Forward-Looking Statements
Some of the information contained in this MD&A, including information with respect to our plans and strategy for our business, includes “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Forward-looking
statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “may,”
“can,” “should,” “could,” “might,” “plan,” “possible,” “project,” “strive,” “budget,” “forecast,” “expect,” “intend,” “target”, “will,” “estimate,” “predict,” “potential,” “continue,” “scheduled” or the negatives
of these terms or variations of them or similar terminology, but the absence of these words does not mean that statement is not forward-looking. Such forward-looking statements are subject to risks, uncertainties,
and other factors which could cause actual results to differ materially from those expressed or implied by such forward looking statements. In addition, any statements or information that refer to expectations,
beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. Actual results may differ materially
from those contained in any forward-looking statements.
These forward-looking statements are based on management’s current expectations and beliefs. These statements are neither promises nor guarantees, but involve known and unknown risks,
uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the
forward-looking statements, including, but not limited to: Iris Energy’s limited operating history with operating losses; electricity outage, limitation of electricity supply or increase in electricity costs, as
well as limitations on the availability of electricity supply for Bitcoin mining due to restrictions imposed by governmental authorities or otherwise; long term outage or limitation of the internet connection at
Iris Energy’s sites; any critical failure of key electrical or data center equipment; serial defects or underperformance with respect to Iris Energy’s equipment; failure of suppliers to perform under the relevant
supply contracts for equipment that has already been procured which may delay Iris Energy’s expansion plans; supply chain and logistics issues for Iris Energy or Iris Energy’s suppliers; cancellation or withdrawal
of required operating and other permits and licenses; customary risks in developing greenfield infrastructure projects; Iris Energy’s evolving business model and strategy; Iris Energy’s ability to successfully
manage its growth; Iris Energy’s ability to raise additional financing (whether because of the conditions of the markets, Iris Energy’s financial condition or otherwise) on a timely basis, or at all, which could
adversely impact our ability to meet our capital commitments (including payments due under any hardware purchase contracts or debt financing obligations) and our growth plans; the failure of Iris Energy’s
wholly-owned special purpose vehicles to make required payments of principal and/or interest under existing limited recourse equipment financing arrangements when due or otherwise comply with the terms thereof, as
a result of which the lender thereunder has declared the entire principal amount of each loan to be immediately due and payable and is taking steps to enforce the indebtedness and its rights in the Bitcoin miners
with respect to certain of such loans and other assets securing such loans, including appointing a receiver with respect to such special purpose vehicles, which is expected to result in the loss of the relevant
Bitcoin miners securing such loans and has materially reduced the Company’s operating capacity, and could also lead to bankruptcy or liquidation of the relevant special purpose vehicles, and materially and
adversely impact the Company’s business, operating expansion plans, financial condition, cash flows and results of operations; the terms of any additional financing or any refinancing, restructuring or modification
to the terms of any existing financing, which could be less favorable or require Iris Energy to comply with more onerous covenants or restrictions, any of which could restrict its business operations and adversely
impact its financial condition, cash flows and results of operations; competition; Bitcoin prices, global hashrate and the market value of Bitcoin miners, any of which could adversely impact the Company’s financial
condition, cash flows and results of operations, as well as its ability to raise additional financing and the ability of its wholly-owned special purpose vehicles to make required payments of principal and/or
interest on their equipment financing facilities; risks related to health pandemics including those of COVID-19; changes in regulation of digital assets; and other important factors discussed under “Item
3.D. Key Information—Risk Factors” and “Special Note Regarding Forward-Looking Statements” in our Annual Report and in “Risk Factors” in this Report and our Report on Form 6-K filed November 21, 2022
, as such factors may be updated from time to time in its other filings with the SEC, accessible on the SEC’s website at www.sec.gov and the Investor Relations section of Iris Energy’s
website at https://investors.irisenergy.co. These and other important factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this MD&A.
Any forward-looking statement that Iris Energy makes in this MD&A speaks only as of the date of such statement. Except as required by law, Iris Energy disclaims any obligation to update or revise, or to
publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a leading owner and operator of institutional-grade, highly efficient proprietary Bitcoin mining data centers powered by 100% renewable energy. Our mining operations generate
revenue by earning Bitcoin through a combination of block rewards and transaction fees from the operation of our specialized computers called ASICs (which we refer to as “Bitcoin miners”) and exchanging these Bitcoin
for fiat currencies, such as U.S. dollars or Canadian dollars, on a daily basis.
We have been mining Bitcoin since 2019. We liquidate all the Bitcoin we mine daily and therefore do not have any Bitcoin held on our balance sheet as of December 31, 2022. To date we
have utilized Kraken, a U.S.-based digital asset trading platform, to liquidate the Bitcoin we mine. The mining pools, that we utilize for the purposes of our Bitcoin mining, transfer the Bitcoin that we have mined
to Kraken on a daily basis. Such Bitcoin is then exchanged for fiat currency on the Kraken exchange or via its over-the-counter trading desk on a daily basis.
Our cash and cash equivalents were $40.7 million as of December 31, 2022, including approximately $1.3 million held by Non-Recourse SPV 2 and Non-Recourse SPV 3 (defined below) which is
not expected to be recoverable by the Company. Our total revenue was $30.0 million and $30.6 million for the six months ended December 31, 2022 and 2021, respectively. We generated a loss after income tax expense of
$161.9 million and $418.8 million for the six months ended December 31, 2022 and 2021, respectively.
We generated EBITDA of $(127.2) million and $10.1 million for the six months ended
December 31, 2022 and 2021, respectively. We generated Adjusted EBITDA of $(6.4) million and $20.3 million for the six months ended December 31, 2022 and 2021, respectively. EBITDA and Adjusted EBITDA are financial
measures not defined by IFRS. For a definition of EBITDA and Adjusted EBITDA, an explanation of our management’s use of these measures and a reconciliation of EBITDA and Adjusted EBITDA to loss after income tax
expense, see “Key Indicators of Performance and Financial Conditions.”
We are a vertically integrated business, and both own and operate our Bitcoin miners, as well as our infrastructure. We target development of Bitcoin mining
facilities in regions where there are low-cost, abundant and attractive renewable energy sources. We have ownership of our proprietary data centers and electrical infrastructure, including freehold and long-term
leasehold land. This provides us with security and operational control over our assets. Long-term asset ownership also allows our business to benefit from more sustainable cash flows in comparison with miners that
rely upon third-party hosting services or short-term land leases which may be subject to termination rights, profit sharing arrangements and/or potential changes to contractual terms such as pricing. We regularly
assess opportunities to utilize our available data center capacity, including via potential third-party hosting. We also focus on grid-connected power access which not only helps to ensure we are able to utilize a
reliable, long-term supply of power, but also provides us with the ability to support the energy markets in which we operate (for example, through potential participation in demand response, ancillary services
provision and load management in deregulated markets such as Texas).
In January 2020, we acquired our first site in Canal Flats, located in British Columbia, Canada (“BC”), from PodTech Innovation Inc. and certain of its related parties. This site was our
first operational site and has been operating since 2019, and, as of December 31, 2022, has approximately 30MW of power capacity and potential operating capacity of approximately 0.8 EH/s (assuming installation of
S19j Pro miners).
Our Mackenzie site has been operating since April 2022 and, as of December 31, 2022, has approximately 80MW of power capacity and potential operating capacity of approximately 2.5 EH/s
(assuming installation of S19j Pro miners). On December 6, 2022, the 30MW expansion of the Mackenzie site, from 50MW to 80MW, was energized ahead of schedule.
Our Prince George site has been operating since September 2022 and, as of December 31, 2022, has approximately 50MW of power capacity and potential operating capacity of 1.6 EH/s
(assuming installation of S19j Pro miners).
With the completion and energization of our Mackenzie and Prince George sites during the six months ended December 31, 2022, our three sites in BC support approximately 160MW of
aggregate power capacity and potential operating capacity of approximately 4.9 EH/s.
Each of our sites in BC are connected to the British Columbia Hydro and Power Authority (“BC Hydro”) electricity transmission network and have been 100% powered by renewable energy since
commencement of operations (currently approximately 97% sourced from clean or renewable sources as reported by BC Hydro and approximately 3% sourced from the purchase of RECs).
We are also engaged in construction activities at our site in Childress, located in the renewables-heavy Panhandle region of Texas, U.S. We expect energization of our 600MW site at
Childress in the coming months, including completion of the first 20MW of data center capacity.
Our Growth Strategy
Following completion of our recent acquisition of additional mining hardware as described under “—Recent Developments—Additional Mining Hardware Purchases,”
we expect that our existing available data center capacity across our sites will be substantially utilized. However, we have the ability to further grow our data center capacity at our existing site in Childress
(from the initial 20MW up to the total potential site capacity of 600MW) and potentially also at new sites in the future. Our business strategy remains focused on continuing to expand our self-mining capacity by
further growing our available data center capacity and acquiring additional miners.
