Stronghold Digital Mining (SDIG) 10 Aug 232023 Q2 Earnings call transcript

Good morning, and welcome to Stronghold Digital Mining's conference call for the second quarter ended June 30, 2023. My name is Norma, and I'll be your operator this morning.

Before this call, Stronghold issued results for the second quarter 2023 in a press release which will be available in the Investors section of the company's website at www.strongholddigitalmining.com.

You can find a link to the Investors section at the top of the home page.

Joining us today on the call are Stronghold's Chairman and Chief Executive Officer, Greg Beard; and Chief Financial Officer, Matt Smith.

will call we questions. remarks, their open for the Following

Group Kovtun a please Before Alex Gateway go will Kovtun, we begin, Mr. from make statement. brief ahead. introductory

along and you, were disclosures on our and Today's Thank our morning, today to earnings everyone, earlier be Good slide and operator. posted presentation, can with website financial website our release www.strongholddigitalmining.com. welcome. accessed at

and be involve making we're statements forward-looking statements uncertainties. considered today and may number a securities Some of risks law under

that actual there the of materially you a events a number our many caution As described forward-looking result, differ factors, are which control, of we in to those from which results beyond statements. are could cause and

our the For Commission. and our assumptions more statements, to Securities risks, public related the uncertainties filings made release and earnings and disclosures Exchange with please detailed in forward-looking see the

required disclaim statements forward-looking made, after date to the any forward-looking that to reflect as law. undertaking obligation are occur We or events the by update statements or circumstances except

We earnings will our our to in metrics measures you also these you applicable GAAP metrics. reconciliation encourage financial and consider the disclosures discuss carefully tables as non-GAAP release to read and

to limited to file or to XXXX, Securities filed under filed report as identified X, uncertainties but report subsequently the Factors and business, XX, and on on our including, Form on report Form annual uncertainties other previously quarterly risks Form in our XX-Q. prior Risk detailed the circumstances, which XX-Q and our descriptions XXXX, on not with XX-K variable and on April caption, sets Commission, filed our of quarterly August Exchange forth expect and We disclosures well as

that of website. www.sec.gov for link free at call filings is Relations everyone recorded available section and the Exchange to available will website the You would and replay being Stronghold's Relations website ir.strongholddigitalmining.com. may access via Investor Stronghold's made in SEC Commission remind by Investor like be for this or visiting I Securities Stronghold's at a

I and call the Greg? to over Chairman like Now would Beard. Stronghold's Greg CEO, to turn

on Good our morning, everyone, us call. earnings XXXX joining quarter second and thank you for

going presentation For section on slide associated we're corporate the is today's through call, webcast to available an and Investor website. Relations of the reference our that

quarter, strategic to cash plan, success to proactive expanding X, steps the capacity our growth September our flow. take second exahash increased the capacity the reaching long-term our of X.X to sustainable by exahash on hash execute continued company for Stronghold revenue rate full During expectation of and further positioning X with with approximately

for review the year results, the Before from turning Smith, a our our continued financial touch some of ahead. on I and Matt would our like our call in CFO, to confidence highlights over to business on recent

start X. Let's Slide on

Stronghold capacity a Pennsylvania, over power XX,XXX Panther miners facilities reminder to delivered and and or operates power two us megawatts. owns we Scrubgrass everyone As and in reclamation contract XXX delivered. of generation joining to coal be aggregate With Creek. Today, waste today, under have

to able Additionally, a be end-to-end we our at XX that equipment to capacity at owned deploying X opportunities megawatts of least exahash. site we support expect expand to data by new continue seek center will

for a position better Last targets, opportunistically fleet fleet important Since maximizes now our mining achieving Stronghold to our next for efficiency and to right for earning announced the we operational our as having, success. a has out cost-effective moves year, us those the to X. Slide on prepare improve make strategy potential. build mining reduce it way resiliency focused become increasingly Moving further delever, and to and in that execution we expand long-term costs to we're

miners, of X,XXX X,XXX with XXXX equates additional MXXS These through miners. miners the AXXXX terahash to purchase Bitcoin high-efficiency agreement associated with $XX of miners $XX exahash posting hash miners. and rate, AXXXX over high have AXXXX we spending incremental per Canaan and approximately for April, hash which Since X.X only capacity agreements MXX and added million, and approximately purchased include MicroBT mining X,XXX rate

