Riot Platforms Inc

Note 1. Organization and****Basis of Presentation

Organization

Riot Platforms is a vertically-integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin in support of the Bitcoin blockchain. The Company has a large-scale Bitcoin mining facility in Rockdale, Texas (the “Rockdale Facility”) and is currently developing a second large-scale Bitcoin mining facility located in Corsicana, Texas (the “Corsicana Facility”). Upon completion, the Corsicana Facility’s Bitcoin mining capacity is expected to exceed the current Bitcoin mining capacity of the Rockdale Facility. During the three months ended September 30, 2024, the Company acquiredtwo Bitcoin mining sites located in Paducah, Kentucky (the “Kentucky Facility”), which have existing operational Bitcoin mining capacity and the potential for significant expansion.

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements (“Condensed Consolidated Financial Statements”) and these notes (these “Notes”) have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of such interim results. Unless otherwise indicated, amounts are stated in thousands of U.S. Dollars except for share, per share, and miner amounts, and Bitcoin quantities, prices, and hash rate.

The results in the Condensed Consolidated Financial Statements and these Notes include required estimates and assumptions of management, and they are not necessarily indicative of results to be expected for the year ending December 31, 2024, or for any future interim period. Further, the Condensed Consolidated Financial Statements and these Notes do not include all the information and notes required by GAAP for a complete presentation of annual financial statements. As such, the Condensed Consolidated Financial Statements and these Notes should be read in conjunction with the consolidated financial statements for the year ended December 31, 2023, and notes thereto, included in the 2023 Annual Report.

As described in Note 19.Segment Information, the Company’stwo reportable segments are: Bitcoin Mining and Engineering.

Note 2. Significant Accounting Policies and Recent Accounting Pronouncements

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ materially from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include revenue recognition; valuation of the derivative asset classified under Level 3 on the fair value hierarchy; determination of the useful lives and recoverability of long-lived assets; impairment analysis of fixed assets and finite-lived intangibles; impairment analysis of goodwill; allocating the fair value of purchase consideration to assets acquired and liabilities assumed in business acquisitions; stock-based compensation; and the valuation allowance associated with the Company’s deferred tax assets.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the Condensed Consolidated Financial Statements and these Notes. The reclassifications did not have a material impact on the Condensed Consolidated Financial Statements and related disclosures. The impact on any prior period disclosures was immaterial.

Significant Accounting Policies

Except for the updates noted below, see the Company’s 2023 Annual Report for a detailed discussion of the Company’s significant accounting policies.

Bitcoin

The Company’s Bitcoin is recorded at fair value, as determined using the period-end closing price of Bitcoin on the Company’s principal market, Coinbase (the “Principal Market”), and changes in fair value are recognized in Change in fair value of Bitcoin, inOperating income (loss) on the Condensed Consolidated Statements of Operations, as of, and for the three and nine months ended September 30, 2024.

During 2024, Riot made the strategic decision to temporarily halt the sale of its Bitcoin production and instead, increase its Bitcoin holdings. As a result of its intent to hold its Bitcoin, the Company began classifying its Bitcoin held as a non-current asset on its Condensed Consolidated Balance Sheet. For the nine months ended September 30, 2024, all sales of Bitcoin occurred before the strategic decision and, as such Bitcoin was sold nearly immediately after receipt by the Company, the proceeds were recognized withinOperating activities on the Condensed Consolidated Statements of Cash Flows.

Property and equipment

Effective January 1, 2024, the Company changed the estimated useful life of its miners and mining equipment from 2 years to 3 years. See Note 7.Property and Equipment, for a description of the change and its impact.

Goodwill

Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually as of November 30, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We use both qualitative and quantitative analyses in making this determination. The Company determined that it has two reporting units for goodwill impairment testing purposes, Bitcoin Mining and Engineering, which are consistent with internal management reporting and management’s oversight of operations. Our analyses require significant assumptions and judgments, including assumptions about future economic conditions, revenue growth, and operating margins, among other factors. Examples of events or changes in circumstances considered in the qualitative analysis, many of which are subjective in nature, include: a significant negative trend in our industry or overall economic trends, a significant change in how we use the acquired assets, a significant change in our business strategy, a significant decrease in the market value of the asset, a significant change in regulations or in the industry that could affect the value of the asset, and a change in segments. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative test to identify and measure the amount of goodwill impairment loss by comparing the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds the fair value, goodwill of the reporting unit is considered impaired and that excess is recognized as a goodwill impairment loss.

Revenue recognition

The Company participates in digital asset mining pools by executing agreements with mining pool operators for the provision of hash calculation services to the mining pool. Currently, the Company only participates in a Full-Pay-Per-Share mining pool. The Company decides when to provide hash calculation services under the agreements and the Company’s enforceable right to compensation begins only when, and lasts as long as, the Company provides hash calculation services to the mining pool operator and is created as power is provided over time. The only consideration due to the Company relates to the provision of hash calculation services. Such agreements are freely terminable, at any time, by the Company or by the pool operator, without penalty to either party. Providing hash calculation services in digital asset transaction verification services is an output of the Company’s ordinary activities and is the only performance obligation in the agreements with mining pool operators.

The transaction consideration received, if any, is noncash consideration in the form of Bitcoin. Changes in the fair value of the noncash consideration after contract inception due to the form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and, therefore, are not included in revenue. Certain mining pool operators charge fees to cover the costs of maintaining the pool. These fees are deducted from amounts we may otherwise earn and are treated as a reduction to the consideration received. Fees fluctuate and historically have averaged no more than approximately 2% per reward earned. Under the agreements neither party can dispute settlement terms after approximately thirty-five days following settlement.

In exchange for providing hash calculation services, the Company is entitled to a Full-Pay-Per-Share (“FPPS”) payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided to the mining pool as a percentage of total network hash rate, and other inputs.

The Company is entitled to consideration even if a block is not successfully placed by the mining pool operator. Bitcoin network block subsidies are based on the total amount of block subsidies that are expected to be generated on the Bitcoin network as a whole during the 24-hour period beginning at 0:00:00 UTC daily (i.e., the “measurement period”), while network transaction fees are based on the total amount of transaction fees and block rewards that are actually generated on the blockchain network as a whole during the measurement period.

The Company is also entitled to a fractional share of the Bitcoin award and transaction fees from the mining pool operator as determined based on the hash rate provided by the Company to the mining pool as a percentage of the total expected Bitcoin network hash rate based on the current network difficulty. The Company is entitled to its relative share of consideration at the end of each measurement period, even if a block is not successfully placed by the mining pool.

For accounting purposes, the agreement by and between the Company and the mining pool operator has a duration of less than 24 hours as a result of the agreement being continually renewed at the beginning of each measurement period. However, the continual renewal of the agreement does not represent a material right requiring separate performance obligations as the FPPS formula remains the same upon each renewal.

