Good afternoon. My name is David, and I will be your conference operator today. At this time, I’d like to welcome everyone to the CleanSpark Fiscal Year 2022 Q3 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] At this time, I’d like to turn the floor over to Isaac Holyoak, Chief Communications Officer.

Thanks, David. And thank you for joining us today for CleanSpark’s third quarter fiscal year 2022 financial results call. Our press release was issued about 30 minutes ago and is available on our website at www.cleanspark.com/investors. Today’s call is also being webcast, and a replay and transcript will be available on our website. I am here with Zach Bradford, our Chief Executive Officer; and Gary Vecchiarelli, 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 about 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. Now it is my pleasure to turn the call over to Zach.

Thanks, Isaac. Good afternoon and thank you for joining our call. The CleanSpark team spent our third quarter executing on the vision we set out at the beginning of this calendar year, to be a top five Bitcoin miner. I am pleased to report that when compared to all public Bitcoin mining companies that we track, CleanSpark finished the quarter by mining the fourth highest amount of Bitcoin of any public miner in the month of June. We were also the fourth highest for the quarter as a whole. In fact, we had our most productive quarter ever in terms of Bitcoin mined, minting 964 Bitcoin, which is a 7% increase over the previous quarter and a 400% increase over the same prior year quarter. In terms of hash rate, we started the quarter with 2.3 exahash, and as of this call, our hash rate is 2.9 exahash, representing a 26% increase in our hash rate. Last year at this time, we were just under 1 exahash. With the significant operational progress we are seeing in our state-of-the-art emerging pool facility in Norcross, Georgia, and the newest site we announced this morning, we expect our growth to continue, and with that growth, the amount of Bitcoin we mine. Georgia is a wonderful place to live and work. We enjoy the strong support of the business and civic community. Our growth in Georgia is a testament to the teams we have assembled at CleanSpark and within the communities we operate in. While we have mined more Bitcoin than ever before, our reported revenues were lower, because the price of Bitcoin was lower. All companies building the new economy faced serious headwinds last quarter, as macro conditions and irresponsible financial decisions of a few bad actors reverberated through our ecosystem. We believe…

Thank you, Zach. Before I get into the financial results for the third quarter, I want to briefly discuss the company’s decision to divest its Energy business assets. As you are aware, it is our goal to become and maintain our status, the top five publicly traded Bitcoin miner. While the decision to exit the Energy business was not taken lightly, we are excited to move on to the next chapter in the evolution of CleanSpark and solely focus on the business of Bitcoin mining. With the decision to divest the Energy business, we have reclassified our Energy business assets, liabilities, revenues and expenses as discontinued operations, and in line with accounting guidance ASC 205. As required under the accounting rules, upon reclassification of its assets and liabilities, the company must adjust the reclassified items to fair market value. The company has assessed the Energy business assets and has impaired a substantial portion of its intangible assets as a result. The write-down of these assets reflects a conservative estimate as to their value. Actual proceeds from the sale of the assets may vary from this estimate, but we feel the write-down is reasonable given the macro environment and low valuations for similar businesses in the current market conditions. Intangible assets, such as goodwill, have been written down in some cases to zero, primarily because the company has reduced its expenses in the Energy business to only essential items and is not directing further working capital to the Energy business. This write-down is due to the expectation that cash flows from the Energy business are expected to decrease going forward, which does not support the carrying value of their respective intangible assets. I called this out specifically, because the reclassification to discontinued operations has a material impact on our financial statements.…

Thanks, Gary. David, this concludes our prepared remarks. So we would now like to open the line for questions from analysts.

Thank you. [Operator Instructions] And we will take our first question from Mike Colonnese with H.C. Wainwright & Co. Your line is now open.

Great. Thanks. Hi, guys. Congratulations on the sale of the legacy business and the acquisition of our third site there in Georgia, very exciting times for you. So to start, can you provide any additional color on the sale of the Energy business in terms of when you expect this to finalize and the potential amount of proceeds you could and where you would deploy that extra capital?

