TeraWulf Inc.

Greetings and welcome to the Tara Wolf, Inc. 2023 third quarter earnings call. At this time, all participants are in listen-only mode. Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Asad, Director of Corporate Communications. Thank you, Mr. Asad. You may begin.

Thank you, Operator. Good afternoon and welcome to TerraWolf's third quarter 2023 earnings call. Thank you for joining us today for our call. With me on today's call are Chairman and Chief Executive Officer Paul Prager and our Chief Financial Officer Patrick Fleury. Before we get started, I'd like to remind everyone that our prepared remarks may contain forward-looking statements which are subject to risk and uncertainties that we may make additional forward-looking statements during the question and answer session. These forward-looking statements are subject to risk and uncertainties and actual results may differ materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to TerraWolf are such forward-looking statements. Investors are cautioned that forward-looking statements involve risk and uncertainties, which may cause actual results to differ materially from those anticipated by TerraWolf at this time. In addition, other risks are more fully described in TerraWolf's public finance with the U.S. Securities Exchange Commission, which may be viewed at sec.gov and in the investor section of our corporate website at www.terrawolf.com. Finally, please note that on today's call, we'll refer to certain non-GAAP financial measures. Please refer to our company's periodic reports on Form 10-K and 10-Q and on our website for full reconciliation of these non-GAAP performance measures to the most comparable GAAP financial measures. We'll begin today's call with prepared remarks from Paul and Patrick, then we'll proceed to Q&A. It's my pleasure to now turn the call over to Terri Willis CEO, Paul Prager.

Paul? Thank you, Jason. Good afternoon, everyone, and thank you for joining us on a third quarter 2023 earnings call. During the third quarter, Terawolf continued to take proactive steps to execute on a strategic growth plan with the goal of reaching 7.9 exahash of Bitcoin mining infrastructure capacity by year end, further positioning the company for long-term sustainable success. Before turning the call over to our CFO, Patrick Fleury, for a review of our financial results. I would like to comment on some recent highlights from our business and on our continued confidence in the year ahead. As a reminder to everyone joining us today, Terawolf mines Bitcoin utilizing predominantly zero-carbon energy resources at two data centers, our wholly owned and operated Lake Marana facility in upstate New York, which utilizes 91% zero-carbon grid power, and the jointly owned 100% nuclear-powered Dauntless facility in Pennsylvania. As of September 30th this year, these two industrial-scale projects had a combined self-mining hash rate of 5.5 exahash per second with approximately 50,000 miners deployed. That is more than triple where we were during the same period last year. Further, that hash rate, even with difficulty reaching all-time highs, resulted in 994 Bitcoins mined during the third quarter. Importantly, our operations are solidly free cash flow positive. Solidly free cash flow positive. During the quarter, there have been many positive headlines for Bitcoin, most notably the anticipation of an imminent approval of the US spot Bitcoin ETF, which has driven a rally in the price of Bitcoin. Concurrently, there has been a steady climb to an all-time high in overall network half-rate, which continues to suppress mining economics. So what does this mean for how we are approaching the balance of 2023 and approaching the halving next year? As energy infrastructure professionals, managing through cycles is fundamental to our approach, and we remain steadfast in our strategy to leverage our resilience low-cost infrastructure to maximize profits, repay debt, and return value to our shareholders. In terms of executing our growth initiatives, the Lake Mariner infrastructure expansion is nearing the final stage of construction. The third building is ready for racks to be installed, and we are advancing other preparatory works so that as miners are delivered, they can be racked and online without delay. Once fully energized, This 43 megawatt expansion will bring the company's total self-mining hash rate capacity to 7.9 exahash per second, or more than 200 megawatts of Bitcoin mining capacity. That translates into a 58% increase in the company's total self-mining hash rate. Importantly, and I cannot emphasize this enough, we will continue to prioritize accretive and capital-efficient infrastructure investment and manage future capital outlays for mining equipment in a responsible manner to remain nimble during challenging markets and avoid unnecessary dilution to our shareholders. To that end, we have strategically structured our miner's purchase agreement in a capital-efficient manner to enable the company the flexibility to monetize deposits and defer payment obligations. Early in the third quarter, we announced the purchase of 18,500 S19JXP Bitcoin mining machines from Bitmain, which are targeted to be delivered next month. To preserve liquidity and avoid excessive dilution, we plan to convert our deposits on this purchase order into roughly 5,500 machines and will host to own the remaining 13,000 machines for Bitmain. at a hosting fee of approximately 7.8 cents per kilowatt hour. The company retains the option to purchase the remaining miners at any time and currently expects to complete purchase of the balance of all 13,000 machines by the fourth quarter 2024. We believe this arrangement not only reflects a strategic relationship with Bitmain, but also underscores a strategy. to prudently invest in infrastructure while opportunistically expanding our mining fleet, thereby maximizing revenue potential to every dollar spent while avoiding unnecessary dilution at depressed share price levels. To reiterate, the fact that we could plug all 18,500 S-19 JXB miners into Building 3 immediately highlights the benefits of owning and prioritizing the development of our data center infrastructure, which then enables us to undertake these types of agreements without the incurrence of meaningful upfront capex. Once these new machines are fully self-deployed, TerraWolf will have one of the most efficient and profitable mining fleets in the sector by combining a fleet-wide efficiency of 25.7 joules per terrage and a realized average power cost of three and a half cents per kilowatt. With that said, I'd like to pass it over to our CFO, Patrick Fleury, to further discuss our financials and results from the quarter.

