Riot Platforms Q3 Earnings Q&A | Top Bitcoin Mining Stock News Now | CEO Jason Les | RIOT Stock

Thank you for having me, guys. Looking forward to diving into it with you.

Yeah, you know, I think there's two major themes for our earnings release for this quarter. One, the improved financial operational results to the company. That's one half of the story. And of course, the other half of the story is how quickly we're advancing on our data center strategy, which I know we're going to talk more about later. But from the quarterly results standpoint, we had record revenue of about $180 million. We had net income of $104 million. And I think this is driven a lot by our operational improvements. You know, some of the hash rate growth we have, but also our operations really strengthening over time. And that's both from the Bitcoin mining side and the engineering side. You know, we highlighted in our earnings release the engineering segment record gross profit as well. They are doing an excellent job. And then our Bitcoin mining business, our hash rate's been going up. We've been having strong utilization and we really had a strong summer on the power strategy as well with that. We got an all-in power cost of the third quarter of $3.2, resulting in a direct cost for Bitcoin of about $46,300.

So very good results there. We're very happy about what we've been able to show from a financial results standpoint. The core business is strong and now we are undergoing our transformation building out the data center future as well.

Let's get moving on that and see if we can get that implemented, you know, as quickly as possible to sort of like get those better returns in place. The reality of the economics that data centers drives is pushing us towards that kind of no matter what. You know, what Bitcoin does or what Bitcoin economics do, what hash price does doesn't really impact our decision-making anymore. We see the value creation opportunity with data centers. We see what the market is attributing to this, the types of valuations that you can get from this and this is what we're moving forward on. So, I think we are in a great spot with the business that we have today. As you highlighted, Anthony, we consistently show strong Bitcoin mining margins. I attribute that to our efficient operations, our very low power cost and that will continue to be a strong core part of the business that turns out cash flow as we undergo our transformation as we build out the data center business. So the two things work complementary and that Bitcoin mining really helps us on our path towards building out and ultimately leasing data centers.

Well, what I want investors to know is that Rockdale is absolutely a part of our data center story. At the end of the day our objective is to maximize the value of all of our megawatts and to do that we are, you know, building out a data center business and we'll aim to look to build at Rockdale as well and ultimately sign leases. There are, you know, some impediments to that that we recognize and we're working diligently to overcome and I feel very confident about that. That's why on our earnings call yesterday, I made it clear I wouldn't want investors to count Rockdale out of our story and I wouldn't think of the development pipeline as strictly consecutive. You know, ideally ultimately be some overlap here. So, you know, ideally, you know, eventually we're developing Rockdale alongside Corsicana, but in the interim, Bitcoin mining is a very valuable tool to secure and make use of the megawatts that we have there. We don't want to strand power. We don't want to have unproductive megawatts. So, we do have, you know, Bitcoin mining remaining at Rockdale. We have some growth of hash rate planned at Rockdale and that is going to continue turning out good cash flow for us while we undergo this transformation.

Obviously it all comes down to the strategy of monetizing and maximizing the value of the megawatts we have. And I wouldn't just think about it as like, you know, just Rockdale. It's, you know, we have Bitcoin mining operations at Corsicana as well. So wherever we have Bitcoin mining, we're using that as a tool to make use of the power that we have and turn out, you know, cash flow for the company. We have a robust, you know, very large Bitcoin mining business now that's turning out, you know, hundreds of millions of dollars on an annual basis. That gives us an internal source of financing for growing our data center business. That's very valuable. We're leveraging our operational efficiencies and advantages to bring in cash flow to fund data center growth. And that's a great position to be. So we're using that tool at both sites and then ultimately the goal is to fully build those out for data centers when the time is right in the strategy.

So the first thing I would say is this announcement is just one milestone in our development pipeline that we're announcing right now. You know, and I think what this announcement reflects is our confidence based on what we're seeing in the market, our confidence in our ability to lease and our confidence in our team to deliver. So, we don't feel like we need to wait in order to get development started. We want to make sure we're delivering data center capacity as rapidly as possible and that we're getting to data center revenue as quickly as we possibly can. This is also a part of positioning us, putting us in the best position possible to lease with the widest array of highest quality tenants possible. When we say core and shell, you know, a common industry term for data centers, what we're actually building is a little beyond that. We actually call it core and shell plus, but you know, for the sake of just sticking to, you know, terms that are well known, we call it core and shell in the earnings deck. And so we're building even a little bit beyond what a typical core and shell is. We are, you know, building out the watertight building structure. We are building the generator buildings. We are completely finishing the administrative function parts of the building, security, fire protection, starting on power distribution, mechanical loading. We are doing as much as you possibly can before the data hall fit out. And we're doing this in order to accelerate our timelines and be in a position to turn that core and shell into a build to suit tier 3 data center as rapidly as possible after that point. We've talked about our basis of design. That was a big milestone that we accomplished this quarter and we are building something that has flexibility to ultimately be adaptable to what the final tenant specifications are. So we're going out, we're hitting the ground running. We have a lot of confidence in our ability to deliver here. So we're starting with these first two buildings and as we progress on our strategy, you know, you can expect us to provide updates on additional milestones in the full pipeline.

Yeah. You know what our building design represents is it's really a multiple of 14. Our standard design is 14 megawatt data halls. Four 14 megawatt data halls per building. 56 megawatts per building. We're talking a critical IT load of course. And then we have, you know, multiple buildings and we can do multiple stories from there. That is ultimately something that can still be kind of changed around. There's, like I said, there's adaptability in this design still but it kind of reflects the general area of, I would guess I would call it data hall size multiples that you should expect a wide array of customers to be looking for. And that is really, you know, I want to emphasize our strategy is to bring forward a design and to bring forward a sales process that can accommodate the widest array of high quality tenants possible. That includes neoclouds, that includes enterprise customers, that includes hyperscale customers as well. We are positioning ourselves and using what our team knows, the data center team that we've built up of incredible talent over the past several months, using their experience going through this process to position Riot to be able to serve the widest array of customers and ultimately get us the highest value possible out of the assets that we have. And we've gotten a lot of good feedback about the assets that we have, our sites, Corsicana, Rockdale, etc. And so we feel very good about progressing with our strategy and that's why we announced the two initial developments yesterday. And I want to clarify, you know, we announced 112 megawatts of core and shell development. That doesn't mean that we're just trying to lease 112 megawatts. That is just what we have started building right now without a lease in hand. Obviously as we get more into the sales process, ultimately we're going to find out what that first anchor customer is looking for, the first anchor tenant at the site, and then ultimately what we develop is going to be a function of what they're looking for.

Yeah, I think it's more important how we are structured and how we are put together and how we present ourselves than it is if we have signed any data center deal in a binary sense. You know, you look at these hyperscalers and they are investing substantial amounts of capex and I'm sure you've seen quotes from earnings calls and interviews this week. They consistently are raising their capex budgets and they are consistently making comments that their capacity needs outstripped what their prior, you know, aggressive assumptions were. So these hyperscale customers and enterprises and neoclouds are going after capacity very aggressively. All the same, hyperscalers are still large organizations that are very meticulous about their process. They are very cautious about what they're committing so much capital to. Do you remember if we're building a build to suit data center, let's say use industry averages of $10 to $13 million per critical IT load, the customer is spending twice that amount on GPUs. They're making the bigger capex investment here. And that's why they're really looking to, you know, to derisk the process. And we think what we know from our team's experience is we derisk the process for them and we present the best by taking the steps we've had completing our basis of design where we've been now having technical outreach with customers validating our design where we position ourselves for success by initiating a development. So we're not just talking about power conceptually. We demonstrate our confidence and we show that we are building forward and we have something tangible to have a leasing discussion around and, you know, we have a team that's familiar with the vendor onboarding process that these hyperscalers present. So it's not so much about signing a deal with anyone to demonstrate credibility to the market. It's about how we structure and how we position ourselves to these customers.

