Cipher Digital Inc.

Good day, and thank you for standing by. Welcome to the Cipher Mining Third Quarter 2021 Business Update Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Lori Barker from the Blue Shirt Group. Please go ahead.

Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss Cypher Mining's third quarter 2021 business update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Ed Farrell, Chief Financial Officer. You may also review our press release and presentation, which can be found on the Investor Relations section of the website at investors.cyphermining.com. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website. The conference call is the property of Cypher Mining and any taping or other reproduction is expressly prohibited without prior consent. Before we start, I would like to remind you that the following discussion as well as our press release and presentation contains forward-looking statements including but not limited to CIPR's financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our business operations, potential competition, and our goals and strategies. These forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in CIFR's periodic and other SEC filings. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and CIFR assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Now I will turn the call over to Tyler. Tyler?

Thank you, Lori. Hello, this is Tyler Page, the CEO of Cypher Mining, and I'm going to discuss our third quarter today. So I'm going to begin our discussion by reminding everyone that Cypher Mining is a U.S.-based industrial-scale Bitcoin mining company. We recently completed a listing on NASDAQ with the ticker CIFR. And in our transaction to go public and close our pipe deal, we raised net proceeds of $391 million. We are currently executing a strategy to develop and deploy five data centers where Bitcoin production is expected to ramp up significantly throughout the course of 2022. When we think about Cypher compared to the competitive landscape, we have a series of long-term competitive advantages namely our five-year power purchase agreements, which have a compelling weighted average power price of 2.72 cents per kilowatt hour. We also have purchase agreements that we have executed for mining rigs that are capable of generating up to 19.5 exahash per second. Those machines are scheduled to be delivered over the course of 2022. And we have a long-term agreement with the experience team at Bitfury for operational services and equipment. And so when you think about us versus the competition, focusing on the key needs of any successful large-scale miner, we feel we are particularly strong in terms of our access to power at a cheap price, our access to new equipment with the delivery schedule for next year, and then our access to a best-in-class operations and services team. So I think before we get started, it's helpful just to reset everyone to where cyber mining is in the context of what has been a very busy year for Bitcoin. Just recall that Bitcoin came into the year at the beginning of the year around $30,000. There was a fair amount of enthusiasm early in the year, and it was up over 100%. It had an early year peak around the Coinbase IPO back in April, where it was up over 100% in the mid-60,000s. Over the summer, we saw some doldrums in the price. A particularly newsworthy story for us was that China shut down most of its mining capacity over the summer. Wonderful for us, considering that we came to market as a U.S.-based Bitcoin miner, and we have always preached a focus on the United States becoming the real head of Bitcoin hash rate in the world. Recently, the Bitcoin price has peaked back up. We've had a series of interesting events in the marketplace, including a futures-based ETF. And, in fact, we just this week have made all-time highs in Bitcoin. And so a lot has happened in a short year. When you think about Cypher mining, a lot has happened for us as well. So Cypher is a newer company. We were created in January of 2021, and we were created as a spinoff of an opportunity set from Bitfury. a European-based, privately held Bitcoin mining company. And we were spun off to focus on U.S. Bitcoin mining operations. And we went public via a SPAC. We have gone through the entire SPAC timeline. We merged with a company called GoodWorks Acquisition Company earlier in the year. That business combination was approved in late August. And we began trading on NASDAQ on August 30th. as our standalone public company under the ticker CIFR. It's important to remember that a lot has happened this year for Bitcoin and us, and we are coming to market as a greenfield company. The concept behind Cypher Mining was that we had an outstanding opportunity set to capitalize on building data centers in the United States and to build a U.S.-based Bitcoin mining champion, and we – have always planned to take our transaction proceeds from the closing and then implement that plan. So we've had a very busy start to our lives. We completed our first quarter at the end of September. And between going public and now, from a materiality standpoint, we have entered free material contracts for equipment purchases from a diversified group of mining rig suppliers, namely Bitmain, MicroBT, and Bitfury. As we look forward to flex our long-term advantages, we now are a publicly listed company, and we will have access to capital on an ongoing basis, which is an important thing as you're building a large-scale Bitcoin miner. From an operational standpoint, to be a very successful large-scale miner, you do need access to power. We have that with up to 910 megawatts with our current counterparties. and those are via five-year-plus contracts. They are long-term, not short-term. We also have a very robust pipeline of future deals that we're in discussions with. The energy industry in particular in the United States has seemingly become more interested in Bitcoin mining. We are having discussions with major power producers that want to have a Bitcoin strategy. I would note that one of our current counterparties on the power side, we've actually structured our relationship as a JV. And so in that joint venture, we are working together with the power provider to build a Bitcoin mining operation. I think that the scalability of that structure is something that could be very strong for us as we continue to talk to other potential partners that want to have a turnkey solution for accessing Bitcoin mining. On the equipment side, as I mentioned, we do have our diversified suppliers. I would note in particular that we have a seven-year framework agreement in place with Bitfury in particular that grants us a right of first refusal on new machines, as well as a most favored nation pricing framework to purchase those machines. And so we have a long-term advantage on equipment as well. Lastly, for operational expertise, which is sort of the last ingredient to being a successful Bitcoin miner, you've got your capital, you've secured your power, you've secured new equipment. Now you need to make sure that you can get everything up and running as thoroughly as possible and with maximum uptime. We will be leveraging the very experienced team at Bitfury for operational services. We do have an agreement with them Bitfury has been in the space for over a decade running Bitcoin mining operations. Next, I want to talk a little bit about our approach to thinking about environmental issues as a large-scale Bitcoin miner. I'd like to highlight our key points when it comes to evaluating the site from an environmental perspective. First of all, CIPR has no direct purchase agreements with coal power generation facilities. Coal-based electricity does have a particularly large amount of carbon emissions, and you can see in our materials that it generates a higher amount of carbon emission than the average U.S. electricity generation. At Cypher, in addition to not working directly with coal providers, we have a preference for renewable sources of power or nuclear. In fact, our first site that we plan to have online is a wind farm. It's 100% wind-generated power that is off the grid. One of our facilities that we plan to come online shortly thereafter is a nuclear power facility that does not have emissions. And so, you know, we're getting off to a good start. When you look at our average port, the weighted site portfolio of our initial deployment set, you can see that we intend to have about half the total carbon emissions of the average user of U.S. electricity. So we're starting off already on the right foot. We are well ahead of what is typical in the marketplace. But moving forward, we want to make sure as we deploy our centers, we measure and report our emissions, and then we're going to target carbon neutrality in our mining operations by 2023. We're currently evaluating different providers of carbon offsets, and as we deploy and measure our emissions, we will be putting in place an offset plan for the emissions that we do have. So with that opening overview of Cypher and sort of where we are philosophically, let me get into our implementation plan and strategy. So first of all, let's talk about site readiness. I mentioned that we are currently in process at five sites we are deploying. There's really three phases to site readiness in the way we think about it. The first phase is power readiness. And what I mean by power readiness is you can think of everything that is required for a us to have a mid-voltage connection point to draw power from at a site. And so that is both contractual relationships with the power provider and the necessary land, but also electrical infrastructure that would be needed, step-down transformers and substations, et cetera. So that's phase one. Phase two, then, is what I'll call infrastructure readiness. And you can think of that as everything that is required to take the power down from a mid-voltage connection point to the outlet, literally like the plug for a Bitcoin mining rig. And so that consists of a series of transformers, switchgears, cables, a fair amount of site engineering, a container to hold the mining rig up, as really the last piece. And so we are building containerized data centers. These are facilities that have many repurposed shipping containers on site that are full of technology and built to be extremely stable, robust, and create a lot of value when you set up your data center. The last step then to bringing a site to readiness is getting your mining rig. And so I'll call it mining rig readiness. You've got your power. You've got a place to put the mining rig. And then the mining rigs are on site. And so when we look at our deployment going forward, from a power and infrastructure readiness perspective, looking forward, we project that we will have a total megawatt buildout of 60 megawatts across our initial first three sites, Alborz, Bear, and Chiefs. in the first quarter of 2022. Now, Alborz, Bear and Chief are sites that are subject to our joint venture. And that joint venture is one in which Cypher owns 49% of the economics. So you can think of 29% of those megawatts as belonging to Cypher. In quarter two, We will add on Coshocton from a power and infrastructure readiness perspective. Coshocton is a nuclear-based power facility in Ohio. That is a 40-megawatt facility that we will own the economics 100% of, and so you can see the corresponding numbers in our deck, but that will bring our total deployment to 100 megawatts by the end of Q2 2022, and Cypher's share of that to 69 megawatts. And then we really ramp mid-year going into quarter three when we bring our ODESA site online from a power and infrastructure readiness perspective and also our phase two expansions at both bear and chief. And you can see that the total megawatts we plan to have from a power and infrastructure readiness perspective ready by the end of the third quarter of 2022 will be 379 megawatts. with 311 belonging directly to Cypher. You know, I will caution that this is our forecast now, and it's our best guess. We do live in a world of supply chain challenges and COVID pandemic that's not completely over. And so this is our best insight looking forward. But, of course, things can change. That leads me to mining regrettings, which is the last stage. And before we get there, I want you to understand tangibly what we're talking about with power and infrastructure. So there are a series of pictures in the materials that will be posted with this release. But firstly, we have to construct the containers. We've got dozens of contractors working on a lot of containers right now. These are repurposed shipping containers that have quite a bit of technology in them. If you click through the pictures in our deck, you will see, in addition to just some heavy engineering, sort of cutting open and building hinges and putting in walls for servers, et cetera, you do have a fair amount of cables, network switches, temperature gauges, control panel, et cetera, that go into these proprietary boxes that are Bitfury designed that we have purchased. Once those boxes are ready, we will truck them out to our sites and put them in place. And so, again, looking at our deck, we do have pictures of our first site that will be ready at Alborz, which, again, is a 100% wind power generated facility. You can see wind turbines as far as the eye can see. Looking at the site itself, there's a mid-construction picture we've got in there that shows some of the trenching for the cables, the transformers being laid out across the lot, as well as the foundational supports for the boxes that are coming out. And so those are live pictures from Alborz. And in short order, when this is finished, you will have a facility that looks somewhat like the facility on page 13 of our materials, This is a live containerized data center that has been set up by Bitfury in a slightly cooler climate, obviously. But that's what it is trending towards and what it is going to look like as we have power and infrastructure readiness available at the sites. And that leaves us now with mining rig readiness. So talking about mining rig readiness and delivery, we have to make a lot of strategic decisions about what to pay for mining rigs. there's really a spectrum. You can buy mining rigs for near-term delivery for a large premium, or you can try to buy mining rigs in large scale over time if you can secure them at potentially more favorable prices. We have tended to, based on what we have seen in the marketplace as far as prices for near-term delivery, we have focused very much on maintaining a price discipline based on not overpaying for hash rate. And so we analyze things on a dollars per terahash framework. If you look across what we are anticipated weighted average cost for our mining rigs, we are paying $38.58 per terahash. We think that's very compelling. That's across our portfolio of three providers, Bitmain, MicroBT, and Bitfury. And the goal with maintaining that price discipline is to make sure that we're being disciplined around our return on investment. We don't want to overpay for hash rate. This is a cyclical business. We want to make sure that just like we maintain discipline in what we will pay for power at a site, we want to maintain discipline on what we pay for hash rate. And what really happens when you combine those things is that you end up in a situation where we can then rely on our long-term advantages. Again, we don't want to rush and overpay. So if you look at page 14 of our materials, you can see a monthly delivery schedule for our three machine contracts aggregated in one place. I would note that this is what is in the three contracts as the delivery schedule. Again, I would highlight the risks of the world we live in that There are supply chain issues that, you know, we may not be able to forecast, pandemic, many things can happen. But this is what we have entered into contracts for and so we are reporting the anticipated deliveries month by month. I will highlight that the Bitfury contract in particular has flexibility. It has a minimum purchase amount as well as a maximum purchase amount. We've got them both illustrated on the slide. And when we report number of, you know, how many machines we're buying, I know some of the mining companies out there like to point to the number of machines they've purchased. We prefer to talk about the total hash rate generated by the machines that we've ordered, and that's because some of our machines are just, frankly, they have nearly twice as much hash rate per machine, the Bitfury ones in particular. And so you can see this scaled by hash rate. You'll see at the bottom of page 14, across the bottom of the screen, you can see boxes for month by month, the total hash rate represented by these monthly deliveries, as well as the cipher mining portion of the hash rate represented by these deliveries. As I mentioned, we are ordering machines, some of which will be going into a JV, which we own 49% of. And then you can see projected out as we scale later in the year and some of our large orders, particularly MicroBT and the Bitfury orders, their deliveries begin to arrive. You can see both the minimum amount of hash rate that we have contracted to purchase as well as the maximum amount across the top. And you can see, you know, if you go out to December, we show that – Assuming the maximum Bitfury machine order, we would have ordered 17.3 exahash of machines that would belong to Cypher mining and 19.5 exahash of machines overall. I want to finish by just reiterating some key statistics for everyone as we build out that they should keep in mind. So specifically, I want to reiterate that The pricing discipline we have shown has manifested itself in a $38.58 average price per terahash across the Cypher portfolio. We have purchased machines with a weighted average mining rate efficiency of 33.2 joules per terahash. We have a weighted average power price of 2.72 cents per kilowatt hour, And lastly, we have an anticipated infrastructure CapEx cost per megawatt across the portfolio of what is anticipated to be about $450,000. I would note, again, like many things, inflation does impact a lot of our work streams and a lot of what we are putting together, and this number could move around. It has moved around since earlier in the year. but that is our best forward-looking estimate that we wanted to arm potential investors and analysts with at this point in time, you know, subject to the idea that it can move around. So with that, I will end my remarks, and I will pass to Ed Farrell, our CFO.