Terawulf Inc.
02/27/2026 | Press release | Distributed by Public on 02/27/2026 12:55
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other Items included in this Annual Report and with the accompanying consolidated financial statements and notes thereto included elsewhere in this report. All figures presented below represent results from continuing operations, unless otherwise specified. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations may be deemed forward-looking statements. See "Forward-Looking Statements."
This MD&A generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 are not included, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
We are a vertically integrated owner, developer, and operator of digital infrastructure assets in the United States, purpose-built to support HPC workloads, including AI, machine learning, and advanced cloud applications.
The Company has undergone a deliberate strategic transition toward HPC hosting as its primary business. While TeraWulf historically operated bitcoin mining facilities and leveraged flexible compute loads to support early infrastructure development, going forward the Company's capital allocation, development activities, and operating focus are centered on HPC data center development, long-term hosting arrangements, and infrastructure supporting AI-driven compute workloads.
Our strategy is grounded in controlling infrastructure at utility scale and pairing compute-optimized facilities with reliable, long-duration power resources. By controlling land use through ownership or long-term ground leases, together with interconnection rights, electrical and cooling infrastructure, and, where appropriate, on-site generation, the Company delivers resilient, cost-efficient capacity to hyperscale and enterprise customers under multi-year hosting arrangements.
The Company's platform is differentiated by long-term control of utility-scale infrastructure, deep in-house power and grid expertise, and a scalable development model supported by long-term, credit-enhanced customer contracts.
Strategy Execution and Capital Allocation
Management's execution of the Company's strategy is focused on converting advantaged infrastructure positions into long-dated, contracted HPC capacity. This execution model emphasizes vertical integration, long-duration customer contracts supported by credit enhancement, and phased development aligned with customer deployment schedules and power availability.
A core element of this approach is infrastructure control. By retaining control over land use, interconnection rights, electrical and cooling systems, and on-site generation where appropriate, the Company is able to manage development risk, optimize capital deployment, and maintain operational oversight throughout the lifecycle of its facilities. Management believes this approach reduces execution risk relative to third-party development models and supports infrastructure-style returns.
The Company's contracting strategy prioritizes multi-year hosting arrangements with credit-supported counterparties. These arrangements provide long-dated revenue visibility, support project-level financing, and reduce cash flow volatility as the platform scales. Credit enhancement associated with certain customer contracts has been a key factor in accelerating development timelines and enabling third-party financing.
Each campus is designed for modular, multi-phase expansion. Initial phases deliver near-term contracted capacity, while subsequent phases are developed in line with customer demand and power availability. Management believes this phased approach allows the Company to scale efficiently while maintaining capital discipline.
Consistent with this strategy, the Company has deliberately shifted capital allocation away from new bitcoin mining investments and toward HPC data center development. While legacy mining operations continue to utilize existing infrastructure, management does not intend to deploy incremental growth capital to mining activities.
Strategic Transactions
Acquisition of Beowulf E&D
On May 21, 2025 (the "Acquisition Date"), the Company acquired100% of the membership interests in Beowulf Electricity & Data LLC, Beowulf E&D (NY) LLC and Beowulf E&D (MD) LLC (collectively, "Beowulf E&D"). Additional detail regarding the consideration paid and contingent consideration associated with the Beowulf E&D acquisition is included in Note 3 to the consolidated financial statements.
The acquisition materially expanded the Company's internal capabilities across power infrastructure development, site operations, engineering, and project execution. Approximately94 employees transitioned to the Company as part of the transaction. Management believes this acquisition strengthened operational integration and execution capability as the Company scales its HPC platform.
Cayuga Site Ground Lease
On August 12, 2025, the Company entered into a long-term ground lease for approximately 183 acres in Lansing, New York. Upon completion of permitting and site development, the Cayuga Site has the potential for up to 400 MW of gross capacity, supporting approximately 320 MW of critical IT load. The Cayuga Site provides an additional anchor location with existing interconnection and supporting infrastructure and represents a key component of the Company's forward development pipeline.
Abernathy Joint Venture
On October 27, 2025, the Company entered into an amended and restated limited liability company agreement governing the Abernathy Joint Venture. The Company holds a 50.1% equity interest in the joint venture. The Abernathy HPC Campus represents the extension of the Company's commercial relationship with Fluidstack, supported by the same credit enhancement framework, to an additional site.
The Abernathy HPC Campus is designed for 168 MW of critical IT load, representing the full build-out of the site. The campus is 100% pre-leased to Fluidstack under a 25-year data center sublease with contractual rent escalators and options for term contraction. Lease obligations are supported by investment-grade credit enhancement provided by Google, materially strengthening the credit profile of the contracted revenues and facilitating third-party debt financing.
Management believes the Abernathy Joint Venture reflects the extension of the Company's commercial relationship with Fluidstack, supported by continued credit enhancement from Google, to an additional site.
Operations Overview
The Company's primary operating campus is the Lake Mariner Data Campus, located in Barker, New York on the site of a former coal-fired power plant that was retired and repurposed into a modern digital infrastructure campus. The site benefits from substantial existing transmission infrastructure and is designed for scalable expansion.
As of December 31, 2025 the Lake Mariner Data Campus operated 245 MW of legacy bitcoin mining capacity and had 18 critical IT MW of HPC capacity. The Company commenced HPC leasing operations at the Lake Mariner Data Campus in July 2025 and is executing a phased expansion to support additional contracted HPC deployments.
The campus is capable of scaling to approximately 500 MW of gross capacity in the near term, with potential expansion to approximately 750 MW subject to additional approvals from the NYISO. Power for the Lake Mariner Data Campus is sourced from the NYISO Zone A grid, with 90 MW allocated under a long-term arrangement with the New York Power Authority.
The Company operates the Lake Mariner Data Campus through La Lupa and Akela. Together, the Company's contracted HPC platform represents 522 MW of critical IT load, including the Company's 50.1% attributable share of the Abernathy HPC Campus. As of December 31, 2025, the Company had energized 18 critical IT MW of HPC capacity and remains on track to deliver additional contracted capacity in phases aligned with customer deployment schedules.
Regional Diversification and Platform Resilience
The development of the Abernathy HPC Campus through the Abernathy Joint Venture provides the Company with meaningful regional diversification. By expanding its HPC platform beyond New York into the Southwest Power Pool region, the Company reduces concentration risk related to power markets, regulatory frameworks, weather events, construction timelines, and operational disruptions.
