Ladies and gentlemen, good afternoon. My name is Regina and I will be your conference operator today. I would like to welcome everyone to CleanSpark's Second Quarter Fiscal Year 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the floor over to Isaac Holyoak, Chief Communications [Technical Difficulty].

Thanks, Regina. Appreciate it, and thank you for joining us today for our second quarter fiscal year financial results call covering the period January 1st, 2024 through March 31st, 2024. Our press release was issued earlier this morning and is available on our website at www.cleanspark.com.

Today's call is also being webcast and a replay and transcript will be available on our website. On the call with me are Zach Bradford, our Chief Executive Officer; and Gary Vecchiarelli, our Chief Financial Officer.

Keep in mind that some of the statements we make today are forward-looking and based on our best view of the world and our business as we see them today. The statements and information provided remain subject to the risk factors disclosed in our most recently filed Annual Report.

We will also discuss certain non-GAAP financial measures concerning our performance during today's call. You can find the reconciliation of non-GAAP financial measures in our press release, which is available on our website. And with that, it is my pleasure to turn the call over to Zach. .

efficiency, valuation, power accessibility, and community engagement. Allow me to spend a moment addressing each of them. Efficiency. Our operations are designed to maximize output with our watts producing in some cases as much as twice the bitcoin as some competitors. Valuation.

We pursue acquisitions that offer substantial value, not just on paper, but in real operational terms. Power accessibility. Access to current and future low-cost power resources is crucial, ensuring sustainability and scalability. Community engagement.

We prioritize acquisitions that allow us to maintain and enhance relationships within local communities, allowing our growth with broader social values. With that in mind, we are reaffirming our path to 50 exahash per second in 2025 and continue to target 32 exahash per second coming online at the end of this year.

We expect to reach those goals through the acquisition of facilities that we can then put our machines in. I'd like to conclude by thanking our teams for their incredible work over the quarter.

I believe our team set records for the fastest deployment time in our industry at Sandersville, racking and energizing machines with an expediency that showed the type of grit and resiliency that has become central to our culture.

In line with that grit and resolve, I'm especially pleased to welcome two key colleagues to the executive management team. As announced yesterday, we promoted Scott Garrison to Chief Operations Officer and Taylor Monnig to Chief Technology Officer. Scott and Taylor are examples of CleanSpark's commitment to excellence and the CleanSpark Way.

Their leadership and grit have been instrumental in positioning CleanSpark as a top operator at scale in the industry. I speak often about our best-in-class teams, and Scott and Taylor have both helped build and lead these teams to great height.

They are instrumental in our continued success as our teams grow and gain even greater expertise to match the task ahead of us on our path to 50 exahashes and beyond. I greatly look forward to this next phase in CleanSpark's journey as we work together to continue delivering value to our shareholders and the greater bitcoin ecosystem.

With that, I'd now like to turn the time over to Gary to review the quarter's financial results in greater detail. .

Thank you, Zach. Hopefully you've all seen our press release and form 10-Q released early this morning. I'm happy to review our record results for the fiscal second quarter, which is a direct result of our thoughtful strategy and the grit and execution of our many team members.

For the second quarter, we recognized $111.8 million of revenue, an increase of 163% over the same quarter last year. Compared to the preceding first quarter, we saw revenues increase 52%, or $38 million.

These increases in revenue were not only driven by increases in bitcoin prices but also increases in our hashrate, which yielded increased bitcoin production. To give you context, at the end of Q2 last year, we had almost 68,000 machines in operation, representing 6.7 exahash.

At the end of Q2 this year, we had approximately 134,000 machines deployed, representing 16.4 exahash. The average revenue per bitcoin more than doubled between the year-over-year periods as our Q2 2023 average revenue was approximately $23,000 and this quarter our average was $55,000.

When compared to our immediately preceding first quarter, our hashrate increased over 60% from 10.1 exahash to 16.7 exahash. Our revenue per bitcoin in Q2 increased over 50% to $55,000 as our revenue per bitcoin in Q1 was almost $37,000.

CleanSpark's mining economics remained healthy through the second quarter as we saw gross profit improve 21 points over the same quarter last year and eight points over the first quarter. Our market-based approach to power has helped with our margins as we saw wholesale power costs as low as $0.013 per kilowatt-hour in the second quarter.

For our wholly owned locations, our all-in costs for the second quarter were a favorable $0.043 per kilowatt-hour. This all-in cost represents wholesale costs of energy plus transmission and delivery costs, plus the margins and taxes -- sales taxes to the utilities and communities we operate in.

We did experience slightly higher hosting fees of $0.075 per kilowatt-hour at our colocation, but it is important to note that this agreement includes a profit share which due -- which is due to the rise in bitcoin price, which drove most of this cost.

However, our colocation is less than 10% of our total operating hashrate and 12% of our total megawatts operational. This further underscores the importance of our infrastructure first strategy where we want to own and operate our own facilities.

The company posted record net income of $126.7 million, or $0.59 earnings per share, compared to a net loss of $18.5 million, or a loss of $0.23 per share in the same quarter last year.

Our net income in the first quarter was approximately $26 million, or $0.14 earnings per share, which is an improvement of over $100 million, or $0.45 per share between the two quarters.

I want to point out that the company early-adopted fair value accounting for bitcoin in Q1 of this year, which marks the company's bitcoin holdings to the fair value as of the balance sheet date. In the second quarter, we recognized a gain on fair value of almost $120 million.

While this amount is unrealized and non-cash, I want to call out our HODL strategy. We saw our total bitcoin holdings grow by over 2,000 bitcoin in the second quarter alone as we kept nearly 100% of our bitcoin production for the period.

Since we can produce bitcoin at prices lower than it can be bought on the spot market, we see our HODL strategy as another strategic move in acquiring assets, which will provide shareholders with accretive value, particularly in this bull market where we expect price appreciation.

Our adjusted EBITDA for the second quarter was approximately $182 million, which is an improvement of 1.6x over the preceding first quarter.

Included in the second quarter adjusted EBITDA was approximately $120 million related to the fair value adjustment, which when removed shows our mining operations contributed approximately $60 million to adjusted EBITDA and represents 50% cash adjusted EBITDA margins.

Looking at specific line items on the income statement, our payroll expense did increase approximately $1.5 million or 10% in the second quarter compared to the immediately preceding first quarter. This is due to additional hiring at our wholly owned locations and several new positions at our corporate office.

Note that our total megawatts operational increased 51% between the quarters with the Sandersville expansion and Mississippi acquisitions coming online. In the second quarter, we saw an increase in our G&A expenses of approximately $1.8 million, or 36% compared to the first quarter.

So I've mentioned on previous calls, we have achieved scale whereby we do not expect our corporate and G&A expenses to grow parallel to our revenue. However, as we continue to grow our megawatts owned and expand our footprint, we do expect increases in our indirect expenses.

With G&A specifically, I want to call out two items, which comprise the majority of this $1.8 million increase. Foremost, we expensed approximately $0.5 million related to shipping miners from a storage facility to the Sandersville location.

We stored many of our XP machines in a secured facility prior to racking them for the energization at Sandersville. So this is an expense that will not recur in future quarters. Also including the $1.8 million variance is an additional $1.2 million of property tax expenses related to our estimated property tax for the 2024 tax year.

This was driven by the large amount of assets, primarily miners, that we owned on January 1st, 2024, the moment in time for which jurisdictions assess tax and the value of personal property owned.

We will see increases in property taxes throughout this calendar year in excess of the prior calendar year due to the significant increase in assets we have acquired and deployed. However, any new assets acquired after January 1st of this year will not have assessments and the associated expense until next year.

As we continue to grow our asset base, this expense will also grow, which I estimate to be between 1.25% and 1.4% of the book value of property and equipment.

As we expand into new jurisdictions, we are taking advantage of tax incentives where available, and we are optimistic given the conversations we have been having with current and new jurisdictions, then incentives will be available with our further investment.

I want to take a moment to review our balance sheet, which we believe is one of the strongest in the industry. We had total liquidity of $681 million as of March 31st. Of this amount, we had $323 million cash and 5,021 bitcoin valued at 5 -- $358 million.

Additionally, we had $161 million of cash paid deposits for miners in transit and total assets of over $1.5 billion. Our balance sheet remains very healthy with virtually no debt as we continue to pay down our loans payable, which now total less than $13 million.

As we've been discussing for well over a year now, we've been preparing the company for the halving event, not just operationally, but financially. Operationally, we have one of the most efficient fleets in the world currently and we only expect that efficiency to get better as we deploy the latest generation S21 miners.

This new generation of miners will not only increase our hashrate, but also increase our efficiency and decrease the cost of energy per terahash.

We've also discussed in prior calls that our financial preparation for halving will not only give us the ability to weather the decrease in block rewards, but also take advantage of opportunities that present themselves after the halving.