Recent Developments
Market Events Impacting the Crypto Industry
Recent market events in the crypto industry have negatively impacted market sentiment towards the broader crypto industry. There has also been a decline in the value of cryptocurrencies
generally, including the value of Bitcoin, in connection with these events, which has impacted the Group from a financial and operational perspective. We expect that any further declines will further impact the
business and operations of the Group, and if such declines are significant, it could result in reduced revenue and operating cash flows and increased net operating losses, and could also negatively impact our ability
to raise additional financing. See “Item 3.D. Key Information—Risk Factors” in our Annual Report for further information around the risks related to decreases in the price of Bitcoin.
Market Events Impacting Digital Asset Trading Platforms
Recent market events in the crypto industry have involved and/or impacted certain digital asset trading platforms. As described under “—Overview”, the mining pools, that we utilize for
the purposes of our Bitcoin mining, transfer the Bitcoin we mine to Kraken, a digital asset trading platform, on a daily basis. Such Bitcoin is then exchanged for fiat currency on the Kraken exchange or via its
over-the-counter trading desk on a daily basis.
Because we exchange the Bitcoin we mine for fiat currency on a daily basis, we believe we have limited exposure to fluctuations in the value of Bitcoin with respect to the Bitcoin that
we mine once we have mined such Bitcoin. In addition, we withdraw fiat currency proceeds from Kraken on a daily basis utilizing Etana Custody, a third-party custodian, to facilitate the transfer of such proceeds to
one or more of our banks or other financial institutions. As a result, we have only limited amounts of Bitcoin and fiat currency with Kraken and Etana Custody at any time, and accordingly, we believe we have limited
exposure to potential risks related to excessive redemptions or withdrawals of digital assets or fiat currencies from, or suspension of redemptions or withdrawals of digital assets or fiat currencies from, Kraken,
Etana Custody or any other digital asset trading platform or custodian we may use in the future for purposes of liquidating the Bitcoin we mine on a daily basis. However, if Kraken, Etana Custody or any such other
digital asset trading platform or custodian suffers excessive redemptions or withdrawals of digital assets or fiat currencies, or suspends redemptions or withdrawals of digital assets or fiat currencies, as
applicable, any Bitcoin we have transferred to such platform that has not yet been exchanged for fiat currency, as well as any fiat currency that we have not yet withdrawn, as applicable, would be at risk.
In addition, if any event were to occur with respect to Kraken, Etana Custody, or any other such digital asset trading platform or custodian we utilize to liquidate the Bitcoin we mine,
we may be required to, or may otherwise determine it is appropriate to, switch to an alternative digital asset trading platform and/or custodian, as applicable. We do not currently use any other digital asset trading
platforms or custodians to liquidate the Bitcoin we mine. While we expect to continue to utilize Kraken and Etana Custody, there are numerous alternative digital asset trading platforms that operate exchanges and/or
over-the-counter trading desks with similar functionality to Kraken, and there are also several alternative funds transfer arrangements for facilitating the transfer of fiat currency proceeds from Kraken either with
or without the use of a third-party custodian. We believe we have the ability to switch to one or more alternative digital asset trading platforms and/or funds transfer arrangements to liquidate Bitcoin we mine and
transfer the fiat currency proceeds without material expense or delay. As a result, we do not believe our business is substantially dependent on the Kraken digital asset trading platform or Etana Custody third-party
custodian services.
However, digital asset trading platforms and third-party custodians, including Kraken and Etana Custody, are subject to a number of risks outside our control which could impact our
business. In particular, during any intervening period in which we are switching digital asset trading platforms and/or third-party custodians, we could be exposed to credit risk with respect to any Bitcoin or fiat
currency held by them. In addition, we could be exposed to fluctuations in the value of Bitcoin with respect to the Bitcoin that we mine during such period or that was previously mined but has not yet been exchanged
for fiat currency. See “—Digital asset trading platforms for Bitcoin may be subject to varying levels of regulation, which exposes our digital asset holdings to risks” and “—We may temporarily store our Bitcoin on
digital asset trading platforms which could subject our Bitcoin to the risk of loss or access” under “Item 3.D. Key Information—Risk Factors” in our Annual Report for further information.
Termination of Intra-Group Hosting Arrangements
In connection with receipt of certain notices of default received by the Non-Recourse SPVs (defined below) in November 2022 described herein under “—Liquidity and Capital
Resources—Agreements for Miner Equipment Financing”, certain other of the Group's subsidiaries have terminated their respective hosting arrangements with Non-Recourse SPV 2 and Non-Recourse SPV 3. As a result of the
termination of such hosting arrangements, none of the approximately 3.6 EH/s of miners owned by such special purpose vehicles are operating. Excluding such miners, the remaining operating capacity at each of Canal
Flats, Mackenzie and Prince George, as of December 31, 2022, is approximately 0.5 EH/s, 0.3 EH/s, and 0.4 EH/s, respectively. This in turn (i) resulted in a material reduction in our operating capacity, (ii)
increased our electricity costs per Bitcoin mined as a result of higher demand charges (i.e., fixed charges) per Bitcoin mined and (iii) adversely impacted our operating metrics. In particular, with a lower operating
capacity, increased electricity costs per Bitcoin mined and a decline in the price of Bitcoin over recent months, we have experienced, and expect to continue to experience, a reduction in the Group's revenue and
operating cash flows, resulting in net operating losses. We expect to utilize our available data center capacity with additional miners that we have agreed to purchase from Bitmain as described under “—Hardware
Purchase Contract and Additional Hardware Purchases.” However, we expect such impacts to continue until such time, if at all, as we are able to re-utilize our available data center capacity and increase our operating
capacity. See “—Risk Factors” and “Risk Factors” in our Report on Form 6-K filed on November 21, 2022 for more information.
Hardware Purchase Contract and Additional Hardware Purchases
We have an existing $400 million hardware purchase contract with Bitmain Technologies Limited (“Bitmain”) for approximately 10 EH/s of miners (excluding any
discount arrangements under the agreement, which may include potential additional miners), originally scheduled to be shipped in batches between October 2022 and September 2023. As of December 31, 2022, we had 7.5
EH/s of additional contracted miners outstanding under the Bitmain contract, and $75.0 million of prepayments pursuant to the contract that had not been utilized (the retranslated carrying amount, less impairment of
such prepayments on our balance sheet as of December 31, 2022 was $59.0 million). See “Contractual Obligations—Hardware Purchase Contract Commitments” for more information on the Bitmain contract.
In January 2023, we utilized $8.3 million of our outstanding prepayments under the Bitmain contract to concurrently purchase from Bitmain and on-sell 0.8 EH/s of this 7.5 EH/s of
additional miners (the retranslated carrying amount, less impairment of the prepayment utilized in such transaction as at December 31, 2022 was $6.2 million). This transaction generated net proceeds to the Group of
approximately $6.2 million (after utilizing a portion of such proceeds to pay the remaining purchase price of such miners).
In addition, on February 8, 2023, we entered into an agreement to purchase the remaining 6.7 EH/s of contracted new S19j Pro miners under the Bitmain
contract. The purchase will be funded by utilizing our remaining prepayments under the Bitmain contract of $66.7 million (the retranslated carrying amount, less impairment of such prepayments on our balance sheet as
of December 31, 2022 was $52.8 million), including a concurrent sale of 2.3 EH/s of the remaining 6.7 EH/s contracted miners to a third party pursuant to the same agreement with Bitmain. As a result, we will acquire
an aggregate of 4.4 EH/s of new S19j Pro miners pursuant to these transactions without any additional cash outlay. Our 180MW of data center capacity across British Columbia and Texas is expected to power 5.5 EH/s of
high efficiency S19j Pro miners (29.5 J/TH) over the coming months. We are considering options for the sale of surplus miners (above 5.5 EH/s of self-mining capacity) to re-invest in growth initiatives and/or
corporate purposes.
Following the consummation of this transaction, both we and Bitmain will have fully performed all of our respective purchase and sale obligations under the contract, and we will have no
remaining purchase or payment commitments under the contract.
Factors Affecting Our Performance
Market Value of Bitcoin
We derive our revenues from Bitcoin mining. We earn rewards from Bitcoin mining that are paid in Bitcoin. We currently liquidate rewards that we earn from mining Bitcoin in exchange for
fiat currencies such as USD or CAD on a daily basis. Because the rewards we earn from mining Bitcoin are paid in Bitcoin, our operating and financial results are tied to fluctuations in the value of Bitcoin. In
addition, positive or negative changes in the global hashrate impact mining difficulty and therefore the rewards we earn from mining Bitcoin and may as a result materially affect our revenue and margins.
In a declining Bitcoin price environment, the Bitcoin mining protocol may provide a natural downside protection for low-cost Bitcoin miners through an adjustment to the number of Bitcoin
mined. For example, when the Bitcoin price falls, the ability for higher cost miners to pay their operating costs may be impacted, which in turn may lead over time to higher cost miners switching off their operations
(for example, if their marginal cost of power makes it unprofitable to continue mining, they may exit the network). As a result, the global hashrate may fall, and remaining low-cost miners may benefit from an
increased percentage share of the fixed Bitcoin network rewards.
Conversely, in a rising Bitcoin price environment, additional mining machines may be deployed by miners, leading to increased global hashrate in the overall network. In periods of rising
Bitcoin prices, we may increase our capital expenditures in mining machines and related infrastructure to take advantage of potentially faster return on investments, subject to availability of capital and market
conditions.
