CleanSpark, Inc.

Good afternoon. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to CleanSpark's fiscal full year 2023 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. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star 1. Thank you. And at this time, I would like to turn the floor over to Isaac Holyoaf, Chief Communications Officer. You may begin.

Thank you, Krista, and thank you for joining us today for our Fiscal Full Year Financial Results Call covering the period October 1, 2022 through September 30, 2023. Our press release was issued about 30 minutes ago and is available on our website at www.cleanspark.com. So we expect to file our form 10-K tomorrow. 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 Vaccarelli, 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. 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.

Thank you, Isaac. It's a pleasure to be here with you all today. This past fiscal year has been one of substantial growth and success for CleanSpark. We've not only met but exceeded many of our strategic aims, and I'm proud to share these accomplishments with you. It was a record-breaking year for us financially and operationally. We posted revenue of over $168 million, a 28% increase over the last fiscal year. We expect to continue to follow this trajectory and we are optimistic about revenue growth next year, even as we prepare for the halving. For example, during the last month, we posted our first single day revenue of almost $1 million. Like analysts across the traditional financial industry, we are bullish on Bitcoin. We believe that its utility as a payment system, investment opportunity, and savings tool for the middle class will continue to grow as more and more people take part in this next stage in the evolution of money. Operationally, our hash rate growth year over year has been exceptional, highlighting our commitment to not just growing, but also scaling efficiently. In fact, we've achieved a remarkable milestone this year by surpassing a total hash rate of 10 exahashes per second. a level reached only by a select few in our industry. Our hash rate has more than doubled since I spoke with you one year ago during our last fiscal year earnings call. What's more, our hash rate is among the most efficient among publicly traded miners, thanks to one of the most advanced fleets in the industry. Our fleet-wide efficiency is now 26.4 joules per terahash, and we expect to continue to see sustained improvements in our efficiency with Sandersville coming online in the next few months. I'll talk more about this in a bit, but for now, let me emphasize that this growth is a testament to our team's hard work and the strategic investments we've made in our technology and infrastructure. We've kept pace with the Bitcoin's network's soaring hash rate, and the results of our efforts were a record 6,000 902 Bitcoin mined for the first fiscal year, almost doubling what we mined last year. We mined that Bitcoin with an average gross margin of 42%. I'm also pleased to report that we are entering the new year with the strongest balance sheet in our history. As of this call, we have almost $170 million in liquidity in cash and Bitcoin holdings. I'd like to talk about our strategy around holding more Bitcoin on our balance sheet. We see Bitcoin as a smart treasury tool, and we expect Bitcoin to continue to increase in value over the near term. We plan to be opportunistic about how we use that Bitcoin for future growth opportunities. You'll notice that we grew our balance swiftly over the last few months. We did this to strategically boost the balance as we sensed price improvement was on the horizon. We expect to continue to grow our Bitcoin treasury, but we have shifted back to a strategy of using our Bitcoin for expenses and holding the difference. We plan to maintain strategic flexibility in how we make capital decisions with our Bitcoin. As we head into halving, I expect us to lean into a balanced strategy of maximizing our holdings while also using Bitcoin to fund our operations and therefore avoid using equity to fund operating expenses. Seems like a long time ago now, but it was at the beginning of our 2023 fiscal year that we acquired our Sandersville location. More recently, we acquired our Dalton campus. We now have sites dotted across Georgia. Proudly, many of them are in rural communities where we where we can have an outsized impact on the economic engine of the community and the power purchasing strategies of the respective utilities. We continue to maintain good relationships with our hosting provider in upstate New York and see that partnership as part of our approach to a diverse operating framework through halving. The acquisitions of Sandersville and Dalton were pivotal in our growth strategy. These acquisitions have allowed us to expand our reach and capacity. In the case of Dalton, it has allowed us to further diversify our utility providers as the city has its own independent power department. We are making significant progress on the expansion of Sandersville, and I will share more about Sandersville later in my remarks. It's exciting to see these plans materialize, contributing to our goal of keeping our status as one of America's leading Bitcoin miners. Earlier this year, during summer, our expansion in Washington went live, marking a critical step in our strategic efforts to diversify and strengthen our operational footprint. This facility not only enhances our production capabilities, but also exemplifies our commitment to sustainable and responsible mining practices. The expansion added 50 megawatts of operational