Geographic diversification also helps mitigate the potential impact of localized physical security incidents, natural disasters, and certain cyber events by distributing infrastructure across multiple regions and operating environments. Management believes this diversification enhances overall platform resilience, supports customer deployment flexibility, and strengthens the Company's ability to maintain continuity of operations across its portfolio.
Power Strategy
The Company's power strategy emphasizes reliability, efficiency, and responsible integration with regional electric grids. The Company's development and operations team brings deep experience in power generation, transmission, interconnection, and large-scale energy infrastructure, which informs site selection, facility design, and operational execution.
This power and infrastructure expertise enables the Company to evaluate complex, power-intensive sites efficiently and provides meaningful differentiation relative to data center developers without comparable in-house energy capabilities. The Company expects certain sites to include on-site generation, battery storage and other dispatchable resources to enhance reliability for mission-critical compute and to support grid operations where appropriate.
Liquidity and Capital Resources
The Company's primary sources of liquidity include cash on hand, cash generated from operations, sale proceeds from bitcoin, equity issuances, debt financing, and project-level financing arrangements. Capital requirements are driven primarily by HPC data center development, construction activities, and associated infrastructure investments.
Management expects future capital deployment to be focused on contracted HPC projects and disciplined expansion of the Company's development pipeline. The Company continues to evaluate financing alternatives to support growth while managing balance sheet risk.
Outlook
The Company expects future results to be increasingly influenced by the development and operation of its HPC data center platform. As contracted HPC capacity is delivered and energized under existing hosting arrangements, management expects the Company's revenue mix to continue shifting toward HPC leasing and away from legacy bitcoin mining operations.
Future performance will depend on the timing of construction, commissioning, customer deployment schedules, access to power and interconnection, and the availability of project-level financing. Management expects capital deployment in future periods to be focused primarily on contracted HPC projects and disciplined expansion of the Company's development pipeline.
The table below presents the lease and nonlease components of HPC lease revenue for the years ended December 31, 2025, 2024, and 2023.
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
|
HPC lease revenue(1)
|
|||||||||||||||||
|
Rent
|
$ | 13,750 | $ | - | $ | - | |||||||||||
|
Power passthrough(2)
|
1,404 | - | - | ||||||||||||||
|
Tenant fit out, maintenance and other
|
1,745 | - | - | ||||||||||||||
| Total HPC lease revenue | $ | 16,899 | $ | - | $ | - | |||||||||||
|
Cost of revenue (exclusive of depreciation)(2)
|
$ | 2,464 | $ | - | $ | - | |||||||||||
(1) Certain of the Core42 Leases commenced in 2025 which comprised 18 critical IT MW HPC lease capacity as of December 31, 2025. The remainder of the HPC Leases are expected to commence in 2026.
(2) Cost of revenue (exclusive of depreciation) represents power costs which are passed through to the customer without markup and are included on a gross basis in HPC lease revenue as well as includes costs incurred by the Company in connection with its fit-out services under the HPC Leases.
Bitcoin Mining Operations
As of December 31, 2025, we owned approximately 54,100 miners, with approximately 49,400 operational at our bitcoin mining facilities on the Lake Mariner Data Campus (the "LMD Bitcoin Mining Facilities") and the remainder
undergoing maintenance, awaiting disposal or on standby to replace miners under repair. These miners were comprised as follows:
| Vendor and Model | Number of miners | |||||||
| Bitmain S19 XP | 4,300 | |||||||
|
Bitmain S19j XP
|
13,400 | |||||||
|
Bitmain S19k Pro
|
1,500 | |||||||
|
Bitmain S21
|
8,200 | |||||||
|
Bitmain S21 Pro
|
26,700 | |||||||
| 54,100 | ||||||||
As of December 31, 2025, our fleet of miners ranged in age from 0.7 years to 3.6 years and have an average age of approximately 1.2 years. We do not have scheduled downtime for our miners and while we periodically perform unscheduled maintenance on our miners, such downtime has not been significant historically. When performing unscheduled maintenance, depending on the length of estimated repair time, we may replace a miner with a substitute miner to limit overall downtime. As of December 31, 2025, our fleet of miners at the LMD Bitcoin Mining Facilities had a range of energy efficiency from 15 to 23 joules per terahash ("j/th") and has an average energy efficiency of 17.2 j/th.
Bitcoin Mining - Share of Global Hashrate
Several factors influence our ability to mine bitcoin profitably, including bitcoin's USD value, mining difficulty, global hashrate, power costs, fleet energy efficiency, and overall data center efficiency. Among these, energy efficiency is a critical driver of profitability, as power costs represent the most significant direct expense in bitcoin mining. We believe we operate a highly efficient mining fleet, optimized to maximize output while minimizing energy consumption. To assess operational performance and effectiveness, the Company tracks key metrics, which we believe are also valuable to investors for evaluating our progress and benchmarking against industry peers.
The table below presents our miner efficiency and computing power as compared to the global computing power as of December 31, 2025 and 2024:
| December 31, 2025 |
December 31, 2024(1)
|
||||||||||
|
Global hashrate (EH/s)(2)
|
980.2 | 704.0 | |||||||||
|
Miner efficiency (w/th)(3)
|
17.5 | 19.0 | |||||||||
|
TeraWulf operational hashrate (EH/s)(4)
|
9.3 | 9.7 | |||||||||
| TeraWulf % of Global hashrate | 0.9 | % | 1.4 | % | |||||||
(1)Results as of December 31, 2024 reflect hashrate of mining operations at the LMD Bitcoin Mining Facilities and TeraWulf's net share of hashrate produced at the Nautilus Cryptomine Facility.
(2)Total global hashrate obtained from YCHARTS (https://ycharts.com/indicators/bitcoin_network_hash_rate)
(3)Joules of energy required to produce each terahash of processing power
(4)While nameplate at the LMD Bitcoin Mining Facilities was 10.9 EH/s and 9.7 EH/s as of December 31, 2025 and 2024, respectively, actual operational hashrate depends on a variety of factors, including (but not limited to) performance tuning to increase efficiency and maximize margin, scheduled outages (scopes to improve reliability or performance), unscheduled outages, curtailment due to participation in various cash generating demand response programs, derate of ASICS due to adverse weather and ASIC maintenance and repair.
As of December 31, 2025, our operating hashrate represented approximately 0.9% of the total global hashrate, aligning with our share of global blockchain rewards. As of that date, this translated to approximately 4 bitcoin mined per day. To maintain profitability, we focus on optimizing operational efficiency and cost management, ensuring that our mining rewards consistently cover direct operating expenses.
Bitcoin Mining - Average Cost of Bitcoin Mined
The table below presents the average cost of mining each bitcoin, including bitcoin mined at the LMD Bitcoin Mining Facilities and the Company's net share of bitcoin mined at the Nautilus Cryptomine Facility, for the years ended December 31, 2025 and 2024 and the total energy cost per kWh utilized within the facilities.
| Year Ended December 31, | ||||||||||||||
|
Cost of mining - Analysis of costs to mine one bitcoin
|
2025 | 2024 | ||||||||||||
|
Cost of mining - LMD Bitcoin Mining Facilities and net share of the Nautilus Cryptomine Facility
|
||||||||||||||
|
Cost of energy per bitcoin mined
|
$ | 53,609 | $ | 25,227 | ||||||||||
|
Other direct costs of mining - non energy utilities per bitcoin mined
|
$ | 72 | $ | 41 | ||||||||||
|
Cost to mine one bitcoin(1)
|
$ | 53,681 | $ | 25,268 | ||||||||||
|
Value of each bitcoin mined(2)
|
$ | 101,307 | $ | 62,889 | ||||||||||
|
Cost to mine one bitcoin as % of value of bitcoin mined
|
53.0 | % | 40.2 | % | ||||||||||
|
Statistics
|
||||||||||||||
|
LMD Bitcoin Mining Facilities and net share of the Nautilus Cryptomine Facility
|
||||||||||||||
|
Total bitcoin mined(3)
|
1,496 | 2,728 | ||||||||||||
|
Total value of bitcoin mined(2) ($ in thousands)
|
$ | 151,556 | $ | 171,547 | ||||||||||
|
Total MWhs utilized
|
1,344,760 | 1,601,061 | ||||||||||||
|
Total energy expense, net of expected demand response proceeds(4)($ in thousands)
|
$ | 80,199 | $ | 68,815 | ||||||||||
|
Cost per kWh
|
$ | 0.060 | $ | 0.043 | ||||||||||
|
Energy expense, net as % of value of bitcoin mined
|
52.9 | % | 40.1 | % | ||||||||||
|
Other direct costs of mining($ in thousands)
|
$ | 108 | $ | 111 | ||||||||||
(1) "Cost to mine one bitcoin" is a cash cost metric and does not include depreciation. Although the Company recognizes depreciation with respect to its mining assets, it does not consider depreciation in determining whether it is economical to operate its mining equipment. As a result, the Company does not consider the sunk costs or depreciation of past capital investments in its historical or forecasted breakeven analysis. If depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $41,930 and $22,086 per bitcoin mined for the years ended December 31, 2025 and 2024, respectively, bringing the total "cost to mine one bitcoin" to $95,611 and $47,354 for the years ended December 31, 2025 and 2024, respectively.
(2)Computed as the weighted-average opening price of bitcoin on each respective day the mined bitcoin is earned. Excludes bitcoin earned from profit sharing associated with a bitcoin miner hosting agreement that expired in February 2024 at the LMD Bitcoin Mining Facilities.
(3) Excludes bitcoin earned from profit sharing associated with a bitcoin miner hosting agreement that expired in February 2024 at the LMD Bitcoin Mining Facilities of 0 and 6 bitcoin for the years ended December 31, 2025 and 2024, respectively, and includes TeraWulf's net share of bitcoin mined at the Nautilus Cryptomine Facility, based on the hashrate share attributed to the Company.
(4) Excludes energy expenses associated with a bitcoin miner hosting agreement that expired in February 2024 at the LMD Bitcoin Mining Facilities and includes TeraWulf's net share of energy expense at the Nautilus Cryptomine Facility, based on aggregate nameplate power consumption of deployed miners attributed to TeraWulf's contribution to Nautilus.
Power costs are the most significant expense in our bitcoin mining operations, accounting for 52.9% and 40.1% of the total value of bitcoin mined for the years ended December 31, 2025 and 2024, respectively. The increase in power costs as a percentage of bitcoin mined in 2025 compared to 2024 was primarily driven by an approximate 30% increase in the realized cost per kWh and a near doubling of network difficulty and the bitcoin halving event in April 2024, which reduced block rewards. These impacts were partially offset by growth in our average operating hashrate for a portion of 2025 and an increase in the average market value of each bitcoin mined.
Energy prices are highly volatile, influenced by global events that can drive nationwide fluctuations in power costs. At the LMD Bitcoin Mining Facilities, power costs are subject to variable market rates, which can change hourly based on wholesale electricity pricing. While this introduces some unpredictability, it also provides us with the flexibility to actively manage our energy consumption, optimizing for profitability and efficiency. Energy prices are also highly sensitive to weather conditions, such as winter storms and polar vortices, which can increase regional power demand and drive up costs. During such events, we may curtail operations to avoid consuming power at peak rates, or we may be curtailed under demand response programs in which we participate. For the years ended December 31, 2025 and 2024, the average aggregate realized power prices at the LMD Bitcoin Mining Facilities and Nautilus Cryptomine Facility were $0.060 and $0.043 per kilowatt hour, respectively.
Our management team continuously monitors market conditions to determine when and for how long to curtail operations. If curtailment is not mandated under demand response programs, we make real-time decisions to curtail mining whenever power prices exceed the value of the fixed bitcoin reward. As a result, curtailment increases when bitcoin's value declines or energy prices rise, and decreases when bitcoin's value appreciates or energy costs fall. These decisions are actively managed on an hour-by-hour basis to optimize profitability.
During the years ended December 31, 2025 and 2024, we curtailed operations at the LMD Bitcoin Mining Facilities in response to weather events, energy price spikes, and participation in demand response programs. The Company records expected payments to be received for demand response programs as a reduction in cost of revenue, which amounted to $17.7 million and $8.6 million for the years ended December 31, 2025 and 2024, respectively.
The Company has purchased all miners with cash, without relying on limited recourse equipment financing for miner acquisitions. To support operations, invest in our previously owned Nautilus joint venture, and purchase miners and other fixed assets, we have raised capital through both equity issuances and corporate-level debt. Costs related to these capital raises are not included in this analysis.
Miner acquisition costs, or capital expenditures, are not factored into the cost of mining analysis, as they do not impact the marginal cost of producing one bitcoin. Instead, these costs are recorded as property, plant, and equipment in the consolidated balance sheets. Depreciation of property, plant, and equipment is calculated using the straight-line method, with estimated useful lives of four years for miners and five years for computer equipment.
During the year ended December 31, 2025, the Company recorded accelerated depreciation expense of $19.6 million related to a certain miner building and related miners of which the Company shortened their useful lives based on expected shutdown of operations for purposes of supporting the HPC operations. During the year ended December 31, 2024, the Company recorded accelerated depreciation expense of $5.1 million related to certain miners of which the Company shortened their estimated useful lives based on replacement by April 30, 2024. While our standard depreciation period for miners is four years, historically low power costs may allow for a longer actual useful life in certain cases. However, if depreciation were included in the cost of mining analysis, it would add $41,930 and $22,086 per bitcoin mined for the years ended December 31, 2025 and 2024, respectively.
Estimating asset useful lives requires management judgment, particularly given the rapid evolution of next-generation mining rigs in industrial-scale bitcoin mining. Depreciation schedules may be adjusted if events, regulatory changes, or shifts in operating conditions indicate a need for revision. Management continuously evaluates factors such as future energy market conditions, operating costs, maintenance practices, and capital investment needs to ensure depreciation assumptions remain reasonable. When an asset's estimated useful life is adjusted-either shortened or extended-depreciation provisions are updated accordingly, which could have a material impact on future financial results.
Recent Developments
On February 2, 2026, the Company entered into an Agreement of Purchase and Sale for a former industrial site in Hawesville, Kentucky ("Hawesville"). The Company exercised an exclusivity option to purchase Hawesville, which includes more than 250 buildable acres with immediate access to power infrastructure, including multiple high-voltage transmission lines, an on-site energized substation, and a direct connection to the regional transmission network. The Hawesville seller was granted a 6.8% minority equity interest in TeraWulf's Hawesville development entity, which is intended to develop and own a high-performance computing/artificial intelligence data center on the property. The Hawesville seller has the right to request the redemption of its minority interest starting on the first anniversary of the data center's commencement of operations (the "Operations Anniversary Date"). The Hawesville seller will not participate in the development, financing, construction, management or operation of the data center and will not have any obligations to contribute capital, unless its minority interest is not redeemed in full within 30 days after the Operations Anniversary Date. The Hawesville acquisition does not require any third-party consents or regulatory approvals and closed effective February 2, 2026.
Additionally, on February 2, 2026, the Company issued a press release announcing the entry into an Equity and Asset Purchase Agreement (the "Morgantown Purchase Agreement") for the Morgantown generating station in Charles County, Maryland, The Morgantown Purchase Agreement was signed in late 2025 and contemplates the acquisition of the Morgantown generating station, a grid-connected power generation facility with approximately 210 MW of current operational capacity, including electrical infrastructure, associated real property, contracts and other assets ("Morgantown"). The closing of the Morgantown acquisition is subject to certain third-party consents and customary regulatory approvals, including from the Federal Energy Regulatory Commission. The Company expects to close on the Morgantown acquisition in the second quarter of 2026, subject to receiving these consents and approvals.
Results of Operations - Comparative Results for the Years Ended December 31, 2025 and 2024
The Company generates revenue in the form of bitcoin by providing hash computation services to a mining pool operator to mine bitcoin and validate transactions on the global bitcoin network using miners owned by the Company. The earned bitcoin are routinely sold for U.S. dollars. The Company also previously earned revenue by providing bitcoin miner hosting services to third parties.
In July 2025, the Company commenced its HPC leasing operations. HPC lease revenue is generated by leasing datacenter space and providing related services to our HPC customers. These leasing agreements include lease components, nonlease components (such as power delivery, physical security, maintenance), as well as non-component elements such as taxes. Under these leases, customers pay fixed payments (based on electric capacity) and variable payments on a recurring basis. HPC power costs are passed through to the customer without markup and are included on a gross basis in HPC lease revenue.
The Company's business strategy centers on maximizing revenue and profitability of our bitcoin mining fleet while expanding our datacenter infrastructure to support HPC leasing activities. We plan to operate infrastructure necessary for profitable bitcoin mining while pursuing high-value HPC leasing opportunities that leverage our power utilization and digital infrastructure. We are confident our expertise in power infrastructure and digital asset mining can be favorably applied to the design, development, and operation of large-scale datacenters. These datacenters are optimized for high-value applications such as cloud computing, machine learning, and artificial intelligence. We are actively seeking opportunities to expand into these areas using our knowledge, expertise, and existing infrastructure wherever favorable market opportunities arise.
Revenue
The following table presents revenue (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Revenue: | |||||||||||
| Digital asset revenue | $ | 151,556 | $ | 140,051 | |||||||
| HPC lease revenue | 16,899 | - | |||||||||
| Total revenue | $ | 168,455 | $ | 140,051 | |||||||
| Percentage of total revenue | |||||||||||
| Digital asset revenue | 90 | % | 100 | % | |||||||
| HPC lease revenue | 10 | % | 0 | % | |||||||
| Total revenue | 100 | % | 100 | % | |||||||
Total revenue for the years ended December 31, 2025 and 2024 was $168.5 million and $140.1 million, respectively, representing an increase of $28.6 million.
Digital asset revenue for the years ended December 31, 2025 and 2024 was $151.6 million and $140.1 million, respectively, an increase of $11.5 million. The increase was primarily attributed to an increase in the average price of bitcoin during the year ended December 31, 2025 of $101,658 as compared to $65,824 during 2024. This increase was partially offset by a decrease in the total bitcoin mined to 1,496 bitcoin during the year ended December 31, 2025 as compared to 2,177 bitcoin mined during the same period in the prior year. Although the Company expanded its mining infrastructure capacity at the LMD Bitcoin Mining Facilities to approximately 245 MW as of December 31, 2025 as compared to 195 MW as of December 31, 2024, total bitcoin mined decreased due to the halving in April 2024 and the increase in network hashrate.
