Cipher Mining Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The comparable period is the eleven months ended December 31, 2021, following a change in fiscal year; it is not a full-year comparison. The filing identifies the registrant as Cipher Mining Inc. (ticker CIFR), rather than Cipher Digital Inc.
Business context and operating footprint
Cipher develops and operates industrial-scale Bitcoin mining data centers. Bitcoin mining is its principal revenue-generating activity. At year-end 2022, mining had begun at the wholly owned Odessa facility; three other Texas facilities were held through 49%-owned joint ventures with WindHQ. As of February 28, 2023, the company reported about 58,500 miners, 6.1 EH/s of aggregate capacity and 203 MW deployed, including its share of joint-venture operations.
Financial performance and liquidity
| Metric | FY2022 | Comparable period |
|---|---|---|
| Bitcoin-mining revenue | $3.0 million | None |
| Operating loss | $37.4 million | $72.2 million |
| Net loss | $39.1 million | $72.2 million |
| Basic and diluted loss per share | $0.16 | $0.33 |
| Cash used in operating activities | $20.9 million | $31.7 million |
| Cash used in investing activities | $173.9 million | $120.1 million |
Odessa began mining on November 22, 2022. From then through year-end, Cipher mined 180 bitcoin at an average price of approximately $17,000 per coin. Cost of revenue was $0.7 million, primarily power costs; depreciation was reported separately at $4.4 million. The filing does not present a conventional gross-margin measure.
Reported results included a $73.5 million gain from changes in the fair value of the Luminant power-agreement derivative, including an initial derivative valuation gain. The company also recorded $37.0 million of equity-method losses, including $33.4 million of losses when miners contributed to joint ventures were valued below Cipher’s cost, and $1.5 million of Bitcoin impairment. Management’s non-GAAP net loss, which excludes specified noncash items including the derivative change and stock compensation, was $64.0 million; this measure is not GAAP and has stated limitations.
At December 31, 2022, cash and cash equivalents were $11.9 million, working capital was $7.4 million, total assets were $418.5 million, total liabilities were $75.6 million and stockholders’ equity was $342.9 million. Cash declined from $209.8 million at the prior year-end, principally reflecting construction and equipment spending. The company reported $73.0 million of equipment deposits. No conventional borrowing balance is identified in the provided filing text; reported financing obligations include $14.8 million of finance-lease liabilities and $5.5 million of operating-lease liabilities. It also reported a $16.7 million asset-retirement obligation.
Management stated that cash and expected operating and Bitcoin inflows, including its intention and ability to sell Bitcoin, were expected to cover operating and capital requirements for at least 12 months from issuance of the financial statements. It also expected first-half 2023 Odessa capital expenditures to require resources beyond cash on hand at year-end. A shelf registration permits offerings up to $500 million, including an at-the-market facility of up to $250 million; no shares had been sold under the ATM agreement by issuance of the statements.
Changes, outlook and material matters
- Revenue commenced in 2022 as mining capacity came online. The company had no mining revenue in the eleven-month 2021 comparison period.
- Management anticipated approximately 66,500 miners and 6.7 EH/s by the end of the first quarter of 2023. Its stated year-end 2023 plan was approximately 327 MW deployed and 10.2 EH/s, of which it expected to own about 8.2 EH/s. These are forward-looking targets, not reported results.
- The Odessa facility is designed for 207 MW. Management expected full buildout to support approximately 60,000 miners and 6.2 EH/s, with additional miners planned during 2023.
- Power costs and Bitcoin prices are central operating drivers. The company said its power arrangements provided access, until at least 2027, to an average electricity cost of approximately 2.7 cents per kWh. The Odessa agreement includes take-or-pay obligations and collateral requirements; Texas power prices, curtailment, weather and grid constraints remain significant risks.
- Luminant sued Cipher’s subsidiary over approximately $6.7 million in payments it says were not due under the power agreement. Cipher denies liability and intends to contest the case. The matter was at an early stage, no trial date had been set, and no loss accrual was recorded because resolution was not considered probable or estimable. Cipher also said it had not received payment for electricity sold in ERCOT in September and October 2022.
- The Standard Power hosting agreement was terminated on February 2, 2023, without consideration, after construction and regulatory conditions were not satisfied.
- Bitcoin mining entails substantial exposure to Bitcoin price volatility, network difficulty and the scheduled 2024 block-reward halving. The company does not currently hedge its Bitcoin holdings. Bitcoin was carried under an impairment approach in which impairment losses could not subsequently be reversed.
- Other material risks include dependence on Texas operations, power and equipment suppliers, regulatory and environmental developments, and custody of Bitcoin with Coinbase Prime as sole custodian. The filing also notes that Bitcoin holdings are uninsured.
- Bitfury Top HoldCo and an affiliate beneficially owned approximately 81.2% of common stock as of March 7, 2023, giving Bitfury control and making Cipher a Nasdaq “controlled company.” The company does not plan to pay cash dividends for the foreseeable future.
Controls and audit
Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2022 because of a material weakness involving IT access, segregation-of-duties and change-management controls affecting revenue and digital-asset processes, as well as an inadequately designed manual revenue control. Management said the weakness did not result in a material misstatement of the reported financial statements and described remediation efforts, including additional resources and external support. The independent auditor issued an unqualified opinion on the financial statements but was not engaged to audit internal controls.
Important facts for investors to verify
- Whether the planned miner deliveries, Odessa buildout, 2023 capacity targets and related funding were achieved, and at what cost.
- Current liquidity, cash burn, equipment commitments and any use of equity or debt financing, including potential dilution under the shelf and ATM facilities.
- Developments in the Luminant dispute, collection of disputed power-sale proceeds, derivative valuation and collateral requirements.
- Bitcoin production economics under current Bitcoin prices, network difficulty, electricity costs and curtailment, and the effects of the 2024 halving.
- Progress in remediating the material weakness and whether controls operate effectively over a sufficient period.
- Bitcoin custody, insurance and counterparty protections, and the governance implications of Bitfury’s controlling ownership.