CleanSpark, Inc. (CLSK) Earnings Call Transcript & Summary

Good afternoon everyone. And welcome to our virtual fireside chat with CleanSpark. I'm Mike Colonnese managing director and senior crypto analyst here at H.C. Wainwright. We are very excited to have Matt Schultz, CleanSpark's Executive Chairman; and Zach Bradford, Chief Executive Officer for today's event. Guys, great to have you. Really appreciate you taking the time.

Thanks for putting it together, and thanks for hosting, Mike. We're excited. And just a personal note of gratitude, the fact that you open it up to all of our retail investors and anybody that might be interested is a big deal. So thanks for that.

Yes, I appreciate it. Thanks, Mike.

Absolutely. We appreciate fellow bitcoiners here at the bank, and it's great to have you on the call today. So for those of you who aren't too familiar with the CleanSpark story, Matt and Zach are really the brains behind CleanSpark. A company that has grown to be one of the largest publicly traded bitcoin miners in the world. Looking at it today, the company has a market cap of about $4.5 billion and 16 exahash of total operating capacity online and hashing today. But what I really want to zone in onto is to beyond the numbers, I've been very impressed by the company's corporate culture as CleanSpark has some of the most engaged employees I've personally met with in the industry, having toured many mining facilities throughout my career. From senior management all the way to the boots on the ground at the company's Bitcoin mining facilities throughout Georgia. And I think this is an important aspect to the story that I believe is really underappreciated. So just wanted to touch on that. Now before diving in, we also want to remind investors on the call today that CleanSpark is our top stock pick for 2024 and is the only publicly traded miner to have outperformed Bitcoin year-to-date and by a wide margin. And looking ahead, we believe the company is well positioned to not only continue outperforming its peers, but also Bitcoin, as we look out through the balance of 2024. As for today's agenda, we'll cover a number of important topics to better familiarize investors with CleanSpark's bitcoin mining operations, growth initiatives and explore how the company has been able to outgrow its peers in the recent years. So today's event should run for about 1 hour. And if time permits at the end of today's session, we will pull questions from the audience. And I'll also add, if you're interested in scheduling a follow-up one-on-one meeting with the management team after today's event, I'm more than happy to set that up. You can go ahead and send me an e-mail directly and we can coordinate that.

With that being said, let's jump right in. We have a full agenda today. Matt, Zach, again, appreciate the time. And I think it would be great to start for those on the call who are relatively new to the story, to really kick off the discussion with an intro to CleanSpark, how you got into Bitcoin mining and an overview of your operations today.

Great. Yes. So it's kind of an exciting journey. I was speaking with somebody that said you guys have pivoted from one thing to another and now look where you're at, and I have a different perspective. I think if you stand where we are today and you turn around and look back, it's a straight line. So Zach and I met on a renewable energy company, whereby we had some intellectual property that enabled us to convert waste products into clean gas. And we evolved to that company and merged with the microgrid company. So in our history, we understand energy generation, but through the microgrid company, we also developed a portfolio of IP, that enabled us to have kind of insight on interoperability with the utilities and demand response programs and peak shaving and load balancing in different aspects and components of an energy system. What we've learned is that Bitcoin is really all about energy. And effective usage of energy and optimizing a team, using all of the kind of advantages that came out of several years of renewable energy generation and development modeling solutions around cost avoidance or time-of-use charges or even greenhouse gas emission exposure. And so when you feather all that in and you layer it in, that really provides us some insight that I think maybe is unique in the Bitcoin mining space. Zach had an opportunity to fly out to potentially propose a microgrid solution for Bitcoin mining company back during COVID, and he called me from the Atlanta airport, I could hear it through his mask saying, "Hey, hear me out, this is going to sound crazy, but what if instead of selling these guys a microgrid solution, what if we buy a data center and we mine bitcoin because I think understanding energy with the detailed granularity that we do, we could really do it different and better than everybody else." And that was kind of where it started. Our Board had just a little bit of I think, lack of familiarity with what it meant to mine Bitcoin. And so it took an educational process. Zach did a great job. We brought in a consultant that we bought the company from initially that had mined more than 50,000 Bitcoins personally. It kind of helped with our education into the space in that segue. And from that point forward, it's just kind of been off to the races, and props to Zach and the team, they've done an impressive job with execution.

Yes. It's truly been a great story. And sure, you're bearing the fruits of that pivot now. So it's really great to see the progress over the years, guys. And if we fast forward, right, CleanSpark is the second largest bitcoin miner by market cap in the industry, second only in Marathon. Really a testament to execution, right? We'll talk about growing faster than the majority of your peers over the past couple of years. What do you guys attribute the company's success to? And really what differentiates you from other miners out there? There's a lot of public companies in the space that investors can choose from. But what differentiates CleanSpark?

So I'm going to address something from where I sit that I think affects how I view the world, which is how we built the company around it. And that is strategy over ideology. We're in an industry that carries heavy ideology about what you should do with bitcoin, how you should use Bitcoin. What it means? And at the end of the day, I personally buy into what Bitcoin means for the world. I think it can make it a better place. But we're here to run a company and be strategic. So everything is done from a strategy over ideology approach. And that means not just not always pursuing the ideology. And an example of this is we sold Bitcoin at the peak of the market last year because everybody else thought you should hold it, and I looked at the market and said everyone's lost their minds. We've hit a point where euphoria has taken over and we sold it. And we continue to sell Bitcoin untill last June, we really started rebuilding the balance because same thing. We looked at today, not the yesterday and not what we want from tomorrow to be but had vision based on the facts that were in front of us and decided it was time we build our hub. In the years between those 2 points, right, it was a bear market. And we grew in the bear market. So when everyone else was worried about today, we were growing for tomorrow. Because we've positioned ourselves with no debt we positioned ourselves where we had sold the -- our Bitcoin at the peak of the market, used our balance sheet the way we should in a healthy way. And we grew. We grew by acquiring a lot of distressed assets. So again, those are 2 points in time that were key inflection points for us. And right now, we're continuing to build into this market. And although the assets may or may not be distressed as we go into halving. The opportunities are immense and they're immense because of where we position the company. And I hate to use this word, but the word is relevance. And we knew -- or believed I should say, 3 years ago, that we needed to be amongst the top 4 companies by market cap and by production. And everybody else, it would be irrelevant. And so we were not one of those companies who would lose on the opportunities for the next cycle. Because again, at the beginning of this cycle, we were thinking about what's going to happen in 30 days. And now as we were well prepared for it, we're going to start to think about 2028. And I think the forward-looking mindset, always pursuing strategy above all else, has allowed us to be successful when the opportunities to me were obvious, but they clearly weren't for the rest of the market. And so timing is something that we pride ourselves in, we're going to continue to do because we also have a belief that success is rented and the rent's due every day. And that is a mindset of our management team. We need to be better tomorrow than what we are today. We're not going to ride on our laurels. We're not going to say, hey, we made it and high-five. We're going to continue to build this company long into the future to be the very best Bitcoin mining company.

