Riot Platforms, Inc. 2022 Form 10-K Summary
Business context and reporting period
Riot Platforms, Inc. filed its annual report for the fiscal year ended December 31, 2022. The company changed its name from Riot Blockchain, Inc. effective December 30, 2022. Riot is a vertically integrated Bitcoin mining company with three reportable segments: Bitcoin Mining, Data Center Hosting, and Engineering.
- Rockdale, Texas facility: approximately 700 MW of developed capacity.
- Corsicana, Texas facility: planned approximately one-gigawatt capacity; the initial phase targets 400 MW of immersion-cooled infrastructure.
- At December 31, 2022, Riot operated 88,556 miners with 9.7 EH/s of hash-rate capacity and expected approximately 111,216 miners in operation by the end of 2023.
Financial performance and key metrics
| Metric | 2022 | 2021, as restated | Change |
|---|---|---|---|
| Total revenue | $259.2 million | $213.2 million | +21.6% |
| Bitcoin Mining revenue | $156.9 million | $184.4 million | -14.9% |
| Data Center Hosting revenue | $36.9 million | $24.5 million | +50.1% |
| Engineering revenue | $65.3 million | $4.2 million | Significant increase, primarily reflecting a full year of ESS Metron activity |
| Net loss | $509.6 million | $15.4 million | Significant deterioration |
| Net loss per share | $3.65 | $0.17 | Higher loss per share |
| Adjusted EBITDA | $(67.2) million | $74.9 million | Declined to a loss |
| Net cash from operating activities | $0.5 million | $(86.1) million | Improved, but approximately breakeven |
| Cash and cash equivalents | $230.3 million | $312.3 million | Declined $82.0 million |
| Working capital | $321.8 million | Not clearly provided in the filing text | Not clearly provided |
| Total liabilities | $168.5 million | $173.6 million | Declined modestly |
Bitcoin production increased to 5,554 Bitcoin from 3,812 in 2021, up 45.7%, while the average value recognized per Bitcoin declined to approximately $28,245 from $45,744. Riot held 6,974 Bitcoin at year-end with a carrying value of $109.4 million, after selling 3,425 Bitcoin for approximately $79.5 million and recording $147.4 million of Bitcoin impairment.
- Bitcoin Mining cost of revenue was $74.3 million, or 47.4% of Mining revenue. Net of $27.3 million of power-curtailment credits, Mining cost of revenue was $62.3 million, and the related gross contribution was $94.5 million, or 60.3% of revenue.
- Data Center Hosting generated a negative contribution of $9.7 million after power-curtailment credits, compared with a negative contribution of $1.9 million in 2021.
- Depreciation and amortization increased to $108.0 million from $26.3 million.
- Riot recorded a $335.6 million goodwill impairment and a $55.5 million impairment of miners, both primarily reflecting adverse Bitcoin-market and industry conditions.
- The company recognized a $71.4 million gain from the change in fair value of its power-supply derivative asset and $27.3 million of power-curtailment credits from ERCOT-related programs.
Cash flow, liquidity, debt, and capital allocation
- Operating cash flow was $0.5 million; investing cash outflow was $354.9 million, including $194.9 million of equipment deposits and $148.4 million of property and equipment purchases.
- Financing cash flow was $272.3 million, primarily from $298.2 million of net proceeds under the 2022 at-the-market equity offering.
- Riot issued 37.1 million shares during 2022 at a weighted-average price of $8.23 per share, increasing dilution risk.
- The company reported no material long-term debt. Borrowings under a $10.0 million Credit and Security Facility were less than $0.1 million at year-end, and no amounts were outstanding under related term loans.
- Riot estimated approximately $333.1 million of total miner purchase commitments, with $33.3 million of deposits remaining and 5,130 miners received in January 2023.
- The first phase of the Corsicana development is estimated at approximately $333 million. Riot had incurred $53.4 million through December 31, 2022 and expected to spend approximately $199 million in 2023 and $81 million in the first quarter of 2024.
Material changes versus the prior comparable period
- Total revenue increased because Data Center Hosting and Engineering operated for a full year following the Whinstone and ESS Metron acquisitions, more than offsetting lower Bitcoin Mining revenue.
- Bitcoin production and miner capacity expanded substantially, but lower Bitcoin prices, higher depreciation, impairment charges, and increased operating costs drove a much larger net loss.
- Riot completed deployment of 200 MW of immersion-cooled mining at Rockdale and announced an additional 400 MW of immersion-cooled capacity at Corsicana.
- Riot terminated its Coinmint co-location agreement effective July 8, 2022 and moved its mining operations to Rockdale to reduce third-party hosting costs and use its fixed-cost power arrangement.
- The Rockdale facility was damaged by severe Texas winter storms in December 2022, affecting approximately 2.5 EH/s. Repairs were ongoing; approximately 0.6 EH/s had returned online by January 2023.
- Riot restated previously issued 2021 and 2020 annual financial statements and 2021 and 2022 interim financial information because Bitcoin impairment had been calculated using an inappropriate daily spot-price methodology rather than the intraday low.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected Corsicana self-mining and hosting operations to commence in the fourth quarter of 2023, subject to completion and commissioning of the substation and data-center infrastructure.
- Management viewed Riot’s liquidity and lack of long-term debt as positioning it to benefit from expected consolidation in the Bitcoin-mining industry, but stated that additional equity or debt financing may be required.
- Primary risks include Bitcoin-price volatility, rising network hash rate and mining difficulty, the anticipated 2024 Bitcoin halving, electricity availability and pricing, supply-chain constraints, construction delays, immersion-cooling execution, cybersecurity, regulatory and environmental developments, and the need for additional capital.
- The company recorded a $9.7 million casualty-related charge for the Rockdale storm damage; no insurance recovery had been received as of filing.
- Riot was involved in litigation, including a dispute with Northern Data concerning the Whinstone purchase-price true-up and energy credits, a GMO customer dispute seeking more than $50 million, and shareholder class and derivative actions. The filing states that the likelihood and magnitude of unfavorable outcomes for the class and derivative matters could not reasonably be estimated.
- GMO sought compensatory damages exceeding $50 million, while Whinstone asserted counterclaims exceeding $25 million. Northern Data alleged approximately $40 million of unpaid energy credits; Riot asserted claims involving more than $100 million of allegedly undisclosed liabilities.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2022 because of a material weakness related to Bitcoin impairment review. Marcum LLP issued an adverse opinion on internal control, although it issued an unqualified opinion on the financial statements.
Most important facts for an investor to verify
- Whether the 2022 restated financial statements and the revised Bitcoin impairment methodology are fully reflected in subsequent filings.
- Progress, total spending, financing requirements, and commissioning timing for the Corsicana project.
- Actual recovery of the storm-damaged Rockdale hash rate and the amount and timing of any insurance proceeds.
- Bitcoin production cost, power-curtailment credits, electricity pricing, and operating margin excluding volatile noncash items.
- Liquidity runway after planned capital expenditures, miner purchases, and any additional equity issuance.
- Exposure to dilution from ATM offerings, equity compensation, authorized share capacity, and future capital raises.
- Status and potential financial exposure of the Northern Data, GMO, shareholder class-action, and derivative litigation.
- Remediation and independent testing of the material weakness in internal control over financial reporting.