When it comes to Bitcoin (BTC-USD) mining stocks, CleanSpark (NASDAQ:CLSK) has undeniably caught my attention in recent times. We have the luxury of dissecting two additional quarters’ worth of financial data, along with a substantial leap in production capacity. I’m excited to break down the most significant takeaways from the latest earnings report, the company’s financial stance, and the prominent concern in the room.

Financial Performance in Focus

The recent 10-Q report from CleanSpark showcased a revenue of $45.5 million, representing a 7% sequential increase and a remarkable 22% year-over-year growth. While gross profit dipped from the previous year to $24.8 million, the cost of revenue stood at $20.7 million, and total operating expenses hit a new high of $39.7 million. The quarter’s operating income amounted to a negative $14.8 million – a noticeable improvement from Q1, although the company has posted losses for five consecutive quarters.

Strong Factors in Play

Despite these challenges, CleanSpark has earned an enviable position as the second-highest rated Bitcoin miner in few stock forums Quant Score. Remarkably, it’s the sole miner with consistently positive factor grades across all categories. Additionally, there’s a silver lining regarding the company’s breakeven Bitcoin price, which has improved notably this year.

Breaking Down Breakeven

To gain insights into the company’s progress, let’s analyze its breakeven Bitcoin price over the past few periods:

– 1H 2022: $38,003
– 2H 2022: $39,268
– 1H 2023: $34,421

This calculation is based on combining the cost of revenue and total operating expenses over the last six quarters, then dividing the cash burn by the number of BTC mined. Notably, CleanSpark has successfully reduced its breakeven Bitcoin price from $38,000 down to $34,421. With a continued focus on efficient operations, CleanSpark seems well-positioned to potentially turn profitable in the face of tightening BTC supply.

Impressive Production Growth

Over the past year, CleanSpark has skyrocketed its production capacity from 2.9 EH/s to a commendable 9 EH/s by July 2023. The company’s efforts to expand its production capacity seem well-timed and strategically sound. During a recent conference call, CEO Zach Bradford emphasized CleanSpark’s ambitious goal of reaching 16 EH/s by the year’s end – a goal that’s fully funded.

Solid Financial Footing

From a financial perspective, CleanSpark stands out as one of the industry’s better-prepared companies. Boasting assets worth $650 million and a modest debt of just $18 million in the latest report, CleanSpark boasts an attractive debt-to-equity ratio of around 6%.

A Balancing Act

The company’s prudent financial choices have enabled it to bolster its BTC holdings in treasury, growing from 228 at the close of December to an impressive 1,061 by the end of July. Notably, CleanSpark has achieved a more substantial percentage growth in its HODL strategy compared to its peers.

Addressing the Share Dilution Conundrum

Let’s address the elephant in the room – share dilution. CleanSpark’s history shows notable share dilution, which is a concern when compared to other major mining companies.

A Numbers Game

To put this into perspective, the number of outstanding shares has almost quadrupled in less than two years. From 41.5 million shares at the close of 2021 to a staggering 97 million by the end of March 2023, CleanSpark’s share count now hovers around 153 million. This expansion in outstanding shares is attributed to recent capital raises for expanding their production capacity.

Navigating the Path Ahead

In conclusion, while I advocate for holding BTC directly, CleanSpark stands as an intriguing player in the realm of Bitcoin miners. Market participants with a higher risk tolerance might find miners attractive, especially during market cycle shifts. Nevertheless, long-term investors must keep in mind the industry’s challenges and the dependence on favorable Bitcoin prices for sustained profitability.

Final Takeaways

Considering CleanSpark’s healthy balance sheet and production capacity projections, it’s poised to be one of the miners well-positioned for potential rallies driven by Bitcoin’s price increases. Given the potential supply constraints on the BTC network and CleanSpark’s strategic positioning, I believe CLSK offers compelling long-term potential.