2023 Earnings Power Illustration



(This transcript has been edited for clarity and to include links.) 

Thank you for joining me. I am John Belizaire, the new CEO of Soluna Holdings

In this presentation, I am going to provide an overview of our company and our 2023 Earnings Power Illustration. Once a year, we outline for you the company’s potential earnings power if we are able to accomplish our goals for the year. This illustration is based on economic decisions we’ve made today and based on the macroeconomics we see and understand today. 

Before we begin, I’d like to start with a legal preamble. The following content is completely qualified by the legal disclosures on this slide following this one. Our goal is to share with you some of the strategic thinking and financial analysis we are using to guide the growth of our business. 

The content is in line with our principles of being accountable and transparent with our shareholders, and we operate in a hyperdynamic economic environment. That’s a fancy way of saying things change quickly. What we’re telling you here is based on our estimates and assumptions, which are our best guesses, and we reserve the right to revise our point of view based on your information and changes in the business environment. Despite an uncertain dynamic environment, we must plan and make operating and investment decisions. This presentation lays out some of that for your review. 

[00:01:00] Let’s start with an executive summary. Soluna is a digital infrastructure company that converts wasted renewable energy to global computing for Bitcoin mining and high-performance computing. We are driven by three core strategies. First, we aim to be the leading curtailment solutions provider to the renewable energy business. We buy excess energy directly from renewable energy power plants and convert it to clean low-cost global computing. Second, we focus on the return 

[00:01:30] of invested capital and capital discipline. We source the lowest cost of power. We focus on efficient CapEx for capital deployment optimization, and we design our projects to return capital invested in about two years. And finally, we have a long-term strategy beyond Bitcoin expanding into the high-performance computing space, including AI. On the following slides, I’d like to take you through our 2023 illustration of earnings power potential.

[00:02:00] This is based on a set of assumptions. I’m going to present it both on a consolidated basis and on a site-by-site basis. Soluna is in the business of buying curtailed energy from renewable power plants and converting it to clean, low-cost global computing. We source power from wind, solar, hydro, and other renewable power plants and build facilities that are co-located with those plants that then convert that energy in an 

[00:02:30] efficient way into Bitcoin mining and high-performance computing. The past year has seen an explosive increase in renewable energy investment, but the industry still suffers from a big problem, wasted energy. Most people don’t know this, but not all renewable energy being produced can be used or monetized because the grid is inflexible. We estimate that nearly $7 billion annually is lost to curtailments, the industry’s term for wasted energy.

[00:03:00] Here’s an illustration of how our data centers solved the wasted energy problem. The graft on the left shows a 150-megawatt renewable energy power plant, a wind farm whose curtailed levels have increased considerably since it was energized. By placing a 50-megawatt Soluna data center co-located with the plant, we’re able to reduce that curtailment by 50%. If we placed a data center of the same size as the power plant, we would virtually eliminate the curtailments. At Soluna, we have a unique interconnection strategy that focuses on building our data centers behind the meter and co-locating with the power plants suffering from wasted energy. By being behind the meter, it allows us to source power from both the power plant and the grid. In addition, we’re also able to provide ancillary services to the grid to help it balance its supply and demand.

Our unique interconnection approach being behind the meter allows us to source our energy from three sources, curtailed energy, that’s the power that is otherwise wasted. Something we call subtractive energy. That is energy that comes from the power plant and would’ve gone to the grid if it were not for our data center load. And of course, we have grid energy and that’s the energy sourced from the grid in excess of the power plant production.

[00:04:30] We pay different prices for each of these sources, and our cost of energy is a weighted average across all of these sources. Now, because we are in places where power prices are really low or negative, our prices are very low. In fact, we offer among the lowest power costs for mining in HPC companies.

[00:05:00] Our data centers are different. They’re not your typical monolithic facility developed by the hyperscalers. These are purpose-built to efficiently convert curtailed renewable energy into high-performance computing. Our facilities are hyper-efficient Bitcoin mining facilities and are already designed to support HPC applications like AI. They have advanced thermodynamics features and computer-controlled automation, and they’re energy dense allowing us to consume over 1.2 megawatts per building. And they can ramp up and ramp down very quickly, making them a perfect asset or resource for the grid.

One of our distinct advantages is our MaestroOS software platform. MaestroOS is our proprietary technology that helps our team automate the control operations and power of our various sites. On the control side, our platform can enhance the equipment’s lifespan and reduce failures through multiple redundancies. 

[00:06:00] We’re able to drive complete automation of things like fans, computing, PDUs, power infrastructure, and the network of the site. We’re able to utilize cloud-based simulators for pre-deployment testing of software and algorithms to enhance the performance and quality of our facilities. We also have operations focus with MaestroOS that allows us real-time tracking of computing like miners, PDUs, and network equipment. We also can drive power infrastructure and centralized site management and remote diagnostics. We can also provide comprehensive diagnostics and alerting systems that empower our operators to swiftly detect issues and take immediate action. MaestroOS also controls the power in our facilities.

Our extensible architecture allows us to quickly adapt new algorithms for the management of power, facilitating seamless integration with various grid operators and behind-the-meter configurations. 

[00:07:00] We’re also capable of accepting multiple grid and power stimuli to feed the algorithm. For instance, we read grid signals like power pricing, the output of the wind farm, and other elements to drive the efficiency of our power management. All of this creates a platform that is a true force multiplier for us in the computing space. We are targeting sizable markets with our technology. Wasted energy is a big market and sustainable low-cost computing is also a large market. Our strategy is to start with Bitcoin mining, and today we host some of the top sustainability-focused miners in our facilities, and tomorrow we are targeting markets such as scientific computing, AI/ML, and the broader compute-intensive application space like video transcoding.