infrastructure for a total of 86 megawatts, which is currently capable of around 6.5 Bitcoin a day. In line with our growth strategy, we've aggressively expanded our machine inventory, specifically targeting the most efficient miners. This year, we continued our proven track record of buying state-of-the-art machine equipment at market-setting prices. The result is that we have increased our operational efficiency and output, These machines are not just an investment in hardware, but in the future of CleanSpark. We've been particularly strategic in our acquisitions, purchasing over 80,000 machines, including 57,500 S19XPs. Those XPs have since all been delivered, and many of them are waiting to be racked and energized at our Sandersville facility. We also have an additional 22,000 S21s with delivery expected to begin in January 2024. As we look beyond this quarter, post-Sandersville expansion and into halving, we plan to aggressively focus on incremental gains in performance and outperform our peers with these gains. We also plan to continue to strategically upgrade our machines and optimize our software. ensuring that we stay ahead and at the forefront of the Bitcoin mining industry. These enhancements improve our efficiency and profitability. I want to take a moment to define what we mean when we discuss efficiency of our operations. We measure efficiency at multiple levels. The most important, though, are energy efficiency and uptime efficiency. Energy efficiency is the amount of energy it takes to produce a Bitcoin. Staying at the forefront of energy efficiency gives us a meaningful advantage. Even now, we are producing up to 37% more Bitcoin with the same amount of energy as some of our less efficient peers. Uptime efficiency refers to our ability to maximize the available shelf space and power at our sites. We limit the time in which a miner is offline or a rack is unused. We have increased uptime by pursuing the following initiatives. Building out our internal repair capabilities. Optimizing our software stack and training our teams to rapidly address downed miners. We also maintain a small safety stock of extra miners at each site to allow for rapid swaps of miners. If a miner needs to be taken off the shelf for repairs, we put a new miner in its place instead of leaving an empty slot. Earlier this week, we achieved 99.87% uptime across all of our wholly owned sites, meaning that 88,710 of 88,825 available slots were hashing. Efficiency is crucial as we head towards halving. We use software to make our machines more efficient. For example, we can underclock our machines whereby we can choose to reduce their computing power by an average of 27% while reducing their energy consumption by almost half. This is the equivalent of mining three quarters of a Bitcoin at a little more than half the energy consumption and cost as it would take under normal conditions. To put another way, This is like mining 1.26 bitcoins with the same amount of energy that it would normally cost to mine just one bitcoin. We also use software to optimize or overclock our machines. Generally speaking, overclocking means that the machine consumes more energy to increase hash rate. We can actually increase a machine's hash rate by about 12% with no increase in energy consumption at all. To build on my earlier math, it's like mining 1.12 Bitcoin at the energy consumption level of what you would normally see when you mine just one Bitcoin. In an immersion cooling environment, we can push those efficiency gains even further. We expect to see our efficiency continue to improve into halving due to these initiatives and the deployment of the new S21 Bitcoin mining machines. the most efficient miner currently available in the market. Once installed, we expect our hash rate to exceed 20 exahash per second. Timing has always been a key part of our strategy, and I believe we've done it better than anyone. We will continue to time our strategic purchasing and growth to seek out the best returns for our shareholders. Subsequent to the fiscal year end, we've continued our expansion acquiring new machines that align with our long-term strategies and growth goals. This ongoing investment in our infrastructure is key to keeping our competitive edge and driving sustainable growth. Our recent acquisitions and machine purchases made strategically during the bear market have positioned us exceptionally well for the upcoming Bitcoin halving. We are scaling up our operations in anticipation of the next Bitcoin halving, ensuring that our infrastructure is robust and efficient. Our team is working tirelessly to enhance our operational capacity, and we are excited about the potential this expansion brings. Principally, we are excited about achieving scale. We expect our corporate overhead to remain flat going forward while substantially growing our operations. Internal analysis suggests that the financial effects of this are large. It's on par with lowering our all-in cost by almost a full penny per kilowatt hour. For example, we can increase machine inventory, power under management, and hash rate without having to make proportional increases in overhead, both in terms of office space and headcount. Our principal cost driver is the cost of our energy. We expect to continue to expertly manage this cost while keeping overhead down, thus driving more value to our shareholders. In terms of our energy acquisition strategy, we've been meticulous and strategic. Our goal has always been to strike the right balance between cost effectiveness and sustainability. We've adopted innovative approaches to energy consumption. focusing on investing in communities that have access to low cost energy sources. Most of these energy sources are renewable or low carbon, like nuclear energy. Access to nuclear energy is one of the principal reasons we've made Georgia our home. There is abundant energy in Georgia and is a net exporter of energy. We are thrilled to be able to work with rural communities throughout Georgia to keep that energy in the community. This approach not only aligns with our commitment to environmental stewardship, but it also ensures long-term operational efficiency and resilience. We consume a lot of energy as a Bitcoin miner, and we are committed to being wide stewards of that energy. We view our consumption as essential to securing and maintaining a robust, decentralized money. Despite substantial growth over the last year, we continue to see most of our energy mix being derived from clean energy sources, showing our dedication to responsible mining practices. As we look to the future, the expansion of our Sandersville facility is a key focus. Once completed, Sandersville will be the largest Bitcoin mining data center in Georgia, and we believe, in the entire Southeast. The site itself will be capable of producing over 6 exahash per second and will hold about 45,000 machines. For those of you who have followed along with our monthly updates on YouTube, you'll notice that the site has seen sustained progress. Most of the subsurface infrastructure like conduit, trenching, and concrete is in place, while the teams are making substantial progress on erecting buildings and installing rackings. We expect the site to be complete in the coming weeks, ready for full energization shortly after that. Sandersville holds a special place in our hearts and in the community, and we look forward to introducing the site to you when it's completed and energized early next year. I was recently in Sandersville, where we have four different trades working side by side in this rural community, working full-time jobs that they would not otherwise have access to. The economic impact of growth is sometimes unappreciated in our current macro environment. But for a town like Sandersville, growth like this is crucial for the town's ongoing success. After the expansion is complete, many of those trades will go on to other opportunities, but a robust workforce of Cleanspark employees will remain. While the city benefits from millions of dollars a year in tax revenue, and margins on the electricity we buy from the community. After Sandersville, we expect to need up to 72 megawatts of additional capacity to support our growth to over 20 exahash per second with the S21. We expect nearly half of this capacity to come through facility expansions at our existing sites. With that, I'm pleased to announce that we are making efforts to address the first 15 megawatts of this need by adding 15 megawatts of capacity at our Dalton campus. Once fully expanded, that campus will host an additional 4,320 latest generation S21 machines capable of 850 petahashes per second. We also plan to pursue adding up to 27 megawatts of additional capacity at other existing sites. All these plans, including the Dalton expansion, are subject to further approval. By expanding at our own properties, we expect to gain 42 megawatts, or approximately 60% of the power we need to exceed 20 exahash per second, without having to acquire or build new sites. We are currently reviewing additional opportunities that would more than cover the remaining 30 megawatt need. We expect to achieve 20x a hash per second in 2024 after the full delivery of the S21s we've recently ordered. We may also push beyond 20.4x a hash in 2024, but such growth will be done in a measured way as we approach halving. We plan to continue pursuing our M&A strategy on a post-halving basis at the right time and at the right value. In a way, these incremental additions now seem small after just talking about adding 150 megawatts all at once in Sandersville. But this move is strategic to how we see ourselves growing. Large mega sites can only be one part of a Bitcoin miner's portfolio. Instead, we see the future of our campus growth to be more distributed, minimizing the risks of geographic concentration. while maximizing the strength of local knowledge. With that in mind, we expect to continue to expand throughout Georgia, where we are local power experts. But we also expect to expand into new cities and diversify across multiple utilities. The nature of these expansions are likely to be more measured as we near the halving in April. I want to take a moment to thank our incredible team at CleanSpark, your dedication, innovation and hard work have been instrumental in achieving the milestones we've discussed today. It's your efforts that drive our successes, and I'm proud to lead such an outstanding group of professionals. I'd like to end with a shout out to three groups of people. First, thank you to the teams who are working to build our largest site in Sandersville. You can't get that level of cooperation without clear leadership and commitment to the project. Second, I want to thank our burgeoning repair team at our Norcross campus. The ability to make repairs in-house down to the chip level is a game changer. It means machines spend less time unplugged and more time hashing, directly contributing to the Bitcoin network and to shareholder value. Lastly, I want to thank the finance team at our corporate headquarters. Preparing fiscal year-end financial results over the holiday season is not on anyone's short list. not even a CPA shortlist. Thank you for your efforts. With that, over to Gary. Thank you, Zach.