Riot Platforms, Inc.

Good day and thank you for standing by. Welcome to Riot Platform's third quarter 2024 earnings conference call. Please note that all participants have been placed in listen only mode until the question and answer session begins following the company's presentation of its prepared remarks. Please also be advised that today's call is being recorded. I would now like to hand the conference call over to Phil McPherson, Vice President of Capital Markets and Investor Relations at Riot Platforms. Please go ahead.

Thank you, Liz. Good afternoon and welcome to Riot Platform's third quarter 2024 earnings conference call. My name is Phil McPherson, Vice President of Capital Markets and Investor Relations 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 third quarter 2024 earnings press release and accompanying earnings presentation, which are intended to supplement today's prepared remarks and which include a 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 third quarter performance. During today's call, we will 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 the risk factors section of our form 10K and form 10Q including for the quarter ended September 30th, 2024, which will be filed later today as well as other filings with the Securities and Exchange Commission. With that, I will 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 developing and owning operations of significant scale, being a low cost producer of Bitcoin and building a balance sheet of strength. During the third quarter of 2024, we continue to demonstrate success at all three of these pillars. Riot increased total deployed hashrate quarter over quarter by 27% from 22X a hash to 28X a hash, meeting our quarter end target of 28X a hash and on track to reach 35X a hash by the end of the year. The third quarter of 2024 was the first full operational quarter of Bitcoin production 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 hashrate grew by 40%, I'm sorry, 4% quarter over quarter. Both of these events created bearish headwinds for Bitcoin miners in relation to the cost to mine. Despite these events, Riot's cost to mine in the third quarter aided by our unique power strategy among the lowest cost miners in our industry and was significantly below the average price per Bitcoin during the quarter. We generated 12.4 million in power credits during the quarter, lowering our all in cost of power to 3.1 cents per kilowatt hour during the third quarter, while also supporting the Texas grid during times of disruption in supply and demand. During the third quarter, Riot also continued to address challenges regarding our operational hashrate. While we are always focused on continued growth, our primary focus at this time is on improving this metric and reaching a standard of operational excellence. During the quarter, we completed the redeployment of a large portion of the underperforming miners at our Rock Hill facility with a nameplate capacity of 3.33 exa-hash and the subsequent installation of latest generation miners with a nameplate capacity of 3.66 exa-hash from May through September. This focus on improving operational efficiency is already beginning to show results and we are pleased to report that through October 29th, Riot's Bitcoin production for the month was approximately 469 Bitcoins. Average operating hashrate through this period was approximately 23 exa-hash. And when excluding the first two days of the month when our Corsicania facility was powered down for substation maintenance, average operating hashrate was approximately 24 exa-hash, representing an over 80% company-wide average utilization rate. These are just initial and preliminary results from our focus on achieving operational excellence. And we believe that with the initiatives underway across all of our sites, we are strongly positioned to continue building on this positive momentum. 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 third quarter of 2024. For ease of reference and something you can always refer back to, is slide five. This presents a snapshot of key financial and operating metrics for the third quarter of 2024. However,

let's jump into the details on the following slides. 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 third quarter. In addition, Riot continues to add hashrate at our Corsacana 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 development of our Corsacana facility and ongoing development at our Rockdale facility, Riot ended the third quarter with an installed hashrate of 28x a hash, a 159% increase relative to the third quarter of 2023 and meeting our guidance for the quarter. During this quarter, Riot mined 1,104 Bitcoin in line with the 1,106 Bitcoin we mined during the third quarter of 2023. These results came about in spite of the Bitcoin block subsidy halving event, which occurred in April 2024, and the significant increase in the Bitcoin network difficulty, which increased by 59% from the third quarter of 2023. In spite of these events and driven by the significant growth in our hashrate 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 not withstanding. Riot ended the third quarter of 2024 with 10,427 Bitcoin, an increase of 42% relative to the 7,327 Bitcoin that we held at the end of the third quarter of 2023. Riot continued to retain 100%

of all Bitcoin produced in the third quarter. In the third quarter of 2024, Riot reported total

revenue of 84.8 million as compared to 51.9 million for the third quarter of 2023, a 65% increase year over year. This increase was primarily driven by higher Bitcoin prices. Gross profit for the quarter was 24.3 million as compared to gross profit of 37.7 million in the third quarter of 2023. Non-GAAP adjusted EBITDA for the quarter with a loss of 3.6 million as compared to non-GAAP adjusted EBITDA loss of 3.1 million in the third quarter of 2023. Riot adopted FASB's final standard on crypto assets issued in December 2023, under which Riot now recognizes its Bitcoin held at fair value. And with it, changes in fair value are now recognized in income. As a reference, the Bitcoin price at the end of the second quarter in 2024 was $62,678, and the price at the end of the third quarter was $63,330. This resulted in a -to-market upward adjustment of 8.6 million in the third quarter. Net loss for the quarter was 154.4 million or 54 cents per share compared to net loss of 80 million or 44 cents per share for the same period in 2023. This quarter's net loss includes non-cash stock-based compensation expense of 30.6 million, unrealized loss of marketable equity securities of 38.1 million, and depreciation and amortization of 60 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 our own operational history. For the third quarter of 2024,

