Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to CleanSpark's Fiscal Full Year 2023 Financial Results Conference Call. [Operator Instructions] And at this time, I would like to turn the floor over to Isaac Holyoak, Chief Communications Officer. You may begin.

Thank you, Krista, and thank you for joining us today for our Fiscal Full Year Financial Results Call, covering the period October 1, 2022, through September 30, 2023. Our press release was issued about 30 minutes ago and is available on our website at www.cleanspark.com. So we expect to file our Form 10-K tomorrow. 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. The statement and information provided remains subject to the risk factors 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, Isaac. It's a pleasure to be here with you all today. This past fiscal year has been one of substantial growth and success for CleanSpark. We've not only met but exceeded many of our strategic aims, and I'm proud to share these accomplishments with you. It was a record-breaking year for us financially and operationally. We posted revenue of over $168 million, a 28% increase over the last fiscal year. We expect to continue to follow this trajectory, and we are optimistic about revenue growth next year, even as we prepare for the halving. For example, during the last month, we posted our first single day revenue of almost $1 million. Like analysts across the traditional financial industry, we are bullish on Bitcoin. We believe that its utility as a payment system, investment opportunity and savings tool for the middle class, will continue to grow as more and more people take part in this next stage in the evolution of money. Operationally, our hashrate growth year-over-year has been exceptional. Highlighting our commitment to not just growing, but also scaling efficiently. In fact, we've achieved a remarkable milestone this year, by surpassing a total hashrate of 10 exahashes per second. A level reached only by a select few in our industry. Our hashrate has more than doubled since I spoke with you 1 year ago during our last fiscal year earnings call. What's more? Our hashrate is among the most efficient among publicly traded miners, thanks to one of the most advanced fleets in the industry. Our fleet-wide efficiency is now 26.4 joules per terahash, and we expect to continue to see sustained improvements in our efficiency with Sandersville coming online in the next few months. I'll talk more about this in a bit. But for now, let me…

Thank you, Zach. It's my pleasure to share some insights in our financial performance for the fiscal year ended September 30, 2023. As Zach mentioned, it's been a year of significant achievements and our financial results reflect this. Diving right into the numbers, our revenues for the year were $168.4 million, an increase of approximately $37 million or 28%. This increase was primarily driven by the increase in our Bitcoin production. We produced over 6,900 Bitcoin for the fiscal year, compared to 3,750 Bitcoin produced for fiscal year 2022 which represents an increase of 84%. However, Bitcoin price saw much volatility during the year with a low of approximately 15,500 in our fiscal first quarter, late last calendar year and a high of almost 32,000 in our fourth quarter. Additionally, global hashrate has increased significantly. While our hashrate has more than doubled in the recent fiscal year, the combination of Bitcoin prices and increased difficulty has resulted in a muted overall increase in revenues. Our gross profit for the year saw a decrease in 2023 of approximately $15.5 million or 17%. The largest contributor to this decline was the average Bitcoin price, which was significantly higher last fiscal year. Looking at our GAAP net loss. We saw a loss of approximately $137 million for the fiscal year 2023. It is important to note that our net loss includes noncash GAAP items, the largest of which is a charge, we took in the fourth quarter of $32.7 million, related to the acceleration of depreciation around our older miners. As Zach has discussed today, and on prior calls, we are preparing our fleet for the halving event next year. This acceleration of depreciation relates to older, less efficient machines that we have either taken out of service, as we replace them with…

Thank you, Gary, for that detailed financial overview. We'll now open the floor to questions from the analyst community. Operator, please provide instructions and manage the queue for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Mark Colonnese from HC Wainwright.

I guess I am Mark now. First one for me is on your HODL balance. I appreciate all the color Zach that you provided on your go-forward strategy. But I was curious if you can walk through a little bit more about how you've been able to grow the balance so rapidly in recent months?

Mike, good to hear from you. When we approached it, we really -- we were expecting Bitcoin to go up, and we were proven correct on that. And we also looked at our cost to mine Bitcoin. And as Gary just talked about, it's a little over $12,000 of Bitcoin for us to mine. And so we made a choice. Just like MicroStrategy bought Bitcoin, we exercised the value of leverage. So instead of being like MicroStrategies and buying spot, they just disclosed today buying a lot of Bitcoin at over 36,000. We effectively funded some of our operations on a temporary basis from equity. And as a result, it has essentially allowed us to acquire Bitcoin at that cost of -- a little over $12,000 a Bitcoin. So it was a short-term strategic way to boost the balance and then we shifted back to, again, looking to maximize really the output from our operations by using Bitcoin for what we do. Now what we really expect is to continue to maintain very healthy margins. And on the go forward, what that looks like, I'm very bullish on what ETFs and what halving ultimately means for Bitcoin price appreciation. And I'm really seeing us HODL-ing the delta between what we need to keep the lights on and pay our power bills. And that difference, I see going into the HODL balance for future appreciation.

