What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-04 · 370 added, 347 removed, 625 unchanged (53% of the section changed)

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• execute its business strategy, including enhancement of the profitability of services provided, including profitably mine digital assets;

• realize the benefits expected from the acquisition of Blockcap, including any related synergies;

• anticipate the uncertainties inherent in the development of new business strategies;

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federal income tax laws, including the impact on deferred tax assets;

• successfully defend litigation, including matters in the Celsius Chapter 11 proceedings.

• successfully defend litigation, including matters in the Chapter 11 Cases.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and the documents we reference in this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties.

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These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Core Scientific is a best-in-class, large-scale operator of dedicated, purpose-built facilities for digital asset mining and a premier provider of blockchain infrastructure, software solutions and services.

Core Scientific is a best-in-class, large-scale operator of purpose-built facilities for digital asset mining.

We mine digital assets for our own account and provide colocation hosting services for other large-scale miners at our eight operational data centers in Georgia (2), Kentucky (1), North Carolina (2), North Dakota (1) and Texas (2).

We began digital asset mining in 2018 and in 2020 became one of the largest North American providers of colocation hosting services for third-party mining customers, at which time we derived almost all our revenue from third-party colocation hosting fees and the resale of digital asset mining machines.

Currently, we derive the majority of our revenue from self-mining bitcoin.

We are one of the largest blockchain infrastructure, digital asset mining and colocation hosting provider companies in North America, with an average hourly operating power demand of approximately 607 MW for the three months ending June 30, 2023.

As of June 30, 2023, we had approximately 1,500 MW of contracted power capacity at our sites, including 500 MW of power allocated to the Muskogee data center, which remains substantially undeveloped.

Our total revenue was $126.9 million and $164.0 million for the three months ended June 30, 2023 and 2022, respectively.

We had operating income of $9.4 million and an operating loss of $1.0 billion for the three months ended June 30, 2023 and 2022, respectively.

We had a net loss of $9.3 million and a net loss of $810.5 million for the three months ended June 30, 2023 and 2022, respectively.

Our Adjusted EBITDA was $44.8 million and $59.1 million for the three months ended June 30, 2023 and 2022, respectively.

We began digital asset mining in 2018 and in 2020 became one of the largest North American providers of colocation hosting services for third-party mining customers.

As of September 30, 2023, we had approximately 1,500 MW of contracted power capacity at our sites, including 500 MW of power allocated to the Muskogee, Oklahoma data center, which remains substantially undeveloped.

Our total revenue was $112.9 million and $162.6 million for the three months ended September 30, 2023 and 2022, respectively.

We had operating losses of $12.0 million and $401.4 million for the three months ended September 30, 2023 and 2022, respectively.

We had net losses of $41.1 million and $434.8 million for the three months ended September 30, 2023 and 2022, respectively.

Our Adjusted EBITDA was $27.9 million and $17.9 million for the three months ended September 30, 2023 and 2022, respectively.

Adjusted EBITDA is a non-GAAP financial measure.

See “ Key Business Metrics and Non-GAAP Financial Measure ” below for our definition of, and additional information related to Adjusted EBITDA.

Our total revenue was $247.6 million and $356.5 million for the six months ended June 30, 2023 and 2022, respectively.

We had operating income of $17.0 million and an operating loss of $1.1 billion for the six months ended June 30, 2023 and 2022, respectively.

We had a net loss of $9.6 million and a net loss of $1.3 billion for the six months ended June 30, 2023 and 2022, respectively.

Our Adjusted EBITDA was $84.8 million and $152.2 million for the six months ended June 30, 2023 and 2022, respectively.

Our total revenue was $360.5 million and $519.1 million for the nine months ended September 30, 2023 and 2022, respectively.

We had operating income of $5.0 million and an operating loss of $1.5 billion for the nine months ended September 30, 2023 and 2022, respectively.

We had net losses of $50.8 million and $1.7 billion for the nine months ended September 30, 2023 and 2022, respectively.

Our Adjusted EBITDA was $113.0 million and $170.1 million for the nine months ended September 30, 2023 and 2022, respectively.

Adjusted EBITDA is a non-GAAP financial measure.

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For detailed discussion about the Chapter 11 Cases, refer to Note 3 — Chapter 11 Filing and Other Related Matters to our unaudited consolidated financial statements in Item 1 of Part I of this report.

On June 20, 2023 the Debtors filed with the Bankruptcy Court a proposed Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc.

and its Debtor Affiliates and a related proposed form of Disclosure Statement;

(ii) on August 8, 2023, the Amended Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc.

and its Debtor Affiliates and a related Disclosure Statement;

and (iii) on September 7, 2023, the Second Amended Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc.

and its Debtor Affiliates (the “Plan”) and a related Disclosure Statement (the “Disclosure Statement”).

On September 19, 2023, the Debtors, the ad hoc group of the Debtors’ secured convertible notes holders (the “Ad Hoc Noteholder Group”) and the equity committee (the “Equity Committee”) reached an agreement in principle with respect to the economic terms of the Plan (the “Mediated Settlement”).

The Debtors, the Ad Hoc Noteholder Group and the Equity Committee will continue to work and negotiate in good faith to document the Mediated Settlement, resolve certain open issues and revise the Plan and Disclosure Statement to incorporate the terms of the Mediated Settlement.

Original DIP Credit Agreement and Restructuring Support Agreement

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On February 26, 2023, the Bankruptcy Court entered an order (the “NYDIG Order”), whereby the Debtors and NYDIG agree that the Debtors would transfer the miners serving as collateral under the NYDIG Loan back to NYDIG over a period of several months in exchange for the full extinguishment of the NYDIG Loan.

The final shipment of miners that served as collateral under the

NYDIG loan occur during the quarter ended March 31, 2023, after which the NYDIG Loan was extinguished in full and the Company recorded a $20.8 million Gain on extinguishment of debt in the Company’s Consolidated Statements of Operations.

The final shipment of miners that served as collateral under the NYDIG loan occurred during the quarter ended March 31, 2023, after which the NYDIG Loan was extinguished in full and the Company recorded a $20.8 million Gain on extinguishment of debt in the Company’s Consolidated Statements of Operations.

Priority Power Settlement

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The claim was deemed paid and fully satisfied by transfer of specific equipment from the Debtors to Priority Power on the date of the Priority Power Order, thereby releasing all Priority Power liens.

The satisfaction of the obligation and transfer of the equipment is a noncash transaction which did not result in any gain or loss at June 30, 2023.

The satisfaction of the obligation and transfer of the equipment is a noncash transaction which resulted in a gain of $4.9 million recorded to Reorganization items, net in the Consolidated Statements of Operations for the three months ended September 30, 2023.

City of Denton Lease Settlement

On August 16, 2023, the Bankruptcy Court entered an order (the “City of Denton Order”), approving the parties agreement to settle all claims of City of Denton and Denton Municipal Electric (“Denton”) against the Debtors and releasing any and all liens related to the Debtor’s lease of the Denton facility in exchange for Debtors execution lease cure costs totaling $1.5 million.

The satisfaction of the settlement resulted in a loss of $1.5 million recorded to Reorganization items, net in the Consolidated Statements of Operations for the three months ended September 30, 2023.

Huband-Mantor Construction Settlement

On August 18, 2023, the Bankruptcy Court entered an order (the “HMC Order”), approving the parties agreement to settle all claims of HMC and its subcontractors against the Debtors and releasing any and all liens in favor of HMC and its subcontractors in exchange for Debtors payment of $2 million and the Debtors execution of a promissory note in favor of HMC in the principal amount of $15.5 million.

The promissory note is secured by a mortgage of the Debtors Cottonwood 1 facility in Texas.

The satisfaction of the settlement resulted in a loss of $8.3 million recorded to Reorganization items, net in the Consolidated Statements of Operations for the three months ended September 30, 2023.

For more information on the promissory note, refer to Note 5 — Notes Payable to our unaudited consolidated financial statements in Item 1 of Part I of this report.

Celsius Mining LLC Settlement

On September 14, 2023, the Debtors and Celsius entered into a purchase and sale agreement (the “PSA”) that provides in addition to a full mutual release of claims asserted against each party in the respective bankruptcy cases for a cash payment by Celsius to the Company of $14.0 million and a full and final release of all claims of Celsius against the Debtors related to the Celsius Contracts, in exchange for the Debtors, (i) sale to Celsius of the Debtor’s Ward County, Texas bitcoin mining data center site (the “Cedarvale Facility”) and certain related assets, (ii) grant to Celsius of a perpetual, non-transferable (except as described in Section 14 of the PSA), non-exclusive limited license to use identified Company intellectual property solely as and to the extent necessary to (x) finish construction and development of the Cedarvale Facility, (y) develop and construct other mining facilities on other properties owned or leased by Celsius similar in type and scope to the Cedarvale Facility, and (z) operate all of the foregoing, (iii) assumption and assignment to Celsius of certain executory contracts.

In connection with the PSA the parties released and (iv) unequivocally

release claims against Celsius asserted by the Company in connection with the Celsius Chapter 11 Cases and the Company’s Chapter 11 Cases.

On November 2, 2023, the Company received the payment of $14.0 million from Celsius in connection with the PSA.

As of September 30, 2023, there were $36.1 million of assets held for sale on the Company’s Consolidated Balance Sheets related to the sale of the Cedarvale Facility.

Refer to Note 8 — Commitments and Contingencies to our unaudited consolidated financial statements in Item 1 of Part I of this report for further discussion of the sale.

ACM ELF ST LLC Lease Settlement

In September 2023, the Company entered into a $7.2 million equipment finance agreement with ACM ELF ST LLC in settlement and satisfaction of a previous equipment finance agreement which resulted in a gain of $5.0 million recorded to Reorganization items, net in the Consolidated Statements of Operations for the three months ended September 30, 2023.

See Note 5 — Notes Payable to our unaudited consolidated financial statements in Item 1 of Part I of this report for further discussion of the promissory note.

Didado Electric, LLC Settlement

On October 2, 2023, the Bankruptcy Court entered an order approving the parties agreement to settle all claims of W.

Didado Electric, LLC (“Didado”) against the Debtors and releasing any and all liens related to the Debtor’s Muskogee datacenter in exchange for Debtors execution of an unsecured promissory note in favor of Didado in the principal amount of $13 million to be paid over 36 months upon emergence of bankruptcy.

Our Business Model

Company Overview

Core Scientific is a blockchain technology company with industrial scale digital asset mining, equipment sales and hosting operations.

Core Scientific is a best-in-class, large-scale operator of purpose-built facilities for digital asset mining.

Our operations are currently conducted in the United States at state-of-the-art facilities specifically designed and constructed for housing advanced mining equipment.

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We have accumulated significant expertise in the installation, operation, optimization, and repair of digital mining equipment.

We have expanded our self-mining operation to take advantage of favorable market conditions and leverage our expertise for our own account.

We have expanded our self-mining operation to take advantage of the enhanced revenue opportunities of self-mining and opportunity to benefit from higher bitcoin prices.

Our hosting colocation business provides a full suite of services to digital asset mining customers.

We provide deployment, monitoring, troubleshooting, optimization and maintenance of our customer’s digital asset mining equipment and provide necessary electrical power and repair and other infrastructure services necessary to operate, maintain and efficiently mine digital assets.