While the supply of Bitcoin is capped at 21 million, the price of Bitcoin fluctuates not just because of traditional notions of supply and demand but also because of the dynamic nature
of the market for Bitcoin. Having been created in just a little over a decade as of the date of hereof, the market for Bitcoin is rapidly changing and subject to global regulatory, tax, political, environmental,
cybersecurity, and market factors beyond our control. For a discussion of other factors that could lead to material adverse changes in the market value of Bitcoin, which could in turn result in substantial damage to
or even the failure of our business, see “Item 3.D. Key Information—Risk Factors—Risks Related to our Bitcoin Mining Business” in our Annual Report. Recent market events in the crypto industry have negatively
impacted sentiment towards the broader crypto industry. There has also been a decline in the value of cryptocurrencies generally, including the value of Bitcoin, in connection with these events, which has impacted
the Group from a financial and operational perspective. For example, the price of Bitcoin, as reported by Blockchain.com, declined from approximately $65,000 per Bitcoin in November 2021, to approximately $16,000 per
Bitcoin in November 2022. We expect that any further declines will further impact the business and operations of the Group, and if such declines are significant, it could result in reduced revenue and operating cash
flows and increased net operating losses, and could also negatively impact our ability to raise additional financing. See “—Recent Developments” and “—Risk Factors” as well as “Item 3.D. Key Information—Risk Factors”
in our Annual Report for further information.
Further, the rewards for each Bitcoin mined is subject to “halving” adjustments at predetermined intervals. At the outset, the reward for mining each block was set at 50 Bitcoin and this
was cut in half to 25 Bitcoin on November 28, 2012 at block 210,000, cut in half again to 12.5 Bitcoin on July 9, 2016 at block 420,000, and cut in half yet again to 6.25 Bitcoin on May 11, 2020 at block 630,000. The
next three halving events for Bitcoin are expected to take place in 2024 at block 840,000 (when the reward will reduce to 3.125 Bitcoin), in 2028 at block 1,050,000 (when the reward will reduce to 1.5625 Bitcoin),
and in 2032 at block 1,260,000 (when the reward will reduce to 0.78125 Bitcoin). As the rewards for each Bitcoin mined reduce, the Bitcoin we earn relative to our operating capacity decrease. As a result, these
adjustments have had, and will continue to have, material effects on our operating and financial results.
Efficiency of Mining Machines
As global mining capacity increases, we will need to correspondingly increase our total operating capacity relative to the overall network—all else being equal—to maintain the same
amount of Bitcoin mining revenue.
While we remain focused on expanding our total operating capacity as and when prudent having regard to market conditions and other factors, we are presently also committed to mining more
sustainably and efficiently with an eye towards return on investments. Our Bitcoin mining operations primarily utilize new miners produced by Bitmain, including Antminer S19j Pro, which we believe are among the most
efficient mining machines available.
In certain periods, there may be disruption in global supply chain leading to shortage of advanced mining machines that meet our standard of quality. To maintain our competitive edge
over the long term, we strive to maintain strong relationships with suppliers and vendors across the supply chain to ensure that our fleet of miners is competitive.
Ability to Secure Low-Cost Renewable Power
Bitcoin mining consumes extensive energy for both the mining and cooling aspects of the operation. In particular, we believe the increasing difficulty of the network, driven by more
miners and higher hashrates as well as the periodic halving adjustments of Bitcoin reward rates, will drive the increasing importance of power efficiency in Bitcoin mining over the long term.
The price we pay for electricity depends on numerous factors including sources of generation, regulatory environment, electricity market structure, commodity prices, instantaneous
supply/demand balances, counterparty and procurement method. These factors may be subject to change over time and result in increased power costs. In regulated markets, such as in BC, suppliers of renewable power
rely on regulators to approve raises in rates, resulting in fluctuations subject to requests for rate increases and their approval thereof; in deregulated markets, such as in Texas, prices of renewable power will
fluctuate with the wholesale market (including price fluctuations in commodity prices such as the price of fossil fuels).
Furthermore, there has been increasing scrutiny on electricity usage by Bitcoin mining operators by Government regulators. For example, in December 2022, the Government of British
Columbia announced a temporary 18-month suspension on new and early stage BC Hydro connection requests from cryptocurrency mining projects due to unprecedented interest. While this suspension has not impacted our
existing operations, future decisions by Government regulators may reduce the availability and/or increase the cost of electricity in the geographic locations in which our operating facilities are located, or could
otherwise adversely impact our business. See “Item 3.D. Key Information—Risk Factors” in our Annual Report for further information.
Competitive Environment
We compete with a variety of miners globally, including individual hobbyists, mining pools and public and private companies. We believe that, even as Bitcoin price decreases, the market
will continue to draw new miners and increase the scale and sophistication of competition in the Bitcoin mining industry. Increasing competition generally results in increase to the global hashrate, which in turn
would generally lead to a reduction in the percentage share of the fixed Bitcoin network rewards that Bitcoin miners, including Iris Energy, would earn.
Key Indicators of Performance and Financial Condition
Key operating and financial metrics that we use, in addition to our IFRS consolidated financial statements, to assess the performance of our business are set forth below for the six
months ended December 31, 2022 and 2021, include:
EBITDA
EBITDA excludes interest income, income tax expense, depreciation and amortization, other finance expenses, and non-cash fair value gains and losses on hybrid financial instruments,
which are important components of our IFRS profit/(loss) after income tax expense. As a capital-intensive business, EBITDA excludes the impact of the cost of depreciation of mining equipment and other fixed assets
and we believe provides a useful tool for comparison to our competitors in a similar industry. We believe EBITDA is a useful metric for assessing operating performance before the impact of certain non-cash and
other items described above. Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by these items.
We believe EBITDA and EBITDA Margin have limitations as analytical tools. These measures should not be considered as alternatives to profit/(loss) after income tax expense, as
applicable, determined in accordance with IFRS. They are supplemental measures of our operating performance only, and as a result you should not consider these measures in isolation from, or as a substitute analysis
for, our profit/(loss) after income tax as determined in accordance with IFRS, which we consider to be the most comparable IFRS financial measure. For example, we expect depreciation of our fixed assets will be a
large recurring expense over the course of the useful life of our assets. EBITDA and EBITDA Margin do not have any standardized meaning prescribed by IFRS and therefore are not necessarily comparable to similarly
titled measures used by other companies, limiting their usefulness as a comparative tool.
The following table shows a reconciliation of EBITDA to profit/(loss) after income tax expense:
|
|
Three Months
Ended
December 31,
2022
|
|
|
Three Months
Ended
December 31,
2021
|
|
|
Six Months Ended
December 31, 2022
|
|
|
Six Months Ended
December 31, 2021
|
|
|
|
($ thousands)
|
|
Profit/(loss) after income tax expense
|
|
|
(143,954
|
)
|
|
|
70,323
|
|
|
|
(161,894
|
)
|
|
|
(418,767
|
)
|
Add/(deduct) the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other finance expense/(benefit)
|
|
|
10,350
|
|
|
|
(70,700
|
)
|
|
|
13,915
|
|
|
|
420,674
|
|
Interest income
|
|
|
(257
|
)
|
|
|
-
|
|
|
|
(214
|
)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
11,544
|
|
|
|
1,261
|
|
|
|
18,996
|
|
|
|
1,976
|
|
Income tax (benefit)/expense
|
|
|
(411
|
)
|
|
|
3,151
|
|
|
|
2,030
|
|
|
|
6,226
|
|
EBITDA
|
|
|
(122,728
|
)
|
|
|
4,035
|
|
|
|
(127,167
|
)
|
|
|
10,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bitcoin Mining Revenue
|
|
|
13,755
|
|
|
|
20,147
|
|
|
|
29,967
|
|
|
|
30,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) after income tax expense margin(1)
|
|
|
(1,047%
|
)
|
|
|
349%
|
|
|
|
(540%
|
)
|
|
|
(1,369%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin(2)
|
|
|
(892%
|
)
|
|
|
20%
|
|
|
|
(424%
|
)
|
|
|
33%
|
|
(1) |
Profit/(loss) after income tax expense margin is calculated as Profit/(loss) after income tax expense divided by Bitcoin Mining Revenue.
|
(2)
|
EBITDA margin is calculated as EBITDA divided by Bitcoin Mining Revenue.
|
Adjusted EBITDA
Adjusted EBITDA is EBITDA as further adjusted to exclude impairment of assets, loss allowance for other receivables, share-based payments expense, foreign exchange gains/losses, and
certain one-off, non-recurring expenses. We believe Adjusted EBITDA is a useful metric because it allows us to monitor the profitability of our business on a current basis and removes expenses which do not impact our
ongoing profitability and which can vary significantly in comparison to other companies. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these
items.
