Jason Les: Sure, thanks for the question, Mike. Let me answer the first part of the question, and I’ll turn it over to Jason Chung, our Head of Corporate Development to talk about M&A here. I think the halving is always a tough time for miners. Immediately after this one, it seemed not as bad because the huge influx of transaction fees that we saw, right? There were blocks with 30 Bitcoin in transaction fees, and it scaled down from there, but that really offset the decrease in the — from the block reward having. But that has subsided, and recently the price has gone down. I think by focusing on being a low-cost producer, Riot is very well positioned for these types of trough periods in Bitcoin mining economics. Coming into the summer here, especially with our power strategy, we are able to be very responsive with the price of power.
Use that to lower our direct cost of mine. And that allows Riot to be a low cost producer when others have to fall off the network here. And when those higher cost producers fall off, as you know, difficulty adjusts that — and then that widens the margin again, as we’re mining more Bitcoin. So we believe this is the type of environment where Riot’s strategic pillars are on full display. Obviously, we are long-term bullish on Bitcoin. We just talked about we are holding Bitcoin, because we believe in the upside of this system long-term. But to reach that long-term, to be a leading Bitcoin mining company, we have to focus on having this low cost of power and maintain a low cost of production through more difficult points in the market. But on the end of the day question, I’ll go ahead and ask [Technical Difficulty] Jason Chung.
Jason Chung: Thank you, Jason. Hey, Mike. Thanks for the question. From our perspective, historically, I think yields have really been hindered in the sector by a number of factors. We can look at volatility in the underlying public, minor stock, volatility in the underlying Bitcoin prices, differences in Bitcoin price expectations across buyers and sellers, among other factors. And all of these factors have really led to what we’ve seen as a pretty fairly wide gap between buyer expectations on valuation and seller expectations on valuation historically. But I think our sense is that that gap has started to narrow, particularly pre-having. And now that we’re post-having, I think that trend will continue. At the same time, we’ve seen very healthy deal flow pre-halving and we think that deal flow will further increase post-halving.
So when you take these two factors into consideration together, I think there’s a really interesting window of [Technical Difficulty] approaching for deals to be done in the sector. And our side, we spent a lot of time building out what we believe is the most sophisticated corporate development team in our space precisely to address this upcoming window.
Mike Colonnese: That’s great color, appreciate that. And going back to the engineering business for just a moment, how should we think about engineering revenues once these supply chain issues are resolved later this year, especially given the growing backlog you guys are experiencing? Should we expect the run rate to go back in line with what we saw last year, or should we experience more of a elevated level, especially given the growing demand for that business? Thanks.
Jason Les: Mike, I would say you can think about it just following historical performance for now. I think the main thing that we need to work on to scale this business is increasing the capacity of that engineering segment. That will really be the driver of improved financial performance there. The demand is enormous, that has not been an issue for us. It’s really expanding our manufacturing warehouse capacity. So we’re working on that, but I wouldn’t guide towards expecting a higher increase for that at that time. But it’s something I think we can touch on at our next earnings call.
Phil McPherson: Great, we’ll take our next call from Darren Aftahi from ROTH MKM. Darren?
Darren Aftahi: Yes, thanks. Two questions if I may. The machines you’re going to replace in Rockdale, I think in the release you said those are going to start in the second quarter. Could you just kind of speak to the cadence of how those are going to be added? And then secondly, on the hosting capacity, any kind of sense on resolution there, at least what you can publicly say in terms of how you can kind of shift some of that to self-mining in the future. Thanks.
Jason Les: Yes, Darren. So, for the hashrate replacement and growth at Rockdale, so this is with the M66S, latest generation MicroBT miners that we purchased. We’re receiving those this month. We’ve been preparing to deploy those miners. I would say we can probably expect this to begin at the end of May, continue through June and July. I think the bulk of the deployments will happen during June, but over about the eight weeks or so starting later this month is how we foresee those deployments going. And that will both replace these problematic machines, which will increase the operating performance in our existing facility and then we are growing our hashrate as well so that’ll take Rockdale from the 12.4 exahash now to a little over 15 exahash when all those miners are deployed.
We’re really excited about this enhancement and growth. We’ve tested these M66S miners, or M50 miners and other MicroBT miners considerably before making this decision. We were really impressed with the performance that we saw, the resilience under tougher operating conditions. So we’re really excited about the results that we did receive from those miners as we deploy them over the next couple months here. With respect to the host team-related litigation, you know, litigation is always unpredictable. Can’t really give guidance on that. We are certainly putting a lot of effort and resources towards that litigation, and I think we’ll just have to see how it goes from there.
Darren Aftahi: Okay. Thank you.
Phil McPherson: Thanks, Darren. Our next question comes from Martin Toner at ATB Capital. Martin?
Martin Toner: Thanks very much, and congrats on some great progress here, particularly with the data center hosting. Can you talk to the drivers of sequentially higher SG&A in the quarter and maybe what we should be thinking about for a run rate going forward?
Jason Les: Sure. So, two things here. One, I just touched on, we’ve had increased level of legal litigation expense as we go through litigation process with these hosting customers. This is not a type of expense that should continue long-term, but it’s one we’re continuing right now. The other point that I would touch on is, as mentioned in the presentation, we’ve eliminated the data center hosting segment. As a result of eliminating that segment, some of the costs that were previously in cost of revenues for that segment have now gone into SG&A. The final point I’ll leave you with on the commentary there is we’re building a large business here. We have built this business into what we now are growing into. So we have built a business for 30 exahash and beyond.
