CleanSpark, Inc.

Ladies and gentlemen, good afternoon. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the CleanSparks third quarter fiscal year 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 this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw this question, again, press star one. Thank you. I will now turn your conference over to Brittany Moore, Director of Investor Relations. Brittany, you may begin.

Thank you, Krista. And welcome to CleanSpark's third quarter 2024 earnings call, covering the period April 1st to June 30th, 2024. Our press release was issued about five minutes ago and is available online. on our website at CleanSparks.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 Beccarelli, 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 factor 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, Brittany. Good afternoon, everyone, and thank you for joining us today. Before I start with my prepared comments, I want to thank you all for your patience due to the short, unforeseen delay with our earnings release in this call. As a result of our rapid growth, we've gone through a number of changes. Most recently, upgrading our external audit firm to a well-known, highly respected national firm, BDO. The team at BDO have been incredible in their efforts to familiarize themselves with our company as part of our first quarter together. Ultimately, as you can expect with any new relationship, sometimes you just need a little extra time. In addition, as you're reading our Form 10-Q file today, I'm pleased to announce our agreement to acquire up to an additional 22.8 exahash per second of the all-new S21 XP series of immersion-cooled miners, operating at an efficiency of 13.5 joules per terahash. We've secured 7.8 exahash per second of these miners for delivery before year-end, which will be going to Wyoming. This purchase will drive us even further ahead of the pack when it comes to overall fleet efficiency which we believe will be a critical differentiator during this cycle. And as usual, we've secured the best pricing available for these units. With that, and again, thanks for your patience, let's begin. This quarter has been one filled with change. The Bitcoin halving event is now behind us, and I'm pleased to report that our momentum has not slowed down. For the second consecutive quarter, we've exceeded $100 million in revenue, and produced $290 million in revenue since the beginning of our fiscal year in October 2023. We grew our hash rate by 4x a hash per second and delivered on our commitment to achieve 20x a hash per second by the end of the quarter. As we look forward to the end of this year, I am happy to report that we remain on track to meet and optimally exceed our target of 32x a hash per second. In line with this, it's my pleasure to announce that as of last night, we achieved 22.3 exahash per second. The foundation of grit, commitment, and scale we built over the years has proven to be robust and enduring. Our achievements this quarter are a testament to our strategic vision and the relentless efforts of our team. We've not only maintained our growth trajectory through halving, but have also set new benchmarks in operational efficiency and market leadership. We intend to continue building on that strong foundation, reinforcing our position as market leaders. The post-tapping environment has highlighted our strengths and adaptability, allowing us to navigate this period with confidence and agility. I want to highlight that our energy background has been foundational to this success. While we have seen peers struggle to balance Bitcoin production and energy costs, our teams have seamlessly integrated into the new normal, utilizing our expertise and proprietary methods and technology to continually optimize our production to deliver the best results to our shareholders. Our focus on innovation, operational excellence, and strategic growth ensures that we are well positioned to capitalize on the opportunities that lie ahead. The journey we embarked on years ago is far from over, and I'm confident the best is yet to come. I'd like to take a moment to discuss our portfolio of data centers and our performance in the space. Our strategy has always been one of infrastructure first. Owning and operating our sites has been the center of what we do, and the current market environment is showing how difficult it is for peers who have taken different paths. Also central to our strategy has been our distributed portfolio. This means we aren't dependent on the output from any single site or utility, giving us flexibility and resilience. Over just the past nine months, we've expanded that strategy significantly. We've grown from operating five sites in Georgia to now operating more than a dozen unique sites over four states with several more to come. This infrastructure growth has greatly enhanced our scale and the overall value of our portfolio. We're seeing the benefits of this strategy in our performance and it positions us well for continued success in the future. I want to drill down a little deeper into why this matters and why I believe our shareholders and investors at large should be paying attention to this. First, it's important to understand that energy markets are regulated at state and local levels. By being spread across multiple states and jurisdictions, we are significantly de-risked as compared to what are often referred to as super sites. Second, our portfolio is comprised of sites that have differing power contracts, including both fixed pricing and market-based pricing. This provides us with the flexibility to manage our fleet as a whole. Recently, Historically low wholesale pricing in Georgia has produced higher margins than when compared to strictly fixed price markets. Although highly profitable, wholesale markets can be affected by weather events, making the fixed price agreements in our portfolio highly advantageous during these weather-driven short-term events. We take a great deal of pride in our high uptime, but sometimes perfection isn't the right answer. Having the flexibility to curtail on a moment's notice can eliminate exposure to pricing spikes, bad hedges that can adversely impact profitability. This is the beautiful nature of Bitcoin mining as potentially the most flexible and profitable energy load management system on earth. Cities, states, our federal government and foreign nations are just now understanding the benefits that Bitcoin mining can bring to create more resilient and profitable grids of the future. And we intend to carry the CleanSpark flag forward into this brighter, better future of energy resiliency. As part of this path, I want to highlight our key achievements over the past quarter, focusing on our quarterly revenue performance, strategic acquisitions, and our roadmap to achieving 32x a hash per second by the end of this year, and our continued pathway to 50x a hash per second in 2025. I'd like to emphasize our exceptional top line performance. With total revenue of $104 million this quarter, we delivered a gross margin of 57% on this revenue. Further, the top line represents an increase of 129% over the prior year's fiscal third quarter results. Now this success may not be easily identified on the face of our financials this quarter due to some non-cash items, including the change in fair value of Bitcoin, and an impairment charge related to our current fleet upgrade cycle, which we've chosen to implement ahead of schedule. Before I get into the details, I want to call out that excluding these two items, our operational efforts paired with the industry's most efficient fleet resulted in approximately $35 million to the bottom line before non-cash items. Our long-term strategy is to remain the most efficient large-scale Bitcoin miner in the industry. Over the past year, we have secured best in class mining equipment at best in class prices. As a result, we've already upgraded a substantial portion of our fleet. And over the next several months, we expect to continue this cycle. Specifically, we plan to remove all units from the fleet that are less efficient than 22 joules per terahash. I want to emphasize that the rigs being upgraded are still currently competitive and profitable. These are proactive steps to ensure our position as the most efficient large scale miner, enabling us to withstand and more importantly thrive during periods of future market volatility. Further, by removing the less efficient units now, we can maximize the resale value in the secondary markets. Our industry is unique in that the product of our efforts is dictated by an algorithm. that caps the total number of Bitcoin available each day at a static number, currently 450, thereby limiting potential revenue earned, unlike mining gold, whereby deploying more shovels and manpower is likely to result in more resources extraction. This is why our focus on adding efficiencies through economies of scale and growing our market share of Bitcoin reports has been central to our strategy. In recent months, we've seen a number of industry participants announce a shift towards new endeavors in AI and HPC. And we wish each of them good fortune. For in our view, every dollar of peer invest outside Bitcoin mining represents an opportunity for us to maintain and increase our share of the 450 Bitcoin available each day. We are fortunate to have abundant access to increasingly scarce, low cost, low carbon power. By accelerating our fleet upgrade and replacing older rigs, we are getting the compound benefit of substantial increases in hash rate using the same power resources. At a time when the daily Bitcoin earnings for the next four years is potentially at its highest. I will let Gary provide a bit more detail on the mechanics of the accounting treatment a bit later in the call, but I wanted to address the topic head on. as we see it as a tremendous opportunity. During the quarter, we reached and exceeded a number of milestones, including operational hash rate, lead efficiency, and Bitcoin produced. We disclosed in our June monthly mining update, we achieved and exceeded our stated mid-year target of 20x the hash per second in total operational hash rate. By achieving 20x a hash per second, we more than doubled our total hash rate since January of this year. As I mentioned earlier, we've already increased our hash rate over 10% in a little over a month to 22.3x a hash per second. We are on our trajectory to quickly double our hash rate once again. Our path to 32x a hash per second and beyond is clear. Now it's up to our talented team to execute on our plans, and our past performance indicates we have the ability to achieve these targets. I'll take a moment and provide some important details on the path forward and the steps we are taking to reach and exceed 32 exahash per second. We've continued pursuing M&A opportunities to strategically secure additional power contracts and infrastructure, resulting in rapid and immediate megawatts. In parallel, we've continued to lay the groundwork for greenfield and brownfield construction for 2025 and beyond. We expect that after the current fleet upgrade is complete, we will exceed 28 exahash per second. We will then only need to bring 65 megawatts of additional infrastructure online to add the four more exahash per second needed before year end. With that, I'm pleased to announce that the city