Stronghold Digital Mining Reports Third Quarter 2022 Results and Provides Operational Update and Initial 2023 Guidance

During the third quarter of 2022, Stronghold earned approximately 567 Bitcoin through its mining operations, a decline of approximately 11% from the 637 awards received during the second quarter 2022. Third quarter 2022 Bitcoin mining operations were negatively impacted by the decrease in the mining fleet associated with the NYDIG debt extinguishment and power plant outages in September and October related to planned maintenance.

Since Stronghold announced its second quarter earnings on August 16, 2022, the Company has received or procured approximately 10,000 additional Bitcoin miners with hash rate capacity exceeding 0.9 exahash per second (“EH/s”). This includes (i) approximately 1,500 purchased Bitmain S19 Pro and Bitmain S19j Pro miners (all of which have been received), (ii) approximately 1,000 purchased MicroBT M30S miners (expected to be delivered in the coming days), (iii) approximately 2,300 miners from MinerVa Semiconductor Corp. (“MinerVa”) (nearly 1,200 of which have been delivered to date, of which approximately 780 are Bitmain S19j Pro or T19 miners), (iv) over 4,500 miners related to the Foundry Hosting Agreement (of which over 3,000 have been received, with the remaining miners expected to arrive by the end of November 2022), and (v) additional miners associated with previously disclosed miner purchases.

On November 7, 2022, Stronghold entered the Foundry Hosting Agreement. Backed by Digital Currency Group, Foundry is a financing and advisory company focused on digital asset mining and staking and currently operates the largest Bitcoin mining pool in the world. Pursuant to the Foundry Hosting Agreement, Foundry will deliver over 4,500 Bitcoin miners with associated hash rate capacity of approximately 420 PH/s to the Panther Creek Plant, and Stronghold will provide power to the Bitcoin miners and hosting services for a fee of $60 per megawatt-hour (“MWh”), demonstrating Stronghold’s growing ability to provide high-caliber Bitcoin mining services. Pursuant to the Foundry Hosting Agreement, Stronghold will receive 50% of the Bitcoin mined after deducting the $60/MWh, and Stronghold maintains the ability to curtail mining in order to sell power to the PJM grid without penalty. Simultaneously with the Foundry Hosting Agreement, Stronghold and Foundry entered into a non-binding Letter of Intent (the “Foundry LOI”), pursuant to which Stronghold would purchase the 4,500 miners in exchange for giving Foundry a limited amount of cash plus equity and a profit share that applies to the Bitcoin miners as well as to power that is sold to the grid when the miners are curtailed. The Company has already received approximately 3,000 of the Bitcoin miners associated with the Foundry Hosting Agreement and expects to install all remaining miners by the end of November 2022.

After giving effect to the Foundry Hosting Agreement, miners returned to NYDIG and BankProv in relation to the debt extinguishment, and other recent miner deliveries and purchases that have been previously disclosed, Stronghold’s Bitcoin mining fleet is expected to total over 25,900 miners with hash rate capacity exceeding 2.3 EH/s, assuming no deliveries from MinerVa beyond the aforementioned 2,300 miners. Of these miners, over 21,500 with hash rate capacity exceeding 1.9 EH/s are associated with self-mining operations and are not subject to a profit share.

Stronghold owns and operates approximately 165 MW net of environmentally beneficial coal fluidized bed power generation capacity at its Panther Creek Plant and Scrubgrass Plant in Pennsylvania. These are coal refuse reclamation-to-energy plants where waste coal, a byproduct of legacy coal mining operations, is consumed to generate electricity. The Commonwealth of Pennsylvania has designated coal refuse as a Tier II Alternative Energy Source, making the facilities eligible to earn renewable energy credits. During the third quarter of 2022, Stronghold removed approximately 241,000 tons of coal refuse and returned approximately 168,000 tons of beneficial use ash to waste coal sites, facilitating the remediation of these sites.

Stronghold generated $11.5 million of energy revenue in the third quarter of 2022, which was up 61% sequentially versus the $7.1 million generated during the second quarter of 2022 and up 379% year-over-year versus the $2.4 million from the third quarter of 2021. Key drivers of the sequential and year-over-year change were higher realized power prices as well as more power sold to the grid versus the prior periods. Stronghold generated $0.9 million of capacity revenue during the third quarter of 2022, down 47% sequentially versus the $1.7 million generated during the second quarter of 2022 and down 18% year-over-year versus the $1.1 million generated during the third quarter of 2021. As previously reported, both plants transitioned from being capacity resources in the PJM market to being energy resources in the PJM market starting in June 2022, which allowed the Company to sell power into the real-time market during the third quarter of 2022 versus being required as a capacity resource to sell power in the day-ahead market during prior periods.

The third quarter was impacted by material planned outages at the Panther Creek Plant and the Scrubgrass Plant that spanned the second half of September into early October, during which time the Company generated no energy revenue but incurred substantial maintenance costs and imported electricity from the PJM grid. Planned maintenance events improve plant efficiency and reliability and are a critical part of normal long-term maintenance programs. The Panther Creek Plant took its full outage in September, and the maintenance went as planned. The Panther Creek Plant returned to service in early October and has since performed well, in line with Company expectations for baseload reliability.

The Scrubgrass Plant conducted its planned maintenance outage that lasted from mid-September into early October. During the outage, management undertook a thorough review of plant-level profitability and identified opportunities for immediate cost reductions including improved fuel purchasing, headcount reductions, parts inventory procurement and management, and enhanced maintenance planning.  Given seasonally low power prices in October, and some additional desired maintenance objectives, management kept the plant offline while it implemented the cost reduction program and improved the fuel mix through accelerated deliveries of low-cost fuel. The plant returned to service in late October following the conclusion of the outage, and management is encouraged by the improved plant performance, which has confirmed that the plant can run above the expected baseload performance threshold of 80% utilization.

2023 Guidance

 

Market Assumptions:

 

Bitcoin mining revenue is based on a hash price of $0.085 per Terahash per second (“TH/s”) per day. Hash price represents global Bitcoin mining revenue per TH/s of network hash rate, incorporates both Bitcoin price and network hash rate and it is calculated as follows: [Bitcoin price] x [number of Bitcoins mined per day (~900)] ÷ [network hash rate (TH/s)]. The table below illustrates estimated combinations of Bitcoin price and network hash rate that result in a hash price of $0.085 per TH/s per day:

Operational	FY 2023
Avg. power output (MW)	135 - 140
Avg. hash rate capacity (EH/s)	~3.0
Avg. miner uptime, without miner curtailment (%)	90%
Avg. hash rate, with miners curtailed to sell power (EH/s)	~2.4

Revenue received for selling electricity to the grid is based on forward prices for the Penelec and Pennsylvania Power & Light  zones in PJM Interconnection, LLC, per Priority Power Management as of November 7, 2022. These forward prices imply an average around-the-clock price of approximately $64/MWh for 2023. However, as a result of Stronghold’s ability to curtail Bitcoin miners when grid prices are attractive, Stronghold believes that it can realize a higher average price of $72/MWh.

Guidance:

Operational	FY 2023
Avg. power output (MW)	135 - 140
Avg. hash rate capacity (EH/s)	~3.0
Avg. miner uptime, without miner curtailment (%)	90%
Avg. hash rate, with miners curtailed to sell power (EH/s)	~2.4

Financial ($ in millions, unless noted)	FY 2023
Total revenue and other income	$108 - $114
Recurring fuel and operations and maintenance expenses	$56 - $62
$/MWh	$46 - $52
Recurring cash general and administrative expenses	$18 - $21
Adjusted EBITDA	$29 - $35

    

Operating expenses in the third quarter of 2022 increased 423% to $52.1 million compared to $10.0 million in the same quarter a year ago due to several factors. Operations and maintenance expense increased by $16.6 million as a result of the November 2021 Panther Creek Plant acquisition, higher labor and maintenance costs related to the previously disclosed planned maintenance, and the ramp up of cryptocurrency mining operations. Depreciation and amortization increased by $11.1 million primarily from deploying additional miners and transformers. General and administrative costs increased by $8.2 million due to legal and professional fees, insurance costs, and compensation as the Company continues to organize and scale operations. Fuel expenses increased by $6.1 million driven by higher MW generation, primarily due to the November 2021 Panther Creek Plant acquisition, and increased fuel delivery costs from higher diesel prices.

Net loss for the third quarter of 2022 was ($49.6) million compared to a net loss of ($6.3) million for the same quarter a year ago.

Adjusted EBITDA for the third quarter of 2022 was a loss of ($3.0) million, compared to $0.0 million for the same quarter a year ago (see reconciliation of Non-GAAP financial measures).

Stronghold will host a conference call today, November 9, 2022 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) with an accompanying presentation to discuss these results. A question-and-answer session will follow management's presentation.

