SEGMENT REPORTING

3 Months Ended

Mar. 31, 2024

Segment Reporting [Abstract]

SEGMENT REPORTING

13. 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: “Mining”, consisting of digital asset mining for its own account; and “Hosting”, which consists primarily of its digital infrastructure and third-party hosting business for digital asset mining and specialized GPU cloud compute customers. 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 hosting business generates revenue through the sale of consumption-based contracts for its hosting services which are recurring in nature.

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 expenses 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,
	2024			2023
Mining Segment	(in thousands, except percentages)
Digital asset mining revenue	$	149,959		$	98,026
Cost of digital asset mining	81,564			72,676
Mining gross profit	$	68,395		$	25,350
Mining gross margin	46		%	26		%
Hosting Segment
Hosting revenue	$	29,332		$	22,629
Cost of hosting services	20,081			16,198
Hosting gross profit	$	9,251		$	6,431
Hosting gross margin	32		%	28		%
Consolidated
	$	179,291		$	120,655
Consolidated cost of revenue	$	101,645		$	88,874
Consolidated gross profit	$	77,646		$	31,781
Consolidated gross margin	43		%	26		%

For the three months ended March 31, 2024 and 2023, cost of revenue included depreciation expense of $27.5 million and $19.9 million, respectively for the Mining segment. For the three months ended March 31, 2024 and 2023, cost of revenue included depreciation expense of $1.3 million and $0.2 million, respectively for the Hosting 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, 2024 and December 31, 2023, all of the Company’s fixed assets were located in the United States. For the three months ended March 31, 2024 and 2023, all of the Company’s revenue was generated in the United States. For the three months ended March 31, 2024 and 2023, 84% and 81%, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin from one customer, which is subject to extreme price volatility.

For the three months ended March 31, 2024 and 2023, the concentration of customers comprising 10% or more of the Company’s Mining and Hosting segment revenue were as follows:

	Three Months Ended March 31,				Three Months Ended March 31,
	2024		2023		2024		2023
	Percent of Mining segment revenue:				Percent of Hosting segment revenue:
Customer
G	100	%	100	%	N/A		N/A
F	N/A		N/A		52	%	N/A
H	N/A		N/A		25	%	N/A
I	N/A		N/A		10	%	N/A

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

	Three Months Ended March 31,
	2024		2023
Reportable segment gross profit	$	77,646	$	31,781
Gain from sales of digital assets	543		1,064
Impairment of digital assets	—		(1,056)
Change in fair value of energy derivatives	(2,218)		—
Losses on disposal of property, plant and equipment	(3,820)		—
Operating expenses:
Research and development	1,799		1,415
Sales and marketing	982		1,008
General and administrative	14,143		21,764
Total operating expenses	16,924		24,187
Operating income	55,227		7,602
Non-operating (income) expenses, net:
Loss (gain) on debt extinguishment	50		(20,761)
Interest expense, net	14,087		157
Reorganization items, net	(111,439)		31,559
Change in fair value of warrant and contingent value rights	(60,114)		—
Other non-operating expense (income), net	1,746		(3,069)
Total non-operating (income) expenses, net	(155,670)		7,886
Income (loss) before income taxes	$	210,897	$	(284)