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)
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(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
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(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:
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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.
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Non-accelerated filer ☐ | Smaller reporting company | |
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RIOT PLATFORMS, INC.
i
RIOT PLATFORMS, INC.
As used in this Quarterly Report on Form 10-Q for the quarter ended March 31, 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 and the documents incorporated by reference herein contain forward-looking statements which provide current expectations of future events based on certain assumptions that involve risks and uncertainties, as well as assumptions that may not materialize or prove to be correct, which could cause our results to differ materially from those expressed in or implied by such forward-looking statements. 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. 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. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law or by the rules and regulations of the Securities and Exchange Commission (the “SEC”). Forward-looking statements are made in reliance on 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 U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The following are some of the risks, factors, and uncertainties we believe could cause our actual results to differ materially from our historical results or our current expectations or projections expressed in such forward-looking statements:
● | our strategic decision to concentrate on Bitcoin mining ties the success of our business to the success of Bitcoin; |
● | our Bitcoin mining operations are subject to unique industry risks outside of our control that could have material adverse effects on our business, including, among others: our need for significant amounts of low-cost and reliable electricity; changes to laws and regulations pertaining to mining, transacting in, or holding Bitcoin; the historical volatility in the demand for, and the price of, Bitcoin; changes in the public perception of Bitcoin; our need for consistent, high-speed, and highly secure Internet connectivity; intense competition for new miners and the necessary infrastructure, personnel, material and components to support industrial-scale Bitcoin mining operations; cybersecurity risks; increased global Bitcoin network hash rate; and competition for a fixed supply of Bitcoin rewards; |
● | our Bitcoin mining operations are capital-intensive and our net Bitcoin mining costs may not always be lower than the value of the Bitcoin we mine, which has historically been subject to significant price volatility; and, therefore, our ability to make accurate projections about our business and future contingencies is significantly impaired as a result of this price volatility and other risks that lie largely outside of our control, such as the impact of global macroeconomic, political and public health conditions and events on our suppliers’ operations and delivery schedules, as well as other risks we may not anticipate; |
● | we have made significant investments in our development of industrial-scale immersion-cooled Bitcoin mining infrastructure, which is subject to unique risks and uncertainties that could impair our ability to effectively implement this innovative technology; and, therefore, we may not realize the benefits we anticipate from our substantial investment in immersion-cooled Bitcoin mining on the scale or schedule we anticipate; |
● | our Bitcoin mining operations are concentrated in discrete locations, and natural disasters, unforeseen environmental issues, or other significant disruptions affecting our facilities or the surrounding areas could severely impact our ability to operate, which |
ii
could have a material adverse effect on our business, results of operations, financial condition, and the market price of our securities; |
● | we cannot predict the consequences to our business, our suppliers, and the markets in which we operate of future geo-political events, such as ongoing international conflict and related sanctions, COVID-19, the ongoing global supply chain crisis, and new or future legislation affecting our industry, which significantly impairs our ability to make accurate projections of future revenues, costs, and risks; therefore, we may be unable to properly plan for, insure against, or adjust to, these risks should they come to pass; |
● | the growing public awareness of climate change and the negative media attention given to the energy consumption of proof-of-work blockchains may lead to the implementation of new taxes, laws and regulations affecting our access to energy, a decline in the demand for new Bitcoin, or other factors that could have a material adverse effect on our business, results of operations, and the market price of our securities, regardless of our efforts to control the climate impact of our operations; |
● | certain accounting standards for Bitcoin mining are not settled, and we may be required to record significant charges or adjustments to earnings or the carrying value of our Bitcoin holdings as a result of future accounting rules; |
● | we have made, and expect to continue to make, strategic acquisitions and investments, which entail significant risks and uncertainties that could adversely affect our business, results of operations, and financial condition, such as unforeseen difficulties in integrating the operations of an acquired business into our own, and we may fail to realize the anticipated benefits of these acquisitions on the schedule we expect, if at all; |
● | we expect the need to raise additional capital, in the form of equity or debt, to fund our business objectives, goals, and strategies; however, volatility in the trading price of shares of our common stock, the number of authorized shares available for issuance and the price of Bitcoin may jeopardize our ability to raise the necessary additional capital; |
● | our Bitcoin mining operations and our Bitcoin assets make us a target for malicious actors on the Internet, and we could be negatively impacted by a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, or other significant disruption of our information technology networks and related systems, despite our efforts to protect against such events; |
● | we may be unable to attract and retain sufficient personnel to carry out our operations and business strategy without substantially increasing our compensation and other benefits, which could significantly increase our operating costs; |
