What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-06 · 373 added, 730 removed, 265 unchanged (81% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “Company” or “Core Scientific” refer to Core Scientific, Inc.

Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “Company,” “Core Scientific,” or “Core” refer to Core Scientific, Inc.

and its subsidiaries.

The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results of operations and financial condition.

This discussion and analysis should be read together with the unaudited consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q.

In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions.

See the sections entitled “─Forward-Looking Statements” and Part II, Item 1A.

“Risk Factors” elsewhere in this Report.

Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A.

“Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year 2022.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws.

Forward-looking statements include, but are not limited to, statements regarding our and our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future.

In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements in this Quarterly Report on Form 10-Q may include statements about our ability to:

• implement a Chapter 11 plan of reorganization;

• successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the restructuring to meet our obligations and operating needs;

• have shares of our common stock listed on the Nasdaq or another national securities exchange upon emergence from the Chapter 11 Cases;

• eff ectively respond to general economic and business conditions, including the price of bitcoin;

• obtain additional capital, whether equity or debt, or exist or remain as a going concern;

• enhance future operating and financial results;

• s uccessfully execute expansion pla ns;

• attract and retain employees, officers or directors;

• anticipate rapid changes in laws, regulations and technology;

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

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

• anticipate overall demand of blockchain technology or blockchain hosting resources;

• increase brand awareness;

• upgrade and maintain effective business controls and information technology systems;

• acquire and protect intellectual property;

• comply with laws and regulations applicable to its business, including tax laws and laws and regulations related to data privacy and the protection of the environment;

• purchase and develop additional sources of low-cost renewable sources of energy:

• stay abreast of modified or new laws and regulations applicable to its business or withstand the impact of any new laws and regulations related to its industry;

• anticipate the impact of, and response to, new accounting standards;

• anticipate the significance and timing of contractual obligations;

• maintain key strategic relationships with partners and distributors;

• maintain and operate our key facilities:

• respond to uncertainties associated with product and service development and market acceptance;

• anticipate the impact of changes in U.S.

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

• 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.

Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect.

We qualify all of our forward-looking statements by these cautionary statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

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 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).

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

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.

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 586 MW for the three months ending September 30, 2023.

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.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to promote understanding of the results of operations and financial condition.

This MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and the accompanying Notes to Unaudited Financial Statements (Part I, Item 1 of this Form 10-Q) as well as the financial and other information included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 13, 2024.

This section generally discusses the results of operations for the quarter ended March 31, 2024 compared to March 31, 2023.

As discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” under Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 13, 2024.

Core Scientific is a best-in-class large-scale operator of dedicated, purpose-built facilities for digital asset mining and a premier provider of digital infrastructure, software solutions and services to assist our customers in transforming energy into high-value compute.

We employ our own large fleet of computers (“miners”), primarily manufactured by Bitmain Technologies Limited (“Bitmain”), to produce bitcoin for our own account and provide hosting services for large bitcoin mining and Graphics Processing Unit (“GPU”) cloud compute customers at our seven operational data centers in Georgia (2), Kentucky (1), North Carolina (1), North Dakota (1) and Texas (2).

We derive the majority of our revenue from earning bitcoin for our own account (“self-mining”).

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

We had an average hourly operating power demand of approximately 660 megawatts (“MW”) for the three months ended March 31, 2024.

We had secured approximately 1,198 MW of contracted power capacity at our sites as of March 31, 2024.

We also owned and managed the largest infrastructure asset base of publicly listed miners in North America of 745 MW and improved our average self-mining fleet energy efficiency to 26.85 joules per terahash.

Our total revenue was $179.3 million and $120.7 million for the three months ended March 31, 2024 and 2023, respectively.

We had operating income of $55.2 million and $7.6 million for the three months ended March 31, 2024 and 2023, respectively.

We had net income of $210.7 million and net loss of $0.4 million for the three months ended March 31, 2024 and 2023, respectively.

Our adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $88.0 million and $40.3 million for the three months ended March 31, 2024 and 2023, 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 $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.

Recent Developments

Chapter 11 Filing and Other Related Matters

On December 21, 2022 (the “Petition Date”), the “Company and certain of its affiliates (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Code (the “Bankruptcy Code”).

The Chapter 11 Cases are jointly administered under Case No.

The Debtors continue to operate their business and manage their properties as “debtors-in-possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

The Debtors filed various “first day” motions with the Bankruptcy Court requesting customary relief, which were generally approved by the Bankruptcy Court on December 22, 2022, that have enabled the Company to operate in the ordinary course while under Chapter 11 protection.

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

In connection with the Chapter 11 Cases, the Debtors entered into a Senior Secured Super-Priority Debtor-in-Possession Loan and Security Agreement, dated as of December 22, 2022 (the “Original DIP Credit Agreement”), with Wilmington Savings Fund Society, FSB, as administrative agent, and the lenders from time-to-time party thereto (collectively, the “Original DIP Lenders”).

The Original DIP Lenders are also holders or affiliates, partners or investors of holders under the Company’s notes sold pursuant to (i) the Secured Convertible Note Purchase Agreement, dated as of April 19, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among Core Scientific, Inc.

(as successor of Core Scientific Holding Co.), the guarantors party thereto from time to time, U.S.

Bank National Association, as note agent and collateral agent, and the purchasers of the notes issued thereunder (the “Secured Convertible Notes”), and (ii) the Convertible Note Purchase Agreement, dated as of August 20, 2021, (as amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among Core Scientific, Inc.

(as successor of Core Scientific Holding Co.), the guarantors party thereto from time to time, U.S.

Bank National Association, as note agent and collateral agent, and the purchasers of the notes issued thereunder (the “Other Convertible Notes,” and together with the Secured Convertible Notes, the “Convertible Notes”).

Also in connection with the filing of the Chapter 11 Cases, the Company entered into a restructuring support agreement (together with all exhibits and schedules thereto, the “Restructuring Support Agreement”) with the ad hoc group of noteholders, representing more than 70% of the holders of the Convertible Notes (the “Ad Hoc Noteholder Group”) pursuant to which the Ad Hoc Noteholder Group agreed to provide commitments for a debtor-in-possession facility (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

On February 2, 2023, the Bankruptcy Court entered an interim order (the “Replacement Interim DIP Order”) authorizing, among other things, the Debtors to obtain senior secured non-priming super-priority replacement post-petition financing (the “Replacement DIP Facility”).

On February 27, 2023, the Debtors entered into a Senior Secured Super-Priority Replacement Debtor-in-Possession Loan and Security Agreement governing the Replacement DIP Facility (the “Replacement DIP Credit Agreement”), with B.

Riley Commercial Capital, LLC, as administrative agent (the “Administrative Agent”), and the lenders from time to time party thereto (collectively, the “Replacement DIP Lender”).

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 the Plan 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”).

The Bankruptcy Court has appointed two official committees:

the Official Committee of Unsecured Creditors (the "Creditors' Committee"), which represents general unsecured creditors, and the Official Committee of Equity Security Holders (the “Equity Committee”), which represents equity security holders.

These committees have the right to be heard on all matters that come before the Bankruptcy Court and have important roles in the Chapter 11 Cases.

The Debtors are required to bear certain costs and expenses of the committees, including those of their counsel and financial advisors, in each case subject to a limited budget.

NYDIG Settlement

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 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

On March 20, 2023, the Bankruptcy Court entered an order (the “Priority Power Order”), whereby the Debtors and Priority Power agree that the Debtors would transfer equipment to Priority Power and assume an Energy Management and Consulting Services Agreement and other new agreements.

Priority Power was determined to have a single aggregate allowed claim of $20.8 million which was secured by a perfected mechanic’s lien.

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 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.

