SEGMENT REPORTING

3 Months Ended

Mar. 31, 2023

Segment Reporting [Abstract]

SEGMENT REPORTING

12. SEGMENT REPORTING

The Company’s operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics and have similar business activities.

The Company has two operating segments: “Hosting” which consists primarily of its blockchain infrastructure and third-party hosting business; and “Mining” consisting of digital asset mining for its own account. The blockchain hosting business generates revenue through the sale of consumption-based contracts for its hosting services which are recurring in nature. During 2022, our “Hosting” segment also included sales of mining equipment to customers and was referred to as “Hosting and Equipment Sales”. The Mining segment generates revenue from operating owned computer equipment as part of a pool of users that process transactions conducted on one or more blockchain networks. In exchange for these services, the Company receives digital assets.

The primary financial measures used by the chief operating decision maker (“ CODM”) to evaluate performance and allocate resources are revenue and gross profit. The CODM does not evaluate performance or allocate resources based on segment asset or liability information; accordingly, the Company has not presented a measure of assets by segment. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company excludes certain operating expenses and other expense from the allocations to operating segments.

The following table presents revenue and gross profit by reportable segment for the periods presented (in thousands):

	Three Months Ended March 31,
	2023		2022
Hosting Segment
Revenue:
Hosting revenue	$	22,629	$	33,214
Equipment sales	—		26,305
Total revenue	$	22,629	$	59,519
Cost of revenue:
Cost of hosting services	$	18,826	$	31,231
Cost of equipment sales	—		22,535
Total cost of revenue	$	18,826	$	53,766
Gross profit	$	3,803	$	5,753
Mining Segment
Revenue:
Digital asset mining income	$	98,026	$	133,000
Total revenue	$	98,026	$	133,000
Cost of revenue:
Cost of digital asset mining	$	81,345	$	68,750
Total cost of revenue	81,345		68,750
Gross profit	$	16,681	$	64,250
Consolidated
Consolidated total revenue	$	120,655	$	192,519
Consolidated cost of revenue	$	100,171	$	122,516
Consolidated gross profit	$	20,484	$	70,003

For the three months ended March 31, 2023 and 2022, cost of revenue included depreciation expense of $0.2 million and $2.2 million, respectively for the Hosting segment. For the three months ended March 31, 2023 and 2022, cost of revenue included depreciation expense of $19.9 million and $39.4 million, respectively for the Mining segment.

Concentrations of Revenue and Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Credit risk with respect to accounts receivable is concentrated with a small number of customers. The Company places its cash and cash equivalents with major financial institutions, which management assesses to be of high credit quality, in order to limit the exposure to credit risk. As of March 31, 2023 and December 31, 2022, all of the Company’s fixed assets were located in the United States. For the three months ended March 31, 2023 and 2022, 100% and 100%, respectively, of the Company’s revenue was generated in the United States. For the three months ended March 31, 2023 and 2022, 81% and 62%, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin, which is subject to extreme price volatility. As of March 31, 2023 and December 31, 2022, substantially all of our digital assets were held by two third-party digital asset services.

For the three months ended March 31, 2023 and March 31, 2022, the concentration of customers comprising 10% or more of the Company’s total revenue are as follows:

	Three Months Ended March 31,			Three Months Ended March 31,
	2023	2022		2023	2022
	Percent of total revenue:			Percent of Hosting segment revenue:
Customer
A (related party)	N/A	12	%	N/A	39	%
D	N/A	N/A		N/A	N/A
E	N/A	N/A		N/A	N/A

A reconciliation of the reportable segment gross profit to income (loss) before income taxes included in the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022, is as follows (in thousands):

	Three Months Ended March 31,
	2023		2022
Reportable segment gross profit	$	20,484	$	70,003
Gain from sales of digital assets	1,064		2,163
Impairment of digital assets	(1,056)		(53,985)
Operating expenses:
Research and development	1,415		3,340
Sales and marketing	1,008		1,398
General and administrative	21,764		40,160
Total operating expenses	24,187		44,898
Operating loss	(3,695)		(26,717)
Non-operating expenses, net:
Gain on debt extinguishment	(20,761)		—
Interest expense, net	157		21,676
Fair value adjustment on convertible notes	—		386,037
Fair value adjustment on derivative warrant liabilities	—		(10,275)
Reorganization items, net	31,559		—
Other non-operating income, net	(3,069)		(357)
Total non-operating expenses, net	7,886		397,081
Loss before income taxes	$	(11,581)	$	(423,798)