Bitcoin mining revenue totaled 67.5 million, a 116% increase relative to third quarter 2023 Bitcoin mining revenue of 31.2 million. Bitcoin mining cost of revenue primarily consists of direct production cost of Bitcoin mining operations, including electricity, labor, and insurance, but excluding depreciation and amortization. Bitcoin mining gross profit for the quarter was 28.4 million, representing a margin of 42% as compared to 56.4 million or a margin of 181% in

the third quarter 2023. In spite of the global network hash rate increasing

from an average of 604x hash in the second quarter 2024 to 625x hash in the third quarter, a 4% increase, and the Bitcoin having event in April 2024, Riot's cost of mining Bitcoin in the third quarter increased by only 40% on a per Bitcoin basis when compared to the previous quarter. Cost to mine, excluding depreciation, this quarter totaled $35,376 per Bitcoin, of which power costs amounted to $26,673 per Bitcoin or 75% of the total cost per Bitcoin. Quarter over quarter, power costs increased from 2.7 cents a kilowatt hour to 3.1 cents a kilowatt hour as a greater portion of power was procured at the Corsicana facility at spot market rates, with proportionately fewer offsetting power credits than the previous quarter. We remain pleased with achieving an all-in cost of power of 3.1 cents a kilowatt hour, which remains one of the lowest in the industry. 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 $8,703 or 25% per Bitcoin mined. Down from the second quarter of 2024 when direct non-power costs accounted for 41% of total costs. This significant drop is a result of RY continuing to achieve economies of scale at our operating facilities. As RY continues to grow hashrate, we expect to see non-power direct costs as a percentage of total cost per Bitcoin to

trend lower. RY's engineering business carried out through RY's

wholly owned subsidiary, ESF Metron, reported revenue of 12.6 million in the third quarter of 2024 as compared to 15.5 million for the same three month period in 2023, a decrease of 2.9 million. This decrease was primarily attributable to one large government contract that had taken longer than anticipated to complete due to supply chain constraints. This resulted in an engineering gross loss for the quarter of 0.9 million as compared to gross profit of 2.3 million for the third quarter of 2023. Our custom electrical products such as switchgear and power distribution centers are important components in data center development and in power generation and distribution facilities. And 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. At the end of the third quarter, this large government contract finally shipped, freeing up approximately one third of our warehouse capacity and allowing this division to get back to work on higher margin contracts. RY's cash SG&A expense for the third quarter was 36.4 million. This cash SG&A expense figure includes one-time M&A and one-time litigation related expenses of 4 million and 4.9 million respectively, which puts our run rate cash SG&A for the third quarter at 27.5 million, in line with our previous guidance of 25 to 27 million per quarter, particularly when factoring in additional costs from Kentucky, which added a little over 700,000 in additional general business and compensation expenses in the third quarter. For the fourth quarter of 2024, we expect run rate cash SG&A to come out in the 27 million to 30 million range. M&A and legal expenses are challenging to forecast, but based on current litigation activity levels, we anticipate litigation expenses in the fourth quarter will be significantly elevated relative to the third quarter. I will now turn the call back over to Jason Less.

Thank you, Colin. With RYOT's recent expansion into Kentucky, we now have a direct pathway to two gigawatts of total power capacity and are well on our way to securing enough capacity to achieve our growth target of 100 -a-hash of self-mining hashrate. The pipeline that will ultimately enable this growth consists of 700 megawatts of capacity at our Rockdale facility, one gigawatt of capacity at our Corsicana facility and more than 300 megawatts in Kentucky. Today, we are pleased to announce we have initiated the full second phase development of the Corsicana facility, which will add 600 megawatts of capacity when complete and take the site to one gigawatt of capacity. We have placed orders for the long-distance substation equipment and expect the development to be fully completed in 2026. RYOT has long strived to provide clear guidance on our growth plans 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 path to achieve our growth plans is a vital element in demonstrating the credibility of any Bitcoin miners growth forecast. Through our vertically integrated strategy, we have developed multiple pipelines of organic growth opportunities available for us to pursue. These expansion opportunities are at various stages of development and can be prioritized or pushed back based on our assessment of the optimal distribution of resources for our portfolio of infrastructure at any given time. Going forward, we intend to present our growth targets on a more conservative basis, based on a higher degree of confidence and internal prioritization level relative to our prior methodology. We believe that this approach will position us to more confidently meet and exceed expectations. Therefore, and with this revised approach in mind, we are revising our hash rate growth forecast for 2024 and 2025. For 2024, we now estimate a year-end installed hash rate of 35 X to hash, down slightly from our prior guidance of 36 X to hash. This adjustment is primarily driven by a 1.8 X to hash decrease in expected hash rate growth in Kentucky, which is being pushed back into 2025, offset by a 1.1 X to hash increase in expected hash rate growth at our Rockville facility, resulting from initiatives underway to improve our operational efficiency. More specifically, we have accelerated and converted our micro BT purchase orders for 2025 into 2024 with the planned delivery of approximately eight X to hash of M60 miners in the fourth quarter of this year. Since our large-scale deployment of micro BT M60 miners this summer at Rockville, we have seen significant improvement in operating uptime. In fact, one of our buildings, entirely utilizing only M60 miners, operated at over 95% uptime, even during the hottest periods of the summer, excluding only periods of power strategy related to procurement. These new miners, to be delivered, will replace all of the older generation machines with two of our air-cooled buildings, which will be redeployed across other locations, thus increasing the Rockville facility's total hash rate to 16 X to hash and further improving our fleet-wide efficiency to 21.4 joules per terahash by the year end. Closing out 2024, we remain on track to fully complete the first 400 megawatt phase of our Corsicana facility by year end. All critical equipment has been deployed and we are in the process of commissioning the final systems of this development. For 2025, we are lowering our year end exit hash rate forecast from 56 X to hash to 46.7 X to hash. We are taking a more cautious approach relative to prior guidance, driven by longer lead times on substation equipment for Corsicana, as a result of which we now expect two buildings to come online in 2025 versus our previous expectation of three buildings. This change accounts for approximately four X to hash of the lower guidance. Additionally, we are pushing out some of the expected Kentucky expansion for 2025 into 2026 and 2027. We now expect the initial phase of the Coleman Road facility to come online into 2026, with subsequent phases coming online in the following year. This change will result in approximately 8.8 X to hash of 2025 growth now being pushed out into 2026 and 2027. In 2023, Riot made the strategic decision to enter a long-term purchase agreement with Micro VT, with an option to purchase an additional 75 X to hash with a price ceiling of $16.40 per carahash. During 2024, we have received and deployed a majority of the miners from our initial purchase orders and have been extremely pleased with the results of both the purpose-built immersion models at Corsicana and air-cooled models at Rockdale. We have seen a significant improvement in operating uptime with these machines, and we are leveraging what we have learned to improve operations across all our facilities. With the most recent deployment, Riot's fleet efficiency now stands at 23 joules per carahash. To date, our orders for new miners from Micro VT have been received at or ahead of schedule, as we have now received approximately 90,000 miners with the vast majority already deployed. As additional newest generation miners from Micro VT are received and deployed, Riot's total fleet efficiency is expected to improve to 20.3 joules per

