Marathon Digital Holdings Inc

NASDAQ:MARA

Earnings Call Analysis

Marathon Achieves Strong Q3 with Key Milestones

Marathon delivered a standout Q3 performance, achieving an 18% growth in operational hash rate alongside an increase in Bitcoin production by 19%. Operating efficiency enhancements have driven down costs, resulting in a significant year-over-year reduction of 41% in cost per coin. The company reported record revenue of $97.8 million, a notable 685% increase from the prior year and a remarkable turnaround from a net loss to a net income of $64.1 million. Future growth is supported by a 30% projected increase in hash rate for 2024 and ongoing optimization strategies. Marathon's progress is exemplified by its strengthened balance sheet, reflected by $101.2 million in unrestricted cash and 13,716 Bitcoin holdings valued at approximately $370 million by quarter end.

Marathon Digital Holdings Reaches New Heights Amidst Market Turbulence

In a period marked by challenging market conditions for Bitcoin and asset volatility, Marathon Digital Holdings emerges more resilient and determined. The company's insightful strategies and sharp focus on operational excellence have allowed it to not only navigate but capitalize on the volatile landscape. The third quarter witnessed Marathon selling 2,300 Bitcoin, bolstering its operations with cash proceeds of $65.6 million and increasing its cash resilience with $156 million on hand, while holding approximately 13,396 Bitcoin valued at $464 million.

Advancing with an Asset-Light and Cost-Efficient Focus

Marathon's success is heavily influenced by its asset-light strategy, which enabled 30% more capital investment in hash rate growth over infrastructure-centric competitors. Their sophisticated operations in challenging environments like Masdar City and admirable undertaking of utilizing Paraguay's surplus hydroelectric power are reflections of their commitment to sustainable and cost-efficient mining. Their initiatives are not just beneficial for local grid operations but reinforce their growth strategy, as they look to reduce hosting costs below $0.04 per kilowatt-hour and innovate to lower costs for long-term benefits.

Pioneering with Vertical Integration and Proprietary Technology

Marathon's expertise in deploying advanced cooling technologies and proprietary firmware is noteworthy, particularly in the extreme conditions of Abu Dhabi. This not only showcases their operational prowess but also positions them for cost savings and operational advantages in the next Bitcoin halving, wherein other miners may struggle without such technological adeptness.

Strengthening Financial Footing for Upcoming Market Opportunities

The company's strategic focus on maintaining a strong balance sheet with significant cash and Bitcoin holdings - to the tune of $600 million - means it is well-prepared to act opportunistically regarding potential acquisitions of undervalued assets in the wake of halving-induced market turbulence.

Commitment to Accretive Growth and Shareholder Value

Continuing the pattern of shrewd financial planning, Marathon utilizes a balance of Bitcoin sales and equity capital for growth, ensuring that each project meets stringent internal rates of return before proceeding. By carefully revisiting their capital strategy monthly, the team is nimble enough to adapt to the market and maximize shareholder value.

Leveraging Talent and Team Expertise

The company takes pride in its lean yet highly effective management team, whose capacity to execute high-growth strategies with limited human resources speaks volumes about their operational capability and leadership acuity.

Optimizing Mining Operations and Scaling Efficiently

During the quarter, Marathon boosted its operational hash rate by 8%, increasing energized hash rate to 19.1 exahashes and managing 4% of total miner rewards. With an eye on the future, they not only reached their goal of 23 exahashes but also proactively restructured convertible debt in preparation for future growth opportunities, especially considering the anticipated market shifts in the upcoming halving year.

Reporting Strong Financial Outcomes

Reflecting the successful adoption of their growth strategy, Marathon reported record revenue of $97.8 million, a sharp increase from the previous year's $12.7 million. Meanwhile, the company made a leap in profitability, swinging from a net loss to a net income of $64.1 million, while diligently managing the all-in cost per coin to optimize profitability.

