Core Scientific, Inc./tx 10-Q

Item 2. 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,” “Core Scientific,” or “Core” refer to Core Scientific, Inc. and its subsidiaries. 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 condensed 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 June 30, 2024 compared to June 30, 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. Overview Core Scientific is a leader in digital infrastructure for bitcoin mining and high-performance computing. We operate dedicated, purpose-built facilities for digital asset mining and are a premier provider of digital infrastructure, software solutions and services to our third-party customers. 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 high-performance compute (“HPC”) customers at our eight operational data centers in Georgia (2), Kentucky (1), North Carolina (1), North Dakota (1) and Texas (3). 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 641 megawatts (“MW”) for the six months ended June 30, 2024. We had secured approximately 1,200 MW of contracted power capacity at our sites as of June 30, 2024. We also operate and manage one of the largest data center infrastructure asset bases among publicly listed North American miners with operational capacity of approximately 830 MW in support of our mining and HPC operations. We improved our average self-mining fleet energy efficiency for the three months ended June 30, 2024, to 24.7 joules per terahash compared to 26.9 joules per terahash for the three months ended March 31, 2024. Self-mining fleet energy efficiency is a measure of our fleet’s average energy efficiency over the period presented. Our total revenue was $320.4 million and $247.6 million for the six months ended June 30, 2024 and 2023, respectively. We had operating income of $61.8 million and $17.1 million for the six months ended June 30, 2024 and 2023, respectively. We had net loss of $594.2 million and $9.6 million for the six months ended June 30, 2024 and 2023, respectively. Our adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $134.0 million and $85.3 million for the six months ended June 30, 2024 and 2023, respectively. Adjusted EBITDA is a non-GAAP financial measure. See “ Key Business Operating Metrics and Non-GAAP Financial Measures ” below for our definition of, and additional information related to Adjusted EBITDA. Recent Developments CoreWeave HPC Hosting Agreements On February 29, 2024, the Company entered into a long-term contract with CoreWeave, Inc. (“CoreWeave”) to deliver 16 MW of infrastructure at the Company’s Austin, Texas facility. Following commencement of operations in Texas, on June 3, 2024, the Company entered into a series of long-term contracts with CoreWeave to deliver approximately 200 MW of infrastructure to host CoreWeave’s HPC operations, which will require the Company to modify multiple existing sites. The site modifications commenced in the second half of fiscal 2024 and operational status is expected in the first half of fiscal 2025. On June 25, 2024, the Company announced CoreWeave’s execution of an option to secure an additional 70 MW of infrastructure to host its HPC operations. Operational status for the additional 70 MW is also expected in the second half of 2025. Further, on August 6, 2024, the Company announced that CoreWeave executed an option to secure an additional 112 MW of infrastructure to host CoreWeave’s graphics processing units (“GPUs”) for HPC operations. 44 Halving In April 2024, the Bitcoin protocol executed its fourth planned halving, wherein the bitcoin rewards issued for each solved block dropped from 6.25 bitcoin to 3.125 bitcoin, reducing the bitcoin received from bitcoin mining by 50% (excluding transactions fee rewards). As a result, assuming stable network hashrate and no change to the price of bitcoin after the halving, the Company’s revenue related to mining bitcoin would decline by 50%, resulting in a significant negative impact on revenue and gross profit. 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 condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Our Business Model Business Overview As a large-scale owner and operator of high-powered digital infrastructure for bitcoin mining and hosting services, we believe that we are well positioned to serve customers in an expanding market for digital asset mining and HPC operations. 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 “Business Strategy” 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, which has driven our recent expansion into providing HPC hosting services. We focus primarily on mining and selling bitcoin 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 growing digital asset mining operation is focused on earning bitcoin by solving complex cryptographic algorithms to validate transactions on specific bitcoin 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 on the blockchain and earn the reward in the form of bitcoin. The terms of our debt agreements currently require that we sell our bitcoin within ten days of receipt, and we typically use the proceeds to fund our operations and growth. Our data centers house bitcoin mining computers and lever our specialized construction proficiency by employing high-density, low-cost engineering and power designs. Our proprietary thermodynamic structural design manages heat and airflow to deliver best-in-class uptime and, ultimately, increased 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, customer and related party hosting hash rates. In addition to exploring additional mining facilities and mining arrangements, we may also explore additional uses of our current and future data centers to support other forms of high-value compute, such as our developing HPC hosting operations, in connection with our short-, medium- and long-term strategic planning. Business Strategy 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, to perform colocation hosting services for CoreWeave to supply up to 16 MW of data center infrastructure in support of its GPU cloud compute workloads. This facility became operational in the second fiscal quarter of 2024. During the fiscal quarter ended June 30, 2024, we completed the expansion of our Denton, Texas facility by 72 MW of data center infrastructure to support our digital asset self-mining business. On 45 June 3, 2024, the Company entered into a series of long-term contracts with CoreWeave to deliver approximately 200 MW of infrastructure to host CoreWeave’s HPC operations. On June 25, 2024, the Company announced CoreWeave’s execution of an option to secure an additional 70 MW of infrastructure to host its HPC operations. These contracts represent a significant step in HPC build-out and tap into the rapidly growing hyperscale data center market. We believe the potential for HPC hosting complements our current business model with expected stable, long-term and high margin revenue. 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. Segments We have three operating segments: “Digital Asset Self-Mining,” consisting of digital asset mining for our own account, “Digital Asset Hosted Mining,” consisting of our digital infrastructure and third-party hosting services for digital asset mining, and “HPC Hosting,” consisting of our hosting services for high-performance compute operations. Our Digital Asset Self-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 Digital Asset Hosted Mining operation segment generates revenue through the sale of electricity-based consumption contracts for our hosting services, which are recurring in nature. Our HPC Hosting operation segment generates revenue by providing colocation, cloud and connectivity services to customers in exchange for a fee. The Company’s HPC and cloud compute operations met the criteria to be considered a new segment during the second quarter of 2024. Mining Equipment We own and host specialized computers (“miners”) configured for the purpose of validating transactions on multiple digital asset network blockchains (referred to as, “mining”), predominantly the Bitcoin network. Substantially all of the miners we own and host were manufactured by Bitmain and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for bitcoin digital asset rewards. We have entered into and facilitated agreements with vendors to supply mining equipment for our 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. 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 4.1 or 28,400 miners. The second agreement was for the acquisition of Antminer S21 miners with a combined exahash of 2.5 or approximately 12,900 miners. As of June 30, 2024, the Company had received all of the miners. 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 June 30, 2024 and December 31, 2023 (miners in thousands): Bitcoin Miners in Operation as of June 30, 2024 Mining Equipment Hash rate (EH/s) Number of Miners Self-miners 19.4 163.5 Hosted miners 5.2 41.8 Total mining equipment 24.6 205.3 Bitcoin Miners in Operation as of December 31, 2023 Mining Equipment Hash rate (EH/s) Number of Miners Self-miners 16.9 158.0 Hosted miners 6.3 51.1 Total mining equipment 23.2 209.1 46 Summary of Digital Asset Activity Activity related to our digital asset balances for the six months ended June 30, 2024 and 2023, were as follows (in thousands): June 30, 2024 June 30, 2023 Digital assets, beginning of period $ 2,284 $ 724 Cumulative effect of ASU 2023-08, adopted January 1, 2024 1 24 — Digital assets, beginning of period, as adjusted 2,308 724 Digital asset self-mining revenue, net of receivables 2 261,566 194,917 Mining proceeds from shared hosting 13,818 4,610 Proceeds from sales of digital assets (277,562) (199,646) Change in fair value of digital assets (41) — Gain from sale of digital assets — 1,988 Impairment of digital assets — (2,183) Payment of board fee (89) (89) Digital assets, end of period $ — $ 321 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 June 30, 2024 and June 30, 2023, there was $0.8 million and $1.0 million, respectively, of digital asset receivable included in prepaid expenses and other current assets on the condensed consolidated balance sheets. Performance Metrics Hash Rate Miners perform computational operations in support of digital asset blockchains measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain; therefore, a miner’s “hash rate” refers to the rate at which it is capable of solving such computations. 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. Network Hash Rate In digital asset mining, hash rate is a measure of the processing speed at which a mining computer operates in its attempt to secure a specific digital asset. A participant in a blockchain network’s mining function has a hash rate equivalent to the total of all its miners seeking to mine a specific digital asset. System-wide, the total network hash rate reflects the sum total of all miners seeking to mine each specific type of digital asset. A participant’s higher total hash rate relative to the system-wide total hash rate generally results in a corresponding higher success rate in digital asset rewards over time as compared to mining participants with relatively lower total hash rates. However, as the relative market price for a digital asset, such as bitcoin, increases, more users are incentivized to mine for that digital asset, which increases the network’s overall hash rate. As a result, a mining participant must increase its total hash rate in order to maintain its relative possibility of solving a block on the network blockchain. Achieving greater hash rate power by deploying increasingly sophisticated miners in ever greater quantities has become one of the bitcoin mining industry’s great sources of competition. Our goal is to deploy a powerful fleet of self- and hosted-miners, while operating as energy-efficiently as possible. Key Factors Affecting Our Financial Performance Market Price of Digital Assets Our business is heavily dependent on the spot price of bitcoin. 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, 47 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. Our financial performance and continued growth depend in large part on our ability to mine for digital assets profitably and to attract customers for our digital asset hosted mining services. Increases in power costs, inability to mine digital assets efficiently and to sell digital assets at favorable prices will reduce our operating margins, impact our ability to attract customers for our services, may harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations. Over time, we have observed a positive trend in the total market capitalization of digital assets, which suggests increased adoption. However, historical trends are not indicative of future adoption, and it is possible that the adoption of digital assets and blockchain technology may slow, take longer to develop, or never be broadly adopted, which would negatively impact our business and operating results. Network Hash Rate Our business is not only impacted by the volatility in digital asset prices, but also by increases in the competition for digital asset production. For bitcoin, this increased competition is described as the 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. Difficulty The increase in bitcoin’s network hash rate results in a regular increase in the cryptographic complexity associated with solving blocks on its blockchain, or its difficulty. Increased difficulty reduces the mining proceeds of the equipment proportionally and eventually requires bitcoin miners to upgrade their mining equipment to remain profitable and compete effectively with other miners. Similarly, a decline in network hash rate results in a decrease in difficulty, increasing mining proceeds. 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 transaction fees increases mining proceeds. 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. The impact to revenue in each scenario assumes only one driver increases or decreases and all others are held constant. Impact to Revenue Driver Increase in Driver Decrease in Driver Market Price of Bitcoin Favorable Unfavorable Core Scientific Hash Rate Favorable Unfavorable Difficulty Unfavorable Favorable Transaction Fees Favorable Unfavorable Halving 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. 48 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; (3) on May 11, 2020 at block 630,000; 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 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 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. 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 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 Competition and Customers In addition to factors underlying our mining business growth and profitability, the success of our hosting business 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. In digital asset mining, 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 sites with reliable sources of high power, and evaluating new technology developments in the industry. Presently, the information concerning the activities of digital asset miners may not be readily available as most 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. In HPC hosting, we compete with other providers of high-power data center capacity, such as major data center real estate investment trusts (“REITs”), developers of data centers, hyperscalers and bitcoin miners with capacity suitable for HPC hosting. This competition focuses primarily on the identification and acquisition of new, high-power sites, but also includes competition for the capital required to build or modify existing sites to support HPC hosting. Additionally, the modification of some of our data centers to 49 accommodate HPC hosting involves the procurement of critical equipment, technologies and skilled labor, which are in high demand from other entities seeking to address the same market opportunity, thereby putting us in competition with many other organizations for those resources. We believe that because of our operational high-power data center capacity and the experience, knowledge, capabilities and relationships of our data center development and operations team, we are uniquely qualified to address the current strong demand for high-power data center capacity to support HPC applications successfully. 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 technology stack 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 power sourcing and construct proprietary, passively-cooled digital asset mining data centers at scale. Our operational digital asset mining facilities lever our specialized design and construction proficiency by employing high-density, low-cost engineering and power designs. Our proprietary thermodynamic solution manages heat and airflow to deliver best-in-class uptime and, ultimately, increases mining rewards to us and to our hosted mining customers. We design our facilities to maximize both the efficiency and lifespan of our mining equipment. We have developed 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 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 believe we possess unique knowledge of data center design principles and systems integration architectures, as well as extensive experience designing, constructing and operating data centers that differentiates and informs our plans for modifying digital asset mining data centers to support HPC hosting, and for developing new data centers designed to support future high-value compute requirements. This knowledge includes designs for higher rack energy densities than currently offered in the legacy data center market to satisfy emerging requirements for advanced technologies supporting emerging workloads such as artificial intelligence. We develop proprietary hardware and software solutions that support our current operations and represent potential future growth opportunities. 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 infrastructure and mining fleet more efficiently and productively. Regulation 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 50 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 Operating Metrics and Non-GAAP Financial Measures In addition to our financial results, we use the following business operating metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions. For a definition of these key business operating metrics, see the sections titled “Self-Mining Hash Rate,” “Cost of Self-Mining One Bitcoin and Hash Cost,” (below), and for non-GAAP financial measures, see the section titled “Adjusted EBITDA” (below). June 30, 2024 2023 Self-Mining Hash rate (Exahash per second) 19.4 15.1 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Adjusted EBITDA (in millions) $ 46.0 $ 45.0 $ 134.0 $ 85.3 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cash Costs per Bitcoin Direct power cost per bitcoin self-mined $ 24,533 $ 11,253 $ 19,136 $ 10,775 Operational costs per bitcoin self-mined 1 5,346 2,218 3,830 1,958 Total cost to self-mine one bitcoin 2 $ 29,879 $ 13,471 $ 22,966 $ 12,733 Cash-Based Hash Cost 3 Direct power cost per terahash $ 0.025 $ 0.030 $ 0.026 $ 0.032 Operational costs per terahash 1 0.005 0.006 0.005 0.006 Total cash-based hash cost 3 $ 0.030 $ 0.036 $ 0.031 $ 0.038 1 Includes personnel and related costs, software, telecommunications, security, etc. Amount excludes stock-based compensation and depreciation. 2 Represents our direct cash costs of power and operational costs based on our self-mining/hosting mix divided by total bitcoin self-mined during the periods presented. 3 Represents the cash expense of power and facilities operation cost divided by our self-mining fleet hash rate, in terahash. Self-Mining Hash Rate We operate mining hardware which performs computational operations in support of the blockchain measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain; therefore, a miner’s “hash rate” refers to the rate at which the hardware is capable of solving such computations. Our hash rate represents the hash rate of our miner fleet, which drives the digital asset rewards that will be earned by our fleet. We calculate and report our hash rate in exahash per second (“EH/s”). One exahash equals one quintillion hashes per second. We measure the hash rate produced by our mining fleet through our management software Minder TM , which consolidates the reported hash rate from each miner. The method by which we measure our hash rate may differ from how other operators present such a measure. Generally, miners with a greater hash rate relative to the global Bitcoin network hash rate at a given time will over time, have a greater chance of earning a bitcoin, as compared to miners with relatively lower total hash rates. Further, with the increase in demand for bitcoin contributing to an increase in computational resources for digital asset mining, the global network hash rate has increased, 51 and we expect it to continue to increase. As such, our self-mining hash rate provides useful information to investors because it demonstrates our capacity, and our competitive advantage, for mining bitcoin, which contributes to our digital asset self-mining revenue. Management uses our self-mining hash rate to monitor our performance and competitive advantage in mining bitcoin as global competition also increases. Our self-mining hash rate was 19.4 EH/s and 15.1 EH/s as of June 30, 2024 and 2023, respectively representing a 28% increase year over year. Our combined self-mining and customer and related party hosting hash rate increased 10%, to 24.6 EH/s as of June 30, 2024, from 22.3 EH/s as of June 30, 2023. Cost of Self-Mining One Bitcoin and Hash Cost Our profitability with respect to self-mining is heavily dependent upon our cost to mine a bitcoin, calculated during a particular period as the actual cash expense for power and other mining facility operations cash expenditures attributable to bitcoin self-mined, divided by the total bitcoin self-mined during the period presented. Our cost efficiency with respect to solving computations on the Bitcoin network to mine bitcoin is reflected in our cash-based hash cost, which is calculated as the actual cash expense for power and other mining facility operations cash expenditures attributable to bitcoin self-mined, divided by our self-mining hash rate, in terahash. The Company excludes stock-based compensation and depreciation from calculations of these operating metrics. The cost of self-mining one bitcoin metric provides useful information to investors as it demonstrates our capacity to profitably mine bitcoin when comparing it to the price of bitcoin, particularly given volatility in energy prices as well as in the price of bitcoin. Management uses this metric to monitor both our cost efficiency in mining bitcoin as compared to our past performance and the performance of competitors, as well as our continued ability to profitably mine bitcoin. Similarly, the hash cost provides useful information to investors as it demonstrates our cost efficiency in solving computations on the Bitcoin network to mine bitcoin. Management uses this information to monitor our cost efficiency in mining bitcoin as compared to our past performance and the performance of our competitors. Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure defined as our net income or (loss), adjusted to eliminate the effect of (i) interest income, interest expense, and other income (expense), net; (ii) provision for income taxes; (iii) depreciation and amortization; (iv) stock-based compensation expense; (v) Reorganization items, net; (vi) change in fair value of energy derivatives; (vii) change in fair value of warrant and contingent value rights; (viii) business or site startup costs which are not reflective of the ongoing costs incurred after startup, (ix) bankruptcy advisory costs incurred related to reorganization which are not reflective of the ongoing costs incurred in post-emergence operations, and (x) certain additional non-cash 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. We believe Adjusted EBITDA is an important measure because it allows management, investors, and our Board of Directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making the adjustments described above. In addition, it provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business, as it removes the effect of net interest expense, taxes, certain non-cash items, variable charges and timing differences. 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 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. Our presentation of this measure should not be construed as an inference that its future results will be unaffected by unusual items. Further, this non-GAAP financial measure should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). We compensate for these limitations by relying primarily on GAAP results and using Adjusted EBITDA on a supplemental basis. 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 income (loss) to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business. 52 The following table presents a reconciliation of net loss to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023, (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 1 2024 2023 1 Adjusted EBITDA Net loss $ (804,896) $ (9,260) $ (594,205) $ (9,648) Adjustments: Interest expense, net 14,775 (36) 28,862 121 Income tax expense 144 129 350 233 Depreciation and amortization 29,477 20,473 58,473 40,567 Stock-based compensation expense 8,494 14,280 7,434 26,553 Unrealized fair value adjustment on energy derivatives (1,465) — (2,262) — Gain (loss) on disposal of property, plant and equipment (268) 174 3,552 174 HPC startup costs 4,601 — 4,601 — Bankruptcy advisory costs (1,380) — 307 — Loss (gain) on debt extinguishment 120 — 170 (20,761) Reorganization items, net — 18,455 (111,439) 50,014 Change in fair value of warrant and contingent value rights 796,035 — 735,921 — Other non-operating expenses (income), net 401 181 2,147 (2,888) Other (2) 594 121 962 Adjusted EBITDA $ 46,036 $ 44,990 $ 134,032 $ 85,327 1 Certain prior year amounts have been reclassified for consistency with the current year presentation. Components of Results of Operations Revenue Our revenue consists primarily of digital asset self-mining income, and fees from our digital asset hosting and HPC hosting operations. The Company’s HPC and cloud compute operations began during the second quarter of 2024. • Digital asset self-mining revenue. We operate a digital asset self-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. The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, records how much hash rate each participant contributes to the pool, and assigns digital asset rewards earned by the pool among its participants in proportion to the hash rate each participant contributed to the pool in connection with solving a block. Revenues from digital asset self-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. • Digital asset hosted mining revenue from customers and related parties. Digital asset hosted mining 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 hosted mining customer contracts based on proceed sharing. Under these new contracts, customers pay for the cost of digital asset hosting and infrastructure, and we share the proceeds that are generated. 53 • HPC hosting revenue. HPC hosting revenue is generated by licensing data center space and related services to licensees. These licensing agreements and orders include lease components, nonlease components (such as power delivery, physical security, maintenance and other billable expenses), as well as noncomponent elements such as taxes. Under these contracts, customers pay fixed payments (based on electric capacity) and variable payments on a recurring basis. Cost of revenue The Company’s cost of digital asset self-mining and digital asset hosted mining services, primarily consist of electricity costs, salaries, stock-based compensation, depreciation of property, plant and equipment used to perform mining operations and hosting services and other related costs. Cost of HPC hosting services primarily consist of lease expense and electricity costs. Change in fair value of digital assets The Company adopted ASU 2023-08 effective January 1, 2024. Under ASU 2023-08, the Company measures digital assets at fair value with the changes in fair value during the reporting period recognized in change in fair value of digital assets. Recognition of digital asset results prior to adoption are described below. Gain from sale of digital assets Prior to the adoption of ASU 2023-08 effective January 1, 2024, gain from sale of digital assets consisted of the excess of sales proceeds over the carrying value of the digital assets at the time of sale. Gains were recognized as they were realized upon sale(s). Impairment of digital assets 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 the new carrying value would not be adjusted upward for any subsequent increase in fair value until sale. 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. Gain (loss) on disposal of property, plant and equipment Gain (loss) 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 Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Each is outlined in more detail below. • Research and development. 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. • Sales and marketing. Sales and marketing expenses consist of marketing expenses, trade shows and events, professional fees, compensation and benefits, stock-based compensation and other personnel-related costs. • General and administrative. General and administrative expenses include compensation and benefits expenses for employees who are not part of the research and development and sales and marketing organization and other personnel-related expenses. Also included are stock-based compensation, rent, HPC startup costs, bankruptcy advisor fees related to the reorganization, professional fees, business insurance, auditor fees, bad debt, amortization of intangibles, franchise taxes, and bank fees. HPC startup costs were specifically incurred preparing for and entering into the HPC hosting 54 business on activities and services that are not expected to be utilized within future ongoing operations of the HPC hosting business. Non-operating (income) expenses, net: Non-operating expenses, net includes (gain) loss on debt extinguishment, interest expense (income), 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 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. 55 Results of Operations for the Three Months Ended June 30, 2024 and 2023 The following table sets forth our selected Condensed Consolidated Statements of Operations for each of the periods indicated. Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Revenue: (in thousands, except percentages) Digital asset self-mining revenue $ 110,743 $ 97,082 $ 13,661 14 % Digital asset hosted mining revenue from customers 24,840 26,316 (1,476) (6) % Digital asset hosted mining revenue from related parties — 3,514 (3,514) NM HPC hosting revenue 5,519 — 5,519 NM Total revenue 141,102 126,912 14,190 11 % Cost of revenue: Cost of digital asset self-mining 80,001 66,846 13,155 20% Cost of digital asset hosted mining services 17,393 23,107 (5,714) (25)% Cost of HPC hosting services 4,891 — 4,891 NM Total cost of revenue 102,285 89,953 12,332 14% Gross profit 38,817 36,959 1,858 5% Change in fair value of digital assets (584) — (584) NM Gain from sale of digital assets — 931 (931) NM Impairment of digital assets — (1,127) 1,127 NM Change in fair value of energy derivatives (539) — (539) NM Gain (loss) on disposal of property, plant and equipment 268 (174) 442 NM Operating expenses: Research and development 2,174 1,640 534 33% Sales and marketing 2,966 1,084 1,882 174% General and administrative 26,243 24,396 1,847 8% Total operating expenses 31,383 27,120 4,263 16% Operating income 6,579 9,469 (2,890) NM Non-operating expenses, net: Loss on debt extinguishment 120 — 120 NM Interest expense (income), net 14,775 (36) 14,811 NM Reorganization items, net — 18,455 (18,455) NM Change in fair value of warrant and contingent value rights 796,035 — 796,035 NM Other non-operating expense, net 401 181 220 122% Total non-operating expenses, net 811,331 18,600 792,731 NM Loss before income taxes (804,752) (9,131) (795,621) NM Income tax expense 144 129 15 12% Net loss $ (804,896) $ (9,260) $ (795,636) NM NM - Not Meaningful 56 Revenue Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Revenue: (in thousands, except percentages) Digital asset self-mining revenue $ 110,743 $ 97,082 $ 13,661 14 % Digital asset hosted mining revenue from customers 24,840 26,316 (1,476) (6) % Digital asset hosted mining revenue from related parties — 3,514 (3,514) NM HPC hosting revenue 5,519 — 5,519 NM Total revenue $ 141,102 $ 126,912 $ 14,190 11 % Percentage of total revenue: Digital asset self-mining revenue 78 % 76 % Digital asset hosted mining revenue from customers 18 % 21 % Digital asset hosted mining revenue from related parties — % 3 % HPC hosting revenue 4 % — % Total revenue 100 % 100 % Total revenue increased by $14.2 million or 11%, to $141.1 million for the three months ended June 30, 2024, from $126.9 million for the three months ended June 30, 2023, as a result of the factors described below. Digital asset self-mining revenue increased by $13.7 million or 14%, to $110.7 million for the three months ended June 30, 2024, from $97.1 million for the three months ended June 30, 2023. The 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 19,000 mining units deployed. The increase in mining revenue was partially offset by a 52% decrease in bitcoin mined. Our self-mining hash rate increased by 28%, to 19.4 EH/s for the three months ended June 30, 2024, from 15.1 EH/s for the same period in the prior year. The total number of bitcoins self-mined for the three months ended June 30, 2024, was 1,680 compared to 3,470. Although our self-mining hash rate increased 28%, the April 2024 halving and a 68% increase in network hash rate lead to a 52% decrease in bitcoin received from self-mining. The average price of bitcoin for the three months ended June 30, 2024, was $65,677 as compared to $28,034 for the same period in the prior year, a 134% increase. Total digital asset hosted mining revenue from customers decreased by $1.5 million or 6%, to $24.8 million for the three months ended June 30, 2024, from $26.3 million for the three months ended June 30, 2023. The decrease in digital asset hosted mining revenue from customers was primarily driven by the termination of contracts with several customers since June 30, 2023. Total digital asset hosted mining revenue from related parties was nil for the three months ended June 30, 2024, compared to $3.5 million for the three months ended June 30, 2023. There were no related-party transactions during the three months ended June 30, 2024. Total HPC hosting revenue was $5.5 million for the three months ended June 30, 2024, compared to nil for the same period in the prior year due to the onboarding of CoreWeave during the quarter ended June 30, 2024. Cost of revenue Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Cost of revenue $ 102,285 $ 89,953 $ 12,332 14 % Gross profit 38,817 36,959 1,858 5 % Gross margin 28% 29% Cost of revenue increased by $12.3 million or 14%, to $102.3 million for the three months ended June 30, 2024, from $90.0 million for the three months ended June 30, 2023. As a percentage of total revenue, cost of revenue totaled 72% and 71% for the three 57 months ended June 30, 2024 and 2023, respectively. The increase in cost of revenue was primarily attributable to increased depreciation expense of $8.8 million driven by the increase in the number of miners in service, HPC hosting costs, primarily lease and power, of $4.9 million incurred during the current quarter with no comparable activity for the same period in fiscal 2023, increased proceeds sharing costs of $1.2 million associated with the increase in average bitcoin price over prior year, a $1.1 million increase in payroll and benefits primarily related to salary adjustments, partially offset by a $3.2 million decrease in power costs. Change in fair value of digital assets Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Change in fair value of digital assets $ (584) $ — $ (584) NM Percentage of total revenue — % — % Change in fair value of digital assets was $0.6 million for the three months ended June 30, 2024, and reflects the Company’s adoption of ASU 2023-08 effective January 1, 2024. The $0.6 million decrease in fair value consisted of a realized loss of $0.6 million. Gain from sale of digital assets Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Gain from sale of digital assets $ — $ 931 $ (931) NM Percentage of total revenue — % 1 % Gain from sale of digital assets was nil for the three months ended June 30, 2024, compared to a gain of $0.9 million for the three months ended June 30, 2023. There are no gains from sale of digital assets recorded in fiscal 2024 due to the Company’s adoption of ASU 2023-08 effective January 1, 2024. For the three months ended June 30, 2023, the carrying value of our digital assets sold was $102.5 million and the sales price was $101.2 million. Impairment of digital assets Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Impairment of digital assets $ — $ (1,127) $ 1,127 NM Percentage of total revenue — % (1) % Impairment of digital assets was nil for the three months ended June 30, 2024, compared to $1.1 million for the three months ended June 30, 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 June 30, 2024 and $0.3 million as of June 30, 2023. 58 Change in fair value of energy derivatives Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Change in fair value of energy derivatives $ (539) $ — $ (539) NM Percentage of total revenue — % — % 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 $0.5 million for the three months ended June 30, 2024. The $0.5 million change in fair value consisted of a realized loss of $2.0 million partially offset by an unrealized gain of $1.5 million. Gain (loss) on disposal of property, plant and equipment Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Gain (loss) on disposal of property, plant and equipment $ 268 $ (174) $ 442 NM Percentage of total revenue — % — % Gain (loss) on disposal of property, plant and equipment increased by $0.4 million to a gain of $0.3 million for the three months ended June 30, 2024, from a loss $0.2 million for the three months ended June 30, 2023. This gain (loss) was due to the disposal of mining equipment. Operating Expenses Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Operating expenses: (in thousands, except percentages) Research and development $ 2,174 $ 1,640 $ 534 33 % Sales and marketing 2,966 1,084 1,882 NM General and administrative 26,243 24,396 1,847 8 % Total operating expenses $ 31,383 $ 27,120 $ 4,263 16 % Percentage of total revenue 22 % 21 % Total operating expenses increased $4.3 million or 16%, to $31.4 million for the three months ended June 30, 2024, from $27.1 million for the three months ended June 30, 2023. Research and development expenses increased $0.5 million or 33%, to $2.2 million for the three months ended June 30, 2024, from $1.6 million for the three months ended June 30, 2023. The increase was driven by a $0.4 million increase in payroll and benefits expense primarily driven by h igher salaries and a $0.1 million increase in stock-based compensation expenses. Sales and marketing expenses increased $1.9 million to $3.0 million for the three months ended June 30, 2024, from $1.1 million for the three months ended June 30, 2023. The increase was driven primarily by a $1.3 million increase in stock-based compensation expenses and a $0.2 million increase in sales and marketing event expenses. General and administrative expenses increased $1.8 million to $26.2 million for the three months ended June 30, 2024, from $24.4 million for the three months ended June 30, 2023. The increase was primarily driven by a $6.6 million increase in payroll and benefits expense primarily driven by increased bonuses and higher salaries and $4.6 million of HPC startup costs incurred during the 59 current quarter with no comparable activity for the same period in fiscal 2023, partially offset by $7.8 million lower stock-based compensation due to cancellation and forfeitures of equity-based awards during the quarter ended June 30, 2024 and a $1.6 million decrease in bankruptcy advisory costs. Non-operating expenses, net Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Non-operating expenses (income), net: (in thousands, except percentages) Loss on debt extinguishment $ 120 $ — $ 120 NM Interest expense (income), net 14,775 (36) 14,811 NM Reorganization items, net — 18,455 (18,455) NM Change in fair value of warrant and contingent value rights 796,035 — 796,035 NM Other non-operating expense, net 401 181 220 122% Total non-operating expenses, net $ 811,331 $ 18,600 $ 792,731 NM Total non-operating expenses, net increased by $792.7 million, to total non-operating expense, net of $811.3 million for the three months ended June 30, 2024, from total non-operating expenses, net of $18.6 million for the three months ended June 30, 2023. The increase in total non-operating expenses, net was primarily driven by: • the Company’s entry into a warrant agreement and Convertible Value Rights Agreement pursuant to the Plan of Reorganization. During the three months ended June 30, 2024, we incurred a $796.0 million Change in fair value of warrant and contingent value rights driven by the increase in the Company’s stock price to $9.30 per share as of June 30, 2024, from $3.54 per share as of March 31, 2024. The increase in stock price resulted in a $827.7 million increase in the fair value of the warrant liabilities during the three months ended June 30, 2024, partially offset by a $31.7 million decrease in fair value of contingent value rights, and; • a $14.8 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; partially offset by, • $18.5 million in Reorganization items, net for the three months ended June 30, 2023, with no comparable activity for the same period in fiscal 2024 due the Company’s emergence from bankruptcy during the first quarter 2024. Income tax expense Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Income tax expense $ 144 $ 129 $ 15 12 % Percentage of total revenue — % — % Income tax expense consists of U.S. federal, state and local income taxes. For the three months ended June 30, 2024, our income tax expense was $0.1 million. For the three months ended June 30, 2023, our income tax expense was $0.1 million. The Company's effective tax rate for the three months ended June 30, 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. 60 Segment Total Revenue and Gross Profit The following table presents total revenue and gross profit by reportable segment for the periods presented: Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Digital Asset Self-Mining Segment (in thousands, except percentages) Digital asset self-mining revenue $ 110,743 $ 97,082 $ 13,661 14 % Cost of digital asset self-mining 80,001 66,846 13,155 20 % Digital Asset Self-Mining gross profit $ 30,742 $ 30,236 $ 506 2% Digital Asset Self-Mining gross margin 28 % 31% Digital Asset Hosted Mining Segment Digital asset hosted mining revenue from customers $ 24,840 $ 29,830 $ (4,990) (17) % Cost of digital asset hosted mining services 17,393 23,107 (5,714) (25) % Digital Asset Hosted Mining gross profit $ 7,447 $ 6,723 $ 724 11 % Digital Asset Hosted Mining gross margin 30 % 23 % HPC Hosting Segment HPC hosting revenue $ 5,519 $ — $ 5,519 NM Cost of HPC hosting services 4,891 — 4,891 NM HPC Hosting gross profit $ 628 $ — $ 628 NM HPC Hosting gross margin 11% —% Consolidated Consolidated total revenue $ 141,102 $ 126,912 $ 14,190 11 % Consolidated cost of revenue 102,285 89,953 12,332 14 % Consolidated gross profit $ 38,817 $ 36,959 $ 1,858 5% Consolidated gross margin 28% 29% For the three months ended June 30, 2024, cost of revenue included depreciation expense of $28.2 million for the Digital Asset Self-Mining segment, $1.0 million for the Digital Asset Hosted Mining segment, and a nominal amount for the HPC Hosting segment. For the three months ended June 30, 2023, cost of revenue included depreciation expense of $18.8 million for the Digital Asset Self-Mining segment, $1.5 million for the Digital Asset Hosted Mining segment, and nil for the HPC Hosting segment. For the three months ended June 30, 2024 and 2023, the top three hosting customers accounted for approximately 90% and 76%, respectively, of the Digital Asset Hosted Mining’s segment total revenue. For the three months ended June 30, 2024, gross profit in the Digital Asset Self-Mining segment increased $0.5 million compared to the three months ended June 30, 2023. The increase in the Digital Asset Self-Mining segment gross profit was primarily due to a 14% increase in mining revenue driven by a 134% increase in the price of bitcoin and an increase in our self-mining hash rate and an approximate increase of 19,000 mining units deployed, partially offset by the 52% decrease in bitcoin mined due to the April 2024 halving and higher network difficulty. Our self-mining hash rate was 19.4 EH/s for the three months ended June 30, 2024, compared to 15.1 EH/s for the three months ended June 30, 2023, an increase of 28%. For the three months ended June 30, 2024, gross profit in the Digital Asset Hosted Mining segment increased $0.7 million compared to the three months ended June 30, 2023, reflecting a Digital Asset Hosted Mining segment gross margin of 30% for the three months ended June 30, 2024, compared to a gross margin of 23% for the three months ended June 30, 2023. The increase in Digital Asset Hosted Mining segment gross margin for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 was primarily due to a larger share of more profitable hosting arrangements. 61 For the three months ended June 30, 2024, gross profit in the HPC Hosting segment was $0.6 million compared to nil for the three months ended June 30, 2023, due to the HPC Hosting segment starting operation during the quarter ended June 30, 2024. A reconciliation of the reportable segment gross profit to loss before income taxes included in our Condensed Consolidated Statements of Operations for the three months ended June 30, 2024 and 2023, is as follows: Three Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Reportable segment gross profit $ 38,817 $ 36,959 $ 1,858 5% Change in fair value of digital assets (584) — (584) NM Gain from sale of digital assets — 931 (931) NM Impairment of digital assets — (1,127) 1,127 NM Change in fair value of energy derivatives (539) — (539) NM Gain (loss) on disposal of property, plant and equipment 268 (174) 442 NM Operating expenses: Research and development 2,174 1,640 534 33 % Sales and marketing 2,966 1,084 1,882 NM General and administrative 26,243 24,396 1,847 8 % Total operating expenses 31,383 27,120 4,263 16 % Operating income 6,579 9,469 (2,890) (31)% Non-operating (income) expenses, net: Loss on debt extinguishment 120 — 120 NM Interest expense (income), net 14,775 (36) 14,811 NM Reorganization items, net — 18,455 (18,455) NM Change in fair value of warrant and contingent value rights 796,035 — 796,035 NM Other non-operating expense, net 401 181 220 122% Total non-operating expenses, net 811,331 18,600 792,731 NM Loss before income taxes $ (804,752) $ (9,131) $ (795,621) NM 62 Results of Operations for the Six Months Ended June 30, 2024 and 2023 The following table sets forth our selected Condensed Consolidated Statements of Operations for each of the periods indicated. Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Revenue: (in thousands, except percentages) Digital asset self-mining revenue $ 260,702 $ 195,108 $ 65,594 34 % Digital asset hosted mining revenue from customers 54,172 45,225 8,947 20 % Digital asset hosted mining revenue from related parties — 7,234 (7,234) NM HPC hosting revenue 5,519 — 5,519 NM Total revenue 320,393 247,567 72,826 29 % Cost of revenue: Cost of digital asset self-mining 161,565 139,522 22,043 16% Cost of digital asset hosted mining services 37,474 39,305 (1,831) (5)% Cost of HPC hosting services 4,891 — 4,891 NM Total cost of revenue 203,930 178,827 25,103 14% Gross profit 116,463 68,740 47,723 69% Change in fair value of digital assets (41) — (41) NM Gain from sale of digital assets — 1,995 (1,995) NM Impairment of digital assets — (2,183) 2,183 NM Change in fair value of energy derivatives (2,757) — (2,757) NM Loss on disposal of property, plant and equipment (3,552) (174) (3,378) NM Operating expenses: Research and development 3,973 3,055 918 30% Sales and marketing 3,948 2,092 1,856 89% General and administrative 40,386 46,160 (5,774) (13)% Total operating expenses 48,307 51,307 (3,000) (6)% Operating income 61,806 17,071 44,735 NM Non-operating (income) expenses, net: Loss (gain) on debt extinguishment 170 (20,761) 20,931 NM Interest expense, net 28,862 121 28,741 NM Reorganization items, net (111,439) 50,014 (161,453) NM Change in fair value of warrant and contingent value rights 735,921 — 735,921 NM Other non-operating expense (income), net 2,147 (2,888) 5,035 NM Total non-operating expenses, net 655,661 26,486 629,175 NM Loss before income taxes (593,855) (9,415) (584,440) NM Income tax expense 350 233 117 50% Net loss $ (594,205) $ (9,648) $ (584,557) NM NM - Not Meaningful 63 Revenue Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Revenue: (in thousands, except percentages) Digital asset self-mining revenue $ 260,702 $ 195,108 $ 65,594 34 % Digital asset hosted mining revenue from customers 54,172 45,225 8,947 20 % Digital asset hosted mining revenue from related parties — 7,234 (7,234) NM HPC hosting revenue 5,519 — 5,519 NM Total revenue $ 320,393 $ 247,567 $ 72,826 29 % Percentage of total revenue: Digital asset self-mining revenue 81 % 79 % Digital asset hosted mining revenue from customers 17 % 18 % Digital asset hosted mining revenue from related parties — % 3 % HPC hosting revenue 2 % — % Total revenue 100 % 100 % Total revenue increased by $72.8 million or 29%, to $320.4 million for the six months ended June 30, 2024, from $247.6 million for the six months ended June 30, 2023, as a result of the factors described below. Digital asset self-mining revenue increased by $65.6 million or 34%, to $260.7 million for the six months ended June 30, 2024, from $195.1 million for the six months ended June 30, 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 fleet mix and efficiency, and an approximate increase of 19,000 mining units deployed. The increase in mining revenue was partially offset by a 42% decrease in bitcoin mined. Our self-mining hash rate increased by 28%, to 19.4 EH/s for the six months ended June 30, 2024, from 15.1 EH/s for the same period in the prior year. The total number of bitcoins self-mined for the six months ended June 30, 2024, was 4,505 compared to 7,768. Although our self-mining hash rate increased 28%, the April 2024 halving and the six month average network hash rate increased approximately 77%, leading to a 42% decrease in bitcoin received from self-mining. The average price of bitcoin for the six months ended June 30, 2024, was $59,629 as compared to $25,470 for the same period in the prior year, a 134% increase. Total digital asset hosted mining revenue from customers increased by $8.9 million or 20%, to $54.2 million for the six months ended June 30, 2024, from $45.2 million for the six months ended June 30, 2023. The increase in hosted mining revenue from customers was primarily driven by the onboarding of new customers since June 30, 2023, under proceeds sharing arrangements. Total digital asset hosted mining revenue from related parties was nil for the six months ended June 30, 2024, compared to $7.2 million for the six months ended June 30, 2023. There were no related-party transactions during the six months ended June 30, 2024. Total HPC hosting revenue was $5.5 million for the six months ended June 30, 2024, compared to nil for the same period in the prior year due to the HPC Hosting segment starting operation during the quarter ended June 30, 2024. Cost of revenue Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Cost of revenue $ 203,930 $ 178,827 $ 25,103 14 % Gross profit 116,463 68,740 47,723 69 % Gross margin 36 % 28 % Cost of revenue increased by $25.1 million or 14%, to $203.9 million for the six months ended June 30, 2024, from $178.8 million for the six months ended June 30, 2023. As a percentage of total revenue, cost of revenue totaled 64% and 72% for the 64 six months ended June 30, 2024 and 2023, respectively. The increase in cost of revenue was primarily attributable to increased depreciation expense of $17.4 million driven by the increase in the number of miners in service, HPC hosting costs, primarily rent and power, of $4.9 million incurred during the current fiscal year with no comparable activity for the same period in fiscal 2023, increased proceeds sharing costs of $3.7 million associated with the increase in average bitcoin price over prior year, a $2.2 million increase in payroll and benefits primarily related to salary adjustments, and a $1.1 million i ncrease in stock-based compensation expenses, partially offset by a $2.8 million decrease in power costs. Change in fair value of digital assets Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Change in fair value of digital assets $ (41) $ — $ (41) NM Percentage of total revenue — % — % Change in fair value of digital currency assets was nominal for the six months ended June 30, 2024, and reflects the Company’s adoption of ASU 2023-08 effective January 1, 2024. Gain from sale of digital assets Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Gain from sale of digital assets $ — $ 1,995 $ (1,995) NM Percentage of total revenue — % 1 % Gain from sale of digital assets was nil for the six months ended June 30, 2024, compared to a gain of $2.0 million for the six months ended June 30, 2023. There are no gains from sale of digital assets recorded in fiscal 2024 due to the Company’s adoption of ASU 2023-08 effective January 1, 2024. For the six months ended June 30, 2023, the carrying value of our digital assets sold was $199.8 million and the sales price was $199.6 million. Impairment of digital assets Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Impairment of digital assets $ — $ (2,183) $ 2,183 NM Percentage of total revenue — % (1) % Impairment of digital assets was nil for the six months ended June 30, 2024, compared to $2.2 million for the six months ended June 30, 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 June 30, 2024 and June 30, 2023. 65 Change in fair value of energy derivatives Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Change in fair value of energy derivatives $ (2,757) $ — $ (2,757) NM Percentage of total revenue (1) % — % 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 $2.8 million for the six months ended June 30, 2024, The $2.8 million change in fair value consisted of a realized loss of $5.0 million partially offset by an unrealized gain of $2.3 million. Loss on disposal of property, plant and equipment Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Loss on disposal of property, plant and equipment $ (3,552) $ (174) $ (3,378) NM Percentage of total revenue (1) % — % Loss on disposal of property, plant and equipment increased by $3.4 million to $3.6 million for the six months ended June 30, 2024, from $0.2 million for the six months ended June 30, 2023. This loss was due to the disposal of mining equipment. Operating Expenses Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Operating expenses: (in thousands, except percentages) Research and development $ 3,973 $ 3,055 $ 918 30 % Sales and marketing 3,948 2,092 1,856 89 % General and administrative 40,386 46,160 (5,774) (13) % Total operating expenses $ 48,307 $ 51,307 $ (3,000) (6) % Percentage of total revenue 15 % 21 % Total operating expenses decreased $3.0 million or 6%, to $48.3 million for the six months ended June 30, 2024, from $51.3 million for the six months ended June 30, 2023. Research and development expenses increased $0.9 million or 30%, to $4.0 million for the six months ended June 30, 2024, from $3.1 million for the six months ended June 30, 2023. The increase was driven by a $0.9 million increase in payroll and benefits expense primarily driven by h igher salaries. Sales and marketing expenses increased $1.9 million or 89%, to $3.9 million for the six months ended June 30, 2024, from $2.1 million for the six months ended June 30, 2023. The increase was driven primarily by a $1.2 million increase in stock-based compensation expenses and a $0.3 million increase in sales and marketing event expenses. General and administrative expenses decreased $5.8 million or 13%, to $40.4 million for the six months ended June 30, 2024, from $46.2 million for the six months ended June 30, 2023. The decrease was primarily driven by $21.2 million lower stock-based compensation due to cancellation and forfeitures of equity-based awards during the six months ended June 30, 2024, and no new equity awards granted during fiscal 2023, partially offset by a $10.1 million increase in payroll and benefits expense primarily driven 66 by increased bonuses and higher salaries, and $4.6 million of HPC startup costs incurred during the current period with no comparable activity for the same period in fiscal 2023. Non-operating (income) expenses, net Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Non-operating (income) expenses, net: (in thousands, except percentages) Loss (gain) on debt extinguishment $ 170 $ (20,761) $ 20,931 NM Interest expense, net 28,862 121 28,741 NM Reorganization items, net (111,439) 50,014 (161,453) NM Change in fair value of warrant and contingent value rights 735,921 — 735,921 NM Other non-operating expense (income), net 2,147 (2,888) 5,035 NM Total non-operating expenses, net $ 655,661 $ 26,486 $ 629,175 NM Total non-operating expenses, net increased by $629.2 million, to total non-operating income, net of $655.7 million for the six months ended June 30, 2024, from total non-operating expenses, net of $26.5 million for the six months ended June 30, 2023. The increase in total non-operating expenses, net was primarily driven by: • the Company’s entry into a warrant agreement and Convertible Value Rights Agreement pursuant to the Plan of Reorganization. During the six months ended June 30, 2024, we incurred a $735.9 million Change in fair value of warrant and contingent value rights was driven by the increase in the Company’s stock price to $9.30 per share as of June 30, 2024, from $3.44 per share as of the Effective Date. The increase in stock price resulted in a $809.3 million increase in the fair value of the warrant liabilities during the six months ended June 30, 2024, partially offset by a $73.4 million decrease in fair value of contingent value rights; • a $28.7 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 fiscal 2023, and; • a $20.8 million Gain on extinguishment of debt recognized during the same period in the prior year, partially offset by • a $161.5 million decrease in Reorganization items, net related to a $143.8 million gain associated with the satisfaction of allowed claims, a $16.3 million decrease in profession fees and other bankruptcy costs, an $11.8 million decrease in debtor-in-possession financing costs, partially offset by a $12.8 million increase in reimbursed claimant professional fees. Income tax expense Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Income tax expense $ 350 $ 233 $ 117 50 % Percentage of total revenue — % — % Income tax expense consists of U.S. federal, state and local income taxes. For the six months ended June 30, 2024 and 2023, our income tax expense was $0.4 million and $0.2 million, respectively. The Company's effective tax rate for the six months ended June 30, 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. 67 Segment Total Revenue and Gross Profit The following table presents total revenue and gross profit by reportable segment for the periods presented: Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage Digital Asset Self-Mining Segment (in thousands, except percentages) Digital asset self-mining revenue $ 260,702 $ 195,108 $ 65,594 34 % Cost of digital asset self-mining 161,565 139,522 22,043 16 % Digital Asset Self-Mining gross profit $ 99,137 $ 55,586 $ 43,551 78% Digital Asset Self-Mining gross margin 38 % 28% Digital Asset Hosted Mining Segment Digital asset hosted mining revenue from customers $ 54,172 $ 52,459 $ 1,713 3 % Cost of digital asset hosted mining services 37,474 39,305 (1,831) (5) % Digital Asset Hosted Mining gross profit $ 16,698 $ 13,154 $ 3,544 27 % Digital Asset Hosted Mining gross margin 31 % 25 % HPC Hosting Segment HPC hosting revenue $ 5,519 $ — $ 5,519 NM Cost of HPC hosting services 4,891 — 4,891 NM HPC Hosting gross profit $ 628 $ — $ 628 NM HPC Hosting gross margin 11% —% Consolidated Consolidated total revenue $ 320,393 $ 247,567 $ 72,826 29 % Consolidated cost of revenue 203,930 178,827 25,103 14 % Consolidated gross profit $ 116,463 $ 68,740 $ 47,723 69% Consolidated gross margin 36% 28% For the six months ended June 30, 2024, cost of revenue included depreciation expense of $55.7 million for the Digital Asset Self-Mining segment, $2.3 million for the Digital Asset Hosted Mining segment, and a nominal amount for the HPC Hosting segment. For the six months ended June 30, 2023, cost of revenue included depreciation expense $38.8 million for the Digital Asset Self-Mining segment, $1.8 million for the Digital Asset Hosted Mining segment, and nil for the HPC Hosting segment. For the six months ended June 30, 2024 and 2023, the top three hosting customers accounted for approximately 87% and 72%, respectively, of the Digital Asset Hosting’s segment total revenue. For the six months ended June 30, 2024, gross profit in the Digital Asset Self-Mining segment increased $43.6 million compared to the six months ended June 30, 2023, due to a higher Digital Asset Self-Mining segment gross margin of 38% for the six months ended June 30, 2024, compared to 28% for the six months ended June 30, 2023. The increase in the Digital Asset Self-Mining segment gross profit was primarily due to a 34% increase in self-mining revenue driven by a 134% increase in the price of bitcoin, an increase in our self-mining hash rate, fleet mix and efficiency, and an increase in the number of mining units deployed, partially offset by the 42% decrease in bitcoin mined. The increase in the Digital Asset Self-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 19,000 miners placed in service. Our self-mining hash rate was 19.4 EH/s for the six months ended June 30, 2024, compared to 15.1 EH/s for the six months ended June 30, 2023, an increase of 28%. For the six months ended June 30, 2024, gross profit in the Digital Asset Hosted Mining segment increased $3.5 million compared to the six months ended June 30, 2023, reflecting a Digital Asset Hosted Mining segment gross margin of 31% for the six 68 months ended June 30, 2024, compared to a gross margin of 25% for the six months ended June 30, 2023. The increase in Digital Asset Hosted Mining segment gross margin for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 was primarily due to a larger share of more profitable hosting arrangements. For the six months ended June 30, 2024, gross profit in the HPC Hosting segment was $0.6 million compared to nil for the six months ended June 30, 2023, due to the HPC Hosting segment starting operation during the quarter ended June 30, 2024. A reconciliation of the reportable segment gross profit to loss before income taxes included in our Condensed Consolidated Statements of Operations for the six months ended June 30, 2024 and 2023, is as follows: Six Months Ended June 30, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Reportable segment gross profit $ 116,463 $ 68,740 $ 47,723 69% Change in fair value of digital assets (41) — (41) NM Gain from sale of digital assets — 1,995 (1,995) NM Impairment of digital assets — (2,183) 2,183 NM Change in fair value of energy derivatives (2,757) — (2,757) NM Loss on exchange or disposal of property, plant and equipment (3,552) (174) (3,378) NM Operating expenses: Research and development 3,973 3,055 918 30 % Sales and marketing 3,948 2,092 1,856 89 % General and administrative 40,386 46,160 (5,774) (13) % Total operating expenses 48,307 51,307 (3,000) (6) % Operating income 61,806 17,071 44,735 NM Non-operating (income) expenses, net: Loss (gain) on debt extinguishment 170 (20,761) 20,931 NM Interest expense, net 28,862 121 28,741 NM Reorganization items, net (111,439) 50,014 (161,453) NM Change in fair value of warrant and contingent value rights 735,921 — 735,921 NM Other non-operating expense (income), net 2,147 (2,888) 5,035 NM Total non-operating expenses, net 655,661 26,486 629,175 NM Loss before income taxes $ (593,855) $ (9,415) $ (584,440) NM 69 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 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. 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 June 30, 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. June 30, December 31, Period over Period Change 2024 2023 Dollar Percentage (in thousands, except percentages) Cash and cash equivalents $ 96,122 $ 50,409 $ 45,713 91 % Restricted cash 983 19,300 (18,317) (95) % Total cash, cash equivalents and restricted cash $ 97,105 $ 69,709 $ 27,396 39 % As of June 30, 2024 and December 31, 2023, restricted cash of $1.0 million and $19.3 million, consisted of cash held in escrow to pay for construction and development activities. The following table summarizes our cash, cash equivalents and restricted cash and cash flows for the periods indicated. Six Months Ended June 30, 2024 2023 (in thousands) Cash, cash equivalents and restricted cash – beg. of period $ 69,709 $ 52,240 Net cash provided by (used in) Operating activities 23,378 37,977 Investing activities (35,154) (2,488) Financing activities 39,172 (10,969) Cash, cash equivalents and restricted cash - end of period $ 97,105 $ 76,760 70 Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures. Operating Activities 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 $23.4 million for the six months ended June 30, 2024 and $38.0 million for the six months ended June 30, 2023. The decrease in net cash provided by operating activities was primarily due to a increase in net loss of $584.6 million, a $143.8 million increase in non-cash reorganization items, a $73.4 million decrease in the fair value of contingent value rights, a $65.6 million increase in digital asset self-mining income, and a $19.1 million decrease in stock-based compensation. The decrease in net cash provided by operating activities was partially offset by a $809.3 million increase in the fair value of warrant liabilities, a $20.9 million decrease in loss on debt extinguishment and a $17.9 million increase in depreciation and amortization, and a $17.0 million increase in working capital components. Investing Activities Our net cash used in investing activities consists primarily of purchases of property, plant and equipment. Net cash used in investing activities for the six months ended June 30, 2024 and 2023, was $35.2 million and $2.5 million, respectively. The increase in net cash used in investing activities was driven primarily by a $33.3 million increase in purchases of property, plant and equipment. Financing Activities 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 six months ended June 30, 2024 was $39.2 million. Net cash used by financing activities for the six months ended June 30, 2023 was $11.0 million. The change was due primarily to an inflow of $55.0 million from the issuance of common stock during the six months ended June 30, 2024 and a $20.0 million draw from the Exit Facility, partially offset by an increase in principal payments on debt of $19.6 million, an increase in restricted stock tax holding obligations of $3.4 million, and an increase in principal payments on finance leases of $2.2 million. Future Commitments and Contractual Obligations For a discussion of Commitments and Contractual Obligations, refer to Note 9 — Commitments and Contingencies to our unaudited condensed consolidated financial statements. Related Party Transactions 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 2023. For the three and six months ended June 30, 2024, there were no related-party transactions. For the three and six months ended June 30, 2023, we recognized digital asset hosting revenue of $3.5 million and $7.2 million, respectively, 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. dollars. Critical Accounting Estimates We prepare our condensed consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty, subjectivity and judgment at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these 71 estimates on an ongoing basis. Except as described below, there have been no other material changes to our critical accounting estimates during the six months ended June 30, 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. Contingent Value Rights Liabilities As described in Note 2 — Summary of Significant Accounting Policies and Note 7 — Contingent Value Rights and Warrant Liabilities, on the Effective Date, the Company issued CVRs to certain creditors. When the CVRs were recognized on the Effective Date, observable market data was not available. The Monte Carlo simulation model was used to determine their fair value, which required inputs that were both unobservable and significant to the overall fair value measurement, including estimated volatility. If we had used different assumptions or estimates, the estimated fair value of the CVRs could have been materially different. Subsequently, the fair value of the CVRs has been determined based on the observable listed trading price for such CVRs, thereby eliminating the significant level of estimation uncertainty in periods subsequent to the initial recognition of the CVRs. Warrant Liabilities As described in Note 2 — Summary of Significant Accounting Policies and Note 7 — Contingent Value Rights and Warrant Liabilities, on the Effective Date, holders of the Company’s previous common stock received warrants. When the warrants were recognized on the Effective Date, observable market data was not available. The Monte Carlo simulation model was used to determine their fair value, which required inputs that were both unobservable and significant to the overall fair value measurement, including estimated volatility. If we had used different assumptions or estimates, the estimated fair value of the warrants could have been materially different. Subsequently, the fair value of the warrants has been determined based on the observable listed trading price for such warrants, thereby eliminating the significant level of estimation uncertainty in periods subsequent to the initial recognition of the warrants. Stock-Based Compensation As described in Note 2 — Stockholders’ Deficit, during the three months ended June 30, 2024, the Company granted MSUs to certain executives. The estimated fair value of the MSUs was estimated on the date of grant using the Monte Carlo simulation model, which required inputs that were both unobservable and significant to the overall fair value measurement, including estimated volatility. If we had used different assumptions or estimates, the estimated fair value of the MSUs could have been materially different. Recent Accounting Pronouncements For a discussion of new accounting standards relevant to our business, refer to Note 2 — Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Emerging Growth Company 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. 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. In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use the extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. On the last business day of the second quarter in 2024, the aggregate market value of the Company’s shares of common stock held by non-affiliate stockholders exceeded $700 million. As a result, as of December 31, 2024, the Company will be considered a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, and will cease to be an emerging growth company as defined in the JOBS Act. 72 The impact of this change in filing status includes being subject to the requirements of large accelerated filers, which includes shortened filing timelines, no delayed adoption of certain accounting standards, and attestation of the Company’s internal control over financial reporting by its independent auditor.