We X, puts capacity to data earlier track installed for on September expect exahash one which of matters reach our these by us expected. will that be month than center all

In addition mining to improving on we our lowering and also remain growing focused our expenses operations. operational associated with fleet, efficiency

We and the net between have and costs $XX of track our over per power year to a eliminated megawatt more $XX of fixed than X/X cost last hour. continue

our X,XXX MXXs dive miners miners and to was MXX a The MicroBT miner April, purchase to X, $XX July. approximately in We then with over initially million. total Slide the in Transitioning we on purchased more X,XXX miners purchased starting additions, recent little cost I'd of like deeper on our and left. MXX

price While back return hour of these at And at and exceeding XXX%. it $XX we our returns would an the Even deals, a internal in of annual we hash these a of megawatt price, hash where a would of EBITDA well pulled excess on expect of based time from was uplift per hash $X.XX cost cost power, expect has $X.XX price from of million rate expect we transactions. capital. $XX would

XXXX Canaan agreement miners In miners in subsequently on we expanded XXXX by of an Canaan the provide and purchase the the AXXXX given million. $X and high objectively mining the Bitcoin right. value this attractive XXXX price strong energy efficiency point. X-year AXXXX are into mining hash We containers from best air-cooled Canaan and miners. our with miners Canaan another entered miners These agreement and of agreement to combination for proposition and our approximately among box Bitcoin rate, AXXXX purchased a performers simultaneously July, AXXXX for recently Moving

EBITDA to we forecasted In cost exceptional. hash $X.XX hour assuming $X and return per from $XX similar the annual MicroBT is megawatt purchases would the a price uplift power profile million of Canaan of and expect of aggregate, miners, transactions, the

efficiency. $XX at million invested, on only current deals continued capital with of incremental based demonstrating the of market Looking Canaan $XX would in pricing, expect and capital our MicroBT million the aggregate, focus on EBITDA annual we

to deployment have we prevailing we combination prices a that seen that of hardware in wanted believe aside, the prices that highlight most As hash prevailing space. opportunity and I attractive mining the represents quicker capital

As this pricing results X that historically, and triple-digit return paybacks seen is back shown IRRs XXXX page, when any market we on profile year. have in stronger and prices of $XX,XXX. even in forecast This than around current approached bitcoin forecasted

utilize With X. X of Slide remain equipment X.X end-to-end to exahash of center exahash, We have by to a plan for expect hash in new hash a X.X a data data and XX approximately hash we rate, September capacity contracted Moving currently efficiency to our focused rate capacity optimize third rate look capacity current the reach of inventory. exahash X. and megawatts on center And where location we we to . will energy site of

new locations for more by site to the and we target details We plan of the end provide have identified third the quarter.

make Looking and per potential than and We this capacity to price the capital terahash able of believe to have to highly revenue right XXXX. per our spent with XXXX year, our ever opportunistically fleet, dollar for from first strategically improvement maximizing points compelling before. on we a demonstrating more further efficiency, CapEx this recently mining the been chart terahash expand per half significant $XX investments and reflects in our the $XX of

from over pass and our like the would CFO, to I discuss our Smith, Matt to quarter. further it to said, that results With financials

the well. on balance over Greg. go like our quarter as from sheet I'd and briefly touch our results Thanks, to