Earnings Call Transcript 2023-Q3

[Operator]

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

[Chris Brendler, executive]

Thank you, Sherry. Good afternoon, and welcome to Marathon Digital Holdings Third Quarter 2023 Earnings Call. Thank you for joining us for our call today. With me on today's call are Chairman and Chief Executive Officer, Fred Thiel; and our Chief Financial Officer, Salman Khan. Before we get started, I'd like to remind everyone that our prepared remarks may contain forward-looking statements, which are subject to the risks and uncertainties and that may -- we may make additional forward-looking statements during the question-and-answer session. These forward-looking statements are subject to risks 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 it relate to Marathon Digital Holdings are, as such, a forward-looking statement. Please refer to our earnings release for a full recitation of our forward-looking statements. Investors call -- All forward-looking statements involve risks, which may cause actual results to differ materially from those anticipated by Marathon at this time. In addition, other risks are more fully described in Marathon's public filings with the U.S. Securities and Exchange Commission, which can be viewed at www.cc.gov and ir.mara.com. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures in which Marathon include certain items of the financial results. Please refer to our company's per reports on Form 10-K and 10-Q and to our website for a full palliation of non-GAAP performance measures to the most comparable GAAP financial measures. We'll begin today's call with prepared remarks from Fred and Salman. After their comments, we'll be going through some popular questions from investors before transferring to a live Q&A with our covering analysts. And with that out of the way, I'm going to turn the call over to Fred to kick things off. Fred?

[Frederick Thiel, executive]

Thank you, Chris. The third quarter was a landmark quarter for Marathon as we achieved several key milestones. To start the quarter, our first international facility in Abu Dhabi powered up just 6 months after signing contracts, even though this is the first site that was designed and built by Marathon together with our JV partner. In August, we reached our stated goal of 23 exahashes and established Marathon as one of the largest bitcoin miners globally. Then in September, we proactively restructured our convertible debt to further strengthen our balance sheet and prepare for opportunities that may be created by next year's haven. In addition to these key milestones, we also reported strong financial results with record revenue, lower cost per coin mine and improving margins. Much of this success was the direct result of measurable progress on our 2023 priorities, which are energizing more capacity and optimizing our mining operations. Let me provide some more detail.In the third quarter, we increased our energized hash rate 8% from 17.7 exahashes to 19.1 exahashes. Over the same period, our average operational hash rate for the quarter increased 18%. The faster growth in realized hash rate was due to improved uptime that helped drive record midpoint production of 3,490 bitcoins, up 19% from the prior quarter as well as lower cost per coin. The increase in uptime was driven by our optimization strategy and a more proactive approach to managing our domestic operations and hosting partners. Over the course of 2023, we have built up our operations team, adding key talent across site operations, power, hardware, software, networks, repair and cooling. We are now directly managing our hosting partners to improve efficiency and increase uptime. Our approach has included on-site Marathon resources to direct operations, upgrade equipment, optimize network design as well as deploy our proprietary firmware. By way of example, uptime in McCamey, Texas, increased by approximately 20% in the third quarter, even with an approximately 84% increase in curtailment hours relative to the second quarter. This progress is critically important as the improved operating efficiency lowered our direct cost per bitcoin mined by 9% sequentially, excluding depreciation and amortization despite a 9% increase in average network difficulty in the third quarter. Our all-in cost per coin, which includes G&A without stock-based comp, dropped to 12% quarter-over-quarter and 41% year-over-year. This material improvement is not just the result of optimization. It also reflects the significant scale benefits that we have achieved that helped lower our all-in cost per coin. On a year-over-year basis, bitcoin mined grew 467% in the third quarter as Marathon's block rewards represented 4% of the total available minor rewards in the third quarter. Energization of more efficient mining rigs is also lowering our electricity consumption on a per hash basis. Our mining fleet is already among the most efficient in the industry and growing our hash rate with ever more efficient machines will continue to lower our cost per coin. This process is encouraging. Our operational priorities remain unchanged, and we're still focusing on growing our market share in the most efficient and sustainable methods possible while optimizing our operations to continually drive lower costs. In a few minutes, I'll provide an update on our growth plan and how we're innovating to drive lower costs. But first, I'm going to turn the call over to Salman to discuss our financial results for the third quarter. Salman?

