CleanSpark, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2023, CleanSpark’s fiscal first quarter of 2024. Comparisons are with the three months ended December 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted.
Business context
CleanSpark is focused on bitcoin mining. It operated five company-owned Georgia data centers with 230 MW of developed capacity, was developing another 150 MW at Sandersville, Georgia, and used a partner-hosted 50 MW in New York. At December 31, 2023, it reported approximately 10.0 EH/s of operating hashrate and approximately 88,500 miners in service. The company had one mining-pool customer, Foundry Digital, which accounted for 100% of revenue.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter |
|---|---|---|
| Revenue | $73.8 million | $27.8 million |
| Operating income (loss) | $28.5 million | $(28.9) million |
| Net income (loss) | $25.9 million | $(29.0) million |
| Cash from operating activities | $(40.0) million | $5.1 million |
| Cash from investing activities | $(32.8) million | $(56.5) million |
| Cash from financing activities | $92.1 million | $33.0 million |
- Bitcoin mining revenue increased 166% to $73.8 million. The company mined 2,020 bitcoin, versus 1,530, and reported average revenue of $36,535 per bitcoin, versus $18,129.
- Direct cost of revenues, excluding depreciation and amortization, was $28.9 million, equivalent to an approximately 60.8% margin before depreciation and amortization. Depreciation and amortization was $29.8 million.
- Net income included a $36.0 million bitcoin fair-value gain. Excluding that gain, reported operating income would have been an operating loss of approximately $7.5 million; the accounting change makes this period’s results less comparable with the prior year.
- Management reported non-GAAP adjusted EBITDA of $69.1 million. This measure includes the $36.0 million bitcoin fair-value gain and is not a GAAP measure.
- At December 31, cash and cash equivalents, including restricted cash, were $48.5 million; bitcoin holdings were 3,002 bitcoin valued at $127.0 million. Current assets were $181.7 million, current liabilities $42.4 million, and working capital $139.3 million.
- Loans payable had a net carrying value of $14.5 million ($14.6 million principal); total liabilities were $52.2 million. Operating cash outflow and capital investment were funded in part by equity proceeds and bitcoin sales.
- The quarter’s $19.2 million increase in cash reflected $99.3 million of net equity-offering proceeds, alongside operating and investing outflows. The company issued 24.5 million shares through its ATM program during the quarter; common shares outstanding rose to 185.6 million from 160.2 million at September 30, 2023.
Changes and unusual items
- Revenue growth reflected both higher bitcoin production and a higher average bitcoin price. Energy costs at owned facilities rose 65% as mining activity expanded, but average electricity cost fell to $0.044 per kWh from $0.059. Weighted-average direct mining cost was $14,308 per bitcoin, versus $13,221.
- Effective October 1, 2023, CleanSpark early adopted fair-value accounting for bitcoin. The change added a $4.2 million cumulative adjustment to opening equity; subsequent bitcoin fair-value changes are recorded in earnings. The $36.0 million quarterly gain is therefore not directly comparable with prior-period bitcoin accounting.
- The company continued its strategic focus on mining and reported no energy-segment revenue in the quarter; the energy business is presented as discontinued operations.
- Subsequent to quarter-end, it issued 12.5 million shares through a new ATM facility for approximately $122 million in net proceeds through February 8, 2024. It also agreed to buy up to 160,000 Bitmain S21 miners, including an option for an additional 100,000; delivery was expected to begin in April 2024. The filing also reports planned acquisitions in Georgia and Mississippi.
Outlook, risks and contingencies
- No specific financial guidance was provided. Management said it expects to increase computing power through 2024 and beyond; reported capacity was 12.5 EH/s as of February 8, 2024.
- Management stated that available cash and bitcoin should support operations for at least twelve months and that it intends to continue using equity financing as available. This outlook depends on market access, bitcoin sales and operating conditions.
- Key business risks include bitcoin-price volatility, mining difficulty and global hashrate changes, variable power prices, and dependence on one mining-pool customer. Bitcoin holdings are exposed to price declines; 97% were in cold storage and 3% in hot wallets at quarter-end.
- Open purchase commitments for miners and mining equipment totaled $37.0 million at quarter-end. The company disclosed shareholder class and derivative lawsuits; it said it could not estimate potential losses for the identified cases.
- Management concluded disclosure controls were not effective at December 31, 2023 because of a material weakness involving IT general controls and controls over information used in financial reporting. No material misstatements or changes to previously issued results were identified. Remediation was underway, with completion expected before fiscal year-end 2024.
Important facts for investors to verify
- How much reported profitability reflects the bitcoin fair-value gain, and how results trend excluding that noncash item.
- Whether mining expansion and miner purchases translate into higher hashrate and production at acceptable power and hosting costs.
- Cash burn, bitcoin sales, capital spending, and reliance on ATM equity issuance; including the resulting share dilution.
- Progress in remediating the material weakness and the status and potential financial impact of disclosed litigation.
- Exposure to the single mining-pool customer, variable electricity prices, and bitcoin-market volatility.