Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual business, financial condition, and results of operations could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under “Item 1A. Risk Factors.” See also “Cautionary Statement Regarding Forward-Looking Statements.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Business Overview
Hut 8 is an energy infrastructure platform that integrates power, digital infrastructure, and compute at scale to fuel next-generation, energy-intensive use cases such as Bitcoin Mining and HPC. We take a power-first, innovation-driven approach to developing, commercializing, and operating the critical infrastructure that underpins the breakthrough technologies of today and tomorrow.
2024 Highlights
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Key Factors Affecting Our Performance
Price of Bitcoin
Our business is heavily dependent on the price of Bitcoin, which has historically experienced significant volatility. We generate revenue from Bitcoin rewards that we earn through mining in our facilities. We have also acquired, and may in the future acquire, additional Bitcoin through at-market purchases to build our strategic reserve of Bitcoin. Under ASU 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), Bitcoin is revalued at fair value at the end of each reporting period, with changes in fair value recognized in net income. As a result, fluctuations in the price of Bitcoin may significantly impact our results of operations.
Bitcoin network difficulty and hashrate
Our business is not only impacted by the volatility in Bitcoin prices, but also by increases in the competition for Bitcoin production. This increased competition is described as the network hashrate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain, and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. Increased difficulty reduces the mining proceeds of the equipment proportionally and eventually requires Bitcoin miners like us to upgrade their equipment to remain profitable and compete effectively with other miners. Conversely, a decline in network hashrate results in a decrease in difficulty, increasing mining proceeds and profitability.
Block reward and halving
The current Bitcoin reward for solving a block is 3.125 Bitcoin. The Bitcoin network is programmed such that the Bitcoin block reward is halved every 210,000 blocks mined, or approximately every four years due to the Halving. This reduction in reward spreads out the release of Bitcoin over a long period of time as an even smaller number of coins are mined with each Halving. Bitcoin Halving events impact the amount of Bitcoin we mine which, in turn, may have a potential impact on our results of operations. The last Halving occurred in April 2024 and the next Halving is expected to occur in 2028.
Power Costs
Power is the foundation of our platform. We acquire, develop, and manage critical energy assets such as interconnects, powered land, and other electrical infrastructure to address the load demands of energy-intensive applications such as Bitcoin mining and HPC. We currently maintain a portfolio of competitively priced electrical power. However, there is no guarantee that we will be able to negotiate additional power agreements on similar terms, or at all. Market prices for power, capacity, and other ancillary services are unpredictable and tend to fluctuate substantially. See “Risk Factors—Risks Related to Our Business and Operations—We are subject to risks associated with our need for significant electrical power.”
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Key Performance Indicators
In addition to our financial results and generally accepted accounting principles in the United States of America (“GAAP”) financial measures, we use certain key performance indicators to evaluate our business, identify trends, and make strategic decisions.
The following table presents our key performance indicators for the twelve months ended December 31, 2024 and 2023, the six months ended December 31, 2023 and 2022, and the twelve months ended June 30, 2023 and 2022.
Twelve Months Ended Six Months Ended Twelve Months Ended
Cost to mine a Bitcoin
Our profitability in self-mining is heavily dependent upon our cost to mine a Bitcoin, calculated as all-in electricity and hosting costs divided by Bitcoin mined during the respective periods and includes our net share of the King Mountain JV. Our management reviews the cost to mine a Bitcoin excluding hosted facilities and inclusive of hosted facilities in order to assess performance under both cost structures. As of December 31, 2024, we had no Bitcoin operations in hosted facilities.
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Our cost to mine a Bitcoin (excluding hosted facilities) for the twelve months ended December 31, 2024 was $27,959 compared to $13,198 for the twelve months ended December 31, 2023. The increase was primarily due to the Halving in April 2024, in addition to an increase in average network difficulty during the period (87.3T for the twelve months ended December 31, 2024 compared to 51.8T for the twelve months ended December 31, 2023). This was partially offset by a decrease in our energy cost per MWh (see below for further discussion on energy cost per MWh). Our cost to mine a Bitcoin (excluding hosted facilities) for the six months ended December 31, 2023 was $16,353 compared to $16,447 for the six months ended December 31, 2022. The decrease was primarily attributable to a decrease in our energy cost per MWh (see below for further discussion on energy cost per MWh), partially offset by an increase in network difficulty as more energy was utilized to mine a Bitcoin during the 2023 period compared to the 2022 period. Our cost to mine a Bitcoin (excluding hosted facilities) for the twelve months ended June 30, 2023 and June 30, 2022 was $14,672 and $13,161, respectively. The increase was also driven by an increase in network difficulty, which raised our energy utilized to mine a Bitcoin.
Inclusive of hosted facilities, our cost to mine a Bitcoin for the twelve months ended December 31, 2024 was $28,161 compared to $16,570 for the twelve months ended December 31, 2023. The increase was primarily due to the Halving in April 2024, in addition to an increase in average network difficulty during the period. Our cost to mine a Bitcoin for the six months ended December 31, 2023 was $18,815 compared to $16,305 for the six months ended December 31, 2022. The increase was primarily driven by an increase in network difficulty and further augmented by an increase in hosting costs per MWh (see below for further discussion on hosting cost per MWh). Our cost to mine a Bitcoin for the twelve months ended June 30, 2023 was $15,117 compared to $13,175 for the twelve months ended June 30, 2022. The increase was primarily due to an increase in our hosting rate, which became variable in the 2023 period, and an increase in network difficulty, which raised our energy utilized to mine a Bitcoin.
Energy and hosting cost per MWh
In addition to the cost to mine a Bitcoin, our management reviews the energy cost per MWh at facilities we own and the hosting cost per MWh at hosted facilities to better understand cost efficiency, operational performance, and identify opportunities for overall profitability improvements. Energy cost per MWh is calculated by dividing our total energy expense by the total MWh utilized at owned facilities during the respective periods and includes our net share of the King Mountain JV. Hosting cost per MWh is calculated by dividing our total hosting expense by the total MWh utilized at hosted facilities during the respective periods.
Energy cost per MWh for the twelve months ended December 31, 2024 was $32.52 compared to $40.80 for the twelve months ended December 31, 2023. The decrease was primarily driven by lower energy costs at our newly built Salt Creek site and efficient economic curtailment of miners using our proprietary Reactor software. The twelve months ended December 31, 2024 includes twelve months of combined company self-mining activity at our Alpha, Medicine Hat, and Salt Creek sites, and our net share of activity at the King Mountain site, whereas the prior year reflects eleven months of USBTC’s self-mining activity at our Alpha site and our net share at the King Mountain site as well as one month of combined company self-mining activity, including Medicine Hat and Drumheller. Energy cost per MWh for the six months ended December 31, 2023 was $44.52 compared to $73.19 for the six months ended December 31, 2022. The decrease was primarily driven by lower energy costs at King Mountain compared to our previous facility in Pecos, Texas, which we exchanged in February 2023 for extinguishment of debt. Energy cost per MWh for the twelve months ended June 30, 2023 and June 30, 2022 was $61.51 and $70.77, respectively. The decrease was also driven by lower energy costs at King Mountain compared to the former Pecos, Texas facility.
