CleanSpark, Inc.

Good afternoon. My name is Jean-Louis, and I will be your conference operator today. At this time, I would like to welcome everyone to the 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. Thank you. At this time, I would like to turn the floor over to Isaac Holyoake, Chief Communications Officer. Go ahead, sir.

Thanks Jael and thank you for joining us today for CleanSpark's fiscal second quarter financial results call covering the period January 1, 2023 through March 31, 2023. Our press release was issued about 30 minutes ago and is available on our website at www.cleanspark.com forward slash investors. Today's call is also being webcast and a replay and transcript will be available on our website. I'm here with Zach Bradford, our Chief Executive Officer, and Gary Becchiarelli, 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 businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. We will also discuss certain non-GAAP financial measures concerning our performance during today's call. You can find the reconciliation of GAAP financial measures in our press release, which is available on our website. It is now my pleasure to turn the call over to Zach.

Thank you, Isaac. Good afternoon, and welcome to our second quarter earnings presentation. Thank you for joining us to learn more about how this quarter has positioned us to reach our year-end target of 16 exahash per second, which I add, we've been making noteworthy progress towards. The Washington expansion is well on its way to being fully operational. The land at Sandersville has been leveled and prepared for construction, and we've acquired 99% of the machines either under contract or in transit that we need to fill both of these facilities. It has been a quarter of execution. The work ahead of us is about fulfilling the existing commitments we've made to you as shareholders as we grow quickly and mindfully in preparation for halving next spring. I want to share more of our near-term vision with you later in this call, but first, I'll review some of the key highlights for the quarter. We ended our second quarter with a hash rate of 6.7 exahashes per second, almost triple where we were during the same period last year. That hash rate, even with difficulty reaching all-time highs, resulted in 1,871 Bitcoins mined, doubling what we mined during the same period last year. Recall that Bitcoin's price was substantially higher a year ago. During this time last year, we mined fewer Bitcoin, but the value of that Bitcoin was higher. This resulted in revenues increasing slightly when compared to the same prior year period. When compared sequentially, Bitcoin's recent price recovery has resulted in higher revenues quarter over quarter. In particular, I would like to call out that our efforts resulted in adjusted EBITDA turning positive for the fiscal year to date and the current quarter, reversing and overcoming the negative adjusted EBITDA we experienced last quarter during the lowest of the bear market lows. I also want to take a moment to discuss our efficiency. Efficiency is one of the most important indicators for miner health as we head towards halving. In April of next year, the block reward will decrease from 6.25 bitcoins to 3.125 bitcoins. While a corresponding price action is expected to take effect, as it has in past halving cycles, only the most efficient miners will have the production capacity and balance sheets to capitalize on this historic event. At CleanSpark, we are positioning ourselves to take full advantage of the halving by ensuring that we are among the most efficient miners in the industry. Right now, our fleet average is 31 watts per terahash. As the XPs we ordered last month are delivered and come online, we expect our fleet-wide efficiency to accelerate. landing us at or below 26 watts per terahash on a fleet average. As I mentioned, efficiency will be one of the most important metrics for analyzing miner health as we near Bitcoin halving. Let me take a moment to share with you how we are preparing ourselves to capitalize on the events surrounding halving. Preparing may be too passive of a word. In fact, we are training for halving. As with any big race, the real work starts months and months before meeting the starting line. This work is the growing phase of our training regimen. We are logging miles, carving up, and driving energy into our operational muscles. As all worthy competitors know, to really excel on race day, the initial pace of heavy training must be carefully moderated. In fact, to win the race, competitors adjust the regimen to be a little less intense as the race start becomes imminent. The reason for the adjustment is to store energy that can then be spent on race day once the starting line is crossed. For us, that starting line is not on a trail or a mountain bike. The starting line is halving and the beginning of another four-year cycle. I'd like to share with you two principles that are guiding our training regimen. Our first principle is mindful growth. There is a season for rapid growth, and there is a season for slower and more moderate growth. We are in a rapid growth phase and will continue there for the next few quarters. For perspective, we expect to more than double our hash rate by reaching our guidance at the end of the calendar year. That is extraordinary growth. As I said earlier in the call, we have secured about 99% of the machines we need to reach our targets, and the infrastructure that will house those machines is advancing at pace. We are excited to have you on board for this rapid growth stage and for the returns we expect to generate. We believe this is an