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SD

Stronghold Digital Mining, Inc. (SDIG)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 revenue was $21.7M with net loss of $21.2M and Adjusted EBITDA of $2.3M; mix: $15.1M self-mining, $5.4M hosting, $1.1M energy . Bitcoin production was 599, down 3% QoQ but up 34% YoY as network hash rate rose; average hash price improved YoY .
  • Installed hash rate capacity reached 4.1 EH/s; actual operating hash rate ~3.8 EH/s, with >40,000 energized slots supporting potential >7 EH/s via high-grading .
  • Strategic power flexibility advanced: new Champion Energy agreements target ~$10–12/MWh for the delivery component (plus wholesale cost), positioning Stronghold to import low-cost power amid a ~$30/MWh PJM forward curve and lower natural gas prices .
  • Carbon capture progressed: Puro.earth registry listing achieved in late Feb; second Karbolith operational; lab results show up to 14% carbonation (10% average) vs prior 12%; accreditation could be as early as end of Q2 2024, enabling potential monetization (including forward sales) .
  • Near-term catalysts: delivery of “> $5M” Q1 2024 Adjusted EBITDA, Puro accreditation and early monetization of carbon credits, and clarity on fleet high-grading plan that could expand hash rate within existing sites .

What Went Well and What Went Wrong

  • What Went Well
    • Fleet and capacity: “Today, we operate over 40,000 Bitcoin miners with 4.1 exahash of hash rate capacity… significant runway to continue hash rate growth within our existing infrastructure by high-grading our fleet.”
    • Power optionality: “Owning our own power assets gives us a lot of optionality… Power prices in our region are currently very low… expect to opportunistically import electricity from the grid to power our miners.”
    • Carbon capture acceleration: Puro registry listing completed; second Karbolith built for ~$33k in materials with design enhancements; up to 14% carbonation achieved; audit underway, accreditation possible by end Q2 2024 .
  • What Went Wrong
    • Top-line pressure YoY: Revenue declined vs Q4 2022 ($21.7M vs $24.7M), though improved sequentially vs Q3 2023 ($17.7M) .
    • Continued GAAP losses: Q4 net loss of $21.2M; drivers included $3.7M loss on disposal of fixed assets and $6.2M non-cash increase in warrant liabilities .
    • Operating and power friction in prior quarter: Q3 Panther Creek outage and PJM import constraints hurt operations; retail adder on imported power in Q4 could be onerous at times, leading to Champion agreement to cut delivered power costs .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenue ($M)$18.2 (prelim.) $17.7 $21.7
Net Income (Loss) ($M)$(11.7) (prelim.) $(22.3) $(21.2)
Adjusted EBITDA ($M, Non-GAAP)$(2.6) (prelim.) $(2.4) $2.3
Basic EPS ($)n/a$(2.26) $0.34
Bitcoins Mined (units)626 620 599

Segment revenue mix – Q4 2023:

SegmentQ4 2023 ($M)
Cryptocurrency self-mining$15.120
Cryptocurrency hosting$5.420
Energy$1.132
Other$0.068
Total$21.739

KPIs and operating capacity:

KPIQ3 2023Q4 2023
Installed Hash Rate Capacity (EH/s)4.0 4.1
Actual Operating Hash Rate (EH/s)n/a~3.8
Energized Slots Potential (EH/s)n/a>7 (via high-grading)
Carbonation (CO2 capture)Up to 12% (lab) Up to 14% (avg ~10%)
Puro Registry StatusPlan to submit PDD; target listing Q1’24 Registered; audit underway

Contextual performance metrics called out by management:

  • Hash price averaged $81/PH/s in Q4 2023 vs $62/PH/s in Q4 2022 (+31%); Bitcoin price averaged $36,247 in Q4 2023 (up 101% YoY), while network hash rate averaged 460 EH/s (up 81% YoY) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/UpdateChange
Adjusted EBITDA (Non-GAAP)Q1 2024n/a“> $5M” projected for Q1 Initiated
Power import cost (Champion ESPAs)2024–2027Retail adder at times “onerous” when importing ~$10–12/MWh delivery component incl. ancillary & taxes, plus wholesale cost (assumed $10–40/MWh) Lowered implied delivered power cost vs prior retail arrangements
Carbon capture accreditation2024Target to be listed Q1’24 (Puro PDD submission) Registered late Feb; audit underway; accreditation as early as end Q2’24 Timeline progressed/clarified
Installed hash rateQ4 2023“At least 20% sequential growth” into Q4’23 (Q3 release) Achieved 4.1 EH/s installed; ~3.8 EH/s operating; 5,000 new miners installed Achieved

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2023)Trend
Carbon captureQ3: Announced initiative; lab up to 12% carbonation; Puro PDD planned; potential $13–31M EBITDA uplift with 45Q; earliest credits 2025/26; private credits in 2024 Puro registry listing achieved; second Karbolith operational; up to 14% carbonation; audit underway; accreditation as early as end Q2’24; may sell credits forward once audited Advancing faster, de-risking tech and monetization path
Power strategy (PJM)Q2: Benefited from importing power; market-dependent Very low forward prices (~$30/MWh) supportive of importing; Champion deal reduces delivered costs; expect to toggle import/own-gen seasonally Improved import economics; heightened flexibility
Hash rate/high-gradingQ2: Miner purchases to reach 4.0 EH/s 4.1 EH/s installed; ~3.8–3.9 EH/s operating; roadmap to >5.3 EH/s by replacing least efficient units, >7 EH/s potential within existing slots Focus shifts to high-grading efficiency
Balance sheet/liquidityQ3: Debt structure discussed; mandatory amortization post-halving; aim to delever with cash flow Liquidity $10.2M (2/29); 2024 mandatory amortization $6.5M; remaining miner capex ~$0.7M; debt ~$55.8M Liquidity cushioning obligations; operating cash generation targeted
Hosting/JV modelQ3: Frontier Mining engagement to improve uptime Prefer revenue-share JV over “regular hosting”; expect continuity Maintain JV approach; uptime improving

Management Commentary

  • “Owning our own power assets gives us a lot of optionality, as electricity is the largest variable cost to mine Bitcoin… power prices… are currently very low… expect to… import electricity from the grid.” — Gregory Beard, CEO
  • “Revenue for the fourth quarter was $21.7 million… GAAP net loss was $21.2 million… Adjusted EBITDA was $2.3 million.” — Matthew Smith, CFO
  • “Puro.earth Registry registered the Scrubgrass facility in late February… goal is to have an accredited carbonated materials project as early as the end of the second quarter.” — Gregory Beard
  • “Stronghold trades at an approximately 70% discount to peers.” — Matthew Smith, CFO

Q&A Highlights

  • Fleet high-grading: Management indicated replacing least efficient miners with latest generation (e.g., S21) could reach >5.3 EH/s, with ~$20M per EH/s current pricing cited; timing to be opportunistic and data-driven post-halving .
  • Power costs and halving strategy: Variable plant costs ~$40–45/MWh; with current low PJM prices, importing power is economical; primary lever into halving is driving power costs lower; balance sheet obligations intentionally low through the halving .
  • Hosting/JV outlook: Expect to continue revenue-share JV structures vs. traditional hosting; consider JVs as a path to high-grade miner efficiency .
  • Carbon capture monetization: With Puro listing and audit, company could sell credits in forward market and deliver over time; accreditation targeted as early as end Q2 2024 .
  • Champion agreement specifics: Move from retail with high adders to competitive supply via Champion (Calpine) to reduce delivered cost when importing power .

Estimates Context

  • S&P Global consensus estimates for SDIG were unavailable via our tool at this time due to a missing CIQ mapping for the ticker; therefore, we cannot present “vs. consensus” comparisons for Q4 2023. If you’d like, we can refresh once mapping becomes available.

Key Takeaways for Investors

  • Improving unit economics setup: Low PJM forward prices and Champion supply reduce delivered power costs, providing downside protection into the halving and supporting margin resilience .
  • Self-help growth via high-grading: Installed capacity at 4.1 EH/s with line-of-sight to >5.3–7 EH/s within existing slots through miner upgrades offers capital-efficient scale-up .
  • Carbon capture could unlock a second revenue engine: Puro listing, better-than-expected carbonation (up to 14%), and lower Karbolith costs point to earlier monetization potential and structurally lower net power costs once scaled .
  • Sequential operational improvement: Q4 revenue up vs Q3 and returned to positive Adjusted EBITDA; watch Q1 delivery of “> $5M” Adjusted EBITDA as a near-term proof point .
  • Balance sheet manageable: $10.2M liquidity as of Feb 29 covers 2024 debt amortization ($6.5M) and minimal remaining miner capex ($0.7M) .
  • Stock setup: Management highlights a significant valuation discount to peers; catalysts include Q1 print, Puro accreditation, and visibility on miner high-grading plan .

Citations:

  • Q4 2023 press release, exhibits, and financial statements:
  • Q4 2023 earnings call transcript:
  • Q3 2023 8-K and call:
  • Q2 2023 8-K updates:
  • January and February 2024 updates:
  • Q4 2023 earnings slides: