Greetings and welcome to Riot Platforms Second Quarter 2024 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Phil McPherson, Vice President of Capital Markets and Investor Relations. Thank you. You may begin.

Thank you, Zico. Good afternoon and welcome to Riot Platforms' second quarter 2024 earnings conference call. My name is Phil McPherson and joining me on today's call from Riot are Jason Les, CEO, Colin Yee, CFO; and Jason Chung, Executive Vice President and Head of Corporate Development and Strategy. On the Riot Investor Relations website, you can find our second quarter 2024 earnings press release and accompanying earnings presentation which are intended to 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 second quarter performance. During today's call, we will be making forward-looking statements regarding potential future events. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Actual results could materially differ due to factors discussed in today's earnings press release in comments and responses made during today's call and in the Risk Factors section of our Form 10-K and Form 10-Q, including for the quarter ended June 30, 2024 which will be filed today after this call as well as other filings with the Securities and Exchange Commission. With that, I will now turn the call over to Jason Les, CEO of Riot Platforms.

Thank you, Phil and good afternoon, everyone. Riot's primary strategic focus has been on developing a leading vertically integrated Bitcoin mining company built on the three key pillars of: one, developing and owning operations of significant scale; two, being a low-cost producer of Bitcoin; and three, building a balance sheet of strength. During the second quarter of 2024, we've demonstrated success at all three of these pillars. Riot successfully energized our Corsicana facility, increasing total deployed hash rate quarter-over-quarter by 77% from 12 EH/s to 22 EH/s and exceeding our quarter end target of 21 EH/s. We also raised our 2024 deployed hash rate target from 31 EH/s to 36 EH/s and our 2025 deployed hash rate target from 40 EH/s to 56 EH/s. These growth plans remain fully funded as a result of our continued focus on maintaining a strong balance sheet. The second quarter of 2024 was the first quarter of Bitcoin production which predominantly occurred following the halving event which occurred in late April and which led to a reduction in the Bitcoin block subsidy from 6.25 to 3.125 Bitcoin per block. Additionally, global hash rate grew by 6% quarter-over-quarter. Both of these events created bearish headwinds for Bitcoin miners when it comes to the cost of mining. Despite these events, Riot's direct cost to mine in the second quarter remained extremely competitive and was well below the average price per Bitcoin during the quarter. These outstanding results were aided by our unique power strategy which generated $13.9 million in power credits during the quarter, resulting in an all-in cost of power of $0.027 per kilowatt hour during the quarter while also supporting the Texas grid during times of disruption in supply and demand. Following the close of the second quarter of 2024 on July '23, Riot announced the acquisition of Block Mining, a privately held Bitcoin miner operating in Kentucky. This acquisition immediately adds 60 megawatts of operating capacity with the potential to quickly expand to 110 megawatts this year by leveraging existing infrastructure and a pipeline to build to over 300 megawatts in total in Kentucky. This adds approximately 16 EH/s of total hash rate capacity and provides us with a clearly identified growth path to 2 gigawatts of potentially accessible power and 75 EH/s of potential hash rate deployed. We remain focused on the growth and enhancement of our Bitcoin mining business. Riot's focus is maximizing Bitcoin mining results and our strategy is enabling us to execute on this at an unprecedented scale. I would now like to turn the call over to Colin Yee, CFO of Riot Platforms.

