Q4 2021 CleanSpark Inc Earnings Call

Pardon me, ladies and gentlemen, the clean spark call will begin shortly so please continue to hold again the clean spark call will begin shortly so please continue to hold.

[music].

[music].

Good afternoon, and welcome to the clean Spark your N Q4 earnings call all participants will be in listen only mode.

You need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After todays presentation, there will be an opportunity to ask questions. If you were at your computer. Please use the submit question box in your webcast viewer. Please.

Please note this event is being recorded.

I'd now like to turn the conference over to Rachel Silverstein V. P of compliance and General Counsel. Please go ahead.

Welcome everyone on behalf of clean Spark Inc. I welcome you to our fourth fiscal quarter and year end financial results Conference call. My name is Rachel Silverstein I'm pleased Burke VP of compliance and general counsel with US today with prepared remarks are clean spark Chief Executive Officer.

Or is that Radford and Matt <unk>, our executive chairman.

Before beginning I would like to remind everyone that with the exception of historical information. The matters discussed in this presentation are forward looking statements as defined by federal Securities laws.

Investors are cautioned that these forward looking statements involve a number of risks and uncertainties.

Forward looking statements May include words, such as anticipate could estimate intend expect believe potential will should project and similar expression.

Further information on the company's risk factors is contained in the company's quarterly and annual reports filed with the Securities and Exchange Commission.

Today December 14th 2021, the company will be filing its Form 10-K, which will be available on the SEC dot com and the company's website. Shortly a press release announcing our financial results is also being issued at participants on this call may wish to review the press release as a company.

<unk> included a summary of the results discussed on this call.

Please note that on today's call management will refer to non-GAAP financial measures in which clean spark exclude certain expenses from its GAAP financial results.

Please refer to clean spark press release, and 10-K, which contain a full discussion of this information and a reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures.

Press release will also be available on our website.

Following the prepared remarks, we will open for a short Q&A for the analyst community.

That said I would like to turn the call over to our executive Chairman Matt sure.

Thank you very much Rachel good afternoon, everyone and thank you for joining our call.

I want to start off the call by thanking my colleagues for all the work they've done to round out a terrific year of growth. We're in the middle of the holiday season, and our teams have worked tirelessly to prepare for today's call one way to end the year.

I'll now turn it over to Zac Brown clean spark CEO to discuss our results in detail.

Hey, Thanks, Matt and I want to Echo your work our team has put in a lot of work and I'm thankful for their commitment.

I'm going to provide a summary of our results in more detail later in the call, but I want to take a quick moment to discuss some of our significant fourth quarter and year end highlights.

Our revenue grew from 10 million to $49 4 million, that's nearly a 400% growth.

And our adjusted EBITDA, which we believe provides an important measure of our performance resulted in a non-GAAP net income for the year of approximately $9 million.

The average that ultimately was 31 cents per share compared on the same basis $2 seven loss per share for the same period in the prior year.

We also achieved our projected revenue with almost $50 million for the year.

Clean spark is a bitcoin miner.

Bitcoin mining is our primary business segment in terms of revenue.

Our most efficient in terms of cost and margin and our most important in terms of maximizing value for our shareholders.

Today's filing our hatch rate is approximately 1.3 access our calendar year to date bitcoin production as of the end of November is a 1083 and we have over 40 megawatts machines are operating.

Based upon the industry measures. We believe we are incredibly undervalued as a bitcoin mining company.

We are rapidly growing and even outpacing many of our competitors.

This growth is backed by our strategy of smart sustainable growth.

Which includes taking steps to limit dilution to our shareholders.

Our house rate growth over the past quarter is consistently among the top publicly traded bitcoin mining company.

We believe the market is just catching up and will soon recognized and close what we see as a market value cap.

We believe that our continued performance is what will help us close that gap.

We're laser focused on shareholder value.

One way, we do that is by using some of our bitcoin, we hold to fund operations and growth.

We are pursuing non dilutive growth capital such as death.

Such as that.

We also expect to take advantage of opportunities in the coming year to generate greater yields from the bitcoin, we hold on the balance sheet.

So our college Park facility is the highlight of our bitcoin mining operation.

Senior Vice President of data Center operations Bernardo Shoopman, one of the world's leading bitcoin miner and his exceptional team have accomplished tremendous things in Atlanta.

<unk> the deployment of 48 custom designed mobile data center.

Over the next few months, we will be ramping up our Norcross facility. We've recently announced the purchase of 20 megawatts of immersion cooling equipment.

And we've designed for <unk>.

New micro grid for that facility.

The energy business has been foundational to our accomplishment.

Now our energy revenue.

Essentially flat year over year, and it's been a challenging year for the energy industry as a whole.

But we believe the way to drive the greatest increase in value to our shareholders is by applying our energy expertise into sustainable bitcoin mining.

Now we are deploying advanced technologies like renewable energy assets and emerging cooling to make our operations more efficient.

<unk> T is key and these efficiency enhancements are expected to increase production and decreased operating costs at all of our facilities.

As an added benefit. These systems are also expected to extend the life of our machine so that our catalog thus further to generate better returns for our shareholders.

Now I'm going to turn through again to review a little more details on our fourth quarter and fiscal year end financial results.

After which we'll open it up for a brief Q&A and I'll conclude with a few final remarks.

So at a summary level of the financial side I'm going to keep it focused pretty high level and specifically around key performance indicators that we've identified.

Please refer to our 10-K for our complete financial statements.

Our 2021 annual revenue as I mentioned grew from 10 million to 49 million, representing a five X increase in revenue from our prior year.

We expect that this growth will continue into next year as clean spark expands its mining capabilities as we deploy more miners and seek out additional energy opportunity.

As for the eventual are the ultimate operating results are.

Our GAAP based net loss improved by $1 5 million from a loss of $23 3 million last year to $21 8 million in 2021.

Overall these results led to a GAAP base net loss per share of <unk> 74.

That's an improvement of $1 70 per share compared to last year.

Now a large portion of our losses in the current year.

Based on noncash items.

As mentioned before we believe an important measure our performance is adjusted EBITDA and non-GAAP metric that reconciles it.

Now our non-GAAP adjusted EBITDA for the year was approximately $9 million in income or <unk> 31 cents per share.

A significant improvement from last year.

Now our improvements both on a GAAP and non-GAAP basis are encouraging.

And we are taking steps to further streamline our operations and we expect to achieve even stronger results for our shareholders in the coming year.

I'd now as part of it I think it's important to highlight our quarter over quarter revenue growth, which was incredible.

Revenues for the three months ended September 30 of 2021 was $27 1 million.

This is an increase of $25 2 million or nearly at 1300% increase from $1 9 million for the same quarter, just a year ago.

Now as for our balance sheet and operating capital.

Significantly improved from the prior year.

Just a couple of highlights we.

We had a cash balance at the end of the year of $18 million and a book value of bitcoin up $23 6 million.

Now this resulted in working capital of $47 6 million.

The company's total liabilities were only $11 7 million.

Now our net assets were $305 7 million.

This means we grew our net asset by a factor of over 19 times since the start of this fiscal year.

We are static about the strength of our balance sheet and the strong foundation. It has created for growth into 2022.

I also want to highlight a few additional items specific to our mining assets. We believe are going to drive our growth.

At the end of our fiscal year, we had $123 2 million in mining equipment.

The majority of which was fully installed in hatching. In addition to the miners that we had on hand, we also have prepaid an additional $87 9 million providing equipment subs.

Subsequent to our fiscal year end, we have received over 4400 additional miners.

The new machines received an ordered will further increase our production capability and revenues in the coming quarter.

Clean spark like all companies holding substantial amount of digital currency, we're required to measure impairment to the value of bitcoin pursuant to U S accounting rules.

As a result, we did book a loss on impairment of bitcoin of $6 6 million for the year.

Now what this means so although the book value of Bitcoin under U S. GAAP was $23 6 million.

Fair market value on the very same date was $27 5 million.

Now lastly, I'd like to share that we have a substantial number of machines plugged in and ready to go.

We're just waiting the final commissioning process to energize additional mobile data center and when that occurs in the next few weeks, we expect to see an immediate and substantial jump in our hatch rates.

Now I'm going to hand things back to Rachel and she's going to handle the Q&A portion of our call.

Thank you Zach we've received several questions from the analyst community then we will now address prior to closing.

First question.

How does the hatch rate growth compared to our prior forecast and.

And do you anticipate any challenges.

I'll go ahead and take that one Zach this is Matt.

As a high growth company challenges are commonplace.

How we face those challenges is what matters and we believe that our proactive approach to energy management.

And the subsequent access to mining rigs to be deployed and energized on adjusting time basis gives us a unique competitive advantage.

We've found opportunities to purchase equipment.

<unk>.

To consume the energy available.

As it comes online and as Zach mentioned in his comments, we have 48 mobile mining centers currently installed and deployed at our College Park, Georgia facility.

Over the next few weeks those will all be coming online and we expect to keep our revenue and bitcoin production targets as we've discussed in prior guidance.

Thanks for that question.

Thank you Matt second question Indeed.

Industry reports indicate that emerged cooling allows the miners to operate above the label has right now.

Does the company anticipate the ability to overclock for Reg.

Sure.

I'm going to go ahead and take that one this is back.

Emergent cooling we're extremely excited about now I'm sure you know the way. The question was posed many people read about emerging cooling in the exciting things that you can do.

As I mentioned earlier, it's all about efficiency.

I want to address with Overclock really mean for those of you that don't know what overclock means is you're able to push the machine at a faster rate of processing then the manufacturer label on it.

Now the reason you are able to do so is because you're able to control the heat around it. That's that's really a limiting factor when it comes to miners and how quick they can process and how hard you can push them. It's all about heat transfer when you immerse them in our liquid and illiquid of courses that non conductive material from an electricity point of view.

It's the heat transfer it much more efficient, which means you can push them harder because you don't have to worry about them overheating.

So now returned back to the question or do we think we're going to be able to overclock them. Absolutely. We're really excited about some of the developments that for the 19th series that we're gonna be putting in that facility overclock is still being developed so we don't quite know if we're going to push him you know exactly what the percentage improvement is.

But we know we're gonna be able to push them. Further we also know they're going to last longer than the maintenance costs are going to be lower. So this is a really big game gain for us and we're really excited about it thanks for that question.

Thank you the third question please.

Participant physician selling bitcoin for expansion to avoid dilution in retrospect was the best decision and does the company expects to continue this practice.

Hey, I'm going to take that one again. This is that now Matt and I are two of the largest individual shareholders in the company and so just like all of our shareholders. We're extremely conscious of deletion.

And.

Our belief is that was absolutely the right mode.

If you think about bitcoin mining, we're here to generate value, but if you never turn that into a useful aspects or additional growth is just the number on our balance sheet.

So rather than add additional dilution to our shareholders through another equity raise or things like that.

We really think it's important to take other steps such as selling and monetizing the bitcoin.

But also.

Also you know we're going to pursue other things like that now anything that protects our shareholders from dilution, we see as a positive thing because again I said this in our last call. It's all about generating earnings per share.

And I say this a lot.

We have lower shares outstanding than our peers I'm just going to use simple math, let's just say one of our peers has three times as many shares outstanding that means in simple math they have to be three times larger and produced three three times the amount of income to produce the same earnings per share we are here to deliver value to our.

Shareholders and one of the ways and one of the levers we can pull to do that is by limiting dilution and using the bitcoin we have on our balance sheet as an asset and assets are there to be used for everybody's benefit and growth is what we're pursuing right. Now therefore, it's the highest value for us to use.

Next question. This Greensburg, he is green energy or traditional energy resources.

This is Jack I'll go ahead and take that one again you know we use both.

And anything that touches the tradition on power grid right now uses Paul.

But we are focused on renewable and clean energy as our base source now at each of our facilities. We have different mixes and we are very very high concentration of renewable and in addition to that were for participating in programs. So that.

Currently any amount of power we are using it for bitcoin mining that.

Is not in a renewable or clean.

Impact.

Being offset by renewable energy credits that we're buying so you know.

The only reason just to be Frank that we haven't already come out and said, we're 100% renewable is because we're basically just getting working with independent professionals to get it independently verified. We think it's important that you know there's data behind statements and so when we're done with these reports and this data will be putting it out there.

But we're really taking steps and we're really close to being able to make those claims out in the public.

Thank you Dan.

In megawatt equivalents.

How many megawatts are expected to come online in the next few weeks.

Yes.

You know this exactly yeah I can answer that question, it's going to be about 23 megawatts of power that is going to be coming online.

The College Park facility. We also expect an additional five megawatts could be coming online in the next few weeks with one of our partners. So it's.

And I'm using round numbers here, it's going to be about 28 megawatts of total power coming online over the next couple of weeks.

This will be our final question is that what are the potential difficulties in getting the miners online as you receive them and as we received the scheduled shipments for now until September 2022.

I'll go ahead and take that one Rachel. Thanks. This is Matt so the difficulties or challenges have really been surrounding the availability of igniting and energizing. The circuits, we got to a world class team of miners and as Zach mentioned in his earlier comments and we've talked about many times publicly Bernardo and his team.

<unk> have been personally responsible for the mining of more than 50000 bitcoin.

So when it comes to the proper personnel and the proper approach, we really have that covered what our what our challenges have been and we've been fortunate that we've been proactive in the approach.

But <unk>.

What we talked about with regard to College Park, we've got a series of circuits that will be energized and Thats just a process with regards to not only the final approval by the city and the utility.

But then the commissioning of those circuits and when you turn on that much power at once.

The ignite one system or one circuit at a time to measure and ensure that everything is falling within the specifications. So we really feel like our approach of energy first has set us apart and so we don't anticipate being impacted by supply chain some of those other concerns.

Earlier in the year, we saw delays in receiving Ethernet cables or receiving power cords to support that equipment, but again being proactive in preparing for that in advance allowed us to have that equipment available and online in order to hit the benchmarks, we talked about so we feel really confident about the guidance we've given.

And expect to continue on that trajectory. Thanks for that question and I appreciate everyone.

Thanks, Matt that concludes our Q&A and I'll now turn it over to Zac for closing remarks.

Thank you Rachel.

No I just want to briefly conclude by wishing all of our listeners very happy holiday, especially with our employees and shareholders.

Been a really great year for clean spark our financial results continue to trend upwards. Our revenue growth is strong and we have a clear understanding of how to improve our costs.

And we're a big quite minor.

We believe in the work we're doing not only for the value. It provides our shareholders and make no mistake, it's extremely profitable, but also for the value. It provides for growing energy generation and our communities and access to financial where wellbeing for users worldwide.

What we are doing here is nothing less than building the infrastructure of the new economy, our shareholders and employees many of which our shareholders by the way are all part of that.

Happy holiday and thanks, everybody for joining our call.

Before we end today's earnings call I would like to remind everyone that this call will be available for replay later today.

You refer to today's press release for dial in and replay instructions available via the company's website. Thank you for joining.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Yeah.

Okay.

[music].

Yes.