[Salman Khan, executive]

We had an excellent third quarter with record Bitcoin production and higher margins. The company reported net income attributable to common stockholders are $64.1 million or $0.35 per diluted common share in the quarter compared with a net loss of $72.5 million or $0.62 per share in the prior year quarter. On a sequential basis, we grew net income $85.4 million versus the second quarter of 2023. The sequential improvement in profitability was partially due to a onetime net gain on extinguishment of debt or $82.6 million due to the notes payable exchange transaction. Third quarter revenues were a record $97.8 million, significantly higher than prior year revenues of $12.7 million. Average daily Bitcoin production grew to 38 bitcoin per day versus 7 bitcoin in the third quarter of 2022. And up 18% from prior quarter levels. Revenue also benefited from a 32% higher average bitcoin price compared to last year's third quarter. Our hosting and energy costs for the 3 months ended September 30 were $59.6 million compared to $13.8 million last year. The increase was due to significantly higher bitcoin production, partially offset by lower production costs per coin and onetime exit costs for our Harden Montana facility last year. Total cost of revenues, which includes depreciation and amortization was $113.2 million compared to $40.1 million last year, which is an increase of 182%. Depreciation and amortization this quarter was $53.5 million, increasing by $27.3 million compared to the same quarter last year. As Fred mentioned, we have grown our mining rig fleet significantly since last year and as a result, increased our energized cash rate from 3.8 exahashes in the third quarter of 2022 to 19.1 exahashes in the third quarter of 2023. We also had onetime accelerated depreciation of our Harden Montana facility of $5.7 million last year. Gain on digital assets was $31 million in the current year quarter versus none in the prior year third quarter. Impairment of digital assets, on the other hand, increased by $10.5 million year-over-year to $11.9 million, reflecting the increased size of our Bitcoin Holdings, which was up 29% year-over-year. I want to note that the company's non-GAAP total margin, excluding depreciation and amortization, was $38.2 million this quarter, up $39.3 million from -- compared with the same quarter last year. This is representative of our increased hash rate and our strategy to systematically improve efficiency, as mentioned by Fred earlier as well as higher bitcoin prices in 2023. Adjusted EBITDA improved to $43.7 million versus a $6.1 million loss in the prior year period. The drivers of the adjusted EBITDA improvement include total margin improved -- excuse me, total margin improvement, excluding depreciation and amortization and the net realized gains on Bitcoin sales net of impairment, partially offset by an $8 million year-over-year increase in general and administrative expenses to support the growth of our business. General and administrative expenses excluding stock-based compensation were $14.6 million in the current period as compared with $8.7 million in the prior year period. This increase in expenses was primarily due to the increasing scale of business, including payroll and benefits, professional fees and other costs. At the end of the third quarter, we had 48 employees, up from 20 a year ago as we continue to opportunistically add talent across the organization. Turning to our Bitcoin holdings and cash position, unrestricted cash and cash equivalents totaled $101.2 million at September 30, which was up $37 million compared to last year. Also at September 30, we held approximately 13,716 bitcoins, with a carrying value of $287 million on the balance sheet. Fair value of our holdings was approximately $370 million at quarter end. The company's combined balance sheet of unrestricted cash and cash equivalents -- the company's combined balance of unrestricted cash and cash equivalents and fair value of Bitcoin was approximately $470 million. We sold 2,300 bitcoin during the quarter, realizing cash proceeds of $65.6 million. These proceeds were utilized to fund operating expenses during the quarter, including cost of revenues for energy hosting and other cash operating expenses. During the quarter, we generated $37 million from at-the-market equity sales, which we intend to use for growth capital. Also during the quarter, we took advantage of an opportunity to strengthen our balance sheet by exchanging $417 million in convertible notes for approximately $329 million in equity. This transaction reduced our debt by 56% and will save approximately $101 million or $0.55 per share in cash for our shareholders for principal and interest reduction. The combined cash and cash equivalents and bitcoin on our balance sheet, along with reduced debt and access to at the market facility, provides us ample amount of liquidity and optionality to strategically evaluate opportunities as we approach next year's halving. The increased value of combined cash and Bitcoin, along with reduced debt is prudent risk management and a source of strength for the company's balance sheet as we enter a potentially turbulent time for the industry during halving next year. In fact, we have already started to see less efficient and undercapitalized miners looking to be acquired prior to the halve. As mentioned in our October production report, our unrestricted cash balance at October 31 was $156 million, and we held approximately 13,396 bitcoins with a fair value of $464 million. In total, we had over $0.6 billion in unrestricted cash in Bitcoin at end of the last month. In addition, during the third quarter, we began making enhancements to our treasury management strategy. Specifically, we began hedging a portion of our Bitcoin holdings. For those who are less familiar with the concept, hedging is designed to mitigate the impacts of extreme volatility in the near term while maintaining the long-term strategy of maximizing the size and value of our treasury. It is designed with predefined risk terms and protects Marathon from sharp downward price movements, while still allowing us to take advantage of upside gains. Hedging is likely to have an impact on our earnings going forward as we recognize gains or losses from such hedging activity. Given Bitcoin's historical volatility, we believe this strategy is integral to improving the resilience of our organization, providing downside risk protection during volatile market conditions and maximizing our Bitcoin valuation potential. We expect our future Bitcoin holdings will generally increase, but will fluctuate depending on operating and market conditions. We intend to add to our Bitcoin holdings primarily through our production activities, and we will also continue to sell Bitcoin as a means of generating cash to fund monthly operating costs and for general corporate purposes. And that completes my update. I will now turn it back over to Fred, who will talk more about our operations and our ongoing plan. Fred?