Emergence from Bankruptcy

On January 15, 2024, the Company and certain of its affiliates filed with the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) the Fourth Amended Joint Chapter 11 Plan of Core Scientific, Inc.

and its Affiliated Debtors (with Technical Modifications) (the “Plan of Reorganization”).

On January 16, 2024, the Bankruptcy Court entered an order confirming the Plan of Reorganization.

On January 23, 2024 (the “Effective Date”), the conditions to the effectiveness of the Plan of Reorganization were satisfied or waived and the Company emerged from bankruptcy.

On the Effective Date, a new Board of Directors was constituted and the Company, in accordance with the Plan of Reorganization satisfied and extinguished claims in the Chapter 11 cases through the issuance of (i) new common stock (“New Common Stock”), (ii) new warrants (“New Warrants”), (iii) contingent value rights (“CVRs”), (iv) new secured convertible notes due 2029 (“New Secured Convertible Notes”), and (v) new secured notes due 2028 (“New Secured Notes”).

For more detailed information regarding our emergence from bankruptcy, refer to Notes 3 — Chapter 11 Filing and Emergence from Bankruptcy, 6 — Convertible and Other Notes Payable, 7 — Contingent Value Rights and Warrant Liabilities and 10 — Stockholders' Deficit to our consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

On April 19, 2024, bitcoin underwent its fourth halving event at block 840,000, when the reward was reduced to its current level of 3.125 bitcoin per block from the previous level of 6.25 bitcoin per block.

During a halving, we expect that it could have a negative impact on our revenue as the reward for each bitcoin mined will be reduced.

However, the impact of halving on revenue may be offset by a rise in the price of bitcoin due to fewer miners after the halving event.

Our Business Model

Company Overview

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.

The Company’s primary business is self-mining and hosting third-party equipment used in mining of digital asset coins and tokens, including bitcoin.

Since July 2018, we have operated for ourselves and on behalf of our customers and related parties, miners of varying models, types, and manufacturers, but primarily miners of bitcoin manufactured by Bitmain Technologies, Ltd (“Bitmain”).

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 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 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 586 MW for the three months ended September 30, 2023.

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.

Business Overview

As a large-scale bitcoin digital asset miner, provider of blockchain solutions and leader in transforming energy into high-value compute with high efficiency at scale, we believe that we are well positioned to serve customers in a rapidly expanding market for digital asset mining and blockchain solutions.

We believe that the adoption and mainstream use of bitcoin and the blockchain technology on which it is based has accelerated the demand for bitcoin and other digital currencies.

Further, as noted in the “Strategic Investments” section below, we believe that opportunities for growth exist in various applications of our data centers for third party customers focused on cloud computing as well as machine learning and artificial intelligence.

As one of the largest owner operators of infrastructure for digital asset mining in North America, we focus primarily on mining bitcoin and selling the bitcoin generated for cash and activities directly related to growing our mining capabilities (increasing the number of bitcoin mined) and enhancing efficiencies in our operations (reducing our cost to mine).

Our rapidly growing digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Our digital asset self-mining activity competes with myriad mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an established unit of a digital asset.

The terms of our debt agreements currently require that we sell our digital assets as we receive them, and we typically use the proceeds to fund our growth strategies or for general corporate purposes.

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

Our proprietary thermodynamic system manages heat and airflow to deliver best-in-class uptime and, ultimately, increasing mining rewards to us and our customers.

We continually evaluate our mining performance, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.

We may explore additional mining facilities and mining arrangements in connection with our short-, medium- and long-term strategic planning.

In addition to exploring additional mining facilities and mining arrangements, we may also explore additional uses of our current and future data centers to take advantage of high value compute in connection with our short-, medium- and long-term strategic planning.

Strategic Investments

Our business strategy is to grow our revenue and profitability by increasing the capacity and efficiency of our self-mining fleet and by enhancing our third-party hosting business.

We intend to strategically develop the infrastructure necessary to support business growth and profitability and pursue adjacent high-value compute opportunities that lever our mining expertise and capabilities.

For example, in February 2024, we entered into a multi-year lease agreement for a data center in Austin, Texas with a current operating capacity of 12 MW (the “Austin Lease”) within which to perform colocation hosting services for CoreWeave, Inc.

to supply up to 16 MW of data center infrastructure to support its GPU cloud compute workloads.

We expect this facility to be operational in the second fiscal quarter of 2024.

We believe our expertise in digital asset mining can be applied favorably to the design, development and operation of large-scale data centers configured to optimize the performance of specialized computers for other specific, high-value applications such as cloud computing, as well as machine learning and artificial intelligence.

We intend to look for opportunities to expand our business into these areas using our knowledge, expertise and existing infrastructure where favorable market opportunities exist.

We have two operating segments:

“Hosting” which consists primarily of our blockchain infrastructure and third-party hosting business, and “Mining” consisting of digital asset mining for our own account.

The blockchain hosting business generates revenue through the sale of consumption-based contracts for our hosting services which are recurring in nature.

During 2022, our “Hosting” segment also included sales of mining equipment to customers, and was referred to as “Hosting and Equipment Sales”.

The Mining segment generates revenue from operating owned computer equipment as part of a pool of users that process transactions conducted on one or more blockchain networks.

In exchange for these services, we receive digital assets.

“Mining,” consisting of bitcoin self-mining, and “Hosting,” consisting of our third-party hosting business.

Our Mining operation segment generates revenue from operating our own mining computers as part of a pool of users that process transactions conducted on one or more blockchain networks.

In exchange for this activity, we receive digital assets in the form of bitcoin.

Our Hosting operation segment generates revenue through the sale of electricity-based consumption contracts for our hosting services, which are recurring in nature.

Mining Equipment

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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 agreements with mining equipment manufacturers to supply mining equipment for our digital asset mining operations.

We have entered into and facilitated agreements with vendors 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

As of December 31, 2023, we had two active purchase agreements with Bitmain.

The first agreement was for the acquisition of Antminer S19J XP miners with a combined exahash of 4.08 or 28,400 miners, all of which have been delivered as of March 31, 2024.

The second agreement was for the acquisition of Antminer S21 miners with a combined exahash of 2.52 or approximately 12,900 miners.

As of March 31, 2024, the Company had received approximately 4,790 miners.

The remaining miners were received in April 2024.

As of the reporting date of this Quarterly Report on Form 10-Q, we have completed all 2024 payments due on miners ordered for deployment this year.

The tables below summarize the total number of self- and hosted miners in operation as of March 31, 2024 and December 31, 2023 (miners in thousands):

Bitcoin Miners in Operation as of March 31, 2024

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

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Total mining equipment 23.2 209.1

During the fourth quarter of December 31, 2022, the hosting contracts for 24 customers, (including two related-party customers) were terminated.

The previously hosted ASIC servers were removed from our data center facilities and returned to the customers.

Summary of Digital Asset Activity

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

Activity related to our digital asset balances for the three months ended March 31, 2024 and 2023, were as follows (in thousands):

March 31, 2024 March 31, 2023

Digital assets, beginning of period $ 2,284 $ 724

Cumulative effect of ASU 2023-08, adopted January 1, 2024 1

Digital assets, beginning of period, as adjusted

Digital asset mining revenue, net of receivables 2

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Proceeds from sales of digital assets (160,777) (98,384)

Gain from sales of digital assets 2,351 25,007

Realized gain from sale of digital assets

Impairment of digital assets — (1,056)

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Digital assets, end of period $ — $ —

* 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.

1 Reflects the impact of the Company’s adoption of Accounting Standards Update (“ASU”) 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60):

Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) effective January 1, 2024.

2 As of March 31, 2024 and March 31, 2023, there was $2.0 million and $1.2 million, respectively, of digital asset receivable included in prepaid expenses and other current assets on the consolidated balance sheets.

