Prepared remarks
Good afternoon. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to CleanSpark's Fiscal First Quarter 2026 Financial Results Call. Thank you. Harry, you may begin your conference.
Thanks, Jeannie, and thank you for joining us today to review the first quarter of 2026 financial results for CleanSpark. We encourage you to review our earnings results press release, which was issued today and is available on our website. Our 10-Q will be filed shortly. A webcast replay and transcript of today's call will be added to our website once available. On the call today, I am joined by Matt Schultz, our Chairman and Chief Executive Officer; and Gary Vecchiarelli, our President and Chief Financial Officer. Some of the statements we make today will be forward-looking based on our best view of the world and our business as we see them today. The statements and information provided remain subject to the risk factors disclosed in our 10-K. We will also discuss certain non-GAAP financial measures concerning our performance during today's call. You can find the reconciliation of non-GAAP financial measures in our press release, which is available on our website. And with that, it's my pleasure to turn it over to Matt.
Good afternoon, and thank you all for joining us. This quarter represents a meaningful step forward in CleanSpark's evolution into a digital infrastructure and data center development company. One that builds on the strengths of our mining operations while expanding the set of opportunities our assets can support. We continue to operate a large-scale fundamentally sound Bitcoin mining business that generates durable cash flows and balance sheet strength. What is different today is what those cash flows now enable. CleanSpark is no longer a single-track business. We are building an infrastructure platform with multiple independently valuable earning streams, all anchored by scarce utility-grade power. Bitcoin mining funds the platform. AI monetizes it and digital asset management optimizes it across all cycles. To frame how we think about AI development, we see three phases: securing scarce power and land; tenant-driven technical and commercial alignment; and structured long-term monetization. We are now firmly in the second phase across multiple assets. As a result, when we look forward, we increasingly see a company defined not just by hash rate but by the quality, scale, and flexibility of its infrastructure and by its ability to allocate capital into the highest return opportunities available at any point in the cycle. As we evaluate the opportunities for expansion into AI, we are seeing improving economics per megawatt, driven by scale, power quality, and contracting structures even as capital intensity increases. Despite this evolution, Bitcoin mining remains foundational to our business. We are fully operational, passing every day and generating strong cash flows from a scaled mining footprint of more than 50 exahash per second. During the quarter, despite challenging Bitcoin price action and rising network difficulty, we generated more than $180 million in revenue at a gross margin exceeding 47%. Those cash flows allow us to fund growth deliberately. They give us the flexibility to hold assets in a fully monetized state while we complete diligence and commercial alignment rather than being pressured into speculative development. We've built this strategy to perform across a range of market conditions, including lower Bitcoin prices, slower AI deployment, or tighter capital markets without forcing reactive decisions. In November 2025, we completed a $1.15 billion convertible offering as part of our strategic evolution. Part of the use of proceeds was used to repurchase $460 million worth of shares, bringing total share repurchases to over $600 million since December 2024. We resulted in approximately 20% of our shares outstanding being repurchased because we believe dilution is not a strategy, discipline is. Turning to our power and land strategy. Historically, we built CleanSpark by acquiring and optimizing a large number of sub-100 megawatt sites. Those assets continue to perform well and have appreciated meaningfully as energized land has become increasingly scarce and valuable. As we evaluated the AI market, we recognized an opportunity to capitalize on the demand for larger sites. Until recently, Sandersville with approximately 250 megawatts of already live power was our only large-scale asset capable of supporting hyperscale workloads. That has changed. In October 2025, we acquired 271 acres in Austin County, Texas, along with 285 megawatts of contracted power fully approved by ERCOT with certainty on energization and potential gas capacity for significant behind-the-meter optionality. In January, we followed with a second development initiative in Brazoria County, Texas, supported by a transmission facilities extension agreement enabling an initial 300-megawatt demand load expandable to 600 megawatts. Together, these assets establish a Houston area infrastructure hub with almost 900 megawatts of aggregate potential utility capacity, assembled intentionally to support multiphase AI campus deployments. As we look ahead, we expect to move from portfolio formation into commercialization milestones. Those milestones will take different forms, site-specific announcements, development partnerships, and structured long-term offtake agreements, but they all reflect the same underlying reality: our assets are being pulled into the AI market, not pushed. We believe that over time, as those options convert into contracted visible cash flows, the market will increasingly recognize the embedded option value in our power and land portfolio. At Sandersville, we further strengthened our position with the acquisition of a 122-acre parcel in direct proximity to our substation and power infrastructure. These additions were made in close consultation with a select group of potential counterparties. Importantly, these discussions are no longer theoretical. We are operating from tenant-driven specifications, not internal assumptions. We are now past initial screening and