Soluna Holdings December 2021 Monthly Flash Report

 

To read the original Press Release, click here

Company Update Transcript

 

Good morning. This is Michael Toporek. I’m Chief Executive Officer of Soluna Holdings. 

 

Thank you for joining me for this December 2021 Flash Report. As usual, we begin with a bit of a

preamble that everything I’m going to tell you is completely qualified by the legal disclosures on the

following pages. Really our goal here is to share with you some of our strategic thinking and some

financial analysis. The discussion is very much in line with our desire to be accountable and transparent

with you, but we do operate in a hyperdynamic economic environment. It’s really a fancy way of saying

things can change quickly. What we’re telling you here is based on our estimates and assumptions, which

are our best guesses. We reserve the right to revise our point of view based on new information and

changes in the business environment. Despite an uncertain dynamic environment, we need to plan and

make operating and investment decisions. This presentation lays some of that for your review, and on

the following several pages is the detail of the legal disclaimers. Page one, page two, page three.

 

As usual, we begin by clearly outlining our key operating principles. First is really aligning our interests

with that of shareholders. Basically, it’s accountability and transparency. The firm I help to run owns about

30% of the equity of the company. And we are very focused on increasing shareholder value. Our actions

are completely aligned with that. We also are focused on what I call high-velocity execution, basically

setting our targets and executing as rapidly as possible. Many of you know about our decision-making

rules around return on invested capital. We’re extremely disciplined when we approach both how we

raise capital and how we choose to deploy capital. We also are formulating and beginning to execute on

a long-term strategy beyond merely crypto, where crypto is an important part of it, but our company

expands beyond simply providing crypto mining capabilities.

 

It’s important that when you look at our company, you frame what we do relative to others quite

differently. We solve a problem for energy producers. We buy curtailed energy from renewable power

plants and convert it to clean low-cost global computing that allows us to enable more green, renewable

power to come onto the grid. Also, the opportunity begins to expand, as I just mentioned, beyond crypto

into batchable computing, which is providing computer services for digital currencies, but in addition,

research, video processing, and scientific research. So let me begin by giving you a business update and

some of the December results in detail.

 

First, the business update. Really December 2021 was quite remarkable, despite an 18% decrease in the

average Bitcoin price between November and December. So our realized price in November was about

$60,000 of Bitcoin and we realized 49,000 approximately in December. Despite that 18% decrease, our

revenue for December actually increased over November. For most businesses, that would be a

remarkable feat. Imagine a regular business that experienced an 18% price cut per unit. That means that

the number of units we sold or Bitcoins produced actually increased dramatically because we are scaling.

So that brings me next to hashrate.

 

Our hashrate target continues to be, to hit one exahash by the end of March plus or minus 30 days. And

it’s well-known why we’re plus or minus 30 days. Logistics, supply chain provide some challenges, but

our goal remains unchanged and we expect to hit that goal. In 2022, we expect to add at least 100

megawatts of capacity at sub 2.50 cent per kilowatt. Our hashrate is expected to scale plus or minus as

shown to you on the chart. So plus or minus at the end of the first quarter, we hit one. As Dorothy begins to

build out, we begin to hit 1.3 at the end of Q2. And then we start to really aggressively add as the project

gets completed, where we hit two, three, and then by the end of Q1 2023, four exahash. And on January

19th, I expect to release what we call our earnings power illustration. Basically, if we hit these numbers

and these milestones, what does that mean in terms of potential earnings power? And we’ll give you a

fair amount of transparency and details to the plan, how we get there by location and what we’re

planning on doing, and also flexibility within the plan, possible capital expenditure assumptions,

depending on the opportunities in the marketplace.

 

So here’s an operational update quickly. Sophie scaled to 25 megawatts and was fully energized by the

end of the month. Marie scaled to 21 megawatts, but the tornadoes in Kentucky made the transformer

upgrades that we had thought we would get done in December to bring the site up to 25 megawatts,

something we’re doing in January. And those upgrades involve powering down some of the facility,

changing up the transformer, and then powering it back up and really rolling that out through the entire

site so that we can hit our 25-megawatt target. For Dorothy, which you’ll hear more about on

Wednesday, we’ve already procured the electrical infrastructure. That means that back in August, we

already bought transformers, switchgear, and all sorts of infrastructure requirements to plan for this

project. We’ve hired the necessary construction resources, and we’re getting set to break ground. We

will continue our live feed from Sophie since I think some of you enjoy looking at that, and I expect to

have a live feed on Dorothy once we break ground, so all of you can watch us build Dorothy out.

