CleanSpark, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended June 30, 2022, the third quarter of CleanSpark’s fiscal 2022 year. Although the request metadata identifies “2021 Q3,” the filing itself is for 2022. The financial statements are unaudited.
Business context
CleanSpark’s principal business is sustainable bitcoin mining. As of June 30, 2022, it classified its energy operations as discontinued operations and was pursuing a strategic exit from those assets. The company said its mining units could produce more than 2.8 EH/s at the filing date.
Key financial results
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Nine months ended June 30, 2022 | Nine months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue from continuing operations | $31.0 million | $9.1 million | $105.4 million | $17.3 million |
| Operating income (loss), continuing operations | $(14.9) million | $(12.0) million | $2.8 million | $(15.6) million |
| Income (loss), continuing operations | $(16.2) million | $(14.1) million | $1.1 million | $(9.5) million |
| Loss from discontinued operations | $(13.1) million | $(2.6) million | $(16.1) million | $(7.0) million |
| Consolidated net loss | $(29.3) million | $(16.7) million | $(15.0) million | $(16.4) million |
| Operating cash flow | — | $52.5 million | $(21.1) million | |
| Investing cash flow | — | $(153.5) million | $(193.6) million | |
| Financing cash flow | — | $85.6 million | $233.8 million |
Mining revenue drove the increase in continuing-operations revenue: it was $30.9 million for the quarter and $104.9 million for the nine-month period. Cost of revenue was $10.3 million and $24.6 million, respectively. Depreciation and amortization rose to $14.8 million for the quarter and $32.7 million year to date as mining equipment was placed in service. Digital-currency impairment expense was $4.4 million for the quarter and $11.5 million year to date. The quarterly realized loss on bitcoin sales was $5.2 million; the nine-month statement reported a realized gain of $2.0 million.
Cash and cash equivalents, including restricted cash, were $2.7 million at June 30, 2022, down from $18.0 million at September 30, 2021. Working capital was $9.5 million. Total assets were $411.1 million, total liabilities $34.2 million, and stockholders’ equity $376.9 million. Equipment-backed borrowings had a net carrying amount of $18.3 million; the loan’s stated effective interest rate was 13.8%. The company also reported operating and finance lease liabilities.
Material changes and financing
- Quarterly continuing revenue rose from $9.1 million to $31.0 million, while the continuing-operations loss widened from $14.1 million to $16.2 million. For the nine months, continuing operations moved from a $9.5 million loss to $1.1 million of income, but discontinued-operations losses increased.
- Mining-related property and equipment, net, rose to $322.2 million from $137.5 million at fiscal year-end. The company placed $218.4 million of property and equipment in service during the nine-month period.
- During the nine months, the company raised $68.0 million net through its at-the-market equity offering and received $18.7 million from an equipment-backed loan. Common shares outstanding increased to 41.3 million from 37.4 million at September 30, 2021. From July 1 through the filing date, it issued a further 5.8 million shares for $24.8 million in net proceeds.
- Cash from operations includes the effects of bitcoin mining and bitcoin sales; investing outflows principally reflected miner deposits and fixed-asset purchases. Despite positive operating cash flow, total cash declined by $15.4 million during the nine months.
Outlook, risks, and contingencies
- Capacity targets: Management targeted more than 3 EH/s by September 30, 2022, and 4.0–5.0 EH/s by December 31, 2022. These are forward-looking targets, not reported results.
- Expansion: A March 2022 hosting agreement with Lancium provides for 200 MW of capacity, with an option to increase capacity up to 500 MW or 40% of Lancium’s facility capacity, whichever is lower. The filing said there were no contractual future payment obligations under that agreement as of June 30.
- Subsequent asset purchase: On August 5, 2022, CleanSpark agreed to acquire Georgia real estate and infrastructure, plus mining machines, for stated total consideration of about $25.1 million. The site had 36 MW of power and an additional 50 MW was expected to be available in mid-2023. Closing was subject to conditions and expected by September 5, 2022.
- Liquidity outlook: Management stated that available resources and expected operating cash flow were sufficient for at least 12 months, and cited access to ATM equity and debt financing. It also cautioned that additional capital might be needed and that market volatility could make financing harder or more dilutive.
- Bitcoin and operating risks: The company held approximately 562.87 bitcoin, carried at $10.5 million. Bitcoin prices ranged from $17,733 to $68,205 during the nine-month period. Its accounting policy records impairment when prices fall below carrying value and does not permit reversal of prior impairment. Mining difficulty, bitcoin prices, power costs, inflation, hosting capacity, equipment delivery and deployment, and access to banking and financing are material risks. One mining pool operator represented 100% of mining revenue in the quarter.
- Discontinued energy business: The energy segment recorded a $13.1 million quarterly loss, including $7.0 million of goodwill impairment and other asset impairments. Management warned that sale proceeds may be below carrying value, or that a sale may not occur, potentially resulting in further charges.
- Controls: Management concluded disclosure controls were ineffective as of June 30, 2022, due to material weaknesses involving financial close and account reconciliations, revenue recording at certain subsidiaries, and IT general controls over third-party systems. Remediation was underway but had not yet been validated as effective.
- Legal matters: The filing describes a securities class action, a stayed shareholder derivative action, and a subsidiary’s lawsuit seeking more than $500,000 from a supplier. Management disputed the securities claims but acknowledged uncertain outcomes and possible costs or adverse effects.
Investor verification priorities
- Confirm actual post-quarter mining capacity and progress against the 3 EH/s and 4.0–5.0 EH/s targets.
- Track cash, bitcoin holdings and sale proceeds, capital spending, miner deposits, and the company’s need for additional equity or debt funding.
- Review realized mining economics, including power and hosting costs, depreciation, bitcoin impairment charges, and dependence on mining pool operators.
- Verify the status, financing terms, and closing of the August 2022 Georgia property and equipment purchase, and the planned disposition of energy assets.
- Monitor remediation and independent testing of the disclosed material weaknesses, as well as developments in the identified legal proceedings.