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

Thank you, Liz. Good afternoon, and welcome to Riot Platforms third quarter 2024 earnings conference call. My name is Phil McPherson, Vice President of Capital Markets and Investor Relations. And joining me on today's call from Riot are Jason 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 third quarter 2024 earnings press release and accompanying earnings presentation, which are intended to supplement today's prepared remarks and which include a discussion of certain non-GAAP items. Non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP and are included as additional clarifying items to aid investors in further understanding the company's third quarter performance. During today's call, we will 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 Forms 10-Q, including for the quarter ended September 30, 2024, which will be filed later today, as well as other filings with the Securities and Exchange Commission. With that, I will turn the call over to Jason 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: developing and owning operations of significant scale; being a low-cost producer of Bitcoin; and building a balance sheet of strength. During the third quarter of 2024, we continued to demonstrate success at all three of these pillars. Riot increased total deployed hash rate quarter-over-quarter by 27%, from 22 exahash to 28 exahash, meeting our quarter end target of 28 exahash and on track to reach 35 exahash by the end of the year. The third quarter of 2024 was the first full operational quarter of Bitcoin production following the halving event, which occurred in late April and which led to a reduction in the Bitcoin block subsidy from 6.25 to 3.125 Bitcoin per block. Additionally, global hash rate grew by 4% quarter-over-quarter. Both of these events created bearish headwinds for Bitcoin miners in relation to the cost to mine. Despite these events, Riot's cost to mine in the third quarter aided by our unique power strategy remained among the lowest cost miners in our industry and was significantly below the average price per Bitcoin during the quarter. We generated $12.4 million in power credits during the quarter, lowering our all-in cost of power to $3.1 cents per kilowatt hour during the third quarter, while also supporting the Texas grid during times of disruption in supply and demand. During the third quarter, Riot also continued to address challenges regarding our operational hash rate. While we are always focused on continued growth, our primary focus at this time is on improving this metric and reaching a standard of operational excellence. During the quarter, we completed the redeployment of a large portion of the underperforming miners at our Rockdale Facility, with a nameplate capacity of 3.33 exahash and the subsequent installation of latest generation miners with a nameplate capacity of 3.66 exahash from May through September. This focus on improving operational efficiency is already beginning to show results and we are pleased to report that through October 29th, Riot Bitcoin production for the month was approximately 469 Bitcoins. Average operating hash rate through this period was approximately 23 exahash. And when excluding the first two days of the month when our Corsicana Facility was powered down for substation maintenance, average operating hash rate was approximately 24 exahash, representing an over 80% company-wide average utilization rate. These are just initial and preliminary results from our focus on achieving operational excellence. And we believe that with the initiatives underway across all of our sites, we are strongly positioned to continue building on this positive momentum. We remain focused on the growth and enhancement of our Bitcoin mining business. Riot's focus is maximizing Bitcoin mining results, and our strategy is enabling us to execute on this at an unprecedented scale. I would now like to turn the call over to Colin Yee, CFO of Riot Platforms.