A question on a lot of investors' minds as why the public miners have underperformed the Bitcoin at start of the year with the exception of CleanSpark? In your view, what forces are driving this underperformance? And why do you believe an investor should consider making an allocation to one of the large public miners as opposed to maybe purchasing into one of the spot ETFs or the digital asset itself?

Great questions. So I think a couple of things. Obviously, share price has a lot to do with supply and demand. And we've been very judicious about our use of equity. We told our shareholders 2 years ago that we would use equity if and when it was accretive within a couple of fiscal quarters. And we've really stuck to our guns on that. I mean, Mike, through the bank that is your employer, we've gone through a couple of $0.5 billion ATM transactions. And during that same period of time, our shares are up 672% in 12 months. That's because of that disciplined approach. We haven't done an overnight offering. We didn't do a convertible debenture. We took -- we were very opportunistic when the market was strong. We raised capital when it made sense, and then we immediately deployed that capital. Just a quick GWiz file, right? We plan all this stuff way ahead. We started planning for this having 4 years ago. and the fleet of equipment and the expansion that we're pursuing now is in preparation for 2028. So it's really been strategic to -- not to echo Zach's points too strongly, but there are opportunities that there's deviations from the norm. We had an executive meeting this morning. And some of the stuff that's going on in Dalton is running a bit ahead of schedule, right? So I don't know if you know this or not, but to buy -- if you are at ASIC miner and you wanted to fly to the United States that ticket costs you $110 for that seat for one miner if you plan it a certain period of time in advance. Now if you travel on short notice, that ticket is going to cost you double. So our team, just to give you an example, they find out that we have 4,956 slots coming available sooner than we predicted. And so proposed spending double the price of a plane ticket for those 4,000 miners to get it here on time so we can put those things in place actually before having. So that's kind of the way we think about operations. And that's a very specific example, but I just wanted to highlight the fact that it's all about efficiency. Now relative to our peers, I think we've been more selective in the use of equity, but also more efficient in the deployment of equity in the choices of the equipment that we've used and the way that we build out our facilities. But more than anything else, it's about our people. I mean we all have ASICs, we all have power supply units, we all have transformers, we all have switchgears. Everybody has basically the same thing. We chose a different path to start with, and that is vertically integrated, self-miners. And literally with very few exceptions, every person that touches a miner CleanSpark is a shareholder of CleanSpark. So our interests are aligned. We brought maintenance and repairs in house -- the microscopes with massive screens to do warranty work on our own fleet all the way down to the chip level on site. So we have this -- we have a small fleet of surplus rigs. But when one goes down, we pull it off, put another one on, plug it in, the other one goes in the queue and it gets fixed. So we don't have these real big lagging periods of time. We're also not reliant on a third-party host. We control our own destiny. So why invest in CleanSpark or a miner rather than an ETF, it's a great question. The ETFs have given credibility as an asset class to Bitcoin. The difference is owning an ETF, you don't own the Bitcoin. You don't have the keys, you own exposure to Bitcoin. The ETFs sell exposure to Bitcoin. And by definition, as you know, they're called spot ETFs. So they acquire that bitcoin at the then spot price in the market. As a bitcoin miner, you've seen our gross and net margins. We acquired Bitcoin at about 1/3 of that spot price. So it's a vertically integrated miner that holds Bitcoin. You're now investing in exposure to that same Bitcoin at about 66% less than what you're going to get from an ETF. And then the last point on that, in December, about 12% of the Bitcoin awards we received over a period of time were generated as a result of transaction fees on the Bitcoin blockchain. You don't have that benefit in ETF or in even on a micro strategy. We have the benefit of having opportunities to participate within that Bitcoin mining ecosystem to reap the rewards when the demand for block space is high, we get that benefit that directly impacts our shareholders. So I know it's a really long answer to your question, but I think -- to use Zach Point relevance. These are all points of differentiation. And I think that's ultimately what's proven to be relevant to our investors, both retail, but especially institutional, and we're seeing a rapid growth in the number of institutions that have chosen to hold our security.

Mike, I'm going to take your back on what Matt said and I can give maybe a slight condensed answer to this. Use of capital means we're buying machines and facilities. I believe we're amongst the top, where we had the lowest cost to ultimately produce an exahash of all the miners. So that's the first point. Second point, if you look at all the servers, it doesn't matter if they're not producing Bitcoin, how many you have? As far as production goes, you can see the production on the public blockchain. It's out there for everybody. One of our peers who is showing over 10 exahash, so about 60,000 more servers than we have. We're actually producing plus or minus 5% of what they're doing. So that means that there was capital deployed by 60,000 more servers than we had, and we're producing nearly as much as them. And we may even catch them this month. So again, I don't need to name names or anything on that. But my point is, it's about how you deploy the capital of low cost, how you produce with that capital. And then the last point I'm going to say is buying miners because of the ETFs. Because ETFs buy a spot and currently, they seem to have an insatiable appetite to sweep up more Bitcoin. That means that our margins are just going to get better. So the biggest, most efficient miners are going to reap an even bigger reward because of the ETFs. So you're actually pushing a greater alpha towards a miner on a long-term basis.

