Cipher Digital Inc.

Good morning. Thank you for standing by and welcome to the Cypher Mining in Fourth Quarter 2021 Business Update Conference Call. Please be advised today's conference is being recorded and a replay will be available on the company's website after the call. I would now like to hand the conference over to Lori Barker, Investor Relations.

Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss Cypher Mining's Fourth Quarter 2021 Business Update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Ed Farrell, Chief Financial Officer. Please note that 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. This conference calls the property of cipher mining and any taping or other reproduction is expressly prohibited without prior written consent. Before we start, I'd like to remind you that the following discussion, as well as our press release and presentation, contain forward-looking statements, including but not limited to cipher'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. Additionally, it could cause actual results to differ from forward-looking statements can be found in CFR'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. Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the most directly comparable GAAP measure, and you are encouraged to examine those reconciliations which are found at the end of our earnings release issued earlier this morning. Now I will turn the call over to Tyler. Tyler?

Hello. This is Tyler Page, the CEO of Cypher Mining. Let me say thank you for joining our fourth quarter earnings call, and I look forward to providing a business update. Let's start with an overview of Cypher Mining. We are a U.S.-based, large-scale Bitcoin miner with key competitive advantages in power, equipment, and operations. After going public in the third quarter of last year as a greenfield company, we have made great progress. We commenced our Bitcoin mining operations in February of 2022, and we have significant build-out plans for 2022 and 2023. Notably, we have a business positioned to withstand cyclicality in Bitcoin mining profitability. We do this by focusing on the main cost drivers of OpEx and CapEx in the business. In Bitcoin mining, OpEx is dominated by the cost of power and CapEx is largely the cost of mining rigs. We have a portfolio of long-term power purchase agreements with a compelling weighted average price of 2.73 cents per kilowatt hour. And we have a series of mining rig purchase contracts where our average price is $42.81 per terahash. We believe these costs are extremely competitive versus our peers. As we look forward, we believe Cypher mining will be the preferred platform for the U.S. power industry to access Bitcoin mining. And I am excited to discuss some term sheets for new potential data center deals that we have signed since our last business update. Let's discuss some milestones Cypher has achieved since our last call. Most importantly, we are no longer a pre-revenue company. We began mining Bitcoin at our Alborz data center in late February. Our Alborz data center is expected to continue to receive our initial shipments of mining rigs for the first five months of the year. The January shipment arrived and was installed on time. The February shipment has shipped on time and we anticipate the machines will be installed this month. Alborz is 100% powered by wind. Additionally, we have been very busy arranging deals for our future pipeline of data centers. I will focus on two deals for which we recently executed term sheets. First, we signed a joint venture term sheet with a private investor group for a new 80 megawatt grid connected site in Texas, where Cypher will own 51% of the economics. Assuming we close the deal, we anticipate that the site will be ready from a power and infrastructure perspective to accept mining rigs later in 2022. Second, we signed a term sheet for a new power purchase agreement with Luminant, which is an affiliate of Vistra, for a 200-megawatt facility that will draw power sourced from solar and will be supplemented by a grid connection. This will be our second deal with Luminant and will feature both a longer-term 15-year power purchase agreement as well as unique features that allow us to align our incentives with the power providers. Perhaps most excitingly, this project will be a prime example of how the economics of Bitcoin mining can provide the necessary incentives to unlock the construction of new renewables facilities. We continue to be innovative in our deal structuring so that we can get a more closely aligned relationship with our power providers and ultimately be positioned as the preferred provider in the market for accessing Bitcoin mining. Let's take a moment to discuss the evolving Bitcoin mining landscape. There are many changes happening in this industry and we are positioning Cypher to take advantage of the way we think the market will evolve. Let's start with the somewhat obvious observation that there are tremendous advantages to having economies of scale in Bitcoin mining, primarily related to negotiating better pricing for power and mining rigs. Given that, We have observed mining companies going public to access larger pools of capital. Cypher helped lead this trend, going public last year. The main focus for much of the industry in 2021 was securing mining rigs in a world dominated by chip shortages. Today, we see the main challenge for the industry as being infrastructure execution and deployment. When it comes to execution, we anticipate that Cypher will be well positioned as we continue to scale up our infrastructure at sites throughout the year. What we see developing in the market today is an increasing level of interest from the U.S. power industry as they would like to benefit from the economics of Bitcoin mining. We believe that this trend will continue and are positioning Cypher to be the preferred partner for power providers. Our JV platform can provide unique benefits, and our flexibility in deal structuring continues to give us a strong pipeline of opportunities. We are trying to be in front of what we think is a significant trend. Lastly, we think it is likely that there will be greater downstream integration from miners to the broader crypto and financial services markets in the future. We think that cipher mining will be the B2B platform for the U.S. power industry. In addition to the new joint venture term sheets I discussed earlier, we have a series of joint ventures to deploy new data centers with our partner, WindHQ, that will be coming online this year and into the future. We also continue to extend our relationship with Vistro with a new term sheet that envisions an innovative structure which further aligns our incentives at a second large site we will look to build in 2023. Beyond these opportunities, we have a significant pipeline of potential deals we are in the process of negotiating. Aligning incentives with a joint venture structure or custom PPA features makes sense to Cypher because we can ensure the most competitive prices for power. These structures make sense for the power provider because we have a turnkey JV model that is scalable and can address the complexities of handling Bitcoins. This allows them to access potentially higher margins than simply selling power for a dollar-based markup. Over time, we believe building connections to a wide variety of power partners will be a big part of our future success. Next, let's talk about our updated implementation plan and strategy. First, let's begin with an overall market update. Since our last business update call, Bitcoin prices have been volatile and moved downward. Bitcoin prices have lost about a third of their value since touching all-time highs last November. Against that backdrop, we have also seen indications that deploying infrastructure seems to be a choke point for putting mining rigs to work with some other mining companies and deploying we have received inquiries about hosting miners for others at our sites as they are deployed. While we do not currently have plans to offer hosting, this interest reconfirms the importance of our primary focus on continued timely deployment at our data centers. At the same time, we are seeing clear signs that the mining rig market is evolving. New generations of miners are being launched from traditional players And notably, Intel is broadly rumored to be launching its own competitive mining rig with the possibility of fixed prices. When you combine that news with increasingly competitive pricing that we are seeing in the rig secondary market, we believe there is the possibility that we are at the beginning of a new market environment. It is hard to predict, but we believe that maintaining flexibility will be of paramount importance going forward. There may be opportunities to purchase rigs on a shorter-term delivery schedule for lower prices in the future, and we will be watching this development closely. Let's look at our currently forecasted schedule for site readiness. Recall that we think of site readiness in three phases, power readiness, infrastructure readiness, and mining rig availability. Here is a bar chart showing our forecast for power and infrastructure availability at our data centers and the associated megawatts being available. There are a few changes since our last update. We have added the anticipated 80 megawatt JV for which we recently signed a term sheet in the fourth quarter, and we have made some small tweaks on sizing at expansions for BEAR and CHIEF. Note that we are also now expecting a change in our timeline to deploy at our first site with standard power. We currently anticipate that we will target deployment at our first site with them in 2023. Alborz is now up and running with its first rigs, and we anticipate Bear and Chief will be ready from a power and infrastructure perspective by month end. Odessa's deployment currently remains on track for the third quarter. In a marketplace that seems to be somewhat short of quality sites ready to accept rigs, we are building a strong portfolio of sites with compelling economics. Let's talk about our anticipated minor delivery schedule. We have placed a focus on cost discipline when it comes to purchasing machines and currently have an anticipated weighted average cost of $42.81 per terahash across our portfolios. That positions us well in the evolving marketplace for mining rigs, and we are looking to be as flexible as possible to take advantage of potential opportunities that may arise. Recall that we have contractual relationships with three different providers of mining rigs, Bitmain, MicroBT, and Bitfury. Our Bitfury contract is structured as a seven-year arrangement that provides flexibility, given that we have a right of first refusal on machines and a most favored nation pricing arrangement in the contract. Thus, when rigs are in high demand and hard to source, we have the potential to secure them from Bitfury at a competitive price. When the marketplace has lots of rigs available and there is not as much of a premium on securing supply, we can optimize across other suppliers, and Bitfury – has the potential to sell their rigs to others at market prices. Given our belief that upcoming market conditions may warrant a premium on flexibility, we have decided to continue to push forward with our Bitmain and MicroBT contracts, but not Bitfury's rigs for 2022 delivery. This reduces the baseline amount of hash rate that we currently are expected to receive in 2022 to 7.2 exahash, but allows us the flexibility to be nimble and potentially capture opportunities in a fast-moving market. If the mining rig market provides opportunities for us to acquire machines later this year at attractive prices, we anticipate having the capacity at our site in 2022 to accommodate machines with the potential to generate an additional 1.9 exahash to Cypher. Let me share some pictures of our deployment progress. Here are some pictures of our data center site at Alborz that is now mining Bitcoin. You can see the big wind turbines in the background. Here are some other perspectives on our containers at Alborz. Here's a picture of the hot side of one of our containers as well as our chief construction officer hard at work racking and stacking the initial rigs at Alborz. Here is an exciting picture. This is the now cleared area where our data center will be located at Odessa. You can see the power generation facility in the background. To give some perspective, this site has had about 54 acres cleared and 3,000 dump truck loads of dirt removed. We have new containers being fabricated, and our work streams are currently tracking towards an on-time deployment. Lastly, let me reiterate some key statistics to note about Cypher. Our anticipated weighted average cost for mining rigs is $42.81 per terahash. Our anticipated weighted average mining rig efficiency is 33.8 joules per terahash. Our anticipated weighted average power price is 2.73 cents per kilowatt hour. And our anticipated infrastructure capex cost per megawatt, excluding mining rigs, is $450,000. Now, I will pass it off to CIPR's CFO, Ed Farrell.