As we predicted, we are seeing distress among smaller miners who have less efficient fleets or do not have liquidity or access to capital. Let me underscore the importance of access to capital and being good stewards of that capital. For example, we have raised approximately $1.4 billion since we entered the bitcoin mining business in December 2020.

Using this capital, we have grown this company to a market cap of almost $4 billion, which represents our ability to find accretive means to deploy capital.

We continue to see opportunities for tuck-in acquisitions which are accretive and where we will be able to bring our operational expertise and strong balance sheet to grow our hashrate and efficiency even further. With that, I'll turn the call back over to Isaac to open the floor for questions. .

Thanks, Gary. We will now open the floor to questions from the analyst community. Operator, please provide instructions and manage the queue for the Q&A session. .

Thank you. Ladies and gentlemen, at this point, we will begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Mike Colonnese with H.C. Wainwright. Your line is open. .

Hi, good afternoon, guys. Great quarter and congrats on the new acquisitions. Great to see you here.

First for me, if you could just walk us through the expected construction and energization timelines for these newly acquired sites in Wyoming and really how you guys are thinking about the power strategy and the electricity costs for these facilities?.

Yes. Hey Mike, thanks for joining the call. So as we mentioned, there's two sites, one at 45 megawatts, one is 30 megawatts. One of those sites is already partially ready where the utility lines are in place for us to drop transformers right on top of it and continue to build.

So we think that the 45 megawatts optimally can happen in quite a short period of time. I don't have anything specific on that, but we do think it can happen inside of 120 days is our target right now. More to come on that where I can provide a more detailed timeline. Probably in the next -- I call it in the next three weeks.

After that, the 30 megawatts, it's totally Greenfield. The utility is available basically at the property line. So it'll be a little bit more construction. But we're going to run both of these projects in parallel is the plan. So the target is to have all 75 megawatts built out before the winter kicks in, is the goal.

Obviously, Wyoming, one of the reasons we really like it is for the ambient air temperature year-round is much cooler. But with that also comes winter and snow. So our goal is to get everything built before a winter freeze happens in late October, early November. .

That's great. Super helpful color.

And how has the M&A landscape and conversations you've had evolved since the halving in the subsequent drop in hash prices we've seen? Is there a general profile of potential sellers that you've observed in your conversations? And then also be curious to see is there a specific range you're looking for as it relates to the scale of these mining facilities.

Could we see -- I know you mentioned additional tuck-ins in the future, but how should we think about the megawatt of power capacity for any potential future acquisitions that you look at? Thanks. .

Yes, so the landscape has opened up quite a bit. We have historically always kept a dozen names in a pipeline that we kind of rotate through saying no to a lot of opportunities. I'd say that the opportunities are continuing to grow. It was interesting because, at the halving, there was the fee event where for a few days, transaction fees spiked.

And I think it breeds some hope into some miners that were less efficient. And now that a few days or weeks have gone by, we've seen kind of the -- a few of them give up. A lot of incoming calls, a lot of opportunities that exist. Now as it relates to size, we're really open to anything.

Now the benefit we have is with the access to capital and the tools we have in place, big or small, works great for us. We've already proven that we can accomplish a lot with a little. If you look at how we did Dalton, we started that location with 20 megawatts and have since added on top of it and will continue to grow. Same thing in Mississippi.

We have three sites. Some are small, some are large, and we have ability to continue to grow in Mississippi.

So for us, I think that the importance is if it's a small site, what is the ability to grow in the surrounding area or if it's a large site, what scale are we going to get? What I will say, I made the comment about how we prefer acquisitions over mergers, and that's because sometimes mergers are harder to do.

In order to gain the efficiencies that need to come from a merger, it means that the -- there's largely going to -- there's likely going to be overhead that needs to come off. And so I think that that is still conversations that are open and happening.

They are happening, but it's going to be something where the more large-scale companies that do have a lot of overhead. They're going to be -- they're slower coming to the table because, of course, it means that part of their overhead operations won't exist afterwards because we are positioned to absorb that.

So how we're thinking about it is, I think private is the quickest path to adding megawatts. Public will come later, but it's going to come whenever the other side is ready to let go of some of the overhead and ultimately the salaries that are involved in that. .

Really interesting color. Thanks for taking my questions, Zach. .

Absolutely. .

And your next question comes from the line of Brian Dobson with Chardan Capital Markets. Your line is open. .

Thanks so much for taking my question.

I guess just to follow up on your investment in Wyoming can you speak a little bit to the call, it relationship with the utility or local municipality that may have led you to choose this as a site for expansion?.

Yes. Brian thanks for joining. Wyoming has been a state where there's a lot of support. You have Senator Lummis there who has really been an outspoken supporter of bitcoin and really blockchain technologies. In the state of Wyoming, there's actually a blockchain rate that we are going to get access to as part of this.

And so in addition to that, there's a lot of abundant power. So wholesale power prices are incredibly low cost. And that's really what drew us. There is a very strong political environment and support of bitcoin and then a utility that is so welcoming to it that there are rates established around it.

So from a relationship side, we've had conversations off and on with many utilities, but this is one of those utilities that we've spoken to -- for -- as far back as 3 years ago. And we put down conversations, picked them back up, and we decided now is the right time.

So, these -- I think that's another benefit that we don't speak about often enough is we spend a lot of time building relationships and the credibility that we've been able to gain in the communities we do operate in. It then carries over so that when the communities are ready to embrace bitcoin mining and CleanSpark.

We're one of the first calls that can come in. .

Excellent. Thank you very much. That's great color.

As you're thinking about the M&A environment in the back half of the year, do you think you could elaborate on potential funding sources for an acquisition? Would you be looking at equity? Would you be looking to use coin? Or would it be potentially a mixture of both?.

We would probably look at cash on the balance sheet and also equity. We're at a stage too, where there are small groups, private, public, both sides, that of interest to them is not selling and giving up, but it's really joining the team. And as part of joining the team, they would take equity.

Historically, almost all of our transactions where we've acquired companies, it's been in the form of cash, because the other parties needed cash to pay off debts or obligations, things like that. So they didn't have a choice. Some of these operations now, again, it's about joining the team.

And so I think that we could see an acquisition even where equity is the sole use that we have, where they become shareholders. It's not an issuance of -- into a raise, but instead where they fold in and become part of the CleanSpark team. .

Yes, very good. Thanks. I'll hop back in the queue. Thanks very much. .

Thanks, Brian. .

And your next question comes from the line of Reggie Smith with JPMorgan. Your line is open. .

Hey, thanks for taking the question. This is Charlie on for Reggie. I was hoping to get a few more details on the two Wyoming sites. First is the 40-megawatt site, was that site already being used for bitcoin mining? And then second question related to the 30-megawatt site.

Have you guys built out a facility from scratch before? I know your recent acquisitions have been turnkey. Just wondering what experience you have in building out a Greenfield site. Thanks. .

Hey, Charlie, thanks for joining the call. I'll address the build-out. We just finished 150-megawatt build out. Before that, we built out 80 megawatts. Before that, it was 20 megawatts and before that, it was 30 megawatts. So, we have quite a few megawatts in a lot of different locations under our belt. So I consider us pros on the build outside.

As it relates to these sites, the 45 megawatts site, yes, has been used for bitcoin mining. But as part of the purchase, the seller is taking the equipment with them, which we're okay with. Because we like the sites to be built the CleanSpark way. As we mentioned, we prioritize high uptime as one of our key tenants.

And so we will be adding in infrastructure to support that tenant of high uptime. And again, the benefit though is some of the utility side is already done. So our goal is to be able to come in, drop transformers, drop the infrastructure quickly.

And so even though the other party will be removing their infrastructure, which is in the form of pods, we should be able to drop things in right on the back end of it very quickly. .

Got it. And then, in terms of longer lead-time items like transformers, maybe I just missed it, but are those staying on-site or do you have those on hand and you're going to be bringing in your own? Any details there would be great. .

Yes, we stay ahead of the curve by actually buying more infrastructure than we have immediately going on. So we have over 50 megawatts of transformer and switchgears already ready to go. So that will be our jumping-off point. We have strong relationship with these manufacturers with the ability to ramp up their supply chains.

So in this case, as of right now, we do not see supply chain constraints impacting these at all, because we already have a very large portion of the 75 megawatts already secured. .

Perfect. Thanks for taking the question. .

Hey, appreciate it. Thanks, Charlie. .

And with no further questions, I would now like to turn the call back to Mr. Isaac Holyoak for closing remarks. .

Thank you, Regina. And thank you to all who joined our earnings call today. We look forward to sharing more of our journey with you in the coming quarters. Stay tuned for more groundbreaking events from CleanSpark. .

Ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect..