Stronghold Digital Mining, Inc.

Good morning and welcome to Stronghold Digital Mining's conference call for the second quarter ended June 30th, 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 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 today on the call are Strongholds Chairman and Chief Executive Officer Greg Beard and Chief Financial Officer Matt Smith. Following their remarks, we will open the call for questions. Before we begin, Alex Cupton from Gateway Group will make a brief introductory statement. Mr. Cupton, please go ahead.

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 that differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and the assumptions related 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 prior to August 11, 2023 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 previously filed annual report on Form 10-K, filed on April 3rd, 2023, and our subsequently filed quarterly report on Form 10-Q. 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 has been 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 Chairman and CEO, Greg Beard. Greg?

Good morning, everyone, and thank you for joining us on our second quarter 2023 earnings call. For today's call, We're going to reference an associated slide presentation that is available through the webcast and on the investor relations section of our corporate website. During the second quarter, Stronghold continued to take proactive steps to execute on our strategic growth plan, expanding our hash rate capacity to approximately 3.6 exahash, with the expectation of reaching our full four exahash of capacity by September 1st, further positioning the company for long-term sustainable success with increased revenue and cash flow. Before turning the call over to our CFO, Matt Smith, for a review of our financial results, I would like to touch on some recent highlights from our business and on our continued confidence in the year ahead. Let's start on slide three. As a reminder to everyone joining us today, Stronghold owns and operates two waste coal reclamation and power generation facilities in Pennsylvania. Scrubgrass, and Panther Creek, with aggregate power capacity of 165 megawatts. Today, we have over 40,000 miners delivered or under contract to be delivered. Additionally, we continue to seek opportunities to expand our capacity by deploying 25 megawatts of owned end-to-end data center equipment at a new site that we expect will be able to support at least one exahash. Moving to slide four. Last year, we announced a strategy to delever, reduce costs, and further build out our mining fleet opportunistically to better position Stronghold for long-term success. Since achieving those targets, we're now focused on execution and resiliency. As we prepare for the next halving, it has become increasingly important for us to make the right moves to improve our operational efficiency and expand our mining fleet in a cost-effective way that maximizes earning potential. Since April, we have added approximately 1.6 exahash of hash rate capacity through purchase and posting agreements with incremental spending of only $15 million, which equates to approximately $10 per terahash for high hash rate, high efficiency miners. These miners include over 6,000 microBT M50 and M50S miners, 4,000 A1346, and 2,000 A1246 miners associated with the Canaan Bitcoin mining agreement, and 2,000 additional purchased A1346 miners. We expect that all of these miners will be installed by September 1st, which puts us on track to reach our data center capacity of 4 exahash, one month earlier than expected. In addition to growing our mining fleet, We also remain focused on improving operational efficiency and lowering expenses associated with our operations. We've eliminated more than a third of our fixed costs over the last year and continue to track a net cost of power between $40 and $50 per megawatt hour. Transitioning to slide five, I'd like to dive a little deeper on our recent miner additions, starting with our purchase of micro-BTE miners on the left. We initially purchased 5,000 M50 miners in April, and then we purchased over 1,000 more M50 and M50S miners in July. The total cost was approximately 12 million. While hash price has pulled back from where it was at the time of these deals, based on a 7 cent hash price and a $45 per megawatt hour cost of power, we would expect 10 million of annual EBITDA uplift from these transactions. and we would expect an internal rate of return exceeding 100%. Even at a $0.06 hash price, we would expect returns well in excess of our cost of capital. Moving to the Canaan Bitcoin mining agreement and the purchase of Canaan miners on the right. We recently entered into a two-year Bitcoin mining agreement with Canaan for 4,000 A1346 and A1246 miners. In July, we subsequently expanded this agreement by 2,000 A1346 miners and simultaneously purchased another 2,000 A1346 miners from Canaan for approximately $3 million. These miners are objectively among our best performers in our air-cooled strongbox containers and provide an attractive value proposition given the combination of high hash rate, energy efficiency, and price point. In aggregate, we would expect $7 million of annual EBITDA uplift from the Canaan transactions, assuming a $0.07 hash price and $45 per megawatt hour cost of power, and similar to the purchases of microBT miners, the forecasted return profile is exceptional. Looking at the Canaan and microBT deals in the aggregate, based on current market pricing, we would expect incremental annual EBITDA of $17 million, with only 15 million of capital invested, demonstrating our continued focus on capital efficiency. As a quick aside, I wanted to highlight that we believe that combination of prevailing hash prices and prevailing mining hardware prices represents the most attractive capital deployment opportunity that we have seen in the space. As shown on this page, current market pricing results in forecasted triple-digit IRRs and paybacks around one year. This forecasted return profile is stronger than any that we have seen historically, even back in 2021 when Bitcoin prices approached $70,000. Moving to slide six. We currently have approximately 3.7 exahash of hash rate capacity and expect to reach our current data center capacity of 4 exahash by September 1st. With a contracted hash rate capacity of 4.2 exahash, we will look to optimize hash rate, energy efficiency, and slots. And we remain focused on a new location for a third site where we plan to utilize the 25 megawatts of end-to-end data center equipment in inventory. We have identified target locations for the new site, and we plan to provide more details by the end of the third quarter. Looking to the chart on the right, and further demonstrating our capital efficiency, we've been able to make investments recently at highly compelling price points, with CapEx of $10 per terahash this year, a significant improvement from $60 per terahash for 2021 and the first half of 2022. We believe this reflects our capacity to strategically and opportunistically expand our mining fleet, maximizing revenue potential per dollar spent more than ever before. With that said, I would like to pass it over to our CFO, Matt Smith, to further discuss our financials and results from the quarter.