That's really helpful. I appreciate the additional color there. And second one for me, you also mentioned in your prepared remarks that construction to support the expansion at Sandersville is tracking the plan and expected to be completed in the coming weeks. Can you provide some more specifics as to when you expect to have the site fully energized and hashing at full capacity?

Yes. We're really excited about the progress, we're making. As I mentioned in the prepared remarks, we expect the construction side of that to be done in the next few weeks. Really, we expect it to be done before the end of the year. That really leaves the power coming online and getting the machines plugged in and hashing. What we expect, as of right now, is for us to begin energization in February. And we think it will take a few weeks to basically bring all the miners online, just like it did in Washington. Obviously, this is not like flipping a light switch. It's instead like turning on several hundred Walmarts. And with all that power that goes into it, we turn it on transformer by transformer. So it will come on by 2 megawatts at a time. And we expect to be able to turn on multiple transformers each and every day starting February.

Your next question comes from the line of Josh Siegler from Cantor Fitzgerald.

Congrats on all that you've achieved this year. I think it's a testament to your strong execution there. First of all, I'd love if we could dive a little bit more into the 15-megawatt expansion at Dalton. Do you have any parameters around the CapEx requirement for that first leg of infrastructure growth?

Yes, I've got a little bit around that. We expect it to actually be pretty low cost. And so, I would anticipate that our all-in CapEx needed to do that expansion is under $5 million. Obviously, we've already taken care of the miners. We've disclosed what that looks like. But from a facilities infrastructure side, we do expect it to be under that $5 million mark to finish the $15 million -- or 15-megawatt expansion.

Perfect. That's very helpful. And then on the energy side, I was wondering if you can give us any update on how energy prices have been trending throughout this winter in Georgia and any major trends or anything you'd like to highlight as we progress into '24?

Yes. How it's trending right now is it's trending meaningfully better than it did 1 year ago. So 1 year ago, if you recall, we were -- everybody was experiencing still quite a bit of pain, when it came to natural gas prices. So if you look at our first fiscal quarter last year, prices were trending from a wholesale basis around $0.05. So our all-in cost was floating right around that $0.06 range. As of right now, we're seeing those in the 3s. And we're really happy with the trajectory and the projections. So right now, with some of the projections that we've been provided by the power providers, we expect the balance of the year to kind of continue on trend between that $0.03 and $0.04 range. And then for '24 and beyond, we're actually really excited about what we see for '24. A lot of the utility companies did quite a bit of purchasing to shore up what this year would look like, with the natural gas issues that they encountered a year ago. And so we're looking at a largely -- at least we're projecting out as are the utilities, largely flat prices, that are going to be in the $0.03 range and oftentimes lower than that. So 2024 is looking really, really good in Georgia for power prices.

Your next question comes from the line of Greg Lewis from BTIG.

Zach, I was hoping you could talk a little bit more about some of the cost savings maybe we're seeing as kind of what brought in the machines to internal repairs and the improvement of uptime. Is there any kind of way you guys are able to quantify that benefit that the company is getting?

Yes. What we're seeing right now is with our internal repair team, we can actually turn between 600 and 1,000 machines every single month, without having to send to an outside source. And if you think of it in context of 2 ways, from savings on the repair side. One is when you send it out, you're losing meaningful time, sometimes weeks, before that machine ever comes back to you from another party. But also, what we found is, when you send it to a third party, you see markup not only on parts and materials, sometimes 100% markup on that. And these are often small dollars. It could be a $20 instead of a $40 part that has to get switched out. But then also, we're seeing meaningful differences in labor. Obviously, when you send it to a third party, they have their own labor costs, but they mark it up to make a profit. And so I don't necessarily have a specific percentage, but it's very, very meaningful. I'm going to kick it to Gary to see if he has more context on that.

Yes, I'm give you a little bit more color. We're still in the process of really ramping up our internal repair shop. And so really, those synergies have not been recognized fully in our financial results yet. So -- because we were previously outsourcing that. But we expect in future quarters that will meaningfully help the margins.

Just to quantify the other piece, from an uptime perspective, if you look at some of the independent reports that exist out there, there's the average uptime across the industry is floating around in the 80%, 85% range. Obviously, unless someone discloses that, we don't have all the details, but that's what it seems to be from an industry standard of uptime. And us, consistently achieving in the high 90% uptime. Part of that is what turns into our returns on that, which is ultimately measured in top line revenue versus some specific cost savings metric. So that's why I would look at it as we're probably 12% to 15% or more, profitable due to our uptime metrics because of what we have developed internally.

Yes, 100%. I was looking for a little bit more clarity on the you kind of called out the $72 million -- I'm sorry, the 72 megawatts of expansion potential -- just kind of in terms of the timing, you highlighted Dalton but beyond that, is that -- should we be thinking about that? Is that more of a first half event? Or is it with the halving coming, we're going to maybe look at doing that that's kind of maybe part of our second half '24 kind of growth build-out? Just a little more color around that. And then really, I guess, a 2-part question. How are you thinking about splitting off that are deploying that extra megawatts across the facilities beyond Dalton?