Really great insights, guys. Appreciate that. I'm sure it's very helpful to the investment community, both on the institutional and retail side on the call today. Switching gears over to taking a deeper look at your mining operations. Now you own and operate 5 data centers in State of Georgia, where most of your deployed capacity is currently located what makes Georgia a good state to set up shop and what strategic advantages or disadvantages are there to you having most of your capacity to deploy in the 1 state?

When we got started, Georgia was an overlooked state to a large degree on Bitcoin mining. And I think it's actually smart to be overlooked unless you understand energy. So if you go there, it's a regulated market and the industrial rates are hour by hour. So you need to be able to respond to the power price on a real-time basis. Now it's different than Texas. There's no big rebates if we turn off and there's no fancy program that's in there. Instead, it's about predicting power prices, using power at the right time. Now we don't turn our facilities off often. But for example, avoiding 100 to 200 hours a year, which is just a fraction of the time we can have up to 30% less power prices. And so coming from a background where we interacted with grid specifically for economic response. Georgia was the perfect home for us because it's really predictable. It's also a state with very abundant power. So there's not a shortage issue, which is part of the reason they don't have all these other programs. So it created us a home where we could really understand the utility, grow with the utility, develop relationships. We're the largest purchaser of power from one of our utilities. We're across 3 utilities, but one of those, we are the anchor customer. That makes us important. It means we are buying power and influence. You go to certain places in the globe and you're just going to be a dot on the map, right? And additionally, community. The community in Georgia is not only business friendly, but we have focused on rural development, and that has become a big part of our strategic advantage down there. We have what we call the front door approach. We don't back channel anything during the city councils or anything like that. We show up, we meet the city, we shake their hands, we employ their people. We don't bring trades from anywhere else. We employ local contractors when we build and we do it the right way, and we're conscious of our impact on the communities. That community relation we have has been an immense advantage for us and it's also had an immense impact on the community. Where we're able to increase city budgets to large degrees, build parks and streets and everywhere that our tax dollars go. That is all a really important part of why Georgia we chose to make home. And again, from a headline point of view, you're not reading about the complaints coming out of Georgia because we're the miner in Georgia and we're behaving responsibly.

Can you talk about your recent expansion into Mississippi and the facilities you acquired there. Really, if you could just talk about what attracted you to the state, how you're thinking about future expansion as it relates to geography?

Absolutely. So in that area, it's kind of an obvious move because the main utility there is parent company, Southern Company, the same parent company for Georgia Power. They run on a very similar system. It actually has a few programs that have some advantages to it. And also, again, there's still a few utilities to operate in. But it was another state that was largely overlooked. So instead of being a crowded state where it feels like there's a bitcoin miner wherever you throw a stone, like Texas, I think, is starting to feel for some people, right? We wanted to go to a place where we could be the face of Bitcoin mining, where we could be part of the community, where we can have relationships, where we would be appreciated. Because what I will say is, a Bitcoin mine doesn't belong everywhere. Nobody wants a Bitcoin mine to pop up in their backyard in the middle of an already busy city, right? Bitcoin mines are built and they're just -- like they should that largely exist in rural communities. We're better to go find rural communities than the American South. And again, we went into an area that we knew was going to welcome us with open arms. In an area where we understood how the utility is structured. Now our entry point was, acquiring 3 facilities that were owned by another party that had a fixed rate power agreement already in place. Fixed rate power agreement, which was good but not great, but it established a foothold as part of our portfolio as a really important piece of the portfolio now, right? We are at floating open markets in Georgia, and we have incredibly low prices 9.5 days out of every 10, right, where just a few hours a year drops us into really advantageous rates. Well, now we have a fixed price over here that's kind of been middle-of-the-road vanilla. And it can be a good anchor point. We will likely -- in Mississippi as we expand, which we will certainly expand. But we will likely look to floating rate programs there also to where instead of doing a fixed rate, we will look to basically take the market, do what we do best, which is participate in those power programs to run what makes the most sense to run and not run when it makes sense not to run. And outperform what effectively is an energy hedge. That's really all a fixed rate agreement is, is the power party has taken a hedge or a fixed rate with the generator and they're providing it regardless of their cost, right? So it's basically hedges, there's fixed rates and then there's the floating rates. We performed really, really well on floating rates, and that's likely what we're going to pursue. We're just over 40 megawatts in Mississippi. And we think that there are several hundred megawatts of expansion that can be done in the right place at the right time in Mississippi. So we see this as this was for us to get a foothold, in a state that we think is going to be -- has really strong growth prospects in the future.

That's great. That's great. And staying on the topic of expansion, Zach, you mentioned on your last earnings call that you expect to exceed 17 exahash by April and to achieve 20 exahash by June or call it the first half of this year versus 16 online today. Is CleanSpark still on track to achieve these targets?

Absolutely. We just had an announcement where we let everybody know that really the second week of April. We're going to have another facility come online. That power should be the difference between where we're at today and 17. So we said April 12, I believe, in social media post. We're tracking to be on that day or better, which is what's exciting. So that should really be our threshold day for 17. We expect to have another 50 megawatts still come online Sandersville sometime next quarter. And we have a few other things can happen, including we're building another 15 megawatts in Dalton. And this has all been previously disclosed. All those pieces together get us over 20. So those time lines remain well intact for 17 next month, 20 by the end of June, and we're looking to continue to push beyond it. We're pretty excited about the prospects ahead of us.