Performance Metrics

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therefore, a miner’s “hash rate” refers to the rate at which it is capable of solving such computations.

The original equipment used for mining bitcoin utilized the Central Processing Unit (“CPU”) of a computer to mine various forms of digital assets.

Due to performance limitations, CPU mining was rapidly replaced by the Graphics Processing Unit (“GPU”), which offers significant performance advantages over CPUs.

General purpose chipsets like CPUs and GPUs have since been replaced as the standard in the mining industry by ASIC chips such as those found in the miners we and our customers use to mine bitcoin.

The equipment originally employed for mining bitcoin used the Central Processing Unit (“CPU”) of a computer to mine various forms of digital assets.

Due to performance limitations, CPU mining was rapidly replaced by the GPU, which offers significant performance advantages over CPUs.

General purpose chipsets like CPUs and GPUs have since been replaced as the standard in the mining industry by ASIC chips such as those found in the miners we and our customers use to mine bitcoin (although they continue to have uses in other industries).

These ASIC chips are designed specifically to maximize the rate of hashing operations.

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Our goal is to deploy a powerful fleet of self- and hosted-miners, while operating as energy-efficiently as possible.

Key Factors Affecting Our Performance

Key Factors Affecting Our Financial Performance

Market Price of Digital Assets

Our business is heavily dependent on the spot price of bitcoin, as well as other digital assets.

The prices of digital assets, specifically bitcoin, have experienced substantial volatility, which may reflect “bubble” type volatility, meaning that high or low prices may have little or no relationship to identifiable market forces, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting.

The prices of digital assets, specifically bitcoin, have experienced substantial volatility, meaning that high or low prices may have little or no relationship to

identifiable market forces, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting.

Bitcoin (as well as other digital assets) may have value based on various factors, including their acceptance as a means of exchange by consumers and others, scarcity, and market demand.

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Similarly, a decline in network hash rate results in a decrease in difficulty, increasing mining proceeds and profitability.

Transaction Fees

Bitcoin miners receive a transaction fee in the form of a portion of bitcoin for validating transactions on the Bitcoin network.

The transaction fee can vary in value over time, with higher fees prioritizing certain transactions over those with lower fees.

An increase in Bitcoin network transactions could represent a more significant component of miner revenue if their value increases over time.

The table below provides a summary of the impact to revenue from the increase or decrease in the market price of bitcoin, difficulty and our hash rate.

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Market Price of Bitcoin Favorable Unfavorable

Core Scientific Hash Rate

Difficulty Unfavorable Favorable

Core Scientific Hash Rate Favorable Unfavorable

Further affecting the industry, and particularly for the bitcoin blockchain, the digital asset reward for solving a block is subject to periodic incremental halvening.

Halvening is a process designed to control the overall supply and reduce the risk of inflation in digital assets using a proof of work consensus algorithm.

At a predetermined block, the mining reward is reduced by half, hence the term “halvening.”

For bitcoin, our most significant digital asset to which the vast majority of our mining power is devoted, the reward was initially set at 50 bitcoin currency rewards per block.

The bitcoin blockchain has undergone halvening three times since its inception, as follows:

Transaction Fees Favorable Unfavorable

Further affecting the industry, and particularly for the bitcoin blockchain, the digital asset reward for solving a block is subject to periodic incremental halving.

Halving is a process designed to control the overall supply and reduce the risk of inflation in digital assets using a proof-of-work consensus algorithm.

At a predetermined block, the mining reward is reduced by half, hence the term “halving.” A reduction in the number of bitcoins rewarded per block would result in a reduction of revenue to those mining bitcoin, barring any increase in the spot price of bitcoin or decrease in Bitcoin network hash rate or difficulty.

Historically, the network hash rate has tended to decline, for a period of time, post-halving as less efficient mining servers become less profitable to operate and their operators discontinue or limit their use.

For bitcoin, our most significant digital asset to which our mining power is devoted, the reward was initially set at 50 bitcoin rewards per block.

The bitcoin blockchain has undergone halving four times since its inception, as follows:

(1) on November 28, 2012, at block 210,000;

(2) on July 9, 2016 at block 420,000;

and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 bitcoin per block.

The next halvening for the bitcoin blockchain is anticipated to occur in early 2024 at block 840,000.

This process will repeat until the total amount of bitcoin currency rewards issued reaches 21 million and the theoretical supply of new bitcoin is exhausted, which is expected to occur around the year 2140.

Many factors influence the price of bitcoin and the other digital assets we may mine for, and potential increases or decreases in prices in advance of or following a future halvening are unknown.

(3) on May 11, 2020 at block 630,000, when the reward was reduced to 6.25 bitcoin per block;

and (4) on April 19, 2024 at block 840,000, when the reward was reduced to its current level of 3.125 bitcoin per block.

The next halving for the bitcoin blockchain is anticipated to occur in 2028 at block 1,050,000.

This process will repeat until the total amount of bitcoin rewards issued reaches 21 million and the theoretical supply of new bitcoin is exhausted, which is expected to occur around the year 2140.

Many factors influence the price of bitcoin and the other digital assets we may mine for, and potential increases or decreases in prices in advance of or following a future halving are unknown.

Electricity Costs

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

Electricity cost 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 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.

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.

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.

Locally, factors such as animal incursion, sabotage and other events out of our control can also impact electricity costs and availability.

Other events out of our control can also impact electricity costs and availability.

In certain power markets, financial hedging can be employed to protect buyers from the financial impact of significant increases in power prices.

Equipment Costs

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.

Increases in the market value of digital assets increases the demand for new miners, which can result in a scarcity in the supply of, and increases in the price of, those miners.

Declines in the market value of digital assets can result in excess supply of miners and a general decline in their prices.

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

Our 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 a declining number of individual enthusiasts to a growing number of professional mining operations with dedicated data centers.

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.

Our business environment is constantly evolving, and digital asset miners can range from individual enthusiasts to 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.

We face significant competition in every aspect of our business, including, but not limited to, the acquisition of new miners, the ability to raise capital, obtaining low-cost electricity, obtaining access to energy sites with reliable sources of power, and evaluating new technology developments in the industry.

At present, the information concerning the activities of these enterprises may not be readily available as the vast majority of the participants in this sector do not publish information publicly, or the information may be unreliable.

Published sources of information include “bitcoin.org” and “blockchain.info”;

however, the reliability of that information and its continued availability cannot be assured.

We believe, based on available data, that despite the significant decrease in market prices for bitcoin and other major digital assets during 2022, an increase in the scale and sophistication of competition in the digital asset mining industry has continued increasing network hash rate, with new entrants and existing competitors increasing the number of miners mining for bitcoin.

Presently, the information concerning the activities of these enterprises may not be readily available as the vast majority of the participants in this sector do not publish information publicly, or the information may be unreliable.

Published sources of information include “bitcoin.org” and “blockchain.info;” however, the reliability of that information and its continued availability cannot be assured.

Based on available data we believe that, an increase in the scale and sophistication of competition in the digital asset mining industry has continued to increase network hash rate, with new entrants and existing competitors increasing the number of miners mining for bitcoin.

Despite this trend, we believe we have continued to maintain a competitive hash rate capacity among both public and private bitcoin miners.

However, to remain competitive in our evolving industry, both against new entrants into the market and existing competitors, we anticipate that we will need to continue to expand our existing miner fleet by purchasing new and available used miners, as well as innovating to develop and implement new technologies and mining solutions.

We believe that our integrated blockchain service portfolio, as well as our differentiated customer experience and technology, are keys to retaining and growing revenue from existing customers and to acquiring new customers.

For example, we believe our significant build-out and ready power along with our Minder TM fleet management software, represent meaningful competitive advantages favorable to our business.

We believe that our integrated services portfolio, as well as our differentiated customer experience and technology, are keys to retaining and growing revenue from existing customers and to acquiring new customers.

For example, we believe our significant build-out and ready power combined with our Minder TM fleet management software layer represent meaningful competitive advantages favorable to our business.

Differentiation, Innovation and Expansion of Our Platform

Our investments in research and development drive differentiation of our service offerings, core technology innovation and our ability to bring new products to market.

We believe that we differentiate ourselves by offering premium products and services, including our ability to manage our electricity sourcing, construct proprietary passive cooled data centers.

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

Our proprietary thermodynamic system manages heat and airflow to deliver best-in-class uptime and, ultimately, increases mining rewards to us and our customers.

Our facilities are designed to maximize not only mining equipment efficiency but mining equipment life.

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

We continue to refine and develop our data center design and technology solutions to optimize our data center and mining operations with the knowledge gained from our considerable digital asset mining experience, including optimizing the location of miners in our data centers to increase profitability.

Our approach to data center design enables us to deliver efficiency at scale.

We intend to continue to invest judiciously in research and development activities to extend our platform management and software solutions in order to manage our mining fleet more efficiently and productively.

Due to the relatively short history of digital assets, and their emergence as a new asset class, government regulation of blockchain and digital assets is constantly evolving, with increased interest expressed by U.S.

and internal regulators.

In October 2020, the Cyber-Digital Task Force of the U.S.

Department of Justice published a report entitled “Cryptocurrency:

An Enforcement Framework” that detailed the Department’s view with respect to digital assets and the tools at the Department’s disposal to deal with threats posed by digital assets.

In February 2021, representatives of the government of Inner Mongolia, China announced plans to ban digital asset mining within the province due to the energy and rare earth mineral demands of the industry.

In March 2021, the nominee for Chair of the SEC expressed the need for investor protection along with promotion of innovation in the digital asset space.

In March 2022, President Biden signed an Executive Order outlining an “whole-of-government” approach to addressing the risks and harnessing the potential benefits of digital assets and its underlying technology.

The executive order lays out a national policy for digital assets over six highlighted priorities.

In January 2023, the U.S.

House of Representatives created a new congressional subcommittee focused on digital assets, the Subcommittee of Digital Assets, Financial Technology and Inclusion, operating under the House Financial Services Committee.

In addition to the activities of the United States federal government and its various agencies and regulatory bodies, government regulation of blockchain and digital assets is also under active consideration by similar entities in other countries and transnational organizations, such as the European Union.

State and local regulations within the United States also may apply to our activities and other activities in which we may participate in the future.

Other governmental or semi-governmental regulatory bodies have shown an interest in regulating or investigating companies engaged in blockchain or digital asset businesses.

For instance, the SEC has taken an active role in regulating the use of public offerings of proprietary coins (so-called “initial coin offerings”) and has made statements and official promulgations as to the status of certain digital assets as “securities” subject to regulation by the SEC.

Key Business Metrics and Non-GAAP Financial Measures

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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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Adjusted EBITDA (in millions) $ 88.0 $ 40.3

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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.

Our self-mining hash rate was 19.3 EH/s and 16.1 EH/s as of March 31, 2024 and 2023, respectively representing a 20% increase year over year.

Our combined self-mining and customer and related party hosting hash rate increased 17%, to 25.5 EH/s as of March 31, 2024, from 21.8 EH/s as of March 31, 2023.

Adjusted EBITDA

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(iv) stock-based compensation expense;

(v) gain on sale of intangible assets;

(vi) Reorganization items, net;

and (vii) certain additional non-cash or non-recurring items, which do not reflect our ongoing business operations.

(v) Reorganization items, net;

(vi) unrealized changes in fair value of energy derivatives;

(vii) change in the fair value of warrant and contingent value rights and (viii) certain additional non-cash or non-recurring items, that do not reflect the performance of our ongoing business operations.

For additional information, including the reconciliation of net income (loss) to Adjusted EBITDA, please refer to the table below.

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Moreover, we have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measurement used by our management internally to make operating decisions, including those related to operating expenses, evaluate performance, and perform strategic and financial planning.

The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount and timing of these items is unpredictable, not driven by core results of operations and renders comparisons with prior periods and competitors less meaningful.

The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature or because the amount and timing of these items are not related to the current results of our core business operations which renders evaluation of our current performance, comparisons of performance between periods and comparisons of our current performance with our competitors less meaningful.

However, you should be aware that when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating this measure.

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Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because not all companies calculate this measure in the same fashion.

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 nine months ended September 30, 2023 and 2022, (in thousands):

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

2023 2022 2023 2022

You should review the reconciliation of net income (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 income (loss) to Adjusted EBITDA for the three months ended March 31, 2024 and 2023, (in thousands):

Three Months Ended March 31,

Adjusted EBITDA

Net income (loss)

$ 210,691 $ (388)

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Depreciation and amortization 28,996 20,094

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

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

Stock-based compensation expense (1,060) 12,273

Fair value adjustment on derivative warrant liabilities — (521) — (32,985)

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

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

Impairment of digital assets 681 7,986 2,864 212,184

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

Gain on sale of intangible assets — — — (5,904)

Cash restructuring charges — (125) — 1,320

Unrealized fair value adjustment on energy derivatives (797) —

Losses on disposal of property, plant and equipment 3,820 —

Loss (gain) on debt extinguishment 50 (20,761)

Reorganization items, net (111,439) 31,559

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

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

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

Change in fair value of warrant and contingent value rights

Other non-operating expenses (income), net 1,746 (3,069)

Adjusted EBITDA

$ 87,996 $ 40,337

1 Certain prior year amounts have been reclassified for consistency with the current year presentation.

Components of Results of Operations

Our revenue consists primarily of returns from our hosting operations, including the sales of mining equipment to be hosted in our data centers and digital asset mining income.

• Hosting revenue from customers and related parties.

Hosting revenue from customers and related parties is based on electricity-based consumption contracts with our customers and related parties.

Most contracts are renewable, and our customers are generally billed on a fixed and recurring basis each month for the duration of their contract, which vary from one to three years in length.

During the three months ended June 30, 2023, we initiated our first new customer contracts based on proceed sharing.

Under these new contracts, customers pay for the cost of hosting and infrastructure and we share the proceeds that are generated.

See Item 13 - “Certain Relationships and Related Transactions, and Director Independence,” to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

• Equipment sales to customers and related parties.

Equipment sales to customers and related parties is derived from our ability to leverage our partnerships with leading equipment manufacturers to secure equipment in advance, which is then sold to our customers and related parties.

Our equipment sales are typically in connection with a hosting contract.

Our revenue consists primarily of digital asset mining income, and fees from our hosting operations, including the sales of mining equipment to be hosted in our data centers.

• Digital asset mining revenue.

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.

We operate a digital asset mining operation using specialized computers equipped with 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.

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Revenues from digital asset mining are impacted by volatility in bitcoin prices, as well as increases in the bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks.

• Hosting revenue from customers and related parties.

Hosting revenue from customers and related parties is based on electricity-based consumption contracts with our customers and related parties.

Most contracts are renewable, and our customers are generally billed on a fixed and recurring basis each month for the duration of their contract, which vary from one to three years in length.

During the second quarter of 2023, we initiated our first new digital asset mining customer contracts based on proceed sharing.

Under these new contracts, customers pay for the cost of hosting and infrastructure, and we share the proceeds that are generated.

Cost of revenue

The Company’s cost of hosting services and cost of digital asset mining primarily consist of electricity costs, salaries, stock-based compensation, depreciation of property, plant and equipment used to perform hosting services and mining operations and other related costs.

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

Gain from sales of digital assets

Gain from sales of digital assets consists of gain on sales of digital assets.

Gain from sales of digital assets consist of gain on sales of digital assets.

