CleanSpark, Inc.

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the CleanSparks fiscal full year 2025 earnings results. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star 1 again. Thank you. Harry, you may begin your conference.

Thanks, Colby, and thank you for joining us today to review the fourth quarter and full fiscal year 2025 financial results for CleanSpark. We encourage you to review our earnings results press release, which was issued today and is available on our website. Our 10K will be filed shortly. A webcast replay and transcript of today's call will be added to our website once available. On the call today, I am joined by Matt Schultz, our Chairman and Chief Executive Officer, and Gary Vaccarelli, our President and Chief Financial Officer. Some of the statements we make today will be forward-looking, 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 10-K. 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's my pleasure to introduce Matt Schultz. Thanks, Harry. Good afternoon, everyone, and thank you for joining us. I'm so excited to step back into the role of CEO at CleanSpark this past August after serving as executive chairman for the past five years. In my first 100 days, the team has been relentlessly cementing our current leadership position in Bitcoin mining while simultaneously positioning us to evolve our portfolio. We've also set a strategic direction for CleanSpark going forward as a digital infrastructure platform serving a wide range of compute opportunities. These opportunities include but are not limited to generative AI workloads, grid balancing through Bitcoin mining, and high-performance computing broadly. I've also had the opportunity to meet with many of you listening to today's call. Your enthusiasm for the future of CleanSpark's business means the world to us, and we're excited to execute our strategic plan and extend our track record of operational excellence into AI factories. As the company has matured, I'm inspired by our world-class team and operating business. Our strong balance sheet and, most excitingly, our growing power and land portfolio across the U.S. and the optionality it represents. Together, all of these elements are evolving into a diversified compute platform to serve the needs of the next digital age. I've taken stock of what we built, and I want to share with you just how well prepared the company is for this moment in time. While Bitcoin mining remains foundational to our business, We recognize that our expertise in securing power, developing infrastructure, and deploying at scale uniquely positions us to support the fast-growing demand for AI compute. A blended approach to growing and monetizing our portfolio serves to diversify revenue, enhance margin, and build long-term shareholder value. 2025 was the year CleanSpark achieved escape velocity, reaching 50 exahash per second in operational hash rate with 100% U.S.-based infrastructure and run by our operations and technology teams. We delivered record revenues and demonstrated capital stewardship by not issuing a single share through an equity offering throughout this calendar year, all without slowing down our growth. I'm proud to share a few financial highlights from our 2025 fiscal year. we achieved record revenues of $766 million. Our gross margin was 55%. Now, that's a 1% decrease year over year. This small decrease is actually impressive due to this being the first full year post-having when the Bitcoin block rewards were reduced by 50%. Our Bitcoin treasury grew by nearly 62% to over 13,000, generated entirely from our wholly owned and operated hash rate. This puts us in a fundamentally different position relative to treasury companies purchasing spot Bitcoin since we mine it at greater than a 55% gross margin and we're actively monetizing our holdings. We now have a sustainable, self-funded mining business thanks to our industry-leading mining team, and they're backed by an innovative digital asset management operation that's generating meaningful premiums and leveraging our treasury balance as a truly productive asset. We're in the process of deploying the 19,000 S21 XP immersion units that have an industry-leading 13.5 joules per terahash. It's beginning this quarter, and we expect that process to be complete in calendar Q1 of 26. Now, while this timeline is a bit longer than we had initially contemplated, our priority was a comprehensive portfolio review to ensure that we would not consume any AI-applicable megawatts with this deployment. We have always had an infrastructure-first thesis. We avoided the asset-light strategies of past cycles, and we prioritized control of power and infrastructure given the fundamental scarcity we're now seeing borne out in the market. Scaling our mining business required securing and developing a world-class power and land portfolio and growing significant supply chain, engineering, construction, and operational capabilities, all highly relevant as we evolve into AI data center development. Today, we have more than a gigawatt of power under contract live in our data centers and infrastructure. Additionally, we have nearly 300 megawatts in Texas fully contracted and scheduled to begin energization in early 2027, coupled with a multi-gigawatt pipeline of additional near-term opportunities. Importantly, many of these locations are excellent candidates for AI campuses, while others are best positioned for Bitcoin mining, load balancing, and securing the grid. Our objective is clear. to deliver each megawatt to its optimal use case. We have always had an internal philosophy of people first as we look to expand our business. That was true in the earliest days of microgrid development. It was true as we grew into a Bitcoin mining company. It was clearly a winning strategy when we hired Taylor Monag to lead us to the forefront of immersion cooling. And most recently, it remains true as we added Jeff Thomas to lead our AI data center initiatives following his successful tenure as president at Humane. We've accomplished three key initial steps in our business