[Frederick Thiel, executive]

Thanks, Salman. Our strong results this quarter represent the culmination of several years of hard work, and we first detailed our asset-light strategy in 2021. We believe investing in mining hardware over infrastructure was the most capital-efficient way to scale quickly. Today, we are proud to say this strategy has worked as Marathon is now the leading public miner, public bitcoin miner in the U.S. In Q3, we mined 18% more bitcoin and ended with 27% more hash rate than our closest competitor. This outstanding growth would not have been possible without our asset-light strategy. We estimate the company was able to invest 30% more capital in hash rate growth while our competitors were building infrastructure. Marathon has now entered a new phase, one that prioritizes both capital and operating efficiency. Early in the third quarter, our joint venture in Abu Dhabi powered up, marking our first designed and operated sites as well as our first international location. This site began hatching less than 6 months after we signed the contract, a testament to the strength of both our operations team and our joint venture partner, 02. Last month, our second site in Masdar City began energizing and the entire 250 megawatts from both UAE locations are still on track to energize fully by end the year. In addition to improving Marathon's technical expertise and execution capabilities, our success in the UAE is also helping shape the energy debate. At the official ribbon-cutting last month in Masdar City, we heard firsthand how Marathon's UAE ventures ability to collaborate with the local grid operator has been a resounding success. But this is just the beginning. As more countries become aware of Bitcoin Mining's unique capabilities to support grid stabilization and monetize stranded energy, we expect to see continued international growth towards our target of diversifying our hash rate globally. In addition, our UAE success also demonstrates how our emerging technology can unlock stranded energy even in the most challenging climate. As a matter of fact, the number of leading competitors recently requested to visit our Abu Dhabi facility to see for themselves how we achieved 99% uptime in such a challenging operating environment. Our success in UAE has opened up new international opportunities in Africa and Latin America, most recently in Paraguay, as we announced yesterday. This new joint venture is powered by the Itaipu Dam, one of the largest hydroelectric power plants in the world. Paraguay produces approximately 32 terawatt hours of surplus energy per year, and Bitcoin miners have the unique ability to co-locate right at the source and take advantage of the stranded energy. This helps local power generators monetize excess energy, which otherwise would have been wasted or sold at a loss without having to build expensive transmission lines and additional infrastructure. For Marathon, it provides attractive power cost for baseload renewable energy. It is truly a win-win for both sides. Closer to home, we recently announced a pilot project in Utah that is exclusively powered by landfill methane gas. Methane is 80x more damaging to the environment in carbon dioxide and Marathon is uniquely positioned to capture and convert this environmentally harmful gas into inexpensive renewable energy. This initial pilot is expected to have all-in hosting costs below $0.04 per kilowatt hour, significantly below the average cost to mine in the U.S. But we think we can do even better. Our ultimate goal is zero cost energy. You may ask how is this possible? In addition to creating innovative ways to leverage energy that was previously inaccessible, we can repurpose the heat generated by bitcoin mining towards revenue-generating projects such as heating greenhouses, shrimp farming and other forms of low-grade industrial heat processes. We look forward to sharing more of the innovative projects that we're exploring in the months ahead. Why are we so focused on low cost or even zero cost energy? As many of you know, it coin mining revenues are impacted by the having events that occur every 4 years when block reward subsidies are reduced by 50% to bitcoin terms. The next halving is less than 6 months away. Over time, bitcoin miners must reduce their reliance on block subsidies and increasing bitcoin price. We believe that long term, we can operate profitably by consuming wasted energy while monetizing heat offtake. The early results of our initial pilots look very promising. By reducing our dependence on block subsidies, we greatly improve the long-term viability of the enterprise. So what is Marathon doing to prepare? Our strategy has been to reduce costs and lower our risk profile as we continue to grow our hash rate. In addition to strong operating results, we also improved our financial profile this quarter. As Salman mentioned, we took advantage of the steep discount in our convertible debt to strengthen our balance sheet. We believe this traction was accretive to our existing shareholders as the 21% on the principal amount to more than offset the additional equity issue. It also positions Marathon to capitalize on any near-term turbulence in the bitcoin mining sector. Our balance sheet is now a source of strength that allows us to focus on further increasing efficiency and lowering costs. In the meantime, we're still focused on growth. We expect to reach 26 exahash by the end of 2023 and plan to grow our hash rate by approximately 30% in 2024. We will maintain a flexible approach, leveraging hosting providers and local experts to quickly test deployments in new geographies while we continue to prioritize owned and operated sites for major deployment. We will also continue to innovate and continue to seek new ways of lowering costs by unlocking stranded energy and leveraging heat uptake. With our strong results and recent progress on these strategic priorities, we believe we are on track to become one of the largest, most efficient and technically advanced bitcoin mining operations in the world. Combined, Marathon is well positioned for the halving regardless of where bitcoin prices are heading next year. Let me be clear, we've never been more bullish on bitcoin. The sustained growth in adoption, use cases and overall acceptance is very encouraging for the long-term prospects, and we are excited about our future.

[Chris Brendler, executive]

Thanks, Fred. At this time, we're going to commence the Q&A section of today's call. We'll start by answering some of the most popular questions submitted by investors through our Q&A platform. Our first question comes from CK, who asked -- actually the 2-part question. So the first part is, why do analysts still favor Riot and CleanSpark over Marathon after taking extreme steps to extinguish long-term debt in Q3. Fred?

[Frederick Thiel, executive]

Marathon still has more debt than our peers, and we're transitioning our business model. Our reported cost per bitcoin is also higher, and we aim to close this gap in 2024. Also, as you look at our business, we believe that optimizing our costs through the benefit of some of the opportunities that will be available post-halving here will enable us to continue to drive costs down significantly.

[Chris Brendler, executive]

Great. The second part is, it's diluting to reduce debt in the mid-$9 range is accretive to shareholders, why have no insiders bought common stock when the stock has dipped into the 8s? Do you also want to take that one Fred.

[Frederick Thiel, executive]

Sure. So SEC rules restrict insider buying under certain conditions, especially when executives and insiders are party to material non-public information. Typically public companies like Marathon would have a window that is open to buy stock that starts typically a few days after earnings release and would close typically somewhere around 1 month before end of quarter, which is a very small window. As we stated before, we have a lot of major initiatives underway, which means that the management team is currently very much in hold of or have knowledge of material non-public information, which potentially would be a violation if we were in the market buying. That being said, we remain very bullish on the stock, and we continue to look forward to seeing how we can drive shareholder value going forward.

[Chris Brendler, executive]

Our next question comes from Garrett A, who asked. Why is Marathon not increase the degree that bitcoin has in the past month? A timely topic, Fred, your thoughts?

[Frederick Thiel, executive]

Again, as we said earlier, we're very focused on lowering our costs and leveraging our strong balance sheet. We believe that shareholders are starting to look at the halving. And as you look across the whole mining sector, many of our peers have also seen their share prices declining, especially in the most recent few weeks. We believe that there is certain concerns regarding the ETF launching and the impact that, that may have on bitcoin miners as well. But as I said earlier, we remain very bullish, and we think that this is going to be an excellent opportunity for Marathon to continue to grow.

[Chris Brendler, executive]

Let's move to our third question from Logan W who ask, will you continue to dilute the shares I heard this a lot recently. Salman, do you want to start on this one?

