Soluna Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 1 speakers on the call.

Operator

Hello there and welcome to Saluna Holdings Q3 Results and Business Update. I'm John Beliziere, CEO of Saluna. And I'm going to take you through our Q3 results and give you some updates on our key operations for the last quarter. Before I begin, I'd have to read our legal preamble. The following content is completely qualified by the legal Disclosures on the slide following this one.

Operator

Our goal is to share with you some of our 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. We operate in a hyper dynamic economic environment, And that's a fancy way of saying things change quickly. What we are telling you here is based on our estimates and assumptions, which are our best guess, and 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 must plan and We make operating and investment decisions, and this presentation lays some of that out for your review.

Operator

Legal disclosure and disclaimer. Let's take you through a quick company overview. I know some of you know Soluna very well, but we're often getting new shareholders added to our shareholder roster here, new fans of the company and investors. So I'd like to take everyone through a quick overview of the business. What do we do?

Operator

We take excess energy from renewable energy sources and we buy the curtailed energy from those sources and plants and we convert it to clean, low cost global computing. What we mean by that primarily today is Bitcoin Mining and we do that from a proprietary mining and hosting perspective, but we also are going to be expanding into the high and Computing Space and Specifically AI. The reason we focus on this is because there's a big un Spoken problem in the renewable energy space, about $6,800,000,000 is lost every year to Wasted Energy, it's a big unspoken secret in the renewable energy space. Our goal is to build a Capability, a solution that's available now to solve that problem and reduce curtailment to 0 on a global basis. We do that essentially by building data centers behind the meter that combine with existing power plants and allow them to monetize that wasted energy.

Operator

Here's an example of a data center project that consumed where we consume renewable energy, it's 150 megawatt site. As you can see in the far left, the company deployed the or energized the facility in 2016 and consistently over the ensuing years, Curtailment has increased upwards of 40%. And this is something we see very often, 30% to 40% of the power and renewable energy sites never to the grid. By adding our data center, starting with 50 megawatts, we could reduce that by half at Wasted Energy. And as we begin to grow our data center upwards to the matching the wind farm, we can virtually eliminate that curtailment.

Operator

That's the value proposition for wind farms and solar plants in all parts of the country. Our configuration is we build our data centers Behind the meter integrated with the substation, it allows us to source power from the grid and allows us to then build out a whole infrastructure that connects our facility to the substation and expands our footprint at that location, building an entire farm of data center facilities at that location. And that data center becomes a digital battery to some extent for the wind farm or solar farm absorbing that wasted energy. And as a result, it gives us access to very cost effective power and a lot of it to power our data center operations. We source that power from 3 places, curtailed energy, subtractive energy and grid energy.

Operator

And we have advanced technology and software that allows us to source the power from those 3 different locations. Curtilled Energy, we purchased at a fixed price, subtractive energy, that's the energy that we would use from the wind farm or solar farm before it would go to the grid. When it's not curtailed, We pay that nodal price for that. And then grid energy, we buy it from the grid by having the Power come through that substation to our data center and then we pay the load zone price for that energy. Now, our data centers are not just Bitcoin mining facilities, they're super advanced technology.

Operator

We have spent a Great deal of time thinking about the thermodynamics of the site, quality build, the way we lay it out also manages the thermodynamics. We have technology that allows us to manage the site, diagnose maintenance and operate the site. It can ramp up and ramp down very fast. And we have a host of different support for enabling and processing a host of different type of compute. And this quarter, we also announced a whole host of new Improvements to the data center design that will be geared toward AI that we're working on.

Operator

But the point is that the facilities and the design is purpose built to efficiently convert wasted energy to high performance computing applications. And the configuration that we use at a particular site Our mixture of configurations is really driven by the type of compute we'll be supporting at a given project. This is powered all by software. So Maestro OS is our industry leading technology that allows us To manage the control of the site, we can completely automate the fans, PDUs, miners, power infrastructure and networking. We can enhance the Lifecycle and reduced failures of the facility by proactively managing activities at the site.

Operator

We can manage the operations. So we have dashboards that allow us to see real time tracking of miners and their level and Activity, if they're not hashing, we can triage them. This will be true also for the next generation of computing that we're putting in the facilities. And then more importantly, that slide I showed you earlier, where I talk about the different sources of energy, our software allows us to manage that as well, the power, the source of the power, the curtailment levels, etcetera, within the site. We are servicing a broad market.

Operator

Bitcoin is not the only one we're going after. We're going after AI as well. And Fact AI is clearly at our doorstep at this point, really showing us the potential that it can have for our platform because AI is growing at an exponential rate right now. It needs lots of space. It needs lots of energy and it really needs to be more sustainable.

Operator

And so our positioning is to really go after that market, position ourselves as a zero carbon cloud for these types of solutions. And so that's really going to be pivotal for us in the future here. Now, how do we make money? As a reminder, we make money in Two ways today, 4 ways in the future. We started out doing proprietary Bitcoin mining, And we started shifting our business earlier this year to hosting.

Operator

So we make hosting the primary part of our business, But we do some joint venture based Bitcoin mining in facilities where we have the best possible power and highest efficiency levels. And most recently, we've been able to do that by partnering with folks who can get access to highly efficient Bitcoin miners as well. In the future, we're going to be expanding in 2 new areas, grid ancillary services. We've been talking about that for a while. Last quarter, we filed our pre registration for ancillary services at the Dorothy site, and that is moving through the ERCOT process.

Operator

And we also announced, as I said, our Helix program, where we'll be designing facilities and data centers, And we have some strategic partnerships coming up as well, that will launch us into this whole new market. So, stay tuned. You'll see how that all comes together in the coming quarters as well. Now, how do we bring all of that together to a powerful flywheel. Why do we see the company as a platform?

Operator

It's because we've become really good at sourcing low cost curtailed power from IPPs. We can build these facilities in a very cost effective way, and we designed that bill to return capital in 2 years approximately. We use that new asset that we've built that will be owned by us for a very long time, right? These assets run 20 years or plus, And we can attract hosting customers and then hosting customers for Bitcoin. And then down the road, we'll be able to attract high performance computing customers, AI customers.

Operator

We can turn that large computing facility that's highly flexible, managed by our Maestro OS system into a grid asset, a grid resource where the grid needs power or the grid needs us to ramp up our consumption because it has excess energy. We can monetize that behavior through a host of different ancillary services. Those 2 or 4 revenue streams, if you will, allow us to grow our EBITDA, our earnings power, our profit, our cash, which we can then reinvest in the business that allows us to then grow our Project pipeline, which allows us to generate new projects, attracting more capital for development, giving our assets under management growth potential, Lots and lots of headroom for growth. And then we cycle that around to more access to low cost power, which allows us to build more sites, etcetera. And you see how the flywheel continues to grow and expand.

Operator

That's really the Soluna way and the key differentiation in the way that we build our business. Now I'd like to shift to operational highlights for the Q3. Very quickly, looking at our key operating metrics, this is Through the end of October, our megawatts under management is 75 megawatts. That's what we have today, and we have that fully ramped today. So that's what's exciting about Q3.

Operator

We reached the sort of close to final full ramping, but in this quarter that I'm talking to you now, we're fully ramped. We are able to grow to 291 Megawatts, and we will be able to do that through a host of different project level partnerships that we're putting together That's focused on expansion of our flagship project and our new project, Katy. We have 2.6xahash installed across all of our sites. We have an average power cost of $30 Per megawatt or less, most of our sites are below that. And we've been talking about something new and exciting, and that is curtailed energy Soon, I've talked about the fact that our core business is about consuming wasted energy.

Operator

More importantly, it's the amount of energy that we've monetized So we take curtailed energy and monetize it. So we've consumed over 4,000 megawatt hours. And Folks can use chat GPT to figure out what that relates to and perhaps real life terms, but 4,000 megawatt hours is probably close to a 1,000,000,000 iPhone charges. Now there's a power usage efficiency that is at the heart of what we do, Right? We essentially convert almost precisely the amount of energy we consume to computing.

Operator

And so our cooling cost is very efficient using only the power of physics. We deployed Lots of miners last quarter as well, over 23,000 minuteers were deployed And we had an average joules per terahash. The efficiency of the miners was over well below 30 joules per terahash as well. And that's important as we go into the halvening. The most efficient machines will be the machines that stay online.

Operator

The most optimized power costs and power footprint will be important as well. And so, when you look at our business, it's very strong and well architected for the future. Now I'll quickly take you through the sites. Here's Project Dorothy 1A, 950 petahash, it's wind powered 1.01. LCOE or power cost, if you will, is below $27 and that's our Spring Lane partnership in this site.

Operator

And we've consumed about 2,500 megawatt hours of curtailed energy. 1B, very similar. She's just coming online here and 60816 petahashes per second, wind 1,502 Megawatt Hours and LCOE about the same. This is our proprietary mining facility. 1A is hosting, reminder, 1B is prop mining, and we have a partnership with Navitas Global here to do a JV around Proprietary Mining.

Operator

Project SOPHIE is our 1st flagship site in Kentucky, 25 Megawatts, 844 Petahash here, 1.02 on the power on the PUE. And this is hydro grid. This is on grid site. This was our first Site design and implementation of our new thermals and we tested Maestro here and then scaled that implementation at Dorothy. Now I've made mention to our pipeline a few times.

Operator

I want to quickly walk you through that. So Dorothy 2 is our flagship expansion project. We're going to take Dorothy and double the size of that project to 100 megawatts. And we recently announced that we'll be doing hosting and AI at that site. We're also I'm in planning phases, so we're beginning to prepare for beginning to construct this new project in the first half of next year.

Operator

Now Project Katie, we also announced in the fall. This is a great new project, very similar to Dorothy, but bigger. Katy is a 166 Megawatt facility named after Katy Carico, the Nobel Prize winner, who is responsible for a host of new RNA vaccine therapies. And This is co located with a 300 megawatt wind farm, one asset of a host of assets associated with one of the most successful renewable energy players in the industry. Now, in addition to these projects, we have a host of different Projects that we're focusing on, we added about 500 megawatts to our long term pipeline.

Operator

So that puts us well over 2 gigawatts of long term pipeline that we can source from, are developing and maturing that we will start to build out as we have the capital and partnerships to do so. Now let's get into the financial results for this quarter. As I've been hinting at, we had 4 key focuses this quarter energizing Dorothy, managing our cash flow and bringing expenses down, expanding our flagship facility and also growing our pipeline. And I'm very happy with The team's execution over the last 3 quarters, the last 6 months have been Really challenging, grueling. We were doing a lot of things, transitioning the business, dealing with the hot weather in Texas, New site coming online, finishing construction, attracting new investors, reorganizing the company and the business, investing in new technology, etcetera.

Operator

And the results are beginning to show the value of what we did there in that timeframe. So if you look at this look here of our financials, it's our year to date 2023 Q3 Look, it shows you essentially the first three quarters of The business, to give you a sense of the growth and potential, essentially illustrates the significant positive impact that the Strategic shift from cryptocurrency mining to data hosting has had on our financial results. During the Q1 of 2023, approximately, Call it, 91% of our revenue came from cryptocurrency mining, generating a negative profit of $67,000 so just shy of profitability. We made a significant decision to diversify our revenue from one source, primarily from the cryptocurrency or proprietary mining to a makes us more heavily weighted on data hosting. And judging by our Q3 results, we definitely made the right decision.

