CleanSpark, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2022 (fiscal second quarter of 2022), with six-month comparisons to March 31, 2021. The request metadata says “2021 Q2,” but the filing itself is for 2022 Q2. Financial statements are unaudited.
Business context
CleanSpark operates bitcoin mining and energy technology businesses. Bitcoin mining had become its principal revenue-generating activity. Management said it was focusing on mining while evaluating strategic opportunities for the energy segment. The company reported 2.4+ EH/s of mining capacity as of the filing and was expanding facilities and equipment.
Key financial results
| Metric | Three months ended Mar. 31, 2022 | Six months ended Mar. 31, 2022 |
|---|---|---|
| Revenue | $41.6 million | $82.9 million |
| Operating income | $3.3 million | $7.5 million |
| Net income (loss) | $(0.2) million | $14.3 million |
| Net income (loss) attributable to common shareholders | $(0.2) million | $14.0 million |
| Operating cash flow | $(33.5) million for six months | |
| Investing cash flow | $(50.7) million for six months | |
| Financing cash flow | $68.1 million for six months |
Second-quarter revenue rose from $8.1 million in 2021; six-month revenue rose from $10.4 million. Mining revenue was $37.0 million for the quarter and $73.9 million for six months; energy revenue was $4.6 million and $8.6 million, respectively. Operating margins were approximately 8.0% for the quarter and 9.0% for six months. The quarter’s net loss contrasted with $7.4 million net income a year earlier, largely due to digital-currency sale and derivative losses versus prior-period derivative gains. Six-month net income included a $7.3 million realized gain on bitcoin sales, partly offset by $7.0 million of digital-currency impairment and other expenses.
At March 31, 2022, cash and restricted cash were $1.9 million, digital currency was $17.0 million, current assets were $42.0 million, and working capital was $19.4 million. Total assets were $424.8 million and stockholders’ equity was $400.9 million. Total liabilities were $23.9 million on the balance sheet, including approximately $1.9 million of operating and finance lease liabilities; no funded borrowing was reported at period-end. Property and equipment increased to $276.3 million from $137.7 million at September 30, 2021. Six-month cash use reflected mining growth, miner deposits and capital expenditures, funded in part by $68.0 million of net equity proceeds.
Changes, outlook and material items
- Mining expansion drove most of the revenue growth and capital investment. Mining equipment and miner deposits were significant: deposits were $69.9 million at quarter-end.
- Management targeted more than 3 EH/s near September 30, 2022 and 4.0–5.0 EH/s at or near December 31, 2022. These are forward-looking targets, not guarantees.
- A March 2022 hosting agreement with Lancium provides for 200 MW, with an option to increase capacity up to 500 MW subject to agreement terms. Management reported no contractual future payment obligations under it as of March 31.
- On April 22, 2022, after quarter-end, CleanSpark entered an equipment financing facility of up to $35 million and received a $20 million loan draw, subject to the agreement’s terms and obligations.
- Management said existing resources, expected operating cash generation and financing access should support operations for at least 12 months. However, it also reported negative operating and investing cash flows and noted that additional capital may be needed.
- Bitcoin holdings were approximately 431.67 BTC, carried at $17.0 million. Under the company’s impairment accounting, declines in bitcoin prices can generate impairment losses that are not reversed if prices later recover.
- Mining-pool and supplier concentration was high: one mining-pool operator represented 99.99% of quarterly mining revenue, and one mining-equipment vendor represented 90.85% of quarterly mining-equipment purchases. The company also cited bitcoin-price volatility, mining difficulty, energy costs, banking access, inflation and logistics as risks.
- Disclosure controls were deemed ineffective because of material weaknesses in financial close and revenue controls and IT general controls. Management described remediation steps, but effectiveness had not yet been demonstrated over a sustained period.
- Legal matters included a securities class action, a stayed shareholder derivative action, and an SWS lawsuit seeking more than $500,000. Management disputed the securities and derivative claims; outcomes remain uncertain.
Important facts for investors to verify
- Confirm whether mining capacity targets and Lancium hosting capacity are achieved, and assess the costs, timing and operational conditions.
- Track cash, bitcoin holdings, operating cash burn, miner commitments and the use and repayment terms of the post-quarter $20 million financing draw.
- Assess the impact of bitcoin prices, network difficulty, power and hosting costs, and the company’s impairment accounting on profitability and liquidity.
- Monitor remediation of the disclosed material weaknesses and any subsequent changes in control effectiveness.
- Review progress and potential financial exposure in the disclosed legal proceedings and customer, mining-pool and vendor concentrations.
- Reconcile the filing’s stated total liabilities: the balance sheet reports $23,879,400, while MD&A reports $23,849,400. The six-month impairment discussion in MD&A also appears inconsistent with the financial statements and should be checked against the notes.