[Salman Khan, executive]

Sure, Logan, thank you for the question. Use equity capital for accretive growth capital growth projects. And as Fred had mentioned earlier in the call, we have a very strong pipeline of growth projects that we, as a company and management team are very excited about. We have the -- obviously, we have the option to source the growth either through selling bitcoin or accessing capital markets. And what our internal analysis shows is a combination of bitcoin sales to fund operating costs and equity for growth capital to be the best source of capital. Any additional shares that we sell through our at-the-market ATM are for accretive growth projects. And look, those projects have to meet our internal double-digit hurdle rate, which means the rate of returns have to be accretive to the shares that we issued. Our management team meets once a month to revisit our source of capital. And this strategy has worked well for our company, but can be changed with changing market conditions and bitcoin pricing situation for which we will adjust accordingly. Now this has allowed us to grow our Bitcoin holdings. As you know, we now have approximately $0.5 billion worth of bitcoin on our balance sheet or dollar equivalent. And we have proven our ability to find and invest in attractive growth opportunities, as Fred have alluded to earlier. In summary, everything we do has only one ore arcing which is to maximize shareholder value. Hopefully, this answers your questions.

[Chris Brendler, executive]

Great. Our next question comes from Derek G. who asked, why did management choose to buy back the convertible debt instead of buying bitcoin and increasing the HODL value up to the debt level? A good way of looking at it. Maybe someone can start on this one and Fred can finish it up.

[Salman Khan, executive]

Sure. Thank you, Derek, for the question. We are the largest bitcoin HODLer in the public company mining space. So we truly believe in bitcoin, and we hold to that HODL with that strategy as much as we can after paying for our operating costs. And we continue to grow our bitcoin holding beyond meeting our operating cash cost needs. As we went through the bear market analysis last year, it became important to reduce our debt and prepare for the next share market. And we felt it was prudent balance sheet risk management to reduce the debt to prepare for turbulent times. As I said earlier, we're long on bitcoin price, yet we want to be prepared to weather the volatility that could result during the halving, given concerning macroeconomic environment. While we hope the bitcoin price will act like previous halvings, the data shows us otherwise. Hope is never a good strategy as it is said. And certainly, we hope that the prices behave like they did in the previous having, but certainly, we want to be prepared for any bear market while being prepared to grow as the pricing stabilizes. With that stronger balance sheet with reduced debt provides us options and ability to strategically act when other inefficient or undercapitalized miners may not be able to survive. And the short-term drop in bitcoin could be devastating for companies not appropriately capitalized, as we talked about earlier. In addition to risk management, the economics of the notes exchange were attractive for us and resulted in over $100 million shareholder value creation and real cash cost savings, which was icing on the cake.

[Chris Brendler, executive]

Fred, you want to add anything to that?

[Frederick Thiel, executive]

Yes. I think the -- to the point of why didn't we buy bitcoin with equity? I think then we would just be emulating MicroStrategy's strategy, where they lever up their balance sheet to buy bitcoin, and that really is the primary driver of the value of the company. We believe as a bitcoin miner we generate much more value by using capital to drive growth. And I think if you look at where we are positioned today with the growth we have ahead, the initiatives that we're working on, we're very well positioned today to take advantage of organic and inorganic opportunities as they present themselves. And as we've said before, we believe there will be many inorganic opportunities to acquire very low-cost assets, especially attractive power contract in the potentially turbulent times ahead post the halving.

[Chris Brendler, executive]

Great. Now we turn into our last question from our shareholders, which is from Edgar M who asks, what makes this company the best option when it comes to bitcoin mining? What makes you different? I'll let you do that one, Fred.

[Frederick Thiel, executive]

So I think really, it comes down to a combination of things, scale for the largest bitcoin miner out there from a self-mining perspective and will continue to grow. That also gives us certain advantages in that partners want to work with us, and it gives us the ability to do joint ventures with the excellent partners like we have in Abu Dhabi and other places. And as you'll continue to see, as we grow, especially in these new market areas, whether it be landfill, natural gas or other places like that, we will continue to leverage this concept as a way to grow in an accelerated way being able to optimize the leverage on our balance sheet in the most capital-efficient way. The other thing is our tech stack. We're very unique in the mining space in that we have a fully vertically integrated tech stack. As can be seen by what we've done in Abu Dhabi, our ability to deploy single-phase immersion technology for cooling and most probably the most growing environment in the world for bitcoin miners has been a resounding success. Excellent uptime and very efficient mining, we believe that sets the stage for how we'll expand with Immersion going forward. But that's not all. We also have proprietary firmware where we now have the ability post halving to take our miners and run them in a more power-efficient way, lowering our cost to mine bitcoin for other people, we'll have to run stock firmware on their miners and not be able to dial back the power consumption and keep their miners running even though it may not be profitable to mine. Our balance sheet is extremely strong with $600 million between cash and bitcoin at today's prices. And we have great liquidity in our stock, which gives us the ability to be very opportunistic, should accretive and attractive growth opportunities appear in the market. We also have optionality because we're continually focused on lowering our cost per coin as we transition we can grow, energize new capacity and optimize our existing capacity, which has an excellent effect on our results, as you can see in the most recent quarter. And I think lastly, our people. I believe we have one of the best management teams in the industry and have some of the best talent across our organization in this industry. There are not many companies who can execute the way our team has executed this year with as few people as we have generating the results that we've done. And I am very, very proud of our people and very grateful all the hard work that they put in.

