CleanSpark, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2021, the company’s fiscal first quarter of fiscal 2022. Comparative figures are for the three months ended December 31, 2020. Financial statements are unaudited.
Business context
CleanSpark operates bitcoin-mining and energy-technology businesses. Bitcoin mining, entered in December 2020, is now its principal revenue-generating activity. The company reported mining capacity exceeding 2.0 EH/s and plans to expand through additional facilities, equipment and infrastructure. Its stated targets were to exceed 3 EH/s near the end of September 2022 and reach 4.0 EH/s near the end of December 2022.
Financial performance and condition
| Metric | Quarter ended Dec. 31, 2021 | Quarter ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $41.24 million | $2.26 million |
| Operating income (loss) | $4.44 million | $(6.17) million |
| Net income (loss) | $14.49 million | $(7.17) million |
| Net income (loss) per diluted share | $0.35 | $(0.32) |
| Net cash used in operating activities | $(20.97) million | $(6.83) million |
| Net cash used in investing activities | $(60.04) million | $(2.43) million |
| Net cash provided by financing activities | $68.18 million | $31.77 million |
- Mining revenue was $36.97 million; energy hardware, software and services revenue was $3.97 million. Mining segment profit was $31.33 million and energy segment profit was $0.99 million, before corporate items and eliminations.
- Costs and expenses totaled $36.81 million, including $7.70 million of depreciation and amortization, $5.75 million of stock-based compensation and $6.22 million of bitcoin impairment. Cost of revenue was $8.80 million; revenue less this cost was approximately $32.44 million, or 78.7% of revenue, before depreciation and amortization and other expenses.
- Net income included a $9.99 million realized gain on bitcoin sales. The company’s results therefore reflect both mining operations and gains from selling previously held bitcoin.
- Cash and restricted cash fell to $5.21 million from $18.04 million at September 30, 2021. Working capital was $36.20 million. Current assets were $58.68 million and current liabilities $22.48 million.
- Total liabilities were $24.07 million, primarily lease liabilities and current operating liabilities; the balance sheet reported no conventional borrowings. Total assets were $418.14 million, including $198.49 million of net property and equipment and $125.70 million of deposits on mining equipment. Stockholders’ equity was $394.08 million.
- Operating cash use reflected, among other items, production of digital currency and increases in prepaid expenses and receivables. Investing outflows included $70.63 million of payments on miner deposits and $21.43 million for fixed assets. Financing inflows included $67.99 million net from equity offerings.
Material changes versus the prior period
- Revenue rose to $41.24 million from $2.26 million, primarily as bitcoin mining scaled after the ATL acquisition. Mining revenue increased from $0.73 million to $36.97 million.
- The company moved from a $7.17 million net loss to $14.49 million net income. The comparison also reflects a $9.99 million realized gain on bitcoin sales and a $6.22 million impairment charge in the current quarter.
- Operating and investing cash outflows increased substantially as the company expanded mining capacity. Common shares issued and outstanding rose to 41.47 million from 37.40 million at September 30, 2021, including 4.02 million shares issued through an at-the-market offering for approximately $67.99 million net.
Outlook, risks and unusual items
- Management said available cash, expected operating cash generation and access to registered equity sales were expected to fund working capital and capital spending for at least 12 months from the filing date. It also noted that additional capital may be required and that access to financing is not assured.
- Approximately $45.7 million remained payable on miner purchase commitments at quarter-end; the commitments were described as cancellable. Additional mining-equipment commitments were reported, and deposits on mining equipment totaled $125.7 million.
- Bitcoin price volatility and mining difficulty, electricity and hosting costs, equipment delivery and deployment, utility arrangements, regulation, banking access and potential COVID-19-related disruptions were identified as risks. The company held approximately 649.87 bitcoin, carried at $30.20 million. Under its impairment accounting, declines can trigger impairment while subsequent price increases are not recognized until sale.
- One mining pool operator accounted for 99.87% of mining revenue, and two vendors accounted for all reported mining-equipment purchases during the quarter, indicating concentration exposure.
- The filing describes a securities class action and a consolidated shareholder derivative action. The company disputes the allegations; outcomes are uncertain, and management said the cases could consume time and expense. No loss estimate is provided in the filing text.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses in financial close and revenue-recording controls and information-technology controls. Management described remediation steps, but said effectiveness requires continued validation and testing.
- After quarter-end, the company agreed to settle Solar Watt Solutions acquisition milestones for $625,000 and release 77,500 escrowed shares; the sellers were to return 232,518 shares to the company.
Important facts for investors to verify
- Whether mining capacity expansion met the stated 3 EH/s and 4 EH/s targets, and the associated equipment deployment, costs and power availability.
- How much of reported earnings is repeatable operating performance versus bitcoin-sale gains, and how bitcoin price movements affect impairment and cash generation.
- Cash needs and financing plans in light of low cash balances, significant capital spending and remaining equipment commitments.
- Progress in remediating the disclosed material weaknesses and any subsequent updates to the securities and derivative litigation.
- Whether mining-pool and equipment-vendor concentration has changed, and whether the company’s clean-energy plans are being implemented at its mining locations.