Thank you, Jason. I'm excited to present Riot's financial results for the third quarter of 2024. For ease of reference, and something you can always refer back to, is Slide 5. This presents a snapshot of key financial and operating metrics for the third quarter of 2024. However, let's jump into the details on the following slides. Riot owns and operates the largest dedicated Bitcoin mining facility in the world, the Rockdale Facility, where we continue to deploy miners and expand our self-mining capacity during the third quarter. In addition, Riot continues to add hash rate at our 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 development of our Corsicana Facility and ongoing development at our Rockdale Facility, Riot ended the third quarter with an installed hash rate of 28 exahash, a 159% increase relative to the third quarter of 2023, and meeting our guidance for the quarter. During this quarter, Riot mined 1,104 Bitcoin, in line with the 1,106 Bitcoin we mined during the third quarter of 2023. These results came about in spite of the Bitcoin block subsidy halving event, which occurred in April 2024, and the significant increase in the Bitcoin network difficulty which increased by 59% from the third quarter of 2023. In spite of these events and driven by the significant growth in our 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. Riot ended the third quarter of 2024 with 10,427 Bitcoin, an increase of 42% relative to the 7,327 Bitcoin that we held at the end of the third quarter 2023. Riot continued to retain 100% of all Bitcoin produced in the third quarter. In the third quarter of 2024, Riot reported total revenue of $84.8 million as compared to $51.9 million for the third quarter of 2023, a 65% increase year-over-year. This increase was primarily driven by higher Bitcoin prices. Gross profit for the quarter was $24.3 million as compared to gross profit of $37.7 million in the third quarter of 2023. Non-GAAP adjusted EBITDA for the quarter was a loss of $3.6 million as compared to a non-GAAP adjusted EBITDA loss of $3.1 million in the third quarter of 2023. Riot adopted FASB's final standard on crypto assets issued in December 2023, under which Riot now recognizes its Bitcoin held at fair value. And with it, changes in fair value are now recognized in income. As a reference, the Bitcoin price at the end of the second quarter in 2024 was $62,678 and the price at the end of the third quarter was $63,330. This resulted in a mark-to-market upward adjustment of $8.6 million in the third quarter. The net loss for the quarter was $154.4 million or $0.54 per share compared to a net loss of $80 million or $0.44 per share for the same period in 2023. This quarter's net loss includes non-cash stock-based compensation expense of $30.6 million, unrealized loss on marketable equity securities of $38.1 million, and depreciation and amortization of $60 million. As a reminder, beginning in the first quarter of 2024, we adjusted our depreciation schedule for mining hardware from a two-year to a three-year schedule based on our evaluation of our own operational history. For the third quarter of 2024, Bitcoin mining revenue totaled $67.5 million, a 116% increase relative to third quarter 2023 Bitcoin mining revenue of $31.2 million. Bitcoin mining cost of revenue primarily consists of direct production costs of Bitcoin mining operations including electricity, labor and insurance, but excluding depreciation and amortization. Bitcoin mining gross profit for the quarter was $28.4 million representing a margin of 42% as compared to $56.4 million or a margin of 181% in the third quarter of 2023. In spite of the global network hash rate increasing from an average of 604 exahash in the second quarter of 2024 to 625 exahash in the third quarter, a 4% increase, and the Bitcoin halving event in April 2024, Riot's cost to mine Bitcoin in the third quarter increased by only 40% on a per-Bitcoin basis when compared to the previous quarter. Cost to mine excluding depreciation this quarter totaled $35,376 per Bitcoin, of which power costs amounted to $26,673 per Bitcoin or 75% of the total cost per Bitcoin. Quarter-over-quarter, power costs increased from $2.7 a kilowatt hour to $3.1 a kilowatt hour as a greater portion of power was procured at the Corsicana Facility at spot market rates, with proportionately fewer offsetting power credits than the previous quarter. We remain pleased with achieving an all-in cost of power of $3.1 a kilowatt hour, which remains one of the lowest in the industry. Direct non-power costs, which include direct labor, miner insurance, miner and miner-related equipment repairs, land lease and related property taxes, network costs, and other utility expenses totaled $8,703, or 25% per Bitcoin mined, down from the second quarter of 2024 when direct non-power costs accounted for 41% of total costs. This significant drop is a result of Riot continuing to achieve economies of scale at our operating facilities. As Riot continues to grow hash rate, we expect to see non-power direct costs as a percentage of total cost per Bitcoin to trend lower. Riot's engineering business carried out through Riot's wholly owned subsidiary ESSMetron reported revenue of $12.6 million in the third quarter of 2024 as compared to $15.5 million for the same three-month period in 2023, a decrease of $2.9 million. This decrease was primarily attributable to one large government contract that had taken longer than anticipated to complete due to supply chain constraints. This resulted in an engineering gross loss for the quarter of $0.9 million as compared to gross profit of $2.3 million for the third quarter of 2023. Our custom electrical products such as switchgear and power distribution centers are important components in data center development and in power generation and distribution facilities. And there has been increased demand for these products due to the continued increase in data center construction by developers, as well as the continually increasing worldwide demand for power. At the end of the third quarter, this large government contract finally shipped, freeing up approximately one third of our warehouse capacity and allowing this division to get back to work on higher margin contracts. Riot's cash SG&A expense for the third quarter was $36.4 million. This cash SG&A expense figure includes one-time M&A and one-time litigation related expenses of $4 million and $4.9 million, respectively, which puts our run rate cash SG&A for the third quarter at $27.5 million, in line with our previous guidance of $25 million to $27 million per quarter, particularly when factoring in additional costs from Kentucky, which added a little over $700,000 in additional general business and compensation expenses in the third quarter. For the fourth quarter of 2024, we expect run rate cash SG&A to come out in the $27 million to $30 million range. M&A and legal expenses are challenging to forecast, but based on current litigation activity levels, we anticipate litigation expenses in the fourth quarter will be significantly elevated relative to the third quarter.

Thank you, Colin. With Riot's recent expansion into Kentucky, we now have a direct pathway to two gigawatts of total power capacity and are well on our way to securing enough capacity to achieve our growth target of 100 exahash of self-mining hash rate. The pipeline that will ultimately enable this growth consists of 700 megawatts of capacity at our Rockdale Facility, 1 gigawatt of capacity at our Corsicana Facility, and more than 300 megawatts in Kentucky. Today we are pleased to announce we have initiated the full second phase development of the Corsicana Facility, which will add 600 megawatts of capacity when complete and take the site to 1 gigawatt of capacity. We have placed orders for the necessary substation equipment and expect the development to be fully completed in 2026. Riot has long strived to provide clear guidance on our growth plans, and just as importantly, where we anticipate this growth will come from. We believe that providing visibility on not just overall growth plans, but also on the specific path to achieve our growth plans is a vital element in demonstrating the credibility of any Bitcoin miners' growth forecast. Through our vertically integrated strategy, we have developed multiple pipelines of organic growth opportunities available for us to pursue. These expansion opportunities are at various stages of development and can be prioritized or pushed back based on our assessment of the optimal distribution of resources for our portfolio of infrastructure at any given time. Going forward, we intend to present our growth targets on a more conservative basis, based on a higher degree of confidence and internal prioritization level relative to our prior methodology. We believe that this approach will position us to more confidently meet and exceed expectations. Therefore, and with this revised approach in mind, we are revising our hash rate growth forecast for 2024 and 2025. For 2024, we now estimate a year-end installed hash rate of 35 exahash, down slightly from our prior guidance of 36 exahash. This adjustment is primarily driven by a 1.8 exahash decrease in expected hash rate growth in Kentucky, which is being pushed back into 2025, offset by a 1.1 exahash increase in expected hash rate growth at our Rockdale Facility, resulting from initiatives underway to improve our operational efficiency. More specifically, we have accelerated and converted our MicroBT purchase orders for 2025 into 2024 with the planned delivery of approximately 8 exahash of M60 miners in the fourth quarter of this year. Since our large-scale deployment of MicroBT M60 miners this summer at Rockdale, we have seen significant improvements in operating uptime. In fact, one of our buildings entirely utilizing only M60 miners operated at over 95% uptime even during the hottest period of the summer, excluding only periods of power strategy related procurement. These new miners to be delivered will replace all of the older generation machines with two of our air-cooled buildings, which will be redeployed across other locations, thus increasing the Rockdale Facility's total hash rate to 16 exahash and further improving our fleet-wide efficiency to 21.4 joules per terahash by the year end. Closing out 2024, we remain on track to fully complete the first 400 megawatt phase of our Corsicana Facility by year end. All critical equipment has been deployed and we are in the process of commissioning the final systems of this development. For 2025, we are lowering our year-end exit hash rate forecast from 56 exahash to 46.7 exahash. We are taking a more cautious approach relative to prior guidance, driven by longer lead times on substation equipment for Corsicana as a result of which we now expect two buildings to come online in 2025 versus our previous expectation of three buildings. This change accounts for approximately 4 exahash of the lower guidance. Additionally, we are pushing out some of the expected Kentucky expansion for 2025 into 2026 and 2027. We now expect the initial phase of the Coleman Road facility to come online in 2026 with subsequent phases coming online in the following year. This change will result in approximately 8.8 exahash of 2025 growth, now being pushed out into 2026 and 2027. In 2023, Riot made the strategic decision to enter a long-term purchase agreement with MicroBT with an option to purchase an additional 75 exahash with a price ceiling of $16.40 per terahash. During 2024, we have received and deployed a majority of the miners from our initial purchase orders and have been extremely pleased with the results of both the purpose-built immersion models at Corsicana and air-cooled model at Rockdale. We have seen a significant improvement in operating uptime with these machines, and we are leveraging what we have learned to improve operations across all our facilities. With the most recent deployments, Riot's fleet efficiency now stands at 23 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 90,000 miners with the vast majority already deployed. As additional newest generation miners from MicroBT are received and deployed, Riot's total fleet efficiency is expected to improve to 20.3 joules per terahash in 2025. Riot's balance sheet strength enables us to commit to growth investments that will allow us to achieve a hash rate growth target for 2025 of 46.7 exahash. We now anticipate CapEx spending of approximately $663 million over the next five quarters to the end of 2025, reduced from our prior guidance of $713 million based on our latest growth forecast. It is important to note that some of our CapEx spend in 2025 will also be setting the foundation for future growth in 2026 and beyond. As an example, approximately $50 million of additional Corsicana CapEx in 2025 is for our 600-megawatt substation, which will ensure that we can provide sufficient power to future developments on site. Maintaining a strong liquidity position allows Riot to continue to make long-term decisions that would yield results well into the future. Riot's vision is to be the world's leading Bitcoin-driven infrastructure platform. In achieving this vision, we are in the process of completing a 181% increase in deployed hash rate in 2024, positioning us to mine more Bitcoin per day post halving than we were prior. We also continue to realize one of the industry's lowest costs to mine at $35,376 per Bitcoin during the quarter. In working towards our vision, our objective is to leverage our cost advantages and efficiencies over growing scale into the coming years. Over the past few quarters, the demand for power assets by both Bitcoin miners and now AI HPC companies has grown significantly. There is a notable sense of urgency for power access in 2025 with AI HPC companies willing to pay a premium for timely access at attractive sites. Longer term, we continue to see a robust pipeline of energy assets available to us, and we remain highly active in continuing to evaluate opportunities to enhance our pipeline of power capacity well into the future. Riot will continue to monitor industry trends and make decisions that provide the greatest benefit to our shareholders while also staying focused on our long-term goal of reaching 100 exahash in total self-mining hash rate. We are incredibly excited about what Riot has accomplished this year, and we look forward to executing on our stated goals and reporting to you on our progress and success. Thank you all for listening to our presentation. We would now like to open the call for questions.

