Good afternoon, my name is Greg and I will be your conference operator today. At this time, I would like to welcome everyone to CleanSpark's First Quarter Fiscal Year 2024 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.

Hey, thanks, Greg. And thank you for joining us today for our first quarter fiscal year financial results call, covering the period October 1 through December 31, 2023. Our press release was issued about 30 minutes ago and is available on our website at cleanspark.com. Today's call is also being webcast and a replay and transcript will be available on our website. On the call with me today is 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 business as we see them today. The statements and information provided remain 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 for joining us this afternoon as we discuss our business and financial results from the first quarter of our fiscal year. I'm looking forward to walking you through an exceptional quarter. Today, we will highlight our key achievements, focusing on our outstanding quarterly revenue performance, strategic machine acquisitions, and our roadmap to achieving 20 exahash per second in mining capacity during the first half of this year. And our pathway to 50 exahash per second. I'm also looking forward to providing additional details about the ongoing Sandersville energization and our just announced move into Mississippi. Our financial performance this quarter has been exceptional. We achieved the highest revenue in our company's history, a testament to our team's hard work and the strategic decisions we've made over the past few months. Our revenue soared to $74 million, a 90% increase from our year ago first quarter revenue. For perspective, our annual revenue for fiscal year 2023 was $168 million. In a single quarter, we have covered nearly half the distance to reach our total revenue from last year. This achievement is not just a number. It's a reflection of our growing efficiency, our strategic acquisitions, and our deep commitment to smart growth. It underscores our position as leaders in the Bitcoin mining industry and fortifies the trust that you, our investors, place in us. What's more, our quarter ended with a net income of $26 million, and our adjusted EBITDA, an essential measure of our operational efficiency and financial health, also saw remarkable growth, reaching $69 million for the quarter. This figure represents not just profitability, but our ability to generate significant cash flow while investing in future growth. In addition to our financial metrics, our operational achievements this quarter have continued to build on our track record of…

Thank you, Zach. As Zach mentioned, our first fiscal quarter was record setting for CleanSpark. Let's dive directly into the numbers, which I'm excited to share with you. Diving right into the numbers, our revenues for the quarter were $73.8 million, an increase of $46 million, or 165% over the same quarter last year. This increase was primarily driven by the increase in our Bitcoin production and an overall increase in average Bitcoin price. This quarter, we produced 32% more Bitcoin compared to the same quarter last year. It's also important to note that this quarter, the average Bitcoin price was a little over $36,000, whereas last year, the average Bitcoin price was approximately $18,000, or less than half. Looking at the immediate preceding fiscal fourth quarter, our revenues increased $21.3 million, or 40% between the periods. Our hashrate was relatively consistent during the first quarter. The average Bitcoin price increased almost 30% from $20,000 in the fourth quarter to $36,000 in the first quarter. The increases in Bitcoin prices and our consistent high uptime percentage of greater than 98% translated to higher gross profit margins as well. As you can see on the right-hand side of this slide, our margins increased $37.5 million year-over-year with a profit margin of 61%. It's important to note that of the $46 million increase in revenue, $37.5 million, or 82%, was recognized as margin. This demonstrates our efficiency at scale. Comparing the first quarter versus the prior quarter, you see an increase of $22.8 million. This was primarily attributed to lower power costs in the first quarter of $0.044 per kilowatt hour, compared to $0.052 per kilowatt hour in the preceding quarter, paired with our higher revenues, again, pointing to the benefits of scale. This quarter, we recognized net income of $25.9 million,…

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

[Operator Instructions] And our first question today comes from Mike Colonnese with H.C. Wainwright.

And congratulations on the Bitmain deal, the recent acquisitions, and getting Sandersville energized here. Really exciting times for CleanSpark. Just a couple questions from me. So you talk about receiving the 12 exahash of S21, call it through the first half of the year or so. Was just curious how you guys were thinking about the additional infrastructure needed to support the new rigs that are going to be delivered in the coming months. Are you seeing other attractive acquisition opportunities out there in the market today? Or would you consider building out an entirely new facility, be it in Georgia or another market out there?

Yes, with that additional infrastructure, maybe the best example to give is in December, when we get our earnings call, I let everybody know that we were 72 megawatt short of what we needed to get to 20, based on what we had ordered the prior month. And we sit here today, just 60 days later, with the answers for how we filled that. So I would point to first our track record to show how confident we are in some of the statements we're making. But really how we're looking at this is there's a lot of incredible opportunities out there. And so we are evaluating a queue of opportunities, many of which do include M&A opportunities. And I believe that's likely where we'll turn to first as the place where we would put the first 12 exahash of machines. The following 20, there's a lot of flexibility in that option and how we exercise it. And for some of that, we would certainly be building, either adding on to existing facilities, expanding, or even building out new greenfield opportunities. So we're going to look at it from a total of the full option from both sides, but we really do think that there is plenty of opportunity out there, including things that we're actively looking at that will create a nice home for the 12 exahash of additional growth that we plan to hit before the end of the calendar year.

Very helpful. And just to follow-up from me, if we look at the entire 160,000 deal with Bitmain for the S21s, what would need to happen for CleanSpark to really consider exercising that full option? If you could just speak to some of the specific factors and market conditions that would influence your decision and really be comfortable with transacting on the full 160,000.

Yes, I don't think that there's any specific Bitcoin price that we would be looking for or anything like that that I could point to. But instead, it's going to be how do the chips fall really on a post halving basis. Because that's when we're going to be looking at it the closest. We're going to be factoring in where the difficulty actually dropped to, where does it recover to, what is Bitcoin's price. It's really going to be a measure of what's the ROI. And we're also going to keep an eye on anything else that's going on in the market, just in general. A key thing on that option is we can wait to exercise it all the way to the very last day of the year and take some of those into '25. So one thing I can say is we feel highly confident that we will exercise the option, as I said, during the call, it's really about when. Another key component of that is we can exercise it in parts, so if we get opportunities, the warrants pulling down 10,000 20,000, 30,000 of the 100,000, we can exercise that option earlier and we could hold the rest until later to the end of the year. That flexibility is really important when you consider the fact that as soon as the options like this are exercised, that involves cash flow. So we always want to minimize the timing of spending cash and plugging machines in. And so as it relates to that option, I think that we'll kind of switch directions, whereas right now we've looked to secure machines, get them coming, we then look to the infrastructure second on the option, we'll look to infrastructure first, machine second, because the certainty of price and timing will be known. And that's the true value of the option.

And our next question comes from the line of Josh Siegler with Cantor Fitzgerald.

Yes. Congrats on the results. I'd like to dive a little bit deeper into the Mississippi acquisitions because this marks a clear change in strategy from how you've been positioning your vertically integrated sites in Georgia. Can you give us a little bit more detail on the rationale to really expand the geography and how you're feeling about the new Mississippi move?

Yes. How we're thinking about Mississippi is as another Georgia. It's a place that we're seeing a lot of opportunities based on how we view and interact with the grids that are located in that part of the U.S. We feel very comfortable with those systems and grids. And we see this as our first foray into Mississippi. Anywhere that we go, we're going to look to do similar things where we're going to be looking to expand our footprint, be a meaningful part of the communities, things like that. So this is an entry point for us in Mississippi, and we expect that there's a lot of opportunity there. If you think of headlines about reading about any minor right now, Mississippi's not a place that you're reading about. And that for us points to a lot of opportunities in the research we've been doing over the past several months. So we're excited about it and see it as another home that we'll spin up and do similar things and gain the same efficiencies.

Yes, absolutely, interested in seeing how it plays out. I guess as a follow-up to that would just be, if we could dive a little bit deeper into the power structure for Mississippi, how are you thinking about fixed versus floating and ultimately where do you see your overall cost of electricity trending as we enter into the halving?

Yes, so we see it staying fairly stable. So all of these sites come with a fixed price power agreement in the $0.05 range. When you blend that into what last quarter's prices were till you throw this in on a percentage basis, it would shift our average power cost still into the mid force. So that's what we're still looking at a blended average. We're also watching the market. The market is pointing to a continued flatness or even a slight decrease in power prices in the state of Georgia. Because they do share parent companies, we think that we're going to see similar availability. I would expect us actually as we expand and use this foundation of a fixed price power in Mississippi to actually look towards more market-based power rates. Because we've been incredibly successful in basically beating the fixed price rates, which usually represent a hedge price on the other side. But we're going to climb that hill as we continue to grow in Mississippi and thought that an entry point with a fixed price 5-year power agreement was a great place to start.

Great. Appreciate the color there. And congratulations again on the report.

[Operator Instructions] And our next question comes from Greg Lewis at BTIG.

Zach, congrats on Mississippi. Just kind of curious, was that -- how competitive of a process was that? Were you looking at that acquisition against others? And really, when did that kind of first come across, or come into your guy's purview as a potential acquisition opportunity? And what I'm trying to understand is, you mentioned lots of M&A opportunities. We're hearing some of that, and you're probably seeing more than we're hearing about, but just kind of any kind of color around the Mississippi opportunity and how that evolved.

What I can say is relationships are the first thing that matter. This site was owned by a party that we'd already acquired a site from. And so it was where we got basically a first and early look at it. Now, we actually looked at it in a prior quarter. And at the time, all things considered, we didn't move on it because we were highly focused on what we were doing. We're now in a situation where we have lots of machines coming, and it made all the sense in the world. And so getting the first look and first opportunity on this allowed us to engage in negotiations on an exclusive basis, which is what we bargained for as part of the process. So again, I believe it would have been competitive had we not had the relationship we already had. So we did leverage our relationships to make sure it went very smoothly and quickly.

Okay. Great. And then I would be curious, just because it's something that we're thinking about, you mentioned the halving potentially knocking off 15% to 30% of global hash. I don't know how detailed you need to get on the call, but kind of, if you could give us maybe some broad strokes how you're kind of coming up with that number.

Yes, I'm going to give you some broad strokes. One thing that nobody knows is really the exact percentage of what machines are where and what their power rates are behind that. What we do know and what we can see is that there are a lot of machines that are still plugged in that are not nearly as efficient as they're going to need to be. And an easy example of that is, there's public companies that are still openly running miners that have an efficiency between 38 and 44. And so I really believe whether it's immediately at halving or sometime plus or minus a month around halving, I'm a believer that everything on the above average side is going to start to struggle. And as much as public companies may have balance sheets that can allow them to last a little while through some of these tough times, everybody else, they're kind of going day by day on their cash flows. So we point to that and we say, okay, we know that even there's some public companies running 38 to 44, that means also that there are other assets out there that are significantly higher. What percentages we don't know, and that's where our estimate comes in to 15% to 30%. So in our opinion, global hashrate, there's at least 15% to 30% that's less efficient than a 38 watt per terahash machine.

And our next question comes from Regie Smith at JPMorgan.

This is Charlie on for Regie. I know you provided some details on under and overclocking efficiency last quarter. And I realized this early days on the S21s, but I was wondering if you had a sense of how reliable, how efficient and kind of how flexible from an overclocking, underclocking perspective, these machines are straight out of the box. I know some earlier models specifically, I think like the XPs has had some performance issues kind of on the first go around. So any context there would be helpful.

Yes, I'm going to give you some broad strokes on this. So we have taken units in, we have tested those. The good news is the S21 is very flexible, it's what we're finding so far. And you were right, the XP is one of the less efficient miners, it's because it was already released at the lower end of its physical, I'll call it physical levels of efficiency. So pushing that to get it more efficient creates some challenges in the XP. The S21 on the other hand, has some flexibility built in that we've been able to extract using some of our tech stack and our firmware. And so we've been able to get the S21 to perform at a level of 15.8 joules per terahash. And we've also been able to push it, even in an air-cooled environment, to as high as 220 terahash. So we're happy, it's still early days. We need to see how it behaves on a fleet-wide basis, but we're very happy with what we're seeing, the ability to push efficiency out of it, and also the ability to actually push it a little bit higher. To get to 220, it costs us a 1 watt or 2 watt, but it's very, very little. So we're really happy with that. From a temperature point of view, we're seeing it to be fairly resilient. So it is 5 degrees Celsius higher rated than the XP also. We, of course, haven't gone through a summer yet with the S21, but all the testing we're doing where we are introducing heat into that as part of our R&D process, we're really happy with the results we're seeing. So we expect, I guess, in summary, to have the S21 represent the flexibility and benefits similar to a J Pro, except for already almost nearly double the efficiency.

[Operator Instructions] Our final question will come from Brian Dobson at Chardan Capital Markets.

Congratulations on the very efficient monthly metrics you guys put into during the quarter. So I suppose, let's talk about your new mining facilities. In the past, you've mentioned that Georgia offers a variety of natural climate advantages for Bitcoin mining. Do you believe your new facilities share these same advantages?

Yes, we do. So actually, if you compare it to the middle of the road kind of temperatures in Georgia, in Mississippi, we're actually getting, on average, a few degrees cooler weather where these are located. So we are looking forward to what they are. We're also, as part of these facilities, what we didn't get a lot into is really what the physical infrastructure looks like. So these are buildings, these are not pods. These are buildings that have very robust exhaust fan systems built in that help with, additionally, with what the miners are already pushing out and handling. They're still very low PUE buildings, and we're really happy with how we expect them to perform. But we did make sure, of course, in addition to the weather advantages that we expect to also carry through, we made sure that the infrastructure was ready and set up for it. These facilities, as we mentioned, are turnkey in the sense that we're bringing our miners into a facility that will empty out, but there is over 1 year of runtime data that we were able to look at to watch how these facilities run and function over an entire year of data. So all in all, really happy and looking forward to the results we expect them to generate.

Yes, good to hear. During your prepared remarks, you also mentioned, just briefly, that the halving may lead to a stronger price performance for Bitcoin. Now, I agree with that, because at the very least, your daily selling pressure from the mining industry is going to be reduced by half for those not holding. But do you think you could kind of elaborate on what you see as potential positive catalysts for the coin post halving?

Yes, I think that the selling pressure, of course, is one of those. The ETFs, I think, are helping with the buying. So you think about how many coins are going to be taken off the shelf, essentially, on a permanent or semi-permanent basis. To me, it's a big part of that. Do I think it's going to happen the day after halving occurs? No. Just like all supply and demand shocks work, when you look at anything in a commodities market or any general economic market, basically, the longer that the supply is less than it was before, the more likely you're going to see a price impact. So it could take 30 days or it could take 9 months before we see those catalysts fully kick in. But there's a lot of things that we can point to. But I'm a big fan of thinking simple and supply and demand curves on an economic basis pointing to being the largest driver. You pair that with what I also think is going to be higher adoption, both in a traditional sense of users of Bitcoin, of corporations that are going to now be willing to put it on their balance sheet due to the new accounting rules, to layer 2s and whether it's ordinals or anything else, which is good for us by creating more fees. But in addition to the fees, it's people using the blockchain for more things. So I think you first look to the supply and demand economics, and you second look to the use cases being a catalyst for additional demand, not just reductions in supply.

And with that, I would now like to turn the call back over to Isaac Holyoak for closing remarks. Isaac, the floor is yours.

Thank you, I appreciate it. And thank you for joining today's earnings call. We look forward to sharing more of our journey with you in the coming quarters. Stay tuned for more groundbreaking achievements from CleanSpark, thank you.

Thank you, Isaac. Ladies and gentlemen, that concludes today's call. Thank you for joining and you may now disconnect.