Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. [Operator Instructions] At this time, I would like to turn the conference over to Isaac Holyoak, Chief Communications Officer. Please go ahead.

Thanks, Audra, and thank you for joining us today for CleanSpark's Fiscal First Quarter Financial Results Call covering the period October 1, 2022, through December 31, 2022. 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'm 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. It is now my pleasure to turn the call over to Zach.

Thanks, Isaac. Good afternoon, and thank you for joining our call. The last time we spoke with you, we shared the results of our first fiscal year-end 2022. Today, we will discuss the results of our first fiscal quarter, which, as Isaac mentioned, covers the period of October through December 2022. During that time, our industry, in particular, and the economy more broadly faced significant macro headwinds. Even in the face of these headwinds, we persisted and we grew. Our average hashrate rapidly increased, outpacing global hashrate, resulting in significantly increased bitcoin production for the quarter and the subsequent month. The number of machine hashing grew by over 20,000. We added a new mining campus to our portfolio. The growth in work from those dark winter days has since resulted in our highest bitcoin production ever, last month, which was nearly 700 bitcoin. We also grew our Board, welcoming Amanda Cavaleri, who is an expert in bitcoin policy. No matter the measure, no matter how difficult the quarter we grew, and we are just seeing the majority of the benefits of this growth today and beyond. In fact, we outpaced all of our peers, every single one of them. Data recently published by the Minor mag, a research and data portal focused on institutional bitcoin miners placed us first amongst public miners in terms of percentage hashrate growth. As you can see from the visual, the network hashrate average grew by 46% since January 2022, while we grew over 200%. Not only did we outpace global hashrate, we did so at a tremendous clip. We started the quarter with a hashrate of 4.2 exahash per second. And by the end of the year, it had grown to 6.2 exahash per second for a 48% increase for the quarter. Since then,…

Thank you, Zach. Diving into the numbers for the first quarter of our 2023 fiscal year, I want to draw your attention to the orange bar chart on this page. You will note that our bitcoin production increased 130% over the same quarter of the prior year as we mined over 1,500 bitcoin. This was due to the rapid growth we experienced over the past 12 months, deploying an additional 45,000 miners in that period. However, you will see that we recognized about $10 million less in revenue compared to that same period. This is strictly due to the steep decline in bitcoin price. For reference, the price of bitcoin was over $46,000 at December 31, 2021, and bitcoin was just over 16,000 at the end of our most recent quarter. Looking at the immediate prior fourth quarter, you'll see a similar story as we mined approximately 25% more bitcoin between the quarters, yet only saw 6% greater revenue. This is also due to the decline in bitcoin prices as the price of bitcoin was approximately $19,000 at September 30, 2022. This bar chart puts into context how far we have come as a company despite headwinds of bitcoin prices. Turning to gross profit on the right-hand side of the slide, our gross profit was $7.4 million, was declined from over $31 million in the same quarter of last year. This decline was directly attributable to the decline in bicorn prices. When compared to the immediate prior fourth quarter, we saw a decline in gross profit despite seeing incremental revenue growth between the periods. This shows how profitable our business model can be when bitcoin prices are just slightly elevated, which they were in the fourth quarter. Moving on to the next slide. We recognized a GAAP net loss of…

Thank you, Gary. Audra, this concludes our prepared remarks. We would now like to open the line for questions from analysts.

Hi, guys. Thank you for taking my questions today. My first question is on your capital management and allocation strategy. In our view, bitcoin prices still look subdued at these levels. So at what point do you think you might start holding on to a larger portion of the bitcoin you're mining? And what factors would you need to see before making that call?

Hey, Mike, it's - good taking. Thanks for joining the call. Just like we said, we always approach this very strategic rather than with an ideological approach. We will look to measure this really by the market indicators. We agree with you. I think that bitcoin is, as I said, the tides are turning, and I expect to see a change of direction, which is why we do intend to see that huddle [ph] balance grow. But again, strategy over ideology is how we want to approach this on a real-time basis. With that said, I'm going to let Garry add a little bit to that.

Yes. Thanks for the question, Mike. I think you can look at the huddle balance, particularly at these bitcoin price levels to be directly reflective of what our margins are. So as the margins expand, I'd expect the huddle balance to accelerate. But right now, we're really managing on a day-to-day basis because Zach sees a lot of deal inflow, whether it's infrastructure or bitcoin miners that are available on the market. And by having that balance of bitcoin, we can quickly strike and close a deal with a matter of a couple of days if need be. So we'll continue to use that opportunistically. But really, that huddle balance is going to be reflective of bitcoin prices directly and the margins thereof.

That's great. I appreciate the color. And any additional color you can provide on the greenfield sites you're evaluating to support the growth plans for the year, specifically, if you could talk to any locations that you're considering? And if these sites offer an opportunity to lock in any PPAs?

Yes. So everything we look at, of course, can't speak to the specifics because it just wouldn't be appropriate to do so. The one thing I can say is we do have a criteria that they have to meet. And that is, of course, that's going to have a PPA that will give us access to low-cost power on a long-term basis. It needs to be in a community that we want to put in investment into. But ultimately, we're looking at a lot of opportunities in a lot of regions, and we're going to pick the very best, but they have to meet a very strict criteria we have. I can tell you that we say no to a lot. And all kinds of factors that go into that, not least of which, of course, important to us is the energy mix in addition to the cost.

Great. I appreciate it you guys taking my questions.

We'll go next to Josh Siegler at Cantor Fitzgerald.

Yeah. Hi, guys. Thanks for taking my question today. Congrats on the continued execution and really great results in January. It's always great to see. For my first question, I'd love to dive into energy cost. Can you speak to how they trended during the quarter and what you're seeing so far into 2023? Thanks.

Hey, Josh, great question. I'll jump into that. So 2022 was a challenging year. Everybody knows it on the energy side. Our third fiscal quarter, we had prices right around the $0.04 range on average. And all these prices I'm going to name are across our entire portfolio, owned and operated and the hosting. Q4 fiscal ending September, we saw those rise and they were right around $0.05. And last quarter, we did see prices start to average around $0.06 is where they rose to. With that said, we were able to navigate those really well because of our active energy management strategy. But also most importantly, we've been put in a position and we've recently seen power prices as low as $0.018 at our facilities. We're consistently seeing prices in that $0.02 range. And right now, if you do a look back at, for example, at the last 7 day average, we are seeing across all our entire portfolio an average price at $0.031. So we really saw December be a tough month, and then January was - it looked great. It was kind of the godsend that we needed to shift tides and bring the margins back where we want them to be.

Understood. That's very helpful color. Appreciate that. And then looking forward to the rest of 2023, can you provide an update in terms of your relationship with MEAG right now and how you're thinking about power costs for the rest of the year? Thank you.

Yes, absolutely. We're having really constructive conversations. One of the things we're finding is the active energy management strategy we're deploying, we're actually outperforming the fixed price opportunities that we have in front of us. And so based on that, we feel like patience is going to be part of our strategy in dealing with them. And the reason that is, is because when you buy a locked-in power strip, for example, you - the other side of that, the hedge is really making a bet on the upside or the downside. And our ability to manage and avoid a few hours here or a few hours there, again, our average power price is outperforming this. So I think that there will be the right time, and that right time is going to come as the energy markets continue to drop in energy prices. We follow the energy markets very closely. And we think that wholesale prices, especially where we operate, but probably the country as a whole are on a really positive trajectory. And this winter being a mild winter and what we're seeing happen with natural gas prices, we think it's a little early to strike, and we're going to wait and cool our heels until we pick it because it's going to lock in something for a long term, and we want to make sure it's as low as possible. And that's going to happen as the energy providers really do see this impact their long-term forecast of what they're going to generate on their side is energy providers and revenue.

Understood. That's very helpful. Thanks for taking my question.

We'll move next to Greg Lewis of BTIG.

Hey, thank you. And good afternoon, good evening, everybody. And thanks for taking my questions. Zack, I was - thanks for all your detail around the path towards that 16 exahash. I did kind of want to talk about or kind of get your thoughts around. Clearly, there is a lot of opportunities on the M&A side. It sounds like of physical assets. But just given the fact that CleanSpark, you mentioned the low leverage, you kind of have differentiated or started to differentiate yourself as an operator. What is potential appetite from CleanSpark and what type of opportunities are you seeing to kind of continue to go down the co-hosting route? Is that something that you have any interest in doing just as you think about whether getting to 16 or even potentially higher later this year?

No, that's a great question. And I think it's an important question to ask. And as we spoke to in there, we really think that the proprietary mining model provides us with the reliability and efficiency that we really want to see. We have a great hosting partner, but I can tell you that our team is dedicated to the two things that are going to directly benefit us in a way that produces better results. And I think that, that's just a natural human thing that happens. And the human component of what we do, we think, as Gary said, is the secret sauce. So our growth, we really plan to push directly towards being proprietary mining. We do see being hosted and to have a time and a place, but that should really be when we seek out flexibility or when we have opportunities for miners without a place to give them a home. But even then, I would say we would look to rotate that into a proprietary mining model on a long-term basis because we truly believe we can produce better results.

Okay. And to that point, there was a slide where you kind of had your progression and maybe it was just the optics [ph] of the slide, but it looked like the amount of hosting or co-hosting I guess, it looked like in '24, '25, that comes down. Is that related to existing contracts you have that potentially roll off?

We don't plan on - right now, we have 50 megawatts of capacity hosted. And we don't plan on that increasing in the near terms or anything that we put up on the slide. So really, maybe it's just scale, showing our increase in proprietary mining, but we really plan on holding status quo is really the game plan now. We don't really plan on changing anything in our current relationship because we're going to keep those miners running in hashing. We'll probably keep them there until they're end of life or until we make a different decision.

Okay. And then just realizing it's still a developing technology, but it seems like it's gaining traction. As you think about opportunities to continue to build out your infrastructure, any kind of leanings or thoughts around immersion and the potential how you think about maybe deploying that at future sites?

Yes. We've had a great experience with our immersion facility right now in Norcross. And we are absolutely evaluating that at the Sandersville site, maybe incorporating that into part of it. In our expansion in Washington, we're not. And I'm going to tell you why it really comes down to capital. It takes more capital to build the infrastructure that supports immersion cooling. Now in the current market that hasn't been as supportive in the Nexpo [ph] market, I think that, that changes a little bit. What we really like, though, about immersion mining is that it does give you flexibility overclocking, underclocking, there's a lot we can do with it. But we're also seeing advances in what we can do overclocking, underclocking in an air cooled environment. So what this ultimately comes down to, and we - there are opportunities we're evaluating. It's closing that gap for the capital it takes to build air cooled versus build immersion. And as technologies improve and get better and that gap begins to close, that's when we'll likely make bigger moves towards immersion cooling.

Perfect. Thank you very much for the time.

And we'll go next to Brian Dobson at Chardan Capital Markets.

Thanks very much for taking my question. So I guess, taking a little bit of a longer-term view, how are you positioning the company ahead of the 2024 happing [ph] And how do you see that impacting the competitive landscape?

Yes. Our positioning is to always increase the efficiency of our miners. So you'll see in the 10-Q, we identified that a year ago, our average fleet efficiency was about 35 watt or tools per terahash, and we've improved that to close to 31%, and we plan to continue to improve that. So always staying in a place where you're upgrading and improving the efficiency is really step one. Step 2, this is where we think investing and building our own infrastructure matters. It's a onetime long-term investment that puts us in a position where those long-term cost of operating are lower. That will give us a better advantage into happing. And then lastly, it's making sure we're pulling every single string we can on the technology side to be in the right position because I think from a competitive landscape, there's going to be a lot of hashrate that drops off when it occurs for the low performing or the least efficient miners. And it's important that we are not only just the most efficient at the time as we can be, but we are deploying technologies, as I mentioned, to both underclock and overclock. And when you underclock, you can actually take a machine, bring down attach rate a little bit, that add significantly more efficiency than it did remove hashrate. And so making sure we're on the cutting edge of all three of those factors is what's going to be really, really important.

Brian, I just want to add a few things to that, too. We talked about our base case this year is executing that 16 exahash. But we don't feel compelled to go out and have to do M&A. But obviously, if we see a good deal, we'll take advantage of that. But really looking and having if bitcoin is not at, call it, close to $40,000, we think that there's going to be a lot of smaller miners and potentially private miners that can't access the capital markets. They're going to have trouble. So we really want to position the company to be able to pick off infrastructure and assets at good deals similar to what we've done in the last six months or so. So really from a positioning standpoint, we really are looking forward to some opportunities right around having of some other companies that want to get out of the game.

Excellent. That's very helpful, and I look forward to having you at the conference next month.

Thank you.

All right. I'd like to thank you for your questions and for joining us today. We wish everyone listening a good afternoon and a good evening. Back to you, Audra.

Thank you. Ladies and gentlemen, with that, we'll conclude today's conference. We thank you for attending. You may now disconnect your lines.