CleanSpark, Inc. — Form 10-Q Summary
Period: Fiscal second quarter and six months ended March 31, 2024. The request metadata labels the period “2023 Q2,” but the filing itself reports the quarter ended March 31, 2024.
Business context
CleanSpark is focused on bitcoin mining. At March 31, 2024, it reported 420 MW of developed capacity, five data centers in Georgia and three in Mississippi, plus 50 MW hosted in New York. The filing also describes capacity reaching approximately 435 MW by April 4. A completed 50 MW Sandersville expansion awaited utility transformer commissioning; a further 15 MW Dalton expansion was in development. The company reported 16.4 EH/s operating hashrate at quarter-end and 17.3 EH/s on April 30.
Financial results and position
Dollar amounts below are in millions unless otherwise noted.
| Metric | Three months ended March 31, 2024 | Six months ended March 31, 2024 | Comparable 2023 period |
|---|---|---|---|
| Revenue | $111.8 | $185.6 | $42.5 quarter; $70.4 six months |
| Income (loss) from continuing operations | $126.7 | $152.6 | $(18.2) quarter; $(48.7) six months |
| Net income (loss) | $126.7 | $152.6 | $(18.5) quarter; $(47.5) six months |
| Diluted EPS from continuing operations | $0.58 | $0.76 | $(0.23) quarter; $(0.66) six months |
| Operating cash flow | Not separately presented for the quarter | $(82.9) total; $(82.5) continuing operations | $11.9 total; $11.1 continuing operations |
Quarterly revenue rose 163% and six-month revenue rose 164% year over year, reflecting more bitcoin mined and higher bitcoin prices. For the quarter, mining revenue was $111.8 million, while cost of revenue excluding depreciation and amortization was $34.3 million and depreciation and amortization was $32.2 million. The filing’s weighted average direct cost to mine one bitcoin was $16,882 for the quarter, excluding equipment depreciation and financing costs; including those costs, the filing estimates $30,534.
Reported earnings were substantially affected by bitcoin fair-value accounting: the company recorded a $119.7 million gain in the quarter and $155.7 million for the six months. It adopted fair-value accounting for bitcoin on October 1, 2023; therefore, earnings comparisons with 2023 are not directly comparable. The six-month adjusted EBITDA was $250.9 million, a non-GAAP measure that includes the bitcoin fair-value gain and should not be treated as a substitute for GAAP results.
At March 31, cash and cash equivalents, including restricted cash, were $323.1 million; bitcoin holdings were 5,021 BTC valued at $358.0 million. Current assets were $687.8 million, current liabilities $55.0 million, and working capital $632.7 million. Total liabilities were $74.4 million and stockholders’ equity $1,462.9 million. Loans had $12.9 million gross principal outstanding ($12.8 million net book value); most reported loan maturities fall in fiscal 2024 and 2025.
Material changes versus prior period
- Common shares outstanding increased from 160.2 million at September 30, 2023 to 225.5 million at March 31, 2024. Net proceeds from equity offerings during the six months were $629.1 million. Shares outstanding were 227.9 million as of May 8, 2024.
- Cash increased from $29.2 million at September 30, 2023 to $323.1 million, primarily following equity financing. Investing activities used $231.6 million, including $208.9 million for miners and miner deposits; financing activities provided $608.3 million.
- Bitcoin holdings increased from 2,243 BTC at September 30, 2023 to 5,021 BTC at March 31, 2024. Fair-value gains and increased mining revenue contributed materially to reported earnings.
- Payroll expense, including stock compensation, rose to $16.8 million for the quarter from $9.8 million. Depreciation and amortization rose to $32.2 million from $21.3 million, reflecting additional miners and infrastructure in service.
- The company acquired three Mississippi mining facilities for $19.8 million and a Dalton property and improvements for $3.6 million during the quarter.
Outlook, risks, and unusual items
- Management stated that cash and bitcoin should support operations for at least twelve months and expects to continue using its ATM equity facility. This is not a quantified earnings or revenue forecast.
- The April 20, 2024 bitcoin reward halving reduced the block subsidy from 6.25 BTC to 3.125 BTC, a 50% reduction in newly issued bitcoin per block, excluding transaction fees. The filing cautions that actual results depend on bitcoin prices, mining difficulty, network hashrate, power costs, fleet efficiency, and other factors.
- Open purchase commitments for miners and mining equipment were $92.5 million at March 31; total contractual obligations presented were $123.7 million. A subsequent Bitmain agreement covered 100,000 upgraded S21 Pro miners for $374.4 million; $61.6 million was paid in April.
- Bitcoin price exposure is significant: a 10% change in bitcoin’s March 31 fair value would change the realizable value of holdings by approximately $35.8 million. The company reported 58% of bitcoin in cold storage and 42% in hot wallets; the custodian accounts are not FDIC-insured.
- Disclosure controls and internal control over financial reporting were reported ineffective because of a material weakness involving IT general controls, SaaS vendor controls, and controls over information produced by the company. Management expected remediation before fiscal year-end 2024, subject to testing and validation.
- Several securities and derivative lawsuits remain pending or stayed during a special litigation committee investigation. The company says it cannot estimate potential losses.
- The company recorded a $396,000 impairment of the right-of-use asset for its former headquarters after ceasing use of the location. It also recorded $2.3 million in losses on disposal of assets for the six months.
Investor verification priorities
- Assess how much reported profit reflects the $155.7 million six-month bitcoin fair-value gain versus recurring mining economics, particularly after the April halving.
- Verify post-halving hashrate, bitcoin production, power costs, and whether planned capacity additions are commissioned and operating.
- Review funding needs, ATM usage, dilution, miner purchase commitments, and the cash requirements of the S21 Pro agreement.
- Track remediation and independent testing of the disclosed material weakness in financial reporting controls.
- Monitor bitcoin custody and wallet security, the company’s reliance on one mining pool operator for all revenue, and developments in pending litigation.