Riot Blockchain, Inc. (Riot Platforms) — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; filed March 16, 2022. The filing is an annual report rather than a standalone Q4 report. Riot operated three segments: Bitcoin Mining, Data Center Hosting, and Electrical Products and Engineering.
Business Context
Riot was a vertically integrated Bitcoin mining and infrastructure company. At December 31, 2021, it operated approximately 30,907 miners with 3.1 EH/s of hash-rate capacity using approximately 96 MW. It also operated the Whinstone facility in Rockdale, Texas, which provided self-mining infrastructure, customer hosting, power management, and engineering services.
- Acquired Whinstone US on May 26, 2021 for approximately $460.4 million, funded with $80 million of cash, 11.8 million Riot shares valued at approximately $326.2 million, and contingent consideration tied to power credits.
- Acquired ESS Metron on December 1, 2021 for approximately $56.9 million, consisting of cash and Riot shares.
- Announced a 400 MW Whinstone expansion intended to increase total facility capacity to approximately 700 MW, including 200 MW of immersion-cooled infrastructure.
Financial Performance and Key Metrics
| Metric | FY2021 | FY2020 | Change or comment |
|---|---|---|---|
| Total revenue | $213.2 million | $12.1 million | Increase of approximately 1,665% |
| Mining revenue | $184.4 million | $12.0 million | Increase of approximately 1,439% |
| Hosting revenue | $24.5 million | None | Whinstone contributed from acquisition date |
| Engineering revenue | $4.2 million | None | ESS Metron contributed from acquisition date |
| Net loss | $7.9 million | $12.7 million | Loss narrowed |
| Net loss attributable to Riot | $7.9 million | $12.7 million | Basic and diluted EPS of $(0.08) versus $(0.30) |
| Operating loss | $22.4 million | $14.1 million | Higher operating expenses offset gross profit growth |
| Adjusted EBITDA | $82.4 million | $(6.3) million | Non-GAAP measure; reconciled in the filing |
| Net cash used in operating activities | $86.4 million | $11.1 million | Primarily reflects Bitcoin retained on balance sheet |
| Net cash used in investing activities | $490.3 million | $32.8 million | Miner deposits, facility expansion, and acquisitions |
| Net cash provided by financing activities | $665.6 million | $259.9 million | Primarily equity issuance |
Mining cost of revenue was $45.5 million, or approximately 24.7% of mining revenue, compared with 52.2% in 2020. Total cost of revenue was $82.1 million, implying a gross margin before depreciation and amortization of approximately 61.5%. Net margin was approximately negative 3.7%.
- Riot mined 3,812 Bitcoin in 2021, compared with 1,033 in 2020, an increase of approximately 269%.
- The average Bitcoin value used in mining revenue was approximately $45,744 in 2021 versus $11,461 in 2020.
- Bitcoin holdings increased to 4,884 coins with a carrying value of $159.5 million at year-end, after a $36.5 million impairment charge.
- Cash and cash equivalents were $312.3 million, working capital was $463.7 million, and total stockholders’ equity was $1.36 billion.
- Total assets were $1.53 billion, including $349.1 million of goodwill, $263.0 million of property and equipment, and $266.2 million of deposits.
- The filing does not report material traditional debt outstanding at year-end. Liquidity was funded primarily through equity offerings and operating assets.
Material Changes Versus FY2020
- Operations expanded substantially through the Whinstone and ESS Metron acquisitions, adding hosting and engineering revenue and materially increasing assets, liabilities, employees, and operating complexity.
- Mining capacity increased from 7,043 deployed miners at December 31, 2020 to 30,907 at December 31, 2021.
- Selling, general and administrative expense rose to $87.4 million from $10.3 million, primarily due to $68.5 million of stock-based compensation, higher personnel costs, and consulting expenses.
- Depreciation and amortization increased to $26.3 million from $4.5 million due to acquired facilities and expanded mining equipment.
- Acquisition-related costs were $21.2 million, and cryptocurrency impairment increased to $36.5 million from $1.0 million.
- Riot completed a $600 million at-the-market offering, receiving approximately $587.2 million net from issuing 19.9 million shares. It also issued 11.8 million shares for Whinstone and 645,248 shares at closing for ESS Metron, resulting in substantial shareholder dilution.
Outlook, Commentary, Risks, and Unusual Items
- Management expected approximately 120,150 miners operating at approximately 370 MW by the end of 2022, based on existing operations and expected deliveries. This is an expectation, not a guarantee.
- Bitmain commitments totaled approximately $527.8 million, with $301.3 million remaining payable at December 31, 2021 and deliveries scheduled through December 2022.
- The Whinstone expansion was described as on schedule at year-end despite global supply-chain constraints. Completion and cost targets remain subject to construction, permitting, labor, equipment, and supply risks.
- Management expected immersion cooling to improve mining productivity and capital efficiency; preliminary testing suggested an estimated 25% hash-rate increase and potential performance improvement of up to 50% versus traditional air cooling. These benefits remained subject to testing and execution.
- Riot stated that 2022 could be a year of consolidation in the Bitcoin mining industry and that it was evaluating strategic opportunities, but provided no quantified revenue, earnings, or production guidance beyond operational capacity expectations.
- Whinstone generated approximately $6.5 million from selling electricity back to ERCOT during the post-acquisition period. The February 2021 Texas winter storm created approximately $125.1 million of gross power credits, including $29.0 million received in cash, $59.7 million expected as future bill credits, and $26.3 million contingent on future ERCOT remittance. Related contingent consideration payable to the seller was approximately $83.9 million at year-end.
- Bitcoin price volatility, network hash-rate growth, mining difficulty, future reward halvings, electricity costs, power availability, regulatory changes, cybersecurity, supply-chain disruptions, and reliance on Bitmain and mining pools are key risks.
- Riot had material weaknesses in internal control over financial reporting involving IT access controls, change management, third-party data, and business-combination valuation assumptions. Marcum LLP issued an adverse opinion on internal control effectiveness, although it issued an unqualified opinion on the financial statements.
- Outstanding securities litigation and shareholder derivative actions sought unspecified damages and other relief. The filing states that the potential outcome and magnitude of loss could not reasonably be estimated.
Important Facts for Investors to Verify
- Reconcile Bitcoin production, sales, holdings, impairment charges, and carrying value with current Bitcoin prices and the company’s subsequent disclosures.
- Verify actual 2022 miner deliveries, deployment timing, hash rate, power consumption, and the remaining $301.3 million Bitmain commitment.
- Assess whether the Whinstone expansion reached the planned 700 MW capacity and whether immersion cooling achieved the anticipated performance improvements.
- Review liquidity after capital expenditures, miner commitments, acquisitions, operating cash usage, and any additional equity or debt financing.
- Monitor shareholder dilution from equity offerings, acquisition consideration, restricted stock awards, and potential future capital raises.
- Evaluate remediation of the identified material weaknesses and whether subsequent audits conclude that internal controls are effective.
- Review developments in the securities class action, derivative litigation, power-credit contingencies, and cryptocurrency accounting rules.