carahash in 2025. Riot's balance sheet strength

enables us to commit to growth investments that will allow us to achieve a hashrate growth target for 2025 of 46.7 X to hash. We now anticipate capex spending of approximately 663 million over the next five quarters to the end of 2025, reduced from our prior guidance of 713 million based on our latest growth forecast. It is important to note that some of our capex spend in 2025 will also be setting the foundation for future growth in 2026 and beyond. As an example, approximately 50 million of additional Corsicanic capex in 2025 is for our 600 megawatt substation, which will ensure that we can provide sufficient power to future developments on site. Maintaining a strong liquidity position allows Riot to continue to make long-term decisions that will

yield results well into the future. Riot's vision is

to be the world's leading Bitcoin-driven infrastructure platform. In achieving this vision, we are in the process of completing a 181% increase in deployed hashrate in 2024, positioning us to mine more Bitcoin per day in -it-housing than we were prior. We also continue to realize one of the industry's lowest cost to mine at $35,376 per Bitcoin during the quarter. In working towards our vision, our objective is to leverage our cost advantages and efficiencies over a growing scale into the coming years. Over the past few quarters, the demand for power assets by both Bitcoin miners and now AI HPC companies has grown significantly. There is a notable sense of urgency for power access in 2025, with AI HPC companies willing to pay a premium for timely access at attractive sites. Longer term, we continue to see a robust pipeline of energy assets available to us. We remain highly active in continuing to evaluate opportunities to enhance our pipeline of power capacity well into the future. Riot will continue to monitor industry trends and make decisions that provide the greatest benefit to our shareholders, while also staying focused on our long-term goal of reaching 100X a hash in total self-mining hashrate. We are incredibly excited about what Riot is accomplishing this year, and we look forward to executing on our stated goals and reporting to you on our progress and success. Thank you all for listening to our presentation. We would now like to open the call for questions. Operator.

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Mike Kolanese with HCWayne Wright.

Hey, good afternoon, guys, and congratulations on all the hashrate expansion over the past couple quarters. We're really good to see. First one for me, maybe Jason, you're pointing this out a bit on the call here, but just evaluating the numbers for September, obviously there's been a pretty big delta between Riot's deployed hashrate and average operating hashrate in recent years. So, you've been working on this for several months, and I can appreciate that you're rapidly energizing new miners and actively curtailing over the summer months. But going forward, how should investors really think about Riot's utilization rate?

So, as we talked about in the prepared remarks here, we are super focused on achieving operational excellence. To us, this means large scale operations running in a safe and compliant manner at a high uptime. Currently, we're aiming to achieve greater than 95% average utilization of deployed hashrate, not as excluding periods of curtailment related to power strategy. Of course, as you touched on Mike, this is not an overnight fix, but we have been very, very pleased with the rapid improvements that we've been seeing. So, previously, Riot was reporting hashrate utilization in the month in the 60 to 70% range, and now for the most recent month, we're over 80%. We believe with the continued growth at Rockdale, I'm sorry, the continued growth at Corsicana, where we're very pleased with the new systems and how they're operating in there, combined with the ongoing work at Rockdale that we touched on where we're installing new M61s there, that this utilization is gonna continue to improve to the end of the year, and we're gonna enter 2025 very strong. So, not an overnight fix, but our goal is to get to greater than 95% average utilization of time.

That's great, that's great. And next one for me, obviously, you guys have tremendous organic growth opportunities through Corsicana over the next couple of years here, but I'm just curious, your appetite for additional M&A here, if you could just speak to what you're seeing in the market right now for deals on both the private and public side.

Sure, let me turn that question over to Jason Chung.

Hey, Mike, thanks for the question. Just to address that point, I think we continue to see a very robust flow of deal opportunities, both on the public and private side, but I would say in particular on the private side as it comes to private miners. I believe the challenging hash price conditions both having alongside a lack of access to capital and a general need to upgrade agent fleets appears to be driving greater capitulation among some of the private miners in particular. So, we're very active in exploring all the opportunities. Given our position in the industry, we're one of the natural bidders and usually one of the first calls to see opportunities. Got a large corporate development team that's very active in exploring these. I think overall, we continue to be very disciplined in how we think about when is the right time to pursue additional deals beyond the

one that we announced earlier. Great, thank you for taking my questions.

Our next question comes from the line of Darren Aptayi with Roth.

Hey guys, thanks for taking my questions. First one, Jason, your comments about improved utilization, outside of just the M60 new machines, is there anything from a logistical best practice that you're doing that's improving utilization or is it just the exclusive machine performance?

Yeah, Darren, there's a huge number of projects that we've had underway to improve this utilization. Now, of course, we're pleased with the results that we're seeing from these miners, but there's a whole host of things that we've been implementing and are continuing to implement. We're improving our electrical infrastructure, we're making tweaks to how our cooling works, we're improving our on the ground organization around minor repair and support. We have ramped up our analytics in software capability, we're monitoring our operations on a very detailed level now and it's allowing us to respond to things quicker and address things quicker. You put a lot of expertise at play here in order to improve with this metric. So the new miners certainly help, that's a big part of it, but there are tens, if not a hundred projects that have been underway over the course of 2024 in order to really focus on getting right to the state of operational excellence, getting to 2025 operating very strong.

Got it. And then I guess I'd be remiss if not asking this question as who somebody else will. You know, as it pertains to Corsicana and the additional 600 megawatts, I mean, as it stands today, are you still exclusively thinking that's all gonna be spoken for in terms of Bitcoin mining or do you have other aspirations to use that powerful portfolio?

Thanks. Yeah, so we're building 600 megawatts of capacity, of course that starts with the substation, so that's creating the energy that can be used for multiple uses. Right now, our plans are for that to be used with Bitcoin, for that to be used for Bitcoin mining. We are open to opportunities to allocate that capacity in another way that's best for shareholders, that's just better economics. So we've alluded to earlier several weeks ago the gun receiving some interest in capacity, particularly capacity that could be available in 2025. And these discussions are preliminary, but they're ongoing. So if there's a good opportunity to make a good deal for power, we are gonna pursue that. But as of right now, the course is expanding Bitcoin

mining hash rate. Great, thanks for the insight. Our next question comes from a line of Greg Lewis with BTIG. Greg, your line may be on mute. Maybe we'll move on to the next one, operator, and you can read Q&A.

Our next question comes from Paul Golding with Macquarie.

Thanks so much, and congrats on the hash rate growth. Just wanted to ask a couple of questions here. One housekeeping question on the substation maintenance that you called out at the beginning of the month. Is that something that was driven by the utility, and it's factored into your 12 million in demand response credits, or is that something that didn't factor into financials? I'm

sorry to interrupt you, please. No, no, that was my follow-up son related, so go ahead. Okay, it was purely engineering. It wasn't a demand response kind of action. It was planned, it was scheduled, our internal teams at Riot handled it.

Go ahead, thanks, Jason. And then I wanted to ask you, you talked specifically about ESS Metron and the capacity of that subsidiary being utilized on government contracts. How do you think more broadly about ESS Metron utilization on third-party deals versus the vertically integrated infrastructure as you build out your capacity? Is there a marginal benefit to one or the other? How are you thinking about that, holistically?

So Riot is actually a fairly small customer out of ESS Metron. As you can imagine, there's so much interest for their equipment right now, building out other types of data centers, generation applications, et cetera. So it is not too much of a give or take decision that they have to make. We don't have to impede their ability to pursue all the other jobs that they have queued up there. They're really valuable, though, for us getting visibility in the supply chain, reducing our cost to build. And when we do have to make quick modifications, technology's changing, we're pivoting how we're deploying something, ESS Metron can work with us very quickly, probably a lot more flexible than they would be with third-party customers because it's all in the family together. So with that government contract now being shipped out at the end of the third quarter, this has freed up significant manufacturing capacity for this engineering division. That's great because they can get back on track towards prior revenue and gross margin levels. In this industry, the fourth quarter is typically slower for engineering division results, but with this new capacity that's now available, we are going to begin working on higher market contracts that we'll start seeing booked and worked on in the first quarter of 2025. Okay.

Got it, thanks. And if I could just sneak one quick one in here at the end, anything specific to call out as a key driver of the Kentucky timeline adjustment for the, I believe it's 1.8 X to hash you noted? Thanks.

Yeah, so all of the planned pipelines for growth in Kentucky remain intact. So nothing's being canceled. We're really just moving around. I touched on right at the portfolio of assets and we're optimizing that portfolio based on what makes the most sense with the full landscape in front of us. The only reason that that growth in Kentucky has been pushed out was so we can spend some extra time in order to maximize the power capacity that we get while also ensuring that we're getting the best possible economics. So in this short, it's simply a matter of prioritizing quality and book

history. Got it, thanks so much.

Thank you, Paul. Thank you. Our next question will come from Joe Flynn from Compass Point and Research and Trading. Your line is open.

Hi guys, thanks for the question. I was hoping you could provide more details into the continued increases in SG&A which you attributed one time items, but it looks like that's spilling over into the fourth quarter. And I guess on the litigation front, what is the status of litigation with the hosting counterparties as that continues to be a gross profit drag on the business? Thanks.

Yeah, thanks Joe. So I'll start backwards. So I can't provide any updates on the litigation. We can't really comment on litigation, but these cases are still ongoing. We have been speaking to the cash G&A, we have been extremely active in M&A during 2024. And so we see in our financials, the closing of the acquisition of block mining resulted in 3 million in expenses being expensed under that acquisition related cost bucket. And for M&A deals that have not closed, such as activities related to our engagement with BitFarms, for the BitFarms example, of course, we incurred approximately 4 million in one time costs. And those are classified on our financials under G&A. As you noted, we're also at elevated expenses due to ongoing litigation. This is with the legacy hosting customers that we inherited from the Wingstone acquisition in 2021. Now, what we think is important here is that on a run rate basis, when you remove one time M&A and litigation related expenses for the quarter, our cash &G&A came in at 26 and a half million, which is in line with our previous guidance and noting this includes 700,000 in cash &G&A costs in business and compensation expenses as a result of the Kentucky acquisition and folding those operations in. So yes, we do expect litigation costs to be elevated in the fourth quarter, unfortunately, but these are temporary in nature. They're not relative to the run rate of operating our business on an ongoing level. So they're ones we unfortunately have to incur right now. And we're looking forward to

having behind us when it's

included. Thanks. And to piggyback off the earlier question, it sounded like we would be open to all options regarding the 600 megawatt substation. Just curious if you've started conversations even if early with potential HPC counterparties and or if going forward and building that but could set 600 megawatt substation, could that lead to increased activity? Thanks.

Our belief is more power capacity is more optionality and the explosion of demand with AI HPC only makes that optionality more valuable. So like I noted earlier, these discussions are still preliminary, but they are ongoing. We're trying to see if there's a good deal that can be struck here to monetize this capacity that's an improvement over Bitcoin mining. If that reaches a conclusion, then we'll certainly update the market. But we are encouraged

by the fact that we've seen interest from multiple parties.

All right, thanks. That's all for me.

Our next question comes from Bill Papanastasio with Steevil.

Yeah, good evening, gentlemen. Thanks for taking my questions. For the first one, I just wanna touch on ESS Metron. Curious whether you're able to quantify this demanding growth in recent quarters from the AI HPC space. Can you share some color on how scalable ESS Metron is today? And its ability to satisfy this growth in demand,

thanks. I would say for these type of services, there is a lot of demand. ESS is limited by the size of that facility and the workers and the equipment, but mainly the size of the facility available for manufacturing there. And there are interest in jobs that they will accept delivery times way far out just to get on the line for equipment at this point. So while there's a lot of demand for immediate growth, there are many companies planning for growth many years into the future, and they just wanna get in line right now for when that capacity increases. I don't have a forecast for you how we can increase that capacity right now. Obviously, that is something that we think about in order to fully capture this opportunity available. And unfortunately, I don't have a number for you to quantify what the demand is, but I can tell you it's a very robust demand. And the limiting factor for us is really just the size of that facility and how much equipment we can fit on that factory floor basically. So we're looking at opportunities to increase that capacity because that would enable us to

increase the revenue profile of that business.

That's great, thank you, that's helpful. And then for the second one, following the settlement agreement with BID Farms, just curious how management is thinking today about its activist stake and the playbook. My understanding is that the settlement agreement did preclude you from making another attempt at going at BID Farms, and I'm curious on your thoughts there.

Yeah, that's correct, Bill. So, I mean, first and foremost, as a large shareholder of BID Farms, we clearly want them to succeed. We believe as a result of our engagement with BID Farms, a number of positive corporate governance changes have been made, and today BID Farms is a much different company than it was at the start of this year. We think this is a change that benefits all shareholders and will help BID Farms to be successful. We now have entered into the settlement agreement. There are no other attempts at corporate governance changes that could even possibly be made for some time. So with respect to our current position, we're gonna continue to evaluate that, and we're gonna determine what we believe will be the best use of our capital. We haven't made any final decisions on what our longer term plans are here. A lot of this is really gonna be driven by a number of factors, such as BID Farms' own strategic development and execution, as well as Riot's strategic development execution, as well as all the sector

and market dynamics at play.

Thanks, Jason. Really appreciate the caller there.

Our next question comes from Greg Lewis with BTIG.

Hey, good. Can you hear me? Good. Hello? Hey, Greg. Yep, I hear you. Okay, well, thank you. Definitely technical difficulties out there. Hey, guys, I was hoping you could talk about, clearly, your high level, build that, of course, again. Just kind of curious, is there land and the possibility to kind of, and I guess this goes for Rockdale as well, is there any potential possibility over the next few years to expand those sites to make them bigger in terms of power capacity if you were to go through the necessary filings with ERCOT?

Thanks for the question, Greg. With what we've built out in Texas, I don't only mean the operational base we've built out, but the relationships we've built out, what we've learned, everything in place as a result of building these two huge sites, we feel we have a really good advantage in being able to pursue greenfield opportunities and get additional capacity in Texas, whether it's near our current sites or elsewhere in Texas. These are things we're working on on a regular basis. One of the things that's happening is a pipeline of immediate growth at a place like Corsicana affords us is the ability to work and think longer term. So we're able to have our operations team developing Corsicana up to its full one gigawatt, and meanwhile, we're working on all these other opportunities or projects in the background that could either come in the immediate future years, 2025, 2026, or even beyond that. So I don't have any other detail that I can update for you with right now. We're always looking to create more optionality for us and increase our power capacity, and we're doing that with both potential organic growth opportunities and M&A opportunities as well.

Okay, super helpful. And then on the delays, the Corsicana seems pretty straightforward. There's the Transformers just gonna show up later. Any kind of color around Kentucky, and it sounds like we're gonna be more conservative with the guidance going forward around that, but any kind of contact you can give us around what may be some of the delays that are kind of leaked in Kentucky?

Yeah, so I'll give you two pieces of color on that, Greg. The biggest reason is that, well, first off, all the growth pipelines remain intact in Kentucky. The main reason that these growth timelines were pushed out is because there's an opportunity to spend some extra time in order to maximize the power capacity that we're getting out of these, and also helping us get the best possible economics. So we kind of made the decision of prioritizing getting the most out of these as opposed to prioritizing getting them as quickly as possible. There's also an element of that for us on the design opportunity. We found some ways that we felt we could build better operations for cheaper, actually, but some equipment would take a little bit longer of a time, ironically. So with all the capacity growth we have, we did appeal an urgency to try and cut off opportunities or options for us by trying to make Kentucky grow as quickly as possible. We'll focus on the high-value growth opportunities we have elsewhere, and then we're flushing those

out so those are very solid in the future years to come.

Okay, perfect, super helpful. Thanks, Jason. Thank you, Greg.

Our next question comes from Brett Knobloch with Cantor Fitzgerald.

Hi, guys, thanks for taking my question. Maybe the first one, it seems like they're definitely quite a pickup in urgency to add or expand your power infrastructure at passive. Are you guys dealing with that urgency for the committee to go out and refine additional sites, whether it be outside of tech groups, in addition to the lockdown, what's the time or what do you have to do at that?

Sorry, it was very difficult to hear. Were you talking about how to make the most of the power hedges? Did I hear you quickly?

No, just looking for additional sites outside of the ones that you guys have, maybe outside of tech groups. Oh, okay. Increase the urgency on your guys then.

I wouldn't say there's necessarily an increase in urgency. It's kind of in our DNA to try and procure as many high-value power assets as possible. And this is work that goes back as far as four years ago at the end of 2020, the end of 2020, the Bitcoin's 12, 14,000 and ORIOT, we felt extreme amount of urgency in being able to develop a vertically integrated platform to start layering in different power assets. So I wouldn't say there's an urgency because we are very disciplined in our process. We're not looking to bring in power assets just for the sake of capacity. We go through an incredible amount of diligence to make sure the opportunities that come across our desk are ones that we actually want to pursue and have long-term value. So, in short, the pipeline of growth that we've developed at Core Sikana, Rofty, and Kentucky means we are not dependent on M&A to achieve significant hashrate growth. We have a two gigawatt pipeline and we've only developed about half of that so far. So we are patiently evaluating opportunities to continue and bolster that pipeline in the future years to come.

Perfect, thank you. Maybe just one more. I know it's kind of been asked a couple ways on the AI. Basically, we see optionality that's maybe embedded at Core Sikana. Recording, I assume, the customer interest. Have you guys been going out into marketing to that site for that optionality or have customers been coming to you to express interest?

Thank you. We have not had a marketing or sales process. We have been receiving inbounds. Obviously, something we've touched on before is in these types of deals, the counterparty quality is incredibly important. So we've been having discussions with those counterparties that we believe are blue chip and have the capital and credibility to bolster long-term agreements. And I think Riot's reputation and our image of having so much power capacity is what's resulting in us getting these unsolicited offers for really significant amounts of power capacity. The interest that we're seeing is for hundreds of megawatts,

not necessarily smaller amounts. Thanks very much, appreciate it. That's it for today.

Thanks, Rob.

Our next question comes from Mike Grendel with Northland Capital Markets.

Hey, guys, this is Owen on for Mike. Just super quickly for me, can you provide some more color on the power curtailment strategy? And is it safe to assume the reasoning for the decline in power curtailment revenue on a year over year basis is mostly due to later demand?

Good question. So the power strategy has a few main components. One, for our power that's unhedged, we simply want to curtail when power on the spot market is above our breakeven levels. And what's great about Texas, the abundance of energy there, we are really able to achieve a very good cost of power, only curtailing a few percentage of the year. In fact, we back tested the breakeven price for an M66S minor and back tested over 2023 energy prices in Texas and a weaker tail three, 4% of the time, we're able to get a $31 per megawatt hour all in cost of power. Now, those three to 4% hours is where we're able to earn credits with our hedge power. In 2023, there was a lot of volatility in the summer months and we were able to earn quite a bit of power credit. So even with the same volume of hedges in 2024, we did not see that same level of volatility. So we did not earn the same level of power credits. Now that feeds into our strategy though, because the lack of volatility meant that there were lower prices that we were able to procure at the course of Canada, now using more power than Rockdale at the spot level. We're always going to be involved in trying to demonstrate the value of Bitcoin mining. That means helping provide grid stability, helping improve the financial profile of generator assets, being a large flexible load that responds to events on the grid. And that either comes in the form of saving on power costs, not paying high prices and shutting off our load during those time periods, or being able to monetize the financial commitment that we made with the hedge during those periods as well. So we have a whole team dedicated to our power strategy that's always looking at opportunities. We believe the forward curve has been relatively elevated relative to the market prices of power that we're seeing. There was a lot of fear of volatility going into summer 2024, and that volatility is not materialized. Real abundance of solar was able to fill in the gap that caused volatile prices in the future. So I know I covered a lot there. The short of it is we are always trying to figure out ways that demonstrate the benefit of Bitcoin mining, and also that improves our cost of power, improves our economics.

Great, that was really helpful. Thank you.

Our next question comes from Brian Beaton with Needham.

Great, thanks guys. Just a couple of questions from our side. So just a follow up to the last couple. What would you guys need to see to get into HPC? Is it simply a Bitcoin cycle dynamic, or the right customer coming around? If you could pick between the two. And then separately, just on the timeline delays, for the electrical equipment delays, what's the latest on timelines for getting some of those long lead time items going?

So your first question, what would we need to see to get into AI HPC? One of the components you nailed is a strong blue chip counterparty. This would be a significant amount of development, repurpose of assets going down a direction. It's not very easy to U-turn from. So we really wanna be sure we're working with a very strong, well-capitalized counterparty. We're not really trying to time the cyclotality of the Bitcoin mining market. We're really looking at, are these economics that are going to be better for us than Bitcoin mining? And where that's particularly relevant is on the upfront TAP-X side. Building AI HPC data centers is incredibly more expensive than building Bitcoin mining facilities. So I think we'd be looking to pursue one of these TAP-IT deals, improving our capital efficiency, not making it more challenging. So I think that's the easy answer to your question. Depends on the counterparty, and it depends on the type of deal that's put in front of us. And remind me of your second question. It just on

the, that's

how long the item is.

The long lead item, I see.

Yeah, so while we have just recently initiated this phase to development, we have ordered those long lead items in the past. When you're talking about a 345 KB, 138 KB substation, these things are 18 plus months in lead time. They can be even 24 months. So it is quite a long lead line for these items. So thankfully, we already have these workers in, and that's why we expect to receive them in a little under a year, as opposed to the 18 or 24 months that a new order might be

looking at right now. Thanks, guys.

Our next question comes from Lucas Pipes with B. Riley.

Thank you very much, operator. Good afternoon, everyone. Jason, you mentioned a few times that you've been active looking at M&A, and I wonder where does this focus rank today? And kind of bigger picture, what sort of M&A opportunities are you looking at? Are you elephant hunting? Are you looking at smaller bolt-ons? Would be great to have a little bit better feel for that. Thank you very much.

Thanks, Lucas. So I would not say it is a choice of one or the other for us, we made the decision long ago in the company to invest in building out the corporate development team. So while one part of the company is focused on building out operations and the organic pipeline in front of us, we have a completely separate team of talented individuals that are looking at M&A opportunities. So by building out this corporate infrastructure, we're able to do both of these things at once, which we think is very important because of the scale and the sense of urgency in this whole space. With respect to the types of M&A opportunities that we're looking at, let me turn that question over to Jason Chung, our EVP and head of corporate development and strategy.

Thanks, Jason. Hey, Lucas. Couple of comments to that question. First, when it comes to the type of opportunity and whether we're whale hunting or not, I would say we're relatively open to many different types of transactions. There does need to be a certain level of scale for it to really move the needle for us. And so we're open to larger deals, but sometimes we see interesting opportunities or interesting valuations on the smaller end of the scale, which over time can eventually grow into something that's much more meaningful. So I don't think we think of it as whale hunting versus ignoring some of the smaller opportunities. It's really the refining combination of valuation, operational excellence, and operating in a jurisdiction that we want to be in. I think the last comment I'll have to that question, that's your question, Lucas, is, although we did recently complete a transaction this past summer, the only thing that precludes us from closing another deal is finding the right opportunities. So we're very open to M&A. We're actively exploring opportunities to help supplement our large organic growth pipeline.

Thank you, Jason and Jason. And a quick follow-up on this theme. First, do you find yourself competing with hyperscalers, AI, HPC-leaning organizations, or not? And secondly, when you screen for acquisitions, does AI HPC factor in, or are you really more focused on the BTC side? Thank you.

