TeraWulf Inc.

Greetings and welcome to the TerraWolf's 2023 fourth quarter and full year earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jason Asad, TerraWolf's Director of Corporate Communications. Thank you, Mr. Asad. You may begin.

Thank you, Operator. Good afternoon, and welcome to Tara Wills' earnings call. With me today 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, and we may make additional forward-looking statements during the Q&A session of the call. 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 cautious 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 Tara Wolf's public filings with the U.S. Securities Exchange Commission, which may be viewed at sdc.gov and in the investor section of our corporate website at tarawolf.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 a full reconciliation of these non-GAAP performance measures for 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. Now, it's my pleasure to turn the call over to TerraWolf CEO, Paul Prager. Paul?

Thank you, Jason, and good afternoon, everyone. We appreciate your attendance today as we discuss our fourth quarter and full year 2023 financial results. This past year has been marked by significant growth and achievements for TerraWolf. showcasing rapid organic growth at our existing sites, substantial debt repayment, and enhanced liquidity. We've not only met but surpassed several strategic objectives, and I'm excited to share these accomplishments with you. Firstly, TerraWolf specializes in Bitcoin mining, leveraging zero-carbon energy resources at our two top-tier data centers. our wholly owned and operated Lake Marina facility in upstate New York, sourcing 93% zero-carbon grid power, and the Nautilus Cryptomine facility in Pennsylvania, a joint venture with Talon, entirely powered by nuclear energy. As of the end of February, these two industrial-scale mining facilities achieved a combined self-mining hash rate of 8 exahash per second, facilitated by approximately 50,000 deployed miners, representing a more than threefold increase from last year. Despite challenges posed by record high network difficulty, we produced 971 Bitcoin during the fourth quarter alone, contributing to a total of 3,407 Bitcoin mined throughout 2023. I'd like to take a moment to put these figures in context. During the fourth quarter, we produced 971 Bitcoin, resulting in a total value of $34.8 million and an adjusted EBITDA of $16.4 million. Utilizing Bloomberg Consensus annual adjusted EBITDA estimates for 2024 of $96 million and our current enterprise value of approximately $590 million, this would suggest we are trading at a multiple of six times. In comparison, some of our competitors are trading at multiples as high as 16 times, with an average in our peer group of nine times. We recognize that market value serves as an important measure of our progress over time. Our steadfast commitment lies in consistently delivering exponential growth in hash rate with unparalleled access to low-cost, zero-carbon power at existing facilities. The importance of infrastructure scalability cannot be overstated. It forms the very bedrock of our strategic approach. Scalability ensures not only stability and control, but also confers significant long-term cost advantages. It empowers us to optimize operational efficiency. strategically expand our operations, and enhance profitability. This unwavering focus on profitability assumes heightened significance as we approach the impending halving event. We are committed to achieving a 300 megawatt infrastructure capacity in operation by the end of 2024, with plans to further expand to 550 megawatts of deployed infrastructure by 2025. This expansion will result in approximately 28x hash, assuming the current generation of miners. Additionally, we are actively exploring options in addition to Bitcoin mining to optimize the utilization of our extensive proprietary infrastructure to unlock additional value. To this end, in 2023, we established Wolf Compute, as our internal innovation hub, focusing on research, development, and deploying our extensive and scalable digital infrastructure. Following a successful pilot phase involving a compact NVIDIA GPU system to enhance generative AI and large language model applications, we took the step of dedicating a two megawatt power block at our Lake Mariner facility. With over 300 megawatts of available infrastructure at Lake Mariner strategically positioned to cater to data center requirements, this initial allocation is part of a broader high-performance computing initiative and serves to provide diversification of the company's revenue streams. Investments in cloud infrastructure by prominent hyperscalers such as Microsoft, Amazon, Meta, Oracle, and Google have experienced impressive average annual growth, exceeding 30% over the past five years. In 2022 alone, these entities collectively spent $158 billion. The demanding specifications of hyperscalers necessitates sites capable of accommodating several hundred megawatts to sustain multiple data center buildings ranging from 40 to 80 megawatts each. These locations must also offer direct access to extensive contiguous land suitable for constructing data centers, power banks, parking facilities, loading zones, and ancillary buildings, access to water to run in the most efficient manner, and, critically, must adhere to a sustainable ESG framework. TerraWolf is uniquely positioned to fulfill all these requirements. Our large-scale energy infrastructure, coupled with access to zero-carbon, low-cost power, is invaluable for meeting the growing demand from Bitcoin mining and AI applications. Our infrastructure plays a pivotal role in enabling this demand growth. Turning now to our financial position, we remain steadfast in our strategy to leverage our resilient, low-cost infrastructure to maximize profits, repay debt, and return value to shareholders. Our performance in the fourth quarter highlights TerraWolf's consistent achievement of industry-leading profitability. We estimate that our cost to mine in Bitcoin is among the lowest compared to other publicly listed Bitcoin mining companies at approximately $25,000 per Bitcoin before the halving and $37,000 after the halving. As the halving approaches in a month's time, we anticipate that our position as the lowest cost producer of Bitcoin will only be further strengthened, underscoring the value of our vertically integrated and sustainable business model. We've also made significant strides in debt repayment and liquidity. We repaid $40 million of principal in the last four months, bringing our debt balance to $106 million. With liquidity of almost 56 million as at the end of February and substantial projected free cash flow for the first quarter, we have the ability to reduce debt even further with an anticipated debt pay down of roughly $30 million in early April, which will bring the debt balance to $76 million. Allow me to address the matter of dilution. Throughout the fiscal year 2023, we exercised prudent management of our ATM facility, strategically selling approximately 58 million shares at an average price of $2.05 per share. resulting in a discernibly accretive impact. From the proceeds, approximately $18 million was used for a voluntary debt repayment. The remaining funds were directed towards essential minor and infrastructure capital expenditures, with an additional $20 million retained as surplus liquidity on our balance sheet to navigate the halving in a few weeks. While I am fully cognizant of the concerns surrounding dilution, both out of my fiduciary responsibilities to you and as a leading and significant shareholder, I urge you to consider the substantial and accretive impact of these allocated funds. Looking forward, we have far more flexibility in sourcing capital given our current cash flow generation. For instance, In February, we produced 364 Bitcoin at an average cost of approximately $26,000 for Bitcoin, providing total value of $17.8 million, with $8.4 million flowing directly to the bottom line. That's significant. As of April, we expect our net debt will stand at approximately $55 million, nearly 50% lower than at the beginning of the year, placing the company in its strongest position ever. Finally, I'd like to take a moment to thank the incredible team at Terawolf for their dedication, innovation, and hard work, which have been critical in achieving the milestones I've highlighted today. It is your effort that drives our success, and I'm proud to lead such an outstanding group of professionals. Now I'll hand the call over to our CFO, Patrick Fleury, for a detailed financial review.

