CleanSpark, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2023 (fiscal Q2 2023; not calendar Q2 2022 as stated in the request metadata). Dollars are in thousands unless otherwise noted. Filing signed May 10, 2023.
Business context
CleanSpark is focused on bitcoin mining and is winding down its former energy-solutions business, reported as discontinued operations. At March 31, 2023, the company reported 6.7 EH/s of operating hashrate and approximately 71,100 miners. Bitcoin mining revenue is earned through a mining-pool arrangement; Foundry Digital accounted for more than 99% of revenue in the periods shown.
Key financial metrics
| Metric | Three months ended Mar. 31, 2023 | Three months ended Mar. 31, 2022 | Six months ended Mar. 31, 2023 | Six months ended Mar. 31, 2022 |
|---|---|---|---|---|
| Total revenue | $42,546 | $37,198 | $70,365 | $74,323 |
| Operating income (loss) | $(17,486) | $2,799 | $(46,369) | $18,110 |
| Net income (loss) | $(18,460) | $(171) | $(47,491) | $14,315 |
| Adjusted EBITDA (non-GAAP) | $12,721 | $19,638 | $10,750 | $48,539 |
Bitcoin mining revenue was $42,488 for the quarter and $70,234 for the six months. Direct cost of revenue, before depreciation and amortization, was $22,082 and $42,498, respectively. The resulting direct margin was approximately 48% for the quarter and 40% for the six months, compared with approximately 77% and 81% in the comparable prior-year periods. These margins exclude depreciation and amortization.
Cash and cash equivalents were $10,345 at March 31, 2023, down from $20,463 at September 30, 2022. Current assets were $32,906 versus current liabilities of $41,282, resulting in negative working capital of $8,376. Total liabilities were $57,672; loans payable, net of discount, were $17,619, in addition to lease liabilities.
For the six months, operating cash flow was $11,876 including discontinued operations ($11,127 from continuing operations); investing cash flow was $(111,063); and financing cash flow was $89,069. Cash declined by $10,118 to $10,345.
Changes versus prior comparable periods
- Quarterly revenue rose 14% as bitcoin mined increased to 1,871 from 897, more than offsetting a lower average realized bitcoin price ($22,706 versus $41,221). Six-month revenue fell 5%: 3,401 bitcoins were mined versus 1,559, but average realized price declined to $20,651 from $47,429.
- Quarterly results shifted from $2,032 of income from continuing operations to an $18,166 loss. Six-month continuing operations shifted from $17,676 of income to a $48,654 loss.
- Energy costs at owned facilities rose sharply; for the six months, reported average power cost increased to $0.052/kWh from $0.032/kWh. Depreciation and amortization increased to $40,675 from $17,879, reflecting the expanded mining fleet and assets placed in service.
- Common shares outstanding increased to 96.95 million at March 31 from 55.66 million at September 30, 2022. The company raised $99,506 net through ATM share sales during the six months.
Outlook, risks and unusual items
- Management plans to continue expanding mining capacity and facilities. It stated that cash on hand, expected operating cash flows and access to its ATM facility should support operations for at least 12 months; this is management’s assessment, not a guarantee. No specific earnings or revenue guidance was provided.
- After quarter-end, the company agreed to buy 45,000 mining machines for up to $144,900, subject to coupon-related price reductions, with deliveries scheduled for August and September 2023. It expects to fund the purchase with operating cash and debt or equity offerings. From April 1 through the filing date, it also raised $57,482 net through ATM sales by issuing 15.6 million shares.
- Bitcoin prices, network difficulty, power costs and mining competition materially affect results. The company does not hedge its bitcoin holdings and may curtail operations when power prices make mining uneconomic. It reported a 15% fleet curtailment during the December 2022 price spike, with no significant weather- or price-related curtailment in the March quarter.
- Darfon battery litigation was settled in April 2023 for $3,800; the company recorded $2,700 of additional settlement expense in March 2023. The filing also describes a securities class action proceeding in discovery and multiple shareholder derivative actions. The company disputes the claims; outcomes remain uncertain.
- The company’s energy segment remains classified as discontinued operations. A November 2022 software-asset sale generated a $1,710 gain. A separate $4,600 sale of remaining battery and solar inventory is payable as the buyer sells or uses the inventory, with full payment due within 18 months; no gain or loss had yet been recognized.
- Beginning May 2, 2023, the mining-pool operator charges a fee of 0.19% of bitcoin earned, declining to 0.15% once the company averages 10 EH/s for a quarter. The filing says this will reduce reported mining revenue.
- Additional risks include reliance on a single mining-pool operator, uninsured cash balances, bitcoin held with Coinbase and not insured, financing needs, and debt secured by miners. The company reported disclosure controls effective as of March 31, 2023 and no material quarter-period change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile cash runway and planned funding needs against negative working capital, ongoing capital spending and the $144.9 million miner purchase.
- Assess the impact of bitcoin price, network difficulty, power prices, curtailment and the new pool fee on mining margins and cash generation.
- Review dilution from ATM sales and equity compensation, including the substantial increase in shares outstanding and the further post-quarter issuance.
- Track litigation developments, especially the Darfon settlement and shareholder cases, and check whether any additional liabilities or expenses arise.
- Reconcile bitcoin-holding disclosures: the MD&A says approximately 196 bitcoins, while another filing table reports 197 at March 31, 2023. The filing text does not provide a clear reconciliation.