Thank you, Paul. Tariff performed exceptionally well in the third quarter, particularly as the summer months are seasonally the most challenging operating environment. However, The advantageous location of our assets in the northeastern United States means we are blessed with temperate conditions, limited high heat events and curtailments, and less wear and tear on our miners versus our peers located in the southern U.S. The operating teams at Lake Mariner and Nautilus did an outstanding job of optimizing performance of our mining rigs, resulting in positive financial improvements reflected in our Q3 financials. As Paul mentioned, with 5.5x a hash of operating capacity online for the entirety of the third quarter, we realized solid free cash flow generation with a debt repayment of approximately $7 million. Before diving into the numbers for the quarter, a quick reminder there is a key difference between our GAAP financials and the monthly operating reports and guidance presented in our investor presentation. As a result of our 25% ownership in Nautilus, The revenue, cost of revenue, operating expenses, depreciation and amortization at Nautilus are not consolidated into our GAAP financial statements. Instead, the financial impact of the Nautilus joint venture is reflected in the equity in net income and loss of investee net of tax line item on the GAAP income statement. In the third quarter of 2023, we mined 624 Bitcoin at Lake Mariner and our net share of mined Bitcoin at Nautilus was 370 Bitcoin, for a total of 994 Bitcoin, or about 11 Bitcoin per day, and a 10% improvement over the 908 Bitcoin mined in 2Q23. Our GAAP revenues also saw outstanding growth of 23% quarter over quarter, reaching 19 million in 3Q23 from 15.5 million in 2Q23. Our value per Bitcoin self-mined this quarter, a non-GAAP metric that includes Bitcoin mined at Nautilus, averaged $28,104 per Bitcoin for a total of $27.9 million, as detailed and defined in our monthly operating reports and press release. Looking now at our gross profit, we saw an increase of 3% quarter over quarter, from $10.3 million in QQ23 to $10.6 million in 3Q23. Our total power cost per Bitcoin mined, a non-GAAP metric that includes Bitcoin mined at Nautilus, was $9,322 in 3Q23 compared to $7,197 in 2Q23. As a reminder, in our GAAP financials, unlike our monthly operating reports, the company records proceeds received and to be received for demand response programs as a reduction in cost of revenue. These expected proceeds totaled $1.7 million in 3Q23. Operating expenses remained stable quarter over quarter at approximately $1.2 million. SG&A expenses increased quarter over quarter from $8.6 million in 2Q23 to $10.3 million in 3Q23. The increase was primarily due to an increase in non-cash stock compensation to related party for achieving a performance milestone. We are on track to achieve approximately 6 million of SG&A savings year over year, and I'm confident we can continue to drive down costs. We are committed to achieving savings of 10 million relative to 2022. We have a number of cost saving initiatives underway and remain steadfast in our objective to achieve these savings as we move into 2024. Depreciation increased modestly quarter over quarter from $6.4 million in 2Q23 to $8.2 million in 3Q23. The quarter over quarter increase was the result of an increase in mining capacity and infrastructure placed into service in the middle of 2Q23. In 3Q23, we recorded a loss on disposal of property, plant, and equipment of $0.4 million related to disposals of miners at Lake Mariner. Gap interest expense in 3Q23 was $10.3 million, which includes cash interest expense and amortization of debt issuance costs and debt discount related to the term loan financing. However, cash interest paid during the three and nine months ended September 30th, 2023 was $4.3 million and $15.5 million respectively. Notably, cash interest paid during the year-to-date nine-month period actually includes 11 months of interest payments due to accrued interest for the fourth quarter of 2022 paid in January 2023 and eight months of interest payments made in 2023 as interest is paid monthly in arrears as of May 2023. In 3Q23, We reported $0.9 million in equity and net income of investee, net of tax, as compared to negative $3.3 million in 2Q23. These amounts represent Terrell's proportional share of income or losses of the Nautilus joint venture. Our gap net loss for the third quarter was $19.4 million compared to a net loss of $17.8 million in 2Q23. Our non-GAAP adjusted EBITDA for 3Q23 was $9 million, an 18.5% improvement over $7.6 million in 2Q23. And year-to-date 2023 adjusted EBITDA is $14.3 million. Turning our attention now to the balance sheet. As of September 30th, we held $6.6 million in cash, with total assets amounting to $312 million and total liabilities of $158 million. With the achievement of our targeted 160 megawatts and 5 1⁄2 exahash of operating capacity exiting 2223, we anticipate a consistent and rapid reduction in our long-term debt moving forward. Furthermore, year to date, we have reduced our net working capital, excluding the current portion of long-term debt, from approximately negative 60 million at December 31st, 2022, to approximately negative 19 million as of September 30th, a substantial improvement and one which will continue to normalize in the fourth quarter. As I've mentioned in previous quarters, you may note from our balance sheet that we do not hold our Bitcoin and treasury, but rather execute a monetize what we mine strategy, whereby we liquidate Bitcoin to pay operational expenses and capital expenses and overhead as needed rather than dilute shareholders to fund these costs. Our job as a Bitcoin miner is to continue to mine Bitcoin more efficiently and profitably than any of our peers and return that profit to shareholders in the form of debt pay down, organic growth, or dividends and share buybacks, not by hodling. As a 23-year veteran of Wall Street and longtime institutional investor in the energy, power, and commodity sectors, I find the HODL strategy to be a simple marketing ploy, allowing peer management teams to gamble with shareholders' money. What commodity business in the world, copper, coal, gold, oil and gas, mines a commodity and doesn't sell it because they think or speculate that prices will be higher in the future? With Bitcoin ETFs likely available to the masses in 2024, thereby providing exposure to the price of Bitcoin, we believe the HODL strategy will soon be antiquated and not in shareholders' best interest. Investors should own Wolf Equity because, number one, they're aligned with management, the board, and insiders owning roughly 50% of the company's equity. And number two, as an operating mining company, Wolf can mine Bitcoin more efficiently and profitably than any of our peers and return that profit to shareholders in the form of debt paydown, organic growth, or dividends and share bad vibes. not by hodling. My recommendation to the board will always be to monetize what we mine and distribute profits via dividends, similar to the MLP or Master Limited Partnership model in the energy industry. Lastly, with regard to our ATM and further to Paul's commentary on prioritizing accretive growth, since September 30th, we issued only 4.6 million shares for net proceeds of 5.3 million. as we do not think our current stock price represents fair market value for the company, and with 50% insider ownership, have no interest in material dilution at these levels. In conclusion, I hope that during this call today, our financial objectives will make clear and simple. Maximize profits, repay debt, and return value to shareholders while providing investors access through transparency and accountability. With that, I'll pass it back to Paul and look forward to answering your questions. Thanks, Patrick.