And as a segue to that, looking beyond the 20 exahash, CleanSpark has locked in one of the largest purchase orders with BITMAIN that we've seen to date. And for those on the call, BITMAIN is one of the largest manufacturer of the ASICs for the mining equipment that CleanSpark and other miners are deploying at their facilities. And the contract is such that you can acquire up to 32 exahash of S21s, which is their latest model miner, at just $16 a terahash. Among the lowest cost or pricing we've seen so far for those pieces of equipment. And based on your comments from the call in February, it sounds like you're confident you'll exercise the full order by the end of this year, which if you were to do that, it would effectively lift total capacity to over 50 exahash a second. So for the investors on the call, how should they think about growth beyond, again, that 20 exahash as we look beyond the first half of 2024?

Our expectation and what we've communicated is that we will absolutely be growing. We expect to exercise the option on that, which was another 100,000 machines that would push us up towards 50 exahash. The only thing we haven't given guidance on is time, but we're incredibly confident that we will reach those points. What we're excited about and maybe talk a little bit of strategy on this. And again, speaking kind of broad strokes, again, no timing on this. M&A, we're very excited about the prospects. We say this every time we're on a call, but I'm going to continue to say it. Because halving provides a very unique opportunity. Weaker players who have inefficient fleets and don't have capital to do a refresh of machines, they still have a great facility. It's an excellent opportunity to buy a data center and bring in a fleet that we just purchased and plug it in. We're already seeing those players -- there's lots of offerings going on right now. There's a lot of processes being run. And there's a lot of private discussions happening. The market's a buzz with M&A activity. So it's just a matter of we want to take the very best opportunities add them to our portfolio, and that's going to be our, what I would call, our near- and medium-term growth, is going to be M&A based, and we're confident that we will execute on that. On a time line that's beneficial for everybody. Beyond that, we're very excited to continue what we've always done, which is greenfield project building. What I mentioned in Mississippi. We don't have anything currently penciled out and solidified, but we're excited about the growth prospects in Mississippi. We're going to end up acquiring someone that will also have growth prospects, I'm sure, right? That just normally comes to the Bitcoin mine. Most Bitcoin mines when they set it up, they set up their, let's say, it's 20 megawatts. There's usually an expansion opportunity. Those are the opportunities we're looking for. We don't just want to buy a facility, we want to buy facilities, we want to buy pipelines. These are the things that we're focused on, and that's how we get to 50 exahash. So, no we don't have all the infrastructure to get to 50 exahashes today. But -- if you look at our historical track record, we've acquired facilities, we filled them with machines. And what you have is you have this interesting thing that happens in the Bitcoin space or either long machines, where you have machines that are coming at some point in the next several months, you go find a home for it, or your long plugs and your short machines. Right now, we're long machines, and we think that, that was the right choice for this time in the market. We have 20,000 S21s landing in April, May and June. And then, as I said, when we exercise the option for the next 100,000, those will come then shortly after in the second half of this year and early '25. We want to be long machines. Because the opportunities for data centers seem to be so hot right now that we believe we'll have no problem filling that up. So we're really excited about the next several quarters. Halving is going to be exciting for us. We're glad we're positioning for it to be exciting instead of the other way around.

Just kind of add to that, Mike, last cycle, the machines were the real variable, right? There are a lot of variables in the space, power costs, global hashrate, the price of bitcoin, but really what it was the price of the rigs. So at the beginning of the cycle, when Zach mentioned, we started to sell our HODL the 900-pound [ girl ] is in the room Marathon, right. They each committed to buy $1 billion worth of the XP machines, and they were paying $80 to $100 a terahash initially. And so that created supply shock for us. So as the smaller guy, the last kid on the bus like Zach likes to say, we were forced to look at how do we bridge that gap. And so we have a very unique perspective in that. We bought machines when it made sense. We bought all different manufacturers of machines, and we ran them and we tested them out of need. So we -- the purchase that we made of the BITMAIN machines isn't because it was the best price or there was a promotion on Pizza Day or whatever the case may be. It's because we have familiarity with literally every manufacturer of ASICs on the planet, and we made this decision by choice. It's like Southwest Airlines, right? We'll fly anything as long as it's a 737. We feel that level of commitment right now with BITMAIN because we have the familiarity with operations, with warranty, with installation, but then with technology also. So that's another really exciting point. So Back then, when there were a couple of billion dollars worth of machines committed, what I think a lot of people look past is that's going to drive difficulty up which squeezes margins. And then we ran -- put our energy guy [ hat ] and we ran modeling about where does the price of energy go? And you look at some of those future models, and this predated the war in Ukraine. So not even including that. We're seeing difficulty going up by virtue of the massive rig purchases. We're seeing significant volatility and a very peaky nature cycle of the price of the underlying commodity. We're seeing a bunch of variables that we can't control. So that was when we made the decision that we're going to sell this HODL. We're going to buy the emerging equipment and the transformers and the switch gear and the power supply units, and we're going to prepare ourselves. And so something that's different that I think maybe is worth talking about. Companies were paying earlier in the cycle, $70, $80, $90 per terahash for machines and they are not depreciating those over 3 to 5 years. We went into the market and bought those same machines in the 20s and teens and we've accelerated depreciation on anything that wasn't as efficient. So what that really speaks to, Mike, is we've tried to maintain balance sheet strength so we can demonstrate to our investors that have entrusted us with the capital that we're forward thinking, and we're being aggressive on all fronts not just the machines, not hosting agreements, not just infrastructure, not just technology, but we try and take a balanced approach. And what we've done is surround ourselves with people significantly smarter than we are in their individual areas of expertise to kind of shore up any weaknesses that we have on our team. So all of those components and then the people are really what the engine is.