[Chris Brendler, executive]

Couldn't agree more. Well done. I think we'll wrap up the section of the Q&A. Again, we really appreciate the questions and interest. I'm now going to turn the call back to our operator to over the line to questions from our covering analysts. Sherry, back to you.

[Operator]

Thank you. [Operator Instructions] Our first question is from Chase White with Compass Point.

[Chase White, analyst]

So my rough math suggests your hosting costs in the quarter on at least on a dollar per kilowatt hour basis, something like $5.07, which is much better than prior quarters. I mean you can see and you grew average operating cash rate by 18% and costs only grew by 8%. So how should we think about the hosting costs on a per kilowatt hour basis going forward for the U.S. fleet as we head into 2024?

[Frederick Thiel, executive]

Great question. So obviously, when you begin an optimization effort like we did recently, there's some low-hanging fruit, and we've been able to take advantage of that, hence, the great results we had. There's still more fruit to harvest. We think as we continue to work with our hosting partners and actively manage them. There are still opportunities to drive further efficiencies in what we're doing. There are also opportunities for us to work with hosting partners to renegotiate some of the agreements, especially as now we are taking on a greater and greater responsibility for the operation of sites and optimization. And I think the combination of more owned and operated together with more efficiently managed sites is going to continue to drive a decrease in Boston mined bitcoin.

[Chase White, analyst]

Got it. That's helpful. And you mentioned 30% hash rate growth in 2024 from the expected 26 exahash at the end of this year. Could you just give us a sense of a road map to that 30% tax rate growth in 2024? And what pieces kind of drive that?

[Frederick Thiel, executive]

So we've already talked a little bit about the Paraguay expansion. There are other opportunities. We haven't announced that we're pretty far down the road in finalizing agreements and projects that will bear fruit in the first half of next year as well as in the back half of next year. So I think it's going to be a little lumpy, to be fair. You'll see a few extra hash in the first half of the year and then the balance kind of backloaded towards the second half of the year. But the goal is really focusing on the cost side of it as we expand this capacity.

[Operator]

Our next question is from Lucas Pipes with B. Riley Securities.

[Unknown Analyst]

This is actually Nick Coles on the call asking a question for Lucas. Fred and team, just wanted to get your sense of how would you frame up a hurdle rate for the sector in terms of new projects?

[Frederick Thiel, executive]

Oh gosh, I think each miner has their own individual weighted cost of capital. And so I'm not going to opine on kind of our colleagues in the industry. We're looking typically at projects that we would, in an ideal world should return north of 20%.

[Unknown Analyst]

That's helpful, Fred. I know one of your peers have called out a hurdle rate of around closer to 30% or 35%. So I just was trying to understand what your take was. But yes, thank you very much. I'll return to the queue for now.

[Salman Khan, executive]

I'm sorry, I want to follow up and clarify a little bit on the answer. The hurdle rates is a funny business in the sense that depends on what kind of pricing assumptions you have. And obviously, our pricing may be a little bit more conservative than some of our competitors when it comes to next year. Hopefully, that answers the question.

[Unknown Analyst]

That's fair. I appreciate that follow-up.

[Operator]

[Operator Instructions] Our next question is from Kevin Dede with H.C. Wainwright.

[Kevin Dede, analyst]

Lots of them for you, Fred. I'll try to restrain myself. Can you give us some more insight on the 5 extra to hash you just bought and where you think that's going to go? And what sort of -- I mean, that's kind of a parallel to Chase's question. And then maybe you could offer a little bit more on your hedging strategy.