exceptionally good time to be a CleanSpark shareholder. Our second principle is maximizing profitability. We expect to achieve this through efficiency gains and the benefits of scale. There is a misunderstanding about our industry that the work is as simple as finding cheap power, plugging in a machine, and then riding it out. but a little sophistication goes a very long way. We have been implementing various high performance and high efficiency measures at many of our sites and have found that we can meaningfully increase the margins of the Bitcoin we mine with minimal impact on the total amount of Bitcoin we mine. This means that for every Bitcoin we mine, we can drive more to our bottom line where it will stay. In addition to efficiency, The benefits of scale are essential to maximizing profitability. Scale provides certainty, and that certainty will matter more than ever in the next cycle. First, scale allows us to more efficiently manage corporate overhead. We expect to stay lean even as our operations grow, which means more dollars make it to our bottom line. Secondly, scale gives us the flexibility and optionality to make acquisitions that are funded with our own operating capital. Maximizing profitability during the last few months preceding halving also allows us to hunker down, increase our HODL balance, grow our capital, and prepare to make good on the events surrounding halving when that moment arrives. In this manner, our rapid expansion and the resulting scale prepares us to shift from growth to building our balance sheet so we are well positioned for the opportunities we expect halving to bring. Of course, halving is not next quarter or the one after that, but it's on the horizon. Let me tell you a little about what you can expect this summer, because it is shaping up to be very productive. First, let me start with machine deliveries, then I'll share the details of our campus expansion, both in Washington and Sandersville. As I mentioned, our future deliveries include 20,000 Bitmain S19 J-Pro Pluses and 45,000 XPs. The purchase of those XPs was a big win for our shareholders, and I'm proud to claim that with this purchase, we called the bottom of the market for the price per terahash for the XPs. These are incredibly efficient miners, and we are thrilled to add them to our fleet. We predicted XP prices would drop, and we patiently waited to make this purchase until the conditions were right, resulting in what we believe is a better ROI on the purchase as compared to any of our peers. Once received and energized, these machines will add 8.74 exahash per second to our hash rate, giving us a total hash rate of 15.9 exahash, leaving us a small delta of 100 petahash per second to reach our targets. We're working closely to close that gap now, and we are holding conversations that we expect to lead to securing the additional hash rate we need. We expect to fill this gap with additional XPs, hash rate I might add, that will be owned and operated by us. Our Washington expansion, which is expected to add almost 2x a hash per second to our operations, is on schedule and expected to go live in mid-June. Our teams and partners have worked tirelessly to meet deadlines. As you can see in the photo on your screen, that work is paying off. By the end of this week, three of the four buildings will be complete. The fourth building is ready for the racks to be installed. And we expect to start racking machines in the completed buildings this month, so that once we are ready to turn on the power, the facility can go live without delay. I'm grateful to our partners in Washington. Our work there has been good for the heart and soul of the company. The team there is dedicated to the vision and the community is proud to have us as an anchor institution in the town. We are an important driver of the tax base and an increasingly important voice in the community. We thank the citizens of Washington for welcoming us with open arms and we consider them as part of the Clean Spark family. Allow me to update you on the Sandersville expansion. This expansion, once fully complete, will add 6.3 exahash per second to our operational capacity, bringing the total capacity at Sandersville to 8.6 exahash per second, making it one of the largest Bitcoin mining data centers in the country. We are carefully managing supply chain risk related to the project to ensure energization occurs simultaneously with the final machine being plugged in. We intend to build the Sandersville site using a traditional air-cooled method, much like our data center in Washington. The campus is on the outskirts of the community, distant from schools and neighborhoods, yet close enough for our teams in Sandersville. We'll supply further updates on the timelines in an upcoming monthly update. Lastly, I want to briefly touch on the political climate in the United States. We are closely following policy and regulatory developments. We expect mining policy in America to be enacted at the state level. And we are happy to see states across the country enact policies that are protecting this important freedom. Bitcoin's volume has reached record highs in the last few weeks, a sign that more people are turning to this essential commodity as both a medium of exchange and as a store of value. Before turning the floor to Gary, I'd like to end by thanking our teams for their grit and resolve. We have the hardest working teams and best culture in the industry, hands down. I can't imagine a better group to lead. We are committed to this work because we believe it's transformational. That belief powers everything we do. I couldn't be prouder of them. To you, Gary.