Stronghold Digital Mining, Inc.

Good evening and welcome to Stronghold Digital Mining's conference call for the first quarter ended March 31, 2022. My name is Carl and I'll be your operator this afternoon. Before this call, Stronghold issued its results for the first quarter 2022 in a press release, which is available in the investor section of the company's website at www.strongholddigitalmining.com. You can find the link to the investor section at the top of the homepage. Joining us on today's call are Stronghold's co-chairman and CEO, Greg Beard, and CFO, Matt Smith. Following the remarks, we will open the call for questions. Before we begin, Jeff Gramp from Gateway Group will make a brief introductory statement. Mr. Gramp, please proceed.

Thank you. Good evening, everyone, and welcome. Today's slide presentation, along with our earnings release and financial disclosures were posted on our website earlier today and can be accessed on our website at 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 in the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We filed today our quarterly report on Form 10-Q 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 in our 10-K. You may get Stronghold Securities and Exchange Commission filings for free by visiting the SEC website at sec.gov or the Stronghold 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 a link available in the investor relations section of Stronghold's website. Now, I would like to turn the call over to Stronghold's co-chairman and CEO, Greg Beard. Sir, please proceed.

All right. Thank you, Jeff, and good evening, everyone, and thank you for joining us on our first quarter 2022 earnings call. For today's call, we're going to reference a slide presentation that is available through the webcast, And on the IR portion of our corporate website, I'll encourage you strongly to have a look at it because we are going to refer to it. And some of the things I'm going to say are much more easily understood if you have the slides in front of you. Also, forgive us. We are recording this. This is not a recording. This is us live. And so if we mess up, we may pause and restate things. But this is our first attempt at this one. So starting on the first slide, and again, just go to strongholddigitalmining.com. And they're under the IRF section. You can see these slides. So, I'm now on slide number three called Stronghold at a Glance. So, there's an overview with some introductory comments. As a reminder, we are an environmentally beneficial, vertically integrated public Bitcoin miner with some of the lowest power costs in the industry. We didn't expect the importance of the vertically integrated business model to be as apparent for another year, but the recent runoff in power prices, coupled with the decline in Bitcoin pricing, have highlighted vertical integration's relevance and value. Additionally, to extinguish any doubt regarding our liquidity, we have taken recent steps that we will walk through on this call. We addressed much of our Q1 operating performance on our earnings call in March. While we faced difficulties associated with minor deliveries and data center commissioning, the first quarter represented progress as we generated approximately $29 million in revenue, nearly a 70% sequential increase from last quarter as we ramped mining capacity along with our data center and power operations. During the quarter, we mined 438 Bitcoin, averaging a hash rate just under 1 exahash per second, in line with the guidance we communicated on our fourth quarter earnings call. We are further scaling up our Bitcoin mining operations as we have mined over 250 Bitcoin in the second quarter through May 13th, with over 100 in the first 13 days of May. We also continued our environmentally beneficial mission by reclaiming approximately 279,000 tons of coal refuse during the quarter. Our hash rate capacity as of May 12th was approximately 3 exahash per second, and we have contracted miners to bring us to a hash rate capacity of approximately 4.2 exahash per second by year end. This assumes that we do not receive any additional Minerva miners. Cryptocurrency volatility has been a major headline in the last few weeks, and I'm sure everyone is keenly aware. We have seen several peers scale back near-term and long-term growth projections that were oftentimes predicated on the availability of external capital to fund growth. As you will hear, we have taken steps to shore up liquidity, including raising a private placement and strategically selling excess miners. We expect to be a self-funded business on a go-forward basis, putting us in a position of strength for future opportunities that may arise, especially as we look after 2023 and the halving event in 2024. Now, turning to slide four, titled Vertical Integration Mitigates Bitcoin Downside Risk. When we created Stronghold, we aimed to build a company that would provide material upside exposure to Bitcoin, but would also be capable of persevering through downside scenarios and volatility, hence our vertically integrated strategy. We believe that this is an underappreciated component of our business, especially at times when markets had more bullish pricing sentiment and downside protection was less of a concern. But by owning our own power assets and being tied to the grid, we have the flexibility to both buy from and, more importantly, sell to the grid. To be clear, our business remains focused on Bitcoin mining, but there will be periods of time when the economics of selling power to the grid are superior to those from mining Bitcoin. We believe this differs from most other Bitcoin miners that actually suffer under higher power prices. Slide four demonstrates the impact and potential benefit of selling power to the grid. On the chart, the gray shaded region represents Bitcoin mining revenue on a dollar per megawatt hour basis. 20,000 to $30,000 Bitcoin implies approximately 90 to $135 per megawatt hour. The blue line, shows the average forward power pricing for our zones of the grid. Over the next 12 months, these exceed $100 per megawatt hour on average, which implies a Bitcoin price of approximately $22,000. So, we effectively have a floor on Bitcoin at $22,000. What this means is that if Bitcoin falls below $22,000 on average, we will pivot to selling power to the grid, which distinguishes us from most other miners. In addition to this downside protection, we plan to capture additional value through selling to the grid by taking advantage of the seasonal and volatile nature of grid pricing. As you can see on the chart, when the green line moves above the midpoint of the gray shaded region, we sell power to the grid. The ability to blend power sales and Bitcoin mining demonstrates the value of the vertically integrated business model. In the context of the Bitcoin market that we have observed over the past few weeks, it's natural to think about what the business looks like in a prolonged market downturn. At current forward power prices, we think we would generate about $35 to $65 million of adjusted EBITDA over the next 12 months, even if we don't mine any Bitcoins. And with Bitcoin in the $25,000 range, we believe their ability to sell power to the grid could give us the ability to generate an additional 25% more adjusted EBITDA over the next 12 months than we would otherwise be able to generate without selling power. One final note, these figures do not represent any guidance in any form. We prepared this to illustrate the comparison among the three presented scenarios. and we had to make various simplifying assumptions to ensure apples to apples comparisons. In summary, while we currently anticipate our power generation to continue to be largely allocated to our Bitcoin mining operations with only spare generation capacity being sold as a grid, if opportunities present themselves to achieve better economics in the power markets, we expect to pivot to take advantage of such economics. Now moving to slide five to discuss recent updates. Improvements to our scrub grass power plant are progressing on schedule. The forced outage rate has dropped as select upgrades and repairs have been completed, and average April power output was 20 percent higher than the first quarter average. The plant has been successfully supplying power to both our Bitcoin mining operations and the grid. Our joint venture data center commissioning is in full swing after the initial delays were discussed last quarter. As you will recall, we have renegotiated more favorable terms for this joint venture while the delays were being addressed. At the time of our fourth quarter call, the joint venture had four of 24 data center pods operational, and as of May 13th, there are now an additional 14 pods commissioned. We expect the remaining data center containers to be operational within the next two months. Lastly, on April 14th, we announced the appointment of Matt Smith as our CFO. Matt had served as the chair of the audit and compensation committees on our board since January, so he's very familiar with Stronghold, the team, and the financials. Matt previously founded Deep Basin Capital and has more than 20 years of investment experience in the energy, clean tech, power, and utility sectors. We value Matt's deeply analytical mindset and management capabilities, and I've been very impressed with how he has hit the ground running with the team. With that, I'll turn it over to Matt to discuss our financial position.