CleanSpark ($CLSK) Q1 FY2026 Earnings Call Livestream

Thank you, Matt. Let's dive right into the numbers for fiscal first quarter 2026. For the quarter, our revenue grew year-over-year by approximately $19 million, an increase of almost 12%. Our Bitcoin production was relatively flat, but we saw revenues of almost $100,000 per Bitcoin in the quarter compared to $84,000 in the same quarter last year. Our gross margins declined slightly from approximately 57% a year ago to 47% this quarter. This decline was mainly driven by the year-over-year increase in network difficulty. Power prices also increased marginally to 5.6 cents per kilowatt hour, up from 4.9 cents a year ago. However, this reflects our decision to continue hashing through higher cost, higher revenue periods rather than curtailing based fully on an arbitrary power price threshold. This quarter, we recognized a net loss of approximately $379 million compared to net income of approximately $247 million a year ago. This change was driven primarily by mark-to-market adjustments to Bitcoin's fair value at the end of each respective period. Our adjusted EBITDA though is negative $295 million compared to positive $322 million a year ago, also driven primarily by mark-to-market adjustments. Turning our attention to the performance of the first quarter versus the immediately preceding fourth quarter, revenues declined approximately $43 million or 19% to $181 million. This drop is primarily due to a combination of two external headwinds: rising network difficulty and softer Bitcoin prices. Because of these pressures, we experienced some of the lowest hash prices in history during the quarter, underscoring the importance of having a fleet with high uptime and efficiency. Quarter over quarter, our cost per kilowatt hour decreased marginally from 5.9 cents in Q4 to 5.6 cents in Q1, partially offsetting our 19% revenue decline. As a result, our gross margins remain healthy at 47%. With respect to our overhead expenses, it is important to note that the prior quarter includes approximately $25 million of expense related to separation from our prior CEO. As mentioned on last quarter's call, we do expect that our professional fees, payroll, and G&A line items will increase as we execute on our AI strategy. Additionally, I want to underscore that the AI data center business comes with stable cash flows and high margins, both of which will help CleanSpark through the peaks and valleys of Bitcoin mining economics. Our adjusted EBITDA is negative $295 million for this quarter compared to positive $182 million for the fourth quarter. It is important to note again that the difference relates to non-cash mark-to-market adjustments for which the current quarter includes approximately $350 million of these charges. On a normalized basis taking the mark-to-market adjustments into account, our normalized EBITDA would be $55 million or approximately 30% normalized margin for this quarter. This represents cash generated from our operations. Bitcoin value as of our September 30th balance sheet date was approximately $1.5 billion and as of December 31st it was $1.15 billion, which the difference is the non-cash mark adjustment of $350 million which I mentioned earlier. Turning our attention to the balance sheet, you'll see our cash balance increased over $400 million compared to Q4. This is due to the $1.15 billion 0% convertible transaction we closed in November. As you know, we used a portion of the proceeds to pay off the outstanding balances on our Bitcoin backed lines of credit and also repurchased $463 million of stock. This left approximately $420 million of net cash proceeds, the majority of which we will still have on our balance sheet. In addition to our cash balance, we had approximately $1.15 billion of Bitcoin value as of the end of Q1. Our total debt is approximately $1.88 billion which on a net debt basis is approximately a 1.1 debt to liquidity ratio. Most importantly, the converts do not come due until 2030 and 2032 and numerous options remain available to us for capital. Also important to note is that our outstanding share account has decreased almost 20% in the last 15 months as we have not issued a single share of equity on the ATM or other offering. To echo Matt, dilution is not a strategy. Discipline is. Turning our attention to our balance of over 13,000 Bitcoin, I want to point out that we are one of the first, if not the only company which has scaled operations that is also using Bitcoin as a productive capital asset. On the last call, we discussed in detail our DAM strategy in its first full quarter. You may have also heard us previously talk about our crawl, walk, run approach, which I'm happy to say we're now fully in the walk phase. We're at full utilization of the portion of our Bitcoin balance we expect to use for yield generation, which is 40% or approximately 5,200 Bitcoin. Our DAM strategy generated $13 million in cash returns on the Bitcoin huddle during the quarter while Bitcoin price was down mark-to-market. I want to highlight several key numbers which speak to our core DAM strategies. We overlay a covered call derivative program on our monthly production and sales of Bitcoin, which resulted in an uptick of $7,700 or 8% per Bitcoin over the average sales price of approximately $97,200. Overall, the $13 million in total premiums also represents an annualized return of 4.2% on our average total balance, which surpasses our target of 4%. We accomplished this all within six months of our first trade. Importantly, this is all achieved by monetizing elevated volatility, especially in October, while keeping the average delta below 20. I also want to point out that we have added an additional tool to our treasury management tool belt. The basis trade is a market neutral stat strategy that captures the difference between the forward price of Bitcoin and the spot price. Importantly, the strategy takes no price risk and generates returns from the same types of market structure dynamics that we noted in our thesis in the first place. This basis trade allowed us to put our cash balances to work and exceed the risk-free rate by almost 200 basis points as we saw an annualized yield of over 5.5% on the cash allocated to the basis trade. While these opportunities are cyclical, we will continue to be opportunistic based on market dynamics, filling out the flywheel we initially envisioned when we launched our DAM team. On a final note, I'd like to take some time discussing our capital strategy going forward, especially in light of our expansion into AI data centers. From a capital perspective, I'm confident that the capacity and appetite for financing an AI data center with a Grade A tenant is strong. We saw a high yield deal from our friends at Cipher which priced at an attractive 6 and an eighth percent which is indicative of the quality of recent leases being signed and the capital available in this market. Their recent $2 billion bond had approximately $13 billion in demand and over a subscription of 6x. While we have not committed to one specific means of financing our AI data center builds, we are focused on building a capital stack which minimizes dilution. This continues with the sale of monthly Bitcoin production to cover our opex. Between our current cash balance and capacity on the Bitcoin backed lines of credit, we have over $800 million of liquidity available without selling any of our Bitcoin huddle. This liquidity provides us optionality and we will continue to use the lines of credit opportunistically in the marketplace for creative purposes. Matt spoke about our current efforts and where we are going and we are excited to share on future calls the relationships and ecosystem we are building, one that is a more wholesome approach than exists in the market. While we are early in the innings of our AI data center journey, the market is moving quickly and CleanSpark is responding decisively. Our conversations with Grade A credit quality tenants are ongoing and it is not a matter of if but when. With that, I will hand it back to Carrie to lead us in Q&A.

Yeah. Hey, thanks, Mike. Yeah, since you've been around a while, you know, we built this business on optionality. So, that option is still on the table if we wanted to dip into the HODL and part with some of those Bitcoin. I'll tell you that's not something we're planning on doing even at these levels. We think that the strategy is still intact and part of the hedge is for us really selling nearly 100% of our monthly operating production. So, as of right now, there's really been no change in that strategy. I'd also conversely say that we're not expecting to hold 100% of the operating Bitcoin production either because that would mean that we'd run through our cash a whole lot quicker. And as we had mentioned when we were raising the convert funds, we expect to use the majority of those funds to expand in AI data centers because we think that's the future of the company.

Yeah, hey Greg, thanks for the question and it's a great question we get it quite often from investors. I'll tell you it's hard to give guidance on that because while we have a plan to bring on a certain number of FTEs, the timing of when those hit is really what's going to drive what the numbers are going to be for the fiscal year. Additionally, we have optionality to where we can rent services. So if we need services from someone, we could bring outside consultants or contractors to help fill that void while we're waiting to bring on full-time talent. And that could be different than what it would be to bring on a fully burdened employee. So, we're not prepared to give out numbers to that right now. I don't think it's anything that's material that's putting us at risk or anything. I think we've been pretty measured about bringing on people right around the time we will need them. So, I think you'll see that slowly uptick throughout the remainder of the year.

Yeah, you bet. Hey, thanks Paul. I'll tell you that it's very important to us to have that grade A credit quality tenant because we think that's the most financable and the best cost of capital. So that's what we're focused on. In terms of the vehicle, I quote the recent Cipher deal because the high yield seems to be a playbook that a number of our peers have started to go down that path. We're open to that. We're happy to see that the terms are getting better both with that and the contracts leases that are backed by that bond. There's some other options as well. Obviously a little higher cost of capital, but at the end of the day, what's great about this is, and you've heard this word from us for quarters or years now, is optionality, right? We have a lot of options on the table. But I think it's safe to say we're going to follow a playbook right now that's probably proven in the capital markets, and it all starts with a grade A tenant.

Hey Jim, it's Gary. I'll tell you that our focus is going to be on deploying capital towards AI. You know that's in the range of 9 to 11 million a megawatt, which as you probably know is being reported by most of our peers in the space right now and that's the range that we're seeing. So what is deployed is really going to depend on that amount is going to depend on the design of build and customers and when we sign those respective leases but I'll tell you that the overwhelming majority percentage of that is going to be related to AIDC. With respect to Bitcoin mining, I think that the investment particularly at these levels doesn't make a whole lot of sense from the sticker prices that we're seeing from the major manufacturers. If you look at our balance sheet as of 12/31, we had about $130 million of prepaid deposits on Bitcoin mining equipment and miners. And about 112 of that was through September. So, we're still deploying some infrastructure, mainly immersion cooling and miners that will help drive down that efficiency, but we don't plan on spending a significant portion of our cash on mining unless economics change. We need to keep in mind that we are about two years off to the next halving and in any cycle as you get closer to the halving that ROI window closes rapidly and right now it doesn't make sense. So we want to be redirecting every dollar possible towards AI capex.

I just want to add one thing because if you look at this historically when Bitcoin runs and hash price gets better, the global hash rate lags, right? You'll have a period of time, usually weeks, maybe a month or whatever, for miners to find a way to get plugged in because miners just don't sit around waiting for hash price to sit. Typically they're just not on racks just waiting for Bitcoin price at a certain price. It's the opposite on the way down because most miners, not all, but most miners know what their break even is. Because that's a real punitive cash penalty because they have to pay their power bills. And so, as Bitcoin mining economics go down, what we've seen, at least historically, is that hash rate comes off pretty quickly, pretty close to that. And that's because miners say, well, hey, why am I going to take a loss of x amount of dollars when I could just go buy Bitcoin and I'd have more Bitcoin than if I actually mined it. So, I think that given that, shrouded in the fact that we have a decreasing fleet with decreasing joules per terahash, meaning our efficiency is going up and we're more efficient and we're producing more Bitcoin for every watt that we're putting through these machines, we will be one of the last ones theoretically to turn off and we will mine more Bitcoin in terms of quantity as that global hash decreases.