approximately million Our $X.X fourth was of $X.X and of network total which capacity XX% growth second respectively. rate XX.X the quarter the million, and of $X.X revenue GAAP those during $XX.X included during quarter sales. figures compared is of loss $XX.X cryptocurrency million. from quarter A for included of was loss energy reconciliation self-mining, the XX% the a and X% growth cryptocurrency from sequential of first mined adjusted when the for sale Bitcoin and of same appendix. XXXX hosting to XXXX $X.X despite growth in net XX% and XXX representing was XXXX We revenue Bitcoin quarter, EBITDA from million million, hash the from the periods, million of

these approximately of coal continues underscore XXX,XXX an propositions refuse miner. being environmentally This tons the core in Bitcoin On friendly the XX,XXX from coal side, remediate X piles we important tons beneficial work value environmental returned and to to of toxic during our quarter, of approximately hash of used piles. removed

it equivalents, Lastly, company briefly in discuss to the dates, end quarter's I'd and quarter. impacted balance along this with and $X.X cash comparing balance of Bitcoin approximately from like August XXXX, and during the cash XX debt both respective outstanding. sheet, respectively. When our Bitcoin results June that on and $X.X XXXX, in XX million At sheet Stronghold XX, our X XX related X held on had events and approximately million million date

items recent impacting X to wanted share I briefly Finally, discuss our count.

a May, decision reverse price reverse we A with and company's stock X primarily bring announced of common a minimum market compliance Class split. effect share NASDAQ's stock into requirement. was XX split bid increase stock to The This the company for the our per price to

funding enables, We place opportunistically which growth, our We not stock. use to company's it also offering, require of put do in if shares million common Class but ATM so. does $XX compelling the at-the-market us in a to the sell were A is to able

in appendix. slide find our count more the regarding table details can capitalization in share You latest our

as flow to of ways drivers the being metrics compared and peers. that a most Stronghold with Using to of We flow number X. moving public businesses Now most understand Slide those our there when cash undervalued are cash is value metrics, key useful. of to

of as multiples for comparability the While generally cash achieve their indicators, are range to as such used the for funding assumptions DCF difficult research valuation make and plans equity growth the by flow requirements well methodologies. quite metrics on peers best market

debt, the value in hashway Bitcoin Here, Bitcoin our capacity industry. drivers and is and by which primary current enterprise less we value, equity of production, and the cash holdings of divided show revenue

our positioned remain peers. at metrics, a over trades to these When at is to valuation Stronghold currently relative This our surprising XX% and to us our believe we compared will narrow looking discount time peers. to well we as discount close

back to remarks. turn I call will now the for closing over Greg

executing today, what communicated are Thank you, we the to we've Matt. we To objectives market. summarize have the on discussed

We of prospects, and our confident in updates balance improved center of the to have sheet. current X We and strength and our capacity profile remain on growth the and forward are look we our future. to cost operational sharing dramatically additional the track data reach business the we in in coming weeks exahash

for that, call let's operator, the With questions. open up

comes White Research. with from of the Chase Compass Question Instructions]. [Operator Point line

I some just half color the this the the on if in would mostly about of couple, How second think CapEx in a XQ, but should year, cadence So love be of we may. amount it that. presumably and

number and capital, upgrade that have to sure what make understands we to our that or So is purchases may need site so equipment, incremental to for to everyone exahash related what's I megawatts note any it want growth. spend be we we I of get just third XX think potentially we to what with spend is additional we be but our will where spending X to miner have important the will to associated spent think

So spend to in exahash. that the you're a extent X know you're then capital beyond mining, to related modeling number a modeling

we sometimes the investments course, make Of in plants.

that later And be year so this be we've expensive. won't short got very and a planned outages will

that think in but you bit numbers. over that, Does it's of capital can help? I the So for little a model big not

on yes, July. said just that the third I finer point a put you to Yes, quarter, guys in like you had but some spent think maybe in it,

purposes, sense a already how that get to like in quarter. of trying modeling the much we third spent just about they should for I'm been think So

X. will all market. we Chase, thereafter, provided which drive And specifically. guidance what we've -- miner growth I that third this or And that's market the we're required to refer as coming just on about that's do quarter the expect the for be with end to to $X any Greg's point to get million it by to of a to with we Share site. share next with shortly going project, think

how there's step we're we mean, for capital cash go over fund the would do. but would forward definitely as represent that But site, haven't, a plan we and high-grade additional function we plans were And described. expected, so to unless going on Greg if revenue flow would and with capital at growth to time, currently, third for there creatively in additional this miners no what the payback on we point anything it, have is I time, no in beyond we

At guidance this flowed we million quarter significant $X $X previously provided that for the that, year. some million to expense. those And of reminder, to just offline million we're $X outages we've in don't to Panther do a we're $X sticking But is days -- still said, still so a we and if give point as we -- operations for through this did the significant good. to million to That September, year. believe second we plan outage of take still still plant to of Greg choose million of in a of for guidance few outages in -- a but million $X guidance our outage we us may TLC, $X our time,

Got then potential And are for it. any to thoughts on incremental helpful. question That's give you next is, us ash revenue able sales? updated

Yes.

that. we a the we not have And we to year, of that. the provided we think at see need this $X of don't So million beginning -- I updated update kind bogey. At point,

for that. I good think we feel track being on pretty about

of to we updating look forward end original the And against so did you hypothesis. that year the closer how to judge we to

and I testing has our a lot of scientific think year have the ash. gone of we done on,

I it mean. what that the think future. the forward may and think of sharing down. think of with you I have additional value gone And just -- ash of But through views we've sort the potential has seen to -- I'll that in gone look we not near you of let of value uses you it our up

to So back that. you forward coming look we'll with to

from line Kevin H.C. next the Wainright. question comes Dede Our with of

your operation can the you far. the fleet -- efficiency -- progressing we Thanks little know so Canaan call. early, about wondering onion Greg, miners fleet curious see of feedback overall plan you've much seen the how me so of but you the the having on any give on miners the -- -- on on us how it's a what if the I you've peel your of specific bought? for I'm I'm that with the And can or operation bit back inclusion new sort you

Yes. both That's questions. great

I best-performing the going think I them to they're say, thing, happy efficient. when work would Canaan them they're for for they is the tied So on answer our they they say We're one that and miners the with, in are, when deliver deliver model. they plug and they

tough to uptime working, we early then working us the and like read and ones. for the the in is these send that and up So they not -- -- the have it's around show is ones miners turn

we've that. that why guess, already with That I relationships, create months So was in that which them we first really happy when is ago, X relationship, seen miners since you've started. experienced with we

overall right terahash. with I to we're over per good So I the but think efficient efficiency, the think us in-house, expect a in trending joules fleet you that you we're -- an trend we're XX in to obviously, hey, recognize low-cost in will like the others will up, put position [indiscernible] fleet having terms well relatively, that efficiency fleet that direction and And of efficient coming direction toward do more and time. hopeful

efficiency will and capital-efficient accelerating new evaluating and moving be the that quarters. and activity ways coming constantly think, next of increasing change. JVs will to fleet, over we not we're That think the I and improve the

market, saw and PJM position Can detail year-over-year. little a energy just against sequentially saw saw, you -- were expecting? what you what that I'm offer on us you noting more you're kind down you the how you of how what how significantly wondering yourself sales and energy

Yes.

