10-Q: CleanSpark Reports Strong Q1 2024 Results Driven by Bitcoin Mining Revenue

Sentiment:

Quarterly Report 8 February 2024 4:30 PM

CleanSpark's Q1 2024 results show a significant increase in bitcoin mining revenue and a return to profitability, driven by increased mining capacity and higher bitcoin prices.

Capital raiseThe company has access to equity financing through its At-the-Market offering facility.The company issued 24,475,832 shares of common stock under its 2021 ATM Agreement resulting in net proceeds of $99,336 during the three months ended December 31, 2023.From January 1, 2024 through February 8, 2024, the Company issued 12,457,651 shares under its 2024 ATM offering facility resulting in net proceeds of approximately $122,000.

Better than expectedThe company's net income of $25.9 million is a significant improvement compared to a net loss of $29 million in the same period of the previous year.Bitcoin mining revenue increased by 166% year-over-year, indicating strong growth in the company's core business.The company's hashrate capacity reached 10 EH/s, demonstrating increased mining capabilities.

Summary

CleanSpark reported a net income of $25.9 million for the quarter ended December 31, 2023, a significant turnaround from a net loss of $29 million in the same period of 2022.
Bitcoin mining revenue surged to $73.8 million, a 166% increase compared to $27.7 million in the prior year, due to both increased bitcoin production and higher average bitcoin prices.
The company mined 2,020 bitcoins at an average price of $36,535, compared to 1,530 bitcoins at an average price of $18,129 in the same quarter of the previous year.
Operating costs increased to $28.9 million, up 42% year-over-year, primarily due to higher energy costs associated with increased mining operations.
The company's hashrate capacity reached 10 EH/s by the end of the quarter, representing 1.8% of the total global hashrate.
CleanSpark adopted new accounting standards for crypto assets, resulting in a $4.2 million cumulative adjustment to the beginning accumulated deficit and a gain on fair value of bitcoin of $36 million for the quarter.
The company's cash and cash equivalents totaled $48.5 million, and bitcoin holdings were valued at $127 million as of December 31, 2023.

Sentiment

Score: 8

Explanation: The document presents a strong financial performance with significant revenue growth and a return to profitability. While there are some risks and a material weakness in internal controls, the overall tone is positive due to the company's operational improvements and strategic expansion.

Positives

The company achieved a significant increase in revenue and a return to profitability.
Bitcoin mining operations are expanding, with increased hashrate and miner deployments.
The company is actively managing energy costs and curtailing operations when necessary to maximize profitability.
CleanSpark has a strong balance sheet with significant cash and bitcoin holdings.
The adoption of new accounting standards provides a more accurate representation of the company's bitcoin holdings.

Negatives

Operating costs increased due to higher energy consumption, although this was offset by increased revenue.
The company is exposed to the volatility of bitcoin prices, which could impact future earnings and asset values.
The company identified a material weakness in its internal controls over financial reporting related to IT systems and data management.

Risks

The company's profitability is highly dependent on the price of bitcoin, which is subject to significant volatility.
The company is exposed to fluctuations in energy prices, which can impact operating costs.
The company's operations are subject to regulatory and legal risks, which could impact its ability to operate.
The company's growth strategy relies on continued access to capital, which may be impacted by market conditions.
The identified material weakness in internal controls could lead to future financial reporting issues.

Future Outlook

The company expects to continue increasing its computing power through 2024 and beyond as it expands its infrastructure, seeks strategic acquisition targets, and through strategic co-location agreements. The company believes its cash and bitcoin holdings will be sufficient to meet its working capital and capital expenditure requirements for at least the next twelve months.

Management Comments

Management believes that providing non-GAAP financial measures allows for meaningful comparisons between the Company's core business operating results and those of other companies.
Management believes that adjusted EBITDA is also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis.
Management believes the company has sufficient cash and bitcoin to support ongoing operations for the next twelve months.

Industry Context

The report reflects the ongoing growth and volatility in the bitcoin mining industry, with companies like CleanSpark expanding their operations and managing energy costs to maximize profitability. The adoption of new accounting standards for crypto assets is also a significant trend in the industry, impacting how companies report their financial results.

Comparison to Industry Standards

CleanSpark's hashrate of 10 EH/s represents 1.8% of the total global hashrate, indicating a significant but not dominant position in the market.
The company's average cost to mine one bitcoin of $14,308 is a key metric to compare against other bitcoin mining companies, although this excludes equipment related expenses.
The company's energy costs as a percentage of bitcoin mining revenue of 35% for owned facilities and 61.3% for hosted facilities are important benchmarks for assessing operational efficiency.
The company's adoption of ASC 350-60 for crypto assets aligns with industry best practices for fair value measurement.

Legal Proceedings

The company is involved in several legal proceedings, including a class action lawsuit and shareholder derivative actions.
The company believes the claims raised in these cases are without merit and intends to defend itself vigorously.

Stakeholder Impact

Shareholders will benefit from the company's improved financial performance and growth prospects.
Employees will benefit from the company's continued growth and expansion.
Customers will benefit from the company's continued investment in its infrastructure and technology.
Creditors will benefit from the company's improved financial position and ability to meet its obligations.

Next Steps

The company plans to continue expanding its mining infrastructure and increasing its hashrate capacity.
The company will continue to evaluate energy and bitcoin prices and curtail operations when necessary to maximize profitability.
The company will continue to implement measures to remediate the material weakness in internal controls over financial reporting.
The company plans to use the mining machines to expand its digital currency mining activities through its wholly-owned subsidiaries.

Key Dates

Date	Description
2019-10-05	Initial date related to investment in International Land Alliance, Inc.
2019-11-05	Date of Securities Purchase Agreement with International Land Alliance, Inc.
2021-06-03	Date of original At The Market Offering Agreement.
2022-04-22	Date of Master Equipment Financing Agreement with Trinity Capital Inc.
2022-12-14	Date of Amendment No. 1 to the At the Market Offering Agreement.
2023-04-07	Date CleanSpark HQ, LLC purchased real property in Henderson, Nevada.
2023-05-10	Date HQLLC completed a refinancing transaction.
2023-06-21	Date of acquisition of two bitcoin mining facilities in Dalton, GA.
2023-09-29	Date the Compensation Committee granted market-based restricted stock units to senior leadership.
2023-10-01	Effective date of early adoption of ASC 350-60 and grant date of time-based RSUs to board members.
2023-12-21	Date S. Matthew Schultz entered into a trading arrangement.
2023-12-22	Date Zachary Bradford entered into a trading arrangement.
2024-01-05	Date of new At The Market Offering Agreement with H.C. Wainwright & Co., LLC.
2024-01-06	Date of agreement with Bitmain Technologies Delaware Limited to purchase up to 160,000 Bitmain S21 miners.
2024-02-02	Date of agreements to acquire land and assets in Dalton, GA.
2024-02-05	Date of agreement to acquire assets in three separate locations within Mississippi.
2024-02-08	Date of share count and date of report.

Keywords

Bitcoin mining, Cryptocurrency, Hashrate, Data centers, Financial results, Profitability, Energy costs, Internal controls, Accounting standards, Digital assets

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