Operator

If you look at the 3rd quarter results, implementing the change was not a trivial transition, by the way, as we were working through these past few months, but much of that transition work occurred during the Q2 and the Q2 results reflect the impacts of the Shift, right, our total revenue declined. So we went down by 33% from $3,000,000 to 2,100,000 Our gross profit declined from a loss of $67,000 to a loss of $390,000 While the Q3 was still a transition quarter And Project Dorothy 1B was not fully ramped up, but not in other words, not fully construction complete and ramped, but we were very pleased with the results. Total revenue increased by 180 percent from $2,100,000 to $5,800,000 and gross profit improved from a negative $390,000 to a positive $1,400,000 an amount sufficient to lift our year to date results at the end of the Q3 to $10,900,000 in total revenue and $1,000,000 of gross profits. So If you look at it from that perspective, we've come a long way since last year. The business is turning.

Operator

We're coming around the corner, if you will. The team is executing well. Our model is working. We're expanding into new markets. And that's all very exciting as a team and a company, and I'm very proud of the organization.

Operator

Here's a graphical look. As you can see, the blue is crypto mining and the red orange His data hosting and revenue, and you can see the shift quarter over quarter as we're beginning to grow the data hosting business And focusing on these higher margin activities are our cryptocurrency mining, the joint ventures we're doing are also highly profitable and also structured around the projects that are most efficient from a power perspective and flow into some of our new projects that we're working on. The rest of the slides, as you see in the attachment, are snapshots from our 10 Q. You see our balance sheet. Our cash remains strong, north of $5,600,000 last quarter was in the 7s of unrestricted cash.

Operator

And if you combine Restricted and unrestricted, it's well over $10,000,000 and that continues to be the case. And from an operating Perspective, you're seeing a reduction in net loss year over year in this look. And if you look at the EBITDA table here, we're very proud to say that year over year, we are Adjusted EBITDA positive of $405,000 So it's a pretty significant shift in the business. In fact, this is the first time we're EBITDA positive since I believe the Q2 of 2022. So the business has really shifted and turned around and it's a strong business, As I said, and we have lots of potential for continued growth as our team continues to execute going forward.

Operator

Thank you for taking the time. I appreciate you listening in on this summary of our Q3 results. If you want to Get in touch with me or the Soluna team. Please reach out to us on Twitter. We're at Twitter we're at salunaholdings.

Operator

We're also on LinkedIn. Just go to the company page. We're Soluna Holdings. And please, if you haven't joined our newsletter, please follow the link below to join our newsletter. We give updates, insights, great articles all the time.

Operator

We appreciate the patience of our shareholders as we Transition and continue to grow our business and generate a strong shareholder value and Always open to your comments and feedback, and we'll be in touch. Thank you.

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Key Takeaways

  • Soluna has shifted from proprietary Bitcoin mining to data hosting, driving Q3 revenue up 180% to $5.8 million and delivering a $1.4 million gross profit, with year-to-date revenues of $10.9 million and adjusted EBITDA positive at $405 000.
  • Operational capacity reached 75 MW under management, with 2.6 EH/s installed, deployment of over 23 000 miners at under 30 J/TH, and consumption of more than 4 000 MWh of curtailed renewable energy at an average power cost of $30/MWh.
  • The company’s behind-the-meter data centers convert up to 40% of renewable energy curtailment into high-performance computing, effectively acting as a “digital battery” and securing low-cost, sustainable power for Bitcoin and AI workloads.
  • Soluna’s project pipeline expanded by over 500 MW this quarter, bringing its long-term pipeline to more than 2 GW, including the 100 MW Dorothy 2 expansion and the 166 MW Katy facility for hosting and AI services.
  • The firm is diversifying into grid ancillary services with an ERCOT pre-registration at its Dorothy site and launching its Helix program to position Soluna as a zero-carbon cloud provider for AI and other high-performance computing markets.
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Earnings Conference Call
Soluna Q3 2023
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