Our business strategy is to continue to grow our self-mining operations by significantly increasing the number of miners dedicated to producing digital assets for our own account, and to continue to develop and grow the infrastructure and facilities necessary to house our growing digital asset mining business and support our third-party hosting colocation business.

We may also explore adjacent lines of businesses that leverage our mining expertise and bitcoin assets.

Our business strategy is to grow our revenue and profitability by increasing the capacity and efficiency of our self-mining fleet and entering into strategic, revenue-enhancing colocation opportunities with third parties.

We intend to develop the infrastructure necessary to support business growth and profitability and capture adjacent opportunities that leverage our mining infrastructure, expertise and capabilities.

Our proprietary data centers in Georgia, Kentucky, North Carolina, North Dakota and Texas are purpose-built facilities optimized for the unique requirements of high density blockchain computer servers.

We are one of the largest blockchain infrastructure, digital asset mining, and colocation hosting provider companies in North America, with an average hourly operating power demand of approximately 607 MW for the three months ended June 30, 2023.

As of June 30, 2023, we had approximately 1,500 MW of contracted power capacity at our sites, including 500 MW of power allocated to the Muskogee data center which remains substantially undeveloped.

As of September 30, 2023, we had approximately 1,500 MW of contracted power capacity at our sites, including 500 MW of power allocated to the Muskogee, Oklahoma data center which remains substantially undeveloped.

Our existing completed facilities leverage our specialized construction proficiency by employing high-density, low-cost engineering and power designs.

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Substantially all of the miners we own and host were manufactured by Bitmain and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for bitcoin digital asset rewards.

We have entered into and facilitated agreements with vendors to supply mining equipment for our and our users’ digital asset mining operations.

We pay for these new miners in installments, with payment due in advance of the scheduled delivery dates set forth in the applicable purchase agreement.

We allocate in advance our mining equipment orders between our self -mining operations and our hosting operations conducted on behalf of customers based on our estimates of where such equipment can most profitably and efficiently be used and in accordance with contractual arrangements with our customers.

As of June 30, 2023, all new miners have been paid for in arrangements with our customers.

As of June 30, 2023, we had deployed approximately 210,900 bitcoin miners, which number consists of approximately 144,900 self-miners and approximately 66,000 hosted miners, which represented 15.1 EH/s and 7.2 EH/s for self-miners and hosted miners, respectively.

The tables below summarizes the total number of self- and hosted miners in operation as of June 30, 2023 and December 31, 2022 (miners in thousands):

Bitcoin Miners in Operation as of June 30, 2023

We have entered into agreements with mining equipment manufacturers to supply mining equipment for our digital asset mining operations.

The majority of our purchases are made on multi-month contracts with installment payments due in advance of scheduled deliveries.

Delivery schedules have ranged from one month to 12 months.

We currently have two active purchase agreements with Bitmain.

The first agreement is for the acquisition of 27,000 Antminer S19J XP miners to be delivered during the fourth quarter of 2023.

The second agreement is for the acquisition of 12,600 Antminer S21 miners to be delivered during the first half of 2024.

As of September 30, 2023, we are current on our payment commitments under both agreements.

As of September 30, 2023, we had deployed approximately 206,200 bitcoin miners, which number consists of approximately 144,300 self-miners and approximately 61,900 hosted miners, which represented 15.0 EH/s and 7.3 EH/s for self-miners and hosted miners, respectively.

The tables below summarize the total number of self- and hosted miners in operation as of September 30, 2023 and December 31, 2022 (miners in thousands):

Bitcoin Miners in Operation as of September 30, 2023

Mining Equipment Hash rate (EH/s) Number of Miners

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Summary of Digital Asset Activity

Activity related to our digital asset balances for the six months ended June 30, 2023 and 2022, were as follows (in thousands):

June 30, 2023 June 30, 2022

Activity related to our digital asset balances for the nine months ended September 30, 2023 and 2022, were as follows (in thousands):

September 30, 2023 September 30, 2022

Digital assets, beginning of period $ 724 $ 234,298

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Digital assets, end of period $ 559 $ 19,663

* As of June 30, 2023, there was $1.0 million of digital asset receivable included in prepaid expenses and other current assets on the consolidated balance sheets.

* As of September 30, 2023, there was $0.9 million of digital asset receivable included in prepaid expenses and other current assets on the consolidated balance sheets.

Performance Metrics

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Our financial performance and continued growth depend in large part on our ability to mine for digital assets profitably and to attract customers for our hosting services.

Increases in power costs, inability to mine digital assets efficiently and to sell digital assets

at favorable prices will reduce our operating margins, impact our ability to attract customers for our services, may harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations.

Increases in power costs, inability to mine digital assets efficiently and to sell digital assets at favorable prices will reduce our operating margins, impact our ability to attract customers for our services, may harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations.

Over time, we have observed a positive trend in the total market capitalization of digital assets which suggests increased adoption.

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Electricity Costs

Electricity cost is the major operating cost for the mining fleet, as well as for the hosting services provided to customers and related parties.

Electricity is the major operating cost for the mining fleet, as well as for the hosting services provided to customers and related parties.

The cost and availability of electricity are affected primarily by changes in seasonal demand, with peak demand during the summer months driving higher costs and increased curtailments to support grid operators.

Severe winter weather can increase the cost of electricity and the frequency of curtailments when it results in damage to power transmission infrastructure that reduces the grid’s ability to deliver power.

Severe winter weather can increase the cost of electricity and the frequency of curtailments when it results in a reduction in available wind and solar generated electricity, an increase in demand for electrical energy generally or damage to power transmission infrastructure that reduces the grid’s ability to

deliver power.

Geopolitical and macroeconomic factors, such as overseas military or economic conflict between states, can adversely affect electricity costs by raising the cost of power generation inputs such as natural gas.

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Equipment Costs

The long-term trend of increasing digital assets market value has increased demand for the newest, most efficient miners and has resulted in scarcity in the supply of, and thereby a resulting increase in the price of, those miners.

The recent decline in the market value of digital assets has resulted in excess supply of miners and a decline in their price.

The long-term trend of increasing digital assets market value has increased demand for the newest, most efficient miners and has at times resulted in scarcity in the supply of, and thereby a resulting increase in the price of, those miners.

The recent decline in the market value of digital assets has resulted in an excess supply of miners and a decline in their price.

As a result, the cost of new machines can be unpredictable, and could be significantly higher than our historical cost for new miners.

Our Customers

In addition to factors underlying our mining business growth and profitability, our success greatly depends on our ability to retain and develop opportunities with our existing customers and to attract new customers.

In addition to factors underlying our self-mining business growth and profitability, our success greatly depends on our ability to retain and develop opportunities with our existing customers and to attract new customers.

On July 30, 2021, we acquired an existing hosting customer, Blockcap, Inc.

(“Blockcap”), and thereby increased our self-mining operations.

Our business environment is constantly evolving, and digital asset miners can range from individual enthusiasts to professional mining operations with dedicated data centers.

Our business environment is constantly evolving, and digital asset miners can range from a declining number of individual enthusiasts to a growing number of professional mining operations with dedicated data centers.

The Company competes with other enterprises that focus all or a portion of their activities on mining activities at scale.

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For a definition of these key business metrics, see the sections titled “Self-Mining Hash Rate” and “Adjusted EBITDA” (below).

September 30,

Self-Mining Hash rate (Exahash per second)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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We measure the hash rate produced by our mining fleet through our management software Minder TM , which consolidates the reported hash rate from each miner.

The method by which we measure our hash rate may differ from how other operators present such measure.

Our self-mining hash rate was 15.1 EH/s and 10.3 EH/s as of June 30, 2023 and 2022, respectively representing a 47% increase year over year.

Our combined self-mining and customer and related party hosting hash rate grew 25%, to 22.3 EH/s as of June 30, 2023 from 17.9 EH/s as of June 30, 2022.

The method by which we measure our hash rate may differ from how other operators present such a measure.

Our self-mining hash rate was 15.0 EH/s and 13.0 EH/s as of September 30, 2023 and 2022, respectively representing a 15% increase year over year.

Our combined self-mining and customer and related party hosting hash rate declined 1%, to 22.3 EH/s as of September 30, 2023, from 22.5 EH/s as of September 30, 2022.

Adjusted EBITDA

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You should review the reconciliation of net loss to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net loss to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022, (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following table presents a reconciliation of net loss to Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Depreciation and amortization 24,233 64,570 64,800 156,544

Amortization of operating lease right-of-use assets 234 317 703 424

Gain on debt extinguishment (374) — (21,135) —

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Fair value adjustment on convertible notes — (4,123) — 186,853

Loss on legal settlement 85 — 85 —

Gain from sales of digital assets (363) (11,036) (2,358) (25,007)

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Impairment of goodwill and other intangibles — 268,512 — 1,059,265

Impairment of property, plant and equipment — 59,259 — 59,259

Losses on exchange or disposal of property, plant and equipment 340 — 514 13,057

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Fair value adjustment on acquired vendor liability — 68 — 9,498

Non-cash and other items 406 (8) (2,663) (6)

Equity line of credit expenses — 1,431 — 1,431

Other items (1,090) (21) (3,978) (27)

Adjusted EBITDA

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We operate a digital asset mining operation using specialized computers equipped with application-specific integrated circuit (“ASIC”) chips (known as “miners”) to solve complex cryptographic algorithms in support of the bitcoin blockchain (in a process known as “solving a block”) in exchange for digital asset rewards (primarily bitcoin).

The Company participates in “mining pools” organized by “mining pool operators” in which we share our mining power (known as “hash rate”) with the hash rate generated by other miners participating in the pool to earn digital asset rewards.

The mining pool operator provides a service that coordinates the computing power of the independent mining

enterprises participating in the mining pool.

The Company participates in “mining pools” organized by “mining pool operators” in which we share our mining

power (known as “hash rate”) with the hash rate generated by other miners participating in the pool to earn digital asset rewards.

The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool.

The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, records how much hash rate each participant contributes to the pool, and assigns digital asset rewards earned by the pool among its participants in proportion to the hash rate each participant contributed to the pool in connection with solving a block.

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Cost of Equipment Sales includes costs of computer equipment sold to customers.

Loss on legal settlement

Loss on legal settlements represent cost incurred for resolution of a legal settlement with a vendor.

Gain from sales of digital assets

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Operating expenses

Operating expenses consists of research and development, sales and marketing, and general and administrative expenses.

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

Each is outlined in more detail below.

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Also included are stock-based compensation, professional fees, business insurance, auditor fees, bad debt, amortization of intangibles, franchise taxes, and bank fees.

Non-operating expenses (income), net:

Non-operating expenses, net:

Non-operating expenses, net includes gain on debt extinguishment, interest expense, net, fair value adjustment on convertible notes, fair value adjustment on derivative warrant liabilities, reorganization items, net and other non-operating (income) expenses, net.

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See Note 10 — Income Taxes, in our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Results of Operations for the Three Months Ended June 30, 2023 and 2022

Results of Operations for the Three Months Ended September 30, 2023 and 2022

The following table sets forth our selected Consolidated Statements of Operations for each of the periods indicated.

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

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Hosting revenue from related parties 2,828 9,185 (6,357) (69) %

Equipment sales to customers — 3,507 (3,507) NM

Equipment sales to related parties — 11,687 (11,687) NM

Equipment sales to customers — 7,468 (7,468) (100) %

Equipment sales to related parties — 29,693 (29,693) (100) %

Digital asset mining revenue 83,056 80,495 2,561 3 %

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Cost of hosting services 24,882 44,975 (20,093) (45) %

Cost of equipment sales — 13,541 (13,541) NM

Cost of equipment sales — 27,917 (27,917) (100) %

Cost of digital asset mining 72,603 116,756 (44,153) (38) %

Total cost of revenue 97,485 189,648 (92,163) (49) %

Gross profit 36,959 12,717 24,242 191 %

Loss on legal settlement (85) — (85) NM

Gross profit (loss)

15,419 (27,076) 42,495 NM

Gain from sales of digital assets 363 11,036 (10,673) (97) %

Impairment of digital assets (1,127) (150,213) 149,086 NM

Impairment of goodwill and other intangibles — (790,753) 790,753 NM

Losses on exchange or disposal of property, plant and equipment (174) (13,057) 12,883 NM

Impairment of digital assets (681) (7,986) 7,305 (91) %

Impairment of goodwill and other intangibles — (268,512) 268,512 (100) %

Impairment of property, plant and equipment — (59,259) 59,259 (100) %

Losses on exchange or disposal of property, plant and equipment (340) — (340) 100 %

Operating expenses:

Research and development 2,253 6,192 (3,939) (64) %

Sales and marketing 1,084 10,238 (9,154) (89) %

Sales and marketing 1,041 39 1,002 NM

General and administrative 23,511 43,346 (19,835) (46) %

Total operating expenses 26,805 49,577 (22,772) (46) %

Operating income (loss) 9,384 (1,045,383) 1,054,767 NM

Non-operating expenses (income), net:

Interest (income) expense, net

Operating loss

(12,044) (401,374) 389,330 (97) %

Fair value adjustment on convertible notes — (195,061) 195,061 NM

Fair value adjustment on derivative warrant liabilities — (22,189) 22,189 NM

Reorganization items, net 18,370 — 18,370 NM

Other non-operating expenses, net 181 3,876 (3,695) NM

Total non-operating expenses (income), net

Non-operating expenses, net:

Gain on debt extinguishment (374) — (374) NM

Interest expense, net

2,196 25,942 (23,746) (92) %

Fair value adjustment on convertible notes — (4,123) 4,123 (100) %

Fair value adjustment on derivative warrant liabilities — (521) 521 (100) %

Reorganization items, net 28,256 — 28,256 100 %

Other non-operating (income) expenses, net

(1,090) 1,478 (2,568) NM

Total non-operating expenses, net

28,988 22,776 6,212 27 %

Loss before income taxes

(9,131) (859,125) 849,994 NM

Income tax expense (benefit) 129 (48,650) 48,779 NM

$ (9,260) $ (810,475) $ 801,215 NM

(41,032) (424,150) 383,118 (90) %

Income tax expense 114 10,642 (10,528) (99) %

$ (41,146) $ (434,792) $ 393,646 (91) %

NM - Not Meaningful

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

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Hosting revenue from related parties 2,828 9,185 (6,357) (69) %

Equipment sales to customers — 3,507 (3,507) NM

Equipment sales to related parties — 11,687 (11,687) NM

Equipment sales to customers — 7,468 (7,468) (100) %

Equipment sales to related parties — 29,693 (29,693) (100) %

Digital asset mining revenue 83,056 80,495 2,561 3 %

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Total revenue

Total revenue decreased by $37.1 million to $126.9 million for the three months ended June 30, 2023, from $164.0 million for the three months ended June 30, 2022, as a result of the factors described below.

Total hosting revenue from customers decreased by $5.0 million or 16%, to $26.3 million for the three months ended June 30, 2023, from $31.3 million for the three months ended June 30, 2022.

The decrease in hosting revenue from customers was primarily driven by the termination of contracts for several customers in the portfolio at less profitable hosting rates, partially offset by the deployment of additional miners for existing customers as well as the addition of several hosted miners related to our shared proceeds hosting customers for the three months ended June 30, 2023.

Total hosting revenue from related parties decreased by $4.1 million or 54%, to $3.5 million for the three months ended June 30, 2023, from $7.6 million for the three months ended June 30, 2022.

The decrease in related party hosting revenue was primarily driven by the termination of hosting contracts during the three months ended June 30, 2023.

Equipment sales to customers decreased by $3.5 million or 100%, to nil for the three months ended June 30, 2023, from $3.5 million for the three months ended June 30, 2022.

The decrease in equipment sales to customers was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of hosting customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

Equipment sales to related parties decreased by $11.7 million or 100%, to nil for the three months ended June 30, 2023, from $11.7 million for the three months ended June 30, 2022.

The decrease in equipment sales to related parties was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

Digital asset mining revenue decreased by $12.8 million to $97.1 million for the three months ended June 30, 2023, from $109.8 million for the three months ended June 30, 2022.

The year over year decrease in mining revenue was driven primarily by a 14% decrease in the price of bitcoin and an 88% increase in the global bitcoin network hash rate, partially offset by the increase in our self-mining hash rate driven by an increase in the number of mining units deployed.

Our self-mining hash rate increased by 47%, to 15.1 EH/s for the three months ended June 30, 2023, from 10.3 EH/s for the three months ended June 30, 2022.

The total number of bitcoins mined for the three months ended June 30, 2023, was 3,470 compared to 3,365 for the three months ended June 30, 2022.

The average price of bitcoin for the three months ended June 30, 2023, was $28,034 as compared to $32,502 for the three months ended June 30, 2022.

Total revenue decreased by $49.7 million to $112.9 million for the three months ended September 30, 2023, from $162.6 million for the three months ended September 30, 2022, as a result of the factors described below.

Total hosting revenue from customers decreased by $8.7 million or 24%, to $27.0 million for the three months ended September 30, 2023, from $35.7 million for the three months ended September 30, 2022.

Total hosting revenue from related parties decreased by $6.4 million or 69%, to $2.8 million for the three months ended September 30, 2023, from $9.2 million for the three months ended September 30, 2022.

The decrease in related party hosting revenue was primarily driven by the termination of hosting contracts during the three months ended September 30, 2023.

Equipment sales to customers decreased by $7.5 million or 100%, to nil for the three months ended September 30, 2023, from $7.5 million for the three months ended September 30, 2022.

The decrease in equipment sales to customers was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of hosting customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

Equipment sales to related parties decreased by $29.7 million or 100%, to nil for the three months ended September 30, 2023, from $29.7 million for the three months ended September 30, 2022.

The decrease in equipment sales to related parties was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

Digital asset mining revenue increased by $2.6 million to $83.1 million for the three months ended September 30, 2023, from $80.5 million for the three months ended September 30, 2022.

The year over year increase in mining revenue was driven primarily by a 32% increase in the price of bitcoin and an increase in our self-mining hash rate driven by an increase in the number of mining units deployed.

The increase in mining revenue was partially offset by the 77% increase in the global bitcoin network hash rate.

Our self-mining hash rate increased by 15%, to 15.0 EH/s for the three months ended September 30, 2023, from 13.0 EH/s for the three months ended September 30, 2022.

The total number of bitcoins mined for the three months ended September 30, 2023, was 2,953 compared to 3,768 for the three months ended September 30, 2022.

The average price of bitcoin for the three months ended September 30, 2023, was $28,091 as compared to $21,324 for the three months ended September 30, 2022.

Cost of revenue

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

2 unchanged sentences

$ 97,485 $ 189,648 $ (92,163) (49) %

36,959 12,717 24,242 191 %

Cost of revenue decreased by $61.3 million or 41%, to $90.0 million for the three months ended June 30, 2023, from $151.3 million for the three months ended June 30, 2022.

As a percentage of total revenue, cost of revenue totaled 71% and 92% for the three months ended June 30, 2023 and 2022, respectively.

The decrease in cost of revenue was primarily attributable to decreased depreciation expense of $28.7 million driven by an adjustment to the depreciable base for the deployed self-mining units, lower stock-based compensation of $15.4 million as prior year included vesting acceleration associated with the acquisition of BlockCap, and $13.5 million of lower equipment sales costs due the Company exiting the selling of equipment

Loss on legal settlements

The loss on legal settlement of $0.1 million for the three months ended June 30, 2023, represent cost incurred for resolution of a legal settlement with a vendor.

Gross profit (loss)

15,419 (27,076) 42,495 NM

Cost of revenue decreased by $92.2 million or 49%, to $97.5 million for the three months ended September 30, 2023, from $189.6 million for the three months ended September 30, 2022.

As a percentage of total revenue, cost of revenue totaled 86% and 117% for the three months ended September 30, 2023 and 2022, respectively.

The decrease in cost of revenue was primarily attributable to decreased depreciation expense of $40.4 million driven by an adjustment to the depreciable base for the deployed self-mining units, $27.9 million of lower equipment sales costs due the Company exiting the selling of equipment, $25.5 million of lower power costs due to adjustments made for prior period deposits, and lower stock-based compensation of $2.9 million as prior year included vesting acceleration associated with the acquisition of BlockCap, partially offset by an increase in facility related expenses of $2.1 million.

Gain from sales of digital assets

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

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Percentage of total revenue

Gain from sales of digital assets decreased by $10.9 million to $0.9 million for the three months ended June 30, 2023, from a gain of $11.8 million for the three months ended June 30, 2022.

Gain from sales of digital assets decreased by $10.7 million to $0.4 million for the three months ended September 30, 2023, from a gain of $11.0 million for the three months ended September 30, 2022.

Gains are recorded when realized upon sale(s).

In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

For the three months ended June 30, 2023, the carrying value of our digital assets sold was $102.5 million and proceeds were $101.2 million.

For the three months ended June 30, 2022, the carrying value of our digital assets sold was $235.3 million and the sales price was $247.1 million.

For the three months ended September 30, 2023, the carrying value of our digital assets sold was $88.5 million and proceeds were $88.1 million.

For the three months ended September 30, 2022, the carrying value of our digital assets sold was $93.5 million and the sales price was $104.5 million.

Impairment of digital assets

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Impairment of digital assets $ (1,127) $ (150,213) $ 149,086 NM

Impairment of digital assets $ (681) $ (7,986) $ 7,305 (91) %

Percentage of total revenue

Impairment of digital assets decreased by $149.1 million to $1.1 million for the three months ended June 30, 2023, from $150.2 million for the three months ended June 30, 2022.

Impairment of digital assets decreased by $7.3 million to $0.7 million for the three months ended September 30, 2023, from $8.0 million for the three months ended September 30, 2022.

Impairment exists when the carrying amount exceeds its fair value.

1 unchanged sentence

Quoted prices, including intraday low prices, are collected and utilized in impairment testing and measurement on a daily basis.

If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to

the difference between their carrying value and the price determined.

The carrying value of our digital assets amounted to $0.3 million and $0.7 million as of June 30, 2023 and December 31, 2022, respectively.

If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying value and the price determined.

The carrying value of our digital assets amounted to $0.6 million and $0.7 million as of September 30, 2023 and December 31, 2022, respectively.

Impairment of goodwill and other intangibles

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Impairment of goodwill and other intangibles $ — $ (790,753) $ 790,753 NM

Impairment of goodwill and other intangibles $ — $ (268,512) $ 268,512 (100) %

Percentage of total revenue

Impairment of goodwill and other intangibles decreased by $790.8 million to nil for the three months ended June 30, 2023, from $790.8 million for the three months ended June 30, 2022.

The Company identified a triggering event as of June 30, 2022 due to a decline in the Company’s stock price and market decline in the value of bitcoin and, as such, the Company performed the quantitative test to compare the fair value to the carrying amount for each reporting unit.

The Company concluded the carrying amount of the Mining segment exceeded its fair value and, as such, recorded a $788.7 million impairment of goodwill in its Mining reporting unit.

In addition, as part of the restructuring activities during the second quarter of 2022, the Company determined that $2.0 million of software intangible assets would no longer be used.

Impairment of goodwill and other intangibles decreased by $268.5 million to nil for the three months ended September 30, 2023, from $268.5 million for the three months ended September 30, 2022.

The Company identified a triggering event as of September 30, 2022, due to declines in the market price of bitcoin, the market price of our common stock and our market capitalization and, as such, we performed the quantitative test to compare the fair value to the carrying amount for each reporting unit.

We concluded the carrying amount of the Mining reporting unit and Equipment Sales and Hosting reporting unit exceeded each reporting unit’s fair value and, as such, recorded an impairment of goodwill of $207.8 million in our Mining reporting unit and $58.2 million in our Equipment Sales and Hosting reporting unit.

In addition, as part of the restructuring activities during the third quarter of 2022, the Company determined that $2.5 million of software intangible assets would no longer be used.

Impairment of property, plant and equipment

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Impairment of property, plant and equipment $ — $ (59,259) $ 59,259 (100) %

Percentage of total revenue

During the three months ended September 30, 2022, we determined that the carrying value of the property, plant and equipment at the Cedarvale, Texas facility site may no longer be fully recoverable by the cash flows of the site.

We measured the amount of impairment at the Cedarvale, Texas facility site as the difference between the carrying amount of the site asset group of $119.8 million and the estimated fair value of the site asset group of $60.5 million, resulting in an impairment of the facility site’s property, plant and equipment of $59.3 million for the three months ended September 30, 2022.

Losses on exchange or disposal of property, plant and equipment

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Losses on exchange or disposal of property, plant and equipment $ (174) $ (13,057) $ 12,883 NM

Losses on exchange or disposal of property, plant and equipment $ (340) $ — $ (340) 100 %

Percentage of total revenue

Losses on exchange or disposal of property, plant and equipment decreased by $12.9 million to $0.2 million for the three months ended June 30, 2023, from $13.1 million for the three months ended June 30, 2022.

The decrease was due to a noncash exchange of mining equipment during 2022.

Losses on exchange or disposal of property, plant and equipment increased by $0.3 million to $0.3 million for the three months ended September 30, 2023, from nil for the three months ended September 30, 2022.

This loss was due to the disposal of mining equipment.

Operating Expenses

Research and development

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

3 unchanged sentences

Percentage of total revenue

Research and development expenses decreased by $13.1 million or 89%, to $1.6 million for the three months ended June 30, 2023, from $14.8 million for the three months ended June 30, 2022.

The decrease was driven by lower stock-based compensation of $12.8 million as prior year included vesting acceleration associated with the acquisition of BlockCap, a decrease in professional fees of $0.2 million, and lower personnel and employee related expenses of $0.1 million.

Research and development expenses decreased by $3.9 million or 64%, to $2.3 million for the three months ended September 30, 2023, from $6.2 million for the three months ended September 30, 2022.

The decrease was driven by lower stock-based compensation of $4.9 million as prior year included vesting acceleration associated with the acquisition of BlockCap, partially offset by higher personnel and employee related expenses of $0.5 million and an increase in software related expenses of $0.4 million.

Sales and marketing

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

1 unchanged sentence

Sales and marketing

$ 1,084 $ 10,238 $ (9,154) (89) %

$ 1,041 $ 39 $ 1,002 NM

Percentage of total revenue

Sales and marketing expenses decreased by $9.2 million or 89%, to $1.1 million for the three months ended June 30, 2023, from $10.2 million for the three months ended June 30, 2022.

The decrease was primarily driven by $8.6 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $0.3 million lower personnel and related expenses, and $0.2 million lower advertising and marketing expenses.

Sales and marketing expenses increased by $1.0 million for the three months ended September 30, 2023, from the three months ended September 30, 2022.

The increase was primarily driven by $1.2 million higher stock-based compensation as prior year included an adjustment for forfeitures, partially offset by $0.2 million lower marketing and advertising-related expenses.

General and administrative

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

3 unchanged sentences

Percentage of total revenue

General and administrative expenses decreased by $66.5 million to $24.4 million for the three months ended June 30, 2023, from $90.9 million for the three months ended June 30, 2022.

The decrease was primarily driven by $59.9 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $2.5 million of lower payroll and benefit costs associated with lower headcount, $1.7 million of lower professional fees primarily related to expenses in the prior year to support public company readiness, $0.6 million of reduced depreciation and amortization, $0.5 million lower employee related expenses such as travel and software, and $0.5 million of lower business insurance, partially offset by $1.0 million higher utilities costs and other miscellaneous expenses.

Non-operating expenses (income), net

Three Months Ended June 30, Period over Period Change

General and administrative expenses decreased by $19.8 million to $23.5 million for the three months ended September 30, 2023, from $43.3 million for the three months ended September 30, 2022.

The decrease was primarily driven by $8.4 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $5.9 million decrease in bad debt expense, $2.8 million of lower professional fees primarily related to expenses in the prior year to support public company readiness, $1.5 million lower employee related expenses such as travel, workplace expenses and software, $0.6 million of lower corporate taxes and $0.3 million of lower payroll and benefit costs associated with lower headcount.

Non-operating expenses, net

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

Non-operating expenses (income), net:

Non-operating expenses, net:

(in thousands, except percentages)

Gain on debt extinguishment $ (374) $ — $ (374) NM

Interest expense, net 2,196 25,942 (23,746) (92) %

Fair value adjustment on convertible notes — (195,061) 195,061 NM

Fair value adjustment on derivative warrant liabilities — (22,189) 22,189 NM

Reorganization items, net 18,370 — 18,370 NM

Other non-operating income, net 181 3,876 (3,695) NM

Total non-operating expenses (income), net

Fair value adjustment on convertible notes — (4,123) 4,123 (100) %

Fair value adjustment on derivative warrant liabilities — (521) 521 (100) %

Reorganization items, net 28,256 — 28,256 100 %

Other non-operating (income) expense, net

(1,090) 1,478 (2,568) NM

Total non-operating expenses, net increased by $204.8 million, to $18.5 million for the three months ended June 30, 2023, from non-operating income, net of $186.3 million for the three months ended June 30, 2022.

The increase in non-operating expenses, net was primarily driven by a fair value adjustment on convertible notes of $195.1 million (excluding interest expense and changes in instrument-specific credit risk) for the three months ended June 30, 2022, compared to no adjustment for the same period in 2023, partially offset by a $18.4 million increase in Reorganization items, net related to DIP financing fees and bankruptcy advisor fees post-petition in the second quarter of 2023.

Income tax expense (benefit)

Three Months Ended June 30, Period over Period Change

Total non-operating expenses, net

$ 28,988 $ 22,776 $ 6,212 27 %

Total non-operating expenses, net increased by $6.2 million, to $29.0 million for the three months ended September 30, 2023, from non-operating income, net of $22.8 million for the three months ended September 30, 2022.

The increase in non-operating expenses, net was primarily driven by a $28.3 million increase in Reorganization items, net related to DIP financing fees and bankruptcy advisor fees post-petition in the third quarter of 2023, and a fair value adjustment on convertible notes of $4.1 million (excluding interest expense and changes in instrument-specific credit risk) for the three months ended September 30, 2022, compared to no adjustment for the same period in 2023, partially offset by a $23.7 million decrease in 2023 Interest expense, net resulting from the bankruptcy court ordered stay on payment of pre-petition obligations, including interest.

Income tax expense

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Income tax expense (benefit) $ 129 $ (48,650) $ 48,779 NM

Income tax expense

$ 114 $ 10,642 $ (10,528) (99) %

Percentage of total revenue

1 unchanged sentence

federal, state and local income taxes.

For the three months ended June 30, 2023, our income tax expense was $0.1 million.

For the three months ended June 30, 2022, our income tax benefit was $48.7 million.

The Company's effective tax rate for the three months ended June 30, 2023, was lower than the federal statutory rate of 21% primarily due to losses and certain deductions for which no tax benefit can be recognized.

For the three months ended September 30, 2023, our income tax expense was $0.1 million.

For the three months ended September 30, 2022, our income tax expense was $10.6 million.

The Company's effective tax rate for the three months ended September 30, 2023, was lower than the federal statutory rate of 21% primarily due to losses and certain deductions for which no tax benefit can be recognized.

Segment Total Revenue and Gross Profit

The following table presents total revenue and gross profit by reportable segment for the periods presented:

Three Months Ended June 30, Period over Period Change

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

7 unchanged sentences

Total cost of revenue $ 24,882 $ 72,892 $ (48,010) (66) %

Gross profit (loss) $ 6,723 $ (3,055) $ 9,778 NM

$ 4,966 $ 9,185 $ (4,219) (46) %

Hosting Margin 17 % 11%

3 unchanged sentences

Cost of revenue 72,603 116,756 (44,153) (38) %

Gross profit $ 30,236 $ 15,772 $ 14,464 92%

Gross profit (loss)

$ 10,453 $ (36,261) $ 46,714 NM

Mining Margin 13 % (45)%

1 unchanged sentence

Consolidated cost of revenue $ 97,485 $ 189,648 $ (92,163) (49) %

Consolidated gross profit $ 36,959 $ 12,717 $ 24,242 191%

For the three months ended June 30, 2023, cost of revenue included depreciation expense of $1.5 million for the Hosting segment and $18.8 million for the Mining segment.

For the three months ended June 30, 2022, cost of revenue included depreciation expense of $2.6 million for the Hosting segment and $46.5 million for the Mining segment.

For the three months ended June 30, 2023 and 2022, the top customer accounted for approximately 49% and 10%, respectively, of the Hosting’s segment total revenue.

For the three months ended June 30, 2023, gross profit in the Hosting segment increased $9.8 million compared to the three months ended June 30, 2022, reflecting a Hosting segment gross margin of 23% for the three months ended June 30, 2023, compared to a gross loss margin of 6% for the three months ended June 30, 2022.

The increase in Hosting segment gross margin for the three

months ended June 30, 2023, compared to the three months ended June 30, 2022 was primarily due to decreased equipment sales costs driven by the Company’s decision to exit the Equipment Sales business, and a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap.

The increase in the Hosting and Equipment Sales segment gross profit margin was partially offset by a decrease in hosting revenue driven by the termination of contracts for several customers in the portfolio at less profitable hosting rates, and higher power costs as a percentage of segment revenues.

For the three months ended June 30, 2023, gross profit in the Mining segment increased $14.5 million compared to the three months ended June 30, 2022, due to a higher Mining segment gross profit margin of 31% for the three months ended June 30, 2023, compared to 14% for the three months ended June 30, 2022.

The increase in the Mining segment gross profit margin was primarily due to a decrease in depreciation as a percentage of segment revenues, which was driven by an impairment adjustment to the depreciable base for the deployed self-mining units, a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap, and an increase in our self-mining hash rate, which was 15.1 EH/s for the three months ended June 30, 2023, compared to 10.3 EH/s for the three months ended June 30, 2022.

The increase in the Mining segment gross profit margin was partially offset by higher power costs as a percentage of segment revenues and by a 14% decrease in the average price of bitcoin.

A reconciliation of the reportable segment gross profit to loss before income taxes included in our Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022, is as follows:

Three Months Ended June 30, Period over Period Change

Consolidated gross profit (loss)

$ 15,419 $ (27,076) $ 42,495 NM

For the three months ended September 30, 2023, cost of revenue included depreciation expense of $1.9 million for the Hosting segment and $22.0 million for the Mining segment.

For the three months ended September 30, 2022, cost of revenue included depreciation expense of $3.3 million for the Hosting segment and $61.1 million for the Mining segment.

For the three months ended September 30, 2023 and 2022, the top customer accounted for approximately 45% and 10%, respectively, of the Hosting’s segment total revenue.

For the three months ended September 30, 2023, gross profit in the Hosting segment decreased $4.2 million compared to the three months ended September 30, 2022, reflecting a Hosting segment gross margin of 17% for the three months ended September 30, 2023, compared to a gross margin of 11% for the three months ended September 30, 2022.

The increase in Hosting segment gross margin for the three months ended September 30, 2023, compared to the three months ended September 30, 2022 was primarily due to decreased equipment sales costs driven by the Company’s decision to exit the Equipment Sales business, lower power costs, and a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap.

The increase in the Hosting segment gross profit was partially offset by a decrease in hosting revenue driven by the termination of contracts for several customers in the portfolio at less profitable hosting rates.

For the three months ended September 30, 2023, gross profit in the Mining segment increased $46.7 million compared to the three months ended September 30, 2022, due to a higher Mining segment gross profit (loss) margin of 13% for the three months ended September 30, 2023, compared to (45)% for the three months ended September 30, 2022.

The increase in the Mining segment gross profit was primarily due to a decrease in depreciation as a percentage of segment revenues, which was driven by an impairment adjustment to the depreciable base for the deployed self-mining units, lower power costs, a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap, and an increase in our self-mining hash rate, which was 15.0 EH/s for the three months ended September 30, 2023, compared to 13.0 EH/s for the three months ended September 30, 2022.

A reconciliation of the reportable segment gross profit to loss before income taxes included in our Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, is as follows:

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Reportable segment gross profit $ 36,959 $ 12,717 $ 24,242 191%

Loss on legal settlement (85) — (85) NM

Reportable segment gross profit (loss) $ 15,419 $ (27,076) $ 42,495 NM

Gain from sales of digital assets 363 11,036 (10,673) (97) %

Impairment of digital assets (1,127) (150,213) 149,086 NM

Impairment of goodwill and other intangibles — (790,753) 790,753 NM

Impairment of property, plant and equipment — — — NM

Losses on exchange or disposal of property, plant and equipment (174) (13,057) 12,883 NM

Impairment of digital assets (681) (7,986) 7,305 (91) %

Impairment of goodwill and other intangibles — (268,512) 268,512 (100) %

Impairment of property, plant and equipment — (59,259) 59,259 (100) %

Losses on exchange or disposal of property, plant and equipment (340) — (340) 100 %

Operating expenses:

Research and development 2,253 6,192 (3,939) (64) %

Sales and marketing 1,084 10,238 (9,154) (89)%

Sales and marketing 1,041 39 1,002 NM

General and administrative 23,511 43,346 (19,835) (46) %

Total operating expenses 26,805 49,577 (22,772) (46) %

Operating income (loss) 9,384 (1,045,383) 1,054,767 NM

Non-operating expenses (income), net:

Interest (income) expense, net (36) 27,116 (27,152) (100)%

Fair value adjustment on derivative warrant liabilities — (22,189) 22,189 NM

Fair value adjustment on convertible notes — (195,061) 195,061 NM

Reorganization items, net 18,370 — 18,370 NM

Other non-operating income, net 181 3,876 (3,695) (95)%

Total non-operating expenses (income), net

Operating loss

(12,044) (401,374) 389,330 (97) %

Non-operating expenses, net:

Gain on debt extinguishment (374) — (374) 100 %

Interest expense, net

2,196 25,942 (23,746) (92) %

Fair value adjustment on derivative warrant liabilities — (521) 521 (100) %

Fair value adjustment on convertible notes — (4,123) 4,123 (100) %

Reorganization items, net 28,256 — 28,256 100 %

Other non-operating (income) expenses, net

(1,090) 1,478 (2,568) NM

Loss before income taxes $ (9,131) $ (859,125) $ 849,994 NM

Results of Operations for the Six Months Ended June 30, 2023 and 2022

Total non-operating expenses, net

28,988 22,776 6,212 27 %

Loss before income taxes $ (41,032) $ (424,150) $ 383,118 (90) %

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

The following table sets forth our selected Consolidated Statements of Operations for each of the periods indicated.

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

2 unchanged sentences

Hosting revenue from related parties 10,062 22,659 (12,597) (56) %

Equipment sales to customers — 3,923 (3,923) NM

Equipment sales to related parties — 37,576 (37,576) NM

Equipment sales to customers — 11,391 (11,391) (100) %

Equipment sales to related parties — 67,269 (67,269) (100) %

Digital asset mining revenue 278,164 323,337 (45,173) (14) %

2 unchanged sentences

Cost of hosting services 64,187 119,850 (55,663) (46) %

Cost of equipment sales — 36,076 (36,076) NM

Cost of equipment sales — 63,993 (63,993) (100) %

Cost of digital asset mining 212,125 279,576 (67,451) (24) %

1 unchanged sentence

Gross profit 84,159 55,644 28,515 51 %

Loss on legal settlement (85) — (85) NM

Gain from sales of digital assets 2,358 25,007 (22,649) (91) %

Impairment of digital assets (2,183) (204,198) 202,015 NM

Impairment of goodwill and other intangibles — (790,753) 790,753 NM

Losses on exchange or disposal of property, plant and equipment (174) (13,057) 12,883 NM

Impairment of digital assets (2,864) (212,184) 209,320 (99) %

Impairment of goodwill and other intangibles — (1,059,265) 1,059,265 (100) %

Impairment of property, plant and equipment — (59,259) 59,259 (100) %

Losses on exchange or disposal of property, plant and equipment (514) (13,057) 12,543 (96) %

Operating expenses:

5 unchanged sentences

Non-operating expenses, net:

Gain on debt extinguishment (20,761) — (20,761) NM

Gain on debt extinguishment (21,135) — (21,135) 100 %

Interest expense, net 2,317 74,734 (72,417) (97) %

Fair value adjustment on convertible notes — 190,976 (190,976) NM

Fair value adjustment on derivative warrant liabilities — (32,464) 32,464 NM

Reorganization items, net 49,929 — 49,929 NM

Fair value adjustment on convertible notes — 186,853 (186,853) (100) %

Fair value adjustment on derivative warrant liabilities — (32,985) 32,985 (100) %

Reorganization items, net 78,270 — 78,270 100 %

Other non-operating (income) expenses, net (3,978) 4,997 (8,975) NM

Total non-operating expenses, net 55,474 233,599 (178,125) (76) %

Loss before income taxes (9,415) (1,282,923) 1,273,508 NM

Income tax expense (benefit) 233 (6,244) 6,477 NM

Net loss $ (9,648) $ (1,276,679) $ 1,267,031 NM

Loss before income taxes (50,447) (1,707,073) 1,656,626 (97) %

Income tax expense 347 4,398 (4,051) (92) %

Net loss $ (50,794) $ (1,711,471) $ 1,660,677 (97) %

NM - Not Meaningful

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

2 unchanged sentences

Hosting revenue from related parties 10,062 22,659 (12,597) (56) %

Equipment sales to customers — 3,923 (3,923) NM

Equipment sales to related parties — 37,576 (37,576) NM

Equipment sales to customers — 11,391 (11,391) (100) %

Equipment sales to related parties — 67,269 (67,269) (100) %

Digital asset mining revenue 278,164 323,337 (45,173) (14) %

7 unchanged sentences

Total revenue

Total revenue decreased by $108.9 million to $247.6 million for the six months ended June 30, 2023, from $356.5 million for the six months ended June 30, 2022, as a result of the factors described below.

Total hosting revenue from customers decreased by $13.5 million or 23%, to $45.2 million for the six months ended June 30, 2023, from $58.7 million for the six months ended June 30, 2022.

The decrease in hosting revenue from customers was primarily driven by the termination of contracts for several customers in the portfolio at less profitable hosting rates and the associated reduction in the total number of hosting miners in the fleet for the six months ended June 30, 2023.

Total hosting revenue from related parties decreased by $6.2 million or 46%, to $7.2 million for the six months ended June 30, 2023, from $13.5 million for the six months ended June 30, 2022.

Total revenue decreased by $158.6 million to $360.5 million for the nine months ended September 30, 2023, from $519.1 million for the nine months ended September 30, 2022, as a result of the factors described below.

Total hosting revenue from customers decreased by $22.2 million or 23%, to $72.2 million for the nine months ended September 30, 2023, from $94.4 million for the nine months ended September 30, 2022.

Total hosting revenue from related parties decreased by $12.6 million or 56%, to $10.1 million for the nine months ended September 30, 2023, from $22.7 million for the nine months ended September 30, 2022.

The decrease in related party hosting revenue was primarily driven by the termination of hosting contracts during the fourth quarter of December 31, 2022.

Equipment sales to customers decreased by $3.9 million or 100%, to nil for the six months ended June 30, 2023, from $3.9 million for the six months ended June 30, 2022.

The decrease in equipment sales to customers was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of hosting customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

Equipment sales to related parties decreased by $37.6 million or 100%, to nil for the six months ended June 30, 2023, from $37.6 million for the six months ended June 30, 2022.

The decrease in equipment sales to related parties was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

Digital asset mining revenue decreased by $47.7 million to $195.1 million for the six months ended June 30, 2023, from $242.8 million for the six months ended June 30, 2022.

Equipment sales to customers decreased by $11.4 million or 100%, to nil for the nine months ended September 30, 2023, from $11.4 million for the nine months ended September 30, 2022.

The decrease in equipment sales to customers was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of hosting customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

Equipment sales to related parties decreased by $67.3 million or 100%, to nil for the nine months ended September 30, 2023, from $67.3 million for the nine months ended September 30, 2022.

The decrease in equipment sales to related parties was driven by the Company’s decision to exit the Equipment Sales business due to the increasing number of customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

Digital asset mining revenue decreased by $45.2 million to $278.2 million for the nine months ended September 30, 2023, from $323.3 million for the nine months ended September 30, 2022.

The year over year decrease in mining revenue was driven primarily by a decrease in the price of bitcoin and an increase in the global bitcoin network hash rate, partially offset by the increase in our self-mining hash rate from increases in the number of mining units deployed.

Our self-mining hash rate increased by 47%, to 15.1 EH/s for the six months ended June 30, 2023, from 10.3 EH/s for the six months ended June 30, 2022.

The total number of bitcoins mined for the six months ended June 30, 2023, was 7,768 compared to 6,567 for the six months ended June 30, 2022.

The average price of bitcoin for the six months ended June 30, 2023, was $25,470 as compared to $36,876 for the six months ended June 30, 2022, decrease of 31%.

Our self-mining hash rate increased by 15%, to 15.0 EH/s for the nine months ended September 30, 2023, from 13.0 EH/s for the nine months ended September 30, 2022.

The total number of bitcoins mined for the nine months ended September 30, 2023, was 10,721 compared to 10,335 for the nine months ended September 30, 2022.

The average price of bitcoin for the nine months ended September 30, 2023, was $26,353 as compared to $36,876 for the nine months ended September 30, 2022, a decrease of 29%.

Cost of revenue

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

3 unchanged sentences

84,159 55,644 28,515 51 %

Cost of revenue decreased by $94.9 million or 35%, to $178.8 million for the six months ended June 30, 2023, from $273.8 million for the six months ended June 30, 2022.

As a percentage of total revenue, cost of revenue totaled 72% and 77% for the six months ended June 30, 2023 and 2022, respectively.

The decrease in cost of revenue was primarily attributable to $50.1 million of decreased depreciation expense driven by an adjustment to the depreciable base for the deployed self-mining units, $36.1 million of lower equipment sales costs due to the Company exiting the selling of equipment, and lower stock-based compensation of $16.8 million as prior year included vesting acceleration associated with the acquisition of BlockCap, partially offset by an increase in power costs of $7.4 million from higher power consumption associated with the expansion of capacity at our mining sites and increasing number of miners deployed and operational.

Loss on legal settlement

The loss on legal settlement of $0.1 million for the six months ended June 30, 2023, represent cost incurred for resolution of a legal settlement with a vendor.

Cost of revenue decreased by $187.1 million or 40%, to $276.3 million for the nine months ended September 30, 2023, from $463.4 million for the nine months ended September 30, 2022.

As a percentage of total revenue, cost of revenue totaled 77% and 89% for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in cost of revenue was primarily attributable to $90.5 million of decreased depreciation expense driven by an adjustment to the depreciable base for the deployed self-mining units, $64.0 million of lower equipment sales costs due to the Company exiting the selling of equipment, and lower stock-based compensation of $19.7 million as prior year included vesting acceleration associated with the acquisition of BlockCap, lower power costs of $18.1 million due to adjustments made for prior period deposits, partially offset by an increase in facility expenses of $2.8 million.

Gain from sales of digital assets

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

2 unchanged sentences

Percentage of total revenue

Gain from sales of digital assets decreased by $12.0 million to $2.0 million for the six months ended June 30, 2023, from a gain of $14.0 million for the six months ended June 30, 2022.

Gain from sales of digital assets decreased by $22.6 million to $2.4 million for the nine months ended September 30, 2023, from a gain of $25.0 million for the nine months ended September 30, 2022.

Gains are recorded when realized upon sale(s).

In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

For the six months ended June 30, 2023, the carrying value of our digital assets sold was $199.8 million and proceeds were $199.6 million.

For the six months ended June 30, 2022, the carrying value of our digital assets sold was $232.3 million and the sales price was $246.2 million.

For the nine months ended September 30, 2023, the carrying value of our digital assets sold was $285.4 million and proceeds were $287.8 million.

For the nine months ended September 30, 2022, the carrying value of our digital assets sold was $325.8 million and the sales price was $350.8 million.

Impairment of digital assets

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Impairment of digital assets $ (2,183) $ (204,198) $ 202,015 NM

Impairment of digital assets $ (2,864) $ (212,184) $ 209,320 (99) %

Percentage of total revenue

Impairment of digital assets decreased by $202.0 million to $2.2 million for the six months ended June 30, 2023, from $204.2 million for the six months ended June 30, 2022.

Impairment of digital assets decreased by $209.3 million to $2.9 million for the nine months ended September 30, 2023, from $212.2 million for the nine months ended September 30, 2022.

Impairment exists when the carrying amount exceeds its fair value.

1 unchanged sentence

Quoted prices, including intraday low prices, are collected and utilized in impairment testing and measurement on a daily basis.

If the then current carrying value of a digital

asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying value and the price determined.

The carrying value of our digital assets amounted to $0.3 million and $0.7 million as of June 30, 2023 and December 31, 2022, respectively.

The carrying value of our digital assets amounted to $0.6 million and $0.7 million as of September 30, 2023 and December 31, 2022, respectively.

Impairment of goodwill and other intangibles

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Impairment of goodwill and other intangibles $ — $ (790,753) $ 790,753 NM

Impairment of goodwill and other intangibles $ — $ (1,059,265) $ 1,059,265 (100) %

Percentage of total revenue

Impairment of goodwill and other intangibles decreased by $790.8 million to nil for the six months ended June 30, 2023, from $790.8 million for the six months ended June 30, 2022.

The Company concluded the carrying amount of the Mining segment exceeded its fair value and, as such, recorded an $788.7 million impairment of goodwill in its Mining reporting unit.

Impairment of goodwill and other intangibles decreased by $1.1 billion to nil for the nine months ended September 30, 2023, from $1.1 billion for the nine months ended September 30, 2022.

The Company identified a triggering event as of June 30, 2022 and September 30, 2022, due to declines in the Company’s stock price and market decline in the value of bitcoin and, as such, the Company performed the quantitative test to compare the fair value to the carrying amount for each reporting unit.

The Company concluded the carrying amount of the Mining segment exceeded its fair value and, as such, recorded a $996.5 million impairment of goodwill in its Mining reporting unit and $58.2 million in our Equipment Sales and Hosting reporting unit.

In addition, as part of the restructuring activities during the second quarter of 2022, the Company determined that $4.5 million of software intangible assets would no longer be used.

Impairment of property, plant and equipment

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Impairment of property, plant and equipment $ — $ (59,259) $ 59,259 (100) %

Percentage of total revenue

During the nine months ended September 30, 2022, we determined that the carrying value of the property, plant and equipment at the Cedarvale, Texas facility site may no longer be fully recoverable by the cash flows of the site.

Losses on exchange or disposal of property, plant and equipment

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Losses on exchange or disposal of property, plant and equipment $ (174) $ (13,057) $ 12,883 NM

Losses on exchange or disposal of property, plant and equipment $ (514) $ (13,057) $ 12,543 (96) %

Percentage of total revenue

Losses on exchange or disposal of property, plant and equipment decreased by $12.9 million to $0.2 million for the six months ended June 30, 2023, from $13.1 million for the six months ended June 30, 2022.

Losses on exchange or disposal of property, plant and equipment decreased by $12.5 million to $0.5 million for the nine months ended September 30, 2023, from $13.1 million for the nine months ended September 30, 2022.

The decrease was due to a noncash exchange of mining equipment during 2022.

1 unchanged sentence

Research and development

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

3 unchanged sentences

Percentage of total revenue

Research and development expenses decreased by $15.1 million or 83%, to $3.1 million for the six months ended June 30, 2023, from $18.1 million for the six months ended June 30, 2022.

The decrease was driven by lower stock-based compensation of $14.2 million as prior year included vesting acceleration associated with the acquisition of BlockCap, a decrease in professional fees of $0.6 million, and lower personnel and related expenses of $0.2 million.

Research and development expenses decreased by $19.0 million or 78%, to $5.3 million for the nine months ended September 30, 2023, from $24.3 million for the nine months ended September 30, 2022.

The decrease was driven by lower stock-based compensation of $19.1 million as prior year included vesting acceleration associated with the acquisition of BlockCap, a decrease in professional fees of $0.6 million, partially offset by higher personnel and related expenses of $0.4 million.

Sales and marketing

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

3 unchanged sentences

Percentage of total revenue

Sales and marketing expenses decreased by $9.5 million or 82%, to $2.1 million for the six months ended June 30, 2023, from $11.6 million for the six months ended June 30, 2022.

The decrease was driven primarily driven by $8.5 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $0.5 million of lower advertising and marketing expenses and $0.3 million lower personnel and related expenses.

Sales and marketing expenses decreased by $8.5 million or 73%, to $3.1 million for the nine months ended September 30, 2023, from $11.7 million for the nine months ended September 30, 2022.

The decrease was primarily driven by $7.3 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $0.7 million of lower advertising and marketing expenses and $0.4 million lower personnel and related expenses.

General and administrative

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

3 unchanged sentences

Percentage of total revenue

General and administrative expenses decreased by $84.9 million to $46.2 million for the six months ended June 30, 2023, from $131.0 million for the six months ended June 30, 2022.

The decrease was primarily driven by $70.6 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $7.0 million of lower professional fees primarily related to expenses in the prior year to support public company readiness, $3.8 million of lower payroll and benefit costs associated with lower headcount, $1.3 million of reduced depreciation and amortization, and $1.8 million lower employee related expenses such as travel, software and rent.

General and administrative expenses decreased by $104.7 million to $69.7 million for the nine months ended September 30, 2023, from $174.4 million for the nine months ended September 30, 2022.

The decrease was primarily driven by $79.0 million lower stock-based compensation as prior year included vesting acceleration associated with the acquisition of BlockCap, $9.8 million of lower professional fees primarily related to expenses in the prior year to support public company readiness, $5.9 million decrease in bad debt expense $4.1 million of lower payroll and benefit costs associated with lower headcount, $2.3 million lower employee related expenses such as travel and software, and lower corporate taxes of $0.7 million.

Non-operating expenses, net

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

1 unchanged sentence

(in thousands, except percentages)

Gain on debt extinguishment $ (20,761) $ — $ (20,761) NM

Gain on debt extinguishment $ (21,135) $ — $ (21,135) 100 %

Interest expense, net 2,317 74,734 (72,417) (97) %

Fair value adjustment on convertible notes — 190,976 (190,976) NM

Fair value adjustment on derivative warrant liabilities — (32,464) 32,464 NM

Reorganization items, net 49,929 — 49,929 NM

Other non-operating income, net (2,888) 3,519 (6,407) NM

Fair value adjustment on convertible notes — 186,853 (186,853) (100) %

Fair value adjustment on derivative warrant liabilities — (32,985) 32,985 (100) %

Reorganization items, net 78,270 — 78,270 100 %

Other non-operating (income) expenses, net

(3,978) 4,997 (8,975) NM

Total non-operating expenses, net

$ 55,474 $ 233,599 $ (178,125) (76) %

Total non-operating expenses, net decreased by $184.4 million, to $26.4 million for the six months ended June 30, 2023, from $210.8 million for the six months ended June 30, 2022.

The decrease in non-operating expenses, net was primarily driven by a fair value adjustment on convertible notes of $191.0 million (excluding interest expense and changes in instrument-specific credit risk) for the six months ended June 30, 2022, compared to no adjustment for the same period in 2023, partially offset by a $49.9 million increase in Reorganization items, net related to DIP financing fees and bankruptcy advisor fees post-petition in the first quarter of 2023.

Income tax expense (benefit)

Six Months Ended June 30, Period over Period Change

Total non-operating expenses, net decreased by $178.1 million, to $55.5 million for the nine months ended September 30, 2023, from $233.6 million for the nine months ended September 30, 2022.

The decrease in non-operating expenses, net was primarily driven by a fair value adjustment on convertible notes of $186.9 million (excluding interest expense and changes in instrument-specific credit risk) for the nine months ended September 30, 2022, compared to no adjustment for the same period in 2023, a $72.4 million decrease in interest expense, net for the nine months ended September 30, 2023, resulting from the bankruptcy court ordered stay on payment of pre-petition obligations, including interest, and a $21.1 million gain on debt extinguishment primarily related to the settlement of the NYDIG Loan for the nine months ended September 30, 2023.

These decreases in non-operating expenses were partially offset by a $78.3 million increase in Reorganization items, net related to DIP financing fees and bankruptcy advisor fees post-petition during the nine months ended September 30, 2023, and a $33.0 million decrease in the fair value adjustment on derivative warrant liabilities.

Income tax expense

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Income tax expense (benefit) $ 233 $ (6,244) $ 6,477 NM

Income tax expense

$ 347 $ 4,398 $ (4,051) (92) %

Percentage of total revenue

1 unchanged sentence

federal, state and local income taxes.

For the six months ended June 30, 2023 and 2022, our income tax expense was $0.2 million and a income tax benefit was $6.2 million, respectively.

The $6.5 million increase in the provision for income taxes for the six months ended June 30, 2023, compared to same period in 2022, was due to our ability to benefit a portion of the losses during the six months ended June 30, 2022.

During the six months ended June 30, 2023, the Company was no longer able to benefit losses, which were subject to a full valuation allowance.

The Company's effective tax rate for the six months ended June 30, 2023, was lower than the federal statutory rate of 21% primarily due to losses and certain deductions for which no tax benefit can be recognized.

For the nine months ended September 30, 2023 and 2022, our income tax expense was $0.3 million and $4.4 million, respectively.

The $4.1 million decrease in the provision for income taxes for the nine months ended September 30, 2023, compared to same period in 2022, was due to our ability to benefit a portion of the losses during the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, the Company was no longer able to benefit from losses, which were subject to a full valuation allowance.

The Company's effective tax rate for the nine months ended September 30, 2023, was lower than the federal statutory rate of 21% primarily due to losses and certain deductions for which no tax benefit can be recognized.

Segment Total Revenue and Gross Profit

The following table presents total revenue and gross profit by reportable segment for the periods presented:

Six Months Ended June 30, Period over Period Change

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

1 unchanged sentence

Hosting revenue $ 82,307 $ 117,066 $ (34,759) (30) %

Equipment sales — 41,499 (41,499) NM

Equipment sales — 78,660 (78,660) (100) %

Total revenue 82,307 195,726 (113,419) (58) %

1 unchanged sentence

Cost of hosting services 64,187 119,850 (55,663) (46) %

Cost of equipment sales — 36,076 (36,076) NM

Cost of equipment sales — 63,993 (63,993) (100) %

Total cost of revenue $ 64,187 $ 183,843 $ (119,656) (65) %

Gross (loss) profit $ 13,154 $ 2,698 $ 10,456 388%

$ 18,120 $ 11,883 $ 6,237 52 %

Hosting Margin 22% 6%

8 unchanged sentences

Consolidated gross profit $ 84,159 $ 55,644 $ 28,515 51 %

For the six months ended June 30, 2023, cost of revenue included depreciation expense of $1.8 million for the Hosting segment and $38.8 million for the Mining segment.

For the six months ended June 30, 2022, cost of revenue included depreciation expense of $4.8 million for the Hosting segment and $85.9 million for the Mining segment.

For the six months ended June 30, 2023 and 2022, the top customer accounted for approximately 49% and 8%, respectively, of the Hosting’s segment total revenue.

For the six months ended June 30, 2023, gross profit in the Hosting segment increased $10.5 million compared to the six months ended June 30, 2022, reflecting a Hosting segment gross margin of 25% for the six months ended June 30, 2023, compared to gross profit margin of 2% for the six months ended June 30, 2022.

The increase in Hosting segment gross profit margin for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was primarily due to decreased equipment sales costs driven by the Company’s decision to exit the Equipment Sales business, and a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap.

For the six months ended June 30, 2023, gross profit in the Mining segment decreased $24.4 million compared to the six months ended June 30, 2022, due to a lower Mining segment gross profit margin of 28% for the six months ended June 30, 2023, compared to 33% for the six months ended June 30, 2022.

The decrease in the Mining segment gross profit margin was primarily due to higher power costs as a percentage of segment revenues and by a 31% decrease in the average price of bitcoin.

This decrease was partially offset by a decrease in depreciation as a percentage of segment revenues, which was driven by an impairment adjustment to the depreciable base for the deployed self-mining units, a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap, and an increase in our self-mining hash rate, which was 15.09 EH/s for the six months ended June 30, 2023, compared to 10.3 EH/s for the six months ended June 30, 2022.

A reconciliation of the reportable segment gross profit to loss before income taxes included in our Consolidated Statements of Operations for the six months ended June 30, 2023 and 2022, is as follows:

Six Months Ended June 30, Period over Period Change

For the nine months ended September 30, 2023, cost of revenue included depreciation expense of $3.7 million for the Hosting segment and $60.8 million for the Mining segment.

For the nine months ended September 30, 2022, cost of revenue included depreciation expense of $8.2 million for the Hosting segment and $146.8 million for the Mining segment.

For the nine months ended September 30, 2023 and 2022, the top customer accounted for approximately 48% and 8%, respectively, of the Hosting’s segment total revenue.

For the nine months ended September 30, 2023, gross profit in the Hosting segment increased $6.2 million compared to the nine months ended September 30, 2022, reflecting a Hosting segment gross margin of 22% for the nine months ended September 30, 2023, compared to gross profit of 6% for the nine months ended September 30, 2022.

The increase in Hosting segment gross profit for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily due to decreased equipment sales costs driven by the Company’s decision to exit the Equipment Sales business, lower power fees, and a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap.

For the nine months ended September 30, 2023, gross profit in the Mining segment increased $22.3 million compared to the nine months ended September 30, 2022, due to a higher Mining segment gross profit of 24% for the nine months ended September 30, 2023, compared to 14% for the nine months ended September 30, 2022.

The increase in the Mining segment gross profit was primarily due to a decrease in depreciation as a percentage of segment revenues, which was driven by an impairment adjustment to the depreciable base for the deployed self-mining units, a decrease in stock-based compensation expense as a percentage of revenues as prior year included vesting acceleration associated with the acquisition of BlockCap, and an increase in our self-mining hash rate, which was 15.00 EH/s for the nine months ended September 30, 2023, compared to 13.0 EH/s for the nine months ended

September 30, 2022.

This increase in the Mining segment gross profit margin is partially offset by higher power costs and a 29% decrease in the average price of bitcoin.

A reconciliation of the reportable segment gross profit to loss before income taxes included in our Consolidated Statements of Operations for the nine months ended September 30, 2023 and 2022, is as follows:

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

1 unchanged sentence

Reportable segment gross profit $ 84,159 $ 55,644 $ 28,515 51 %

Loss on legal settlement (85) — (85) NM

Gain from sales of digital assets 2,358 25,007 (22,649) (91) %

Impairment of digital assets (2,183) (204,198) 202,015 NM

Impairment of goodwill and other intangibles — (790,753) 790,753 NM

Losses on exchange or disposal of property, plant and equipment (174) (13,057) 12,883 NM

Impairment of digital assets (2,864) (212,184) 209,320 (99) %

Impairment of goodwill and other intangibles — (1,059,265) 1,059,265 (100) %

Impairment of property, plant and equipment — (59,259) 59,259 (100) %

Losses on exchange or disposal of property, plant and equipment (514) (13,057) 12,543 (96) %

Operating expenses:

5 unchanged sentences

Non-operating expenses, net:

Gain on debt extinguishment (20,761) — (20,761) NM

Gain on debt extinguishment (21,135) — (21,135) 100 %

Interest expense, net 2,317 74,734 (72,417) (97) %

Fair value adjustment on derivative warrant liabilities — (32,464) 32,464 NM

Fair value adjustment on convertible notes — 190,976 (190,976) NM

Reorganization items, net 49,929 — 49,929 NM

Other non-operating income, net (2,888) 3,519 (6,407) (182)%

Total non-operating expenses, net

Fair value adjustment on derivative warrant liabilities — (32,985) 32,985 (100) %

Fair value adjustment on convertible notes — 186,853 (186,853) (100) %

Reorganization items, net 78,270 — 78,270 100 %

Other non-operating (income) expenses, net

(3,978) 4,997 (8,975) NM

Loss before income taxes $ (9,415) $ (1,282,923) $ 1,273,508 NM

Total non-operating expenses, net

55,474 233,599 (178,125) (76) %

Loss before income taxes $ (50,447) $ (1,707,073) $ 1,656,626 (97) %

Liquidity and Capital Resources

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Subsequent to filing Chapter 11, our primary sources of cash are cash flows from operations, cash on hand and proceeds from the Original DIP Facility and the Replacement DIP Facility.

At June 30, 2023, we have $35.0 million of undrawn borrowing capacity under the Replacement DIP Facility.

At September 30, 2023, we have $35.0 million of undrawn borrowing capacity under the Replacement DIP Facility.

We have engaged Weil, Gotshal & Manges LLP, as legal advisers, and PJT Partners LP and AlixPartners, LLP, as financial advisers, to assist the Company in managing the Chapter 11 Cases and developing, confirming, and consummating a Chapter 11 plan of reorganization or alternative restructuring transaction.

As previously reported in our Current Report on Form 8-K filed with the SEC on June 20, 2023, we filed a proposed Joint Chapter 11 Plan of Reorganization and a related proposal form of Disclosure Statement with the Bankruptcy Court.

As previously reported in our Current Report on Form 8-K filed with the SEC on October 30,2023, we reached an agreement in principle with the Ad Hoc Noteholder Group and the Equity Committee regarding the terms of a chapter 11 plan of reorganization, subject to the finalization of the Debtors’ Third Amended Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc.

and its Debtor Affiliates and a related Disclosure Statement, and the execution of a restructuring support agreement and other definitive documentation.

Our ability to continue as a going concern is dependent upon our ability to successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the restructuring to meet our obligations and operating needs.

These factors, together with the Company’s recurring losses from operations and accumulated deficit, create substantial doubt about the Company’s ability to continue as a going concern.

Refer to “Other Events —Chapter 11 and Other Related Matters” below for more information on the Chapter 11 Cases and the effect on our liquidity.

Refer to “Recent Developments — Chapter 11 and Other Related Matters” above for more information on the Chapter 11 Cases and the effect on our liquidity.

Operating and Capital Resources

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Our previous level of capital expenditures have been reduced since filing Chapter 11 and we expect them to remain at a reduced level until our emergence from Chapter 11.

We have assessed our current and expected operating and capital expenditure requirements and our current and expected sources of liquidity, and have determined, based on our forecasted financial results and financial condition as of June 30, 2023, that our operating cash flows, existing cash balances, and access to the Replacement DIP Facility will be adequate to finance our working capital requirements, fund capital expenditures and make our required debt interest and principal payments, pay taxes and make other payments due under any plan of reorganization.

We have assessed our current and expected operating and capital expenditure requirements and our current and expected sources of liquidity, and have determined, based on our forecasted financial results and financial condition as of September 30, 2023, that our operating cash flows, existing cash balances, and access to the Replacement DIP Facility will be adequate to finance our working capital requirements, fund capital expenditures and make our required debt interest and principal payments, pay taxes and make other payments due under any plan of reorganization.

We believe that a plan of reorganization, our current liquidity and expected funding requirements will allow us to operate for at least the next 12 months.

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Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less from the date of acquisition.

June 30, December 31, Period over Period Change

September 30, December 31, Period over Period Change

2023 2022 Dollar Percentage

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Total cash, cash equivalents and restricted cash $ 63,943 $ 52,240 $ 11,703 22 %

As of June 30, 2023 and December 31, 2022, restricted cash of $19.2 million and $36.4 million, consisted of cash held in escrow under the Original DIP Credit Agreement and to pay for construction and development activities.

As of September 30, 2023 and December 31, 2022, restricted cash of $21.8 million and $36.4 million, consisted of cash held in escrow under the Original DIP Credit Agreement and to pay for construction and development activities.

The following table summarizes our cash, cash equivalents and restricted cash and cash flows for the periods indicated.

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Operating Activities

Net cash provided by operating activities was $38.0 million for the six months ended June 30, 2023 and $141.3 million for the six months ended June 30, 2022.

The decrease in net cash provided by operating activities for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, was primarily due to a decrease in net loss of $1.3 billion, a decrease in intangible impairments of $790.8 million, a decrease in fair value adjustments on convertible notes of $206.9 million, a $202.0 million decrease in impairments of digital currency assets, a $110.2 million decrease in stock-based compensation, partially offset by a $47.7 million increase in digital asset mining income.

Net cash provided by operating activities was $43.4 million for the nine months ended September 30, 2023 and $89.2 million for the nine months ended September 30, 2022.

The decrease in net cash provided by operating activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, was primarily due to a decrease in net loss of $1.7 billion, a decrease in intangible impairments of $1.1 billion, a decrease in fair value adjustments on convertible notes of $211.0 million, a $209.3 million decrease in impairments of digital currency assets, a $125.1 million decrease in stock-based compensation, and a $45.2 million decrease in digital asset mining income.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023 and 2022, was $2.5 million and $445.6 million, respectively.

Net cash used in investing activities for the nine months ended September 30, 2023 and 2022, was $5.4 million and $451.3 million, respectively.

The decrease in net cash used in investing activities was driven primarily by a $239.2 million decrease in purchases of property, plant and equipment and a $217.7 million decrease in deposits for self-mining equipment.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2023 was $11.0 million.

Net cash provided by financing activities for the six months ended June 30, 2022 was $313.2 million.

The change over prior year was due primarily to $216.3 million from the issuance of debt and $198.9 million of proceeds from the issuance of common stock for the six months ended June 30, 2022, partially offset by principal payments on debt of $40.8 million.

Net cash used in financing activities for the nine months ended September 30, 2023 was $26.4 million.

Net cash provided by financing activities for the nine months ended September 30, 2022 was $268.1 million.

The change over prior year was due primarily to $216.2 million of proceeds from the issuance of debt and $210.5 million of proceeds from the issuance of common stock for the nine months ended September 30, 2022, partially offset by principal payments on debt of $99.0 million.

Commitments and Contractual Obligations

For a discussion of Commitments and Contractual Obligations, refer to Notes 7 — Leases and 8 — Commitments and Contingencies to our unaudited consolidated financial statements.

In September 2023, the Company entered into a purchase agreement with Bitmain to acquire 27,000 Antminer S19j XP 151TH model miners for a total purchase price of approximately $77.1 million.

Delivery of the miners is expected to begin in the fourth quarter of 2023, with all miners expected to be received and deployed by the first quarter of 2024.

Chapter 11 and Other Related Matters

Chapter 11 Cases

As an initial step towards implementation of a plan of reorganization, on the Petition Date, the Debtors filed the Chapter 11 Cases.

Each Debtor continues to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.

The Chapter 11 Cases are being jointly administered under Case No.

In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, however, we may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.

To ensure the Debtors’ ability to continue operating in the ordinary course of business and minimize the effect of the restructuring on the Debtors’ customers and employees, the Debtors filed certain motions and applications intended to limit the

disruption of the bankruptcy proceedings on its operations (the “First Day Motions”), including authority to pay employee wages and benefits, and pay vendors and suppliers for goods and services provided both before and after the filing date, which were approved on a final basis for wages and interim basis for vendors on December 22, 2022.

Pursuant to the First Day Motions, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders:

continue to operate our cash management system and honor certain prepetition obligations related thereto;

maintain existing business forms;

continue to perform intercompany transactions;

obtain super priority administrative expense status for post-petition intercompany balances;

pay certain prepetition claims of critical vendors, lien claimants and section 503(b)(9) of the Bankruptcy Code claimants in the ordinary course of business on a post-petition basis;

pay prepetition employee wages, salaries, other compensation and reimbursable employee expenses and continue employee benefits programs;

pay obligations under prepetition insurance policies, continue to pay certain brokerage fees;

renew, supplement, modify or purchase insurance coverage;

maintain our surety bond program;

and pay certain prepetition taxes and fees.

Original DIP Credit Agreement and Restructuring Support Agreement

In connection with the Chapter 11 Cases, the Debtors entered into the Original DIP Credit Agreement, with Wilmington Savings Fund Society, FSB, as administrative agent, and the Original DIP Lenders.

Also in connection with the filing of the Chapter 11 Cases, the Company entered into a Restructuring Support Agreement with the Ad Hoc Noteholder Group pursuant to which the Ad Hoc Noteholder Group agreed to provide commitments for the Original DIP Facility of more than $57 million and agreed to support the syndication of up to an additional $18 million in new money DIP (defined below) facility loans to all holders of convertible notes.

The Company terminated the Restructuring Support Agreement pursuant to a “fiduciary out” which permitted the Company to pursue better alternatives.

Replacement DIP Credit Agreement

Proceeds of the Replacement DIP Facility were used to, among other things, repay amounts outstanding under the Original DIP Facility, including payment of all fees and expenses required to be paid under the terms of the Original DIP Facility.

These funds, along with ongoing cash generated from operations, were anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisors.

The Replacement DIP Facility, among other things, provides for a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $70 million.

Under the Replacement DIP Facility, (i) $35 million was made available following Bankruptcy Court approval of the Interim DIP Order and (ii) $35 million was made available following Bankruptcy Court approval of the Final DIP Order.

Loans under the Replacement DIP Facility will bear interest at a rate of 10%, which will be payable in kind in arrears on the first day of each calendar month.

The Administrative Agent received an upfront payment equal to 3.5% of the aggregate commitments under the Replacement DIP Facility on February 3, 2023, payable in kind, and the Replacement DIP Lender will receive an exit premium equal to 5% of the amount of the loans being repaid, reduced or satisfied, payable in cash.

The Replacement DIP Credit Agreement includes representations and warranties, covenants applicable to the Debtors, and events of default.

If an event of default under the Replacement DIP Credit Agreement occurs, the Administrative Agent may, among other things, permanently reduce any remaining commitments and declare the outstanding obligations under the Replacement DIP Credit Agreement to be immediately due and payable.

The maturity date of the Replacement DIP Credit Agreement is December 22, 2023, which can be extended, under certain conditions, by an additional three months to March 22, 2024.

The Replacement DIP Credit Agreement will also terminate on the date that is the earliest of the following (i) the effective date of any Chapter 11 plan of reorganization with respect to the Borrowers (as defined in the Replacement DIP Credit Agreement) or any other Debtor;

(ii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code;

(iii) the date of the acceleration of the Loans and the termination of the Commitments (whether automatically, or upon any Event of Default or as otherwise provided in the Replacement DIP Credit Agreement);

and (iv) conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code.

On March 1, 2023, the Bankruptcy Court entered an order approving the Replacement DIP Facility on a final basis and the terms under which the Debtors are authorized to use the cash collateral of the holders of their convertible notes (the “Final DIP Order”).

On July 4, 2023, the Debtors, the Administrative Agents and the Replacement DIP Lender entered into the First Amendment to the Replacement DIP Credit Credit Agreement (the “First Amendment”).

For detailed discussion about the First Amendment, refer to Note 15 — Subsequent Events.

For a discussion of Chapter 11 and Other Related Matters, refer to “Recent Developments — Chapter 11 and Other Related Matters” above for more information on the Chapter 11 Cases and the effect on our liquidity.

Related Party Transactions

We have agreements to provide hosting services to various entities that are managed and invested in by individuals who are directors and executives of Core Scienti fic.

For the three and six months ended June 30, 2023, we recognized hosting revenue from the contracts with these entities of $3.5 million and $7.2 million, respectively.

For the three and six months ended June 30, 2022, we recognized hosting revenue from the contracts with these entities of $7.6 million and $13.5 million, respectively.

In addition, for the three and six months ended June 30, 2023, there was no equipment sales revenue recognized to these same various entities.

For the three and six months ended June 30, 2022, we recognized $11.7 million and $37.6 million, respectively, from these entities.

A nominal amount was receivable from these entities as of June 30, 2023, and December 31, 2022.

For the three and nine months ended September 30, 2023, we recognized hosting revenue from the contracts with these entities of $2.8 million and $10.1 million, respectively.

For the three and nine months ended September 30, 2022, we recognized hosting revenue from the contracts with these entities of $9.2 million and $22.7 million, respectively.

In addition, for the three and nine months ended September 30, 2023, there was no equipment sales revenue recognized to these same various entities.

For the three and nine months ended September 30, 2022, we recognized $29.7 million and $67.3 million, respectively, from these entities.

A nominal amount was receivable from these entities as of September 30, 2023, and December 31, 2022.

Core Scientific reimburses certain of its officers and directors for use of a personal aircraft for flights taken on Company business.

For the three and six months ended June 30, 2023, we incurred reimbursements of nil and for the three and six months ended June 30, 2022 we incurred reimbursements of $0.8 million and $1.2 million, respectively.

As of June 30, 2023, and December 31, 2022, there was no reimbursements payable.

For the three and nine months ended September 30, 2023, we incurred reimbursements of nil and for the three and nine months ended September 30, 2022, we incurred reimbursements of $0.7 million and $1.8 million, respectively.

As of September 30, 2023, and December 31, 2022, there were no reimbursements payable.

Foreign Currency and Exchange Risk

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GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

There have been no material changes to the critical accounting policies and estimates during the six months ended June 30, 2023, as compared to those disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” audited consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on April 4, 2023.

There have been no material changes to the critical accounting policies and estimates during the nine months ended September 30, 2023, as compared to those disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” audited consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on April 4, 2023.

Recent Accounting Pronouncements

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Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) February 12, 2026, the fifth anniversary of XPDI’s initial public offering, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0

million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis