2023-08-10 15:52:33 ET
Summary
- CleanSpark reported $45.5 million in quarterly revenue in what was the company's best quarter from a net income standpoint since March 2022.
- The company has been growing capacity and is guiding for 16 EH/s by the end of the year. This expansion is fully funded per the CEO.
- There is a history of significant share dilution with CleanSpark, but breakeven isn't terribly far from current BTC price levels.
One of the Bitcoin ( BTC-USD ) mining stocks that has been quickly scaling production capacity in recent months is CleanSpark ( CLSK ). I last covered the company in April shortly before earnings for calendar year Q1-23. My bull case from that article was the company's low debt and efficient miner fleet.
Since then, we have two fresh quarters of financial data to assess and a significant move upward in production capacity. In this article, we'll dive into the key takeaways from the latest earnings report, the balance sheet, and the elephant in the room.
Earnings & Performance
In the recent 10-Q, CleanSpark reported $45.5 million in revenue, a 7% sequential increase and 22% year-over-year increase. Gross profit came in at $24.8 million in the quarter. That was down from $28.5 million in the prior year period. Cost of revenue was $20.7 million and total opex hit a new high of $39.7 million. Operating income for the quarter was negative $14.8 million; an improvement over Q1 but the company has now lost money in 5 consecutive quarters.
Despite that, CleanSpark is the second-highest rated Bitcoin miner by Seeking Alpha's Quant Score, and it's the only miner with green factor grades across the board. Another good sign is the improvement in the company's breakeven Bitcoin price so far this year.
CleanSpark | 1H 22 | 2H 22 | 1H 23 |
---|---|---|---|
Cost of Rev + Opex | $70,800,000 | $108,300,000 | $120,300,000 |
Bitcoin mined | 1,863 | 2,758 | 3,495 |
Breakeven Price | $38,003 | $39,268 | $34,421 |
Source: CleanSpark, analyst calculations
To calculate a rough estimate for that figure, I've added the cost of revenue with the company's total opex for each of the last 6 quarters and divided the cash burn by the number of BTC the company mined. Year over year, CleanSpark has been able to lower the company's breakeven Bitcoin price from $38k down to $34.4k. If CleanSpark can continue to operate an efficient fleet, I'd argue the potential supply crunch dynamics we're observing for BTC on-chain could turn CleanSpark profitable relatively soon.
Analyst's graphic (CleanSpark)
In the last 12 months, CleanSpark has grown production from 2.9 EH/s to 9 EH/s as of the end of July 2023. And the company's production growth efforts appear to be coming at the right time. During the conference call , CEO Zach Bradford noted CleanSpark is on-track for 16 EH/s by the end of the year. He also hammered home the point that this expansion is fully funded.
Balance Sheet
From a balance sheet standpoint, CleanSpark continues to be one of the better-positioned companies in the sector. With $650 million in assets and just $18 million in debt on the last report, CleanSpark has one of the lowest debt to equity positions in the industry at roughly 6%.
The financial flexibility from resisting borrowing at high rates has allowed CleanSpark to grow the BTC "HODL" in treasury from just 228 at the end of December to 1,061 at the end of July. Of the more mid-tier miners, CleanSpark has been able to scale HODL to a far larger degree by percentage, though there was a smaller starting point than peers.
BTC HODL | December 2022 | July 2023 | YTD |
---|---|---|---|
Hut 8 ( HUT )* | 9,086 | 9,136 | 0.6% |
Bitfarms ( BITF ) | 405 | 594 | 46.7% |
CleanSpark | 228 | 1,061 | 365.4% |
Cipher Mining ( CIFR ) | 394 | 518 | 31.5% |
HIVE Digital Technologies ( HIVE ) | 2,348 | 2,032 | -13.5% |
Sources: Company filings, HUT figures as of June
It should also be noted that even in aggregate figures, CleanSpark's 833 BTC added to the balance sheet year to date is more than the 732 added by Marathon Digital ( MARA ) and MARA's production capacity was more than double CleanSpark's at the end of July.
At the end of June, CleanSpark reported $21.8 million in cash and equivalents, but we know that figure is actually closer to $90 million following a capital raise through stock issuance. And that gets us to the potential problem with CleanSpark's current model.
The Elephant In the Room
Share dilution became a focal point in the comments section of my April CleanSpark article and rightfully so. There is no question in my mind that CleanSpark has generally been one of the more egregious offenders of diluting shareholders over the last three years when compared to other noteworthy mining companies.
The chart above doesn't even really do CleanSpark's dilution justice. Shares outstanding have nearly quadrupled in less than two years. There were 41.5 million shares outstanding at the end of 2021. As of quarter ended March 31, 2023, there were 97 million CLSK shares outstanding. In the company's latest 10-Q, there were 131.8 million shares at the end of June. And we now know per the company's subsequent events section that there were an additional 20.8 million shares issued as part of the exahash expansion capital raise between July 1st and August 8th. That means the outstanding share count is now closer to 153 million than the 132 million that can be observed in the most recent reported financials.
Summary
Finally, I will once again point out that I think BTC is better held directly. I believe I've made this point roughly a dozen times in previous Seeking Alpha articles, but I'll mention it again; Bitcoin is best held in a secure, self-custodial wallet. Everything else is a derivative or a proxy, including miners. Depending on what your personal risk tolerance is, simply buying and holding BTC might be an enjoyable enough ride.
But for the market participant with a higher threshold for pain and pleasure, miners are interesting trades at cycle turns. That said, long-term investors must be aware that many of these companies have poor fundamentals and require higher Bitcoin prices in perpetuity to eke out positive earnings near cycle tops. When the price of Bitcoin increases, so do the mining rigs that must be purchased to maintain share of global hash rate.
The best we can do as speculators is try to find the miner equities that are best positioned to rally from rises in Bitcoin's price. Given the balance sheet health and production capacity guidance, I think CleanSpark is one of those miners. Given the previously mentioned supply crunch possibility for BTC, I think CLSK is a long.
For further details see:
CleanSpark: Stacking Sats And Growing Hash