Earnings call: Stronghold Digital Mining explores strategic alternatives

Stronghold Digital Mining Inc. (NASDAQ: SDIG) has announced a formal review of strategic alternatives to maximize shareholder value, including potential sales, mergers, and expansions. During the second-quarter earnings call, the company reported a GAAP net loss of $21.3 million and an adjusted EBITDA of negative $0.3 million.

Despite the loss, Stronghold highlighted several positive developments in its power strategy and assets, including an increase in waste coal tax credits and capacity market auction results that could lead to significant revenue boosts in the future.Key TakeawaysStronghold Digital Mining is considering sales, mergers, strategic financings, or expansions as part of its review of strategic alternatives.The company reported a GAAP net loss of $21.3 million and a non-GAAP adjusted EBITDA of negative $0.3 million for Q2.Positive updates in power strategy could lead to an estimated $7 million in incremental revenue from capacity payments.Waste coal tax credit in Pennsylvania doubled, potentially adding $2 million to $4 million per year to Stronghold's cash flow starting in 2025.The company is exploring data center opportunities and has engaged Appleby Strategy Group for this purpose.Company OutlookStronghold is evaluating the timing for potential expansion and site development of its assets.The company owns significant land and has access to power, fiber, and water, which enhances the prospects for data center development.Bearish HighlightsThe company's Q2 results showed a significant net loss and a negative adjusted EBITDA.Bullish HighlightsStronghold's power assets have cleared significant capacity in the PJM capacity market, indicating potential for increased revenue.The recent legislative increase in waste coal tax credits supports Stronghold's reclamation activities and promises additional cash flow.MissesRevenue for Q2 was lower than expected at $19.1 million, with the vast majority coming from cryptocurrency operations.Q&A HighlightsThe earnings call did not provide a Q&A session, thus no highlights from questions and answers are available.

In conclusion, Stronghold Digital Mining is actively seeking ways to enhance shareholder value through a variety of strategic alternatives. The company's second-quarter financial performance was challenged, but it remains optimistic about future revenue prospects due to positive developments in its power strategy and potential data center expansion. The full details of these updates and financial results can be accessed on Stronghold's website, and further updates will be provided in future announcements.InvestingPro Insights

As Stronghold Digital Mining Inc. (NASDAQ: SDIG) navigates its strategic review, recent metrics and analysis from InvestingPro offer a deeper look into the company's financial health and market performance. Here are some insights based on real-time data and InvestingPro Tips:

InvestingPro Data:Market Cap: As of the latest data, Stronghold Digital Mining's market capitalization stands at $42.19 million, reflecting the market's current valuation of the company.P/E Ratio: The company's price-to-earnings ratio is -1.85, indicating that investors are expecting negative earnings.Price Performance: Over the last month, SDIG's stock price has decreased by 40.2%, highlighting the market's reaction to recent developments and financial results.

InvestingPro Tips:Debt and Liquidity Concerns: Stronghold operates with a significant debt burden and its short-term obligations exceed its liquid assets, suggesting potential liquidity challenges.Profitability and Volatility: Analysts do not anticipate the company will be profitable this year, and the stock has been characterized by high price volatility, which may concern risk-averse investors.

For those looking to delve further into Stronghold Digital Mining's prospects and performance, InvestingPro provides additional tips and insights. Currently, there are 12 more InvestingPro Tips available at https://www.investing.com/pro/SDIG, which could help investors make more informed decisions regarding their interest in the company.Full transcript - Stronghold Digital Mining Inc (SDIG) Q2 2024:

Operator: Good morning, and welcome to Stronghold Digital Mining's Conference Call for the Second Quarter ended June 30, 2024. My name is Josh, and I will be your operator this morning. Before this call, Stronghold issued its results for the second quarter of 2024 in a press release, which is available in the Investors section of the company's website at www.strongholddigitalmining.com. You can find the link to the Investors section at the top of the home page. Joining us on today's call are Stronghold's Chairman and CEO, Greg Beard; and CFO, Matt Smith. Before we begin, Alec Wilson from Gateway Group will make a brief introductory statement. Alec Wilson, please proceed.

Alec Wilson: Thank you, operator. Good morning, everyone, and welcome. Today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on our website at www.strongholddigitalmining.com. Some statements we're making today may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We expect to file our quarterly report on Form 10-Q on or around August 14, 2024, with the Securities and Exchange Commission, which sets forth detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified under the caption Risk Factors. You may access Stronghold's Securities and Exchange Commission filings for free by visiting the SEC website at www.sec.gov or Stronghold's Investor Relations website at ir.strongholddigitalmining.com. I would like to remind everyone that this call is being recorded and will be made available for replay via link available in the Investor Relations section of Stronghold's website. Now I would like to turn the call over to Stronghold's Chairman and CEO, Greg Beard. Greg?

Greg Beard: Good morning, everyone, and thank you for joining us on our second-quarter 2024 earnings call. We will be referencing an associated slide presentation throughout the call that is available through the webcast and on the Investor Relations section of our corporate website. Let's start on Slide 3. As we previously announced on our Q1 earnings call, we initiated a formal review of strategic alternatives, and that process is ongoing. To date, the company has received numerous bids for all or parts of the company, and we are considering a wide range of alternatives to maximize shareholder value. These alternatives range from sales of all or part of the company, mergers, strategic financings, and expansion of our available power potentially into other data center use cases. Moving to Slide 4. We are excited to announce several positive updates regarding our power strategy and assets. In July, PJM's capacity market base residual auction cleared at $270 per megawatt day, up more than 800% from last year. Panther Creek cleared 69 megawatts and Scrubgrass cleared 76 megawatts. We have since exited 17 megawatts of the Scrubgrass commitment and retaining 59 megawatts. We are working with advisers to evaluate exiting the rest of the Scrubgrass capacity position because capacity payments and demand response are mutually exclusive. But at Panther Creek alone, we estimate that capacity payments will drive approximately $7 million of incremental revenue between June 2025 and May 2026 at a 100% margin. We also have a positive update on waste coal tax credits. Last month in Pennsylvania's bipartisan budget, which was passed by State House and Senate and signed into law by the governor, the waste coal tax credit was doubled from $4 per ton to $8 per ton through 2036. This legislation highlights the importance of our reclamation activities and the bipartisan support that they have in Pennsylvania. And importantly, we estimate that this increase in the tax credit will represent an additional cash flow of $2 million to $4 million per year for strongholds starting in 2025. Lastly, in April, PJM updated its guidance for co-located loads like ours. Based on this guidance to date, we believe that our Bitcoin mining operations qualify for PJM's demand response and sync reserve programs, and we are currently in the process of registering the Scrubgrass data center for these programs. Moving on to Slide 5. We have spent the last few months evaluating the expansion potential for our current assets. As a part of this process, we have engaged Appleby Strategy Group to help us explore data center opportunities and uses for our assets. Some key value drivers for data centers are access to land, power, fiber and water. And we believe that our assets possess these qualities. We own 636 acres of Scrubgrass and 117 acres of Panther Creek and we recently optioned an additional 1,140 acres immediately adjacent to our Panther Creek property. We have entered into load studies of local utilities at both sites to understand how much power we can access and our first preliminary load study at Panther Creek recently came back and is supportive of bringing in an additional 250 megawatts. We are evaluating the timing for the potential expansion and site development. Additionally, both of our sites have various nearby fiber providers that represent diversified paths to market and both have robust water supply further enhancing the data center prospects for our sites. With that, I'll turn the call over to Matt Smith to discuss Q2 results.

Matt Smith: Thanks, Greg. Lastly on Slide 6. Revenue for the second quarter was $19.1 million or $18.8 million from cryptocurrency operations on 299 Bitcoin mined along with $0.3 million revenue from energy operations during the quarter. GAAP net loss was $21.3 million for the second quarter, and non-GAAP adjusted EBITDA was negative $0.3 million. A reconciliation for those figures is included in the appendix. I will now turn the call back over to Greg for closing remarks.

Greg Beard: Thanks, Matt. At Stronghold, we own a portfolio of hard assets that are becoming increasingly more valuable. We are at the intersection of a tight power market reflected in the increased capacity auction pricing, increased demand for power from AI, HPC data center development in a market with power generation supply constraints. We are continuing to evaluate all strategic alternatives and look forward to updating you in the near future.

Operator: Thank you for joining us today at Stronghold's earnings call. You may now disconnect.

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Source: Investing.com