Thank you, Paul. During 2023 and continuing into the first quarter of 2024, the company accomplished several notable steps to achieve positive cash flows from operations. Number one, it amended its debt to remove fixed principal amortization and utilize a free cash flow sweep to rapidly reduce our debt balance. Number two, commenced mining operations at Nautilus. Number three, commenced mining operations at buildings two and three at Lake Mariner. And number four, repaid over $40 million of debt and positioned the company with over $20 million of excess liquidity to navigate the upcoming halving. While my remarks for year end would typically focus solely on annual results in year-over-year financial comparisons, Our fiscal year 2022 results are less relevant given we only recently achieved targeted run rate operations of 5.5x a hash in the middle of 2023. Therefore, in my remarks, I will focus on fourth quarter versus third quarter results in addition to year-over-year comparisons. All references to 2024 guidance in my remarks can be found in our March 6, 2024 press release. Before diving into the numbers, a quick reminder, there is a key difference between our GAAP financials and the monthly operating reports and 2024 guidance. 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 and net income or loss of investee net of tax line item on the GAAP income statement. In the fourth quarter of 2023, we mined 608 Bitcoin at Lake Mariner, and our net share of mined Bitcoin at Nautilus was 364 Bitcoin. For a total of 972 Bitcoin, or about 10.5 Bitcoin per day, or a 2% decline over the 994 Bitcoin mined in third quarter 2023. For fiscal year 2023, we mined 2,168 Bitcoin at Lake Mariner, and our net share of mined Bitcoin at NALAS was 1,239 Bitcoin, for a total of 3,407 Bitcoin, inclusive of Bitcoin received from hosting profit share. Our gap revenues also saw outstanding growth of 23% quarter over quarter, reaching $23.3 million in 4Q23 from $19 million in 3Q23. Our value per Bitcoin self-mined this quarter, a non-gap metric that includes Bitcoin mined at Nautilus, averaged $35,836 per Bitcoin for a total of $34.8 million. as detailed and defined in our monthly operating reports and press releases. Our GAAP revenues year over year increased 361%, from $15 million in 2022 to $69 million in 2023. Looking now at our gross profit, we saw an increase of 34% quarter over quarter, from $10.6 million in 3Q23 to $14.3 million in 4Q23. Our total power cost per Bitcoin mined, a non-GAAP metric that includes Bitcoin mined at Nautilus, was 10,178 in 4Q23 compared to 9,322 in 3Q23. Growth profit for the year increased from 4 million in 2022 to 41.9 million in 2023. 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 million in 4Q23 and $3.5 million in 2023. As disclosed in our 2024 guidance, we expect to achieve an average power cost, including demand response revenues and the impact of Nautilus' $0.02 power contract, of 3.5 cents per kilowatt hour in 2024. For 2023, we achieved an average power cost of 3.2 cents per kilowatt hour. Operating expenses increased slightly quarter over quarter from 1.2 million in 3Q23 to 1.7 million in 4Q23. Annual operating expenses also increased slightly year over year from 3.3 million in 2022 to 4.9 million in 2023. These quarterly and annual increases were due to increases in repair costs, property insurance, and staffing costs as we scaled operations at Lake Mariner. As disclosed in our 2024 guidance, we expect 13.5 million of operating expenses in 2024, which includes operating expenses at Nautilus. Of the 13.5 million total anticipated for 2024, Approximately 50% is expected to be incurred at Lake Mariner and 50% at Nautilus. SG&A expenses decreased quarter over quarter from $10.3 million in 3Q23 to $8.8 million in 4Q23. For the year-over-year period, SG&A expenses increased slightly from $36 million to $37 million. This increase was primarily due to an increase in, number one, non-cash stock compensation due related party for achieving a performance milestone, and number two, an increase in stock-based comp. Adjusting for these items, SG&A decreased 13% year-over-year from $32.3 million in 2022 to $28.2 million in 2023. As disclosed in our 2024 guidance, we anticipate approximately 27.5 million of SG&A in 2024. Depreciation remains stable quarter over quarter at 8.2 million in 3Q23 and 8.3 million in 4Q23. Year-over-year depreciation increased materially from 6.7 million in 2022 to 28.4 million in 2023. which was the result of an increase in mining capacity and infrastructure placed into service in 2023 at Lake Mariner. During 2023, we recorded a loss on disposal of property, plant, and equipment of $1.2 million related to disposals of miners at Lake Mariner. Gap interest expense in 4Q23 and fiscal year 2023 was $9.3 million and $34.8 million respectively. 