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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-23 · 384 added, 314 removed, 98 unchanged (88% of the section changed)

1 unchanged sentence

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information that will assist the reader in understanding our results of operations and financial condition.

This MD&A should be read in conjunction with our Consolidated Financial Statements and the related notes that are included in Part II, Item 8.

This MD&A should be read in conjunction with our Consolidated Financial Statements and the related notes (the “Notes”) that are included in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

This MD&A generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

As a result of the elimination of the Data Center Hosting reportable segment during 2024, year-to-year comparisons between 2023 and 2022 are also presented within Results of Operations .

Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 not impacted by the elimination of the Data Center Hosting reportable segment are not included in this MD&A, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Our MD&A is organized as follows:

● Business Overview and Trends.

Highlights of events in 2024 that impacted our financial position.

● Results of Operations.

Analysis of our financial results comparing fiscal years 2024 and 2023 and fiscal years 2023 and 2022.

● Liquidity and Capital Resources.

Analysis of changes in our balance sheets and cash flows and discussion of our financial condition, including potential sources of liquidity, material cash requirements and their general purpose.

● Critical Accounting Policies and Estimates.

Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

For a discussion of our business, see Part I, Item 1.

“Business” of this Annual Report.

Forward Looking Statements

2 unchanged sentences

See “Cautionary Note Regarding Forward-Looking Statements.”

Business Overview and 2023 Highlights

We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin in support of the Bitcoin blockchain.

We also provide comprehensive and critical mining infrastructure for institutional-scale hosted clients to mine Bitcoin at our Rockdale Facility.

The Rockdale Facility currently provides 700 MW in total developed capacity for our Bitcoin mining and data center hosting services for institutional-scale hosted clients.

Our Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity.

Additionally, we are developing the Corsicana Facility, a second large-scale Bitcoin mining data center facility, which, upon completion, is expected to have approximately one gigawatt of capacity available for our own Bitcoin mining and data center hosting services for institutional-scale hosted clients.

During 2023, Riot continued to expand on our growth-focused corporate strategy by capitalizing on our positioning within the market, and appropriately allocating resources to continue to expand and develop in a volatile market.

We operate in an environment which frequently evolves based on the proliferation of Bitcoin and cryptocurrencies in general.

A significant component of our strategy is to effectively and efficiently allocate capital between opportunities that generate the highest return on our investment.

BUSINESS OVERVIEW AND TRENDS

We are a leading Bitcoin mining company focused on utilizing our vertical integration strategy to mine Bitcoin in support of the Bitcoin blockchain.

We own and operate multiple Bitcoin mining sites in the United States with two locations in Texas, consisting of the Rockdale Facility and the Corsicana Facility, and the Kentucky Facility.

The Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and currently provides 700 MW in total developed capacity.

Additionally, we are developing our second large-scale Bitcoin mining facility, the Corsicana Facility, which currently provides 400 MW in developed capacity.

Upon completion, the Corsicana Facility is expected to have approximately one GW of capacity available.

During 2024, we capitalized on our positioning within the market and acquired Block Mining, a Kentucky-based vertically-integrated Bitcoin miner and E4A Solutions, a leading provider of electrical engineering services to a diverse customer base of energy developers and data center operators.

The Block Mining Acquisition added 60 MW of operational capacity for self-mining operations, which we are working to expand to 110 MW in 2025, and provided us with access to a secondary electrical grid.

The acquisition of E4A Solutions adds engineering expertise to service our own existing and future electrical infrastructure, as well as provides solutions and services to the rapidly growing market for electrical infrastructure.

Our market environment is highly competitive globally and regionally.

We compete against other large-scale Bitcoin miners and individuals to receive the Bitcoin reward that is the heart of our operations.

Our industry frequently evolves based on the proliferation of Bitcoin and cryptocurrencies in general, and we believe we are well positioned in the digital commodities industry in which we operate.

We are organized in two business segments:

Bitcoin Mining and Engineering.

Bitcoin Mining

We own and operate one of the largest Bitcoin Mining operations in North America.

During the year ended December 31, 2023, we continued to deploy miners at our Rockdale Facility and continued development activities at the Corsicana Facility, with the objective of increasing our operational efficiency and performance in the future.

As of December 31, 2023, our Bitcoin Mining business segment operated 112,944 miners, with a hash rate capacity of 12.4 EH/s.

During the year ended December 31, 2023, we mined 6,626 Bitcoin, which represented an increase of 19.3% over the 5,554 Bitcoin we mined in the year ended December 31, 2022.

We anticipate achieving a total self-mining hash rate capacity of 28 EH/s by the end of 2024.

During the year ended December 31, 2023, we entered into the Master Agreement to acquire 99,840 miners from MicroBT (consisting of 8,320 M56S+ model miners, 22,684 M56S++ model miners, 20,778 M66 model miners, and 48,058 M66S model miners), primarily for use at the Corsicana Facility, for a total purchase price of approximately $453.4 million.

Delivery of the miners began in the fourth quarter of 2023, with all miners expected to be received and deployed by mid-2025.

Upon full deployment of the 99,840 miners, we anticipate a total self-mining hash rate capacity of 38 EH/s.

The Master Agreement also provides us with an option to purchase up to an additional 265,000 additional miners, on the same terms as the initial order.

During the year ended December 31, 2024, we continued development activities at the Corsicana Facility, acquired the Kentucky Facility and deployed miners at all our Facilities, with the objective of increasing our operational efficiency and performance in the future.

As of December 31, 2024, we had a total deployed hash rate capacity of 31.5 EH/s, as compared to 12.4 EH/s as of December 31, 2023, an increase of 154.0%.

During the year ended December 31, 2024, we mined 4,828 Bitcoin, as compared to 6,626 Bitcoin mined during the year ended December 31, 2023.

The decrease of 1,798 Bitcoin was primarily due to the April 2024 halving event, which was partially offset by our increase in deployed hash rate.

We are targeting a total self-mining hash rate capacity of 38.4 EH/s by the end of 2025.

As Bitcoin is a decentralized cryptocurrency, it is not required that Bitcoin be held by a custodian, and we may elect to self-custody.

However, we believe our private keys relating to our Bitcoin are better safeguarded by the secure environment provided by custodians.

Self-custody poses an increased risk to our private keys and we may not have the same level of protection as custody providers who are well versed in industry best practices to protect digital assets from potential theft, loss, or destruction.

Pursuant to the Digital Asset Custodial Agreement, dated as of November 1, 2023, between us and NYDIG (as may be amended, modified or supplemented from time to time, the “NYDIG Custodial Agreement”), NYDIG, a well-known U.S.-based third-party digital asset-focused custodian, holds our Bitcoin in cold storage wallets in a digital asset account in our name.

In exchange for its custodial services, NYDIG charges an annual fee equal to a percentage of our custodied Bitcoin based on the daily average value in U.S.

dollars of the Bitcoin we custody with NYDIG.

Our Bitcoin held in such digital asset accounts does not constitute “deposits” within the meaning of U.S.

federal or state banking law and the digital asset accounts are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections.

The cold storage wallets in which our Bitcoin is held with NYDIG are all located in the United States.

The NYDIG Custodial Agreement is for a term of one-year, and automatically renews for successive one-year periods, unless either the Company or NYDIG provides thirty days’ notice of termination, in writing, except that either the Company or NYDIG may terminate the NYDIG Custodial Agreement in writing, effective immediately, in the event that either NYDIG or the Company are adjudged bankrupt or insolvent or files an application for an arrangement with its creditors, or there is a material misstatement or failure of a party to perform its obligations under the NYDIG Custodial Agreement, a change in applicable law that has a material adverse effect on the services provided for in the NYDIG Custodial Agreement, or a substantial change in ownership or control or material adverse change in the financial condition of NYDIG or the Company.

The NYDIG Custodial Agreement contains certain mutual indemnification provisions, including that NYDIG will indemnify us against direct claims for loss of custodied assets that arise directly from NYDIG’s or NYDIG’s nominees’ grossly negligent action, grossly negligent failure to act, bad faith or willful misconduct.

Additionally, the Company shall indemnify NYDIG against all claims and liabilities incurred or assessed against NYDIG in connection with the NYDIG Custodial Agreement, except as may arise from certain of NYDIG or its nominees’ own actions or conduct.

For more information on the NYDIG Custodial Agreement, see the full text of the NYDIG Custodial Agreement filed herewith as Exhibit 10.22, which qualifies the forgoing descriptions of the NYDIG Custodial Agreement in its entirety.

We are also a party to a Digital Asset Execution Agreement with NYDIG Execution LLC (“NYDIG Execution”), pursuant to which NYDIG Execution executes or arranges transactions of our Bitcoin (“Orders”) as our agent.

NYDIG Execution earns a commission on each trade determined by the net trade proceeds in U.S.

NYDIG Execution does not charge us additional fees for principal trades.

We deliver our Orders to NYDIG Execution via a designated security procedure, and each Order is affirmatively accepted by NYDIG Execution.

While our Bitcoin may temporarily be processed through a NYDIG Execution customer account, NYDIG has covenanted that our assets will not be commingled with the assets of NYDIG Execution.

NYDIG Execution is required to deposit any cash from the sale of our Bitcoin into our bank account at a U.S.

depositary institution, less any applicable commissions.

NYDIG Execution does not guarantee the value of our Bitcoin and is not responsible for any delay or failure to complete any Order caused by a digital asset network.

If NYDIG Execution fails to (1) execute a properly executable Order and (2) give us notice of such failure, NYDIG Execution will only be liable for our actual damages.

The Company also engaged Coinbase, a well-known U.S.-based third-party digital asset-focused custodian through the Coinbase Prime Broker Agreement, which includes the Coinbase Custody Services Agreement, and the Coinbase Master Trading Agreement (together, the “Coinbase Prime Broker Agreement”) for custodial and prime broker services, including, but not limited to, the storing of digital assets, trade execution, lending, post-trade credit, and other services.

In exchange for its custodial services, Coinbase charges an initial storage fee and an annualized custodial service fee based on the total value of the digital assets the Company custodies with Coinbase.

Our Bitcoin held in such digital asset accounts does not constitute “deposits” within the meaning of U.S.

federal or state banking law and the digital asset accounts are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections.

The cold storage wallets in which our Bitcoin is held with Coinbase are located in the United States.

The Coinbase Prime Broker Agreement shall remain in effect until terminated by Coinbase or the Company for any reason upon providing thirty days written notice to the other party.

However, Coinbase may, in its sole discretion, suspend, restrict or terminate the Coinbase Prime Broker Agreement, including by suspending, restricting or closing the Company’s accounts or any provision of credit (as applicable), immediately upon the occurrence of an Event of Default (as defined in the Coinbase Prime Broker Agreement), without prior notice to the Company.

The Coinbase Prime Broker Agreement contains certain mutual indemnification provisions, including that Coinbase will indemnify the Company from and against direct claims and losses arising out of or relating to any (i) violation, misappropriation, or infringement upon any United States patent, copyright, trademark, trade secret or other intellectual property right of a third party or (ii) violation of applicable law, unless such claims or losses arise out of or relate to the Company’s gross negligence, fraud, willful misconduct, or breach of the Coinbase Prime Broker Agreement.

The Company will indemnify Coinbase from and against any and all third-party claims and losses arising out of or relating to the Company’s breach of the Coinbase Prime Broker Agreement, the Company’s violation of any law, rule, or regulation, or rights of any third party, or the Company’s gross negligence, fraud, or willful misconduct, except to the extent such third-party claims and losses resulted from the gross negligence, fraud or willful misconduct of Coinbase.

Additionally, under the Coinbase Prime Broker Agreement, Coinbase may execute or arrange transactions of our Bitcoin as our agent.

The Company will pay a fixed rate as commission and transaction fees associated with the Order executed.

The Company delivers Orders to Coinbase, and Coinbase executes Orders by using automated trade routing services or by filling Orders on Coinbase’s over-the-counter trading service.

Coinbase may accept or reject any Order, at its sole discretion.

Coinbase does not guarantee the value of our Bitcoin and is not responsible for any delay or failure to complete any Order caused by a digital asset network.

For more information on the Coinbase Prime Broker Agreement, see the full text of the Coinbase Prime Broker Agreement included herein as Exhibit 10.23, which qualifies the forgoing description s of the Coinbase Prime Broker Agreement in its entirety.

Our custodian and brokerage services relationships are non-exclusive, and we may change our Bitcoin custodian and brokerage relationships at any time.

We continually monitor our Bitcoin assets held by our Custodians, and in the case of NYDIG we have unlimited audit rights with respect to such custodial accounts.

The Company performs monthly reconciliations of our Bitcoin assets held by our custodian(s) and the records of our mining pool, and our independent auditors verify the location and quantity of our Bitcoin assets annually, as part of the year-end audit process of our financial statements and internal controls over financial reporting.

The Company’s insurance providers do not have inspection rights associated with our Bitcoin assets held in cold storage.

Bitcoin Mining Metrics

The following table presents our key Bitcoin Mining metrics:

Years Ended December 31,

Hash rate, average operating (EH/s) (1)

Rockdale Facility

Corsicana Facility

Kentucky Facility

Combined hash rate, average operating

All-in power cost (cents/kilowatt-hour) (2)

Rockdale Facility

Corsicana Facility

Kentucky Facility

Combined all-in power cost

As of December 31,

Hash rate, deployed (EH/s) (1)

Rockdale Facility

Corsicana Facility

Kentucky Facility

Combined hash rate, deployed

Developed power capacity (MW) (3)

Rockdale Facility

Corsicana Facility

Kentucky Facility

Total power capacity

(1) Hash rate, deployed, represents the total potential hash rate of all our deployed miners as of the end of the period, whereas hash rate, average operating, represents the average total hash rate our deployed miners provided throughout the period.

The difference between deployed hash rate and operating hash rate is attributable to down time of all or some of miners for power curtailments, or repairs and maintenance of Bitcoin miners or supporting infrastructure.

The difference between deployed and operating hash rate is a key measure in determining the efficiency of our Bitcoin Mining operations.

(2) All-in power cost is the price we paid throughout the period for our power, net of power curtailments received.

Power is overwhelmingly the largest marginal input cost in mining Bitcoin and a significant contributor to profitability.

Miners with a low cost of power are also able to profitability mine in a wider range of Bitcoin price.

(3) Developed power is the total amount of electricity our Facilities can utilize for Bitcoin Mining as of the end of the period.

The following table presents our cost to mine one Bitcoin ( amounts in thousands, except value of one Bitcoin amounts ):

Years Ended December 31,

Cost of power for self-mining operations

Other direct cost of revenue for self-mining operations (1)(2) , excluding Bitcoin miner depreciation

Cost of revenue for self-mining operations, excluding Bitcoin miner depreciation

power curtailment credits (3)

Cost of revenue for self-mining operations, net of power curtailment credits, excluding Bitcoin miner depreciation

Bitcoin miner depreciation (4)(5)

Cost of revenue for self-mining operations, net of power curtailment credits, including Bitcoin miner depreciation

Quantity of Bitcoin mined

Production value of one Bitcoin mined (6)

Cost to mine one Bitcoin, excluding Bitcoin miner depreciation

Cost to mine one Bitcoin, excluding Bitcoin miner depreciation, as a % of production value of one Bitcoin mined

Cost to mine one Bitcoin, including Bitcoin miner depreciation

Cost to mine one Bitcoin, including Bitcoin miner depreciation, as a % of production value of one Bitcoin mined

(1) Other direct cost of revenue includes compensation, insurance, repairs, and ground lease rent and related property tax.

(2) During the years ended December 31, 2024, 2023 and 2022, we paid cash of approximately $342.4 million, $247.7 million, and $195.1 million, respectively, in total deposits and payments for the purchase of miners.

Costs to finance the purchase of miners were zero as the miners were paid for with cash from our cash balance.

The seller did not provide any financing, nor did we borrow from a third-party to purchase the miners.

We do not have any current plans to finance miners we may purchase in the future.

(3) Power curtailment credits are credited against our power invoices as a result of temporarily pausing our operations to participate in ERCOT’s Demand Response Service Programs.

Our fixed-price power purchase contracts enable us to strategically curtail our mining operations and participate in these programs, which significantly lower our cost to mine Bitcoin.

These credits are recognized in Power curtailment credits on our Consolidated Statements of Operations, outside of cost of revenue, but significantly reduce our overall cost to mine Bitcoin.

(4) We capitalize the acquisition cost of our miners and include these costs in Property and equipment, net on our Consolidated Balance Sheets.

The miners are depreciated over an estimated useful life of three years, during which time, the miners are expected to generate Bitcoin revenue.

We do not consider depreciation expense in determining whether it is economical to

operate our miners since depreciation is a non-cash expense and is not a variable operating cost that can be avoided even if we curtail operations temporarily.

Depreciation expense incurred is disclosed for each respective period in the table above.

(5) The following table presents the future depreciation expense of all our Bitcoin miners:

(6) Computed as revenue recognized from Bitcoin mined divided by the quantity of Bitcoin mined during the same period.

During 2023, we entered into purchase orders under the Master Agreement to acquire new immersion miners from MicroBT.

These purchase orders represented a total hash rate of 25.6 EH/s, for a total purchase price of approximately $453.4 million, subject to downward price adjustment as provided by the Master Agreement.

These miners are primarily for use at the Corsicana Facility, which commenced operations in April 2024.

Delivery of these miners began in 2023 and all miners are expected to be received and deployed by mid-2025.

The Master Agreement provides us with four additional annual options to purchase miners, on the same or more favorable terms as the second purchase order executed under the Master Agreement.

These additional miners represent a total hash rate of approximately 75.0 EH/s, assuming exercise of all four annual purchase options.

During the year ended December 31, 2024, we executed an additional purchase order with MicroBT under the Master Agreement to acquire new air-cooled miners with a total hash rate of 5.9 EH/s, for a total purchase price of approximately $96.7 million.

This purchase order is in addition to the four additional purchase options remaining under the Master Agreement.

Delivery of these miners occurred in the third quarter of 2024, and deployment commenced upon delivery.

For the year ended December 31, 2024, Bitcoin Mining revenue was approximately $321.0 million.

Data Center Hosting

Following our acquisition of Whinstone, we commenced an expansion of our Rockdale Facility to more than double its developed capacity at the time of acquisition and, as of December 31, 2023, this expansion had been completed.

The expansion of our Rockdale Facility has provided capacity to enable us to deploy our current fleet of miners in a self-hosted facility, while allowing us to continue offering our Data Center Hosting services.

We believe deploying our miners at the expanded Rockdale Facility offers many advantages for our Bitcoin Mining operations, including allowing us to operate our miners without incurring third-party colocation services fees and to do so at the low fixed energy costs available to the Rockdale Facility under its long-term PPA.

Data Center Hosting revenue includes upfront payments, which we record as deferred revenue and generally recognize as services are provided.

We provide energized space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Rockdale Facility under long-term contracts.

We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by daily successful operation of the mining hardware.

As such, we recognize revenue over the life of the contract as its series of performance obligations are met.

The contracts are recognized in the amount for which we have the right to invoice because we elected the “right to invoice” practical expedient.

For the year ended December 31, 2023, Data Center Hosting revenue was approximately $27.3 million.

Our Engineering business segment designs and manufacturers power distribution equipment and custom engineered electrical products that provide us with the ability to vertically integrate many of the critical electrical components and engineering services necessary for our Corsicana Facility development and Rockdale Facility expansions and to reduce our execution and counter-party risk in ongoing and future expansion projects.

Engineering and other specialized talent employed in our Engineering business segment also allows us to continue to explore new methods to optimize and develop a best-in-class Bitcoin Mining operation and has been instrumental in the development of our industrial-scale immersion-cooled Bitcoin mining hardware.

Our Engineering business segment also provides electricity distribution product design, manufacturing, and installation services primarily focused on large-scale commercial and governmental customers and serves a broad scope of clients across a wide range of markets including data center, power generation, utility, water, industrial, and alternative energy.

Products are custom built to client and industry specifications.

Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation.

Engineering revenue is recognized over time as performance creates or enhances an asset with no alternative use, and for which we have an enforceable right to receive compensation as defined under the contract.

For the year ended December 31, 2023, Engineering revenue was approximately $64.3 million.

Industry Trends

During 2022 and 2023, we observed several companies in the Bitcoin ecosystem experience significant challenges and initiate bankruptcy proceedings due to the significant volatility in the price of Bitcoin, the increase in interest rates, the volatility in the spot price of power, and other national and global macroeconomic factors.

We anticipate this trend will likely continue as companies attempt to shift their business models to operate on significantly compressed margins.

Further affecting the margins of the companies within the Bitcoin ecosystem, the Bitcoin reward for solving a block is subject to periodic incremental halving, which is next anticipated to occur in April 2024.

The network halving is a preprogrammed, fixed process of the Bitcoin network where the Bitcoin reward for solving a block received by miners is reduced by half approximately every four years.

The network halving will continue to occur on this schedule until the amount of Bitcoin in existence reaches the cap of 21.0 million.

The network halving is a process designed to implement a periodic decreasing schedule of the issuance of new Bitcoin into the market which results in a predictable and controlled inflationary rate.

The dramatic increase in the price of Bitcoin observed in the market during prior years caused many companies to over-leverage themselves, thus operating in potentially unsustainable ways given the recent variability in the price of Bitcoin.

Riot chose to refrain from engaging in any significant debt-financing activities during this period and, as a result, has not been subject to the significant debt-service shortfalls some of our competitors are experiencing.

Despite such challenges in the ecosystem, Riot continues to focus on building long-term stockholder value by taking strategic action to vertically integrate our business, utilizing the Rockdale Facility and developing the Corsicana Facility.

Management believes this focus will positively affect each of Riot’s three business segments by providing more capacity for our Bitcoin Mining and Data Center Hosting operations, and by capitalizing on supply chain efficiencies garnered through our Engineering segment.

As we grow our business, we continue to focus on deploying our efficient Bitcoin mining fleet, at scale, while realizing the benefits of being an owner and operator of our Bitcoin Mining and Data Center Hosting facilities.

We anticipate companies in our industry will continue to experience challenges, and that 2024 will be a period of consolidation in the Bitcoin mining industry.

Further, given our relative position, liquidity, and absence of any significant long-term debt, we believe we are well positioned to benefit from such consolidation.

We are continuously evaluating strategic opportunities which we may decide to undertake as part of our strategic growth initiatives;

however, we can offer no assurances that any strategic opportunities which we decide to undertake will be achieved on the schedule or within the budget we anticipate, if at all, in our competitive and evolving industry, and our business and financial results may change significantly as a result of such strategic growth.

The recent shutdowns of certain digital asset exchanges and trading platforms due to fraud or business failure has negatively impacted confidence in the digital asset industry as a whole and led to increased oversight and scrutiny of the industry.

We did not have any exposure to any digital asset lenders or exchanges who have declared bankruptcy or have suspended operations.

We only hold and sell Bitcoin that we have mined and do not sell, hold, or redeem any Bitcoin for any other parties.

Our Bitcoin is held in cold storage wallets by a well-known U.S.-based third-party digital asset-focused custodian.

We also sell our Bitcoin using our custodian’s U.S.

brokerage services.

In 2023, the banking industry and financial services sector experienced disruptions and instability.

In March 2023, Silvergate Capital Corporation, the holding company for Silvergate Bank, which was primarily focused on the digital asset industry, announced its intent to wind down operations and voluntarily liquidate its holdings.

Also in March 2023, Silicon Valley Bank and Signature Bank both closed and the FDIC was appointed receiver following their closures and transferred substantially all assets of the former banks to newly created, FDIC-operated bridge banks in an action to protect all depositors of the banks.

In May 2023, First Republic Bank was closed, and the FDIC sold substantially all of First Republic Bank’s assets to JP Morgan Chase & Co.

Although we maintained certain operating accounts with Signature Bank prior to its closure, we have since transferred all our deposits previously held with the bank to other banking institutions.

We did not lose access to our accounts or experience interruptions in banking services, and we suffered no losses with respect to our deposits at Signature Bank as a result of the bank’s closure.

We did not have any banking relationships with Silicon Valley Bank, Silvergate Bank, or First Republic Bank, and currently hold our cash and cash equivalents at multiple banking institutions.

Although we did not suffer any losses, we continue to monitor for updates to mitigate any future impacts we may be subject to as a result of instability of the banking industry and financial services sector.

See Part I, Item 1A.

“Risk Factors” of this Annual Report for additional discussion regarding potential impacts our competitive and evolving industry may have on our business.

Global Logistics

Global supply logistics have caused delays across all channels of distribution.

Similarly, we have also experienced delays in certain of our miner delivery schedules and in our infrastructure development schedules due to constraints on the globalized supply chains for miners, electricity distribution equipment and construction materials.

Through the date of this Annual Report, we have been able to effectively and efficiently mitigate delivery delays to avoid materially impacting our miner deployment schedule, however, we cannot guarantee that we will be able to continue to mitigate any such delivery delays in the future.

Additionally, the development of our new Corsicana Facility requires large quantities of construction materials, specialized electricity distribution equipment and other component parts that can be difficult to source.

We have procured and already hold many of the required materials to help navigate challenges related to global supply logistics and mitigate any inflationary pricing concerns that may come from global supply delays.

We continue to monitor developments in the global supply chain and assess their potential impact on our expansion plans.

Summary of Bitcoin Mining Results

The following table presents additional information about our Bitcoin Mining activities, including Bitcoin production and sales of the Bitcoin mined:

Summary of Bitcoin Activity

The following tables present additional information about our own Bitcoin Mining activities, including Bitcoin production, purchases, and sales:

Balance as of January 1, 2022

Revenue recognized from Bitcoin mined

Proceeds from sale of Bitcoin

Exchange of Bitcoin for employee compensation

2 unchanged sentences

Balance as of December 31, 2022

Cumulative effect upon adoption of ASU 2023-08

Revenue recognized from Bitcoin mined

Bitcoin receivable

Proceeds from sale of Bitcoin

Exchange of Bitcoin for employee compensation

Realized gain on sale/exchange of Bitcoin

Impairment of Bitcoin

Change in fair value of Bitcoin

Balance as of December 31, 2023

Cumulative effect upon adoption of ASU 2023-08

Revenue recognized from Bitcoin mined

Bitcoin receivable

Acquisitions of Bitcoin

Proceeds from sale of Bitcoin

2 unchanged sentences

Balance as of December 31, 2024

Data Center Hosting

In 2023, we made the decision to stop pursuing new hosting contracts and end our legacy contracts, to focus on our self-mining efforts.

During the year ended December 31, 2024, all agreements with Data Center Hosting customers were terminated, and we have no plans to offer data center hosting services to new customers.

We no longer report Data Center Hosting as a separate reportable segment.

Our Engineering business designs and manufactures power distribution equipment and custom engineered electrical products.

The products allow us to vertically-integrate many critical electrical components and engineering services necessary for our site developments and to reduce our execution and counter-party risk in ongoing and future expansion projects.

The specialized talent employed in our Engineering business allows us the opportunity to explore new methods to optimize and develop best-in-class Bitcoin Mining operations and have been instrumental in the development of our industrial-scale immersion-cooled Bitcoin mining hardware.

Our Engineering business also provides electricity distribution product design, manufacturing, and installation services primarily focused on large-scale commercial and governmental customers and serves a broad scope of clients across a wide range of markets including data center, power generation, utility, water, industrial, and alternative energy.

Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation.

In December 2024, we acquired E4A Solutions, a leading provider of electrical engineering services to a diverse customer base of energy developers and data center operators (the “E4A Solutions Acquisition”).

This acquisition adds to our vertically integrated strategy by adding engineering expertise to service its own existing and future electrical infrastructure as well as provide solutions and services to the rapidly growing market for electrical infrastructure.

For the year ended December 31, 2024, Engineering revenue was approximately $38.5 million.

Strategic Goals and Initiatives

Bitcoin Treasury Strategy

Our Bitcoin acquisition strategy involves mining Bitcoin utilizing vertical integration, and from time to time, subject to market conditions, purchasing Bitcoin with our liquid assets derived from issuing debt or equity securities.

Our vertical integration strategy has supported our stability during market fluctuations and allows us to capitalize on industry consolidation while building on our liquidity position.

We view our Bitcoin holdings as long-term holdings, and during the year ended December 31, 2024, made the strategic decision to halt the sale of Bitcoin, and instead increase our Bitcoin holdings.

Power Strategy

Long-term power contracts form the basis of our power strategy.

We utilize our Power Purchase Agreements (“PPA”) in place at the Rockdale Facility (the “Rockdale PPA”) and Kentucky Facility (the “Kentucky PPA”) in the following ways:

Manual Curtailment

We power down operations and return power to the utility when market prices for electricity provide the potential for us to receive more power curtailment credits than the Bitcoin Mining revenues we would have generated had we not curtailed our mining operations.

We receive power credits for the difference in the market power price and our fixed power price, which provides us the ability to maximize our overall profitability between Bitcoin Mining and supporting the grid by not drawing power from the grid when electricity is most scarce.

Ancillary Services

We competitively bid to sell ERCOT and MISO the option to control our electrical load during certain hours.

ERCOT and MISO compensate us in the form of Demand Response Credits, which are received whether or not we are called on to power down.

ERCOT’s 4CP Program

At the Rockdale Facility, we voluntarily power down operations during times of peak demand in summer months.

Participation provides us substantial savings on transmission costs in the subsequent year’s power bills, reducing our overall power costs.

The following table presents our power curtailment credits at the Rockdale Facility and the Kentucky Facility:

Years Ended December 31,

Manual curtailment power credits

Demand response power credits

Total power curtailment credits

The following graph presents the primary decision points that guide our decision to curtail power usage or power down our mining operations at the Rockdale Facility, and when we might resume mining operations:

Challenges, Risks, and Industry Trends

Increased Competition and Network Difficulty

The price of Bitcoin increased during the first quarter of 2024 due to a new source of demand, the eleven Bitcoin spot ETFs, which were approved to begin trading by the SEC on January 11, 2024.

The ETFs, as investment vehicles, provide a new access point for investors to gain exposure to Bitcoin through more traditional markets.

During 2023 and 2024, the Bitcoin mining industry saw record growth as the price of Bitcoin increased from the lows experienced in early 2023.

The increasing Bitcoin price renewed opportunities to access capital markets to fund growth, leading to unprecedented expansion in mining operations and resulting in a doubling in the size of provisioned hash calculation services on the network, as measured by total hash rate.

Many Bitcoin mining companies heavily invested in implementing vertically-integrated business models, infrastructure, and upgrading and expanding mining fleets in advance of the April 2024 Bitcoin network halving.

Competition on the Bitcoin network has expanded in kind and we expect competition within the mining industry to continue as long as Bitcoin prices remain elevated or increase further.

We have observed that when the market price for Bitcoin experiences a sustained increase (as it did across 2024), new miners are introduced onto the Bitcoin network, increasing its network difficulty.

Despite increasing our hash rate by approximately 154.0% from December 31, 2023, to December 31, 2024, the halving in April 2024 and increased network difficulty following increased network hash rate across the periods resulted in a decrease of approximately 27.1% in the number of Bitcoin we mined in 2024 as compared to the same period in 2023.

Accordingly, as network difficulty continues to increase, existing miners will need to increase their hash rate to maintain and improve their chances of earning a Bitcoin mining reward.

To do this, we seek out new Bitcoin mining capacity, including through our acquisition and development of new Bitcoin mining facilities (such as the Corsicana Facility and the Block Mining Acquisition) and electricity supply and distribution facilities to service them, as well as other strategic growth opportunities.

Further, we have adopted new and improved technology to increase both our mining power and efficiency, including our industrial-scale adoption of immersion cooling and our strategic acquisitions of large quantities of the newest and most powerful and efficient miners available.

Increased Transaction Fees

The Bitcoin mining industry recently experienced an increase in transaction fees on the Bitcoin network, as well as an increase in overall demand for Bitcoin.

Various protocols on the Bitcoin network gained popularity during 2023, and at times temporarily resulted in a significant increase in the transaction fees paid to add a certain Bitcoin transaction to the blockchain.

These transaction fees are volatile in nature but are paid directly to miners and are representative of public interest in transacting in Bitcoin.

Transaction fees are packaged with the block subsidy issued by the Bitcoin network to combine for the total reward paid to miners upon solving a block.

We have led the industry by focusing on a vertically-integrated business model since 2021.

We continue to focus on building long-term stockholder value by taking strategic actions to further vertically-integrate our business at the current Rockdale Facility, developing the Corsicana Facility, and having acquired the Kentucky Facility and E4A Solutions.

Management believes a focus on vertical integration will positively affect each of our business segments by providing increased capacity for our Bitcoin Mining operations, more opportunities for implementing our proprietary power strategy, and by positioning us to capitalize on supply chain efficiencies and electrical engineering services garnered through our Engineering segment.

We continue to focus on deploying our efficient Bitcoin mining fleet, at scale, while realizing the benefits of being an owner and operator of our Bitcoin Mining facilities.

Grid Curtailment

The PUCT, ERCOT, and Oncor collectively oversee the regulatory, administrative, and delivery aspects of our power supply in Texas;

MISO oversees our power supply in Kentucky.

In recent years, regulatory scrutiny on Bitcoin mining facilities and their energy consumption has intensified as the industry has grown.

As the grid operator, ERCOT is responsible for monitoring and testing market participants, including our Bitcoin mining facilities in Rockdale and Corsicana, to evaluate their impact on grid reliability.

During this process, ERCOT may issue curtailment notices to reduce the power usage at our Texas operations.

We are periodically tested and monitored, and have experienced curtailment of power based on instructions we receive from Oncor and ERCOT.

Due to the uncertainties regarding the duration or extent of power curtailments and testing procedures, we are currently unable to reasonably estimate any potential impacts to our business.

cannot secure adequate access to electrical power, we may be forced to reduce or shut down our operations, which would have a material adverse effect on our business, prospects, financial condition, and operating results.

See Part I, Item 1A.

“Risk Factors” of this Annual Report for additional discussion regarding potential impacts our competitive and evolving industry may have on our business.

Recent Events Affecting the Company

For the year ended December 31, 2024, we continued to experience an inflationary environment and global supply chain logistics issues across all channels of distribution.

We have experienced delays in certain of our miner delivery schedules and in our infrastructure development schedules due to constraints on globalized supply chains for miners, electricity distribution equipment, and construction materials.

We have also experienced delays in our Engineering business segment’s manufacturing and delivery schedule, and in our infrastructure development schedules, resulting from constraints on the globalized supply chains for miners, electricity distribution equipment and construction materials.

Additionally, the development and potential expansions of our Facilities require large quantities of construction materials, specialized electricity distribution equipment, and other component parts that are in high demand and can be difficult to source.

To help mitigate the impacts of global supply chain constraints and increasing demand for these goods, including any inflationary pricing concerns that may result, we have procured and already hold many of the electrical infrastructure components and materials required for development of the next 600 MW phase of our development of the Corsicana Facility, as well as replacement components and parts for our existing systems, to help shorten the impact of potential damage to installed equipment.

RESULTS OF OPERATIONS

Results of Operations Comparative Results for the Years Ended December 31, 2024 and 2023

Total revenue for the years ended December 31, 2023 and 2022, was $280.7 million and $259.2 million, respectively, and consisted of our Bitcoin Mining revenue, Data Center Hosting revenue, Engineering revenue, and other revenue.

Our total revenue for the years ended December 31, 2024 and 2023, was $376.7 million and $280.7 million, respectively, and consisted of Bitcoin Mining revenue, Engineering revenue, and Other revenue.

Other revenue consists almost entirely of residual activity related to our ceased Data Center Hosting segment.

For the years ended December 31, 2024 and 2023, Bitcoin Mining revenue was $321.0 million and $189.0 million, respectively.

The increase of $32.1 million was primarily due to a 19.3% increase in the number of Bitcoin mined in the 2023 period as compared to the 2022 period as a result of an increase in miners deployed, partially offset by an increase in the Bitcoin network difficulty.

Additionally, we continued employing our power strategy to significantly reduce overall power costs.

As described below, during the years ended December 31, 2023 and 2022, we earned $71.2 million and $27.3 million, respectively, in power credits, which were recognized as offsets to our operating expenses, but equated to approximately 2,497 Bitcoin and 968 Bitcoin, respectively, as computed using the average daily Bitcoin prices for the applicable period.

For the years ended December 31, 2023 and 2022, Data Center Hosting revenue was $27.3 million and $36.9 million, respectively.

The decrease of $9.6 million was primarily due to hosting fewer customers during the 2023 period as we continue to address legacy contracts.

For information regarding measures we have taken to address legacy contracts, see the discussion under “Legacy Hosting Customer Disputes” in Note 17.

Commitments and Contingencies to our Consolidated Financial Statements .

The increase of $132.0 million was primarily due to an increase in price of Bitcoin in the 2024 period, which averaged $66,488 per Bitcoin, as compared to $28,523 per Bitcoin for the 2023 period, partially offset by decreased production resulting from the increase in the Bitcoin network difficulty and the April 2024 halving.

For the years ended December 31, 2024 and 2023, Engineering revenue was $38.5 million and $64.3 million, respectively.

The decrease of $25.8 million was primarily attributable to supply chain constraints resulting in decreased receipts of materials, delaying the completion of certain custom products, and therefore, the recognition of revenue.

Our custom electrical products such as switchgear and power distribution centers are used as important components in data center development and in power generation and distribution facilities, and there has been increased demand for these products due to the continued increase in data center construction by developers, as well as the continually increasing worldwide demand for power.

Our custom electrical products are used as important components in data center development and in power generation and distribution facilities.

There continues to be significant demand for these products due to the escalated interest in data center construction, as well as the growing worldwide demand for power.

Costs and expenses

Cost of revenue for Bitcoin Mining for the years ended December 31, 2023 and 2022 was $96.6 million and $74.3 million, respectively, representing an increase of approximately $22.3 million.

As a percentage of Bitcoin Mining revenue, cost of revenue totaled 51.1% and 47.4% for each of the years ended December 31, 2023 and 2022, respectively.

Bitcoin Mining cost of revenue

consists primarily of direct production costs of mining operations, including electricity, labor, insurance and, for a portion of 2022, the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated.

The increase was primarily due to the increase in mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary to maintain and support the mining operations.

During the years ended December 31, 2023 and 2022, we earned $71.2 million and $27.3 million, respectively, in power credits, to be credited against our power invoices, as a result of temporarily pausing our operations.

These credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenue, but significantly reduce our overall cost to mine Bitcoin.

When reducing the cost of revenue for Bitcoin Mining by the power curtailment credits allocated to Bitcoin Mining, the non-GAAP Bitcoin Mining revenue in excess of cost of revenue, net of power curtailment credits, as a percentage of revenue was 73.6% and 60.3% for the years ended December 31, 2023 and 2022, respectively, compared with Bitcoin Mining revenue in excess of cost of revenue, as a percentage of revenue of 48.9% and 52.6% (without reducing the cost of revenue for Bitcoin Mining by the power curtailment credits allocated to Bitcoin Mining) for the years ended December 31, 2023 and 2022, respectively.

For a reconciliation of Bitcoin Mining revenue in excess of cost of revenue to Bitcoin Mining revenue in excess of cost of revenue, net of power curtailment credits, see the subheading below titled “Non-GAAP Measures” .

Cost of revenue for Data Center Hosting for the years ended December 31, 2023 and 2022 was $97.1 million and $61.9 million, respectively, an increase of approximately $35.2 million.

The costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs.

The increase was primarily attributable to the significant increase in size of our Rockdale Facility over the period, which has more than doubled since 2021.

For the years ended December 31, 2024 and 2023, Cost of revenue for Bitcoin Mining consisted of the following:

Years Ended December 31,

Insurance on miners

Ground rent and related water and property tax

Total Bitcoin Mining cost of revenue

(1) All amounts included within Other are individually not material.

This increase of approximately $92.6 million was primarily due to the increase in Bitcoin Mining capacity at the Rockdale Facility and commencement of Bitcoin Mining activities at the Corsicana Facility, both of which require additional headcount and direct costs necessary to maintain and support our expanded Bitcoin Mining operations, as well as the absorption of other costs previously included in our former Data Center Hosting segment.

Cost of revenue for Bitcoin Mining excludes depreciation and amortization, which are stated separately on our Consolidated Statements of Operations.

Cost of revenue for Engineering for the years ended December 31, 2024 and 2023 was $41.7 million and $60.6 million, respectively.

The costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs.

Consistent with the causes of decreased Engineering revenue noted above, the decrease of approximately $18.9 million was primarily due to decreased receipts of materials resulting from increased competition for direct materials due to supply chain constraints.

Selling, general and administrative expenses for the years ended December 31, 2024 and 2023, totaled $266.9 million and $100.3 million, respectively.

Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees, and other personnel and related costs.

The increase of approximately $166.6 million was primarily due to increases in stock compensation expenses of $93.0 million, which was primarily due to new grants under our long-term incentive program, compensation expenses of $22.8 million as a result of hiring additional employees to support our ongoing growth, legal and professional fees of $29.4 million primarily related to ongoing litigation, public company compliance, and ongoing due diligence, and $21.2 million for additional insurance and other costs primarily attributable to ongoing growth.

Depreciation and amortization expense during the years ended December 31, 2024 and 2023 totaled $212.1 million and $252.4 million, respectively, a decrease of $40.3 million.

The decrease was primarily due to the change in the estimated lives of our Bitcoin miners from 2 years to 3 years, partially offset by increased depreciation from the Corsicana Facility coming online in April 2024 and additional miners being deployed.

The changes in fair value of Bitcoin for the years ended December 31, 2024 and 2023 were gains of $457.4 million and $184.7 million, respectively, and were recognized to adjust the fair value of our Bitcoin held at the end of each period.

The changes in fair value of our derivative asset for the years ended December 31, 2024 and 2023 were gains of $45.3 million and $6.7 million, respectively, and were recorded to adjust the fair values of the Rockdale PPA and 25 MW Power Purchase Agreement in place at the Corsicana Facility (“Corsicana PPA”), which are classified as a derivative assets and measured at fair value.

The changes in fair value were primarily due to changes in future power prices over the applicable period.

The gain incurred during the year ended December 31, 2024, was primarily attributable to the average of the forward prices utilized in the discounted cash flow estimation models increasing from $45.15 per megawatt hours (“mWh”) as of December 31, 2023, to $51.70 per mWh as of December 31, 2024.

Power curtailment credits during the years ended December 31, 2024 and 2023 were $33.7 million and $71.2 million, respectively, and represent sales of unused power under the Rockdale PPA and the Kentucky PPA and participation in ancillary services under ERCOT and MISO Demand Response Services Programs.

The amount of these credits varies from period to period depending on various factors impacting the supply of power to, and the demand for power on, the power grids, such as weather and global fuel costs .

Loss on the sale/exchange of equipment during the years ended December 31, 2024 and 2023, were $17.4 million and $5.3 million, respectively.

The loss on sale during the year ended December 31, 2024, was attributable to the sale of 19,817 Antminer model S19 XP miners for proceeds of $14.3 million.

The loss on sale during the year ended December 31, 2023 was attributable to the sale of 2,700 Antminer model S19 XP miners for proceeds of $6.4 million.

Casualty-related recoveries (charges), net during the years ended December 31, 2024 and 2023 were $2.8 million and $6.0 million, respectively.

In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, resulting in casualty-related charges being recognized in 2023 and 2022.

The recoveries recognized during the years ended December 31, 2024 and 2023, were primarily the result of cash recoveries from insurance claims related to the December 2022 winter storms.

Other income (expense)

For the years ended December 31, 2024 and 2023, total other income (expense) was ($43.4) million and $8.5 million, respectively.

The net expense recognized during the year ended December 31, 2024, was primarily attributable to unrealized losses on marketable securities of $69.5 million, partially offset by higher interest income earned as a result of higher cash balances and increased interest rates.

The income recognized during the year ended December 31, 2023, was primarily attributable to interest income.

For the years ended December 31, 2024 and 2023, total income tax benefit (expense) was ($0.7) million and $5.1 million, respectively.

The decrease in income tax benefit of $5.8 million was primarily attributable to the change in the contingent consideration liability.

Results of Operations Comparative Results for the Years Ended December 31, 2023 and 2022

Total revenue for the years ended December 31, 2023 and 2022 was $280.7 million and $259.2 million, respectively, and consisted of Bitcoin Mining revenue, Engineering revenue, and Other revenue.

Other revenue consists almost entirely of residual activity related to our ceased Data Center Hosting segment.

For the years ended December 31, 2023 and 2022, Bitcoin Mining revenue was $189.0 million and $156.9 million, respectively.

The increase of $32.1 million was primarily due to a 19 .3% increase in the number of Bitcoin mined in the 2023 period as compared to the 2022 period, which was primarily the result of an increase in miners deployed, partially offset by an increase in the Bitcoin network difficulty.

For the years ended December 31, 2023 and 2022, Engineering revenue was $64.3 million and $65.3 million, respectively.

The decrease of $1.0 million was primarily attributable to supply chain constraints resulting in decreased receipts of materials, delaying the completion of certain custom products, and therefore, the recognition of revenue.

Our custom electrical products are used as important components in data center development and in power generation and distribution facilities.

There has been increased demand for these products due to the escalated interest in data center construction, as well as the growing worldwide demand for power.

Costs and expenses

For the years ended December 31, 2023 and 2022, Cost of revenue for Bitcoin Mining consisted of the following:

Years Ended December 31,

Insurance on miners

Third-party hosting fees paid

Total Bitcoin Mining cost of revenue

(1) All amounts included within Other are individually not material.

This increase of approximately $22.3 million was primarily due to the increase in Bitcoin Mining capacity at the Rockdale Facility, which requires additional headcount and direct costs necessary to maintain and support our expanded Bitcoin Mining operations.

Cost of revenue for Bitcoin Mining excludes depreciation and amortization, which are stated separately on our Consolidated Statements of Operations.

Cost of revenue for Engineering for the years ended December 31, 2023 and 2022 was $60.6 million and $57.5 million, respectively, an increase of approximately $3.1 million.

The costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs.

The increase was primarily due to increased cost of labor and materials, partially offset by decreased receipts of materials resulting from increased competition for direct materials due to supply chain constraints.

Selling, general and administrative expenses during the years ended December 31, 2023 and 2022 totaled $100.3 million and $67.5 million, respectively.

Selling, general and administrative expenses for the years ended December 31, 2023 and 2022, totaled $100.3 million and $67.5 million, respectively, an increase of approximately $32.8 million.

Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees, and other personnel and related costs.

The increase of $32.9 million was primarily attributable to an increase in compensation expense, which increased by $12.2 million as a result of hiring additional employees to support our ongoing growth, increased stock-based compensation of $7.6 million due to the adoption of the long-term incentive plan and additional headcount, increased legal and professional fees of $8.1 million primarily related to ongoing litigation and public company compliance, and an increase of $5.0 million in other general operating costs such as insurance and information technology projects to support our growth.

Depreciation and amortization expense during the years ended December 31, 2023 and 2022 totaled $252.4 million and $108.0 million, respectively.

The increase of $144.4 million was primarily due to higher depreciation expense recognized for the Rockdale Facility and the significant increase in the number of recently acquired and deployed miners .

Change in fair value of Bitcoin for the year ended December 31, 2023, was a gain of $184.7 million, and was recognized as a result of adopting Accounting Standards Update (“ASU”) No.

The increase was primarily attributable to an increase in compensation expense, which increased by $12.2 million as a result of hiring additional employees to support our ongoing growth, increased stock-based compensation of $7.6 million due to the adoption of the long-term incentive plan and additional headcount, increased legal and professional fees of $8.1 million primarily related to ongoing litigation and public company compliance, and an increase of $5.0 million in other general operating costs such as insurance and information technology projects to support our growth .

Depreciation and amortization expense during the years ended December 31, 2023 and 2022 totaled $252.4 million and $108.0 million, respectively, an increase of $144.4 million.

The increase was primarily due to higher depreciation expense recognized for the Rockdale Facility and the significant increase in the number of recently acquired and deployed miners .

The change in fair value of Bitcoin for the year ended December 31, 2023 was a gain of $184.7 million, and was recognized as a result of adopting Accounting Standards Update (“ASU”) No.

2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60):

1 unchanged sentence

The gain recognized was attributable to increases in the price of Bitcoin and the increased quantity of Bitcoin held as of December 31, 2023, as compared to December 31, 2022.

Changes in fair value of our derivative asset for the years ended December 31, 2023 and 2022 were gains of $6.7 million and $71.4 million, respectively, and were recorded to adjust the fair value of our PPA, which was classified as a derivative asset and measured at fair value.

The changes in fair value were due to changes in future power prices over the applicable period.

Power curtailment credits during the years ended December 31, 2023 and 2022 were $71.2 million and $27.3 million, respectively, and represent sales of unused power under our PPA and participation in ancillary services under ERCOT Demand Response Services Programs.

The changes in fair value of our derivative asset for the years ended December 31, 2023 and 2022 were gains of $6.7 million and $71.4 million, respectively, and were recorded to adjust the fair value of the Rockdale PPA, which is classified as a derivative asset and measured at fair value.

The changes in fair value were primarily due to changes in future power prices over the applicable period.

The gain incurred during the year ended December 31, 2023, was primarily attributable to the average of the forward prices utilized in the discounted cash flow estimation models increasing from $43.59 per mWh as of December 31, 2022 to $45.15 per mWh as of December 31, 2023.

Power curtailment credits during the years ended December 31, 2023 and 2022 were $71.2 million and $27.3 million, respectively, and represent sales of unused power under the Rockdale PPA and participation in ancillary services under ERCOT Demand Response Services Programs.

The amount of these credits varies from period to period depending on various factors impacting the supply of power to, and the demand for power on, the ERCOT power grid, such as weather and global fuel costs .

2 unchanged sentences

Casualty-related (charges) recoveries, net during the years ended December 31, 2023 and 2022 were $6.0 million and ($9.7) million, respectively.

In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, resulting in casualty-

related charges being recognized in 2023 and 2022.

In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, resulting in casualty-related charges being recognized in 2023 and 2022.

The income recognized during the year ended December 31, 2023, was the result of cash recoveries from insurance claims related to the December 2022 winter storms.

12 unchanged sentences

The adjustments include fair value adjustments such as derivative power contract adjustments, equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense items.

We believe Adjusted EBITDA can be an important financial 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 such adjustments.

Additionally, Adjusted EBITDA is used as a performance metric for share-based compensation.

We believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments.

Additionally, Adjusted EBITDA is used as a performance metric in our share-based compensation plan.

Adjusted EBITDA is provided in addition to, and should not be considered to be a substitute for, or superior to, net income, the most comparable measure under GAAP to Adjusted EBITDA.

4 unchanged sentences

Net income (loss)

Interest (income) expense

Interest income

Interest expense

Income tax expense (benefit)

4 unchanged sentences

Change in fair value of contingent consideration

Realized gain on sale/exchange of long-term investment

Realized loss on sale of marketable equity securities

Unrealized (gain) loss on marketable equity securities

Unrealized loss (gain) on equity method investment - marketable securities

Loss (gain) on sale/exchange of equipment

4 unchanged sentences

Adjusted EBITDA

In addition to Adjusted EBITDA, we believe “Bitcoin Mining revenue in excess of cost of revenue, net of power curtailment credits”, “Data Center Hosting revenue in excess of cost of revenue, net of power curtailment credits”, “Cost of revenue – Bitcoin Mining, net of power curtailment credits” and “Cost of revenue – Data Center Hosting, net of power curtailment credits” are additional non-GAAP performance metrics that represent a key indicator of our core business operations of both Bitcoin Mining and Data Center Hosting.

We believe our ability to offer power back to the grid at market-driven spot prices, thereby reducing our operating costs, is integral to our overall strategy, specifically our power management strategy and our commitment to supporting the ERCOT power grid.

While participation in various grid demand response programs may impact our Bitcoin production, we view this as an important part of our partnership-driven approach with ERCOT and our commitment to being a good corporate citizen in our communities.

We also believe netting the power sales against our costs can be an important financial measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our operating efficiencies, from period-to-period by making such adjustments.

We have allocated the benefit of the power sales to our Bitcoin Mining and Data Center Hosting segments based on their proportional power consumption during the periods presented.

Bitcoin Mining revenue in excess of cost of revenue, net of power curtailment credits, Data Center Hosting revenue in excess of cost of revenue, net of power curtailment credits, Cost of revenue – Bitcoin Mining, net of power curtailment credits and Cost of revenue – Data Center Hosting, net of power curtailment credits are provided in addition to and should not be considered to be a substitute for, or superior to Revenue – Bitcoin Mining, Revenue – Data Center Hosting, Cost of revenue – Bitcoin Mining or Cost of revenue – Data Center Hosting as presented in our Consolidated Statements of Operations.

The following table presents reconciliations of these non-GAAP performance metrics to the most comparable GAAP financial measures :

Years Ended December 31,

Bitcoin Mining

Cost of revenue

Bitcoin Mining revenue in excess of cost of revenue (B)

Power curtailment credits allocated to Bitcoin Mining

Bitcoin Mining revenue in excess of cost of revenue, net of power curtailment credits (C)

Bitcoin Mining revenue in excess of cost of revenue, as a percentage of revenue (B/A)

Bitcoin Mining revenue in excess of cost of revenue, net of power curtailment credits, as a percentage of revenue (C/A)

Data Center Hosting

Cost of revenue

Data Center Hosting revenue in excess of cost of revenue (B)

Power curtailment credits allocated to Data Center Hosting

Data Center Hosting revenue in excess of cost of revenue, net of power curtailment credits (C)

Data Center Hosting revenue in excess of cost of revenue, as a percentage of revenue (B/A)

Data Center Hosting revenue in excess of cost of revenue, net of power curtailment credits, as a percentage of revenue (C/A)

Allocation of Power Curtailment Credits

Consolidated power curtailment credits

Percentage of consolidated power curtailment credits allocated to Bitcoin Mining

Percentage of consolidated power curtailment credits allocated to Data Center Hosting

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, we had net working capital of approximately $887.6 million, including cash and cash equivalents of $597.2 million.

We reported a net loss of $49.5 million during the year ended December 31, 2023.

The net loss included $91.7 million in non-cash income items, primarily consisting of $189.0 million of Bitcoin revenue and $184.7 million in Change in fair value of Bitcoin, partially offset by depreciation and amortization of $252.4 million.

We generate non-cash revenue through mining Bitcoin at our Facilities, which we retain based on our Bitcoin Treasury Strategy, while financing operations and other expenses with cash typically raised through the issuance of our common stock under our ATM offering program.

Additionally, in the year ended December 31, 2024, we used nearly all of our cash proceeds from our 0.75% Convertible Senior Notes due 2030, to acquire Bitcoin.

During the year ended December 31, 2024 and 2023, we issued and sold approximately 90.6 million shares and 62.2 million shares, respectively, of our common stock under our ATM offering program for aggregate net proceeds (net of sales commissions and expenses) of $956.6 million and $761.8 million, respectively.

As of December 31, 2024, our net working capital totaled approximately $439.1 million, including cash and cash equivalents of $277.9 million, and marketable securities of $134.3 million.

During the year ended December 31, 2024, we reported net income of $109.4 million, which included $395.7 million in non-cash net gains, primarily consisting of revenue recognized from Bitcoin mined of $321.0 million, $457.4 million in change in fair value of Bitcoin, and the change in fair value of the derivative asset of $45.3 million, partially offset by depreciation and amortization of $212.1 million, stock-based compensation of $125.2 million, and the unrealized loss on marketable securities of $69.5 million.

During the year ended December 31, 2024, we sold 212 Bitcoin for proceeds of approximately $9.5 million.

Subsequent to those sales, we made the strategic decision to temporarily halt the sale of all our Bitcoin production and instead, increase our Bitcoin holdings.

We monitor our balance sheet on an ongoing basis and evaluate the level of Bitcoin retained from monthly production in consideration of our cash requirements for ongoing operations and expansion.

Contractual Commitments (Miners and Mining Equipment)

During the year ended December 31, 2023, the Company paid $191.1 million in deposits and payments to MicroBT for the purchase of miners described herein.

The remaining commitment of approximately $270.4 million is due in installments through approximately April 2025 based on the estimated miner delivery schedule.

Total payments of $220.0 million and $50.4 million are expected to be made in 2024 and 2025, respectively.

During the year ended December 31, 2023, the Company paid $31.2 million in deposits and payments to Midas Green Technologies, LLC (d/b/a Midas Immersion Cooling) (“Midas”) for the purchase of immersion cooling systems described herein.

The remaining commitment of approximately $21.1 million is due in installments in early 2024, based on the estimated delivery schedule.

Development of the Corsicana Facility Data Center

During the year ended December 31, 2022, we announced the initiation of a large-scale development to expand our Bitcoin mining and data center hosting capabilities in Navarro County, Texas with the acquisition of a 265-acre site where the anticipated one-gigawatt Corsicana Facility is being constructed.

We received approval from ERCOT for the entire one-gigawatt capacity.

The initial phase of the development of the Corsicana Facility involves the construction on the 265-acre site of 400 MW of immersion-cooled Bitcoin mining and data center hosting infrastructure spread across multiple buildings, as well as a high-voltage power substation and transmission facilities to supply power to the facility.

Construction of the substation and the data centers is expected to be carried out concurrently, with self-mining operations expected to commence by the end of the first quarter of 2024, following the commissioning of the substation.

This first phase of the development of the Corsicana Facility includes land acquisition, site preparation, substation development, and transmission construction, along with construction of ancillary buildings and four buildings utilizing our immersion-cooling infrastructure and technology.

We estimate that the total cost of the first phase of the development will be approximately $333.0 million, which is scheduled to be invested through mid-2024.

Through December 31, 2023, we had incurred costs of approximately $217.8 million related to the development of the Corsicana Facility, which consisted of $10.1 million for land, $203.0 million of initial developments costs and equipment and a $4.7 million deposit for future power usage.

We expect to incur costs of approximately $115.2 million during the first half of 2024.

Contractual Commitments and Obligations

As of December 31, 2024, we had a remaining commitment of approximately $1.0 million due to MicroBT for the contractual purchase of miners, which was paid in full in January 2025.

Development of the Corsicana Facility

During the year ended December 31, 2022, we announced our planned development of the Corsicana Facility, our second large-scale Bitcoin Mining facility located on a 265-acre site in Navarro County, Texas.

The Corsicana Facility is expected, upon completion, to have 1.0 GW of developed capacity, with an additional 200 MW of electrical capacity available for development, at our discretion, which is securely supplied with power by a substation being developed for us on the premises that will be interconnected with the nearby Navarro Switch.

The strategic decision to locate the Corsicana Facility next to the Navarro Switch was made to limit electricity lost in transmission and maximize the efficiency of our substation’s power distribution facilities.

The initial phase of the development of the Corsicana Facility involved the construction of a 400 MW substation and an equal amount of immersion-cooled Bitcoin Mining infrastructure spread across multiple buildings, as well as construction of various utilities, offices, warehouses, and infrastructure to support the facility’s operations.

Our Bitcoin Mining operations commenced in April 2024, following commissioning of the substation.

As of December 31, 2024, we deployed 400 MW of Bitcoin Mining infrastructure comprised of four completed 100 MW buildings, Buildings A1, A2, B1, and B2.

Through December 31, 2024, we incurred costs of approximately $415.9 million related to the development of the first phase of the Corsicana Facility, which consisted of $10.1 million for land and $405.8 million of initial developments costs and equipment.

Revenue from Operations

Bitcoin Mining

Funding our operations on a go-forward basis will rely significantly on our ability to mine Bitcoin at a price above our Bitcoin Mining costs and revenue generated from our Engineering customers.

We expect to generate ongoing revenue from Bitcoin rewards in connection with our Bitcoin Mining operations and our ability to liquidate Bitcoin rewards at future values will be regularly evaluated to generate cash for operations.

Generating Bitcoin rewards, for example, which exceed our production and overhead costs will determine our ability to report profit margins related to such mining operations, although accounting for our reported profitability is significantly complex.

Generating Bitcoin rewards which exceed our production and overhead costs will determine our ability to report profit margins related to such Bitcoin Mining operations, although accounting for our reported profitability is significantly complex.

Furthermore, regardless of our ability to generate proceeds from the sale of our Bitcoin produced from our Bitcoin Mining business, we may need to raise additional capital in the form of equity or debt to fund our operations and pursue our business strategy.

The ability to raise funds through the sale of equity, debt financings, or the sale of Bitcoin to maintain our operations is subject to many risks and uncertainties and, even if we were successful, future equity issuances or convertible debt offerings could result in dilution to our existing stockholders and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions.

The ability to raise funds through the sale of equity, debt financings, or the sale of Bitcoin to maintain our operations is subject to many risks and uncertainties and any future equity issuances or convertible debt offerings could result in dilution to our existing stockholders and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions.

Our ability to realize revenue through Bitcoin production and successfully convert Bitcoin into cash or fund overhead with Bitcoin is subject to a number of risks, including regulatory, financial and business risks, many of which are beyond our control.

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“Risk Factors” of this Annual Report.

Data Center Hosting

In general, we provide power for our data center customers on a variable (sub-metered) basis.

A customer pays us variable monthly fees for the specific amount of power utilized at rates specified in each contract, subject to certain minimums.

We recognize variable power revenue each month as the uncertainty related to the consideration is resolved, power is provided to our customers, and our customers utilize the power (the customer simultaneously receives and consumes the benefits of our performance).

We generate engineering and construction services revenue from the fabrication and deployment of immersion cooling technology for Bitcoin mining customers, for which we bill the customer at a fixed monthly fee or at an hourly rate.

For the construction of customer-owned equipment, revenue is recognized upon completion of each phase of the construction project, as defined in each contract.

For the construction of assets owned by us but paid for and used by the customer during the term of their data center hosting contract, revenue is recognized on a straight-line basis over the remaining life of the contract.

Maintenance services include cleaning, cabling, and other services to maintain the customers’ equipment.

We bill the customer at a fixed monthly fee or at an hourly rate.

Revenue is recognized as these services are provided.

Substantially all Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts.

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Customers are typically required to make periodic progress payments based on contractually agreed-upon milestones.

If we are unable to generate sufficient revenue from our Bitcoin Mining, Data Center Hosting, or Engineering operations when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending or explore other strategic alternatives.

If we are unable to generate sufficient revenue from our Bitcoin Mining or Engineering operations when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending or explore other strategic alternatives.

Long-term Debt

In December 2024, we issued $594.4 million aggregate principal amount of the Convertible Senior Notes maturing in 2030 (“2030 Notes”) and used $577.5 million of the net proceeds from the 2030 Notes to acquire 5,784 Bitcoin.

As part of the Block Mining Acquisition, we acquired a $5.7 million note payable with a fixed interest rate of 8.81%.

The note payable matures in December 2035, with annual principal and interest payments due beginning on December 31, 2024.

Debt , for additional descriptions of the long-term debt instruments described above.

ATM Equity Offerings

2023 ATM Offering

In August 2023, we entered into the 2023 ATM sales agreement under which we could offer and sell up to $750.0 million in shares of our common stock.

During the year ended December 31, 2023, we received net proceeds of approximately $571.6 million ($583.3 million of gross proceeds, net of $11.7 million in commissions and expenses) from the sale of 45,758,400 shares of our common stock at a weighted average fair value of $13.07 per share under the 2023 ATM Offering.

2022 ATM Offering

In March 2022, we entered into an ATM sales agreement under which we could offer and sell up to $500.0 million in shares of our common stock.

During the year ended December 31, 2022, we received gross proceeds of approximately $304.8 million ($298.2 million, net of $6.6 million in commissions and expenses), from the sale of 37,052,612 shares of common stock at an average fair value of $8.23 per share under the 2022 ATM Offering.

During the year ended December 31, 2023, we received net proceeds of approximately $191.2 million ($195.2 million of gross proceeds, net of $3.9 million in commissions and expenses) from the sale of 16,447,645 shares of our common stock at a weighted average fair value of $11.86 per share under the 2022 ATM Offering.

With the sale and issuance of these shares, all $500.0 million in shares of our common stock available for sale under the 2022 ATM Offering had been issued.

During 2024, 2023 and 2022, we offered and sold shares of our common stock through at-the-market equity offering (“ATM Offerings”) programs pursuant to sales agreements with sales agents (each, an “ATM Program”).

See Note 14, Stockholders’ Equity for the terms and provisions of each sales agreement.

The following table sets forth shares sold and net proceeds received (net of sales commissions and expenses) from shares sold under each ATM Program during the years ended December 31, 2024 and 2023 ( in thousands, except number of shares ):

Years Ended December 31,

2022 ATM Program

2023 ATM Program

February 2024 ATM Program

August 2024 ATM Program

As of December 31, 2024, approximately $362.2 million of our common stock remained available for issuance and sale pursuant to the August 2024 ATM Program.

The remaining sales agreements were terminated as of August 9, 2024.

Legal Proceedings

We have been named a defendant in several class action and other investor related lawsuits as more fully described in Note 17.

Commitments and Contingencies to our Consolidated Financial Statements.

While we maintain policies of insurance, such policies may not cover all of the costs or expenses associated with responding to such matters or any liability or settlement associated with any lawsuits and are subject to significant deductible or retention amounts.

We have been named a defendant in several lawsuits as more fully described in Note 17.

Commitments and Contingencies .

The following table presents a summary of our cash flows:

Years Ended December 31,

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Operating Activities

For the year ended December 31, 2023, net cash provided by operating activities was $33.1 million, which primarily consisted of net cash inflows of $174.3 million due to changes in operating assets and liabilities, including proceeds of $176.2 million from the sale of Bitcoin, partially offset by net income from non-cash reconciling items of $91.7 million and the consolidated net loss of $49.5 million.

The net income from non-cash reconciling items primarily consisted of Bitcoin Mining revenue of $189.0 million and change in fair value of Bitcoin of $184.7 million, partially offset by depreciation and amortization of $252.4 million, which was primarily attributable to the depreciation of our miners.

For the year ended December 31, 2022, net cash provided by operating activities was $0.5 million, which primarily consisted of net cash inflows of $95.1 million due to changes in operating assets and liabilities, including proceeds of $79.5 million from the sale of Bitcoin, and a net loss from non-cash reconciling items of $415.0 million, partially offset by the consolidated net loss of $509.6 million.

The net loss from non-cash reconciling items primarily consisted of Impairment of goodwill of $335.6 million, impairment of Bitcoin of $147.4 million, depreciation and amortization of $108.0 million, which was primarily attributable to the depreciation of our miners, and impairment of our miners of $55.5 million, partially offset by Bitcoin Mining revenue of $156.9 million and the change in fair value of our derivative assets of $71.4 million.

The increase in cash used in operating activities during the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily attributable to a $166.7 million reduction in proceeds from the sale of Bitcoin due to our ceasing of sales of Bitcoin early in 2024, increased power costs of $59.8 million, and a $73.5 million increase in selling, general, and administrative costs, excluding stock-based compensation, all of which were primarily driven by our increased mining capacity and headcount, combined with other general operating costs such as insurance and information technology projects to support our growth.

Investing Activities

For the year ended December 31, 2023, net cash used in investing activities was $414.8 million, which primarily consisted of deposits paid on equipment of $230.4 million, which was primarily related to the purchase of new miners, and purchases of property and equipment of $193.7 million, which was primarily related to the development of the Corsicana Facility and the now complete expansion of the Rockdale Facility.

For the year ended December 31, 2022, net cash used in investing activities was $354.9 million, which primarily consisted of deposits paid on equipment of $194.9 million, which was primarily related to the purchase of new miners, and purchases of property and equipment of $148.4 million, which was primarily related to the expansion of the Rockdale Facility.

Cash used in investing activities during the years ended December 31, 2024 and 2023, was primarily attributable to purchases of Bitcoin and purchases and deposits paid for miners and purchases of property and equipment for our ongoing expansions, as we continue towards our anticipated 38.4 EH/s of total self-mining hash rate capacity by the end of 2025.

During 2024, we acquired 5,784 Bitcoin for approximately $577.5 million.

We completed our expansion of the Rockdale Facility during the year ended December 31, 2023, and continued to develop the Corsicana Facility, which commenced self-mining operations during the second quarter of 2024, and the first phase of which was completed in the fourth quarter of 2024.

During the years ended December 31, 2024 and 2023, we paid $442.5 million and $230.4 million, respectively, in deposits and payments for the purchase of miners and paid $240.3 million and $193.7 million, respectively, for the purchases of property and equipment, including construction in process.

During 2024, we also purchased 90.1 million shares of Bitfarms common stock for $203.8 million, acquired E4A Solutions for $50.9 million in cash (net of cash acquired), and acquired Block Mining for $7.2 million in cash (net of cash acquired).

Financing Activities

For the year ended December 31, 2023, net cash provided by financing activities was $748.5 million, which primarily consisted of net proceeds from the issuance of our common stock in connection with our ATM offerings of $761.8 million, partially offset by the repurchase of shares of common stock withheld to satisfy employee withholding taxes of $14.0 million in connection with the settlement of vested equity awards granted under the 2019 Equity Incentive Plan.

For the year ended December 31, 2022, net cash provided by financing activities was $272.3 million, which primarily consisted of net proceeds from the issuance of our common stock in connection with our ATM Offerings of $298.2 million, partially offset by payments on our contingent consideration liability related to the acquisition of Whinstone of $15.7 million and the repurchase of shares of common stock withheld to satisfy employee withholding taxes of $10.1 million in connection with the settlement of vested equity awards granted under our 2019 Equity Incentive Plan.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.

Future events and their effects cannot be determined with absolute certainty.

Therefore, the determination of estimates requires the exercise of judgment.

Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of our financial statements include revenue recognition, valuing the derivative asset classified under Level 3 fair value hierarchy, determining the useful lives and recoverability of long-lived assets, impairment analysis of fixed assets and finite-lived intangibles, stock-based compensation, and the valuation allowance associated with our deferred tax assets.

Our financial position, results of operations and cash flows are impacted by the accounting policies we have adopted.

In order to get a full understanding of our financial statements, one must have a clear understanding of the accounting policies employed.

A summary of our critical accounting policies follows:

Bitcoin purchased are recorded at cost and Bitcoin awarded to us through our mining activities are accounted for in connection with our revenue recognition policy.

Bitcoin held are accounted for as intangible assets with indefinite useful lives.

Bitcoin is measured on a first-in-first-out (“FIFO”).

The Company adopted ASU 2023-08 effective January 1, 2023, which requires our Bitcoin to be valued at fair value each reporting period with changes in fair value recorded in net income.

Prior to the adoption of ASU 2023-08, Bitcoin was measured for impairment whenever indicators of impairment are identified based on the intraday low quoted price of Bitcoin.

To the extent an impairment loss was recognized, the loss established the new cost basis of the Bitcoin.

Subsequent reversal of impairment losses was not permitted.

Bitcoin is classified on our balance sheet as a current asset due to our ability to sell it in a highly liquid marketplace and our intent to liquidate our Bitcoin to support operations when needed.

Purchases and sales of Bitcoin by us and Bitcoin awarded to us are included within Cash flows from operating activities on the Consolidated Statements of Cash Flows as substantially all of our Bitcoin production is sold within days of being produced, but never more than our production on a monthly basis per our internal policy.

The change in fair value of Bitcoin is included in Operating income (expense) on the Consolidated Statements of Operations.

During 2024, the Company made a strategic decision to temporarily cease the sales of all its Bitcoin production and instead, increase its Bitcoin holdings.

The Company will continue to monitor its cash needs and expects to sell Bitcoin in the future to fund its cash expenditures.

Impairment of long-lived assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Revenue recognition

Bitcoin Mining

We have entered into digital asset mining pools by executing contracts with mining pool operators to provide computing power to the mining pool.

Our enforceable right to compensation begins only when, and lasts as long as, we provide computing power to the mining pool operator and is created as power is provided over time.

The only consideration due to us relates to the provision of computing power.

The contracts are terminable at any time by and at no cost to us, and by the pool operator under certain conditions specified in the contract.

Providing computing power in digital asset transaction verification services is an output of our ordinary activities.

Providing such computing power is the only performance obligation in our contracts with mining pool operators.

The transaction consideration we receive, if any, is noncash consideration in the form of Bitcoin.

Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and therefore, are not included in revenue.

Certain mining pool operators charge fees to cover the costs of maintaining the pool and are deducted from amounts we may otherwise earn and are treated as a reduction to the consideration received.

Fees fluctuate and historically have been no more than approximately 2% per reward earned, on average.

The terms of the agreements provide that neither party can dispute settlement terms after approximately thirty-five days following settlement.

In exchange for providing computing power, we are entitled to either:

● a Full-Pay-Per-Share payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided by us to the mining pool as a percentage of total network hash rate, and other inputs.

We are entitled to consideration even if a block is not successfully placed by the mining pool operator.

The contract is in effect until terminated by either party.

● The consideration is all variable.

Because it is probable that a significant reversal of cumulative revenue will not occur and we are able to calculate the payout based on the contractual formula, noncash consideration is estimated and recognized based on the spot price of Bitcoin determined using our principal market for Bitcoin at the inception of each contract.

Noncash consideration is measured at fair value at contract inception.

Fair value of the crypto asset consideration is determined using the quoted price on our principal market for Bitcoin at the beginning of the contract period at the single bitcoin level (one bitcoin).

This amount is recognized in revenue as hash rate is provided.

● We transitioned completely to this mining pool type in December 2022 and utilized it for the year ended December 31, 2023.

● a fractional share of the fixed Bitcoin award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are immaterial and are recorded as a deduction from revenue) for successfully adding a block to the blockchain based on a proportion of our “scoring hash rate” to the pool’s “scoring hash rate” where the scoring hash rate as defined by the pool is the exponential moving average of the hash power contributed by us or by all pool members combined.

Our fractional share of the Bitcoin reward is based on the proportion of computing power we contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

● Because the consideration to which we expect to be entitled for providing computing power is entirely variable, as well as being noncash consideration, we assess the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the “constraint”).

Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue.

Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which we are entitled becomes known.

● Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and we receive confirmation of the consideration it will receive, at which time revenue is recognized based on the spot rate of Bitcoin determined using our principal market for Bitcoin at the time of receipt.

There is no significant financing component in these transactions, due to the performance obligations and settlement of the transactions being on a daily basis.

Data Center Hosting

In general, we provide power for our data center customers on a variable (sub-metered) basis.

A customer pays us variable monthly fees for the specific amount of power utilized at rates specified in each contract, subject to certain minimums.

We have determined that our contracts contain a series of performance obligations which qualify to be recognized under a practical expedient available known as the “right to invoice.” This determination allows variable consideration in such contracts to be allocated to and recognized in the period to which the consideration relates, which is typically the period in which it is billed, rather than requiring estimation of variable consideration at the inception of the contract.

We have also determined that the contracts contain a significant financing component because the timing of revenue recognition differs from the timing of invoicing by a period, exceeding one year.

For the construction of customer-owned equipment, revenue is recognized upon completion of each phase of the construction project, as defined in each contract.

Due to the long-term nature of the hosting contracts, there is a significant financing component in transactions where the customer paid for the construction of assets we own.

Maintenance services include cleaning, cabling, and other services to maintain the customers’ equipment.

We bill the customer at a fixed monthly fee or at an hourly rate.

Revenue is recognized as these services are provided.

Deferred revenue is primarily from advance payments received and is recognized to revenue in a manner consistent with the service being provided, as described above.

Our primary data center hosting contracts contain Service Level Agreement clauses, which guarantee a certain percentage of time the power will be available to our customer.

In the rare case that we may incur penalties under these clauses, we recognize the

payment as variable consideration and a reduction of the transaction price and, therefore, of revenue, when not in exchange for a good or service from the customer.

Substantially all revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation.

Revenue is recognized over time as performance creates or enhances an asset with no alternative use, and for which we have an enforceable right to receive compensation as defined under the contract.

To determine the amount of revenue to recognize over time, we utilize the cost-to-cost method as management believes cost incurred best represents the amount of work completed and remaining on projects.

As the cost-to-cost method is driven by incurred cost, we calculate the percentage of completion by dividing costs incurred to date by the total estimated cost.

The percentage of completion is then multiplied by estimated revenue to determine inception-to-date revenue.

Approved changes to design plans are generally recognized as a cumulative adjustment to the percentage of completion calculation.

Revenue recognized for the period is the current inception-to-date recognized revenue less the prior period inception-to-date recognized revenue.

If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined, and any additional losses incurred subsequently are recognized in the subsequent reporting periods as they are identified.

Additionally, contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract.

Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those contracts, and therefore, profit and revenue recognition.

Any costs to obtain a contract are not material to our financial statements and would be expensed as incurred.

Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

The length of time for us to complete a custom product varies but is typically between four to 12 weeks.

Customers are typically required to make periodic progress payments to us based on contractually agreed-upon milestones.

Invoices are due net, 30 days, and retainage, if any, is generally due 30 days after delivery.

Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Shipping and handling costs are treated as fulfillment costs and are included in cost of sales.

Fair value of financial instruments

We recognize financial instruments under the following fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable;

Level 3 — assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on our market assumptions.

Unobservable inputs require significant management judgment or estimation.

In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.

In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.

Such determination requires significant management judgment.

The carrying amounts of our financial assets and liabilities, such as cash and cash equivalents, and accounts payable, approximate fair value due to the short-term nature of these instruments.

Finite-lived intangible assets

Intangible assets with finite lives are comprised of customer contracts, trademarks, UL Listings, and patents that are amortized on a straight-line basis over their expected useful lives, which is their contractual term or estimated useful life.

Patents costs consisting of filing and legal fees incurred are initially recorded at cost.

Certain patents are in the legal application process and therefore are not currently being amortized.

We perform assessments to determine whether finite-lived classification is still appropriate at least annually.

The carrying value of finite-lived assets and their remaining useful lives are also reviewed at least annually to determine if circumstances exist which may indicate a potential impairment or revision to the amortization period.

A finite-lived intangible asset is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it.

We exercise judgment in selecting the assumptions used in the estimated future undiscounted cash flows analysis.

Impairment is measured by the amount that the carrying value exceeds fair value.

The use of different estimates or assumptions could result in significantly different fair values for our reporting units and intangible assets.

Operating segments

Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance.

Our CODM is comprised of several members of our executive management team who use revenue and cost of revenue of our three reporting segments to assess the performance of the business of our reportable operating segments.

For the years ended December 31, 2024 and 2023, net cash provided by financing activities primarily consisted of net proceeds from our ATM Offerings of $956.6 million and $761.8 million, respectively.

During the year ended December 31, 2024, we received proceeds of $594.4 million from the issuance of the 2030 Notes, for which we paid debt issuance costs of approximately $15.2 million.

In addition to the 2030 Notes, we assumed approximately $5.3 million in debt as part of the Block Mining Acquisition.

We have primarily financed our strategic growth through proceeds from our ATM Offerings and issuances of our common stock.

It is reasonably likely that we will continue to finance our ongoing growth with proceeds from current and future ATM Offerings and may utilize additional convertible debt offerings.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with GAAP, there are certain accounting policies that may require a choice between acceptable accounting methods or may require substantial judgment or estimation in their application.

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our Consolidated Financial Statements.

An accounting estimate is considered critical if both (i) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimates and assumptions is material to our Consolidated Financial Statements.

These include:

business combinations, valuation of the Rockdale PPA and the Corsicana PPA, long-lived assets and stock-based compensation.

We believe these and other accounting policies set forth in Note 1 .

Basis of Presentation and Summary of Significant Accounting Policies should be reviewed as they are integral to understanding our results of operations and financial condition.

We have discussed the selection of critical accounting policies and the effect of estimates with the Audit Committee of our Board.

Business combinations

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for property and equipment and contingent consideration, where applicable.

Although we believe our assumptions and estimates have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain.

Estimates used in determining the value of property and equipment included the estimated replacement costs, which included replacement cost new, remaining life, and effective age.

Estimates primarily used in determining the value of the contingent consideration included the timing and probability of achieving milestones and discount rates.

Rockdale PPA and Corsicana PPA Valuation

The Rockdale PPA and the Corsicana PPA are accounted for as derivatives, the valuations of which are based on significant unobservable inputs utilized in the valuations, which include discounted cash flow estimation models containing quoted commodity exchange spot and forward prices and are adjusted for basis spreads for load zone-to-hub differentials through the respective terms of the Rockdale PPA and the Corsicana PPA.

Significant judgement and estimations are required when creating the discounted cash flow estimation models.

Should our discounted cash flow estimation models change significantly, potentially material changes to the fair value of the derivative asset may result, which could have a material impact on our financial statements.

Power Supply Agreements for a discussion of the unobservable inputs and their impact on the valuation.

Long-lived assets

Long-lived assets are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets.

Judgment is necessary in estimating our various assets’ useful lives.

This includes evaluating our own usage experience with our currently owned assets, the quality of materials used in construction-related projects, and for its miners, the rate of technological advancement and market-related factors such as the price of Bitcoin and the Bitcoin network hash rate, which impact the value of the miners.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, which is determined based on a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset.

Significant judgment is used when estimating future cash flows, particularly the price of Bitcoin and the Bitcoin network hash rate.

If such assets are considered impaired, an impairment is recognized based on the amount by which the carrying amount exceeds the estimated fair value of the assets.

Should our estimates of useful lives, undiscounted future cash flows, or asset fair values change, additional and potentially material impairments may be required, which could have a material impact on our reported financial results.

Stock-based Compensation

We account for share-based payment awards exchanged for services at the estimated grant date fair value of the award, which is based on the fair market value of our common stock at the time of the grant.

For performance-based share-based payment awards, we recognize compensation cost over the performance period when achievement of the milestones and targets is probable.

We have elected to account for forfeitures of awards as they occur.

Stock-based compensation expense related to share-based payment awards is recognized at the grant date of the award and is estimated based on the fair market value of our common stock on the date of the grant.

Compensation cost for performance-based, share-based payment awards is recognized over the performance period when achievement of the milestones and targets becomes probable.

We use significant judgment in determining the likelihood of meeting milestones and market conditions.

Inputs into valuation models such as Monte Carlo simulations include both the Company’s and the Russell 3000’s historical and expected annual volatilities, and depending on the inputs selected, we could calculate significantly different estimated grant date fair values, materially impacting the valuation of our stock-based awards and the stock-based compensation expense we recognize in future periods.

Recently Issued and Adopted Accounting Pronouncements

We continually assess any new accounting pronouncements to determine their applicability.

When it is determined that a new accounting pronouncement affects our financial reporting, we undertake a review to determine the consequences of the change to our financial statements and believe that there are proper controls in place to ascertain that our financial statements properly reflect the change.

Significant Accounting Policies and Recent Accounting Pronouncements to our Consolidated Financial Statements for a description of applicable recent accounting pronouncements and any material impact on our financial statements.

Significant Accounting Policies and Recent Accounting Pronouncements for a description of applicable recent accounting pronouncements and any material impact on our financial statements.

Off-Balance Sheet Arrangements

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Item 7. Management’s Discussion and Analysis