To summarize what we have discussed today, we are executing on the objectives we have communicated to the market. We remain confident in the strength of the business and our growth prospects, and we look forward to sharing additional operational updates in the future. Before we conclude today's remarks, I want to address our balance sheet and current valuation, as I believe they go hand in hand. With free cash flow generated in the third quarter, we've reduced our debt to approximately $140 million, which I believe is certainly manageable in the context of our cash flow expectations. We also have no mandatory amortization until April 2024, and more likely, until maturity of the loan well past the halving if we achieve an incremental $33 million of principal pay down by April. To put this in context, assuming a Bitcoin price of $35,000 and current network difficulty, we expect to sweep an incremental $30 million by end of the first quarter of 2024. And assuming a Bitcoin price of $40,000, the incremental pay down would be closer to 40 million by the end of the first quarter of 2024. We are fortunate to have a seasoned and constructive lender group that has consistently and continuously demonstrated their support for the company's business by agreeing to modify the terms of the credit agreement to provide more liquidity and flexibility. I expect these collaborative efforts to continue particularly as our lenders are highly incentivized to see our share price perform, given they own 15% of the fully diluted equity of the company. My executive team has managed through multiple power and credit cycles over the last 20 years, and I believe the company has several options with regard to considering our debt. To reiterate, investors should consider the following. One, Lenders are incentivized to see our share price perform given their sizable equity ownership stake. Two, our lender group has proven to be supportive and constructive, having agreed to several amendments to increase the company's liquidity and flexibility. Three, free cash flow will likely enable a reduction of close to $40 million of principal by April 2024. Four, Nazar Khan, my COO and co-founder, and I own a portion of the debt, a meaningful portion of the debt. And we are studying the possibility of seeking a waiver from the lenders to convert to equity at a premium to the current stock price. In principle, I am entirely comfortable coming out of a senior secured position to own equity alongside you, our investors, in Terawal. Five, debt provides operating leverage. And at 11.5%, our term loan is attractively priced relative to the high-yield bond index of around 9.5%. With regard to valuation, in no uncertain terms, I believe TerraWolf is undervalued relative to our peers. We are currently trading at a significant discount. As your fellow shareholder, with a material interest in our collective success, This frustrates me entirely. However, I believe our valuation discount will narrow over time as we continue to perform and deliver. In the meantime, we will remain focused on growing the company accretively, including evaluating public and private M&A. Accretive growth reduces our cost to mine a Bitcoin and increases free cash flow. In closing, I want to personally thank you for your invaluable trust and your investment and your support as we build the leading sustainable Bitcoin mining company. With that, I'm prepared to open the call for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tool will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Thank you.

