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 of the Company. 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 condensed 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, 2024, filed with the Securities and Exchange Commission on February 27, 2025. This section generally discusses the results of operations for the three months ended March 31, 2025, compared to March 31, 2024. 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, 2024, filed with the Securities and Exchange Commission on February 27, 2025. Overview Core Scientific, Inc. (“we,” “us,” “our,” the “Company,” “Core Scientific,” or “Core”) is a leader in designing, building and operating digital infrastructure for high-density colocation services and digital asset mining of bitcoin. Since our inception in 2018, we have been a premier provider and operator of dedicated, purpose-built facilities and software solutions for digital asset mining for ourselves and our third-party customers, and, during 2024, we announced the arrangements at multiple sites for the provision of high-density digital infrastructure colocation services to a third party engaged in high-performance computing (“HPC”). We believe that using our existing infrastructure for high-density colocation services will provide more consistent dollar-based revenue and represents substantially less risk than our traditional hosted bitcoin mining or our bitcoin self-mining operations. As a result, we intend to focus our business development and marketing efforts on expanding our high-density colocation customer base. As a result, we initiated a significant strategic transition from bitcoin mining to colocation services for customers employing HPC workloads such as artificial intelligence-related applications. We are substantially engaged in constructing, refurbishing, reallocating or converting a substantial portion of our ten facilities in Alabama (1), Georgia (2), Kentucky (1), North Carolina (1), North Dakota (1), Oklahoma (1), and Texas (3) to support artificial intelligence related workloads, primarily for our one existing HPC customer, but also to support our commitment to meeting the growing demand for high-density colocation solutions and diversifying our revenue streams. Currently, the vast majority of our revenue is from mining bitcoin for our own account (“self-mining”). We remain committed to maintaining the efficiency of our digital asset mining business while capitalizing on the opportunities presented by the growing high-density colocation services business. We had billable power load of approximately 870 megawatts (“MW”) as of March 31, 2025. We had gross power of approximately 1,320 MW as of March 31, 2025. Our average self-mining fleet energy efficiency for the three months ended March 31, 2025 was 24.4 joules per terahash, compared to 24.7 joules per terahash for the three months ended December 31, 2024. Self-mining fleet energy efficiency is a measure of our fleet’s average actual energy efficiency over the period presented. Our total revenue was $79.5 million and $179.3 million for the three months ended March 31, 2025 and 2024, respectively. We generated an operating loss of $42.6 million for the three months ended March 31, 2025 and operating income of $55.2 million for the three months ended March 31, 2024. We generated net income of $580.7 million and $210.7 million for the three months ended March 31, 2025 and 2024, respectively. Our adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $(6.1) million and $88.0 million for the three months ended March 31, 2025 and 2024, 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. 33 On January 23, 2024, the Company emerged from bankruptcy when the conditions to the effectiveness of the Fourth Amended Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc. and its Debtor Affiliates (with Technical Modifications) (the “Plan of Reorganization”) were satisfied or waived. For more detailed information regarding our emergence from bankruptcy, refer to Notes 3 — Chapter 11 Filing and Emergence from Bankruptcy, 8 — Convertible and Other Notes Payable, 9 — Contingent Value Rights and Warrant Liabilities and 12 — Stockholders' Deficit 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, 2024. Developments During 2025 On February 26, 2025, the Company announced a new agreement with CoreWeave, Inc. to deliver an additional approximately 70 MW of infrastructure at the Company’s Denton, Texas facility. Our Business Model Business Overview As a large-scale owner and operator of high-power digital infrastructure for digital asset mining and high-density colocation services, we believe that we are well positioned to continue to effectively mine digital assets and serve an expanding market for HPC operations. 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 high-density colocation services. Furthermore, 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. We focus primarily on contracting our digital infrastructure for high-density colocation services, including allocating a significant portion of our current and future data centers to support other forms of third-party HPC operations, in connection with our short-, medium- and long-term strategic plan. Our 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. Business Strategy Our business strategy is to grow our revenue and profitability by expanding our large-scale data center infrastructure portfolio configured for specialized computers performing specific, high-value applications such as cloud computing, machine learning and artificial intelligence, and maximizing the portion of our infrastructure portfolio contracted for high-density colocation services. We intend to continue to strategically develop and make operational the infrastructure necessary to support our existing contractual commitments to our existing HPC customer and to support expected customer growth and additional demand by leveraging our data center expertise and capabilities. We intend to seek additional opportunities and to engage additional customers in the high-density colocation services (“Colocation”) segment to expand our business into these areas using our knowledge, expertise, existing and future infrastructure where favorable market opportunities exist. Our strategy is focused on hyperscale cloud-based providers and enterprises, including potential customers we believe have significant data center infrastructure needs that have not yet been outsourced or will require additional data center space and power to support their growth and their increasing reliance on technology infrastructure in their operations. We believe our capabilities for serving the needs of large hyperscale providers and enterprises will continue to enable us to capitalize on the growing demand for outsourced data center facilities in our markets and in new markets where our customers are located or plan to be located in the future. Segments We have three operating segments: “Digital Asset Self-Mining,” consisting of performing digital asset mining for our own account, “Digital Asset Hosted Mining,” consisting of providing hosting services to third parties for digital asset mining, and “Colocation,” consisting of providing high-density colocation services to third parties for GPU-based HPC operations. Prior to April 1, 2024, we operated only in the Digital Asset Self-Mining and Digital Asset Hosted Mining segments. During fiscal year 2024, our “Colocation” segment was referred to as “HPC Hosting.” 34 Our Digital Asset Self-Mining operation segment generates revenue from the deployment and operation of our own large fleet of miners within our owned digital infrastructure 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 Digital Asset Hosted Mining operation segment provides a full suite of services to our digital asset mining customers. We provide deployment, monitoring, troubleshooting, optimization and maintenance of our customers’ digital asset mining equipment and provide necessary electrical power, repair and other infrastructure services necessary for our customers to operate, maintain and efficiently mine digital assets. We do not expect to further expand our Digital Asset Hosted Mining operations in 2025 and future years. Our Colocation operation segment generates revenue by providing colocation, cloud and connectivity services to customers in exchange for a fee. Our Colocation operation segment provides space, power, cooling, facilities operations, security and other services to third-party HPC customers to support workloads for machine learning and artificial intelligence. 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 Technologies Limited (“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. The tables below summarize the total number of self- and hosted miners in operation as of March 31, 2025, December 31, 2024 and March 31, 2024 (miners in thousands): Bitcoin Miners in Operation as of March 31, 2025 Mining Equipment Hash rate (EH/s) Number of Miners Self-miners 18.1 156.0 Hosted miners 1.0 7.3 Total mining equipment 19.1 163.3 Bitcoin Miners in Operation as of December 31, 2024 Mining Equipment Hash rate (EH/s) Number of Miners Self-miners 19.1 164.0 Hosted miners 1.0 7.1 Total mining equipment 20.1 171.1 Bitcoin Miners in Operation as of March 31, 2024 Mining Equipment Hash rate (EH/s) Number of Miners Self-miners 19.3 172.8 Hosted miners 6.2 51.1 Total mining equipment 25.5 223.9 35 Summary of Digital Asset Activity Activity related to our digital asset balances for the three months ended March 31, 2025 and 2024, were as follows (in thousands): March 31, 2025 March 31, 2024 Digital assets, beginning of period $ 23,893 $ 2,284 Cumulative effect of ASU 2023-08, adopted January 1, 2024 1 — 24 Digital assets, beginning of period, as adjusted 23,893 2,308 Digital asset self-mining revenue, net of receivables 2 67,441 149,644 Mining proceeds from shared hosting — 8,371 Proceeds from sales of digital assets — (160,777) Change in fair value of digital assets (10,688) — Gain from sale of digital assets — 543 Payment of board fee — (89) Other — — Digital assets, end of period $ 80,646 $ — 1 Reflects the impact of the Company’s adoption of Accounting Standards Update (“ASU”) 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) effective January 1, 2024. 2 As of March 31, 2025 and December 31, 2024, there was $0.6 million and $0.9 million, respectively, of digital asset receivable included in prepaid expenses and other current assets on the 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 Digital Asset Self-Mining segment 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 36 identifiable market forces, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting. Bitcoin (as well as other digital assets) may have value based on various factors, including their acceptance as a means of exchange by consumers and others, scarcity, and market demand. 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 Tariffs Beginning on February 1, 2025, the United States government has announced a series of additional tariffs on goods imported to the United States raising concerns about material price inflation and delivery delays with respect to equipment and materials needed for our high-density colocation data center conversions and also with respect to parts, machinery and hardware used in our digital asset mining business. To date, tariffs have had no material impact on our costs or business operations, but we continue to analyze the impact of these tariffs on our business and actions we can take to minimize any future impact. Our agreement with our largest high- density colocation customer is funded almost entirely by our customer and our financial contribution is capped at a fixed dollar amount limiting the overall potential impact of tariffs on our existing and future capital expenditures. Tariffs, however, could have additional material and yet unforeseen impacts on our results of operations in fiscal year 2025 and future years. 37 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. 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. Business Mix Shift to High-Density Colocation Services The planned growth of our Colocation business, through increased investment in conversion of several of our bitcoin mining sites to Colocation business sites over the next several years, should gradually reduce our overall exposure to volatility in the spot price of bitcoin as our Colocation segment begins to account for a comparatively larger percentage of our financial results. The Colocation business is characterized by implementation of long-term contracts with customers spanning several years with terms and conditions outlining and resulting in stable, predictable revenue and cash flows over each period. Electricity Costs Electricity cost is the major operating cost for the mining fleet, as well as for the hosting services provided to customers. 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 Colocation business greatly depends on our ability to retain and develop opportunities with our existing customers, secure additional infrastructure and attract new customers. Our business environment is constantly evolving. However, digital asset mining is now dominated by large-scale, industrial miners operating large dedicated facilities around the world, including sovereign nation states with vast resources who mine directly or support mining operations through their sovereign wealth funds, all of whom compete to solve new blocks, acquire new and used miners, and purchase and consume energy and supplies to build mining facilities. 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. 38 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, remaining competitive in our evolving industry, both against new entrants into the market and existing competitors, will require the expansion of 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 our Colocation business, 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 high-density colocation services. 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 high-density colocation. Additionally, the modification of some of our data centers to accommodate our Colocation business 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 into 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. 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 leverage 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 our Colocation business, and for developing new data centers designed to support future high-value computing 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, 39 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, former 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. Most recently, in January 2025, the Acting SEC Chairman announced the launch of a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets, in contrast to the SEC’s prior reliance on enforcement actions to regulate cryptocurrencies. The extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and they may not be ascertainable in the near future. In addition to the activities of the United States federal government and its various agencies and regulatory bodies, government regulation of blockchain and digital assets is also under active consideration by similar entities in other countries and transnational organizations, such as the European Union. State and local regulations within the United States also may apply to our activities and other activities in which we may participate in the future. Other governmental or semi-governmental regulatory bodies have shown an interest in regulating or investigating companies engaged in blockchain or digital asset businesses. For instance, the SEC has taken an active role in regulating the use of public offerings of proprietary coins (so-called “initial coin offerings”) and has made statements and official promulgations as to the status of certain digital assets as “securities” subject to regulation by the SEC. Key Business 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,” and “Cost of Self-Mining One Bitcoin and Hash Cost,” (below), and for non-GAAP financial measures, see the section titled “Adjusted EBITDA” (below). March 31, 2025 2024 Self-Mining Hash rate (Exahash per second) 18.1 19.3 Adjusted EBITDA (in millions) $ (6.1) $ 88.0 Three Months Ended March 31, 2025 2024 Cash Costs per Bitcoin Power cost per bitcoin self-mined $ 42,178 $ 15,925 Operational costs per bitcoin self-mined 1 14,449 2,928 Total cost to self-mine one bitcoin 2 $ 56,627 $ 18,853 Cash-Based Hash Cost 3 Power cost per terahash $ 0.024 $ 0.028 Operational costs per terahash 1 0.008 0.005 Total cash-based hash cost 3 $ 0.032 $ 0.033 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. 40 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, 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 18.1 EH/s and 19.3 EH/s as of March 31, 2025 and 2024, respectively, representing a 6% decrease year over year. Our combined self-mining and customer and related party hosting hash rate decreased 25%, to 19.1 EH/s as of March 31, 2025, from 25.5 EH/s as of March 31, 2024. 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. Cash Costs per Bitcoin and Cash-Based Hash Cost are key business 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, 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) unrealized fair value adjustment on energy derivatives; (vii) change in fair value of warrant and contingent value rights; (viii) Colocation segment organizational startup costs which are not reflective of the ongoing costs incurred after startup, (ix) post-emergence 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 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 41 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 to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business. The following table presents a reconciliation of net income to Adjusted EBITDA for the three months ended March 31, 2025 and 2024 (in thousands): Three Months Ended March 31, 2025 2024 Adjusted EBITDA Net income $ 580,693 $ 210,691 Adjustments: Interest (income) expense, net (2,187) 14,087 Income tax expense 205 206 Depreciation and amortization 19,731 28,996 Stock-based compensation expense 16,185 (1,060) Unrealized fair value adjustment on energy derivatives — (797) Losses on exchange or disposal of property, plant and equipment 6 3,820 Loss on debt extinguishment — 50 Post-emergence bankruptcy advisory costs 603 1,687 Reorganization items, net — (111,439) Change in fair value of warrants and contingent value rights (621,464) (60,114) Other non-operating expense, net 157 1,746 Other — 123 Adjusted EBITDA $ (6,071) $ 87,996 Components of Results of Operations Revenue Our revenue consists primarily of digital asset self-mining income, and fees from our digital asset hosting and high-density colocation operations. The Company’s Colocation operations began during the second quarter of 2024. • Digital asset self-mining rev enue. 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 42 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. Digital asset hosted mining revenue from customers is based on electricity-based consumption contracts with our customers. 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. • Colocation revenue. C olocation revenue is generated by leasing data center space and providing related services to licensees at our Austin, Texas high-density data center. 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. Colocation power fees are passed through to the customer without markup and are included on a gross basis in Colocation revenue. 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 Colocation relates to our Austin, Texas data center, and primarily consists of facility operations expense, which includes maintenance and lease expense, power fees, payroll and benefits expense and stock-based compensation expense. Colocation power fees are passed through to the customer without markup and are included on a gross basis in Cost of Colocation services. 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. Gain from sales of digital assets Prior to the adoption of ASU 2023-08, Gain from sales of digital assets was recorded when realized upon sale(s). In determining the gain to be recognized upon sale, we calculated the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Change in fair value of energy derivatives Change in fair value of energy derivatives represents changes in the fair value of the derivative liability related to the energy forward purchase contract to fix a specified component of the energy price related to forecasted energy purchases at our Cottonwood 1 facility from November 2023 through May 2024. Losses on exchange or disposal of property, plant and equipment Losses on exchange or disposal of property, plant and equipment are measured as the differences between the carrying value of the property, plant and equipment disposed of and fair value of the consideration received upon disposal. Selling, general and administrative Selling, general and administrative expenses includes compensation, benefits, and other personnel-related expenses, stock-based compensation, rent, Colocation segment organizational and site startup costs, post-emergence bankruptcy advisor fees related to the reorganization, professional fees, business insurance, auditor fees, bad debt, amortization of intangibles, franchise taxes, and bank fees. Colocation segment organizational startup costs were primarily consulting costs that were specifically incurred preparing for and 43 entering into the Colocation business and are not expected to be incurred in the ongoing operations of the Colocation business. Colocation segment site startup costs are indirect costs associated with the administration of converting and building of future Colocation operating sites, and include compensation and other personnel-related expenses, including stock-based compensation. Similar costs will be incurred in the future operations of the Colocation segment sites. Non-operating expenses (income), net: Non-operating expenses (income), net includes loss (gain) on debt extinguishment, interest expense, net, reorganization items, net, fair value adjustments of convertible notes, 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. 44 Results of Operations for the Three Months Ended March 31, 2025 and 2024 The following table sets forth our selected Consolidated Statements of Operations for each of the periods indicated (in thousands). Three Months Ended March 31, 2025 2024 $ Change Revenue: Digital asset self-mining revenue $ 67,179 $ 149,959 $ (82,780) Digital asset hosted mining revenue from customers 3,773 29,332 (25,559) Colocation revenue 8,573 — 8,573 Total revenue 79,525 179,291 (99,766) Cost of revenue: Cost of digital asset self-mining 61,170 81,564 (20,394) Cost of digital asset hosted mining services 2,036 20,081 (18,045) Cost of Colocation services 8,106 — 8,106 Total cost of revenue 71,312 101,645 (30,333) Gross profit 8,213 77,646 (69,433) Change in fair value of digital assets 10,688 — 10,688 Gain from sales of digital assets — (543) 543 Change in fair value of energy derivatives — 2,218 (2,218) Losses on exchange or disposal of property, plant and equipment 6 3,820 (3,814) Selling, general and administrative 40,115 16,924 23,191 Operating (loss) income (42,596) 55,227 (97,823) Non-operating expenses (income), net: Loss on debt extinguishment — 50 (50) Interest (income) expense, net (2,187) 14,087 (16,274) Change in fair value of warrants and contingent value rights (621,464) (60,114) (561,350) Reorganization items, net — (111,439) 111,439 Other non-operating expense, net 157 1,746 (1,589) Total non-operating income, net (623,494) (155,670) (467,824) Income before income taxes 580,898 210,897 370,001 Income tax expense 205 206 (1) Net income $ 580,693 $ 210,691 $ 370,002 45 Revenue Three Months Ended March 31, 2025 2024 $ Change Revenue: Digital asset self-mining revenue $ 67,179 $ 149,959 $ (82,780) Digital asset hosted mining revenue from customers 3,773 29,332 (25,559) Colocation revenue 8,573 — 8,573 Total revenue $ 79,525 $ 179,291 $ (99,766) Percentage of total revenue: Digital asset self-mining revenue 84 % 84 % Digital asset hosted mining revenue from customers 5 % 16 % Colocation revenue 11 % — % Total revenue 100 % 100 % Total revenue decreased by $99.8 million or 56%, to $79.5 million for the three months ended March 31, 2025, from $179.3 million for the three months ended March 31, 2024, as a result of the factors described below. Digital asset self-mining revenue decreased by $82.8 million or 55%, to $67.2 million for the three months ended March 31, 2025, from $150.0 million for the three months ended March 31, 2024. The year over year decrease in self-mining revenue was driven primarily by: • a 75% decrease in bitcoin mined to 719 for the three months ended March 31, 2025, compared to 2,825 for the three months ended March 31, 2024, driven primarily by: ◦ an approximate net decrease of 16,800 deployed mining units due primarily to the operational shift to our Colocation business; ◦ a 50% decrease in block rewards as a result of the April 2024 halving; ◦ a 6% decrease in self-mining hash rate to 18.1 EH/s for the three months ended March 31, 2025, from 19.3 EH/s for the same period in the prior year; and ◦ a 39% increase in network difficulty driven by a 58% increase in the twelve-month average network hash rate over prior year. This decrease in self-mining revenue was partially offset by: • a 74% increase in the average price of bitcoin to $93,443 for the three months ended March 31, 2025, compared to $53,579 for the three months ended March 31, 2024; and • an increase in our average self-mining hash rate fleet mix and efficiency to 24.4 joules per terahash. Total digital asset hosted mining revenue from customers decreased by $25.6 million or 87%, to $3.8 million for the three months ended March 31, 2025, from $29.3 million for the three months ended March 31, 2024. The decrease in hosted mining revenue from customers was primarily driven by our shift to our Colocation operations. Total Colocation revenue was $8.6 million for the three months ended March 31, 2025, compared to nil for the same period in the prior year due to the initiation of Colocation operations at our Austin, Texas data center during the quarter ended June 30, 2024. Cost of revenue Three Months Ended March 31, 2025 2024 $ Change Cost of revenue $ 71,312 $ 101,645 $ (30,333) Gross profit 8,213 77,646 (69,433) Gross margin 10 % 43 % 46 Cost of revenue decreased by $30.3 million or 30%, to $71.3 million for the three months ended March 31, 2025, from $101.6 million for the three months ended March 31, 2024. As a percentage of total revenue, cost of revenue totaled 90% and 57% for the three months ended March 31, 2025 and 2024, respectively. The decrease in cost of revenue was primarily attributable to: • a $26.8 million decrease in power costs from lower rates and usage; • a $9.3 million decrease in depreciation expense driven by the increase in the number of miners becoming fully depreciated; and • a $2.6 million decrease in proceed sharing costs. This decrease in cost of revenue was partially offset by: • a $8.1 million increase in Colocation segment costs, primarily rent, power, and payroll and benefits incurred during the current fiscal year with no comparable activity for the same period in fiscal 2024; and • a $1.3 million increase in payroll and benefits due to increases in bonuses and salaries driven primarily by an increase in employee headcount. Change in fair value of digital assets Three Months Ended March 31, 2025 2024 $ Change Change in fair value of digital assets $ 10,688 $ — $ 10,688 Percentage of total revenue 13 % — % Change in fair value of digital assets was $10.7 million for the three months ended March 31, 2025, and reflects the decrease in the price of bitcoin held during the three months ended March 31, 2025. Change in fair value of energy derivatives Three Months Ended March 31, 2025 2024 $ Change Change in fair value of energy derivatives $ — $ 2,218 $ (2,218) Percentage of total revenue — % 1 % Change in fair value of energy derivatives was nil for the three months ended March 31, 2025, compared to $2.2 million for the three months ended March 31, 2024. Change in fair value of energy derivative was related to the change in fair value of the energy forward purchase contract entered into in November 2023 which expired during the second quarter 2024. Losses on exchange or disposal of property, plant and equipment Three Months Ended March 31, 2025 2024 $ Change Losses on exchange or disposal of property, plant and equipment $ 6 $ 3,820 $ (3,814) Percentage of total revenue — % 2 % Losses on exchange or disposal of property, plant and equipment decreased by $3.8 million to a nominal amount for the three months ended March 31, 2025, from $3.8 million for the three months ended March 31, 2024. The losses for the three months ended March 31, 2024 were primarily due to the write-off of leasehold improvements and disposal of containers and other mining equipment. 47 Selling, general and administrative Three Months Ended March 31, 2025 2024 $ Change Selling, general and administrative $ 40,115 $ 16,924 $ 23,191 Percentage of total revenue 50 % 9 % Selling, general and administrative expenses increased $23.2 million or 137%, to $40.1 million for the three months ended March 31, 2025, from $16.9 million for the three months ended March 31, 2024. The increase was driven primarily by: • a $13.9 million increase in stock-based compensation expense; • a $7.2 million increase in Colocation segment site startup costs which primarily include payroll, benefits, and stock-based compensation for activities related to the startup of our Colocation segment sites that have transitioned from digital asset site operations and administration; and • a $2.5 million increase in payroll and benefits expense due to increases in bonuses and salaries driven primarily by an increase in employee headcount; partially offset by • a $1.1 million decrease in in post-emergence bankruptcy advisor fees and a $1.0 million decrease in rent expenses. Non-operating income, net Three Months Ended March 31, 2025 2024 $ Change Non-operating expenses (income), net: Loss on debt extinguishment $ — $ 50 $ (50) Interest (income) expense, net (2,187) 14,087 (16,274) Change in fair value of warrants and contingent value rights (621,464) (60,114) (561,350) Reorganization items, net — (111,439) 111,439 Other non-operating expense, net 157 1,746 (1,589) Total non-operating income, net $ (623,494) $ (155,670) $ (467,824) Total non-operating income, net increased by $467.8 million, to $623.5 million for the three months ended March 31, 2025, from total non-operating income, net of $155.7 million for the three months ended March 31, 2024. The increase in total non-operating income, net was primarily driven by: • During the three months ended March 31, 2025, we incurred a $621.5 million decrease in Change in fair value of warrant and contingent value rights due to the decrease in the Company’s stock price to $7.24 per share as of March 31, 2025, from $14.05 per share as of December 31, 2024. The decrease in stock price resulted in a $634.3 million decrease in the fair value of the warrant liabilities during the three months ended March 31, 2025, partially offset by a $12.8 million increase in fair value of contingent value rights; and • a $16.3 million decrease in Interest expense, net driven primarily by an $8.7 million decrease in interest expense due to lower interest rates during the three months ended March 31, 2025, and a $7.9 million increase in proceeds from money market funds. This decrease was partially offset by $111.4 million in Reorganization items, net incurred during the three months ended March 31, 2024 with no related activity during the same period in the current year. Reorganization items, net consisted 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. 48 Segment Total Revenue and Gross Profit The following table presents total revenue and gross profit by reportable segment for the periods presented (in thousands, except percentages): Three Months Ended March 31, 2025 2024 $ Change Digital Asset Self-Mining Segment Digital asset self-mining revenue $ 67,179 $ 149,959 $ (82,780) Cost of digital asset self-mining: Power fees 30,319 44,983 (14,664) Depreciation expense 19,259 27,478 (8,219) Employee compensation 7,335 4,680 2,655 Facility operations expense 3,280 2,950 330 Other segment items 977 1,473 (496) Total cost of digital asset self-mining 61,170 81,564 (20,394) Digital Asset Self-Mining gross profit $ 6,009 $ 68,395 $ (62,386) Digital Asset Self-Mining gross margin 9 % 46 % (37) % Digital Asset Hosted Mining Segment Digital asset hosted mining revenue from customers $ 3,773 $ 29,332 $ (25,559) Cost of digital asset hosted mining services: — Power fees 1,367 13,494 (12,127) Depreciation expense 145 1,270 (1,125) Employee compensation 332 1,404 (1,072) Facility operations expense 148 885 (737) Other segment items 44 3,028 (2,984) Total cost of digital asset hosted mining services 2,036 20,081 (18,045) Digital Asset Hosted Mining gross profit $ 1,737 $ 9,251 $ (7,514) Digital Asset Hosted Mining gross margin 46 % 32 % 14 % Colocation Segment Colocation revenue: License fees $ 5,995 $ — $ 5,995 Maintenance and other (8) — (8) Licensing revenue 5,987 — 5,987 Power fees passed through to customer 2,586 — 2,586 Total Colocation revenue 8,573 — 8,573 Cost of Colocation services: Depreciation expense 67 — 67 Employee compensation 1,295 — 1,295 Facility operations expense 3,852 — 3,852 Other segment items 306 — 306 Cost of licensing revenue 5,520 — 5,520 Power fees passed through to customer 2,586 — 2,586 Total cost of Colocation services 8,106 — 8,106 Colocation gross profit $ 467 $ — $ 467 Colocation licensing gross margin 8 % — % 8 % Colocation gross margin 5 % — % 5 % Consolidated Consolidated total revenue $ 79,525 $ 179,291 $ (99,766) Consolidated cost of revenue $ 71,312 $ 101,645 $ (30,333) Consolidated gross profit $ 8,213 $ 77,646 $ (69,433) Consolidated gross margin 10 % 43 % (33) % 49 Digital Asset Self-Mining For the three months ended March 31, 2025, gross profit in the Digital Asset Self-Mining segment decreased by $62.4 million compared to the three months ended March 31, 2024, reflecting a Digital Asset Self-Mining segment gross margin of 9% for the three months ended March 31, 2025, compared to 46% for the three months ended March 31, 2024. The decrease in the Digital Asset Self-Mining segment gross profit was primarily due to a 55% decrease in self-mining revenue driven by: • a 75% decrease in bitcoin mined to 719 for the three months ended March 31, 2025, compared to 2,825 for the three months ended March 31, 2024, driven primarily by: ◦ an approximate net decrease of 16,800 deployed mining units due primarily to the operational shift to Colocation; ◦ a 50% decrease in block rewards as a result of the April 2024 halving; ◦ a 6% decrease in our self-mining hash rate to 18.1 EH/s for the three months ended March 31, 2025, compared to 19.3 EH/s for the three months ended March 31, 2024; and ◦ an 39% increase in network difficulty driven by a 58% increase in the twelve-month average network hash rate over prior year; partially offset by • a 74% increase in the average price of bitcoin to $93,443 for the three months ended March 31, 2025, compared to $53,579 for the three months ended March 31, 2024; This decrease in the digital asset self-mining revenue was partially offset by: • a $20.4 million or 25% decrease in the total cost of digital asset self-mining driven by: ◦ a $14.7 million decrease in power costs due primarily to lower power rates; and ◦ a $8.2 million or 30% decrease in depreciation expense, which was driven primarily by an approximate net decrease of 16,800 deployed miners during the current year; partially offset by ◦ a $2.7 million or 57% increase in employee compensation due to increases in bonuses and salaries driven primarily by an increase in employee headcount. Digital Asset Hosted Mining For the three months ended March 31, 2025, gross profit in the Digital Asset Hosted Mining segment decreased by $7.5 million compared to the three months ended March 31, 2024, reflecting a Digital Asset Hosted Mining segment gross margin of 46% for the three months ended March 31, 2025, compared to a gross margin of 32% for the three months ended March 31, 2024. The increase in Digital Asset Hosted Mining segment gross margin for the three months ended March 31, 2025, compared to the three months ended March 31, 2024 was primarily due to: • a $25.6 million or 87% decrease in the digital asset hosted mining revenue driven primarily by our shift to Colocation operations, partially offset by: • a $18.0 million or 90% decrease in the total cost of digital asset hosted mining services driven primarily by: ◦ a $12.1 million decrease in power costs from lower usage driven primarily by our operational shift to Colocation segment and lower rates; ◦ a $3.0 million decrease in other segment costs; and ◦ a $1.1 million decrease in depreciation expense and a $1.1 million decrease in employee compensation. For the three months ended March 31, 2025 and 2024, the top three hosting customers accounted for approximately 100% and 86%, respectively, of the Digital Asset Hosted Mining’s segment total revenue. Colocation For the three months ended March 31, 2025, gross profit in the Colocation segment was $0.5 million compared to nil for the three months ended March 31, 2024, due to the Colocation segment starting operation during the quarter ended June 30, 2024. Colocation revenue includes a base license fee as well as the direct pass-through of power costs to our client, with no margin added. Colocation costs at our Austin, Texas data center consist primarily of lease expense, the direct pass-through of power costs, and direct and indirect facilities operations expenses, including personnel and benefit costs and stock-based compensation. 50 A reconciliation of the reportable segment gross profit to income before income taxes included in our Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024, is as follows (in thousands): Three Months Ended March 31, 2025 2024 $ Change Reportable segment gross profit $ 8,213 $ 77,646 $ (69,433) Change in fair value of digital assets 10,688 — 10,688 Gain from sales of digital assets — (543) 543 Change in fair value of energy derivatives — 2,218 (2,218) Loss on exchange or disposal of property, plant and equipment 6 3,820 (3,814) Selling, general and administrative 40,115 16,924 23,191 Operating (loss) income (42,596) 55,227 (97,823) Non-operating expenses (income), net: Loss on debt extinguishment — 50 (50) Interest (income) expense, net (2,187) 14,087 (16,274) Reorganization items, net — (111,439) 111,439 Change in fair value of warrants and contingent value rights (621,464) (60,114) (561,350) Other non-operating expense, net 157 1,746 (1,589) Total non-operating income, net (623,494) (155,670) (467,824) Income before income taxes $ 580,898 $ 210,897 $ 370,001 Liquidity and Capital Resources Sources and Uses of Cash We finance our operations primarily through debt issuances, cash generated from operations, including the sale of self-mined bitcoin and fees from leasing Colocation segment data center space, equipment financing arrangements, and sales of equity securities. We have assessed our current and expected operating and capital expenditure requirements and our current and expected sources of liquidity, and have determined, based on our forecasted financial results and financial condition as of March 31, 2025, that our operating cash flows, existing cash balances, and continued access to debt markets will be sufficient to satisfy our cash requirements over the next twelve months and beyond. Cash, Cash Equivalents, Restricted Cash 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. March 31, December 31, 2025 2024 $ Change Cash and cash equivalents $ 697,942 $ 836,197 $ (138,255) Restricted cash 783 783 — Total cash, cash equivalents and restricted cash $ 698,725 $ 836,980 $ (138,255) As of March 31, 2025 and December 31, 2024, restricted cash of $0.8 million, consisted of cash held in escrow to pay for construction and development activities. 51 The following table summarizes our cash, cash equivalents and restricted cash and cash flows for the periods indicated. Three Months Ended March 31, 2025 2024 (in thousands) Cash, cash equivalents and restricted cash – beginning of period $ 836,980 $ 69,709 Net cash provided by (used in) Operating activities (40,599) 22,174 Investing activities (93,458) (31,970) Financing activities (4,198) 54,363 Cash, cash equivalents and restricted cash - end of period $ 698,725 $ 114,276 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 used in operating activities was $40.6 million for the three months ended March 31, 2025 and net cash provided by operating activities was $22.2 million for the three months ended March 31, 2024. The decrease in net cash provided by operating activities was primarily due to a decrease in $67.4 million from our bitcoin holding strategy and a decrease of $28.4 million in net income before the effects of non-cash adjustments. The decrease in net cash provided by operating activities was offset by an increase of $36.0 million from operating assets and liabilities driven primarily by customer prepaid base license fees of $42.0 million used in funding property, plant, and equipment purchases. 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 three months ended March 31, 2025 and 2024, was $93.5 million and $32.0 million, respectively. Purchases of property, plant, and equipment were $88.4 million during the three months ended March 31, 2025. Of those purchases, $59.5 million related to the Colocation segment and $28.9 million related to the digital asset mining segments. Prepaid base license fees of $42.0 million recognized as deferred revenue during the three months ended March 31, 2025 and included in the operating activities above, funded a portion of the property, plant, and equipment purchases for the Colocation segment. The increase in investing cash used was further driven by a $5.0 million purchase of a strategic equity investment. Financing Activities Net cash used in financing activities consists of proceeds from stock issuances and principal payments on debt, including notes payable and finance leases. Net cash used in financing activities for the three months ended March 31, 2025 was $4.2 million. Net cash provided by financing activities for the three months ended March 31, 2024 was $54.4 million. The decrease in net cash provided by financing activities was related to $55.0 million from the issuance of common stock and a $20.0 million draw from the exit facility during the three months ended March 31, 2024. The decrease in cash provided by financing activities was partially offset by decreases in principal payments on debt of $9.7 million, restricted stock tax holding obligations of $3.4 million, and principal repayments of finance leases of $3.0 million. 52 Future Commitments and Contractual Obligations Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, leases for property and equipment, and capital expenditures related to the conversion of a significant portion of our data centers to high-density colocation operations. Certain amounts included in our contractual obligations as of March 31, 2025, are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other factors. For more information regarding the Company’s future commitments and contractual obligations refer to Notes 4 — Leases, 5 — Convertible and Other Notes Payable and 8 — Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2 — Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I. Item 1 — “Financial Statements” of this Quarterly Report on Form 10-Q and in Part II. Item 8 to our audited consolidated financial statements and accompanying notes of the 2024 Annual Report on Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the United States Securities and Exchange Commission (“SEC”) on February 27, 2025.