Soluna Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. The filing retrospectively reflects the October 13, 2023 one-for-25 reverse stock split.
Business context
Soluna develops and operates data centers co-located with renewable energy resources. It earns revenue from cryptocurrency mining and data hosting. During 2023, it shifted Project Sophie from proprietary mining to hosting, closed Project Marie, and brought Project Dorothy online. The company reported 75 MW of operating capacity across Sophie and Dorothy, with further projects in its development pipeline. MTI Instruments was sold in 2022 and is reported as discontinued operations.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5.80 | $6.37 | $10.95 | $24.36 |
| Cryptocurrency mining revenue | $1.79 | $5.39 | $5.50 | $20.70 |
| Data hosting revenue | $4.01 | $0.99 | $5.45 | $3.67 |
| Gross profit (loss), derived | $1.41 | $(4.82) | $0.95 | $(5.79) |
| Gross margin, derived | 24.3% | (75.6%) | 8.7% | (23.8%) |
| Operating loss | $(3.74) | $(41.72) | $(17.82) | $(57.95) |
| Net loss | $(6.02) | $(56.16) | $(22.71) | $(71.63) |
| Net loss attributable to Soluna | $(6.66) | $(55.89) | $(22.50) | $(71.36) |
| Adjusted EBITDA (non-GAAP) | $0.41 | $(3.60) | $(4.50) | $(2.49) |
Revenue fell 9% year over year in Q3 and 55% for the first nine months. Hosting growth partly offset sharply lower mining revenue. Q3 operating results also benefited from substantially lower fixed-asset impairment and depreciation than in 2022; Adjusted EBITDA remained negative year to date.
Cash flow, liquidity and debt
- At September 30, cash was $5.63 million and restricted cash was $4.43 million; restricted funds are not generally available for operating use. Working capital was negative $13.18 million.
- Nine-month operating cash outflow was $4.40 million; investing cash outflow was $10.12 million, including $12.53 million of capital spending. Financing provided $22.75 million, including $19.71 million of contributions from non-controlling interests. Cash and restricted cash totaled $10.05 million at period end.
- Balance-sheet current debt was $9.05 million, long-term debt $1.05 million, and convertible notes payable at fair value $10.80 million. The company separately reported approximately $8.0 million of NYDIG loan principal and $810,000 of accrued interest and penalties; it disputes approximately $500,000 of NYDIG’s stated balance calculation. Convertible-note principal was approximately $12.2 million, with a July 2024 maturity after amendments and conversions.
- The Navitas project loan carried 15% interest and approximately $2.17 million of principal and capitalized interest at quarter end; $1.08 million was classified current and $1.05 million long term. The KeyBank line of credit had been fully repaid.
- Series A preferred dividends had not been declared since October 2022; approximately $6.9 million was in arrears. Series B’s approximately $657,000 dividend was settled in August 2023 with common shares and prefunded warrants.
Material changes, outlook and risks
- Operating mix: Sophie transitioned to hosting and Dorothy 1A generated hosting revenue following energization. Dorothy 1B was operating with proprietary miners. Marie ceased operations in February after NYDIG foreclosed on collateral and its hosting agreement was terminated.
- Financing and going concern: Management concluded substantial doubt exists about Soluna’s ability to continue as a going concern within one year after issuance of the statements. The company cited recurring losses, negative working capital, operating cash use, debt defaults and the need for additional capital. Planned funding options include equity, project-level investment, debt, partnerships and asset sales; management gave no assurance that financing or other plans will succeed.
- Projects and strategy: Management described plans to develop additional renewable-powered computing capacity, including projects intended for AI workloads. These are plans, not assured results; the filing provides no formal revenue or earnings guidance. The company expects Bitcoin mining revenue to be exposed to Bitcoin prices and noted the expected April 2024 block-reward halving could reduce revenue.
- Debt and legal contingencies: NYDIG foreclosed on Project Marie collateral and is pursuing claims against borrower and guarantor entities; it has also indicated it may pursue SCI on a corporate-veil theory. A Nevada declaratory-judgment case was dismissed without prejudice as not ripe. Atlas sued over a terminated co-location agreement, seeking return of about $464,000 in prepaid fees and at least $7.9 million in additional damages; Soluna intends to defend the claims and recorded no reserve for the additional claims.
- Other notable items: The company recorded a $251,000 loss related to final accounting for NYDIG’s repossessed collateral and continues to dispute part of NYDIG’s calculation. A reverse split was used to address Nasdaq’s minimum bid-price requirement; Nasdaq notified the company of compliance on October 30, 2023. Management reported disclosure controls were effective at the reasonable-assurance level.
Most important facts for investors to verify
- Whether Soluna can raise sufficient capital to fund operations, debt obligations and project commitments, given the stated going-concern uncertainty and negative working capital.
- The final NYDIG debt balance, outcome of the disputed amount and scope of any potential claims against Soluna entities.
- Whether Dorothy and Sophie hosting arrangements deliver the expected utilization, margins and cash generation, and whether new project financing is secured.
- The status and potential financial exposure of the Atlas litigation and any other unreserved claims.
- The effect of convertible-note terms, warrants, preferred dividend arrears and equity-plan authorizations on future dilution and liquidity.
- Bitcoin price and network changes, including the halving, and their impact on mining economics and any profit-sharing hosting contracts.