... Our first question comes from the line of Mike Colonnese with H.C. Wainwright.

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

We are very focused on achieving operational excellence, which means maintaining large-scale operations safely and compliantly while ensuring high uptime. Our goal is to reach an average utilization of over 95% for our deployed hash rate, excluding curtailment periods related to our power strategy. This won't happen overnight, but we are very pleased with the quick improvements we've observed. In the past, Riot was reporting hash rate utilization in the 60% to 70% range, and now we have surpassed 80% for the most recent month. We expect continued growth at Rockdale, where we are happy with the performance of the new systems, along with ongoing work at Rockdale where we are installing new M60 miners. We believe this will lead to further improvements in utilization through the end of the year, positioning us strongly for 2025. While it’s not an overnight fix, our aim is to achieve over 95% average utilization.

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

Sure. Let me turn that question over to Jason Chung.

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

Great. Thanks for taking my questions.

Our next question comes from the line of Darren Aftahi with ROTH.

Hi, guys. Thanks for taking my questions. First one, I guess, Jason, your comments about improved utilization outside of just the M60 new machines. Is there anything from a logistical best practice that you're doing that's improving utilization? Or is it just the exclusively machine performance?

Yes, Darren, there's a huge number of projects that we've got underway to improve this utilization. And of course, we're pleased with the results that we're seeing from these miners, but there's a whole host of things that we've been implementing and are continuing to implement. We're improving our electrical infrastructure. We're making tweaks to how our cooling works. We're improving our on-the-ground organization around miner repair and support. We have ramped up our analytics and software capability. We're monitoring our operations on a very detailed level now, and it's allowing us to respond to things quicker and address things quicker. We've put a lot of expertise at play here in order to improve this metric. So the new miners certainly helped. That's a big part of it, but there are tens, if not 100 projects that have been underway over the course of 2024 in order to really focus on getting Riot to the state of operational excellence, getting to 2025 operating very strong.

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

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

Great. Thanks for the insights.

Our next question comes from the line of Greg Lewis with BTIG. Greg, your line may be on mute.

Can we move on to the next one, operator? He can re-queue in.

Our next question comes from Paul Golding with Macquarie.

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

That was, I'm sorry to interrupt you, please.

No, no, that was my follow-up, it's unrelated. So go ahead.

Okay. It was purely engineering. It wasn't a demand response kind of action. It was planned and scheduled; our internal teams at Riot handle it.

Thanks, Jason. I wanted to ask about ESSMetron and its capacity being utilized on government contracts. How do you view ESSMetron's use in third-party deals compared to the vertically integrated infrastructure as you expand your capacity? Is there an advantage to one approach over the other? How are you considering this overall?

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

Got it. Thanks. And if I could just sneak in one quick question at the end. Is there anything specific to highlight as a key factor in the adjustment of the Kentucky timeline for the 1.8 exahash you mentioned? Thanks.

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

Got it. Thanks so much.

Thank you, Paul.

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

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

Yes, thanks, Joe. I'll start with the litigation update. Unfortunately, I can't provide any specifics as these cases are still ongoing. Regarding our operating expenses, we have been very active in mergers and acquisitions throughout 2024. As reflected in our financials, the acquisition of Block Mining incurred $3 million in expenses categorized as acquisition-related costs. Additionally, for M&A activities that are still pending, specifically with Bitfarms, we faced around $4 million in one-time costs, which are recorded under general and administrative expenses. We've also experienced heightened expenses related to ongoing litigation with legacy hosting customers from the Whinstone acquisition in 2021. Importantly, when excluding one-time M&A and litigation expenses for this quarter, our cash SG&A was $26.5 million, consistent with our prior guidance. This figure includes $700,000 in cash SG&A attributable to business and compensation expenses related to the Kentucky acquisition. While we do anticipate elevated litigation costs in the fourth quarter, these are temporary and do not reflect our ongoing operational run rate. We look forward to resolving these issues and moving past them soon.

Thank you. Following up on the previous question, it seems you are open to various possibilities regarding the 600-megawatt substation. I would like to know if you have begun discussions, even at an early stage, with potential HPC counterparties, or if you believe that proceeding with the construction of the 600-megawatt substation could encourage more activity in the future. Thank you.

We believe that having more power capacity provides more options, and the surge in demand from AI HPC makes those options even more valuable. As I mentioned earlier, discussions are still in the preliminary stages, but they are ongoing. We are exploring whether a favorable deal can be reached to utilize this capacity in a way that offers better returns than Bitcoin mining. If we arrive at any conclusions, we will update the market accordingly. We are encouraged by the interest we have seen from various parties.

All right. Thanks. That’s all from me.

Our next question comes from Bill Papanastasiou with Stifel.

Yes. Good evening, gentlemen. Thank for taking my questions. For the first one, I just want to touch on ESSMetron. Curious whether you're able to quantify this demand in growth in recent quarters from the AI HPC space. Can you share some color on how scalable ESSMetron is today and its ability to satisfy this growth in demand? Thanks.

There is significant demand for these types of services. ESS is constrained by the size of the facility, the workforce, and the equipment, but primarily by the manufacturing space available. Many companies are willing to wait for long delivery times just to secure a position for equipment. Although there is a strong appetite for immediate growth, numerous companies are planning for future expansion and want to get in line now for when capacity increases. I currently cannot provide a forecast on how we can boost that capacity, as it's a key consideration for us to fully take advantage of the available opportunity. Unfortunately, I do not have a specific number to quantify the demand, but I can confirm that it is quite robust. The main constraint we face is the facility size and how much equipment we can accommodate on the factory floor. We are exploring opportunities to enhance that capacity, as it would allow us to improve the revenue potential of that business.

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

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

Thanks, Jason. Really appreciate the color there.

Our next question comes from Greg Lewis with BTIG.

Can you hear me? Hello?

Hi, Greg. Yes, I hear you.

Okay. There are definitely some technical difficulties. Hi, everyone. I wanted to ask about the build-out of Corsicana. I'm curious if there's land available and the potential to expand both Corsicana and Rockdale sites in terms of power capacity, provided that the necessary filings with ERCOT are completed over the next few years.

Thanks for the question, Greg. With what we've built out in Texas, I don't really mean the operational base we built out, but the relationships we've built out, what we've learned everything in place as a result of building these two huge sites, we feel we have a really good advantage in being able to pursue greenfield opportunities and get additional capacity in Texas, whether it's near our current sites or elsewhere in Texas. These are things we're working on, on a regular basis. One of the things that having this pipeline of immediate growth at a place like Corsicana affords us is the ability to work and think longer term. So we're able to have our operations team developing Corsicana up to its full 1 gigawatt. And meanwhile, we're working on all these other opportunities or projects in the background that could either come in the immediate future year, 2025, 2026 or even beyond that. So I don't have any other detail that I can update for you with right now. We are always looking to create more optionality for us and increase our power capacity. And we're doing that with both potential organic growth opportunities and M&A opportunities as well.

Okay, that's very helpful. Regarding the delays, the situation in Corsicana is quite clear; the transformer is simply arriving later than expected. Can you provide some insight into the situation in Kentucky? It appears that we will be taking a more cautious approach with our future guidance regarding that. Could you share any details about the specific delays occurring in Kentucky?

Yes. I'll provide two insights on that, Greg. The primary reason for the delays is that all the growth plans in Kentucky are still intact. We decided to extend the timelines to maximize the power capacity we can achieve and to ensure we get the best economics possible. We chose to focus on optimizing the output rather than rushing to completion. Additionally, we've identified opportunities to improve our operations at a lower cost, which may take a bit longer to implement. Given our substantial capacity growth, we felt it was unnecessary to rush the Kentucky developments and limit our options. We are concentrating on high-value growth opportunities elsewhere, and those plans are solid for the coming years.

Okay, perfect. Super helpful. Thanks, Jason.

Thank you, Greg.

Our next question comes from Brett Knoblauch with Cantor Fitzgerald.

Hi, guys. Thanks for taking my question. Maybe the first one, it seems like there's quite a pickup in urgency to add or expand your power infrastructure assets. Are you guys feeling that urgency to maybe go out and find additional sites, whether it's inside or outside of Texas in addition to Rockdale or Corsicana?

I wouldn't say there's an increased urgency. It's part of our core values to acquire high-value power assets whenever possible. This effort has been in progress for about four years, dating back to late 2020 when Bitcoin prices were around $12,000 to $14,000. At that time, we felt a strong need to develop a vertically integrated platform to incorporate various power assets. However, I don't view this as an urgent situation because we maintain a disciplined approach. We are not seeking power assets merely for the increase in capacity. We conduct thorough due diligence to ensure that the opportunities we consider are genuinely worthwhile and have long-term benefits. Nevertheless, the growth pipeline we've established in Corsicana, Rockdale, and Kentucky means we aren't reliant on mergers and acquisitions for significant hash rate expansion. We have a 2-gigawatt pipeline and have only developed about half of it so far. Therefore, we are taking our time to assess opportunities to strengthen that pipeline in the coming years.

Perfect. Thank you. Maybe just one more. I know it's kind of been asked a couple of ways on the AI HPC optionality that's maybe embedded at Corsicana. Regarding the customer interest, have you guys been going out and marketing on that site or that optionality or have customers been coming to you expressing interest? Thank you.

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

Thanks very much. I appreciate it.

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

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

Good question. The power strategy has a few main components. First, for our unhedged power, we aim to curtail when spot market prices exceed our breakeven levels. Fortunately, Texas has an abundance of energy, allowing us to secure a very competitive cost of power, necessitating curtailment only a small percentage of the year. We tested a breakeven price for an M66S miner against 2023 energy prices in Texas and found that by curtailing just 3% to 4% of the time, we achieved an all-in cost of power of $31 per megawatt hour. These curtailment hours allow us to earn credits with our hedged power. In 2023, we saw considerable volatility during the summer, resulting in significant power credits. However, with the same volume of hedges in 2024, we do not anticipate the same level of volatility, leading to fewer power credits. This lack of volatility enables us to procure power at lower prices in Corsicana, where we are now using more power than in Rockdale. We are committed to showcasing the value of Bitcoin mining, which includes contributing to grid stability, enhancing the financial profile of generator assets, and being a large flexible load that responds to grid events. This can either save on power costs by shutting off our load during high price periods or allowing us to monetize our hedge commitments during those times. We have a dedicated team focused on our power strategy, always seeking opportunities. We believe the forward curve remains relatively elevated compared to current market prices of power. There was much concern about volatility heading into summer 2024, but that volatility did not occur, largely due to an abundance of solar energy. In summary, we continuously explore ways to demonstrate the advantages of Bitcoin mining while improving our power costs and overall economics.

Great. That was really helpful. Thank you.

Our next question comes from Brian with Needham.

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

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

Just on that...

The long lead items.

The long lead items, exactly.

Yes. So while we have just recently initiated this Phase II development, we have ordered those long lead items in the past. When you're talking about 345 kv, 138 kv substation, these things are 18-plus months in lead time that can be even 24 months. So it is quite a long lead time for these items. So thankfully, we already have these orders in. And that's why we expect to receive them in a little under a year as opposed to the 18 or 24 months that a new order might be looking at right now.

Great. Thanks, guys.

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

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

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

Thanks, Jason. Hi, Lucas. I have a few comments regarding your question. Firstly, regarding the kind of opportunities we pursue, we're quite open to various types of transactions. However, any deal needs to reach a certain scale to significantly impact us. We are interested in larger deals, but we also find compelling opportunities and valuations on the smaller side, which can evolve into more substantial prospects over time. We don't solely focus on large deals while overlooking smaller ones; instead, we seek a mix of good valuation, operational efficiency, and favorable jurisdictions. Lastly, even though we completed a transaction recently, our ability to conduct another deal hinges solely on finding the right opportunity. We are very open to mergers and acquisitions and actively looking for ways to enhance our strong organic growth pipeline.

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

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

Jason and Jason, thanks again for the color and all the best of luck.

Our next question comes from the line of Reggie Smith with JPMorgan.

Hi, guys. Thanks for taking the question. Most of mine have been hit. I was just curious, I guess one of your larger competitors recently made comments about kind of pausing greenfield development and using proceeds to buy Bitcoin directly and they kind of cited hash price and things like that. obviously, that company has a different asset base and land base to you guys. But I was just curious how you think about the decision to buy Bitcoin to build sites and things like that within the context of hash price and whether that kind of weighs into your capital allocation decisions?

Thank you, Reggie. First and foremost, as part of our integrated strategy, we focus on building a portfolio and pipeline of assets that we can actively manage, determining when and how we monetize them at our discretion. In recent years, our priority and opportunity have been to expand our assets for Bitcoin mining. We've demonstrated that we can operate as a low-cost producer, with one of the industry's lowest power costs at $0.031 per kilowatt hour for the third quarter of 2024. We believe the best way to accumulate Bitcoin is by leveraging that power efficiency on a large scale, effectively allowing us to procure Bitcoin at a discount to the market price. Our cost to mine for the quarter, including power and on-the-ground operation expenses, was $35,376 per Bitcoin, which is significantly lower than the market price during this period. By being a low-cost producer with our industry-leading power strategy, we believe this is the optimal approach for gaining exposure to Bitcoin. Being a Bitcoin company, we are excited about any institution purchasing Bitcoin. Each entity prioritizes capital differently. We are capitalizing on our low power costs to demonstrate the benefits of Bitcoin mining.

Could you elaborate a bit on the time aspect of mining Bitcoin in relation to its cost? We understand the mining expenses are low, but there's also the factor of how long it takes to mine a certain amount of Bitcoin compared to purchasing it directly. How do you factor in the time it takes to mine when considering your overall strategy?

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

That actually makes a lot of sense. If I could sneak one more in, and I know you all have discussed HPC a lot tonight. I was curious about your two sites being located close to Dallas and Austin. Has that been considered an asset or a key feature of your sites in discussions about HPC with potential partners? I wonder if you see your location as a strong advantage or if I might be overestimating it. Have you received similar feedback in your discussions? Thanks.

Yes, that's a great question, Reggie. Being located near major metropolitan areas is definitely an advantage, especially when it comes to staffing. Large operations, whether they are Bitcoin mining or AI HPC data centers, require a substantial workforce, and having access to high-quality talent is crucial. Proximity to cities like Dallas or Austin makes it easier to attract skilled individuals. For instance, our Rockdale Facility is benefiting from significant development in the area, particularly with the Samsung foundry being built, which is bringing in more talent. Additionally, being close to major cities gives us access to multiple fiber Internet options, which is appealing for potential AI HPC data centers. We also have large tech companies nearby, adding further value for potential partners. Overall, the presence of major metropolitan areas appears to enhance the attractiveness of our locations.

Got it. Okay, thank you.

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

Thank you, operator. We'd like to thank everybody for joining Riot Platforms on their Third Quarter 2024 Earnings Call. We look forward to updating you on future developments, and we're always available for your questions. We'll see you early next year for the year-end. Thank you.

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