evolution thus far with Jeff on board. The first thing is we reviewed our diverse portfolio to identify the most productive use of every single megawatt. Second, we secured a 285-megawatt site in Texas with the explicit intent of building an AI factory for a high-quality tenant. And three, we're aligning and expanding our internal team in conjunction with market-leading partners to deliver projects on time and on budget that meet the exacting needs of Optane customers. When we took a close look at our facilities, it became clear that our 250-megawatt site in Sandersville, Georgia, provides an immediate opportunity to host a large-scale tenant. Other sites surrounding the Atlanta Hartsfield Airport, totaling over 100 megawatts with ready access to fiber, are already in extremely high demand. In Texas, the site we recently acquired just outside of Houston will be the location of our first exclusively purpose-built AI factory. We hold 271 contiguous acres of land located on a regional fiber backbone and have executed 285 megawatts in long-term power supply agreements that have already been fully approved by ERCOT. Better still, the site is located near several high-capacity natural gas pipelines, which are being evaluated for industrial scale behind the meter generation opportunities. This purchase positions us to deliver scalable, resilient, and energy-efficient capacity to meet demand from AI, cloud, and enterprise workload, and represents a key step in our long-term strategy to leverage our vertically integrated infrastructure first model. While this may be our first purpose-built facility, it certainly won't be our last. The entire team is focused on first securing tenants for Sandersville and Houston, which will then drive efforts to take the projects from commercialization to commissioning. Long-term tenants represent a superior risk-adjusted return profile for these assets rather than direct GPU exposure initially. Similar to past industrial revolutions, AI represents a new ecosystem. Power companies, chip companies, hyperscalers, infrastructure technology providers, and others are all collaborating, and we're in direct discussions at every level to deliver maximum value for our customers and our shareholders. Jeff has been building the full lifecycle playbook for AI campus development and operations that best serve this ecosystem. Together, his growing team is already vetting potential tenants, building high-quality site commercialization plans for our pipeline, and defining our project delivery roadmap. As part of those efforts, we entered into a memorandum of understanding with Submer, a global pioneer in liquid, cooled, and prefabricated data center solutions. Its end-to-end capabilities, spanning from liquid cooling systems and mechanical, electrical, and plumbing modules to full facility builds, set new benchmarks in energy efficiency, density, and sustainability, making them an ideal partner for Cleanspark's growth strategy. This relationship is our first step in taking elements of the construction process away from the data center and putting them into the factory, with approved reference architecture designs to support a broad range of tenant requirements. Together, we're working on an infrastructure platform that integrates power generation, data center development, and AI service delivery. Under this framework, CleanSpark focuses on selecting, developing, building, and operating AI-focused campuses, while Submer will offer its technology and expertise as a strategic vendor in delivering sustainable, modular data center systems. Meanwhile, we completed our largest financing ever with a $1.15 billion upsized 0% convertible note. Gary, our president and CFO, will discuss the finer details and numbers momentarily. But before I pass it over to him, there are some elements I'd like to highlight. The terms are even better than our prior raise in December 2024, with the same 0% interest rate, a higher 27.5% conversion premium, and a 6.25-year term. This financing provides the resources to expand our power and land portfolio, our first AI deployments and continue investing in strategic growth opportunities. And as part of this transaction, we bought back $460 million worth of our own stock, more than a 10% reduction in outstanding shares. We've once again bet on ourselves and we will succeed the CleanSpark way. With that, I'll hand it over to Gary to take you through the financial results both for the quarter and the full year. Over to you, Gary. Thank you, Matt. I'd like to start by reviewing the numbers for the entire 12-month fiscal period, which was a landmark year for CleanSpark. Our revenue grew more than 100% year over year to $766.3 million, with almost 8,000 Bitcoin produced. The major driver of this increase was due to a combination for growth in ExaHash and Bitcoin price. Our full year gross margin was 55%, which we're particularly proud of given that this was the first full year post halving. These margins remained relatively in line with the prior year, which is attributed to the significant increases in efficiency our fleet had over the last 12 months. Also contributing to our gross margin consistency is our average marginal cost for Bitcoin, which was slightly below $43,000 for the fiscal year. Our average revenue per Bitcoin was approximately $98,000. Our margins and cost for Bitcoin represents the strength of our infrastructure quality, our world-class teams, and commitment to managing our business to profitability and margin rather than any single operating metric. Our high margins translated to an adjusted EBITDA of over 800 million, which I must point out, does not adjust for certain non-cash items such as the mark to market on fair value of Bitcoin. When normalized by excluding our gain on the fair value of Bitcoin, the adjusted EBITDA from operations would be approximately 305 million, which represents a net margin of approximately 40%. Additionally, The combination of increases in margins and fair value of the 13,000-plus Bitcoin we have on the balance sheet contributed to a significant positive net