During the years ended December 31, 2025 and 2024, revenue from bitcoin miner hosting was $0 and $0.8 million, respectively, a decrease due to the expiration of the Company's bitcoin miner hosting contract with a customer in February 2024.
HPC lease revenue for the year ended December 31, 2025 was $16.9 million. In July 2025, the Company commenced its HPC leasing operations and as of December 31, 2025 had energized 18 critical IT MW of HPC leasing capacity at the Lake Mariner Data Campus.
Costs and Expenses
The following table presents cost of revenue (exclusive of deprecation) (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
Cost of revenue (exclusive of depreciation)
|
$ | 82,663 | $ | 62,608 | |||||||
Cost of revenue (exclusive of depreciation) for the years ended December 31, 2025 and 2024 was $82.7 million and $62.6 million, respectively, an increase of approximately $20.1 million. Cost of revenues is primarily comprised of power expense which increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024, resulting from higher realized power prices during the 2025 period partially offset by higher proceeds from participation in demand response programs.
Proceeds from participation in demand response programs are recorded as a reduction in cost of revenue in the period in which the underlying program occurs. These proceeds totaled $17.7 million and $8.6 million for the years ended December 31, 2025 and 2024, respectively. The Company is actively expanding its enrollment in such available programs in New York State.
The following table presents operating expenses (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Operating expenses | $ | 12,115 | $ | 3,387 | |||||||
| Operating expenses - related party | 7,632 | 4,262 | |||||||||
| $ | 19,747 | $ | 7,649 | ||||||||
Operating expenses (including related party expenses) for the years ended December 31, 2025 and 2024 were approximately $19.7 million and $7.6 million, respectively, a net increase of $12.1 million. Operating expenses increased primarily due to higher miner repairs of $2.9 million and increased site labor of $2.6 million driven by the expansion of operations at the Lake Mariner Data Campus. Operating expense - related party increased primarily due higher rent subsequent to the New Ground Lease in October 2024 of $4.4 million, partially offset by $1.0 million of site labor at the Lake Mariner Data Campus which was previously reported in operating expenses-related party and since the acquisition of Beowulf E&D in May 2025 is included in operating expenses.
The following table presents selling, general and administrative expenses (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Selling, general and administrative expenses | $ | 139,465 | $ | 57,883 | |||||||
| Selling, general and administrative expenses - related party | 8,292 | 12,695 | |||||||||
| $ | 147,757 | $ | 70,578 | ||||||||
Selling, general and administrative expenses (including related party expenses) for the years ended December 31, 2025 and 2024 were $147.8 million and $70.6 million, respectively, a net increase of $77.2 million. Selling, general and administrative expenses increased primarily due to increased expense during the year ended December 31, 2025 as compared to the same period in the prior year of (i) employee compensation and benefits of $47.7 million, (ii) stock-based compensation of $20.0 million, (iii) travel expenses of $2.4 million, (iv) legal and other professional fees of $5.1 million, (v) and Beowulf E&D acquisition-related costs of $1.5 million.
Selling, general and administrative expenses - related party decreased a net $4.5 million primarily due to a full year of fees incurred under the Services Agreement with Beowulf E&D for the year ended December 31, 2024 as compared
to 2025 in which fees were only incurred up to the termination of the Services Agreement in May 2025 upon the acquisition of Beowulf E&D.
Depreciation for the years ended December 31, 2025 and 2024 was $88.6 million and $59.8 million, respectively. The increase was primarily due to mining and HPC infrastructure constructed and placed in service between December 31, 2024 and December 31, 2025 at the Lake Mariner Data Campus. Additionally, during the year ended December 31, 2025, the Company recorded accelerated depreciation expense of $19.6 million related to a certain miner building and related miners of which the Company shortened their useful life based on expected shutdown of operations for purposes of supporting the HPC operations. The increase was partially offset by (i) decrease in depreciation on certain electrical equipment and leasehold improvements related to a change in accounting estimate of useful lives in connection with the New Ground Lease in October 2024 and (ii) accelerated depreciation expense of $5.1 million during the year ended December 31, 2024 related to certain miners of which the Company shortened their estimated useful lives based on expected replacement by April 2024.
Loss (gain) on fair value of digital assets, net for the years ended December 31, 2025 and 2024 was $0.6 million and $(2.2) million due to the volatility in the price of bitcoin during the year ended December 31, 2025 as compared to a steady increase during the year ended December 31, 2024.
Change in fair value of contingent consideration was $10.4 million during the year ended December 31, 2025 related to fair value remeasurement of contingent consideration liabilities related to the acquisition of Beowulf E&D based on milestones achieved during the year ended December 31, 2025.
During the year ended December 31, 2025, the Company sold or otherwise disposed of 17,228 miners and received proceeds of $11.6 million resulting in a net loss on disposal of property, plant and equipment of $4.9 million in the consolidated statement of operations. During the year ended December 31, 2024, the Company sold or otherwise disposed of 62,970 miners and received proceeds of $23.3 million resulting in a net loss on disposal of property, plant and equipment of $17.8 million in the consolidated statement of operations.
Interest expense for the years ended December 31, 2025 and 2024 was $80.2 million and $19.8 million, respectively, an increase of $60.4 million. The increase is primarily attributed to stated interest expense of $58.0 million and amortization of debt issuance costs of $22.2 million related to the 2030 Secured Notes, 2031 Convertible Notes and 2032 Convertible Notes which were issued during the year ended December 31, 2025 as well as the 2030 Convertible Notes issued in October 2024. The $19.8 million of interest expense recognized in the year ended December 31, 2024, primarily related to the borrowings under the Loan, Guaranty and Security Agreement with Wilmington Trust (the "Term Loans"), which were fully repaid in July 2024 ahead of maturity.
Change in fair value of warrant and derivative liabilities during the year ended December 31, 2025 was $429.8 million related to the Google Warrants and the conversion feature of the 2031 Convertible Notes which was originally accounted for separately as a derivative liability.
Loss on extinguishment of debt during the year ended December 31, 2024 was $6.3 million related to voluntary prepayment of the Term Loans in February and July 2024, reflecting $1.3 million of prepayment fees and the derecognition of unamortized debt discount of $5.0 million associated with the principal repaid. No loss on extinguishment of debt was recorded during the year ended December 31, 2025.
Income tax provision was $76,000 and $0 for the years ended December 31, 2025 and 2024, respectively. Based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of the remaining deductible temporary differences, and as a result the Company has recorded a full valuation allowance against its net deferred tax assets as of December 31, 2025 and 2024, except for a $76,000 deferred tax liability as of December 31, 2025 arising from indefinite-lived assets (e.g., tax-deductible goodwill related to the acquisition of Beowulf E&D) that cannot be used as a source of taxable income to support the realization of deferred tax assets when a full valuation allowance is in place.
Equity in net loss of investee, net of tax for the year ended December 31, 2025 was $4.1 million which represents TeraWulf's proportional share of net loss of the Abernathy Joint Venture which was formed in October 2025 and has not yet commenced operations. The $3.4 million equity in net income of investee, net of tax for the year ended December 31, 2024 represents TeraWulf's proportional share of the net income of Nautilus prior to the Company's divestiture of its entire 25% equity interest in Nautilus in October 2024.
Additionally the Company recorded a gain on sale of equity interest in investee of $22.6 million in the consolidated statement of operations for the year ended December 31, 2024 as a result of the sale of its interest in Nautilus in October 2024.
Non-GAAP Measure
To provide investors with additional information in connection with our results as determined in accordance with generally accepted accounting principals in the United States ("U.S. GAAP"), we disclose Adjusted EBITDA as a non-GAAP measure. This measure is not a financial measure calculated in accordance with U.S. GAAP, and it should not be considered as a substitute for net loss, operating loss, or any other measure calculated in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies.
We define Adjusted EBITDA as net loss adjusted for (i) impacts of interest, taxes, depreciation and amortization; (ii) stock-based compensation expense, amortization of right-of-use asset and related party expense to be settled with respect to common stock, all of which are non-cash items that the Company believes are not reflective of its general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) one-time, non-recurring transaction-based compensation expense related to the 2030 Convertible Notes (iv) equity in net (loss) income of investee, net of tax, related to the Abernathy Joint Venture and Nautilus and the gain on sale of interest in Nautilus; (v) other income which is related to interest income or income for which management believes is not reflective of the Company's ongoing operating activities; (vi) change in fair value of contingent consideration, change in fair value of warrant and derivative liabilities, loss on extinguishment of debt and net losses on disposals of property, plant and equipment, net, which are not reflective of the Company's general business performance; and (vii) acquisition-related transaction costs which management believes are not reflective of the Company's ongoing operating activities. The Company's Adjusted EBITDA also includes the impact of distributions from investee received in bitcoin related to a return on the Nautilus investment, which management believes, in conjunction with excluding the impact of equity in net (loss) income of investee, net of tax, is reflective of assets available for the Company's use in its ongoing operations as a result of its investment in Nautilus.
Management believes that providing this non-GAAP financial measure allows for meaningful comparisons between the Company's core business operating results and those of other companies, and provides the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time. In addition to management's internal use of non-GAAP Adjusted EBITDA, management believes that Adjusted EBITDA is also useful to investors and analysts in comparing the Company's performance across reporting periods on a consistent basis. Management believes the foregoing to be the case even though some of the excluded items involve cash outlays and some of them recur on a regular basis (although management does not believe any of such items are normal operating expenses necessary to generate the Company's revenues). For example, the Company expects that share-based compensation expense, which is excluded from Adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, directors and consultants.
The Company's Adjusted EBITDA measure may not be directly comparable to similar measures provided by other companies in the Company's industry, as other companies in the Company's industry may calculate non-GAAP financial results differently. The Company's Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to net loss or any other measure of performance derived in accordance with U.S. GAAP. Although management utilizes internally and presents Adjusted EBITDA, the Company only utilizes that measure supplementally and does not consider it to be a substitute for, or superior to, the information provided by U.S. GAAP financial results. Accordingly, Adjusted EBITDA is not meant to be considered in isolation of, and should be read in conjunction with, the information contained in the Company's consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The following table is a reconciliation of the Company's Adjusted EBITDA to its most directly comparable U.S. GAAP measure (i.e., net loss) for the periods indicated (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net loss | $ | (661,416) | $ | (72,418) | |||||||
|
Adjustments to reconcile net loss to non-GAAP Adjusted EBITDA:
|
|||||||||||
|
Gain on sale of equity interest in investee
|
- | (22,602) | |||||||||
|
Equity in net loss (income) of investee, net of tax
|
4,130 | (3,363) | |||||||||
|
Distributions from investee, related to Nautilus
|
- | 22,776 | |||||||||
|
Income tax provision
|
76 | - | |||||||||
|
Other income
|
(39,044) | (3,927) | |||||||||
| Loss on extinguishment of debt | - | 6,300 | |||||||||
|
Change in fair value of warrants and derivatives
|
429,793 | - | |||||||||
| Interest expense | 80,248 | 19,794 | |||||||||
|
Loss on disposals of property, plant, and equipment, net
|
4,895 | 17,824 | |||||||||
|
Change in fair value of contingent consideration
|
10,397 | - | |||||||||
| Depreciation | 88,597 | 59,808 | |||||||||
| Amortization of right-of-use asset | 4,456 | 1,373 | |||||||||
| Stock-based compensation expense | 50,909 | 30,927 | |||||||||
| Transaction-based compensation expense | - | 3,885 | |||||||||
| Related party expense to be settled with respect to common stock | 2,375 | - | |||||||||
|
Beowulf E&D acquisition-related transaction costs
|
1,475 | - | |||||||||
| Non-GAAP adjusted EBITDA | $ | (23,109) | $ | 60,377 | |||||||
Liquidity and Capital Resources
As of December 31, 2025, the Company had balances of cash and cash equivalents of $3,266.4 million, working capital of $1,742.4 million, total stockholders' equity of $140.4 million and an accumulated deficit of $993.7 million. The Company incurred a net loss of $661.4 million for the year ended December 31, 2025. The Company began mining bitcoin in March 2022 and had 9.3 EH/s of operating capacity as of December 31, 2025. In 2025, the Company commenced its HPC operations. To date, the Company has relied primarily on proceeds from the sale of bitcoin, both self-mined and distributed from the joint venture which owned the Nautilus Cryptomine Facility, and its issuances of debt and equity to fund its principal operations.
The principal uses of cash are for the operation and buildout of data center facilities, debt service, and general corporate activities and, to a lesser extent in 2024, investments in the Nautilus joint venture related to mining facility buildout and activities. Cash flow information is as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities: | |||||||||||
| Continuing operations | $ | (123,180) | $ | (24,422) | |||||||
| Discontinued operations | - | - | |||||||||
| Total operating activities | (123,180) | (24,422) | |||||||||
| Investing activities | (1,368,945) | (91,159) | |||||||||
| Financing activities | 4,940,835 | 335,207 | |||||||||
| Net change in cash and cash equivalents and restricted cash | $ | 3,448,710 | $ | 219,626 | |||||||
Operating activities
Cash used in operating activities for continuing operations was $123.2 million and $24.4 million for the years ended December 31, 2025 and 2024, respectively, reflecting an increase of $98.8 million. During the year ended December 31, 2025, the Company began HPC operations which resulted in segment profit of $7.1 million. While the Company continued to profitably mine bitcoin during the year ended December 31, 2025, the Company reported $10.9 million lower digital asset segment profit as compared to the prior year primarily due to the halving in April 2024 and the increase in network hashrate as compared to prior year. The Company also received inflows from (i) prepaid rent from customers net of commissions paid of $51.6 million and (ii) interest income proceeds net of interest paid of $28.1 million, partially offset by outflows resulting from (i) increased selling, general and administrative expenses (including related party, but exclusive of noncash stock based compensation) of $57.2 million and (ii) cash paid for unearned HPC tenant fit-out of $11.0 million, during the year ended December 31, 2025 as compared to the prior year.
Additionally, prior to the repayment of the Term Loans in July 2024, the Company converted its bitcoin holdings nearly immediately to cash and the related proceeds from sales of digital assets of $97.6 million were included within cash flows from operating activities in the consolidated statements of cash flows.
Investing activities
Cash used in investing activities was $1,368.9 million and $91.2 million for the years ended December 31, 2025 and 2024, respectively, reflecting an increase of $1,277.8 million. The increase is primarily attributed to (i) an increase in purchases of plant and equipment of $792.2 million related to infrastructure intended to support expansion into HPC leasing operations, (ii) lower proceeds from sales of property, plant and equipment of $11.7 million, (iii) investments in joint venture of $450.0 million, and (iv) $21.7 million for the acquisition of Beowulf E&D. The increase in cash used in investing activities were partially offset by increases in cash provided by investing activities related to proceeds from sales of digital assets of $84.0 million during the year ended December 31, 2025 as compared to the prior year, as the Company began classifying proceeds from sales of digital assets in investing activities starting July 2024. Additionally, during the year ended December 31, 2024, the Company received proceeds from sale of equity interest in investee of $86.1 million related to the sale of Nautilus.
Financing activities
Cash provided by financing activities was $4,940.8 million and $335.2 million for the years ended December 31, 2025 and 2024, respectively. reflecting an increase of $4,605.6 million. The increase is primarily attributed to the proceeds from issuance of long-term debt and convertible notes, net of issuance costs paid, of $5,106.7 million for the year ended December 31, 2025 as compared to $487.1 million in the prior year. Additionally, the Company purchased treasury stock of $33.3 million during the year ended December 31, 2025 as compared to $118.2 million in the prior year. These increases were partially offset by increases in cash used to purchase capped calls of $40.6 million, payments related to finance leases of $8.2 million, and payments for tax withholdings related to net share settlements of stock-based compensation awards of $4.8 million. Additionally, during the year ended December 31, 2024, the Company made principal payments of long-term debt of $139.4 million as compared to $0 during the year ended December 31, 2025.
Financial Condition
The Company incurred a net loss of $661.4 million and reported cash used in operating activities of $123.2 million for the year ended December 31, 2025. As of December 31, 2025, the Company had balances of cash and cash equivalents of $3,266.4 million, working capital of $1,742.4 million, total stockholders' equity of $140.4 million and an accumulated deficit of $993.7 million. For the year ended December 31, 2025, the Company leveraged its strategic transition toward HPC leasing and execution of long-term lease agreements with Fluidstack, which benefit from substantial credit support provided by Google, to enable efficient financing and funding of the phased development of the La Lupa and Akela facilities. Prior to these developments, the Company historically relied primarily on proceeds from sales of digital assets, both self-mined and distributed from the joint venture which owned the Nautilus Cryptomine Facility, and its issuances of debt and equity to fund its principal operations.
Critical Accounting Estimates
The above discussion and analysis of the Company's financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company's consolidated financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot
be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
See Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for a summary of the Company's significant accounting policies.
HPC Leasing
In December 2024, the Company entered into long-term datacenter lease agreements (the "HPC Leases") with a customer for specified datacenter infrastructure at the Lake Mariner Data Campus to support the customer's HPC operations. In accordance with ASC 842, Leases, the Company determined at contract inception that these agreements contained a lease, comprising lease components related to the right to use datacenter space and nonlease components for power delivery, physical security, and maintenance services. Certain of the HPC Leases commenced in 2025 and the remainder of the HPC Leases are expected to commence in 2026.
The Company has elected the practical expedient available under ASC 842, Leases, to combine the nonlease revenue components that have the same pattern of transfer as the related operating lease components into a single combined component. The single combined component is accounted for under ASC 842 as an operating lease if the lease components are the predominant components and is accounted for under ASC 606 if the nonlease components are the predominant components. The lease components are the predominant components in the Company's long term lease agreements and the single combined component in these arrangements are accounted for under the operating lease guidance of ASC 842. Recognition of HPC lease revenue begins when the Company determines the asset has been made available for the customer's use.
The Company has concluded that it is probable that substantially all of the payments will be collected over the term of the arrangements and recognize the total combined fixed payments under the agreements on a straight-line basis over the noncancellable term. The Company recognizes the difference between straight-line revenue recognized during the period and the lease payments due pursuant to the underlying arrangement as deferred rent liability or accrued rent receivable in the consolidated balance sheets. Certain arrangements include options to extend the term. These extension options are not reasonably certain to be exercised and are excluded from the lease term and calculation of lease payments at lease commencement.
Payments for physical security and other routine maintenance services are included in the fixed lease payments. The lease agreements provide for variable payments for power delivery. Power delivery services represent a stand-ready obligation to make power available to the customer over the coterminous lease term and have the same pattern of transfer as the related operating lease components. Customers are charged monthly for actual power costs incurred at current utility rates. These payments from customers for power delivery are recognized as variable lease payments in accordance with the practical expedient elected. Variable lease payments are presented on a gross basis and are included in HPC lease revenue in the consolidated statements of operations.
The lease agreements also provide for variable payments for certain fit-out services as requested by the customer and the Company recognizes revenues as performance obligations are satisfied. In the course of providing its services, the Company routinely subcontracts for services and incurs other direct costs on behalf of its customers. These costs are passed through to the customers, generally with a mark-up, and, in accordance with U.S. GAAP, are included in the Company's HPC lease revenue.
Digital assets
Digital assets is comprised of bitcoin earned as noncash consideration in exchange for providing hash computation services to a mining pool as well as consideration for bitcoin miner hosting services. From time to time, the Company also receives bitcoin as distributions-in-kind from its joint venture.
Bitcoin are accounted for as intangible assets with indefinite useful life and is included in current assets in the consolidated balance sheets due to the Company's ability to sell it in a highly liquid marketplace and because the Company reasonably expects to liquidate its bitcoin to support operations within the next twelve months. The Company elected to early adopt ASU 2023-08 effective January 1, 2024, which requires digital assets to be valued at fair value each reporting period in accordance with ASC 820 with changes in fair value recorded in net income. Gains and losses from the remeasurement of digital assets are included within gain on fair value of digital assets, net in the consolidated statements of operations. The Company sells bitcoin and gains and losses from such transactions, measured as the difference between the
cash proceeds and the cost basis of bitcoin as determined on a first-in-first-out basis, are also included within gain on fair value of digital assets, net in the consolidated statements of operations.
Prior to the adoption of ASU 2023-08, bitcoin was assessed for impairment annually, or more frequently if events or changes in circumstances indicate it is more likely than not that the asset is impaired. The Company elected to bypass the optional qualitative impairment assessment and to track its bitcoin activity daily for impairment assessment purposes. The Company performed an analysis each day to identify whether events or changes in circumstances, principally decreases in the quoted price of bitcoin on the active trading platform, indicated that it was more likely than not that its bitcoin were impaired. For impairment testing purposes, the lowest intraday trading price of bitcoin was identified at the single bitcoin level (one bitcoin). The excess, if any, of the carrying amount of bitcoin and the lowest daily trading price of bitcoin represented a recognized impairment loss. To the extent an impairment loss was recognized, the loss established the new cost basis of the asset. Subsequent reversal of previously recorded impairment losses was prohibited.
Bitcoin earned through mining activities is recorded as an adjustment in the consolidated statements of cash flows, reconciling net loss to cash flows from operating activities. Bitcoin received as distributions-in-kind from equity investees is disclosed in supplemental noncash investing activities.
Prior to the repayment of the Term Loans in July 2024 (see Note 10), bitcoin sales proceeds were included in cash flows from operating activities, as bitcoin was converted into cash immediately during that period. Following repayment of the Term Loans, bitcoin sales proceeds are now classified under cash flows from investing activities, as the Company no longer converts bitcoin into cash immediately upon mining.
Long-lived Assets
Property, plant and equipment are recorded at cost, net of accumulated depreciation. Judgment is necessary in estimating the Company's various assets' useful lives. This includes evaluating the Company's own usage experience with its currently owned assets, the quality of materials used in construction-related projects and, for its miners, the rate of technological advancement and market-related factors such as the price of bitcoin and the bitcoin network hashrate, which impact the value of the miners. Depreciation is computed using the straight-line method over the estimated useful lives of the assets (generally 5 years for computer equipment and 4 years for miners). Leasehold improvements and electrical equipment are depreciated over the shorter of their estimated useful lives or the lease term. Changes in depreciation and amortization, generally accelerated depreciation, are determined and recorded when estimates of the remaining useful lives or residual values of long-term assets change.
The Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted cash flows expected to be generated by the asset. Significant judgment is used when estimating future cash flows, particularly the price of bitcoin and the network hashrate. Any impairment loss recorded is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. Should our estimates of useful lives, undiscounted cash flows, or asset fair values change, additional and potentially material impairments may be required, which could have a material impact on our reported financial results.
Stock-based compensation
The Company measures stock-based compensation cost related to share-based payment awards at the grant date of the award, based on the estimated fair value of the award. For restricted stock units ("RSUs") with time-based vesting, the fair value is determined by the Company's common stock price on the date of the grant. For RSUs with vesting based on market conditions ("PSUs"), the effect of the market condition is considered in the determination of fair value on the grant date using a Monte Carlo simulation model. Stock-based compensation expense for PSUs is recorded over the derived service period unless the market condition is satisfied in advance of the derived service period, in which case a cumulative catch-up is recognized as of the date of achievement. Stock-based compensation for PSUs is recorded regardless of whether the market conditions are met unless the service conditions are not met. The Company accounts for forfeitures as they occur. The Company uses significant judgment in determining the likelihood of meeting milestones and market conditions. Inputs into valuation models such as Monte Carlo simulations include both the Company's and guideline public company historical and expected annual volatility and, depending on the inputs selected, the Company could calculate significantly different estimated grant date fair values, materially impacting the valuation of our stock-based awards and the stock-based compensation expense we recognize in future periods.
Income Taxes
The Company accounts for income taxes pursuant to ASC 740, Income Taxes ("ASC 740"), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset will not be realized. The Company follows the provision of ASC 740 related to accounting for uncertain income tax positions. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the Company's balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The most critical estimate for income taxes is the determination of whether to record a valuation allowance for any net deferred tax asset, including net loss carryforwards, whereby management must estimate whether it is more likely than not that the deferred tax asset would be realized.
Assets Acquired and Liabilities Assumed in a Business Combination
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805 - Business Combinations, by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, measured at the acquisition date fair value. The determination of fair value involves assumptions,estimates and judgments. Any purchase consideration in excess of the estimated fair values of net assets acquired is recorded as goodwill.
Goodwill Impairment
Goodwill is not subject to amortization, and instead, assessed for impairment annually, or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount in accordance with ASC 350.
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