Thank you, Jason. I'm excited to present Riot's financial results for the second quarter of 2024, during which Riot achieved a number of key milestones. For ease of reference, Slide 5 presents a snapshot of key financial and operating metrics for the second quarter of 2024. So let's go over some highlights on the following pages. Riot owns and operates the largest dedicated Bitcoin mining facility in the world, the Rockdale facility, where we continue to deploy miners and expand our self-mining capacity during the second quarter. In addition, during this past quarter, Riot successfully energized our new Corsicana facility which when fully developed, will supplant the Rockdale facility as the largest dedicated Bitcoin mining facility in the world. As a result of the successful energization and development of our Corsicana facility and ongoing development at our Rockdale facility, Riot ended the second quarter with an installed hash rate of 22 EH/s, a 106% increase relative to the second quarter of 2023 and exceeding our prior guidance of 21 EH/s. Alongside additional growth in Kentucky, resulting from our acquisition of Block Mining, we now anticipate achieving a total self-mining hash rate capacity of 36 EH/s by the end of 2024, up from our prior guidance of 31 EH/s. During the quarter, Riot mined 844 Bitcoin which represents a decrease of 52% from the 1,775 Bitcoin we mined during the second quarter of 2023. This decrease was primarily driven by the block subsidy halving event which occurred in April 2024 and the significant increase in the Bitcoin network difficulty which increased by 68% from the second quarter of 2023. However, driven by the significant growth in our hash rate capacity expected through the remainder of the year, we anticipate producing more Bitcoin per day by the end of 2024 than we did in the first quarter of 2024, halving notwithstanding. Riot ended the second quarter of 2024 with 9,334 Bitcoin, an increase of 28% relative to the 7,265 Bitcoin that we held at the end of the second quarter of 2023. Riot continued to retain 100% of all Bitcoin produced in the second quarter. In the second quarter of 2024, Riot reported total revenue of $70 million as compared to $76.7 million for the second quarter of 2023, a 9% decrease year-over-year. This decrease was primarily driven by lower revenue at the company's engineering division. During the quarter, Riot reclassified third-party hosting revenues and costs into other from Bitcoin mining, as previously reported in the first quarter of 2024. Non-GAAP gross profit for the quarter was $30.3 million as compared to non-GAAP gross profit of $26.2 million in the second quarter of 2023. Non-GAAP adjusted EBITDA for the quarter was a loss of $75.2 million as compared to non-GAAP adjusted EBITDA of $24.3 million in the second quarter of 2023. Riot's adoption of FASB's final standard on crypto assets issued in December 2023 which Riot now recognizes its Bitcoin held at fair value and with it, changes in fair value now recognized in income. As a reference, Bitcoin price at the end of the first quarter of 2024 was $71,333 and the price at the end of the second quarter was $62,678. This resulted in a mark-to-market downward adjustment of $76.4 million in the second quarter. Net loss for the quarter was $84.4 million or $0.32 per share compared to a net loss of $27.4 million or $0.16 per share for the same period in 2023 which included a loss from the change in the fair value of Bitcoin held equal to $76.4 million, noncash stock-based compensation expense of $32 million and depreciation and amortization of $37.3 million. As a reminder, beginning in the first quarter of 2024, we adjusted our depreciation schedule for mining hardware from a 2-year to a 3-year schedule based on our evaluation of market practice and our own operational history. For the second quarter of 2024, Bitcoin mining revenue totaled $55.8 million, a 12% increase relative to second quarter 2023 Bitcoin mining revenue of $49.7 million. Bitcoin mining cost of revenue primarily consists of direct production costs of Bitcoin mining operations including electricity, labor and insurance but excluding depreciation and amortization. Bitcoin mining revenue in excess to Bitcoin mining cost of revenue for the quarter was $20.5 million, representing a margin of 37% as compared to $26.1 million or a margin of 52% in the second quarter of 2023. This decrease in margin was primarily driven by the halving events and the significant increase in global hash rate quarter-over-quarter. If power credits were directly allocated to Bitcoin mining cost of revenue, Bitcoin mining cost of revenue would have decreased by $13.9 million, increasing our Bitcoin mining margins of $34.4 million or 62% on a non-GAAP basis. In spite of the global network hash rate increasing from an average of 568 EH/s in the first quarter of 2024 to 604 EH/s, a 6% increase and the Bitcoin halving event in April 2024, Riot's cost to produce Bitcoin in the second quarter only increased 9% on a per Bitcoin basis and costs on a dollar basis actually decreased to $30.5 million from $36 million in the first quarter of 2024. Direct cost to mine this quarter totaled $25,327 per Bitcoin, of which direct power costs amounted to $14,890 or 59% of total direct cost to mine a Bitcoin. While direct non-power costs which include direct labor, miner insurance, miner and miner related equipment repairs, land lease and related property taxes, network costs and other utility expenses totaled $10,437, or 41% per Bitcoin. As previously mentioned, the halving had an increase in the global network cash rate and an accompanying increase in network difficulty were the primary drivers behind the slight increase in Riot's average direct cost to mine Bitcoin in the second quarter. This was offset by an increase in power credits as compared to the first quarter of 2024. Riot's engineering business carried on through Riot's wholly owned subsidiary, ESS Metron, reported revenue of $9.6 million in the second quarter of 2024 as compared to $19.3 million for the same 3-month period in 2023, a decrease of $9.7 million. This decrease was primarily attributable to supply chain constraints resulting in decreased receipts of materials, delaying the completion of certain custom products and therefore, the recognition of revenue. Our custom electrical products such as switchgear and power distribution centers are used as important components in data center development and in power generation and distribution facilities 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. Engineering gross profit for the quarter was $1.4 million as compared to a gross profit of $1.1 million for the second quarter of 2023. We anticipate a strong second half of 2024 for our engineering business, driven by continued growth in demand primarily from data center customers and the completion of complex legacy projects. I will now turn the call back over to Jason Les.