income of about $365 million. Looking at the most recent quarter-over-quarter performance, we also saw significant gains between the third and fourth quarters. Our revenue increased by approximately $25 million, or 13%, in Q4 versus Q3, and our margins increased two points. to 56.5%. It's important to note that we achieved 50x in June, and while that remained our operational high for the fourth quarter, we still experienced increases in revenues and margins because of favorable mining economics during the quarter. Our high uptime also allowed us to capture periods of significant appreciation in Bitcoin price. In the fourth quarter, We recognize the slight net loss compared to the third quarter. This was due to a much larger gain on fair value of Bitcoin during the third quarter and non-cash tax adjustments recorded at our fiscal year end. Our adjusted EBITDA margins also saw similar changes, which is inclusive of the non-cash mark-to-market adjustment on fair value of Bitcoin. However, when adjusting any non-cash market effect, our normalized adjusted EBITDA was $97 million for the fourth quarter, a 25% increase over the $78 million normalized in the third quarter. This translates to margins of 43% and 39% respectively. Going forward, we do expect that our professional fees, payroll, and G&A line items will increase as we execute on our AI strategy. Additionally, I will point out that the AI data center business comes with stable cash flows and high margins, both of which will help CleanSpark through the peaks and valleys of Bitcoin mining economics. Our escape velocity translates to operating leverage. We have developed scaled data center infrastructure that is delivering revenue and margin necessary to self-sustain and further support incremental investment in AI data center capabilities as we evolve into a power, land, and compute platform. Turning our attention to the balance sheet, I want to point out that we are one of the first, if not the only company, which has a scaled cash-flowing business that is also using Bitcoin as a productive capital asset. The utilization of our Bitcoin stack resides in a team we refer to as digital asset management, or DAMN. The fourth quarter was the first full quarter of DAM activity, and we are extremely excited to share in more detail the steps we have taken in our crawl phase. Two initial strategies rolled out by DAM are our Spot Plus and Yield strategies. Both utilize covered calls, but Spot Plus is designed to optimize for the cash needs of the business, while Yield is designed to generate go-forward risk-adjusted output from our treasury holdings. Given that we are monetizing a significant portion of our monthly Bitcoin production, the Spot Plus strategy delivers a tactical uplift to cash generated on a weekly, monthly, and quarterly basis. This program functions smoothly because of the consistent output from our world-class operations and strong uptime. We are able to utilize this approach because of the investment we have made in making DAM a true institutional-grade platform. It began with a comprehensive RFP for a range of products that you have heard us discuss on prior calls. And executing these option overlays requires a disciplined approach to risk management. Rather than selling Bitcoin through the spot market, we utilize app or near-the-money covered calls to generate both option premium and realized proceeds if and when we ultimately get called away on these contracts. Our yield strategy? utilizes covered calls as well. But instead of high delta short duration, we shift delta and extend or ladder term to reduce the likelihood of exercise. Under our yield program, we saw an annualized yield of approximately 12% on a blended basis. In addition, as we scale our strategy and increase the volume, we believe there's room to incrementally increase the annualized yield and cash generated, potentially significantly. While the fourth quarter represents a period when we were still in the crawl phase of the strategy, we were nonetheless able to generate a total of 9.3 million in premiums. To illustrate what that represents, our average spot Bitcoin sales price for the quarter was $111,721. However, when considering the additional premiums generated per Bitcoin of $4,184, the all-in effective cash generated per Bitcoin was almost $116,000, a material uplift. One of the early wins for the DAM team was the successful monetization of costless Bitcoin repurchase options received as part of a Bitmain miner procurement contract from the third quarter. This was an excellent example of how our investment in the digital asset management function can help us to complete the arc of opportunities driven by our world-class mining operations. While our mining operations drove leverage in preferential terms to obtain mining rigs, DAM was able to monetize that option which would have otherwise have expired worthless, driving $7 million of additional cash to the balance sheet. Due to the performance of DAM to date, we have increased the volume of transactions subsequent to our fiscal year end. In October alone, we traded more contracts than the total number of contracts traded during the entire fourth quarter. Additionally, we generated over $5 million in cash premiums for the month of October alone. The last leg of our current strategy involves writing puts. The put transactions we enter into are cash secured, primarily using the premiums previously generated under the spot plus and yield programs. While this cash corpus is still growing, we saw analyzed returns of 8% on the put strategy. These three strategies do two things. First, they integrate into our operating business with the enhanced sale of production. And second, create a capital flywheel as they relate to our balance sheet. I would also like to add that the results we are seeing in DAM do not necessarily translate directly to telling the story via U.S. GAAP accounting. While all pieces are reflected across the income statement and balance sheet, there are certain punitive treatments of non-cash mark-to-market valuations at contract