So here at the bank, we cover about 95% or so of the total publicly traded mining landscape of, call it, 20 miners. And what we'd say is CleanSpark is one of the, if not the best position miners heading into this halving event, which is now 25 days away when we get to the 840,000 block on the Bitcoin blockchain. It's a very hyped up event right now once in every 4 years. This occurs on the Bitcoin network. And Zach and Matt, you touched on some of the things you've done to prepare for it. If you could just share your expectations around the potential for Bitcoin price action, where should -- we should go directionally after the halving event. I know it's a hot topic right now in the media. And then also your expectations for the network cash rate. We know there are some weaker miners out there that may have to on plug. So any sort of views you have on that? And then you also talked about some acquisition opportunities that could potentially get more interesting after the event in April, which again, is 25 days away. Just curious if you could provide some more color on the pipeline there?

Yes. So I'm going to try and hit all those points, and I'm just looking at a time, too, so I'm going to try and keep some of these answers a little abbreviated. Let's talk a Bitcoin price. Where I think it's going to go? I'm going to be real short and sweet with it. I think it's going to go up because I think that the supply shock that's already being felt on ETFs will just get bigger. The ETFs, it's kind of interesting, if you watch how it trades. The volume leading up on a Sunday's, certain overseas markets open up and move into the weekend because of the T+2 trading and T+1 depending on which ETF it is, there's just a massive amount of capital still flowing in. And again, they're all looking to gobble up Bitcoin, which is disappearing off exchanges or record rates and things like that, because it's going into these ETFs and getting parked on shelf effectively. So Bitcoin is simple, and that's what's great about it. It's really -- it's an exercise of economics, supply and demand, right? Do I think the supply shock will be felt immediately the day halving happens? No. but it will be over an extended period of time. It's the same way that ETFs launched and everybody said, wait a minute, how can Bitcoin didn't go up, but actually in the opposite direction. It took a few weeks for all these ETFs to gear up and get the cash moving and everything that go with that. It's going to be the same thing. Supply shock will be felt. It will go up. Acquisition opportunities. let's just say there's a lot. There are right now hundreds of megawatts of conversations happening, and that's just in the U.S. discussions that we're aware of. And I will tell you, we're not interested in half of them. because it was a weak miner in the wrong power spot, and there's places that won't be good for mining anymore. Even with the most efficient rigs, and a $70,000 Bitcoin price, you're going to have to unplug, which leads into the difficulty site. And I'm just going to give you like an example, Canada. Right now, there are certain areas in Canada, not all areas, just certain pockets where miners exist today, it will not make sense to miner, no matter what rig you have in 25 days. Because the difficulty would have to drop off the face of the planet in order to compensate for the high power prices that are now being pushed across in jurisdictions due to how the markets are structured. So on the difficulty side, if you asked me a month ago, maybe 45 days ago, I would have said a 30% drop was a sure thing post halving. Bitcoin has moved from high 40s all the way to 70 now. I think that, that drop in difficulty is probably 7% to 15% now and it probably recovers 100 days afterwards as new hashrate comes online. So if you extend that over a 100-day period, I'd say the drop in difficulty is going to be temporary and largely flat before it starts to build again. Now Bitcoin takes a retrace or anything like that, my answer would change. So that's the really interesting thing about making sure you view this day-by-day is the dynamics can be measured real time when it comes to difficulty Bitcoin price, hashrate, all of those things are all available and public. And the market moves real time. So it's great, and we're going to keep watching it for the day up. What I can say is, even if difficulty was to go up on halving and never dropped we're well positioned to handle it because, again, we are building for the next 4-year cycle. So we're not really worried about it on our side. Instead, we're just anticipating the opportunities. So whatever drop in hashrate it is that goes to our bottom line.

Mike, just one quick point to that as we lead in to halving for the members in your audience that aren't super familiar with the way that Bitcoin mining works. There are all different types of machines just like they are all different types of cars on the road. And at the end of the last cycle, the average machine consumed about 38 watts to process 1 terahash of data. We don't have transparency to what the global network looks like, but it's theorize that it's on the plus side of 30 watts or 30 joules per terahash. So our fleet right now is in the low to mid-20s per terahash, and that will drop with these new machines coming in. So what that means is for the same amount of power, we can mine 50% more bitcoin than the average of the global fleet, assuming it's in that 30 joule per terahash range. So when you look at and what Zach said when we talk about M&A, there are many companies, many miners that have built really top quality infrastructure. They've got copper-based wire rather than aluminum. They've got good transformers and switchgear. But their fleet of machines may not have the efficiency profile that the unit economics would work post halving unless Bitcoin goes to a 100. So we're positioned well with the optionality of these machines that when we find the right one. And as Zach mentioned, they're probably 2 dozen on our board right now in some stage of due diligence, that when we execute on M&A on the facility side, we'll find a place to go with the machines that are there. There's an active secondary market. A lot of private equity guys are trying to get into space. but we'll repopulate that thing immediately with the most efficient, fastest best machines on the planet, maintaining our lead and even building that as far as efficiency goes. So it really comes down to be able to get -- squeeze more juice out of the lemon.

A Very important metric as we head into halving, I mean, for sure, as we look at the fleet efficiency there, Matt. And looking at operational efficiency now. So CleanSpark is consistently at the top of the charts as it relates to maintaining one of the highest realized hashrates in the industry, meaning that your Bitcoin production closely tracks our operational and deployed hashrate. What's CleanSpark's secret sauce, are you guys able to really sustain such high levels of uptime. And Matt, I know you touched on this a bit before, but I'd love to get more color here.

Yes. So I think it starts with the fact that we're aligned with our team. Everybody is a shareholder, everybody is pulling the same direction. And there are just some fundamental anecdotal things that our sites have site managers and then there are teams of team leads within the site. And their incentives, whether it's a T-shirt, and a hat or whatever the case may be, there are incentives for this uptime performance, which it stimulates this competitiveness. But it creates this opportunity for collaboration. So Taylor leads a call, Taylor and Bradley to call every Tuesday that we -- or excuse me, every Monday, and it's our ops call. And the site leads get on the call and they talk about what's working for them, new mechanisms for changing filters, new efficiencies and whatever the case may be. So while Zach is busy acquiring the best machines at the best price. And Taylor and Bradley and Zach collaborate on time of use and using our technology to accelerate when prices of energy are low and bitcoin is high or to decelerate and under clock those, if temperatures go a little higher but we have this technology stack at our disposal. But then at the very kind of core level of our company, it's the frontline guys, the miners, the ones that operate the machines. And we have developed kind of a culture. You mentioned it in the beginning of your remarks, and you've been to many of our facilities to see that. But we've developed a culture where the people that work there, yes, they're shareholders, but they're owners and they care about the facility. And you walk through and the water, the wrapper of a water bottle is laying on a ground. And I'm following a mining technician who bends over and picks up the wrapper and puts it in his pocket as we're walking through the site. How do you create that culture? Well, the thought process for that guy is, if that gets sucked into the fan when it's on my team, my efficiency may go from 99.8% to 99.7%, and that may cost me the win for the month. So we've created this culture that they have pride of ownership in what they do, and that's our team members top-to-bottom. But they're also owners. So everybody pulls the same direction for the benefit of the greater good. And when you have the executive team executing at the high level, providing the best equipment, the best repair facility, the best power prices. And then you've got guys like Scott Garrison there are building facilities that we can build faster, that are more efficient than most anything available on the market. So, it's all of these relationships and then you plug into a little community like what we've done and there was a story on the Atlanta TV station with the Economic Development Director at Sandersville saying that the margins -- so we buy power from the city at cost and then we let them make a margin or they charge us a small margin on every kilowatt hour. So that money is earmarked to go into, like Zach mentioned, schools and roads and parks and libraries. But then in the state of Georgia, you pay sales tax on utilities and part of the territorial act is the sales tax stays in the jurisdiction that it was generated. So those sales tax that are now using to cover all other kinds of their budget, but the city manager, Judy McCorkle said on a call -- on an interview on TV, then that surplus Sales tax is not pushing down property tax and pushing down utility rates for the rate payers in the community. So now we're faced with city managers and mayors and city council people reaching out to us saying, "Hey, we've got great teams. We've got great power. We've got a big desire for you guys to be here. What do we have to do to invite you to come to our community?" And that my friend is the biggest accomplishment that the CleanSpark team has made, and that is the front door policies Zach said. People love to have us there, they'll have to work with us and they love to work for us rather than grab your torch and pitch fork and run the bitcoin miner out of town.

I'm going to add one more thing, Mike. The thing we championship the most is, I'd call it, the -- our top core value is grid. And it's not just rolling up our sleeves and doing the hard work, but it's about caring. And to the point of kind of giving a dam, right? And a key thing with this, and everybody I think has heard of the book, Amengela -- Angela Duckworth's book called Grit. Great study on Grit and had a quick gritted team studies Olympians and so forth. But the #1 thing to build gritty teams is to already have a gritty team to start with. So you start with the gritty team of 2 and you add more to it. People will naturally behave like their peers. We make sure that every single person in this company is gritty and caress. So they're willing to work hard and they're willing to push that extra mile in whatever they do. because that's the CleanSpark way. So you pair that in with rural communities, and that's kind of where Matt is driving. It's pretty easy to find that grit in those communities, and we really incorporate it directly into our culture top-to-bottom.

That's great. That's great. Really strong culture there. And as I mentioned, storage facilities on Georgia, everyone is highly engaged and really just happy to be there and contribute to the broader organization. So as the investors on the call can see that a very, very strong culture here at CleanSpark. Switching gears over to power costs. So power costs are very critical and maintaining profitability for Bitcoin mining operation over time. You paid just under $0.045 to power your facilities in Georgia this most recent quarter and also locked in a 5-year PPA in Mississippi for $0.05. So as we look out through the rest of 2024 and beyond, how should investors think about CleanSpark's blended average power cost. And at some point in the future, Matt and Zach, would you see yourself potentially hedging power in Georgia? I know you're going floating now and trying to time the market, but any color there would be helpful.

Yes. So I'm going to answer in a couple of different ways. So the power costs in Georgia are better quarter-by-quarter actually. So right now, if anybody pays attention on this call to kind of where natural gas surpluses and things like that, all power generally indexes to natural gas. And then it comes down to on a regional basis, whether you have abundant power and what the sources are. In Georgia, a lot of the power comes from nuclear power, which is what drew us to the state in the first place. The baseload that always wants to get used. And when it's not going used, that drags power prices very low. So we've seen, for example, on hour-by-hour basis, as I mentioned, we buy power and power is consistently in the month of March was in the $0.01 plus range, right? And then other hours that were $0.03 and $0.04. I expect, and if you look at last year, to give an example, that really the shoulder seasons have proven to be very strong for us. We're in one right now. We expect these power prices to continue to be very strong and very low. So I frankly expect this quarter or next quarter will probably be a better power prices than we've had the last few quarters. And so just from a trajectory point of view, really happy in general. To your next question about hedging power prices to lock it in, we have consistently -- so every single month, we have an opportunity to buy a hedge. We can buy as much power of our portfolio to hedge. But then what we do is we pass on that, which we historically have done. We basically set a target that we are going to see how we can produce -- basically outperform the hedges made available to us. And 12 out of the last 12 months, we have outperformed the power hedges that were offered up, meaning if the power hedge was offered at $0.039, right, we want to come in at that price or better. So you point to the [ 4.4 ] average the power hedges offered during that quarter were above that price on a month-to-month basis. So we beat the power hedge. Because you got to remember, power hedges are being sold by a variety of financial parties generators, utilities and so forth. There's a bunch of people in the background that are trying to lock in certainty, we'll still make a but, right? And the reason they're willing to lock that in is they're trying to play the middle of the road. They're like, hey, if things go really good for a generator, which means power prices spike, they're going to get more revenue. But if power prices drop, they're going to get less revenue and they may or may not cover their operational costs, right? So you need to know whenever a hedge gets put in place, that's generally representing a middle-of-the-road opportunity, and so we try and outperform it. Do I think we will hedge our power at some point this year? I do. But I do think when we do, it will be a portion of the power. Because as much as we've been outperforming power on a historical basis for the last several years, you always want to be protected against kind of outsized events. So because our portfolio has gotten so big, it's just sound management to start to hedge portions of it. But we -- I don't think we will ever hedge all of it unless that middle-of-the-road opportunity was just so good, we couldn't turn it down. And with the energy markets being as dynamic as they are, that's not something we're going to anticipate for. And secondly, a power hedge always requires a financial commitment, which doesn't mean you take cash or other assets and you put it in its custody that can be paid that hedge. That keeps the capital on our side of the wall, and we're using it to build instead of just lock in a power rate. Because we're looking at that on a cost of capital point of view. if our -- if we can go out and we can build a site and generate revenue that results in millions of dollars more revenue in a single month, we'd rather do that than save an extra $100,000 on the power. So I know it's a long-winded answer on it. But the point is, it's -- we're very thoughtful. We do things for a reason, and there's a reason we haven't done that yet.