the the high to high, the ourselves. into take the grid is of in can power making power and strength power help if sell of of power, mining the being it the of so below and Bitcoin like power that are business, the cost instead the we blend a we're grid turn -- buy and prices model you're we if So business are these off power If our from and reverse prices. center do of prices advantage grid our data

multiway so described option. us what a we gives And that as like

I -- the to would And I exponentially the for going think think achieve the you you what not would just prices that correlation much outcomes. than prices mine. And days fall where winter, end a probably X for have as production we where where our think ended there's businesses advantage think were big expected. expectations side, I current curve we the had we cycle this off I think you crisis do learned that's future into pricing above a to going take high -- only of summer power about up anything summer roll being power these or was spikes. and any if have really to centers had study the this that and I on if in in is you we lower that's spikes really probably But power X data out hopes those summer, up, in

megawatts happy of And of of the in sense tens cause think to like so are I megawatts in more past. power PJM. to grid that's added a looked we're PJM Texas like of in be still thousands being in of look macro business Because going very thousands the that the than offline the has and to intermittent what that that's really power coming

I terms to think, what sell than Matt, higher talk of We're us we some to So do that more helps like needed I are we're this more grid but built have and that grid data of summer, volatility, when when still we well. to that. able run, our did. about help and prices as at power being by as signals have And power help we're this the model the in expecting we supplying from pricing that model, in power are there expecting short But well. it pull think the expected

around $XX last PJM year, one -- were markets blended Kevin, et et back obviously So down exports. clock the on probably July about coming of I tightest the the was megawatt. tightness, That's Russian in think Ukraine, summer versus of European gas a the cetera, cetera, the and substantially August into prices

evolve a described when you because probably about And forward megawatt to $XX with Greg typically roll that that away you the expected so we're through some, summer. model get

a that above So $XXX prices we're are $XXX power to Bitcoin. -- still hopeful when megawatt

our -- miners curtail price And we'll and so power our sell happily and operation. that

so power is seen cost-cutting can But ahead dislocations think capital price focus on mid-September, not the serious than And so the business us. curve. the you on of the Early optimistic. higher some and I programs, you've to with still betting get prices August mostly We're efficiency. we're forward

as summer, are expected coming the winter higher to prices. be prices to you the winter, wherein XXXX, forward -- future Importantly, the look than current

not wake I to of kind when have so working our been, And accordingly. has unlike sell distinct April having, the that been but we're having and around our XXXX this think have when miners the we've flow operations, difference the you having power XXXX the go risk that and the mining April obviously and there's and and natural between in our where business from loose market Bitcoin of generate is and you a Bitcoin rest can power ability business of cash do gas into that we investing we up

and look X model go forward its demonstrating the our to business we months. So prospects next differentiation over as XX to we

advent perspective? market readily there alluded well. perhaps curious Greg, this there's you between maybe the your can I you crystal price me there Last ERCOT apologize this, to swings. wondering I'm ERCOT. that the some and as anything grid. projects, that PJM And that myself, dynamics and you perhaps And as might you in I'm dynacism And more that new but Is the of within these a think grid know that in to plants I question but understand of close across -- address don't if from any developing are the on look PJM some for ball see alluded interest change I you parallels construction could

infrastructure. maybe about, No. for all the you the were months I'll PJM X planned a, send of send my It's coal given is been out I'll they article, ago, of Wall the you. talking where from to favorite well the Journal shutdowns where of reported. or all put come power going Street X

going it's something the to XX,XXX think said experiencing that megawatts like of grid megawatts XX,XXX is be than more I network shutdowns.

way, -- just so to lose many and too And that's wind megawatts replace. way solar to have and

hey, of to announcements power region. to enough in a where that hey, all so going that of PJM, new needs socratic serve the of you have in the doing given And we manage not is to a asking, way question, the these was come what builds the your and and power form are grid,

little price So there bit -- the most the I means it's in think that sort blowing they the shining, the service -- "Hey, more market it can that's which biggest wind and seems different negative. to would massive actually consumed. country, And " sometimes prices data go there's sun says, in Texas, using swings intermittent which in we I that's what's -- saw be power and of a country, in removable Texas. in be is the sometimes power causing something than argue is power the

a time, super cold supply. blowing, lots in it's if pay isn't and At willing it's power -- when the the short to or of people hot are same and wind

