GREENIDGE GENERATION HOLDINGS INC. You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included herein. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The financial statements have been prepared in accordance with accounting principals generally accepeted inthe United States of America ("U.S. GAAP") and are presented inU.S. dollars. The following discussion contains forwardlooking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under "Item 1A-Risk Factors," "Cautionary Statement Regarding Forward-Looking Statements" and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forwardlooking statements. You should carefully review the sections titled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in this Annual Report on Form 10-K.
Overview
Mining Operations
During the year endedDecember 31, 2022 and through the signing of the Hosting Agreements onJanuary 30, 2023 , our cryptocurrency datacenter operations generated revenue in the form of bitcoin by earning bitcoin as rewards and transaction fees for supporting the global bitcoin network with application-specific integrated circuit computers ("ASICs" or "miners") owned or leased by us. Following the execution of the Hosting Agreements, our cryptocurrency datacenter operations' primary source of revenue is fees earned, including a gross profit sharing component, from hosting bitcoin miners. See further discussion of the Hosting Agreements under "Recent Transactions" below.
Following the execution of the Hosting Agreements, we continue to own approximately 10,000 miners with a capacity of approximately 1.1 EH/s. We are evaluating alternatives to deploy these miners at third-party hosted sites.
We own cryptocurrency datacenter operations in the Town of Torrey,New York (the "New York Facility") and inSpartanburg, South Carolina (the "South Carolina Facility" and, together with the New York Facility, the "facilities"). The New York Facility is a vertically integrated cryptocurrency datacenter and power generation facility with an approximately 106 megawatt ("MW") nameplate capacity, natural gas power generation facility. We generate all the power we require for our cryptocurrency datacenter operations in the New York Facility, where we enjoy relatively lower market prices for natural gas due to our access to the Millennium Gas Pipeline price hub. At the South Carolina Facility, we purchase power from a supplier of approximately 60% zero-carbon sourced energy, which results in relatively stable energy cost environment. We believe our competitive advantages include relatively low fixed costs, efficiently designed mining infrastructure and in-house operational expertise that we believe is capable of maintaining a higher operational uptime of miners. We are mining bitcoin and contributing to the security and transactability of the bitcoin ecosystem while concurrently supplying power to assist in meeting the power needs of homes and businesses in the region served by our New York Facility.
As of
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our South Carolina Facility, which enabled us to increase our mining capacity by
approximately 25 MW during the year ended
We generated revenue (i) through the exchange of bitcoins earned by ("ASICs" or
"miners") as rewards and transaction fees for U.S. dollars and, to a much lesser
extent in 2022 through revenue earned from third parties for hosting ASICs owned
by third parties and providing operations, maintenance and other blockchain
related services to third parties and (ii) through the sale of electricity
generated by our power plant, and not consumed in cryptocurrency datacenter
operations, to New York State's power grid at prices set on a daily basis
through the New York Independent System Operator ("NYISO") wholesale market. We
opportunistically increase or decrease the total amount of electricity sold by
the power plant based on prevailing prices in the wholesale electricity market.
We generated revenue from the sale of our cryptocurrency hash rate, which is the
processing speed of a bitcoin miner normally measured by its "hash rate" or
"hashes per second," to multiple mining pools and were paid in the form of
cryptocurrency. Cryptocurrency datacenter revenue is variable and depends on
several factors including but not limited to the price of cryptocurrency, our
proportion of global hash rate, transaction volume and the prevailing rewards
payouts per new block added to the bitcoin blockchain. For the year ended
December 31, 2022 , based on our existing fleet, we generated bitcoin revenue at
an average rate of approximately $144 /MWh.
We converted the cryptocurrency we received to cash on a daily basis using
third-party platforms and are subject to the platforms' user agreements. For
security purposes, we utilized a proprietary auto-liquidation script to
automatically complete the conversion and transfer the cash to our operating
bank accounts upon receiving cryptocurrency rewards in our wallets for the
majority of our rewards in 2022. For one pool utilized in the fourth quarter of
2022, the pool operator performed this function for us, but effectively achieved
a similar result. This process was implemented as a risk mitigation tool to
limit the amount of time cryptocurrency and cash are stored on third-party
platforms. Fees incurred to convert cryptocurrency to cash are subject to
standard rates charged by the third parties' published tiered pricing tables and
represent 0.18% of each transaction as of December 31, 2022 . Additionally, we
held a nominal amount of bitcoin on our balance sheet, the majority of which was
held in electronic storage not connected to the internet (also known as "cold
storage") with a third-party custodian. This bitcoin that was held in cold
storage as of December 31, 2022 , was liquidated during the first quarter of
2023.
We believe that, over the long-term, behind-the-meter power generation
capability provides a stable, cost-effective source of power for cryptocurrency
datacenter activities. Our behind-the-meter power generation capability provides
us with stable delivery due to the absence of any contract negotiation risk with
third-party power suppliers, the absence of transmission and distribution cost
risk and the firm delivery of natural gas for our New York Facility via our
captive pipeline. Furthermore, our New York Facility has operated with minimal
downtime for maintenance and repairs over recent years. Notwithstanding the
structural stability of our behind-the-meter capabilities, we do however procure
natural gas at our New York Facility through a third-party energy manager which
schedules delivery of our natural gas needs from the wholesale market which is
subject to price volatility. We procure the majority of our natural gas at spot
prices and enter into fixed price forward contracts from time to time for the
purchase of a portion of anticipated natural gas purchases based on prevailing
market conditions to partially mitigate the financial impacts of natural gas
price volatility and to manage commodity risk. These forward contracts qualify
for the normal purchases and sales exception under ASC 815, Derivatives and
Hedging, as it is probable that these contracts will result in physical
delivery.
