Stronghold Digital Mining, Inc.

Good morning and welcome to Stronghold Digital Mining's conference call for the first quarter ended March 31, 2024. My name is Michelle and I will be your operator this morning. Before this call, Stronghold issued its results for the first quarter 2024 in a press release, which is available in the investor section of the company's website at .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 chairman and CEO, Greg Beard, and CFO, Matt Smith. Before we begin, Alex Cofton from Gateway Group will make a brief introductory statement. Mr. Cofton, please proceed.

Great. Thank you, operator. Good morning, everyone, and welcome. Today's live presentation, along with our earnings release and financial disclosures, were posted to 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 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 any 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 and our earnings release carefully as you consider these metrics. We expect to file our quarterly report on Form 10Q on or around May 3, 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 risk caption, Risk Factors. You may access Stronghold Securities and Exchange Commission filing for free by visiting the SEC website at .sec.gov or Stronghold Invest Relations website at .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 Invest 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 first quarter of 2024 earnings call. We will be referencing an associated slide presentation throughout the call that is available through the webcast and on the Invest Relations section of our corporate website. Let's start on slide three. Stronghold is the only environmentally beneficial and vertically integrated public Bitcoin moment.

We

owned and operate two mining waste to power facilities in Pennsylvania, Scrubgrass and Panther Creek, with aggregate power capacity of 165 megawatts. Through our process, Scrubgrass and Panther Creek have removed and estimated 30 million tons of toxic mining waste from the environment from nearly 100 different sites. Today, we own and operate 130 megawatts of current, fully energized data center capacity with 4.1 exa-hash of installed hash rate capacity. We believe this could be expanded to over 7 exa-hash within our existing infrastructure by high grading our fleet with current generation miners. And we are continuing to explore various avenues and structures to grow into this capacity. On our last earnings call, we guided to over 5 million of EVDA for the quarter, and I'm pleased to report that we beat that by over 70% with adjusted EVDA of nearly 9 million. Moving to slide four. We would like to highlight our compelling cost of power, which we believe will continue to improve. Our Panther Creek plant has performed exceptionally well year to date, as demonstrated by achieving a net cost of power under $40 a megawatt. As previously announced, due to low power prices, Scrubgrass has been importing power through our energy sale and purchase agreement with Champion since March 2024. We are planning to continue to run Scrubgrass seasonally to benefit from expected low grid prices. Today, we announced that we previously entered into an agreement with Voltus that we believe will allow us to take advantage of recent PGM guidance, enabling co-located loads to qualify for demand response programs that compensate for improving the stability of the grid. Specifically, price response and sink reserve. Price response is where loads like ours voluntarily curtail and are paid for this curtailment. Sink reserve enables assets to be paid for being available to curtail load when requested by the grid. Moving to slide five. We are continuing to progress the development of our carbon capture project. The important update here is that we submitted our Folsom audit package to Puro, which will allow Puro to conduct its formal audit. This package included a third party lifecycle assessment and stakeholder engagement that included participation from the local county commissioner, planning commission, conservation district, and local state senators. The lifecycle assessment supported the carbon reduction figures that we have observed in our tests. We continue to progress our carbon capture project on schedule and are hopeful to have the project accredited at our Scrubgrass plant for the two installed carbon lists as early as the end of this quarter. Moving to slide six. We continue to believe that stronghold is significantly undervalued. On an EV to hashrate capacity basis and an EV to annualize the Bitcoin production basis, stronghold trades at over a 70% discount. Considering the value of the plant's land, the transmission lines that we own, in addition to our Bitcoin mining operations, we believe this discount is dramatically understated. While factors such as scale and leverage could explain a modest discount, trading in a fraction of our peers multiple continues to be hard for us to understand. We are continuing to focus on execution and we are seeing the fruits of our labor with nearly 9 million of adjusted EVIT DA last quarter. However, our job is to maximize value for our shareholders. To that end, let's move to slide seven. We have initiated a formal review of strategic alternatives. We hired Cohen Capital Markets as our financial advisor and Vincent and Elkins as our legal advisor to assist with the process. We are committed to maximizing value for our shareholders and are taking steps to do so. To that end, we have commenced a comprehensive and thorough review of strategic alternatives to realize the full value potential of our assets, which we believe is not being properly recognized in the public market today. We are considering a wide range of alternatives, including but not limited to the sale of all or part of the company or another strategic transaction involving the assets of the company. We have not set a timetable for completion of the review process and do not intend to make further announcements regarding the review process until the board approves a specific transaction or otherwise determines additional updates are warranted. We continue to believe that we have a unique portfolio of hard assets that is differentiated relative to peers, and we believe that this asset base is far more valuable than our current stock price. Unlike most other Bitcoin miners, we own 750 acres of land with expansive access to water and fiber. We own the transmission lines that connect our assets to the attractive PJM grid and our two wholly owned merchant power plants that have over 160 megawatts of net output capacity. Additionally, we have a significant inventory of data center equipment, including transformers, switchgear, PDUs, containers and cables that are available for quick use and deployment should the right opportunity arise. Bitcoin mining aside, there has been significant demand for assets like ours. The world is witnessing the early stages of AI, ML and cloud computing growth, which is driving incremental demand for power and access to the grid. As a result, independent power producer equities are up over 100% since last summer, and we believe that this demand will only become more pronounced over the next few years, including within PJM. We believe that our 130 megawatts of existing Bitcoin mining data center capacity could potentially be expanded to over 400 megawatts for either Bitcoin mining or advanced computing, such as that which is used for artificial intelligence and machine learning. We will provide further updates on the strategic process when our board deems it appropriate and in the meantime, continue to focus on execution. Moving to slide eight. While PJM is relatively attractive compared to other grids in the country, the broader energy supply situation in the U.S. is gaining attention and concerning. As a country, we are decommissioning baseload generation assets and trying to replace them with intermittent renewables and compounding that. AI is expected to drive a significant incremental increase in electricity demand, the first material increase in U.S. electricity demand in over a decade. There is simply not enough power generation to support future demand. While this is likely to create significant problem for consumers, we believe that this makes access to power and baseload generation assets like scrubgrass and panther creek highly valuable. With that, I'll turn the call over to Matt Smith to discuss Q1 results.

Thanks, Greg. Lastly, on slide nine, revenue for the first quarter was $27.5 million, with $26.7 million from cryptocurrency operations on 546 Bitcoin mined, along with $0.7 million from energy operations and $0.1 million of other revenue during the quarter. Gap net income was $5.8 million for the first quarter, and adjusted EBITDA was $8.7 million. A reconciliation for those figures is included in the appendix. The period featured two extremes, improving Bitcoin mining economics from January through March and depressed PJM power prices to end the winter in January and February. In addition to the improved Bitcoin mining economics experienced during the first quarter, Stronghold's improved operational execution in the quarter led to improved hash rate utilization compared to prior quarters. I'll now turn the call back over to Greg for closing remarks.

Thanks, Matt. At Stronghold, we own a portfolio of hard assets where every known available comparable valuation is significantly in excess of the public market price of Stronghold today. Recognizing this dislocation, we have initiated a process to do something about it. Given the sensitivity of the process that we have undertaken, we are not going to have a Q&A session today. We look forward to updating you in the future. Operator, back to you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.