Riot Platforms, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Riot Platforms is a vertically integrated Bitcoin mining company with three reportable segments: Bitcoin Mining, Data Center Hosting, and Engineering. The filing covers the unaudited quarter and nine months ended September 30, 2023, compared with the same periods in 2022.
The company operated 98,694 deployed miners with 10.9 EH/s of hash-rate capacity at September 30, 2023. An additional 14,250 miners remained offline because of December 2022 winter-storm damage at the Rockdale, Texas facility. Riot is developing the Corsicana, Texas facility, expected to provide approximately one gigawatt of capacity when complete; initial operations are expected after commissioning during the first quarter of 2024.
Financial performance and key metrics
| Metric | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Total revenue | $51.9 million | $46.3 million | $201.9 million | $199.0 million |
| Bitcoin Mining revenue | $31.2 million | $22.1 million | $129.0 million | $126.2 million |
| Data Center Hosting revenue | $5.1 million | $8.4 million | $21.8 million | $27.9 million |
| Engineering revenue | $15.5 million | $15.8 million | $51.0 million | $44.9 million |
| Operating loss | $(47.8) million | $(35.9) million | $(137.1) million | $(350.3) million |
| Net loss | $(45.3) million | $(32.4) million | $(128.7) million | $(349.4) million |
| Adjusted EBITDA | $31.6 million | $4.3 million | $63.1 million | $(48.9) million |
Bitcoin Mining revenue increased in the quarter primarily because Riot mined 64 more Bitcoin and benefited from higher average Bitcoin prices. For the nine-month period, revenue was broadly stable because higher production was substantially offset by a lower average Bitcoin price.
Riot mined 4,996 Bitcoin during the first nine months of 2023, up 30.0% from 3,842 Bitcoin in the comparable period. It sold 4,615 Bitcoin for approximately $118.8 million and held 7,327 Bitcoin at September 30, 2023. The carrying value of Bitcoin was $151.8 million, compared with an estimated market value of approximately $197.6 million based on the period-end Bitcoin price cited in the filing.
Power curtailment credits were $49.6 million in the quarter and $66.1 million for the nine months, compared with $13.1 million and $21.3 million, respectively, in the prior-year periods. These credits arise from selling unused power and participating in ERCOT demand-response programs. Management states that, after allocating these credits, Bitcoin Mining cost of revenue was negative 21.8% of Bitcoin Mining revenue in the quarter and 21.4% for the nine months.
Data Center Hosting remained unprofitable after allocated power credits, with revenue less cost of revenue of $(2.7) million in the quarter and $(28.3) million for the nine months. Management attributed the weakness to legacy hosting contracts, fewer hosted customers, lower Bitcoin values, and higher facility-related costs.
Depreciation and amortization increased to $64.6 million in the quarter and $190.1 million for the nine months, versus $26.6 million and $61.4 million, respectively, primarily because of the expanded Rockdale facility and additional miners. Selling, general, and administrative expense increased to $29.1 million in the quarter and $61.6 million for the nine months, partly because of higher compensation, stock-based compensation, legal, and professional costs.
Liquidity, capital expenditures, and debt
- Cash and cash equivalents were $290.1 million at September 30, 2023, compared with $230.3 million at December 31, 2022.
- Working capital was approximately $442.3 million; total stockholders’ equity was $1.34 billion.
- Net cash used in operating activities was $12.0 million for the nine months, compared with $1.0 million used in the prior-year period.
- Net cash used in investing activities was $232.4 million, including $148.2 million for property and equipment and $90.5 million of equipment deposits.
- Net cash provided by financing activities was $304.1 million, principally from equity offerings.
- Riot issued 27.5 million shares through its ATM programs during the nine months for net proceeds of approximately $317.2 million. Through November 6, 2023, it issued an additional 10.2 million shares for approximately $101.1 million of net proceeds.
- Debt was limited. At September 30, 2023, approximately $0.5 million remained outstanding under the Equipment Guidance Line and approximately $0.4 million under an Equipment Term Loan. The company reported compliance with all facility covenants.
Material changes versus the prior comparable period
- Quarterly revenue increased 12.1%, while nine-month revenue increased 1.4%.
- Quarterly net loss widened from $32.4 million to $45.3 million, despite higher revenue, primarily because of increased depreciation, operating costs, and SG&A.
- Nine-month net loss improved substantially from $349.4 million to $128.7 million, largely because the 2022 period included a $335.6 million goodwill impairment and $130.3 million of Bitcoin impairment.
- Bitcoin production increased 30.0%, while the Bitcoin Mining fleet and infrastructure expanded.
- Data Center Hosting revenue declined 21.8% for the nine months, while Engineering revenue increased 13.6%.
- Power curtailment credits more than tripled for the quarter and more than tripled for the nine-month period, improving reported Adjusted EBITDA and Bitcoin Mining economics but depending on ERCOT conditions, power prices, weather, and operational curtailment.
- Shares outstanding increased materially because of ATM equity issuance; common shares issued and outstanding rose from 167.8 million at December 31, 2022 to 196.3 million at September 30, 2023.
Guidance, outlook, management commentary, risks, and unusual items
- Management expected to restore the storm-damaged Rockdale capacity during the fourth quarter of 2023 and anticipated 12.5 EH/s of self-mining capacity in that quarter.
- The MicroBT purchase covers 33,280 miners for approximately $162.9 million. Delivery was expected to begin in December 2023, with deployment by mid-2024; full deployment was expected to raise self-mining capacity to approximately 20.1 EH/s.
- The first phase of Corsicana is estimated to cost approximately $333 million. Riot had incurred approximately $155.2 million through September 30, 2023, and expected additional spending of approximately $128 million during the remainder of 2023 and $50 million during the first quarter of 2024.
- The Bitcoin network reward halving was expected in April 2024, creating a significant risk to mining revenue and margins unless offset by higher Bitcoin prices, greater efficiency, or lower costs.
- Key risks include Bitcoin price and network-difficulty volatility, irreversible Bitcoin impairment under the accounting model then described, dependence on equity financing, dilution, power-price and ERCOT exposure, construction and supply-chain delays, inflation, and the ability to complete and operate Corsicana as planned.
- Riot faced significant hosting-related litigation. GMO asserted damages that, as of its amended complaint, included an additional claim bringing alleged damages to $496 million. Rhodium asserted at least $42 million of alleged energy credits plus other damages, and SBI sought at least $31 million in lost profits and equipment damage. The filing states that the company could not reasonably estimate the likelihood or magnitude of unfavorable outcomes.
- Riot received approximately $27.1 million from an acquisition-related dispute with Northern Data and recorded a $26.0 million deferred gain; Northern Data subsequently filed a new complaint challenging the determination.
- The company reported no material changes to previously disclosed risk factors and concluded that disclosure controls and procedures were effective as of September 30, 2023.
Important facts for investors to verify
- Whether Rockdale repairs and the anticipated 12.5 EH/s capacity were achieved, and whether the MicroBT miner deployment proceeded on schedule.
- Actual construction progress, spending, commissioning, and operating commencement for the Corsicana facility relative to the stated first-quarter 2024 target.
- The sustainability of ERCOT power curtailment credits and their effect on normalized Bitcoin Mining margins.
- The impact of the April 2024 Bitcoin halving on production economics, cash flow, and liquidity.
- Ongoing dilution from ATM equity sales and whether additional equity or debt financing is required.
- The resolution and potential financial exposure of the GMO, Rhodium, SBI, and Northern Data disputes.
- Bitcoin holdings, sales policy, carrying value, and exposure to future impairment or Bitcoin price declines.