Volatility in the natural gas market has impacted and will continue to impact
our results of operations and financial performance. Natural gas prices have
been on an upward trajectory since June of 2021 and continued at elevated levels
during 2022. During 2022, the volatility in the cost of natural gas resulted in
an approximate 83% increase in the weighted average cost of natural gas, as
compared to the prior year. Volatility in the natural gas market may be caused
by disruption in the delivery of fuel, including disruptions as a result of the
outbreak or escalation of military hostilities, weather, transportation
difficulties, global demand and supply dynamics, labor relations, environmental
regulations or the financial viability of fuel suppliers. See "Risk
Factors-Risks Related to Our Business-Risks Related to our Power Generation
Operations" for further details.
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On January 30, 2023 , we entered into Hosting Agreements with NYDIG affiliates,
which will result in a material change to our current business strategy with us
largely operating miners owned by NYDIG affiliates. The terms of the Hosting
Agreements require NYDIG affiliates to pay a hosting fee that covers the cost of
power and direct costs associated with management of the mining facilities, as
well as a gross profit-sharing arrangement. We believe this reduces our downside
risk of bitcoin price deterioration and cost increases related to natural gas.
See "Recent Transactions" for further details.
Discontinued Operations
OnSeptember 14, 2021 , we consummated the transactions contemplated by the Merger Agreement, by and among Greenidge,Support.com and Merger Sub. As contemplated by the Merger Agreement, Merger Sub merged with and intoSupport.com , the separate corporate existence of Merger Sub ceased andSupport.com survived as a wholly-owned subsidiary of Greenidge. At the effective time of the Merger, we issued 2,960,731 shares of class A common stock in exchange for all shares of common stock, par value$0.0001 , ofSupport.com and all outstanding stock option and restricted stock units ofSupport.com .Support.com's results of operations and balance sheet have been consolidated effective with the Merger. See Note 3, "Merger withSupport.com ", in the Notes to Consolidated Financial Statements for a further discussion of the Merger. EffectiveSeptember 14, 2021 , following the completion of the Merger,Support.com began operating as a separate operating and reporting segment.Support.com provides solutions and technical programs to customers delivered by home-based employees.Support.com provides customer service, sales support, and technical support primarily to large corporations, businesses and professional services organizations.Support.com also earns revenues for end-user software products provided through direct customer downloads and sale via partners.Support.com operates primarily inthe United States , but had international operations that included staff providing support services. The contract forSupport.com's largest customer was not renewed upon expiration onDecember 31, 2022 . As a result of this material change in the business, management and the Board of Directors made the determination to consider various alternatives forSupport.com , including the disposition of assets. We have classified theSupport.com business as held for sale and discontinued operations in these consolidated financial statements as a result of a strategic shift to strictly focus on our cryptocurrency datacenter and power generation operations. InJanuary 2023 , Greenidge completed the sale of a portion of the assets ofSupport.com for net proceeds of approximately$2.6 million , and is continuing to evaluate alternatives for the remainder of theSupport.com assets. Throughout this Annual Report on Form 10-K, unless otherwise indicated, amounts and activity are presented on a continuing operations basis. See Note 4, "Discontinued Operations," in the Notes to Consolidated Financial Statements for additional details. Recent Transactions NYDIG Agreement OnJanuary 30, 2023 , we entered into a number of agreements associated with our secured debt with NYDIG, including a Membership Interest and Asset Purchase Agreement (the "Purchase Agreement"), a Senior Secured Loan Agreement (the "Senior Secured Loan") and a Debt Settlement Agreement (the "Debt Settlement Agreement") regarding our 2021 and 2022 Master Equipment Finance Agreements (the "MEFAs") with NYDIG. The effect of these agreements was to transfer to NYDIG ownership of bitcoin mining equipment that was secured by the MEFAs along with certain credits and coupons that had accrued to Greenidge for previous purchases of mining equipment with a bitcoin miner manufacturer. The transfer of these assets reduced the principal and accrued interest balance of the secured debt with NYDIG from approximately$75.8 million to approximately$17.3 million , for an aggregate debt reduction of$58.5 million (the "Refinancing"). The Senior Secured Loan allows for a voluntary prepayment of the loan in kind of approximately$10 million by transferring ownership of certain mining infrastructure assets to NYDIG if NYDIG enters into a binding agreement, facilitated by Greenidge, securing rights to a site for a future mining facility byApril 30, 2023 (the "Post-Closing Covenant"), which may further reduce the principal balance of the debt to approximately$7 million . The restructuring of the NYDIG debt is expected to significantly improve Greenidge's liquidity during 2023 as annual interest payments on the remaining$17.3 million principal balance will be$2.5 million and may be reduced to approximately$1.1 million annually if the Post-Closing Covenant is satisfied. This reduced debt service is substantially lower than the$62.7 million of principal and interest payments which would have been required in 2023 pursuant to the 2021 and 2022 MEFAs, both of which have now been refinanced. 49 -------------------------------------------------------------------------------- Greenidge provided additional collateral to NYDIG on its remaining mining-related assets, infrastructure assets, equity of its subsidiaries and certain cash balances to secure the remaining debt balance with NYDIG. The Senior Secured Loan contains certain affirmative, negative and financial covenants, including the maintenance of a minimum cash balance of$10 million , early amortization events, and events of default.
NYDIG Hosting Arrangement
OnJanuary 30, 2023 , we entered into the Hosting Agreements with NYDIG affiliates, which will result in a material change to our current business strategy with us largely operating as a hosting facility and service provider for miners acquired from us by NYDIG affiliates pursuant to the Purchase Agreement. Under these agreements, we agreed to host, power and provide technical support services, and other related services, to NYDIG affiliates' mining equipment at our facilities for a term of five years. The terms of such arrangements require NYDIG affiliates to pay a hosting fee that covers the cost of power and direct costs associated with management of the mining facilities, a hosting fee, as well as a gross profit-sharing arrangement. This allows us to participate in the upside as bitcoin prices rise, but reduces our downside risk of bitcoin price deterioration and cost increases related to natural gas. The arrangement covers all of our current mining capacity at the New York Facility and South Carolina Facility, and may also cover capacity at a potential third site pursuant to satisfaction of certain post-closing covenants. Our liquidity is also improved by NYDIG's payment of a security deposit and prepayment of certain amounts.
B. Riley Promissory Note
OnJanuary 30, 2023 , we also entered into the Consent and Amendment No. 1 to the Promissory Note in favor ofB. Riley ("Promissory Note Amendment") regarding$10.5 million of debt, including accrued interest, which included the following terms:
•B. Riley purchased
•Atlas Holdings LLC purchased$1 million of our class A common stock at market prices throughB. Riley acting in its capacity as sales agent pursuant to the ATM Agreement;
•Greenidge made a principal payment of
•No further principal or interest payments are required to be made on the
Promissory Note until
•We are actively pursuing the sale of excess real estate that would be subdivided from the property currently housing mining equipment at the South Carolina Facility in order to apply such net proceeds to repay a portion of the Promissory Note. We estimate that we would repay approximately$6 to$7 million of the Promissory Note, if we were to complete a sale of the excess real estate; •In the event we repay a principal amount in excess of$6 million prior toJune 20, 2023 , the monthly loan payment commencing inJune 2023 would be approximately$400,000 instead of the currently scheduled monthly amortization payments of$1.5 million ; •The percentage of proceeds required to prepay the Promissory Note from sales of equity by us under the common stock purchase agreement (the "Equity Purchase Agreement") withB. Riley and the ATM Agreement have been reduced to 15%, improving our liquidity; and •We paidB. Riley a$1 million amendment fee payable by the delivery of our class A common stock toB. Riley , issuable at$0.75 per share, acquired on a principal basis under the ATM Agreement.
Growth Opportunities
Following the Refinancing, we own approximately 1.1 EH/s of mining capacity not
being utilized at Greenidge's facilities, as substantially all datacenter
capacity is dedicated to hosting as of
As part of the agreements with NYDIG, we are proposing on further build outs in
partnership with NYDIG in which we will serve as the primary contractor and
engineer of the development of the site. We would then serve as the operator of
the site under a separately negotiated hosting service agreement.
50
--------------------------------------------------------------------------------Results from Continuing Operations
The following table sets forth key components of our results from continuing
operations during the years ended
Years Ended December 31, Variance
$ in thousands 2022 2021 $ %
Total revenue $ 89,979 $ 97,325 $ (7,346) (8) %
Cost of revenue (exclusive of depreciation
and amortization shown below) 59,839 28,390 31,449 111 %
Selling, general and administrative
expenses 36,946 23,989 12,957 54 %
Depreciation and amortization 35,136 8,474 26,662 315 %
Gain on sale of assets (1,780) - (1,780) N/A
Impairment of long-lived assets 176,307 - 176,307 N/A
Remeasurement of environmental liability 16,694 3,688 13,006 353 %
Operating (loss) income (233,163) 32,784 (265,947) (811) %
Other (expense) income:
Interest expense, net (21,575) (3,689) (17,886) (485) %
Interest expense - related party - (22) 22 N/A
(Loss) gain on sale of digital assets (15) 275 (290) (105) %
Other income, net 14 153 (139) (91) %
Total other expense, net (21,576) (3,283) (18,293) (557) %
(Loss) income from continuing operations
before taxes (254,739) 29,501 (284,240) (963) %
Provision for income taxes 15,002 7,901 7,101 90 %
Net (loss) income from continuing
operations $ (269,741) $ 21,600 $ (291,341) (1349) %
Adjusted Amounts (a)
Adjusted operating (loss) income from
continuing operations $ (38,898) $ 38,834 $ (77,732) (200) %
Adjusted operating margin from continuing
operations (43.2) % 39.9 %
Adjusted net (loss) income from continuing
operations $ (60,421) $ 26,034 $ (86,455) (332) %
Other Financial Data (a)
EBITDA (loss) from continuing operations
(575) %
as a percent of revenues (220.1) % 42.8 %
Adjusted EBITDA (loss) from continuing
operations $ (1,127) $ 51,506 $ (52,633) (102) %
as a percent of revenues (1.3) % 52.9 %
a)Adjusted Amounts and Other Financial Data are non-GAAP performance measures. A
reconciliation of reported amounts to adjusted amounts can be found in the
"Non-GAAP Measures and Reconciliations" section of this management discussion
and analysis ("MD&A").
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--------------------------------------------------------------------------------Key Metrics
The following table provides a summary of key metrics related to the years ended
Years Ended December 31, Variance
$ in thousands, except $ per MWh and 2022 2021 $ %
average bitcoin price
Cryptocurrency datacenter $ 73,809 $ 87,897 $ (14,088) (16) %
Power and capacity 16,170 9,428 6,742 72 %
Total revenue $ 89,979 $ 97,325 $ (7,346) (8) %
Components of revenue as % of total
Cryptocurrency datacenter 82 % 90 %
Power and capacity 18 % 10 %
Total revenue 100 % 100 %
MWh
Cryptocurrency datacenter 514,332 290,999 223,333 77 %
Power and capacity 143,919 157,578 (13,659) (9) %
Revenue per MWh
Cryptocurrency datacenter $ 144 $ 302 $ (158) (52) %
Power and capacity $ 112 $ 60 $ 52 87 %Cost of revenue (exclusive of depreciation and amortization) Cryptocurrency datacenter
$ 45,933 $ 19,159 $ 26,774 140 % Power and capacity$ 13,906 $ 9,231 $ 4,675 51 % Cost of revenue per MWh (exclusive of depreciation and amortization) Cryptocurrency datacenter$89 $66 $23 35 % Power and capacity$97 $59 $38 64 % Cryptocurrency Mining Metrics Bitcoins produced 2,731 1,866 865 46 % Average bitcoin price 28,237 47,427 (19,190) (40) % Average hash rate (EH/s) 132 % Average difficulty 49 % Revenue
Cryptocurrency datacenter revenue
For our cryptocurrency datacenter revenue, we generate electricity on-site from our power plants and use that electricity to power ASIC miners, generating bitcoin that we then exchange forU.S. dollars or hold in our wallet. Our cryptocurrency datacenter revenue decreased by$14.1 million , or 16%, to$73.8 million during the year endedDecember 31, 2022 . The decrease was primarily attributable to 40% decrease in the average bitcoin price and a 49% increase in mining difficulty. Partially offsetting these items that decreased revenue was the expansion of our increased mining fleet resulting in a 132% increase in the average hash rate during the year endedDecember 31, 2022 . We estimate that the change in average bitcoin price and the increase in the network difficulty reduced cryptocurrency datacenter revenue by approximately 62% and 33%, respectively, while the increase in the average hash rate benefited the cryptocurrency datacenter revenue by approximately 80%.
The increased average hash rate, partially offset by a higher average mining difficulty, led to us producing 2,731 bitcoins in 2022 as compared to 1,866 bitcoins in 2021.
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--------------------------------------------------------------------------------Power and capacity revenue
Power and capacity revenue at our New York Facility is earned when we sell capacity and energy and ancillary services to the wholesale power grid managed by the NYISO. Through these sales, we earn revenue in three streams, including: (1) power revenue received based on the hourly price of power, (2) capacity revenue for committing to sell power to the NYISO when dispatched and (3) other ancillary service revenue received as compensation for the provision of operating reserves. Our power and capacity revenue increased$6.7 million , or 72%, to$16.2 million in 2022. This was a result of 87% higher price per MWh sold to the power grid in 2022, as compared to the prior period, partially offset by a 9% decline in volume. We estimate that the higher prices benefited the power and capacity revenues by approximately 75%, while the lower volume reduced revenues by approximately 9%. The power revenue in 2022 benefited from more severe weather in 2022. Additionally, power prices for energy provided to the wholesale power grid were higher in 2022 due to the pricing methodology that is based off of the cost of power, which increased in 2022 due to the higher cost of natural gas. Cost of Revenue Years Ended December 31, Variance $ in thousands 2022 2021 $ % Cryptocurrency datacenter$ 45,933 $ 19,159 $ 26,774 140 % Power and capacity 13,906 9,231 4,675 51 % Total cost of revenue (exclusive of depreciation and amortization)$ 59,839 $ 28,390 $ 31,449 111 % As a percentage of total revenue 66.5 %
29.2 %
Total cost of revenue, exclusive of depreciation and amortization, increased$31.4 million , or 111%, to$59.8 million during the year endedDecember 31, 2022 as compared to the prior year period. The cost of revenue per MWh (exclusive of depreciation and amortization) increased 35% for our cryptocurrency datacenter operations and 64% for our power and capacity operations due to a significant increase in the natural gas cost per dekatherm, which increased 83% during the year endedDecember 31, 2022 as compared to the same period in 2021. Cryptocurrency datacenter cost of sales also increased as a result of a 77% increase in overall MWh usage due to the expansion of our mining fleet, including theSouth Carolina expansion which began inDecember 2021 . Total cost of revenue as a percentage of total revenue increased primarily due to the impact of the higher cost of natural gas combined with the lower price of bitcoin.
Selling, general and administrative expenses
Selling, general and administrative expenses increased$13.0 million , or 54%, to$36.9 million during the year endedDecember 31, 2022 as compared to the prior year period. The main drivers of the increase in selling, general and administrative expenses were: •Increased legal and professional fees of$6.5 million due to increased legal and regulatory costs associated with permit renewals and environmental matters at theNew York plant, legal and consulting costs associated with potential expansion opportunities and other accounting and consulting fees associated with being a public company. •Total employee-related costs increased$4.2 million as a result of increased headcount, including the addition and expansion of executive level positions required to operate as a public company as well as increases in order to match the growth in the operational footprint of the business. •Increased insurance costs of$3.9 million due to increased premiums for new policies entered into at the time of the merger for directors and officers insurance, as well as increased premiums on property insurance as a result of 2022 capital expenditures and the addition of the South Carolina Facility inDecember 2021 , increasing the asset base.
These increases were partially offset by lower share-based compensation of
53
--------------------------------------------------------------------------------Depreciation and amortization
Depreciation and amortization increased$26.7 million , or 315%, to$35.1 million for the year endedDecember 31, 2022 as compared to the prior year period due to the purchase and deployment of additional miners and associated infrastructure. Additionally, in conjunction with the recognition of an impairment of long-lived assets as ofJune 30, 2022 , we changed our depreciable lives effectiveJuly 1, 2022 , resulting in higher depreciation expense.
Impairment of long-lived assets
As a result of the significant reduction in the price of bitcoin and increased energy prices during the year endedDecember 31, 2022 , we recognized impairment charges of$176.3 million associated with long-lived assets to reduce the net book value of the Company to fair value. See Note 5, "Property, Plant and Equipment", in the Notes to Consolidated Financial Statements for a further discussion of the impairment.
Remeasurement of environmental liabilities
During the year endedDecember 31, 2022 , we recognized a charge of$16.7 million for the remeasurement of environmental liabilities. The charge consisted of a$14.8 million increase to the coal ash pond liability at ourNew York facility due to a change in the planned approach as a result of new regulations and new information that became available regarding the site, as well as due to inflationary increases due to higher projected construction costs. The remaining$1.9 million of the charge was associated with an update in the cost estimates associated with our landfill primarily due to inflation driven increases to the remediation cost estimates. See Note 11, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements under the "Environmental Liabilities" section for further details.
Operating (loss) income from continuing operations
As a result of the factors described above, operating (loss) income from
continuing operations was
Adjusted operating loss from continuing operations was$38.9 million for the year endedDecember 31, 2022 , compared to adjusted income from continuing operations of$38.8 million for same period in 2021. Adjusted income from continuing operations is a non-GAAP performance measure. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliations" section of this MD&A.
Other expense, net
During the year endedDecember 31, 2022 , other expense, net increased$18.3 million , or 557%, to$21.6 million primarily due to increased interest expense associated with the incurrence of debt to finance the expansion of the mining fleet. Provision for income taxes
In 2022, we recognized an income tax provision of
In 2021, we recognized an income tax provision of$7.9 million , or an effective tax rate of 26.8%, which is not significantly different from the blended federal and state statutory tax rates.
Net (Loss) Income from Continuing Operations
As a result of the factors described above, net (loss) income from continuing operations increased to$(269.7) million for the year endedDecember 31, 2022 as compared to$21.6 million for the year endedDecember 31, 2021 . On an adjusted basis, excluding the after-tax impact of the impairment of long-lived assets, the remeasurement of environmental liabilities and the tax charge for the recognition of a valuation allowance on deferred tax assets, adjusted net (loss) income from continuing operations during 2022 would have been$(60.4) million as compared to$26.0 million in the same period in 2021. Adjusted net (loss) income is a non-GAAP performance measure. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliations" section of this MD&A. 54 --------------------------------------------------------------------------------
Loss from Discontinued Operations
In conjunction with the Company's decision to pursue alternatives, including a sale ofSupport.com , we have reported theSupport.com business as discontinued operations in the consolidated financial statements. Loss from discontinued operations, net of tax was$1.3 million for the year endedDecember 31, 2022 , as compared to a loss of$66.1 million for the year endedDecember 31, 2021 . The loss from discontinued operations during 2021 was driven by a$42.3 million noncash charge for the impairment of goodwill and$32.3 million of merger and other costs,$26.6 million of which was associated with noncash charges for the issuance of common stock and warrants for investor and advisor fees.
Non-GAAP Measures and Reconciliations
The following non-GAAP measures are intended to supplement investors' understanding of our financial information by providing measures which investors, financial analysts and management use to help evaluate our operating performance. Items which we do not believe to be indicative of ongoing business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies. These results should be considered in addition to, not as a substitute for, results reported in accordance withU.S. GAAP.
EBITDA (loss) from continuing operations and Adjusted EBITDA (loss) from continuing operations
"EBITDA from continuing operations" is defined as earnings from continuing operations before taxes, interest, and depreciation and amortization. "Adjusted EBITDA from continuing operations" is defined as EBITDA from continuing operations adjusted for stock-based compensation and other special items determined by management, including, but not limited to business expansion costs, impairments of long-lived assets, remeasurement of environmental liabilities and restructuring as they are not indicative of business operations. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with,U.S. GAAP. Management believes that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance withU.S. GAAP. We compensate for these limitations by relying primarily on ourU.S. GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net loss (income) to EBITDA (loss) and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business. The reported amounts in the table below are from our Consolidated Statements of Operations in our Consolidated Financial Statements included in this Annual Report on Form 10-K. 55 -------------------------------------------------------------------------------- Years Ended December 31, Variance 2022 2021 $ %
Adjusted operating income (loss) from continuing operations Operating (loss) income from continuing operations
$ (233,163) $ 32,784 $ (265,947) (811) % Impairment of long-lived assets 176,307 - 176,307 N/A Remeasurement of environmental liability 16,694 3,688 13,006 353 % Expansion costs 2,315 2,362 (47) (2) % Restructuring 729 - 729 N/A Gain on sale of assets (1,780) - (1,780) N/A Adjusted operating (loss) income from continuing operations$ (38,898) $ 38,834 $ (77,732) (200) % Adjusted operating margin (43.2 %) 39.9 %
Adjusted net (loss) income from continuing operations
Net (loss) income from continuing operations
(1349) %
Impairment of long-lived assets, after tax 176,307 - 176,307 N/A
Remeasurement of environmental liability,
after tax 16,694 2,703 13,991 518 %
Expansion costs, after tax 2,315 1,731 584 34 %
Restructuring, after tax 729 - 729 N/A
Gain on sale of assets, after tax (1,780) - (1,780) N/A
Tax charge for valuation allowance 15,055 - 15,055 N/A
Adjusted net (loss) income from continuing
operations $ (60,421) $ 26,034 $ (86,455) (332) %
EBITDA (loss) and Adjusted EBITDA (loss) from continuing
operations
Net (loss) income from continuing operations $ (269,741) $ 21,600 $ (291,341) (1349) %
Provision for income taxes 15,002 7,901 7,101 90 %
Interest expense, net 21,575 3,711 17,864 481 %
Depreciation and amortization 35,136 8,474 26,662 315 %
EBITDA (loss) from continuing operations (198,028) 41,686 (239,714) (575) %
Stock-based compensation 2,636 3,770 (1,134) (30) %
Impairment of long-lived assets 176,307 - 176,307 N/A
Remeasurement of environmental liability 16,694 3,688 13,006 353 %
Expansion costs 2,315 2,362 (47) (2) %
Restructuring 729 - 729 N/A
Gain on sale of assets (1,780) - (1,780) N/A
Adjusted EBITDA (loss) from continuing
operations $ (1,127) $ 51,506 $ (52,633) (102) %
Cryptocurrency datacenter revenue per MWh and power and capacity revenue per MWh
are used by management to consider the extent to which we may generate
electricity to either produce cryptocurrency or sell power to the New York
wholesale power market. Cost of revenue (excluding depreciation and
amortization) per MWh represents a measure of the cost of natural gas, emissions
credits, payroll and benefits and other direct production costs associated with
the MWhs produced to generate the respective revenue category for each MWh
utilized. Depreciation and amortization costs are excluded from the cost of
revenue (exclusive of depreciation and amortization) per MWh metric; therefore,
not all cost of revenues for cryptocurrency datacenter and power and capacity
are fully reflected. To the extent any other cryptocurrency datacenters are
public or may go public, the cost of revenue (exclusive of depreciation and
amortization) per MWh metric may not be comparable because some competitors may
include depreciation in their cost of revenue figures.
56
--------------------------------------------------------------------------------Liquidity and Capital Resources
OnDecember 31, 2022 , we had cash and cash equivalents of$15.2 million . To date, we have primarily relied on debt and equity financing to fund our operations, including meeting ongoing working capital needs. During 2022, we obtained approximately$107.1 million of additional financings, net of debt issuance costs, through two different agreements described in Note 6, "Debt", in the Notes to Consolidated Financial Statements. Despite the additional financings obtained during 2022, our ability to continue as a going concern is dependent upon generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our operating cash flows are affected by several factors including the price of bitcoin, cost of electricity, natural gas and emissions credits. During the year endedDecember 31, 2022 , our profit and cash flows were impacted significantly by volatility in the prices of bitcoin and natural gas. As a result, management took certain actions during the second half of 2022 and during the first quarter of 2023 to improve the Company's liquidity. In our efforts to improve liquidity, onJanuary 30, 2023 , we entered into debt restructuring agreements with NYDIG andB. Riley . We also raised equity through issuances of our class A common stock under the ATM Agreement. See "Recent Transactions" for further details. OnJanuary 30, 2023 , we entered into the Purchase Agreement, the Senior Secured Loan and the Debt Settlement Agreement regarding our MEFAs with NYDIG. The effect of these agreements was to transfer ownership of bitcoin mining equipment that was secured by the MEFAs and certain credits and coupons that had accrued to Greenidge for previous purchases of mining equipment with a bitcoin miner manufacturer. The transfer of these assets reduced the principal and accrued interest balance of the secured debt with NYDIG from approximately$75.8 million to approximately$17.3 million , for an aggregate debt reduction of$58.5 million . The Senior Secured Loan allows for a voluntary prepayment of the loan in kind of approximately$10 million by completing the Post-Closing Covenant, which may further reduce the principal balance of the debt to approximately$7 million . The restructuring of the NYDIG debt is expected to significantly improve Greenidge's liquidity during 2023 as annual interest payments on the remaining approximately$17.3 million principal balance will be approximately$2.5 million and may be reduced to approximately$1.1 million annually if the Post-Closing Covenant is satisfied. This reduced debt service is substantially lower than the$62.7 million of principal and interest payments which would have been required in 2023 pursuant to the 2021 and 2022 MEFAs, both of which have now been refinanced.
On
•B. Riley purchased
•Atlas Holdings LLC purchased$1 million of our class A common stock at market prices throughB. Riley acting in its capacity as sales agent pursuant to the ATM Agreement;
•Greenidge made a principal payment of
•No further principal or interest payments are required to be made on the
Promissory Note until
•We are actively pursuing the sale of excess real estate that would be subdivided from the property currently housing mining equipment at the South Carolina Facility in order to apply such net proceeds to repay a portion of the Promissory Note. We estimate that we would repay approximately$6 to$7 million of the Promissory Note if we were to complete a sale of the excess real estate; •In the event we repay a principal amount in excess of$6 million prior toJune 20, 2023 , the monthly loan payment commencing inJune 2023 would be approximately$400,000 instead of the currently scheduled monthly amortization payments of$1.5 million ; •The percentage of proceeds required to prepay the Promissory Note from sales of equity by us under the Equity Purchase Agreement and the ATM Agreement have been reduced to 15%, improving our liquidity; and
•We paid
57
--------------------------------------------------------------------------------See "Recent Transactions" and Note 6, "Debt", in the Notes to Consolidated Financial Statements for further details.
SinceOctober 2021 and throughSeptember 2022 , we received proceeds of$59.8 million from sales of class A common stock under the 2021 Purchase Agreement and the Equity Purchase Agreement, of which$8.9 million proceeds, net of discounts, was received in 2022. SinceSeptember 30, 2022 throughMarch 30, 2023 , we received net proceeds of$10.2 million from sales of class A common stock under the ATM Agreement, of which$2.1 million proceeds, net of commissions, was received in 2022. See Note 7, "Stockholder's Equity", in the Notes to Consolidated Financial Statements for further details. During the first quarter of 2023, we repaid$2.8 million of the Promissory Note, including the$1.9 million repayment mentioned previously, as a result of the net proceeds received from sales of class A common stock under the ATM Agreement.
In addition, we sold equipment, coupons and certain environmental credits for
total proceeds of
In conjunction with the Refinancing, we also entered into Hosting Agreements with NYDIG affiliates onJanuary 30, 2023 , which is expected to improve our liquidity position, as it provided for cost reimbursements for key input costs, while allowing us to participate in the upside as bitcoin prices rise. Despite these improvements to our financial condition, we expect we will require additional capital in order to meet the commitments in the table below. Management continues to assess different options to improve liquidity including, but not limited to:
•issuances of equity, including but not limited to issuances under the Equity Purchase Agreement and/or the ATM Agreement;
•entering into new third-party hosting agreements to house the approximately 1.1 EH/s of owned miners not currently operating since the Hosting Agreements went into effect inFebruary 2023 ; and
•selling the Company's excess real estate at its South Carolina Facility that is not used in its datacenter operations.
The Company estimates that its cash resources will fall below$10 million by the end of the first quarter of 2024, which would be considered an Event of Default under the Senior Secured Loan that would require the repayment of the loan balance, unless a waiver is obtained from the lender. The Company's estimate of cash resources available to the Company through 2023 and through the first quarter of 2024 is dependent on completion of certain actions, including our ability to sell excess real estate inSouth Carolina , as mentioned above, as well as the completion of the Post Closing Covenant and bitcoin prices, blockchain difficulty levels and energy prices similar to the those experienced in the first two months of 2023. While bitcoin prices have begun to recover in the first quarter of 2023, management cannot predict when or if bitcoin prices will recover to prior levels, or volatility in energy costs. While the Company continues to work to implement options to improve liquidity, there can be no assurance that these efforts will be successful and the Company's liquidity could be negatively impacted by items outside of its control, in particular, significant decreases in the price of bitcoin, regulatory changes concerning cryptocurrency, increases in energy costs or other macroeconomic conditions and other matters identified in "Risk Factors". Given this uncertainty regarding the Company's financial condition over the next 12 months, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a reasonable period of time. While we held a relatively small amount of digital assets for an extended period as ofDecember 31, 2022 , our current business strategy is to sell digital assets within a short period after earning such assets. We may choose to change this strategy in the future. Bitcoin mined each day is liquidated the same day it is mined. Our liquidity is subject to volatility in both number of bitcoins mined and the underlying price of bitcoin. 58 --------------------------------------------------------------------------------
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and other commitments
as of
$ in thousands Total 2023 2024-2025 2026-2027 Thereafter Debt payments$ 187,322 $ 80,251 $ 29,757 $ 77,314 $ - Leases 241 130 111 - - Environmental obligations 28,000 600 9,500 9,850 8,050
Natural gas transportation 14,694 1,896 3,792
3,792 5,214
Total $ 230,257 $ 82,877 $ 43,160 $ 90,956 $ 13,264
The debt payments included in the table above include the principal and interest
amounts due. The lease payments include fixed monthly rental payments and
exclude any variable payments. Environmental obligations are based on estimates
subject to various assumptions including, but not limited to, closure and
post-closure cost estimates, timing of expenditures, escalation factors, and
requirements of granted permits. Additional adjustments to the environment
liability may occur periodically due to potential changes in remediation
requirements regarding coal combustion residuals which may lead to material
changes in estimates and assumptions.
Summary of Cash Flow
The following table provides information about our net cash flow for the years
ended
Years Ended December 31,
$ in thousands 2022 2021
Net cash (used for) provided by operating activities from continuing operations
$
(14,485)
(121,354) (163,571)
Net cash provided by financing activities from continuing operations
62,137 174,065
Increase in cash and cash equivalents from discontinued operations
6,320 21,797
Net change in cash and cash equivalents (67,382) 77,547
Cash and cash equivalents at beginning of year 82,599 5,052
Cash and cash equivalents at end of period $ 15,217 $ 82,599
Operating Activities
Net cash used for operating activities from continuing operations was $14.5
million for the year ended December 31, 2022 , as compared to cash provided by
operating activities from continuing operations of $45.3 million for the year
ended December 31, 2021 . The variance in the operating cash flow during 2022 as
compared to the prior year was driven by lower cash-related income from
continuing operations, which primarily resulted from lower revenue caused by a
decrease in the price of bitcoin, the higher costs related to the cost of
natural gas and higher interest cost on the higher debt level.
Investing Activities
Net cash used for investing activities from continuing operations was$121.4 million for the year endedDecember 31, 2022 , as compared to$163.6 million for the year endedDecember 31, 2021 . For the year endedDecember 31, 2022 , purchases of and deposits for property and equipment were$133.0 million in 2022 as compared to$163.6 million in 2021, as the Company was expanding its mining fleet over both years. During 2022, the Company sold miners and coupons and credits redeemable to a manufacturer of bitcoin miners for proceeds of$11.1 million . 59 --------------------------------------------------------------------------------
Financing Activities
Net cash provided by financing activities from continuing operations was$62.1 million for the year endedDecember 31, 2022 , as compared to$174.1 million for the year endedDecember 31, 2021 . The decrease is primarily related to higher principal payments on debt of$46.2 million and$75.0 million of lower proceeds from equity issuances during 2022 compared to 2021.
Financing Arrangements
See Note 6, "Debt," and Note 7, "Stockholder's Equity" and Note 15, "Subsequent Events" in the Notes to Consolidated Financial Statements for details regarding our financing arrangements.
Recent Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2, "Significant Accounting Policies", in the Notes to the Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our significant accounting policies are discussed in detail in Note 2, "Significant Accounting Policies", in the Notes to Consolidated Financial Statements for the year endedDecember 31, 2022 however we consider our critical accounting policies to be those related to revenue recognition, valuation of long-lived assets and environmental obligations.
Revenue Recognition
Cryptocurrency Datacenter Revenue
Greenidge has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and Greenidge's enforceable right to compensation only begins when Greenidge provides computing power to the mining pool operator. In exchange for providing computing power, Greenidge is entitled to a theoretical fractional share of the cryptocurrency award the mining pool operator receives less digital asset transaction fees to the mining pool operator. Revenue is measured as the value of the fractional share of the cryptocurrency award received from the pool operator, which has been reduced by the transaction fee retained by the pool operator, for Greenidge's pro rata contribution of computing power to the mining pool operator for the successful solution of the current algorithm. Providing computing power in digital asset transaction verification services is an output of Greenidge's ordinary activities. The provision of providing such computing power is the only performance obligation in Greenidge's contracts with mining pool operators. The cryptocurrency that Greenidge receives as transaction consideration is noncash consideration, which Greenidge measures at fair value on the date received, which is not materially different than the fair value at the contract inception or the time Greenidge has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and Greenidge receives confirmation of the consideration it will receive, at which time revenue is recognized. Pool fees paid by miners to pooling operators are based on a fixed percentage of the theoretical bitcoin block reward and network transaction fees received by miners. Pooling fees are netted against daily bitcoin payouts. Greenidge does not expect any material future changes in pool fee percentages paid to pooling operators. Fair value of the cryptocurrency award received is determined using the quoted price on Greenidge's primary exchange of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance underU.S. GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, Greenidge may be required to change its policies, which could have an effect on the Company's consolidated financial position and results of operations. 60 --------------------------------------------------------------------------------
Power and capacity revenue
Greenidge recognizes power revenue at a point in time when the electricity is delivered to the NYISO and its performance obligation is met. Greenidge recognizes revenue on capacity agreements over the life of the contract as its series of performance obligations are met as capacity to provide power is maintained. Sales tax, value-added tax, and other taxes Greenidge collects concurrent with revenue-producing activities are excluded from revenue. Incidental contract costs that are not material in the context of the delivery of goods and services are recognized as expense. There is no significant financing component in these transactions.
Valuation of Long-Lived Assets
In accordance with ASC 360-10, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of a long-lived asset, management evaluates whether the estimated future undiscounted net cash flows, based on prevailing market conditions, from the asset are less than its carrying amount. If impairment is indicated, the long-lived asset is written down to fair value. During 2023, we determined that triggering events had occurred as ofJune 30, 2022 andDecember 31, 2022 due to the negative impact on our cash flows resulting from the significant market declines in the price of bitcoin and increases in natural gas and energy costs during those periods. For the purposes of performing the recoverability test we consider all the long-lived assets of the Company to be a single asset group as we operate as an integrated power and crypto datacenter operations business and this grouping represents the lowest level of identifiable independent cash flows. We concluded that projected undiscounted cash flows did not support the recoverability of the long-lived assets as ofJune 30, 2022 andDecember 31, 2022 ; therefore, a valuation was performed using the market approach in order to determine the fair value of the asset grouping. The carrying value exceeded the fair value of the asset group and impairment loss was recorded for the difference in the carrying value and fair value. The Company recognized a noncash impairment charge of$176.3 million for the year endedDecember 31, 2022 .
Environmental Liability
We recognize environmental liabilities in accordance with ASC 410-30, Asset Retirement and Environmental Obligations. As ofDecember 31, 2022 , we have recognized environmental liabilities for a coal ash pond and landfill which were inherited due to the legacy coal operations at the Company's property in the Town of Torrey,New York . These costs are considered to be both probable and estimable. We have recorded a total environmental liability of$28.0 million and$11.3 million as ofDecember 31, 2022 andDecember 31, 2021 , respectively for the remediation of these sites. The Company has estimated the cost of remediation by developing a remediation plan in consultation with environmental engineers, periodically obtaining quotes for estimated construction costs and adjusting estimates for inflationary factors based on the expected timing of the remediation work. Estimates include anticipated post-closure costs including monitoring and maintenance of the site. Estimates are based on various assumptions that are sensitive to changes including, but not limited to, closure and post-closure cost estimates, timing of expenditures, escalation factors, and requirements of granted permits. Additional material adjustments to the environmental liability may occur in the future due to required changes to the scope and timing of the remediation, changes to regulations governing the closure and remediation of CCR sites and changes to cost estimates due to inflationary or other economic factors.
Emerging Growth Company Status
We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
•have an auditor report on our internal controls over financial reporting pursuant to Section404(b) of the Sarbanes-Oxley Act;
•comply with any requirement that may be adopted by the
•submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay," "say-on-frequency" and pay ratio; and
•disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.
61
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In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards.
In other words, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private
companies. We have elected to take advantage of the benefits of this extended
transition period. Our financial statements may therefore not be comparable to
those of companies that comply with such new or revised accounting standards.
•We will remain an "emerging growth company" for up to five years, or until the
earliest of (i) the last day of the first fiscal year in which our total annual
gross revenues exceed $1.235 billion , (ii) the date that we become a "large
accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would
occur if the market value of our class A common stock that are held by
non-affiliates exceeds $700 million as of the last business day of our most
recently completed second fiscal quarter, or (iii) the date on which we have
issued more than $1 billion in non-convertible debt during the preceding three
year period.
Off-Balance Sheet Arrangements
As of
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