into advanced diligence across multiple sites, including power studies, cooling validation, and commercial structuring. The decisions we are making today around substation design, cooling architecture, and campus layout are not reversible, and they reflect confidence in where demand is heading. What excites us about AI monetization is not just scale, but the duration, predictability, and capital alignment of those cash flows relative to traditional compute. Throughout this process, we are expanding responsibly. That means being infrastructure-first aligned with customer requirements and disciplined in capital deployment. In this market, moving too fast is often riskier than moving deliberately, and we are intentionally optimizing for durability rather than velocity. As we plan this evolution, we have established an optimized operating model that allows us to continue running our mining infrastructure right up until load transition. When that transition occurs, we expect to redeploy miners elsewhere in our portfolio where they can continue to operate profitably. Earlier, I said that Bitcoin mining will always be core to our business. That's because it continues to provide us with a strategic advantage in power acquisition. That advantage is now translating directly into differentiated positioning in AI infrastructure. We have seen this movie before. The discipline that allowed us to scale mining profitably across multiple cycles is the same discipline we are applying here, only now with larger contracts, stronger counterparties, and materially longer duration cash flows. Before turning to digital asset management, I want to briefly comment on the AI lease market. We believe there are meaningful second mover advantages in AI infrastructure, similar to what we experienced in Bitcoin mining. Lease economics have continued to improve across multiple dimensions. Rates have risen, risk-sharing terms have become more balanced and credit markets supporting these projects remain deep and constructive. When negotiating large-scale contracts, we are balancing lease rates, delay provisions, capital structures, and counterparty quality to optimize the holistic return profile. Our goal is not to win a single deal, but to build durable scalable relationships that monetize our growing portfolio over time. I also want to briefly touch on digital asset management. Digital asset management is not a trading function. It is a capital allocation and liquidity management capability with defined mandates and risk limits. During the quarter, digital asset management generated over $13 million in premiums and cash. That represents about 24% of normalized adjusted EBITDA and improving capital efficiency across our business. These results are process-driven and fully integrated into our broader financial framework. As we look forward, we see multiple paths to value creation unfolding in parallel: continued strength in our operations, increasing visibility into AI monetization, and disciplined balance sheet management that preserves strategic flexibility. With that, I'll turn the call over to Gary.
Thank you, Matt. Let's dive right into the numbers for our 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, where 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 $0.056 per kilowatt hour, up from $0.049 a year ago. However, this reflects our decision to continue hashing to higher cost, higher revenue periods rather than curtailing based solely 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 was 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 was 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 cash 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 $0.059 in Q4 to $0.056 in Q1, partially offsetting our 19% revenue decline. As a result, our gross margins remained 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 was negative $295 million for this quarter compared to positive $182 million for the fourth quarter. It's important to note again that the difference relates to noncash 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 30 balance sheet date was approximately $1.5 billion, and as of December 31, it was $1.15 billion, which reflects the noncash mark-to-market 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 back 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 $1.8 billion, which on a net debt basis is approximately a 1.1 debt to liquidity ratio. Most importantly, the convertibles 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 count has decreased almost 20% in the last 15 months, as we have not issued a single share of equity on the ATM or other offerings to Ecomat. 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 model during the quarter, even though Bitcoin price was down mark-to-market. I want to highlight several key members who 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 toolset. The Basis Trade is a market-neutral strategy that captures the difference between the forward price of Bitcoin and the spot price. Importantly, this strategy takes no price risk and generates returns from the same types of market structure dynamics that we noted in our thesis initially. 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 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 peers at Cipher, which priced at an attractive 6% to 8%, which is indicative of the quality of recent leases being signed and the capital available in this market. The recent $2 billion bond had approximately $13 billion in demand and an oversubscription of six times. While we have not committed to one specific means of financing our AI data center builds, we are focused on building a capital stack that 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 holdings. This liquidity provides us options, and we will continue to use the lines of credit opportunistically in the marketplace for accretive purposes. Matt spoke about our current efforts and where we are going, and we are excited to share in future calls the relationships and ecosystem we are building, one that is a more fulsome 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 Harry to lead us into Q&A.
