Good afternoon, everyone and welcome to the CleanSpark Fiscal Year 2022 Q1 Earnings Call. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I would like to turn the floor over to Rachel Silverstein, VP of Compliance and General Counsel.

Welcome, everyone. On behalf CleanSpark, Inc., thank you for joining our first quarter financial results conference call for fiscal year 2022. My name is Rachel Silverstein and I am CleanSpark’s VP of Compliance and General Counsel. With us today with prepared remarks are CleanSpark’s Chief Executive Officer, Zach Bradford; and Gary Vecchiarelli, our Chief Financial Officer. On today’s call, we will make forward-looking statements under the Safe Harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that would cause actual results to materially differ from the these forward-looking statements are contained in today’s press release and in our filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During today’s call, we will also discuss certain non-GAAP financial measures in talking about our performance. You can find the reconciliation of GAAP financial measures in our press release, which is available on our website. With that, it is my pleasure to turn the call over to our CEO, Zach Bradford.

Thank you very much. Good afternoon and thank you all for joining. It was a little over a year ago that we mined our very first Bitcoin in College Park, Georgia. While it’s been just over a year, I believe it’s fair to say that we are no longer new in this space. We have developed relationships across the industry, deepened our understanding of the mining ecosystem, and committed ourselves fully to the Bitcoin project for the value it brings to our shareholders and for the good it does in the world. This is a new era for CleanSpark and for the Bitcoin blockchain. We are evolving as a company and as an industry, becoming more transparent, more deliberate, and more intentional in what we do. Bitcoin Mining has become our business and we expect to bring fiscal discipline and operational focus to this great opportunity. We have heard your feedback about our previous communications and with that in mind hope to use this call to usher in a new era of transparency. To do that, I want to share with you our vision for Clean Spark. It’s actually quite simple. Our vision is to be a top five Bitcoin miner. Please note my emphasis on Bitcoin, rather than other cryptocurrencies. I echo what Fidelity’s analysts recently said. Bitcoin is a superior form of money, different than other types of money that have come before and different than any other digital currency in the market. The vision is clear to us. How we get there is also clear. Bitcoin now accounts for 90% of our revenues. Our commitment to mining Bitcoin means we are considering strategic alternatives for the energy business. All options are on the table. But know this. As a Clean Spark investor, you are investing in a…

Thank you, Zach. I am very excited to be here and especially thrilled at the opportunities I see before CleanSpark. I also want to thank the outstanding team at CleanSpark for assisting me in what has been a very smooth transition. I want to reiterate what Zach said earlier, this was a tremendous and record-breaking quarter by almost every metric. From my perspective, I see a company that is well-positioned for the future, with a strong balance sheet and growing revenues with high margins that dropped significantly to the bottom line. Most importantly, we have a clear vision and strategic direction that will allow us to take advantage of the numerous opportunities we are evaluating. I am very much looking forward to what this calendar and fiscal year will bring. And I am excited to share with you CleanSpark’s performance for the first quarter. As presented in our Form 10-Q, which has been filed with the SEC, our total revenues increased exponentially in the first quarter of 2022 versus the same quarter of the prior year. Total revenues for the first quarter were over $41 million compared to $2 million, representing an increase of over 17x. The overwhelming majority of this revenue was driven by our digital currency segment, with revenues totaling almost $37 million. The investments we have made to-date have contributed to these record revenues. Our energy segment saw a healthy increase as well, growing to almost $4 million in the first quarter of 2022 from $300,000 in the same period of the prior year. The majority of this growth was due to the acquisition of Solar Watt in the second quarter of 2021. Revenues also saw sequential growth in Q1 versus the prior Q4 as revenues increased almost 52% growing from $27 million to $41 million. Again,…

Thanks, Gary. It’s been an incredible quarter. I am now going to spend some time talking about vision. First, I will talk about how we plan to measure our success. Then, I will discuss the strategic pillars we have crafted for how we will get there. I will talk about the first two pillars, which are our infrastructure strategy and our ESG strategy. And Gary will wrap up by talking about our capital strategy, which is our third pillar. As I mentioned at the beginning of this call, we have a vision to be a top 5 Bitcoin miner. So what do we mean by that? We intend to be a top 5 publicly traded miner in terms of our hash rate, efficiency, profitability and commitment to sustainability. Let me spend a minute talking about each of these and where we see ourselves right now. In terms of the hash rate, we have achieved 2.1 exahash with a goal of 4 exahash by the end of the year. We plan to over-deliver on our promises. We have assets and contracts in place – already in place for approximately 4 exahash of miners, with the intention of exceeding that by many multiples as we thoughtfully secure sustainable energy. In terms of efficiency, these numbers are harder to compare, but we believe we are one of the most efficient publicly traded Bitcoin miners. Right now, our energy costs to mine 1 Bitcoin at our wholly owned locations is approximately $4,500. As Gary shared with you earlier, we are quickly growing in profitability. This quarter has been our most profitable quarter ever. We expect to continue to see profitability grow substantially this year. I will talk more about sustainability when I introduce our ESG strategy later in the call. With our vision and…

Thank you, Zach. Our capital strategy is premised on the wise and sustainable use of our resources. The motivating principle behind our capital strategy is straightforward and clear. We intend to operate our business in a smart, disciplined and profitable fashion. Our capital strategy has three components and I like to think of them as potential levers that we can pull to achieve our vision. These three levers or tools are the use of debt, Bitcoin and equity. While it is no surprise, those three components are the types of capital available to our company. I want to share with you how management views its capital allocation and how we expect to use them going forward. From our perspective, capital allocation is a very important priority, especially since we are involved in a business, which requires significant investment in CapEx. When coupled with strict fiscal discipline and a keen eye on our CapEx costs and cash operating expenses, the proper allocation will help propel our growth even further. Let me share with you in detail how we expect these individual levers will be used in our capital strategy going forward. Foremost, acquiring debt capital and leveraging our balance sheet is an obvious opportunity. As you are aware, we currently have no long-term debt and we see substantial opportunity to utilize our strong balance sheet to invest in growth. The cost of capital related to debt instruments is the easiest of the three types of capital to forecast and budget for and frankly, the lowest cost of capital currently. We are actively seeking to inject debt in our capital structure at reasonable rates. We only expect to see the cost of debt capital become more favorable as time goes on, especially as traditional debt markets continue to warm up to the…

Thank you, Gary and thank you for all of you for – thank you Gary for spending time outlining our capital strategy, which is the centerpiece of our financial pillar. Combined with our infrastructure and ESG pillars, we believe that our vision to be a top five Bitcoin miner will be accomplished and is sustainable. You can expect us to live by these pillars. They will guide all of our efforts during the remainder of the fiscal and calendar year and beyond. We intend to use them as a clarifying framework to help us make decisions that are in the best interest of our employees, shareholders, community stakeholders, and the Bitcoin community at large. We are optimistic about the future and the opportunities we see on the horizon. Our industry is evolving and we believe that CleanSpark is leading this process. Operator, this concludes our prepared remarks. We would now like to open the line for questions.

Ladies and gentlemen, at this point, we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Kevin Dede from H.C. Wainwright. Please go ahead with your question.

Hi, this is [indiscernible] for Kevin Dede of H.C. Wainwright. Thanks so much for inviting us to join the call. Thanks for taking our questions. We have a series of questions that I am hoping we can address one-by-one if that’s okay.

Yes, Nick, let’s go for it.

Awesome. Thank you. Given CleanSpark’s hash rate rollout plans viewed against its current access to power. How does CleanSpark plan to address near-term power needs?

That’s a great question. Like I mentioned in the presentation, we are going to do it through a hybrid approach. Again, what that really means is co-location we view is speed to market. So, as we build and develop our own infrastructure, we intend to supplement that with co-location. But we are always going to maintain a majority interest of our megawatts under our own management. We believe that that is the most sustainable way to grow a business that allows us to control our destiny instead of putting it solely in the hands of co-location. But again, it’s about speed, speed to getting hash rate up. Right now, every hash attached is worth more today than it’s going to be worth in a year. So, we want to capture that opportunity now instead of later.

Got it. Thank you. What are the criteria and which are most important in evaluating new energy sources for extending power access in current facilities, or sources for potential new mining sites?

For us, first and foremost, price is going to matter a lot. But really, we won’t look at something unless the sustainable mix of power is there. So, we focus on ensuring that it has a high mix of renewables and so both of those together, we don’t see one going without the other. We think that they have to be looked at together. And I think that that’s one of the problems we are seeing in the industry is, it’s often viewed as an either or, and we think it can be both, both the view of sustainability being important, but also the view of the price. And that’s also sometimes why it takes time to structure the right agreements for a company rather than grabbing the nearest power to us.

Could you discuss CleanSpark’s view to mining hardware? We understand the company primarily relies on Bitmain currently, what other mining rig manufacturers are under review, and how does the CleanSpark management team view the Intel Bonanza Mine chip introduction slated later this month?

We are actually really excited about hearing more and doing some diligence on what Intel has to offer and bring to the table. Right now, we use the best miners that are available. That’s Bitmain S19 series. And we will continue to do so until somebody can bring something to market that is truly better. We think it’s really important that miners do their due diligence in understanding what technology it actually delivers. There is a lot of claims out there, there is a lot of statements that are being made. And we believe prior to adopting anything new, we would have to do extensive diligence to make sure we are making the right decision for our shareholders and also most importantly, that the vendors that we select can deliver on the results that they are promising.

Given that everyone on this call is a Bitcoin bull, how does management see Bitcoin trading this year? And potentially how high again, continued steep network hash rate escalation?

I think that that’s something where we can all speculate. We believe it’s going to continue to go on a very strong run into the future. But we also believe that there is going to be ebbs and flows. And that’s where our opportunistic strategy really comes into play is we expect to take advantage of those ebbs and flows as they occur. And so, any of us could get, we think it’s got a really long run ahead of it. We think we are going to see adoption increase at all levels, both from a government regulatory level where it’s easier to interact with, the different countries adopting it as their own form of currency. We think that Bitcoin has a very strong future ahead of it. And with that, will come increased value. Now, as it relates to difficulty, difficulty will certainly increase in the future. We think that there is going to be a balancing point. There is a lot of new machines that are coming online in the future that are going to lead to that increase. We are bringing new machines online. Our peers are bringing the machines online. But I do think that some sometime midway through this year, we are going to see a tipping point where the efficiency of these new miners are going to affect some of them older miners, older generation, whether it’s an S9 or something similar. And I think that we are going to actually see an unplugging event happen this year. That still means a year as a whole, I think we are going to see difficulty continue to increase. But I do think at some point, at least, for a period of time, we are going to see a balancing effect for some machines are less efficient come offline in exchange for the new machines coming online. So, I am not going to speculate what that percentage looks like. But I do think that it will be a meaningful percentage that difficulty increases this year. For us, it’s about keeping a pace of growth that exceeds that difficulty. We believe we can do so. And so that’s going to continue to be our intention.

And then one final question for you. Thanks so much for answering the previous four. How many CleanSpark uses energy relationships to bolster its position as a Bitcoin miner? And how should investors think about that asset and management’s ability to utilize it?

It’s – I think it’s less. I want to rephrase your question a little bit. It’s less about the relationships and more about the experience. What we are bringing to our Bitcoin business and as I said before, that’s what we are, is the energy expertise and experience that we have garnered, so that everything we do going forward is with energy in mind. We really understand it. And the value that that brings to the business is what lives inside each of our employees that they have gained over the past years. So for us, I mentioned one of the measurements we are going to use is efficiency. So, we are going to continue to drive efficiency of our mining operations. And we are going to continue to focus on renewables. We understand both of those very well. And that experience will definitely pay dividends in the future periods to come.

