CleanSpark(CLSK) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the periods ended March 31, 2023 Financial Statements This section presents the unaudited consolidated financial statements for CleanSpark, Inc. as of March 31, 2023, and for the three and six-month periods then ended Consolidated Balance Sheets The company's total assets increased to $531.6 million as of March 31, 2023, from $452.6 million at September 30, 2022, primarily driven by a significant increase in Property and Equipment, net Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 (Unaudited) | September 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $32,906 | $50,776 | | Bitcoin | $5,267 | $11,147 | | Property and equipment, net | $440,253 | $376,781 | | Total Assets | $531,553 | $452,625 | | Total Current Liabilities | $41,282 | $34,041 | | Total Liabilities | $57,672 | $48,613 | | Total Stockholders' Equity | $473,881 | $404,012 | Consolidated Statements of Operations and Comprehensive Income (Loss) For the six months ended March 31, 2023, the company reported a net loss of $47.5 million, a significant shift from a net income of $14.3 million in the prior-year period Statement of Operations Summary (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues, net | $42,546 | $37,198 | $70,365 | $74,323 | | Bitcoin mining revenue, net | $42,488 | $36,965 | $70,234 | $73,940 | | Total costs and expenses | $60,032 | $34,399 | $116,734 | $56,213 | | (Loss) Income from operations | ($17,486) | $2,799 | ($46,369) | $18,110 | | Net (loss) income | ($18,460) | ($171) | ($47,491) | $14,315 | Consolidated Statements of Cash Flow For the six months ended March 31, 2023, net cash provided by operating activities was $11.9 million, a decrease from $46.9 million in the prior year period, mainly due to the net loss Cash Flow Summary for the Six Months Ended March 31 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,876 | $46,882 | | Net cash used in investing activities | ($111,063) | ($131,110) | | Net cash provided by financing activities | $89,069 | $68,101 | | Net decrease in cash and cash equivalents | ($10,118) | ($16,127) | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial activities, including business acquisitions, strategic shifts, equity changes, legal proceedings, and subsequent events - The company's primary business is sustainable bitcoin mining, having discontinued its energy operations as of June 30, 2022, to focus exclusively on this sector[210][211][212] - In October 2022, the company completed the Mawson Transaction, acquiring a mining facility in Sandersville, GA, for a total consideration of $39.1 million, including cash, stock, and seller financing[42][257] - The company issued 37,061,234 shares of common stock under its At-The-Market (ATM) agreement, raising net proceeds of $99.5 million during the six months ended March 31, 2023[58] - Subsequent to the quarter end, on April 6, 2023, the company agreed to purchase 45,000 XP mining machines from Bitmain for $144.9 million[91] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's strategic focus on bitcoin mining, operational performance, and financial results, highlighting increased hashrate, production, rising costs, and liquidity management Bitcoin Mining Operations The company significantly expanded its mining operations, increasing its hashrate to 6.7 EH/s by March 31, 2023, from 2.3 EH/s a year prior, leading to higher production costs Hashrate and Efficiency Comparison | Metric | As of March 31, 2023 | As of March 31, 2022 | | :--- | :--- | :--- | | CleanSpark Hashrate (EH/s) | 6.7 | 2.3 | | CleanSpark % of Global Hashrate | 1.90% | 1.21% | | Miner Efficiency (w/th) | 31.0 | 30.7 | Cost of Mining One Bitcoin (Six Months Ended March 31) | Cost Component | 2023 | 2022 | | :--- | :--- | :--- | | Weighted average cost of mining one bitcoin | $12,403 | $9,055 | | Average revenue of each bitcoin mined | $20,651 | $47,429 | Results of Operations For the six months ended March 31, 2023, revenues decreased 5% to $70.2 million, while total costs and expenses more than doubled to $116.7 million, resulting in a net loss from continuing operations of $48.7 million Comparison of Results for the Six Months Ended March 31 (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Bitcoin Mined | 3,401 | 1,559 | | Average Bitcoin Price | $20,651 | $47,429 | | Bitcoin Mining Revenue | $70,234 | $73,940 | | Cost of Revenues | $42,498 | $14,320 | | Depreciation & Amortization | $40,675 | $17,879 | | Net (Loss) Income from Continuing Ops | ($48,654) | $17,676 | Liquidity and Capital Resources As of March 31, 2023, the company had a negative working capital of $8.4 million, relying on cash, bitcoin holdings, and ATM equity offerings for liquidity and capital expenditures - The company had negative working capital of $8,376 thousand as of March 31, 2023[140] - Principal sources of liquidity are cash, bitcoin inventory, and an At-the-Market (ATM) offering facility[140] - Cash from operating activities for the six months ended March 31, 2023 was $11.9 million, down from $46.9 million in the prior year period[144] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Based on their evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[159] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2023[160] PART II – OTHER INFORMATION This section provides additional information on legal proceedings and key risk factors affecting the company's operations and financial condition Legal Proceedings The company is subject to various legal proceedings arising in the ordinary course of business, with detailed information available in Note 12 of the consolidated financial statements - The company is involved in various claims and lawsuits; for details, refer to Note 12 - Commitments and Contingencies[162] Risk Factors This section highlights key risks facing the company, emphasizing those related to the volatile crypto asset market, including market disruptions, custodian risks, price volatility, and corporate indebtedness - The company faces significant risks from crypto market disruptions, citing the bankruptcies of FTX, Celsius, and others, which have caused extreme price volatility and loss of confidence in the digital asset ecosystem[164] - There is a risk that bitcoin held by a custodian (like Coinbase) could be considered property of the custodian's bankruptcy estate, potentially making CleanSpark an unsecured creditor and unable to recover its assets[166] - The company's indebtedness, including a $14.5 million outstanding loan collateralized by miners, could increase vulnerability to adverse economic conditions and limit financial flexibility[167] - The company does not hedge its bitcoin holdings, directly exposing it to significant price volatility; the market price of one bitcoin ranged from approximately $15,460 to $29,190 during the six months ended March 31, 2023[170]