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

Impairment of digital assets

We initially recognize digital assets that are received as digital asset mining revenue based on the fair value of the digital assets when earned and received.

Digital assets that are purchased in an exchange of one digital asset for another digital asset are recognized at the fair value of the asset received at the time of the transaction.

These assets are adjusted to fair value only when an impairment is recognized.

Impairment exists when the carrying amount exceeds its fair value.

Impairment is measured using quoted prices of the digital asset at the time its fair value is being assessed.

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

To the extent that an impairment loss is recognized, the loss establishes the new costs basis of the digital asset.

Impairment losses are recognized in the period in which the impairment is identified.

The impaired digital assets are written down to their fair value at the time of impairment and this new carrying value will not be adjusted upward for any subsequent increase in fair value.

See Note 2 — Summary of Significant Accounting Policies in our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Impairment of goodwill and other intangibles

The Company does not amortize goodwill, but tests it for impairment annually as of October 31 each year, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair values of the reporting units are less than their carrying amounts as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test.

If management determines that it is more likely than not that the fair value of a reporting unit is less than the reporting unit’s carrying amount, or management chooses not to perform a qualitative assessment, then the quantitative goodwill impairment test will be performed.

The quantitative test compares the fair value of the reporting unit with the reporting unit’s carrying amount.

If the carrying amount exceeds its fair value, the excess of the carrying amount over the fair value is recognized as an impairment loss, and the resulting measurement of goodwill becomes its new cost basis.

The Company’s reporting units are the same as its reportable and operating segments.

The Company tests intangible assets subject to amortization whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of the intangible assets.

Intangible assets may be impaired when the estimated future undiscounted cash flows are less than the carrying amount of the asset.

If that comparison indicates that the intangible asset’s carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the estimated fair value of the intangible asset.

This evaluation is performed at the lowest level for which separately identifiable cash flows exist.

Intangible assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.

Losses on exchange or disposal of property, plant and equipment

Losses on exchange or disposal of property, plant and equipment are measured as the differences between the carrying value of the property, plant and equipment exchanged or disposed of and fair value of the consideration received upon exchange or disposal.

The fair value of noncash consideration received in an exchange of property, plant and equipment is determined as of contract inception.

The Company adopted ASU 2023-08 effective January 1, 2024.

Under ASU 2023-08 the Company is required to measure digital assets at fair value each reporting period with changes in fair value recognized in net income.

Prior to the adoption of ASU 2023-08, digital assets, which were initially recognized and measured at fair value, were remeasured only when an impairment is recognized.

Impairment existed when the current carrying amount exceeded its current fair value.

Impairment was measured using quoted prices of the digital asset at the time its fair value was being assessed.

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

To the extent that an impairment loss was recognized, the loss established the new costs basis and carrying value of the digital asset.

Prior to the adoption of ASU 2023-08 effective January 1, 2024, impairment losses were recognized in the period in which the impairment was identified.

The impaired digital assets were written down to their fair value at the time of impairment and this new carrying value would not be adjusted upward for any subsequent increase in fair value.

Change in fair value of energy derivatives

The Change in fair value of energy derivatives represents changes in the fair value of the derivative liability related to the energy forward purchase contract described in more detail in “Energy Forward Purchase Contract” in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2023.

Losses on disposal of property, plant and equipment

Losses on disposal of property, plant and equipment are measured as the differences between the carrying value of the property, plant and equipment disposed of and fair value of the consideration received upon disposal.

Operating expenses

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• Research and development.

We invest in research and development to build capabilities to extend our blockchain platform management and software solutions, in order to manage our mining fleet more efficiently, expand within existing accounts, and to gain new customers by offering differentiated blockchain hosting services.

We invest in research and development to enhance the efficiency and effectiveness of our mining operations and hosting services and to support our efforts to capture business opportunities in adjacent high-value compute markets.

Research and development costs include compensation and benefits, stock-based compensation, other personnel related costs and professional fees.

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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, 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.

Non-operating (income) expenses, net:

Non-operating expenses, net includes (gain) loss on debt extinguishment, interest expense, net, reorganization items, net, fair value adjustments of warrants and contingent value rights, and other non-operating (income) expenses, net.

Reorganization items, net consists of costs directly associated with the reorganization during the bankruptcy period, including professional fees (including reimbursed third-party professional fees) and other bankruptcy related costs, negotiated settlements, satisfaction of allowed claims, and debtor-in-possession finance fees.

Income tax expense

Income tax expense consists of U.S.

federal, state and local income taxes.

We evaluate our ability to recognize our deferred tax assets quarterly by considering all positive and negative evidence available as proscribed by the Financial Accounting Standards Board (“FASB”) under its general principles of ASC 740, Income Taxes.

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 September 30, 2023 and 2022

federal and state income taxes.

We maintain a full valuation allowance against our U.S.

federal and state net deferred tax assets as realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain and therefore have concluded it is not more likely than not that we will realize our net deferred tax assets.

Income tax expense consists of federal and state tax expense on our operating activity, and changes to our deferred tax asset and deferred tax liability.

Deferred income tax expense consists of income taxes recorded using the asset and liability method.

Under this method, deferred tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial reporting and tax bases of existing assets and liabilities.

These differences are measured using the enacted tax rates that are expected to be in effect when these differences are anticipated to reverse.

Deferred tax assets are reduced by a valuation allowance to the extent management believes it is not more likely than not to be realized.

Results of Operations for the Three Months Ended March 31, 2024 and 2023

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

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar

(in thousands, except percentages)

Hosting revenue from customers $ 27,020 $ 35,731 $ (8,711) (24) %

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

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

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

Digital asset mining revenue $ 149,959 $ 98,026 $ 51,933 53 %

Hosting revenue from customers 29,332 18,909 10,423 55 %

Hosting revenue from related parties — 3,720 (3,720) NM

Total revenue 179,291 120,655 58,636 49 %

Cost of revenue:

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

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

Cost of digital asset mining 81,564 72,676 8,888 12%

Cost of hosting services 20,081 16,198 3,883 24%

Total cost of revenue 101,645 88,874 12,771 14%

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 (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 1,041 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 loss

77,646 31,781 45,865 144%

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

Gain from sales of digital assets 543 1,064 (521) (49)%

Impairment of digital assets — (1,056) 1,056 NM

Change in fair value of energy derivatives

(2,218) — (2,218) NM

Total non-operating expenses, net

28,988 22,776 6,212 27 %

Loss before income taxes

(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 September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 27,020 $ 35,731 $ (8,711) (24) %

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

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 %

Total revenue $ 112,904 $ 162,572 $ (49,668) (31) %

Percentage of total revenue:

Hosting revenue from customers

Hosting revenue from related parties

Equipment sales to customers

Equipment sales to related parties

Digital asset mining revenue

Total revenue

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.

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 September 30, 2023.

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 September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Cost of revenue

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

Gross profit (loss)

Losses on disposal of property, plant and equipment

(3,820) — (3,820) 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 September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

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

Percentage of total revenue

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 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 September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

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

Percentage of total revenue

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.

Impairment is measured using quoted prices of the digital asset at the time its fair value is being assessed.

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 $0.6 million and $0.7 million as of September 30, 2023 and December 31, 2022, respectively.

Impairment of goodwill and other intangibles

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

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

Percentage of total revenue

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 September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

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 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 1,799 1,415 384 27%

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Research and development

$ 2,253 $ 6,192 $ (3,939) (64) %

Percentage of total revenue

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 982 1,008 (26) (3)%

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Sales and marketing

$ 1,041 $ 39 $ 1,002 NM

Percentage of total revenue

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 14,143 21,764 (7,621) (35)%

Three Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

General and administrative

$ 23,511 $ 43,346 $ (19,835) (46) %

Percentage of total revenue

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, net:

(in thousands, except percentages)

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

Total operating expenses 16,924 24,187 (7,263) (30)%

Operating income

55,227 7,602 47,625 NM

Non-operating (income) expenses, net:

Loss (gain) on debt extinguishment

50 (20,761) 20,811 NM

Interest expense, 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

14,087 157 13,930 NM

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

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

Percentage of total revenue

Income tax expense consists of U.S.

federal, state and local income taxes.

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 September 30, Period over Period Change

2023 2022 Dollar Percentage

Hosting Segment (in thousands, except percentages)

Hosting revenue $ 29,848 $ 44,916 $ (15,068) (34) %

Equipment sales — 37,161 (37,161) (100) %

Total revenue 29,848 82,077 (52,229) (64) %

Cost of revenue:

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

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

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

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

Hosting Margin 17 % 11%

Mining Segment

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

Total revenue 83,056 80,495 2,561 3 %

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

Gross profit (loss)

Reorganization items, net (111,439) 31,559 (142,998) NM

Change in fair value of warrant and contingent value rights

(60,114) — (60,114) NM

Mining Margin 13 % (45)%

Consolidated total revenue $ 112,904 $ 162,572 $ (49,668) (31) %

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

Consolidated gross profit (loss)

Other non-operating expense (income), net

1,746 (3,069) 4,815 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 (loss) $ 15,419 $ (27,076) $ 42,495 NM

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

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 1,041 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 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

Total non-operating (income) expenses, net

(155,670) 7,886 (163,556) NM

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.

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 72,245 $ 94,407 $ (22,162) (23) %

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

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) %

Total revenue 360,471 519,063 (158,592) (31) %

Cost of revenue:

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

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

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

Total cost of revenue 276,312 463,419 (187,107) (40) %

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

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

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:

Research and development 5,308 24,305 (18,997) (78) %

Sales and marketing 3,133 11,675 (8,542) (73) %

General and administrative 69,671 174,380 (104,709) (60) %

Total operating expenses 78,112 210,360 (132,248) (63) %

Operating income (loss) 5,027 (1,473,474) 1,478,501 NM

Non-operating expenses, net:

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 — 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 (50,447) (1,707,073) 1,656,626 (97) %

Income (loss) before income taxes

210,897 (284) 211,181 NM

Income tax expense 206 104 102 98%

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

Net income (loss)

$ 210,691 $ (388) $ 211,079 NM

NM - Not Meaningful

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 72,245 $ 94,407 $ (22,162) (23) %

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

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

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

Digital asset mining revenue $ 149,959 $ 98,026 $ 51,933 53 %

Hosting revenue from customers 29,332 18,909 10,423 55 %

Hosting revenue from related parties — 3,720 (3,720) NM

Total revenue $ 179,291 $ 120,655 $ 58,636 49 %

Percentage of total revenue:

Digital asset mining revenue

Hosting revenue from customers

Hosting revenue from related parties

Equipment sales to customers

Equipment sales to related parties

Digital asset mining revenue

Total revenue

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.

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 nine months ended September 30, 2023.

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 $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 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%.

Total revenue increased by $58.6 million or 49%, to $179.3 million for the three months ended March 31, 2024, from $120.7 million for the three months ended March 31, 2023, as a result of the factors described below.

Digital asset mining revenue increased by $51.9 million or 53%, to $150.0 million for the three months ended March 31, 2024, from $98.0 million for the three months ended March 31, 2023.

The year over year increase in mining revenue was driven primarily by an increase in the price of bitcoin and an increase in our self-mining hash rate, which was due to an approximate increase of 18,000 mining units deployed.

The increase in mining revenue was partially offset by a 34% decrease in bitcoin mined.

Our self-mining hash rate increased by 20%, to 19.3 EH/s for the three months ended March 31, 2024, from 16.1 EH/s for the same period in the prior year.

The total number of bitcoins self-mined for the three months ended March 31, 2024, was 2,825 compared to 4,299.

Although our self-mining hash rate increased 20%, the global hash rate increased approximately 73%, leading to a 34% decrease in bitcoin received from self-mining.

The average price of bitcoin for the three months ended March 31, 2024, was $53,579 as compared to $22,877 for the same period in the prior year, a 134% increase.

Total hosting revenue from customers increased by $10.4 million or 55%, to $29.3 million for the three months ended March 31, 2024, from $18.9 million for the three months ended March 31, 2023.

The increase in hosting revenue from customers was primarily driven by the onboarding of new clients since March 31, 2023, under proceeds sharing arrangements.

Total hosting revenue from related parties decreased by $3.7 million or 100%, to nil for the three months ended March 31, 2024, from $3.7 million for the three months ended March 31, 2023.

There were no related-party transactions during the three months ended March 31, 2024.

Cost of revenue

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

3 unchanged sentences

77,646 31,781 45,865 144 %

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.

Cost of revenue increased by $12.8 million or 14%, to $101.6 million for the three months ended March 31, 2024, from $88.9 million for the three months ended March 31, 2023.

As a percentage of total revenue, cost of revenue totaled 57% and 74% for the three months ended March 31, 2024 and 2023, respectively.

The increase in cost of revenue was primarily attributable to increased depreciation expense of $8.6 million driven by the increase in the number of miners in service, increased proceeds sharing costs of $2.6 million associated with the Company entering proceed sharing contracts with digital asset mining customers beginning in the second fiscal quarter of 2023, a $1.1 million increase in payroll and benefits primarily related to salary adjustments, and a $0.5 million increase in power costs.

Gain from sales of digital assets

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

2 unchanged sentences

Percentage of total revenue

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 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

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Gain from sales of digital assets decreased by $0.5 million to $0.5 million for the three months ended March 31, 2024, from a gain of $1.1 million for the three months ended March 31, 2023.

For the three months ended March 31, 2024, the carrying value of our digital assets sold was $160.2 million and proceeds were $160.8 million.

For the three months ended March 31, 2023, the carrying value of our digital assets sold was $97.3 million and the sales price was $98.4 million.

Impairment of digital assets

Percentage of total revenue

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.

Impairment is measured using quoted prices of the digital asset at the time its fair value is being assessed.

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

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

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

(in thousands, except percentages)

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

Impairment of digital assets $ — $ (1,056) $ 1,056 NM

Percentage of total revenue

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

Impairment of digital assets decreased by $1.1 million to nil for the three months ended March 31, 2024, from $1.1 million for the three months ended March 31, 2023.

Upon the Company’s adoption of ASU 2023-08 effective January 1, 2024, the Company measures digital assets at fair value each reporting period with changes in fair value recognized in net income.

Prior to the adoption of ASU 2023-08, impairment existed when the carrying amount exceeded its fair value.

Impairment was measured using quoted prices of the digital asset at the time its fair value was being assessed.

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

If the then current carrying value of a digital asset exceeded the fair value so determined, an impairment loss 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 nil as of March 31, 2024 and March 31, 2023.

Change in fair value of energy derivatives

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

(in thousands, except percentages)

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

Change in fair value of energy derivatives

$ (2,218) $ — $ (2,218) NM

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

Nine Months Ended September 30, Period over Period Change

Change in fair value of energy derivatives, which is related to the change in fair value of the derivative liability of the energy forward purchase contract entered into in October 2023, was $2.2 million for the three months ended March 31, 2024, The $2.2 million decrease in fair value consisted of a realized loss of $3.0 million partially offset by an unrealized gain of $0.8 million.

Losses on disposal of property, plant and equipment

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

(in thousands, except percentages)

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

Losses on disposal of property, plant and equipment

$ (3,820) $ — $ (3,820) NM

Percentage of total revenue

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.

Losses on disposal of property, plant and equipment increased by $3.8 million to $3.8 million for the three months ended March 31, 2024, from nil for the three months ended March 31, 2023.

This loss was due to the disposal of mining equipment.

Operating Expenses

Research and development

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

Operating expenses:

(in thousands, except percentages)

1 unchanged sentence

$ 1,799 $ 1,415 $ 384 27 %

Percentage of total revenue

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

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

Sales and marketing

982 1,008 (26) (3) %

Percentage of total revenue

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

Nine Months Ended September 30, Period over Period Change

2023 2022 Dollar Percentage

(in thousands, except percentages)

General and administrative

14,143 21,764 (7,621) (35) %

Total operating expenses

$ 16,924 $ 24,187 $ (7,263) (30) %

Percentage of total revenue

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

Nine Months Ended September 30, Period over Period Change

Total operating expenses decreased $7.3 million or 30%, to $16.9 million for the three months ended March 31, 2024, from $24.2 million for the three months ended March 31, 2023.

Research and development expenses increased $0.4 million or 27%, to $1.8 million for the three months ended March 31, 2024, from $1.4 million for the three months ended March 31, 2023.

The increase was driven by a $0.5 million increase in payroll and benefits expense primarily driven by h igher salaries, partially offset by lower stock-based compensation expenses.

Sales and marketing expenses decreased nominally for the three months ended March 31, 2024, from the three months ended March 31, 2023.

General and administrative expenses decreased $7.6 million to $14.1 million for the three months ended March 31, 2024, from $21.8 million for the three months ended March 31, 2023.

The decrease was primarily driven by $13.3 million lower stock-based compensation due to forfeitures during the current quarter and no new equity awards granted during fiscal year 2023, partially offset by a $3.4 million increase in payroll and benefits expense primarily driven by increased bonuses and higher salaries, and by $1.7 million increase during the current quarter in advisor fees related to the reorganization incurred after the Effective Date.

Non-operating (income) expenses, net

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

Non-operating expenses, net:

Non-operating (income) expenses, net:

(in thousands, except percentages)

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 — 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

Loss (gain) on debt extinguishment

$ 50 $ (20,761) $ 20,811 NM

Total non-operating expenses, net

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

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.

Interest expense, net 14,087 157 13,930 NM

Reorganization items, net (111,439) 31,559 (142,998) NM

Change in fair value of warrant and contingent value rights

(60,114) — (60,114) NM

Other non-operating expense (income), net

1,746 (3,069) 4,815 NM

Total non-operating (income) expenses, net

$ (155,670) $ 7,886 $ (163,556) NM

Total non-operating expenses, net decreased by $163.6 million, to total non-operating income, net of $155.7 million for the three months ended March 31, 2024, from total non-operating expenses, net of $7.9 million for the three months ended March 31, 2023.

The decrease in total non-operating expenses, net was primarily driven by:

• a $143.0 million gain in Reorganization items, net related to a $143.8 million gain associated with the satisfaction of allowed claims, a $11.1 million decrease in debtor-in-possession financing costs, partially offset by a $12.8 million increase in reimbursed claimant professional fees, and a $60.1 million increase in change in fair value of warrant and contingent value rights, partially offset by,

• a $20.8 million gain on extinguishment of debt recognized during the same period in the prior year and a $13.9 million increase in Interest expense, net resulting from the Bankruptcy Court ordered stay on payment of pre-petition obligations, including interest during the same period in 2023.

Income tax expense

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

5 unchanged sentences

federal, state and local income taxes.

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.

For the three months ended March 31, 2024, our income tax expense was $0.2 million.

For the three months ended March 31, 2023, our income tax expense was $0.1 million.

The Company's effective tax rate for the three months ended March 31, 2024, was lower than the federal statutory rate of 21% primarily due to a valuation allowance on the Company’s deferred tax assets and certain non-deductible expenses.

Segment Total Revenue and Gross Profit

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

Nine Months Ended September 30, Period over Period Change

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

Hosting Segment (in thousands, except percentages)

Mining Segment (in thousands, except percentages)

Digital asset mining revenue $ 149,959 $ 98,026 $ 51,933 53 %

Cost of digital asset mining 81,564 72,676 8,888 12 %

Mining gross profit

$ 68,395 $ 25,350 $ 43,045 NM

Mining gross margin

Hosting Segment

Hosting revenue $ 29,332 $ 22,629 $ 6,703 30 %

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

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

Cost of revenue:

Cost of hosting services 20,081 16,198 3,883 24 %

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

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

Hosting gross profit

$ 9,251 $ 6,431 $ 2,820 44 %

Hosting Margin 22% 6%

Mining Segment

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

Total revenue 278,164 323,337 (45,173) (14) %

Cost of revenue 212,125 279,576 (67,451) (24) %

Gross profit $ 66,039 $ 43,761 $ 22,278 51 %

Mining Margin 24% 14%

Hosting gross margin

Consolidated total revenue $ 179,291 $ 120,655 $ 58,636 49 %

1 unchanged sentence

Consolidated gross profit

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

$ 77,646 $ 31,781 $ 45,865 144%

Consolidated gross margin

For the three months ended March 31, 2024, cost of revenue included depreciation expense of $27.5 million for the Mining segment and $1.3 million for the Hosting segment.

For the three months ended March 31, 2023, cost of revenue included depreciation expense $19.9 million for the Mining segment and $0.2 million for the Hosting segment.

For the three months ended March 31, 2024 and 2023, the top three hosting customers accounted for approximately 86% and 73%, respectively, of the Hosting’s segment total revenue.

For the three months ended March 31, 2024, gross profit in the Mining segment increased $43.0 million compared to the three months ended March 31, 2023, due to a higher Mining segment gross margin of 46% for the three months ended March 31, 2024, compared to 26% for the three months ended March 31, 2023.

The increase in the Mining segment gross profit was primarily due to a 53% increase in mining revenue driven by a 134% 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, partially offset by the 34% decrease in bitcoin mined.

The increase in the Mining segment gross profit was partially offset by an increase in depreciation expense as a percentage of segment revenues, which was driven primarily by an approximate increase of 18,000 miners placed in service.

Our self-mining hash rate was 19.3 EH/s for the three months ended March 31, 2024, compared to 16.1 EH/s for the three months ended March 31, 2023, an increase of 20%.

For the three months ended March 31, 2024, gross profit in the Hosting segment increased $2.8 million compared to the three months ended March 31, 2023, reflecting a Hosting segment gross margin of 32% for the three months ended March 31, 2024, compared to a gross margin of 28% for the three months ended March 31, 2023.

The increase in Hosting segment gross margin for the three months ended March 31, 2024, compared to the three months ended March 31, 2023 was primarily due to an increase in revenue of $6.7 million driven by the onboarding of new clients under proceeds sharing arrangements, partially offset by increased proceeds sharing costs of $2.6 million associated with the Company entering proceed sharing contracts with customers beginning in the second fiscal quarter of 2023 and increased depreciation expense of $1.1 million.

A reconciliation of the reportable segment gross profit to income (loss) before income taxes included in our Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023, is as follows:

Three Months Ended March 31, Period over Period Change

2024 2023 Dollar Percentage

1 unchanged sentence

Reportable segment gross profit

$ 77,646 $ 31,781 $ 45,865 144%

Gain from sales of digital assets 543 1,064 (521) (49) %

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) %

Impairment of digital assets — (1,056) 1,056 NM

Change in fair value of energy derivatives

(2,218) — (2,218) NM

Losses on exchange or disposal of property, plant and equipment (3,820) — (3,820) NM

Operating expenses:

3 unchanged sentences

Total operating expenses 16,924 24,187 (7,263) (30) %

Operating income (loss) 5,027 (1,473,474) 1,478,501 NM

Non-operating expenses, net:

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

Operating income

55,227 7,602 47,625 NM

Non-operating (income) expenses, net:

Loss (gain) on debt extinguishment

50 (20,761) 20,811 NM

Interest expense, 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

14,087 157 13,930 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) %

Reorganization items, net (111,439) 31,559 (142,998) NM

Change in fair value of warrant and contingent value rights (60,114) — (60,114) NM

Other non-operating expense (income), net 1,746 (3,069) 4,815 NM

Total non-operating (income) expenses, net

(155,670) 7,886 (163,556) NM

Income (loss) before income taxes

$ 210,897 $ (284) $ 211,181 NM

Liquidity and Capital Resources

Sources of Liquidity

Historically, we have financed our operations primarily through sales of equity securities, debt issuances, equipment financing arrangements and cash from operations, including sales of self-mined bitcoin and other digital assets.

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

Historically, we have financed our operations primarily through sales of equity securities, debt issuances, equipment financing arrangements and cash generated from operations, including sales of self-mined bitcoin.

In January 2024, the Replacement DIP Facility was repaid in full and terminated on the Effective Date of the Company’s Plan of Reorganization.

On the Effective Date, we entered into a new $80.0 million credit and guaranty agreement (the “Exit Credit Agreement”), and currently have $20.0 million of undrawn borrowing capacity under that facility.

We continue to monitor the impact of the fourth halving event in April 2024, on our liquidity.

Refer to “Recent Developments — Emergence from Bankruptcy” above for more information on our emergence from bankruptcy and the effect on our liquidity.

Operating and Capital Resources

Historically, a substantial portion of our liquidity needs arose from debt service on our outstanding indebtedness and from funding the costs of operations, working capital and capital expenditures.

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 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.

Following our Chapter 11 filing, our level of capital expenditures was reduced, and we expect them to remain at a reduced level now that we have emerged 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 March 31, 2024, that our operating cash flows, existing cash balances, and access to the Exit Credit Agreement 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 the Plan of Reorganization.

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

Cash, Cash Equivalents, Restricted Cash, Cash Requirements and Cash Flows

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.

September 30, December 31, Period over Period Change

March 31, December 31, Period over Period Change

2024 2023 Dollar Percentage

3 unchanged sentences

Total cash, cash equivalents and restricted cash $ 114,276 $ 69,709 $ 44,567 64 %

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.

As of March 31, 2024 and December 31, 2023, restricted cash of $16.2 million and $19.3 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.

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Operating Activities

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.

Changes in net cash from operating activities results primarily from cash received from hosting customers payments for power fees and equipment purchases.

Other drivers of the changes in net cash from operating activities include research and development costs, sales and marketing costs and general and administrative expenses (including personnel expenses and fees for professional services) and interest payments on debt.

Net cash provided by operating activities was $22.2 million for the three months ended March 31, 2024 and $19.9 million for the three months ended March 31, 2023.

The increase in net cash provided by operating activities was primarily due to a increase in net income of $211.1 million, a $26.9 million increase in working capital components, a $20.8 million decrease in gain on debt extinguishment, and a $8.9 million increase in depreciation and amortization.

The increase in net cash provided by operating activities was offset by a $144 million increase in non-cash reorganization items, a $51.9 million increase in digital asset mining income, a $41.7 million increase in fair value adjustment on contingent value rights, a $18.4 million increase in fair value adjustment on warrant liabilities, and a $13.3 million decrease in stock-based compensation.

Investing Activities

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.

Our net cash used in investing activities consists primarily of purchases of property, plant and equipment.

Net cash used in investing activities for the three months ended March 31, 2024 and 2023, was $32.0 million and $1.9 million, respectively.

The increase in net cash used in investing activities was driven primarily by a $30.4 million increase in purchases of property, plant and equipment.

Financing Activities

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

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.

Net cash used in financing activities consists of proceeds from stock issuances, issuances of debt, net of issuance costs and principal payments on debt, including notes payable and finance leases.

Net cash provided by financing activities for the three months ended March 31, 2024 was $54.4 million.

Net cash used by financing activities for the three months ended March 31, 2023 was $1.0 million.

The change was due primarily to $55.0 million from the issuance of common stock during the three months ended March 31, 2024 and a $20.0 million draw from the Exit Facility, partially offset by an increase in principal payments on debt of $12.7 million, an increase in principal payments on finance leases of $3.6 million, and an increase in restricted stock tax holding obligations of $3.4 million.

Future Commitments and Contractual Obligations

For a discussion of Commitments and Contractual Obligations, refer to Note 9 — Commitments and Contingencies to our unaudited consolidated financial statements.

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 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 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.

We had agreemen ts to provide hosting services to various entities that are either managed and invested in by individuals who were directors and executives of Core Scientific during fiscal year 2023.

For the three months ended March 31, 2024, there were no related-party transactions.

For the three months ended March 31, 2023, we recognized hosting revenue of $3.7 million from the contracts with related-parties.

Foreign Currency and Exchange Risk

The vast majority of our cash generated from revenue is denominated in U.S.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Critical accounting policies and estimates are those accounting policies and estimates that are both the most important to the portrayal of our net assets and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material.

Critical accounting estimates are

accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material.

Preparation of our unaudited consolidated financial statements in accordance with U.S.

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 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.

Except for the accounting and estimates relating to the issuance of Convertible and Other Notes Payable, Contingent Value Rights Obligations and Warrant Liabilities, as discussed below, there have been no material changes to the critical accounting policies and estimates during the three months ended March 31, 2024, 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, 2023, which was filed with the SEC on March 13, 2024.

Convertible and Other Notes Payable

Convertible and other notes payable (“Notes payable”) are accounted for under ASC 470, Debt (“ASC 470”) are presented at their carrying value, which is their remaining par or face amount net of any related unamortized premium, discount and issuance costs.

Notes payable are initially recognized at their present value.

When cash proceeds are received for the issuance of Notes payable the proceeds are used to establish their present value.

When cash proceeds are not received for the issuance of Notes payable their present value is based on the consideration exchanged.

This present value generally will be the Notes payable’s cash flows discounted at a market rate when it is more evident than the consideration received.

When the present value of Notes payable on issuance varies from its par or face amount, an original discount or premium results and along with any related issuance costs are used to determine an effective interest rate.

Original premium, discount and issuance costs are amortized using the level effective rate interest method.

Amortization is recognized as a component of current interest expense.

Notes payable are evaluated at issuance to determine whether or not they have features or terms which would be treated as embedded derivatives that are required to be bifurcated under ASC 815, Derivatives and Hedging (ASC 815).

At December 31, 2023 and March 31, 2024 Notes payable did not have any embedded derivatives required to be bifurcated.

Contingent Value Rights Liabilities

On the Effective Date, pursuant to the Plan of Reorganization, the Company entered into a contingent value rights agreement which provides for the issuance of the CVR to certain creditors and provides for the issuance of CVRs issued to holders of allowed general unsecured claims (“GUC”) (in such capacity, the “GUC Payees”) (the “GUC CVRs”).

The CVRs and GUC CVRs are equity-linked instruments which are either only cash settled or in some instances share settled at the Company’s sole discretion.

The Company determined that these equity-linked instruments are not indexed to the Company’s stock and are required to be recognized as liabilities which are, initially and subsequently, measured at fair value with changes in value reflected in Net income (loss).

Warrant Liabilities

On the Effective Date, pursuant to the Plan of Reorganization, holders of the Company’s previous common stock received warrants.

The warrants are equity-linked instruments.

Recent Accounting Pronouncements

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We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments.

compensation and any golden parachute payments.

We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier.

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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.

We will remain an emerging growth company under the JOBS Act until the earliest of (1) the last day of the fiscal year (a) following February 12, 2026, the fifth anniversary of the date of the first sale of common equity securities of the Company in a registered offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates meets or exceeds $700.0 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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