Riot Platforms, Inc 10-Q for FY2023 Q2
Riot Platforms, Inc. (RIOT)
About this 10-Q
Riot Platforms, Inc filed this 10-Q on August 9, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $76.74M
- up 5.2% from $72.95M a year earlier
- Net loss
- $27.69M
- compared with a net loss of $353.56M a year earlier
- Diluted EPS
- -$0.01
- compared with -$2.71 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from: to:
Commission file number:
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of Incorporation or organization) | | (I.R.S. Employer Identification No.) |
| ||
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered under Section 12(b) of the Securities Exchange Act:
|
| The | ||
(Title of class) | | (Trading Symbol) | | (Name of each exchange on which registered) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Accelerated filer ☐ | |
Non-accelerated filer ☐ | | Smaller reporting company |
Emerging growth company | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 7, 2023, the registrant had
RIOT PLATFORMS, INC.
i
RIOT PLATFORMS, INC.
As used in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” “Riot Platforms,” and “Riot” mean Riot Platforms, Inc., a Nevada corporation, and its consolidated subsidiaries, unless otherwise indicated.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The Company may also make forward-looking statements in the other reports and documents filed with the United States Securities and Exchange Commission (the “SEC”), including those documents and filings incorporated herein by reference. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for future operations; new equipment, systems, technologies, services or developments, such as our development and implementation of industrial-scale immersion-cooled Bitcoin mining hardware and our one-gigawatt data center outside of Corsicana, Texas; future economic conditions, performance, or outlooks; future political conditions; the outcome of contingencies; potential acquisitions or divestitures; the number and value of Bitcoin rewards and transaction fees we earn from our Bitcoin mining operations; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that we intend, expect, project, believe, or anticipate will or may occur in the future; and assumptions underlying or based upon any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words or expressions; however, forward-looking statements may be made without such terminology.
Such forward-looking statements reflect certain beliefs and assumptions based on information currently available to management regarding future events, which may not materialize or prove to be correct due to certain risks and uncertainties, including those risks which the Company’s management has identified and believes to be material and those which management has not identified, or which management does not believe to be material. Such risk factors are described in greater detail under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”), as well as under similar headings in subsequent filings we may make with the SEC. It is not possible for our management to predict all risks, the potential impact of all factors on our business, or the extent to which any factor, or combination of factors, may cause our actual results to differ, perhaps materially, from those contained in, or implied by, any forward-looking statements we may make. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date the statements are made and are not guarantees of future performance or actual results. Should any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition, results of operations, stockholder’s equity, and cash flows, and the market price of our securities may decline, as a result.
It is not possible for our management to predict all risks, the potential impact of all factors on our business, or the extent to which any factor, or combination of factors, may cause our actual results to differ, perhaps materially, from those contained in any forward-looking statements we may make. Should any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition, results of operations, stockholder’s equity, and cash flows, and the market price of our securities may decline, as a result.
Accordingly, you should read this Quarterly Report, and the other filings we make with the SEC, completely and with the understanding that our actual future results may be materially different from our historical results and those expressed in, or implied by, the forward-looking statements contained in this Quarterly Report and the documents incorporated by reference herein. The forward-looking statements contained in this Quarterly Report and the documents incorporated by reference herein speak only as of the date they are made and, unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are expressly qualified by the foregoing cautionary statements and are made in reliance of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the PSLRA.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Riot Platforms, Inc.
Condensed Consolidated Balance Sheets
(Unaudited; and in thousands, except for share amounts)
| | June 30, | | December 31, | ||
| | 2023 | | 2022 | ||
ASSETS |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net | |
| | |
| |
Contract assets, including retainage of $ | |
| | |
| |
Prepaid expenses and other current assets | |
| | |
| |
Bitcoin | |
| | |
| |
Future power credits, current portion | |
| | |
| |
Total current assets | |
| | |
| |
| | | | | | |
Property and equipment, net | |
| | |
| |
Deposits | |
| | |
| |
Finite-lived intangible assets, net | |
| | |
| |
Derivative asset | | | | | | |
Operating lease right-of-use assets | | | | | | |
Future power credits, less current portion | |
| | |
| |
Other long-term assets | |
| | |
| |
Total assets | | $ | | | $ | |
| |
|
| |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable | | $ | | | $ | |
Contract liabilities | |
| | |
| |
Accrued expenses | | | | | | |
Deferred gain on acquisition post-close dispute settlement | | | | | | — |
Deferred revenue, current portion | |
| | |
| |
Contingent consideration liability - future power credits, current portion | |
| | |
| |
Operating lease liability, current portion | |
| | |
| |
Total current liabilities | |
| | |
| |
| |
|
| |
|
|
Deferred revenue, less current portion | |
| | |
| |
Operating lease liability, less current portion | |
| | |
| |
Contingent consideration liability - future power credits, less current portion | |
| | |
| |
Other long-term liabilities | |
| | |
| |
Total liabilities | |
| | |
| |
| |
|
| |
|
|
Commitments and contingencies - Note 16 | |
|
| |
|
|
| |
|
| |
|
|
Stockholders’ equity | |
|
| |
|
|
Preferred stock, no par value, | |
|
| |
|
|
|
| — | |
| — | |
|
| — | |
| — | |
Common stock, no par value; | |
| | |
| |
Accumulated deficit | |
| ( | |
| ( |
Total stockholders’ equity | |
| | |
| |
Total liabilities and stockholders’ equity | | $ | | | $ | |
See accompanying notes to condensed consolidated financial statements.
1
Riot Platforms, Inc.
Condensed Consolidated Statements of Operations
(Unaudited; and in thousands, except for share and per share amounts)
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Revenue: | | |
| | |
| | |
| | |
|
Bitcoin Mining | | $ | | | $ | | | $ | | | $ | |
Data Center Hosting | |
| | |
| | |
| | |
| |
Engineering | |
| | |
| | |
| | |
| |
Other revenue | |
| | |
| | |
| | |
| |
Total revenue | |
| | |
| | |
| | |
| |
| |
|
| |
|
| |
|
| |
|
|
Costs and expenses: | |
|
| |
|
| |
|
| |
|
|
Cost of revenue: | | | | | | | | | | | | |
Bitcoin Mining | |
| | |
| | |
| | |
| |
Data Center Hosting | |
| | |
| | |
| | |
| |
Engineering | |
| | |
| | |
| | |
| |
Acquisition-related costs | |
| — | |
| — | |
| — | |
| |
Selling, general, and administrative | |
| | |
| | |
| | |
| |
Depreciation and amortization | |
| | |
| | |
| | |
| |
Change in fair value of derivative asset | |
| ( | |
| ( | |
| ( | |
| ( |
Power curtailment credits | | | ( | | | ( | | | ( | | | ( |
Change in fair value of contingent consideration | |
| |
| |
| |
| | |||
Realized gain on sale of Bitcoin | |
| ( | |
| ( | |
| ( | |
| ( |
Gain (loss) on sale/exchange of equipment | | | | | | ( | | | | | | ( |
Casualty-related charges (recoveries), net | | | — | | | — | | | | | | — |
Impairment of Bitcoin | | | | | | | | | | | | |
Impairment of goodwill | | | — | | | | | | — | | | |
Total costs and expenses | |
| | |
| | |
| | |
| |
Operating income (loss) | |
| ( | |
| ( | |
| ( | |
| ( |
| |
|
| |
|
| |
|
| |
|
|
Other income (expense): | |
|
| |
|
| |
|
| |
|
|
Interest income (expense) | | | | | | — | | | | | | ( |
Realized loss on sale of marketable equity securities | | | — | | | ( | | | — | | | ( |
Unrealized loss on marketable equity securities | |
| — | |
| ( | |
| — | |
| ( |
Other income (expense) | | | | | | ( | | | | | | ( |
Total other income (expense) | |
| | |
| ( | |
| | |
| ( |
| |
|
| |
|
| |
|
| |
|
|
Net income (loss) before taxes | |
| ( | |
| ( | |
| ( | |
| ( |
| |
|
| |
|
| |
|
| |
|
|
Current income tax benefit (expense) | |
| ( | |
| ( | |
| ( | |
| ( |
Deferred income tax benefit (expense) | |
| — | |
| | |
| | |
| |
Total income tax benefit (expense) | |
| ( | |
| | |
| | |
| |
| |
|
| |
|
| |
|
| |
|
|
Net income (loss) | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted net income (loss) per share | | ( | | ( | | ( | | ( | ||||
Basic and diluted weighted average number of shares outstanding | |
| | |
| | |
| | |
| |
See accompanying notes to condensed consolidated financial statements.
2
Riot Platforms, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited; and in thousands, except for share amounts)
Three Months Ended June 30, 2023
|
|
|
| | |
| | |
| Total | |
| | Common Stock | | Accumulated | | stockholders’ | |||||
| | Shares | | Amount | | deficit | | equity | |||
Balance as of April 1, 2023 |
| | | $ | | | $ | ( | | $ | |
Issuance of restricted stock, net of forfeitures and delivery of common stock underlying stock awards, net of tax withholding |
| ( | |
| ( | |
| — | |
| ( |
Issuance of common stock/At-the-market offering, net of offering costs |
| | |
| | |
| — | |
| |
Issuance of common stock in connection with acquisition of ESS Metron | | | | | — | | | — | | | — |
Stock-based compensation |
| — | |
| | |
| — | |
| |
Net income (loss) |
| — | |
| — | |
| ( | |
| ( |
Balance as of June 30, 2023 |
| | | $ | | | $ | ( | | $ | |
Three Months Ended June 30, 2022
|
|
|
| | |
| | |
| Total | |
| | Common Stock | | Accumulated | | stockholders’ | |||||
| | Shares | | Amount | | deficit | | equity | |||
Balance as of April 1, 2022 |
| | | $ | | | $ | ( | | $ | |
Issuance of restricted stock, net of forfeitures and delivery of common stock underlying stock awards, net of tax withholding |
| | |
| ( | |
| — | |
| ( |
Issuance of common stock/At-the-market offering, net of offering costs |
| | |
| | |
| — | |
| |
Stock-based compensation |
| — | |
| | |
| — | |
| |
Net income (loss) |
| — | |
| — | |
| ( | |
| ( |
Balance as of June 30, 2022 |
| | | $ | | | $ | ( | | $ | |
Six Months Ended June 30, 2023
|
|
|
| | |
| | |
| Total | |
| | Common Stock | | Accumulated | | stockholders’ | |||||
| | Shares | | Amount | | deficit | | equity | |||
Balance as of January 1, 2023 | | | | $ | | | $ | ( | | $ | |
Issuance of restricted stock, net of forfeitures and delivery of common stock underlying stock awards, net of tax withholding |
| ( |
| | ( |
| | — |
| | ( |
Issuance of common stock/At-the-market offering, net of offering costs |
| |
| | |
| | — |
| | |
Issuance of common stock in connection with acquisition of ESS Metron | | | | | — | | | — | | | — |
Stock-based compensation |
| — |
| | |
| | — |
| | |
Net income (loss) |
| — |
| | — |
| | ( |
| | ( |
Balance as of June 30, 2023 |
| | | $ | | | $ | ( | | $ | |
Six Months Ended June 30, 2022
|
| |
| | |
|
|
| | |
| | |
| Total | |
| | Preferred Stock | | Common Stock | | Accumulated | | stockholders’ | ||||||||
| | Shares | | Amount | | Shares | | Amount | | deficit | | equity | ||||
Balance as of January 1, 2022 |
| | | $ | |
| | | $ | | | $ | ( | | $ | |
Issuance of restricted stock, net of forfeitures and delivery of common stock underlying stock awards, net of tax withholding |
| — | |
| — |
| | |
| ( | |
| — | |
| ( |
Issuance of common stock/At-the-market offering, net of offering costs |
| — | |
| — |
| | |
| | |
| — | |
| |
Conversion of preferred stock to common stock |
| ( | |
| ( |
| | |
| | |
| — | |
| — |
Stock-based compensation |
| — | |
| — |
| — | |
| | |
| — | |
| |
Net income (loss) |
| — | |
| — |
| — | |
| |
| ( | |
| ( | |
Balance as of June 30, 2022 |
| — | | $ | — |
| | | $ | | | $ | ( | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
Riot Platforms, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | Six Months Ended June 30, | ||||
| | 2023 |
| 2022 | ||
Operating activities |
| |
| | |
|
Net income (loss) | | $ | ( | | $ | ( |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
|
| |
|
|
Stock-based compensation | |
| | |
| |
Depreciation and amortization | |
| | |
| |
Amortization of license fee revenue | |
| ( | |
| ( |
Noncash lease expense | |
| | |
| |
Deferred income tax expense (benefit) | |
| ( | |
| ( |
Impairment of Bitcoin | |
| | |
| |
Impairment of goodwill | | | | | | |
Change in fair value of derivative asset | |
| ( | |
| ( |
Change in fair value of contingent consideration | |
| |
| | |
Realized loss on sale of marketable equity securities | | | | | | |
Realized gain on sale of Bitcoin | |
| ( | |
| ( |
Unrealized loss on marketable equity securities | |
| |
| | |
Gain (loss) on sale/exchange of equipment | |
| | |
| ( |
Casualty-related charges | | | | | | |
Bitcoin Mining revenue | | | ( | | | ( |
Proceeds from sale of Bitcoin | | | | | | |
Changes in assets and liabilities: | |
|
| |
|
|
(Increase)/decrease in operating assets | | | | | | |
Increase/(decrease) in operating liabilities | | | ( | | | ( |
Net cash provided by (used in) operating activities | |
| ( | |
| ( |
| |
|
| |
|
|
Investing activities | |
|
| |
|
|
Proceeds from the sale of marketable equity securities | | | | | | |
Deposits on equipment | |
| |
| ( | |
Security deposits | | | | | ( | |
Purchases of property and equipment, including construction in progress | |
| ( | |
| ( |
Patent costs incurred | |
| ( | |
| ( |
Net cash provided by (used in) investing activities | |
| ( | |
| ( |
| |
|
| |
|
|
Financing activities | |
|
| |
|
|
Proceeds from the issuance of common stock / At-the-market offering | |
| | |
| |
Offering costs for the issuance of common stock / At-the-market offering | |
| ( | |
| ( |
Payments on contingent consideration liability - future power credits | | | | | ( | |
Proceeds from Credit and Security Facility | | | | | | |
Repayments of Credit and Security Facility | | | ( | | | |
Repurchase of common shares to pay employee withholding taxes | |
| ( | |
| ( |
Net cash provided by (used in) financing activities | |
| | |
| |
| |
|
| |
|
|
Net increase (decrease) in cash and cash equivalents | |
| | |
| ( |
Cash and cash equivalents at beginning of period | |
| | |
| |
Cash and cash equivalents at end of period | | $ | | | $ | |
Supplemental information: | |
|
| |
|
|
Cash paid for interest | | $ | | | $ | — |
Cash paid for taxes | | $ | — | | $ | — |
Non-cash transactions | |
|
| |
|
|
Reclassification of deposits to property and equipment | | $ | | | $ | |
Construction in progress included in accrued expenses | | $ | | | $ | |
Bitcoin exchanged for employee compensation | | $ | | | $ | |
Conversion of preferred stock to common stock | | $ | — | | $ | |
Right of use assets exchanged for new operating lease liabilities | | $ | | | $ | |
Property and equipment obtained in exchange transaction | | $ | — | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Operation of Our Business
Nature of Operations
Riot is a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin in support of the Bitcoin blockchain. The Company also provides comprehensive and critical infrastructure for its own Bitcoin Mining, as well as provides such infrastructure for institutional-scale hosted clients to mine Bitcoin at its Bitcoin mining facility in Rockdale, Texas (the “Rockdale Facility”). Currently, the Rockdale Facility has
As described in Note 19. Segment Information, we operate in
Note 2. Liquidity and Financial Condition
At June 30, 2023, the Company had approximate balances of cash and cash equivalents of $
During the six months ended June 30, 2023, the Company issued
Inflation
The Company has experienced, and is experiencing, the impact of domestic and global inflationary pressures largely outside of its control, as well as the impact of central banks’ responses to such pressures. This inflationary pressure impacts the Company’s cost structure by increasing the cost of materials, parts, and labor, making both its operations and development more expensive, despite a continued focus on controlling our costs where possible. The development of the Corsicana Facility has been impacted by increased materials prices, labor costs, and higher rates for services, all of which may adversely affect the Company’s ability to complete the planned expansion on time and within its anticipated budget. Management is unable to accurately predict when, or if, these inflationary pressures will subside, or whether and to what extent a broad-based economic recession will arise in connection with these pressures. As a result, management is unable to predict the impact these inflationary pressures and possible follow-on conditions may have on the business and results of operations, as well as access to financing. See the Company’s 2022 Annual Report for additional discussion regarding the potential impacts of sustained, elevated inflationary pressures may have on its operations and plans for expansion.
Note 3. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying unaudited
5
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results. Amounts are stated in thousands of U.S. Dollars except for share, per share and miner amounts.
The results in the accompanying unaudited condensed consolidated statements of operations are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2023 or for any future interim period. The accompanying unaudited condensed consolidated financial statements do not include all the information and notes required by GAAP for complete financial statements and, as such, should be read in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2022, and notes thereto, included in the 2022 Annual Report.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates associated with valuing contingent consideration for a business combination and periodic reassessment of its fair value, allocating the fair value of purchase consideration to assets acquired and liabilities assumed in business acquisitions, revenue recognition, valuing the derivative asset classified under Level 3 fair value hierarchy, determining the useful lives and recoverability of long-lived assets, impairment analysis of goodwill, fixed assets, and finite-lived intangibles, stock-based compensation, and the valuation allowance associated with the Company’s deferred tax assets.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation in the unaudited condensed consolidated financial statements and these accompanying notes. The reclassifications did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures. The impact on any prior period disclosures was immaterial.
Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see the Company’s 2022 Annual Report.
Recently Issued and Adopted Accounting Pronouncements
The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.
Note 4. Revenue from Contracts with Customers
Disaggregated revenue
Revenue disaggregated by reportable segment is presented in Note 19. Segment Information.
Contract balances
Contract assets relate to uncompleted Engineering contracts. As of June 30, 2023 and December 31, 2022, contract assets were $
6
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Contract liabilities primarily relate to upfront payments and consideration received for Data Center Hosting services and uncompleted Engineering contracts. The following table presents changes in contract liabilities and deferred revenue:
| | Six Months Ended | |
| | June 30, 2023 | |
Beginning balance | | $ | |
Revenue recognized | | | ( |
Other changes in contract liabilities | | | |
Ending balance | | $ | |
Remaining performance obligation
The following table presents the Company’s remaining performance obligations, which represent the transaction price of contracts for work that has not yet been performed.
|
| 2023 |
| 2024 |
| 2025 |
| 2026 | | 2027 |
| Thereafter |
| Total | |||||||
Data Center Hosting |
| $ | |
| $ | |
| $ | |
| $ | | | $ | |
| $ | |
| $ | |
Engineering |
| | |
| | — |
| | — |
| | — | | | — |
| | — |
| | |
Other | | | | | | | | | | | | | | | | | | | | | |
Total contract liabilities | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Note 5. Bitcoin
The following table presents information about the Company’s Bitcoin holdings:
|
| Six Months Ended | |
| | June 30, 2023 | |
Beginning balance |
| $ | |
Revenue recognized from Bitcoin mined | |
| |
Proceeds from sale of Bitcoin | |
| ( |
Exchange of Bitcoin for employee compensation | |
| ( |
Realized gain on sale of Bitcoin | |
| |
Impairment of Bitcoin | |
| ( |
Ending balance | | $ | |
During the three and six months ended June 30, 2023, the Company recorded impairment charges on its Bitcoin holdings of $
During the three and six months ended June 30, 2022, the Company recorded impairment charges on its Bitcoin holdings of $
Applying the market price of one Bitcoin on June 30, 2023 of approximately $
7
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6. Property and Equipment
The following table presents the Company’s property and equipment:
|
| June 30, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Buildings and building improvements | | $ | | | $ | |
Land rights and land improvements | |
| | |
| |
Miners and mining equipment | |
| | |
| |
Machinery and facility equipment | | | | | | |
Office and computer equipment | |
| | |
| |
Construction in progress | |
| | |
| |
Total cost of property and equipment | |
| | |
| |
Less accumulated depreciation | |
| ( | |
| ( |
Property and equipment, net | | $ | | | $ | |
The Company did
During the three months ended June 30, 2023 and 2022, depreciation expense related to property and equipment totaled $
Miners and mining equipment
As of June 30, 2023, the Company had a total of
In June 2023, the Company entered into a purchase agreement with MicroBT Electronics Technology Co., LTD, through its manufacturing affiliate, SuperAcme Technology (Hong Kong) Limited (collectively, “MicroBT”) to acquire
In July 2023, the Company entered into a purchase agreement with Midas Green Technologies, LLC (d/b/a “Midas Immersion Cooling”) (“Midas”) for the purchase of
As of December 31, 2022, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain Technologies Limited (“Bitmain”) for a total of
Casualty-related charges (recoveries), net
In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, impacting approximately 2.5 exahash per second (“EH/s”) of hash rate capacity.
The Company has estimated that total damages of $
8
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Construction in progress
In 2021, the Company commenced expansion of the Rockdale Facility to
In 2022, the Company initiated development of the Corsicana Facility to expand its Bitcoin mining and data center hosting capabilities, on a
The initial phase of the development of the Corsicana Facility involves the construction of
Through June 30, 2023, the Company had incurred costs of approximately $
Commitments
In July 2023, the Company paid a deposit of $
In July 2023, the Company paid a deposit of $
Related party land transaction
During the year ended December 31, 2022, the Company began an initiative to provide certain on-site temporary housing for stakeholders, including partners, analysts, stockholders, employees, vendors, and other visitors to the Rockdale Facility, which is located in a relatively remote area of central Texas, with limited accommodations for visitors. In July 2023, Riot completed its acquisition of the property and land for the development of temporary housing from Lyle Theriot (indirectly, through a limited liability company controlled by Mr. Theriot) for approximately $
Note 7. Finite-Lived Intangible Assets
The following table presents the Company’s finite-lived intangible assets as of June 30, 2023:
|
| | | | | | | | | Weighted- | |
| | Gross | | Accumulated | | Net book | | average life | |||
|
| book value |
| amortization |
| value |
| (years) | |||
Customer contracts | | $ | | | $ | ( | | $ | |
| |
Trademark | |
| | |
| ( | |
| |
| |
UL Listings | |
| | |
| ( | |
| |
| |
Patents | |
| | |
| ( | |
| |
| Various |
Finite-lived intangible assets | | $ | | | $ | ( | | $ | | | |
9
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the Company’s finite-lived intangible assets as of December 31, 2022:
|
| | | | | | | | | | Weighted- |
| | Gross |
| Accumulated |
| Net book | | average life | |||
|
| book value |
| amortization |
| value |
| (years) | |||
Customer contracts | | $ | | | $ | ( | | $ | |
| |
Trademark | |
| | |
| ( | |
| |
| |
UL Listings | |
| | |
| ( | |
| |
| |
Patents | |
| | |
| ( | |
| |
| Various |
Finite-lived intangible assets | | $ | | | $ | ( | | $ | | | |
During the three months ended June 30, 2023 and 2022, amortization expense related to finite-lived intangible assets was $
The following table presents the estimated future amortization of the Company’s finite-lived intangible assets as of June 30, 2023:
Remainder of 2023 | | $ | |
2024 | |
| |
2025 | |
| |
2026 | |
| |
2027 | |
| |
Thereafter | |
| |
Total | | $ | |
The Company did not identify any impairment of its finite-lived intangible assets during the three and six months ended June 30, 2023 and 2022.
Note 8. Power Supply Contract
Power Supply Contract and Demand Response Services Programs
In May 2020, the Company entered into a Power Supply Agreement with TXU Energy Retail Company LLC (“TXU”) (the “Power Supply Agreement”) to provide the delivery of
If electricity used exceeds the amount contracted, the cost of the excess electricity is incurred at the then-current spot rate. Concurrently with the Power Supply Agreement, the Company entered into an agreement with Oncor for the extension of delivery system transmission/substation facilities to facilitate delivery of the electricity to the Rockdale Facility (the “Facilities Agreement”). Power costs incurred under the Facilities Agreement are determined every 15 minutes using settlement information provided by the Electric Reliability Council of Texas (“ERCOT”) and are recorded in Cost of revenue on the Condensed Consolidated Statements of Operations.