We believe Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools. These measures should not be considered as alternatives to profit/(loss) after income tax
expense, as applicable, determined in accordance with IFRS. They are supplemental measures of our operating performance only, and as a result you should not consider these measures in isolation from, or as a
substitute analysis for, our profit/(loss) after income tax as determined in accordance with IFRS, which we consider to be the most comparable IFRS financial measure. For example, we expect depreciation of our fixed
assets will be a large recurring expense over the course of the useful life of our assets, and that share-based compensation is an important part of compensating certain employees, officers and directors. Adjusted
EBITDA and Adjusted EBITDA Margin do not have any standardized meaning prescribed by IFRS and therefore are not necessarily comparable to similarly titled measures used by other companies, limiting their usefulness
as a comparative tool.
The following table shows a reconciliation of Adjusted EBITDA to profit/(loss) after income tax expense:
|
|
Three Months
Ended
December 31,
2022
|
|
|
Three Months
Ended December
31, 2021
|
|
|
Six Months Ended
December 31,
2022
|
|
|
Six Months Ended
December 31,
2021
|
|
|
|
($ thousands)
|
|
Profit/(loss) after income tax expense
|
|
|
(143,954
|
)
|
|
|
70,323
|
|
|
|
(161,894
|
)
|
|
|
(418,767
|
)
|
Add/(deduct) the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other finance expense/(benefit)
|
|
|
10,350
|
|
|
|
(70,700
|
)
|
|
|
13,915
|
|
|
|
420,674
|
|
Interest income
|
|
|
(257
|
)
|
|
|
-
|
|
|
|
(214
|
)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
11,544
|
|
|
|
1,261
|
|
|
|
18,996
|
|
|
|
1,976
|
|
Income tax (benefit)/expense
|
|
|
(411
|
)
|
|
|
3,151
|
|
|
|
2,030
|
|
|
|
6,226
|
|
EBITDA
|
|
|
(122,728
|
)
|
|
|
4,035
|
|
|
|
(127,167
|
)
|
|
|
10,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bitcoin Mining Revenue
|
|
|
13,755
|
|
|
|
20,147
|
|
|
|
29,967
|
|
|
|
30,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) after income tax expense margin(1)
|
|
|
(1,047%
|
)
|
|
|
349%
|
|
|
|
(540%
|
)
|
|
|
(1,369%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin(2)
|
|
|
(892%
|
)
|
|
|
20%
|
|
|
|
(424%
|
)
|
|
|
33%
|
|
Add/(deduct) the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets(3)
|
|
|
89,963
|
|
|
|
-
|
|
|
|
89,963
|
|
|
|
-
|
|
Loss allowance for other receivables(4)
|
|
|
15,209
|
|
|
|
-
|
|
|
|
15,209
|
|
|
|
-
|
|
Non-cash share based payment expense – founders(5)
|
|
|
3,168
|
|
|
|
4,512
|
|
|
|
6,176
|
|
|
|
5,146
|
|
Non-cash share-based payment expense – other(6)
|
|
|
(16
|
)
|
|
|
415
|
|
|
|
594
|
|
|
|
1,631
|
|
Foreign exchange (gain)/loss
|
|
|
6,225
|
|
|
|
2,786
|
|
|
|
7,176
|
|
|
|
88
|
|
Other expense items(7)
|
|
|
144
|
|
|
|
2,714
|
|
|
|
1,689
|
|
|
|
3,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
(8,035
|
)
|
|
|
14,462
|
|
|
|
(6,360
|
)
|
|
|
20,348
|
|
Adjusted EBITDA margin(8)
|
|
|
(58%
|
)
|
|
|
72%
|
|
|
|
(21%
|
)
|
|
|
67%
|
|
(1) |
Profit/(loss) after income tax expense margin is calculated as Profit/(loss) after income tax expense divided by Bitcoin Mining Revenue.
|
(2) |
EBITDA margin is calculated as EBITDA divided by Bitcoin Mining Revenue.
|
(3) |
Impairment of assets includes impairment of mining hardware, development assets, goodwill and other assets. For the three and six months ended December 31, 2022, impairment of assets includes $71.7 million
attributable to impairment of mining hardware and $4.0 million attributable to impairment of mining hardware prepayments, in each case attributable to Non-Recourse SPV 2 and Non-Recourse SPV 3 (as defined
below).
|
(4) |
Loss allowance for other receivables relates to loss on indirect tax receivables held by Non-Recourse SPV 2 and Non-Recourse SPV 3 which are not expected to be recoverable by the Company. For the three and
six months ended December 31, 2022, loss allowance for other receivables assets reflects $15.2 million attributable to indirect tax receivables held by Non-Recourse SPV 2 and Non-Recourse SPV 3 (defined
below).
|
(5) |
Non-cash share-based payments expense - founders includes expenses recorded on founder options, including: (1) founder price target options (Executive Director Liquidity and Price Target Options) that
vested on IPO during the quarter ended December 31, 2021. No further expense will be recorded in relation to these price target options; (2) founder long-term options (Executive Director Long-Term Target
Options) which were granted in September 2021 in connection with the IPO. These long-term options are currently “out of the money” with an exercise price of $75 and initial share price vesting conditions of
$370, $650, $925 and $1,850 for each tranche granted; and (3) restricted share units issued to the founders in July 2022. See note 18 of the unaudited interim consolidated financial statements for further
information.
|
(6) |
Non-cash share-based payments expense - other includes expense recorded in relation to incentives issued under Employee Share Plans, Employee Option Plan, Non-Executive Director Option Plan and Restricted
Share Unit Long-Term Incentive Plan.
|
(7) |
Other expense items include expense items in relation to one-off salary adjustments and other one-off costs.
|
(8)
|
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Bitcoin Mining Revenue.
|
Components of our Results of Operations
Revenue
Bitcoin mining revenue
Our revenues primarily consist of Bitcoin that we mine and liquidate daily. We have entered into arrangements with mining pools, whereby computing power is directed to the mining pools
in exchange for non-cash consideration in the form of Bitcoin. The provision of computing power is the only performance obligation in the contract with the mining pool operators. In the mining pools, which we
participated in during the periods presented, we are not directly exposed to the pool’s success in mining blocks. We are rewarded in Bitcoin for the hashrate we contribute to these mining pools. The reward for the
hashrate contributed is based on the current network difficulty and global daily revenues from transaction fees, less pool fees.
Bitcoin mining revenue comprises of the block reward and transaction fees bundled together in a gross daily deposit of Bitcoin into our exchange wallet. Bitcoin received from the mining
pool operator are remitted to the pool participants’ wallets net of the fees of the mining pool operator. The mining pool operator fees are reflected in the quantity of Bitcoin received by us and recorded as a
reduction in Bitcoin mining revenue.
Gain/(loss) on sale of assets
Gain/(loss) on sale of assets includes net gains or losses on disposal of mining hardware and other assets.
Expenses
Our expenses are characterized by the nature of the expense, with the main expense categories set out below.
Depreciation and amortization
We capitalize the cost of our buildings, plant and equipment and mining hardware. Depreciation expense is recorded on a straight-line basis to nil over the estimated useful life of the
underlying assets. Our buildings are currently depreciated over 20 years, mining hardware is depreciated over 4 years and plant and equipment is depreciated over 3-7 years depending on the expected life of the
underlying asset.
Electricity charges
Electricity charges primarily consists of the cost of electricity provided by BC Hydro to power our data center sites in BC. The price of electricity in BC is subject to a regulated
tariff that may be adjusted from time to time, resulting in increases or decreases in the cost of electricity we purchase.
Employee benefits expense
Employee benefits expense represents salary and other employee costs, including superannuation and other similar payments and associated employee taxes.
Share-based payments expense
Share-based payments expense represents the amortization of share-based compensation arrangements that have been granted to directors, executive offers and management. These arrangements
include, loan-funded share arrangements granted to management, options and restricted share units issued to directors, executive officers and management.
Impairment of assets
Impairment of assets represents impairment expense recorded on mining hardware, mining hardware prepayments, goodwill, development assets and other assets.
Loss allowance for other receivables
Loss allowance for other receivables represents expense recorded on sales tax receivable balances not expected to be recoverable by the Company.
Professional fees
Professional fees represent legal fees, audit fees, broker fees and fees paid to tax, regulatory and other advisers.
Other expenses
Other expenses represent office rent, insurance, travel, repairs and maintenance and general business expenses required to operate the business.
Finance expense
Finance expense consists primarily of interest expense on mining hardware financing arrangements, interest expense on hybrid financial instruments, fair value loss on embedded
derivatives and amortization of capitalized borrowing costs. The interest expense recorded on hybrid financial instruments relates to the two convertible notes issued in 2021. The fair value loss on embedded
derivatives relates to embedded derivatives recognized on issuance of our SAFE and two tranches of convertible note instruments during the year ended June 30, 2021, and one tranche of convertible note instruments
during the year ended June 30, 2022. Each of the SAFE and convertible notes and embedded derivatives converted to Ordinary shares at the same time as the existing convertible instruments on November 16, 2021 ahead of
the Company’s initial public offering.
Interest income
Interest income includes interest generated on short-term loan to a third party and deposits with regulated financial institutions.
Foreign exchange gain/(loss)
Foreign exchange gain/(loss) includes realized and unrealized foreign exchange movements on monetary assets and liabilities denominated in foreign currencies.
Income tax expense
We are liable to pay tax in a number of jurisdictions, including Australia, Canada and the United States. We expect to incur tax liabilities in Australia, Canada and the United States in
the future, once our mining sites are fully operational, and, to the extent that we do not have sufficient prior year tax losses to offset future taxable income in these jurisdictions.
Results of Operations
The following table summarizes our results of operations, disclosed in the unaudited interim consolidated statement of profit or loss and other comprehensive income/(loss) for the three
and six months ended December 31, 2022 and 2021.
|
|
Three Months
Ended
December 31, 2022
|
|
|
Three Months
Ended
December 31, 2021
|
|
|
Six Months
Ended
December 31, 2022
|
|
|
Six Months
Ended
December 31, 2021
|
|
|
|
($ thousands)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Bitcoin mining revenue
|
|
|
13,755
|
|
|
|
20,147
|
|
|
|
29,967
|
|
|
|
30,579
|
|
Gain/(loss) on sale of assets
|
|
|
(5,137
|
)
|
|
|
-
|
|
|
|
(5,137
|
)
|
|
|
-
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(11,544
|
)
|
|
|
(1,261
|
)
|
|
|
(18,996
|
)
|
|
|
(1,976
|
)
|
Electricity charges
|
|
|
(7,362
|
)
|
|
|
(2,635
|
)
|
|
|
(13,937
|
)
|
|
|
(4,231
|
)
|
Employee benefits expense
|
|
|
(4,064
|
)
|
|
|
(1,310
|
)
|
|
|
(8,662
|
)
|
|
|
(2,482
|
)
|
Share-based payments expense
|
|
|
(3,152
|
)
|
|
|
(4,927
|
)
|
|
|
(6,770
|
)
|
|
|
(6,777
|
)
|
Impairment of assets
|
|
|
(89,963
|
)
|
|
|
-
|
|
|
|
(89,963
|
)
|
|
|
(352
|
)
|
Loss allowance for other receivables
|
|
|
(15,209
|
)
|
|
|
-
|
|
|
|
(15,209
|
)
|
|
|
-
|
|
Professional fees
|
|
|
(1,747
|
)
|
|
|
(2,541
|
)
|
|
|
(3,040
|
)
|
|
|
(3,573
|
)
|
Other expenses
|
|
|
(3,624
|
)
|
|
|
(1,913
|
)
|
|
|
(7,240
|
)
|
|
|
(2,967
|
)
|
Operating profit/(loss)
|
|
|
(128,047
|
)
|
|
|
5,560
|
|
|
|
(138,987
|
)
|
|
|
8,221
|
|
Finance benefit/(expense)
|
|
|
(10,350
|
)
|
|
|
70,700
|
|
|
|
(13,915
|
)
|
|
|
(420,674
|
)
|
Interest income
|
|
|
257
|
|
|
|
-
|
|
|
|
214
|
|
|
|
-
|
|
Foreign exchange gain/(loss)
|
|
|
(6,225
|
)
|
|
|
(2,786
|
)
|
|
|
(7,176
|
)
|
|
|
(88
|
)
|
Loss before income tax benefit/(expense)
|
|
|
(144,365
|
)
|
|
|
73,474
|
|
|
|
(159,864
|
)
|
|
|
(412,541
|
)
|
Income tax benefit/(expense)
|
|
|
411
|
|
|
|
(3,151
|
)
|
|
|
(2,030
|
)
|
|
|
(6,226
|
)
|
Loss after income tax benefit/(expense)
|
|
|
(143,954
|
)
|
|
|
70,323
|
|
|
|
(161,894
|
)
|
|
|
(418,767
|
)
|
Other comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
14,112
|
|
|
|
(9,926
|
)
|
|
|
(12,115
|
)
|
|
|
(7,231
|
)
|
Other comprehensive income/(loss), net of tax
|
|
|
14,112
|
|
|
|
(9,926
|
)
|
|
|
(12,115
|
)
|
|
|
(7,231
|
)
|
Total comprehensive income/(loss)
|
|
|
(129,842
|
)
|
|
|
60,397
|
|
|
|
(174,009
|
)
|
|
|
(425,998
|
)
|
Comparison of the six months ended December 31, 2022 and 2021
Revenue
Bitcoin mining revenue
Our Bitcoin mining revenue for the six months ended December 31, 2022 and 2021, were $30.0 million and $30.6 million, respectively. This revenue was generated from
the mining and sale of 1,503 and 606 Bitcoin during the six months ended December 31, 2022 and 2021, respectively. The $0.6 million decrease in revenue was attributable to a decrease in the average Bitcoin price
and increase in the difficulty-implied global hashrate during the six months ended December 31, 2022 as compared to the six months ended December 31, 2021, which was partially offset by the increase in operating
capacity during the same period. Average operating hashrate increased to 2.1 EH/s for the six months ended December 31, 2022 from 0.5 EH/s for the six months ended December 31, 2021, with an additional 80MW
energized at the Group’s site at Mackenzie and 50MW energized at the Group’s site at Prince George during the six months ended December 31, 2022. In November 2022, we switched off certain of our miners in
connection with the termination of our hosting arrangements with Non-Resource SPV 2 and Non-Recourse SPV 3 (defined below), reducing our operating capacity by approximately 2.9 EH/s and thereby reducing Bitcoin
mining revenue for the remainder of the six months ended December 31, 2022.
Gain/(loss) on disposal of assets
Gain/(loss) on disposal of assets during the six months ended December 31, 2022 comprised of a net loss of $5.1 million on disposal of mining hardware and other
assets. No such sales occurred during the six months ended December 31, 2021.
Depreciation expense for the six months ended December 31, 2022 and 2021 was $19.0 million and $2.0 million, respectively. This increase was primarily due to the
increase in operational assets, including Bitcoin mining hardware and data center equipment, at the Group’s sites during the six months ended December 31, 2022 to $228.1 million from $37.9 million from the six
months ended December 31, 2021.
Electricity charges for the six months ended December 31, 2022 and 2021 were $13.9 million and $4.2 million, respectively. This increase was primarily due
to the increase in average operating hashrate to 2.1 EH/s for the six months ended December 31, 2022 from 0.5 EH/s for the six months ended December 31, 2021 with an
additional 80MW energized at the Group’s site at Mackenzie and 50MW energized at the Group’s site at Prince George during the six months ended December 31, 2022, partially offset by a decrease in activity of
miners as a result of switching off approximately 2.9 EH/s miners in November 2022.
Employee benefits expenses
Employee benefits expenses for the six months ended December 31, 2022 and 2021 were $8.7 million and $2.5 million, respectively. Both periods include employee benefits
expenses consisting primarily of wages and salaries paid to employees and contractors, and associated taxes. The period-on-period increase reflects a rise in the employee and contractor headcount, related to the
expansion of business operations and accrued short-term incentive provisions. The six months ended December 31, 2022 also includes one-off payments to each of Daniel Roberts and William Roberts to increase their
salaries, approved by the Company’s board of directors in July 2022 and effective from the date of our initial public offering, and in addition, a one-off payment of $0.5 million made in July 2022 to each of them
to compensate for a period of significantly reduced cash compensation up to April 2021.
Share-based payments expense
Share-based payments expense for the six months ended December 31, 2022 and 2021 were both $6.8 million. Share-based payments include expenses recorded in relation to incentives issued
under our employee share plan, employee option plan, non-executive director option plan, Founder long-term options and restricted share unit long-term incentive plan. The total share based payments expense
recognized for the six months ended December 31, 2022 on Founder options was $6.2 million.
Impairment of assets
Impairment of assets for the six months ended December 31, 2022 and 2021 were $90.0 million and $0.4 million, respectively. The increase was due primarily to incurrence
of new impairment charges for the six months ended December 31, 2022 including $71.7 million impairment of mining hardware, $15.3 million of mining hardware prepayments, $0.7 million of development assets, $0.6
million goodwill and $1.7 million of other assets. As of December 31, 2022, management determined that the Group’s carrying value was not supported by its recoverable amount. The impairment of mining hardware was
determined using the market approach, based on observable market prices for similar assets. $4.0 million of impairment of mining hardware prepayments related to prepayments held by the Group’s Non-Recourse SPV 2
and Non-Recourse SPV 3 (defined below), which are not expected to be recoverable by the Company.
During the six months ended December 31, 2021, we recorded an impairment of $0.4 million on right-of-use assets held in relation to prepaid hosting fees as we focused
on executing our strategy to build, own and operate data centers.
Loss allowance for other receivables
Loss allowance for other receivables for the six months ended December 31, 2022 and 2021 was $15.2 million and nil, respectively. This increase is related to indirect
tax receivables held by the Group’s Non-Recourse SPV 2 and Non-Recourse SPV 3 (defined below) during the six months ended December 31, 2022 and which are not expected to be recoverable by the Company due to the
default by such Non-Recourse SPVs under their hardware financing facilities and subsequent appointment of receivers (see note 7 to our unaudited interim consolidated financial statements included in this Form 6-K).
Professional fees
Professional fees for the six months ended December 31, 2022 and 2021 were $3.0 million and $3.6 million, respectively. The decrease was primarily due to professional fees incurred during
the six months ended December 31, 2021 related to the one off initial public offering that closed during such period and as such did not recur during the six months ended December 31, 2022. Under accounting
standards only a percentage of these costs are capitalized based on the percentage of new shares issued as part of the offering.
Other expenses
Other expenses for the six months ended December 31, 2022 and 2021 were $7.2 million and $3.0 million, respectively. Other expenses include expenses related to office
rent, insurance, marketing, travel, site expenses (which includes repairs and maintenance), donations, general business expenses required to operate the business and a provision for GST on services exported to the
Australian parent by the Canadian subsidiaries (see note 3 to our unaudited interim consolidated financial statements included in this Form 6-K). The increase primarily related to the expansion of the business
operations and ongoing costs as a publicly listed company, and includes an increase of $2.3 million in insurance costs, $1.0 million GST provision, and $0.8 million in site expenses.
Finance expense for the six months ended December 31, 2022 and 2021 were $13.9 million and $420.7 million, respectively. The decrease was primarily
related to the one-off expenses related to effective interest expense and fair value movements on convertible notes and SAFE notes issued prior to our initial public offering and the conversion of such
instruments in connection with our initial public offering. Finance expense for the six months ended December 31, 2022 included interest expense on borrowings including
late fees and interest charged on third-party loans held by the Non-Recourse SPVs (defined below). During the fiscal year ended June 30, 2021, we issued SAFE notes and two tranches of convertible notes. During
the fiscal year ended June 30, 2022, the Group issued one tranche of convertible notes. Embedded derivatives were identified and recognized at fair value upon initial recognition of each of these instruments.
During the six months ended December 31, 2021, on November 16, 2021 and immediately prior to our initial public offering, the Group converted all outstanding convertible notes and SAFE instruments to equity in
line with the associated terms attached to each instrument. The interest expense on these instruments, along with the fair value loss on conversion, generated finance expenses of $417.5 million during the six
months ended December 31, 2021.
Interest income for the six months ended December 31, 2022 and 2021 was $0.2 million and nil, respectively. The increase was primarily driven by an increase in interest
rates on cash deposits.
Foreign exchange loss for the six months ended December 31, 2022 and 2021 was a $7.2 million and $0.1 million, respectively. The increase was primarily related to
foreign exchange movements in the translation of assets and liabilities held in currencies other than the functional currency of the company holding the asset or liability. We use the U.S. dollar as our
presentation currency; however, the companies in the Group use the Australian dollar, Canadian dollar, or the U.S. dollar as their functional currencies.
Income tax expense for the six months ended December 31, 2022 and 2021 was an expense of $2.0 million and $6.2 million, respectively. The decrease was primarily related
to utilization of previously unrecognized tax losses.
Loss after income tax expense for the period
The loss after income tax expense for the six months ended December 31, 2022 and 2021 was $161.9 million and $418.8 million, respectively. The decrease is primarily
attributable to the reduction in finance expense, offset by the increased impairment, loss allowance for other receivables, depreciation, electricity and employee benefits expense as described above.
Comparison of the three months ended December 31, 2022 and 2021
Revenue
Bitcoin mining revenue
Our Bitcoin mining revenue for the three months ended December 31, 2022 and 2021, were $13.8 million and $20.1 million, respectively. This revenue was generated
from the mining and sale of 723 and 365 Bitcoin during the three months ended December 31, 2022 and 2021, respectively. This $6.3 million decrease was attributable to a decrease in the average Bitcoin price during
the three months ended December 31, 2022 as compared to the three months ended December 31, 2021, which was partially offset by the increase in operating capacity during the same period.
Average
operating hashrate increased to 2.2 EH/s for the three months ended December 31, 2022 from 0.7 EH/s for the three months ended December 31, 2021, with an additional 80MW energized at the Group’s site at Mackenzie
and 50MW energized at the Group’s site at Prince George as at December 31, 2022. In November 2022, we switched off certain of our miners in connection with the termination of our hosting arrangements with
Non-Resource SPV 2 and Non-Recourse SPV 3 (defined below), reducing our operating capacity by approximately 2.9 EH/s and thereby reducing Bitcoin mining revenue for the remainder of the three months ended December
31, 2022.
Gain/(loss) on disposal of assets
Gain/(loss) on disposal of assets for the three months ended December 31, 2022 of $5.1 million was comprised of a net loss on disposal of mining hardware and other
assets. No such sales occurred during the three months ended December 31, 2021.
Depreciation expense for the three months ended December 31, 2022 and 2021, was $11.5 million and $1.3 million, respectively. This increase was primarily due to
the increase in operational assets, including Bitcoin mining hardware and data center equipment, at the Group’s sites during the three months ended December 31, 2022 to $228.1 million from $37.9 million from the
three months ended December 31, 2021.
The electricity charges for the three months ended December 31, 2022 and 2021, were $7.4 million and $2.6 million, respectively. This increase was
primarily due to the increase in average operating hashrate to 2.2 EH/s for the three months ended December 31, 2022 from 0.7 EH/s for the three months ended December 31,
2021 with an additional 80MW energized at the Group’s site at Mackenzie and 50MW energized at the Group’s site at Prince George as at December 31, 2022 partially offset by a decrease in activity of miners as a
result of switching off approximately 2.9 EH/s in November 2022.
Employee benefits expenses
Employee benefits expenses for the three months ended December 31, 2022 and 2021 were $4.1 million and $1.3 million, respectively. Both periods include employee
benefits expenses consisting primarily of wages and salaries paid to employees and contractors, and associated taxes. The period-on-period increase reflects a rise in the employee and contractor headcount, related
to the expansion of business operations and accrued short-term incentive provisions.
Share-based payments expense
Share-based payments expense for the three months ended December 31, 2022 and 2021 were $3.2 million and $4.9 million, respectively. Share-based payments include
expenses recorded in relation to incentives issued under our employee share plan, employee option plan, non-executive director option plan, Founder long-term options and restricted share unit long-term incentive
plans. The decrease is due to the Executive Director Liquidity and Price Target Options which vested upon our initial public offering during the three months ended December 31, 2021.
Impairment of assets for the three months ended December 31, 2022 and 2021 were $90.0 million and nil, respectively. The increase was due primarily to incurrence of new
impairment charges for the three months ended December 31, 2022 including $71.7 million impairment of mining hardware, $15.3 million of mining hardware prepayments, $0.7 million of development assets, $0.6 million
goodwill and $1.7 million of other assets. As at December 31, 2022, management determined that the Group’s carrying value was not supported by its recoverable amount. The impairment of mining hardware was
determined using the market approach, based on observable market prices for similar assets. $4.0 million of the impairment of mining hardware prepayments related to prepayments held by the Group’s Non-Recourse SPV
2 and Non-Recourse SPV 3 (defined below), which are not expected to be recoverable by the Company. No such expense occurred during the three months ended December 31, 2021.
Loss allowance for other receivables
Loss allowance for other receivables for the three months ended December 31, 2022 and 2021 was $15.2 million and nil, respectively. This increase is related to
indirect tax receivables held by the Group’s Non-Recourse SPV 2 and Non-Recourse SPV 3 (defined below) during the three months ended December 31, 2022 and which are not expected to be recoverable by the Company due
to the default by such Non-Recourse SPVs under their hardware financing facilities and subsequent appointment of receivers (see note 7 to our unaudited interim consolidated financial statements included in this
Form 6-K).
Professional fees
Professional fees for the three months ended December 31, 2022 and 2021 were $1.7 million and $2.5 million, respectively. The decrease was primarily due to professional fees incurred
during the three months ended December 31, 2021 related to the one off initial public offering that closed during such period and as such did not recur during the three months ended December 31, 2022. Under
accounting standards only a percentage of these costs are capitalized based on the percentage of new shares issued as part of the offering.
Other expenses
Other expenses for the three months ended December 31, 2022 and 2021 were $3.6 million and $1.9 million, respectively. Other expenses include expenses related to office
rent, insurance, marketing, travel, site expenses (which includes repairs and maintenance), donations, general business expenses required to operate the business and a provision for GST on services exported to the
Australian parent by the Canadian subsidiaries (see note 3 to our unaudited interim consolidated financial statements included in this Form 6-K). The increase primarily related to the expansion of the business
operations and ongoing costs as a publicly listed company, and includes an increase of $0.5 million in insurance costs, $0.5 million GST provision, and $0.5 million in site expenses.
Finance benefit/(expense)
Finance benefit/(expense) for the three months ended December 31, 2022 and 2021 were an expense of $(10.4) million and a benefit of $70.7 million,
respectively. The decrease in benefit and increase in expense was primarily driven by an increase in finance expense for the three months ended December 31, 2022 due to interest
expense on borrowings including late fees and interest charged on third-party loans held by the Non-Recourse SPVs (defined below), while the benefit recorded in the three months ended December 31, 2021 primarily
related to the fair value movements on embedded derivatives held at fair value through the profit and loss.
Interest income for the three months ended December 31, 2022 and 2021 was $0.3 million and nil, respectively. The increase was primarily driven by an increase in
interest rates on cash deposits.
Foreign exchange loss for the three months ended December 31, 2022 and 2021 was $6.2 million and $2.8 million, respectively. The increase was primarily related to
foreign exchange movements in the translation of assets and liabilities held in currencies other than the functional currency of the company holding the asset or liability. We use the U.S. dollar as our
presentation currency; however, the companies in the Group use the Australian dollar, Canadian dollar, or the U.S. dollar as their functional currencies.
Income tax benefit/(expense)
Income tax benefit/(expense) for the three months ended December 31, 2022 and 2021 was a benefit of $0.4 million and an expense of $(3.2) million, respectively. The
decrease was primarily related to utilization of previously unrecognized tax losses.
Profit/(loss) after income tax expense for the period
The profit/(loss) after income tax expense for the three months ended December 31, 2022 and 2021 was a loss of $144.0 million and profit of $70.3 million, respectively. The loss is
primarily attributable to the increased depreciation and amortization, impairment, and loss allowance for other receivables as discussed above.
Liquidity and Capital Resources
Prior to our initial public offering, we primarily relied on private financings to fund our operations, meet ongoing working capital needs, and execute on our business plan’s initial
stages. For example, in fiscal year 2021, we issued SAFE instruments and convertible notes which converted into an aggregate of 24,835,118 Ordinary shares upon consummation of the initial public offering on November
16, 2021.
On November 19, 2021, we consummated our initial public offering in which we issued 8,269,231 Ordinary shares for net proceeds of $215,330,775.
We regularly evaluate market conditions, our liquidity needs and various financing alternatives for opportunities to raise additional capital and enhance our capital structure. We expect
to seek to raise capital through alternative sources from time to time, subject to market conditions, such as public or private raising of equity, equity-linked or debt securities or traditional or non-traditional
credit facilities or loans.
As of December 31, 2022, we have cash and cash equivalents of $40.7 million, including approximately $1.3 million held by Non-Recourse SPV 2 and Non-Recourse SPV 3 (defined below) which
is not expected to be recoverable by the Company.
Committed Equity Facility
On September 23, 2022, we entered into a share purchase agreement with B. Riley Principal Capital II, LLC (“B. Riley”) pursuant to which B. Riley has committed to purchase up to an
aggregate of $100.0 million of our Ordinary shares through a committed equity facility (the “Facility”), from time to time at our option, subject to certain limitations and the satisfaction of certain conditions. On
January 27, 2023, all conditions prior to commencement were met and the Facility was made available for use. Any sales of our Ordinary shares to B. Riley under the Facility will be made at 97% of the volume-weighted
average price of our Ordinary shares on the Nasdaq Global Select Market on the relevant trading day. As consideration for entry into the Facility, we paid B. Riley an upfront commitment fee in the form of 198,174
Ordinary shares. The Facility has not yet been utilized.
Going Concern Determination
The Group has determined there is material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern but has concluded it is appropriate to
prepare the consolidated financial statements on a going concern basis which contemplates continuity of normal business activities, the realization of assets and settlement of liabilities in the ordinary course of
business. The operating cashflows generated by the Group are inherently linked to several key uncertainties and risks including, but not limited to, volatility associated with the economics of Bitcoin mining and the
ability of the Group to execute its business plan.
The strategy to mitigate these risks and uncertainties is to execute a business plan aimed at continued reliability, operational efficiency, revenue growth, improving overall mining
profit, managing operating expenses and working capital requirements, maintaining capital expenditure optionality, and securing additional financing, as needed, through one or more debt and/or equity capital
raisings.
The Group aims to maintain a degree of flexibility in both operating and capital expenditure cashflow management where it practicably makes sense, including ongoing internal cashflow
monitoring and projection analysis performed to identify potential liquidity risks arising and to be able to respond accordingly.
As a result, the Group has concluded there is material uncertainty related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern
and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business. However, the Group considers that it will be successful in the above matters and will have
adequate cash reserves to enable it to meet its obligations for at least one year from the date of approval of the consolidated financial statements, and, accordingly, has prepared the consolidated financial
statements on a going concern basis.
Agreements for Miner Equipment Financing
We entered into three limited recourse equipment financing facilities (each, a “Facility” and together, the “Facilities”), each with a separate wholly-owned non-recourse special purchase
vehicle of the Company (“Non-Recourse SPV 1,” “Non-Recourse SPV 2,” and “Non-Recourse SPV 3” and collectively the “Non-Recourse SPVs”), pursuant to which certain lending entities of New York Digital Investment Group
LLC (“NYDIG”) agreed to finance part of the purchase price of various miners that have been, or are scheduled to be, delivered to the Group. The Facilities are non-recourse to any other Group entities, including the
Company. As a result, the lender to each Non-Recourse SPV has no recourse to, and no cross-collateralization with respect to, assets of the Company or any of its other subsidiaries pursuant to the terms of such
Facilities.
Non-Recourse SPV 1 repaid all outstanding amounts (approximately $1.3 million) under the SPV 1 Financing Agreement in December 2022. As of December 31, 2022, the Group had approximately
$103.4 million aggregate principal amount of loans outstanding under the remaining two Facilities.
Background
The Facilities with Non-Recourse SPV 1 and Non-Recourse SPV 2 are governed by master equipment finance and security agreements with NYDIG ABL LLC (formerly known as Arctos Credit, LLC)
(the “SPV 1 Financing Agreement” and “SPV 2 Financing Agreement”, respectively). The Facility with Non-Recourse SPV 1 provides for $4.2 million aggregate principal amount in loans with a contractual term of up to 30
months, and is secured by an aggregate of approximately 0.2 EH/s of miners as well as other assets of Non-Recourse SPV 1. The Facility with Non-Recourse SPV 2 provides for $49.7 million aggregate principal amount in
loans with a contractual term of 28 months, and is secured by an aggregate of approximately 1.6 EH/s of miners as well as other assets of Non-Recourse SPV 2. The loans under both Facilities carry an interest rate of
12% per annum (currently accruing interest, in the case of the Facility with Non-Recourse SPV 2, at the default rate of 18% per annum and a late fee of 5% per annum) and were originally scheduled to be repaid through
monthly payments of interest and/or principal from January 2021 through June 2023 (for the Facility with Non-Recourse SPV 1) and June 2021 through September 2023 (for the Facility with Non-Recourse SPV 2).
The Facility with Non-Recourse SPV 3 is governed by a limited recourse equipment finance and security agreement with NYDIG ABL LLC (the “SPV 3 Financing Agreement” and together with the
SPV 1 Financing Agreement and SPV 2 Financing Agreement, the “Financing Agreements”). The Facility with Non-Recourse SPV 3 provides for $71.2 million in loans with a contractual term of 25 months, and is secured by
an aggregate of approximately 2.0 EH/s of miners as well as other assets of Non-Recourse SPV 3. The loan carries an applicable interest rate of 11% per annum (currently accruing interest at the default rate of 15%
per annum; a late fee of 5% is applicable prior to an event of default) and was originally scheduled to be repaid through monthly payments of interest and/or principal from April 2022 through April 2024.
Each of the Financing Agreements contain customary affirmative and negative covenants, including restrictions on the ability of each of the relevant Non-Recourse SPV to incur liens on
the equipment securing the Facilities, consummate mergers, dispose of assets or make investments. These covenants apply with respect to the applicable Non-Recourse SPV, but not to Iris Energy Limited. Each of these
Financing Agreements also contain customary events of default.
Upon an event of default under a Facility, the lender under such Facility may pursue various remedies, including (a) bringing claims for liquidated damages, specific performance or other
claims, (b) foreclosing upon the collateral securing such Facility by requiring the relevant Non-Recourse SPV to assemble and make available to the lender the miners and all digital assets mined therewith; entering
the premises where any of the relevant Non-Recourse SPV’s miners are located and repossessing such miners; using the relevant Non-Recourse SPV’s premises for storage without rent or liability; selling, leasing or
otherwise disposing of the relevant miners to a third party; disabling the miners and/or taking possession of the relevant miners and continuing the relevant Non-Recourse SPV’s operations; or otherwise foreclosing
upon such miners, (c) accelerating all obligations of the relevant Non-Recourse SPV to be immediately due and payable, including liquidated damages, (d) remedying such event of default for the account of and at the
expense of the relevant Non-Recourse SPV, or (e) any other applicable remedies under applicable law, including appointment of a receiver. Any amounts payable under the Facilities with Non-Recourse SPV 1 and
Non-Recourse SPV 2 that are not paid when due will accrue interest at a default rate of 18% per annum. Upon an event of default under the Facility with Non-Recourse SPV 3, the interest rate applicable under Facility
automatically increases to a default rate of 15% per annum. In addition, if any payment under any of the Facilities is not received when due, a late fee of 5% per annum on the overdue amount is payable upon demand
from the lender under each Facility.
The Notices of Alleged Default of Facilities
On November 4, 2022, the Non-Recourse SPVs received notices of defaults from the lender under their respective Facilities alleging the occurrence of certain defaults and potential events
of default, and purporting to declare the loans under the Facilities of Non-Recourse SPV 2 and Non-Recourse SPV 3 immediately due and payable. Further, on November 18, 2022, the Non-Recourse SPVs received notices
stating that the entire principal amount of each Facility was immediately due and payable pursuant to the prior notice, due to (a) the failure by Non-Recourse SPV 2 and Non-Recourse SPV 3 to make the necessary
payments and (b) the alleged failure by Non-Recourse SPV 1 to maintain sufficient insurance. As of November 29, 2022, the lenders claimed there was aggregate outstanding indebtedness, including outstanding principal,
accrued interest, prepayment premium and late fees, of approximately $1.1 million, $34.6 million and $76.3 million for each of the Facilities with Non-Recourse SPV 1, Non-Recourse SPV 2 and Non-Recourse SPV 3,
respectively.
Non-Recourse SPV 1 repaid all outstanding amounts (approximately $1.3 million) under the SPV 1 Financing Agreement in December 2022. As of December 31, 2022, the outstanding principal
and interest balance owed by each of the Non-Recourse SPVs was $0.0 million, $35.0 million and $77.2 million for Non-Recourse SPV 1, Non-Recourse SPV 2 and Non-Recourse SPV 3, respectively.
We do not expect Non-Recourse SPV 2 and Non-Recourse SPV 3 to have sufficient funds or other resources to pay the amounts due upon acceleration of their respective Facilities in full, or
that such Non-Recourse SPVs will be able to refinance, restructure or modify the terms of their Facilities, and the Group does not intend to provide further financial support to Non-Recourse SPV 2 and Non-Recourse
SPV 3. The lender to Non-Recourse SPV 2 and Non-Recourse SPV 3 is taking steps to enforce the indebtedness and its rights in the collateral securing such limited recourse facilities (including the approximately 3.6
EH/s of miners securing such facilities and other assets of such Non-Recourse SPVs), and appointed a receiver to Non-Recourse SPV 2 and Non-Recourse SPV 3 on February 3, 2023.
The Facilities with Non-Recourse SPV 2 and Non-Recourse SPV 3 are secured by miners with operating capacity of approximately 3.6 EH/s (as well as other assets of such Non-Recourse SPVs).
As described under “Recent Developments—Termination of Intra-Group Hosting Arrangements,” none of these miners are operating. See “Risk Factors” in this MD&A for a discussion of the risks associated with the
defaults under the financing facilities.
Off-Balance Sheet Arrangements
As of December 31 and June 30, 2022, we did not have any material off-balance sheet arrangements.
Historical Cash Flows
The following table sets forth a summary of our historical cash flows for the six months ended December 31, 2022, and December 31, 2021 presented.
|
|
Six Months Ended
December 31, 2022
|
|
|
Six Months Ended
December 31, 2021
|
|
|
|
($ thousands)
|
|
|
|
|
|
|
|
|
Net cash from/(used) in operating activities
|
|
|
(6,263
|
)
|
|
|
11,377
|
|
Net cash used in investing activities
|
|
|
(50,715
|
)
|
|
|
(114,526
|
)
|
Net cash from financing activities
|
|
|
(9,954
|
)
|
|
|
320,162
|
|
Net cash and cash equivalents increase/(decrease)
|
|
|
(66,932
|
)
|
|
|
217,013
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
109,970
|
|
|
|
38,990
|
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
(2,377
|
)
|
|
|
(1,022
|
)
|
Net cash and cash equivalents at the end of the period
|
|
|
40,661
|
|
|
|
254,981
|
|
Operating activities
Net cash from/(used in) operating activities was a net cash outflow of $6.3 million for the six months ended December 31, 2022, compared to a net cash inflow of $11.4 million for the six
months ended December 31, 2021. For the six months ended December 31, 2022, there was a decrease in operating cashflows due in part to the declining price of Bitcoin and switching off approximately 2.9 EH/s of our
miners in November 2022 and due also in part to increased operational activity of the Group with increased electricity costs, wages and salaries and indirect taxes paid.
Investing activities
Net cash used in investing activities was a cash outflow of $50.7 million for the six months ended December 31, 2022, compared to a cash outflow of $114.5 million for the six months
ended December 31, 2021. For the six months ended December 31, 2022, the net cash used in investing activities primarily consisted of payments for infrastructure and mining hardware for our sites in Childress, Texas,
and British Columbia, Canada partially offset by proceeds from sale of assets.
Financing activities
Net cash from financing activities was a net cash outflow of $10.0 million for the six months ended December 31, 2022, compared to a cash inflow of $320.2 million for the six months
ended December 31, 2021. For the six months ended December 31, 2022, the net cash outflow from financing activities primarily consisted of principal payments on facilities within the Non-Recourse SPVs.
For the six months ended December 31, 2021, the net cash inflows from financing activities primarily consisted of proceeds from our IPO, proceeds from the hybrid financial instruments,
consisting of the convertible notes issued in October 2021 and proceeds from mining hardware finance less repayments made.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2022, and the years which these obligations are due:
|
|
1 year or
less
|
|
|
Between 1
and 2
years
|
|
|
Between 2
and 5 years
|
|
|
Over 5
years
|
|
|
Total
|
|
|
|
($ thousands)
|
|
Non-interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
17,649
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing - fixed rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining hardware finance
|
|
|
112,136
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112,136
|
|
Lease liability
|
|
|
268
|
|
|
|
275
|
|
|
|
527
|
|
|
|
2,268
|
|
|
|
3,338
|
|
Total
|
|
|
130,053
|
|
|
|
275
|
|
|
|
527
|
|
|
|
2,268
|
|
|
|
133,123
|
|
Hardware Purchase Contract Commitments
We have an existing $400 million hardware purchase contract with Bitmain for approximately 10 EH/s of miners (excluding any discount arrangements under the agreement, which may include
potential additional miners), originally scheduled to be shipped in batches between October 2022 and September 2023. Under the terms of the contract, Bitmain will determine the market price for each batch prior to
each delivery of the applicable batch, subject to an agreed maximum price of $40 per 1 TH/s of miners.
As of December 31, 2022, we had approximately $75.0 million of prepayments pursuant to the hardware purchase contract that had not been utilized (the retranslated carrying amount, less
impairment of such prepayments on our balance sheet as of December 31, 2022 was $59.0 million). After giving effect to such unutilized prepayments, the aggregate amount payable with respect to the remaining mining
hardware commitments outstanding as of December 31, 2022 under this hardware purchase contract, which represents approximately 7.5 EH/s of additional miners, was approximately $225.0 million (assuming all remaining
contracted hardware is acquired at the maximum price of $40 per 1 TH/s, and excluding shipping costs and taxes). Such amount is payable in installments with respect to each separate batch of miners from July 2022
through to July 2023 pursuant to the original contract schedule.
Under the contract, six months prior to shipment of each batch of miners, we are required to pay 45% of the purchase price for such batch and another 30% of the purchase price for such
batch one month prior to shipment and, if we fail to repay the remaining commitments as and when they become due (and fail to make a written request to Bitmain no less than five business days prior to the relevant
deadline and obtain Bitmain’s written consent), Bitmain is entitled to terminate the shipment of the respective batch of equipment and will be liable for reasonable, non-penalty liquidated damages of 20% of the
purchase price of such batch. If there is any remaining balance after deducting the non-penalty liquidated damages from prepayments made under this contract, we are entitled to a refund of such remaining balance free
of any interest, although there can be no assurance that Bitmain will refund such amounts on a timely basis or that Bitmain will not make other claims that it is entitled to retain such amounts. If we fail to pay
down payments due under this contract by the prescribed deadlines, we may also be responsible for any loss incurred by Bitmain in relation to the production or procurement of that relevant batch of mining hardware.
In January 2023, we utilized $8.3 million of our outstanding prepayments under the Bitmain contract to concurrently purchase from Bitmain and on-sell 0.8 EH/s of this 7.5 EH/s of
additional miners (the retranslated carrying amount, less impairment of the prepayments utilized in such transaction as at December 31, 2022 was $6.2 million). This transaction generated net proceeds to the Group of
approximately $6.2 million (after utilizing a portion of such proceeds to pay the remaining purchase price of such miners).
In addition, in February 2023, we entered into an agreement with Bitmain to purchase the remaining 6.7 EH/s of contracted new S19j Pro miners under the Bitmain contract. The purchase
will be funded by utilizing our remaining prepayments under the Bitmain contract of $66.7 million (the retranslated carrying amount, less impairment of such prepayments on our balance sheet as of December 31, 2022
was $52.8 million), including a concurrent sale of 2.3 EH/s of the remaining 6.7 EH/s contracted miners to a third party pursuant to the same agreement with Bitmain. See “Recent Developments—Hardware Purchase
Contract and Additional Hardware Purchases” for further information. Following the consummation of this transaction, both we and Bitmain will have fully performed all of our respective purchase and sale obligations
under the contract, and we will have no remaining purchase or payment commitments under the contract.
JOBS Act Election
We are an emerging growth company, as defined in the JOBS Act. We intend to rely on certain of the exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging
growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley
Act, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional
information about the audit and the financial statements (auditor discussion and analysis).
Legal Proceedings
The Company is aware that on December 14, 2022, a putative securities class action complaint naming the Company and certain of its directors and officers was filed in the U.S. District
Court for the District of New Jersey. The filed complaint asserts claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 15 of the Securities Act of 1933, contending that
certain of the Company's statements, including with respect to its equipment financing arrangements, were allegedly false or misleading. The Company believes these claims are without merit and intends to defend
itself vigorously.