So our hiring strategy has been to build out a team in order to be able to meet the expectations of creditworthy counterparties in the market being able to deliver build to suit data centers ourselves. We did this because we saw this as the way to maximize the value of our assets by being able to retain all of the economics to Riot. I'm not opposed to doing, you know, a type of JV in the future. You know, I think there's potential structures that could work, but the best path forward for Riot to get started is for Riot to be in control of our process, in control of our own destiny, and retaining the economics that gives the most upside to our shareholders. On the earnings call yesterday, I likened our hiring strategy to a pendulum. We are hiring based on what we need at that point in our roadmap. Over the past quarter the focus has been design and engineering. So you see there is we've hired a lot of leadership in design and engineering. Now that pendulum will start swinging to the sales and leasing side and very recently we included in our deck we hired a senior vice president of AI and hyperscale sales. So that sales area is the focus of hiring right now and then that's going to swing into operations hires as well as we progress down the roadmap. So we feel great about the team that we've developed. Obviously the fact that we are starting this development I think demonstrates to the market that we have the team necessary to execute on developments of building build to suit data centers. Your question Bryce though was about specifically deploying GPUs and being a cloud service provider. Look, we're open to any idea that is going to maximize the value of the power that we have. Obviously, we're aware of the attention and opportunity there and that's something that we are looking at and, you know, educating ourselves on and getting smarter at. But we see the near-term opportunity for Riot to best maximize value is to focus on this colocation strategy, focus on development and focus on leasing. We want to get a strong anchor tenant into Corsicana to start that site off and that is the foundation that we can build the rest of our data center business on top of.

Compute is incredibly constrained. The power to supply compute is incredibly constrained and you don't have to take my word for it. You know, one of the best research analysts in the space, Stephen Byrd from Morgan Stanley, he covers AI technology thematically and he has a report he puts out on the estimated power shortfall. And every quarter, every time he puts out this report, the shortfall increases. It most recently just increased from 45 to 49 gigawatt. That's over the next few years. So based on what he sees in the market for compute demand, the power required to support that, the industry is short 49 gigawatt. So we're in a tremendous opportunity because of that. And you know, I'll add to say, you know, our other peers who are similarly positioned are also in a great opportunity. We all are sitting on something, you know, very valuable, our access to power. And you know, he talks about that in his report actually, that Bitcoin miners, they can do actually, Bitcoin miners alone of course cannot solve that problem. There's not 49 gigawatts of Bitcoin mining facilities in the United States but they go a ways towards helping solve that problem. I think we are particularly well positioned because as you noted, Anthony, our sites an hour outside of Dallas, one of the biggest data center markets in the country and Rockdale, an hour outside of Austin, a growing data center market, a huge technology hub. Being near these major metropolitans is a big advantage. And it's not just about, you know, being close to fiber. Of course, that's important, but it's also about being close to business and people, the people that will be needed to operate that data center and being close to the different zones that customers need capacity around. So, the constraint is very real and, you know, we were on this road already. We were on this path to building out our data center business. The feedback that we've gotten on our sites and the confidence that we have in ourselves to build and deliver here has led to us starting these developments, like I said, without a lease in hand, just looking to aggressively build and position ourselves to take advantage of the constraint and the opportunity here.

Yeah. So, we have a variety of different, we refer to them as hedges. They're financial instruments that we procured. You know, our agreements to supply power are not at risk. They don't expire in 2027 or 2030. It's just we have purchased hedges at a fixed price per hour, 24/7, 365. Most of those run through 2030. We do have some hedges that run through 2027 as well. As those fall off, you know, first on if we're talking about supply and power for Bitcoin mining, you know, we take the market price. We've been largely taking the market price at Corsicana. We don't have a sign, we have some hedges at Corsicana. Most of that power is unhedged and we've still been able to achieve a very competitive cost of power by doing what we do, participating in 4CP, participating in ancillary services and just shutting off during high-priced hours. That alone is going to get you a low cost of power as a Bitcoin miner. Of course, that's not possible as a data center. You need, you know, full uptime. Data center tenants are not as discerning on power cost as, you know, Bitcoin miners are. You guys would not love it if Riot entered into a long-term power hedge getting power at, you know, for example $65 a megawatt hour. You know, you'd say, hey, no way for Bitcoin mining, that is way too expensive. But for data centers that kind of still fits the range of what customers are talking about. So ultimately what would happen is for to the extent that hedges are needed to support data center tenants either we or they would be entering into power hedges around that range, you know, it depends on what the market is at the time to fix that price of power. So it's a relatively simple solution. What's great about operating in Texas is this, these hedges are market driven. You know, I could pick up the phone right now and start securing hedges if I needed to. There's not an approval process. You don't, you're not working with a utility or government or anything like that. We are and we have a ton of experience doing this. Riot has built an incredible capability securing and managing and trading power. So we bring those capabilities to our tenants. When they need power, we will lock up the volume of power that they need.

