Riot Platforms Q2 Earnings Q&A | Latest Bitcoin Mining Stock News | CEO Jason Les | RIOT Stock

Yeah, great to see you guys, Bryce and Anthony. Looking forward to getting into the Q2 update with you.

Yeah, and I think that Q2 for Riot was very big both financially and strategically. And we'll talk about the strategic points later, but financially it was a record quarter for Riot with nearly 500 million in adjusted EBITDA and 220 million approximately in GAAP net income. And a lot of this is driven by the mark-to-market gain that we've got on our Bitcoin. And this has been a part of Riot's strategy for really since the beginning, holding Bitcoin on our balance sheet, building that balance sheet strength and giving shareholders exposure to the accretive assets, and that really came through in this quarter with the substantial gain that we were able to recognize there. In addition, another strong quarter of revenue as our operational performance both in hash rate continues to grow and our utilization hash rate continues to enhance. We achieved a 50% gross margin for a Bitcoin mining business for the quarter, which was a great result, especially considering we had a one-time tax assessment come in there that'll be reduced going forward. So regardless, still had a direct cost per coin of around $49,000 per coin. So another great result for Riot, especially where you see Bitcoin trading today. In addition to that, it was a quarter where our hosting business finally got cleaned up. I'm sure we'll talk about that at some point. So those hosting losses were further reduced. And another strong quarter from a gross profit perspective for our engineering business. As you can imagine, the demand for switchgear and other electrical infrastructure is in super high demand. Our manufacturing division, ESS Metron, is incredibly well positioned and capitalizing on that. And now they are at a record backlog of $120 million approximately. So that means there's $120 million in orders that are in the queue to be filled as capacity opens up. Little accounting thing for the engineering division: we recognize revenue as the jobs are completed, not as deals are signed. So that backlog represents all the work that's queued up that we can act on. And I'll tell you, the demand is pretty crazy. You tell someone that there's a multi-year wait, they just want to get on the line for this equipment. So it really reinforces our vertical integration strategy has led to continued improved financial results for Riot. So we're really happy about this quarter, but we think with the moves that we're making both in Bitcoin mining and our data center business and our engineering business, we're just incredibly well positioned for continued success here.

So a challenge that Riot has had for a number of years now was this legacy hosting business, and that was for these contracts that Riot inherited with the acquisition of Whinstone US back in May of 2021. And there's been a number of pieces of litigation ongoing around that, and we've had capacity tied up, and particularly with the Rhodium contract has been an ongoing drain on our financials. This quarter we acquired Rhodium's assets and settled that litigation completely, and that was a key challenge that we overcame that accomplished three big things. One, it reduced the amount that we have to spend on legal fees to support that litigation going forward. Two, it cleared up that ongoing loss from the hosting business, clearing up our financials. And three, it gave us access to 125 megawatts of power that previously had to be allocated to Rhodium that we can now use to enhance our operations and improve the financial profile of that site. So a very key challenge to overcome, as you can imagine, as a multi-year project to get that done, and that just gives us all the more assets and clarity to move forward on and continue to grow our business from.

Yeah, I think this is an underappreciated part of Riot even though we talk about our power strategy all the time. I think an underappreciated part of Riot is the extent that we have built out this power management, power trading and power procurement capability and that's why Riot consistently has one of the lowest power costs in the industry. Always one of the lowest direct power costs per Bitcoin. It was just under $38,000 for Q2 of this year. So in our power strategy, as you noted Anthony, we have 345 megawatts of power at Rockdale that we trade, that we participate in various demand response programs with. At Corsicana we are primarily buying power from the market, although we do have power hedged there as well, and then we have our Kentucky operations that has some fixed component and there's some demand response in there as well. So what that means is while Riot has procured these hedges at Rockdale at a low price that allow us to sell power back to the grid and lower our cost to mine, that means we can never go lower than that price when buying power. And oftentimes in Texas, the power is very low. There's a lot of volatility in the power market there. You will see $5,000 per megawatt hour for power. You'll see negative $30 a megawatt hour for power where you are getting paid to use power in those circumstances. So by having a blended approach, by having some power fixed and by having now a substantial amount of power where we are buying just straight from the market, that allows us to have a very diversified and well-executed power strategy that results in these lower power costs. In Texas this summer there's been less volatility than we've seen previously in summers. There's a lot more, especially solar generation that has come online. There's a lot more batteries online and while there have been some high-priced hours, there have not been as many super high-priced hours for prolonged periods like we've seen in previous years. So, not the same extent of power sales back in the real-time market, but a lower cost than a lot of the hours of the year. We've also been very effective at strategically timing making forward sales in the market. So what that means is, you know, back in let's say March we can take a view at how power is trading for June, for July, for August or for September and be strategically selling when there is panic in the market and that is driving prices up. As a result of all of these efforts, Riot is doing excellent at its power strategy this summer and you are going to see more details and results about that and the power prices that we're achieving as our monthly updates come out here through the rest of the summer months.