Thank you, Colin. With Riot's expansion into Kentucky, we now have access to 2 gigawatts of total power capacity and are well on our way to securing enough power to achieve our growth target of 100 EH/s of self-mining hash rate. The pipeline enabling this growth consists of 700 megawatts of capacity at our Rockdale facility, 1 gigawatt at our Corsicana facility and more than 300 megawatts of operating and potential capacity in Kentucky. Subsequent to the end of the second quarter of 2024, Riot announced the acquisition of Block Mining, a private Bitcoin miner with operations in Kentucky. This acquisition represents Riot's first major acquisition since 2021 and marks Riot's first strategic expansion outside of Texas. The acquisition of Block Mining immediately increases Riot's hash rate while significantly expanding our development pipeline of new growth opportunities, broadens Riot's footprint nationally and expands our operations into new mining-friendly jurisdictions, adds exposure to new energy markets outside of ERCOT in which Riot can continue to leverage our unique power strategy while helping to support local grids and brings on board an experienced management team which will continue to operate existing assets and leverage strong local relationships to drive further growth opportunities. As a result of our acquisition of Block Mining, Riot, gained two additional operating data center facilities in Kentucky. First, Commerce Drive which currently operates 35 megawatts of capacity in Paducah, Kentucky. And second, Blue Steel which currently operates 25 megawatts of capacity in nearby Calvert City, Kentucky, as well as on greenfield expansion site also in Kentucky. Both operating facilities already offer immediate expansion opportunities. Commerce Drive can be potentially expanded up to 100 megawatts leveraging existing infrastructure and Blue Steel can be expanded up to 55 megawatts. Additionally, while at present, there was approximately 18 megawatts of capacity being used to host third-party miners on site, 8 megawatts of this capacity is subject to change in control provisions which Riot intends to exercise, while remaining hosting contracts will wind down over the next few quarters, further adding to Riot's self-mining capacity. Together, both operating facilities currently operate 1 EH/s in self-mining and 60 megawatts of power capacity which we anticipate will be expanded to 4.8 EH/s of self-mining hash rate and 110 megawatts of power capacity by the end of this year. Coleman Road, Riot's new greenfield development site has the potential to be developed up to 150 megawatts which would bring the total expansion capacity from our acquisition of Block Mining up to a total of 305 megawatts, representing a significant portion of the additional capacity we require as we work towards our goal of achieving 100 EH/s of total capacity. Under Riot's existing MicroBT ASIC miner purchase option which carries a $16.50 per terahash price cap, Riot can fully develop these assets for approximately $345 million or $30 million per EH/s deployed, inclusive of total consideration or $21.8 million per EH/s when excluding the purchase consideration. This compares favorably with Riot's historical cost per EH/s deployed during Phase 1 at our Corsicana facility of approximately $40 million per EH/s. The Block Mining team has a proven track record as a low-cost developer of Bitcoin mining infrastructure and as a low-cost Bitcoin miner. Operating in the Midcontinent Independent System Operator, MISO Power Grid, Block Mining had an average power cost over the past year equal to approximately $42 per megawatt hour and an average CapEx build-out cost of $210,000 per megawatt a day across Commerce Drive and Blue Steel. Riot has strived to provide clear guidance on our growth plan and just as importantly, where we anticipate this growth will come from. We believe that providing visibility on not just overall growth plans but also on the specific sources to achieve this growth is a vital element in demonstrating the credibility of any Bitcoin miner's growth forecast. Thanks to the groundwork laid out over the past few years as we have focused on developing our Corsicana facility, we have the benefit of a clear path to achieve significant growth in the coming years. This clear path includes growth from additional expansion opportunities at our Rockdale facility, continued development at our Corsicana facility and immediate and near-term added capacity in Kentucky, as well as additional pipeline opportunities as a result of our acquisition of Block Mining. Executing on all of these growth opportunities, alongside our low-cost fixed price purchase options with MicroBT for latest generation ASICs will bring it to 75 EH/s in total capacity, well on track towards our long-term goal of reaching 100 EH/s. Riot's long-term purchase order with MicroBT continues to improve Riot's fleet efficiency, now at 24.5 joules per terahash. To date, our orders for new miners from MicroBT have been received at or ahead of schedule as we have now received approximately 77,734 miners with the vast majority already deployed. As additional new generation miners for MicroBT are received and deployed, Riot's total fleet efficiency will improve to 21 joules per terahash in 2025. If Riot exercises its long-term purchase option of 265,000 M66S miners, total fleet efficiency would improve to below 20 joules per terahash. Riot continues to prioritize maintaining a strong balance sheet with significant financial resources, including cash, marketable securities and Bitcoin holdings in order to drive long-term value creation for our shareholders. As a result of our financial position, we can act decisively and continuously scale our business to meet the growing opportunities in the Bitcoin mining space. This balance sheet strength, based on $639 million in cash and marketable securities and 9,334 Bitcoin, enables us to confidently plan our growth funding needs ahead of time. In fact, growth plans to the end of 2025 calling for $694 million in capital expenditures are already fully funded. Riot's vision is to be the world's leading Bitcoin driven infrastructure platform. The strategy we've been executing on over the past several years has now begun bearing the results which position us to realize this vision. Through our vertically integrated strategy, we have created an unmatched infrastructure growth pipeline to increase our hash rate by 193% to 36 EH/s by the end of this year and ultimately to our goal of reaching 100 EH/s in total self-mining hash rate. Riot's balance sheet strength underpins our ability to achieve our growth targets. And as a result, our 2024 and 2025 growth plans are fully funded. We are incredibly excited about what Riot is accomplishing this year and we look forward to executing on our stated goals. Thank you all for listening to our presentation. We would now like to open the call for questions.

