10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-39625

 

CIPHER MINING INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

85-1614529

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1 Vanderbilt Avenue, Floor 54

New York, New York

10017

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (332) 262-2300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

CIFR

 

The Nasdaq Stock Market LLC

Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per whole share

 

CIFRW

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 6, 2024, the registrant had 310,029,275 shares of Common Stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

4

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statement of Changes in Stockholder’s Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in 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”). All statements contained in this Quarterly Report, other than statements of historical fact, including, without limitation, statements regarding our future results of operations and financial position, business strategy, timing and likelihood of success, potential expansion of or additional bitcoin mining data centers, expectations regarding the operations of mining centers, and management plans and objectives are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “seeks,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements use these words or expressions. The forward-looking statements in this Quarterly Report are only predictions and are largely based on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements 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, the following:

The further development and acceptance of digital asset networks and other digital assets, which represent a rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of digital asset systems may adversely affect an investment in us.
We may face several risks due to disruptions in the crypto asset markets, including but not limited to, the risk from depreciation in our stock price, financing risk, risk of increased losses or impairments in our investments or other assets, risks of legal proceedings and government investigations, and risks from price declines or price volatility of crypto assets.
Our business and the markets in which we operate are new and rapidly evolving, which makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.
Any unfavorable global economic, business or political conditions, such as geopolitical tensions, military conflicts, acts of terrorism, natural disasters, pandemics (like the COVID-19 pandemic), and similar events could adversely affect our business, financial condition and results of operations.
If we fail to grow our hashrate, we may be unable to compete, and our results of operations could suffer.
Bitcoin mining activities are energy-intensive, which may restrict the geographic locations of miners and have a negative environmental impact. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations, such as ours, increase taxes on the purchase of electricity used to mine bitcoin, or even fully or partially ban mining operations.
We have concentrated our operations and, thus, are particularly exposed to the performance of the Odessa Facility and changes in the regulatory environment, market conditions and natural disasters in Texas.
Our operating results may fluctuate due to the highly volatile nature of cryptocurrencies in general and, specifically, bitcoin.
We depend on third parties, including electric grid operators, electric utility providers and manufacturers of certain critical equipment and rely on components and raw materials that may be subject to price fluctuations or shortages, including ASIC chips that have been subject to periods of significant shortage and high innovation pace.
We may be affected by price fluctuations in the wholesale and retail power markets.
We are vulnerable to severe weather conditions and natural disasters, including severe heat, winter weather events, earthquakes, fires, floods, hurricanes, as well as power outages and other industrial incidents or mechanical failures, which could severely disrupt the normal operation of our business and adversely affect our results of operations.
We are exposed to risks related to disruptions or other failures in the supply chain for bitcoin mining hardware and related data center hardware, and difficulties in obtaining new hardware.
Bitcoin miners and other necessary hardware are subject to malfunction, technological obsolescence and physical degradation.
Our automated processes with respect to curtailment may adversely affect our operations.
The properties in our mining network may experience damages, including damages that are not covered by insurance.

1


 

Our business is subject to the impact of global market, economic and political conditions that are beyond our control and that could significantly impact our business and make our financial results more volatile.
We maintain our cash and cash equivalents at financial institutions, often in balances that exceed federally insured limits.
Cybersecurity threats, such as cyber-attacks, data breaches, hacking attacks or malware, targeting us or our third-party service providers may disrupt our operations and trigger significant liability for us, which could harm our operating results and financial condition, and damage our reputation or otherwise materially harm our business.
The value of bitcoin has historically been subject to wide swings, and our operating results may be adversely affected by our hedging activity.
There is a potential that, in the event of a bankruptcy filing by a custodian, bitcoin held in custody could be determined to be property of a bankruptcy estate and we could be considered a general unsecured creditor thereof.
Regulatory changes or actions may restrict the use of bitcoin in a manner that adversely affects our business, prospects or operations.
We have identified a material weakness in our internal control over financial reporting which, if not timely remediated, may adversely affect the accuracy and reliability of our future financial statements, and our reputation, business and the price of our common stock, as well as may lead to a loss of investor confidence in us.
The important factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2024 (the “2023 Form 10-K”) and our other reports filed with the SEC.

The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of any new information, future events or otherwise.

2


 

WHERE YOU CAN FIND MORE INFORMATION

Our corporate website address is https://www.ciphermining.com (“Corporate Website”). The contents of, or information accessible through, our Corporate Website are not part of this Quarterly Report.

The Company maintains a dedicated investor website at https://investors.ciphermining.com/investors (“Investors’ Website”) which is similarly not part of this Quarterly Report. We make our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, available free of charge on our Investors’ Website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC.

We may use our Investors’ Website as a distribution channel of material information about the Company including through press releases, investor presentations, sustainability reports, and notices of upcoming events. We intend to utilize our Investors’ Website as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD.