● | our reputation and ability to do business may be impacted by the conduct of our employees, agents or business partners, as well as the actions of third parties engaged in our industry, in ways that are difficult to predict, control, or insure against; and |
● | the outcome of litigation and other disputes in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity. |
Additional details and discussions concerning the various material risks, factors and uncertainties identified by management that could cause future results to differ materially from those expressed or implied in our forward-looking statements are set forth 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 (the “2022 Annual Report”), as well as under similar headings in subsequent filings we may make with the SEC. The foregoing list of factors and the factors set forth under the heading “Risk Factors” included in our 2022 Annual Report, this Quarterly Report, and the other filings we make with the SEC are not exhaustive. Additional risks and uncertainties not known to us, or that we currently do not believe are material, may adversely impact our business, financial condition, results of operations, stockholder’s equity, and cash flows. 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.
iii
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 Section 27A of the Securities Act, 21E of the Exchange Act, and the PSLRA.
iv
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Riot Platforms, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share amounts)
March 31, | December 31, | |||||
2023 | 2022 | |||||
(unaudited) | ||||||
ASSETS |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | — | ||||
Accounts receivable, net |
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Contract assets, including retainage of $ |
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Prepaid expenses and other current assets |
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Bitcoin |
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Future power credits, current portion |
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Total current assets |
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Property and equipment, net |
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Deposits |
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Finite-lived intangible assets, net |
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Derivative asset | | | ||||
Operating lease right-of-use assets | | | ||||
Future power credits, less current portion |
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Other long-term assets |
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Total assets | $ | | $ | | ||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable | $ | | $ | | ||
Contract liabilities, net of retainage of $ |
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Accrued expenses | | | ||||
Deferred revenue, current portion |
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Contingent consideration liability - future power credits, current portion |
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Operating lease liability, current portion |
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Total current liabilities |
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Deferred revenue, less current portion |
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Operating lease liability, less current portion |
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Contingent consideration liability - future power credits, less current portion |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies - Note 16 |
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Stockholders’ equity |
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Preferred stock, no par value, |
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Common stock, no par value; |
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Accumulated deficit |
| ( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
1
Riot Platforms, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except for share and per share amounts)
Three Months Ended | ||||||
March 31, | ||||||
| 2023 |
| 2022 | |||
Revenue: |
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Bitcoin Mining | $ | | $ | | ||
Data Center Hosting |
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Engineering |
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Other revenue |
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Total revenue |
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Costs and expenses: |
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Cost of revenue: | ||||||
Bitcoin Mining |
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Data Center Hosting |
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Engineering |
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Selling, general, and administrative |
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Depreciation and amortization |
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Change in fair value of derivative asset |
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Power curtailment credits | ( | ( | ||||
Change in fair value of contingent consideration |
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Realized gain on sale of Bitcoin |
| ( |
| ( | ||
Casualty-related charges (recoveries), net | | — | ||||
Impairment of Bitcoin | | | ||||
Total costs and expenses |
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Operating income (loss) |
| ( |
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Other income (expense): |
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Interest income (expense) | ( | ( | ||||
Unrealized loss on marketable equity securities |
| — |
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Total other income (expense) |
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Net income (loss) before taxes |
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Current income tax benefit (expense) |
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Deferred income tax benefit (expense) |
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Total income tax benefit (expense) |
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Net income (loss) | $ | ( | $ | | ||
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Basic and diluted net income (loss) per share | ( | | ||||
Basic and diluted weighted average number of shares outstanding |
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See accompanying notes to condensed consolidated financial statements.
2
Riot Platforms, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except for share and per share amounts)
Three Months Ended March 31, 2023
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| 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 |
| ( |
| ( |
| — |
| ( | |||
Stock-based compensation |
| — |
| ( |
| — |
| ( | |||
Net income (loss) |
| — |
| — |
| ( |
| ( | |||
Balance as of March 31, 2023 |
| | $ | | $ | ( | $ | |
Three Months Ended March 31, 2022
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| 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 |
| — |
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Conversion of preferred stock to common stock |
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Stock-based compensation |
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Net income (loss) |
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| — |
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Balance as of March 31, 2022 |
| — | $ | — |
| | $ | | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
3
Riot Platforms, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Three Months Ended March 31, | ||||||
2023 |
| 2022 | ||||
Operating activities |
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Net income (loss) | $ | ( | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Stock-based compensation |
| ( |
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Depreciation and amortization |
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Amortization of license fee revenue |
| ( |
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Amortization of right of use assets |
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Deferred income tax expense (benefit) |
| ( |
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Impairment of Bitcoin |
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Change in fair value of derivative asset |
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| ( | ||
Change in fair value of contingent consideration |
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Realized gain on sale of Bitcoin |
| ( |
| ( | ||
Unrealized loss on marketable equity securities |
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Casualty-related charges | | |||||
Bitcoin Mining revenue | ( | ( | ||||
Changes in assets and liabilities: |
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(Increase)/decrease in operating assets | | ( | ||||
Increase/(decrease) in operating liabilities | ( | ( | ||||
Net cash provided by (used in) operating activities |
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Investing activities |
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Deposits on equipment |
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Security deposits | ( | |||||
Purchases of property and equipment, including construction in progress |
| ( |
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Patent costs incurred |
| ( |
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Net cash provided by (used in) investing activities |
| ( |
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Financing activities |
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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 |
| ( |
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Net increase (decrease) in cash, cash equivalents, and restricted cash |
| ( |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period | $ | | $ | |
Supplemental information: |
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Cash paid for interest | $ | — | $ | — | ||
Cash paid for taxes | $ | — | $ | — | ||
Non-cash transactions |
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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 | $ | | $ | — | ||
The following reconciles cash, cash equivalents, and restricted cash to the amounts presented above: | ||||||
Cash, cash equivalents, and restricted cash, beginning of the period: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | — | — | ||||
Total cash, cash equivalents, and restricted as presented above | $ | | $ | | ||
Cash, cash equivalents, and restricted cash, end of the period: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | — | ||||
Total cash, cash equivalents, and restricted as presented above | $ | | $ | |
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 institutional-scale hosted clients to mine Bitcoin at its Bitcoin mining facility in Rockdale, Texas (the “Rockdale Facility”). The Rockdale Facility currently has
As described in Note 19. Segment Information, we operate in three business segments: Bitcoin Mining, Data Center Hosting, and Engineering.
Note 2. Liquidity and Financial Condition
At March 31, 2023, the Company had approximate balances of cash and cash equivalents of $
Subsequent to March 31, 2023, through the date of this Report, the Company issued
COVID-19
The COVID-19 pandemic was unprecedented and unpredictable, and its impact may continue to result in national and global economic disruption, which may adversely affect our business. Presently, the Company has not experienced and does not expect any material impact on its long-term strategic plans, its operations, or its liquidity due to the long-term impacts of COVID-19. We will monitor any future COVID-19 related developments and the possible effects on the Company’s financial condition, liquidity, operations, suppliers, and the industry.
Inflation
We have experienced, and are experiencing, the impact of domestic and global inflationary pressures largely outside of our control. This inflationary pressure impacts our cost structure by increasing the cost of materials, parts and labor, making both our operations and development more expensive for us, despite a continued focus on controlling our costs where possible. In addition, sustained inflationary pressures have led to central banks raising interest rates, raising the cost of debt financing, which may precipitate a broad-based macroeconomic slowdown, including a possible recession in the United States and in other key financial markets. Management is unable to accurately predict when, or if, these inflationary pressures will subside, or whether and to what extent a significant recession will arise following central banks’ efforts to constrain such inflationary pressures. As a result, management is unable to predict the impact of these inflationary pressures, or the possible follow-on conditions, on our business and results of operations, as well as our access to debt financing. See the discussion under the heading “Risk Factors” under Part I, Item 1A of our 2022 Annual Report for additional discussion regarding potential impacts sustained elevated inflationary pressures may have on our operations and plans for expansion.
5
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. In the opinion of management, the accompanying 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 in thousands except for share, per share and miner amounts.
The results in the 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 unaudited condensed consolidated financial statements do not include all the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements 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 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 December 31, 2022 consolidated financial statements included in its 2022 Annual Report.
Recently Issued and Adopted Accounting Pronouncements
The Company assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s unaudited condensed consolidated financial statements properly reflect the change.
Note 4. Revenue from Contracts with Customers
Disaggregated revenue
Revenue disaggregated by reportable segment is presented in Note 19. Segments Information.
6
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Contract balances
Contract assets relate to uncompleted Engineering contracts. As of March 31, 2023 and December 31, 2022, contract assets were $
Contract liabilities primarily relate to upfront payments and consideration received from customers for data center hosting and uncompleted Engineering contracts. The following table presents changes in contract liabilities:
Three Months Ended | |||
March 31, 2023 | |||
Beginning balance | $ | ||
Revenue recognized | ( | ||
Other changes in contract liabilities | ( | ||
Ending balance | $ |
Remaining performance obligation
Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed. Amounts related to Bitcoin mining are not included because the Company elected the practical expedient to not disclose amounts related to contracts with a duration of one year or less.
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| Thereafter |
| Total | |||||||
Data Center Hosting |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Engineering |
| |
| — |
| — |
| — |
| — |
| | ||||||
Other | | | | | | | ||||||||||||
Total contract liabilities | $ | | $ | | $ | | $ | | $ | | $ | |
Note 5. Bitcoin
The following table presents information about the Company’s Bitcoin:
| Three Months Ended | ||
March 31, 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 months ended March 31, 2022, the Company recorded impairment charges on its Bitcoin holdings of $
Applying the market price of one Bitcoin on March 31, 2023 of approximately $
7
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6. Property and Equipment
Property and equipment consist of the following:
| March 31, | December 31, | ||||
| 2023 |
| 2022 | |||
Buildings and building improvements | $ | | $ | | ||
Land rights and land improvements |
| |
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Miners and mining equipment |
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Machinery and facility equipment | | | ||||
Office and computer equipment |
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Construction in progress |
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Total cost of property and equipment |
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Less accumulated depreciation |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | |
The Company did
During the three months ended March 31, 2023 and 2022, depreciation expense related to property and equipment totaled $
Miners and mining equipment
As of March 31, 2023, the Company had a total 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 our hash rate capacity. Repairs have been ongoing and the Company continues to bring its hash rate capacity back online.
The Company has estimated that total damages of $
Construction in progress
In 2021, the Company commenced expansion of our Rockdale Facility to
In 2022, the Company initiated a large-scale development 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
8
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
transmission facilities to supply power and water to the facility. 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 buildings utilizing the Company’s immersion-cooling infrastructure and technology, and ancillary buildings. Through March 31, 2023, the Company had incurred costs of approximately $
Note 7. Finite-Lived Intangible Assets
The following table presents the Company’s finite-lived intangible assets as of March 31, 2023:
| Weighted- | ||||||||||
Gross | Accumulated | Net book | average life | ||||||||
| book value |
| amortization |
| value |
| (years) | ||||
Customer contracts | $ | | $ | ( | $ | |
| ||||
Trademark |
| |
| ( |
| |
| ||||
UL Listings |
| |
| ( |
| |
| ||||
Patents |
| |
| ( |
| |
| Various | |||
Finite-lived intangible assets | $ | | $ | ( | $ | |
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 March 31, 2023 and 2022, amortization expense related to finite-lived intangible assets totaled $
The following table presents the estimated future amortization of the Company’s finite-lived intangible assets as of March 31, 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 months ended March 31, 2023 and 2022.
9
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 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: Data Center Hosting 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.
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.
Under the Company’s Power Supply Agreement with TXU, we 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 our Company, depending on the spot market price of electricity. Our power strategy combines our participation in Demand Response Services Programs and sales of power during times of peak demand, to most efficiently manage our operating costs. During the three months ended March 31, 2023 and 2022, we sold approximately $
The Company determined the Power Supply Agreement meets the definition of a derivative because it allows for net settlement. However, because we have 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, we do 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, our 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
10
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 March 31, 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 and does not engage in speculation in the power market as part of its ordinary 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 March 31, 2023 | $ | |
Note 9. Long-Term Assets
Deposits
Deposits consist of the following:
| March 31, |
| 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
Security Deposits
During the three months ended March 31, 2023, the Company paid $
During the year ended December 31, 2022, the Company paid approximately $
11
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10. Accrued Expenses
Accrued expenses consist of the following:
| March 31, | 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 $
The $
The $
Total borrowings under the Credit and Security Facility during the three months ended March 31, 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 March 31, 2023, the Company was in compliance with all covenants of the Credit and Security Facility.
Note 12. Leases
As of March 31, 2023 and December 31, 2022, operating lease right of use assets were $
12
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the components of the Company’s lease expense:
| Three Months Ended | |||||
| March 31, | |||||
2023 |
| 2022 | ||||
Operating lease cost | $ | | $ | | ||
Variable lease cost |
| |
| | ||
Operating lease expense | $ | | $ | |
The following table presents supplemental lease information:
Three Months Ended | ||||||||
March 31, | ||||||||
| 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 |
| | % |
| | % |
The following table represents our future minimum operating lease payments as of March 31, 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 | $ | | $ | | $ | |
Note 13. Stockholders’ Equity
During the three months ended March 31, 2023,
13
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
At-the-Market (“ATM”) Equity Offerings
2022 ATM Offering
In March 2022, the Company entered into an ATM sales agreement under which it could offer and sell up to $
Subsequent to March 31, 2023, through the date of this Report, the Company received net proceeds of approximately $
Note 14. Stock-Based Compensation
The 2019 Equity Incentive Plan authorizes the granting of stock-based compensation awards to directors, employees, and consultants in the form of restricted stock awards or stock options that settle in shares of the Company’s common stock upon vesting.
The following table presents stock-based compensation expense by category:
Three Months Ended | ||||||
March 31, | ||||||
| 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 vest over a
The following table presents a summary of the Company’s performance-based awards activity:
Weighted Average | |||||
Grant-Date | |||||
| Number of Shares |
| Fair Value | ||
Balance as of January 1, 2023 | | $ | | ||
Granted | | $ | | ||
Vested | ( | $ | | ||
Forfeited | ( | $ | | ||
Balance as of March 31, 2023 | | $ | |
As of March 31, 2023, there was approximately $
14
Riot Platforms, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Service-based awards
Service-based awards generally vest over a
The following table presents a summary of the Company’s service-based awards activity:
Weighted Average | |||||
Grant-Date | |||||
| Number of Shares |
| Fair Value | ||
Balance as of January 1, 2023 | | $ | | ||
Granted | | $ | | ||
Vested | ( | $ | | ||
Forfeited | ( | $ | | ||
Balance as of March 31, 2023 |
| | $ | |
As of March 31, 2023, there was approximately $
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 March 31, 2023, and December 31, 2022:
Fair value measured as of March 31, 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) | $ | | $ | $ |