Yes. So we do expect it to be a first half event because our intention is to basically add megawatts so that as we receive the S21s, we can plug them in and get them hashing right away. So for example, the Dalton expansion should happen very rapidly. And then some of the follow-on expansion, I would still expect to happen in the first half of -- calendar half of 2024. And then from...

And similar to Dalton, it's going to be like minimal -- and similar to the Dalton it seems like these are all going to be a couple of million dollars here, a couple of million dollars there.

Yes, yes. We expect -- our intention is to make a fairly low-cost endeavor. We've gotten even better at building. And so we -- depending on what we build, whether it is air cooled or immersion and we are eyeing some additional immersion going forward, but you're talking about anywhere from 350,000 megawatt to around 500,000 megawatt, which I should add is substantially better than the immersion that we've built in the past. The markets improved substantially for that. And we're pretty excited about what Immersion seems to bring in the coming year.

Your next question comes from the line of Brian Dobson from Chardan Capital.

So you've done a tremendous job decreasing joules per terahash over the past 6 months. And you mentioned that new machines could bring that metric down to about 25 joules per terahash. What time frame are you thinking about for that further reduction?

Inside the first half of next year. So we're going to see a meaningful improvement into the 25 range, when Sandersville comes online next calendar quarter. And then with the 21s plugging in, which, as I mentioned, we do expect to be shelfing those in the first half of the year. That should -- will bring it down into the 24 joules per terahash.

Yes. No, that's impressive. And I guess, as you're thinking of just adding those new more efficient machines, what other kind of efficiencies can you wring out of the fleet? Is there more to be had on the software side of things?

Yes. When you look at what we -- those numbers we are using that doesn't include, that's based sticker value of what this machine can do. So what our focus is, is on that flexibility. So as I mentioned in the call, we could really make that 27% more efficient from an energy use, on about 2/3 of the fleet and also take everything up about 12%. And, so that's really the flexibility we think we can continue to wring out of it. In addition to, there's still a small portion of the fleet that is included in that number, that 24 number that we would consider to also upgrade, which would likely -- and I do expect we will execute upon that. We're just going to be very cautious in try and time that from a capital side that would bring it under 24 watts or joules per terahash.

Yes, very good. Thinking about the halving next year, you mentioned that, that should create some challenges for weaker players, obviously, and opportunities for yourself. How are you thinking about M&A as we head into '24?

Right now, we have really interesting opportunities already because there are weak players that know they're weak and that are looking for things. But I think it's all about timing it correctly. So we're incredibly interested in M&A. We've been very focused on site by site, and we continue currently, if you're asking me sitting here today, we're focusing on the site level. A few reasons, you avoid any baggage that often comes with entities and mergers. How I'm going to see that on a post halving basis though, I really think that there's going to be opportunities to not only merge with weaker players, but I think there will present itself opportunities to merge with equally or appear to as strong of players. And I think that, that's important, and that's why our focus really is going to be on the coming year, is really on maximizing our market value because when it comes time, when and if it comes time to have discussions like that in '24 and '25, we, of course, want to be the bigger, stronger, more valuable player in that discussion. So there's a lot of ways we're looking at it. And so that's why for the next 2 years, it's going to be all about maximizing value.

[Operator Instructions] We have no more questions in the queue at this time. I will now turn the call -- I'm sorry, we do have a question. Your next question comes from Reggie Smith from JPMorgan.

This is Charlie on for Reggie. Thinking about the remaining 72 megawatts needed to reach your 20 exahash target, it sounds like 30 megawatts will come from new sites. Can you talk a little bit about what you're prioritizing in that search? Would that be the cheapest power? Would that be maximizing uptime, would that be staying in Georgia? Anything there would be helpful.

Yes. Our first priority, of course, is low-cost power that is reliable. Those 2 go together in making sure that we have high uptime at low cost. We're, of course, interested in growing in Georgia, but if additional opportunities present themselves, we're certainly not going to take the borders of the state and call that a hard and fast line, certainly not. So it really is that focus on low-cost power reliable. And the other thing we're prioritizing is speed to deployment. We, of course, want to deploy those S21s, the time of receipt. We don't want to be sitting on those. It's always been our strategy to be able to plug things in as quick as we can after we get the miners in hand. So that's going to be the other piece that we prioritize is, is it going to be up and functional in the time lines that we want it to be.

We have no further questions at this time. I will turn the call back over to Isaac Holyoak for closing remarks.

Thank you, and thank you to everyone for joining today's call and to our analysts. Thank you for your questions. We appreciate your interest and your support in CleanSpark. As always, we're committed to driving value for our shareholders and advancing our position as a leader in responsible Bitcoin mining. Happy holidays from all of us here at CleanSpark.

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