Hey, Mike. This is Zach. Thanks for joining. So to add clarity we are pursuing the sale. We have not executed a final agreement, and so right now, we don’t have an estimate of what that will be. But what I can say is that any cash flow does come from that we will obviously be deploying directly into the mining business. But right now we are just in the pursuit of that sale right now.

Got it. Thanks for the clarification. My next question is on your year-end 2023 hash rate guide, obviously, a big number. If you could just walk us through how you get there and remind us what your current contracted hash rate stands today?

Yeah. So that is actually built on our current contracted hash rate. So we are at 2.9 exahash now, with the 36 megawatts that we are adding in Washington that adds 1.1. We also have about 0.4 to 0.5 exahash that will be additional coming online in Norcross over the next few months. Now the 50-megawatt expansion of Washington is 1.5. We also have some emerging plans that we are working on that will be about 0.5 exahash. And then with our contracted pipeline of co-location facilities, we have 16 exahash built into that number. Now to add some detail and color on that, that of course includes 500 megawatts, we have contracted with Lancium. Now as part of that, 300 of those are options. We do expect to further expand our own wholly-owned facilities beyond what we have done today and we would then add those in and we may pass or we may do both. So there’s 300 megawatts worth of capacity that are optionality for us to either do at our own site or through co-location, but we feel extremely confident that we have all the capacity under contract in place to get to that goal by the end of next year.

That’s great. I appreciate all the color there. And specifically, as it relates the machine capacity coming online. If you could just update us there in terms of what’s contracted on that side and the potential cadence we could expect to see that come online, at least through the end of this calendar year in 2022.

So, Mike, I am going to point out how important we think it is that we are going to rely on the spot market. So we have 4.5 exahash of machines that we have under contract. We expect to lean in heavily into the spot market and our strategy of execution has proved us it has worked very well. I think that there’s a lot of fixation in the market based on the number of machines that a company has. But our peers have shown that sometimes the number of machines you have, it doesn’t matter unless you have a plug to plug it in. So we are going a plug first approach on our infrastructure and we are very confident that the spot market will serve us well. A few reasons that we can point to, obviously, there’s more machines right now available on the market than ever before. But also with supply chains improving, spot market is even available from the manufacturers currently. So future contracts to a degree are no longer required and we are seeing a lot of good things. As Gary mentioned, we anticipate -- we do watch it very closely. We think that we are at or near the bottom of the machine prices and we expect to be making some moves in the coming months and quarters to fill that gap on the machine side. But we are also, and again, we have made this a big part of our strategy, we are incredibly focused on the length of time between deploying capital and plugging a machine in. We believe that minimizing that is important for a variety of reasons, but not least of which is from a cost of capital point of view, if we deploy $100 million now for miners that are going to arrive next year, we frankly think that, that’s a poor use of capital. As opposed to, even if it cost us $105 million to pull that down 60 days out, that limits the length of time between the capital and the machine actually being plugged in. So we do expect to stick to that strategy and have the plugs ready in time for these miners to be plugged in.

Got it. Appreciate all the color and I will jump back into the queue for the rest of the participants. Thanks, again.

Thank you, Mike.

Thank you, Mike.

And next we will go to Greg Lewis with BTIG. Your line is now open.

Hey. Thank you and good afternoon, everybody, and yeah, congratulations on the acquisition of the facility in Georgia. I did have a couple of questions around that. You mentioned, Zach, in your prepared comments around the transfer of the PPA. Not expecting you to get too granular in that, but is there any kind of color you can provide us on the type of power it is and the remaining length of the PPA, just given that it was a transfer?

Yeah. Yeah. It’s actually a 10-year agreement is how it’s structured. It has a provision in there that provides 70%-plus in carbon free power. The majority of that is going to be nuclear based. It provides us quite a bit of flexibility in how we proceed and we see it as a really advantageous contract for us from a market based approach.

No. That’s great. And just as I think about it, the facility has been there for a couple of years, so there’s -- it sounds like there’s -- it sounds like we are -- it sounds like we have seven years to eight left on that PPA, is that kind of the right way to think about it?

We are actually renewing it. So we will have a full 10-year as part of this process.

Okay. Awesome. Great. Thanks. Great to hear. And then when you think about the build-out in next, as you evolve that or build that out in 2023, I noticed you mentioned some items, the switchgears, the transformers. When we think about the lead times on the supply chain out there, are these things that, I guess, we have to make a decision around that build-out sooner rather than later as we think around lead times for these things. So just kind of curious, is that something that we should expect to show up in CapEx later this year?

Yeah. Most of those lead times are currently readily available, because from our side, it’s a MEAG substation that’s being built. MEAG is solely responsible for all the cost and lead times on that. So they are going to have their own lead times, which they are already in the middle of procuring and much of it has already been procured, of course. On our side, it’s all the smaller transformers and the basics there. So most of that currently has lead times in under 12 weeks, pretty readily available. So we would expect to begin the full engineering exercise and we would likely procure those late, at the end of this year. What our goal is going to be is to stay in touch with the utility very closely and try and deploy the capital. So, again, we line this up so that when they hit -- the power line hits the corner of our property, we are ready to take that in and be fired up right away. So I expect much of the construction on our side will happen early 2023. So, yeah, call it, three months to four months before that is when we will begin our procurement exercise.

Okay. Great. And then just one more on Washington, I guess, we bought the existing rigs that were in the facility and those were S19s. Realizing, as we kind of continue to acquire rigs in the secondhand market, there’s -- you guys -- we expect you to be busy, and obviously, based on that forward guidance, you are going to be busy. We are not -- are we still rig agnostic, i.e., if we can pick up S19J Pros at, I don’t know, in the $15 per terahash to $20 per terahash range, we are interested in doing that or are we at this point, pivoting more to XPs, I think, you mentioned in June, you bought maybe 1,800 or 1,900 XPs or are we still really just knowing that there’s a lot out there, any way to think about that?

Yeah. We are interested in ROI. It’s about what gives us the best return on investment. And so for example, we bought some Whatsminer and those Whatsminer, we measured in just simply based on ROI. We actually purchased those at $18 a terahash, which is, I think, that we probably nailed the bottom on that one. For comparison, the XPs being delivered from Bitmain pricing, which I will say, our pricing is lower than this, but its $50 a terahash for their August delivery. We have a lower price than that on our XPs, again, because we purchased at a discount by taking over a distressed asset. So we are measuring it based upon ROI. So to put that in perspective, the XPs are about 33% more efficient in output. They currently are costing about 100% more than an S19J Pro on the spot market. So for us, we measure that delta. So we are very interested in acquiring XPs, but we will always measure the return on investments on that machine. So as they get closer and as they get equal, we will begin, of course, to switch over and buy more and more XPs as opposed to the S19J Pros. But realistically, because we do expect, because the XPs are new, there’s going to continue to be a gap for some period of time, we are going to probably take a blended approach between the S19s and the XPs, and again, this is driven by ROI.

No. That’s great to hear, Zach, and hey, guys. Thanks again for taking my question and yeah, keep building out the footprint. It’s been pretty impressive what you have been able to do here over the last couple of quarters. So have a great rest of the day.

Hey. Thank you, Greg.

And…

Thank you, Greg and Mike. Go ahead. Just real fast, I want to thank Greg and Mike for their questions and thank everyone for joining us today. I just wish everyone a good afternoon, evening. Back to you, David.

Okay.

Sorry, oh, sorry, back to you, David. Sorry about that.

Thank you, Isaac. Though, we have no further questions. Ladies and gentlemen, that does conclude today’s conference. We thank you for attending. You may now disconnect your lines.