Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stronghold Digital Mining Inc (NASDAQ:SDIG) announced a transformative merger with Bitfarms, expected to enhance growth and value for shareholders.
• The merger is anticipated to create a pro forma company with an energy portfolio exceeding 950 megawatts by the end of 2025.
• Stronghold Digital Mining Inc (NASDAQ:SDIG) has entered into hosting agreements with Bitfarms to enhance its Bitcoin mining operations, expecting to host 20,000 miners across its facilities.
• The company is leveraging its Scrubgrass and Panther Creek facilities to deliver low-cost power and support the local grid, advancing sustainability efforts.
• Stronghold Digital Mining Inc (NASDAQ:SDIG) is diversifying its business beyond Bitcoin mining by integrating high-performance computing capabilities.

Negative Points

• Stronghold Digital Mining Inc (NASDAQ:SDIG) reported a 35% decrease in Bitcoin production for the third quarter of 2024 compared to the previous quarter, primarily due to the Bitcoin halving.
• The company's total revenue for the third quarter of 2024 was $11.2 million, down 42% sequentially and 37% year over year.
• Stronghold Digital Mining Inc (NASDAQ:SDIG) reported a GAAP net loss of $22.7 million for the third quarter of 2024.
• The company experienced a non-GAAP adjusted EBITDA loss of $5.5 million during the third quarter of 2024.
• Stronghold Digital Mining Inc (NASDAQ:SDIG) has a principal outstanding indebtedness of approximately $53.7 million as of the end of the third quarter.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with SDIG.

Q: Can you elaborate on the strategic rationale behind the merger with Bitfarms? A: Gregory A. Beard, Chairman & CEO, explained that the merger with Bitfarms is seen as a transformative step for Stronghold. It offers an optimal platform to realize the full potential of their assets, accelerate growth, and build value for shareholders. The merger will result in a pro forma company with an energy portfolio exceeding 950 megawatts by the end of 2025, leveraging Bitfarms' expertise to enhance operational efficiency and integrate HPC AI with Bitcoin mining operations.

Q: What are the expected benefits for Stronghold shareholders from the merger? A: Gregory A. Beard stated that Stronghold shareholders will receive 2.52 Bitfarms shares for each Stronghold share, valuing Stronghold equity at approximately $125 million plus $50 million in debt to be paid at close. Upon closing, Stronghold shareholders will hold around 10% of the combined company, positioning them to benefit directly from the growth potential of the expanded platform.

Q: How did the Bitcoin halving impact Stronghold's production and financial results? A: Matthew J. Smith, CFO, noted that the Bitcoin halving on April 19th reduced the block reward from 6.25 Bitcoins to 3.125 Bitcoins, leading to a 35% decrease in Bitcoin production compared to the second quarter of 2024. This contributed to a 42% sequential and 37% year-over-year decline in total revenue for the third quarter, which amounted to $11.2 million.

Q: What are the details of the hosting agreements with Bitfarms? A: Gregory A. Beard mentioned two hosting agreements with Bitfarms to enhance Bitcoin mining operations. The first agreement involves hosting 10,000 Bitmain T21 Bitcoin miners at Panther Creek, with deliveries expected in November and December. The second agreement is for an additional 10,000 miners at Scrubgrass, with deliveries starting in late December or early January. Bitfarms will pay a monthly fee of 50% of the profit generated by the miners.

Q: Can you provide an update on Stronghold's financial position and liquidity? A: Matthew J. Smith reported that as of September 30th, 2024, Stronghold held approximately $5.1 million in cash and cash equivalents, including 10 Bitcoins. By November 8th, 2024, this increased to $6.7 million, including 4 Bitcoins. The company has $2.6 million in contracted receivables expected within 30 days and $53.7 million in outstanding indebtedness. Additionally, there is $3.4 million remaining under the ATM with no shares sold during the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.