Riot Platforms, Inc. annual report, FY2023

Riot Platforms, Inc. — 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter filing; quarterly information is included only where disclosed. Riot is a vertically integrated Bitcoin mining company with three reportable segments: Bitcoin Mining, Data Center Hosting, and Engineering. Its principal facilities are in Rockdale and Navarro County, Texas.

Business context and operating scale

At year-end, Riot operated 112,944 miners with 12.4 EH/s of hash-rate capacity, all deployed at the Rockdale Facility.
Riot mined 6,626 Bitcoin in 2023, up 19.3% from 5,554 in 2022.
Rockdale had 700 MW of developed capacity. Riot was developing the Corsicana Facility, expected to reach approximately one gigawatt, with an initial 400 MW phase.
Riot entered into agreements to purchase 99,840 MicroBT miners for approximately $453.4 million. Deliveries began in the fourth quarter of 2023 and are expected to be completed by mid-2025. Full deployment is expected to support approximately 38 EH/s of self-mining capacity.

Financial performance and key metrics

Metric	2023	2022	Change
Total revenue	$280.7 million	$259.2 million	Up 8.3%
Bitcoin Mining revenue	$189.0 million	$156.9 million	Up 20.5%
Data Center Hosting revenue	$27.3 million	$36.9 million	Down 26.0%
Engineering revenue	$64.3 million	$65.3 million	Down 1.6%
Operating loss	$63.0 million	$512.7 million	Improved
Net loss	$49.5 million	$509.6 million	Improved
Net loss per share	$0.28	$3.65	Improved
Adjusted EBITDA	$214.0 million	$(67.2) million	Improved
Net cash from operating activities	$33.1 million	$0.5 million	Improved
Cash and cash equivalents	$597.2 million	$230.3 million	Up $366.8 million

Bitcoin Mining cost of revenue was $96.6 million, or 51.1% of Bitcoin Mining revenue, compared with 47.4% in 2022. Including allocated power curtailment credits, Bitcoin Mining revenue in excess of cost of revenue was $139.0 million, or 73.6% of revenue, versus 60.3% in 2022.
Power curtailment credits increased to $71.2 million from $27.3 million. These credits resulted from selling unused power and participating in ERCOT demand-response programs.
Data Center Hosting produced a negative revenue-over-cost result of $69.8 million before power credits and negative $45.3 million after allocated power credits, reflecting higher costs associated with the expanded Rockdale Facility and fewer hosted customers.
Depreciation and amortization increased to $252.4 million from $108.0 million, primarily due to the larger miner fleet and Rockdale expansion.
The 2023 net loss included a $184.7 million gain from the change in fair value of Bitcoin following early adoption of ASU 2023-08. This non-cash accounting gain materially affected reported earnings.
At December 31, 2023, Riot held 7,362 Bitcoin recorded at $311.2 million. It sold 6,185 Bitcoin during the year for proceeds of approximately $176.2 million.
Net working capital was approximately $887.6 million. Total assets were $2.05 billion, total liabilities were $163.1 million, and stockholders’ equity was $1.89 billion.
Debt was limited. The ESS Metron credit facility had approximately $0.8 million of outstanding borrowings at year-end, including approximately $0.3 million current and $0.5 million long-term. Riot reported no significant long-term debt and compliance with applicable covenants.

Cash flow, capital allocation, and liquidity

Investing cash outflows were $414.8 million, including $230.4 million of equipment deposits and $193.7 million of property and equipment purchases, primarily for miners and Corsicana development.
Financing cash inflows were $748.5 million, primarily from common-stock ATM offerings. Riot issued 62.2 million shares under its 2022 and 2023 ATM programs and received approximately $761.8 million of net proceeds.
The 2023 ATM agreement authorized sales of up to $750.0 million. Through February 20, 2024, Riot received an additional $114.9 million of net proceeds from selling 8.6 million shares under that program.
Remaining commitments included approximately $270.4 million for MicroBT miners, payable through April 2025, and approximately $21.1 million for immersion-cooling systems, payable in early 2024.
Riot estimated total first-phase Corsicana development costs of approximately $333.0 million. Approximately $217.8 million had been incurred through December 31, 2023, with approximately $115.2 million expected during the first half of 2024.

Material changes versus the prior comparable period

Revenue increased modestly, driven by higher Bitcoin production and Bitcoin Mining revenue, while Data Center Hosting revenue declined because Riot hosted fewer customers and addressed legacy contracts.
Reported profitability improved substantially from 2022, when Riot recorded $335.6 million of goodwill impairment, $147.4 million of Bitcoin impairment, and $55.5 million of miner impairment. No comparable impairment charges were recorded in 2023.
Cash increased substantially, primarily because of equity issuance and Bitcoin sales, while capital expenditures and equipment deposits remained high.
Riot completed the Rockdale expansion, more than doubling developed capacity from the time of acquisition, and continued construction of Corsicana.
Riot early adopted fair-value accounting for Bitcoin, recording a $6.0 million opening retained-earnings adjustment and a $184.7 million 2023 fair-value gain.
Common shares outstanding increased from 167.8 million at December 31, 2022 to 230.8 million at December 31, 2023, reflecting substantial equity financing and dilution.
Management stated that previously identified internal-control material weaknesses were remediated. Management and Deloitte concluded that internal control over financial reporting was effective as of December 31, 2023.

Guidance, outlook, commentary, and unusual items

Management expected approximately 28 EH/s of self-mining capacity by the end of 2024 based on existing operations and planned miner deliveries. Full deployment of the MicroBT order was expected to support approximately 38 EH/s.
Management expected Corsicana self-mining operations to commence by the end of the first quarter of 2024, following substation commissioning.
Management characterized 2024 as a likely period of consolidation in Bitcoin mining and believed Riot’s liquidity and limited debt positioned it to benefit from potential consolidation.
The next Bitcoin halving was anticipated for April 2024. The filing warns that the reduction in block rewards could reduce mining revenue unless offset by Bitcoin price increases, greater efficiency, or other factors.
In 2024, Riot temporarily ceased selling its Bitcoin production and began increasing its Bitcoin holdings, while retaining the ability to sell Bitcoin to fund cash expenditures.
Riot reported no material cybersecurity incident in 2023 and no material loss from the closure of Signature Bank. Cash was held across multiple banking institutions.
Material contingencies included disputes with Northern Data and legacy hosting customers. Notable claims included Rhodium’s demand for approximately $55.0 million, SBI’s claims for at least $31.0 million, and GMO’s amended claim seeking an additional $496.0 million. Management stated that the outcomes could not be reasonably estimated at the filing date.
Riot recognized a $26.0 million deferred gain related to a Northern Data post-closing purchase-price dispute, while Northern Data continued to challenge the independent accountant’s determination.

Principal risks

Bitcoin price volatility, network difficulty, global hash-rate growth, and the April 2024 halving could materially reduce revenue and margins.
Electricity costs, power availability, ERCOT curtailment benefits, water availability, extreme weather, and the value of the Rockdale power purchase agreement are significant operating variables.
Construction and deployment risks could delay Corsicana, increase costs, or prevent Riot from achieving anticipated hash-rate growth.
Riot depends on a limited number of miner suppliers and faces delivery, semiconductor, supply-chain, immersion-cooling, and equipment-obsolescence risks.
Future growth may require additional capital. Equity financing can dilute existing stockholders, while debt financing could impose restrictive covenants.
Regulatory, environmental, energy-use, sanctions, banking, cybersecurity, digital-asset custody, and litigation risks remain material.

Important facts investors should verify

Whether the 28 EH/s 2024 target and the approximately 38 EH/s post-deployment target are achieved on schedule and within budget.
The timing, cost, commissioning status, utilization, and power economics of the Corsicana Facility.
Bitcoin production, realized Bitcoin prices, network difficulty, post-halving economics, and the effect of Riot’s decision to retain rather than sell production.
The sustainability and accounting treatment of ERCOT power curtailment credits, including their effect on reported and non-GAAP mining margins.
Remaining MicroBT and immersion-cooling commitments, available liquidity, future capital needs, and additional equity issuance or dilution.
The financial impact and resolution of the GMO, Rhodium, SBI, and Northern Data disputes.
The distinction between GAAP earnings and cash economics, particularly the $184.7 million non-cash Bitcoin fair-value gain and substantial depreciation expense.
Data Center Hosting customer concentration, legacy contract performance, and whether the hosting segment can return to positive margins.