[00:08:00] By creating a flexible computing platform, we can create a scaled company that can go after the wasted energy problem in a big way. Our facilities are built to be flexible to support some of these broader applications. There are four key ways we make money today and in the future. Today we’re focused on Bitcoin mining. We conduct proprietary mining with machines owned by us or in joint venture partnerships, and we host industrial-scale sustainability-focused miners. In both cases, we provide operations and management services to our customers. Starting this year, we will be adding ancillary services revenue where we are compensated to act as a behind-the-meter flexible load for the grid. Our longer-range strategy is to expand our market to the fast-growing GPU cloud space where we may host AI or machine learning simulations, predictive analytics, and deep learning applications to name a few.

[00:09:00] Another distinctive advantage we have is what we call the Soluna Way. We tackle wasted energy through our digital infrastructure, and as we optimize the grid and serve our customers, we fuel our growth by funding further expansion to make renewable energy a superpower. We start by sourcing low-cost curtailed energy from independent power producers. We build, own and operate modular data centers that are focused on a two-year return on invested capital. That allows us to create an infrastructure where we can host customers for both Bitcoin mining and high-performance computing. From there, we can provide ancillary services to the grid. Those strategies allow us to grow the assets that we have under management, and expand our EBITDA profitability over a set of fixed costs to allow our company to scale. That incremental cash and profit is then invested to grow our pipeline, which then makes us available again to service the low-cost curtailed power for IPPs. By doing this, we create a virtual cycle that allows the grid to continue to absorb more and more renewable energy.

[00:10:15] On the following slides, I’d like to take you through our 2023 illustration of earnings power potential. This is based on a set of assumptions. I’m going to present it both on a consolidated basis and on a site-by-site basis. Before we begin, here are our goals and focus for 2023. The first is energizing Project Dorothy. We’re shifting our flagship site from a construction project to a fully operating data center facility. We’re energizing the first 50 megawatts of the facility with Dorothy 1A 25 megawatts and Dorothy 1B 25 megawatts. The second thing we’re doing is focusing on cash flow. We’ve signed 50 megawatts of hosting at Dorothy and Sophie. 25 megawatts of hosting is at Dorothy 1A, and 25 megawatts is at Sophie. We also signed a joint venture deal with Navitas Global that allows us to build a 25-megawatt prop mining facility at Dorothy 1B.

We are also implementing cost-cutting measures to achieve positive cash flow from operations in the second half of 2023. There are two more areas we’re focused on. 

[00:11:30] The next is expanding our flagship. We’re targeting the development of up to another 50 megawatts known as Dorothy 2, and we want to start this project through project-level partnerships and leverage the existing power infrastructure that we’ve built for the first phase of Dorothy. We’re shooting also for investments to energize this facility such that it goes live in the second quarter of 2024. And finally, we are looking to grow our pipeline. Our goal is to sign more term sheets exceeding over a hundred megawatts of additional behind-the-meter projects for renewable energy power partners, and we want to advance the projects through the ERCOT process, just that they become shovel-ready by the end or early next year, such that they can become investible by project level partnerships that we have in place.

[00:12:30] Let’s take a look at the earnings potential for the company. This slide is outlining the earnings potential for Soluna in a macroeconomic scenario where we believe we can get to EBITDA positive in the second half of 2023 and generate significant EBITDA growth in 2024. It does not include growth initiatives. Other key assumptions include Bitcoin price, which we’re assuming is about $26,500. Q3 is still a ramp quarter for the company. 

[00:13:00] Hashrate is assumed to be about 400X a hash, and we assume the halving takes place in April of 2024 with a decline in hash rate after that halving of about 35%. In order to provide a view of the steady state earnings potential of the business, we have assumed removing SG&A associated with growth initiatives in 2024. Note that consolidated EBITDA includes minority interests and we will show SHI-only EBITDA shortly. This slide is the same as the previous slide with the addition of certain growth initiatives including Dorothy 2’s revenue and expenses. All of the assumptions are also the same, except we have included some additional SG&A related to growth.

With the addition of Dorothy 2, which is the second phase of our Dorothy project, the second 50 megawatts. The company would have over 125 megawatts under management and almost a 70% increase from our steady state. We conservatively assume Dorothy is a 100% hosting operation. 

[00:14:00] Here we have the SHI-only EBITDA after accounting for minority interests. We show each of the projects and their percentage ownership by the company, and we show the relevant EBITDA and resulting SHI EBITDA. We also show you an illustration of SHI EBITDA after adding Dorothy 2. This is a summary capitalization showing the company’s enterprise value. The stock price is as of June 15th, and all other data are as of March 31st.

The following slides show project-level information and financials. I won’t go into them individually, but I encourage you to review each project in turn. We’ll give you information such as the capacity, the annual revenue, EBITDA, the state of the project, its average LCOE or cost, and who the partner is in that particular project. Dorothy 2 is the second phase of our flagship project in Texas. It has already gone through the ERCOT large flexible load process and is shovel-ready. We are exploring project-level partnerships to finance the project and develop this important expansion.

[00:16:00] We have a ton of interest in our solution and have a robust pipeline of over 700 megawatts of near-term projects and over two gigawatts of a longer-term pipeline. We recently signed Project Kati, a new 160-megawatt project that’s still under development. By bringing Kati and Dorothy to live in the next year. That would more than quadruple our assets on the management. Most of our projects are from inbound requests for some of the largest IPPs and infrastructure funds in the world. 

Thanks for joining us for the company overview and the 2023 earnings power illustration. 

[00:16:30] Connect with us on LinkedIn and Twitter to stay up to date on the latest from Soluna and join over 1,000 clean energy computing experts and investors that subscribe to our monthly newsletter, Clean Integration. 

In the appendix, you’ll find some additional supplemental information that takes you through our IP, our team, and a host of information about the growth of the AI industry.

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