We will take our first question from Greg Lewis of BTIG. Operator, can you open the line?

Jason, congratulations on getting Corsicana half fit; it was a long time coming. My question is regarding what comes next for Corsicana. Considering the next 600 megawatts, what needs to happen to achieve that? Specifically, in terms of procuring additional equipment, possibly expanding the substation, and also regarding any additional approvals or permits that may be required to reach that gigawatt goal in Corsicana?

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

Okay, great. And then just pivoting a little bit, as I think about ESS Metron and that acquisition, realizing that ESS Metron's number 1 customer is Riot. As we think about the potential capacity to scale up or fill down, I mean, clearly, there's demand for ESS Metron's services equipment, that only seems to be rising with increases to the grid, increasing demand for data centers, obviously, increasing demand for Bitcoin mining. I guess, as we think about the ability to scale that business over the next 2 to 3 years, how should we be thinking about the potential to like deploy capital in that vertical to kind of get and maybe unlock the potential that ESS has towards a broader market?

Riot is not the largest customer of ESS Metron as far as I know. They are a relatively small customer overall. With the expansion of the AI HPC data center space, there is currently significant demand. Their recent results have been affected by supply chain issues and major legacy jobs occupying their capacity. We have taken several steps to address this. In the second quarter, we anticipate that the supply chain constraints will ease, and once the current job is completed, which is expected in the latter half of this year, we will be able to start taking on jobs in the AI HPC data center space. We are looking forward to that. Additionally, we have been working to secure more floor capacity to increase production simultaneously. We are also exploring other opportunities to scale that business. I don't have a specific figure or guidance to share, but alongside expanding our Bitcoin mining operations, we are committed to ensuring ESS Metron is prepared to seize the opportunities in the data center sector as well.

At this time, we'll take our next question from Darren Aftahi from ROTH MKM. Operator?

You guys you hear me?

I hear you, Darren.

Great. Two, if I may. First, just as we think about 75 EH/s going to 100 EH/s in light of you guys buying Block Mining and talking about the cost per EH/s being more favorable than Corsicana. I'm just kind of curious with the entrée, maybe the last halving cycle, we have as many people chasing power assets, now we kind of have a new category there. How are you guys thinking about kind of achieving that goal? And are you seeing more of a challenge to procure larger power assets, i.e., over 100-plus megawatts organically? Is your growth strategy going to involve more acquisitions? Second question, obviously, we all came back from Nashville. There's a large presence on the conservative side. And I know there was also some Democratic presence. So Jason, I'm curious to kind of get your views about how you feel like crypto and Bitcoin is going to play a role in the election beyond just the Republican party and even RFK and then what your general thoughts are for Democrats, I think will come around to this, you'll have maybe even more of a tailwind than you already do right now?

Thank you, Darren. To address your first question about achieving 75 EH/s, the core of our strategy has been a vertically integrated approach that emphasizes securing power access. This is why we prioritized Corsicana over two years ago, ensuring a 1 gigawatt pipeline. Our main focus at Riot is to secure this power capacity, and we've successfully achieved this organically by demonstrating our results and benefiting the community in Texas. Additionally, as you've mentioned, we are also pursuing inorganic growth. I believe Riot boasts one of the strongest corporate development and M&A teams in the industry. We are consistently evaluating various deals in detail and proceeding with those that will enhance our capacity. You can expect to see us actively pursuing both organic opportunities through Riot’s internal development and also exploring potential deals in the market, while remaining very selective. Our top priority remains securing power capacity and acquiring the equipment needed to develop that capacity. Regarding your second question about Nashville and public policy, we started investing in our public policy efforts about two years ago to address the growing threats facing our industry, including governmental taxation from various entities like Congress, the SEC, the White House, and the Treasury. To protect our business and the industry, we recognized the need to collaborate with peers and industry groups to educate and advance our interests. We have had success on both sides of the political spectrum. Although Nashville has a mainly Republican presence, we have been working closely with some influential Democrats who understand these issues. I believe we are witnessing a shift inspired by the game theory surrounding Bitcoin. When one political party begins to embrace Bitcoin through regulatory frameworks, it encourages the other party to follow suit. We've seen notable Democrats advocating for this change, and news reports indicate that Vice President Harris's campaign is planning to re-engage with the industry. This reflects the effectiveness of our strategy. As more prominent officials support Bitcoin, it incentivizes others to do the same, leading to Bitcoin becoming a nonpartisan issue that is important for everyone. That is the goal we are striving to achieve.

Our next question comes from Lucas Pipes at B. Riley Securities. Operator?

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

Thank you, Lucas. Our business plan is to be the leading Bitcoin miner in the sector. Our belief is that no Bitcoin miner has perfected this yet, including Riot, and everyone has a different approach while still figuring things out. We aim to focus our time and resources on optimizing and scaling our Bitcoin mining operations to become the best miners we can be. We believe that in the long term, our position in Bitcoin mining, along with the anticipated price increase for Bitcoin, will yield significant benefits. This is the most valuable use of our energy. While some industry players are exploring contracts or ventures in AI, that requires a different development skill set and would be a distraction for us. We will split our operations in half and building a different type of infrastructure could be costly or time-consuming to revert back to Bitcoin mining, especially if those new initiatives do not pan out. Thus, it's crucial for us to adhere to our long-term strategy. Riot has consistently focused on building and developing Bitcoin mining assets. Regarding the impact of the recent AI HPC trend on the industry, there is a significant competition for energy resources. AI data centers are seeking capacity across the country, and to meet their growth objectives, they will need more energy generation. We believe that Bitcoin mining loads can help drive additional generation, as they are flexible compared to the more rigid demands of AI HPC. Bitcoin miners provide reliable baseload demand for energy producers while having the capability to reduce load during peak times, making Bitcoin mining a key factor in advancing energy generation. We also see an advantage in operating in rural areas where other data centers might not be able to establish themselves, and it is more difficult and expensive to create AI HPC infrastructure in hotter climates that are suitable for Bitcoin mining. With increased competition for power capacity, our strategy of prioritizing energy sourcing is being validated, especially with our 1 gigawatt capacity that supports our ambitious goals through our existing development pipeline.

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

Sure. So as of right now at Bitfarms, we have no outstanding proposal. I know we had a proposal we made public a while ago. That was never tendered to shareholders. That was kind of brought forth as our example of the challenges that we are seeing with Bitfarms. Frankly, we see some corporate governance concerns at Bitfarms. We are the largest single shareholder and based on how they handled their proposal, based on how they handled our relationships with them implementing an off-market poison pill, our view is that Board is valuing its own interest over its duty to shareholders. So the only thing for our next step right now is the special meeting that's scheduled for October 29. We repositioned that meeting, Bitfarms has scheduled that meeting. We've nominated 3, we think, very highly qualified and directors independent of both Riot and Bitfarms. We think nominating those shareholders to the Board will bring the much-needed governance changes that we see being required there. So nothing except that shareholder meeting on the plans for right now.

Our next question will come from Regi Smith at JPMorgan. Operator?

Congrats on Corsicana and the Block Mining acquisition. I guess I had a follow-up to Lucas' question. And I certainly appreciate the capital intensity and the risks of pivoting to HPC. My question for you, Jason, is there a structure or price where maybe some of those risks are mitigated or partner where that could be mitigated? Is there a scenario in your mind where you see that possibly you could explore this if the right deal structure, right partner approached you?

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

Understood. That makes a lot of sense, and I appreciate the insight. If I could add one follow-up, this may be an unfair comparison. We track various miners and look at their operating efficiency. Clearly, you have a cost advantage, but I'm curious about how you benchmark your operations from an uptime perspective. Is there an opportunity to enhance that? Are you satisfied with your current performance, or is there a path to improving it if you're not happy?

Yes, Reggie. To be honest, our recent operating results have not met our expectations in terms of uptime historically, which is why we are focused on making improvements. Much of this effort is happening at Corsicana, where we have upgraded infrastructure. We are quite optimistic about the developments there, although we are still in the early stages. We have recently activated a significant amount of EH/s and are currently fine-tuning and optimizing that as we move through July. The initial results have encouraged us, and we believe there will be further improvements over time. Meanwhile, at Rockdale, we are implementing several initiatives, including replacing some of the less efficient miners with MicroBT miners, and we are seeing positive outcomes in our operating results. We hold ourselves to very high standards, and I can say that this focus on uptime, alongside building new capacity at Corsicana, is a top priority for Riot at the moment. As we ramp up and take advantage of direct energy costs per Bitcoin on a larger scale, combined with enhanced operating uptime, we anticipate significant improvements in our results. We will provide our monthly update for July next week, where you will see some of the progress we have made.

Our next call will come from Joe Flynn at Compass Point Research & Trading. Operator?

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

I don't have specific percentages for the summer months. In the second quarter of 2024, we achieved a $26 per megawatt hour cost of power at Rockdale, which is part of our power strategy. At Corsicana, where we purchased power at spot prices and curtailed during high demand, we achieved a $39 per megawatt hour cost of power. Overall, our combined cost of power for the second quarter was $27. August usually presents challenges in ERCOT due to heat and market volatility. So far, Texas has experienced a relatively mild summer, likely due to both pleasant weather and significant growth in renewable generation this year. We expect reasonable power costs for July, but as we move into August, we'll monitor if the mild summer continues and any resulting curtailment.

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

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

Our next call comes from Martin Toner at ATB Capital. Operator? Martin?

Sorry about that, guys. Quick question about miners. Any thoughts on the strategy to secure the miners to get from 70 EH/s to 100 EH/s?

So with our existing MicroBT purchase option, Martin, we have the capacity secured to get to that 100 EH/s. That's if we fully exercised that MicroBT option for 266,000 or so M66S miners. Of course, under the contract, we also have the ability to upgrade those miners and with efficiency improvements, that would get to even greater hash rate. Alongside that, we're looking at what all manufacturers are putting out to the market all the time. We're testing what's going on. We're asking questions, we're negotiating. All of Riot's business is always up for grabs and we like the results that we get when manufacturers of any products are competing for our business. We've seen the benefits of that first-hand. So short answer to your question, Martin, is the existing MicroBT purchase option gives us enough supply to get to the 100 EH/s but we're looking at options to go even beyond that.

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

Sure. Let me turn the question over to our CFO, Colin Yee.

Thanks, Jason. So Martin, given the status of our third-party hosting contracts, management in conjunction with discussions with our auditors, we decided that it would be more useful information we could include those third-party hosting revenues and hosting costs into others; so you'll see it there. With respect to sort of the current status on that, as you know, those contracts are generally in litigation. So we can't say anything more than that.

Our next call is from Bill at Stifel.

Congratulations once again on the recent Block Mining acquisition. For my first question, I was just hoping you'd be able to share your outlook for Bitcoin mining economics over the near to medium term. And how these market dynamics are impacting the M&A pipeline or existing growth opportunities? Obviously, Riot is financially well positioned in this current market. Looking to get some more color there.

Thank you, Bill, for your question. We’ve observed that Bitcoin mining economics are facing significant challenges more than ever before. During the second quarter, the industry reached an all-time low hash price, currently sitting at $46 per terahash per day. This certainly represents a tough period for Bitcoin mining economics. Following the halving, the price hasn’t seen much appreciation, while network difficulty continues to rise. This is precisely why we prioritize maintaining a low cost of production, with a strong focus on our power strategy. It also sets the stage for potential M&A opportunities, particularly for miners who may be dependent on debt or have financial structures that make them unprofitable at these hash prices, preventing them from remaining in business. This is where a financially robust company like Riot can identify opportunities. Additionally, some miners, facing these economic constraints, need to upgrade their outdated fleets but lack the necessary capital. A partnership with Riot through an acquisition can benefit both parties significantly. We are actively monitoring any opportunities that arise. I’m incredibly proud of our corporate development team at Riot and the thoroughness with which our team assesses transactions regularly. We are always keen on finding chances to expand our operational presence.

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

Yes, I believe we are already observing this trend, particularly overseas. Some of our competitors have formed partnerships with sovereign wealth funds, which are essentially extensions of nation-states to monetize surplus capacity. In the United States, it's still uncertain when we will see similar developments. Generally, regions that offer cheaper energy and better energy markets, where the relationship between government and power generation is not as close, are where we tend to see this. Our core belief is that Bitcoin mining is the optimal way to accumulate Bitcoin. With low energy costs being the primary input, efficient operators can acquire Bitcoin at below market prices. If a state has underutilized resources and the desire to accumulate Bitcoin, this strategy could be advantageous. However, I anticipate the U.S. will take longer to adopt this approach compared to less democratic nations, where governments can facilitate quicker changes. In the long run, I expect to see Bitcoin mining connected with energy resources at all levels, likely involving some form of government partnership.

Our next question comes from Brett Knoblauch from Cantor Fitzgerald. Operator?

Perfect. Maybe just another question on mergers and acquisitions. What do you look for when evaluating the opportunities presented to you? Is it location, size, access to power, or a combination of all those factors? To what extent would you prioritize adding more U.S. assets versus international assets, where power costs may be lower but the political environment might be less stable? How do you approach evaluating that overall landscape?

Thanks, Brett. Let me turn that question over to Jason Chung, our Executive Vice President and Head of Corporate Development.

Thank you for the question, Brett. It's a thought-provoking one. Let me address it in parts. First, when we consider M&A opportunities, power is our primary focus. This involves both access to power and its cost, as we operate in a cyclical industry and take a long-term view on power costs at various points in the cycle. Securing access to significant amounts of power at a viable price is our top priority when evaluating opportunities. Regarding jurisdictions, our acquisition of Block marked our first move outside of ERCOT, a market we know well. However, we are less familiar with some of these new markets. Acquiring Block not only included operational assets but also brought in a team that built the Block business, along with their local relationships and expertise in MISO, which made the deal more appealing. When exploring new markets, it’s crucial for us to have the right team and expertise to ensure we can operate comfortably in a cyclical environment going forward. Internationally, we see numerous opportunities outside the U.S., and I believe we’re among the first calls for large public miners seeking new international ventures. The challenge, similar to entering new jurisdictions from ERCOT, involves our familiarity and comfort with these new markets. We must consider who our partners are and whether the benefits of what may seem like lower power prices outweigh the associated risks. This is how we assess international opportunities. We remain open to them, but the risk threshold is higher, meaning the potential rewards would need to be correspondingly greater.

I have a quick follow-up regarding the capacity auction today in PGM. Is the Kentucky assets included in PGM or not?

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

Our next question is from Mike Grondahl at Northland Securities. Operator?

Just a follow-up on the Kentucky acquisition. What do you guys see as the operational challenges there? It's pretty small today but the growth looks pretty significant. What do you see as those operational challenges?

Let me turn that question back over to Jason Chung.

Thanks, Jason. Currently, the Block Mining team has a self-mining capacity of about 1 EH/s. Our goal is to increase that to 15.8 by the end of next year. One of the strategic advantages of this partnership is the significant opportunity it presents for the team, combined with Riot's strong financial position and the capital we can invest. In the short term, our focus will be on utilizing existing opportunities for expansion and securing access to more power through new PPAs. They have valuable local relationships, while we provide the necessary capital and expertise to facilitate these developments. This partnership has great potential, and it's essential that we capitalize on the expansion opportunities available to us.

Our next question comes from Mike Colonnese from H.C. Wainwright. Operator?

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

In Kentucky, we plan to build a combination of air-cooled and immersion systems. Currently, their operations are entirely air-cooled, and we believe that immersion will likely be used for future expansion. However, we do not anticipate retrofitting any existing air-cooled operations in the near term, as they have demonstrated strong performance. The cost per megawatt varies based on what is considered in that cost. We previously provided a breakdown of these costs during our Corsicana Investor Day. For example, when expanding Corsicana, we will factor in the necessary substation expansion for the larger capacity. Other operators may have lower upfront costs by leasing capacity instead of building a substation, but this approach carries its own risks. Regarding immersion, more players are entering the market, and various equipment costs are fluctuating. Some components may have lower prices, while others, like pumps, might be more expensive. We have not observed significant changes in this market yet. We are still evaluating bids to determine our plans for a phase 2 expansion at Corsicana, so the final pricing remains to be seen. After this process, we will be able to answer your question more accurately.

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

Yes. The Block Mining team has done an excellent job building that capacity very quickly and showing strong operational uptime. So they've demonstrated they are excellent Bitcoin miners from the development and operating standpoint and that is very advantageous to us. So you couple that with their local relationships and capacity that they've been able to secure for growth and they can be out in Kentucky, doing what they've already done, being good at what they do and growing the capacity out there. So they really fit into Riot basically as our Kentucky division. We have, of course, the core of our operations here in Texas. And then now we have this Kentucky arm operating base as well. And what's great is all of these teams can work together to share knowledge. Bitcoin mining is a game of a cumulative knowledge over time. There is no book on how to do this; so everyone can share what they've learned works and what doesn't and make all teams better at what they do. So we are very happy to have Block Mining on board, no longer Block Mining, now Riot, Kentucky.

We've got one more question from John Todaro at Needham & Company. Operator?

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

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

Okay. At this time, there's no further questions. We thank everybody for joining Riot on our second quarter earnings call and we look forward to updating you on our progress in November. Thank you.

Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.