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 12 months into December 31st, 2023, was $4 million and $19.6 million, respectively. Notably, cash interest paid during the 12-month period actually includes 14 months of interest payments due to accrued interest for the fourth quarter of 2022 paid in January 2023, and 11 months of interest payments made in 2023, as interest is paid monthly in arrears as of May 2023. In 4Q23, we reported 3.3 million in equity in net income of investee, net of tax, as compared to 0.9 million in 3Q23. For the full year 2023, we reported a 9.3 million loss in equity of investee net of tax as compared to a 15.7 million loss in 2022. These amounts represent Terrell's proportional share of income or losses of the Nautilus joint venture. For the 2023 and 2022 fiscal years, these amounts include impairment losses of $13.6 million and $11.5 million, respectively, related to the distribution of miners from Nautilus to the company, whereby the miners were marked to fair value from book value on the date distributed. Our gap net loss for the fourth quarter was $10.8 million, compared to a net loss of $19.4 million in 3Q23. Our gap net loss for 2023 was $74.5 million compared to a net loss of $91.6 million in 2022. Our non-gap adjusted EBITDA for 4Q23 was $16.4 million, an 81% improvement over $9 million in 3Q23, and 2023 adjusted EBITDA was $30.7 million. Turning our attention now to the balance sheet. As of December 31st, we held $54 million in cash, with total assets amounting to $378 million and total liabilities of $155 million. With the recent achievement of our targeted 210 megawatts and 8 exahash of operating capacity in first quarter 24, we anticipate a consistent and rapid reduction in our long-term debt with an approximate 30 million payment anticipated the first week of April. Furthermore, in fiscal year 2023, we reduced our net working capital, excluding the current portion of long-term debt, from approximately negative 60 million at December 31st, 2022, to positive 31 million as of December 31st, 2023. As I've mentioned in previous quarters, you may note from our balance sheet that we do not hold our Bitcoin in 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. We mine Bitcoin more efficiently and profitably than most of our peers with the intent to return that profit to shareholders in the form of debt pay down, organic growth, and potential future dividends and share buybacks. We are among the lowest marginal cost producers in the industry and provide full cost transparency and guidance to our shareholders as any reputable and leading commodity business does. As a former institutional investor myself, I believe the simple fact that certain of our peers the largest public Bitcoin mining companies and self-declared industry leaders do not, is an insult to investors and research analysts. One can only logically presume that their lack of transparency is by design, knowing that their cost figures, if adequately disclosed, may materially impact investor sentiment. With the April halving fast approaching and all of us about to lay our cards on the table for all to see, I'm very confident in the hand Tara Wolf is holding. We've long suggested that not all exahash was equal and that we anticipate a likely changing of the guard post-halving and upon second quarter 2024 earnings results being reported. As disclosed in our 2024 guidance, we expect to achieve a marginal cost of production which includes every single cost in the company of approximately $36,000 per Bitcoin post-halving. In conclusion, I hope that during this call today, our financial objectives were reiterated and made 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.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. And you may press star 2 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 Mike Grondahl with Northland Securities. Please proceed with your question.

Hey, thanks, guys. Two questions. I'll ask both of them up front. But, hey, the first one, as it relates to your HPC initiative, what are the two assets that have the most value for you guys as you're going out to the market there? And related to that, how do you value those assets and what's kind of the timeline to harness that value? And then secondly, any thoughts on kind of the elevated short interest in the stock?

Yeah. Hey, thanks, Mike. Can you hear me okay? It's Patrick.

Yes.

Okay, great. So sorry for that. We've got a management team all over the country at different conferences and a lot going on today. So I'll start, Paul, but feel free to jump in. But Mike, with regard to HPC and AI, look, I think size and scale and economies of scale matter. And so there's very few sites left in the United States that have you know, over 50 megawatts. We have 300 at Lake Mariner, but also have access to land, you know, abundant and cheap and largely zero carbon power and water. Remember, we're at the site of a retired coal plant that used to pull hundreds of thousands of gallons of water from the lake. And so it's, I think being able to check the box on all of those items is very rare, and it positions you for value creation similar to our partner Talon and what they just realized at their site. So I'll pause there. Paul, do you want to add anything to that?

No, I think you got it. I would want to underscore how important ESG is into these hyperscalers. So land, power, cost of power, and that green focus is fundamentally critical to these guys. I think one other element here is how quickly they could get active. I think our sites are ready years earlier than maybe some of the competitors that are currently in development, looking for their connections. So I think the proximity or the immediacy of their availability for hyperscaler is very compelling to them as well.

And then, Mike, just to address your second question, it's not lost on us. I see short reports weekly. So just to give you an idea, we have about 47 million shares sold short today. You know, as you know, insiders and management, we have among the largest among all the Bitcoin miners insider ownership, which is why we're so careful and prudent with the ATM. And, you know, we have, I think, around 300 million common shares outstanding of that amount. You know, just broadly speaking, probably 100 to 150 is held by what I would deem insiders. So with 47 million shares short, I mean, you're talking about 25 plus percent of the actual float that's out there on the stock. And I can actually see, I can't see by name because the short reports don't say that, but I can see that, for example, one fund is short close to 70 percent of that 47 million. And so, you know, I can tell you, I think that's a crazy position because, like I said, I think We're about to change the guard in the space where I think profitability and valuation based on profitability will really matter as opposed to previously. These companies have been valued on revenue and exahash, uh, which just doesn't make any sense to me. I mean, I've seen that in the nineties and telecom and in the two thousands in power and none of that ended well. So, um, I think it's something we're focused on a lot of that short interest, um, or the remaining. call it around, I don't know, 10, 15 million shares is actually, I think, part of our lender group. And that will unwind itself in the first quarter because they own warrants in the company. Some of them have sort of taken that market risk out by shorting a stock. And when we deliver in those warrant shares, that short interest will be covered and go away. So Look, I think we're excited about that because I think there's a real potential short squeeze opportunity as we continue to put up good numbers.

Got it. And then maybe just a quick follow-up. On the 300 megawatts and the land and the water, have you attempted to put a rough valuation on that, what you think that's worth in today's markets?

So not yet, Mike, but look, I think we're going to, you know, this stuff takes time. I think what I will do quickly is just lay out for you, you know, the space really is characterized by a barbell approach right now. And so what I mean by that is on, you know, the right hand, you have, you know, stocks like the Magnificent Seven that are in effectively an arms race to secure capacity. and those deals look very different you know those can be 5 10 15 20 year type deals where you know you're building according to their specs and um that is very financeable right because you've got a long-term contract um and less capital intensive because we're building you know the infrastructure and they're bringing the guts so they're they're you know owning the gpus and so The other end of that spectrum, the other end of the barbell, is a lot of newly formed AI, HPC companies that are funded by venture capitalists or otherwise that are very legitimate but have sort of $50 million on balance sheet and want to enter into anywhere from six-month to two-year deals. And then they're relying on you to – fund the infrastructure and the guts. So by the GPU. So that's a lot more capital intensive because those deals are much harder to finance. Right. Because it's not just, you know, a legitimate financing party saying, hey, you know, we'll finance 200, 300 basis points behind a corporate credit risk. You know, these are startup companies. So that's kind of the barbell approach. And we are working both sides of that barbell. But one side is higher credit risk quality startup-type companies that's more capital-intensive, and then the other side is longer-term contracts, much more financeable, less capital-intensive, if that makes sense. Sure, sure. Okay.

Hey, well, we'll stay tuned. Thanks, guys. Thanks, Mike.

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

Thank you very much, operator, and good afternoon, everyone. This is actually Fedor Shebelin asking question on behalf of Lucas Pipes. And my first one, so I believe you targeted 300 megawatts by the end of 24 and 550 by the end of 25 for your total self-mining footprint. And the question is, could this capacity potentially be utilized for HPC or cloud services?

Yeah, hi, Fedor. It's Patrick speaking. So, yes, I think, you know, as Paul and I are saying in our remarks, you know, we are an infrastructure company, and we are blessed in that we are long infrastructure when there's a mass scramble for infrastructure now among companies. both Bitcoin miners and hyperscalers, right? So I think we, you know, given our insider ownership, we are focused on the highest and best return on capital. And, you know, if that means, you know, Bitcoin miners, like Paul mentioned in his remarks, you know, we're trading at six times, but some of our peers are trading at, you know, 14, 15, 16 times. Well, you know, data center companies out there trade at 25 times EBITDA. So I can assure you that we are, as one of the highest insider ownership, the highest insider ownership companies in the space, we are very focused on creating long-term value and we'll, you know, skate to where the puck is.

Got you. That's helpful. And maybe it's early to talk about this, but would any potential of HPC capacity come at Lake Mariner or Nautilus or both? What's the preference here?

Yeah, so the Nautilus facility is strictly, for us, is strictly Bitcoin mining. And then the HPCAI capacity would come at Lake Mariner. So as Paul said in his remarks, we have, and you'll see in our investor deck, updated investor deck that we just posted today, We have 300 open megawatts at Lake Mariner, and that will be put to the highest and best value accretive function.

Got you. Thank you very much. Are you having any maybe discussions today with potential tenants, and just how would you frame up the demand?

Yeah, look, I think, Paul, I'll answer that, but please jump in. But look, I think as we've mentioned to you publicly, we've been running a two megawatt pilot since the fourth quarter at Lake Mariner. We have had an advisor retained on the, you know, HPC AI front also since the fourth quarter. So we have been in significant discussions for quite some time. And, you know, these things take time. And like I said, there's not, there's not one solution that fits all. You know, there's co-location, there's co-location and funding of all the GPUs for sort of smaller scale. And then there's, you know, much larger scale companies that are focused on very significant size where, you know, again, like I said, we're not taking on the GPU technology risk because we're not buying the GPUs. So that's, you know, the, Again, I think we're hopeful that as we move through 2024, we'll be able to talk in more granularity about it, but it is something that our management team has been very focused on for quite some time, and we look forward to rolling that out. Paul, is there anything you want to add to that?

Only in response to your question about demand. I would say demand is very, very significant and timely. I think A lot of these folks are trying to get as big as they can, as fast as they can. As I said in my remarks, I think we're one of the 10 most premier sites in the country when it comes to size, energy availability, energy cost, access to water, and of course our unique ESG qualification. So I think I'm very comfortable representing that our site is in meaningful demand and we as management need to do our job and look at the highest value used for our property and energy.

Thank you so much. And maybe my last one about M&A opportunities that might evolve post-housing. So what's your thoughts on this space? Are you looking something into more beyond these two current sites if an opportunity evolves?

So, Paul, do you want me to take that or do you want to take it?

Yeah, listen, we're trying to do, we're trying very hard in the space that's full of volatility and misinformation to really focus on execution. If we just stay the course here and build out our existing facilities, we're going to be busy for quite some time. And that is the primary focus. Of course, We are familiar with energy infrastructure, unlike almost any other of our peers in this group, and so we will be opportunistic if we find something that is compelling and has to remain true to our thesis, which is zero carbon mining. But right now, we're really focused on executing our business plan, keeping our heads down, doing our job, and trying to make as much money as we can for our investors.

Thank you very much for color and continue. Best of luck.

Our next question comes from the line of Bill Papanisio with Stifel. Please proceed with your question.

Yeah, good afternoon, everyone, and thanks for taking my questions. I want to lead with a question on the term loan. Obviously, management has taken very significant strides of paying down the debt, and I'm curious to hear what the appetite at this point is to refinance, just given the more favorable outlook and the guidance that management's provided to get to 28.3X a hash.

Yeah, hey, Bill, it's Patrick. Thanks for the question. Good question. So, look, I think... you know given where economics are right now the biggest asset of this company is the cash flow generating ability and we're generating a lot of cash i mean we're mining 12 to 13 bitcoin a day right now and you know our cost is call it 25 26 000 so you know you can do the math but it's five six hundred thousand dollars a day kind of depending on exactly where bitcoin price is because You know, it's been pretty volatile here. So as Paul said in his remarks just now, I mean, we are kind of head down, focused on maximizing cash flow and taking the debt down and ultimately taking it out completely. So, you know, as we move forward in time, yeah, could we pursue something on a refinancing front? Yeah, maybe. But I think if we can keep harvesting cash flow and Bitcoin stays here, um you know i think will pay off the debt naturally uh you know in the by the you know sort of end of third quarter fourth quarter so that's i think more of our focus bill is is not necessarily um refinancing it's eliminating great i appreciate that response and then for my second final question uh you know as reported in the preliminary earnings

The company had just under $50 million of cash on hand at the end of February. Can you provide some color in terms of whether there's any outstanding payments due on recent equipment purchases or the build-out of building number four? Just trying to get some color on that. Thanks.

Yeah, good question, Bill. So I think the way we think about it, I'm going to answer the three different parts of that question. I think about just what I would call true excess liquidity on the balance sheet of about $20 million. So that's kind of what we're holding to kind of navigate through the halving and make sure that the company has an adequate liquidity to address any volatility over the next couple months. So that's number one. Number two, part of that question, we do not have any – contracts currently, you know, any liabilities for minors, for example. And then that sort of folds into the third question. So Building 4 at Lake Mariner, which is scheduled to be completed in June, that is substantially funded from an infrastructure perspective. We have not announced a minor purchase for that yet, hence my answer to your previous question of we don't have any liabilities currently, but we have not announced how we're going to populate that building with miners. Does that all make sense?

Yeah, thanks. Sorry, I should have been more specific. I did mean for the infrastructure part instead of the mining part, so that helps to clear everything up. That's all the questions from me. Thank you.

Thanks, Bill.

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

Yeah. Hi, team. Thanks for taking my question today. Really appreciate all the transparency you provide around a bunch of KPIs here. My first question is really around financing for infrastructure. I'm curious if you can dive a little bit deeper into the financing options that would exist for infrastructure committed to HPC compared to infrastructure committed for Bitcoin mining.

Yeah. Hey, Josh, this is Patrick. Thanks for the question. So, look, I'm not going to answer that in great detail, but I will, you know, at some point further down the road this year. But I think the short answer to that question is, you know, on the HBC AI, and again, I'm going to go back to the barbell approach because I think that's really important to think about. But the financing is abundant and and and available for any type of large cap customer right because that's a 5 10 15 20 year type contract and so that build cost um for us so if you think about 300 megawatts is anywhere and these are wide ranges because you know this moves around so bear with me but anywhere from kind of three million a megawatt to seven million So those are big numbers. I know if you multiply that by 300, that's like a billion to $2 billion. Right. And so what I would say though, is if you have an underlying contract, long-term contract with an, you know, an a rated counterparty, you can finance, you know, 70 to 90% of that cost. Now that's one part of the barbell. The other part of the barbell, which is the smaller, more capital intensive. So I'll give you an example. Like if we were to, to, go out and build the infrastructure and buy all the GPUs for our two megawatt pilot, that would be probably around 20 to 25 million per megawatt, right? Because we're doing everything. We're building the infrastructure and then we're owning and building the GPUs. And so those contracts tend to be more like, like I said, sort of roughly two year type contracts. And the payback is on that is generally speaking over two years. But the counterparty there, just again, because they're smaller companies are putting up kind of like 25% of the contract value day one. And so those, as you can imagine, are harder to finance. That being said, you know, we are looking at doing, say, like 10 megawatts of those types of deals. and then doing it with the same sort of financial counterparty that would finance the sort of other side of the barbell of like an A-rated company. Because when you put a bunch of, you know, it's like CMBS, right? When you put a bunch of companies together, you're decreasing the risk. So there is that possibility. It's just more complicated. So as you can see, like both sides just take time. And, you know, I know you all cover other folks in the space. You know, I think others have reported kind of the same, but does that help address your question?

Yeah, absolutely. It does really appreciate the color there and definitely interested to see kind of what you're seeing as you progress and building out that infrastructure and forward. For my second question, just want to flip over the fundamentals of the Bitcoin mining side. So your cost of power for the year came in, you know, it performed much better than our expectations and better than your initial guidance, I believe. Obviously the mix is shifting more towards like Mariner, but can you give us any insight into how you expect that to trend for 24?

Yeah, sure. I mean, I think you'll see, we just put out an updated investor deck that everyone can grab off our website, but look, we're, we're guiding again to that sort of blended three and a half cents. You know, I would rather, you know, I would rather keep that guidance and beat with all you guys. You know, as you said, we delivered 3.2 cents for 2023. So look, I think we're pretty confident. And there's a slide in our investor deck where you can see historical average price at Lake Mariner and also forward pricing. So we're pretty confident that, you know, we'll be in that same range, Josh, going forward and, You know, it's just, it's a fantastic, as you know, and as we're kind of showing quarter over quarter, you know, other than a couple of weeks in the winter and a couple of weeks in the summer, it is a beautiful place to mine Bitcoin. I was actually, Nazir Khan and I were talking the other day and we learned a stat that I actually had not heard. But I think since temperatures have been record, you know, record keeping temperatures have been kept at the Lake Mariner site, I think since like the 1970s. There's not one day in the history over that, you know, roughly 55-year period where temperatures have been over 100 degrees at our site. So it is a, you know, it is a perfect place, you know, with an abundant zero-carbon source, you know, of hydroelectricity just down the road to my Bitcoin.

Great. Appreciate that. Thanks, Patrick.

Our next question is from James Roland with Meme Stock Watch. Please proceed with your question.

Hey, how are you? Can you hear me? Yeah. Hey, James, we can hear you.

Hey, how are you? So I run a forecasting service on miners, all crypto miners, in fact, you know, and doing so much digging on Wolf over the past, you know, year or so. I made my own personal decision to have my biggest miner position in Wolf as opposed to many others. And, you know, on my website, Memestockwatch, I offer analysis, fundamental analysis, technical analysis, nightly on all miners. And, you know, my miner of pick has always been Wolf. So before I even ask anything, I just wanted to say that this call has been wonderful to listen to. I think the company sounds like they're in great hands. Now, my question to you guys is, what would you say to investors looking to invest in the crypto miner space and looking for a specific crypto miner that they think can perform well post halving? Obviously, there are a lot of doubts and questions raised about that. So what would you say to someone that's looking to invest in a crypto miner? Why should they take Wolf over others?

First of all, I appreciate your investment in the company. This is Paul. I can try and answer that. Listen, I mentioned in my prepared remarks that we are aware that we traded a much lower multiple than many in our peer groups, significantly lower. And it's a question we often ask ourselves, why? And I think I'd want to respond to you in a couple of different ways on this. I think generally our debt is misunderstood. I've repeatedly been out there suggesting it's a non-event. We have successfully managed it. We've paid it down just as we promised we would. But I do believe that the perception that there is debt out there remains a reason why some people haven't invested yet. But I hope they consider that we've repaid $40 million of principal over the last four months. We're poised to make another substantial payment of approximately $30 million in the coming weeks. And this has effectively halved our debt load in less than six months. Our very robust performance in the fourth quarter underscores our ability to generate considerable free cash flow. And we have excess liquidity of approximately $20 million on the balance sheet. So I think we have very strong financial footing and we're highly confident in our ability to manage the remaining debt balance. So I hope future investors would look at that. I think misunderstood negative is really a positive. Two, I think we've suffered from a misperception regarding dilution. I have always committed to shareholders that we're going to be deliberate about using the ATM to fund accretive growth objectives. We have rapidly scaled the last several quarters. We're now in a position where creative investment in our equipment and infrastructure is producing very significant cash flow. And beyond this, I think our dilution tends to be on the very low end of all our peers, one of which right now is implementing a staggering $1.5 billion ATM facility. That would never happen on my watch. The majority of our larger peers are seem to me to be far more lifestyle companies for management at the expense of shareholders. But I am troubled by our lower multiple. It doesn't sit well with me, and I recognize that it will always be a scorecard for future investors. When people look at the facts, I hope they understand that TerraWolf is the best, if not only investment out there, because of three primary things. One, profitability. Our cost to mine Bitcoin is among the lowest compared to other publicly listed mining companies. And we are approximately 25,000 per Bitcoin before the halving and 37,000 after the halving. And if you listen to what Patrick said, he said that includes every single possible cost in the company. There's a reason why many of our competitors don't disclose their power costs or their SG&A. you know, fully loaded, but we do. And the way to think about that today is if Bitcoin's at $65,000, the company is making almost $500,000 a day on our current 12 Bitcoin a day production. That's real money. The second reason is alignment. I'm one of Terrell's largest shareholders. Our management team is fully invested. So we and you, we share the same goals. We're entirely aligned. My management team is more heavily invested in the company than any of our peers. We win if you win. We only win if you win. And lastly, scalability. The scalability of our digital infrastructure is peerless. It's the backbone of our strategy. It empowers us to optimize efficiency, scale operations, and drive profitability. Again, as Patrick mentioned earlier, I think the Bitcoin valuation or the Bitcoin mining valuations are changing and changing fast, and profitability should be the story. When I look at some of our larger peers, I'm reminded of the old adage, how do you make a small fortune in Bitcoin mining? And I think for many of our competitors, the answer is start with a big fortune. TerraWolf is an entirely different animal. We make a meaningful profit mining now, and we will continue to do so after the halving. That's why people should invest in Wolf. And I'm really grateful for your question and for your investment in our company.

Fantastic answer. Thank you so much for your time.

Our next question comes from the line of Joe Flynn with Compass Point Research. Please proceed with your question.

Hi, guys. I had a question related to paying down the debt post-having. With regard to the $76 million, how should we think about the balance between ultimately investing in growth to get to 300 megawatts or paying down debt? And with that, you said by 2024 or by 2025. But ultimately, do you expect to de-lever before ultimately getting to 300 megawatts? Thanks.

Yeah. Hey, Joe. It's Patrick. Good question. So, look, I think primary objective with all of our free cash flow right now. And I just want to make sure we're distinguishing because we've talked a lot about this today, but you know, the company is generating, like Paul said, I mean, we are generating, you know, 500 to 600,000 of free cash flow a day. Okay. So when we talk about debt pay down and the debt pay down that's coming, call it the first week of April, that is all, all of it from free cash flow generation and profitability. And so we will continue to be very profitable post-halving, assuming Bitcoin price around where we are today, and we'll continue to generate a lot of free cash flow. And so our goal is to extinguish the debt with free cash flow. So once that occurs, then I think we can make a decision on you know, do we use free cash flow to grow accretively? Do we use it for dividends? Do we use it for buybacks? What do we use it for? But right now the focus is debt repayment.

Great. That's helpful. And then regard to the, you know, purchasing miners, I can maybe talk about the current, you know, market appetite for the, for miners. Like, are there still opportunities to, you know, lock in kind of the lower prices we've seen the, $14 to $15 or $15 to $16 jewels per terash? Just like anything you could add there.

Yeah, sure. Look, I think there's, you know, there's obviously a lot of different, or certainly more so than the last cycle, right? There's a lot of different OEM options. So, look, we would expect, you know, as Bitcoin price continues to move up, that, you know, pricing for miners changes. does move up, but I think there's a lot of opportunity still remaining out there, you know, to get miners at a very attractive price, like around the level that you just referenced. So, yeah, I think that's not a near-term concern of ours.

Great. Thanks.

Thank you. At this time, I would like to pass the floor back over to Mr. Paul Prager for closing remarks.

I want to thank you again for joining us today. In summary, I believe TerraWolf distinguishes itself through its best-in-class assets, lowest unit economics, ability to scale owned infrastructure, and alignment with investors. As a significant investor, and Tero of myself, I can assure you that we are well aware of and will only pursue the very best interests of the company and its shareholders. Thank you for your trust and support as we strive to build the leading Bitcoin mining company.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.