In collaboration with market participants such as the Company, ERCOT has a Demand Response Services Program for customers that have the ability to reduce or modify electricity use in response to instructions or signals. The Demand Response Services Program provides the ERCOT market with valuable reliability and economic services by helping to preserve system reliability, enhancing competition, mitigating price spikes, and encouraging the demand side of the market to respond better to wholesale price signals. Market participants with electrical loads like the Company may participate in the Demand Response Service Program directly by offering their electrical loads into the ERCOT markets, or indirectly by voluntarily reducing their energy usage in response to increasing wholesale prices.
10
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Under the Demand Response Services Program, the Company can participate in a variety of programs by electing to designate a portion of its available electrical load for participation in such programs on an hourly basis. The Company receives a cash payment from ERCOT based on hourly rates for electricity and the amount of electrical load it bids into each respective Demand Response Services Program. Through ancillary services, the Company competitively bids to sell ERCOT the ability to control Riot’s electrical load on demand, and to power down when needed in order to stabilize the grid. The Company receives compensation for its participation in ancillary services directly from ERCOT whether or not Riot is actually called to power down.
Riot also participates in ERCOT’s Four Coincident Peak (“4CP”) program, which refers to the highest-load settlement intervals in each of the four summer months of June, July, August, and September, during which demand for power is at its highest. Market participants can voluntarily power down operations during these times and in doing so, make more electrical load available to the grid. Participants that reduce their load in these peak periods receive credits to transmission costs on future power bills during the subsequent year, reducing overall power costs. As a result of Riot’s participation in 4CP in 2022, the Company’s transmission charges in its ongoing 2023 monthly power bills are substantially reduced.
Under the Company’s Power Supply Agreement with TXU, the Company may offer electricity back to TXU for sale on the ERCOT marketplace, in exchange for credits against future power costs, rather than using the power for the Company’s operations, when there is a benefit to the Company, depending on the spot market price of electricity. The Company’s power strategy combines participation in Demand Response Services Programs and sales of power during times of peak demand, to manage operating costs most efficiently. During the three months ended June 30, 2023 and 2022, the Company sold approximately $
The Company determined the Power Supply Agreement meets the definition of a derivative because it allows for net settlement. However, because the Company has the ability to offer the power back to the grid rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, the Company does not believe the normal purchases and normal sales scope exception applies to the Power Supply Agreement. Accordingly, the Power Supply Agreement (a non-hedging derivative contract) is accounted for as a derivative and recorded at its estimated fair value each reporting period in Derivative asset on the Condensed Consolidated Balance Sheets with the change in the fair value recorded in Change in fair value of derivative asset on the Condensed Consolidated Statements of Operations. The Power Supply Agreement is not designated as a hedging instrument.
The estimated fair value of the Company’s derivate asset is classified under Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation. Specifically, the Company’s discounted cash flow estimation models contain quoted commodity exchange spot and forward prices and are adjusted for basis spreads for load zone-to-hub differentials through the term of the Power Supply Agreement, which ends in December 2030. The significant assumptions used to estimate fair value of the derivative contract include a discount rate of
The terms of the Power Supply Agreement require margin-based collateral, calculated as exposure resulting from fluctuations in the market cost rate of electricity versus the fixed price stated in the contract. As of June 30, 2023, the margin-based collateral requirement of the Company was zero.
While the Company manages operating costs at the Rockdale Facility in part by periodically selling unused or uneconomical power back to TXU for sale on the ERCOT marketplace, the Company does not consider such actions to be trading activities.
The following table presents changes in the estimated fair value of the Derivative asset:
Balance as of December 31, 2022 | | $ | |
Change in fair value of derivative asset | |
| |
Balance as of June 30, 2023 | | $ | |
11
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9. Long-Term Assets
Deposits
The following table presents the Company’s deposits:
|
| June 30, |
| December 31, | ||
| | 2023 | | 2022 | ||
Deposits on equipment | | $ | — | |
| |
Security deposits | |
| | |
| |
Total deposits | | $ | | | $ | |
Deposits on Equipment
As of December 31, 2022, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of
In July 2023, the Company paid a deposit of $
Security Deposits
During the six months ended June 30, 2023, the Company paid $
During the year ended December 31, 2022, the Company paid approximately $
Note 10. Accrued Expenses
Accrued expenses consist of the following:
|
| June 30, | | December 31, | ||
| | 2023 | | 2022 | ||
Construction in progress | | $ | | | $ | |
Power related costs and remittances | |
| | |
| |
Accrued compensation | | | | | | |
Insurance | |
| | |
| |
Other | |
| | |
| |
Total accrued expenses | | $ | | | $ | |
Note 11. Debt
Credit and Security Facility
ESS Metron a wholly owned subsidiary of the Company, has a $
12
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The $
The $
Total borrowings under the Revolving Line of Credit during the six months ended June 30, 2023, were approximately $
All borrowings and accrued interest under the Equipment Guidance Line convert to fixed rate term loans every six months, which have either
As of June 30, 2023, the outstanding balance on the Equipment Term Loans was recognized net of approximately $
As of June 30, 2023, the Company was in compliance with all covenants of the Credit and Security Facility.
Note 12. Leases
As of June 30, 2023 and December 31, 2022, operating lease right of use assets were $
The following table presents the components of the Company’s lease expense:
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
| | 2023 |
| 2022 | | 2023 |
| 2022 | ||||
Operating lease cost | | $ | | | $ | | | $ | | | $ | |
Variable lease cost | |
| | |
| | |
| | |
| |
Operating lease expense | |
| | |
| | | $ | | | $ | |
The following table presents supplemental lease information:
| | Three Months Ended | | Six Months Ended | ||||||||||
| | June 30, | | June 30, | ||||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||||
Operating cash outflows for operating leases | | $ | | | $ | | | $ | | | | $ | | |
Right of use assets exchanged for new operating lease liabilities | | $ | | $ | | $ | | | | $ | | | ||
Weighted-average remaining lease term – operating leases | |
| |
| |
| | |
| | ||||
Weighted-average discount rate – operating leases | |
| | % |
| | % |
| | % | |
| | % |
13
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table represents our future minimum operating lease payments as of June 30, 2023:
|
| Ground lease |
| Office and other leases |
| Total | |||
Remainder of 2023 | | $ | | | $ | | | $ | |
2024 | |
| | |
| | |
| |
2025 | | | | | | | | | |
2026 | |
| | |
| | |
| |
2027 | |
| | |
| | |
| |
Thereafter | |
| | |
| | |
| |
Total undiscounted lease payments | |
| | |
| | |
| |
Less present value discount | |
| ( | |
| ( | |
| ( |
Present value of lease liabilities | | $ | | | $ | | | $ | |
In July 2023, the Company entered into a
Note 13. Stockholders’ Equity
During the six months ended June 30, 2023, approximately
At-the-Market (“ATM”) Equity Offerings
2022 ATM Offering
In March 2022, the Company entered into the 2022 ATM Offering, under which it could offer and sell up to $
During the six months ended June 30, 2023, the Company received net proceeds of approximately $
In July 2023, the Company received net proceeds of approximately $
ESS Metron Holdback Shares
On December 31, 2021, the Company acquired
Note 14. Stock-Based Compensation
The 2019 Equity Incentive Plan authorizes the granting of stock-based compensation awards to directors, officers, employees, and advisors of the Company in the form of restricted stock awards or stock options that settle in shares of the Company’s common stock upon vesting.
14
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the Company’s stock-based compensation expense by category:
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Performance-based stock awards | | $ | ( | | $ | | | $ | ( | | $ | |
Service-based stock awards | | | | | | ( | | | | | | ( |
Total stock-based compensation | | $ | | | $ | | | $ | | | $ | |
Stock-based compensation expense is recognized in Selling, general and administrative on the Condensed Consolidated Statements of Operations.
Restricted Common Stock Awards
Performance-Based Awards
Performance-based awards are eligible to vest over a
The following table presents a summary of the Company’s performance-based awards activity:
| | | | Weighted Average | |
| | | | Grant-Date | |
| | | | Per Share | |
|
| Number of Shares |
| Fair Value | |
Balance as of January 1, 2023 | | | | $ | |
Granted | | | | $ | |
Vested | | ( | | $ | |
Forfeited | | ( | | $ | |
Balance as of June 30, 2023 | | | | $ | |
As of June 30, 2023, there was
In July 2023, the Company adopted a new long-term incentive program under its 2019 Equity Incentive Plan, under which employees are eligible to receive performance-based awards that are eligible to vest based on the relative performance of the Company’s common stock (the Company “Total Stockholder Return” or “TSR”), compared to the performance of the Russell 3000 Index (the “Index TSR”), during the
15
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Service-Based Awards
Service-based awards generally vest over a to
The following table presents a summary of the Company’s service-based awards activity:
| | | | Weighted Average | |
| | | | Grant-Date | |
| | | | Per Share | |
|
| Number of Shares |
| Fair Value | |
Balance as of January 1, 2023 | | | | $ | |
Granted | | | | $ | |
Vested | | ( | | $ | |
Forfeited | | ( | | $ | |
Balance as of June 30, 2023 |
| | | $ | |
As of June 30, 2023, there was approximately $
In July 2023, the Company awarded
Note 15. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following as of June 30, 2023, and December 31, 2022:
| | Fair value measured as of June 30, 2023 | ||||||||||
| | | | | | | | | | | Significant | |
| | | | | Quoted prices in | | Significant other | | unobservable | |||
| | Total carrying | | active markets | | observable inputs | | inputs | ||||
|
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Derivative asset (a) | | $ | | | $ | | $ | | $ | | ||
Contingent consideration liability (b) | | $ | | | $ | | $ | | $ | | ||
| | Fair value measured as of December 31, 2022 | ||||||||||
| | | | | | | | | | | Significant | |
| | | | | Quoted prices in | | Significant other | | unobservable | |||
| | Total carrying | | active markets | | observable inputs | | inputs | ||||
|
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Derivative asset (a) | | $ | | | $ | | $ | | $ | | ||
Contingent consideration liability (b) | | $ | | | $ | | $ | | $ | | ||
| (a) | See Note 8. Power Supply Contract. |
| (b) | See Note 16. Commitments and Contingencies. |
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis:
As of June 30, 2023 and December 31, 2022, the fair values of cash and cash equivalents, restricted cash, accounts receivable, contract assets, prepaid expenses and other current assets, accounts payable, contract liabilities, and accrued expenses approximated their carrying values because of the short-term nature of these instruments.
16
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 16. Commitments and Contingencies
Commitments
Operating Leases
The Company leases its primary office locations and data center hosting facilities, as well as a ground lease, under noncancelable lease agreements that expire on varying dates through 2032. See Note 12. Leases.
Water Reservation Agreement
The Company has a water reservation agreement with the lessor of its ground lease to obtain a certain quantity of non-potable water from a nearby lake to be used by the Company for evaporative cooling purposes at our Rockdale Facility. The term of the agreement, including the impact of the amendment, runs through January 2032, followed by three ten-year renewal periods, and requires annual payments of approximately $
The Company concluded that the water reservation agreement was not a lease or a derivative instrument. Because the Company obtained an additional right of use for the reserved water amount, and the charges were increased by a standalone price commensurate with the additional water use rights and at market rates, the water reservation agreement was determined to be a lease modification accounted for as a separate contract. As such, the fees of the water reservation agreement were excluded from the lease payments of the ground lease and the water reservation agreement was accounted for as a separate executory contract.
Contingent Consideration Liability
Upon the acquisition of Whinstone in May 2021, the Company was obligated to pay up to $
The following table presents the changes in the estimated fair value of the Company’s contingent consideration liability:
Balance as of December 31, 2022 | | $ | |
Change in contingent consideration | |
| ( |
Change in fair value of contingent consideration | | | — |
Balance as of June 30, 2023 | | $ | |
The estimated fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.
The Company estimated the fair value of the contingent consideration using a discounted cash flow analysis, which includes estimates of both the timing and amounts of potential future power credits. These estimates were determined using the Company’s historical consumption quantities and patterns combined with management’s expectations of its future consumption requirements, which require significant judgment and depend on various factors outside the Company’s control, such as construction delays. The discount rate of approximately
Approximately $
17
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Contingencies
Legal Proceedings
The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business, as described in the 2022 Annual Report, as supplemented by the following:
Northern Data Working Capital Disputes
On September 7, 2022, the Company filed a complaint against Northern Data AG (“Northern Data”) disputing the purchase price of Whinstone and seeking declaratory relief and specific performance of the stock purchase agreement. Northern Data filed an answer and counterclaims alleging that the Company and Whinstone withheld certain energy credit payments and that the Company is improperly seeking to introduce indemnification claims into the contractual process to resolve the parties’ dispute. On March 31, 2023, the Parties filed a stipulation agreeing to dismiss all claims without prejudice and to submit the dispute for final determination to an independent accountant. The Company placed $
On June 9, 2023, the independent accountant rendered a written final determination finding in favor of the Company on disputed issues totaling approximately $
Following the final determination almost entirely in favor of the Company, on June 23, 2023, Northern Data filed a complaint against the Company seeking a declaratory judgment that (1) certain parts of the independent accountant’s determination constitute manifest error and are thus null and void, (2) the Company improperly introduced an indemnification claim into the purchase price adjustment process, and (3) the Company pay Northern Data the amounts awarded to the Company or, alternatively, the court order a new purchase price adjustment process. The Company intends to vigorously oppose Northern Data’s complaint to set aside the independent accountant’s final determination. The Company filed a motion to dismiss the complaint on July 17, 2023, and subject to approval from the Court, the parties agreed that briefing on the motion to dismiss will be completed by October 17, 2023. Although the Company entirely disagrees with the allegations and arguments raised by Northern Data and considers its complaint to be without merit, the Company cannot accurately predict the outcome of ongoing litigation.
Legacy Hosting Customer Disputes
Rhodium
On May 2, 2023, Whinstone filed a petition against Rhodium 30MW, LLC, Rhodium JV, LLC, Air HPC LLC, and Jordan HPC, LLC (collectively, “Rhodium”) and later amended the petition asserting breach of contract claims for Rhodium’s failure to pay hosting and service fees under certain hosting agreements. Additionally, the amended petition seeks a declaration that certain hosting agreements with Rhodium are terminated and that no power credits are owed to Rhodium under any agreement. Whinstone seeks recovery of more than $
SBI Crypto Co.
On April 5, 2023, SBI Crypto Co., Ltd. (“SBI”) filed a complaint against Whinstone alleging breach of contract, fraud/fraudulent inducement, fraud by nondisclosure, and negligent bailment claims. Whinstone filed a motion to dismiss SBI’s complaint and on July 7, 2023, SBI filed an amended complaint asserting breach of contract, fraud/fraudulent inducement, and fraud by nondisclosure. On July 21, 2023, Whinstone filed a motion to dismiss the amended complaint. SBI seeks recovery of at least $
18
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
interest. While a preliminary investigation of the merits of SBI’s claims has commenced, Whinstone believes many of the claims are barred or waived and substantively lack merit, and Whinstone plans to vigorously contest the same. Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.
GMO
On June 13, 2022, GMO Gamecenter USA, Inc. and its parent GMO Internet, Inc. (collectively “GMO”), filed a complaint against Whinstone alleging breach of contract under the colocation services agreement between GMO and Whinstone, seeking damages in excess of $
Class Actions and Related Claims
On February 17, 2018, Creighton Takata filed an action asserting putative class action claims on behalf of the Company’s stockholders in the United District Court for the District of New Jersey, Takata v. Riot Blockchain Inc., et al., Case No. 3: 18-cv-02293. The complaint asserts violations of federal securities laws under Section 10(b) and Section 20(a) of the Exchange Act on behalf of a putative class of stockholders that purchased stock from November 13, 2017 through February 15, 2018. The complaint alleges that the Company and certain of its officers and directors made, caused to be made, or failed to correct false and/or misleading statements in press releases and public filings regarding its business plan in connection with its cryptocurrency business. The complaint requests damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.
On April 18, 2018, Joseph J. Klapper, Jr., filed a complaint against Riot Blockchain, Inc., and certain of its officers and directors in the United District Court for the District of New Jersey (Klapper v. Riot Blockchain Inc., et al., Case No. 3: 18-cv-8031). The complaint contained substantially similar allegations and the same claims as those filed by Mr. Takata, and requests damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.
On November 6, 2018, the court in the Takata action issued an order consolidating Takata with Klapper into a single putative class action. The court also appointed Dr. Golovac as Lead Plaintiff and Motely Rice as Lead Counsel of the consolidated class action.
Lead Plaintiff filed a consolidated complaint on January 15, 2019. Defendants filed motions to dismiss on March 18, 2019. In lieu of opposing defendants’ motions to dismiss, Lead Plaintiff filed another amended complaint on May 9, 2019. Defendants filed multiple motions to dismiss the amended complaint starting on September 3, 2019. On April 30, 2020, the court granted the motions to dismiss, which resulted in the dismissal of all claims without prejudice.
On December 24, 2020, Lead Plaintiff filed another amended complaint. Defendants filed multiple motions to dismiss the amended complaint starting on February 8, 2021, which were fully briefed. On February 28, 2022, the court issued an order instructing the parties to submit supplemental briefing by March 14, 2022 on particular issues raised in the motions to dismiss. On May 27, 2022, Lead Plaintiff filed the third amended consolidated complaint. Defendants submitted motions to dismiss on July 18, 2022. Briefing on the motions to dismiss was completed in October 2022. Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.
Shareholder Derivative Actions
On April 5, 2018, Michael Jackson filed a shareholder derivative complaint on behalf of the Company in the Supreme Court of the State of New York, County of Nassau, against certain of the Company’s officers and directors, as well as against an investor (Jackson v. Riot Blockchain, Inc., et al., Case No. 604520/18). The complaint contains similar allegations to those contained in the shareholder class action complaints and seeks recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement. The complaint seeks unspecified monetary damages and corporate governance changes. At the last preliminary conference, the court adjourned the conference until October 26, 2023 in lieu of staying the action. Defendants do not anticipate any other activity on this case until the next preliminary conference.
19
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On May 22, 2018, two additional shareholder derivative complaints were filed on behalf of the Company in the Eighth Judicial District Court of the State of Nevada in and for the County of Clark (Kish v. O’Rourke, et al., Case No. A-18-774890-B & Gaft v. O’Rourke, et al., Case No. A-18-774896-8). The two complaints made nearly identical allegations, which were similar to the allegations contained in the shareholder class action complaints. The shareholder derivative plaintiffs also sought recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and aiding abetting a breach of fiduciary duty. The complaints seek unspecific monetary damages and corporate governance changes. The court entered an order consolidating the Gaft and Kish actions, which was styled as In re Riot Blockchain, Inc. Shareholder Derivative Litigation, Case No. A-18-774890-B. On January 18, 2023, the court entered an order voluntarily dismissing the consolidated action without prejudice.
On October 22, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Southern District of New York (Finitz v. O’Rourke, et al., Case No. 1:18-cv-09640). The shareholder plaintiffs allege breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor. The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018. The complaint seeks unspecific monetary damages and corporate governance changes. Upon the parties’ stipulation, the court issued an order temporarily staying this action until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.
On December 13, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Northern District of New York (Monts v. O’Rourke, et al., Case No. 1:18-cv-01443). The shareholder plaintiffs allege claims for violation of Section 14(a) of the Exchange Act, breach of fiduciary duties, unjust enrichment, waste of corporate assets, and aiding and abetting against certain of the Company’s officers, directors, and an investor. The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018. The complaint seeks unspecific monetary damages and corporate governance changes. Upon the parties’ stipulation, the court issued an order temporarily staying this action until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.
Defendants intend to vigorously contest plaintiffs’ allegations in the shareholder derivative actions and plaintiffs’ right to bring the action in the name of Riot Blockchain. Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.
Note 17. Income Taxes
During the three months ended June 30, 2023 and 2022, the Company realized deferred income tax benefits of $
Note 18. Earnings Per Share
The following table presents potentially dilutive securities that were not included in the computation of diluted net income (loss) per share as their inclusion would be anti-dilutive:
|
| | | |
|
| June 30, 2023 |
| June 30, 2022 |
Warrants to purchase common stock |
| |
| |
Unvested restricted stock awards (a) | | | | — |
Unvested restricted stock units |
| — |
| |
Total |
| |
| |
| (a) | Unvested restricted stock awards are included in total common shares outstanding but are excluded from the calculation of basic earnings per share. |
Note 19. Segment Information
The Company has
20
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
segments based on reportable segment revenue and reportable segment cost of revenue. No operating segments have been aggregated to form the reportable segments.
The Company does not allocate all assets to the reporting segments as they are managed on an entity-wide basis. Therefore, the Company does not separately disclose the total assets of its reportable operating segments.
The Bitcoin Mining segment generates revenue from the Bitcoin the Company earns through its Bitcoin mining activities. The Data Center Hosting segment generates revenue from long-term customer contracts for the provision of data center hosting/colocation services, including from the consumption of electricity, construction of infrastructure, operation of data centers, and maintenance/management of computing capacity from the Company’s high performance data center facility in Rockdale, Texas. The Engineering segment generates revenue through customer contracts for custom engineered electrical products.
The Data Center Hosting segment purchases custom engineered electrical products from the Engineering segment in the ordinary course of business. All revenue and cost of revenues from intersegment transactions have been eliminated in the consolidated statements of operations. All Other revenue is from external customers.
During the three and six months ended June 30, 2023 and 2022,
21
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents revenue and cost of revenues for the Company’s reportable segments, reconciled to the Condensed Consolidated Statements of Operations:
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Reportable segment revenue: | | |
| | |
| | |
| | |
|
Bitcoin Mining | | $ | | | $ | | | $ | | | $ | |
Data Center Hosting | |
| | |
| | |
| | |
| |
Engineering | |
| | |
| | |
| | |
| |
Other revenue | |
| | |
| | |
| | |
| |
Eliminations | |
| ( | |
| ( | |
| ( | |
| ( |
Total segment and consolidated revenue | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Reportable segment cost of revenues: | |
|
| |
|
| |
|
| |
|
|
Bitcoin Mining | |
| | |
| | |
| | |
| |
Data Center Hosting | |
| | |
| | |
| | |
| |
Engineering | |
| | |
| | |
| | |
| |
Eliminations | |
| ( | |
| ( | |
| ( | |
| ( |
Total segment and consolidated cost of revenues | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Reconciling Items: | |
|
| |
|
| |
|
| |
|
|
Acquisition-related costs | |
| — | |
| — | |
| |
| ( | |
Selling, general, and administrative | |
| ( | |
| ( | |
| ( | |
| ( |
Depreciation and amortization | |
| ( | |
| ( | |
| ( | |
| ( |
Change in fair value of derivative asset | |
| | |
| | |
| | |
| |
Power curtailment credits | | | | | | | | | | | | |
Change in fair value of contingent consideration | |
| — | |
| — | |
| |
| ( | |
Realized gain on sale of Bitcoin | |
| | |
| | |
| | |
| |
Gain (loss) on sale/exchange of equipment | | | ( | | | | | | ( | | | |
Casualty-related charges (recoveries), net | |
| — | |
| — | |
| ( | |
| |
Impairment of Bitcoin | | | ( | | | ( | | | ( | | | ( |
Impairment of goodwill | |
| — | |
| ( | |
| |
| ( | |
Interest income (expense) | |
| | |
| — | |
| | |
| ( |
Realized loss on sale of marketable equity securities | |
| — | |
| ( | |
| |
| ( | |
Unrealized loss on marketable equity securities | |
| — | |
| ( | |
| |
| ( | |
Other income (expense) | |
| | |
| ( | |
| | |
| ( |
Current income tax benefit (expense) | | | ( | | | ( | | | ( | | | ( |
Deferred income tax benefit (expense) | |
| — | |
| | |
| | |
| |
Net income (loss) | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and with our audited consolidated financial statements for the fiscal year ended December 31, 2022, as included in our 2022 Annual Report. This MD&A contains statements of management’s beliefs, expectations and assumptions regarding our future business, and any statements other than statements of historical fact are “forward-looking statements” within the meaning of the PSLRA, which are made in reliance of the safe harbor provisions of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the PSLRA. Such statements express management’s beliefs, opinions, projections and expectations regarding future events and circumstances, based on information available to management as of the date of this Quarterly Report, and are subject to risks and uncertainties, and our actual results could differ materially from those discussed in these forward-looking statements. Further, these forward-looking statements should not be construed either as assurances of performance or as promises of a given course of action. You should review the sections of this Quarterly Report entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of factors that could cause actual results to differ materially – and potentially adversely – from the results described in or implied by the forward-looking statements contained in the following this MD&A and elsewhere in this Quarterly Report.
Amounts are stated in thousands of U.S. Dollars except for share, per share and miner amounts.
Business Overview:
We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin in support of the Bitcoin blockchain. We also provide comprehensive and critical infrastructure for institutional-scale hosted clients to mine Bitcoin at our Rockdale Facility. Currently, the Rockdale Facility provides 700 MW in total developed capacity for our Bitcoin Mining and Data Center Hosting services for institutional-scale hosted clients. Our Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and we are currently evaluating further growing its capacity. Additionally, we are developing the Corsicana Facility, a second large-scale Bitcoin mining data center facility, which, upon completion, is expected to have approximately one gigawatt of capacity available for our own Bitcoin Mining and Data Center Hosting services for institutional-scale hosted clients.
We operate in an environment which is constantly evolving based on the proliferation of Bitcoin and cryptocurrencies in general. A significant component of our strategy is to effectively and efficiently allocate capital between opportunities that generate the highest return on investment.
Industry Trends
During 2022, we observed several companies in the Bitcoin ecosystem experience significant challenges and initiate bankruptcy proceedings due to the significant decline in the price of Bitcoin and other national and global macroeconomic factors. We anticipate this trend will likely continue as companies attempt to shift their business models to operate on significantly compressed margins. The dramatic increase in the price of Bitcoin observed in the market during prior years caused many companies to over-leverage themselves, thus operating in an unsustainable way given the recent variability in the price of Bitcoin. Riot chose to refrain from engaging in debt-financing activities during this period and, as a result, has not been subject to the significant debt-service shortfalls some of our competitors are experiencing. Despite such challenges in the ecosystem, Riot continues to focus on building long-term stockholder value by taking strategic action to vertically integrate its business, expanding the Rockdale Facility and developing the Corsicana Facility. Management believes this focus will positively affect each of Riot’s three business segments by providing more capacity for its Bitcoin Mining and Data Center Hosting operations, and by capitalizing on supply chain efficiencies garnered through our Engineering segment. As we grow our business, we continue to focus on deploying our efficient Bitcoin mining fleet, at scale, while realizing the benefits of being an owner and operator of our Bitcoin Mining and Data Center Hosting facilities.
We anticipate companies in our industry will continue to experience challenges, and that 2023 will continue to be a period of consolidation in the Bitcoin mining industry, and, given our relative position, liquidity and absence of long-term debt, we believe we are positioned in the competitive landscape to benefit from such consolidation. As a result of any strategic action undertaken by us, our business and financial results may change significantly. We are continuously evaluating strategic opportunities which we may decide to undertake as part of our strategic growth initiatives; however, we can offer no assurances that any strategic opportunities which we decide to undertake will be achieved on the schedule or within the budget we anticipate, if at all, in our competitive and evolving industry.
23
The recent shutdowns of certain digital asset exchanges and trading platforms due to fraud or business failure, has negatively impacted confidence in the digital asset industry as a whole and led to increased oversight and scrutiny on the industry. We did not have any exposure to any digital asset lenders or exchanges who have declared bankruptcy or have been suspended. We only hold Bitcoin that we have mined and do not sell or redeem any Bitcoin for any other parties. Our Bitcoin is held in cold storage wallets by a well-known third-party digital asset-focused custodian. We also sell our Bitcoin using our custodian’s services.
In 2023, the banking industry and financial services sector experienced disruptions and instability. In March 2023, Silvergate Capital Corporation, the holding company for Silvergate Bank (“Silvergate Bank”), which was primarily focused on the digital asset industry, announced its intent to wind down operations and voluntarily liquidate its holdings. Also in March, Silicon Valley Bank (“Silicon Valley Bank”) and Signature Bank (“Signature Bank”) both closed and the Federal Deposit Insurance Corporation (“FDIC”) was appointed receiver following their closures and transferred substantially all assets of the former banks to newly created, FDIC-operated bridge banks in an action to protect all depositors of the banks. In May 2023, First Republic Bank was closed and the FDIC sold substantially all of First Republic Bank’s assets to JP Morgan Chase & Co.
Although we maintained certain operating accounts with Signature Bank prior to its closure, we have since transferred all of our deposits previously held with the bank to other banking institutions. We did not lose access to our accounts or experience interruptions in banking services, and suffered no losses with respect to its deposits at Signature Bank as a result of the bank’s closure. We did not have any banking relationships with Silicon Valley Bank, Silvergate Bank, or First Republic Bank, and currently hold our cash and cash equivalents at multiple banking institutions. Although we did not suffer any losses, we continue to monitor for updates to mitigate any future impacts we may be subject to as a result of the instability of the banking industry and financial services sector.
Bitcoin Mining
We own and operate one of the largest Bitcoin Mining operations in North America. During the six months ended June 30, 2023, we continued to deploy miners at our Rockdale Facility and continued development activities at the Corsicana Facility, with the objective of increasing our operational efficiency and performance in the future.
As of June 30, 2023, our Bitcoin Mining business segment operated 95,904 miners, with a hash rate capacity of 10.7 EH/s, which excludes 17,040 miners currently offline as a result of infrastructure damage experienced during severe winter storms in December 2022 at our Rockdale Facility in central Texas. Repairs to the Rockdale Facility have been ongoing and we plan to bring our hash rate capacity back online in the second half of 2023. During the six months ended June 30, 2023, we mined 3,890 Bitcoin, which represented an increase of 38.9% over the 2,800 Bitcoin we mined in the six months ended June 30, 2022. We anticipate achieving a total self-mining hash rate capacity of 12.5 EH/s in the second half of 2023.
In June 2023, we entered into a purchase agreement with MicroBT to acquire 8,320 M56S+ model miners and 24,960 M56S++ model miners for a total purchase price of approximately $162.9 million, as well as option to purchase up to an additional 66,560 additional M56S++ miners, on the same terms as the initial purchase order, through December 31, 2024. Delivery of the miners is expected to begin in December 2023, with all miners expected to be received and deployed by mid-2024. Upon full deployment of the 33,280 miners, we anticipate achieving a total self-mining hash rate capacity of 20.1 EH/s.
The purchase agreement also provides us the option to purchase up to an additional 66,560 additional M56S++ miners on the same terms as the initial purchase order through December 31, 2024.
For the six months ended June 30, 2023, Bitcoin Mining revenue was approximately $97.8 million.
Data Center Hosting
Following our acquisition of Whinstone, we commenced an expansion of our Rockdale Facility to 700 MW, from its initial 300 MW of developed capacity at the time of acquisition and, as of June 30, 2023, the 400 MW expansion was completed.
The expansion of our Rockdale Facility has provided capacity to enable us to deploy our current fleet of miners in a self-hosted facility, while allowing us to continue to operate and grow our Data Center Hosting business segment. We believe deploying our miners at the expanded Rockdale Facility offers many advantages for our Bitcoin mining operations, including allowing us to operate our miners without incurring third-party colocation services fees and to do so at the low fixed energy costs available to the Rockdale Facility under its long-term power supply agreement.
24
Data Center Hosting revenue includes upfront payments, which we record as deferred revenue and generally recognize as services are provided. We provide energized space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Rockdale Facility under long-term contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance obligations are met. The contracts are recognized in the amount for which we have the right to invoice because we elected the “right to invoice” practical expedient.
For the six months ended June 30, 2023, Data Center Hosting revenue was approximately $16.7 million.
Engineering
Our Engineering business segment designs and manufacturers power distribution equipment and custom engineered electrical products that provide us with the ability to vertically integrate many of the critical electrical components and engineering services necessary for our Rockdale Facility expansion and to reduce our execution and counter-party risk in ongoing and future expansion projects. Engineering and other specialized talent employed in our Engineering business segment also allows us to continue to explore new methods to optimize and develop a best-in-class Bitcoin mining operation and has been instrumental in the development of our industrial-scale immersion-cooled Bitcoin mining hardware.
Our Engineering business segment also provides electricity distribution product design, manufacture, and installation services primarily focused on large-scale commercial and governmental customers and serves a broad scope of clients across a wide range of markets including data center, power generation, utility, water, industrial, and alternative energy. Products are custom built to client and industry specifications. Additionally, we utilize an in-house field service and repair department.
Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation. Engineering revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which the Company has an enforceable right to receive compensation as defined under the contract.
For the six months ended June 30, 2023, Engineering revenue was approximately $35.5 million.
Global Logistics
Global supply logistics have caused delays across all channels of distribution. Similarly, we have also experienced delays in certain of our miner delivery schedules and in our infrastructure development schedules due to constraints on the globalized supply chains for miners, electricity distribution equipment and construction materials. Through the date of this Quarterly Report, we have been able to effectively mitigate any delivery delays to avoid materially impacting our miner deployment schedule, however, there are no assurances we will be able to continue to mitigate any such delivery delays in the future. Additionally, the development of our new Corsicana Facility requires large quantities of construction materials, specialized electricity distribution equipment and other component parts that can be difficult to source. We have procured and hold many of the required materials to help mitigate global supply logistic and pricing concerns. We continue to monitor developments in the global supply chain and assess their potential impact on our expansion plans.
25
Summary of Bitcoin Mining Results
The following tables presents additional information about our Bitcoin Mining activities, including Bitcoin production and sales of the Bitcoin mined:
| | Quantity | | Amounts | |
Balance as of January 1, 2023 |
| 6,974 | | $ | 109,420 |
Revenue recognized from Bitcoin mined |
| 3,890 | |
| 97,765 |
Proceeds from sale of Bitcoin |
| (3,575) | |
| (89,162) |
Exchange of Bitcoin for employee compensation |
| (24) | |
| (585) |
Realized gain on sale of Bitcoin |
| — | |
| 33,603 |
Impairment of Bitcoin |
| — | |
| (10,110) |
Balance as of June 30, 2023 |
| 7,265 | | $ | 140,931 |
| | Quantity | | Amounts | |
Balance as of January 1, 2022 |
| 4,884 | | $ | 150,593 |
Revenue recognized from Bitcoin mined |
| 2,800 | |
| 104,096 |
Proceeds from sale of Bitcoin |
| (1,000) | |
| (33,116) |
Exchange of Bitcoin for employee compensation |
| (31) | |
| (1,362) |
Realized gain on sale of Bitcoin |
| — | |
| 24,925 |
Impairment of Bitcoin |
| — | |
| (127,289) |
Balance as of June 30, 2022 |
| 6,653 | | $ | 117,847 |
Results of Operations Comparative Results for the three months ended June 30, 2023 and 2022:
Revenues
Total revenue for the three months ended June 30, 2023 and 2022, was $76.7 million and $72.9 million, respectively, and consisted of our Bitcoin Mining revenue, Data Center Hosting revenue, Engineering revenue, and other revenue.
For the three months ended June 30, 2023 and 2022, Bitcoin Mining revenue was $49.7 million, and $46.2 million, respectively. The increase of $3.6 million was primarily due to an increase of 380 Bitcoin mined in the 2023 period as compared to the 2022 period, partially offset by lower Bitcoin values in the 2023 period, averaging $28,024 per coin, as compared to $33,083 per for the 2022 period. Additionally, the Company continued its effective employment of its proprietary power strategy to significantly reduce overall power costs. As noted below, during the three months ended June 30, 2023 and 2022, the Company earned $13.5 million and $5.7 million, respectively, in power credits, which were received in cash or credited against its power invoices, as a result of temporarily pausing its operations. The power credits equate to approximately 481 Bitcoin and 138 Bitcoin, respectively, as computed using the average daily Bitcoin prices for the applicable period.
For the three months ended June 30, 2023 and 2022, Data Center Hosting revenue was $7.7 million, and $9.8 million, respectively. The decrease of $2.2 million was primarily due to fewer hosting customers and lower Bitcoin values during the 2023 period, partially offset by increased revenue share from hosting customers due to the increased Bitcoin production in the 2023 period, as noted above.
For the three months ended June 30, 2023 and 2022, Engineering revenue was $19.3 million and $16.9 million, respectively. The increase of $2.4 million was primarily attributable to an increase in data center development across the country. Our custom electrical products such as switchgear and power distribution centers are used as important components in data center development and there has been increased demand for these products due to the continued increase in data center construction by developers.
Costs and expenses
Cost of revenues for Bitcoin Mining for the three months ended June 30, 2023 and 2022, was $23.6 million and $18.0 million, respectively, an increase of approximately $5.7 million. As a percentage of Bitcoin Mining revenue, cost of revenues totaled 47.5% and 39.0% for the three months ended June 30, 2023 and 2022, respectively. Cost of revenues consists primarily of direct production costs of Bitcoin mining operations, including electricity, labor, and insurance, but excluding depreciation and amortization, which are separately stated. The increase was primarily due to the increase in Bitcoin mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary to maintain and support the Bitcoin mining operations. As noted below, during the three months ended June 30, 2023 and 2022, the Company earned $13.5 million and $5.7 million, respectively, in power credits
26
to be credited against its power invoices, as a result of temporarily pausing its operations. These credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s overall cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Bitcoin Mining revenue were 29.9% and 34.2% for the three months ended June 30, 2023 and 2022, respectively.
Cost of revenues for Data Center Hosting for the three months ended June 30, 2023 and 2022, was $22.1 million and $15.2 million, respectively, an increase of approximately $7.0 million. The costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs. The increase was primarily attributable to the significant increase in size of our Rockdale Facility over the period, which has more than doubled since 2021.
Cost of revenues for Engineering for the three months ended June 30, 2023 and 2022, was $18.2 million and $15.2 million, respectively, an increase of approximately $3.0 million. The costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs. The increase was primarily due to an increase in materials purchased, as well as additional labor required to support increased demand for our custom electric products from data center developers. Increased competition for direct materials due to supply chain constraints contributed to additional costs, as well as inflationary pressure for labor in manufacturing.
Selling, general and administrative expenses for the three months ended June 30, 2023 and 2022, were $19.8 million and $10.7 million, respectively, an increase of approximately $9.1 million. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The increase was primarily due to increases in stock compensation expenses of $2.7 million and compensation expenses of $3.0 million as a result of hiring additional employees to support the Company’s ongoing growth, increased professional fees of $1.9 million primarily related to public company compliance and information technology projects, and increases of $1.5 million in other general operating costs to support the Company’s growth.
Depreciation and amortization for the three months ended June 30, 2023 and 2022, was $66.2 million and $20.6 million, respectively, an increase of approximately $45.6 million. The increase was primarily due to higher depreciation expense recognized for the Rockdale Facility and significant increase in number of recently acquired miners.
The increase in fair value of our derivative asset for the three months ended June 30, 2023 and 2022, was $13.1 million and $60.9 million, respectively, and was recorded to adjust the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value. The increases in fair value were due to increases over the applicable period in future power prices.
Power curtailment credits for the three months ended June 30, 2023 and 2022, were $13.5 million and $5.7 million, respectively, of power sales into the ERCOT marketplace through the Company’s participation in ERCOT’s energy demand response programs. The amount of these credits varies from period to period depending on various factors impacting the supply of power to and the demand on the power grid, including weather.
Realized gains on the sale of Bitcoin for the three months ended June 30, 2023 and 2022, were $19.8 million and $15.3 million, respectively. The increase was primarily attributable to an increase of 800 Bitcoin sold in the 2023 period as compared to the 2022 period, partially offset by decreased Bitcoin values in the 2023 period as compared to the 2022 period.
Impairment of Bitcoin for the three months ended June 30, 2023 and 2022, was $5.6 million and $101.4 million, respectively, arising from declines in Bitcoin prices during the periods.
Other income (expense)
Other income for the three months ended June 30, 2023, was $4.9 million, which primarily consisted of interest income, net of interest expense. The increase in interest income was primarily due to the increase in short-term interest rates combined with an increase in our average cash balance. Other expense for the three months ended June 30, 2022 was $6.5 million, which was primarily related to realized and unrealized losses on marketable equity securities.
Results of Operations Comparative Results for the six months ended June 30, 2023 and 2022:
Revenues
Total revenue for the six months ended June 30, 2023 and 2022 was $150.0 million and $152.7 million, respectively, and consisted of our Bitcoin Mining revenue, Data Center Hosting revenue, Engineering revenue, and other revenue.
27
For the six months ended June 30, 2023 and 2022, Bitcoin Mining revenue was $97.8 million, and $104.1 million, respectively. The decrease of $6.3 million was primarily due to lower Bitcoin values in the 2023 period, averaging $25,132 per coin, as compared to $37,177 for the 2022 period. This was partially offset by an increase of 1,090 Bitcoin mined in the 2023 period as compared to the 2022 period. Additionally, the Company continued its effective employment of its proprietary power strategy to significantly reduce overall power costs. As noted below, during the six months ended June 30, 2023, the Company earned $16.5 million in power credits, which were received in cash or credited against its power invoices, as a result of temporarily pausing its operations. The power credits equate to approximately 658 Bitcoin, as computed using the average daily Bitcoin prices for the 2023 period. During the six months ended June 30, 2022, the Company earned $8.3 million in power credits, or the equivalent of approximately 222 Bitcoin.
For the six months ended June 30, 2023 and 2022, Data Center Hosting revenue was $16.7 million, and $19.5 million, respectively. The decrease of $2.8 million was primarily due to lower revenue share from customers due to the lower Bitcoin values in the 2023 period, as noted above, combined with hosting fewer customers during 2023.
For the six months ended June 30, 2023 and 2022, Engineering revenue was $35.5 million and $29.1 million, respectively. The increase of $6.4 million was primarily attributable to an increase in data center development across the country. Our custom electrical products such as switchgear and power distribution centers are used as important components in data center development and there has been increased demand for these products due to the continued increase in data center construction by developers.
Costs and expenses
Cost of revenues for Bitcoin Mining for the six months ended June 30, 2023 and 2022, was $45.5 million and $37.1 million, respectively, an increase of approximately $8.5 million. As a percentage of Bitcoin Mining revenue, cost of revenues totaled 46.6% and 35.6% for the six months ended June 30, 2023 and 2022, respectively. Cost of revenues consists primarily of direct production costs of Bitcoin mining operations, including electricity, labor, and insurance, but excluding depreciation and amortization, which are separately stated. The increase was primarily due to the increase in Bitcoin mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary to maintain and support the Bitcoin mining operations. As noted below, during the six months ended June 30, 2023 and 2022, the Company earned $16.5 million and $8.3 million, respectively, in power credits to be credited against its power invoices, as a result of temporarily pausing its operations. These credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s overall cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Bitcoin Mining revenue were 35.8% and 32.9% for the six months ended June 30, 2023 and 2022, respectively.
Cost of revenues for Data Center Hosting for the six months ended June 30, 2023 and 2022, was $47.8 million and $30.2 million, respectively, an increase of approximately $17.6 million. The costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs. The increase was primarily attributable to the significant increase in size of our Rockdale Facility over the period, which has more than doubled since 2021.
Cost of revenues for Engineering for the six months ended June 30, 2023 and 2022, was $33.7 million and $26.7 million, respectively, an increase of approximately $7.0 million. The costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs. The increase was primarily due to an increase in materials purchased, as well as additional labor required to support increased demand for our custom electric products from data center developers. Increased competition for direct materials due to supply chain constraints contributed to additional costs, as well as inflationary pressure for labor in manufacturing.
Selling, general and administrative expenses for the six months ended June 30, 2023 and 2022, were $32.5 million and $21.5 million, respectively, an increase of approximately $11.0 million. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The increase was primarily due to increases in compensation expenses of $5.7 million as a result of hiring additional employees to support the Company’s ongoing growth, increased professional fees of $3.9 million primarily related to public company compliance and information technology projects, and increases of $4.0 million in other general operating costs to support the Company’s growth, partially offset by decreased stock compensation expenses of $2.6 million, primarily attributable to increased forfeitures of awards in the 2023 period as compared to the 2022 period.
Depreciation and amortization expense for the six months ended June 30, 2023 and 2022, was $125.5 million and $34.8 million, respectively, an increase of approximately $90.7 million. The increase was primarily due to higher depreciation expense recognized for the Rockdale Facility and significant increase in number of recently acquired miners.
28
The increase in fair value of our derivative asset for the six months ended June 30, 2023 and 2022, was $7.3 million and $104.6 million, respectively, and was recorded to adjust the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value. The increases in fair value were due to increases over the applicable period in future power prices.
Power curtailment credits for the six months ended June 30, 2023 and 2022, was $16.5 million and $8.3 million, respectively, and represent power sales into the ERCOT marketplace through the Company’s participation in ERCOT’s energy demand response programs. The amount of these credits varies from period to period depending on various factors impacting the supply of power to and the demand on the power grid, including weather.
The realized gain on sale of Bitcoin for the six months ended June 30, 2023 and 2022 was $33.6 million and $24.9 million, respectively. The increase was primarily attributable to an increase of 2,575 more Bitcoin sold in the 2023 period as compared to the 2022 period, partially offset by decreased Bitcoin values in the 2023 period as compared to the 2022 period.
Casualty-related losses for the three and six months ended June 30, 2023, was $1.5 million and was attributable to the damage incurred at the Rockdale Facility as a result of severe winter storms in Texas. There were no casualty-related losses incurred for the six months ended June 30, 2022.
Impairment of Bitcoin for the six months ended June 30, 2023 and 2022, was $10.1 million and $127.3 million, respectively, arising from declines in Bitcoin prices during the periods.
Other income (expense)
Other expense for the six months ended June 30, 2023, was $1.1 million, which primarily consisted of interest income, net of interest expense. Other expense for the six months ended June 30, 2022 was $8.5 million, which was primarily related to realized and unrealized losses on marketable equity securities.
Non-GAAP Measures
In addition to financial measures presented under GAAP, we consistently evaluate our use of and calculation of non-GAAP financial measures such as “Adjusted EBITDA.” EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is a financial measure defined as EBITDA further adjusted to eliminate the effects of certain non-cash and/or non-recurring items that do not reflect our ongoing strategic business operations, which management believes results in a performance measurement that represents a key indicator of the Company’s core business operations of Bitcoin mining. The adjustments include fair value adjustments such as derivative power contract adjustments, equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense items.
We believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments. Additionally, Adjusted EBITDA is used as a performance metric for share-based compensation.
Adjusted EBITDA is provided in addition to, and should not be considered to be a substitute for, or superior to, net income, the most comparable measure under GAAP to Adjusted EBITDA. Further, Adjusted EBITDA should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure either in isolation or as a substitute for analyzing our results as reported under GAAP.
29
The following table reconciles Adjusted EBITDA to Net income (loss), the most comparable GAAP financial measure:
| | Three Months Ended | | Six Months Ended | ||||||||
| June 30, | | June 30, | |||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income (loss) | | $ | (27,687) | | $ | (353,559) | | $ | (83,375) | | $ | (316,981) |
Interest (income) expense | |
| (4,843) | |
| — | |
| (1,013) | |
| 357 |
Income tax expense (benefit) | |
| 112 | |
| (6,199) | |
| (4,857) | |
| (5,887) |
Depreciation and amortization | |
| 66,162 | |
| 20,562 | |
| 125,502 | |
| 34,807 |
EBITDA | |
| 33,744 | |
| (339,196) | |
| 36,257 | |
| (287,704) |
| |
|
| |
|
| |
|
| |
|
|
Adjustments: | |
|
| |
|
| |
|
| |
|
|
Stock-based compensation expense | |
| 3,429 | |
| 701 | |
| 1,133 | |
| 3,743 |
Acquisition-related costs | |
| — | |
| — | |
| — | |
| 78 |
Change in fair value of derivative asset | |
| (13,109) | |
| (60,931) | |
| (7,331) | |
| (104,614) |
Change in fair value of contingent consideration | |
| — | |
| — | |
| — | |
| 176 |
Realized loss on sale of marketable equity securities | | | — | | | 1,624 | | | — | | | 1,624 |
Unrealized (gain) loss on marketable equity securities | |
| — | |
| 4,837 | |
| — | |
| 6,448 |
Gain (loss) on sale/exchange of equipment | |
| 30 | |
| (8,614) | |
| 30 | |
| (8,614) |
Casualty-related charges (recoveries), net | | | — | | | — | | | 1,526 | | | — |
Impairment of goodwill | | | — | | | 335,648 | | | — | | | 335,648 |
Other (income) expense | |
| (65) | |
| 59 | |
| (65) | |
| 59 |
License fees | |
| (24) | |
| (24) | |
| (48) | |
| (48) |
Adjusted EBITDA | | $ | 24,005 | | $ | (65,896) | | $ | 31,502 | | $ | (53,204) |
In addition to Adjusted EBITDA, we believe “Bitcoin Mining revenue in excess of cost of revenues, net of power curtailment credits”, “Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits”, “Cost of revenues – Bitcoin Mining, net of power curtailment credits” and “Cost of revenues – Data Center Hosting, net of power curtailment credits” are additional non-GAAP performance measurements that represent a key indicator of the Company’s core business operations of both Bitcoin mining and Data Center Hosting.
We believe our ability to offer power back to the grid at market-driven spot prices, thereby reducing our operating costs, is integral to our overall strategy, specifically our power management strategy and our commitment to supporting the ERCOT grid. While participation in various grid demand response programs may impact our Bitcoin production, we view this as an important part of our partnership-driven approach with ERCOT and our commitment to being a good corporate citizen in our communities.
We also believe netting the power sales against our costs can be an important financial measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our operating efficiencies, from period-to-period by making such adjustments. We have allocated the benefit of the power sales to our Data Center Hosting and Bitcoin Mining segments based on their proportional power consumption during the periods presented.
Bitcoin Mining revenue in excess of cost of revenues, net of power curtailment credits, Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits, Cost of revenues – Bitcoin Mining, net of power curtailment credits and Cost of revenues – Data Center Hosting, net of power curtailment credits are provided in addition to and should not be considered to be a substitute for, or superior to Revenue – Bitcoin Mining, Revenue – Data Center Hosting, Cost of revenues – Bitcoin Mining or Cost of revenues – Data Center Hosting as presented in our consolidated statements of operations.
30
The following table presents reconciliations of these measurements to the most comparable GAAP financial measures:
| | Three Months Ended | | Six Months Ended |
| ||||||||
| | June 30, | | June 30, |
| ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
Bitcoin Mining |
| |
|
| |
|
| |
|
| |
| |
Revenue | | $ | 49,742 | | $ | 46,151 | | $ | 97,765 | | $ | 104,096 | |
| | | | | | | | | | | | | |
Cost of revenues | |
| 23,647 | |
| 17,995 | |
| 45,546 | |
| 37,089 | |
Power curtailment credits | |
| (8,755) | |
| (2,209) | |
| (10,589) | |
| (2,820) | |
Cost of revenues, net of power curtailment credits | |
| 14,892 | |
| 15,786 | |
| 34,957 | |
| 34,269 | |
Bitcoin mining revenue in excess of cost of revenues, net of power curtailment credits | | $ | 34,850 | | $ | 30,365 | | $ | 62,808 | | $ | 69,827 | |
Bitcoin mining revenue in excess of cost of revenues, net of power curtailment credits as a percentage of revenue | |
| 70.1% | |
| 65.8% | |
| 64.2% | |
| 67.1% | |
| | | | | | | | | | | | | |
Data Center Hosting | |
|
| |
|
| |
|
| |
|
| |
Revenue | | $ | 7,661 | | $ | 9,834 | | $ | 16,703 | | $ | 19,528 | |
| | | | | | | | | | | | | |
Cost of revenues | |
| 22,134 | | $ | 15,184 | | $ | 47,794 | | $ | 30,169 | |
Power curtailment credits | |
| (4,715) | |
| (3,497) | |
| (5,956) | |
| (5,438) | |
Cost of revenues, net of power curtailment credits | |
| 17,419 | |
| 11,687 | |
| 41,838 | |
| 24,731 | |
Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits | | $ | (9,758) | | $ | (1,853) | | $ | (25,135) | | $ | (5,203) | |
Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits as a percentage of revenue | |
| (127.4)% | |
| (18.8)% | |
| (150.5)% | |
| (26.6)% | |
| | | | | | | | | | | | | |
Total power curtailment credits | | $ | (13,470) | | $ | (5,706) | | $ | (16,545) | | $ | (8,258) | |
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2023, we had working capital of approximately $408.4 million, which included cash and cash equivalents of $289.2 million. We reported a net loss of $83.4 million during the six months ended June 30, 2023, which included $4.4 million in non-cash expenses, primarily consisting of depreciation and amortization of $125.5 million and impairments of Bitcoin of $10.1 million, partially offset by Bitcoin Mining revenue of $97.8 million, gains on the sale of Bitcoin of $33.6 million, and an increase in the fair value of our derivative asset of $7.3 million, and an income tax benefit of $4.9 million.
During the six months ended June 30, 2023, the Company sold 3,575 Bitcoin for proceeds of approximately $89.2 million. The Company monitors its balance sheet on an ongoing basis and evaluates the level of Bitcoin retained from monthly production in consideration of the cash requirements and its ongoing operations and expansion.
During the six months ended June 30, 2023, we issued 15,877,000 shares of common stock, at a weighted average price of $11.87 per share, for net proceeds of approximately $184.7 million and during July 2023, issued 570,645 shares of common stock, at a weighted average price of $11.78 per share, for net proceeds of approximately $6.6 million.
We believe our current financial position and operations give us the ability to meet cash requirements and plans in the short-term and long-term.
Miners
As of December 31, 2022, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of 5,130 S19 series miners, which were received in January 2023.
In June 2023, we entered into a purchase agreement with MicroBT to acquire 8,320 M56S+ model miners and 24,960 M56S++ model miners for a total purchase price of approximately $162.9 million. Delivery of the miners is expected to begin in December 2023, with all miners expected to be received and deployed by mid-2024. Upon full deployment of the 33,280 miners, we anticipate
31
achieving a total self-mining hash rate capacity of 20.1 EH/s. The purchase agreement also provides us the option to purchase up to an additional 66,560 additional M56S++ miners on the same terms as the original purchase through December 31, 2024.
Development of the Corsicana Facility Data Center
In 2022, we announced our planned development of the Corsicana Facility, our second large-scale Bitcoin mining and data center hosting facility located on a 265-acre site in Navarro County, Texas. The Corsicana Facility is expected, upon completion, to have one-gigawatt of developed capacity for Bitcoin mining and data center hosting, securely supplied with power by a substation being developed for the Company on the premises that will be interconnected with the nearby Navarro Switch. The strategic decision to locate the Corsicana Facility next to the Navarro Switch was made to limit electricity lost in transmission and maximize the efficiency of our substation’s power distribution facilities. The initial phase of the development of the Corsicana Facility involves the construction of 400 MW of immersion-cooled Bitcoin mining and data center hosting infrastructure spread across multiple buildings, as well as construction of various utilities, offices, warehouses, and infrastructure to support the facility’s operations. Construction of the substation and the data centers is expected to be carried out through 2023, with Bitcoin Mining and Data Center Hosting operations expected to commence following the commissioning of the substation.
This first phase of the development of the Corsicana Facility includes land acquisition, site preparation, substation development, and transmission construction, along with construction of ancillary buildings and four buildings utilizing the Company’s immersion-cooling infrastructure and technology. The Company estimates that the total cost of the first phase of the development will be approximately $333 million, which is scheduled to be invested through the first quarter of 2024. Through June 30, 2023, we had incurred costs of approximately $102.0 million related to the development of the Corsicana Facility, which consisted of $10.1 million for land, $87.2 million of initial developments costs and equipment and a $4.7 million deposit for future power usage. We expect to incur costs of approximately $150 million during the remainder of 2023 and approximately $81 million during the first quarter of 2024.
Revenue from Operations
Bitcoin Mining
We expect to generate ongoing revenues from Bitcoin rewards from our Bitcoin Mining operations and our ability to liquidate Bitcoin rewards at future values will be regularly evaluated to generate cash for operations.
Generating Bitcoin rewards which exceed our production and overhead costs will determine our ability to report profit margins related to such Bitcoin mining operations, although accounting for our reported profitability is significantly complex. Furthermore, regardless of our ability to generate proceeds from the sale of our Bitcoin produced from our Bitcoin Mining business, we may need to raise additional capital in the form of equity or debt to fund our operations and pursue our business strategy.
The ability to raise funds through the sale of equity, debt financings, or the sale of Bitcoin to maintain our operations is subject to many risks and uncertainties and, even if we were successful, future equity issuances or convertible debt offerings could result in dilution to our existing stockholders, and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions. Our ability to realize revenue through Bitcoin production and successfully convert Bitcoin into cash or fund overhead with Bitcoin is subject to a number of risks, including regulatory, financial and business risks, many of which are beyond our control. Additionally, we have observed significant historical volatility in the market price of Bitcoin and, as such, future prices cannot be predicted.
Data Center Hosting
Generally, we provide power for our hosted/co-located Bitcoin mining data center clients on a variable (sub-metered) basis. Each client pays us variable monthly fees based on the amount of power, networking costs, and other basic hosting services utilized by such client’s hosted operations, at rates specified in such client’s hosting agreement. In addition to power charges and basic hosting charges, our hosting agreements with certain clients provide for revenue sharing, based on the clients’ operating revenue, net of direct hosting costs paid to us. We recognize variable hosting revenue each month, as the hosting fees and revenue sharing payments due to us from our hosting clients are subject to various uncertainties largely outside of our control, including the amount of power used by the hosted client, the market price for Bitcoin, the Bitcoin network difficulty and global hash rate, as well as other factors.
We generate engineering and construction services revenue from the fabrication and deployment of immersion cooling technology for Bitcoin mining clients, for which we bill the client at a fixed monthly fee or at an hourly rate. For the installation and maintenance
32
of client-owned equipment, revenue is recognized upon completion of each phase of the installation project, as defined in each client’s hosting agreement. For the construction of assets owned by us but paid for and used by the client during the term of their data center hosting contract, revenue is recognized on a straight-line basis over the remaining life of the contract.
Maintenance services include cleaning, cabling, and other services to maintain the clients’ equipment. We bill the client at a fixed monthly fee or at an hourly rate. Revenue is recognized as these services are provided.
For a number of clients inherited as a result of the Whinstone acquisition, we provide data center hosting services pursuant to hosting agreements containing below-market terms, including as to power costs (“Legacy Contracts”). Accordingly, our hosting revenue from such Legacy Contracts has, historically, been less than our cost to provide such clients with hosting services. We are presently engaged in litigation relating to such Legacy Contracts, further increasing our costs associated with these Legacy Contracts. Our goal, moving forward, is to protect and advance the value of our Data Center Hosting business. In advancement of this goal, we are actively monitoring the performance of such remaining Legacy Contract clients, with a focus on maximizing revenues and enhancing efficiencies both within the segment and through vertical integration across the Company’s business segments.
Legacy Hosting Agreements
Management continually assesses the performance of the Company’s business segments, to maximize revenues, minimize costs, and enhance efficiencies. As part of their examination of the Company’s Data Center Hosting business segment, management identified several Legacy Contracts inherited through the Whinstone acquisition containing below-market terms. Approximately 200 MW of the total capacity of the Rockdale Facility is occupied by Legacy Contract customers GMO and Rhodium. Management identified, through its assessment of the Company’s business segments, that these Legacy Contract customers have sought to take advantage of the legacy hosting arrangements to the detriment of our Data Center Hosting business. As such, Whinstone believes both GMO and Rhodium are in material breach of their obligations under their respective Legacy Contracts. Whinstone has made reasonable efforts to resolve these Legacy Contract disputes and enter into revised hosting agreements on market terms and is presently engaged in litigation with both GMO and Rhodium.
Termination of GMO Legacy Hosting Agreement
Following repeated attempts to reach a negotiated resolution of the matter before and after the GMO lawsuit was initiated, Whinstone terminated its Legacy Contract with GMO, effective as of June 29, 2023. Whinstone’s removal of GMO’s legacy miners from the Rockdale Facility, as a result of this termination, will free up approximately 75 MW of mining capacity. In support of the Company’s growth and efficiencies, Whinstone intends to use the 75 MW area formerly occupied by GMO within the Rockdale Facility to host more powerful and efficient miners, either for its Data Center Hosting operations, on terms more accretive to the Company than the terminated legacy agreement, or as part of its Bitcoin Mining operations.
Engineering
Substantially all engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts. Revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which we have an enforceable right to receive compensation as defined under the contract. The length of time required to complete a custom product varies but is typically between four and 12 weeks.
Customers are typically required to make periodic progress payments based on contractually agreed-upon milestones.
If we are unable to generate sufficient revenue from our Bitcoin Mining, Data Center Hosting, or Engineering operations when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending or explore other strategic alternatives.
33
Operating Activities
For the six months ended June 30, 2023, Net cash used in operating activities was $5.8 million, which primarily consisted of the net loss of $83.4 million and net gain on non-cash reconciling items of $4.4 million, partially offset by cash inflows attributable to a net decrease in operating assets and liabilities of $82.0 million. The non-cash net gain primarily consisted of revenue of $97.8 million from our Bitcoin Mining operations and $33.6 million of gains on the sale of Bitcoin, partially offset by depreciation and amortization of $125.5 million, primarily attributable to depreciation of our miners. The net decrease on operating assets and liabilities primarily consisted of proceeds from the sale of Bitcoin of $89.2 million. The proceeds from the sale of Bitcoin and resulting gain on sale of Bitcoin are attributable to our management and consideration of cash requirements for our ongoing operations and expansion.
For the six months ended June 30, 2022, Net cash used in operating activities was $14.4 million, which primarily consisted of the net loss of $317.0 million, partially offset by a net loss from non-cash reconciling items of $261.6 million and net decrease in operating assets and liabilities of $41.0 million. The non-cash net loss primarily consisted of goodwill impairment of $335.7 million and impairment of Bitcoin $127.3 million, primarily attributable to decreases prices of Bitcoin throughout the period, partially offset by an increase in the fair value of the derivative asset of $104.6 million, attributable to increased value of our fixed price power agreement as compared to the forward power curve, and Bitcoin Mining revenue of $104.1 million. The net decrease of operating assets and liabilities primarily consisted of proceeds from the sale of Bitcoin of $33.1 million. The proceeds from the sale of Bitcoin and resulting gain on sale of Bitcoin are attributable to our management and consideration of cash requirements for our ongoing operations and expansion.
Investing Activities
For the six months ended June 30, 2023, Net cash used in investing activities was $107.5 million, which primarily consisted of purchases of property and equipment of $107.4 million, primarily attributable to now complete expansion of the Rockdale Facility, ongoing development of the Corsicana Facility, and continued deployment of miners.
For the six months ended June 30, 2022, Net cash used in investing activities was $269.9 million, which primarily consisted of deposits paid on future shipments of miners of $192.5 million and purchases of property and equipment of $77.4 million, primarily attributable to the expansion of the Rockdale Facility and continued deployment of miners.
Financing Activities
For the six months ended June 30, 2023, Net cash provided by financing activities was $172.1 million, which consisted of net proceeds from the issuance of shares under the ATM program of $184.7 million to be used to fund ongoing growth, partially offset by the repurchase of shares of common stock withheld to satisfy employee withholding taxes of $13.0 million in connection with the settlement of vested equity awards granted under our 2019 Equity Incentive Plan.
For the six months ended June 30, 2022, Net cash provided by financing activities was $242.5 million, which consisted of net proceeds from the issuance of shares under the ATM program of $267.0 million used to fund ongoing growth, partially offset by payments on our contingent consideration liability of $15.7 million related to our acquisition of Whinstone and the repurchase of shares of common stock withheld to satisfy employee withholding taxes of $8.8 million in connection with the settlement of vested equity awards granted under our 2019 Equity Incentive Plan.
Critical Accounting Policies
Our critical accounting policies and significant estimates have not changed from those detailed in our 2022 Annual Report, except for those accounting subjects described under the heading “Recently Issued and Adopted Accounting Pronouncements” in Note 3, Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the unaudited Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report.
Recently Issued and Adopted Accounting Pronouncements
We have evaluated all recently issued accounting pronouncements and believe such pronouncements do not have a material effect on our financial statements.
34
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in our forward-looking statements. For more information regarding the forward-looking statements used in this section and elsewhere in this Quarterly Report, see the Cautionary Note Regarding Forward-Looking Statements at the forepart of this Quarterly Report.
Risk Regarding the Price of Bitcoin
Our business and development strategy is focused on maintaining and expanding our Bitcoin Mining operations to maximize the amount of new Bitcoin rewards we earn. As of June 30, 2023, we held 7,265 Bitcoin with a carrying value of $140.9 million, all of which were produced from our Bitcoin mining operations. The carrying value of our Bitcoin assets reflects the $10.1 million of impairment charges we recorded against the value of our Bitcoin assets during the six months ended June 30, 2023, due to decreases in the fair value of our Bitcoin after receipt.
Bitcoin held are accounted for as indefinite-lived intangible assets. Bitcoin are measured on a first-in-first-out (“FIFO”) basis and measured for impairment daily based on the intraday low quoted price of Bitcoin. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the Bitcoin. Subsequent reversal of impairment losses is not permitted.
We cannot accurately predict the future market price of Bitcoin and, as such, we cannot accurately predict whether we will record impairment of the value of our Bitcoin assets. The future value of Bitcoin will affect revenue from our operations, and any future impairment of the value of the Bitcoin we mine and hold for our account will be reported in our financial statements and results of operations as charges against net income, which could have a material adverse effect on the market price for our securities.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2023 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Based on this evaluation, our management concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023.
Changes in Internal Control over Financial Reporting:
Except with respect to the remediation of the material weakness described above, there have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Disclosure under this Item is incorporated by reference to the disclosure provided in Note 16. Commitments and contingencies in the unaudited Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report.
35
Item 1A. Risk Factors
Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition, cash flows and equity as set forth in Part I, Item 1A. Risk Factors in our 2022 Annual Report on Form 10-K. There have been no material changes to the risk factors disclosed in our 2022 Annual Report. We may disclose changes to our risk factors or disclose additional risk factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently believe not to be material also may adversely impact our business, financial condition, results of operations, cash flow and equity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2023, certain of our employees surrendered shares of common stock awarded to them to satisfy statutory minimum federal and state tax obligations associated with the vesting of restricted stock awards issued under our 2019 Equity Incentive Plan. The following table summarizes of these repurchases:
| | |
| | |
| Total Number |
| Maximum |
| | | | | | | of Shares | | Number of |
| | | | | | | Purchased as | | Shares that |
| | Total | | | | | Part of | | May Yet Be |
| | Number of | | Average | | Publicly | | Purchased | |
| | Shares | | Price Paid | | Announced Plans | | Under the Plans | |
Period | | Purchased | | per Share (a) | | or Programs | | or Programs | |
April 1, 2023 through April 30, 2023 | | 38,312 | | $ | 10.49 | | N/A | | N/A |
May 1, 2023 through May 31, 2023 | | 8,676 | | | 11.15 | | N/A | | N/A |
June 1, 2023 through June 30, 2023 | | 885,694 | | | 12.40 | | N/A | | N/A |
Total | | 932,682 | | $ | 12.31 | |
| |
|
| (a) | The price paid per share is based on the closing price of our common stock as of the date of the determination of the statutory minimum for federal and state tax obligations. |
Item 5. Other Information
During the three months ended June 30, 2023,
As previously disclosed in our Current Report on Form 8-K filed with the SEC on June 30, 2023, on June 27, 2023, our board of directors amended and restated our bylaws (as so amended and restated, the “Bylaws”). Among other changes, the Bylaws included certain changes to the procedures by which shareholders may recommend nominees to our board of directors, including to:
| ● | clarify and outline the timing and procedure requirements for the nominations of person for election to our board of directors and the proposal of business to be considered by stockholder meetings; |
| ● | update and identify the eligibility and notice requirements regarding director nominees; and |
| ● | address the requirement for stockholders to comply with Rule 14a-19 (the Universal Proxy Rule) under the Exchange Act in connection with a nominating person soliciting proxies in support of director nominees. |
Under the Bylaws, for business to be included in the proxy materials to be properly brought before a stockholder meeting, notice of stockholder proposals must be delivered to, or mailed to and received by, us between 75 and 45 days before the first anniversary of the mailing date for the proxy materials for the previous year’s annual stockholder meeting, provided the date for the current annual stockholders’ meeting is no more than 30 days before, or 60 days after, the first anniversary of the previous year’s annual stockholders’ meeting. If the date for the current year’s annual stockholders’ meeting falls outside of this window, or if a stockholder wishes to submit a written nomination of a person to stand for election as director, then such stockholder must give notice to the Company of such proposal between the 90th day before the current year’s annual stockholders’ meeting, and the earlier of (i) the 60th day prior to the current year’s annual stockholders’ meeting and (ii) 10 days after public announcement of such meeting is made by the Company.
36
Also under the Bylaws, to be eligible to be a candidate for election as a director, a candidate for nomination must have delivered to us a completed written questionnaire (in the form provided by us upon written request therefor) with respect to the background, qualifications, stock ownership and independence of such candidate, a written representation and agreement that such candidate (1) consents to and will cooperate with any background checks, requests for information, and regulatory filings and disclosures reasonably requested by our board of directors in connection with any regulations applicable to, or licenses held by, us, (2) is not and, if elected as a director, during his or her term of office will not become, a party to any agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such candidate for nomination, if elected as a director of the Company, will act or vote on any issue or question or any other agreement, arrangement, understanding or commitment that could limit or interfere with such candidate’s ability to comply, if elected as a director of the Company, with such candidate’s fiduciary duties under applicable law, (3) is not, and will not become, a party to any agreement, arrangement or understanding with any person or entity other than us with respect to any direct or indirect compensation or reimbursement for service as a director that has not been disclosed in such written representation and agreement, (4) if elected as a director of the Company, will comply with all of our applicable corporate governance, conflict of interest, confidentiality, stock ownership and trading and other policies, procedures and guidelines applicable to directors and in effect during such person’s term in office as a director, and (5) if elected as director of the Company, intends to serve the entire term until the next meeting at which such candidate would face re-election. Our board of directors may also require any proposed candidate to furnish such other information as may reasonably be requested by our board of directors in writing prior to the meeting of stockholders at which such candidate’s nomination is to be acted upon in order for our board of directors to determine the eligibility of such candidate for nomination to be an independent director of the Company and to comply with the director qualification standards and additional selection criteria.
37
Item 6. Index of Exhibits
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the SEC at the
location indicated below:
38
Ended June 30, 2023 and 2022 (Unaudited); (iv) the Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2023 and 2022 (Unaudited); and (v) the Notes to Unaudited Condensed Consolidated Financial Statements. | ||||
| | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | Filed herewith. |
| | | | |
* Portions of this Exhibit have been omitted as confidential and/or private information pursuant to Item 601(b)(10)(iv) of Regulation S-K under the Securities Act. The Company undertakes to furnish supplementally an unredacted copy of the exhibit to the SEC upon its request. | ||||
† Certain schedules and appendices have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Subject to Item 601(b)(10)(iv) of Regulation S-K, the Company undertakes to furnish supplemental copies of any of the omitted schedules to the SEC, upon its request. | ||||
| ||||
+ Indicates a management contract or compensatory plan or arrangement. | ||||
| ||||
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| Riot Platforms, Inc. (Registrant) |
| |
Date: August 9, 2023 | /s/ Jason Les |
| Jason Les |
| Chief Executive Officer (principal executive officer and duly authorized officer) |
| |
| /s/ Colin Yee |
| Colin Yee |
| Chief Financial Officer (principal financial officer and duly authorized officer) |
40
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jason Les, certify that:
1) | I have reviewed this quarterly report on Form 10-Q of Riot Platforms, Inc. for the quarter ended June 30, 2023; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
4) | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5) | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
August 9, 2023 | /s/ Jason Les |
| Jason Les |
| Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Colin Yee, certify that:
1) | I have reviewed this quarterly report on Form 10-Q of Riot Platforms, Inc. for the quarter ended June 30, 2023; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
4) | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5) | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
August 9, 2023 | /s/ Colin Yee |
| Colin Yee |
| Chief Financial Officer |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Riot Platforms, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer (principal executive officer) of the Company, Jason Les, hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 9, 2023 | /s/ Jason Les |
| Jason Les |
| Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Riot Platforms, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Financial Officer (principal financial officer) of the Company, Colin Yee, hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 9, 2023 | /s/ Colin Yee |
| Colin Yee |
| Chief Financial Officer |
| (Principal Financial Officer) |