle on what the inputs are with the waste coal to get a certain spec on the output of ash. So I think we're in a better position to be able to do it. But just let us have it as we earn it rather than putting it in the model.
spk05: Gotcha. Fair enough. Thank you.
spk01: Yeah. Thank you. One moment for our next question, please. And it comes from the line of Stephen in Glagola with Cowan. Please proceed.
spk03: Hi, thanks for the question. Just on the 21,500 self-miners you have, I'm getting that around 18% or 3.8 thousand are Minerva rigs with the addition of the 420 miners you just received. So this was curious if you could break out or discuss the economics of these rigs individually in the current depressed hash price environment. And then I had one more follow-up, please.
spk08: Yes, I'll comment. We'll dig out the exact economics on the Minervas in a second. But I think our, hey, we have received both Minerva miners and Minerva has sent us both S19J pros and their T19s. in lieu of Minerva miners have done in the past. They're now sending us, as they're sort of getting their production of Minervas back online, they're sending us more of those miners now as well. We have confidence that we have thousands of these things, and their reliability has been low looking backward, but the fixes are identifiable. and we are implementing them. So as we receive sort of the problematic parts, we're replacing them. So, hey, I'm not sure they're going to get up to the reliability of a micro-BT or Bitmain, but they're certainly not going to be as poor performance as they have been in the past. You want to talk about economics of it?
spk04: Yeah, so the... The economics as it relates to comparing to a dollar per megawatt hour basis, we haven't really seen any material deterioration in efficiency. A large part of the fix has been related to certain parts that have really impacted the miners shutting off. And we think that we're making a lot of progress in getting them back online. But in terms of the economics, Today, they're kind of around $65, $70 per megawatt hour. The real focus for us has been the percent of the time that we have them on. And so we're making a lot of progress there on our engineering front.
spk08: If you're going to model them out, model them the same as an M30S+, or they're pretty close to an F19.
spk03: I appreciate the color, Greg. Thanks, Tom and Matt. Also, one more on the Q2 call last quarter, I believe you guided to outstanding principal debt of $45 million by year-end and $21 million by end of 2023, currently at $82 million. I'm just curious, what other levers are you going to pull to reduce debt by an additional $37 million by year-end, or if that's still on the plan here?
spk09: Yes, so we, that was a net debt number, not a total principal amount outstanding, because everything that we said last quarter, we've executed on. In fact, Whitehawk upsized our access to liquidity by a few million dollars. That was a net debt number, and, you know, I would just refer to our convertible notes where, you know, there are $22.5 million right now, and on 11-15, there'll be, you know, $17 million in terms of principal amount outstanding. And so, you know, we set ourselves up to be able to continue to deleverage using a number of different tools at our disposal. And I think we, that 45 of net debt, you know, I think we still feel pretty good about. Obviously, power prices fell some in October, although 2023 forward power curve is still up 60% year to date. versus, you know, Bitcoin's down 65% year-to-date. And so we still really like the business model and our spreads. But, you know, some of the net debt will be impacted by investment decisions. Some of it will be impacted by, you know, improvements. Some of it will be impacted by, you know, forward power curve and Bitcoin price. But I think we still feel pretty good about, you know, where we're going to arrive, you know, where we're going to arrive at that number. And that... Just very quickly, that $45 million was assuming we did, you know, if we did not draw on the $20 million from Whitehawk. And so, obviously, we've drawn on that, and so you just have to adjust from that slide, you know, for the, you know, the $21 and change million that we drew. Thanks for all the color, Matt.
spk03: Appreciate it. Sure.
spk08: thank you and at this time this concludes our question and answer session i'd like to turn the call back to mr beer for his closing remarks okay i have none except uh thanks for those who listen thanks to the uh shareholders the few of you that have hung with us so far and uh hopefully we have you know we got i can tell we have a plan to execute the fourth quarter in 2023 um And, hey, we hope to hit the plan and be rewarded with equity values. That's all I've got for tonight. Thank you.
spk01: And thank you for joining us today for Strongholds Earnings Call. You may now disconnect.
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