Any reference to our Corporate Website or Investors’ Website addresses do not constitute incorporation by reference of the information contained on or available through those websites, and you should not consider such information to be a part of this Quarterly Report or any other filings we make with the SEC.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

CIPHER MINING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share amounts)

 

 

March 31, 2024

 

 

December 31, 2023

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

88,675

 

 

$

86,105

 

Accounts receivable

 

680

 

 

 

622

 

Receivables, related party

 

430

 

 

 

245

 

Prepaid expenses and other current assets

 

2,910

 

 

 

3,670

 

Bitcoin

 

123,307

 

 

 

32,978

 

Derivative asset

 

34,228

 

 

 

31,878

 

Total current assets

 

250,230

 

 

 

155,498

 

Property and equipment, net

 

238,541

 

 

 

243,815

 

Deposits on equipment

 

30,187

 

 

 

30,812

 

Intangible assets, net

 

8,162

 

 

 

8,109

 

Investment in equity investees

 

52,621

 

 

 

35,258

 

Derivative asset

 

66,722

 

 

 

61,713

 

Operating lease right-of-use asset

 

6,823

 

 

 

7,077

 

Security deposits

 

23,855

 

 

 

23,855

 

Total assets

$

677,141

 

 

$

566,137

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

7,520

 

 

$

4,980

 

Accounts payable, related party

 

-

 

 

 

1,554

 

Accrued expenses and other current liabilities

 

18,661

 

 

 

22,439

 

Finance lease liability, current portion

 

3,595

 

 

 

3,404

 

Operating lease liability, current portion

 

1,204

 

 

 

1,166

 

Warrant liability

 

-

 

 

 

250

 

Total current liabilities

 

30,980

 

 

 

33,793

 

Asset retirement obligation

 

18,708

 

 

 

18,394

 

Finance lease liability

 

10,121

 

 

 

11,128

 

Operating lease liability

 

6,025

 

 

 

6,280

 

Deferred tax liability

 

10,383

 

 

 

5,206

 

Total liabilities

 

76,217

 

 

 

74,801

 

Commitments and contingencies (Note 13)

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding as of March 31, 2024 and December 31, 2023

 

-

 

 

 

-

 

Common stock, $0.001 par value, 500,000,000 shares authorized, 312,649,102 and 296,276,536 shares issued as of March 31, 2024 and December 31, 2023, respectively, and 306,543,330 and 290,957,862 shares outstanding as of March 31, 2024, and December 31, 2023, respectively

 

313

 

 

 

296

 

Additional paid-in capital

 

697,494

 

 

 

627,822

 

Accumulated deficit

 

(96,877

)

 

 

(136,777

)

Treasury stock, at par, 6,105,772 and 5,318,674 shares at March 31, 2024 and December 31, 2023, respectively

 

(6

)

 

 

(5

)

Total stockholders’ equity

 

600,924

 

 

 

491,336

 

Total liabilities and stockholders’ equity

$

677,141

 

 

$

566,137

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

CIPHER MINING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share and per share amounts)

(unaudited)

 

 

Three months ended March 31,

 

 

2024

 

 

2023

 

 Revenue - bitcoin mining

$

48,137

 

 

$

21,895

 

 Costs and operating expenses (income)

 

 

 

 

 

 Cost of revenue

 

14,820

 

 

 

8,141

 

 Compensation and benefits

 

13,036

 

 

 

11,937

 

 General and administrative

 

6,077

 

 

 

5,483

 

 Depreciation and amortization

 

17,244

 

 

 

11,655

 

 Change in fair value of derivative asset

 

(7,359

)

 

 

(5,328

)

 Power sales

 

(1,173

)

 

 

(98

)

 Equity in (gains) losses of equity investees

 

(738

)

 

 

750

 

 Gains on fair value of bitcoin

 

(40,556

)

 

 

(4,264

)

 Other gains

 

-

 

 

 

(2,260

)

 Total costs and operating expenses (income)

 

1,351

 

 

 

26,016

 

 Operating income (loss)

 

46,786

 

 

 

(4,121

)

 Other income (expense)

 

 

 

 

 

 Interest income

 

786

 

 

 

76

 

 Interest expense

 

(400

)

 

 

(401

)

 Change in fair value of warrant liability

 

250

 

 

 

(37

)

 Other expense

 

(1,958

)

 

 

-

 

 Total other income (expense)

 

(1,322

)

 

 

(362

)

 Income (loss) before taxes

 

45,464

 

 

 

(4,483

)

 Current income tax expense

 

(386

)

 

 

(17

)

 Deferred income tax expense

 

(5,178

)

 

 

(53

)

 Total income tax expense

 

(5,564

)

 

 

(70

)

 Net income (loss)

$

39,900

 

 

$

(4,553

)

 Net income (loss) per share - basic and diluted

$

0.13

 

 

$

(0.02

)

 Weighted average shares outstanding - basic

 

296,641,499

 

 

 

248,654,082

 

 Weighted average shares outstanding - diluted

 

304,397,979

 

 

 

248,654,082

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

CIPHER MINING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except for share amounts)

(unaudited)

 

 

Three Months Ended March 31, 2024

 

Common Stock

 

 

Additional

 

 

 

 

 

Treasury Stock

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Accumulated Deficit

 

 

Shares

 

 

Amount

 

 

Stockholders’ Equity

 

Balance as of December 31, 2023

 

296,276,536

 

 

$

296

 

 

$

627,822

 

 

$

(136,777

)

 

 