of Sandersville has informed us that they have resolved the issues with a substation transformer, and they expect to provide us with the final 50 megawatts of power this September. When added to the 15 megawatts that are about to go live in Dalton, Georgia, this will allow us to meet the 65 megawatts of need, adding, again, 4 exahash before the end of September. Beyond the opportunities just discussed, We also have 30 megawatts under active development and an additional 188 megawatts under binding purchase agreement, making our targets very achievable before even considering the substantial pipeline of additional opportunities we are pursuing. Looking beyond the end of this year, we've identified a clear path to expanding our footprint in two states. In Tennessee, We have a target to reach 200 megawatts in 2025 and over 400 megawatts by the end of 2026. We also expect to continue our growth in Wyoming, where we currently have 75 megawatts under contract, but we intend to expand to several hundred megawatts in the coming year. I have full confidence in our team's ability to execute on this ambitious agenda. Our conviction in achieving this remarkable goal is built upon our plan to execute a very similar strategy in Tennessee and Wyoming, as we've proudly achieved in Georgia over the past three years. While our trajectory in Georgia has been impressive, our recipe for success in this key market was developed as a direct result of a rapid ascent of the learning curve. Through grit and relentless hard work, we learned from each of our incremental wins, as well as the challenges. Maintaining a mindset of continuous improvement, we were able to refine our formula into a blueprint for success, one which we believe optimizes the countless variables to drive maximum efficiency. The lessons learned in Georgia, whether they relate to structural design of the facilities to improve cooling efficiency or the standardization of our site configuration to streamline operations and maintenance, reflect the impact of the many small details we pay close attention to over time. We've optimized all of these in order to gain a percentage point of efficiency here or a point of reduced downtime there. But when employed in concert, embody the level of efficiency we constantly strive for. Importantly, each of these lessons were learned and developed with a single common element in mind, repeatability at scale. It is this template we've arrived at, which we believe we can successfully implement wherever we set our site, be it in close proximity to an existing site or on distant shores, which gives me the confidence in our team to deliver similar results in Tennessee and Wyoming as we have enjoyed in Georgia. We are also incredibly excited about the people and communities in these great states. They are full of hardworking people with a type of grit that can't be taught. but that instead must be instilled from the beginning as a foundational core tenant. They're also home to some of the largest utilities in the country, including the Tennessee Valley Authority, which has abundant renewable and nuclear power. We have the power contract, we have the hardware, but perhaps most importantly, we have the people and the grit to execute this plan. We will continue to remain highly active in M&A on our path to achieving our growth targets for 25 and 26. While M&A is an important pillar of our strategy, I want to reiterate the importance of the other critical pillar to executing these targets, and that is harvesting the significant inventory of organic opportunities before us. By deploying the blueprints for success I just described to the existing opportunities in our current portfolio of assets and other greenfield opportunities, we believe our multi-year goals are well within reach. As we continue to expand and scale, efficiency will remain a crucial metric for us. Our efficiency ranks amongst the best in the world. A core component of our strategy is to remain the leader in energy efficiency. In our view, the winners in this industry will not be crowned simply by a measure of total hash rate, but by the ability to endure and thrive in all markets, both bull and bear. Our current fleet efficiency across the entire portfolio stands at an industry-leading 22.3 joules per terahash, down from 28.4 joules per terahash at the beginning of our fiscal year for an overall 21% reduction in the power required to produce hash rate, while during the same period more than doubling our total hash rate. In summary, we are extremely pleased with the results achieved this quarter. Our combined opportunistic approach to M&A, combined with a nimble approach to balance sheet management, as evidenced by our pivot and our hodl strategy prior to the most recent run-up in the price of Bitcoin, have enabled us to reach new heights as a market leader. Before I hand the call over to Gary, I'd like to thank each and every member of the QueenSpark team, without whom this would not be possible. Our outstanding performance is a testament to the relentless focus and dedication of our entire team. Every member of the QueenSpark family embodies our core values of grit and operational excellence on an individual level. I am particularly proud of the team's impressive performance considering the discipline required to maintain such high standards during a time when our operating hash rate more than tripled in a 12-month period. With additional size and scale comes unique challenges and hurdles Yet, despite this rapid growth, our commitment to excellence has remained unwavering across the organization. With that, I'd now like to turn the time over to Gary to review the quarter's financial results in greater detail.