Cipher Mining (CIFR) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements Forward-Looking Statements Forward-looking statements are predictions based on current expectations, subject to risks and uncertainties that could cause actual results to differ materially - The company operates in a rapidly evolving industry with an evolving business model, including an increasing focus on diversification into high-performance compute (HPC) data centers alongside bitcoin mining[12] - Key risks include potential failure to grow hashrate, challenges in digital asset network development and acceptance, disruptions in digital asset markets (financing, impairments, legal risks, price volatility), unfavorable global economic/political conditions, energy-intensive bitcoin mining with potential regulatory restrictions, and concentration of operations in Texas[12] - Other significant risks involve dependence on third parties (grid operators, equipment manufacturers), price fluctuations in power markets, vulnerability to severe weather/natural disasters, hardware malfunction/obsolescence, cybersecurity incidents, bitcoin price volatility, potential bankruptcy of custodians, regulatory changes, and a material weakness in internal control over financial reporting[12][15] Where You Can Find More Information Company Information Resources Company websites offer SEC filings, press releases, investor presentations, and sustainability reports, with content not incorporated by reference - The company's corporate website is https://www.ciphermining.com**[17](index=17&type=chunk) - The dedicated investor website, https://investors.ciphermining.com/investors, provides SEC filings (10-K, 10-Q, 8-K), press releases, investor presentations, and sustainability reports, and is used for disclosing material non-public information under Regulation FD[18][19] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows, are presented with notes on accounting policies and operational specifics Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show the company's financial position, with increased total assets and stockholders' equity, driven by higher cash, bitcoin, and equipment deposits, while current liabilities decreased Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :-------------- | :------------------ | | ASSETS | | | | Cash and cash equivalents | $62,704 | $5,585 | | Bitcoin | $112,089 | $92,651 | | Deposits on equipment | $183,028 | $38,872 | | Total current assets | $219,663 | $168,205 | | Total assets | $1,018,759 | $855,446 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $52,506 | $131,778 | | Long-term borrowings, net | $167,113 | $- | | Total liabilities | $269,855 | $173,493 | | Total stockholders' equity | $748,904 | $681,953 | | Total liabilities and stockholders' equity | $1,018,759 | $855,446 | Condensed Consolidated Statements of Operations The condensed consolidated statements of operations show a net loss for Q2 and H1 2025, primarily due to increased depreciation, derivative asset fair value changes, and equity losses, despite increased bitcoin mining revenue Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue - bitcoin mining | $43,565 | $36,808 | $92,524 | $84,945 | | Total costs and operating expenses | $(88,808) | $(52,979) | $(175,855) | $(54,330) | | Operating (loss) income | $(45,243) | $(16,171) | $(83,331) | $30,615 | | Net (loss) income | $(45,781) | $(15,291) | $(84,756) | $24,609 | | (Loss) income per share - basic and diluted | $(0.12) | $(0.05) | $(0.23) | $0.08 | - Depreciation and amortization significantly increased to $44.1 million for Q2 2025 (from $20.3 million in Q2 2024) and $87.6 million for H1 2025 (from $37.5 million in H1 2024), primarily due to new miners and a change in estimated useful life[28][186][198] - Change in fair value of derivative asset resulted in a $15.5 million loss for Q2 2025 (compared to a $22.0 million gain in Q2 2024) and an $8.2 million loss for H1 2025 (compared to a $29.3 million gain in H1 2024)[28][187][199] Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) The condensed consolidated statements of changes in stockholders' equity reflect increased total equity, driven by common share issuance through ATM offerings and a PIPE investment, partially offset by net losses and share-based compensation Changes in Stockholders' Equity (in thousands) | Metric | Balance as of Dec 31, 2024 | Issuance of common shares (H1 2025) | Treasury stock reissued for PIPE (H1 2025) | Share-based compensation (H1 2025) | Net loss (H1 2025) | Balance as of June 30, 2025 | | :--------------------------------- | :------------------------- | :-------------------------------- | :---------------------------------------- | :--------------------------------- | :----------------- | :-------------------------- | | Common Stock (Amount) | $361 | $23 | $- | $- | $- | $388 | | Additional Paid-in Capital | $863,015 | $85,642 | $49,990 | $20,358 | $- | $1,014,686 | | Accumulated Deficit | $(181,412) | $- | $- | $- | $(84,756) | $(266,168) | | Total Stockholders' Equity | $681,953 | $85,665 | $50,000 | $20,358 | $(84,756) | $748,904 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows indicate increased cash usage in operating and investing activities, largely offset by increased cash from financing, resulting in a net increase in cash, cash equivalents, and restricted cash Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(103,455) | $(51,988) | | Net cash used in investing activities | $(110,470) | $(62,313) | | Net cash provided by financing activities | $271,044 | $150,753 | | Net increase in cash, cash equivalents, and restricted cash | $57,119 | $36,452 | | Cash, cash equivalents, and restricted cash, end of period | $77,096 | $122,557 | - Non-cash investing activities for H1 2025 included $31.7 million in bitcoin transferred for rehypothecated collateral, $27.0 million in bitcoin loan payments, $16.6 million in bitcoin received as a loan, and $13.9 million in bitcoin received from equity investees[46] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering organization, significant accounting policies, asset/liability accounts, debt, equity, and other financial information Note 1. Organization Cipher Mining Inc. develops and operates industrial-scale data centers for bitcoin mining and HPC hosting, with two wholly-owned operational sites and equity investments in three joint venture sites, managing liquidity through bitcoin sales, financing, and stock offerings - Cipher Mining Inc. operates two wholly-owned bitcoin mining data centers: the 207 MW Odessa Facility (fixed-price power) and the 300 MW Black Pearl Facility (grid power, 150 MW operational)[50] - The company also holds equity investments in three partially-owned joint venture bitcoin mining data centers and has three wholly-owned sites not yet operational, plus options for three additional sites[50] - As of June 30, 2025, the company had $62.7 million in cash and cash equivalents, $167.2 million in working capital, and an accumulated deficit of $266.2 million; it uses bitcoin sales, financing, and at-the-market stock offerings to fund operations and capital expenditures[51][52] Note 2. Summary of Significant Accounting Policies This note outlines adherence to GAAP for unaudited condensed consolidated financial statements, including consolidation principles and estimates, highlighting bitcoin gains/losses reclassification and ASU 2023-09 adoption - The company prepares its unaudited condensed consolidated financial statements in accordance with GAAP and SEC rules, consolidating accounts of controlled subsidiaries[57][58] - Effective December 31, 2024, the company reclassified its consolidated income statement to separately disclose 'Unrealized gains (losses) on fair value of bitcoin' and 'Realized (losses) gains on sale of bitcoin' for increased transparency[59] - The company adopted ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' on January 1, 2025, which did not have a significant impact on its financial statements[74] Note 3. Bitcoin This note details bitcoin holdings and activities, showing increased balance and fair value, outlining sources like mining and equity investees, and uses such as sales and collateral, with specific accounting for rehypothecated collateral Bitcoin Inventory (in thousands, except quantity) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Opening balance | $92,651 | $32,978 | | Bitcoin received from mining activities | $67,270 | $85,281 | | Proceeds from sales of bitcoin | $(121,352) | $(10,334) | | Unrealized (losses) gains on bitcoin | $(3,035) | $19,378 | | Ending balance | $112,089 | $138,079 | | Bitcoin held (quantity) | 1,046 | 1,380 (approx.) | - As of June 30, 2025, the company held approximately 1,046 bitcoin with a fair value of $112.1 million, compared to 994 bitcoin with a fair value of $92.7 million at December 31, 2024[77] - Bitcoin pledged as collateral for the Coinbase Overnight Credit Facility is derecognized due to rehypothecation rights, with a corresponding receivable for bitcoin collateral recognized; as of June 30, 2025, no bitcoin was pledged for this facility, compared to 345 bitcoin ($32.2 million** fair value) at December 31, 2024[78] Note 4. Derivative Asset This note explains the Luminant Power Agreement, supplying fixed-price electricity to Odessa Facility, is a derivative asset under ASC 815, with fair value changes recorded in operations, and the company also sells excess electricity - The Luminant Power Agreement, a five-year fixed-price power purchase agreement for the Odessa Facility, is classified as a derivative asset under ASC 815 and recorded at estimated fair value each reporting period[80][81] - The company earned $1.4 million from power sales for the three months ended June 30, 2025 (vs. $1.1 million in 2024), and $2.4 million for the six months ended June 30, 2025 (vs. $2.3 million in 2024), by selling excess electricity in the ERCOT market[82] Note 5. Property and Equipment This note details property and equipment, net, showing a slight decrease due to depreciation despite significant reclassifications from construction-in-progress for Black Pearl Facility, and highlights an asset retirement obligation Property and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :------------------ | | Miners and mining equipment | $341,475 | $342,111 | | Leasehold improvements | $149,867 | $137,582 | | Land | $58,330 | $49,021 | | Buildings | $53,104 | $— | | Infrastructure | $101,904 | $28,166 | | Construction-in-progress | $11,929 | $82,017 | | Total cost | $717,455 | $639,503 | | Accumulated depreciation | $(243,568) | $(158,638) | | Property and equipment, net | $473,887 | $480,865 | - For the six months ended June 30, 2025, $126.3 million of construction-in-progress for the Black Pearl Facility was reclassified into Buildings ($53.2 million) and Infrastructure ($71.6 million)[83][85] - An asset retirement obligation of $10.7 million was recorded in June 2025 for the Black Pearl Facility to restore the land, to be depreciated over the assets' useful lives[86] Note 6. Deposits on Equipment This note details significant equipment deposits, including agreements with Bitmain and Canaan for miner purchases and options, highlighting a Bitmain amendment that reduced amounts due and provided bitcoin call options - The company has paid $165.9 million in nonrefundable deposits for miners from Bitmain as of June 30, 2025, under an agreement amended in May 2025 to reduce the total amount due and accelerate payments[88][89] - The May 2025 amendment to the Bitmain agreement also provided call options to purchase 493 bitcoin for $60.1 million each, expiring in August and November 2025, which are accounted for as derivatives[89] - The company made a $5.3 million nonrefundable deposit with American Electric Power Company, Inc. (AEP) for construction costs to energize the Reveille Facility[91] Note 7. Investment in Equity Investees This note describes the company's 49% equity ownership in three Data Center LLCs, accounted for using the equity method, detailing accretion of basis differences and activity resulting in increased equity in net losses for H1 2025 - The company accounts for its 49% equity ownership in Alborz LLC, Bear LLC, and Chief Mountain LLC (Data Center LLCs) using the equity method[92] - As of June 30, 2025, the company had remaining basis differences of approximately $7.1 million from miner contributions that have not yet been accreted[94] Investment in Equity Investees Activity (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :----------------------------- | :----------------------------- | | Opening balance | $53,908 | $35,258 | | Cost of contributed mining equipment and other capital contributions | $12,842 | $20,437 | | Bitcoin received from equity investees | $(13,857) | $(5,907) | | Equity in net losses of equity investees | $(10,191) | $(3,181) | | Ending Balance | $45,901 | $49,949 | Note 8. Intangible Assets This note provides a breakdown of intangible assets, primarily a strategic contract and capitalized software, detailing recognized amortization expense Intangible Assets (in thousands) | Category | Gross Carrying Amount (June 30, 2025) | Accumulated Amortization (June 30, 2025) | Net Carrying Amount (June 30, 2025) | | :------------------ | :------------------------------------ | :--------------------------------------- | :---------------------------------- | | Strategic contract | $7,000 | $(554) | $6,446 | | Capitalized software | $3,389 | $(606) | $2,783 | | Total | $10,389 | $(1,160) | $9,229 | - The company recorded amortization expense of $0.4 million for the six months ended June 30, 2025, and expects to record $413 thousand for the remainder of 2025, $827 thousand in 2026 and 2027, $735 thousand in 2028, and $525 thousand in 2029[96] Note 9. Security Deposits This note details security deposits with Oncor Electric Delivery Company LLC for infrastructure construction at wholly-owned sites, eligible for return upon energization of agreed-upon capacity Security Deposits (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :------------------ | | Oncor Facility Extension security deposit related to Black Pearl Facility | $6,269 | $6,269 | | Oncor Facility Extension security deposit related to Barber Lake Facility | $— | $8,297 | | Oncor Facility Extension security deposit related to Stingray Facility | $4,244 | $4,244 | | Other deposits | $3,281 | $972 | | Total security deposits | $13,794 | $19,782 | - The company believes these deposits will be returned as the data centers energize agreed-upon capacity within specified timeframes[97] Note 10. Supplemental Financial Information This note provides additional details on prepaid expenses and other current assets, primarily the Bitmain Bitcoin Option, and a breakdown of accrued expenses and other current liabilities, showing shifts in tax accruals, construction costs, and remaining miner payments - Prepaid expenses and other current assets increased to $7.4 million at June 30, 2025, from $3.4 million at December 31, 2024, primarily due to the Bitmain Bitcoin Option[98] Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :------------------ | | Taxes (primarily sales tax) | $16,200 | $14,607 | | Employee compensation | $4,257 | $8,246 | | Power costs | $3,862 | $— | | Construction costs | $71 | $2,675 | | Remaining payments for miners in service | $— | $30,221 | | Total accrued expenses and other current liabilities | $30,180 | $69,824 | Note 11. Related Party Transactions This note discloses related party transactions, specifically receivables from equity method investees, and the termination of the Board Observer Agreement with Bitfury Holding and Bitfury Top HoldCo - Related party receivables decreased to approximately $0.2 million at June 30, 2025, from $2.1 million at December 31, 2024, representing amounts owed from equity method investees[99] - The Board Observer Agreement with Bitfury Holding and Bitfury Top HoldCo was terminated on July 22, 2025[100] Note 12. Leases This note details various lease agreements, including finance lease for Odessa Facility's land and substation, and operating leases for Black Pearl, Reveille, office, and warehouse spaces, providing a breakdown of lease expenses and future minimum lease payments - The Combined Luminant Lease Agreement for the Odessa Facility's land and substation is classified as a finance lease with an initial term of five years, commencing November 22, 2022[102][103] - The company has operating leases for the Black Pearl Facility (10-year initial term, four 10-year renewal options), Reveille Facility (10-year initial term, two 10-year renewal options), office spaces, and a warehouse in Odessa, Texas[104][105][106] Total Lease Expense (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total finance lease expense | $1,033 | $1,131 | $2,092 | $2,284 | | Total operating lease expense | $660 | $548 | $1,285 | $987 | | Total lease expense | $1,693 | $1,679 | $3,377 | $3,271 | Note 13. Commitments and Contingencies This note addresses contractual commitments, including indemnifications and potential legal contingencies, with management believing no reasonable possibility of material loss from current claims - The company enters into contracts with indemnifications with employees, licensors, suppliers, and service providers, with unknown maximum exposure as of June 30, 2025[111] - The company is not a party to any material legal proceedings and is not aware of any pending or threatened claims that would result in a material loss[113] Note 14. Debt This note details the company's debt structure, including short-term borrowings like Coinbase Master Loan Agreement facilities and Luxor Purchase and Sale Agreement, and long-term borrowings from the $172.5 million 2030 Convertible Notes - The Coinbase Master Loan Agreement includes a secured $25.0 million Coinbase Overnight Credit Facility (no outstanding balance as of June 30, 2025) and a $35.0 million Term Loan Facility (no outstanding balance)[114][115][116] - On May 22, 2025, the company issued $172.5 million principal amount of 1.75% convertible notes due in 2030, which are senior, unsecured obligations convertible into cash, common stock, or a combination[120][121] Long-term Borrowings, Net (in thousands) | Debt Instrument | Maturity Date | Interest Rate | Outstanding Principal (June 30, 2025) | Deferred Debt Issuance Costs (June 30, 2025) | Outstanding Borrowings, net (June 30, 2025) | | :-------------------- | :------------ | :------------ | :------------------------------------ | :------------------------------------------- | :------------------------------------------ | | 2030 Convertible Notes | May 2030 | 1.75% | $172,500 | $5,387 | $167,113 | Note 15. Stockholders' Equity This note details stockholders' equity, including common stock, preferred stock authorization, and ATM sales agreement activities, highlighting common stock issuance for RSU settlements and ATM sales generating significant proceeds - As of June 30, 2025, the company had 510,000,000 authorized shares ($0.001 par value), with 500,000,000 designated as Common Stock and 10,000,000 as Preferred Stock (none outstanding)[123] - During the six months ended June 30, 2025, the company issued 2,998,232 shares for RSU settlements and 358,206 shares to directors, repurchasing 1,154,823 shares for tax withholding[125] - Through its Amended and Restated Sales Agreement, the company may sell up to $725.7 million of common stock; for the six months ended June 30, 2025, it received $85.7 million (net of costs) from the sale of 23,334,701 shares at an average net selling price of $3.67 per share[129][131] Note 16. Warrants This note describes outstanding Public Warrants, entitling holders to purchase one Common Stock share at $11.50, subject to adjustments, with no Private Placement Warrants outstanding as of June 30, 2025 - As of June 30, 2025, there were 8,613,980 Public Warrants outstanding, each exercisable for one share of Common Stock at $11.50[132] - The exercise price and number of shares are subject to adjustment for stock dividends, extraordinary dividends, or corporate reorganizations, but not for issuances below the exercise price; warrants will not be net cash settled[132] Note 17. Share-Based Compensation This note details the Incentive Award Plan, granting stock options, RSUs, and other awards, summarizing service-based and performance-based RSU activity, including grants, vesting, unrecognized compensation expense, and vesting conditions - The Incentive Award Plan allows for grants of stock options, RSUs, and other awards; on January 1, 2025, available shares increased by 10,523,515, totaling 13,246,079 shares available as of June 30, 2025[133][134] Total Share-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service-based RSUs | $8,109 | $10,221 | $16,350 | $16,357 | | Performance-based RSUs | $2,384 | $1,824 | $3,275 | $3,771 | | Total share-based compensation expense | $10,493 | $13,337 | $19,625 | $21,654 | - As of June 30, 2025, there was approximately $23.6 million of unrecognized compensation expense for service-based RSUs (expected to be recognized over 1.0 years) and $9.2 million for 2025 performance-based RSUs (expected over 1.25 years)[136][141] Note 18. Fair Value Measurements This note outlines fair value measurements for financial assets and liabilities, classifying them into Level 1, 2, or 3 based on input observability, detailing Luminant Power Agreement valuation as a Level 3 derivative asset and absence of Level 3 liabilities as of June 30, 2025 Fair Value Measured Assets (in thousands) | Category | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | Total (June 30, 2025) | | :-------------------------- | :---------------------- | :---------------------- | :---------------------- | :-------------------- | | Money market securities | $35,971 | $- | $- | $35,971 | | Bitcoin | $112,089 | $- | $- | $112,089 | | Bitmain Bitcoin Options | $- | $5,007 | $- | $5,007 | | Derivative asset | $- | $- | $77,520 | $77,520 | | Total | $149,635 | $5,007 | $77,520 | $232,162 | - The Luminant Power Agreement derivative asset is classified as Level 3 due to significant unobservable inputs in its discounted cash flow estimation models, with an estimated fair value of $77.5 million at June 30, 2025[149][151] - There were no Level 3 liabilities as of June 30, 2025, as all Private Placement Warrants were converted to Public Warrants by March 31, 2024[153] Note 19. Segment Reporting This note states the company operates as a single segment, Bitcoin Mining, providing a summary of its financial performance, with the CODM evaluating performance primarily based on operating income - The company has one operating segment: Bitcoin Mining, which produces bitcoin to generate revenue[157] Bitcoin Mining Segment Operating Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue - bitcoin mining | $43,565 | $36,808 | $92,524 | $84,945 | | Segment operating (loss) income | $(20,506) | $8,479 | $(35,340) | $74,378 | Note 20. Income Taxes This note details income tax expense, determined based on the estimated effective tax rate and adjusted for discrete items, with an income tax expense recorded for Q2 and H1 2025, driven by net losses - The company recorded an income tax expense of approximately 2.0% of loss before taxes for the three months ended June 30, 2025 (vs. 3.6% in 2024), and 1.3% of loss before taxes for the six months ended June 30, 2025 (vs. 19.8% of income in 2024)[167] Note 21. Subsequent Events This note discloses a subsequent event: the enactment of the "One Big Beautiful Bill Act" (OBBBA) on July 4, 2025, with the company evaluating the financial impact of this new tax law, including bonus depreciation and R&E expensing provisions - On July 4, 2025, President Donald Trump signed the "One Big Beautiful Bill Act" (OBBBA) into law, which includes the restoration of 100% bonus depreciation and immediate expensing for domestic research and experimental expenditures[168] - The company is currently evaluating the impact of the OBBBA, and an estimate of the financial effect is not yet available[168] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition and results of operations, discussing business overview, recent developments, performance factors, comparative results, liquidity, cash flows, contractual obligations, and non-GAAP financial measures Overview Cipher Mining Inc. develops and operates industrial-scale data centers for bitcoin mining and HPC, with two wholly-owned operational sites and equity investments in three partially-owned data centers, planning capacity expansion and HPC diversification - The company's active portfolio and development pipeline is expected to consist of over 3.0 GW of capacity across 11 sites[171] - Current operational sites include the 207 MW Odessa Facility and a 150 MW operational portion of the 300 MW Black Pearl Facility, along with three partially-owned 40 MW joint venture data centers[171] - As of July 31, 2025, the hashrate capacity was approximately 11.3 EH/s for Odessa, 6.9 EH/s for Black Pearl, and 4.4 EH/s for joint ventures[173] Recent Developments Recent developments include amending the Bitmain agreement to reduce miner costs and obtain bitcoin call options, issuing $172.5 million in 2030 Convertible Senior Notes to complete Black Pearl Phase 1, energizing Black Pearl Phase I, and terminating the Bitfury Board Observer Agreement - On May 16, 2025, the Bitmain Future Sales and Purchase Agreement was amended, reducing total amount due, accelerating payments, and providing call options to purchase bitcoin[174] - On May 22, 2025, the company issued $172.5 million of 1.75% Convertible Senior Notes due 2030, with net proceeds used to complete Phase 1 of the Black Pearl Facility[175] - In June 2025, Phase I of the Black Pearl facility was energized, delivering approximately 6.9 EH/s of self-mining capacity as of July 31, 2025[176] Factors Affecting Our Results of Operations No material changes to factors affecting results of operations since the 2024 Form 10-K - No material changes to the 'Factors Affecting Our Results of Operations' from the 2024 Form 10-K[177] Summary of Bitcoin Inventory Summarizes bitcoin inventory for H1 2025, detailing changes from opening balance, receipts from mining and equity investees, loan activities, and sales proceeds Summary of Bitcoin Inventory (Six Months Ended June 30, 2025, in thousands, except quantity) | Metric | Quantity | Amounts | | :------------------------------------ | :------- | :-------- | | Opening balance | 994 | $92,651 | | Bitcoin received from equity investees | 145 | $13,857 | | Bitcoin received from mining activities | 696 | $67,270 | | Bitcoin received from loan | 180 | $16,551 | | Bitcoin loan payments | (2) | $(140) | | Proceeds from sales of bitcoin | (1,312) | $(121,352) | | Realized gains on sale of bitcoin | — | $8,557 | | Unrealized (losses) gains on bitcoin | — | $(3,035) | | Realized loss on bitcoin transferred to collateral, net | — | $(3,195) | | Bitcoin transferred from collateral, net | 345 | $40,925 | | Ending balance | 1,046 | $112,089 | Components of our Results of Operations For components of results of operations, readers are referred to the 2024 Form 10-K 'Management's Discussion and Analysis' section - Reference is made to the 2024 Form 10-K for a description of the components of the company's results of operations[179] Results of Operations Provides a detailed comparative analysis of financial performance for Q2 and H1 2025 and 2024, highlighting key revenue and expense trends, including bitcoin price impact, halving event, and increased operational costs Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue - bitcoin mining | $43,565 | $36,808 | $92,524 | $84,945 | | Cost of revenue | $(15,330) | $(14,281) | $(30,224) | $(29,101) | | Depreciation and amortization | $(44,086) | $(20,251) | $(87,553) | $(37,495) | | Change in fair value of derivative asset | $(15,480) | $21,980 | $(8,150) | $29,339 | | Unrealized gains (losses) on fair value of bitcoin | $17,143 | $(21,178) | $(3,035) | $19,378 | | Net (loss) income | $(45,781) | $(15,291) | $(84,756) | $24,609 | Comparative Results for the Three Months Ended June 30, 2025 and 2024 For Q2 2025, bitcoin mining revenue increased due to higher prices despite less bitcoin mined post-halving; cost of revenue rose with new facility energization, depreciation significantly increased, and derivative asset fair value resulted in a loss, with unrealized gains on bitcoin being positive - Revenue from bitcoin mining increased by $6.8 million (18.4%) to $43.6 million in Q2 2025, driven by higher bitcoin prices, partially offset by reduced bitcoin mined due to the April 2024 halving[182] - Cost of revenue increased by $1.0 million (7.3%) to $15.3 million in Q2 2025, primarily due to additional power costs from the energization of the Black Pearl and Barber Lake facilities[183] - Depreciation and amortization increased by $23.8 million (117.2%) to $44.1 million in Q2 2025, mainly due to additional depreciation on miners from the Odessa fleet upgrade[186] - Unrealized gains on fair value of bitcoin were $17.1 million in Q2 2025, a significant shift from losses of $21.2 million in Q2 2024, reflecting changes in bitcoin price relative to cost[190] Comparative Results for the Six Months Ended June 30, 2025 and 2024 For H1 2025, bitcoin mining revenue increased due to higher average prices despite the halving; operating expenses saw significant increases in depreciation and G&A costs, resulting in a net loss, contrasting with prior year net income, partly due to equity losses from an impairment charge - Revenue from bitcoin mining increased by $7.6 million (8.9%) to $92.5 million in H1 2025, driven by higher average bitcoin prices, partially offset by decreased bitcoin mined post-halving[194] - Depreciation and amortization increased by $50.1 million (133.6%) to $87.6 million in H1 2025, due to increased miners from the Odessa fleet upgrade and a change in the estimated useful life of miners from five to three years as of June 1, 2024[198] - Equity in losses of equity investees totaled $7.0 million in H1 2025 (compared to income of $0.2 million in H1 2024), including approximately $4 million from a one-time impairment charge on Alborz LLC's miners[201][202] - Unrealized losses on fair value of bitcoin were $3.0 million in H1 2025, a shift from gains of $19.4 million in H1 2024[203] Liquidity and Capital Resources The company's liquidity and capital resources are supported by ATM stock issuances, short-term and long-term financing (including Coinbase loan facilities and 2030 Convertible Notes), and bitcoin sales, which management believes are sufficient for the next 12 months - As of June 30, 2025, the company had $62.7 million in cash and cash equivalents and $748.9 million in total stockholders' equity, with $103.5 million cash used in operations for the six months ended June 30, 2025[207] - The company has an at-the-market sales agreement allowing for the sale of common stock up to $725.7 million, generating approximately $51.5 million in net proceeds from 14.2 million shares in Q2 2025[208] - Financing includes a $25.0 million Coinbase Overnight Credit Facility (no balance drawn as of June 30, 2025) and a $35.0 million Term Loan Facility, as well as $172.5 million in 2030 Convertible Notes issued in May 2025[209][211] Cash Flows The company experienced increased cash usage in operating and investing activities for H1 2025, primarily due to a net loss, higher equipment deposits, and property purchases, largely offset by increased cash from financing activities, mainly convertible notes and treasury stock reissuance Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(103,455) | $(51,988) | | Net cash used in investing activities | $(110,470) | $(62,313) | | Net cash provided by financing activities | $271,044 | $150,753 | | Net increase (decrease) in cash and cash equivalents | $57,119 | $36,452 | Operating Activities Net cash used in operating activities increased significantly due to a net loss of $84.8 million and a $96.7 million increase in non-cash items, primarily related to derivative asset fair value, bitcoin fair value, and depreciation - Net cash used in operating activities increased by $51.5 million to $103.5 million for H1 2025, primarily due to a net loss of $84.8 million (compared to net income of $24.6 million in H1 2024) and a $96.7 million increase in non-cash items[214] Investing Activities Cash used in investing activities increased due to a $126.6 million increase in deposits for new miner purchases and a $40.1 million increase in property and equipment purchases for the Black Pearl facility, partially offset by $111.0 million more in proceeds from bitcoin sales - Net cash used in investing activities increased by $48.2 million to $110.5 million for H1 2025, driven by a $126.6 million increase in deposits for new miner purchases and a $40.1 million increase in property and equipment purchases for the Black Pearl facility[215] - This increase was partially offset by a $111.0 million increase in proceeds from bitcoin sales and a $7.6 million decrease in contributions to equity investees[215] Financing Activities Cash provided by financing activities increased significantly due to $50.0 million from treasury stock reissued for a PIPE investment and $167.1 million from convertible notes issuance, partially offset by decreased common stock issuance proceeds - Net cash provided by financing activities increased by $120.3 million to $271.0 million for H1 2025[216] - This increase was primarily driven by $50.0 million from treasury stock reissued for a PIPE investment and $167.1 million from the issuance of convertible notes, net of issuance costs[216] - The increase was partially offset by a $76.5 million decrease in proceeds from the issuance of common stock[216] Contractual Obligations and Other Commitments The company's contractual obligations include an office space lease through May 2029 and the Combined Luminant Lease Agreement for the Odessa Facility's land and substation, a five-year finance lease with monthly principal and interest payments - The company has an office space lease agreement through May 2029 with monthly rent payments of approximately $0.2 million[217] - The Combined Luminant Lease Agreement for the Odessa Facility's land and substation is a five-year finance lease, commencing November 22, 2022, with monthly principal and interest payments totaling $19.7 million on an undiscounted basis over the remaining four-year period starting July 2023[218][220][221] - At the end of the lease term, the substation will be sold back to Luminant's affiliate, Vistra Operations Company, LLC, at a price determined by secondary market bids[222] Non-GAAP Financial Measures The company provides supplemental non-GAAP financial measures, Adjusted Earnings (Loss) and Adjusted Earnings (Loss) per share - diluted, excluding specific non-cash and non-recurring items, used internally for performance evaluation and comparisons, but not as a substitute for GAAP measures - Non-GAAP Adjusted Earnings (Loss) and Adjusted Earnings (Loss) per share - diluted exclude the impact of non-cash change in fair value of derivative asset, share-based compensation, depreciation and amortization, deferred income tax expense, nonrecurring gains/losses, and non-cash change in fair value of warrant liability[223] Reconciliation of Adjusted Earnings (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(45,781) | $(15,291) | $(84,756) | $24,609 | | Change in fair value of derivative asset | $15,480 | $(21,980) | $8,150 | $(29,339) | | Share-based compensation expense | $10,493 | $13,337 | $19,625 | $21,654 | | Depreciation and amortization | $44,086 | $20,251 | $87,553 | $37,495 | | Adjusted earnings (loss) | $30,349 | $(3,490) | $36,487 | $59,540 | Critical Accounting Policies, and Use of Estimates The company refers to its 2024 Form 10-K for critical accounting policies and estimates, noting no significant changes during Q2 2025 - No significant changes in critical accounting policies and estimates during the three months ended June 30, 2025, from those disclosed in the 2024 Form 10-K[227] Recent Accounting Pronouncements Information on recent accounting pronouncements, both adopted and not yet adopted, is included in Note 2 to the unaudited condensed consolidated financial statements - Information on recent accounting pronouncements is provided in Note 2 of the financial statements[228] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's primary market risks, specifically bitcoin price and power price risk, quantifying their potential impact on financial results Bitcoin Price Risk The company is exposed to bitcoin price fluctuations due to inventory holdings; a 10% decrease in bitcoin price would significantly increase its net loss - As of June 30, 2025, the company held 1,046 bitcoin in inventory[231] - A 10% decrease in the price of bitcoin would result in an estimated $11.2 million increase in Net loss for the six months ended June 30, 2025[231] Power Price Risk The company faces power price risk, particularly concerning its derivative asset related to the Luminant Power Agreement; a 10% decrease in power prices would negatively impact its fair value and increase net loss - The estimated fair value of the derivative asset related to the power purchase agreement is derived from Level 2 and Level 3 inputs, which include quoted spot and forward prices for electricity[232] - A 10% decrease in power prices would result in an estimated $14.8 million decrease in the estimated fair value of the Derivative asset and an increase in Net loss for the six months ended June 30, 2025[232] Item 4. Controls and Procedures This section addresses the effectiveness of disclosure controls and procedures, noting they were not effective as of June 30, 2025, due to a material weakness in IT General Controls, with active remediation efforts underway Limitations on Effectiveness of Controls and Procedures Management acknowledges that controls and procedures provide only reasonable assurance due to inherent limitations, resource constraints, and judgment in evaluating benefits versus costs - Management recognizes that controls and procedures provide only reasonable assurance and are subject to inherent limitations, resource constraints, and the application of judgment[233] Evaluation of Disclosure Controls and Procedures Based on management's evaluation, disclosure controls and procedures were concluded to be not effective at the reasonable assurance level as of June 30, 2025 - As of June 30, 2025, the company's disclosure controls and procedures were not effective at the reasonable assurance level[234] Remediation of Material Weakness The company is actively remediating a material weakness in IT General Controls (ITGCs) over change management, with efforts including resource allocation, advisory firm engagement, and refining processes and controls, with ongoing assessment - A material weakness was identified in internal control over financial reporting related to certain Information Technology General Controls (ITGCs) over change management controls[235] - Remediation efforts include devoting resources, engaging advisory firms, and implementing/refining enhanced program change management controls for systems impacting revenue recognition and manual key reconciliation processes[237][241] - The material weakness will not be considered remediated until controls operate for a sufficient period and are tested and concluded to be designed and operating effectively[238] Changes in Internal Control over Financial Reporting Other than ongoing remediation for the identified material weakness, no material changes occurred in internal control over financial reporting during Q2 2025 - No material changes in internal control over financial reporting during Q2 2025, other than the described remediation efforts[240] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not a party to any material pending legal proceedings and reports no material changes to previously disclosed proceedings in its 2024 Form 10-K - The company is not a party to any material pending legal proceedings[243] - There have been no material changes to legal proceedings previously disclosed in the 2024 Form 10-K[243] Item 1A. Risk Factors This section incorporates risk factors from the 2024 Form 10-K and introduces new risks related to increased indebtedness from the $172.5 million 2030 Convertible Notes offering, including impacts on cash flow, financing, and stock dilution - The company's business, financial condition, and operating results are affected by factors disclosed in the 2024 Form 10-K[244] - New risks arise from the $172.5 million principal amount of 2030 Notes, including increased vulnerability to adverse conditions, limited ability to obtain additional financing, dedication of cash flow to debt service, potential dilution of existing stockholders, and competitive disadvantage[245][248] - Additional risks include the inability to raise funds to repurchase the 2030 Notes upon fundamental change or maturity, provisions in the indenture that could delay or prevent a takeover, adverse effects of the conditional conversion feature on liquidity and working capital, and negative impacts of the accounting method for the notes on reported financial condition and earnings[247][250][251][252][255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report during the period - None to report[256] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report during the period - None to report[257] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Not applicable[258] Item 5. Other Information Disclosure regarding insider trading arrangements, specifically Rule 10b5-1 Plans adopted by Co-President and COO Patrick Kelly and Co-President, Chief Legal Officer and Corporate Secretary William Iwaschuk during Q2 2025 - Patrick Kelly, Co-President and Chief Operating Officer, adopted a Rule 10b5-1 Plan on May 12, 2025, for the sale of up to 414,204 shares of common stock until August 7, 2026[264] - William Iwaschuk, Co-President, Chief Legal Officer and Corporate Secretary, adopted a Rule 10b5-1 Plan on June 5, 2025, for the sale of up to 487,956 shares of common stock until May 8, 2026[264] Item 6. Exhibits Lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including merger agreements, certificates of incorporation, warrant agreements, indenture for convertible notes, and certifications - Exhibits include the Agreement and Plan of Merger, Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Warrant Agreement, Indenture and First Supplemental Indenture for 2030 Convertible Notes, Amendment Agreement to Future Sales and Purchase Agreement, and CEO/CFO certifications[266] SIGNATURES Report Signatures Contains required signatures of the CEO and CFO, certifying accuracy and completeness of the Quarterly Report on Form 10-Q - The report is signed by Tyler Page, Chief Executive Officer (Principal Executive Officer), and Edward Farrell, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), both dated August 7, 2025[273]