Cleanspark, Inc. Q1 FY2026 Earnings Call

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 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. First, securing scarce power and land; second, tenant-driven technical and commercial alignment; and third, 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 hashrate 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, resulting 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 the 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. And that's because it continues to provide us with a strategic advantage and 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 playing 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. DAM is not a trading function. It is a capital allocation and liquidity management capability with defined mandates and risk limits. During the quarter, DAM 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 jump into the financials for our fiscal first quarter 2026. Our revenue increased year-over-year by around $19 million, which is nearly a 12% growth. Bitcoin production remained steady, with revenues close to $100,000 per Bitcoin this quarter, compared to $84,000 in the same quarter last year. Our gross margins saw a slight decline from about 57% last year to 47% this quarter, mainly due to the annual increase in network difficulty. Additionally, power prices rose slightly to $0.056 per kilowatt hour from $0.049 a year ago, reflecting our decision to continue operating even during higher-cost periods instead of merely reacting to power price thresholds. This quarter, we recorded a net loss of roughly $379 million, in contrast to a net income of around $247 million a year ago. This shift was primarily due to mark-to-market adjustments in Bitcoin's fair value at the end of each period. Our adjusted EBITDA was negative $295 million, compared to positive $322 million last year, largely influenced by these mark-to-market adjustments. When comparing our first quarter performance to the previous fourth quarter, revenues fell by about $43 million or 19% to $181 million, driven by external challenges like rising network difficulty and lower Bitcoin prices. This led to some of the lowest cash prices we've ever faced during the quarter, highlighting the significance of having a fleet with high uptime and efficiency. Our cost per kilowatt hour decreased slightly from $0.059 in Q4 to $0.056 in Q1, which partly mitigated our 19% revenue drop, keeping our gross margins healthy at 47%. Notably, the previous quarter included about $25 million in separation expenses related to our former CEO. As we mentioned last quarter, we anticipate increases in professional fees, payroll, and general and administrative expenses as we advance our AI strategy. Moreover, I want to emphasize that our AI data center business offers stable cash flows and high margins, which will support CleanSpark through fluctuations in Bitcoin mining economics. Our adjusted EBITDA for this quarter was negative $295 million compared to positive $182 million in the fourth quarter, again largely due to noncash mark-to-market adjustments, with this quarter accounting for around $350 million in such charges. On a normalized basis, after accounting for these adjustments, our normalized EBITDA would stand at $55 million, equating to an approximate 30% normalized margin for this quarter, which reflects cash generated from our operations. As of our September 30 balance sheet date, the value of our Bitcoin was around $1.5 billion, and by December 31, it reduced to $1.15 billion due to the aforementioned noncash mark-to-market adjustment of $350 million. Regarding our balance sheet, our cash balance rose over $400 million compared to Q4, attributed to the $1.15 billion zero percent convertible transaction we finalized in November. We used part of the proceeds to settle remaining balances on our Bitcoin-backed lines of credit and repurchased $463 million in stock, leaving us with approximately $420 million in net cash proceeds, most of which remains on our balance sheet. Alongside our cash balance, we held roughly $1.15 billion in Bitcoin value at the end of Q1. Our total debt is about $1.8 billion, resulting in a net debt ratio of approximately 1.1 to liquidity. Importantly, our convertible debts won’t mature until 2030 and 2032, and we have various capital options available. It's also worth noting that our outstanding share count has decreased by nearly 20% over the past 15 months, as we haven't issued any new equity through the ATM or other offerings—emphasizing that dilution is not part of our strategy; we focus on discipline. Regarding our Bitcoin balance of over 13,000, I want to highlight that we are one of the first, if not the only company, scaling operations that utilizes Bitcoin as a productive capital asset. We discussed our DAM strategy in detail in its first full quarter during the last call. I'm pleased to report that we are now fully in the walk phase of our crawl-walk-run approach. We are fully utilizing the part of our Bitcoin balance allocated for yield generation, which is about 40% or 5,200 Bitcoin. Our DAM strategy generated $13 million in cash returns during the quarter, while Bitcoin prices were down. I want to highlight key members involved in our core DAM strategies. We applied a covered call derivative program on our monthly Bitcoin production and sales, leading to an increase of $7,700 or 8% per Bitcoin over the average sales price of about $97,200. Altogether, the $13 million total premiums yield an annualized return of 4.2% on our average total balance, exceeding our target of 4%. We achieved this in just six months following our first trade. Vital to this progress is capitalizing on elevated volatility, particularly in October while maintaining an average delta below 20. Additionally, we introduced a new tool for our treasury management: the Basis Trade, a market-neutral strategy capturing the difference between the forward Bitcoin price and the spot price. This strategy involves no price risk and generates returns based on the same types of market dynamics that formed the basis of our initial thesis. The basis trade enabled us to invest our cash balances effectively, yielding an annualized return of over 5.5% on the cash allocated to it, well above the risk-free rate. Although these opportunities are cyclical, we plan to remain opportunistic based on market dynamics, further enhancing the flywheel we envisioned when establishing our DAM team. In conclusion, I want to discuss our capital strategy moving forward, particularly with our expansion into AI data centers. I am confident in the strong capacity and interest in financing AI data centers with quality tenants. A recent high-yield deal from our partners at Cipher was priced attractively at 6% and 8%, reflecting the quality of recent leases and the capital accessibility in this market. A recent $2 billion bond attracted around $13 billion in demand, with a sixfold oversubscription. While we haven't committed to a specific financing method for our AI data center builds, we aim to construct a capital stack that minimizes dilution. This will also include selling our monthly Bitcoin production to cover our operating expenses. With our current cash balance and available capacity on Bitcoin-backed lines of credit, we have over $800 million in liquidity accessible without selling any Bitcoin. This liquidity gives us options, and we will continue to exploit lines of credit opportunistically for accretive purposes. Matt highlighted our ongoing efforts and future direction, and we look forward to sharing updates on the relationships and ecosystem we are developing, offering a more comprehensive approach than what is currently available in the market. While we are still in the early stages of our AI data center journey, the market is evolving rapidly, and CleanSpark is responding decisively. Our discussions with high-quality credit tenants are ongoing, and it's only a matter of when, not if.

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.

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. And 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, 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 continuing 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. And 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 Brazil, would you say there'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 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 off-take 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, call it, 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. So 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 sign a contract in the relatively near future?

We're very confident, Brian. To be honest, I wouldn't even call it a delay. About six months ago, we indicated that we expected to sign a quality lease within a year, and I believe we are progressing at an accelerated pace. However, we are being disciplined in our approach. If you look at some leases from other Bitcoin miners, many of the details are heavily redacted in public filings due to strict penalty clauses related to delays. As we move forward, we are collaborating with the off-take customer to develop our design ahead of time and ensure we meet delivery deadlines to minimize any risk of failing to deliver. By maintaining this discipline and designing specifically for the off-taker's needs, as well as implementing the approved reference architecture provided by chip manufacturers, we will secure the supply chain before making commitments, thus avoiding any delivery failures.

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 halving. I guess, has your thought process changed at all as far as operating Bitcoin lines, call it, in tandem with your expansion into HPC?

That's a great question, Brian. And 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, and incorporating that reference architecture is a 12-month best case, 18 to 24 months kind of 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 inside of six months, not inside of 1.5 years, and that makes a difference to these communities. So we'll continue to use Bitcoin mining as that tool. You heard us talk about on the call, something that we haven't published yet because it wasn't material, and that is 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. We also, on the map of our projects, something that we haven't talked about is a 15-megawatt site in South Dakota. The utility there had introduced a blockchain-specific tariff that with an interruptible load gives us the lowest cost per kilowatt hour of almost any site in our portfolio. So that flexibility allows us to migrate that mining to a profitable location once we've spun up a data center behind us. So we see it kind of as a loss leader, but it makes money.

Matt, first one maybe for you. I appreciate your comments on the HPC business with start being advanced discussions or diligence stages, rather potential tenants here. And that you're currently looking 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?

So I think the process when you're dealing with a hyperscaler is we could rush in and sign a lease, so we could get a headline. And then we're facing potential losses for a failure to deliver. So as I mentioned in my prior comments, we're working towards that basis of design. And one of the things I think that is a key differentiator that's maybe gone a little bit under the radar is we put out a press release announcing an MOU with Subaru. Mike, you've been around our company long enough that we don't ever make a material disclosure unless we've got a firm contract. And we felt that, that was important as we head into some of these discussions because Subaru has been very successful in building a modular MEP. So mechanical, electrical and plumbing, all the fiber runs, everything according to the reference architecture required by the chipset manufacturers. Our solution will be to build the gray space, to build a tilt-up shell and then slot in the reference architecture. That also gives us flexibility. So if you have a hyperscaler that wants to modify from one particular type of chip to another, we have that modular approach. It also shortens the timeline because we've all heard the horror stories about some of our peers that have a couple of thousand tradesmen all working at the same sites in West Texas, and they're struggling to provide housing and food and bathroom facilities. We look at this differently. We build instead of a one-off data center that's stick-built, we build the shell according to the specifics required by the end customer. and then we build the MEP portion in a factory. So it's consistent and duplicatable and scalable, which is differentiated from anything else in the space. So it's important to us to establish all of those build parameters ahead of time. So when we put pen to paper, there's absolute certainty that we can deliver the product as expected on time.

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

Mike, to add some detail about the Bitcoin mining aspect, when we last reported, our efficiency was at 16.07 jewels per terahash. Taylor and his team are currently implementing the new 13.5 jewel per terahash machines in immersion-cooled containers across five different locations. We anticipate that our fleet's efficiency will keep improving. Historically, we've experienced cycles where less efficient miners exit the market, which provides us a strong chance to increase our share of the network hash rate simply as those inefficient miners stop operations.

Considering the progress in high-performance computing, I understand that Jeff joined the team a few months ago. Gary, you mentioned the possibility of increased selling, general and administrative expenses over time as we expand the team and prepare to transition into this new business. How should we approach costs and processes? Additionally, where do we stand regarding the development of our teams, especially since we've seen other companies build their teams? We've realized that we have many talented individuals already within the company. How should we view growth at the employee level?

Thanks for the question; it's a great one that we often receive from investors. It's challenging to provide guidance on this because, while we have a plan to hire a specific number of full-time employees, the timing of these hires will significantly influence our fiscal year numbers. Furthermore, we have the option to utilize external services, so if we need additional support, we can bring in outside consultants or contractors while we wait to hire full-time staff. This approach may differ from bringing on permanent employees. Therefore, we're not in a position to provide specific numbers at this time. However, I don’t believe this situation poses any material risk. We’ve been quite cautious about timing our hires to coincide with when we will actually need them. You should expect to see a gradual increase in our team size throughout the rest of the year.

Okay, great. It has been understood that we were planning to acquire more land at Sandersville for at least a few months. How does owning that additional land at Sandersville change the conversation? It seems like part of this call is focused on the potential terms of some of these HPC contracts. I would think that owning the land is significant. My question is, was not owning some of the land and potentially leasing it a dealbreaker?

Greg, it's Harry. I think you're exactly right. So we view the closing of the land expansion at Sandersville as a very orderly process in progressing the AI data center project there. It allows us to move into a very specific basis of design alignment exercise, which is underway. And it also brings a level of specificity to the compute and power ramp for the data center deployment as well because there's complexity to these projects that extend beyond standing up the data center for our state. There's a lengthy commissioning process that the tenants typically take on in the context of the overall project life cycle, and being able to map out those timelines and those work streams in detail is critical as we move through the full commercial scope of the discussions. They are, in many cases, governed by some of those technical pieces in the ramp process.

Thanks for the question. Can you maybe provide some insight on how ERCOT's proposed large load study process may affect the energization timeline for the Sealy side as well as the approval and development schedule associated with your Brazoria County, Texas project?

Stephen, yes, Harry, again. Happy to do that. So I think the first piece of it is that the study process that ERCOT is proposing to roll out has not gone final yet. They're still in a comment period where they're taking member requests for how they want to influence that process and how it's going to be brought to market. So we're waiting to see kind of the final form of that. But given the early news there, we've had a lot of detailed discussions with several counterparties that we're working with there. That includes the substation developer, the utility, some of the political folks, and obviously, some of the teams that are caught as well. I think the assets that we have in the state are in a very favorable position relative to this new piece of the process for several reasons. The first is that the large load studies that have been done for Sealy are complete, and at the second location, it is in a deeply progressed state. We've received the notice to proceed language at both of them. So that's kind of point one and two. The next is that the interconnect and FDA pieces are executed. And the third at Brazoria is that the CAIC has been funded. And at the Sealy location, the substation is already under construction. So these are significantly progressed projects. And what we've seen is that the view of the batching and the study rollout is largely being informed by project maturity as well as location. What we got feedback from the utility of both of those locations is that the location we selected is a point in the overall ERCOT transmission system that's going to be the least impacted by this type of reevaluation process. So we feel very, very positively about where these two assets sit within the system and how they're going to be treated. But until ERCOT comes out with final language, we can't have 100% visibility into that yet.

I have two questions. Let's start with the one related to the ERCOT discussion. As you consider the longer-term pipeline and the potential for adding more power, are there other power markets that seem more appealing compared to Texas, and where might we see that? I also have a follow-up regarding the HPC tenant side.

Thanks, John. I think that we have always had a strong heritage of diverse portfolio construction. We see it in the way that we enter into power agreements today. We've got a significant footprint deployed and operating in Georgia. We've got significant presence in Tennessee. Wyoming and Mississippi as well are the smallest two, but they're by no means small. I think that what we're going to be able to accomplish is a continued expansion in those markets because of the relationships and community quality that we've engaged in to date. But additionally, I think that the other side of the question that you're asking is do large-scale data centers skew towards in front of the meter power or behind the meter power. We're asking these questions internally along both vectors. So we think that there's a huge amount of opportunity inside and outside of Texas on the in front of the meter profile. We have a team that's become exceedingly expert in sourcing, negotiating, and closing on that power. And then we are also strongly evaluating the capacity for behind-the-meter power as well in places where we're either able to get a smaller in front of the meter load or there's a particularly rich commodity environment by which we could power behind-the-meter generation and then associated data center. So we're people for its business fundamentally, and our power and land teams are prepared to expand the portfolio very, very broadly in a diversified way, but also add that potential for behind the meter to the repertoire as well.

Great. Regarding the HPC tenant discussion, I’m trying to understand how advanced we are in the positioning. Are we down to one potential tenant that seems much further along, or are there three that are in the final competition stages? A bit more detail would be helpful.

Ask me a question that I can answer. To be honest, John, there are several potential tenants for Sandersville. There is one clear frontrunner that is significantly ahead, and our team is working closely with their team on site placement. You may have seen a slide in our presentation showing a mockup of the data center layout. We've made substantial progress with this particular tenant, but it isn't final yet. The competition for megawatts and land is currently stronger than it was when we announced our strategy to expand into AI. We're keeping our options open, but there is definitely a clear leading candidate.

This is Gareth on for Brett. I was just hoping you could go into detail on the two new sites in Texas. When are you guys expecting to have power available on those sites? And what do you think the timelines are kind of going forward there?

Yes, absolutely. So let's tackle the Sealy project first. The land secured is 271 acres. The gross power is 285 megawatts. The first 207 to 209 is coming in the first half of '27. And then it's about 40 in '28 and 40 in '29. And that's driven by the transmission agreement by which we secure the power. The second project is in Brazoria County, larger footprint with up to 477 acres at that location. The way that it's structured is that we've signed for that agreement, but we're not closed yet, and there are some closing conditions associated with it that we expect to wrap up here. The timeline for the energization is a function of some of those closing conditions. So we don't have the type of line in the sand clarity that we have at Sealy. But I think that Q4 '27, Q1 '28 is a range that is all reasonable and everybody internally is working to bring that energization date as close to the inside as possible.

Congratulations on your progress. Gary, you mentioned a recent capital raise by a peer. I wanted to ask about your liquidity and the substantial capacity you have for future growth through leases. Should we interpret your comment as an indication of how you plan to engage with counterparties, particularly with hyperscalers capable of high-yield raises, where the credit quality of the counterparty could potentially affect outcomes? How are you choosing your counterparties in light of the current context regarding capital raising and the cost of capital?

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

And then maybe a follow-up. I believe, Matt, you mentioned when speaking about the Sandersville work and the 122 acres with tenant-driven specs in mind. How should we think about what that means for terms? You also noted that terms in discussion were seemingly more positive across the conversations you're having. Is there any kind of prepayment or deposit discussion involved in the conversations you're having, given that you are proactively using tenant-driven specs to set up the sites for HPC? Thanks for the question, Paul. It's a bit early in the discussions to comment directly. However, I can share that we are looking at several different leases that have been put on the table. You've seen modified gross, triple net, and posted agreements, as well as miners who have committed to purchasing the chips themselves. Our initial focus is to secure a deal that is significantly better than what the market would typically expect. We are interested in forming a direct deal with the hyperscaler rather than going through a Neo cloud supported by a hyperscaler. We believe this approach will set a high standard for the quality of the agreement. We will certainly have expectations and will be held accountable to deliver, but this does not pose an existential threat in terms of failing to deliver.

At the current Bitcoin prices, let's call it, $63,000 or so. How much of your minor fleet is economic to operate? Or another way to ask it is how much of the minor fleet meets the hurdle rate in order to operate?

Great question, Jim. Thank you for that. So our fleet efficiency improved, and then it got a bit worse. And it got worse by design because as mining economics improved, we actually 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. They brought me in to Gary and myself this morning as we were working on this presentation today. They brought us in a list. I would say less than 10% of our fleet at the current price is not profitable. So 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 1.5 quarters ago. So it's not punitive to us to unplug those. Having said that, as we unplug those less efficient machines or scale them down or underclock them, it increases the overall efficiency of our fleet.

Got it. That's helpful. And can you discuss CapEx plans for this year and next, both in dollar basis as well as an allocation between Bitcoin and HPC?

Jim, it's Gary. Our primary focus will be on investing in AI with expenditures between $9 million to $11 million per megawatt, which is consistent with what many of our peers are reporting. The actual amount we deploy will depend on the design and build process, as well as when we finalize leases with customers. The majority of this investment is geared towards high-performance computing. Regarding Bitcoin mining, given current pricing from major manufacturers, it doesn't make financial sense to invest heavily at this point. As of December 31, we had approximately $130 million in prepaid deposits for Bitcoin mining equipment, with about $112 million accounted for through September. We're still implementing some infrastructure, primarily new cooling systems and miners to improve efficiency, but we do not intend to spend a significant amount of cash on mining unless the economics shift. We also need to consider that we are about two years away from the next halving, and historically, as that approaches, the return on investment window closes quickly. Currently, it isn't a viable option for us, so we aim to allocate every possible dollar towards capital expenditures.

Your next question comes from the line of Matthew Capitalo with Maxim Group. I'm filling in for Mac right now. I was just wondering if you guys have any insight or predictions on how we should be thinking about network difficulty in response to the current Bitcoin prices. Yes, absolutely. I think that what we've seen over the last weeks and the difficulty adjustment that's coming on Saturday is important to note is the largest difficulty adjustment to the downside since the China mining ban in 2020. That's a combination of two factors. The first is that there have been significant weather events across the entire country during that period, where you're seeing either the demand response programs get engaged or you're seeing power prices move past the breakeven point of economics. And so that's certainly a contributor to this difficulty adjustment. The second piece is clearly Bitcoin price is off considerably. That next upcoming difficulty adjustment is going to be significant. Given the price action that we've seen in the latter part of the difficulty adjustment period that we're in the middle of right now, we could see additional downward pressure on difficulty in addition to that. Ultimately, this is the self-healing nature of the proof-of-work and Bitcoin mining system. As you see these types of market forces, the network adjusts to create that security model that is supposed to continue producing blocks and processing transactions. I just want to add one thing, because if you look at this historically, when Bitcoin runs and hash price gets better, the global hash rate laps right? You'll have a period of time, usually weeks, maybe a month or whatever, for miners to find a way to get plugged in. Because miners just don't sit around waiting for hash price to sit typically, they're just not on racks just waiting for Bitcoin price at a certain price. It's the opposite on the way down, because most miners, not all, but most miners know what their breakeven is because that's a real punitive cash penalty because they have to pay their power deals. As Bitcoin mining economics go down, what we've seen at least historically is that the cash rate comes off pretty quickly, pretty close to that. Miners say, well, hey, why am I going to take a loss when I could just go buy Bitcoin and I have more Bitcoin than if I actually mined it? Given that routed in the fact that we have a decreasing fleet with decreasing jewels per terahash, meaning our efficiency is going up, and we're more efficient, and we're producing more Bitcoin for every watt that we're putting through these machines, we will be one of the last ones theoretically to turn off, and we'll mine more Bitcoin in terms of quantity as that global half decreases. And I guess as a follow-up on the Texas opportunities. Do you guys have a timeline on executing behind the meter opportunity into your portfolio? Yes, I appreciate the question. I think it's too early to have a view on the exact timing for that type of opportunity. What I can say is that we're evaluating a number of different behind-the-meter deployment types. Some of those energization schedules are longer. Some of them are much faster to market. Ultimately, those types of decisions will be made in concert with the tenant community, and we're really looking to be able to meet their need and satisfy impute demand, whether that's through one form of behind-the-meter generation or another.

There are no further questions currently. Harry, I turn the call back over to you. 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.