I'll take... Lucas, so there is a competition with AI HPC companies on some assets, but our advantage is the universe of assets that work for Bitcoin mining is much larger than that of assets that work for AI HPC. So really talking about locations and quality of different sites. Some areas may be very, very remote and very difficult to build. Maybe it takes more time to build AI HPC where Bitcoin mining can work a lot quicker. There are cases where people are building Bitcoin mining facilities in very remote locations and using just cell phone internet in order to add internet to those. Obviously, that's not going to work for an AI HPC data center. So the fact that this universe of assets that work for Bitcoin mining, that assets that work for AI HPC companies, we have an advantage over them in securing additional power capacity. I would not say we're necessarily looking at AI HPC companies specifically, but when we're looking at power assets, we are thinking about the optionality that gives us and if they are potentially assets that we could strike a good deal with with an AI operator. The key point is we're trying

to get access to

power. Jason, Jason, thanks again for the color and all the best of luck. Thank you, Lucas.

Our next question comes from a line of Reggie Smith with JP Morgan.

Hey guys, thanks for taking the question. Most of mine have been hit. I was just curious, if one of your larger competitors recently made comments about kind of pausing Greenfield development and using proceeds to buy Bitcoin directly and it kind of started hash price and things like that. Obviously that company has a different asset base and land base than you guys. But I was just curious how you think about the decision to buy Bitcoin, to build sites and things like that within the context of hash price and whether that kind of weighs into your capital allocation decisions.

Yeah, thanks Reggie. So, first and foremost, as part of this vertical indicator strategy, we prioritize building a portfolio in a pipeline of assets that we can act on and how and when we monetize those is really up to our discretion. Of course, over recent years, the priority and the opportunity has been to build out those assets for Bitcoin mining. We think by what we've demonstrated as a low cost producer, that with one of the industry's lowest cost of power, the 3.1 cents per kilowatt hour for the third quarter of 2024 here, that our best method of accumulating Bitcoin is to leverage that power efficiency over a wide scale and effectively being able to procure Bitcoin at a discount to the market price. Our cost to mine for the quarter, including our power and on the ground operations expenses was $35,376 per Bitcoin, now considerably less than what the market price of Bitcoin was during the period. So we think by being a low cost producer with this industry leading power strategy, that is the best way for us to get exposure to Bitcoin. Of course, we're a Bitcoin company. So anyone buying Bitcoin, any institution is exciting to us. Everyone has a different take about how they prioritize their capital. We're using the low cost of power and putting that

to work showing the benefits of Bitcoin mining.

If I can ask a quick follow

up on that, I totally appreciate the low cost of mining. One of the things that we've been kind of talking about is not just the cost of mine, but the kind of time it takes to mine the amount of coins. Can you talk a little bit about maybe how that or how you consider or think about the time? Presumably you could buy Bitcoin today or you could mine Bitcoin and there's some time differential there. How does that play into your calculus, if at all?

Well, I think what Bitcoin mining affords is really a mechanism for averaging in to Bitcoin over a period of time. You have the price of Bitcoin went down, presumably in most cases, when it goes down for a long period of time, the network difficulty responds as the higher cost producers fall off. And then you're mining Bitcoin at a lower price. This is a dynamic we saw if you compare 2021 to going into the fair market 2022 and 2023 when cost of mine fluctuated around changes in network difficulty. So I think with Bitcoin mining, what you're doing is you're positioning yourself to average in over time instead of picking one price and saying, okay, instead of the capex that I would load out into building out a facility or new operation, I'm going to load into Bitcoin at this price. And you're instead kind of smoothing out and de-risking what that exposure would be. It also allows us to be there when the Bitcoin price appreciates, when the economics and Bitcoin mining suddenly and unpredictably explode. And then we're there already it's an in-place operation, no lag in deploying new hash rate in order to capture that opportunity. So I think the short answer to your question, Reggie, is it kind of comes down to your time. Do you want to average in over time or do you want to take a swing right now? We think with our cost efficiencies, it makes the most sense and is perhaps less risky to average in over time.

Now that actually makes a lot of sense. If I could sneak one more in and I know you guys have talked about HPC, at Nazian tonight, but I was curious, I look at your two sites and them being located so close to Dallas and Austin. I was just curious whether or not that has come up as like an asset or a key feature of your sites and discussing obviously the scale of them as well, but like in discussing HPC with potential partners or not. Just curious, it seems like you guys have really good location, but maybe I'm overestimating that. So I don't know if you've heard that echoed as well in your discussions, thanks.

Yeah, that is a good question, Reggie. Those locations near the major metropolitan is an advantage. First off, for getting people, it takes an army of people to operate these large sites, whether it's Bitcoin mining or if it's AI HPC data centers. So you want high quality people there. And if you're near a bigger cities like Dallas or Austin, they're more nearby. Particularly if you look at a Rockdale facility, there's a tremendous amount of development in that area, particularly with the Samsung Foundry that has been built there, there's a lot more talent that's coming in around there. Also as a result of being near these large metropolitan, there's multiple fiber internet options. So that makes, that's an attractive quality to potential AI HPC data centers as well. We've also near some of those locations, there already exists large tech companies and that just is furthermore value to the potential counterpart that we would wanna build around there. So major metropolitan have been, seem to be an attractive quality.

Okay.

Okay, thank you.

That concludes today's question and answer session. I'd like to turn the call back to Phil McPherson for closing remarks.

Thank you, operator. We'd like to thank everybody for joining Riot platforms on their third quarter, 24 earnings call. We look forward to updating you on future developments and we're always available for your questions. We'll see you early next year for the year end. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.