Riot Platforms, Inc. (filed as Riot Blockchain, Inc.) — Q1 2022 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2022, filed May 10, 2022. The company operated three segments: Bitcoin Mining, Data Center Hosting, and Electrical Products and Engineering. Operations were centered at the Whinstone facility in Rockdale, Texas, with development beginning for a planned approximately 1 GW Corsicana, Texas facility.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $79.8 million | $23.2 million | +244% |
| Mining revenue | $57.9 million | $23.2 million | +150% |
| Hosting revenue | $9.7 million | None reported | New revenue stream |
| Engineering revenue | $12.1 million | None reported | New revenue stream |
| Operating income | $37.9 million | $7.4 million | +415% |
| Net income | $35.6 million | $7.5 million | +373% |
| Basic and diluted EPS | $0.30 | $0.09 | Improved |
| Adjusted EBITDA | $11.7 million | $11.1 million | +6% |
| Net cash used in operating activities | $(45.3) million | $(6.0) million | Greater use of cash |
Reported operating margin was approximately 47.5%, versus 31.7% in the prior-year quarter. Mining cost of revenue was 33.0% of mining revenue, compared with 32.5% in Q1 2021. Adjusted EBITDA margin was approximately 14.7%.
- Bitcoin production was 1,405 coins, up 186% from 491 coins. The average Bitcoin value underlying mining revenue declined to approximately $41,241 from $46,729.
- At March 31, 2022, the company operated approximately 42,919 miners with 4.3 EH/s of hash-rate capacity and held 6,062 Bitcoin with a carrying value of $189.6 million.
- Cash and cash equivalents were $113.6 million, down from $312.3 million at December 31, 2021. Working capital was approximately $323.5 million and stockholders’ equity was $1.4 billion.
- Total assets were $1.55 billion and total liabilities were $162.1 million. The filing does not report conventional funded debt; liabilities primarily comprised operating leases, deferred revenue, accounts payable, and contingent consideration.
- Property and equipment, net, increased to $325.1 million from $263.0 million. Deposits, primarily for mining equipment, increased to $330.4 million from $266.2 million.
- Investing cash outflows were $140.3 million, including $103.2 million of equipment deposits and $37.1 million of property and equipment purchases. Financing cash outflows were $13.2 million.
Material changes versus the prior comparable period
- Revenue expanded substantially because of higher Bitcoin production and the inclusion of Whinstone hosting and ESS Metron engineering operations acquired in 2021.
- Depreciation and amortization increased to $14.2 million from $2.8 million, while selling, general and administrative expense increased to $10.9 million from $5.5 million.
- Results included a $46.2 million gain from changes in the fair value of the power-supply derivative, a $9.2 million realized cryptocurrency gain, and a $26.4 million cryptocurrency impairment charge. These items materially affected reported operating income and did not represent comparable recurring operating cash flows.
- The Bitcoin balance increased from 4,884 coins at January 1, 2022 to 6,062 coins at March 31, 2022. The company sold 200 Bitcoin for approximately $9.4 million during the quarter, its first sale since 2020.
- Common shares outstanding increased to approximately 117.3 million at March 31, 2022 from 116.7 million at December 31, 2021; the May 6, 2022 share count was 127.0 million.
Guidance, outlook, commentary, risks and unusual items
- Based on existing operations and expected miner deliveries, management expected approximately 120,146 miners, 12.8 EH/s of capacity, and approximately 370 MW of capacity by January 2023. This is an expectation, not a guarantee.
- The company had approximately $325.4 million of open miner purchase commitments and had paid approximately 62% of total purchase prices. Approximately $214.4 million remained payable to Bitmain through December 2022.
- Subsequent to quarter-end, the company received approximately $140.3 million of net proceeds from selling 9.9 million shares under a $500 million at-the-market offering. This increased liquidity but diluted existing shareholders.
- The planned first phase of the Corsicana facility was expected to provide 400 MW of immersion-cooled capacity, commence operations after construction in July 2023, and cost approximately $333 million through the first quarter of 2024.
- Management stated that available cash and Bitcoin were sufficient for operating and capital requirements for at least the next year from issuance of the financial statements, but also disclosed that additional equity or debt financing may be required.
- Key risks include Bitcoin price volatility, mining difficulty and network hash-rate increases, electricity availability and pricing, regulatory changes, cybersecurity, climate-related regulation, supply-chain delays, construction and immersion-cooling execution, concentration of operations, and the ability to raise capital.
- The company disclosed material weaknesses in internal control over financial reporting relating to user access and segregation of duties, IT change management, and the completeness and accuracy of third-party data used for mining revenue and cryptocurrency reporting. Management was pursuing remediation, but the weaknesses were not yet remediated.
- Pending securities class-action and shareholder derivative litigation remained unresolved. The company stated that the likelihood and magnitude of any unfavorable outcome could not reasonably be estimated.
- Two customers accounted for nearly all third-party hosting revenue, creating customer concentration risk. The Coinmint arrangement also lacked a formal written amendment confirming continuing access to sufficient power for the expanding miner fleet.
Most important facts for investors to verify
- Reconcile reported profitability with cash generation, particularly the $45.3 million operating cash outflow and substantial noncash fair-value, impairment, and cryptocurrency items.
- Verify Bitcoin price, production, impairment, and carrying-value sensitivity, including the accounting prohibition on reversing cryptocurrency impairment losses.
- Assess funding needs against the $214.4 million remaining Bitmain commitment, the projected $333 million Corsicana first phase, lease obligations, and contingent consideration.
- Confirm the timing, cost, power availability, and execution risks of the Whinstone expansion and Corsicana development.
- Monitor dilution from the $500 million ATM facility and subsequent share issuances, as well as the company’s ability to raise capital during periods of Bitcoin or share-price weakness.
- Track remediation of the disclosed internal-control material weaknesses and review whether subsequent filings report effective controls.
- Review developments in the pending class-action and derivative litigation and the effect of customer and facility concentration on operating continuity.