So what we're doing at Corsicana right now is expanding the substation. We have the first 400 megawatt substation already energized and now we are in the process of expanding that to 1 gigawatt, a process we already had underway but you know what, actually a year ago now is approximately when we started this process. So we've already received the transformer, the next 400 megawatt transformer for that expansion. So that site will be up to 800 megawatts in the first quarter of 2026 and then we're on track to get to 1 gigawatt by the end of the year. So we are energizing our additional substation capacity well ahead of any potential data center use. We're on track there. And another way that Riot has derisked its expansion and development. And I'll tell you the fact that we are able to show a site that has a large volume of power already live goes a very long way to proving the validity of power at our site. It really shows a de-risked path for that customer. Shows that we've crossed the hurdles that you need to bring power in.

The mining space was a lot more of a challenge. That original plot of land was a lot more challenging than this one. This 67 acres of parcels that we acquired across the street — this is the best possible piece of land that we could add on to our site to grow into. You know, we already have the other land that's nearby. We could build on into that as well. It would have some additional complexities, but to get a piece of land directly across the street, contiguous with our site already, really de-risks the development for us. That land is in good condition. It's relatively flat. There's not as much that we need to do.

But you're absolutely right, Anthony. We're starting with the first two buildings of our data center development on our existing site where we already have the path laid out, and then we're going to start working on that land across the street so the subsequent buildings can follow from there. So what we'll do is we have 112 megawatts beginning development on the existing development pad. We go across the street, that'll take us to 504 megawatts when that is all fully developed as well. And then eventually, as the pace of lease signing is going, we would take down our Bitcoin mining buildings in the future and then build the final capacity there, taking that site up to 672 megawatts of critical IT load, 1 gigawatt utility load power, fully utilizing the site.

Those numbers right there pencil out to approximately a 1.49 PUE, and if you look at some of our peers, they have done deals in Texas about that range as well.

As you know, that PUE is your worst-case PUE. You have to build out for the hottest, worst day of the year. Of course that won't be the PUE all the time. I'll also add that that is our base case. That's our starting point, 1.49. Of course, we want to do better than that. So now we have set a base case and the challenge is on us to improve that PUE from there because that just is better economics for us.

Absolutely. That is a huge strategic advantage. You don't want to have wasted power. You're going to be paying for that power anyways. That's just a cost. So we can be more competitive by using a flexible load like Bitcoin mining to leverage that unused power. So I think you can probably expect us to have some amount of Bitcoin mining always there in order to fill that.

You know, we talked about that additional land that we have at Corsicana. So even as we followed that development, that campus plan, and built phase one and phase two, which would take down the existing buildings, what we would still do is just build some Bitcoin mining capacity elsewhere, probably on the other land that we have, to fill that load balancing capacity and get that advantage. I think Bitcoin mining is still a new and interesting thing. Obviously that's not a tool that normal data center companies are using. And the fact that companies like Riot have experience doing that already means we're in a great position to kind of be ahead of the curve of utilizing that and driving a more competitive outcome.

Yeah. And we included a quote that I think validates our strategy there in our earnings deck. It goes from a UBS global research report that highlighted how some of the biggest components in short supply for data center development are low and medium voltage switchgear. That is exactly what ESS Metron specializes in and manufactures. And that is also the same type of gear that the service side of our engineering segment, E4 Solutions, they help service as well. So we really de-risk our development by having this visibility and control over our supply chain.

The other benefit that we get, that we highlighted in our earnings deck, is the capex savings over time, because, you know, we're buying it ourselves — the money is just all going from one pocket to the other anyways. So we get a capex strategic advantage and then we get the supply chain advantage as well. And then on its own, this is a flourishing business. You know, we are doing all the business that our manufacturing capacity can currently do. So we're maxed out on capacity there. And one of the reasons that you see the backlog growing and that you see the results in that segment growing is we're getting so much demand and so many more high-margin contracts out there.

Riot is a minority part of ESS Metron's business. The majority — 90% of ESS Metron's business right now — are other data center customers. So there's Riot's minority portion and then everything else they're doing, supplying data centers all over the country. So we're very encouraged about that. Obviously that motivates us to continue to scale ESS Metron and do what we can in order to service that backlog. But we expect that backlog to continue to be healthy as more demand comes in, and Riot is in the advantageous position of not being in the backlog of another producer but having the capabilities all in-house to produce what we need.