Riot Blockchain, Inc. (NASDAQ:RIOT) Q1 2024 Earnings Call Transcript

Riot Blockchain, Inc. (NASDAQ:RIOT) Q1 2024 Earnings Call Transcript May 1, 2024

Riot Blockchain, Inc. beats earnings expectations. Reported EPS is $0.81, expectations were $-0.21. RIOT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Riot Platforms First 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. [Operator Instructions] 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, Phil, you may begin.

Phil McPherson: Thank you, Devin. Good morning, and welcome to Riot Platform’s first quarter 2024 earnings call. My name is Phil McPherson and joining me on today’s call are Jason Les, CEO; Colin Yee, CFO, and Jason Chung, Executive Vice President of Corporate Development & Strategy. On the Riot Investor Relations website, you can find our first quarter 2024 earnings press release and 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 first 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, Form 10-Q, included for the quarter ended March 31, 2024, which will be filed today after market close and other filings with the Securities and Exchange Commission. With that, I would like to turn the call over to Jason Les, CEO of Riot Platforms.

Jason Les: Thank you, Phil, and good morning, everyone. Riot filed our first quarter 2024 press release and earnings presentation this morning, both of which are available on the investor relations section of Riot’s website. 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. By focusing on a vertically integrated strategy, we are best able to build these pillars. Over the past three years, we have been focused on developing this strategy at scale. This began with the acquisition of our Rockdale facility, its development and operations teams, and low-cost fixed-power contracts.

The strategy continued with the acquisition of the ESS Metron and the introduction of our engineering segment, which helps control the key supply bottleneck for electrical equipment and building out Bitcoin mining infrastructure. And finally, the development of our Corsicana facility has broadened our portfolio of access to power capacity and purpose-built Bitcoin mining facilities. The benefits of this strategy are on display today. And as a result, we see other miners in the space moving towards a similar strategy. Since Riot has developed this strategy most fully and at scale we are able to build out facilities like Corsicana further, while others who have not already ordered key pieces of electrical equipment face 18 plus months of supply chain constraints.

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Q&A Session

The energization of Corsicana this month means that Riot has a clear, fully funded growth plan. This landmark achievement is the result of our team’s dedication to our long-term strategy. The first phase of this facility puts us well on track to increase our self-mining Hashrate to 31 exahash by the end of 2024. The Corsicana facility utilizes immersion cooling for all of its facilities, a technology in which Riot is the industry leader in deploying at scale. We are very excited about the incredible pipeline for growth that Corsicana facility provides for the next several years, and we look forward to further executing on this plan. Through owning and operating our own site and an unmatched portfolio of 345 megawatts of fixed price long-term power agreements, we have the unique ability to execute on our power strategy, which demonstrates the benefits of Bitcoin mining for grid stability and significantly drives down our cost of power.

Power is the primary variable input for Bitcoin mining, and that is why we have built our reputation as a leader in this key part of our business. Making large acquisitions, developing pipelines for growth, and maintaining fixed price power contracts at scale requires a strong financial and liquidity position. Our unmatched balance sheet strength makes all of this possible and is responsible for their success. With this strong position, we are funding our near and intermediate-term growth plans to expand Corsicana and increase our Hashrate through purchasing leading-edge miners on a long-term, fixed-price basis for MicroBT. In conclusion, we remain focused on the growth and enhancement of our self-mining business. In 2023, we terminated two remaining legacy hosting contracts at the Rockdale facility, because of both customers’ failure to perform under those agreements.

As a result of the reduction in hosting revenue, we have eliminated the data center hosting business as a separate reporting segment starting in the first quarter of 2024 and are consolidating results into the Bitcoin mining business segment. Riot’s focus is maximizing Bitcoin mining results, and our strategy is enabling us to execute on this at an unprecedented scale. With that, I would like to now turn the call over to Colin Yee, CFO of Riot Platforms.

Colin Yee: Thank you, Jason. I’m excited to present Riot’s financial results for the first quarter of 2024, during which Riot achieved a number of key milestones. For ease of reference, slide five presents a snapshot of key metrics for the first quarter of 2024. But let’s go over some highlights on the following pages. We own and operate one of the largest Bitcoin mining operations in North America. And during this past quarter, we continued to deploy miners in Rockdale. We have also pushed ahead with development activities at our new Corsicana facility, which has since been energized and operations have begun. At the end of the first quarter of 2024, our Bitcoin mining business segment had a total deployed hashrate of 12.4 exahash, which represents an 18% increase year-over-year.

And as Jason previously mentioned, we anticipate achieving a total self-mining hashrate capacity of 31 exahash by the end of 2024. During the first quarter of 2024, we mined 1,364 Bitcoin, which represents a decrease of 36% from the 2,115 Bitcoin we mined during the first quarter of 2023. This was primarily due to the significant increase in the Bitcoin network difficulty, which has more than doubled since January 2023. However, with the significant increase in growth in our hashrate capacity expected by the end of this year, we anticipate producing more Bitcoin per day by the end of the year than we did in the first quarter of 2024, even in spite of the recent halving that occurred a few weeks ago on April 20, 2024. Riot ended the first quarter of 2024 with 8,490 Bitcoin, up significantly relative to the 7,094 Bitcoin that we held at the end of the first quarter of 2023.

In the first quarter of 2024, Riot reported total revenue of $79.3 million, as compared to $73.2 million for the first quarter of 2023, an 18% increase year-over-year. This increase was primarily driven by a 131% increase in average bitcoin prices year-over-year offset by lower bitcoin production which decreased 36% year-over-year. Again due primarily to the significant increase in Bitcoin network difficulty, which has more than doubled since January 2023. In footnote number one, you should note that power curtailment credits received totaled approximately $5.1 million for the quarter, as compared to $3.1 million during the first quarter of 2023. And this equates to approximately 98 Bitcoin as computed by using average daily closing Bitcoin prices on a monthly basis.

If these power credits received were applied to our total cost of revenues, our non-GAAP gross profit margin would have equaled $37.3 million or a 47% margin. Non-GAAP adjusted EBITDA for the first quarter was $245.7 million, as compared to the non-GAAP adjusted EBITDA of $81.7 million in the first quarter of 2023. Based on FASB’s final standard on crypto assets issued in December 2023, under which Riot now recognizes its Bitcoin held at fair value. And with changes in fair value now recognized in income. Riot elected to early adopt this guidance in 2023. Net income for the quarter was $211.8 million or $0.82 per share, compared to net income of $18.5 million or $0.11 per share for the same period in 2023. As a reminder, our net income for the quarter included a change in the fair value of Bitcoin equal to $234.1 million, non-cash stock-based compensation expense of $32 million, and depreciation and amortization of $32.3 million.

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 market practice and our own operational history. In 2023, Riot terminated its two legacy data center hosting agreements. During the first quarter of 2024, revenue from the final data center hosting agreement was no longer material from both revenue and profit. And so commencing this quarter, we will no longer report data center hosting as a separate reportable segment. We also have no plans to offer data center hosting services to new customers. For the first quarter of 2024 Bitcoin mining revenue totaled $74.6 million, which included $32 million in hosting revenue, an increase of $26.6 million year-over-year.

This increase was primarily due to higher Bitcoin prices in the first quarter of 2024, which averaged $52,343, compared to $22,706 in the first quarter of 2023. However, this increase is partially offset by a decrease in Bitcoin mined in the first quarter of 2024, compared to the first quarter of 2023, again due to the significant increase in the Bitcoin network difficulty. Bitcoin mining cost of revenue primarily consists of direct production costs including electricity, labor and insurance and excludes depreciation and amortization. Bitcoin mining revenue in excess of Bitcoin mining cost of revenue for the quarter was $33.5 million, which is a margin of 45%, as compared to $26.1 million, or a margin of 54% from the first quarter of 2023. This increase was primarily driven by the increase in revenues from the expansion of Bitcoin mining capacity at our Rockdale facility.