expiry. What we think is important about these tables is that, once again, CleanSpark is at the cutting edge of real non-hyperbolic strategies paired with full market-leading transparency. These tables can be found in the management's discussion analysis section of our form 10-10. I want to note that US GAAP rules separate the accounting for covered call exercises into two different line items for what is, in substance, a single transaction. These two line items on the income statement are loss and derivative contracts and gain on fair value of Bitcoin. This is important because there are two sides of the same transaction. For example, The difference between the spot price at expiry and the strike price is shown as a loss on derivative contracts, while the corresponding markup in Bitcoin value to the spot price is recorded separately as a gain on fair value of Bitcoin, offsetting that non-cash loss with a non-cash gain. Taken together, they reflect the economic outcome of our covered call program, which continues to generate attractive risk-adjusted returns. I also want to point out that the Bitmain option was effectively costless to us. However, GAAP required us to bifurcate a portion of the ASIC contract to the option value, even though the contract didn't explicitly state a value. That value of $6.8 million was recorded at contract inception in the third quarter. As the option ultimately expired out of the money, had we not taken steps to monetize the option, we would have had a non-cash write-off of that $6.8 million. However, instead, we generated almost $7 million of cash on that option. which under GAAP considered it to be a net gain of approximately $200,000, even though we ended up with $7 million more cash in the bank at the end of the day. The overall takeaway is that the digital asset management strategy has met and, in fact, exceeded our expectations thus far and become a second source of cash generation to the business. We are looking to increase the size of our team to allow for greater volume and more complex derivative trades, which we believe will not only grow the total cash generated from premiums, but also maintain attractive yields. On a final note, I'd like to take some time discussing our capital strategy. Our focus is on building a capital stack which minimizes dilution. This starts with the sale of monthly Bitcoin production to cover our monthly op-ex. We also have Bitcoin-backed lines of credit with a total capacity of 400 million. We will continue to use the lines of credit opportunistically in the marketplace for creative acquisitions. And as we previously mentioned, we issued a $1.15 billion convertible note with a coupon of 0% and a conversion premium of 27.5%. Proceeds from this transaction were used for several purposes. First, we bought back $460 million of our stock, which represents a reduction in our outstanding shares of 10.9%. The stock buyback not only helped facilitate the convert, but we saw this as a bet on ourselves as we see our valuation increasing. given the opportunities in front of us. Second, we used over 200 million from that raise to pay off our lines of credit. It's important to note that we have access to the full $400 million line available to draw down at any time. On terms, we continue to believe our market leading. The remaining net proceeds from the transaction will be used to do what we have a proven track record of doing, and that is hunting for power and land. The acquisitions of power and land, such as the most recently announced transaction in Sewey, Texas, are expected to be primarily used for our AI data center strategy. While we are in the early endings of our AI data center journey, the market is moving quickly, and so is CleanSpark. Our conversations with off-takers are ongoing, and it is not a matter of if, but when we will have our first customer. Details regarding financing of our data centers will be coming in future periods. However, I will tell you this. There's an abundant amount of capital at a much lower cost of capital than previously available to our mining business. Our venture in AI data centers will open new pools of capital, allowing us to benefit from the significant levered rates of return the market is providing. To close out another strong and defining quarter for CleanSpark and to discuss how these results position us for what's next, let's return to our chairman and CEO, Matt Schultz. Thanks, Gary. Wow. As I listen to those results, I can't help but think back to the earliest days of this company and the journey we've all been on together. Our fundamental thesis on being infrastructure focused and people first has served us incredibly well. They are two of the reasons we have such a meaningful opportunity in front of us today to grow into an infrastructure and compute platform that maximizes the value of every megawatt. The task in front of us is clear. We're working to secure tenants at our two initial flagship AI-ready locations while simultaneously expanding our land and power footprint to meet the market's insatiable demand. These efforts are made possible by our strength as a scaled Bitcoin miner, our capital markets rigor, and critically, our company's cultural focus on operational excellence. This past summer, our operations team coined the motto, be the standard. I had the pleasure of having them present to me what that phrase meant to all of them. And I commit to you that in each of our endeavors, you can count on CleanSpark to continue to be the standard. I want to take a moment to thank our entire team for their tireless work. I'm beyond grateful to our shareholders for their trust, And I truly appreciate all of you for joining us today. With that, I'll hand it back to Harry to lead us into Q&A. Thanks, Matt. We will now open up the floor to questions from the analyst community. Operator, please provide instructions and manage the queue for the Q&A session.

Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, please press star 1 again. Your first question comes from the line of Brian Dobson with Clear Street. Your line is open.