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

Yeah. Hi, guys. Good evening. Thanks for taking my call today. I guess, first of all, I'd like to better understand the unit economics of this host-to-own agreement. So I believe on the prepared remarks you mentioned it would be 7.8 cents. Does that include a power cost flow-through?

Hey, Josh.

It's Patrick, and I got the whole management team here with me as well. No. So that's all in. So it's effectively, you know, it's effectively fixed. And then, as you know, our power class at Lake Mariner floats. And so that's how it works.

Okay. Understood on that front. And then when we're thinking about, you know, debt pay down as well as the potential option to purchase these rigs, given kind of the free cash flow sweep, I was curious if you expect to purchase any before really the back half of 24 in addition to the 5500 or so.

So, I think what, you know, Josh, we're trying to message there is, you know, we think we're undervalued vis-a-vis the peers and as we've kind of harped on time and time again, you know, we're focused on accretive growth. you know, I think you can look at various valuation metrics and see kind of, you know, where we might see accretion, right? And I guess what we're indicating to you is it's not here at a dollar or sub a dollar. And so, you know, I think as the market unfolds here, you know, we have the option at any point in time, if we think it's accretive, to add those machines in and, you know, we could add one machine or we could add thousands of machines. And so I think, As we move forward, you know, we'll see kind of what happens with the market and what happens with our valuation.

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

Yeah, look, I think our guidance rate has been, you know, four and a half cents at Lake Mariner and then obviously two cents fixed for five years at Nautilus. I think, you know, you can see in our results, I would say we are trending below four and a half cents at Lake Mariner. And I think, Josh, also, as you've probably seen in our monthly operating reports versus our gap financials, you know, we do disclose demand response proceeds in the 10Q and in the gap figures. It's a reduction of our cost of revenue. So when you take into account, I think, our realized power price plus those demand response revenues, I think, generally speaking, we're coming in below that 4.5 cents.

Great. I appreciate your answers. Thanks very much. Thanks, Josh.

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

Thanks for taking my question, guys. So how much CAPEX do you guys have left in the Lake Mariner expansion in terms of just the infrastructure? And how do you expect that to be split between 4Q and 1Q? And then I will follow up. Thanks.

