CleanSpark, Inc. — Form 10-Q Summary
Business context and reporting period. This filing covers the three months ended December 31, 2022, CleanSpark’s fiscal first quarter of 2023. The company has shifted its focus to bitcoin mining and is divesting its former energy-solutions business, reported as discontinued operations. Financial amounts below are in millions of dollars unless otherwise noted.
Financial and operating performance
| Metric | Quarter ended Dec. 31, 2022 | Prior-year quarter |
|---|---|---|
| Total revenue | $27.8 | $37.1 |
| Bitcoin mining revenue | $27.7 | $37.0 |
| Operating income (loss) | $(28.9) | $15.3 |
| Continuing-operations income (loss) | $(30.5) | $15.6 |
| Net income (loss), including discontinued operations | $(29.0) | $14.5 |
| Cash from continuing operating activities | $4.7 | $12.8 |
| Adjusted EBITDA, non-GAAP | $(1.4) | $25.1 |
- Mining revenue declined 25% year over year, despite bitcoin mined rising to 1,530 from 661. Management attributed the revenue decline to the average bitcoin price falling to $18,130 from $55,903.
- Cost of revenue, excluding depreciation and amortization, rose to $20.4 million from $5.6 million. Energy and hosting costs were 73% of bitcoin revenue, versus 15% a year earlier. The company curtailed about 15% of its fleet during high-price power periods in December.
- Depreciation and amortization increased to $19.3 million from $7.4 million as more miners and related equipment entered service. Payroll was $9.8 million, including $5.9 million of stock-based compensation.
- Discontinued operations generated $1.5 million of income, including a $1.7 million gain on the sale of energy-related software assets; the comparable period recorded a $1.2 million loss.
Liquidity, capital and balance sheet
- Cash and cash equivalents fell to $2.1 million at December 31 from $20.5 million at September 30. Current assets were $21.2 million and current liabilities $41.6 million, resulting in negative working capital of $20.4 million.
- Total assets were $486.8 million, including $434.8 million of net property and equipment. Stockholders’ equity was $427.0 million.
- Loans payable had a net carrying balance of $19.6 million ($19.8 million gross); total lease liabilities were approximately $6.1 million. Quarterly loan principal payments were $8.4 million and interest expense was $0.9 million.
- Cash flows included $59.0 million used in continuing investing activities, mainly miner purchases and the Mawson acquisition, and $33.0 million provided by financing, principally $41.3 million in net equity-offering proceeds, partly offset by debt payments. Cash decreased by $18.4 million overall.
- The company held 234 bitcoin, carried at $3.9 million. It reported a $0.1 million bitcoin impairment and a $0.5 million realized loss on bitcoin sales in the quarter.
Material changes, outlook and risks
- Mining capacity expanded materially: 63,700 miners were deployed and hashing at quarter-end, producing approximately 6.2 EH/s; the company reported 6.6 EH/s as of February 9, 2023. Its share of global hashrate was approximately 2.3% at quarter-end.
- The October 2022 Mawson acquisition added a Georgia site and miners. Consideration included cash, seller financing and shares, with contingent consideration also recorded. The company issued 1,100,890 earn-out shares in January 2023.
- Management said cash, expected operating cash flows and access to equity and debt financing should support operations for at least 12 months. It expects to expand computing power through 2023 and beyond, but gave no specific financial or production guidance. Management cautioned that interim results are not necessarily indicative of full-year results.
- Bitcoin price volatility, mining difficulty, variable electricity prices, curtailment, financing availability, and the value and custody of bitcoin are significant risks. The company reported no direct exposure to FTX or the other named bankrupt crypto firms, but warned that broader market disruption could affect bitcoin prices and its business. Bitcoin held with Coinbase is uninsured, and the filing notes uncertainty about customer recovery rights if a custodian enters bankruptcy.
- The planned Lancium hosting arrangement for up to 200 MW had not begun; Lancium reported significant delays, with no foreseeable readiness timeline. The company had paid no deposits under that agreement.
- Legal matters include a securities class action whose motion to dismiss was denied in January 2023, a derivative action, and a battery-contract dispute in which the plaintiff seeks $5.4 million. The company recorded a $1.1 million reserve for the latter and disclosed an oral ruling granting a prejudgment writ of attachment, with no written order received as of the filing date.
- After quarter-end, the company raised $12.9 million net through ATM share sales through the filing date and agreed to sell remaining battery inventory and related energy contracts for approximately $4.6 million, payable over up to 18 months.
Important facts for investors to verify
- Whether operating cash generation and available financing can sustain expansion given the $2.1 million quarter-end cash balance and negative working capital.
- Whether bitcoin prices, power costs, network difficulty and operating curtailments allow mining operations to cover direct costs and depreciation.
- The timing, cost and realized capacity of site expansions and hosting arrangements, including the delayed Lancium project.
- Potential share dilution: 14.5 million shares were issued through the ATM during the quarter, and the company was seeking shareholder approval to increase authorized shares from 100 million to 300 million.
- Developments and possible financial consequences in the disclosed litigation, especially the class action and Darfon dispute.
- The performance of the remaining held-for-sale energy assets and collection timing for the post-quarter $4.6 million sale.