Riot Platforms, Inc.

Greetings and welcome to Riot Platform's second quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference has been recorded. It is now my pleasure to introduce your host, Phil McPherson, Vice President of Capital Markets and Investor Relations. Thank you. You may begin.

Thank you, Zekal. Good afternoon and welcome to Riot Platform's second quarter 2024 Earnings Conference Call. My name is Phil McPherson and joining me on today's call from Riot are Jason Less, CEO, Colin Yee, CFO, and Jason Chung, Executive Vice President and Head of Corporate Development and Strategy. On the Riot Investor Relations website, you can find our second quarter 2024 earnings press release and accompanying earnings presentation, which are intended to complement today's prepared remarks and which include discussion of certain non-GAAP items. Non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP and are included as additional clarifying items to aid investors in further understanding the company's second quarter performance. During today's call, we will be making forward-looking statements regarding potential future events. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Actual results could materially differ due to factors discussed in today's earnings press release in comments and responses made during today's call and in the risk factors section of our Form 10-K and Form 10-Q, including for the quarter end of June 30th, 2024, which will be filed today after this call, as well as other filings with the Securities and Exchange Commission. With that, I will now turn the call over to Jason Less, CEO of Riot Platforms.

Thank you, Phil, and good afternoon, everyone. Riot's

primary strategic focus has been on developing a leading vertically integrated Bitcoin mining company built on the three key pillars of, one, developing and owning operations of significant scale, two, being a low-cost producer of Bitcoin, three,

building a balance sheet of strength. During the second quarter of 2024,

we demonstrated success at all three of these pillars. Riot successfully energized our Corsican facility, increasing total deployed hash rate quarter over quarter by 77%, from 12X a hash to 22X a hash, and exceeding our quarter end target of 21X a hash. We also raised our 2024 deployed hash rate target from 31X a hash to 36X a hash and our 2025 deployed hash rate target from 40X a hash to 56X a hash. These growth plans remain fully funded as a result of our continued focus on maintaining a strong balance sheet. The second quarter of 2024 was the first quarter of Bitcoin production, which predominantly occurred following the halving event, which occurred in late April and which led to a reduction in the Bitcoin block subsidy from 6.25 to 3.125 Bitcoin per block. Additionally, global hash rate grew by 6% quarter over quarter. Both of these events created bearish headwinds for Bitcoin miners when it comes to the cost of mining. Despite these events, Riot's direct cost of mine in the second quarter remained extremely competitive and was well below the average price per Bitcoin during the quarter. These outstanding results were aided by our unique power strategy, which generated 13.9 million in power credits during the quarter, resulting in an all-in cost of power of 2.7 cents per kilowatt hour during the quarter, while also supporting the Texas grid during times of disruption in supply and demand. Following the close of the second quarter of 2024, on July 23, Riot announced the acquisition of Block Mining, a privately held Bitcoin miner operating in Kentucky. This acquisition immediately adds 60 megawatts of operating capacity, with the potential to quickly expand to 110 megawatts this year by leveraging existing infrastructure and a pipeline built to over 300 megawatts in total in Kentucky. This adds approximately 16X of hash of total hash rate capacity and provides us with a clearly identified growth path to 2 gigawatts of potentially accessible power and 75X of hash of potential hash rate deployed. We remain focused on the growth and enhancement of our Bitcoin mining business. Riot's focus is maximizing Bitcoin mining results, and our strategy is enabling us to execute on this at an unprecedented scale. I would now like to turn the

call over to Colin Yee, CFO of Riot Platforms. Thank you, Jason. I'm excited to present Riot's

financial results for the second quarter of 2024, during which Riot achieved a number of key milestones. For ease of reference, Slide 5 presents a snapshot of key financial and operating metrics for the second quarter of 2024.

So let's go over some highlights on the following pages. Riot owns and operates the largest

dedicated Bitcoin mining facility in the world, the Rockdale facility, where we continue to deploy miners and expand our self-mining capacity during the second quarter. In addition, during this past quarter, Riot successfully energized our new Corsicana facility, which, when fully developed, will supplant the Rockdale facility as the largest dedicated Bitcoin mining facility in the world. As a result of the successful energization and development of our Corsicana facility and ongoing development at our Rockdale facility, Riot ended the second quarter with an installed hash rate of 22 exahash, a 106% increase relative to the second quarter of 2023, and exceeding our prior guidance of 21 exahash. Alongside additional growth in Kentucky, resulting from our acquisition of block mining, we now anticipate achieving a total self-mining hash rate capacity of 36 exahash by the end of 2024, up from our prior guidance of 31 exahash. During the quarter, Riot mined 844 Bitcoin, which represents a decrease of 52% from the 1,775 Bitcoin we mined during the second quarter of 2023. This decrease was primarily driven by the block subsidy halving event, which occurred in April 2024, and the significant increase in the Bitcoin network difficulty, which increased by 68% from the second quarter of 2023. However, driven by the significant growth in our hash rate capacity expected through the remainder of the year, we anticipate producing more Bitcoin per day by the end of 2024 than we did in the first quarter of 2024, having non-withstanding. Riot ended the quarter of 2024 with 9,334 Bitcoin, an increase of 28% relative to the 7,265 Bitcoin that we held at the end of the second quarter of 2023. Riot continued to retain

100% of all Bitcoin produced in the second quarter. In the second quarter of 2024, Riot reported

total revenue of 70 million, as compared to 76.7 million for the second quarter of 2023, a 9% decrease year over year. This decrease was primarily driven by lower revenue at the company's engineering division. During the quarter, Riot reclassified third-party hosting revenues and costs into other from Bitcoin mining, as previously reported in the first quarter of 2024. Non-GAAP gross profit for the quarter was $30.3 million, as compared to non-GAAP gross profit of $26.2 million in the second quarter of 2023. Non-GAAP adjusted EBITDA for the quarter was a loss of $75.2 million, as compared to non-GAAP adjusted EBITDA of $24.3 million in the second quarter of 2023. Riot's adoption of FASB's final standard on crypto assets issued in December 2023, which Riot now recognizes its Bitcoin held at fair value, and with it, changes in fair value now recognized in income. As a reference, the Bitcoin price at the end of the first quarter of 2024 was $71,333, and the price at the end of the second quarter was $62,678. This resulted in a -to-market downward adjustment of $76.4 million in the second quarter. Net loss for the quarter was $84.4 million, or 32 cents per share, compared to net loss of $27.4 million, or 16 cents per share, for the same period in 2023, which included a loss from change in the fair value of Bitcoin held equal to $76.4 million, non-cash stock-based compensation expense of $32 million, and depreciation amortization of $37.3 million. As a reminder, beginning in the first quarter of 2024, we adjusted our depreciation schedule for mining hardware from a two-year to a three-year schedule based on our evaluation of market practice

and our own operational history. For the second quarter of 2024, Bitcoin mining revenue

totaled $55.8 million, a 12% increase relative to second quarter 2023 Bitcoin mining revenue of $49.7 million. Bitcoin mining cost of revenue primarily consists of direct production costs of Bitcoin mining operations, including electricity, labor, and insurance, but excluding depreciation and amortization. Bitcoin mining revenue in excess of Bitcoin mining cost of revenue for the quarter was $20.5 million, representing a margin of 37% as compared to $26.1 million, or a margin of 52% in the second quarter of 2023. This decrease in margin was primarily driven by the halving events and the significant increase in global hash rate quarter over quarter. If power credits were directly allocated to Bitcoin mining cost of revenue, Bitcoin mining cost of revenue would have decreased by $13.9 million, increasing our Bitcoin mining margin to $34.4 million, or

62% on a non-GAAP basis. In spite of the global network hash rate increasing from an

average of 568X a hash in the first quarter of 2024 to 604X a hash, a 6% increase, and the Bitcoin halving event in April 2024, Riot's cost to reduce Bitcoin in the second quarter only increased 9% on a per Bitcoin basis, and costs on a dollar basis actually decreased to $30.5 million from $36 million in the first quarter of 2024. Direct cost to mine this quarter totaled $25,327 per Bitcoin, of which direct power costs amounted to $14,890, or 59%, of total direct cost to mine a Bitcoin, while direct non-power costs, which include direct labor, miner insurance, miner and miner related equipment repairs, land lease and related property taxes, network costs, and other utility expenses totaled $10,437, or 41%, per Bitcoin. As previously mentioned, the halving and an increase in the global network hash rate and an accompanying increase in network difficulty were the primary drivers behind the slight increase in Riot's average direct cost to mine Bitcoin in the second quarter. This was offset by an increase in power

credits as compared to the first quarter of 2024. Riot's engineering business carried on through Riot's wholly

owned subsidiary, ESF Metron, reported revenue of $9.6 million in the second quarter of 2024 as compared to $19.3 million for the same three-month period in 2023, a decrease of $9.7 million. This decrease was primarily attributable to supply chain constraints resulting in decreased receipts of materials, delaying the completion of certain custom products, and therefore the recognition of revenue. Our custom electrical products such as Switchgear and Power Distribution Centers are used as important components in data center development and in power generation and distribution facilities. There has been increased demand for these products due to the continued increase in data center construction by developers, as well as the continually increasing worldwide demand for power. Engineering gross profit for the quarter was $1.4 million as compared to a gross profit of $1.1 million for the second quarter of 2023. We anticipate a strong second half of 2024 for our engineering business, driven by continued growth and demand primarily from data center customers and the completion of complex legacy projects.

I will now turn the call back over to Jason Les. Thank you, Colin.

With Riot's expansion into Kentucky, we now have access to 2 gigawatts of total power capacity and are well on our way to securing enough power to achieve our growth target of 100x a hash of self-mining hashrate. The pipeline enabling this growth consists of 700 megawatts of capacity at our Rockdale facility, 1 gigawatt at our Corsicanet facility, and more than 300 megawatts of operating and potential capacity in Kentucky. Subsequent to the end of the second quarter of 2024, Riot announced the acquisition of Block Mining, a private Bitcoin miner with operations in Kentucky. This acquisition represents Riot's first major acquisition since 2021 and marks Riot's first strategic expansion outside of Texas. The acquisition of Block Mining immediately increases Riot's hashrate while significantly expanding our development pipeline of new growth opportunities, broadens Riot's footprint nationally and expands our operations into new mining-friendly jurisdictions, adds exposure to new energy markets outside of ERCOT in which Riot can continue to leverage our unique power strategy while helping to support local grids, and brings on board an experienced management team which will continue to operate existing assets and leverage strong local relationships to drive further

growth opportunities. As a result of our acquisition of Block Mining, Riot gained

two additional operating data center facilities in Kentucky. First, Commerce Drive, which currently operates 35 megawatts of capacity in Paducah, Kentucky, and second, Blue Steel, which currently operates 25 megawatts of capacity in nearby Calvert City, Kentucky, as well as one Greenfield expansion site also in Kentucky. Both operating facilities already offer immediate expansion opportunities. Commerce Drive can be potentially expanded up to 100 megawatts leveraging existing infrastructure, and Blue Steel can be expanded up to 55 megawatts. Additionally, while at present there is approximately 18 megawatts of capacity being used to host third-party miners on site, 8 megawatts of this capacity is subject to change in control provisions, which Riot intends to exercise, while remaining hosting contracts will wind down over the next few quarters, further adding to Riot's self-mining capacity. Together, both operating facilities currently operate 1x of hash in self-mining and 60 megawatts of power capacity, which we anticipate will be expanded to 4.8x of hash of self-mining hash rate and 110 megawatts of power capacity by the end of this year. Coleman Road, Riot's new Greenfield development site, has the potential to be developed up to 150 megawatts, which would bring the total expansion capacity from our acquisition of Block Mining up to a total of 305 megawatts, representing a significant portion of the additional capacity we require as we work towards our goal of achieving 100x of hash of total capacity. Under Riot's existing MicroBT A6 miner purchase option, which carries a $16.5 per tera hash price cap, Riot can fully develop these assets for approximately $345 million or $30 million per x of hash deployed, inclusive of total consideration, or $21.8 million per x of hash when excluding the purchase consideration. This compares favorably with Riot's historical cost per x of hash deployed during phase one at our Corsicana facility of approximately $40 million per x of hash. The Block Mining team has a proven track record as a low-cost developer of Bitcoin mining infrastructure, and is a low-cost Bitcoin miner. Operating in the Mid-Continent Independent System Operator, MISO Power Grid, Block Mining had an average power cost over the past year equal to approximately $42 per megawatt hour, and an average capex build-out cost of $210,000 per megawatt to date

across Commerce Drive and Blue Steel. Riot has strived to provide clear guidance on our growth plan, and just as

importantly, where we anticipate this growth will come from. We believe that providing visibility on not just overall growth plans, but also on the specific sources to achieve this growth, is a vital element in demonstrating the credibility of any Bitcoin miners' growth forecast. Thanks to the groundwork laid out over the past few years as we have focused on developing our Corsicana facility, we have the benefit of a clear path to achieve significant growth in the coming years. This clear path includes growth from additional expansion opportunities at our Rockdale facility, continued development at our Corsicana facility, and immediate and near-term added capacity in Kentucky, as well as additional pipeline opportunities as a result of our acquisition of Block Mining. Executing on all of these growth opportunities, alongside our low-cost fixed-price purchase options with MicroBT for latest generation ASICs, will bring Riot to 75x a hash in total capacity, well on track towards our long-term goal

of reaching 100x a hash. Riot's long-term purchase order with MicroBT

continues to improve Riot's fleet efficiency, now at 24.5 Joules per Tera hash. To date, our orders for new miners for MicroBT have been received at or ahead of schedule, as we have now received approximately 77,734 miners, with the vast majority already deployed. As additional new generation miners for MicroBT are received and deployed, Riot's total fleet efficiency will improve to 21 Joules per Tera hash in 2025. If Riot executes its exercises, its long-term purchase option of 265,000 M66S miners, total fleet efficiency would improve to below 20 Joules per Tera hash. Riot continues to prioritize maintaining a strong balance sheet, with significant financial resources, including cash, marketable securities, and Bitcoin holdings, in order to drive long-term value creation for our shareholders. As a result of our financial position, we can act decisively and continuously scale our business to meet the growing opportunities in the Bitcoin mining space. This balance sheet strength, based on 639 million cash and marketable securities and 9,334 Bitcoin, enables us to confidently plan our growth funding needs ahead of time. In fact, growth plans to the end of 2025, calling for 694 million in capital expenditures, are already fully funded. Riot's vision is to be the world's leading Bitcoin-driven infrastructure platform. The strategy we've been executing on over the past several years has now begun bearing the results, which position us to realize this vision. Through our vertically integrated strategy, we have created an unmatched infrastructure growth pipeline to increase our hash rate by 193% to 36x hash by the end of this year, and ultimately to our goal of reaching 100x hash in total self-mining hash rate. Riot's balance sheet strength underpins our ability to achieve our growth targets, and as a result, our 2024 and 2025 growth plans are fully funded. We are incredibly excited about what Riot is accomplishing this year, and we look forward to executing on our stated goals. Thank you all for listening to our presentation. We would now like to open

the call for questions.

Operator.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Okay, we will take our first question from Greg Lewis

at BTIG. Operator, can you open the line?

Yeah, thank you and good afternoon everybody. Jason, you know, congrats on getting course Canada off. It was a long time coming. You know, I guess, but the question I have is around, you know, what's next to course, so, you know, as we kind of think about that next 600 megawatts. You know, what else what needs to happen to get there in terms of procuring. You know, additional equipment, it may be expanding the substation or and, you know, probably also, as we think about, are there any additional approvals or permits that are going to be needed to get to that gigawatt down in course account?

Thanks for the question, Greg. So, first off, we're very encouraged about what we're seeing with results at course. So, we are excited to scale up and leverage these advantages over the base of operations that we've created. What's very valuable about course, is that 1 gigawatt interconnect that is already fully improved. We have 1 gigawatt approved with the large flexible load task force. We have the required to access all that power. All of the required regulatory approvals are there. So the next step to building that 2nd phase, that's 600 megawatts would be procuring the transformers and equipment necessary to expand the substation. And then all of the equipment necessary to build out an additional building. So then you have switch gear, medium voltage, transformers, low voltage gear, immersion tanks, etc. So now that we're starting to get some operating time under our belts here, of course, we're able to identify which products we like best for the 2nd phase. So we are, you know, we're very excited to monetize that full capacity of 1 gigawatt. Of course, we are making the development plans now for that 2nd phase. We're going through the process, putting these together, getting bids from vendors. And I think in due course here, we'll be able to share an update on what those plans look like in terms of timeline cost and other particulars about that. But we're very excited about taking that full site to the full 1

gigawatt. Okay, great. Thanks for that. And then just pivoting a little bit. You know, as I think about the .S.S. Metron and that acquisition, you know, realizing that, you know, .S.S. Metron's number one customer is Riot. You know, as we think about the potential capacity, you know, to scale up or build out, I mean, clearly there's demand for, you know, .S.S. Metron's services equipment. That only seems to be rising with, you know, the increases to the grid increases demand for data centers, obviously increasing demand for Bitcoin mining. You know, I guess, as we think about the ability to scale that business over the next 2 to 3 years, how should we be thinking about the potential to like deploy capital, you know, in that vertical to kind of get and maybe unlock the potential that .S.S. has to towards a broader market?

Yeah, so first Riot is actually not .S.S. Metron's largest customer, as far as I'm aware. They have a small cost customer overall. As you're noting, Greg, with the expansion of the AI HPC data center space, there is huge demand right now. Their results, like we kind of touched on a little bit last quarter, have been impacted as of late by supply chain constraints and some major legacy jobs that have been taking up all of their capacity. So we've done a number of things to alleviate that. Over the second quarter, we've alleviated supply chain constraints. And we once this job clears through, which is expected to happen in the second half of this year, now we'll be able to start doing all these jobs in the data center AI HPC space. So we're pretty excited about that. We are also we've been working to secure additional floor capacity for they're able to do more production at one time. And we have been looking at other opportunities to scale that business as well. So I don't have a definitive number or any type of guidance like that to give you Greg. But I can tell you, in addition to scaling our Bitcoin mining business, we are focused on making sure .S.S. Metron is equipped to capture the opportunity in the data center space as well.

Okay, perfect. Thank you very much for the time,

everybody. Thank you, Greg. Okay, at this time, we'll take our next question from Darren off T from Ross M. K. M. Operator. Hey, guys, you hear me? I hear you, Darren. Great.

To if I may first, just as we think about 75 eggs hash going to 100. In light of you guys buying block mining and talking about, you know, the cost for eggs hash being, you know, more favorable than course Kana. I'm just kind of curious with, you know, the entree, maybe the last having cycle, we didn't have as many people chasing power assets. Now we kind of have a new category there. How are you guys thinking about kind of achieving that goal? And are you seeing more of a challenge to procure, you know, larger power assets, i.e. over 100 plus megawatts organically? Is your growth strategy going to involve more acquisitions? Second question. Obviously, we all came back from from Nashville. There's a large presence on the conservative side. And I know there was also some some Democratic presence. So Jason, I'm curious to kind of get your views about how you feel like crypto and Bitcoin is going to play a role in the election beyond just, you know, the Republican Party and even RFK and what your general thoughts are for Democrats. I think we'll come around to this. You'll have maybe even more of a tailwind than you already do right now. Thanks.

Thank you, Darren. Okay, so first question on how we look at achieving 75 X hash. The foundation to our business has been this vertically integrated strategy where we focus on getting access to power. So that's why we prioritize Corsicana going back over 2 years now, securing that capacity. So we would have that 1 gigawatt pipeline. And so that is our number one focus always at riot. How can we secure this power capacity? And we've been successful doing that organically with demonstrating our results and our community benefit in Texas. And as you noted, Darren, we're doing it in organically as well. I think right has the best corporate development and M&A team in the industry. We are staring over all deals at any time. We're diving into deals in incredible detail, and we're moving forward with those that we think are creative and those that will add capacity to riot. So you'll see us doing both of these things to get to our ultimate goal. We're going to continue to pursue organic opportunities, leveraging rights, internal development and sourcing capability. And we're going to be in the market looking at deals. But as always, being very, very selective. Number 1 priority, I'll just leave you with it right is carrying this power capacity and getting the equipment necessary to develop that capacity. Onto your 2nd question about Nashville and public policy. So riot had, we began investing in our public policy effort about 2 years ago, because we saw the threat looming around this entire space. We saw a whole of government attack on this industry, whether it be in Congress, whether it be the, the, the, the, the, the, the White House, the, the Treasury Department. There have been attacks at every angles. So we knew we needed to, in order to protect our own basis from the whole industry, being investing in this and working with our peers, working with industry groups to educate and advance this industry. We have had success on both sides of the aisle. While you know, Nashville had a predominantly Republican presence. We at the conference itself, and in addition to before the conference and all the time work. Collaboratively with some very strong Democrats who get this issue and just trying to advance it. I think what we're seeing playing out is the game theory that people apply to Bitcoin and lots of different angles. It takes one party to begin embracing Bitcoin more in a regulatory framework and support for the industry to show the other party why that's important. And I think we're already seeing that play out. Prominent Democrats who are allies to the space have been writing letters to the national party, encouraging a shift in this issue. There's been news reports of Vice President Harris's campaign looking to reach out to the industry and reset relations. So we see this as success of our strategy and action as more prominent politicians, lawmakers get behind Bitcoin. There's an incentive for other politicians to do the same. And the end result is going to be Bitcoin is a nonpartisan issue because Bitcoin is important to everyone.

That's the goal that we're trying to work towards. Great. Thank you. Thank you, Darren. Our next question comes from Lucas Pipes at B Rally Securities.

Operator?

Thank you very much, Phil. Good afternoon, everyone. Jason, I wanted to ask a little bit about the HPC side and the amount of attention it has been getting in the industry. A number of your peers talking about kind of using gigawatts, megawatts to support Bitcoin. To host CPUs and how does Riot think about this? Well, one, in terms of the portfolio of power that you have and then two more broadly, how it might impact the industry.

Thank you. Thank you, Lucas. So our business

plan

is to be

the best Bitcoin miner in the sector. Kind of our thesis is no Bitcoin miner has perfected this yet, including Riot. Everyone has a different take on approach. Everyone is still figuring this out. So what we want to do is devote our time, our resources to optimizing our Bitcoin mining operations, scaling those operations and being the best Bitcoin miner that we can. We believe over the long term, this foothold in Bitcoin mining, combined with the price appreciation that is forecasted for Bitcoin, will pay off long term. That will be the most valuable use of our power. While there's discussion in the industry of certain players getting contracts or getting involved in AI, it really does take a different development capability. So for us, that would be a distraction. We would be splitting our operations in half. We would be building a different type of infrastructure that would be costly or timely to revert back to Bitcoin mining or maybe not possible at all if that commercialization of that capacity didn't work out. So we think it's important to stick to our long term strategy. Riot has always been consistent on building and developing Bitcoin mining assets. Now, how this will affect the whole industry, this recent AI HBC phenomena. Well, I think we're seeing there is a massive competition for energy assets. These AI data centers are looking for capacity wherever they can find it all over the country. Frankly, for these assets to reach all of their capacity goals and the growth goals, they're going to need more generation. We believe that ultimately, loads like Bitcoin mining help drive more generation. Bitcoin mining loads are flexible. AI HPC loads are not necessarily flexible. So Bitcoin miners help bring that reliable base load demand for energy generators with the flexibility to turn off at peak time. And this Bitcoin mining is going to be a tool to bring more generation forward. I still think we have an advantage with what we're able to do in different communities, operate in more rural areas where maybe these other data centers may not be able to operate. I think it's also challenging to build and more expensive, certainly to build AI HPC infrastructure in the very hot climates where you can make Bitcoin mining work. So there's more competition for power capacity. And I think that is a proving right strategy of prioritizing sourcing capacity. Now we have this one gigawatt that we can build on. We have the organic pipeline to already get us very close to achieving our ultimate goals.

Jason, thank you very much for the perspective and congratulations on the announcement regarding block mining and the details you shared on the M&A strategy. I wanted to ask about the next steps in regards to your investment in BitFarms. Anything you could share at this point? Thank you very much.

Sure. So as of right now at BitFarms, we have no outstanding proposal. I know we had a proposal we made public a while ago. That was never tendered to shareholders. That was kind of brought forth as our example of the challenges that we were seeing with BitFarms. Frankly, we see some corporate governance concerns at BitFarms. We are their largest single shareholder and based on how they handled their proposal, based on how they handled our relationship since then, implementing an off-market poison bill, our view is that board is valuing its own investment over its duty to shareholders. So the only thing for our next step right now is the special meeting that's scheduled for October 29. We requisitioned that meeting. BitFarms has scheduled that meeting. We've nominated three, we think very highly qualified and directors independent of both Riot and BitFarms. We think nominating those shareholders to the board will bring the much needed governance changes that we see being required there. So nothing except that shareholder meeting on the plans right now.

Jason, thank you very much for that update and to you and the entire team. Continue best of luck.

Thank you, Lucas. Great. Our next question will come from Reggie Smith at JPMorgan. Operator.

Thank you. Congrats on Corsa Cana and the block mining acquisition. I guess I had follow up to Lucas's question and I certainly appreciate the capital intensity and the risks of pivoting to HPC. My question for you, Jason, is there a structure or price where maybe some of those risks are mitigated or partner where that could be mitigated? Is there a scenario in your mind where you see that possibly you could explore this at the right deal structure, right partner approach you?

Thanks for the question, Reggie. You know,

obviously there's some price where things are being arrested. I think the challenge that we see is the pricing that is generally going to be out there is perhaps less than we see as a long term upside in Bitcoin when you factor in uncertainty. I think the other things that we're seeing challenging in pursuing these contracts is the duration of them. I think if we look at the space right now, Core Scientific has an excellent deal with Core Weave. Their deal is what has got the whole industry excited about this, but we haven't seen that replicated anywhere yet. So, you know, my question is, is there demand for that similar type of deal structure that's very favorable to Core over a very long time obviously? I think there's a lot of uncertainty around that. So, hey, we are rational economic actors. So if at some point there was something that was incredibly beyond what we could ever potentially do with Bitcoin mining, adjusted for the right deal structure, then I think that's a very good question. So, if we were to look at the risk of that business line succeeding, yes, we would take a look at that. I'm skeptical as things play out that that's going to be the case.

So that makes a lot of sense and I appreciate the color. If I could add one follow-up, and this may be an unfair comparison, but we track various miners and we try to look at the operating efficiency. And clearly you guys have a cost advantage, but I was curious like internally how you guys benchmark your operations from an uptime perspective and if there's an opportunity to enhance that, are you happy with it with you guys? Or is it an opportunity to kind of what's that path to improving performance if you aren't happy with it? Thanks.

Yeah, Reggie, I mean, to be frank, if you look at our recent operating results, we have not been pleased with our uptime going historically and that's why we've been so focused on improving that. That is mainly coming through with what we have going on at Corsicana. We have improved infrastructure there. We are very optimistic about what we're seeing. We're still in the very early days. We just turned on a ton of X-Sash at one time. We're tweaking that, optimizing that as that comes on over the month of July. But the preliminary results we're seeing have got us very optimistic and as time goes on, we think that's going to improve and improve even more. In parallel over at Rockdale, we have a lot of initiatives underway. We've talked about replacing some of the problematic miners with micro BT miners. And we are very encouraged with what we're seeing in operating results there. So we are holding ourselves to a very high standard. Reggie, frankly, that's probably the biggest priority at Riot right now alongside building the new capacity of Corsicana. And I think as we scale up here and leverage this direct energy cost per Bitcoin over a wider and wider scale, combined with improving operating uptime, we're going to see some we expect to see some of the best significantly improved results here. We'll have our monthly update for July next week and you'll see some of the progress that

we've already seen on that front. Sounds good. Thanks a lot. Thank you, Reggie. Okay, our next call will come from Joe Flynn at Compass Point Research and Trading. Operator?

Hi, thanks for the question. Just to piggyback off Reggie's question related to uptime, as we look into the third quarter, can you guys provide an update on the power strategy and maybe any expected curtailment with the hot summer months here?

So I don't have any specific percentages of what we're looking at for the summer months. As far as the power strategy goes, in the second quarter of 2024, we achieved a $26 per megawatt hour cost of power at Rockdale. That's inclusive of our power strategy. And at Corsicana, just buying power at spot and curtailing during periods of high demand, we achieved a $39 per megawatt hour cost of power. So on a combined basis, our cost of power for the second quarter was $27. August is typically one of the more challenging months in ERCOT, both with respect to heat and both by extension, the volatility we see in the power market. So, so far, Texas has pretty mild summer. I think that's because we've seen both mild weather and large growths of renewal generation added this year in Texas. So I think you should expect to see a good cost of power for July. And then going into August, we'll see if this mild summer continues or not and what level of curtailment comes from that.

Thanks. That's helpful. And can we also get some color to the sequential increase in cash SG&A and maybe how we should think about that going forward as Corsicana ramps up? Thanks.

Yeah, so the increase in SG&A quarter over quarter really wasn't because of course, it cannot. I think the main figure that we're really proud about this quarter is how our direct cost per Bitcoin net of our power strategy went up only marginally from around 24,000 to 25,000 per Bitcoin, despite the having and despite the increase in difficulty. And the reason for that is we have this low cost of energy. That is what scales linearly when we scale up and these other costs are more consistent with respect to that. The driver for that cash cost increase quarter over quarter was mainly one time advisory fees associated with M&A activity. So we still believe our run rate for G&A is around 25 million. We're having these temporary expenses that could increase that if M&A opportunities are successful going forward. And we've had some M&A advisory fees in the past quarter as well. But those aren't part of our

ongoing cost operations. Great, thanks. Thanks, Joe. Great. Our next call comes from Martin Toner at ATB Capital. Operator. Martin.

Martin, your line has been unmuted. May I request you to unmute your line from your side, please?

Hey, sorry about that, guys. Quick question about miners. Any thoughts on the strategy to secure the miners to get from 70X a hash to 100?

So with our existing micro BT purchase option, Martin, we have the capacity secured to get to that 100X hash. That's if we fully exercise that micro BT option for 266,000 or so M60S miners. Of course, under the contract, we also have the ability to upgrade those miners and with efficiency improvements, that would get to even greater hash rate. Alongside that, we're looking at what all manufacturers are putting out to the market all the time. We're testing what's going on. We're asking questions. We're negotiating. All of Riot's business is always up for grabs and we like the results that we get when manufacturers of any products are competing for our business. We've seen the benefits of that firsthand. So short answer to question, Martin, is the existing micro BT purchase option gives us enough supply to get to the 100X hash, but we're looking at options to go even beyond that.

Super, thank you. I believe of the revenue was disclosed, which was the remnants of the hosting customer. Can you give us a little update on where that stands?

Sure,

let

me turn the question

over to our CFO, Colin Yee.

Thanks, Jason. So, Martin, given the status of our third party hosting contracts management in conjunction with discussions with our auditors, we decided that it'd be more useful information if we could included those third party hosting revenues and hosting costs into others. So you'll see it there with respect to sort of the current status on that, as you know, those contracts are generally in litigation.

So we can't we can't say anything more than that. Okay, great. Thanks very much. That's all for me. Great. Our next call is from Bill P at Stifle.

Yeah, good evening, gentlemen. Thank you for taking my questions and congratulations once again on the recent block mining acquisition. For my first question, I was just hoping you'd be able to share your outlook for Bitcoin mining economics over the near to medium term and how these market dynamics are impacting the M&A pipeline or existing growth patterns. And I think that's a great question. I think the M&A pipeline is a great opportunity to be able to make those critical opportunities obviously right is financially well positioned in this in this current market. Hopefully to get some more color there. Thanks.

Yeah, thank you, Bill, for the question. We've seen Bitcoin mining economics strain more than they ever have been. We over the second quarter, the industry saw a all time low hash price. And even today, we're at forty six dollars per terrasse per day forty five per pet hash per day. So definitely a challenging time for a Bitcoin mining economics. We've had to having the price is not appreciated much since we having but network difficulty has continued to increase. So this is obviously why we focused on having such a low cost of production and focusing on that power strategy. First and foremost, I think this creates a dynamic where it can potentially have M&A opportunities where there are miners who are maybe relying on debt or have some type of financial structure where the M&A pipeline is not as high as it was. These hash prices make them unprofitable. I mean, unable to continue doing business. That is where a more well capitalized player like Riot is able to do to find opportunities. Other things that we can see as miners that in response to these constrained economics need to upgrade their fleets. They have outdated fleets, but they don't have the capital to do it. That is where a partnership with Riot through an acquisition is a big win for both parties. So we're looking closely at any opportunities that come up. Like I said, I'm incredibly proud of the corporate development team that we've assembled at Riot and the detail in which our whole team is able to evaluate transactions on a regular basis. And we are always interested in opportunities to continue to scale our operating footprint.

Awesome. Thank you for that response. Jason, I know your team is super bullish on the Bitcoin space and the outlook here. So I wanted to ask you a bigger picture question. Just based on what we saw transpire at Bitcoin 2024 conference last week, it's evident that the industry is becoming top of mind and has amassed a lot of punching power in the political sphere. You know, Trump, Kennedy, and Lummis all announced some variation of a plan to establish a strategic reserve and to help protect the network hasher in the United States. Just curious if you see a potential convergence down the road between the state and Bitcoin miners. Any color to that?

Yeah, I think that is something that we are already seeing at least overseas. Right. Some of our competitors have entered into partnerships with sovereign wealth funds, which are obviously an extension of the nation state to monetize excess capacity. Where we are to see that in the United States is to be determined. I think we're typically seeing the cheaper energy pricing, the best energy markets where there is not as close of relationship between the government and power generations and the utilities. But our fundamental thesis is Bitcoin mining is the ideal tool to accumulate Bitcoin with a low energy cost. That's your dominant input cost. You can accumulate Bitcoin at a discount to the market price if you're an efficient operator. So if a state had underutilized assets and the ability to do that paired with the desire to accumulate Bitcoin, that seems like a good strategy. Right. I think the United States will be a bit slower to ever get there. I think in other nations, maybe less democratic nations, things are able to move a bit quicker with the governments in place there. But in the long term future, I think we will see Bitcoin mining paired with energy assets in every level of the stack. And of course, that will include a partnership with government in some way.

Awesome. I appreciate the response. Thanks. Our next question comes from Brett Noblock from Cameron Fitzgerald. Operator? Perfect.

Thanks, guys, for taking my question. Maybe another one on M&A. What do you guys look for when evaluating the opportunities that are coming in front of you? Is it location? Is it size? Is it access to power? Is it all of it? To what extent are you, you know, would you prioritize maybe adding additional US assets or international assets where power costs might be more affordable but I guess might be a bit more unstable from a political environment? And how do you guys think about, I guess, evaluating that entire landscape?

Thanks, Brett. Let me turn that question over to Jason Chong, our executive vice president and head of corporate development.

Hey, Brett, thanks for the question. It's an interesting one. So let me tackle that, I guess, part by part. The first part in terms of what we look at when we look at M&A opportunities. First and foremost is power. Power is always top of mind. So what that means is access to power and cost of power. We're in an industry that is cyclical and we try to take a very long-term view on what that means, what the cost of power means for us at different points in the cycle that we know we're going to come. So finding access to large-scale amounts of power at a price that is economically viable is really the top, I guess, top consideration for us when we look at opportunities. When it comes to jurisdictions, you know, entering new markets in the US, what's interesting about the block deal, for example, is, you know, this did represent our first acquisition outside of ERCOD. Obviously, we're very familiar with ERCOD and how the power markets work there, but it seems less familiar with some of these new markets. And with block, as opposed to just acquiring operating assets, you know, we also acquired a team that has built the block business and has local relationships and local expertise in MISO. That was really another key compelling aspect to that particular transaction, which made it more attractive for us to pursue and eventually consummate. So I'd say it's, you know, when it comes to new markets, we obviously want to make sure we've got the right team and the right expertise in place to pursue that as well and to be comfortable operating in an environment that is going to continue to be cyclical going forward. Internationally, we, you know, just given our position in the industry, we do see a lot of opportunities outside of the US as well. I'd like to believe we're one of the first calls that people do make when they want to reach out to the large public miners about new opportunities internationally. The challenge there is kind of similar to even just moving outside new jurisdictions from ERCOD. It's, you know, what's our familiarity and comfort level with moving into that new market? Who are the partners we're talking to? And ultimately, even if it comes with what looks like a lower price on power, do we feel the rewards outweigh the potential risks? And so that's really how we evaluate international opportunities. We're not close to it, but I think the threshold from a risk perspective is higher. And so the reward to offset that would have to be correspondingly higher as well.

Awesome. Thank you. Maybe just one quick follow up on, I don't know if you guys saw like the Cassie auction today in PGM. Is the Kentucky assets within PGM or no?

No, the Kentucky assets are in MISO and in the TVA, Tennessee Valley Authority. So not in PGM.

Okay,

awesome. All right. Thank you guys so

much. Really appreciate it. Thanks, Bill. Great. Our next question is from Mike Grundel at Northland Securities. Operator? Hey, thanks guys. And just to follow up

on the Kentucky acquisition, what do you guys see as the operational challenges there? You know, it's pretty small today, but the growth looks pretty significant. What do you

see as those operational challenges? Let me turn that question back over to Jason Chung. Thanks, Jason.

You know, right now the block mining team operates about one X of hash of self-mining capacity. We want to get that up to the 15.8 end of next year target. And I think, you know, one of the one of the benefits, one of the strategic benefits to this deal on both sides is really what we're tying is this huge opportunity for the team, you know, the availability of expansion capacity tied with Riott's strong balance sheet and the availability of capital that we have to contribute to that. So I think in the near term, the focus is really going to be on building out on the existing opportunities to expand and also to take advantage of getting access to more power through new PPAs. You know, they bring the relationships on the ground and we bring the capital and capabilities to help make those happen. So from that perspective, you know, I think there's really interesting marriage of the two companies there, but it's really going to come down to just building out and taking advantage of the expansion opportunities that we have on the ground.

Fair enough. Hey, thank you. Great. Our next question comes from Michael Nessie

from HC Wainwright. Operator?

Hey, good afternoon, guys. And congratulations. So with all the progress, of course, in Canada, that's a lot of hash rate in a short amount of time. So it's so great to see that. First one for me. Do you guys plan to deploy air-cooled or immersion infrastructure as you build out and convert block mining's pipeline of opportunities over the near to longer term here in Kentucky? And if you could just share what you're seeing in the market today as relates to the cost per megawatt to build air-cooled versus immersion. We've been hearing talks of immersion really starting to come down on a price per megawatt basis. So you guys are experts in space. Wanted to get your thoughts there.

Sure. So at Kentucky, Mike, we are going to be building a mix of both air-cooled and immersion. Currently, all of their operations are air-cooled. We believe, though, that immersion will likely be in play for expansion. But I don't think we would be looking to retrofit any of the existing air-cooled operations, at least in the near term. I think they've shown very strong operating results with their air-cooled assets. If you look at the cost per megawatt, like many things I think you see in this sector, it depends on what you're including into that cost. And you may recall at our Corsicana investor day, in our deck there, we had a breakdown of the cost per megawatt and things that are included in there. So when we look at building out something like, for example, Corsicana, what we include in that is the substation expansion that's needed because at that large capacity, we want to own that own substation, have the advantages that we get from that. Other operators, if they're building out on a smaller scale and not needing to build a substation, then they're instead leasing access to capacity, which reduces your upfront costs but has its own risk, like anytime you're leasing versus buying and owning, then you're going to have a lower capex cost. As far as immersion goes, I think that there are more and more players entering the space. Some of the equipment, there's a bunch of equipment that goes into it. So, you know, maybe you may be getting a better price, for example, on a dry cooler, but maybe a tank is more expensive or maybe the fluid is getting cheaper, but pump equipment is more expensive. So there's a there's a bunch of equipment there. I don't think that we've seen too significant of a change in that market yet, but we're still in the process of getting goods and determining what we will put together for a phase two expansion at Corsicana. So it's kind of to be determined what that final pricing will look like. And then after going through that exercise, we'll have a better answer to your question.

Got it. Got it. Appreciate the color there. And how do you plan to integrate the management team from block mining into Riot? And what are some of the noteworthy resources skills that this broader team really brings to the company? I know you highlighted boots on the ground, local relationships with MISO, but any other notable skill sets or resources that this team could bring on board?

Yeah, the block mining team has done an excellent job building that capacity very quickly and showing strong operational uptime. So they've demonstrated they are excellent Bitcoin miners from the development and operating standpoint. And that is very advantageous to us. So you couple that with the event with their local relationships and capacity that they've been able to secure for growth. And they can be out in Kentucky doing what they've already done, being good at what they do and growing the capacity out there. So they really fit into Riot basically as our Kentucky division. We have, of course, the core of our operations here in Texas. And then now we have this Kentucky arm operating base as well.

And what's great

is all of these teams can work together to share knowledge. Bitcoin mining is a game of accumulating knowledge over time. There is no book on how to do this. So everyone can share what they've learned works and what doesn't and make all teams better at what they do. So we are very happy to have block mining on board. No longer block mining. Now Riot Kentucky.

Great. That's all for me. Thanks, Jason.

Great. We've got one more question from John Todoro and Needham and Company.

Operator. Hey, guys. Thanks for taking my question and congrats on the hash growth here. Two for you. One, do you see a world where the HPC AI stuff starts to become a competitive pressure to Bitcoin mining? You hear that even Texas might be suitable for those sites. So do you see a world longer term or maybe Bitcoin mining is pushed outside the US or the other even more remote locations? That's first question. And then second question, just wondering if you do diligence, Jack Dorsey's new mining rigs. They did that big deal with Core Scientific. Just wondering if you have any thoughts on that chip and in that risk?

Sure. Thanks for the question. So starting backwards, I'll tell you, we are speaking with all manufacturers and evaluating things on an ongoing basis. You have a great team here. I won't comment on specifically anyone's products while discussions are ongoing. So I know Block has invested a lot in achieving this goal. It'll be very interesting to see how they progress. So we talked to them as we've talked to others, but don't want to give any direct commentary on anything that's not necessarily public at this time. As far as competition with AI HPC. Yes, I do think Bitcoin miners will be competing with AI HPC for access to power. I think Bitcoin miners are a bit easier for the grid to get comfortable with than AI HPC because of the flexible nature of our operations. So I think it is a little bit easier. Bitcoin miners have an advantage there and getting approved for capacity. Given that Bitcoin mining is our core focus, if more capacity is being used for AI HPC or other miners are diverting their capacity to AI HPC instead of Bitcoin mining, that means the network hashrate and that's Bitcoin mining difficulty is growing

slower. And that's good for us. There's less competition. Great. Thanks, guys. Appreciate it. Thank you. Okay, at this time, there's

no further questions. We thank everybody for joining Riot on our second quarter earnings call and we look forward to updating you on our progress

in November. Thank you. Thank you. This concludes today's

teleconference. You may now disconnect your lines at this time. Thank you for your participation.