Thanks, Gary. We will now open the floor to questions from the analyst community. Operator, please provide instructions and manage the queue for the Q&A session.
Questions and answers
I was wondering if you could talk a little bit about the demand environment you're seeing for HPC? And maybe how that's changed in the last 90 or 100 days? And kind of what attributes are you looking for most in a lease partner?
Mike, thanks for the question, and thank you for the recent initiation. We're glad to see Northland covering us. I can tell you that six months ago, when I reassumed the role of CEO, we entered a market where there was a lot of enthusiasm around signing a deal. What we're now seeing is some of the punitive components of the early leases such as losing a significant amount of revenue for a day late delay on an RFS date and differing terms that are backstopped only at the site level rather than at the top company level. It has given us an opportunity to really sit back and evaluate what's out there. I can tell you that we, Gary, Harry, and myself, and some of our team attended the Pacific Telecom Conference in Hawaii. The feedback that we received by presenting an end-to-end solution was overwhelmingly positive. We've been very pragmatic about the assets that we've accumulated, the location, the distance away from fiber networks, and the access to behind-the-meter generation. As a result, we've now been entertaining multiple trillion balance sheet companies that are interested in long-term leases on some of these assets. So we're seeing the demand continue to escalate. And I might add, we saw Amazon earlier today talk about their commitment to invest $200 billion in AI infrastructure in 2026, exceeding the $140 billion estimated by the Street. So looking at the demand behind that, we feel very solid about it. If the inbound inquiries and conversations we're having with hyperscalers are any indication, the fear of a bubble is highly overstated.
Got it. And then maybe just as a follow-up, your three sites, Sealy, Sandersville, and Brazoria, would you say it's equal demand for all three? Or is there one that sticks out among those? How would you handicap that?
I think probably the highest demand right now is Sandersville, quite frankly, because it's 250 megawatts, we already built a substation. It's already energized. The Sealy site energization is set for Q1 '27 for the first 207 megawatts, so we're seeing strong demand there. And obviously, the next site has also been very appealing. But I would say that the data center environment in Georgia and the energized site are very compelling to the offtake clients.
So just as a quick follow-up. You mentioned there have been some really positive CapEx comments from companies like Amazon. To me, that signals rising demand for AI data centers. Would you say that that's indicative of demand across the sector from various hyperscalers that you're speaking with? Or are people getting more cautious at all?
Yes. I would say it's an emphatic yes. Just as a quick aside, Jeff Thomas, who leads our AI venture, has been in the office with us this entire week, and more often than not, he's excusing himself to go into his office and close the door to field an inbound inquiry. I would say demand is escalating rapidly.
That's certainly good news. And I know you guys mentioned that you're looking for a mix of quality and scalability among clients. Given construction commitments that you've already made, how confident are you that you'll be able to, call it, sign a contract in the relatively near future?
