Cipher Mining Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; filed November 14, 2022. Financial statements are unaudited. The filing identifies the registrant as Cipher Mining Inc. The company is building a U.S. Bitcoin-mining business; it reported no revenue for the quarter or nine-month period.
Financial results and position
| Metric | Q3 2022 | Nine months 2022 |
|---|---|---|
| Revenue | $0 | $0 |
| Net income (loss) | $59.3 million | $12.6 million |
| Operating cash flow | Not separately stated | $(8.9) million |
| Investing cash flow | Not separately stated | $(169.8) million |
- Reported earnings were dominated by an $85.7 million gain from changes in the fair value of the Luminant power-agreement derivative, including initial recognition of the asset. The derivative was valued at $78.9 million at September 30 using Level 3 inputs. The filing’s non-GAAP net loss was $14.1 million for Q3 and $41.1 million for the nine months.
- General and administrative expense was $17.8 million in Q3 versus $2.3 million in Q3 2021, including $10.5 million of share-based compensation. For the nine months it was $51.8 million versus $2.9 million in the prior-year eight-month period; the periods differ in length.
- At September 30, cash and cash equivalents were $28.1 million, total assets $407.5 million, and stockholders’ equity $383.1 million. Cash declined $181.7 million from year-end 2021, mainly reflecting equipment deposits and construction spending. Accumulated deficit was $59.6 million.
- Consolidated liabilities were $24.4 million, including $5.8 million of operating lease liabilities; the filing reports no consolidated borrowings. Alborz LLC, an equity-method joint venture, had a BlockFi facility with approximately $26.8 million drawn.
- Equipment deposits were $200.0 million, and the filing listed $200.0 million of open purchase commitments and $335.1 million of original maximum commitments. These figures relate to miners, mining equipment and containers. The equity-method investment was $31.7 million; the company recognized $20.6 million of equity-investment losses for the nine months, including losses on contributed miners.
Changes, outlook and significant items
- Compared with Q3 2021, Cipher moved from a $2.4 million net loss to $59.3 million net income, principally because of the non-cash Luminant derivative gain—not mining revenue. The company says mining operations began at the partially owned Alborz site in February 2022, but it generated no revenue in the reported periods.
- Management targeted approximately 267 MW of capacity and 8.0 EH/s across four sites by early 2023, of which it expected to own approximately 7.0 EH/s. Alborz was described as capable of approximately 1.3 EH/s, with Cipher’s share about 0.64 EH/s; Bear and Chief together were expected to generate about 0.65 EH/s, with Cipher’s share about 0.32 EH/s. These are forward-looking targets.
- Management said existing resources, potential site cash and cryptocurrency inflows, the ability to delay equipment orders, and potential equity sales should cover operating and capital needs for at least 12 months from issuance of the statements. The company had not sold shares under its $250 million at-the-market program as of issuance; sales could dilute shareholders.
- On November 4, 2022, a SuperAcme supplementary agreement reset fixed and floating pricing for remaining miner purchases and stated that no further payments would be required. Of $101.8 million in advance payments, $48.2 million remained to be applied; SuperAcme had delivered 17,833 miners valued at about $53.6 million.
- A material Luminant dispute arose after quarter-end. Luminant disputed $1.7 million for July–August electricity sales and $5.1 million paid in connection with a schedule modification; Cipher disputes Luminant’s claims. Cipher also had not received payment for September and October electricity sales. Luminant requested the remaining half of the independent collateral, approximately $6.3 million, which Cipher expected to deposit before the end of November. Management said resolution timing and outcome were unknown.
- In October, Cipher contributed approximately 6,500 miners to Bear and Chief and expected to record an approximately $15 million loss because their fair value was below cost. Management cited cryptocurrency and power-price volatility, financing availability, construction and equipment delays, and the company’s limited operating history as risks. No material pending litigation was reported; disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether the Luminant dispute is resolved, whether disputed amounts are retained or repaid, and the effect on the derivative’s valuation and collateral needs.
- Whether SuperAcme delivers the remaining miners under the revised terms and how the $48.2 million advance balance is applied.
- Actual project deployment, interconnection approvals, mining capacity and timing versus management’s early-2023 targets, and when revenue begins.
- Cash burn and funding needs relative to equipment commitments; any use of the ATM or other financing and the resulting dilution.
- The assumptions behind the Level 3 derivative valuation and the impact of ongoing power-market and Bitcoin-price changes on reported results.
- Bitfury Top HoldCo’s approximately 81.6% ownership and the resulting controlled-company governance structure.