Status Update

May 27, 2021

All right, everyone. Thank you for joining us today. My name is Jason Less. I'm the CEO of Riot Blockchain. This presentation here is a follow-up to the one we held on April 7, A little over a month ago, when we announced the signing of definitive documentation to acquire Winstone, we shared yesterday that we have closed that transaction. We're very happy about that. And we want to talk to you about what our company is going to look like going forward. Riot is a publicly traded company. As such, I encourage you to review the forward looking statement on this slide. A copy of this presentation will be made available on our website and is currently on file with the SEC on Form 8 ks. Riot is a Bitcoin company. We are believers in Bitcoin. We believe Bitcoin is a reinvention of global finance. Riot is a Bitcoin mining company. We are an industry leader in that sector. We have been aggressively growing our operations Over the last 18 months and the acquisition of Whinstone is a major step forward in those efforts. We have additional capacity, additional lines of revenue and the opportunity for even further expansion for our mining business. Riot mines Bitcoin and it holds Bitcoin. As such, we serve as a vehicle for investors seeking exposure to Bitcoin. Bitcoin started amongst hobbyists in 2009. It was just an experiment. Here 12 years later, we are at the institutional adoption phase of Bitcoin. Household names in finance such as BlackRock Fidelity Visa are looking at Bitcoin. They're interested in Bitcoin. Companies like MicroStrategy that do not have a Bitcoin business line are using Bitcoin as a treasury management tool, holding 1,000,000,000 of dollars of Bitcoin on their balance sheet. That is the tool that we see Bitcoin as. And as this adoption of Bitcoin grows in the United States, we believe the Bitcoin mining presence should also grow alongside that adoption to support the Bitcoin network. So let's talk about what Bitcoin is. Bitcoin is open free finance. It's censorship resistant permissionless money. Bitcoin is the dominant cryptocurrency with a market capitalization of a little over $700,000,000,000 It is decentralized. It is not controlled by any one person, entity or government, unlike fiat currencies are. It's sound money. It has a supply of only 21,000,000 coins hard coded into its supply schedule, also much unlike fiat currencies. It's an open and transparent system. Bitcoin uses a data structure known as a blockchain to record All the transactions and service of public ledger for all users to verify for themselves. All these properties combined make Bitcoin the strongest, most secure and most decentralized network of all cryptocurrencies. So I told you, RY is a Bitcoin miner. Let's talk about what Bitcoin mining is. Bitcoin mining is simply repeatedly guessing inputs into an algorithm until the desired output is observed. Let's walk through the process here. Bitcoin transactions are pulled together into what's known as a block. Miner takes that block and starts this process of repeatedly guessing inputs until a desired output is found, until they get the output to that equation they're looking for. Once they have that output, they can prove to the rest of the network that they did work. They take that block and that proof of work and they distribute it to the rest of the network who can verify that the transactions in the block itself are valid. Once that block is accepted, It's attached to the prior block and this is what creates a chain of blocks. In other words, a blockchain. For solving that puzzle, for doing that work, Bitcoin miners get a Bitcoin reward. And these blocks come about every 10 minutes on average. The current Bitcoin mining block reward is 6.25 Bitcoin. So combining those numbers here, You can approximate we have about 900 Bitcoin that's up for grabs every day that miners are competing for, really a fixed amount that the whole network of miners are racing against each other to get the reward. Now, unless you've been living under a rock You've probably heard a bit about Bitcoin mining and its energy use. I think there's a lot of misconception around this and there's some important figures here we can talk about. On the graph on the left here, we have the global energy production. 