Hey guys, welcome or welcome back to the channel, McNally Money, the official home of power analysis. In today's episode, Anthony Power and I are pleased to welcome none other than Jason Les, CEO at Riot Platforms, back to the program, hot off the heels of their Q1 earnings and AMD contract expansion. We've got a lot to talk about. Before we get into it, take a second, smash the like button, guys. Big help to myself and the channel. If you're not already subscribed, McNally Money, feel free to join. And let us know in the comments section below what you thought of the results and your outlook for Riot as we move into Q2. With that being said, let's get into today's interview.
All right, guys, away we go. Highly anticipated Q1 earnings interview with Jason Les himself, the CEO of Riot Platforms. Jason, we had put out a wish list just a few days ago on X saying we really wanted to get an update on this AMD deal, see if you guys could expand past that initial 25 MW agreement. You've delivered that. Congratulations. Welcome back to the show.
Yeah, thank you for having me. We're really excited about this update. We think we had a lot of good highlights over the past quarter, a lot of good milestones accomplished and next steps on our horizon. So, looking forward to talking about it with you guys.
Yeah, and I'm glad you said the next steps. That's really where we want to focus today. We all saw the numbers come out in Q1. We understand this is a transformational period for the business, the Bitcoin price, obviously the FASB impacts to that. So, the numbers are the numbers, but we wanted to basically talk about the operational updates in Q1 because you guys have made some tremendous strides in terms of the design, in terms of the contract, some new talent you've brought on board. Can you walk us through a few of the highlights?
Yeah, so I think first off, the whole AMD story is a big part of the story that we were telling this quarter. You know, first on the delivery standpoint, we delivered our first tranche on time, which was a very aggressive timeline. We delivered that on time in January, and we are absolutely on schedule to deliver the final tranche of that first phase, at least, in May, this month, essentially. And as a result of delivering in January, that means we started receiving data center revenue this quarter. Now, you can, we broke it down on slide 15. A bulk of that was from the tenant fit-out revenue. So, that's where we're doing build-out expense, and we have a small margin on that for us. But, we got the initial operating lease revenue coming in, and that is obviously going to scale up as the TFO portion will scale down as we normalize here and the build-outs occur.
The other big part of our update on AMD this quarter is that they exercised one of the parts of their expansion option. And we think that's a very solid signal about how Riot's delivering and the type of partner Riot is. We signed that initial lease with AMD just, you know, a few months ago, and they've already upsized in part of that option, and we're again delivering at least part of that capacity on a very aggressive timeline with that first tranche being delivered in November of this year. So, that means we're looking to exit 2026 with about, these numbers will be approximate, about 38 million in run-rate revenue for data center with AMD lease, and then we'll be exiting 2027 at about, I think it's 56 million in run-rate revenue. So, great initial results here. That's on AMD. And I think it does dovetail to the other side here because what we've been able to demonstrate with AMD, I believe, has really enhanced our positioning in the market. Riot has gone from a Bitcoin miner with power that's trying to figure out a data center strategy to a digital infrastructure company that is not only signed a lease with a high-quality investment-grade tenant, but has delivered on that capacity as well. So, Riot is now someone who has executed on leases and is delivering on leases, and that's really important when you think about executing on leasing with the rest of our pipeline that is more substantial. You know, the bulk, of course, at Corsicana with 1 GW of utility load, and then the balance of the power capacity that we have at Rockdale.
Supporting this is the enhanced design that we gave an update on this quarter. This is in line with the roadmap that we laid out in our earnings calls at the end of 2025. We completed an initial basis of design. We were taking that design to market for feedback, and we iterated, and we have a design we're very proud of in that it is very flexible. It can accommodate, we haven't, you know, made so many decisions that were down the road with just a specific subset of customers. We can accommodate any customer requirements with this design, molding to what they want. And ultimately, that means we have more potential capacity than we originally thought. Total planned capacity at Corsicana up to 756 MW, and this is the same standard design that we would go use for additional capacity at Rockdale as well. So, we have knocked down what we needed to get to that commercial phase, and that is on the phase now. We've talked about the interest on our last earnings call. We talked about the substantial interest we were getting, and we are now acting on that process, and those conversations have advanced. Leasing is a huge undertaking, and it is unpredictable. So, you know, I don't want to give any false impressions on timeline. We are moving to leases as quickly as possible, but, you know, we've seen our peers talk about the unpredictable process that was for them. Multiple of them reporting starting and stopping on many deals before the one ultimately came through for them. But, nonetheless, we're excited, we're confident, and we are moving forward on the commercial phase of our strategy.
That's great to hear, Jason. And we fully appreciate people out there expecting things to happen overnight. We've heard from Ben recently, the process is, you know, it's a long process going through all the permitting, all the scheduling, everything like that. And you're equally highlighting from your perspective the detail that we're not seeing elsewhere. So, that's something we'll talk about a little bit later in the conversation. But, I want to talk a little bit more about mining because we don't get the monthly updates that we used to enjoy. I mean, I remember, and I'm probably part of the reason most of the miners started doing these updates because, you know, they were feeding that information. There was the retail community out there were loving them monthly updates from all the mining companies. And then as soon as one stopped, it started to filter through, and people thought, well, we're busy now, we're trying to deliver. That can go to one side. But, this is the quarter where you've shown some of the updates in terms of mining, and I've got a couple of questions on that there. You're highlighting your margin, etc., without obviously the depreciation element, and having a, you know, a reasonable good price still mining Bitcoin. Talk us through about performance. I mean, when you were doing them updates, this last sort of 18 months, you know, Riot have been effectively at the top of the performance tables. And it looks like, you know, having looked initially at the quarter, you're still doing a great job. Can you give us any sort of like any guide to, you know, how things are going at Corsicana using that immersion technology there? I mean, we've been to the site a couple of times now, but to be honest with you, we've never really heard too much about the actual technology that you're using there. And are you seeing the performance there compared to say your air-cooled machines at Rockdale and Kentucky? Are you seeing good performance? Are you seeing longevity? Just give us a bit of an update of where we are in that particular area.
I think you're seeing enhanced performance across all sorts of the build styles at Riot. The theme is that Riot has excellent operations, whether we're using air cooling, whether we're using immersion cooling, whatever type of cooling, you are seeing Riot quality operations behind that. And that's what's getting the better results that you've seen Riot leading the pack in operating efficiency for a number of quarters now. So, it's not, I wouldn't put it on technology. I mean, yeah, should we have made some design decisions in the past that enhance, but I think it's more about the team, the process, and capabilities that we've built. Riot is a large-scale digital infrastructure company, you know, and as we work on executing this data center strategy and transitioning all of our power over to data center, in the meantime, we are operating nearly 1 GW of Bitcoin mining capacity today. So, you can imagine the substantial level of operations that go behind that. And we've put a lot of work in ensuring that we were top tier, not only from a performance standpoint, but from a safety standpoint, from a security standpoint. And I think that same work ethic and same kind of rooted culture is what's going to make us very successful at our data center business as well.
Would you say the level of faults at Corsicana using that technology are less than what you've seen at your other sites in terms of having to get adjustments made to machines to make sure they're all optimized at the necessary level?
I couldn't tell you, I wouldn't say, you know, one is better than the other. They're just different, and there's pros and cons to each of them. You know, there's probably less maintenance required on miners that are in immersion cooling than air cooling, but there's more maintenance on the cooling containers themselves than you would have at the racks for air cooling. So, it's just two different design decisions. I think we're very pleased with the quality of operations. I think that shows through in our numbers.
And finally, just to finish on mining, you've reached over 40 X, I think 42 X hash at the moment. I think in the plan you've still got a few more X hash to bring in. How's that going to occur? Is that just additional machines coming in or just talk to us how that growth in hash rate's going to be acquired?
The only growth you're seeing is a modest amount at our Kentucky facilities where data center development and leasing is not the priority right now, but it will be in the future. You know, our whole strategy with Bitcoin mining is using that as a tool to secure power and monetize power until it can be transitioned into data center use. So, that's exactly what we have been doing at Rockdale and Corsicana. You know, our AMD lease is in capacity that was Bitcoin mining that we took down and converted. That's, I think, the most direct example of it, and now you're going to see us at both sites constructing new buildings that are data center buildings and eventually taking down the power from Bitcoin mining there. So, any Bitcoin mining hash rate growth you're seeing is just kind of modest in pursuit of that strategy at Kentucky right now until that infrastructure's fully built out and then we can look at folding that into our data center strategy as well.
Hey now, I want to shift over to the AMD contract a little bit. We both listened in on the earnings call. We commented on the increased revenue. You were mentioning that as a result of the escalator, slightly lower CAPEX based on some of the building-wide upgrades you made in the initial phase. We also noticed that you've put together a timeline here of potential rollout changing that final 100 megawatts from a ROFR to an option. So, a little bit more certainty potentially in that upgrade. Can you talk to us a little bit about what's changed with this contract since we discussed it last time, Jason, and some of these positive progressions we've seen?
I think so, both Riot and I believe AMD share the thought of we want to grow this partnership, and that's why the original lease had a mechanism for an option, a mechanism for a ROFR. I think what we kind of mutually determined is that a better mechanism for having a pipeline to grow was an option instead of a ROFR. The ROFR is something that we have to call on the original construct. You know, whenever we're discussing any type of design or schedule or economic terms with a potential tenant, and it was just kind of, it just complicated things a little bit both on our discussions with potential tenants and then with AMD having to review things that maybe didn't fit into what their requirements were going to be anyways. So, you know, what we said is let's take that ROFR, convert it into an option, so things are just more simple and straightforward on how we can grow this relationship in the future.
And in terms of that AMD and the numbers for that short period of two months of the five megawatts, the $0.9 million of revenue, can you talk us through and the margin, for nominal margin, which is higher than your sort of like your quoted return on ROIC return operating income of about 80%? Can you talk to us about, you know, are there any potential issues going forward in terms of would there be deductions to the contract for non-delivery and things like that? We hear all these transparent deals, and they all look amazing deals. All the deals look pretty amazing, but in reality we know sometimes if things don't happen as planned, then it becomes an issue. And if things don't happen quickly to return to the plan, it gets even worse. What are sort of things that would, you know, concern you going forward with this contract with AMD? Are there any sort of potential issues that can penalize Riot in terms of that revenue coming through?
Any data center lease or service agreement is going to have penalties for non-performance, whether it is missed delivery or operating performance. That's just the name of the game, and that's why having a good operating structure and team and systems and processes is so important when getting into this business. So, that's why we've prioritized building that up front, not necessarily waiting till we had, you know, hundreds of megawatts of leases to scramble and figure this out. Other reason that's important is because our critical operations team are part of our leasing process, and they have direct input and buy-in to that. So, they know what the requirements that Riot is committed to are, and they're prepared for that. I think what you've seen with Riot on delivery so far shows that we are not in that territory. Riot delivered our first tranche on time. We're delivering this next tranche on time and on a very aggressive timeline. So, if we're capable of doing that, I think that signals that we're very confident in how we're positioning around that. You noted the margin for the operating lease for the first quarter is just over 90%. I would not expect that going forward. I think just look at that as just, you know, it's an initial partial quarter, the lease getting up, and so there happened to be a higher margin at that point. You know, in the future we would expect that to be more normalized. But it would be, you're right, any data center operator's margin is going to be impacted if there's any type of penalties for breaching SLA requirements or anything like that, and that's why we got to make sure we're positioned to not be in that. You have one reputation, and you want to keep that clean, and you always want to be positioned as a reliable partner.
Yeah, I've just got one more, and then before Bryce talks us through the questions on the Corsicana site. You mentioned timeline there, and we noticed that this first 25 megawatts is going to be delivered in the first five months of 2026, and the next 25 megawatts is pretty much 12 months from that date. I'm assuming, I mean, I heard from the call that you'd started doing some of the pre-work before you even signed the contract. I mean, were you able to indicate how long? And are you able to sort of like talk through, we've seen like where obviously you built the four buildings in Corsicana, and I would imagine from a learning curve perspective that things can get done quicker. We've seen that with other operators. They've built the first one or two buildings, and then subsequent buildings seem to go up far quicker because they know what they're doing now. It's like they're in that sort of rotation. Are you able to talk about, you know, why does it seem to be a longer period for the second 25, and obviously things can't be done concurrently with the remaining 20 megawatts that's being done at the moment?
And yeah, so you're right that before we signed this initial lease with AMD, we were doing work. We were taking some calculated risk to get our first lease off the ground here and ensure that we could hit good delivery timelines. This next tranche is really largely kind of in line with the same schedule. The fact that we are getting that initial capacity up and again in what is about 5-6 months from now, I think is another huge feat. That is moving into the second half of that same building. So, it is still, you know, a very aggressive timeline, but yeah, largely in line with the original schedule.
One thing we noticed about that timeline is the fact you were able to bring these megawatts on so quickly with AMD. I wanted to ask quickly about ESS Metron, then I'll get into Corsicana. We have been hearing around the industry, Jason, transformer, switchgear just very hard to get your hands on right now. The same type of components you told us ESS Metron actually makes when we were down visiting the site. Can you talk to us a little bit about having this engineering division? I know you guys mentioned on the call you're reserving some capacity for yourself. You're able to sequence the buildout. Can you talk to us about what kind of advantages brings when you are trying to hit those deadlines?
It's been a huge advantage. There was no way that we could deliver on this AMD contract as fast as we did without having that ESS Metron capability internally. To get something engineered and manufactured in a matter of months in this environment is a huge feat, and that's because we have that internal capability. And I think that validates something that we've been saying from the beginning with ESS Metron. We acquired that company 4 and a half years ago. It wasn't about diversifying into manufacturing because we thought that was fun. It was about strategic advantages, having visibility and control over our supply chain. And we saw that in practice with Bitcoin mining, and that is going to be amplified by, you know, orders of magnitude now when we're building out data centers where that requirement is even higher. Switchgear has become a key constraint in data center buildouts. And I'll give credit where credit is due in Applied Digital's recent investor presentation, they have a great slide that shows like, you know, the key components for buildouts and what the lead times for those have been and how that has changed year over year. And you'll see there transformers are some of the longest components. Okay, we've already secured that. That's great. And then switchgear is some of the longest lead components, and we have that internal capability, and we're expanding that capability. ESS Metron is a major supplier to data center projects all over the country. You know, Riot has historically been a small part of their business. They have been supplying some of the biggest projects all over the country. So, they have great relationships. They are very experienced there and it is a huge strategic advantage that we have that capability internally as we now think about building out hundreds of megawatts, over a gigawatt of tier three data center capacity.
Yeah, and you talk about SLAs and uptime. I didn't realize that ESS Metron also does infield repairs as well on the equipment. So, they're actually there to back up if anything does go wrong. Now shifting over to Corsicana in the same vein, you guys are developing that site out as well. We noticed a design change. You mentioned you've had some feedback from potential clients. We also noticed that the amount of critical IT has improved. Anthony did some PUE calculations. We've seen a lot of your peers maybe in the 1.45, 1.5 in ERCOT. Seems you're more in kind of the third range. Able to squeeze a little bit more out of that design.
Yeah, so this design was built and then iterated upon with feedback to give maximum flexibility to accommodate the densest and next generation hardware requirements. So, this is kind of what our standard is. What is ultimately built is going to be up to the customer. You know, a customer may want something significantly different. So, that could have a different PUE, you know, whatever. This is just kind of what our up to plan with the total potential capacity of the campus can be at 756 megawatts. And you know, that's assuming 1,000 W per square foot, you know, utilizing a lot of liquid cooling, all of that. But the ultimate number here, I think it's important to address because don't be surprised if, you know, the day comes when we lease up all this capacity, the number isn't 756 megawatts. It could be, you know, it could be a number slightly less depending on what the tenant's requirements are. But we are very proud of this design. We have something that allows us to make progress on our schedule to have a very attractive offering in terms of initial delivery dates while not yet committing to any one type of design. So, we're maintaining flexibility while making progress on our schedule starting with the first shell building development that we have at Corsicana now.
In terms of the size at Corsicana, we were there in November and you're already well into producing that second 400 megawatts substation there. Can you give us an update on that there? And also, you just obviously with that design, with that flagship site of, you know, potentially giving out 756 megawatts, are you, I mean, in your mindset, and we know you, you know, we're not asking you to name clients, but in your mindset, are you expecting one client to go in there or do you think it's adaptable for multiple clients in terms of like, you know, confidentiality, clients maybe not wanting to be on the same site together? With the number of conversations you've had, do you get a feel it could be a one contract or potentially multiple contracts with different clients?
So, first on the transformer, I mean, the substation expansion. So, we've already secured the transformers that we need for the buildout for the full 1 gigawatt substation. So, that's, you know, 365 kV auto transformers and 138 kV power transformers. We've received the next 400 megawatts. So, that substation is going to be expanded well ahead of whenever the data center is completed and ready for use. And then we're going to be receiving that final tranche to take the site up to 1 gigawatt. We feel very good from where we are from a substation perspective. That's going to be ready ahead of any power being needed to be pulled. As far as how the campus gets leased out, what we've seen so far is substantially all of the interest is for the full campus, which kind of naturally makes sense to you, right? Like if you are comfortable with the site and it has 1 gigawatt, why not take, you know, the whole 1 gigawatt for yourself? I can't say for sure that's how things end up. We do have the ability to subdivide that site basically like four ways. It could be four separate sites within one campus if that's the way leasing progresses. And the only reason I say that is because you have to remember this is a huge site. We have not seen any 756 megawatt deal signed in our sector yet. That's a big bite to chew both financially and from a technology standpoint because it's not like 756 megawatts is turned on day one and they're using that power. It's a multi-year deployment schedule. So, a customer that's committing to that is not just thinking about what they want in that initial, you know, period of delivery. They have to think about, you know, years out there as well. So, it is a big bite to chew. So, it is possible this thing ends up getting divided up multiple ways. But that's just kind of the caveat I give because the fact remains the interest that we've seen so far has been for the full site. But we'll see how things progress.
Yeah, I mean, I've been fortunate to go to the largest data center in Europe, which is the Meta data center in Sweden, and that's 150 megawatts, Jason. So, when you're producing a 756 megawatt site, that's only five times the size of the largest European one. So, I think people just need to understand when they see these smaller numbers, they're still really big numbers. You know, if you see 25, 50, you know, some companies go with 40 megawatts. It's a big number because 10 million a megawatt to produce that building, you're talking a lot of funding. And as you're saying, if you're going to produce 756 megawatts, that's in the region of probably 7.5 billion dollars required there, which for my calculation may be even more than your market capitalization at the moment.