We're very confident, Brian. To be honest, I wouldn't even refer to it as a delay. Six months ago, we mentioned that we expected to sign a quality lease in less than a year during our earnings call seven or eight weeks ago. I believe that timeline has actually accelerated significantly. However, we are being disciplined about it. If you look at the leases other Bitcoin miners have disclosed, many are heavily redacted due to the strict nature of the delay provisions. As we work on this, we are actually collaborating with the offtake customer to design in advance, ensuring we can meet delivery timelines and eliminate the risks associated with failure to deliver. By being disciplined and tailoring our plans to the offtaker's specifications, including implementing the approved reference architecture from our chip manufacturers, we will gain the certainty needed to secure our supply chain before committing to these agreements and avoid any potential failures in delivery.
Excellent. Excellent. And then just one final one on Bitcoin mining, if I may. Given your efficiency, you're better positioned than those heading into the next having. I guess, has your thought process changed at all as far as operating Bitcoin mining in tandem with your expansion into HPC?
That's a great question, Brian. What we found is that as new energy sources are energized, some of these communities, especially the smaller communities, are incentivized to monetize those metal lots very rapidly. The challenge is to build a data center for a hyperscaler with the approved basis of design; that is a 12-month best case, 18 to 24-month average case delivery timeline. We can use the infrastructure that we have for Bitcoin mining, like we did in Cheyenne, Wyoming, where we secured a 100-megawatt lease over a hyperscaler. We did that simply because we committed to start paying power bills within six months, not inside 1.5 years, and that makes a difference to these communities. So we'll continue to use Bitcoin mining as that tool. As I mentioned on the call, we have a 122-acre parcel adjacent to Sandersville. What does that mean? That means I can operate 11 exahash to profitable Bitcoin mining up until the day we cut the power over to support the data center for our end-use clients.
Matt, first one maybe for you. I appreciate your comments on the HPC business with start being advanced discussions or diligence stages regarding potential tenants here. You're currently looking at this on a basis of design. Curious what milestones should we be on the lookout for next and some of the expected timelines you see as we come across the next couple of quarters here?
I think the process when you're dealing with a hyperscaler is we could rush in and sign a lease to get a headline, and then we're facing potential losses for a failure to deliver. As I mentioned in my prior comments, we're working towards that basis of design. One of the things I think that is a key differentiator is that we put out a press release announcing an MOU with Subaru. You may have seen a slide in our deck that had a mockup of the layout of the data center. So we've advanced it significantly with a particular offtake, but by no means is it committed elsewhere. The competition for megawatts and land right now is stronger than when we announced this strategy to expand into AI. We're not closing any doors, but there's a clear frontrunner there.
At the current Bitcoin prices, let's call it, $63,000 or so. How much of your mining fleet is economic to operate? Or another way to ask it is how much of the mining fleet meets the hurdle rate in order to operate?
Great question, Jim. Thank you for that. Our fleet efficiency improved and then it got a bit worse. It got worse by design because as mining economics improved, we started to scale up some less efficient equipment in our fleet. What I can tell you is that Taylor and his team are constantly running real-time analysis based on utility prices, network difficulty, and the price of Bitcoin. Less than 10% of our fleet at the current price is not profitable. The vast majority of it is, and the small portion that is at or below the breakeven threshold are machines that we brought on to take advantage of $125,000 Bitcoin one and a half quarters ago. It's not punitive for us to unplug those. As we unplug those less efficient machines, it increases the overall efficiency of our fleet.
Jim, it's Gary. I will tell you that our focus is going to be on deploying capital towards AI. That's in the range of $9 million to $11 million a megawatt. What is deployed is really going to depend on that amount, which is going to depend on the design to build and the customers and when we sign those respective leases. The overwhelming majority percentage of that is related to HPC. With respect to Bitcoin mining, I think that the investment, particularly at these levels, doesn't make much sense from the sticker prices that we're seeing from the major manufacturers. If you look at our balance sheet as of December 31, we had about $130 million of prepaid deposits on Bitcoin mining equipment and miners. Most of that was through September.
Thank you, and thank you, everyone, again, for joining today's earnings call. We look forward to staying in touch and sharing future results with you in the coming quarters. Stay tuned for more progress and exciting achievements ahead from us at CleanSpark.
This concludes today's conference. You may now disconnect.