RIOT Q3 2024: Hash Utilization Exceeds 80%, Aiming 95%
- Improving Operational Efficiency: Management highlighted that hash rate utilization has risen from 60–70% to over 80% recently and is targeting greater than 95%, indicating that operational improvements are taking effect, which can drive higher Bitcoin production over time.
- Attractive Power Asset and AI HPC Opportunities: The team discussed receiving inbound interest from blue-chip entities for significant power capacity—often in the hundreds of megawatts—and noted ongoing discussions about monetizing excess capacity, signaling diversified revenue opportunities beyond just Bitcoin mining.
- Robust Growth Pipeline and Strategic Locations: Riot’s large-scale pipeline, including a 2 GW power capacity pipeline with significant underdevelopment, paired with facilities strategically located near major metropolitan areas like Dallas and Austin (which aid in talent attraction and infrastructure connectivity), supports a strong long-term growth outlook.
- Higher Operating Costs: While the management highlighted the advantages of sites near major metropolitan areas like Dallas and Austin for attracting talent and ensuring connectivity, this same proximity could drive up labor and infrastructure costs, adversely affecting overall margins.
- Reliance on a Limited Talent Pool: The emphasis on nearby tech hubs implies dependence on local talent. If these competitive areas experience talent shortages or wage inflation, it could hinder operational efficiency.
- Resource Diversion Risk: Focusing on leveraging location advantages for HPC opportunities may risk diverting attention and capital from core Bitcoin mining operations, potentially increasing execution risk if the HPC partnerships do not materialize as expected.
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Utilization Rate
Q: How should investors view utilization improvements?
A: Management explained that while utilization was initially in the 60–70% range, recent efforts have lifted this to over 80% with a target of exceeding 95% average uptime as they drive operational excellence. -
SG&A & Litigation
Q: What’s behind rising SG&A and litigation costs?
A: They noted that SG&A expenses include one‐time M&A and litigation charges, resulting in a run-rate near $26.5 million. Although litigation costs remain elevated temporarily, these are not expected to persist as core operating expenses. -
Bitcoin Timing
Q: How is mining versus buying Bitcoin evaluated?
A: Management stressed that mining enables averaging Bitcoin acquisition over time; with a cost to mine of about $35,376 per Bitcoin, they benefit from low production costs even as market prices vary. -
M&A Appetite
Q: Are you pursuing more M&A opportunities?
A: They affirmed a disciplined approach, actively reviewing opportunities on both public and private fronts, always targeting deals that combine favorable valuations with strategic fit. -
Efficiency Initiatives
Q: What operational practices are boosting efficiency?
A: Management highlighted numerous projects—from improving electrical infrastructure to ramping up analytics—that are collectively driving enhanced machine uptime and better operational efficiency. -
Power Curtailment
Q: What is the strategy on power curtailment?
A: They manage curtailment by shutting off power when spot market prices exceed their breakeven, earning credits while benefiting from an all-in cost of roughly $0.031 per kWh, though current lower volatility has reduced credit earnings. -
HPC & Equipment Delays
Q: What conditions might trigger entry into HPC?
A: Management explained that moving into HPC would require partnering with a strong, blue-chip counterparty, and noted that long lead substation equipment, currently ordered with delivery in under a year, reflects cautious execution. -
Metron Demand
Q: How scalable is ESS Metron for AI HPC demand?
A: They observed robust demand for ESS Metron’s services from the AI HPC space, yet scalability is currently limited by factory size and equipment space, prompting plans to expand if the opportunity merits. -
M&A Focus Details
Q: What are the deal size preferences in M&A?
A: The team is open to both large-scale acquisitions and smaller bolt-ons that can grow over time, always ensuring that valuation and strategic fit are aligned with their growth objectives. -
M&A & HPC Competition
Q: Are you competing with AI HPC players in acquisitions?
A: They acknowledged some competition for power assets with AI HPC firms; however, their broader Bitcoin mining asset base gives them an advantage when evaluating each acquisition’s long-term value. -
Site Location
Q: How do site locations benefit potential HPC deals?
A: Proximity to major metro areas like Dallas and Austin enhances access to top talent and robust infrastructure, adding significant appeal for both Bitcoin mining and possible HPC applications.
Research analysts covering Riot Platforms.