Consideration is all variable. Revenue is recognized on the same day that control of the contracted service transfers to the mining pool operators, which is the same day as contract inception. As it is probable that a significant reversal of cumulative revenue will not occur and we are able to calculate the payout based on the contractual formula, revenue is estimated and recognized based on the spot price of Bitcoin determined using the Company’s Principal Market at the beginning of each measurement period, which the Company considers to be 0:00:00 UTC on the date of contract inception. Noncash consideration is measured at fair value at agreement inception. The fair value of the crypto asset consideration is determined using the quoted price per the Principal Market at the beginning of each measurement period at the single bitcoin level (one bitcoin).

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

Change in Reportable Segments

Previously, the Company operated inthree reportable business segments: Bitcoin Mining, Data Center Hosting, and Engineering. Commencing January 1, 2024, the Company’s reportable segments have changed to reflect the termination of its legacy Data Center Hosting business, with Bitcoin Mining and Engineering as the Company’stwo remaining reportable business segments. See Note 19.Segment Informationfor more information.

Recently Issued Accounting Pronouncements

The Company continually assesses new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of such change to its Condensed Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Condensed Consolidated Financial Statements properly reflect the change.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures(“ASU 2023-09”). ASU 2023-09 expands existing income tax disclosures for rate reconciliations by requiring disclosure of certain specific categories and additional reconciling items that meet quantitative thresholds and expands disclosures for income taxes paid by requiring disaggregation by certain jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024; early adoption is permitted. The Company is evaluating the impact the updated guidance will have on its disclosures.

In December 2023, the FASB issued ASU 2023-08,Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets(“ASU 2023-08”), which establishes accounting guidance for crypto assets meeting certain

criteria. Bitcoin meets these criteria. The amendments require crypto assets meeting the criteria to be recognized at fair value with changes recognized in net income each reporting period. Upon adoption, a cumulative-effect adjustment was made to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt ASU 2023-08 for the year ended December 31, 2023, effective as of January 1, 2023. As a result of the adoption, the Company recorded a cumulative-effect adjustment to itsAccumulated deficit balance of approximately $6.0 million as of January 1, 2023, as a result of recognizing its Bitcoin held as of January 1, 2023, at fair value.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures(“ASU 2023-07”). ASU 2023-07 is intended to enhance reportable segment disclosures by requiring disclosures of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), requiring disclosure of the title and position of the CODM and explanation of how the reported measures of segment profit and loss are used by the CODM in assessing segment performance and allocation of resources. ASU 2023-07 is effective for the Company for annual periods beginning after December 31, 2023. The Company is finalizing its evaluation of the impact the updated guidance will have on its disclosures.

Note 3. Acquisitions

On July 23, 2024, the Company acquired 100% of the equity interests of Block Mining, Inc. (“Block Mining”), a Kentucky-based, vertically-integrated Bitcoin mining company, for total consideration of approximately$113.6 million, which was comprised of$13.5 million in cash (adjusted for net working capital acquired and other items, excluding the payoff of debt of$5.0 million, which was accounted for as a transaction separate from the acquisition) from the Company’s existing cash,7.2 million shares of Riot common stock valued at approximately$74.0 million, and a contingent purchase price payable to the sellers with an estimated fair value of$26.1 million. Under the contingent purchase price payable, the sellers are eligible to earn an additional$32.5 million in potential earn-out targets if certain milestones are reached by December 31, 2025.

The acquisition of Block Mining immediately increased Riot’s hash rate, expanded Riot’s footprint geographically, and provided exposure to additional energy markets outside of the Electric Reliability Council of Texas (“ERCOT”), including the Paducah Power Systems, Tennessee Valley Authority (TVA) and Big Rivers Electric Corporation in the Midcontinent Independent System Operator (“MISO”) region. Block Mining is a vertically-integrated Bitcoin miner consisting oftwo operational sites, both in Kentucky, which consist of existing operational Bitcoin mining capacity, with the potential to expand. Additionally, Block Mining owns a separate greenfield expansion opportunity in Kentucky, adjacent to an existing substation, presenting the opportunity for further expansion. Block Mining is a capital efficient** **developer and operator of Bitcoin mining facilities with an experienced management team that will add to Riot’s ability to execute on its vertically-integrated strategy.

The acquisition was accounted for as an acquisition of a business using the acquisition method of accounting, which requires recognition of assets acquired and liabilities assumed at their respective fair values on the date of acquisition. As of September 30, 2024, the Company has completed a preliminary allocation of the purchase consideration. Therefore, the allocation of the purchase price to assets acquired and liabilities assumed is based on provisional estimates and is subject to continuing management analysis, with assistance from third party valuation advisors. The Company expects to finalize the valuation of these assets and liabilities, and consideration transferred, as soon as practicable, but not later than one year from the acquisition date. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

The following table presents the allocation of the purchase consideration:

The fair values of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses were determined to be the carrying values due to the short-term nature of the assets and liabilities. The fair value of the acquired trade receivables was determined to be the net realizable amount of the closing date book value of$0.4 million.

The fair value of property and equipment was estimated by applying the cost approach, which uses the replacement cost as an indicator of fair value. The assumptions of the cost approach include replacement cost new and physical deterioration factors including remaining life and effective age. The replacement cost new was based on a price per terahash consistent with prices the Company pays for new Bitcoin miners and an effective age of three years, consistent with the Company’s current estimated useful life of Bitcoin miners.

The right of use asset and operating lease liabilities consisted of an operating lease of a data center in Calvert City, Kentucky. The lease has annual payments of approximately$1.4 million and a remaining lease term of approximately 3.0 years as of acquisition.

The assumed debt consisted of a$5.0 million secured loan and a$5.7 million note payable. The secured loan was paid off on the date of acquisition. The note payable carries a fixed rate of 8.81%, and matures in December 2035, with annual principal and accrued interest payments beginning on December 31, 2024. The fair value of the debt at acquisition of$5.7 million was determined to equal its carrying value due at acquisition as the interest rate is reasonably consistent with rates the Company would expect to incur for similar debt instruments.

Goodwill was attributable to the assembled workforce of experienced personnel at Block Mining and synergies expected to be achieved from the combined operations of Riot and Block Mining. The goodwill recognized is not expected to be deductible for tax purposes. We assigned the goodwill to our Bitcoin Mining reportable segment.

The operating results of Block Mining have been included in the Company’s Consolidated Statements of Operations since the acquisition date. Through September 30, 2024, the Company recognized$3.1 million of acquisition-related costs related to this acquisition that were expensed as incurred.

The following unaudited pro forma financial information summarizes the combined results of operations for Riot and Block Mining, Inc. as if the companies were combined as of January 1, 2023. The unaudited pro forma information does not reflect the effect of costs or synergies that may result from the acquisition and excludes acquisition-related costs of$3.1 million incurred during the nine months ended September 30, 2024. This unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of future operating results of the combined company. This information should not be used as a predictive measure of the Company’s future financial position, results of operations, or liquidity.

Note 4. Revenue from Contracts with Customers

Disaggregated revenue

Revenue disaggregated by reportable segment is presented in Note 19.Segment Information.

Contract balances

Contract assets relate to uncompleted Engineering contracts. As of September 30, 2024 and December 31, 2023, contract assets were $15.4 million and $15.4 million, respectively.

Contract liabilities primarily relate to upfront payments and consideration received from a legacy data center hosting customer and uncompleted Engineering contracts. The following table presents changes in contract liabilities and deferred revenue:

During the nine months ended September 30, 2024, $5.5 million of the beginning balance of contract liabilities and deferred revenue was recognized as revenue.

Remaining performance obligation

The following table presents the estimated future recognition of the Company’s remaining performance obligations, which represent the transaction price of current contracts for work to be performed.

Note 5. Bitcoin

The following table presents information about the Company’s Bitcoin holdings:

All additions of Bitcoin were the result of Bitcoin generated by the Company’s Bitcoin Mining operations (see Note 4.Revenue from Contracts with Customers). All dispositions of Bitcoin were the result of sales on the open market to fund Company operations and for compensation for certain employees.

Note 6. Investments

Equity method investment - marketable securities

During the nine months ended September 30, 2024, the Company acquired approximately 90.1 million common shares of Bitfarms Ltd. (“Bitfarms”) on the open market for approximately $203.8 million. As of September 30, 2024, the Company’s investment in Bitfarms was equal to approximately 19.9% of all outstanding Bitfarms common stock.

In September 2024, the Company and Bitfarms entered into a settlement agreement, under which, the Company intends to review its investment in Bitfarms on a continuing basis and, subject to the terms of the settlement agreement, depending upon various factors, including without limitation, any discussion between the Company, Bitfarms and/or the Board of Bitfarms and Bitfarms’ advisors regarding, among other things, Bitfarms’ financial position and strategic direction, overall market conditions, other investment opportunities available to the Company, and the availability of securities of Bitfarms at prices that would make the purchase or sale of such securities desirable, the Company may (i) increase or decrease its position in Bitfarms through, among other things, the purchase or sale of securities of Bitfarms, including through transactions involving its common shares and/or other equity, debt, notes, other securities, or derivative or other instruments that are based upon or relate to the value of securities of Bitfarms in the open market or otherwise, (ii) enter into transactions that increase or hedge its economic exposure to its investment without affecting its beneficial ownership of Bitfarms common stock or (iii) consider or propose other actions, including submitting a revised proposal to acquire Bitfarms.

On September 23, 2024, Bitfarms appointed an independent director to its Board of Directors that the Company proposed to be nominated and supported. As a result, for accounting purposes, the Company determined it obtained the ability to exercise significant influence over its investment. Therefore, the Company began accounting for its investment under the equity method of accounting and elected to account for it at fair value. There have been no intra-entity transactions, and therefore, no intra-entity profits or losses. Unrealized gains and losses are recognized inOther income (expense) on the Condensed Consolidated Statements of Operations. The fair value measurement of the Company’s investment in Bitfarms is based on quoted prices in an active market and valued at the closing price reported at the end of each period and thus represents a Level 1 measurement on the fair value hierarchy.

The following table presents information about the equity method investment - marketable securities (“marketable securities):

For the three months ended September 30, 2024, unrealized losses on the marketable securities were$38.1 million.

Convertible note

During the year ended December 31, 2023, the Company invested in a $4.5 million convertible note at face value. The convertible note has athree-year term and earns interest at a rate of 12% per annum, which may be paid in cash or in-kind, and converts into equity of the issuer of the convertible note at the end of thethree-year term.

The fair value measurement of the convertible note is based on significant inputs not observable in the market and thus represents a Level 3 measurement on the fair value hierarchy. The significant assumptions used to estimate fair value of the convertible note as of September 30, 2024, primarily consisted of a discount rate of 12.7%, which reflected the issuance date spread premium over the selected yield for the remaining time to maturity.

The following table presents information about the convertible note:

For the three months ended September 30, 2024, unrealized holding gains in accumulated other comprehensive income were$0.2 million. For the three and nine months ended September 30, 2023, no unrealized holding gains or losses were recognized in other comprehensive income.

Note 7. Property and Equipment

The following table presents the Company’s property and equipment:

The Company didnot incur any impairment charges for its property and equipment during the three and nine months ended September 30, 2024 and 2023.

For the three months ended September 30, 2024 and 2023, depreciation expense related to property and equipment totaled $58.5 million and $63.1 million, respectively, and $125.3 million and $185.7 million, respectively, for the nine months ended September 30, 2024 and 2023.

Miners and mining equipment

As of September 30, 2024, the Company had deployed miners in its Bitcoin Mining operations at its Rockdale, Corsicana, and Kentucky Facilities. As of December 31, 2023, the Company had deployed miners at its Bitcoin Mining operations only at the Rockdale Facility.

During 2023, the Company entered into a long-term master purchase and sales agreement, dated as of June 23, 2023, as amended, (the “Master Agreement”) to acquire miners from MicroBT Electronics Technology Co., LTD, through its manufacturing affiliate, SuperAcme Technology (Hong Kong) Limited (collectively “MicroBT”). In 2023, we executed purchase orders with MicroBT to acquire U.S.-manufactured miners with a total hash rate of 25.6 Exahash per second (“EH/s”), for a total purchase price of approximately $453.4 million, subject to downward adjustment, as provided under the Master Agreement. Delivery of these miners to the Corsicana Facility, for deployment in immersion cooling systems, began in 2023, and all miners under these purchase orders are expected to be received by the end of 2024. The Master Agreement also provides the Company with an option to purchase additional miners with a total hash rate of approximately 75.0 EH/s, on the same terms as the initial order.

During the nine months ended September 30, 2024, the Company entered into an additional purchase order with MicroBT under the Master Agreement to acquire 31,500 air-cooled miners with a total hash rate of 5.9 EH/s for a total purchase price of approximately $96.7 million. This purchase order is in addition to existing purchase options under the Master Agreement. Delivery of these miners occurred during the nine months ended September 30, 2024.

Effective January 1, 2024, as a result of new information about the useful lives of Bitcoin miners, the Company determined the estimated useful life of its Bitcoin miners will be increased fromtwo years tothree years. In making this determination, the Company took into consideration its first-hand experience of miners remaining in service beyond a two-year period, as well as its increased use of immersion-based mining, which the Company anticipates will extend the useful life of miners, due to improved heat removal and reduced exposure to particulates, as compared to traditional air-cooled mining. For the three months ended September 30, 2024, the effect of this change in estimate was a reduction in depreciation expense and a decrease in net loss of approximately $21.0 million, and a decrease in basic and diluted loss per share of $0.07. For the nine months ended September 30, 2024, the effect of this change in estimate was a reduction in depreciation expense and an increase in net income of approximately $69.4 million, and an increase in basic and diluted earnings per share of $0.26.

Casualty-related charges (recoveries), net

In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas. As of September 30, 2024, the Company estimated that total damages of $10.3 million had been incurred. During the nine months ended September 30, 2024, the Company received net insurance recoveries of $2.5 million, in addition to the $7.5 million recovered during the year ended December 31, 2023. Recoveries are recognized when they are probable of being received. During the nine months ended September 30, 2023, net casualty related charges of $1.5 million were recognized. No amounts were recognized during the three months ended September 30, 2024 or 2023.

Construction in progress

In 2022, the Company initiated development of the Corsicana Facility to expand its Bitcoin Mining capabilities, on a 265-acre site in Navarro County, Texas, located near the Navarro Switch.

The initial phase of development of the Corsicana Facility involves the construction of immersion-cooled Bitcoin Mining infrastructure, including a high-voltage power substation and electrical and water transmission facilities to supply power and water to the facility. Operations of this initial phase of the development commenced in April 2024, following energization of the substation. As of September 30, 2024, Corsicana deployed Bitcoin mining infrastructure comprised of three operational buildings, Buildings A1, A2 and B1, and a fourth building, Building B2, which was under construction. Development of Building B2 continues on schedule and is expected to be completed during the fourth quarter of 2024.

During the year ended December 31, 2023, the Company entered into a purchase agreement to acquire immersion cooling systems for use in Bitcoin mining data center facilities developed at the Corsicana Facility. Delivery and installation of these immersion cooling systems was completed during the nine months ended September 30, 2024, with miner installation and operations commencing progressively as the systems are installed. The purchase agreement also provides the Company an option to purchase additional immersion cooling systems from the same manufacturer, on the same terms as the initial order, through December 31, 2025.

During the nine months ended September 30, 2024, the Company entered into a second purchase agreement to acquire immersion cooling systems from a different manufacturer for use in the Bitcoin mining data center facilities at the Corsicana Facility. Delivery of these immersion cooling systems was completed in the third quarter of 2024.

Through September 30, 2024, the Company had incurred total costs of approximately $377.6 million related to the development of the Corsicana Facility (exclusive of miners), including $10.1 million paid to acquire the land on which the facility is being developed.

Note 8. Finite-Lived Intangible Assets

The following table presents the Company’s finite-lived intangible assets as of September 30, 2024:

The following table presents the Company’s finite-lived intangible assets as of December 31, 2023:

For the three months ended September 30, 2024 and 2023, amortization expense related to finite-lived intangible assets was $1.5 million and $1.5 million, respectively, and $4.4 million and $4.4 million for the nine months ended September 30, 2024 and 2023.

The following table presents the estimated future amortization of the Company’s finite-lived intangible assets as of September 30, 2024:

The Company did not identify any impairment of its finite-lived intangible assets during the three and nine months ended September 30, 2024 and 2023.

Note 9. Power Supply Agreements

Rockdale Facility

Power Purchase Agreement

In May 2020, the Company’s subsidiary, Whinstone US, Inc. (“Whinstone”), entered into a long-term power purchase agreement (the “PPA”) to provide power at fixed prices to the Rockdale Facility, via the nearby Sandow Switch. Pursuant to the PPA, the Company has agreed to acquire a total of 345 megawatts (“MW”) of long-term, fixed-price power, in multiple blocks, as follows:130 MW contracted in May 2020, through April 30, 2030;65 MW contracted in March 2022, through April 30, 2030; and 150 MW contracted in November 2022, through October 31, 2027. Additionally, the PPA also allows the purchase of additional power, at market prices, as needed.

Under the PPA, the Company may also elect not to utilize its long-term, fixed-price power for its operations, and instead elect to sell that power in exchange for credits against future power costs when there is a benefit to the Company, depending on the spot market price of electricity. The Company’s power strategy combines participation in Demand Response Services Programs, as described below, participation in ERCOT’s Four Coincident Peak (“4CP”) program, and sales of power, to attempt to manage operating costs most efficiently.

During the three months ended September 30, 2024 and 2023, the Company earned credits against future power costs in exchange for power resold of approximately $12.4 million and $49.6 million, respectively, and approximately $31.4 million and $66.1 million, respectively, during the nine months ended September 30, 2024 and 2023. These amounts are recorded inPower curtailment credits on the Condensed Consolidated Statements of Operations.

The Company determined the PPA meets the definition of a derivative because it allows for net settlement. However, because the Company has the ability to offer the power back for sale outside of the PPA, rather than taking physical delivery, the Company determined that physical delivery is not probable through the entirety of the contract and therefore, the Company does not believe the normal purchases and normal sales scope exception applies to the PPA. Accordingly, the PPA (a non-hedging derivative contract) is accounted for as a derivative and recorded at its estimated fair value each reporting period inDerivative asset on the Condensed Consolidated Balance Sheets with the change in the fair value recorded inChange in fair value of derivative asset on the Condensed Consolidated Statements of Operations. The PPA is not designated as a hedging instrument. The Facilities Agreement, Demand Response Service Programs, and the 4CP program are not part of the PPA, and are therefore not subject to treatment and valuation as a derivative along with PPA.

The estimated fair value of the Company’s derivate asset is classified under Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation, which include the fixed price of each block for all 345 MW of power to be delivered per the PPA, discounted cash flow estimation models containing quoted commodity exchange spot and forward prices in megawatt hours (“mWh”) and are adjusted for basis spreads for load zone-to-hub differentials through the term of the PPA, which is scheduled to end as of April 30, 2030, and a discount rate of 23.1%. Actual power usage is not a variable input in the determination of the fair value as the price and quantity of power to be delivered per the PPA are fixed despite the existence of multiple blocks with separate power amounts.

The discount rate reflects the nature of the contract as it relates to the risk and uncertainty of the estimated future mark-to-market adjustments, forward price curves of the power supply, broker/dealer quotes, and other similar data obtained from quoted market prices or independent pricing vendors, risk-free rate of return, which is determined from United States Treasury Bond yields, estimated cost of debt, which includes a Moody’s rating, and an equity risk premium based upon market data provided by a global cost of capital service provider. The discount rate includes observable market inputs, but also includes unobservable inputs based on qualitative judgment related to Company credit risk.

The following table presents the unobservable inputs used in the valuation of theDerivative asset:

The terms of the PPA require margin-based collateral, calculated as exposure resulting from fluctuations in the market cost rate of electricity versus the fixed price stated in the contract. As of September 30, 2024, the margin-based collateral requirement of the Company waszero.

While the Company manages operating costs at the Rockdale Facility in part by periodically selling back unused or uneconomical power, the Company does not consider such actions to be trading activities.

The following table presents changes in the estimated fair value of theDerivative asset:

The following table presents the Change in fair value of the derivative asset for the three months ended September 30, 2024:

Demand Response Services Programs

Concurrently with the PPA, Whinstone entered into an interconnection agreement for the extension of delivery system transmission/substation facilities to facilitate delivery of electricity to the Rockdale Facility (the “Facilities Agreement”). Power costs incurred under the Facilities Agreement are determined every 15 minutes using settlement information provided by ERCOT and are recorded inCost of revenueon the Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2024, the construction of the interconnection was completed and power costs under the Facilities Agreement are no longer being incurred.

ERCOT has implemented Demand Response Services Programs for customers like the Company that have the ability to reduce or modify electricity use in response to ERCOT instructions or signals. These Demand Response Services Programs provide the ERCOT market with valuable grid stability and economic services by helping to preserve system reliability, enhancing competition and load predictability, mitigating price spikes, and stabilizing the grid by encouraging the demand side of the market to give more visibility and control of their power consumption to grid operators. Market participants with flexible electrical loads, like the Company, may participate in these Demand Response Service Programs directly by offering their electrical loads into the ERCOT markets, or indirectly by voluntarily reducing their energy usage in response to increasing power demand in the ERCOT marketplace. The Demand Response Services Programs run concurrent with the PPA.

Under these Demand Response Services Programs, the Company can participate in a variety of programs known as “ancillary services” by electing to designate a portion of its available electrical load for participation in such programs on a forward basis. For each respective Demand Response Services Program, the Company receives compensation based on hourly rates for power and the amount of electrical load which it has bid into the program. Through ancillary services, the Company competitively bids amongst other market participants to sell ERCOT the ability to control the Company’s electrical load on demand, which requires the Company to remain powered on during the times in which its power is bid into ancillary services, and giving ERCOT the ability to direct the Company to power down the amount of power bid into the program. The Company receives compensation for its participation in ancillary services whether or not the Company is actually called to power down.

The Company also participates in the 4CP program, which refers to the highest-load settlement intervals in each of the four summer months (June, July, August, and September), during which time, demand for power is typically at its highest across the ERCOT grid. The 4CP program participants may voluntarily power down operations during these times and in doing so, reduce the electrical load demand on the ERCOT grid. Participants that reduce their load in these peak periods receive credits to transmission costs on future power bills during the subsequent year, reducing overall power costs for the year. As a result of participation in the 4CP program in 2023, the Company’s transmission charges in its ongoing 2024 monthly power bills are substantially reduced. The 4CP program has an indefinite life.

Corsicana Facility

During the nine months ended September 30, 2024, the Company’s subsidiary, Riot Corsicana, LLC, entered into an agreement with ICE Futures U.S., Inc., a subsidiary of the InterContinental Exchange to access the exchange for the execution of electricity futures contracts. The Company intends to purchase agreements up to the amount of power used at the Corsicana Facility. These financial instruments meet the definition of derivatives, but are not designated as hedging instruments, and will be recognized at fair value, with any gains or losses recognized in Net income (loss).

The Company has entered into the electricity futures contracts to manage electricity price risk and reduce the variability of cash flows associated with purchases of electricity used for the Company’s Bitcoin Mining operations at its Corsicana Facility.

As of September 30, 2024, the Company held outstanding electricity futures contracts for 16,640 mWh with a combined fair value of less than $0.1 million included inPrepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2024, realized and unrealized gains and losses of less than $0.1 million were recognized inOther income (expense) on the Condensed Consolidated Statements of Operations.

Kentucky Facility

In April 2021, the Company’s subsidiary, Block Mining, entered into a long-term power purchase agreement (the “Kentucky PPA”) to provide power to one of its locations in Kentucky. Pursuant to the Kentucky PPA, the Company has the ability, but not the obligation, to acquire up to a total of 60 MW of power at one of its facilities through mid-April 2041. The all-in power rate includes a portion of the total fee that is at a fixed rate and another portion that adjusts annually. The Company determined the Kentucky PPA does not meet the definition of a derivative because it does not contain any net settlement provisions.

Under the Kentucky PPA, the Company may also elect not to utilize its long-term, fixed-price power for its operations, and instead elect to sell that power back into the MISO grid in exchange for credits against future power costs when there is a benefit to the Company, depending on the spot market price of electricity. The Company’s power strategy combines participation in Demand Response Services Programs and sales of power, to attempt to manage operating costs most efficiently.

Note 10. Deposits

The following table presents the activity of the Company’s deposits paid:

Deposits on Equipment

During the nine months ended September 30, 2024, the Company made deposits and advance payments of $257.4 million to MicroBT for the purchase of miners and made deposits of $68.8 million for the purchases of other property and equipment, primarily consisting of electrical components and immersion tanks used in the development of the Corsicana Facility. During the nine months ended September 30, 2024, the Company reclassified $347.2 million of deposits made to MicroBT and $58.2 million of other deposits to property and equipment in connection with the receipt of the equipment. See Note 7.Property and Equipment.

Security Deposits

During the year ended December 31, 2023, the Company paid $23.0 million, all of which remains held as a deposit as of September 30, 2024, as a security deposit in connection with its 215 MW increase to the long-term, fixed-price power secured under the PPA, resulting in a total of 345 MW under contract at fixed prices. See Note 9.Power Purchase Agreement.

During the year ended December 31, 2022, the Company paid approximately $4.7 million as a security deposit for the development of the Corsicana Facility, all of which was returned during the nine months ended September 30, 2024.

The Company has other security deposits totaling approximately $2.2 million for its offices and facilities, including $1.8 million associated with its ground lease.

Note 11. Accrued Expenses

Accrued expenses consist of the following:

Note 12. Debt

Credit and Security Facility

The Company’s subsidiary, ESS Metron, LLC (“ESS Metron”), has a Credit and Security Facility Agreement, as amended, which provides for a $10.0 million credit and security facility consisting of a $6.0 million revolving line of credit (the “Revolving Line of Credit”) and a $4.0 million equipment guidance line (the “Equipment Guidance Line”).

The Revolving Line of Credit matures on December 31, 2024, with interest due monthly and principal due at maturity. All amounts borrowed under the Revolving Line of Credit carry a variable interest of not less than 4.0% and are secured by the assets of ESS Metron. As of September 30, 2024, the interest rate was 8.0%. During the nine months ended September 30, 2024, there wereno borrowings orpayments under the Revolving Line of Credit. As of September 30, 2024 and December 31, 2023, the outstanding balance on the Revolving Line of Credit was $0.

The Equipment Guidance Line matures on December 31, 2024, and permits the Company to finance up to 80.0% of certain equipment purchases. All amounts borrowed under the Equipment Guidance Line carry a variable interest of not less than 4.0% and are secured by the assets of ESS Metron. As of September 30, 2024, the interest rate was 8.0%. During the nine months ended September 30, 2024, there wereno borrowings under the Equipment Guidance Line and approximately $0.5 million outstanding under the Equipment Guidance Line converted to a fixed rate term loan (see below). As of September 30, 2024 and December 31, 2023, the outstanding balance on the Equipment Guidance Line was$0 and$0.5 million, relatively.

All borrowings and accrued interest under the Equipment Guidance Line convert to fixed rate term loans every six months, which have either five-year terms for borrowings used to acquire vehicles and manufacturing equipment (“Manufacturing Term Loans”) orthree-year terms for borrowings of equipment other than vehicles and manufacturing equipment (“Equipment Term Loans”). The Manufacturing Term Loans made upon the first conversion of guidance line loans carry interest at a fixed rate equal to the five-year treasury rate plus 2.5% as of conversion and the Equipment Term Loans made upon the first conversion of guidance line loans carry interest at a fixed rate equal to the three-year treasury rate plus 2.5% as of conversion. All subsequent conversions to Manufacturing Term Loans and Equipment Term Loans carry interest at a fluctuating rate equal to the lender’s prime rate.

During the three months ended September 30, 2024, approximately$0.5 million outstanding under the Equipment Guidance Line was converted into athree-year Equipment Term Loan with a fixed interest rate of 6.6%. As of September 30, 2024 and December 31, 2023, the outstanding balance of the Equipment Term Loans was approximately$0.6 million and$0.3 million, respectively.

As of September 30, 2024, the outstanding balance on the Equipment Term Loans was recognized net of deferred financing costs of less than $0.1 million. The net current outstanding debt balance of $0.3 million was recognized withinDebt, current portionand the net long-term outstanding debt balance of $0.3 million was recognized withinDebt, less current portionon the Condensed Consolidated Balance Sheets.

As of September 30, 2024, ESS Metron was not in compliance with its EBITDA covenant of the Credit and Security Facility Agreement. However, in October 2024, a waiver was issued for the lack of compliance as of September 30, 2024.

Revolving Credit Facilities

$50 Million Credit Facility

In July 2024, the Company entered into aone-year $50.0 million Revolving Credit Facility (“$50 Million Credit Facility”). Revolving Loans borrowed by the Company under the $50 Million Revolving Credit Facility carry a per annum interest rate of 1.25% plus the Secured Overnight Financing Rate. Letters of Credit issued under the $50 Million Revolving Credit Facility have aone-year term and incur fees of 1.25% per annum on the amount of Letters of Credit outstanding. Letters of Credit require the issuance of cash collateral by the Company equal to 105% of the Letter of Credit exposure.

Concurrent with entry into the $50 Million Credit Facility, as required by the agreement, the Company funded the entire $50.0 million amount of the credit facility as security into a control account maintained by the lender to serve as collateral. The balance maintained in the control account is included inRestricted cash on the Condensed Consolidated Balance Sheets. Variable interest, equal to approximately 4.6% per annum as of September 30, 2024, is earned by the Company on the amount held in the control account.

During the nine months ended September 30, 2024, the Company issued $8.4 million in letters of credit against the $50 Million Credit Facility.

$20 Million Credit Facility

In August 2024, the Company entered into atwo-year $20.0 million Revolving Credit Facility (“$20 Million Credit Facility”). Revolving Loans borrowed by the Company under the $20 Million Revolving Credit Facility carry a per annum interest rate of 1.60% plus the Secured Overnight Financing Rate. Letters of Credit issued under the $20 Million Revolving Credit Facility have aone-year term and incur fees of 1.5% per annum on the amount of Letters of Credit outstanding. Letters of Credit require the issuance of cash collateral by the Company equal to 105% of the Letter of Credit exposure.

Concurrent with entry into the $20 Million Credit Facility, as required by the agreement, the Company funded the entire $20.0 million amount as security into a control account maintained by the lender to serve as collateral. The balance maintained in the control account is included inRestricted cash on the Condensed Consolidated Balance Sheets. Variable interest, equal to approximately 4.25% per annum as of September 30, 2024, is earned by the Company on the amount held in the control account.

During the nine months ended September 30, 2024, the Company didnot issue any letters of credit against the $20 Million Credit Facility.

Note Payable

As part of the acquisition of Block Mining, the Company acquired a$5.7 million note payable with a fixed rate of 8.81%. The note matures in December 2035, with annual principal and accrued interest payments due beginning on December 31, 2024.

The following table presents the Company’s future note payable principal payments due as of September 30, 2024:

Note 13. Leases

As of September 30, 2024 and December 31, 2023, operating lease right of use assets were $23.6 million and $20.4 million, respectively, and operating lease liabilities were $24.8 million and $21.3 million, respectively.

The following table presents the components of the Company’s lease expense:

The following table presents supplemental lease information:

The following table presents the Company’s future minimum operating lease payments as of September 30, 2024:

Note 14. Stockholders’ Equity

During the nine months ended September 30, 2024, approximately 4.5 million shares of common stock vested or were issued to the Company’s board of directors, officers, employees, and advisors in settlement of an equal number of fully vested restricted stock awards (“RSAs”) or restricted stock units (“RSUs”) awarded to such individuals by the Company under the Company’s 2019 Equity Incentive Plan, as amended (the “2019 Equity Incentive Plan”). The Company withheld approximately 1.1 million of these shares, with a fair value of approximately $11.5 million, to cover the withholding taxes related to the settlement of these vested RSAs and RSUs, as permitted by the 2019 Equity Incentive Plan.

Acquisition of Block Mining

During the nine months ended September 20, 2024, the Company issued approximately 7.2 million shares of common stock with a value of approximately $74.0 million as consideration for the acquisition of Block Mining (see Note 3.Acquisitions).

At-the-Market (“ATM”) Equity Offerings

2023 ATM Offering

In August 2023, the Company entered into the 2023 ATM Offering, under which it could offer and sell up to $750.0 million in shares of the Company’s common stock.

During the nine months ended September 30, 2024, the Company received net proceeds of approximately $114.9 million ($117.3 million of gross proceeds, net of $2.4 million in commissions and expenses) from the sale of 8,644,100 shares of its common stock at a weighted average fair value of $13.57 per share under its 2023 ATM Offering. With the sale and issuance of those shares, no additional shares of Common Stock will be offered or sold under the 2023 ATM Offering.

February 2024 ATM Offering

In February 2024, the Company entered into the February 2024 ATM Offering, under which it could offer and sell up to $750.0 million in shares of the Company’s common stock.

During the nine months ended September 30, 2024, the Company received net proceeds of approximately $462.5 million ($471.9 million of gross proceeds, net of $9.4 million in commissions and expenses) from the sale of 40,646,055 shares of its common stock at a weighted average fair value of $11.61 per share under its February 2024 ATM Offering. With the sale and issuance of those shares, no additional shares of Common Stock will be offered or sold under the February 2024 ATM Offering.

August 2024 ATM Offering

In August 2024, the Company entered into the August 2024 ATM Offering, under which it could offer and sell up to $750.0 million in shares of the Company’s common stock.

During the nine months ended September 30, 2024, the Company received net proceeds of approximately $153.3 million ($157.2 million of gross proceeds, net of $3.9 million in commissions and expenses) from the sale of 20,823,661 shares of its common stock at a weighted average fair value of $7.55 per share under its August 2024 ATM Offering. As of September 30, 2024, approximately $592.8 million of shares of the Company’s common stock were available for sale under the August 2024 ATM Offering.

In October 2024, the Company received net proceeds of approximately $62.1 million from the sale of 8,106,500 shares of its common stock at a weighted average fair value of $7.81 per share under its August 2024 ATM Offering.

Note 15. Stock-Based Compensation

The 2019 Equity Incentive Plan authorizes the granting of stock-based compensation awards to directors, officers, employees, and advisors of the Company in the form of RSAs, RSUs, or stock options, all of which settle in shares of the Company’s common stock upon vesting.

The following table presents the Company’s stock-based compensation expense by category:

Stock-based compensation expense is recognized inSelling, general and administrative on the Condensed Consolidated Statements of Operations.

Performance-Based Awards and Units

Performance-based RSAs and RSUs and units are eligible to vest over a three-year performance period based on the Company’s total shareholder return (“TSR”) as compared to the performance of the Russell 3000 Index (the “Index TSR”).

The following table presents a summary of the activity of the performance-based RSAs:

As of September 30, 2024, there was approximately $183.7 million of unrecognized compensation cost related to the performance-based RSAs, which is expected to be recognized over a remaining weighted-average vesting period of approximately 2.0 years.

The following table presents a summary of the activity of the performance-based RSUs:

As of September 30, 2024, there was approximately $15.9 million of unrecognized compensation cost related to the performance-based RSUs, which is expected to be recognized over a remaining weighted-average vesting period of approximately 2.1 years.

Service-Based Awards and Units

Service-based RSAs and RSUs vest overone, two, andthree-year service periods.

The following table presents a summary of the activity of the service-based RSAs:

As of September 30, 2024, there was approximately $29.6 million of unrecognized compensation cost related to the service-based RSAs, which is expected to be recognized over a remaining weighted-average vesting period of approximately 2.4 years.

The following table presents a summary of the activity of the service-based RSUs:

As of September 30, 2024, there was approximately $4.2 million of unrecognized compensation cost related to the service-based RSUs, which is expected to be recognized over a remaining weighted-average vesting period of approximately 2.3 years.

Note 16. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following as of September 30, 2024, and December 31, 2023:

Assets and Liabilities Not Measured at Fair Value on a Recurring Basis:

As of September 30, 2024 and December 31, 2023, the fair values of cash and cash equivalents, accounts receivable, contract assets, prepaid expenses and other current assets, accounts payable, contract liabilities, and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

Note 17. Commitments and Contingencies

Commitments

Miners and mining equipment

Through September 30, 2024, the Company paid approximately $448.5 million in total deposits and payments to MicroBT for the purchase of miners pursuant to the Master Agreement described in Note 7.Property and Equipment. The remaining commitment of approximately $112.5 million is due in installments through approximately December 2024 based on the estimated miner delivery schedule.

Through September 30, 2024, the Company paid $72.4 million in total deposits and payments for the purchase of immersion cooling systems, as described in Note 7.Property and Equipment. The remaining commitment of approximately $7.7 million is due upon commissioning of the systems, which is expected to occur in the fourth quarter of 2024.

Contingent consideration

As part of the Block Mining acquisition, the sellers are eligible to earn an additional$32.5 million in potential earn-out targets if certain milestones are reached by December 31, 2025. This contingent consideration was recognized as the acquisition date fair value of$26.1 million and is recognized on the Condensed Consolidated Balance Sheets in*Contingent consideration liabilities, current portion.*The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement on the fair value hierarchy. These inputs include management’s best estimate of both the probability and timing of achieving the milestones, a risk-free interest rate of approximately 5% based on the U.S. Treasury rate for the corresponding time periods and a credit spread of approximately 1% based on the median of Investment Grade High Yield Debt Instruments with a Standard & Poor’s BB credit rating. This credit rating was selected based on an independently-produced synthetic credit rating analysis.

Contingencies

Legal Proceedings

The Company, and our subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to our business and transactions arising in the ordinary course of business. We cannot predict the final outcome of such proceedings. Where appropriate, we vigorously defend such claims, lawsuits and proceedings. Some of these claims, lawsuits and proceedings seek damages, including, direct, consequential, exemplary, and/or punitive damages, in amounts that could, if awarded, be significant. Certain of the claims, lawsuits and proceedings arising in ordinary course of business are covered by our insurance program. We maintain property, and various types of liability insurance in an effort to protect ourselves from such claims. In terms of any matters where there is no insurance coverage available to us, or where coverage is available and we maintain a retention or deductible associated with such insurance, we may establish an accrual for such loss, retention or deductible based on current available information. In accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or settle these claims is recorded by us on the Condensed Consolidated Balance Sheets. If it is reasonably possible that an asset may be impaired as of the date of the financial statement, then we disclose the range of possible loss. Costs related to the defense of such claims are recorded by us as they are incurred. Management, with the assistance of outside counsel, may from time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting our defense of such matters. On the basis of current information, we do not believe there is a reasonable possibility that any material loss, if any, will result from any claims, lawsuits and proceedings to which we are subject to either individually, or in the aggregate.

Green Revolution Cooling Patent Dispute

On March 22, 2024, Green Revolution Cooling, Inc. (“GRC”) filed a complaint against the Company in Case No. 6:24-CV-152 in the Western District of Texas for patent infringement. More specifically, GRC has alleged that the immersion cooling systems provided to the Company by third parties infringe GRC’s U.S. Patent Nos. 9,992,914 (the “914 Patent”) and 10,123,463 (the “’463 Patent”). In the complaint, GRC seeks unspecified damages and an injunction against all products that allegedly infringe the ’914 and ’463 Patents (or in lieu of an injunction, an award of a compulsory forward royalty). The Company has engaged counsel and is working with its counsel and the third-party providers of the immersion cooling systems to evaluate and defend the Company from this infringement claim. While a preliminary investigation of GRC’s claims is underway, the Company cannot reasonably predict the outcome of such ongoing litigation, or the magnitude of such outcome, at this time.

Northern Data Working Capital Disputes

On September 7, 2022, the Company filed a complaint against Northern Data AG (“Northern Data”) in the Delaware Court of Chancery (Case No. C.A. No. 2022-0792-LWW) disputing the purchase price of Whinstone and seeking declaratory relief and specific performance of the stock purchase agreement. On March 31, 2023, the parties filed a stipulation agreeing to dismiss all claims without prejudice and to submit the dispute for final determination to an independent accountant. The Company placed approximately$29.5 million in escrow pending the final determination of the independent accountant, and, on June 9, 2023, the independent accountant rendered a written final determination finding in favor of the Company on disputed issues totaling approximately$27.1 million. Accordingly, approximately$27.1 million of the escrowed amount was released from escrow and distributed to the Company on June 13, 2023, with the remaining approximately$2.4 million held in escrow allocated to Northern

Data. As a result, the Company recognized a Deferred gain on acquisition post-close dispute settlement of$26.0 million on the Condensed Consolidated Balance Sheets.

Following the final determination, Northern Data filed a complaint against the Company in the Delaware Court of Chancery (the “Chancery Court”) on June 23, 2023 (Case No. C.A. No. 2023-0650-LWW) challenging the independent accountant’s written final determination and seeking tore-litigate the purchase price adjustment process. The Company contests the legal and factual basis of Northern Data’s claims and filed a motion to dismiss the complaint on July 17, 2023, which the Chancery Court heard on February 13, 2024. The Chancery Court denied the motion to dismiss on May 17, 2024, at which time the court advised the parties that summary judgment briefing after focused discovery may be a worthwhile endeavor. Under the parties’ current schedule, discovery is ongoing and motions for summary judgment may be filed later this year. While the Company intends to vigorously oppose such complaint, the Company cannot accurately predict the outcome of the ongoing litigation, estimate the magnitude of such outcome, or forecast when such litigation will be resolved, due to its early stage.

Legacy Hosting Customer Disputes

Rhodium

On May 2, 2023, Whinstone US, Inc. (“Whinstone”) filed a petition against Rhodium 30MW, LLC (“Rhodium 30MW”), Rhodium JV, LLC (“Rhodium JV”), Air HPC LLC (“Air HPC”), and Jordan HPC, LLC (“Jordan HPC” and, together with Rhodium 30MW, Rhodium JV, and Air HPC, collectively, the “Defendants”) in Case No. CV41873 in the 20th District Court (the “District Court”) of Milam County, Texas. In its amended petition filed May 3, 2023, Whinstone asserted breach of contract claims for Rhodium JV and Air HPC’s failure to pay certain hosting and service fees under the now-terminated Whinstone-Rhodium hosting agreements (“Hosting Agreements”) and sought a declaration regarding the rights and obligations under certain hosting agreements with the Defendants and that no power credits are owed to any Rhodium entity under any agreement. Whinstone sought recovery of more than $26 million, plus reasonable attorneys’ fees and costs, expenses, and pre- and post-judgment interest. On June 12, 2023, Defendants answered and, along with non-parties Rhodium Encore LLC, Rhodium 2.0 LLC, and Rhodium 10mw LLC (collectively, the “Rhodium Non-Parties” and, together with Defendants, collectively, “Rhodium”), filed contingent counterclaims for breach of contract and moved to compel arbitration for alleged unpaid energy sale credits and lost profits. On August 14, 2023, Whinstone filed a second amended petition to include a declaration regarding the rights and obligations under the now-terminated water agreement between Whinstone and various Rhodium entities.

On September 13, 2023, the District Court compelled Whinstone’s claims against Defendants to arbitration over Whinstone’s objection and stayed the lawsuit pending such arbitration.

On December 11, 2023, Rhodium submitted an arbitration demand to the American Arbitration Association (“AAA”), seeking damages and specific performance of unspecified contracts. Rhodium amended its demand on June 4, 2024 to include additional claims and disclosed it seeks at least $67 million in damages. Whinstone does not believe Rhodium’s claims have any merit, and will vigorously contest such claims, as appropriate. Whinstone objected to the AAA’s jurisdiction and authority to entertain the claims and decide any issues of arbitrability. Subject to those objections, Whinstone submitted counterclaims to the AAA on December 29, 2023 against Rhodium JV and Air HPC for breach of contract, seeking recovery of at least $20 million in past-due revenue share payments, plus reasonable attorneys’ fees and costs, expenses, and pre- and post-judgment interest.

After a permanent arbitrator was appointed and written discovery commenced, Rhodium filed for bankruptcy protection on August 24, 2024 and August 29, 2024 in a now jointly administered proceeding styledIn re: Rhodium Encore LLC, et al., Case No. 24-90448 (ARP), in the United States Bankruptcy Court for the Southern District of Texas—Houston Division. Therein, Rhodium filed a motion to assume the Hosting Agreements, and the court set a contested hearing on the matter commencing November 12, 2024. Because depositions have not been completed, the Company cannot reasonably predict the outcome of such ongoing proceedings, or the magnitude of such an outcome, at this time.

SBI Crypto Co.

On April 5, 2023, SBI Crypto Co., Ltd. (“SBI”) filed a complaint in the United States District Court for the Western District of Texas (Case No. 6:23-cv-252), which it later amended, against Whinstone alleging breach of contract, fraud, and negligent bailment claims related to a colocation services agreement between Whinstone and SBI that was terminated in 2021. On July 21, 2023, Whinstone

filed a motion to dismiss the amended complaint, which was denied on October 25, 2023. SBI seeks recovery of at least $15.0 million in lost profits and at least $16.0 million for equipment damage, plus reasonable attorneys’ fees and costs, expenses, costs, and pre- and post-judgment interest. Whinstone believes many of the claims are barred or waived, and that all of SBI’s claims substantively lack merit, and Whinstone plans to vigorously contest the same, as appropriate. While a preliminary investigation of the merits of SBI’s claims has commenced and because this litigation is still at this early stage, the Company cannot reasonably estimate the outcome of such ongoing litigation, or the magnitude of such an outcome, at this time.

GMO

On June 13, 2022, GMO Gamecenter USA, Inc. and its parent, GMO Internet Group, Inc. (collectively “GMO”), filed a complaint against Whinstone alleging breach of a colocation services agreement between GMO and Whinstone, which has since been terminated, seeking damages in excess of $150.0 million for lost profit and profit-sharing payments GMO alleges it was owed from Whinstone. The case is pending in the United States District Court for the Southern District of New York (Case No. 1:22-cv-05974-JPC). Whinstone has responded to GMO’s claims and raised counterclaims of its own, alleging GMO itself breached the colocation services agreement, seeking a declaratory judgment and damages in excess of $25.0 million. On October 19, 2023, GMO filed its fourth amended complaint claiming an additional $496.0 million in damages, for loss of future profits and future profit-sharing payments GMO alleges would have been received through the term of the agreement, based on Whinstone’s allegedly wrongful termination of the colocation services agreement as of June 29, 2023. The Company cannot reasonably estimate the outcome of such ongoing litigation, or the magnitude of such an outcome, at this time.

Note 18. Earnings Per Share

The following table presents potentially dilutive securities that were not included in the computation of diluted net income (loss) per share as their inclusion would have been anti-dilutive:

Note 19. Segment Information

The Company hastwo reportable segments: Bitcoin Mining and Engineering. The reportable segments are identified based on the types of service performed. No operating segments have been aggregated to form the reportable segments.

Gross profit (loss) is the segment performance measure the CODM uses to assess the Company’s reportable segments. Segment gross profit (loss) is defined as segment revenue less segment cost of revenue, and is before elimination of intersegment profits.

Prior to 2024, the Company had a Data Center Hosting reportable segment but has since terminated all contracts with its Data Center Hosting customers. Commencing with the three months ended March 31, 2024, the CODM ceased analyzing the performance of the Data Center Hosting operations and the Company ceased reporting Data Center Hosting as a separate reportable business segment. The Company has no plans to offer data center hosting services to new customers. All residual revenue and costs of revenue related to Data Center Hosting incurred during the three and nine months ended September 30, 2024, are included inRevenue: OtherandCost of Revenue: Other.Prior period amounts related to Data Center Hosting have been recast intoRevenue: OtherandCost of Revenue: Other.

Other than the $96.8 million of goodwill from the Block Mining acquisition allocated to the Bitcoin Mining segment, the Company does not allocate assets to the reporting segments because its assets are managed on an entity-wide basis and, therefore, does not separately disclose the total assets of its reportable operating segments.

The Bitcoin Mining segment generates revenue from the Bitcoin the Company earns through its Bitcoin mining activities. The Engineering segment generates revenue through customer contracts for custom engineered electrical products. All* Revenue: Other revenue* is from external customers.

All revenue and cost of revenue from intersegment transactions have been eliminated in the Condensed Consolidated Statements of Operations.

During the three and nine months ended September 30, 2024, and 2023, aside from the Bitcoin Mining revenue generated as a result of the Company’s participation in a mining pool, no single customer or related group of customers contributed 10% or more of the Company’s total consolidated revenue.

The following tables present segment revenue and segment gross profit (loss):

Three Months Ended September 30, 2024

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2024

Nine Months Ended September 30, 2023

The following table presents the reconciliation of segment gross profit (loss) tonet income (loss) before taxes: