|9 Months Ended|
Sep. 30, 2022
Note 4. Acquisitions
Acquisition of ESS Metron:
On December 1, 2021 (the “ESS Metron Acquisition Date”), the Company acquired 100% of the equity interests of ESS Metron, LLC (“ESS Metron”). ESS Metron is a power distribution and management systems manufacturing, design and engineering firm based in Denver, Colorado, operating from facilities totaling approximately 121,000 square feet of manufacturing, office and warehouse space in the metropolitan Denver area. These facilities are subject to long-term lease agreements. The acquisition of ESS Metron established the Company’s Engineering business and is expected to enhance the Company’s ability to scale its Bitcoin mining and data center hosting business as planned.
The ESS Metron Acquisition Date fair value of the total consideration transferred was comprised of $25 million of cash, adjusted for net working capital and other items, and 715,413 shares of the Company’s common stock, no par value, with a fair value of approximately $26.7 million. Of the 715,413 shares of common stock, 645,248 shares were issued upon closing, and the remaining 70,165 shares were withheld as security for the sellers’ indemnification obligations for the 18 months following the transaction closing date.
Other than an insignificant post-closing settlement of preliminary net working capital pursuant to the Membership Interest Purchase Agreement dated December 1, 2021, there have been no adjustments to the provisional purchase price and fair value estimates presented in Note 4. “Acquisitions” of the 2021 Annual Report. The Company expects to finalize the valuation of these assets and liabilities, and consideration transferred, as soon as practicable, but not later than one year from the ESS Metron Acquisition Date. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
Acquisition of Whinstone:
On May 26, 2021 (the “Whinstone Acquisition Date”), the Company acquired 100% of the equity interests of Whinstone US, Inc. (“Whinstone”), the owner and operator of a Bitcoin mining and data center hosting facility, for approximately $460 million (the “Whinstone Acquisition”). The assets, operations and skilled workforce of Whinstone immediately increased the scale and scope of Riot’s operations, and is a foundational element in the Company’s strategy to grow its industry-leading, vertically-integrated Bitcoin mining platform on a global scale.
The Whinstone Acquisition Date fair value of the total consideration transferred was comprised of $80 million of cash, adjusted for net working capital and other items, and 11.8 million shares of the Company’s common stock, no par value, with a fair value of approximately $326 million. As part of cash at closing, net debt outstanding from Whinstone to its former parent, Northern Data AG (the “Whinstone Seller”), totaling approximately $38 million was repaid and certain Whinstone Seller transaction costs were paid. The Company also agreed to pay Whinstone Seller up to approximately $86 million (undiscounted) in additional consideration if certain future power credits are realized by Whinstone.
Other than the impairment charge to goodwill described below, there have been no adjustments to the provisional purchase price and fair value estimates presented in Note 4. “Acquisitions”, of the 2021 Annual Report. The Company finalized the valuation of these assets and liabilities, and consideration transferred, in May of 2022.
Impairment of Goodwill:
In response to recent adverse changes in business climate, including decreases in the price of Bitcoin and the related volatility of equity markets, including the Bitcoin mining industry, as evidenced by declines in the market price of the Company’s securities, those of its peers, and major market indices, during the nine months ended September 30, 2022, the Company recognized a non-cash impairment charge of $335.6 million to completely write off the Company’s balance of goodwill related to the Whinstone Acquisition and the ESS Metron Acquisition. See Note 9. “Intangible Assets and Goodwill” to the Notes to the Condensed Consolidated Financial Statements.
Pro Forma Information (Unaudited):
The following unaudited pro forma financial information summarizes the combined results of operations for Riot, Whinstone and ESS Metron as if the companies were combined as of January 1, 2020. The unaudited pro forma information does not reflect the effect of costs or synergies that may result from the acquisitions. The pro forma information excludes acquisition-related costs of $21.3 million as these costs were included in pro forma net income for the year ended December 31, 2020. The pro forma information does not purport to be indicative of the results of operations that would have resulted had the combination occurred on January 1, 2020, or of future results of the consolidated entities. This unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of future operating results of the combined company (in thousands).
Acquisition of Corsicana Facility Land Site:
During the nine months ended September 30, 2022, the Company announced that it has initiated a large-scale development to expand its Bitcoin mining and data center hosting capabilities in Navarro County, Texas with the acquisition of the 265-acre site where the anticipated one-gigawatt Corsicana Facility will be constructed. The initial phase of the development of the Corsicana Facility involves the construction on the 265-acre site of 400 megawatts of immersion-cooled Bitcoin mining and data center hosting infrastructure spread across multiple buildings, as well as a high-voltage power substation and transmission facilities to supply power to the facility. Construction of the substation and the data centers is expected to be carried out concurrently, with self-mining and data center hosting operations expected to commence by the fourth quarter of 2023, following the commissioning of the substation, which is expected to be completed in summer 2023.
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. Through September 30, 2022, the Company has incurred costs of approximately $30 million related to the development of the Corsicana Facility, including $10 million for land, $15 million of initial developments costs and a $5 million deposit for future power usage.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef