Applied Blockchain Continues With Crypto Mining IPO Trend

Nov. 29, 2021 2:26 PM ETApplied Blockchain, Inc. (APLD)1 Comment2 Likes

Summary

  • Applied Blockchain has filed to raise $75 million in a U.S. IPO.
  • The firm provides cryptocurrency mining and co-hosting services in Texas.
  • APLD has only recently begun recognizing revenue, so is still at a very early and speculative stage of development.
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Bitcoin ASIC miners in warehouse. ASIC mining equipment on stand racks for mining cryptocurrency in steel container. Blockchain techology application specific integrated circuit units storage

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A Quick Take On Applied Blockchain

Applied Blockchain (NASDAQ:APLD) has filed to raise $75 million in an IPO of its common stock, according to an S-1 registration statement.

The firm provides co-hosted mining services for a variety of cryptocurrency mining companies.

APLD is still at a very early stage of development and has only recently begun to recognize revenue.

I’ll provide an update when we learn more information about the IPO from management.

Company & Technology

Dallas, Texas-based Applied was founded to develop a range of crypto mining services in the North American region.

Management is headed by Chairman and CEO Wes Cummins, who has been with the firm since 2007 and was previously founder and CEO of 272 Capital LP, a registered investment advisor that was sold to B. Riley Financial.

Below is a brief overview video of a large Bitcoin mining operation in the United States:

(Source)

The company’s primary offerings include:

  • Co-hosting services

  • Procurement

  • Construction

Applied has received at least $89 million in equity investment from investors including Xsquared Holding Limited and GMR Limited.

Management says it has signed deals with '4 customers which will account for the total available energy under the Amended and Restated Energy Services Agreement at our first facility and 85MW of energy at our second facility once built and able to provide such energy.'

The firm has developed relationships with SparkPool, GMR and Bitmain that it believes will provide it with 'a significant competitive advantage' in obtaining hard-to-find mining computers.

Applied’s Market & Competition

The global market for Bitcoin mining is currently in significant flux, with the recent bans on mining in China causing a large amount of that country's hashpower to exit the network while those operators look for a more suitable location.

The market value for mining depends on the price of Bitcoin, since the majority of value going to the miner is a function of the current Bitcoin reward rate of 6.25 Bitcoin per successfully mined block.

At a price of $50,000 per Bitcoin, the annual mining rewards for the entire industry would be approximately $16.425 billion.

Major competitive or other industry participants include:

  • Bitfarms

  • Argo Blockchain

  • DMG Blockchain

  • Hive Blockchain

  • Hut 8 Mining

  • HashChain Technology

  • DPW Holdings

  • Layer1 Technologies

  • Riot Blockchain

  • Marathon Patent Corp.

  • Others

Applied Blockchain Financial Performance

The company only recently began mining operations and its financial results can be summarized as follows:

Total Revenue

Period

Total Revenue

Three Mos. Ended August 31, 2021

$ 612,000

FYE May 31, 2021

$ -

Gross Profit (Loss)

Period

Gross Profit (Loss)

Three Mos. Ended August 31, 2021

$ 263,000

FYE May 31, 2021

$ -

Gross Margin

Period

Gross Margin

Three Mos. Ended August 31, 2021

42.97%

FYE May 31, 2021

--%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Three Mos. Ended August 31, 2021

$ (12,795,000)

FYE May 31, 2021

$ -

Net Income (Loss)

Period

Net Income (Loss)

Three Mos. Ended August 31, 2021

$ (14,097,000)

FYE May 31, 2021

$ (568,000)

FYE May 31, 2020

$ (263,000)

Cash Flow From Operations

Period

Cash Flow From Operations

Three Mos. Ended August 31, 2021

$ (1,435,000)

FYE May 31, 2021

$ (83,000)

(Glossary Of Terms)

(Source)

As of August 31, 2021, Applied had $28.9 million in cash and $6.1 million in total liabilities.

Free cash flow during the twelve months ended August 31, 2021, was negative ($16.1 million).

Applied Blockchain IPO Details

Applied intends to raise $75 million in gross proceeds from an IPO of its common stock, although the final figure may differ.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

The firm’s stock is quoted on the OTC Pink market. The company is deemed a shell company ‘as defined under Rule 405 of the Securities Act of 1933, as amended. As such stockholders cannot rely on the provisions of Rule 144 for the resale of their shares until certain conditions are met.’

Management says it will use the net proceeds from the IPO as follows:

We currently estimate that we will use the net proceeds from this offering as follows: to purchase or lease additional property on which to build additional co-hosting facilities, to construct those facilities, to enter into additional energy service agreements for each additional site and to fund our working capital and general corporate purposes, including the costs of operating as a public company.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says the company is not involved in any legal proceedings.

The sole listed bookrunner of the IPO is B. Riley Securities.

Commentary About Applied’s IPO

APLD is seeking public market funding for further build-out of its co-hosting facilities.

The firm’s financials show revenue just beginning to be recognized while there are significant uses of cash to acquire mining and related equipment.

The market opportunity for providing Bitcoin mining services is large and expected to grow if the price of Bitcoin increases.

B. Riley Securities is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (16.8%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

B. Riley also led the recent IPO of Bitcoin mining company Stronghold Digital Mining (SDIG).

The primary risk to the company’s outlook is the variable price of Bitcoin and other cryptocurrencies which in turn may impact the demand from co-hosting customers.

While the firm is still at a very nascent stage of development, when we learn more about the IPO’s assumptions, I’ll provide a final opinion.

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This article was written by

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investing in IPOs can be a volatile and opaque endeavor. My research is focused on identifying quality IPO companies at a reasonable price, but I’m wrong sometimes. I analyze fundamental company performance and my conclusions may not be relevant for first-day or early IPO trading activity, which can be highly volatile and unrelated to company fundamentals. This report is intended for educational purposes only and is not financial, legal or investment advice.

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