Riot Platforms, Inc. (RIOT) Earnings Call Transcript & Summary

All right, everyone. Thank you for joining us here today. This morning, we announced that Riot has agreed to acquire Whinstone, and we are very excited to share additional information with you on this call about the transaction and introduce you to Whinstone U.S. and the value we see this acquisition adding to Riot Blockchain. My name is Jason Les. I am the CEO of Riot Blockchain, and I'll be walking you through this presentation today. Riot Blockchain is a publicly traded company listed on NASDAQ. As such, we encourage you to read the cautionary statement on this slide. A copy of this presentation will be made available on our website and filed with the SEC on Form 8-K. Let me first start here by introducing the individuals joining me on the call today. As I previously introduced, my name is Jason Les. I'm the Chief Executive Officer of Riot Blockchain. I became CEO in February, 2021 and have served on Riot's Board of Directors since late 2017. I'm joined today by Riot's CFO, Jeff McGonegal, the longest-standing member of Riot's executive management team, who has served the company since 2003. We believe the proposed acquisition of Whinstone has strong synergistic value to Riot that can result in the industry-leading American Bitcoin mining company. Riot Blockchain launched in 2017 and is one of the first NASDAQ-traded companies focused on the Bitcoin space. Bitcoin mining has been a part of Riot's operations since 2017 and has grown to be the company's primary strategic focus. Riot is an industry leader in Bitcoin mining with a current deployed hashrate capacity of 1.3 exahash and executed purchase orders to grow that hashrate to approximately 5 exahash by the end of 2021 and 7.7 exahash by the end of 2022. Whinstone U.S. is a subsidiary of Northern Data, a German publicly traded company. Whinstone U.S. is the largest single mining facility in North America as measured by developed capacity with significant growth opportunity available. Whinstone has succeeded on substantial expansion over the past 12 months, led by their industry-leading development team. We're very excited about this transaction because of the significant opportunity we see in combining the resources of both Riot and Whinstone. We believe with the acquisition of Whinstone, Riot is on track to be the United States' industry leader in Bitcoin mining. Riot believes that it is important that the U.S. increase its footprint in the global distribution of Bitcoin mining hashrate. Currently, the U.S. accounts for approximately 7% to 8% of global hashrate. We believe this transaction will help Riot accelerate the growth of the U.S. market share of global Bitcoin mining. The ERCOT energy market in Texas is an ideal environment for Bitcoin miners. It has low cost, low carbon emission power sources. It is an open, well-interconnected grid and has ancillary services revenue for flexible loads like Bitcoin miners. We view Bitcoin miners as an asset to energy grids like ERCOT, and believe Whinstone's power strategies represent the future relationship between Bitcoin miners and energy markets. Now let me introduce you to some of the highlights of the Whinstone facility and elaborate on our excitement. Whinstone is the largest Bitcoin mining facility in the United States as measured by total developed capacity. The Whinstone facility is a large, 100-acre property that sits within the 33,000 acre Sandow, Alcoa site. Whinstone currently is comprised of 3 different buildings totaling 190,000 square feet hosting Bitcoin miners. These 3 buildings have a total power capacity of 300 megawatts. A fourth 60,000 square-foot building is currently under development and will further expand the power capacity to the site. With an eye on growth, the Whinstone facility has the ability to expand to 750 megawatts in total power capacity. To put that number in perspective, it is currently estimated that global Bitcoin mining utilizes approximately 9,000 megawatts of energy. Therefore, by absorbing this facility with 300 megawatts in developed capacity, Riot could potentially be owning 3% of the total power capacity of the Bitcoin mining network. Whinstone secures its very low-cost power under a long-term power purchase agreement. In addition to purchasing fixed rate power, Whinstone participates as beneficial in the real-time spot market for power and also generates ancillary services revenue from power sales. Currently, Whinstone has 3 institutional hosting clients under long-term agreements, contracted utilized as of late 2021 up to 300 megawatts of aggregate power capacity. These 3 clients have deployed a combined 95,000 Bitcoin mining ASICs, a significant amount of assets mining at the Whinstone facility. Here, we have a summary of the total operational megawatts at Whinstone, commencing when they first energized in quarter 1, 2020. We the numbers on this chart represent the total number of megawatts being utilized for mining, not the total capacity. As you can see in quarter 1, 2020, Whinstone had approximately 5 megawatts of capacity utilized for Bitcoin mining at the facility, and that has grown to 180 megawatts as of quarter 1 of this year. I'd like to highlight the Whinstone's team's accomplishments of an incredible amount of growth over just the past year. They have gone from greenfield in early 2020 to approximately 300 megawatts in developed capacity in a little over 12 months, and 180 megawatts of that capacity is currently mining today. Whinstone's growth plan is to continue development to eventually utilize the full 750 megawatts of capacity available at the site. Whinstone provides a clear and significantly derisked path to growth for Riot as Whinstone's facility can be rapidly expanded by an additional 450 megawatts. We believe this transaction has very strong synergistic value to Riot and accelerates our already rapid growth plans in the Bitcoin mining sector. Today, Riot is one of the leading Bitcoin miners after amassing a large fleet of Bitcoin hardware, both in the form of deployed miners and long-term purchase orders. With the acquisition of Whinstone, Riot becomes the largest publicly traded Bitcoin mining hosting company and a leading U.S. Bitcoin platform. Riot's mining fleet is currently hosted at Coinmint's Massena, New York facility with relatively low cost of production. The acquisition of Whinstone will assist in reducing Riot's operating cost of production for Bitcoin mining by securing access to some of the lowest cost power in the industry. Riot has a market-leading operational and financial reporting team to support our compliance requirements as a public company. Whinstone has an extremely talented development team of 100 employees who have succeeded in accomplishing an incredible amount of growth at their facility over the past 12 months. Combining with this team, Riot has the opportunity to rapidly scale its self-mining operations at North America's largest mining facility. Riot is a NASDAQ-listed company, which provides market reporting transparency and gives Riot efficient access to capital. The expansion opportunities for Riot at Whinstone provide a clear path for capital deployment. To summarize this transaction, riot will issue consideration at closing, which would be valued on a pro forma basis today at $651 million as of Riot's closing share price, April 7, 2021. That consideration is comprised of $80 million cash plus 11.8 million shares of Riot's stock issued to Whinstone's parent, Northern Data. This results in Northern Data owning a pro forma basis, 12.3% of the outstanding shares of Riot at closing. We are very excited about this opportunity and the significant synergy values we expect to realize from this transaction, including the opportunity for earnings per share accretion in 2021. This transaction was unanimously approved by both Riot and Northern Data Board of Directors and is expected to close in the second quarter of 2021, subject to customary closing conditions and regulatory approvals. That being said, I want to thank everyone for joining us today for this presentation. With our limited time remaining, we'll now answer a few select questions. The portal contains a box to submit your questions on the Zoom platform.

Okay. First question here. What are your plans for your existing machines located at Coinmint? Well, I'll tell you that we have a very strong working relationship with Coinmint, and we have every intention to continue that relationship. Next question. What are your plans or machines that are arriving during 2021? Well, we've commenced evaluating capacity and the expansion opportunities at the Whinstone site, along with assessing plans for future miner deployment. I'll say that we look forward to working further at this, and we'll be updating investors on our monthly operational updates. It looks like we can combine a couple of questions here into a question. What made the Whinstone team and/or the site an attractive acquisition to Riot? Well, the entire Whinstone team carries a tremendous amount of pride in the work that they've done, developing one of the strongest corporate cultures I've ever seen. This team, what they've done, how they work, it is truly, truly impressive. The progress they've made in developing the Whinstone site over such a limited time, I believe, is astonishing, very impressive. With that being said, we feel our teams will integrate very well with complementing qualities. The Whinstone site side of that question, the site itself has very attractive long-term power rates and, additionally, the capacity for very extensive expansion. Next question here. What are the synergistic qualities of this transaction? Well, Riot's positioned itself as an industry leader in Bitcoin mining with our fleet of latest generation S19 miners that we have currently deployed and many more scheduled for shipment monthly, continuing through late 2022. With Whinstone, we're acquiring not only the infrastructure to support that growth but, as I just touched on, a best-in-class development team to support it as well. We believe you combine that with the low cost of energy at Whinstone and the substantial capacity that they have available for growth. And what you have is a combined organization with the ability to expand hashrate very quickly while reducing our direct cost to production. Okay. I'm going to do one final question here before signing off and that is, what are your growth plans for the site and/or other sites? We intend to work closely with the Whinstone team to evaluate the short, medium and long-term capacity development plans to both serve Riot's self-mining operations as well as Whinstone's existing customer demand for expansion. The current economic conditions for large-scale Bitcoin miners have created very significant financial advantages for miners who can take advantage of these current conditions. With the near-term expansion opportunities at Whinstone and Riot's self-mining resources, we believe this transaction can be a very significant value driver to the company. Okay. With that being said, we're going to wrap up this presentation at this time. As I touched on the beginning, this presentation will be available on our website and filed with the SEC on Form 8-K. I want to thank everyone for joining us and listening into the presentation today. I hope I've emphasized our excitement to you, and we look forward to sharing more as the time goes on. Thank you, everyone.