CleanSpark, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2021; filed December 14, 2021. Although the request labels the period “2020 Q4,” this filing reports fiscal 2021 and comparative fiscal 2020, not a standalone 2020 quarter.
Business context
CleanSpark shifted its focus toward bitcoin mining after acquiring ATL Data Centers in December 2020. It also operates an energy technology business serving commercial and residential customers, alongside consulting and data-center services. Mining became the principal revenue-generating activity. At filing, the company reported about 1.3 EH/s of mining capacity and planned to expand it.
Financial results and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $49.44 million | $10.03 million |
| Operating loss | $28.58 million | $15.14 million |
| Net loss | $21.81 million | $23.35 million |
| Loss per common share, basic and diluted | $0.75 | $2.44 |
| Cash used in operating activities | $35.43 million | $6.64 million |
| Cash used in investing activities | $217.71 million | $2.38 million |
| Cash provided by financing activities | $268.06 million | $4.31 million |
- FY2021 revenue included $38.85 million from bitcoin mining, $9.00 million from energy hardware, software and services, and $1.59 million from other services. Mining revenue was zero in FY2020.
- Costs and expenses rose to $78.02 million from $25.17 million. FY2021 included $12.89 million of impairment charges, including $6.61 million for bitcoin, $5.72 million for goodwill and $0.55 million for software.
- Reported net loss narrowed year over year, while operating loss widened. Other income of $6.77 million in FY2021 included $3.10 million in realized gains on digital currency sales and $2.79 million in unrealized derivative gains.
- Management-reported non-GAAP adjusted EBITDA was positive $9.01 million, versus negative $10.24 million in FY2020. This is a non-GAAP measure and excludes, among other items, impairment and share-based compensation.
- At September 30, 2021, cash and restricted cash were $18.04 million; current assets were $57.73 million, current liabilities $10.06 million, and working capital $47.66 million. Total assets were $317.47 million and total liabilities $11.76 million. No loans payable remained; finance and operating lease liabilities totaled about $2.36 million.
- Bitcoin holdings had a carrying value of $23.60 million and reported fair value of $27.54 million. The company uses impairment accounting for digital currency, and impairment losses cannot be reversed under its stated policy.
- Financing was principally equity-based: the March 2021 underwritten offering generated about $187.2 million net, and ATM sales generated $46.4 million net during the year. Cash issuance proceeds reported in the cash-flow statement totaled $270.66 million.
Material changes versus FY2020
- Revenue increased nearly fivefold, primarily because mining revenue began following the ATL acquisition. Energy-segment revenue was roughly flat: $9.00 million versus $9.02 million.
- Mining segment profit was $23.20 million; the energy segment reported an $8.11 million loss. Corporate items and eliminations were a $36.90 million loss.
- Property and equipment rose to $137.59 million from $0.12 million, reflecting mining equipment and facility investment; deposits on mining equipment reached $87.96 million.
- Operating cash use increased substantially, and investing outflows grew sharply as the company expanded mining capacity. Equity financing funded much of that expansion, with common shares outstanding increasing to 37.40 million from 17.39 million at year-end.
Outlook, risks and unusual items
- Management targeted 2.0 EH/s at or near December 31, 2021 and expected to exceed 3 EH/s by mid-to-late 2022. These are forward-looking targets, not reported outcomes.
- The company disclosed about $203.6 million of miner purchase commitments in its MD&A, with about $144.7 million paid. A separate note reports approximately $144.04 million of commitments, $85.11 million paid, and $58.93 million remaining. The filing text does not clearly reconcile these figures.
- Management said existing cash, operating cash generation and access to the ATM were expected to fund anticipated needs until profitability, but acknowledged that future financing could be required and may not be available on acceptable terms.
- Key risks include bitcoin price and mining-reward volatility, high power requirements and electricity costs, miner supply and shipping constraints, reliance on a small number of mining-pool operators and suppliers, and evolving cryptocurrency regulation. The company did not hedge its bitcoin holdings and may sell bitcoin to fund operations.
- Energy operations faced inventory constraints and customer backlog. Three customers represented 61.2% of energy revenue in FY2021. Mining-pool operators accounted for all mining revenue, split 55.72% and 44.28% between the two reported operators.
- Two shareholder cases were pending: a securities class action and a consolidated derivative action. The company disputed the allegations; outcomes were uncertain.
- The financial statement audit opinion was unqualified. However, the auditor issued an adverse opinion on internal control over financial reporting, citing material weaknesses in financial close and reporting, certain revenue and business-combination controls, and IT general controls. Management expected remediation before the end of FY2022.
- Subsequent to year-end, the company disclosed a five-year Georgia Power arrangement, including an approximately $2.0 million one-time equipment fee, additional miner and immersion-cooling purchases, and roughly $68 million of additional ATM proceeds.
Most important facts for investors to verify
- Whether targeted mining capacity and contracted miner deliveries were achieved, and the resulting deployed hash rate, power costs and mining economics.
- How the miner purchase commitment amounts and amounts paid reconcile across the MD&A and financial statement notes.
- Whether operating cash burn, capital spending and bitcoin sales remain supportable without further equity issuance or other financing.
- Progress and independent validation of remediation of the material weaknesses in internal controls.
- Developments in the shareholder litigation, customer and supplier concentration, and the company’s bitcoin valuation and impairment exposure.