You should expect us to continue to strive for operational excellence and continue to be able to achieve improvements from here. We'll talk about how that's measured though. And we're really proud of this cuz I sat on this podcast with you guys a year ago and I talked about Riot building out and focused on operational excellence. And you know that may have seemed difficult to materialize at the time with the results that Riot was showing last summer, but as our operations built out, as we made the different enhancements and we upgraded where we needed to and we built our operations team out and brought in the right leadership to support that, we have seen significantly improved results. So when you see that 87% uptime, that is as you noted inclusive of curtailment. So if we're curtailing for high-priced hours, if we're curtailing to whether we're avoiding high prices at Corsicana or selling power back to the grid in Rockdale, or we're participating in the 4CP program, that takes that uptime or utilization number down even though it has nothing to do with our operational capabilities. And even though the volatility wasn't super wide, there was just a meaningful amount of curtailment that took place during Q2 that brought that number down. So we don't have this number out for Q2 but if you looked at that net of power curtailment you would see a number in the 90s. So we've made tremendous strides. I think we are amongst the most efficient operators at this time and with the work that we're continuing to do, our goals are higher than where we're at right now and we're going to continue to strive to improve this uptime regardless if there's curtailment or not.

In fairness, it didn't happen overnight. But what we've seen is and we've reported this is it's that gradual improvement and last month you finished at top of the year-to-date charts, ahead of Iris. So, credit to you there.

Yeah. So, you know, first, at both of our sites, we're always working to enhance them. Whether or not there's any growth going on, we're improving the professionalization. We're improving the safety. These sites came up very quickly. And in some cases, like there's not even roads where there should be roads because those were not the priority at the time. So what you noted in Rockdale, we built that retention pond there that helps enhance the water supply at that site to service all types of applications. But to get to your question at its core, going back to slide five in our earnings presentation, you'll see a layout of how we think about our strategy. The strategy is to maximize the value of our megawatts and leave no stranded capacity. And what we talked about, what I talked about in the earnings script there was focusing on transitioning all of our power to the highest and best use over time. And the way the world looks like right now and the way we believe it will continue to look even more so in the future is there's an incredible demand for compute, which means there's incredible demand for power and facilities to support that compute. So we see the ultimate goal of transitioning our power to data center use over time. However, you're talking about a substantial amount of power. With just the 600 megawatts that we're immediately focused on at Corsicana, that would be one of the biggest data centers in the world right now. So it represents a lot to focus on right now. So we can't build 1.7 gigawatts and have that financed and good to go and constructed overnight. So we don't want to leave stranded power capacity. So we look across our portfolio and there are times that we will look at enhancing or growing our Bitcoin mining hash rate in order to best utilize our assets until this transition can eventually be realized. So with the acquisition of Rhodium's assets and the settlement, we got this access to their operations, additional 125 megawatts of capacity that was allocated to them, and what we saw as the lowest cost and highest impact use of that capacity in the near term would be to upgrade it and enhance it to increase our hash rate. So as a result, we have increased our year-end hash rate target to 40 exahash and we now see ourselves achieving 45 exahash in Q1. This is a lot more measured growth in hash rate than you've seen from Riot in the past where there are years where we're increasing our hash rate by 200%, 300%. You're looking at a 26% increase for 2025 and then approximately 10% increase right now for 2026. So a lot more measured growth with the focus on monetizing our megawatts, leaving no stranded capacity, and keeping this portfolio of power secured as we build out this data center platform and eventually transition this capacity there.

When we engaged Aligned to do a feasibility study of our Corsicana site earlier this year, one of the pieces of feedback that came back is the fact that the site could be enhanced if we had more land to work with. This was a potential hurdle to fully maximizing the site in a cost-efficient way. So, we've acted on that pretty quickly this year. We've secured over 600 additional acres. We now have approximately 858 acres in or around our Corsicana site. That doesn't mean we need all that land, but it helps maximize the flexibility. So instead of having to do a three-story data center, which you know may not be a bad thing to do anyways, but we want to give the most amount of development options possible by having this wide footprint. So we got that feedback and we acted on that very quickly. Building out this data center platform at Riot is our number one strategic priority. So we have a lot of resources and we're checking off the boxes quickly to do that. I don't want to comment on ongoing discussions, what they look like, who we're talking to or anything like that, but what I do want to make clear is we are approaching this with the mindset, with the goal of building a data center business. We're not trying to do like a single one-off deal and just lease our power away that doesn't get a ton of economics. Typically we're open to that if the economics are right, but we don't see that as the best way to maximize the very valuable assets that we have. We have Corsicana, it's 1 gigawatt an hour outside of Dallas, one of the tier one data center markets in the country. This commands a lot of potential value. So the way we see maximizing that value is building a data center platform following a build-to-suit model and building out data centers there to meet customer demands and lease these to high-quality tenants. So what we've been very focused on right now is one, building out the team, which we've done with bringing Jonathan Gibbs on, a true data center veteran to lead our data center business. We've brought on a number of other veteran names in the space as well and we are building out our basis of design that we can then go to market with and work with potential customers to then tweak, to customize to what they're looking for. That doesn't preclude us from having discussions right now. You know, as you can imagine, there's interest in this power. But these are the milestones that we are looking to complete before formally going to market to get the maximum value of what we see we have there. And the final question you asked Anthony about getting into GPU hosting ourselves. We don't see that as part of our strategy right now. That's something that we look at and think about and if the market develops in a way, if it seems like there's a way that we can do something interesting there, we will. But right now our primary focus is developing these data centers and getting them leased out to high-quality tenants because that is the cash flow that the market is valuing highly, 10, 15, 20-year contracts with blue-chip tenants. These are the multiples. The multiples on that cash flow is what we're trying to achieve here.