GREENIDGE GENERATION HOLDINGS INC. The following discussion should be read together with the audited financial statements and the related notes thereto ofGreenidge Generation Holdings Inc. ("Greenidge"), together with its consolidated subsidiaries (the "Company") for the years endedDecember 31, 2021 and 2020 included in our Annual Report on Form 10-K and the unaudited interim financial statements and related notes thereto of the Company for the three and six months endedJune 30, 2022 and 2021 included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains certain forward-looking statements that reflect plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the "Risk Factors" disclosed in Item 1A to Part I of Greenidge's Annual Report on Form 10-K for the year endedDecember 31, 2021 and "Cautionary Statement Regarding Forward-Looking Statements" sections of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. For purposes of this section, "the Company," "we," "us" and "our" refer toGreenidge Generation Holdings Inc. together with its consolidated subsidiaries. You should carefully read "Cautionary Statement Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. Overview Cryptocurrency Datacenter and Power Generation Segment 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") 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. We believe our competitive advantages include relatively low fixed costs, an efficient mining fleet and in-house operational expertise. We are currently 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 ofJune 30, 2022 , we powered approximately 83 MW of mining capacity capable of producing an estimated aggregate hash rate of 2.5 EH/s at our facilities, substantially all of which is dedicated to bitcoin mining. Our Cryptocurrency Datacenter and Power Generation segment generates revenue i) through the exchange of bitcoins earned by application-specific integrated circuit computers ("ASICs" or "miners") as rewards and transaction fees forU.S. dollars and, to a much lesser extent, 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, toNew York State's power grid at prices set on a daily basis through theNew 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 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 Accounting Standards Codification ("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 are expected to continue at elevated levels during 2022. During the three months endedJune 30, 2022 , the price of natural gas increased approximately 53%, which is currently affecting, and has affected, the performance of our business. 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" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and in this Quarterly Report on Form 10-Q. 19 --------------------------------------------------------------------------------
Support Services Segment
EffectiveSeptember 14, 2021 , following the completion of the Merger (see Notes 1 and 3 in this Quarterly Report on Form 10-Q),Support.com began operating within the Company as a separate operating and reporting segment. OurSupport Services segment provides solutions and technical programs to customers delivered by home-based employees.The Support Services segment provides customer service, sales support, and technical support primarily to large corporations, businesses and professional services organizations.The Support Services segment also earns revenues for end-user software products provided through direct customer downloads and sale via partners.The Support Services segment operates primarily inthe United States , but also has employees located inPhilippines ,India ,Mexico ,Columbia andCanada , including staff providing support services. Development Plan Update The Company had mining capacity of approximately 2.5 EH/s from approximately 27,500 miners atJune 30, 2022 . The Company has revised its development plan and now expects to have at least 3.6 EH/s of mining capacity by the first quarter of 2023. The Company expects to have ample mining infrastructure available at its locations inNew York andSouth Carolina to accommodate this capacity and has substantially all of the mining infrastructure equipment on hand including the required transformers, switchgear, PDUs and portable mining structures. Following a planned upgrade of the electrical service at its location inSpartanburg, South Carolina in late 2022 or early 2023, the Company expects to have 50 megawatts of electrical service available at the site. In the second quarter of 2022, the Company began to reduce its inventory of older, less efficient mining equipment in order to free up mining capacity for newer more, efficient miners in its order book. The Company expects this trend to continue during the second half of 2022, and the Company may also consider other assets sales, including but not limited to sales of surplus mining infrastructure equipment, to further enhance its liquidity position.
Title V Air Permit
In lateJune 2022 , theNew York State Department of Environmental Conservation ("NYDEC"), announced its denial of the Title V air permit renewal for our New York Facility. The Company filed a notice with the NYDEC onJuly 28, 2022 requesting a hearing on NYDEC's decision. Having timely completed its application to renew its Title V air permit, the Company is permitted to operate uninterrupted under a State Administrative Procedures Act extension, in full compliance with its existing Title V Air Permit, until four months after final resolution of the adjudicatory hearing process. While no adjudicatory proceedings have been scheduled to date, the Company expects that the appeals process may take a number of years to fully resolve. 20 --------------------------------------------------------------------------------
Results of Operations - Three Months Ended
The following should be read in conjunction with our condensed consolidated
financial statements and related notes. All comparisons below refer to the
second quarter 2022 versus the second quarter 2021, unless otherwise specified.
Three Months Ended June 30, Variance
$ in thousands 2022 2021 $ %
Total revenue $ 31,339 $ 16,176 $ 15,163 94 %
Cost of revenue (exclusive of
depreciation and amortization shown
below) 18,409 4,724 13,685 290 %
Selling, general and administrative
expenses 11,088 3,627 7,461 206 %
Merger and other costs 485 938 (453 ) (48 %)
Depreciation and amortization 4,867 1,603 3,264 204 %
Remeasurement of environmental
liability 11,109 - 11,109 N/A
Impairment of long-lived assets 71,500 - 71,500 N/A
(Loss) income from operations (86,119 ) 5,284 (91,403 ) (1730 %)
Other (expense) income: -
Interest expense, net (6,910 ) (202 ) (6,708 ) (3321 %)
Loss on sale of digital assets (10 ) (154 ) 144 94 %
Gain on sale of assets 629 - 629 N/A
Other income (loss), net 17 (13 ) 30 N/A
Total other expense, net (6,274 ) (369 ) (5,905 ) (1600 %)
(Loss) income before income taxes (92,393 ) 4,915 (97,308 ) N/A
Provision for income taxes 15,489 1,397 14,092 1009 %
Net (loss) income $ (107,882 ) $ 3,518 $ (111,400 ) N/A
Adjusted Amounts (a)
Adjusted (loss) income from operations $ (2,937 ) $ 6,222 $ (9,159 ) N/A
Adjusted operating margin (9.4 %) 38.5 %
Adjusted net (loss) income $ (9,644 ) $ 4,198 $ (13,842 ) N/A
Other Financial Data (a)
EBITDA (loss) $ (80,616 ) $ 6,720 $ (87,336 ) N/A
as a percent of revenues (257.2 %) 41.5 %
Adjusted EBITDA $ 2,872 $ 8,065 $ (5,193 ) N/A
as a percent of revenues 9.2 % 49.9 %
(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's Discussion
and Analysis ("MD&A").
Revenue
Three Months Ended June 30, Variance
$ in thousands 2022 2021 $ %
Cryptocurrency datacenter $ 20,067 $ 14,064 $ 6,003 43 %
Power and capacity 2,859 2,112 747 35 %
Services and other 8,413 - 8,413 N/A
Total revenue $ 31,339 $ 16,176 $ 15,163 94 %
The components of revenue, expressed as a percentage of total revenue were:
Three Months Ended June 30,
2022 2021
Cryptocurrency datacenter 64 % 87 %
Power and capacity 9 % 13 %
Services and other 27 % N/A
Total revenue 100 % 100 %
Total revenue increased $15.2 million , or 94%, to $31.3 million during the three
months ended June 30, 2022 as compared to the prior year period. The increase in
revenue was driven primarily by the Cryptocurrency Datacenter and Power
Generation segment, specifically our cryptocurrency datacenter operations. The
revenue from our cryptocurrency datacenter operations increased due to our
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significantly expanded miner fleet over the last year; however, the growth from
the miner fleet expansion was significantly offset by lower bitcoin prices. The
Support Services segment contributed revenue $8.4 million during the three month
period ended June 30, 2022 as compared to the prior year period in which there
was no related revenue included as it was prior to the Merger.
Refer to the "Segment Results of Operations - Three Months Ended June 30 " of
this MD&A for a more detailed discussion of revenues from the Cryptocurrency
Datacenter and Power Generation segment and the Support Services segment.
Cost of revenue (exclusive of depreciation and amortization)
Three Months Ended June 30, Variance
$ in thousands 2022 2021 $ %
Cryptocurrency datacenter $ 11,664 $ 2,754 $ 8,910 324 %
Power and capacity 3,172 1,970 1,202 61 %
Services and other 3,573 - 3,573 N/A
Total cost of revenue $ 18,409 $ 4,724 $ 13,685 290 %
As a percentage of total revenue 58.7 % 29.2 %
Total cost of revenue, exclusive of depreciation and amortization, increased
$13.7 million , or 290%, to $18.4 million in the three months ended June 30, 2022
as compared to the prior year period due to the significant increase in
cryptocurrency datacenter fleet requiring an increase in the use of megawatt
hours ("MWh"). Additionally, the cost of revenue per MWh (exclusive of
depreciation and amortization) increased significantly for both cryptocurrency
datacenter operations and power and capacity operations primarily due to a
significant increase in the natural gas cost per dekatherm, which increased
approximately 212% in the three months ended June 30, 2022 as compared to the
same period of 2021. The Support Services segment added $3.6 million to total
cost of revenue for the three months ended June 30, 2022 as compared to the
prior year period, in which there were no comparable costs as it was prior to
the Merger.
Total cost of revenue as a percentage of total revenue increased due primarily
to due to the impact of the higher cost of natural gas combined with the lower
price of bitcoin on the Cryptocurrency Datacenter and Power Generation segment.
Selling, general and administrative expenses
Selling, general and administrative expenses increased$7.5 million , or 206%, to$11.1 million for the three months endedJune 30, 2022 as compared to the prior year period. The increased costs are a result of higher headcount and administrative expenses including professional fees associated with being a public company, The Company has also incurred increased costs associated with permits for the Company'sNew York facility.The Support Services segment added$2.8 million to Selling, general and administrative expenses for the three months endedJune 30, 2022 as compared to the prior year period, in which there were no comparable costs as it was prior to the Merger.
Merger and other costs
Merger and other costs represented costs associated with the Merger, as well as professional and other fees associated with becoming a publicly traded company during 2021.
Depreciation and amortization
Depreciation and amortization increased$3.3 million , or 204%, to$4.9 million for the three months endedJune 30, 2022 as compared to the prior year period primarily due to the purchase and deployment of additional miners. Additionally, the Merger increased depreciation and amortization by$0.3 million for the three months endedJune 30, 2022 as compared to the prior year period.
Impairment of long-lived assets
As a result of the significant reduction in the price of bitcoin and increased energy prices during the three months endedJune 30, 2022 , the Company recognized a nonrecurring, noncash impairment of$71.5 million for the assets associated with the Cryptocurrency Datacenter and Power Generation segment to reduce the net book value of the long-lived assets to fair value. Fair value was determined utilizing the market approach. The excess of the book value over the fair value was allocated to the long-lived assets of the Cryptocurrency and Power Generation segment. As a result of the impairment assessment, the Company has reevaluated the useful lives of the long-lived assets and adjusted the lives of the miners from 5 to 3 years and the lives of plant infrastructure from 15 - 39 years to 10 years effectiveJuly 1, 2022 . 22 --------------------------------------------------------------------------------
Remeasurement of environmental liabilities
During the three months endedJune 30, 2022 , the Company recognized a charge of$11.1 million for the remeasurement of an environmental liability as a result of an update in the cost estimates associated to coal combustion residual ("CCR") liabilities associated with the property of our New York Facility as part of our continuing evaluation of the site.
Income (loss) from operations
Greenidge reported a loss from operations of$(86.1) million for the three months endedJune 30, 2022 as compared to income from operations of$5.3 million for the three months endedJune 30, 2021 . The decline in the income (loss) from operations during the three months endedJune 30, 2022 as compared to the prior year period was driven by the nonrecurring, noncash charge of$71.5 million for the impairment of long-lived assets and the$11.1 million charge for the remeasurement of an environmental liability described above, as well as lower gross profit from the cryptocurrency datacenter operations caused by the increased natural gas cost, higher depreciation due to the expansion of the datacenter operations and higher costs to support the growth and cost of becoming a public company. Adjusted loss from operations was$(2.9) million for the three months endedJune 30, 2022 as compared to adjusted income from operations of$6.2 million in the three months endedJune 30, 2021 . The decline in the Adjusted (loss) income from operations during the three months endedJune 30, 2022 of$9.2 million in adjusted operating (loss) income as compared to the same period of 2021 is primarily attributable to higher costs of revenues relative to revenue due to the increased cost of natural gas combined with the decline in the price of bitcoin. Additionally, adjusted (loss) income from operations declined due to higher depreciation and amortization, partially offset by the increased bitcoin mining hash rate. 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 three months endedJune 30, 2022 , Greenidge incurred an increase of$5.9 million of other expense, primarily due to increased interest expense associated with the incurrence of debt to finance the expansion of the mining fleet. Provision for income taxes The Company recognized an income tax provision of$15.5 million , or an effective tax rate of (16.8%) during the three months endedJune 30, 2022 and a provision for income taxes of$1.4 million , or an effective tax rate of 28.4%, during the three months endedJune 30, 2021 due to the recording of a$15.0 million charge for a valuation allowance during the three months endedJune 30, 2022 for deferred tax assets, primarily related to historical net operating loss carryforwards of theSupport.com business that was acquired in 2021, due to the reduced profitability caused by the declines in the price of bitcoin and the increased power costs. The effective tax rates for the three months endedJune 30, 2021 include the recognition of a deferred tax liability caused by the reorganization from a limited liability company to a corporation during the three months endedMarch 31, 2021 .
Net (loss) income
As a result of the factors described above, Greenidge incurred a net loss of$(107.9) million for the three months endedJune 30, 2022 as compared to net income of$3.5 million for the three months endedJune 30, 2021 . On an adjusted basis, excluding the impact of the impairment of long-lived assets, the remeasurement of environmental liabilities, Merger and other costs, expansions costs and the tax charge for a valuation allowance, adjusted net (loss) income during the three months endedJune 30, 2022 would have been($9.6) million as compared to$4.2 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.
Segment Results of Operations - Three Months Ended
The following summary of Segment revenue and Segment Adjusted EBITDA provides a
basis for the discussion that follows. Greenidge evaluates the performance of
its reportable segments based on Adjusted EBITDA, which excludes items not
indicative of
23
--------------------------------------------------------------------------------ongoing business trends. The reported amounts in the table below are from the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
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