Hosting cost per MWh for the twelve months ended December 31, 2024 was $68.72 compared to $62.57 for the twelve months ended December 31, 2023. Even though we exited two sites owned by a third-party hosting provider located in Kearney, Nebraska (“Kearney”) and Granbury, Texas (“Granbury”) on April 30, 2024, the increase was due to a higher variable hosting rate (tied to hashprice) at these sites, as compared to the twelve months ended December 31, 2023. Hosting cost per MWh for the six months ended December 31, 2023 was $63.33 compared to $22.61 for the six months ended December 31, 2022. The increase was due to a higher variable hosting rate at the Delta site during the 2023 period compared to the hosting costs charged by the site’s former operator during the 2022 period. Hosting cost per MWh for the twelve months ended June 30, 2023 and June 30, 2022 were $60.47 and $56.00, respectively. The increase was due to a higher variable hosting rate during the 2023 period compared to a fixed rate during the 2022 period.
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Number of Bitcoin in strategic reserve
Number of Bitcoin in strategic reserve represents the number of Bitcoin we own as of each reporting period end date, which is the aggregate number of our Bitcoin held in custody, pledged as collateral, or pledged for a miner purchase. We have the ability to leverage our Bitcoin in strategic reserve as a flexible financial asset to fund growth initiatives, optimize our balance sheet, and capitalize on emerging market opportunities. Our management uses this metric to assess the value of our Bitcoin in strategic reserve and determine when and how to deploy said reserve, including continuing to hold the Bitcoin.
As of December 31, 2024, we had 10,171 Bitcoin in strategic reserve. The majority of our Bitcoin was acquired as a result of the Business Combination. As noted in the 2024 Highlights above, we purchased approximately 990 Bitcoin in December 2024, of which 968 were pledged for a miner purchase under an agreement with BITMAIN for our miner fleet upgrade.
Number of Bitcoin mined
Number of Bitcoin mined represents the number of Bitcoin produced by our Compute segment during the respective period. Management views this metric as a direct driver of Compute revenue for the respective periods.
Number of Bitcoin mined for the twelve months ended December 31, 2024 and December 31, 2023 was 1,466 and 2,789, respectively. The decrease in number of Bitcoin mined was mainly due to an increase in network difficulty and the Halving. Number of Bitcoin mined for the six months ended December 31, 2023 and December 31, 2022 was 1,527 and 1,347, respectively. The increase in number of Bitcoin mined was mainly due to twelve months of combined company activity in 2024 compared to one month of combined company activity in 2023. Number of Bitcoin mined for the twelve months ended June 30, 2023 and June 30, 2022 was 2,610 and 1,636 respectively. The increase in number of Bitcoin mined was due to an increase in the number of miners in operation.
Energy capacity under management
Energy capacity under management comprises energy capacity under management (mining) and all other energy-related assets including Power Generation, CPU Colocation infrastructure, and non-operational sites. Energy capacity under management (mining) represents the total power capacity related to Bitcoin mining infrastructure, including self-mining sites, ASIC Colocation agreements, and Managed Services agreements. Management reviews these metrics to assess total energy capacity utilization across our operations to drive an efficient allocation of resources.
Energy capacity under management for the twelve months ended December 31, 2024 was 1,020 MW compared to 842 MW for the twelve months ended December 31, 2023. The increase was due to the acquisition of Far North, consisting of 310 MW across four natural gas power generation facilities in Canada, and Vega, a 205 MW facility that is currently under development. Energy capacity under management for the six months ended December 31, 2023 was 842 MW compared to 730 MW for the six months ended December 31, 2022. The increase was due to the addition of two self-mining facilities, Medicine Hat and Drumheller, and five cloud and colocation data centers due to the Business Combination. Energy capacity under management for the twelve months ended June 30, 2023 and June 30, 2022 were 730 MW and 92 MW, respectively. The increase was due to the addition of two Managed Service sites, Kearney (100 MW) and Granbury (300 MW), and 280 MW at the King Mountain site, also under the Managed Services line of business, partially offset by the loss of our former Pecos, Texas site, which was 42 MW. During the three months ended June 30, 2024, we concluded our Managed Services operations at the Kearney and Granbury sites. We received a $13.5 million payment from MARA Holdings Inc. (“MARA”) in connection with the termination of the property management agreements at those two sites.
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Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we rely on Adjusted EBITDA to evaluate our business, measure our performance, and make strategic decisions. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), adjusted for impacts of interest expense, income tax provision or benefit, depreciation and amortization, foreign exchange gains or losses, gain on debt extinguishment, gain on derivatives, gain on bargain purchase, our share of unconsolidated joint venture depreciation and amortization, the removal of non-recurring transactions, impairment on assets, gain or loss on sale of property and equipment, loss from discontinued operations, net loss attributable to non-controlling interests, and stock-based compensation expense in the period presented. You are encouraged to evaluate each of these adjustments and the reasons our Board and management team consider them appropriate for supplemental analysis.
Our Board and management team use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense and income), asset base (such as depreciation and amortization), and other items (such as non-recurring transactions mentioned above) that impact the comparability of financial results from period to period.
Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
For a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, please see “—Results of Operations” below.
Business Segments
We have four reportable business segments: Power, Digital Infrastructure, Compute, and Other.
Power
The Power business segment consists of Power Generation and Managed Services.
Power Generation
We generate revenue from our 80.1% interest in the Far North JV, which provides capacity and energy to the electrical grid through four natural gas power plants in Ontario, Canada. The power generation facilities are connected to the Independent Electricity System Operator, which operates Ontario’s power grid, and primarily generate revenue from capacity and electricity sales. Revenue generated from capacity and electricity sales is variable and depends on several factors including generation capacity in the market, the supply and demand for electricity, and the prevailing price of natural gas.
Managed Services
Our Managed Services business provides institutional partners with an end-to-end partnership model for energy infrastructure development, including:
● Project inception: site design, procurement, and construction management;
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● Compliance and reporting: finance, accounting, and safety.
Cash flows are generated through a fee structure that is typically fixed based on power capacity under management, with reimbursement of passthrough costs. In addition to the fixed fee, under certain agreements, further cash flows may be driven from incentive bonuses and certain energy management services.
As of December 31, 2024, we managed 280 MW of energy capacity under this program at one site in the United States owned by the King Mountain JV.
Digital Infrastructure
The Digital Infrastructure business segment consists of CPU Colocation and ASIC Colocation services.
CPU Colocation
Our CPU Colocation business spans five locations in Canada (Mississauga, Ontario; Vaughan, Ontario; Kelowna, British Columbia; and two locations in Vancouver, British Columbia) with a total energy capacity of 3 MW and more than 36,000 square feet of geo-diverse data center space powered by predominantly emission-free energy sources. Our infrastructure is designed to support a variety of compute, storage, and network workloads across traditional enterprise, B2B, machine learning, visual effects, and AI. This segment serves computing needs unrelated to Bitcoin Mining. These data centers are geo-diverse and carrier neutral with network diversity and redundancy from multiple telecommunications providers.
Our CPU Colocation business is based on a fixed-fee model. Customers pay a fixed recurring monthly fee based on a set amount of resources assigned.
ASIC Colocation
Under our ASIC Colocation business, we enter into contracts to host and operate mining equipment on behalf of third parties within our facilities. These services include the provision, if applicable, and hosting of mining equipment as well as the monitoring, troubleshooting, repair, and maintenance of such equipment. Revenues from ASIC Colocation services are generated through fees that may be fixed or based on profit-sharing arrangements, often with reimbursement for certain pass-through costs such as electricity.
During the fourth quarter of 2024, our agreement with Ionic Digital Inc. (“Ionic”) to host approximately 8,500 miners (0.8 EH/s) at our Alpha site was terminated. As a result, we ceased providing ASIC Colocation services at Alpha and utilized the site solely for self-mining purposes.
Looking ahead, we have secured a new ASIC Colocation contract with BITMAIN. The agreement features a fixed hosting fee with an option for us to purchase all or a portion of the hosted machines in up to three tranches at a fixed price within six months of energization of the relevant tranches. In July 2024, we entered into a power purchase agreement and other definitive agreements for a site in the Texas Panhandle with exclusive access to 205 MW of immediately available power capacity and land. The data center construction at Vega is expected to be completed in Q2 2025.
Compute
The Compute business segment consists of Bitcoin Mining, GPU-as-a-Service, and Data Center Cloud operations.
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Bitcoin Mining
Currently, one of our largest revenue streams is derived from Bitcoin Mining (also referred to as self-mining).
Our Bitcoin Mining business spanned four sites as of December 31, 2024:
Until April 30, 2024, we also had Bitcoin Mining operations at Kearney and Granbury. We also own a Bitcoin Mining site in Drumheller, Alberta, which has been non-operational since March 2024. The closure was due to the profitability of Drumheller being significantly impacted by several factors, including elevated energy costs and underlying voltage issues. We will consider re-energizing the site if market conditions improve.
We receive Bitcoin rewards from our mining activity through third-party mining pool operators, which allow miners to combine their processing power, increasing their chances of solving a block and getting paid by the network. We provide computing power to mining pools, which use this computing power to operate nodes and validate blocks on the blockchain. The pools then distribute our pro-rata share of Bitcoin mined to us based on the computing power we contribute.
GPU-as-a-Service
Our GPU assets are deployed under our wholly owned subsidiary, Highrise AI, Inc., at a third-party colocation site near Chicago, Illinois. This segment generates recurring revenue through payments made by the provider to us based on fixed infrastructure payments and a revenue share tied to GPU utilization.
Data Center Cloud
Our Data Center Cloud services support both public and private cloud deployments, managed backup, business continuity and disaster recovery services, and high-performance, high-capacity storage solutions. We employ a consumption-based fee structure where customers commit to a baseline level of compute, storage, network, or power usage as defined in their service agreements. Any usage beyond this baseline is typically billed incrementally, so costs are aligned with actual resource consumption and customers are afforded flexibility as their needs evolve.
Other
Equipment Sales and Repairs
We may sell mining equipment when profitable opportunities arise (e.g., if market prices exceed our procurement cost). We may also repair miners for third parties in exchange for a fee, as we have a fully equipped, MicroBT-certified repair center space at our Medicine Hat site.
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Results of Operations
Twelve Months Ended December 31, 2024 and 2023
Twelve Months Ended
December 31, December 31, Increase
(in USD thousands) 2024 2023 (Decrease)
Revenue:
Cost of revenue – Digital Infrastructure 15,556 4,321 11,235
Operating (income) expenses:
(Gain) loss on sale of property and equipment (634) 888 (1,522)
Realized gain on sale of digital assets — (2,376) 2,376
Impairment of digital assets — 1,431 (1,431)
Impairment – other 4,472 — 4,472
Legal settlement — (1,531) 1,531
Other (expense) income:
Foreign exchange (loss) gain (5,000) 1,002 (6,002)
Gain on derivatives 6,780 — 6,780
Gain on bargain purchase 3,060 — 3,060
Equity in earnings of unconsolidated joint venture 10,359 12,815 (2,456)
Less: Net loss attributable to non-controlling interests 473 — 473
Other comprehensive loss:
Foreign currency translation adjustments (56,390) 10,761 (67,151)
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Adjusted EBITDA reconciliation:
Twelve Months Ended
December 31, December 31, Increase
(in USD thousands) 2024 2023 (Decrease)
Gain on derivatives (6,780) — (6,780)
Gain on bargain purchase (3,060) — (3,060)
(Gain) loss on sale of property and equipment (634) 888 (1,522)
Impairment - other 4,472 — 4,472
Net loss attributable to non-controlling interests 473 — 473
Revenue
Total revenue was $162.4 million and $96.0 million for the twelve months ended December 31, 2024, and 2023, respectively, and consisted of Power, Digital Infrastructure, Compute, and Other.
Power
Power revenue was $56.6 million and $22.8 million for the twelve months ended December 31, 2024 and 2023, respectively. This $33.8 million increase was primarily driven by (i) a $13.5 million contract termination fee received from MARA, (ii) a $11.4 million increase in electricity sales related to Far North, which we acquired in February 2024, and (iii) a $8.9 million increase in Managed Services revenue related to the Ionic Managed Services agreement, which was entered into during January 2024 and terminated effective December 2024.
Digital Infrastructure
Digital Infrastructure revenue was $17.5 million and $8.3 million for the twelve months ended December 31, 2024 and 2023, respectively. This $9.2 million increase was primarily driven by (i) a $5.2 million increase in CPU Colocation revenue, reflecting a full year of revenue recognition following the Business Combination, and (ii) a $4.0 million increase in cost reimbursements related to the Ionic colocation agreement.
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Compute
Compute revenue was $80.7 million and $64.9 million for the twelve months ended December 31, 2024 and 2023, respectively. This $15.8 million increase was primarily driven by (i) a $7.3 million increase in Bitcoin Mining revenue, largely due to an increase in the average revenue per Bitcoin mined from $30,398 to $60,436, partially offset by a decrease in Bitcoin mined, due to an increase in network difficulty and the Halving event (we mined 1,184 Bitcoin during the twelve months ended December 31, 2024 versus 2,138 Bitcoin mined during the twelve months ended December 31, 2023), (ii) a $6.7 million increase in recurring Data Center Cloud revenue, reflecting a full year of Data Center Cloud operations during twelve months ended December 31, 2024 compared to one month of Data Center Cloud operations following the Business Combination, and (iii) a $1.8 million contribution from our GPU-as-a-Service offering, which launched in September 2024.
Other
Other revenue was $7.6 million and nil for the twelve months ended December 31, 2024 and 2023, respectively. This increase was primarily driven by (i) a $7.4 million increase in Equipment Sales revenue, reflecting higher demand for mining-related infrastructure, and (ii) a $0.2 million increase in Equipment Repair services revenue.
Cost of Revenue
Total cost of revenue was $86.7 million and $54.2 million for the twelve months ended December 31, 2024, and 2023, respectively, and consisted of Power, Digital Infrastructure, Compute, and Other.
Power
Power cost of revenue was $21.5 million and $7.3 million for the twelve months ended December 31, 2024 and 2023, respectively. This $14.2 million increase was primarily driven by (i) a $12.8 million increase in cost of revenue related to Far North, which was acquired in February 2024, and (ii) a $1.4 million increase in operating costs related to the Ionic Managed Services agreement, which was terminated effective December 2024.
Digital Infrastructure
Digital Infrastructure cost of revenue was $15.6 million and $4.3 million for the twelve months ended December 31, 2024 and 2023, respectively. This $11.2 million increase was primarily driven by (i) a $7.5 million increase in colocation-related costs as a result of eleven months of costs related to the Ionic colocation agreement during 2024 compared to five months of costs during 2023, and (ii) a $3.8 million increase in cost of sales related to CPU Colocation operations, including rent, electricity, and connectivity costs.
Compute
Compute cost of revenue was $45.0 million and $42.6 million for the twelve months ended December 31, 2024 and 2023, respectively. This $2.4 million increase was primarily driven by (i) a $5.5 million increase in Data Center Cloud costs, reflecting a full year of Data Center Cloud operations during twelve months ended December 31, 2024 compared to one month of Data Center Cloud operations during twelve months ended December 31, 2023 following the Business Combination, and (ii) a $1.0 million increase in costs related to our new GPU-as-a-Service offering, launched in September 2024. These increases were partially offset by $4.1 million decrease in Bitcoin Mining costs due to fleet relocation from higher cost hosted to lower cost self-mining sites and the deployment of Reactor, our proprietary energy curtailment software.
Other
Other cost of revenue was $4.6 million and nil for the twelve months ended December 31, 2024 and 2023, respectively. This $4.6 million increase was primarily driven by (i) a $4.5 million increase in Equipment Sales costs as a result of the increased volume of equipment sold, and (ii) $0.1 million in costs related to our Equipment Repair service.
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Depreciation and Amortization
Depreciation and amortization expense was $47.8 million and $17.5 million for the twelve months ended December 31, 2024 and 2023, respectively. This $30.3 million increase was primarily driven by (i) higher depreciation from assets acquired in the Business Combination as we recognized twelve months of combined company depreciation in 2024 compared to one month of combined company depreciation in 2023, (ii) depreciation related to the Far North transaction, which was completed in February 2024, (iii) depreciation as a result of the development of the Salt Creek site, which went live in April 2024, and (iv) depreciation from the newly acquired assets related to GPU-as-a-Service operations.
General and Administrative Expenses
General and administrative (“G&A”) expenses were $72.9 million and $49.1 million for the twelve months ended December 31, 2024 and 2023, respectively. This $23.8 million increase was primarily driven by (i) a $10.6 million increase in salary and benefitsdue to twelve months of combined company expenses in 2024 compared to one month of combined company expenses in 2023 (our number of employees increased from 108 employees as of November 30, 2023, the date of the Business Combination, to 220 employees as of December 31, 2024), (ii) a $7.2 million increase in stock-based compensation due to new restricted stock unit and performance stock unit grants to retain and incentivize our talent, partially offset by no restricted stock award activity in 2024 compared to $8.5 million of restricted stock activity in 2023, (iii) a $3.9 million increase in restructuring expenses related to the Business Combination and, (iv) a $1.9 million increase in costs related to Far North acquisition.
Gains on digital assets
Gains on digital assets were $509.3 million and $32.6 million for the twelve months ended December 31, 2024 and 2023, respectively. This increase was due to the increased Bitcoin prices as of December 31, 2024 compared to the prior year period. The price of Bitcoin as of December 31, 2024 was approximately $93,354 compared to $42,288 as of December 31, 2023.
Other expense
Other expense was $8.6 million for the twelve months ended December 31, 2024, compared to other income of $12.6 million for the twelve months ended December 31, 2023. This $21.2 million increase was primarily driven by (i) a $17.7 million decrease in gain on debt extinguishment related to the Anchorage debt-to-equity conversion of $6.0 million in 2024, compared to $23.7 million debt extinguishment related to the NYDIG loan recorded in 2023, (ii) a $3.6 million increase in interest expense due to an increase in the amount of borrowing in 2024 compared to 2023, which comprised of the $150.0 million Coatue note and the additional $15.0 million drawdown from our loan with Coinbase Credit, Inc. (“Coinbase”), (iii) a $6.0 million increase in foreign exchange loss due to our net U.S. dollar monetary liability position in our Canadian dollar functional currency subsidiaries and a decline in the Canadian dollar to U.S. dollar exchange rate of approximately 8% compared to a 2% increase during the twelve months ended December 31, 2023 (the increase noted in the prior period is for the period from the Business Combination to December 31, 2023, reflecting one month of combined company results), and (iv) a $2.0 million decrease in equity in earnings of King Mountain JV due to the impact of the Halving on Bitcoin Mining revenue. These increases were partially offset by (i) a $7.3 million gain on derivatives due to an increase in the mark-to-market value of our call options and Bitcoin redemption option, and (ii) a $3.1 million gain on bargain purchase related to the Far North acquisition driven by the fair value of the net assets acquired being greater than the consideration transferred.
Income tax
Our income tax provision was $113.5 million and $0.2 million for the twelve months ended December 31, 2024 and 2023, respectively. This $113.3 million increase was primarily due to $93.0M in deferred taxes related to the gain on the fair value of our Bitcoin holdings, in addition to higher taxable income for the twelve months ended December 31, 2024.
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Six Months Ended December 31, 2023 and 2022
Six Months Ended
December 31, December 31, Increase
(in USD thousands) 2023 2022 (Decrease)
Revenue:
Cost of revenue – Digital Infrastructure 4,276 400 3,876
Cost of revenue – Other 18 3,112 (3,094)
Operating expenses (income):
Gains on digital assets (32,626) — (32,626)
Loss on sale of property and equipment 443 — 443
Realized gain on sale of digital assets — (2,201) 2,201
Impairment of digital assets — 2,272 (2,272)
Impairment of long-lived assets — 63,574 (63,574)
Other income (expense):
Foreign exchange gain 1,002 — 1,002
Net income (loss) from continuing operations $ 6,131 (81,253) 87,384
Other comprehensive income:
Foreign currency translation adjustments 10,761 — 10,761
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Adjusted EBITDA reconciliation:
Six Months Ended
December 31, December 31, Increase
(in USD thousands) 2023 2022 (Decrease)
Foreign exchange gain (1,002) — (1,002)
Loss on sale of property and equipment 443 — 443
Non-recurring transactions (2) 12,044 — 12,044
Impairment of long-lived assets — 63,574 (63,574)
Revenue
Total revenue for the six months ended December 31, 2023 and 2022 was $59.9 million and $46.0 million, respectively, consisting of Power, Digital Infrastructure, Compute, and Other.
Power
Power revenue was $12.6 million for the six months ended December 31, 2023, consisting of $9.6 million in fees from Managed Services and $3.0 million in cost reimbursements. Power revenue was $2.6 million for the six months ended December 31, 2022, consisting of $1.5 million in fees and $1.1 million in cost reimbursements. We began our Managed Services offerings for third parties in November 2022; therefore, the six months ended December 31, 2023 reflects a full period of activity related to Managed Services, whereas the comparative period of the six months ended December 31, 2022 reflects less than two months of activity. The six months ended December 31, 2023 also includes revenue from an interim Managed Services agreement with Celsius Mining LLC, which was signed in December 2023.
Digital Infrastructure
Digital Infrastructure revenue was $5.8 million and $14.0 million for the six months ended December 31, 2023, and 2022, respectively. Revenue for the six months ended December 31, 2023 primarily consisted of hosting services revenue from the Alpha site and included one month of recurring CPU Colocation revenue as a result of the Business Combination. Revenue for the six months ended December 31, 2022 consisted of $14.0 million in hosting services revenue. During the 2022 period, one of our hosting customers defaulted on its contract, resulting in contract termination without a refund obligation for prepaid amounts. This resulted in the recognition of $13.1 million in remaining deferred revenue related to this customer.
Compute
Compute revenue consisted of Bitcoin Mining revenue of $41.3 million and $25.7 million for the six months ended December 31, 2023 and 2022, respectively. This was driven by an increase in the average price per Bitcoin mined and one month of combined company activity after the Business Combination. The average revenue per Bitcoin mined was approximately $33,331 as of December 31, 2023 compared to approximately $20,218 as of December 31, 2022. This was partially offset by a decrease of approximately 29 Bitcoin mined, exclusive of our net share of the King Mountain JV, period over period due to increased Bitcoin network difficulty.
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Other
Other revenue was $0.1 million and $3.6 million for the six months ended December 31, 2023 and 2022, respectively. Other revenue for the six months ended December 31, 2023 consisted of $0.1 million in Equipment Repair services revenue. Other revenue for the six months ended December 31, 2022 consisted of $3.6 million in Equipment Sales.
Cost of revenue
Power
Cost of revenue for Power for the six months ended December 31, 2023 and 2022 were $3.4 million and $1.1 million, respectively, primarily consisting of reimbursable payroll and other site operating costs. The increase in costs is attributable to the full six months of activity in the 2023 period compared to only two months of activity related to Managed Services in the 2022 period.
Digital Infrastructure
Cost of revenue for Digital Infrastructure for the six months ended December 31, 2023 and 2022 were $4.3 million and $0.4 million, respectively, primarily driven by an increase in the cost of hosting services, including power costs, at our Alpha site due to an increase in hosted miners at the site.
Compute
Cost of revenue for Compute for the six months ended December 31, 2023 and 2022 were $26.0 million and $23.2 million, respectively, driven primarily by a 46% increase in electricity utilized, partially offset by a lower average power rate during the period ($61.17 compared to $73.95 for the six months ended December 31, 2023 and 2022, respectively).
Other
Cost of revenue for Other for the six months ended December 31, 2023 was less than $0.1 million due to low activity, as there were no Equipment Sales. Cost of revenue for Other for the six months ended December 31, 2022 was $3.1 million due to the cost of mining equipment sold.
Depreciation and amortization
Depreciation and amortization expense was $10.6 million and $11.8 million for the six months ended December 31, 2023 and 2022, respectively. The decrease in depreciation and amortization expense was primarily driven by the lower net book value of plant and equipment after the recognition of a non-cash impairment charge during the six months ended December 31, 2022 as part of annual impairment testing, partially offset by property and equipment acquired as part of the Business Combination.
General and administrative expenses
G&A expenses were $37.5 million and $10.6 million for the six months ended December 31, 2023 and 2022, respectively. The increase in G&A expenses was driven by (i) a $9.0 million increase in stock-based compensation due to certain stock options granted and restricted stock awards that were accelerated upon the closing of the Business Combination and certain stock options and restricted stock awards that were issued and immediately vested before the closing of the Business Combination, (ii) a $3.7 million increase in salary and benefit costs due to the headcount increasing from 49 to 208 employees as part of the Business Combination and to support the Company’s growth, and (iii) a $9.6 million sales tax provision from a non-recurring state tax accrual related to a facility build out in Texas. G&A expenses for the six months ended December 31, 2023 also include one-time transaction costs of $2.4 million primarily related to the Business Combination.
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Gains on digital assets
Gains on digital assets was $32.6 million and nil for the six months ended December 31, 2023 and 2022, respectively. The increase was due to our early adoption of ASU 2023-08 for the six months ended December 31, 2023, which requires us to recognize our digital assets at fair value with changes recognized in net income during the reporting period.
Impairment of long-lived assets
Impairment of long-lived assets, including right-of-use assets, was nil and $63.6 million for the six months ended December 31, 2023 and 2022, respectively. During the six months ended December 31, 2022, adverse changes in the business climate, including decrease in the price of Bitcoin to approximately $16,530 as of December 31, 2022, and the resulting decrease in the market price of miners and mining equipment, indicated that an impairment triggering event had occurred. Testing performed indicated that the estimated fair value of our miners, mining equipment, and other mining operation assets were less than their net carrying value as of December 31, 2022. An impairment charge of approximately $63.6 million was recognized, decreasing the net carrying value of these assets to their estimated fair value.
Other expense
Other expense totaled $4.5 million for the six months ended December 31, 2023 compared to $15.2 million for the six months ended December 31, 2022. The decrease of $10.7 million was primarily driven by a $6.7 million increase in equity in earnings of our unconsolidated joint venture and a decrease of $3.0 million in interest expense driven by the NYDIG debt restructuring in February 2023.
Income tax
Our income tax benefit was $0.4 million and $1.8 million for the six months ended December 31, 2023 and 2022, respectively. This $1.4 million decrease was primarily due to lower taxable income for the six months ended December 31, 2023 compared to the prior period.
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Twelve Months Ended June 30, 2023 and 2022
Twelve Months Ended
June 30, June 30, Increase
(in USD thousands) 2023 2022 (Decrease)
Revenue:
Cost of revenue – Power 975 — 975
Cost of revenue – Digital Infrastructure 409 2,422 (2,013)
Cost of revenue – Other 3,127 — 3,127
Operating expenses (income):
Loss on sale of property and equipment 445 — 445
Realized gain on sale of digital assets (4,577) (5,455) 878
Impairment of long-lived assets 63,574 — 63,574
Legal settlement (1,531) — (1,531)
Other income (expense):
Gain on debt extinguishment 23,683 — 23,683
Equity in earnings of unconsolidated joint venture 6,132 — 6,132
Income tax benefit (provision) 1,198 (5,069) 6,267
Adjusted EBITDA reconciliation:
Twelve Months Ended
June 30, June 30, Increase
(in USD thousands) 2023 2022 (Decrease)
Income tax (benefit) provision (1,198) 5,069 (6,267)
Gain on debt extinguishment (23,683) — (23,683)
Loss on sale of property and equipment 445 — 445
Impairment of long-lived assets 63,574 — 63,574
Stock-based compensation expense 4,611 9,176 (4,565)
Revenue
Total revenue for the twelve months ended June 30, 2023 and 2022 was $82.2 million and $73.7 million, respectively, consisting of Power, Digital Infrastructure, Compute, and Other.
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Power
Power revenue was $12.8 million for the twelve months ended June 30, 2023, consisting of fees from Managed Services of $7.6 million and cost reimbursements of $5.2 million. Power revenue was nil for the twelve months ended June 30, 2022 as we launched our Managed Services offering in November 2022.
Digital Infrastructure
Digital Infrastructure revenue was $16.5 million for the twelve months ended June 30, 2023, consisting entirely of hosting services revenue. Digital Infrastructure revenue was $5.6 million for the twelve months ended June 30, 2022. We launched our hosting services business in March 2022 so the twelve months ended June 30, 2022 represents only four months of activity compared to a full year of activity in the twelve months ended June 30, 2023.
One of our hosting customers defaulted on its contract during the twelve months ended June 30, 2023, which resulted in a termination of the contract without an obligation to refund any prepayments, and we recognized the remaining deferred revenue of $13.1 million with respect to such customer.
Compute
Compute revenue was $49.2 million for the twelve months ended June 30, 2023 compared to $68.2 million for the twelve months ended June 30, 2022. While we mined approximately 532 more Bitcoin year-over-year, the average price per Bitcoin mined was approximately $22,900 for the twelve months ended June 30, 2023 compared to approximately $41,700 for the twelve months ended June 30, 2022. The increase in number of Bitcoin mined was due to additional miners in our self-mining fleet during the twelve months ended June 30, 2023 compared to the twelve months ended June 30, 2022. The increase in production was partially offset by lower Bitcoin prices and an increase in Bitcoin network difficulty.
Other
Other revenue was $3.6 million for the twelve months ended June 30, 2023, consisting entirely of Equipment Sales. Other revenue was nil for the twelve months ended June 30, 2022 as there were no Equipment Sales or Repairs during this period.
Cost of revenue
Power
Cost of revenue for Power for the twelve months ended June 30, 2023 was $1.0 million compared to nil for the twelve months ended June 30, 2022 as we launched our Managed Services business in November 2022.
Digital Infrastructure
Cost of revenue for Digital Infrastructure for the twelve months ended June 30, 2023 was $0.4 million compared to $2.4 million for the twelve months ended June 30, 2022. The decrease was driven by a $2.0 million reduction in costs related to our hosting services revenue in the twelve months ended June 30, 2023 as one of our two hosting contracts was terminated in July 2022 so we only had one hosting contract for the remainder of the period.
Compute
Cost of revenue for Compute for the twelve months ended June 30, 2023 was $38.6 million compared to $23.4 million for the twelve months ended June 30, 2022. The increase was primarily driven by additional miners being operated during the twelve months ended June 30, 2023 resulting in higher power expense and hosting expense for the miners that were hosted at third party sites.
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Other
Cost of revenue for Other for the twelve months ended June 30, 2023 was $3.1 million related to the cost of mining equipment sold during the period. The cost of revenue for Other for the twelve months ended June 30, 2022 was nil, as there were no Equipment Sales or Repairs during the period.
Depreciation and amortization
Depreciation and amortization expense was $18.8 million and $11.6 million for the twelve months ended June 30, 2023 and 2022, respectively. The purchase of additional miners and other property and equipment during the twelve months ended June 30, 2022 resulted in an increase in the depreciable asset base for the following twelve-month period.
General and administrative expenses
G&A expenses were $27.3 million for the twelve months ended June 30, 2023 compared to $31.3 million for the twelve months ended June 30, 2022. The decrease was primarily driven by a decrease of $5.3 million related to payments to employees and advisors related to personal income taxes for the issuance of stock grants, and a decrease of $1.0 million related to a payment made to a government agency associated with the Rescission Offer. This was partially offset by increases in legal and professional fees during the twelve months ended June 30, 2023 due to the launch of our Managed Services business in November 2022, restructuring our debt obligations with NYDIG and Anchorage in February 2023, and fees related to the Business Combination.
Impairment of digital assets
Impairment of digital assets was $3.7 million for the twelve months ended June 30, 2023 compared to $30.3 million for the twelve months ended June 30, 2022. Impairment resulted from declines in the lowest intra-day price of Bitcoin during the period it was held.
Impairment of long-lived assets
Impairment of long-lived assets, including right-of-use assets, was $63.6 million and nil for the twelve months ended June 30, 2023 and 2022, respectively. During the twelve months ended June 30, 2023, adverse changes in the business climate, including decreases in the price of Bitcoin throughout 2022 and the resulting decrease in the market price of miners and mining equipment, indicated that an impairment triggering event had occurred. Testing performed indicated that the estimated fair value of our miners, mining equipment, and other mining operation assets were less than their net carrying value. An impairment charge of approximately $63.6 million was recognized, decreasing the net carrying value of these assets to their estimated fair value.
Legal settlement
Legal settlement was $1.5 million and nil for the twelve months ended June 30, 2023 and 2022, respectively. We filed a malpractice lawsuit in September 2021 as plaintiff. In April 2023, we settled the lawsuit for a gross amount of $3.1 million. In May 2023, we received approximately $1.5 million, net of legal fees.
Other income (expense)
Other income totaled $1.9 million for the twelve months ended June 30, 2023 compared to an expense of $6.9 million for the twelve months ended June 30, 2022. The increase of $8.8 million was primarily driven by a $23.7 million gain on debt extinguishment, resulting from the settlement of our NYDIG debt of approximately $96.7 million. As part of the settlement and extinguishment, we exchanged assets from our site in Pecos, Texas and recorded a gain on extinguishment of debt of approximately $23.7 million. The remaining increase of $6.1 million was related to the equity in earnings of the King Mountain JV, which was acquired in December 2022, partially offset by a $21.0 million increase in interest expense due to higher debt on our balance sheet.
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Income tax
Income tax benefit was $1.2 million for the twelve months ended June 30, 2023 compared to an income tax expense of $5.1 million for the twelve months ended June 30, 2022. The increase in income tax benefit was primarily due to taxable loss for the twelve months ended June 30, 2023 compared to taxable income in the prior year period.
King Mountain JV
The King Mountain JV is a 50/50 joint venture with one of the world’s largest renewable energy producers. The King Mountain JV has 280 MW of self-mining and hosting operations located behind-the-meter at a wind farm in McCamey, Texas.
As of December 31, 2024, the King Mountain JV owned approximately 18,000 miners for self-mining (about 1.8EH/s) and hosted approximately 68,200 miners (about 7.7 EH/s) for a single hosting customer at its wholly-owned King Mountain site, which has a total capacity of 280 MW.
We account for the King Mountain JV using the equity method of accounting, resulting in reporting the King Mountain JV as an unconsolidated joint venture. Additionally, our 50% portion of any distributions from the King Mountain JV are used to pay down the TZRC Secured Promissory Note. See Note 10. Investment in unconsolidated joint venture and Note 15. Loans and note payable to the consolidated financial statements found elsewhere in this Annual Report for additional information on the King Mountain JV and TZRC Secured Promissory Note.
Below are the condensed consolidated income statements for the King Mountain JV for the twelve months ended December 31, 2024 and December 31, 2023, the six months ended December 31, 2023 and December 31, 2022, and the twelve months ended June 30, 2023 and June 30, 2022.
Condensed Consolidated Income Statement
Twelve Months Ended Six Months Ended Twelve Months Ended
December 31, December 31, December 31, December 31, June 30, June 30,
Our Board and management team also evaluate Adjusted EBITDA for the King Mountain JV, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) before depreciation and amortization, and interest income. We use Adjusted EBITDA to assess the King Mountain JV’s financial performance because it allows us to compare the operating performance on a consistent basis across periods by removing the effects of the King Mountain JV’s capital structure.
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Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. This non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
Twelve Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
Interest income (3,325) (413) (413) —
Liquidity and Capital Resources
Our primary sources of liquidity include our cash, our strategic Bitcoin reserve, our equity sales, and the cash flows generated from our operations. Historically, our primary cash needs have been for working capital to support equipment financing, including the purchase of additional Bitcoin miners, growth initiatives, including infrastructure purchases, development opportunities, and acquisitions.
In 2024, we issued a $150.0 million convertible note to Coatue and drew an additional $15.0 million under our Coinbase loan. During the fourth quarter of 2024, we also made the strategic decision to retain the Bitcoin we mined in our operations rather than auto-liquidate, and purchased additional Bitcoin to bolster our strategic Bitcoin reserve.
On December 4, 2024, we entered into a Controlled Equity Offering Sales Agreement establishing the 2024 ATM, allowing us to offer and sell up to $500.0 million of our common stock from time to time. Concurrently, we launched a $250.0 million stock repurchase program enabling us to repurchase up to 4,683,936 shares of our common stock (representing 5.0% of our issued and outstanding common stock as of December 4, 2024) within twelve months of launch. During the twelve months ended December 31, 2024, we issued and sold 5,553,458 shares of our common stock under the 2024 ATM for gross proceeds of $165.2 million, incurred issuance costs of $3.2 million, and repurchased nil shares of our common stock under the stock repurchase program.
Our ability to meet our anticipated cash requirements will depend on various factors including our ability to maintain our existing business, enter into new lines of business, provide new offerings, compete with existing and new competitors in existing and new markets and offerings, acquire new businesses or pursue strategic transactions, and respond to global and domestic economic, geopolitical, social conditions and their impact on demand for our offerings.
We believe that cash flows generated from operating activities, our strategic Bitcoin reserve, and the 2024 ATM will meet our anticipated cash requirements in the short-term. On a long-term basis, we would rely on access to the capital markets for any long-term funding not provided by operating cash flows, cash on hand, and our strategic Bitcoin reserve.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Twelve Months Ended
December 31, December 31,
Cash flows used in operating activities $ (68,535) $ (22,160)
Cash flows (used in) provided by investing activities (188,472) 86,984
Cash flows provided by (used in) financing activities 311,946 (40,910)
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Operating Activities
Net cash used in operating activities was $68.5 million for the twelve months ended December 31, 2024, resulting from net income of $331.4 million, offset by adjustments to reconcile net income to net cash (used in) provided by operating activities of $385.5 million and changes in assets and liabilities of $14.4 million. Net cash used in operating activities was $22.2 million for the twelve months ended December 31, 2023, resulting from net income of $21.9 million, and offset by non-cash adjustments of $52.4 million.
Investing Activities
Net cash used in investing activities totaled $188.5 million for the twelve months ended December 31, 2024, primarily consisting of $124.0 million in property and equipment purchases, $100.7 million in Bitcoin purchases for our strategic reserve, and a $39.6 million deposit for acquiring miners and mining equipment. These outflows were partially offset by $74.5 million in proceeds from Bitcoin sales. Net cash provided by investing activities totaled $87.0 million for the twelve months ended December 31, 2023, primarily consisting of $65.7 million in proceeds from Bitcoin sales, $23.0 million in cash acquired from the Business Combination, and $0.8 million from the sale of property and equipment. These inflows were partially offset by $1.5 million in property and equipment purchases and a $1.0 million cash deposit for miners.
Financing Activities
Net cash provided by financing activities was $311.9 million for the twelve months ended December 31, 2024, primarily consisting of $150.0 million in proceeds from notes payable, $162.0 million in net proceeds from the issuance of common stock through our 2024 ATM, and $22.2 million in proceeds from covered call options premiums. These inflows were partially offset by $36.8 million in loan repayments. Net cash used in financing activities was $40.9 million for the twelve months ended December 31, 2023, primarily consisting of $39.6 million in repayments of loans payable and $1.2 million in debt issuance costs paid.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the consolidated financial statements, and revenues and expenses during the periods presented. On an ongoing basis, our management evaluates these estimates and assumptions, and the effects of any such revisions are reflected in the consolidated financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment utilized or complexity in their application.
While our significant accounting policies are described in more detail in Note 2. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements to our consolidated financial statements included elsewhere in this Annual Report, we believe the following accounting policies and estimates to be the most critical to fully understand and evaluate this management discussion and analysis:
● use of estimates;
● digital assets;
● revenue from contracts with customers;
● impairment of long-lived assets;
● investment in equity investees;
● finite-lived intangible assets; and
● stock based compensation expense
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Use of 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 estimates associated with revenue recognition, determining the useful lives and recoverability of long-lived assets, impairment analysis of finite-lived intangibles and digital assets, and current and deferred income tax assets (including the associated valuation allowance) and liabilities.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Price Risk of Bitcoin
We hold a significant amount of Bitcoin; therefore, we are exposed to the impact of market price changes in Bitcoin. As of December 31, 2024, we held 10,171 Bitcoin. The fair value of a single Bitcoin was approximately $93,354 as of December 31, 2024; therefore, the fair value of our Bitcoin holdings as of December 31, 2024 was approximately $949.5 million. Declines in the fair market value of Bitcoin will impact the cash value that would be realized if we were to sell our Bitcoin for cash, therefore having a negative impact on our liquidity.
Custodian Risk
Our Bitcoin is held with third-party custodians, Coinbase Custody, NYDIG, and BitGo, which we select based on various factors, including their financial strength and industry reputation. Custodian risk refers to the potential loss, theft, or misappropriation of our Bitcoin assets due to operational failures, cybersecurity breaches, or financial difficulties experienced by these third parties. Although we periodically monitor the financial health, insurance coverage, and security measures of our custodians, reliance on such third parties inherently exposes us to risks that we cannot fully mitigate.
Credit Risk
Credit risk arises from our practice of pledging Bitcoin as collateral in transactions with counterparties. We mitigate this risk by engaging with counterparties that we believe possess strong creditworthiness based on their size, credit quality, and reputation, among other factors. During the twelve months ended December 31, 2024, we have not incurred any material loss from such transactions. However, there remains a risk that a counterparty could default on its obligations to us, which might result in a material loss. We continually assess the credit risk associated with our counterparties and, if necessary, recognize a loss provision or write-down. Credit risk also arises from us placing our cash and demand deposits in financial institutions. Although we strive to limit our exposure by placing cash and demand deposits with financial institutions with a high credit standing, there can be no assurances that we are able to mitigate our credit risk.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
We have two loans that maintain a variable interest rate. The first is the TZRC Secured Promissory Note, which includes a maximum interest rate of 15.25%. The second is the Coinbase credit facility, which bears interest at a rate of 5.0% plus the greater of (i) the US Federal Funds Target Rate – Upper Bound and (ii) 3.25%. As a result, changes in market interest rates could affect our operations over certain periods and may also impact our ability to finance projects. For more information regarding the TZRC Secured Promissory Note and Coinbase credit facility, see Note 15. Loans and notes payable to the consolidated financial statements included elsewhere in this Annual Report.
In addition, our exposure to interest rate risk relates to our ability to earn interest income on cash balances at variable rates. Changes in short term interest rates are not expected to have a significant effect on the fair value of our cash account.
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Item 8. Financial Statements and Supplementary Data
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
Hut 8 Corp. and Subsidiaries
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 49) 78
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 1232) 79
Consolidated Balance Sheets as of December 31, 2024, and December 31, 2023 84
Notes to Consolidated Financial Statements 89
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Hut 8 Corp.
Opinion on the Financial Statements
We have audited, before the effects of the adjustments to retrospectively apply the changes in Hut 8 Corp.’s (formerly known as U.S. Data Mining Group, Inc. and subsidiaries) (the Company) consolidated statement of stockholders’ equity, disclosures about segments and related information in Note 5, stockholders’ equity and related information in Note 18, stock-based compensation and related information in Note 19 and net income (loss) per share of common stock and related information in Note 20, the accompanying consolidated statements of operations, changes in stockholders’ equity and cash flows for the years ended June 30, 2023 and 2022, and the related notes to the consolidated financial statements (collectively, the financial statements). The 2023 and 2022 financial statements before the effects of the adjustments described in Note 5, Note 18, Note 19 and Note 20 (collectively “the Adjustments”) are not presented herein. In our opinion, before the effects of the Adjustments to retrospectively restate the financial statements, the financial statements present fairly, in all material respects, the results of its operations and its cash flows for the years ended June 30, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to retrospectively apply the Adjustments and, accordingly we do not express an opinion or any other form of assurance about whether such Adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We served as the Company’s auditor from November 17, 2021 to November 30, 2023.
Boston, Massachusetts
August 24, 2023
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Report of Independent Registered
Public Accounting Firm
Board of Directors and Shareholders
Hut 8 Corp.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Hut 8 Corp. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for the twelve months ended December 31, 2024 and for the six months ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the twelve months ended December 31, 2024 and for the six months ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2025 expressed an adverse opinion.
We also have audited the adjustments to the June 30, 2023 and 2022 financial statements to retrospectively apply the changes to the segment information in the disclosures about segments and related information in Note 5, and the changes related to the recapitalization of equity structure pursuant to the business combination in the stockholders’ equity and stock-based compensation and related information in Note 18, Note 19 and Note 20. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the financial statements of the Company as at June 30, 2023 and 2022 other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on financial statements as at June 30, 2023 and 2022 taken as a whole.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Digital assets mining revenue
As described further in Note 2 to the financial statements, the Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers. The digital assets mining revenue is derived from the service of performing hash computations for mining pools. The Company has entered into arrangements with mining pool operators to perform hash computations for the mining pools. In exchange for providing hash computation services, the Company is entitled to non-cash consideration in the form of digital assets calculated under payout models determined by the mining pool operators.
The principal considerations for our determination that the digital assets mining revenue is a critical audit matter are due to the significant judgment in the determination of how existing accounting principles generally accepted in the United States of America should be applied in the accounting for and disclosure of digital assets mining revenue and complexities involved in auditing completeness, occurrence and accuracy of the revenue recognized. Given these considerations, the related audit effort in evaluating management’s judgments was extensive and required a high degree of auditor judgment.
Our audit procedures related to digital assets mining revenue included the following, among others:
– We evaluated management’s rationale for the application of ASC Topic 606 to account for its digital assets received, which included evaluating the provisions of the contract between the Company and the mining pools;
– We assessed the adequacy of the Company’s disclosures in the financial statements about digital assets mining revenue;
– We conducted substantive analytical procedures, with a high degree of precision, which include tests of the accuracy and completeness of the underlying data, such as confirmation of certain data with third parties;
– We tested digital assets received directly to the blockchain using our own node and the corresponding cash settlement using the third-party exchange data and the Company’s bank statements.
Existence and rights and obligations of digital assets
As described further in Note 7 to the financial statements, digital assets are either held in segregated custody accounts for the benefit of the Company, held in segregated custody accounts under the Company’s ownership and pledged as collateral under a borrowing arrangement or in connection with covered call options sold, or held by a third party for the Bitcoin pledged in connection with a Purchase Agreement for miner purchases.
The principal considerations for our determination that digital assets are a critical audit matter are due to the complexities involved in auditing existence and rights and obligations of the digital assets recognized. Given these considerations, the related audit effort in evaluating management’s judgments was extensive and required a high degree of auditor judgment.
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Our audit procedures related to the Company’s existence and rights and obligations of digital assets included the following, among others:
− We assigned professionals with specialized skills in blockchain, digital assets and cryptography;
− We tested the design and operating effectiveness of internal controls related to the existence and rights and obligations of digital assets, including customer key management by obtaining and evaluating the report attesting that those controls at the service organizations (custodians) are operating effectively;
− We obtained confirmation on digital assets with third parties.
Business combination
As described further in Note 3, on February 15, 2024, Far North Power Corp., a joint venture in which the Company holds an 80.1% interest, acquired four natural gas power plants in Canada. The Company recorded the transaction as a business combination using the acquisition method, with the assets and liabilities of the power plants recorded at their estimated fair values, resulting in a gain on bargain purchase.
Significant estimates and assumptions were made by management with regards to the fair values of assets and liabilities recorded upon the acquisition. This matter required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s assumptions on the economic obsolescence for the tangible assets based on the orderly liquidation value, including the need to involve our valuation specialists.
Our audit procedures related to business combination included the following, among others:
− We utilized valuation specialists to evaluate the reasonableness of management’s valuation methodology;
− We tested the fair values of the assets and liabilities included upon the acquisition;
− We tested the mathematical accuracy of calculations;
− We assessed the consistency of the assumptions used with other accounting estimates.
/s/ RAYMOND CHABOT GRANT THORNTON LLP
We have served as the Company’s auditor since 2023.
Montréal, Canada
February 28, 2025
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Report of Independent Registered
Public Accounting Firm
Board of Directors and Shareholders
Hut 8 Corp.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Hut 8 Corp. and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2024. The material weaknesses identified above were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and this report does not affect our report dated February 28, 2025 which expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Other information
We do not express an opinion or any other form of assurance on Management’s Plan for Remediation.
/s/ RAYMOND CHABOT GRANT THORNTON LLP
Montreal, Quebec
February 28, 2025
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Hut 8 Corp. and Subsidiaries
Consolidated Balance Sheets
(in USD thousands, except share and per share data)
December 31,
Assets
Current assets
Accounts receivable, net 6,989 3,336
Derivative asset 18,076 —
Digital assets – held in custody — 4,963
Digital assets – pledged for miner purchase 92,389 —
Equipment held for sale — 3,907
Income taxes receivable 1,073 —
Non-current assets
Digital assets – pledged as collateral 331,876 100,550
Operating lease right-of-use asset 20,593 14,534
Deposits and prepaid expenses 7,886 5,540
Investment in unconsolidated joint venture 82,015 82,656
Other investments 6,378 —
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued expenses $ 56,882 $ 43,757
Operating lease liability, current portion 2,689 1,226
Finance lease liability, current portion 4,783 748
Derivative liability 18,437 —
Loans and notes payable, current portion 64,965 64,127
Non-current liabilities
Operating lease liability, less current portion 18,675 13,736
Finance lease liability, less current portion 18,917 661
Loans and notes payable, less current portion 235,620 123,320
Deposit liability — 2,317
Commitments and contingencies
Stockholders’ equity
Retained earnings (accumulated deficit) 231,630 (100,252)
Accumulated other comprehensive (loss) income (45,553) 10,761
Non-controlling interests 3,910 —
Total liabilities and stockholders’ equity $ 1,518,860 $ 740,840
See accompanying Notes to Consolidated Financial Statements.
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Hut 8 Corp. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in USD thousands, except share and per share data)
Twelve Months Ended Six Months Ended Twelve Months Ended
December 31, December 31, June 30, June 30,
Revenue:
Cost of revenue – Other 4,584 18 3,127 —
Operating expenses (income):
Gains on digital assets (509,337) (32,626) — —
(Gain) loss on sale of property and equipment (634) 443 445 —
Realized gain on sale of digital assets — — (4,577) (5,455)
Impairment of digital assets — — 3,703 30,301
Impairment of long-lived assets — — 63,574 —