Why KEEL Stock Crashed 20% After Earnings

Kiel Infrastructure reported Q3 earnings this morning and the market's response was brutal. The stock is down almost 20% now to a 14-month low.

So, what happened? On paper, not very much went wrong.

First, what's going right? Their revenue actually beat estimates. They've got about $780 million in cash, and they broke ground at Moses Lake in Washington.

They were also successful at exiting Bitcoin. Their entire treasury is basically gone, which they sold for $192 million. Also, what's going right? Kiel's power pipeline keeps getting bigger.

Kiel has 478 megawatts secured across its three near-term sites. And they're setting expansion at two Pennsylvania sites, up to 500 megawatts at Panther Creek and up to 1.3 gigawatts at Scrub grass.

If those two pan out, capacity roughly quadruples to about 2 gigawatts and they expect the uh results on that in Q1 of next year. But here is the problem.

Earlier this year, Kiel told investors to expect leases signed at 2026, specifically three leases. It's November. There's no lease announced. On the call, management this morning said they will not give a date, which everyone reads as they will not have three tenants signed.

Will, the promise last spring was that Kiel would have three leases signed. Everybody's frustrated about it. Is Kiel about to finish the year with nothing signed?

It looks like they don't have anything uh to be signed as of now, uh looking at their earnings. We'll have Ben Gagnon on the show here soon, maybe ask him about that. I think you do have to think about where these projects are at though and rationalize it a little bit. Their cash position still pretty solid. Yes, they're burning more cash and they're done with Bitcoin mining. So now we are waiting for HPC revenue to come in. But there are some significant things that have gone well over this short-term period, right? Despite not having three leases.

One, the Moses Lake news this morning that they cleared some permits, they're going to be able to move that faster. I think they're expecting revenue in 2027 for that. And then the Pennsylvania sites are moving forward despite the delays.

I think like that three, not to be like a defender here of Kiel, I think that that three sites thing was it was perhaps not the best thing to have said at the time, but it was during a different part of the market, right? The market was really hot. There was a lot of expectation for being signed, a lot of deals were closing. It's very possible that these deals were moving towards being closed. And then everything kind of changed with the summer, June, July, big sell off.

Uh we also saw like the heat of the anti-data center movement kind of take off where there was a lot of frustration at the time. We saw Governor Ben Shapiro of Pennsylvania put out an executive order changing some of the rules for data centers building in the state, which previously been very pro data center and then it became not necessarily anti-data center, but they certainly put about a large bar on what it meant to be a responsible developer there.

At the time Kiel said, hey, we're going to meet these. and it looks like they are. They have I believe three or four the permits done. They have another three or four to go to be able to get there. So in the meantime, we're just waiting on permits to be signed, get those done and then I think they can move towards leases. Last thing I'll say Charlie is any state that's not any data center that's not in Texas looks a little bit better now, right? Like

we know the rules of the road for Pennsylvania. They already have the executive order. Uh Governor Shapiro won his re-election. I can only imagine that this gets a little bit easier for Kiel. They're going to be bringing jobs to a more depressed area of the economy there.

Ideally they sign something in H1 2026. Uh maybe a blunder to say they'd have three deals by end of year. Hopefully that doesn't cost them in the long term with they end up signing a little bit later in 2027.

Yeah, I'll editorialize a bit. I to me, I I see a lot of the push back as being uh push back against uh setting expectations the wrong way. Whereas Kiel seems to be executing pretty well given the changing market. Let me get into some more of what we saw in the earnings call this morning. So,

The loss on uh the quarter looks a little bit worse than it actually is. It's mostly an accounting uh decision. The headline loss was $62 million or about 10 cents per share. Um roughly what was expected, slightly worse than like a penny worse than what was expected. Um 55 million of that 62 is a non-cash paper loss on hedges tied to their convertible notes. So if you take that out, their operating loss is only about $8 million.

They are burning a lot of cash, as you said. adjusted EBIDA went from uh positive $19 million a year to a negative 27 million. Cash draw from 819 million last quarter to 780 million. And that is with 192 million of Bitcoin sales.

A lot of that is going towards self and fully funding Moses Lake, which is another, which is a great feather in their cap. It's a only it's funded fully from Kiel's own cash and they're building it before they have a tenant.

In the current regime that we have where power and build is key, then that is an incredible position to be in.

And then how they're handling Pennsylvania. Their Pennsylvania sites are moving along. They're have there's some hurdles, they're moving slowly, but they're clearing those hurdles. There are three permits that they cleared at Sharon and Panther Creek collectively. and they have, as they said in their earnings call this morning, four environmental permits to go. I don't have details on the specific ones. They've also redesigned both sites to fully comply with Pennsylvania's new executive order.

And Kiel says it causes those redesigns cause no meaningful delay or cost change. So I'm tossing it back to you, Will.

Kiel's got the cash. They've got the power. What do they need to show by next quarter to win the hearts and minds, and more importantly, dollars of investors? Yeah,

I threw up the earnings presentation just so viewers can kind of see it this morning. Get some nice AI renderings and stuff. Uh what do they need? I mean, they just got to sign something. They got to sign something with a high quality tenant for this coming year. I they got to sign with the hyperscaler or they got to sign it with a leading frontier provider as well. And it looks like they have a lot of the other names in there like I saw vertive and in companies of that nature kind of helping them out of their various facilities.

I expect that to happen, but this is not necessarily something that is super simple. It's not that easy to just to kind of go in and sign one of these. There's also the question about like, was it the right decision to wait?

You know, could they have signed a smaller deal earlier? We won't necessarily know that till after a signing is done, they're able to speak a little bit more uh frankly about these things. We know from the Galaxy conversation, Mike Novogratz on their earnings call did say that they chose to not sign with a tenant. They walked away from something because it just wasn't quite right. And maybe Kiel has found itself in that kind of situation where it's like, hey, markets are tightening on the debt side, uh yields are are compressing because the costs are going up with inflation and labor.

Perhaps we want to wait a little bit longer. And if you look at the riot deal, you look at the core scientific deals, you look at some of the other deals are out there, and maybe it was the right decision to kind of wait. The last thing I'll say is like these permits certainly are on the way and the Pennsylvania rules that kind of popped up again, make things difficult. Government kills businesses all the time.

That's just what happens. Um I'll actually throw one more thought in there as we kind of just look at some of these pretty renderings. It's just the fact that they're done with Bitcoin mining for the most part. Uh I thought I saw something about they might have a little Bitcoin mining still in Canada, but I also saw something else that said that that they're kind of done for now, or at least like they're selling actively. They did sell over $100 million dollars of Bitcoin to fund uh operations.

That is obviously something they had to do sequentially. Some data center operators have not done that. They've done a little bit different. Clean Spark for example at Sandersville site, decided to keep the Bitcoin mining operation going. They bought an adjacent partial land and they'll just transfer the power over and flip on the Sandersville site once it's done. That way they can continue Bitcoin mining right up to the day that they swi swapped to HPC. Once we have Ben on, I'll ask about that and why they didn't choose to kind of you know, keep going. Why didn't they just buy more land or

construct another facility. If you're already having to tear down essentially everything, why don't why don't you just like keep things in parallel so you do have some revenue coming in? Um Iren obviously did this as well, right? where they like kind of started taking off Bitcoin money as they added HPC revenue. And Kiel because they are focused more on getting these permits and that's been kind of a delay apparently here.

They've been kind of like moving towards ending Bitcoin mining revenue and then they kind of get to the end of the revenue and and now we're just like waiting for like the next HPC revenue to pop up. But that's those are my high-level thoughts. I think you added a lot earlier that was pretty cogent.

Yeah, uh I think you mentioned this, I do think maybe this is a good way to tie a bow on this is that um power permitted power uh outside of Texas is looking perhaps a little more attractive right now. Pennsylvania may not it's it's unclear how Pennsylvania actually looks. I think post-election, now that the government has been re the governor has been re-elected, maybe he doesn't have to appeal to the anti-data center crowd as much anymore. Perhaps he'll go uh take his foot off the gas a little bit. No way to know that.

But it does sound like uh the permits are moving along for Kiel. I would say though, some of these like the details on these environmental permits of which they have a few left. Some of them can be choke points. So I'll I would be curious what Ben says about that if he's able to give us any details when we talk to him next week because right now, the the the nitty gritty of the which environmental permits stand in between you and turning on the data center can sometimes be make or break. So we'll be taking a look at that going forward.