About Stronghold Digital Mining, Inc.

Stronghold is a vertically integrated Bitcoin mining company with an emphasis on environmentally beneficial operations. Stronghold houses its miners at its wholly owned and operated Scrubgrass Plant and Panther Creek Plant, both of which are low-cost, environmentally beneficial coal refuse power generation facilities in Pennsylvania.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements contained in this press release, including guidance, constitute “forward-looking statements.” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Forward-looking statements and the business prospects of Stronghold are subject to a number of risks and uncertainties that may cause Stronghold’s actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things: the hybrid nature of our business model, which is highly dependent on the price of Bitcoin; our dependence on the level of demand and financial performance of the crypto asset industry; our ability to manage growth, business, financial results and results of operations; uncertainty regarding our evolving business model; our ability to retain management and key personnel and the integration of new management; our ability to raise capital to fund business growth; our ability to maintain sufficient liquidity to fund operations, growth and acquisitions;; uncertainty regarding the outcomes of any investigations or proceedings; our ability to enter into purchase agreements, acquisitions and financing transactions; public health crises, epidemics, and pandemics such as the coronavirus pandemic; our ability to procure crypto asset mining equipment from foreign-based suppliers; our ability to maintain our relationships with our third party brokers and our dependence on their performance; our ability to procure crypto asset mining equipment; developments and changes in laws and regulations, including increased regulation of the crypto asset industry through legislative action and revised rules and standards applied by The Financial Crimes Enforcement Network under the authority of the U.S. Bank Secrecy Act and the Investment Company Act; the future acceptance and/or widespread use of, and demand for, Bitcoin and other crypto assets; our ability to respond to price fluctuations and rapidly changing technology; our ability to operate our coal refuse power generation facilities as planned; our ability to avail ourselves of tax credits for the clean-up of coal refuse piles; and legislative or regulatory changes, and liability under, or any future inability to comply with, existing or future energy regulations or requirements. More information on these risks and other potential factors that could affect our financial results is included in our filings with the Securities and Exchange Commission, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K filed on March 29, 2022 and our Quarterly Reports on Form 10-Q filed on May 16, 2022, August 18, 2022 and November 9, 2022.  Any forward-looking statement or guidance speaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements or guidance, whether because of new information, future events, or otherwise.

Use and Reconciliation of Non-GAAP Financial Measures

Our board of directors and management team use Adjusted EBITDA to assess our financial performance because they believe it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense and income), asset base (such as depreciation, amortization, impairment, and realized gains and losses on sale of long-term assets) and other items (such as one-time transaction costs, expenses related to stock-based compensation, and unrealized gains and losses on derivative contracts) that impact the comparability of financial results from period to period. We present Adjusted EBITDA because we believe it provides useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP and should be read in conjunction with the financial statements furnished in our Form 10-Q for the quarter ended September 30, 2022. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

		Three months ended,								Nine months ended,
		September 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
		(in thousands)								(in thousands)
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Net Income (loss)		$	(75,220	)		$	(6,280	)		$	(147,765	)		$	(9,762	)
Interest expense			3,393				2,461				10,813				2,595
Depreciation and amortization			12,247				1,158				37,234				2,464
Impairments on digital currencies			466				91				8,177				466
Impairments on equipment deposits			-				-				12,229				-
Impairments on miner assets			11,610				-				16,600				-
One time non-recurring expenses 1			8,218				1,719				14,781				1,788
Stock-based compensation			3,377				977				9,123				1,246
Loss on disposal of fixed assets			462				-				2,232				-
Realized loss on sale of miner assets			-				-				8,012				-
Loss on debt extinguishment			28,697								28,697
Impairment on assets held for sale			4,159								4,159
Changes in fair value of forward sale derivative			-				-				(3,436	)			-
Gain on extinguishment of PPP loan			-				-				(842	)			(639	)
Realized gain on sale of digital currencies			(185	)			-				(937	)			(150	)
Changes in fair value of convertible note			1,205				-				2,168				-
Changes in fair value of warrant liabilities			(1,302	)			(93	)			(1,302	)			98
Realized gain on sale of derivative contract			(91	)							(91	)
Adjusted EBITDA2		$	(2,965	)		$	33			$	(148	)		$	(1,893	)

Investor Contact:

Matt Glover or Jeff Grampp, CFA

Gateway Group, Inc.

Media Contact:

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