Briefing Soluna Holdings. My name is John Roy. I cover Technology here at Water Tower Research, and I am very pleased to have John Belizaire. He is the CEO. Welcome, John. How are you doing?
I am doing great, John. Thanks for having me on this Insights conference. It is fantastic to be here, and it is also nice to see you. Haven't talked in a while.
Yes. No, definitely. You guys are definitely doing a lot of things, which we will be getting to. One thing I should mention before we get started is that you can see safe harbor statements for Soluna on their website. Also, investor questions are encouraged. Please enter them into the chat box and we will address them as soon as possible, and possibly in the follow-up management series report, which we will be doing. Those wishing to request a meeting with Soluna can go through the conference portal. With that, we will go ahead and get started on Q&A. John, how does Soluna convert standard renewable energy into computing power? That cer tainly is the trick of what you guys are doing. I am really curious as to, for those that don't know, how does it actually work?
Sure. Soluna builds data centers directly at renewable generation facilities or power plants that have excess or unused power. It is a little-known secret that over the last 20- 25 years or so, renewable energy power plants have been built out all over the world, and that overbuild, if you will, has resulted in this challenge where some of those power plants, upwards of 50% of their power, never makes it to the grid. We go to those locations and we build our data centers behind the meter. That means the campus sits on the same side as the substation of the power plant's own assets, rather than forming a new interconnection to consume the power. That approach, that behind-the-meter approach, is our core model.
Wind and solar plants, as I said, across ERCOT and other parts of the country, have large amounts of unused or potential energy that never makes it to the grid. The energy's already built, it's already clean, and it evaporates when it's unused and being on the wrong side of the transmission infrastructure. By bringing our load to that generation point where the power already is, that allows us to get access to an interconnection point to draw power from the grid and the power plant.
That essentially bypasses the need for new transmission, and that compresses the time from years, if we did this going to a point on the grid where we were forming a new connection, that can take years to months, about 18 months in Soluna's case, which greatly reduces the time it takes to get to that power, so speed to power, and lowers the cost of that energy. The pipeline that we have, which is pretty sizable these days, is dual-focused. We've got two workloads, if you will. One is different stages of a site's life. One is building a data center that essentially does one form of compute, and now we're shifting to building a data center that does a new form of compute.
The core thesis for our business is essentially that by taking this approach, we can get access to power faster, use that power to power AI, HPC, and Bitcoin hosting, what we do today. We have 206 MW of this model operating today, and we have over 6.3 GW in a total pipeline that we're developing in various stages.
Excellent. Thanks for that overview. I think you did a deal with Bitdeer not too long ago. Was curious as to how that's going and what kind of operational capacity you think you're going to be dedicating to that effort.
Yeah, you are right. This summer, we announced a deal with an affiliate of Bitdeer Technologies. We are going to be deploying approximately 28 MW of Bitcoin equipment at Project Kati 1. That is the Bitcoin side of the Project Kati site. I think that is about close to two exahash. The deployment begins, actually, it is beginning this month, and it is going to be ramping in batches in the site's K1BC phase. What is notable about this particular structure is that it is a co-mining agreement, which is new for our Bitcoin platform. Soluna essentially provides the site, the power, and turnkey operations. Bitdeer provides its own miners and Pro Air equipment, and then we share in the proceeds from the mining operation. So a big shift from our fixed-fee model. Under co-mining, we participate more directly in what the infrastructure produces, which means more exposure to mining economics and, of course, the upside of that.
The key is that we are monetizing those megawatts for our platform and the partner. On Kati 1 more broadly, just a reminder perhaps for folks, it is an 83 MW wind-powered site in Willacy County, Texas, and it is delivering its first gross profit in the second quarter. We have provided a host of expectations on the size of the footprint, but we do not talk about revenue expectations. We expect it to be a pretty robust partnership at Kati 1.
Excellent. You also acquired some land recently, about almost 400 acres for Project Dorothy 3 , I believe.
I was curious as to the thinking behind that, and maybe some color on. That is going for AI computing, I assume?
It is. Dorothy 3 is the second AI campus we are developing in our pipeline. The first is Kati 2. It is the site across the street from Kati 1, the project I referred to earlier. Dorothy 3 is planned to be upwards of a 300 MW campus. Over the second quarter, right at the start of the second quarter, we completed the vertical integration of Dorothy 1 and 2. There, we acquired the wind farm that powers the Dorothy projects on April 1st. Then we brought out all of our partners at Dorothy 1A and 1B, so we now own the generation and the computer across all of those 50 MW of Dorothy 1. The 390 acres that you refer to, 390, give or take, plus acres that are under contract and closed on the acquisition of that, support the initial build-out of Dorothy 3.
Like I said, it is going to be over about 300 MW of AI HPC capacity. The master planning is underway. Design teams are mobilizing. We are starting to invest in some long-lead equipment procurement that is required for this type of project. We have launched environmental surveys and fiber studies for the site. Once that is complete and some of the design work is complete, we will start to market that site to potential customers. Having the land makes it clear that we have true control of the site. It is not a speculative activity. We plan to develop it. From a customer's due diligence perspective, evaluating the site, those are two of the key questions they initially ask. How fast can you reach power? What does the energy cost look like? We will say we own the wind farm.
What makes the energy cost an asset question rather than a negotiation is sort of the position of what we are. It also gives us the ability to address any questions around the project schedule and plan to deliver a data center RFS for that customer. Dorothy 3 is really a signal around the transformation that the company is going through. We are pretty excited about that.
Yeah. A more vertical, more synergistic approach where you have a lot more control.
Yeah.
That definitely answers a lot of worrisome questions people could certainly have before they sign on the dotted line.
Yeah. From an operator's-
Sure. Go ahead.
Sorry, John. From an operator's perspective, it's really about we're changing the business that we're going to be in. We now have integrated campuses where we own the power. We have control of the land generation interconnection, and the computing infrastructure.
Great. Now, in the second quarter you saw, the past second quarter you just reported, you saw excellent revenue growth. I am curious as to what you can tell people about the rest of this year and into next year in terms of revenue. Also, as the revenue grows, which I think it will, are you going to see the bottom line also improve in terms of either gross margin or EBITDA, et cetera?
Sure. Well, first of all, let's talk about the last quarter. You are right, it was a banner quarter for us, probably one of our strongest to date. It is year- over- year. Sequentially, I think we increased 60%. Year- over-y ear, we increased 145%. Revenue was about $15 million last quarter. It is our fifth consecutive quarter of sequential growth, so we are continuing to expand the platform, grow the business because we deploy more projects. As those projects ramp up they expand the revenue base as well. Beginning this quarter, we did some other stuff related to pass-through revenue costs and gross margin basis, which adds roughly $4.4 million to both revenue and cost of revenue. So we excluded that from some of the presentations we put out there.
Your question about the future, while we cannot give revenue projections here, what we can provide is an insight into how the business will take shape going forward. A, we have, as I said earlier, 206 megawatts of Bitcoin mining operating here, and that is hosting. So we have a number of contracts there across our fleet. We have added the Bitdeer project, so that is going to help to increase revenue and profits in the coming quarters. In addition to that, we will be building, hopefully at least two AI data centers in the coming months. Those data centers will each be upwards of 100+ MW . Every 100 MW adds about $100 million- $180 million of net operating income to the company.
If we can complete this transition, I should say when we do, and energize those facilities, which Kati 2, we are focusing on getting it up and live the end of 2027, beginning of 2028. That will begin to add significant amounts of revenue and profits that dwarf what we have been doing on the Bitcoin side. So the combination of those two businesses has a materially positive effect on the future complexion of the company's P&L.
Yeah. As kind of a follow-on to that, for 2027, do you have any expectations to split between AI, HPC, and Bitcoin in terms of revenue?
Well, if for example, we stood up those two projects, they would be about the same size as our current footprint. Bitcoin revenue will certainly grow significantly from the base we've had last year, and that will depend on Bitcoin price and volume. But the revenue coming from the AI data centers in the next 18- 24 months will certainly be multiple times, I'd say about three times, what the Bitcoin side is today.
Excellent. Now, obviously, Texas is where you do a lot of your operations, and then they've been having some looking into regulatory setup there. Maybe you could give us some color on what's going on. I believe you guys are pretty well-positioned for this.
Repeat the question, John.
The Texas regulatory environment and the audits, et cetera, I believe you guys are pretty well-positioned for that. That is ongoing, and I do not know if it has ended or if it is going to continue all along or not.
Yeah, good question. In August, I believe it is August, time is going so fast these days. Governor Abbott directed the PUCT and ERCOT to audit every data center in the interconnection queue before approving those new projects. I think it was roughly 474 GW of pending requests. It is about 90% of the data centers out there. For most developers, that introduced a pretty significant amount of schedule risk. Since the audit was announced, both Project Kati, 166 MW, and Dorothy, the full 100 MW there, have been conditionally accepted as base load, which is a huge positive development for us. Can you guys hear that?
No, we are not hearing anything in our background. Are you getting feedback?
Okay. Got a really loud military aircraft, I think, flying over where we are.
Okay. Well, I can re-ask the question and-
Yeah, why don't you re-ask the question on this one-
Yeah.
-because-
Yeah. Okay.
-there's a long pause there.
No problem. Christian, we're going to take a pause, and I'm going to re-ask the question. Hopefully, his military flight that's surveilling him is going to be gone.
Yeah. I must be getting surveilled or something.
I got it. I marked it.
All right. On the regulatory front, obviously things are happening in Texas. Can you give us some color on the situation there with this audit and how you guys are doing, making progress with it?
Yeah, John. In a nutshell, we're doing great. Governor directed the ERCOT and PUCT to audit every data center in the interconnection queue in Texas and said, "Until we audit these folks, we can't approve those new projects." You're talking about roughly 480 GW of pending requests. For most developers, that's a huge risk, and many are still finding their way through that process. But since that announcement, since the entire sort of process kicked off, both of our key projects, Kati and Dorothy, have been conditionally accepted as batch zero base load. That's the clearest read available on how our model performs under the new scrutiny, because a lot of what the judge was asking for and screening for, we already do, right? He says data centers should not put pressure on the cost of transmission. We don't because we build our own transmission.
Shouldn't use a lot of water. We don't. We use minimal water or no water in our facilities. Should fund your own electrical infrastructure. We do. We build all the wires that interconnect to the substations to the wind farms we use. We made those decisions five years ago because that was the approach we wanted to take. Our data centers needed to be an addition, a helper to the grid, a servant to the grid, not a burden to the grid. That's what's making our behind the meter project strategy work. Our broader exposure is therefore limited for the same reason. Roughly 146 MW of our Texas capacity is already energized. Actually, it's 206 now. Both of the AI campuses built off of adjacent energizing infrastructures. The power that we're using is wasted normally.
We're pulling that in so that doesn't add more power need burden to the grid. Of course, we're cooperating with the agencies that will be involved in the audit. I would say that we're faring pretty well in that somewhat challenging environment, specifically because of the model that we approach.
Excellent. Now, obviously, your competitive advantage is always being eyed by the competition.
Right.
I was curious as to, what are the kind of things you're doing to make sure you can remain ahead of those that want to also go behind the meter, et cetera?
Well, I think the strategy that we've taken over the last five years has been to build a strong brand in the renewable energy space. Our power partners, which are in a way sort of our customers for wasted energy mitigation, that's what our projects are really doing, they're eating up unused energy, is to develop deep relationships with these very large infrastructure funds. If you look at our pipeline, the owners of the projects are some of the largest infrastructure and pension funds in the world, and they don't do business with anyone so easily. We've built a brand and a reputation for very good execution, a structure that works within their capital stack and environment, and we've been able to be great members of the communities that we're based in.
Those things give us a very powerful leg up when it comes to folks looking to replicate our model. We also have technological differentiators that allow us to make, quote unquote, "the data center work behind the meter." We also have structural and business model approaches that crack codes on really hard problems you have to solve for making this all work. We feel pretty confident that what we do is hard enough for others to just wake up one morning and try to replicate it.
Excellent. Maybe one final question. What do you feel like investors are not really understanding in your story and where you're at in the progress of building your company?
Most investors are underwriting investments in companies that want to be data center development companies, and assume that they're all sort of chasing power in the same place to build their businesses, going to places where there might be grid interconnections or available energy and building interconnections. They assume that that's the only way to find power. Whereas here at Soluna, we're taking a completely lateral approach to sourcing power. We're going to places where power is hiding in plain sight, at these places at power generation facilities where power is abundant and to some extent wasted. Up to half of the energy of these power plants goes wasted. There's plenty of land around them. By doing this behind the meter approach, we get access to existing interconnections that essentially allow us to build a compute platform converting that power to revenue.
This approach is a unique one. Unless you know power, unless you are aware of this type of power issue, then you're assuming that Soluna is doing what everyone else does. But in fact, we're not. We're doing something unique, that unique approach gives us access to abundant amounts of energy at a much faster speed, which is the primary product that customers in the AI and hyperscale market are looking for. It also gives us the ability to scale that platform over time. Once we do one project, it feeds on the other, which allows us to build more data centers over time with a prescribed visible pathway to scale. The last thing they might be missing is that we've never been a Bitcoin miner.
We've always been a Bitcoin hoster, where we take this power, convert it to hosting space for customers to come and lease the building and place their compute. We're applying the exact same model to AI. It's just a different compute, different type of building, different type of customer. We're essentially doubling down on what we've become really good at, which is finding power in places where you wouldn't normally look, converting them into multi-hundred million dollar to now multi-billion dollar assets that will drive a tremendous amount of growth and shareholder value over time.
Excellent. Well, John, we're running out of time here. I want to thank you for participating today. Good to see you again, as always.
Thanks, John.
For those who want more information on Soluna Holdings, you can certainly go to our website, www.watertowerresearch.com, and look at our reports on the company. If you would like to submit additional questions or arrange for a meeting with management, please use the conference portal. Our next Water Tower Research Insights conference session will begin shortly. Please stay with us.