CleanSpark, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2021; filed August 16, 2021. The request metadata says “2020 Q3,” but the filing is for fiscal 2021 Q3.
Business context
CleanSpark operates energy technology and services businesses and, following its December 2020 acquisition of ATL Data Centers, a Bitcoin mining business. The company reported two segments: Energy and Digital Currency Mining. It also acquired Solar Watt Solutions in February 2021.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 |
|---|---|---|
| Revenue | $11.9 million, versus $3.4 million | $22.3 million, versus $8.1 million |
| Operating loss | $14.6 million, versus $2.1 million | $23.3 million, versus $7.4 million |
| Net loss | $16.7 million, versus $8.6 million | $16.4 million, versus $16.3 million |
| Basic and diluted loss per share | $0.49, versus $0.77 | $0.60, versus $2.32 |
- Quarterly mining revenue was $8.65 million; Energy segment revenue was $2.86 million. For the nine months, mining revenue was $16.10 million and Energy revenue was $4.99 million.
- For the quarter, mining segment profit before depreciation and amortization was $4.0 million; Energy segment loss on the same basis was $1.6 million. Consolidated margins were not stated as a single clear measure.
- At June 30, cash and cash equivalents were $22.2 million, digital currency holdings $10.4 million, current assets $51.9 million, and working capital $39.9 million. Total assets were $297.5 million.
- Total liabilities were $15.7 million, including $11.9 million current liabilities. No loans payable remained; finance lease liabilities totaled $0.87 million and operating lease liabilities $0.55 million.
- Nine-month operating cash use was $23.6 million; investing cash use was $191.1 million, chiefly mining equipment deposits and property/equipment purchases. Financing provided $233.8 million, primarily from equity offerings. Cash increased by $19.1 million from September 30, 2020.
Material changes versus the prior comparable period
- Revenue growth chiefly reflects the new Bitcoin mining operation; the prior-year comparable period had no mining revenue. Quarterly revenue rose while net loss widened, as payroll, depreciation and amortization, impairment, and other costs increased.
- Nine-month net loss was broadly similar year over year despite a much larger operating loss. Other income included a $5.3 million derivative gain and $0.5 million PPP loan forgiveness; the prior-year period included $10.5 million net interest expense, primarily associated with debt discounts.
- Common shares outstanding increased from 17.4 million at September 30, 2020 to 34.7 million at June 30, 2021. Underwritten offerings generated approximately $224.3 million net, with additional ATM proceeds; equity issuance funded the expansion.
- Bitcoin held was carried at cost less impairment. The company recognized a $3.7 million impairment loss during the nine months.
Outlook, commentary and risks
- Management said liquidity was sufficient for anticipated working-capital needs for at least 12 months, while noting potential need for further financing if operating cash generation is inadequate. The filing also reports negative operating cash flow.
- Management reported mining capacity above 820 PH/s and targeted 2.0 EH/s before the end of 2021 and more than 3 EH/s by mid-to-late 2022. These are forward-looking targets, not guarantees.
- Miner purchase commitments were approximately $203.6 million at June 30, of which $125.9 million had been paid. The scale and timing of remaining payments are important to liquidity.
- Management said operating expenses are expected to rise as the business expands. It identified $7.9 million of current-quarter expenses as non-recurring, including $4.7 million of executive compensation.
- Key risks include Bitcoin price and mining economics volatility, evolving cryptocurrency regulation, equipment and supplier dependence, customer concentration, COVID-19-related uncertainty, and ongoing securities class and shareholder derivative litigation. A separate investor dispute was settled in June 2021.
- Management concluded disclosure controls and procedures were ineffective as of June 30, 2021, and said remediation efforts were underway. This is a significant governance and reporting risk.
- After quarter-end, the company entered a Bitcoin hosting agreement, bought Georgia real estate for $6.55 million, and issued 893,324 ATM shares for $12.2 million net proceeds through August 13, 2021.
Most important facts for investors to verify
- Progress, cost, delivery timing, and financing of miner orders and the stated hash-rate expansion targets.
- Cash burn, remaining equipment commitments, and whether additional ATM or other equity financing will be needed.
- Bitcoin production, holdings, impairment exposure, and realized mining economics as Bitcoin prices and network conditions change.
- Remediation of ineffective disclosure controls and the status and potential cost of pending litigation.
- Acquisition performance and purchase-accounting estimates, including milestone-based contingent consideration.