source I So would on as ours is a a reading invested theme fuel benefit the it, Wall that higher it to price forward post having that's think like article. unintended these more to grid, But the in intermittent what of greener Journal will and more But read this comfortable swings. overall it well. should be I'll And our you environmentally for twitter and listening beneficial have. an you fossil the than average I swings. a business renewable power I'll plant baseless Street accounts probably consequence survive in make with those from price more think power

answers you would How PJM question? socratic imagine that

that's shortage. can what a can't is we -- power the of have tripling -- they in true happen price That's Well, either you say it right? can't the what a

get by not been forces to, answer developers. and we're were power owners all market think But see go cleaner the to that these also plants I if not way, [indiscernible] so plan that's -- power then up, a you of projected then in will right? then going prices greener and So scheduled down to the shut

-- a every expectation But tough a green it's So push. prevail the question. to So like hey, is it we are a that really be asking like over doing market is get we'll my more boardroom -- see will forcing what that's

entertaining so the questions, gentlemen. you Appreciate Thank greatly. much it for

B. [Operator Securities. with Instructions]. Question comes Riley from Lucas Pipes

Lucas. on the really progress there on [indiscernible] here. is that This being quarter, acres Congrats recently Last capacity you XXX half at transmission only noted for of and Scrubgrass, you is used. have the

that you'd increase think opportunity Gen capacity there power the to not year. I would said maybe be really next until

was after Just is or could this of that independent wondering, event something having just having before really be having the altogether?

a thanks and it's joining -- for That's call. question, great the

at think and our we've we opportunities improve it's making at I that more I of -- to said we're acreage. known and more there business we far model, made stable And lot that have asset. more capacity constantly a think disclosure, Scrubgrass looking

And And also just expect maybe we've so of we're how side, over not that. you going power think studying think the quarter but take can I the we're to sequestration. said, on or news next advantage hey, I carbon on X

transmission what much you're wait grid think on in we're put potentially than setting -- put and I very new takes both sort it's is So access get the good to to our ways a that. to time that assets more access online a in about the network, to frame power of line X-year a cut have shorter access, if thing it to familiar it with

think that has a for $XXX our you that and bill infrastructure can carbon between ton $XX attention. then, I credits hey, pay And the

out to and press So quarter on. that's X-K we're positive we're studying yet. it not again are the But but very market focused ask we or come next ready quarter talk hope until much news have about news just release, in but that please the quite X, that's every really and we with to

-- approach Got kind this it. is wanted less power the your Stronghold, reminder we Maybe topic Got helpful. on really underclocking it. for more level get perspective your my just from the you your a and if -- Overclocking of been is having. maybe the and just if on among of a to this given has just at That's kind peers and optionality side. important popular And miner end. really one as

Yes.

done far, poor at a overclocking, and job I really think so can it. aware that we're we've do we underlocking

the we could now something -- think like we we've think now probably a been our I'm way installed But yes, operating include than to are but have versus I that's in underclocking to our you on grid. miner some I software this maximized. have to our to that's on, just We model past, have because there we tell overclocking, that in and you now assets. coming, upside far, exahash us happy And because do a complicated so see adding that just guided or here with coming that software, efficiency think we on I we're are bit because -- will more new is we've quarters, the be from hey, we we probably upside focused X get for control miners of the it's how -- -- really little interconnected are more focused what the

Got continue. luck. of detail Really all the appreciate today Best and it.

further to no hand the Greg I'd for showing currently to Mr. time. like back closing this conference I'm questions remarks. And Instructions]. [Operator at Beard

everyone. from our Thanks, and the great both in to execution our just center power we'll improving I this to side next Well, quarters, for been coming and want that the meeting. thank investors the Great. over forward look quarter expect and we you've Stronghold. see for we year, and every interest we teams, hope the Hopefully, noticed data have continued on that side

today's call. you This participation. your for concludes conference Thank

You may now disconnect. Everyone, have a wonderful day.