(5,318,674

)

 

$

(5

)

 

$

491,336

 

Issuance of common shares, net of offering costs - At-the-market offering

 

14,246,235

 

 

 

14

 

 

 

64,532

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

64,546

 

Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement

 

2,059,390

 

 

 

3

 

 

 

(3,177

)

 

 

-

 

 

 

(787,098

)

 

 

(1

)

 

 

(3,175

)

Share-based compensation

 

66,941

 

 

 

-

 

 

 

8,317

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,317

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

39,900

 

 

 

-

 

 

 

-

 

 

 

39,900

 

Balance as of March 31, 2024

 

312,649,102

 

 

$

313

 

 

$

697,494

 

 

$

(96,877

)

 

 

(6,105,772

)

 

$

(6

)

 

$

600,924

 

 

Three Months Ended March 31, 2023

 

Common Stock

 

 

Additional

 

 

 

 

 

Treasury Stock

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Accumulated Deficit

 

 

Shares

 

 

Amount

 

 

Stockholders’ Equity

 

Balance as of December 31, 2022

 

251,095,305

 

 

$

251

 

 

$

453,854

 

 

$

(111,209

)

 

 

(3,543,347

)

 

$

(4

)

 

$

342,892

 

Cumulative effect upon adoption of ASU 2023-08

 

-

 

 

 

-

 

 

 

-

 

 

 

209

 

 

 

-

 

 

 

-

 

 

 

209

 

Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement

 

1,954,783

 

 

 

2

 

 

 

(483

)

 

 

-

 

 

 

(600,734

)

 

 

-

 

 

 

(481

)

Share-based compensation

 

-

 

 

 

-

 

 

 

8,810

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,810

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,553

)

 

 

-

 

 

 

-

 

 

 

(4,553

)

Balance as of March 31, 2023

 

253,050,088

 

 

$

253

 

 

$

462,181

 

 

$

(115,553

)

 

 

(4,144,081

)

 

$

(4

)

 

$

346,877

 

 

 

 

 

6


 

CIPHER MINING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

Three months ended March 31,

 

 

2024

 

 

2023

 

 Cash flows from operating activities

 

 

 

 

 

 Net income (loss)

$

39,900

 

 

$

(4,553

)

 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 Depreciation

 

17,097

 

 

 

11,655

 

 Amortization of intangible assets

 

147

 

 

 

-

 

 Amortization of operating right-of-use asset

 

254

 

 

 

222

 

 Share-based compensation

 

8,317

 

 

 

8,810

 

 Equity in (gains) losses of equity investees

 

(738

)

 

 

750

 

 Non-cash lease expense

 

392

 

 

 

401

 

 Other operating activities

 

1,958

 

 

 

-

 

 Income taxes

 

5,564

 

 

 

53

 

 Bitcoin received as payment for services

 

(48,079

)

 

 

(21,717

)

 Change in fair value of derivative asset

 

(7,359

)

 

 

(5,328

)

 Change in fair value of warrant liability

 

(250

)

 

 

37

 

 Gains on fair value of bitcoin

 

(40,556

)

 

 

(4,264

)

 Changes in assets and liabilities:

 

 

 

 

 

 Accounts receivable

 

(58

)

 

 

(183

)

 Receivables, related party

 

(185

)

 

 

(189

)

 Prepaid expenses and other current assets

 

760

 

 

 

2,975

 

 Security deposits

 

-

 

 

 

(12

)

 Accounts payable

 

2,540

 

 

 

2,913

 

 Accounts payable, related party

 

-

 

 

 

(1,529

)

 Accrued expenses and other current liabilities

 

(6,123

)

 

 

65

 

 Lease liabilities

 

(217

)

 

 

(248

)

 Net cash used in operating activities

 

(26,636

)

 

 

(10,142

)

 Cash flows from investing activities

 

 

 

 

 

 Proceeds from sale of bitcoin

 

-

 

 

 

20,958

 

 Deposits on equipment

 

(4,536

)

 

 

(1,106

)

 Purchases of property and equipment

 

(7,902

)

 

 

(17,947

)

 Purchases and development of software

 

(200

)

 

 

-

 

 Capital distributions from equity investees

 

-

 

 

 

3,807

 

 Investment in equity investees

 

(18,319

)

 

 

(3,094

)

 Net cash (used in) provided by investing activities

 

(30,957

)

 

 

2,618

 

 Cash flows from financing activities

 

 

 

 

 

 Proceeds from the issuance of common stock

 

66,171

 

 

 

-

 

 Offering costs paid for the issuance of common stock

 

(1,623

)

 

 

-

 

 Repurchase of common shares to pay employee withholding taxes

 

(3,177

)

 

 

(481

)

 Principal payments on financing lease

 

(1,208

)

 

 

-

 

 Net cash provided by (used in) financing activities

 

60,163

 

 

 

(481

)

 Net increase (decrease) in cash and cash equivalents

 

2,570

 

 

 

(8,005

)

 Cash and cash equivalents, beginning of the period

 

86,105

 

 

 

11,927

 

 Cash and cash equivalents, end of the period

$

88,675

 

 

$

3,922

 

 

 

Three months ended March 31,

 

 

2024

 

 

2023

 

 Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 Reclassification of deposits on equipment to property and equipment

$

5,161

 

 

$

71,533

 

 Bitcoin received from equity investees

$

1,694

 

 

$

317

 

 Settlement of related party payable related to master services and supply agreement

$

1,554

 

 

$

-

 

 Equity method investment acquired for non-cash consideration

$

-

 

 

$

1,925

 

 Property and equipment purchases in accounts payable, accounts payable, related party and accrued expenses

$

-

 

 

$

5,940

 

 Deposits on equipment in accounts payable, accounts payable, related party and accrued expenses

$

-

 

 

$

691

 

 Finance lease cost in accrued expenses

$

-

 

 

$

1,017

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1. ORGANIZATION

Nature of operations

Cipher Mining Inc. (“Cipher” or the “Company”) is an emerging technology company that develops and operates industrial scale bitcoin mining data centers. The Company operates or jointly operates four bitcoin mining data centers in Texas including one wholly-owned data center and three partially-owned data centers that were acquired through investments in joint ventures. Bitcoin mining is the Company’s principal revenue generating business activity. The Company began deployment of capacity in the first quarter of 2022, with mining operations beginning at the partially-owned Alborz facility in February 2022 (the “Alborz Facility”). In August 2022, installation of the last mining rigs delivered to the Alborz Facility was completed. In October 2022, installation at the partially-owned Bear facility (the “Bear Facility”) and the partially-owned Chief facility (the “Chief Facility”) were also completed. In November 2022, the Company began bitcoin mining operations at the wholly-owned Odessa facility (the “Odessa Facility”). In September 2023, the Company finalized the buildout of the operations at the Odessa Facility. In December 2023, the Company announced the acquisition of a site for a new wholly-owned data center in Winkler County, Texas, the “Black Pearl Facility”, which is expected to commence operations in 2025.

Cipher Mining Technologies Inc. (“CMTI”) was established on January 7, 2021, in Delaware, by Bitfury Top HoldCo B.V. and its subsidiaries (“Bitfury Top HoldCo” and, with its subsidiaries, the “Bitfury Group”). Bitfury Top HoldCo (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to herein as “Bitfury Holding”) beneficially owned approximately 38.8% of the Company’s common stock, $0.001 par value per share (“Common Stock”), as of March 31, 2024.

Out-of-period-adjustments

Cost of revenue and power sales for the three months ended March 31, 2023 included out-of-period adjustments of approximately $1.0 million and $0.6 million, respectively, that increased both cost of revenue and power sales on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2023, and resulted in net increases to operating loss and loss before taxes of approximately $0.4 million during the same period. These out-of-period adjustments related to power costs and power sales for the year ended December 31, 2022 at the Company’s Odessa Facility, which are invoiced on a net basis by the Company’s power provider. Management evaluated the impact of this error on the Company’s previously issued audited consolidated financial statements for the year ended December 31, 2022, as well as on its unaudited condensed consolidated financial statements for the three months ended March 31, 2023, assessing the error both quantitatively and qualitatively, and concluded that the error was not material to the financial statements for either period.

Risks and uncertainties

Liquidity, capital resources and limited business history

The Company has historically experienced net losses and negative cash flows from operations. As of March 31, 2024, the Company had approximate balances of cash and cash equivalents of $88.7 million, working capital of $219.3 million, total stockholders’ equity of $600.9 million and an accumulated deficit of $96.9 million. In prior years, the Company, in large part, relied on proceeds from the consummation of its business combination with GWAC to fund its operations; however, during the fiscal year ended December 31, 2023, the Company used proceeds from sales of bitcoin earned by or received from its bitcoin mining data centers, as well as strategic sales of shares through “at-the-market” offerings to support its operating expenses and capital expenditures. During the three months ended March 31, 2024, the Company has used “at-the-market” offerings at strategic times to raise cash, but has not sold bitcoin for additional funds.

The Company monitors its balance sheet on an ongoing basis to determine the proper mix of bitcoin retention and bitcoin sales to support its cash requirements, ongoing operations, and capital expenditures. Bitcoin is classified as a current asset on the Company’s balance sheets due to its intent and ability to sell bitcoin to support operations when needed. Approximately $26.6 million of cash was used for operating activities during the three months ended March 31, 2024.

During the three months ended March 31, 2024, the Company paid approximately $4.5 million for deposits on equipment in connection with new miner purchases for its Odessa Facility, and reclassified approximately $5.2 million to property and equipment related to these miners being placed into service.

On August 14, 2023, the Company, through CMTI, entered into a master loan agreement with Coinbase Credit, Inc., as lender, and Coinbase, Inc., as lending service provider, for a secured credit line up to $10.0 million (the “Credit Facility”). See Note 13.

8


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Commitments and Contingencies for additional information regarding the Credit Facility. As of March 31, 2024, the Company has not drawn upon the Credit Facility.

Management believes that the Company’s existing financial resources, including access to the Credit Facility, combined with projected cash and bitcoin inflows from its data centers and its ability to sell bitcoin received or earned, will be sufficient to enable the Company to meet its operating and capital requirements for at least 12 months from the date these unaudited condensed consolidated financial statements are issued.

There is limited historical financial information about the Company upon which to base an evaluation of its performance. The business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in exploration and/or development, and possible cost overruns due to price and cost increases in services. The Company may require additional capital to pursue certain business opportunities or respond to technological advancements, competitive dynamics or technologies, challenges, acquisitions or unforeseen circumstances. Additionally, the Company has incurred and expects to continue to incur significant costs related to operating as a public company. Accordingly, the Company may engage in equity or debt financings or enter into credit facilities for the above-mentioned or other reasons; however, the Company may not be able to timely secure additional debt or equity financings on favorable terms, if at all. If the Company raises additional funds through equity financing, its existing stockholders could experience significant dilution. Furthermore, any debt financing obtained by the Company in the future could involve restrictive covenants relating to the Company’s capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities. If the Company is unable to obtain adequate financing on terms that are satisfactory to the Company, when the Company requires it, the Company’s ability to continue to grow or support the business and to respond to business challenges could be significantly limited, which may adversely affect the Company’s business plan.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The Company prepares its unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) as determined by the FASB and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its controlled subsidiaries, including CMTI. All intercompany transactions and balances have been eliminated.

Certain prior year amounts have been reclassified for consistency with the current period presentation. Effective for the quarter ended March 31, 2024, the Company changed the presentation of its condensed consolidated income statement to separately disclose Compensation and benefits from General and administrative. The Company believes this presentation provides increased transparency on the nature of the respective financial statement line items. As a result, the Company reported $11.9 million as Compensation and benefits for the three months ended March 31, 2023 which was previously reported in General and administrative.

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

 

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates inherent in the preparation of the Company’s financial statements include, but are not limited to, those related to equity instruments issued in share-based compensation arrangements, valuation of its derivative asset and warrant liability under Level 3 of the fair value hierarchy, useful lives of property

9


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

and equipment, the asset retirement obligation and the valuation allowance associated with the Company’s deferred tax assets, among others. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

Unaudited condensed consolidated financial statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, these unaudited condensed consolidated financial statements reflect all adjustments, which consist of only normal recurring adjustments necessary for the fair presentation of the balances and results for the periods presented. These unaudited condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

A description of the Company’s significant accounting policies is included in the Company’s 2023 Form 10-K. You should read the unaudited condensed consolidated financial statements in conjunction with the Company’s audited consolidated financial statements and accompanying notes in the Company’s 2023 Form 10-K. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the Company’s audited consolidated financial statements included in the Company’s 2023 Form 10-K.

Segment information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is comprised of several members of its executive management team. The Company views its operations and manages its business in one segment.

Income (loss) per share

Basic net income (loss) per share is computed by dividing net income (loss) allocated to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share adjusts net income (loss) and net income (loss) per common share for the effect of all potentially dilutive shares of Common Stock. Potential common shares consist of the Company’s outstanding warrants to purchase Common Stock, as well as unvested restricted stock units (“RSUs”).

 

The dilutive effect of RSUs was calculated using the treasury stock method. For warrants that are liability-classified, during periods when the impact is dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.

 

The Company’s potential common shares have been excluded from the computation of diluted net loss per common share for the three months ended March 31, 2023, as the effect would be to reduce the net loss per common share.

 

The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods indicated below:

 

10


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Basic and diluted income (loss) per share:

 

 

 

 

 

 

Net income (loss)

 

$

39,900

 

 

$

(4,553

)

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

296,641,499

 

 

248,654,082

 

Add:

 

 

 

 

 

 

RSUs

 

 

7,756,480

 

 

-

 

Weighted average shares outstanding - diluted

 

 

304,397,979

 

 

 

248,654,082

 

 

 

 

 

Net income (loss) per share - basic

 

$

0.13

 

 

$

(0.02

)

Net income (loss) per share - diluted

 

$

0.13

 

 

$

(0.02

)

The following table presents the common shares that are excluded from the computation of diluted net income (loss) per common share at March 31, 2024 and 2023, because including them would have been antidilutive.

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Public warrants

 

 

8,613,980

 

 

 

8,499,980

 

Private placement warrants

 

 

-

 

 

 

114,000

 

Unvested RSUs

 

 

-

 

 

 

18,541,618

 

 

 

 

8,613,980

 

 

 

27,155,598

 

Recently issued and adopted accounting pronouncements

In December 2023, the FASB issued ASU 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). The Company adopted ASU 2023-08 effective January 1, 2023, as reflected in the Company’s Form 10-K for the year ended December 31, 2023. The adoption resulted in a $0.2 million adjustment to opening Retained earnings on January 1, 2023, as well as a reduction of Operating loss, and Net loss of $2.0 million, and a reduction of Basic and diluted net loss per share of $0.01 as reported for the three months ended March 31, 2023.

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes to determine the consequences of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change. The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on its condensed consolidated financial statements.

NOTE 3. BITCOIN

The following table presents information about the Company’s bitcoin (in thousands):

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Opening balance

 

$

32,978

 

 

$

6,283

 

Cumulative effect upon adoption of ASU 2023-08

 

 

-

 

 

 

209

 

Bitcoin received from equity investees

 

 

1,694

 

 

 

317

 

Revenue recognized from bitcoin mined, net of receivable

 

 

48,079

 

 

 

21,717

 

Proceeds from sale of bitcoin

 

 

-

 

 

 

(20,958

)

Change in fair value of bitcoin

 

 

40,556

 

 

 

4,265

 

Ending balance

 

$

123,307

 

 

$

11,833

 

The Company held approximately 1,730, and 780 bitcoin at March 31, 2024, and December 31, 2023, respectively. The associated fair value and cost basis of bitcoin held was $123.3 million, and $80.7 million, respectively, at March 31, 2024, and $33.0 million, and $30.9 million, respectively at December 31, 2023. Fair value of bitcoin is estimated using the closing price of bitcoin, which is a Level 1 input (i.e., an observable input such as a quoted price in an active market for an identical asset).

11


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The Company may pledge bitcoin as collateral related to bitcoin trading strategies. As of March 31, 2024, 67 bitcoin with a fair value of $4.8 million were pledged. Restrictions on that collateral lapsed on April 1, 2024. As of December 31, 2023, 10 bitcoin with a fair value of $0.4 million were pledged. Restrictions on that collateral lapsed on January 26, 2024.

NOTE 4. DERIVATIVE ASSET

Luminant Power Agreement

On June 23, 2021, the Company entered into a power purchase agreement with Luminant ET Services Company LLC (“Luminant”), which was subsequently amended and restated on July 9, 2021, and further amended on February 28, 2022, August 26, 2022 and August 23, 2023 (as amended, the “Luminant Power Agreement”), for the supply of a fixed amount of electric power to the Odessa Facility at a fixed price for a term of five years, subject to certain early termination provisions. The Luminant Power Agreement provides for a subsequent automatic annual renewal unless either party provides written notice to the other party of its intent to terminate the agreement at least six months prior to the expiration of the then current term. Starting from July 1, 2022, and prior to the receipt of interconnection approval from the Electric Reliability Council of Texas (“ERCOT”), under the take or pay framework of the Luminant Power Agreement and pursuant to the ramp-up schedule agreed to between Luminant and Cipher, Luminant began sales of the scheduled energy in the ERCOT market.

Because ERCOT allows for net settlement, the Company’s management determined that, as of July 1, 2022, the Luminant Power Agreement met the definition of a derivative under ASC 815, Derivatives and Hedging (“ASC 815”). Because the Company has the ability to sell its electricity in the ERCOT market rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, the Company’s management does not believe the normal purchases and normal sales scope exception applies to the Luminant Power Agreement. Accordingly, the Luminant Power Agreement (the non-hedging derivative contract) is recorded at its estimated fair value each reporting period with the change in the fair value recorded in change in fair value of derivative asset in the consolidated statements of operations. See additional information regarding valuation of the Luminant Power Agreement derivative in Note 17. Fair Value Measurements.

Depending on the spot market price of electricity, the Company may opportunistically sell electricity in the ERCOT market in exchange for cash payments, rather than utilizing the power to mine for bitcoin at the Odessa Facility during peak times in order to most efficiently manage the Company’s operating costs. The Company earned approximately $1.2 million and $0.1 million, from power sales for the three months ended March 31, 2024, and 2023, respectively, and recorded this amount in power sales within costs and operating expenses (income) on the unaudited condensed consolidated statement of operations, with the corresponding cost of the power sold recorded in cost of revenue. See Note 1. Organization for information regarding the out-of-period adjustments recorded during the three months ended March 31, 2023, which affected cost of power, power sales, net operating loss and net loss on the Company’s unaudited condensed consolidated statement of operations.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Miners and mining equipment

 

$

168,684

 

 

$

163,523

 

Leasehold improvements

 

 

137,496

 

 

 

138,883

 

Office and computer equipment

 

 

279

 

 

 

279

 

Autos

 

 

73

 

 

 

73

 

Furniture and fixtures

 

 

88

 

 

 

88

 

Construction-in-progress

 

 

7,784

 

 

 

49

 

Total cost of property and equipment

 

 

314,404

 

 

 

302,895

 

Less: accumulated depreciation

 

 

(75,863

)

 

 

(59,080

)

Property and equipment, net

 

$

238,541

 

 

$

243,815

 

During the three months ended March 31, 2024, the Company added approximately $7.7 million of construction-in-progress related to the Black Pearl Facility. Depreciation expense was approximately $17.1 million and $11.7 million, respectively, for the three months ended March 31, 2024 and 2023, and included approximately $0.8 million, and $0.4 million respectively, of accretion expense related to the Company’s asset retirement obligation.

12


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 6. DEPOSITS ON EQUIPMENT

On October 4, 2023, the Company entered into an agreement with Bitmain to purchase 1.2 EH/s worth of miners for a total purchase price of $24.0 million to be paid in cash and coupons, or $16.8 million in cash after applying coupons. Related to this agreement, the Company has made installment payments of $13.0 million, $5.2 million of which has been placed into service and reclassified into Property and equipment as of March 31, 2024. The remaining batches of miners are expected to be delivered by June 2024.

On December 18, 2023, the Company entered into a second agreement with Bitmain to purchase 7.1 EH/s of the latest generation miners to be delivered in the first half of 2025. The Company paid a deposit of $9.9 million upon execution of the agreement. The agreement has an option to purchase an additional 8.7 EH/s in 2024. The Company paid $12.2 million as a deposit, which can be used towards purchases under this option. As of March 31, 2024, the option has not been exercised.

NOTE 7. INVESTMENTS IN EQUITY INVESTEES

The Company uses the equity method of accounting to account for its 49% equity interest in its partially owned mining operations Alborz LLC, Bear LLC and Chief, LLC (the “Data Center LLCs”).

During fiscal year 2022, the Company contributed miners and mining equipment to the Alborz, Bear and Chief Facilities. The majority of these contributed miners had a fair value that was lower than the cost paid by the Company to obtain them, and the Company recognized losses at the time of the contributions, resulting in basis differences related to the Company’s investments in the Data Center LLCs, which recorded the contributions of equipment from the Company at the historical cost paid by the Company to obtain the equipment. As the Data Center LLCs depreciate the historical cost of these miners on their respective financial statements over the expected depreciation period of five years, the Company accretes these basis differences over the same period and records the accretion amount for each reporting period within equity in losses of equity investees on its statements of operations until these miners are fully depreciated and the corresponding basis differences are fully accreted. As of March 31, 2024, the Company had remaining basis differences totaling approximately $23.1 million that have not yet been accreted.

Activity in the Company’s investments in equity investees during the three months ended March 31, 2024, and 2023, consisted of the following (in thousands):

 

Balance as of December 31, 2022

 

$

37,478

 

Cost of contributed mining equipment and other capital contributions

 

 

1,925

 

Accretion of basis differences related to miner contributions

 

 

1,670

 

Capital distributions

 

 

(3,807

)

Bitcoin received from equity investees

 

 

(317

)

Equity in net losses of equity investees

 

 

(2,420

)

Balance as of March 31, 2023

 

$

34,529

 

 

 

 

 

Balance as of December 31, 2023

 

$

35,258

 

Cost of contributed mining equipment and other capital contributions

 

 

18,319

 

Accretion of basis differences related to miner contributions

 

 

1,671

 

Capital distributions

 

 

-

 

Bitcoin received from equity investees

 

 

(1,694

)

Equity in net losses of equity investees

 

 

(933

)

Balance as of March 31, 2024

 

$

52,621

 

 

13


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 8. INTANGIBLE ASSETS

The Company’s intangible assets consisted of the following for the dates indicated (in thousands):

 

 

 

 

 

 

March 31, 2024

 

 

 

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Strategic contract

 

$

7,000

 

 

$

(117

)

 

$

6,883

 

Capitalized software

 

 

1,432

 

 

 

(153

)

 

 

1,279

 

Total

 

$

8,432

 

 

$

(270

)

 

$

8,162

 

 

 

 

 

 

 

December 31, 2023

 

 

 

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Strategic contract

 

$

7,000

 

 

$

(28

)

 

$

6,972

 

Capitalized software

 

 

1,230

 

 

 

(93

)

 

 

1,137

 

Total

 

$

8,230

 

 

$

(121

)

 

$

8,109

 

 

The Company recorded amortization expense related to intangible assets of $0.1 million and nil in the three months ended March 31, 2024 and 2023, respectively. The Company expects to record amortization expense as follows over the next five subsequent years (in thousands):

 

 

 

 

 

Remaining Year Ended December 31, 2024

 

$

450

 

Year Ended December 31, 2025

 

 

599

 

Year Ended December 31, 2026

 

 

599

 

Year Ended December 31, 2027

 

 

599

 

Year Ended December 31, 2028

 

 

508

 

 

 

NOTE 9. SECURITY DEPOSITS

The Company’s security deposits consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Luminant Power Purchase Agreement collateral

 

$

12,554

 

 

$

12,554

 

Luminant Purchase and Sale Agreement collateral

 

 

3,063

 

 

 

3,063

 

Operating lease security deposits

 

 

960

 

 

 

960

 

Oncor Facility Extension security deposit related to Black Pearl

 

 

6,269

 

 

 

6,269

 

Other deposits

 

 

1,009

 

 

 

1,009

 

Total security deposits

 

$

23,855

 

 

$

23,855

 

 

NOTE 10. SUPPLEMENTAL FINANCIAL INFORMATION

Prepaid expenses and other current assets were $2.9 million and $3.7 million as of March 31, 2024 and December 31, 2023, respectively, primarily consisting of prepaid insurance in both periods.

14


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The Company’s accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Taxes (primarily sales tax)

 

$

13,804

 

 

$

15,184

 

Power costs

 

 

-

 

 

 

139

 

Due to broker

 

 

1,958

 

 

 

-

 

Employee compensation

 

 

1,768

 

 

 

5,800

 

Legal settlement (1)

 

 

500

 

 

 

1,000

 

Other

 

 

631

 

 

 

316

 

Total accrued expenses and other current liabilities

 

$

18,661

 

 

$

22,439

 

__________

(1) See Note 13. Commitments and Contingencies for additional information regarding the legal settlement accrual as of March 31, 2024.

NOTE 11. RELATED PARTY TRANSACTIONS

Related party receivables

Related party receivables were $0.4 million, and $0.2 million as of March 31, 2024 and December 31, 2023, respectively, consisting of expenses paid on behalf of the Data Center LLCs.

Purchase commitments, deposits on equipment and related party payables

On April 8, 2022, the Company entered into two agreements with Bitfury USA Inc. (“Bitfury USA”), made under, and as a part of, the Master Services and Supply Agreement to purchase BlockBox air-cooled containers. Additionally, Bitfury USA contracted with third-party vendors for the purchase of equipment and the receipt of services related to Cipher’s future mining operations. Pursuant to one of these arrangements between Bitfury USA and a third-party vendor, Paradigm Controls of Texas, LLC (“Paradigm”), the Company made payments directly to Paradigm in place of Bitfury USA, in respect of manufacturing services for BBACs, totaling approximately $5.8 million during the year ended December 31, 2023 and the Company’s obligations to Bitfury USA under the Master Services and Supply Agreement were reduced by the same amount. The Company and Bitfury Top HoldCo terminated the Master Services and Supply Agreement on February 28, 2024, for no additional consideration.

NOTE 12. LEASES

Combined Luminant Lease Agreement

The Company entered into a series of agreements with affiliates of Luminant, including the Lease Agreement dated June 29, 2021, with amendment and restatement on July 9, 2021 and August 23, 2023 (as amended and restated, the “Luminant Lease Agreement”). The Luminant Lease Agreement leases a plot of land to the Company for the data center, ancillary infrastructure and electrical system (the “Interconnection Electrical Facilities” or “substation”) of the Odessa Facility. The Company entered into the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement to build the infrastructure necessary to support its Odessa Facility operations. The Company determined that the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement should be combined for accounting purposes under ASC 842 (collectively, the “Combined Luminant Lease Agreement”) and that amounts exchanged under the combined contract should be allocated to the various components of the overall transaction based on relative fair values.

The Company’s management determined that the Combined Luminant Lease Agreement contains two lease components; and the components should be accounted for together as a single lease component, because the effect of accounting for the land lease separately would be insignificant.

The Combined Luminant Lease Agreement commenced on November 22, 2022 and has an initial term of five years, with renewal provisions that are aligned with the Luminant Power Agreement. Financing for use of the land and substation is provided by Luminant affiliates.

On July 11, 2023, the Company entered into an amendment of the payment schedule to the Luminant Purchase and Sale Agreement, reflecting monthly installments of principal and interest totaling $19.7 million on an undiscounted basis, due over the remaining four-year period starting in July 2023. On August 23, 2023, the Company entered into a second amendment of the Luminant Lease

15


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Agreement, the terms of which included confirming the initial term will end on July 31, 2027. These amendments did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

At the end of the lease term for the Interconnection Electrical Facilities, the substation will be sold back to Luminant’s affiliate, Vistra Operations Company, LLC at a price to be determined based upon bids obtained in the secondary market.

Office headquarters lease

The Company entered into an operating lease for office space located in New York. The lease has an initial term of 64 months and commenced on February 1, 2022. The lease does not provide the Company with renewal options.

Additional lease information

Components of the Company’s lease expenses are as follows (in thousands):

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Finance leases:

 

 

 

 

 

 

Amortization of ROU assets (1)

 

$

761

 

 

$

789

 

Interest on lease liability

 

 

392

 

 

 

401

 

Total finance lease expense

 

 

1,153

 

 

 

1,190

 

Operating leases:

 

 

 

 

 

 

Operating lease expense

 

 

439

 

 

 

371

 

Short-term lease rent expense

 

 

-

 

 

 

83

 

Total operating lease expense

 

 

439

 

 

 

454

 

Total lease expense

 

$

1,592

 

 

$

1,644

 

__________

(1) Amortization of finance lease ROU assets is included within depreciation expense.

The Company did not incur any variable lease costs during any of the periods presented.

Other information related to the Company’s leases is shown below (dollar amounts in thousands):

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Operating cash flows - operating lease

 

$

401

 

 

$

395

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Weighted-average remaining lease term – finance lease (in years)

 

 

3.4

 

 

 

3.7

 

Weighted-average remaining lease term – operating lease (in years)

 

 

5.7

 

 

 

5.8

 

Weighted-average discount rate – finance lease

 

 

11.0

%

 

 

11.0

%

Weighted-average discount rate – operating lease

 

 

9.9

%

 

 

10.0

%

Finance lease ROU assets (1)

 

$

10,399

 

 

$

11,160

 

__________

(1) As of March 31, 2024 and December 31, 2023, the Company had recorded accumulated amortization of approximately $2.0 million and $1.3 million, respectively, for the finance lease ROU assets. Finance lease ROU assets are recorded within property and equipment, net on the Company’s consolidated balance sheets.

 

As of March 31, 2024, future minimum lease payments during the next five years are as follows (in thousands):

 

16


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

Finance Lease

 

 

Operating Lease

 

 

Total

 

Year Ended December 31, 2024

 

$

3,626

 

 

$

1,428

 

 

$

5,054

 

Year Ended December 31, 2025

 

 

4,834