Riot Platforms, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Riot Platforms, Inc. is a vertically integrated Bitcoin mining company with three reportable segments: Bitcoin Mining, Data Center Hosting, and Engineering. The unaudited filing covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022.
- The Rockdale, Texas facility had 700 MW of developed capacity.
- The company was developing the Corsicana, Texas facility, expected to provide approximately one gigawatt of capacity when complete.
- At March 31, 2023, Riot operated 94,176 miners with 10.5 EH/s of hash-rate capacity; 17,040 miners were offline because of December 2022 winter-storm damage.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $73.2 million | $79.8 million | Down 8.2% |
| Bitcoin Mining revenue | $48.0 million | $57.9 million | Down 17.1% |
| Data Center Hosting revenue | $9.0 million | $9.7 million | Down 6.7% |
| Engineering revenue | $16.1 million | $12.1 million | Up 33.2% |
| Operating income (loss) | $(56.8) million | $38.9 million | Turned negative |
| Net income (loss) | $(55.7) million | $36.6 million | Turned negative |
| Diluted loss per share | $(0.33) | $0.31 | Declined |
| Adjusted EBITDA | $7.5 million | $12.7 million | Down 40.9% |
| Cash flow from operations | $32.4 million | $(45.3) million | Improved by $77.7 million |
Reported cost of revenue was $63.1 million, producing a reported gross margin of approximately 13.8%, versus approximately 42.8% in Q1 2022. Operating margin was approximately negative 77.6%, and net margin was approximately negative 76.0%.
- Bitcoin Mining cost of revenue was $21.9 million, or 45.6% of Bitcoin Mining revenue. After allocated power curtailment credits, the segment margin was 58.4%, compared with 68.1% in Q1 2022.
- Data Center Hosting generated a segment loss after allocated power credits of $15.5 million, or negative 171.2% of revenue, compared with negative 34.6% in Q1 2022.
- Riot mined 2,115 Bitcoin, up 50.5% from 1,405 Bitcoin in Q1 2022, but the average Bitcoin value recognized fell to approximately $22,704 from $41,241.
- Riot sold 1,975 Bitcoin for approximately $44.4 million and held 7,094 Bitcoin at March 31, 2023. The Bitcoin had a carrying value of $121.9 million and an estimated market value of approximately $202.0 million based on the disclosed March 31 price.
- Power curtailment credits were $3.1 million, compared with $2.6 million in Q1 2022.
Cash, liquidity, debt, and capital allocation
- Cash and cash equivalents were $158.3 million at March 31, 2023; cash, cash equivalents, and restricted cash totaled $187.8 million.
- Working capital was approximately $253.6 million and stockholders’ equity was $1.1 billion.
- Restricted cash of $29.5 million was held in escrow in connection with the Northern Data working-capital dispute.
- Investing cash outflows were $74.0 million, including $51.0 million of property and equipment purchases and a $23.0 million security deposit related to the expanded TXU power agreement.
- The company reported approximately $0.3 million outstanding under its $10.0 million Credit and Security Facility. The facility carried an interest rate of 7.5% at March 31, 2023, and Riot was in compliance with its covenants.
- Operating lease liabilities totaled approximately $22.3 million. The filing states that Riot had no off-balance-sheet arrangements.
- After quarter-end, through the filing date, Riot issued 7,871,700 shares under its ATM program for approximately $95.7 million of net proceeds at a weighted-average price of $12.41 per share.
Material changes versus the prior comparable period
- Revenue declined despite substantially higher Bitcoin production because Bitcoin prices were materially lower.
- Operating results deteriorated primarily because depreciation and amortization increased to $59.3 million from $14.2 million as Rockdale assets and miners entered service, while Data Center Hosting costs increased to $25.7 million from $15.0 million.
- The fair-value adjustment on the power-supply derivative shifted from a $43.7 million gain in Q1 2022 to a $5.8 million expense in Q1 2023.
- Bitcoin impairment declined to $4.5 million from $25.9 million, and the realized gain on Bitcoin sales increased to $13.8 million from $9.7 million.
- Property and equipment, net, increased to $717.3 million from $692.6 million, while total assets declined to $1.25 billion from $1.32 billion, primarily reflecting lower cash and current assets.
- The weighted-average share count increased to 167.3 million from 117.0 million, reflecting prior equity issuance and contributing to dilution.
- The company reclassified a $33.3 million miner deposit to property and equipment after receiving 5,130 S19-series miners in January 2023.
Guidance, outlook, commentary, risks, and unusual items
- Management anticipated reaching 12.5 EH/s of self-mining hash-rate capacity in the second half of 2023.
- The first phase of Corsicana was estimated to cost approximately $333 million, with approximately $70.0 million incurred through March 31, 2023. Management expected to spend approximately $182 million during the remainder of 2023 and $81 million during the first quarter of 2024.
- Management emphasized Riot’s relative liquidity and limited debt compared with certain industry participants, while also stating that additional equity or debt financing may be required to fund operations and expansion.
- Key exposures include Bitcoin price and network difficulty, electricity availability and pricing, energy regulation and environmental scrutiny, supply-chain delays, cybersecurity, facility concentration, technology execution, inflation, interest rates, and the need for future capital.
- Severe winter storms damaged the Rockdale facility, with estimated damages of $11.2 million; no insurance recoveries had been received as of the filing.
- Legacy hosting contracts were below market and historically generated hosting revenue below the associated cost of service. Riot was pursuing litigation involving certain legacy customers.
- Riot disclosed material litigation claims, including claims by Rhodium exceeding $26 million sought by Riot, SBI claims seeking at least $31 million, and GMO claims seeking more than $50 million. The filing states that outcomes could not reasonably be estimated for these matters.
- The company remediated a material weakness involving the design of controls used to evaluate Bitcoin impairment, but external-auditor testing of the control had not yet been completed for the current fiscal year.
Most important facts for an investor to verify
- Whether Bitcoin prices, network difficulty, and global hash rate support the stated 12.5 EH/s expansion target and mining economics.
- The timing, total cost, financing, and commissioning progress of the Corsicana facility and the final Rockdale expansion building.
- The extent to which Data Center Hosting losses from legacy contracts and customer disputes may continue.
- Whether winter-storm repairs restore the 17,040 offline miners and the related 2.5 EH/s capacity.
- The sustainability of positive operating cash flow given recurring capital expenditures, Bitcoin sales, and expansion requirements.
- The potential dilution from the ATM program and other equity compensation or financing needs.
- The ultimate resolution and cash impact of the Northern Data dispute, including the $29.5 million escrow balance, and other material litigation.
- The external-auditor assessment of the remediated Bitcoin-impairment control weakness.