Got it. Thanks again for taking our questions.

I appreciate the questions, Nick. And appreciate H.C. Wainwright taking interest.

Absolutely. Thanks so much.

Our next question comes from Tyler DiMatteo from BTIG. Please go ahead with your question.

Hi, everybody. Good afternoon. How you doing there? Good.

Hey, doing great, Tyler. Thank you.

Good. Thank you. So, can I just touch a little bit upon, the half capacity ramp at your facilities? I know you briefly alluded to it. But how should we kind of think about the timeline here? Could we see another facility kind of built out by the end of the year here? I know you touched upon the co-location versus infrastructure. Can you just kind of add some more color to that for me in terms of the timeline, and that built?

Yes, absolutely. So, right now, we have 74 megawatts under management. We are in the process of building another 20 megawatts. That’s well, well, on its way, but we should see that this quarter, which should bring a fairly significant jump in our hash rate. Now, what that leaves us pursuing between now and for ex-hash is essentially 40 megawatts. Now, as part of that, we are in discussions of both angles of that, both from a co-location side and a facility side. We believe we have opportunities to actually exceed our demands underway. We look forward to talking about those further in the coming weeks. But, we do intend to both acquire a new facility and put that into use inside of 2022 and also enter into other co-location arrangements. So, I think you are going to see both mid-year happening on our side with some very substantial increases before year end is our goal.

Okay, great. Thank you for that. So, I guess if I could just follow-up, I guess when we look at the market today, we talk a lot about rig pricing, it’s really hard to ignore, and S19 Pro is going for $2,000 to $3,000 at the beginning of 2021. How do you think about rig pricing here over the next couple of quarters? And I guess even in the 2023, given that there is this sort of an arms race for rigs right now. I am just curious about how CleanSpark kind of just thinks through this in the near and medium-term?

Yes. Our view is the arms race concept is the wrong way to look at it. We believe in maximizing the use of our capital. We have always been able to find rigs when we need them. Now, we have entered into futures contracts where you make down payments and you pay along the way for future delivery. We have also engaged in spot pricing. Now, our belief and what we are actually seeing developed in the market is mining rig prices are coming down right now from where they were last quarter. And fairly significantly, we have seen as much as a 33% decrease in spot prices. This isn’t driven just solely by the price of Bitcoin, but it’s simply economics supply and demand. There were a lot of whether it was suppliers or other miners that entered into future contracts with an inability to plug their machines in. That has led to a glut of miners coming onto the market. We actually expect this to continue in the coming months, where it should further push down spot prices on the miners. And we believe in taking advantage of those opportunities we did so last quarter, where opportunistically we made spot price purchase for immediate delivery. And we immediately were able to plug those machines in. It just comes down to capital. I also think we are going to see spot prices of miners decrease as other opportunities or other manufacturers come online. Intel has made their announcement. There are several other announcements coming around. Some of these are going to be more credible than others. And some manufacturers are actually going to be able to deliver results. And others won’t. Again, we want to be positioned to take advantage of new technology, higher efficiency, better performance, rather than entering into a contract and calling it an arms race and putting down hundreds of millions of dollars now, for miners that could well be obsolete before they ever show up. So, it’s about a balanced approach and timing. But it all tied back to our capital strategy.

Okay, great. Thank you. Really appreciate that. I will turn it back to the queue.

Alright. Thank you very much, Tyler. Appreciate you and BTIG’s interest in CleanSpark. This actually concludes the time we have allocated to questions. We really do appreciate everybody’s participation, especially the analysts.

Before we end today’s earnings call, I would like to remind everyone that this call will be available for replay later today. Please refer to today’s press release for dial-in and replay instructions available via the company’s website. Thank you for joining.

Ladies and gentlemen, with that we will conclude today’s conference. We do thank you for attending. You may now disconnect your lines.