1 third of global energy is simply unused. It's wasted, there's surplus. There's no one to buy it. It's congested. It gets lost in transmission. Of that piece of the pie of unused energy. Bitcoin mining is only 2 tenths of a percent, 2 tenths of a 10 percent of unused energy out there in the world. And it's using this energy for a very important purpose to create trustless open finance. It's a very important use of energy. Some other figures most people are also not aware of is 76% of Bitcoin miners utilize renewable energy as a part of their energy mix. Renewable energy accounts for approximately 40% of the overall Bitcoin Mining Energy Mix. This is according to the University of Cambridge Centre For Alternative Finance. The reason for all of this, the reason that Bitcoin mining is using so much renewable energy is because Bitcoin miners are incentivized to minimize their power costs. Cost of power is the number one production cost for Bitcoin mining. So Bitcoin miners are very incentivized to seek out where this surplus energy is. Basic market forces, you have Cheap energy when there is supply far exceeding demand. And typically where you find that is underutilized Renewable generation that is generating power and energy that there is otherwise the one to buy on the market. So you can think of Bitcoin miners as the buyers of last resort of stranded energy. Riot's mission is to become one of the most relevant and significant companies supporting the Bitcoin network and greater Bitcoin ecosystem. We're not just a Bitcoin mining company, we're focused on increasing the Bitcoin mining presence in the United States. On the left here, I have some information about our stock. Riot is traded on NASDAQ under the symbol Riot. As of the close of the Q1 of 2021, very well capitalized net cash position approximately $241,000,000 At the end of the quarter, we held almost 1600 Bitcoin on our balance sheet. Our current Hash rate capacity is 1.6xahash. Hash rate is a measurement of a miner's power. It's how many guesses per second a miner can do. So the greater your hash rate, the better chance you have of capturing Bitcoin mining rewards. This is an important number that drives and for comparing Bitcoin miners. We've entered into a number of purchase agreements and based on those purchase agreements, our Hash rate capacity will reach 7.7 Exahash by the end of 2022. We are very proud of our quarter one results for 2021. This is a record breaking quarter for the company. We mined 4 91 Bitcoin for the quarter and reported a 67.5% mining margin. This drove an overall quarter revenue of $23,200,000 On the bottom line, the most important, $7,500,000 in net income. This is the 2nd quarter in a row we've reported net income and we're very proud of what we've accomplished here. And this is a direct result Of the efforts Riot Management has put into aggressively growing its mining operations, aggressively growing our Hash rate capacity and The appreciation of the Bitcoin price as well. So let's look at How to look at the profitability of Bitcoin Mining? There's factors Riot can control and there's factors Riot cannot control. What Riot can control is our hash rate. We've talked a bit about that. We can control how many miners we purchase. We can purchase a lot of miners and we can increase our hash rate. We can control our cost of electricity. We have a market leading cost of electricity with the acquisition of Windstone. Windstone has a very competitive power cost. Now what we can't control is the network hash rate. That is the collection of all the global Bitcoin mining hash rate. And you can use that to help estimate to make a simplest of estimation of what a Bitcoin miner's expected production should be. Because Bitcoin mining rewards are fixed, if you take your ratio as a miner to the global network cash rate, that gives you an estimate of What percent of the rewards you're going to capture over at any given time period? The network hash rate is currently approximately 160 exahash. It's very volatile. And as I shared, Riot's currently at 1.6 exahash. So you can think of our mining power as approximately 1% of the network. What we can control is the price of Bitcoin. It's a very volatile asset that will increase and decrease our U. S. Dollar reported revenue. We can't control the price of miners either. That's an important tool to growing your Hash rate And the price of miners tends to fluctuate around the price of Bitcoin. When the price of Bitcoin is going up, there's more opportunity in Bitcoin mining. So there's a lot more competition to capture Bitcoin Mining Hardware. So let's talk about Where Riot has been, where Riot is today and where Riot is going to be going forward. Riot began mining Bitcoin at its inception in late 2017. In 2018 early 2018, we began mining Bitcoin at our 12 Megawatt Oklahoma facility, which we operated at until mid-twenty 20. At that time, we made the strategic decision to relocate all of our miners to Coin Mint's Bitcoin mining hosting facility in Massena, New York. This was a move to reduce our cost of production and give us a pathway for expansion. So we could aggressively order miners and have capacity to deploy them. We currently have about 51 megawatts deployed at Koi Minh. The image down on the left here, you see a major hydroelectric dam, which generates energy in the region. Coinmint generate draws its energy from approximately 90% hydroelectric Power. There's a lot of renewable energy in this region. And this is an example of a relationship with underutilized renewable infrastructure that I was talking about early on. Today, we're announcing the closing of the acquisition of Windstone. Windstone is a 300 Megawatt Bitcoin Mining Hosting Facility in Rockdale, Texas. That's what you see pictured down on the right. They currently have 3 buildings there, housing institutional clients generating hosting revenue for hosting those clients' miners. We are very excited about this transaction. This is absolutely transformational for the company. Windstone is a 100 Acre site located in Rockdale, Texas. They drive a very competitive power cost of approximately $0.025 per kilowatt hour. That cost of power is driven by a long term power purchase agreement, mix of real time power procurement as well as ancillary services, different grid revenue opportunities. The buildings you saw on the previous slide, that's about 190,000 square foot of posting space. This Winstone facility Currently has 300 megawatts of developed capacity. That makes it the single largest Bitcoin mining facility in North America. And even more exciting, it has the ability to expand. It has a total power capacity of 7 50 megawatts. So we have another 450 Megawatts we can build out there to increase our Bitcoin mining footprint. So let's talk about where Riot has been and what Riot looks like with the acquisition of Whinstone here. From 2017 to 2020, Riot has been a leading Bitcoin miner with an access to large We have been aggressively growing our Bitcoin mining fleet, and we've been deploying that fleet at Quayman's Messina, New York facility with relatively low power cost. Now with the acquisition of Windstone, Riot becomes the largest publicly traded Bitcoin mining and hosting company, and we create a leading U. S. Bitcoin platform. We have a rapidly scaling self mining business with 1 of the world's largest mining facilities and power costs among the lowest in the industry. We have an industry leading management team, plus a highly talented execution team with over 100 employees. Windstone employees have built the facility in what it is today in just 18 months. With this acquisition, we have a significantly de risked path to capital deployment. We have an opportunity to expand. We have a focus on where we will be deploying capital going forward. So, Whinstone is a part of the ERCOT market. ERCOT stands for the Electric Reliability Council of Texas. ERCOT provides electric service to about 90% of the state. It's unique in that regard. ERCOT is an energy island. It's not connected to the other states. It's a one of the few deregulated markets and it drives very good market conditions, very competitive cost of power through economics, through market forces and not politicians. On the right here, we have a makeup of what the 2021 generating capacity for ERCOT has been. You can see it's been about 51% natural gas, almost 25% wind, 13.4% coal. And I want to highlight how much coal is decreasing and its share of the generating mix just year over year. You look at 2020 and coal was almost 18%. So we're talking About 4.5% decrease in coal in the generation mix just year over year. We're excited about that trend. And we see that trend driven by All the potential that Texas has for renewable generation sources. Not only is it High potential from its environment with an abundance of wind and sunlight to generate these sources. It has a market this ERCOT market makes it an ideal environment to deploy renewable generation. As such, wind and solar has grown To about 1 third of the total generating capacity in ERCOT, Texas has approximately 25,000 megawatts of installed wing capacity, which is more than any other state in the nation. It has almost 4,000 megawatts of utility scale solar capacity as of January 2021. And I think we're seeing with the cost of these generation sources decreasing combined with the market conditions in ERCOT, strong interconnected grid open market, We look at these renewable sources continuing to grow. If you look back to the graph here, solar was not even on the map here In 2020, very small amount. And here in 2021, it's increased almost 4%. We expect that trend will continue. There's a lot of solar projects in Q and ERCOT, and that is going to further drive the renewable makeup of Texas Grid. So here we have an overview of Riot's Bitcoin mining capacity in the past And going forward, so we've talked about Riot has been growing its hash rate. Its mining operations has been its fleet of miners located at Point Mints facility. That's the orange bar here on this graph. Now in the Q2 of 2021, with the acquisition of Windstone, We get new capacity. We get capacity from the hosting clients that are in place at Whinstone paying revenue for the opportunity to run miners on that facility. We also can now begin deploying our self mining hardware at the Windstone facility. That allows us to Capture the synergies of this transaction and take advantage of the decreased cost of production. Going forward, We will keep our miners at Point Mint. We have a great relationship with the Point Mint team and we want our existing fleet to stay there. But with all the minor purchase orders we have in Q1, Those future orders will be deploying at Windstone to take advantage of the environment there. We also intend to build out the additional capacity and take the site to its full 7 50 megawatts by the end of the Q4 of 2020. That's the lighter blue color you see on the bar graph. And with this additional capacity, we have optionality. We can enter into more power I mean, I'm sorry, we can enter into more miner purchase Agreements, we can deploy more of our self mining hardware there or we can sign additional hosting clients and Take advantage of the capacity that way. Lots of options on the table from building out Bitcoin mining capacity. So we've been talking about Hash rate. Hash rate is the measurement of a Bitcoin miner's Howard, how much guesses you're doing is what drives your Bitcoin revenue. And Riot Management has been very aggressively growing that Hash rate Since 2019, entering into multiple long term purchase agreements with the industry leading hardware manufacturer Bitmain. As a result, we're receiving thousands of miners on a monthly basis until the end of 2020 I'm sorry, until the end of 2022. These deliveries will take our Hash rate to 4.6 exahash by the end of 2021 and eventually 7.7 exahash by 2022. And these are 2 figures that are among the highest you'll see in the Bitcoin mining market. And even if Hash rate is a measurement that doesn't make sense to you, you can see on the graph here, just visualizing, You can visualize the amount of growth underway. We have starting off this year just our miners at Point Mint, a strong operation. And You can see how much these figures are growing comparatively, what Riot looks like in January 2022 compared to January 2021, Huge increase with all the miners that will be deployed at Windstone now and then eventually reaching the planned capacity of 2022 and almost 8x to Hash at that point. So substantial growth plans underway. We're believers in Bitcoin. We're trying to capture as much as we possibly can. Here we have some financial highlights for Riot looking at the past several quarters of financial results. And the one I want to key in here on is our Hash rate. That's what we've been talking about. In the Q1 of And that's really what's driving the rest of the results you see on this slide. We've had record Bitcoin production in the Q1 of 2021. We're reporting Record revenue. So you combine the record Bitcoin production with the appreciation of Bitcoin price and we're having we're very proud of our results from there. And that's also been driving an increase in earnings per share. We reported our 1st GAAP net income quarter of in the Q4 of 2020. And in the Q1 of 2021, we've grown that figure even farther. And We continue to aggressively grow operations. We continue to focus on minimizing our costs and we are excited about the future financial results that These efforts can bring to the company. So To summarize here, Riot is a trailblazing U. S. Bitcoin platform. We have been so focused on growing our Bitcoin mining operations and driving results from doing that. We mine Bitcoin and we hold Bitcoin. As such, We serve as a vehicle for investors seeking exposure to Bitcoin. With the acquisition of Whinstone, we have new sources of revenue. We have Additional capacity that we can utilize to expand our operations even further. This gives us a clear and significantly derisked path for expansion. Our management team brings a demonstrated track record of success. I've shown you how rapidly Riot has grown its operations and the results that we've seen from them. All combined, we believe Riot provides a best in class investment opportunity in the Bitcoin mining vertical. I want to thank everyone for listening to the presentation here. With our limited time remaining, we're going to take just A few questions. We have our Vice President of Capital Markets, Phil McPherson here, who will and ask a couple of questions that we've had submitted from the chat. Thanks, Jason. First question regarding the newly founded Coin Mining Council. Will you be a member of it? And can you tell us a little bit about that? So the concept of this Bitcoin Mining Council has been talked about recently. The idea here is really simple. We want to we encourage all miners and you see ourselves in this presentation, Riot discusses energy mix. And that's all that I think the industry here is trying to do. We encourage Transparency in Bitcoin Mining Energy Mix. This is a story that's not told enough. I'm sure a lot of the figures, if you're not familiar with Bitcoin Mining. I'm sure the figures I talked about relative to Bitcoin Mining's relationship with renewable energy is probably news to you. And we think it's important to tell this story because these misconceptions about Bitcoin hurt it. So we are transparent about our energy mix and we encourage others to do the same. I think the more our voices are United in this message, I think the more effective we are at getting this message out. So, this is something that Almost all public Bitcoin miners are doing anyways, and we just encourage more miners to discuss their energy makeup as well. It's a positive story. It needs to be told. Let's go to the next one, Bill. Great. Question on the volatility of Bitcoin's price and how it affects Riot's revenue. Yes, so absolutely the price of Bitcoin is a major driver in our revenue. It kind of has 2 effects. 1, we're mining bitcoin. So the spot price of bitcoin is going to affect the price of the thing we're mining intuitively. It has another effect though. It that increase and decrease in mining margins is a drives The network hash rate that we talked about earlier, it contributes to what the overall Bitcoin mining network competition looks like. The higher the price is, the higher the Bitcoin mining margins are. There are more people trying to participate to capture some of those rewards. So when the Bitcoin price goes up a lot, you tend to see the network cash rate increasing as well. And what's been an interesting, I don't want to call it a phenomenon, but interesting thing to observe this year is while the Bitcoin price has gone up a lot, The network hash rate has not grown up as lot a lot. I mean, it has not grown up proportionally similar because There's a shortage of Bitcoin mining hardware. All industries are facing a Crunch and Supply Chains. And we Riot had the foresight to order and enter into purchase agreements for a lot of Bitcoin mining hardware. When the market wasn't so hot in 2020, Riot was very aggressively Entering into new purchase agreements with Bitmain to receive miners years months out. We believed in the future opportunity within Bitcoin mining and we wanted to position ourselves. So when the market wasn't exciting, we were aggressively growing our mining fleet, deploying capital for miners that we would not receive for many months in the future. So because of that, We have been well positioned to capture the opportunity in Bitcoin mining right now, whereas it's very difficult or otherwise expensive for new participants to gain the same amount of power that Riot has just given where the market is at. So That's something that competition in Bitcoin mining is something that the volatility of the price of Bitcoin drives, as well as just affecting the price of the thing we mine, and that's Bitcoin. All right, Phil, let's take a look at the market. Great. I think we have time for one more, and It's been asked in a couple of different ways. But going forward, what's kind of our preference for hosting new clients versus deploying our own machines at the Whinstone facility. Well, I think that's something that we're going to continue to look at and evaluate. Hosting is great. I mean, it's a diversified source of revenue. It's still within Bitcoin Mining. So, still very much exposed to Bitcoin, which we think is a good thing. But it's revenue that we generate from not having to purchase our own mining hardware. So in that regard, hosting is a very interested tool to generate a return on invested capital. It also helps us drive revenue to cover other expenses. As we're interested in accumulating Bitcoin And the more we can generate revenue sources elsewhere and not have to sell our Bitcoin to pay production costs, the better. So, no, I can't say for sure a preference one way or the other. But these are two areas of the industry that we are going to be very Tom, self mining and hosting. So, we will have more updates to share as we evaluate that and we further refine what our strategy is going to be. Great. Thank you. Thank you, Phil. And once again, thank you so much everyone for joining us today. As you can tell, we are very, very excited about this acquisition. We're very excited about having Winstone under the right umbrella. And we believe there's a lot of opportunity in what our companies are going to be able to accomplish combined. So once again, thank you for joining. A copy of this presentation will be made available on our website and is already on file with the SEC on Form 8 ks. And we look forward to talking again. Thank you, everyone.