Now looking at mining infrastructure. Most of your data centers right now are air cooled with the exception of about 20 megawatts or so deployed at our Norcross facility in Georgia that uses Immersion. What observations have you made as it relates to cost differences and performance differences of air cool versus immersion? And would you consider using immersion for future data center locations. We see different miners taking different approaches to this. So Would love to hear your views.

Yes, we're going to take the right approach for the right places and there's absolutely places where merger makes more sense. Matt mentioned Taylor Monnig, our Senior Vice President of mining. He keeps everything online and running on the mining side. He has several patents in both single and dual phase immersion. So he used to be a founder of a company that built us. So we are probably more versed in a background of education, as Matt mentioned, finding experts that are experts are the best things in that. And the fact that we're building air in certain places, what we're looking for is ROI. So we know all the benefits that emergent can bring. But if you, for example, have to spend more money on something, we're looking at the time it takes to hash that back. So anything that's $100 more, right, in total cost, current mining, it may take 7 to 10 days to earn that $100 back from a single miner, let's say, right? So we measure everything that way. Two phase, for example, it's something that's been talked about a lot. One of the reasons it doesn't make any sense is because the fluid is so expensive that sometimes the payback on that is never. Before you have to change your fluid, adjust it, you think whatever it may be, also, there's so much R&D that goes into it. You're going to notice that we are not releasing a bunch of headlines to talk about R&D projects and side projects. We do one thing and we have one thing really, really well. That's mining. We have owned manufacturers, we own a switch gear manufacturer. We don't anymore, and we sold the business with the energy company years ago, because, one, there's more margin at Bitcoin mining, but it takes a lot of expertise to run that and margins are thin. So why would we own Switchgear company? Why would we manufacture our own -- tanks, when there's experts that make immersion tanks. So point being, as I kind of work backwards through this, we know air, we build air, we also can build immersion. When we do build immersion, it's a single phase immersion because it's the most cost effective. And so driving to a point here, which is cost. When we built our immersion site, we wanted to be big enough to experience a real deployment, 20 megawatts. It's not small, but also what we were going to bet the farm on 150 megawatts of immersion. We want to do learn and experience in a real-time way. And we've now run that site for well over a year, and we've learned a lot from it. But only now, have cost adjusted to where we can now go out with our connections and our vendors, we can build an immersion facility for about the same cost as an air cool facility. Which means now we get to measure not just on the build cost ROI. But now what does it do for the miners. We can get great performance out of air cooled miners. We can get slightly better performance out of the immersion miners, 15% to 30% better. Anything beyond that, you start to lose efficiency, which means we're not making as much money. And so as we pay attention to first is a strategic point. So now we're looking at this in a new way. Now as we launch into '24. I do think that we will build more immersion. But I am not going to say that every site we're going to build is going to be immersion. I just think that we're going to build a lot more immersion. I think that there's still going to be great opportunities for air cool, there's great opportunities for Immersion. For example, though, it's also a lot quieter. There are pockets in places that we pumped -- that we haven't built because nobody, again, wants a noisy bitcoin miner too close to anything. Our immersion facility sits in the middle of a community, and there are houses across the parking lot from our facility. It's incredibly quiet. You don't know we're there and we're bitcoin mining based on the reputation of it being noisy, that is a perfect example of why to use immersion mining over air cool. And then the other thing is, again, the miners last longer. So as we're bringing in this new fleet of machines that we think has an extremely long shelf life into the next halving that's a great time to take those brand-new miners that are going to -- you want to put them in a tank and leave them there for 3 or 4 years, you build an immersion facility. So all of those reasons together, yes, you're going to see us build more immersion in the coming year, but we are going to walk, not run into it even with -- because of our expertise on this, knowing you have to get it right or you can spend a whole lot of money, and it will never pay back.

That's great. Really insightful on the immersion side. And Matt, I recall last time I was down to your Norcross facility. There were several analysts. I was not one of them doing samples of your immersion fluid out there. So although it looks like Mountain Dew and it's a nice tasty soda, I did not partake in that. So it'll be interesting to see what you guys do next.

Just real quick on that point, Mike, that the fluid in single-phase immersion that we use is it's effectively mineral oil, okay? It's not an environmental contaminant. It's biodegradable. It has no legacy that you have to worry about. The current fluid available on dual face not only is it north of $300 a gallon, but under certain circumstances, pressure and temperature, it can convert to the same chemical element as mustard gas. So when we look at and evaluate these opportunities, first and foremost, you have to think about the safety of the people operating that and then the surrounding communities. So to your point, I think you were there, Dan [indiscernible] caught from the block ETF, put his finger into fluid and tasted it and posted it on Twitter. And you probably shouldn't do that, but you can, but that's just evidence or proved positive that there are a lot of benefits to single-phase immersion, and that's why we've chosen to kind of balance that approach.

Yes. That's great. And Dan, if you're on the call, hope all is well on your end. And the minerals did well for you. So Switching gears now, I want to talk about CleanSpark's treasury strategy. I mean you guys have had one of the most dynamic Bitcoin treasury strategies of any of the public miners. And you've historically done a great job in time in the market. Zach you talked a little bit about this earlier. And over the past few months, I've noticed that you've held on to most of the coins you've mined. So my question is why the pivot and what could investors expect to see as it relates to your HODL strategy in a post halving environment?

You should expect it to continue to be dynamic, although I do expect for the foreseeable future, we are going to be adding Bitcoin to the balance sheet. But we're adding Bitcoin to the balance sheet right now because we have a belief and an expectation that on a short- to medium-term basis, it's going to continue to go up. I think on a long-term basis, it's a straight line, right, if you measure it over 10 years. It's got nowhere to go but up. With that said though, there's going to be opportunities to monetize the Bitcoin and to -- during downturns, bear markets, things like that, and then to essentially reinvest all those dollars into getting more Bitcoin. That was our adage actually during the time period that we were selling Bitcoin. It was used Bitcoin to get more Bitcoin, right? Now right now, we believe we're doing the same thing, but it makes sense to hold a bitcoin until the right time in the place and the value goes up, right? Because we're currently mining Bitcoin for sub-$20,000 on a direct cost basis when you look at power costs and things like that as our direct input. And then we're turning around, and it's all up to $70,000. So sure, Bitcoin was $45,000 in January, February. And here we are today. That means we kept all that value and we built it. When we see the tide shift, and again, Bitcoin has proven to be cyclical usually in every 4-hour cycle, it's kind of a split 2-year up, 2-year down bearable. When we see this tides turn we would sell our Bitcoin, turn it back into cash and restart the process. Now with ETFs, I think those cycles are going to be a little different. And so they may happen sooner, they may happen later, all depending on those factors. But again, I'm going to go back to what I said all the way at the beginning. We look at this as today is today, we're going to measure it real time. And so we will continue to make our decisions on Bitcoin on a real-time basis, but I will reiterate, currently right now, we see no reason why we would change direction, and we want to continue to add nearly all the bitcoin to our balance sheet that we produce.

In looking at infrastructure-related costs to support incremental expansion from here, you guys have really laid the foundation by locking in $16 a terahash for the S21s to get you to 50. But really on the infrastructure side, how should investors think about that capital expense going forward?

I think the way to think about it is we want to deploy capital largely in the M&A in the near term. And the benefit to the M&A side is you -- with the machines, again, since we're going to be long machines, we'll almost immediately plug in machines and produce cash flow from that. And so right now in that market, acquisition costs can be in the $500,000, $600,000 range per megawatt for a quality site. Whereas when we're building sites, which we do, and we will continue to do that capital cost can be in a sort of high $300,000 range, for again, a quality sites, right? And so there's a big delta. But the difference in that delta is timing of the return of that capital. So when we build, we want to keep it under -- or I'll call it, in the $400,000 range, right, all in getting it built. And We're willing to -- we save a bunch of money on that. We're willing to pay up a little bit when it comes to, I can plug a machine in tomorrow. Because it pays for itself that delta, right? So really, the way to think about it is, I guess, that it's going to be in the 500-plus ish range for things we acquire, but they're going to turn on right away. And when we build, we're going to try and keep it around that $400,000 mark. Because we build facilities that are going to be here in 10 years. We don't just buy a pod that we're going to buy a new pod in 3 years. We don't treat our data centers as disposable. And I think that that's the key takeaway in that, too, is we're not going to -- we look at maintenance costs over 10, 12, 15 years. instead of replacement costs under a much shorter time period than many of our peers look at.

Duncan and Scott and Tyler and Taylor spend a ton of time on airplanes looking at opportunities. And there have been a ton of sites for sale. You've seen in the news. Some of those have been picked up. We're looking at sites that fit the CleanSpark away. And it's little things that you wouldn't think about. But like running the power cables from the transformer to the racks using aluminum can save you money. 50% less than using copper, but it doesn't dissipate heat as well, which causes system failures. So when you look at CleanSpark's uptime, we talked last earnings call, 99%. You look at the rest of the industry. And what you can see there is the direct impact of vertical integration and quality infrastructure. You put that out to hosting or you build maybe for budget rather than for the long term, and you're going to see an immediate direct impact on that efficiency. So when he talks about a quality-built site, it comes down to what's inside the wire casing that leads a go/no-go decision even in some instances.

That's great. That's great. I think we're running up on time here. But guys, this has been tremendously helpful, really, really interesting conversation. Matt and Zach really appreciate your time. If you had any sort of last-minute comments you want to throw out there to the investors on the call. By all means, if not, we can go ahead and wrap up the event here.

I'm going to say something that I think is just interesting from a viewpoint that I guess I would share. 4 years ago when we started this, we started preparing for halving. We were not -- we actually said we want to be amongst the top 4 or 5. We actually set our goal, we said it publicly amongst the top 5. Internally, what we said is we weren't going to be the biggest, to be the biggest. We weren't going to be any one thing to be hit, but we were going to be the very best bitcoin miner. And I think we're at a key inflection point where we are there, and we're going to continue to fight to stay that. So I'm excited for halving. I think we're incredibly well prepared. And I think that the good fight that's been fought by our teams and our people over the last 4 years has positioned us incredibly well for the next 4 years.

And thanks to you for making us your top pick. We endeavor to make you look smart.

You guys have been doing just that, and I appreciate it. So it's definitely been great to see the ride here as you guys have really worked up to 16 exahash, which is truly remarkable. Being in the top percentile now of all public miners. And I appreciate everyone on the call today. Guys, great conversation and Zach, perfect way to close out the call. So all the best and continued success with the deployment of future expansion here.

We appreciate it. Thank you, Mike.

Thanks, Mike.

Take care.