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

Gotcha. That's helpful. And, you know, any updates on the potential 50 megawatt expansion on Nautilus? Like, is there any internal timeframe for making that decision and And where does your JV partner stand on the issue?

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

Hey, Chase, it's Nazar here. That's correct. As of now, we haven't built out a schedule for that. That would be 50 megawatt expansion at the site. So in the near term, we see a lot more opportunity at the Lake Mariner site to expand. We've put up building three, which is a 43 megawatt building. Building four is on the drawing board as well, which we could deliver in April or May of next year. So to the extent that we add another expansion beyond building three, it will likely be at the Lake Mariner facility before Nautilus.

Got it. Thanks.

Thank you.

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

Thank you very much, operator. Good evening, everyone. Good job. Paul, my first question is on the remarks and your prepared comments with the debt to equity exchange. You mentioned some details there. I couldn't catch all of them. You mentioned a potential premium. Just wondered if you could maybe go back and revisit that and maybe also quantify how much could be exchanged. Thank you very much for any additional call.

Hi.

So Nazir and I own, you know, I would guess around $10 million worth of the debt. I think that we're very comfortable and we are exploring the notion of seeking a waiver from our lenders so that we could convert that debt into equity. We would want to do it at a premium to the market, meaning we think our stock is so undervalued, I don't think it'd be right for us to come in at the current market price. And we would expect to come in at a meaningful premium. But that's something that the board has to negotiate. And we'd also have to get approval from our lenders to do that. But I'm inclined – I like that trade a lot in the context of being further invested alongside the other shareholders.

That's very helpful. Thank you, Paul. My second question is, is a little bit more on the industry. And I wonder kind of with the having around the corner, you mentioned M&A earlier. Is there a preference for infrastructure over miners? Is it equal? If you had to go long one or the other, which one would you choose or neither? Would appreciate your thoughts on that. Thank you.

Yeah, I think, you know, hey, Lucas, it's Patrick. I'll answer that quickly. And then looking around the room here, I know Nazar has a strong view on this. But I think we've been pretty public with our view that, you know, not all exahash is created equal. And so, as you know, you know, power is the number one cost input here. And, you know, when you look at our unit economic structure, we have very low power. And so for us, growing, right, either organically or inorganically, accretively, is terrific because it lowers our unit economic cost. That being said, you know, growing at our existing sites where we know we have very low cost power for term, that's a lot more attractive to us than just buying, you know, X a hash that doesn't have low power. particularly as we come into the halving right when costs double. I don't know, Nasir, if you want to add to that.

Good evening, Lucas. Nasir here. To echo Patrick's comments, infrastructure is the key. And as we look at M&A activity and consolidation, we are very focused on looking at infrastructure that is at the same cost structure that we have on direct costs or lower. And so to the extent that it would dilute our direct mining costs, it's not of interest to us. And as Patrick said, we believe we can organically grow at a site like Mariner. We think over time that site can get up to 500 megawatts of total capacity. And so it's at that site, that's kind of our benchmark in analyzing any M&A or consolidation type of activity.

Yeah, Lucas, I would just add, too, I think Paul's going to jump in, too, but as you know, I think you've been to the site, but, you know, we are blessed there with temperate conditions, right? A lot of our competitors based in the south, you know, are not. We're not mining with immersion there, right? We're mining air-cooled because of those temperate conditions. And not only that, but, you know, we're 30, 35 miles east of Niagara Falls, so there's a lot of abundant excess cheap power. And I think you can see that. I mean, our results thus far this year are proving that.

The only thing I'd want to add to that is, Josh, you had asked earlier, you know, given the winter is coming, but we're at the place where it's the source of generation for power, not the end user. So our facility is very well located up north. The other thing is, I think strategic activity is has to be mindful of, you know, an important element to everything we do, which is, you know, we're environmentally correct. We're focused on, you know, zero carbon Bitcoin mining. So one should assume that to the extent we're growing, we're growing consistent with that goal. And also we're going to be acquiring things that are, you know, keep us the focus of everybody who's interested in zero Bitcoin mining. I think this is important because, you know, when the ETFs are approved and you see more and more institutions come to the space, you know, this is a big focus for institutions if it's not a binary determination of who they can invest in. And so, you know, we could look at opportunities from, you know, acquisition of Exahash, but it has to be consistent with how we're built as a company, which is very much focused on Bitcoin mining. from a zero-carbon perspective.

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

Yeah. I mean, I'll give you an example, Lucas. You know, it's just like this is an example of low-hanging fruit in an industry that's maturing. But, you know, our directors and officers insurance our first year was, you know, over $6 million of premium. Okay. I like won't even get into the specific details of what that covered. But, you know, last year we were able to reduce that down, you know, you know, to around four to five million, and this year, you know, we're going to get another really material reduction in that, right? So, and that policy renews in December. So, there's, like, those things, right, where, again, there's public company costs, right? we sort of have more experience and more track record there's a lot of juice still to squeeze out of those grapes and that that's those are I think examples of what we're focused on and right that that's obviously not in the numbers you're seeing today because like I said that that matures or renews sorry in December you know the other thing is we've looked at you know whether it's candidly like the debt amendments in the past we've also looked at some strategic transactions you know our third party legal fees are are definitely decreasing um and that again comes with just you know getting our sea legs on us on things like sec filings and other things and then also workforce efficiencies i mean as we get more experience operating you know, our, our teams are getting more experience operating. We're able to, um, just kind of squeeze more out, uh, out of this, of the, you know, existing folks that we have. So I think it's all of those things, but like, there's some really big ticket items like the DNO, which is a good example that are going to allow us to keep cutting costs that I can see in the future. And I'm pretty confident, which is why I said that in my remarks.

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

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

A girl.

A girl, a girl, yeah. Three girls now. Thank you, Paul.

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

Hey guys, thanks. Two questions. One, my takeaway on the operations at Lake Mariner and Nautilus was that it was a pretty clean quarter. Was there anything to call out operationally? And then secondly for Patrick, it sounds like SG&A and especially interest expense in 4Q, kind of revert back closer to the 2Q levels. Just those were a little bit cleaner quarters. Any directional comment on that would be helpful.

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

First week of October.

Okay, yeah. Well, that's for fourth quarter. We had an outage in October, but then in August we were down, and I think we had a lightning strike or something.

Yeah, so Mike, to your point, it was operationally a fairly clean quarter. We did have a couple scheduled outages that occurred. As we continued to build up the site and getting Building 3 ready, there was some work that we had to do tying in that site to the rest of the site. So there was an outage in August, or sorry, August, that was in the quarter. And as Patrick said, there was an issue just with the lightning strike, but that was only a few hours. And so, but overall, it was a fairly clean operational quarter. Again, the time that we were down was mostly or vastly due to scheduled outages in Building 3.

Yeah, Mike, on your SG&A point, so I look at SG&A uh in our financials and you know i take out uh stock-based comp right because we as you know the management team here has a very big stake so we really don't have much stock-based comp but there is a little bit in there um so yeah i think you know uh 2q if i take out stock-based comp i think was closer um to 6.8 million 3q if i take out all the stock-based comp in there because we did have a performance incentive that was triggered. It's kind of closer to 6.3 million, I think, in 3Q. But 4Q should be, you know, one of our lowest quarters for SG&A. And as you know, first quarter tends to be higher just because we have to file 10K, 10Q work, proxy work. There's a lot of filings and other things that renew, obviously, in the first quarter. So, yeah, I think, you know, if you kind of extrapolate out that trend, I think that's appropriate.

Got it. Okay. Hey, thank you.

Mike, the one other comment I'd want to just mention in terms of operations is just please recall that we're vertically integrated. You know, we operate our own facilities. So I think we're a little bit unique relative to a lot of the other folks in the mining space.

Okay. Hey, thanks.

Thank you.

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

Yeah. Hi, guys. Thanks for taking my follow-up here. Just real fast, I saw in your queue that you put down a deposit for potential S21s in the future. I was wondering if you could walk us through kind of that rationale and how you're thinking about the S21s versus the 19JXPs.

Thank you. Hey, Josh. It's Nazir here.

So, you know, the S-21s came out low, you know, better efficiency machine, lower price out the gate that Bitmain had put out there. And so I think this, you know, I think there was a question earlier from Lucas just around the kind of miners versus infrastructure. And so when we think about it, you know, we think the infrastructure is unique, particularly the ability to procure low-cost power for terms. And miners are available. So what we see is that the S21s out there today, again, under the structure that Bitmain rolled out, 80% payable before delivery and the remaining 20% a year out. Inevitably, 12 months from today, there's probably going to be another more efficient machine that comes out. And so our current fleet efficiency is 27.5 joules per terahash. Once we fully incorporate the full 18,500 JXBs, will be pretty close to 25 joules per terahash. And our long-term goal and trend is to continue to drive that overall fleet efficiency into the low 20s. And so that will mean that, you know, we'd be looking at the S21s, T21s, those types of machines to kind of further drive down that incremental efficiency.

Yeah, and I guess, Josh, it's Patrick. So just to touch on the financial aspect of that, I think the right way to think about it is, you know, we've got, I think, about 4%. $14.3 million of deposits that we made on the S19JXPs. So that, along with the $1.2 million of deposits that we made on the S21s, we'll roll all that into, so that's about $15.5 million, we'll roll that all into the JXP order. So that kind of converts to machines, if you will, at just under $19 a terahash and then we'll host the remainder, so the difference, which is roughly 13,000 of the 18,500 in 2024, and when the time is right, we'll buy some or all, if that makes sense. Does that answer your question?

Yeah, that's very helpful. I really do appreciate the candor, and thanks for taking my follow-up.

Thank you.

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

Hey, everybody. First of all, congratulations on your hash rate expansion to 5.5. I'm not aware of another miner who's achieved that as quickly as you, so I just want to applaud that. But meanwhile, my question relates to the short interest. What is the market missing? What are the misunderstanding, and how do you

intend to prove them wrong because the short interest has grown meanwhile all your other metrics are looking amazing so i would love to get some feedback from you on this hi mateo um this is paul um thanks for your question um you know part of the short position in the space but i don't think it's it's it's it's it's uh close to even uh 50 part of that short interest would appear to be some of our lenders. And I think, by the way, they have been entirely supportive and remain, again, long the stock and willing to continue to help the company outperform its peers. I think the other shorts, part of it is I don't think they understand the debt. So they look at the debt and don't appreciate that, you know, cash flows you know we have free cash flow until you know April and then once we've paid down a certain amount which we're we're clearly going to be able to do here and get it or you know the duration of the loan they don't appreciate you know as well that we have built our facilities to scale pretty rapidly and we could do that internally so I think they're just looking right now at at debt maturity as a primary issue, and they're being a little heavy-handed and short in the stock. I think they're making the wrong bet. You know, I've continued to purchase throughout, and again, as I've indicated earlier, I'm prepared to move my debt, which is the senior secured position, with lender's approval, into our stock at a premium to its current market. So I think at some point, it provides a great opportunity for those invested in the stock to squeeze the shorts. I mean, I don't know if as CEO I'm really supposed to focus on how our stock trades. But I think, you know, it's pretty thin out there and with Bitcoin prices going up with ETF approval, I think that you'll see that, you know, we're the most levered play out there. I think a lot of folks will roll out of companies that are sort of into the HODL strategy as opposed to companies that mine at reduced costs and generate lots of Bitcoin, particularly with the ESG component on top. So I think they're wrong. I think, you know, it's our job to prove them wrong, and that's what we intend to do.

All right, Paul. Thank you. That makes sense. I mean, the debt is a function of how you scale so quickly and you're the low cost producer. So going into the happening, that should resonate. So is there any other actions that the company intends to take to really put an exclamation point behind Terrewolf as a leader in the space?

Listen, we're looking at everything, all the tools in the toolkit. So as we think about our debt, we talk to our lenders routinely. Patrick has a great working relationship there. If there are ways to optimize that in the best interest of the company and our shareholders, we'll do that. We look at strategic acquisition opportunities all the time, consistent with our ESG core focus. And separately, you know, we're already scaling here. You know, Building 3 got up real fast. You know, we've got a very Building 4's on the way, and I think that we are opportunistically structured in terms of our agreements with Bitmain to sort of pay for new machines whenever we want to, as opposed to right now we are paying for some and we're hosting some. So I think we'll get there. I have a lot of confidence in the approach, and again, I think the shorts out there are just too focused on on the debt maturity, which is nine months. Currently, as it stands, it's nine months past the halving. And we're a free cash flow sweep until then. So I think we're in pretty good shape.

All right, Paul. Thank you very much. Thank you to our Wolf team.

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