[Frederick Thiel, executive]

I'll defer the hedging question to Salman. But on the growth perspective, you've gotten a little bit of a taste of what we're doing as we look at these pilots. We have a number of growth initiatives we're doing. And instead of committing large amounts of capital to an initiative before it's proven. We're doing lots of pilots. When a pilot proves itself out, then we can have the confidence to deploy capital, it also lets us compare and contrast different potential opportunities. So we're optimizing to the best return on our capital that we provide. So we've talked about the Paraguay expansion. We've taken an approach more recently where we're not going to go out there and talk loudly about our plans because we're doing lots of things, and we prefer to really talk to the market when things have been cemented, and we're actually executing. I think that we've set a pretty high hurdle for this year to hit our 23 exahash goal, and I think we learned a lesson that clearly, the market would appreciate us to talk less about our growth plans in specifics and more about actual growth execution. And with that, I'll let Salman answer the question about the hedging.

[Salman Khan, executive]

Thanks, Dede, for asking this question. Look, our hedging strategy is pretty -- it's normal business practice from a financial risk management standpoint. And this is a newer industry, if you like, but more established, sophisticated industries that are commodity price exposed like oil and gas, natural gas, gold, you see hedging strategies deployed by companies to manage their portfolio. And in our case, we view that as a good risk management practice from a balance sheet management standpoint. As we have a sizable -- one of the largest hurdle of bitcoin on our balance sheet, it certainly requires us to deploy certain prudent practices, and this is part of that. So the way to view that is that we look at from a hedging standpoint, our next month moves and essentially next couple of months needs from a cash flow perspective, and we try to target a certain percentage of our holding and use costless collars that protects us from the downside risk while keeping the upside potential on our side. And these are costless collars, so which means that within the range of the price, if the price remains within a range, we will end up pretty much being costless. Now in a situation where the price lands between the downside protection and the ceiling between the swaps or the options are the costless collars there could be a cost to us. And that flows through the P&L yet providing us the upside on the big point on the balance sheet and also protecting the downsides.

[Kevin Dede, analyst]

Costless collars. That's kind of what I was looking for. Fred, last one, I'll hold myself back. The October production report showed, I think, maybe 4 -- sorry, 3 of the 4 operating facilities you have in North America were hashing at rates below 90%. And I'm just -- I know you talked about maybe being more involved in the management -- the direct management of those sites. But maybe you can add a little bit more color on how you might see you move those efficiencies further up. I mean that, to me, would be probably the most instrumental moves you can make in improving your cost per coin.

[Frederick Thiel, executive]

Yes. So obviously, we're very focused on the lowest performing site and the McCamey, Texas site has clearly been that site. That's the site where we've had to apply the most amount of resources. Our Ellendale site has been a very good performer, as at the Jamestown site. There been some infrastructure downtime for maintenance issues at some of the sites as well. But I think what you'll tend to find is provided, we are in a period where there is not a lot of curtailment due to requirements of the grid. We're going to keep pushing that performance number to 90 and above as much as possible.

[Kevin Dede, analyst]

And what do you think your timeline is to that? Should we see that step up incrementally? Or do you think there should be a nice jump before we get to maybe a higher power consumption season in January and February?

[Frederick Thiel, executive]

So I think it's going to be a little seasonal, but I think it will be a gradual move. Part of this is you implement a change, you test it, you iterate, you make sure it sticks and then you broaden it out. It's kind of like when we deploy firmware in our miners. We do it in a limited number of miners initially make sure everything is operating, and then we scale it as we go across the site. Same thing with any changes, whether it's a network optimization, whether it's deploying cooling for switchgear. A whole series of different things we're constantly experimenting with to try to optimize and something that works at one site may not work at another site. And so it's very much an iterative process. And I have a background in lean from a manufacturing perspective, and we've really applied a high sense sort of lean approach to this, where constant never-ending improvement is one of our core values and what we're doing here. And we hold the operations teams to metrics where they need to continually improve performance of the sites. And so it's an iterative process.

[Operator]

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

[Chris Brendler, executive]

Okay. Well, thank you all for your time today. If you have any questions that were not answered during today's call, please feel free to contact our Investor Relations team at [e-mail]. Thank you. Enjoy the rest of your day.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.