Recent Operational and Financial Highlights

 

 

 

 

 

 

 

Management Commentary

“We have only a few thousand slots left at our fully developed, energized data centers to reach our target hash rate capacity of 4 EH/s, and we are focused on the rapid deployment of our recent order of 5,000 MicroBT M50 miners and the 4,000 miners associated with the recently announced Canaan Bitcoin Mining Agreement, 2,000 of which are already on site,” said Greg Beard, chairman and chief executive officer of Stronghold. “Since consensually returning approximately 26,000 miners to our previous lender starting in August 2022, we have grown hash rate capacity by approximately 2.2 EH/s, with incremental spend of approximately $15 million, and eliminated approximately $67 million of debt. We see an opportunity-rich environment, both in the secondary, distressed miner market, as well as in the hosting market, where we are gaining traction with our differentiated agreement structure. These opportunities exceed the capacity of our existing infrastructure, and we continue to evaluate ways to deploy the approximately 25 megawatts (“MW”) of end-to-end data center equipment that we own and hold in inventory.”

Liquidity and Capital Resources

As of May 8, 2023, Stronghold’s liquidity was approximately $8.0 million, comprising $7.4 million in cash plus 22 Bitcoin, and the Company had approximately $59.6 million of principal amount of debt outstanding. Stronghold continues to vigilantly manage its exposure to counterparties exposed to the cryptocurrency and technology sectors.

On April 21, 2023, Stronghold completed the transaction contemplated under the securities purchase agreements with an institutional investor and its chairman and chief executive officer, Greg Beard, to sell an aggregate of 10,000,000 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”) and share equivalents (the “Private Placement”). The Company also issued warrants to purchase an aggregate of 10,000,000 shares of Class A Common Stock, with an initial exercise price of $1.10 per share (subject to adjustments), and such warrants are not exercisable until six months after issuance. The Company also agreed to lower the exercise price of the warrants issued to the same investors in September 2022 from $1.75 per share to $1.01 per share.

On March 28, 2023, the Company entered into a Settlement Agreement with its electrical contractor, Bruce & Merrilees Electric Co., to eliminate an $11.4 million outstanding payable — Stronghold’s largest payable as of December 31, 2022 — in exchange for a $3.5 million subordinated note and three million penny warrants.

On February 6, 2023, the Company entered into an amendment to the previously announced secured credit agreement (the “Credit Agreement”) with WhiteHawk Finance LLC and/or its affiliates or designees and the other lenders from time to time party thereto (“WhiteHawk”), to provide Stronghold with enhanced liquidity and financial flexibility. The Credit Agreement with WhiteHawk was entered into on October 27, 2022, and nearly tripled the weighted-average maturity of existing debt from approximately 13 to 36 months, reduced monthly principal payments, and added approximately $21.6 million of cash to the Company’s balance sheet.

On January 3, 2023, the Company announced the exchange of the Company’s Amended and Restated 10% Notes (the “Notes”) for convertible preferred stock (the “Exchange Agreement”) to reduce debt and improve liquidity. On February 20, 2023, the Company closed the Exchange Agreement, whereby the Notes were exchanged for convertible preferred stock that is convertible, directly and indirectly, into approximately 58 million shares of Class A Common Stock. The Exchange Agreement extinguished approximately $16.9 million of principal amount of debt and approximately $1.0 million of accrued interest.

Bitcoin Mining Update

During the first quarter of 2023, Stronghold earned approximately 618 Bitcoin through its mining operations, an increase of approximately 38% from the 447 Bitcoin mined during the fourth quarter of 2022. As of May 8, 2023, Stronghold’s current Bitcoin mining fleet exceeds 31,000 miners with hash rate capacity of approximately 2.8 EH/s. Following (i) the delivery of 5,000 recently purchased MicroBT Whatsminer M50 miners expected later in May, (ii) receipt of the remaining 2,000 Canaan A1346 miners expected by June 15, 2023, under the Canaan Bitcoin Mining Agreement, and (iii) assuming receipt of the outstanding contracted 2,300 miners from MinerVa Semiconductor Corp. (“MinerVa”), the Company’s hash rate capacity is expected to rise to over 3.8 EH/s, of which approximately 80% will be wholly owned by the Company and not subject to a profit share. Stronghold will receive at least 50% of the Bitcoin mined by the approximately 20% of hash rate capacity that is hosted.

The Company is actively evaluating incremental opportunities, representing over 1 EH/s, to fill its remaining data center slots. While no assurances can be made that Stronghold will be able to consummate any of these transactions or that Stronghold will receive the remaining MinerVa miners, the Company now believes that it will be able to fill its existing 4 EH/s of data center capacity by the end of the third quarter of 2023. Beyond the 4 EH/s of data center capacity at the Company’s wholly owned Scrubgrass and Panther Creek plants, Stronghold is currently pursuing the deployment of its additional 25 MW of end-to-end data center equipment that it owns in inventory. This includes 20 proprietary StrongBox containers and the transformers, breakers, and switchgear to support them.

As of May 8, 2023, MinerVa has fulfilled approximately 85% of the order purchased pursuant to the Equipment Purchase Agreement dated April 2, 2021, in the form of cash refunds, MinerVa miners, and other leading third-party-manufactured miners. The remaining 15% of the order has not yet been scheduled for delivery and it is unclear when the remaining MinerVa miners will be delivered, if at all.

Power Update

During the first quarter of 2023, Stronghold removed approximately 259,000 tons of coal refuse from the environment and returned approximately 197,000 tons of beneficial use ash to waste coal piles, facilitating the remediation of these sites. As previously disclosed, the first quarter of 2023 featured a significant drop in power prices when compared to the forward power curve entering 2023, as the result of record warm weather in January and February, which impacted power demand and led to a material loosening of power markets. As a result of lower-than-expected power prices, for most of the first quarter, Stronghold mined Bitcoin instead of selling that power to the PJM grid because Bitcoin mining economics were more attractive than what the Company would have received if it had sold the power to the grid.

In the first quarter of 2023, Stronghold continued to realize the benefits of the previous investments and cost-cutting initiatives at its Scrubgrass and Panther Creek plants during 2022. For instance, our Scrubgrass plant demonstrated availability of approximately 80% of capacity during January; although, the Company opted to not run this plant for a few days in order to import power at prices lower than the variable cost of generating power. Consistent with prior expectations, the Company expects to invest in the Scrubgrass and Panther Creek plants on a more normalized basis and, at this time, estimates $2 million to $4 million of expenses related to maintenance during planned outages over the course of 2023. This is significantly lower than the costs incurred in 2022 related to major maintenance and upgrades at the Scrubgrass and Panther Creek plants.

Stronghold achieved its $45 to $50 per MWh net cost of power objective in March 2023, demonstrating that it can make power at improved, and what the Company believes are highly competitive, costs. While no assurances can be made, current beneficial cost trends, if extrapolated forward, including reduced fuel costs, reduced fixed costs, and increased Pennsylvania Tier II Renewable Energy Credit prices, cause the Company to believe that the likely range for the cost of power for the rest of 2023 has improved to $40 to $50 per MWh, including imported power and expenses related to the aforementioned planned outages.

Conference Call

Stronghold will host a conference call today, May 11, 2023, at 11:00 a.m. Eastern Time (8:00 a.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.

Cautionary Statement Concerning Forward-Looking Statements

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

STRONGHOLD DIGITAL MINING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Use and Reconciliation of Non-GAAP Financial Measures

This press release and our related earnings call contain certain non-GAAP financial measures, including Adjusted EBITDA, as a measure of our operating performance. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, further adjusted by the removal of one-time transaction costs, impairment of digital currencies, realized gains and losses on the sale of long-term assets, expenses related to stock-based compensation, gains or losses on derivative contracts, gain on extinguishment of debt, realized gain or loss on sale of digital currencies, or changes in fair value of warrant liabilities in the period presented. See reconciliation below.

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 March 31, 2023, expected to be filed on May 12, 2023. 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.

STRONGHOLD DIGITAL MINING, INC.

RECONCILIATION OF ADJUSTED EBITDA

 

¹ Includes the following non-recurring expenses: out-of-the-ordinary major repairs and upgrades to the power plant and other one-time items.

Investor Contact:

Matt Glover or Alex Kovtun

Gateway Group, Inc.

SDIG@GatewayIR.com

1-949-574-3860

Media Contact:

contact@strongholddigitalmining.com

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