 

And this is Sophie, a nice aerial view. You’ll see that there’s a substation here. This was the substation

that belonged to the utility that asked us to locate right next to their substation, so they can help balance

their load because they’re taking on renewables, an increased level of renewables onto their grid. And

those are the buildings at least that you saw real-time being constructed. So congratulations to the

team, very grateful. Despite a number of logistical obstacles, the team delivered on time and on budget,

which we’re very, very proud of. Our hashrate continues to ramp to one exahash. You’ll see our flash

hashrate for January 14th at 640. That means that we have 367 proprietary hashrate, and we are going

to grow our proprietary hashrate by 358 petahash to get us to a total of one exahash under roof.

 

Again, it’s important to note that going from 367 to 358 almost doubles our proprietary mining earnings

power. When we move from November to December, you’ll see we went from 126 to 312, despite the

18% decrease in the price of Bitcoin. Because of that tremendous increase in our proprietary hashing

power, we were able to continue to show a revenue increase. I would expect to show continuing

significant earnings increases, especially if the Bitcoin price rate remains the same or higher. And we are

going to continue to deliver and drive very significant increases in operating income over the next several

months.

So let’s take a closer look at December. The tornado in Kentucky was a very significant event for the

region. It forced us to shut down Sophie and Marie for about four days. Most importantly, all our

employees and their families were safe. By the grace of God, they were safe and none of our equipment

was impacted. We felt a tremendous responsibility to the region to help ameliorate the effects of the

devastation that we saw around us and that we were fortunate enough not to experience firsthand. And

so we secured and funded the deployment of a two-megawatt generator for a wastewater treatment

facility in Mayfield to help our neighbors get back to normality. Also, we released our power back to the

utility to improve grid reliability as the area recovered its power. We did still manage to bring Sophie up

to 25 megawatts. And as I mentioned earlier, we pushed the Marie facility upgrades to the end of

January to get us where we were going.

 

So this slide helps break down the economic impact of the tornado on December site-level economics.

You’ll see that for Sophie, in terms of contribution margin, was about $100,000. For Marie, it was about

$34,000, and that gives us a proforma combined income of 2.138. Edith obviously was not effective since

it’s not in the region. So our annualized cash contribution margin would have gone up in December,

regardless of the impact of the tornado on Marie and Sophie. And again, that was driven by the

significant increase in proprietary hashrate from November to December. I would expect the same kind 

of scaling will continue as we nearly double the proprietary hashrate over the next several months.

This just goes over some of the detail in our facility, which I mentioned. We’ve got about 9.7 petahash at

Edith, continues to produce solid results for us. Sophie, fully energized by the end of the month. It’s got

over 206 petahash by January 14th. We did mention that Marie, we’re upgrading the site’s infrastructure

to get us from 21 to 25 megawatts. That’s important as we scale up and that’ll be done at the end of

January. I think we have a rubric that the power company has guide us towards to finally close the facility

deal for Marie. We continue to operate there as if we owned it, but I’d like to get that transaction behind

us. I expect that it’ll take several more months, but we’re well on the way and have a solid framework to

get this done and behind us.

 

So let’s get into some of the results for December 2021. You’ll see here, the cash contribution margin

was about $2 million. Not including the effect of the tornado in December, including the proforma effect 

of the tornado, it was 2.138. You’ll notice that we have continued to scale our business here. These are 

some of our operating statistics. You’ll notice here, I’ll call out the November and December average BTC 

price went from 60 to 49. Edith continues to perform well for us. Again, with the decline in crypto 

pricing, that did affect revenue and contribution margin, but I would expect that at this point, it’s a 

mature facility and continues to be a reliable cashflow producer for us. This is some of the details on 

Sophie’s performance. The facility fully powered up by the end of December, and we expect miners to be 

plugged in as they arrive. This is Marie’s results. We continue to scale that facility as the legacy hosting 

customers roll off, and we expect that to be completed by the end of the first quarter. Our JV continues 

to be very strong performer for us.

I’d like to thank you for joining us for this December 2021 Flash Report. Following is our appendix with 

more details and more information. Again, I hope you join us on Wednesday when we release our 

earnings power illustration, and look forward to receiving your questions and comments both on this 

presentation and on Wednesday’s presentation. Thank you for all of your support.

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