Riot Blockchain, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated results. The company focused on expanding Bitcoin mining with Bitmain Antminers.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $23.2 million | $2.4 million |
| Cryptocurrency mining revenue | $23.2 million | $2.4 million |
| Cost of revenue | $7.5 million | $1.4 million |
| Operating income (loss) | $7.4 million | ($4.4 million) |
| Net income (loss) | $7.5 million | ($4.3 million) |
| Basic and diluted EPS | $0.09 | ($0.15) |
| Net cash used in operating activities | $6.0 million | $2.7 million |
- Mining cost of revenue was 32.3% of mining revenue, versus 58.3% in Q1 2020; the corresponding gross margin was approximately 67.7% versus 41.7%.
- Cash and cash equivalents were $241.0 million at March 31, 2021, up from $223.4 million at year-end. Working capital was $268.8 million; total assets were $375.9 million and stockholders’ equity was $367.8 million.
- Cash used in investing activities was $58.7 million, primarily $56.4 million in equipment deposits. Financing provided $82.3 million, chiefly from $82.7 million net ATM proceeds. Cash increased by $17.6 million during the quarter.
- Cryptocurrency holdings were $34.6 million, including 1,569 BTC and 1 BCH. The company recognized $23.2 million of mined cryptocurrency revenue and retained most mined rewards rather than selling them.
- Total liabilities were $8.1 million, principally accounts payable and accrued expenses; the filing reports no borrowings or material debt balance.
Changes versus the prior comparable period
- Mining revenue rose $20.8 million, reflecting a higher average Bitcoin price cited by management ($46,729 versus $8,287) and more Bitcoin mined. Management’s narrative says 491 BTC versus 280 BTC; the mining activity table reports 281 BTC for Q1 2020, so the prior-period quantity is inconsistent within the filing.
- Cost of revenue increased $6.1 million as mining activity expanded, while its share of mining revenue declined. Depreciation and amortization rose to $2.8 million from $0.7 million as newly acquired miners entered service.
- SG&A increased to $5.5 million from $3.7 million, including approximately $2.4 million of transaction-related professional fees; lower stock compensation partly offset higher costs.
- The company received and deployed 6,703 additional miners during the quarter, bringing its fleet to 13,746. Common shares outstanding increased to 84.1 million from 78.5 million at year-end, including shares issued through the ATM offering.
Outlook, risks, and other material matters
- Management said existing cash was sufficient for operating and capital requirements for at least one year from issuance of the financial statements. The filing provides no specific earnings or revenue guidance.
- Riot had agreements for additional miners, including 43,500 S19j miners for approximately $145.7 million, with deliveries scheduled from late 2021 into 2022. A subsequent agreement dated April 5, 2021 covered approximately 42,000 more miners for about $138.5 million, also scheduled for delivery from late 2021 through 2022.
- After quarter-end, Riot agreed to acquire Whinstone for $80 million cash, subject to adjustments, plus 11.8 million Riot shares. The transaction was expected to close in Q2 2021, subject to customary conditions; completion and integration were not assured.
- Mining results depend heavily on Bitcoin prices, mining difficulty and competition, power availability and cost, and the ability to deploy equipment. The Coinmint hosting arrangement had been expanded to support the fleet, but Riot disclosed that no formal written amendment guaranteed sufficient power for the expanded operation.
- Management reported that disclosure controls and internal control over financial reporting were not effective at quarter-end due to material weaknesses involving system access and segregation of duties, IT change management, and completeness and accuracy of third-party data. Remediation was underway and expected before year-end, but the weaknesses were not yet considered remediated.
- Shareholder securities and derivative litigation remained pending, as did a disputed Kashwise fee claim with a scheduled trial date in June 2021. The company said it could not reasonably estimate the likelihood or magnitude of an unfavorable outcome.
- Management cited cryptocurrency price volatility, reliance on equity financing, equipment delivery and supplier risks, cybersecurity, power requirements, and potential acquisition integration challenges. It did not expect COVID-19 to have a material impact based on its then-current assessment, while continuing to monitor effects.
Important facts for investors to verify
- Reconcile the filing’s conflicting Q1 2020 Bitcoin production figures (280 versus 281 BTC).
- Track Bitcoin prices, mining difficulty, production costs, fleet deployment, and realized proceeds from cryptocurrency holdings.
- Confirm miners’ delivery timing, remaining purchase payments, and whether Coinmint power capacity is formally secured for the expanded fleet.
- Verify the closing, final consideration, and integration progress of the Whinstone acquisition, as well as its financing and dilution effects.
- Monitor remediation and testing of the disclosed material weaknesses, and developments in the shareholder and Kashwise proceedings.