Cipher Digital Inc.

Today, and thank you for standing by, welcome to the Cypher Mining's second quarter 2023 business update. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw the question, simply press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joshua Kane, Head of Investor Relations.

Good morning. Thank you for joining us on this conference call to discuss Cipher Mining's second quarter 2023 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 company's website. Please note that this call will also be simultaneously webcast on the investor relations section of the company's website. This conference call is the property of Cipher Mining and any taping or other reproduction is expressly prohibited without prior 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, Cypher'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. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cypher 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 measures, and you are encouraged to examine those reconciliations, which were found at the end of our earnings release issued earlier this morning. I'll now turn the call over to Tyler. Tyler?

Thanks, Josh. Hi, this is Tyler Page, CEO of Cypher Mining. Thank you very much for joining our second quarter 2023 business update call. As we start the call, I'd like to take a moment to point out that this is our eighth public earnings call, and I'm extremely proud of what we've accomplished over the past two years as a public company. Our philosophy from day one has been to invest in great people, operations, and technology with a goal of becoming the leading Bitcoin miner in the world. Over the past several quarters, we have made tremendous strides on the production front and like last quarter, we're delighted to announce record production. In addition to discussing our ramp up in production, I will also discuss the continued growth of the corporate side of the company and other areas of the business which are important to the long-term success of the company. As you've seen from our monthly production reports and commentary, Our team constantly works to drive operating improvements and cost savings. We have learned a great deal about improving efficiencies in our fleet, even under the extreme weather conditions we have seen this summer in Texas. The halving is an event that happens every four years and refers to the reduction in supply of new Bitcoin awarded to miners. It's an event that can be challenging for even the most disciplined companies in our space. We believe Cipher is very well positioned to be a winner on the other side of the upcoming halving. Slide 3 shows a number of our distinguishing characteristics which we believe are critical to our long-term positioning. Our weighted average cost of power is approximately 2.7 cents per kilowatt hour, and about 96% of our portfolio is energized through fixed price power. As a reminder, Power represents the overwhelming majority of our operating costs and is a key driver of our best-in-class unit economics. Structuring favorable energy economics remains the most important element of any future opportunities we consider. As we said before, this is a cyclical business. Managing through the cycle is fundamental to our approach, whether that involves finding low-cost power, not overpaying for mining rigs during bull markets, or avoiding overly burdensome debt. On top of the attractive power contracts we have negotiated, we also have more than 70,000 purchased rigs and as of this week run the entire business with a total of 32 employees. We have talked in previous quarters about the attractive organic growth opportunities that are at some of our existing sites and we've continued to make progress at those sites. At each of Bayer and Chief, we have acquired long lead time items for 30 megawatt expansions. And at Alborz, we recently received ERCOT approval for a supplemental grid connection that would potentially allow us to expand our existing data center by 10 megawatts in the near term, as well as increase our targeted operational uptime significantly. We have also identified another 117 megawatts and potential JV opportunities at new sites with our partner WindHQ that should be available in 2024. Also, we continue to see acquisition opportunities in the marketplace. The halving is growing ever closer and miners are faced with a challenging operating environment. As the reality of the halving's effects on miners with high costs sets in, we think there may arise interesting opportunities for growth. On page four, we give some key performance indicators that we observe in the business as we continue to ramp up. Our current self-mining hash rate is 6.8 exahash per second, and we expect to reach 7.2 exahash per second by the end of Q3 as we complete the build out of the ODESA facility. With the potential expansions at Alborz, Bear, and Chief that we talked about on slide three, We see the opportunity for near-term organic growth up to 8.7 exahash per second. On the bottom of this slide, you can see some of our current and year-to-date production numbers, which reflect the rapid pace of our build-out. In the middle of the page, you can see our Bitcoin held, which has risen quarter over quarter. We manage our Bitcoin treasury by generally selling enough Bitcoin every month to fund our operating expenses. Beyond those sales, we may choose to sell more Bitcoin for dollars to invest in expansion opportunities, to hedge our inventory with futures or options, or to hold excess Bitcoin to build our overall treasury balance. It's our goal to build our Bitcoin inventory over time, and with CapEx winding down at our Odessa site, we have increased flexibility to build that inventory. Slide 5 is a high-level overview of a Bitcoin mining business, which we like to include each quarter to remind everyone how our business model works. We operate the box in the middle of the drawing that says mining equipment, which represents our data centers and mining rigs. As I discussed earlier, we spend the majority of our operating expenses on electricity, which our data centers convert into computing output. Unlike traditional data centers which operate a similar model and sell their computing output to enterprise clients for dollars, Cypher sells its computing output, called hash rate, to the Bitcoin network for Bitcoins. To make this model operate profitably, a Bitcoin mining company needs to control both its electricity costs and the capital it spends to build its data centers, including what it spends to purchase mining equipment. Controlling these costs Thank you for joining us. gives us both an element of downside risk protection as well as upside optionality to our revenue streams that doesn't exist for most traditional miners. At our ODESA data center, the power provider has the right to curtail our power use up to 5% of hours over the course of the year. They will generally try to do this when open market purchase prices for power are high so that they can reap larger returns from selling power in the market as opposed to selling it to us at our lower contracted fixed price. We can also curtail the data center ourselves, shut down our machines, and sell the power we are not using back into the market. This is not the same as being an ERCOT ancillary services participant because we are behind the meter, but it affords us some similar advantages when power markets are volatile. Let's now turn to page six and take a look at recent Bitcoin market events and Cypher's approach to these volatile markets. During the quarter, we have seen many positive headlines for Bitcoin. Leading the way, we saw a number of the largest institutions file or refile for their Bitcoin spot ETF, other large institutions applying for various cryptocurrency licenses, and a cryptocurrency bill make it out of committee in Congress. The news drove a rally in Bitcoin up to around $32,500 before it fizzled and retreated to being range-bound in the high 20,000s. During this price movement, there has been a steady climb to an all-time high in overall Bitcoin network hash rate, which continues to suppress mining economics. So what does all this mean for how we're approaching the remainder of 2023 and next year going into the halving? With this market backdrop, we believe it's crucial to optimize our current production while we weigh a long list of potential expansion opportunities from both our existing sites and new opportunities. On slide seven, we give a portfolio overview of our data centers. We have completed the build out of our Alborz, Bayer, and Chief data centers and expect full completion of ODESSA by the end of the third quarter. Our costs of electricity per Bitcoin generated at our sites are some of the lowest in the industry. Year to date across our portfolio, we have paid approximately $8,034 in all in electricity costs per Bitcoin produced. We are very proud of this. And for those who are relatively new to the story, the chart on the right shows you the dramatic build out in Cypher's overall hash rate year to date as well as the additional potential near-term growth opportunities that we outlined earlier. Let's dive into specifics for each site. Turning to slide 8, you can see a picture of our Odessa facility, which we anticipate completing by the end of Q3. Odessa is clearly the most significant part of our portfolio, as it represents approximately 90% of our Bitcoin production. Odessa is a wholly owned facility with a five-year fixed price PPA and some of the lowest cost power in the industry. In fact, as of the third quarter of last year, we began reporting a third-party independent valuation to give investors a sense of how much value is represented in the contract alone. Ed will talk more about it in his remarks. At the end of July, we generated approximately 5.8 exahash per second at the site. using approximately 193 megawatts. We have mined roughly 2,443 bitcoins at the site year to date and had a recent maximum daily mining capacity of approximately 14.2 bitcoins per day. In the coming months, we will be hosting an investor day at Odessa and look forward to showcasing the operations and team as we finish the last pieces of the build out. Moving to slide nine, Let's take a look at an overview of operational highlights at our Alborz data center. Alborz is 100% powered by wind and is a joint venture that we share with our energy provider. It currently has a total operating capacity when the wind blows of 40 megawatts. That 40 megawatts powers roughly 1.3 exahash per second of rigs. Alborz can mine a maximum of roughly 3.17 bitcoins per day. and year-to-date the site has mined approximately 464 Bitcoins. Roughly half of that total capacity and site production belong to Cypher. Most importantly, our year-to-date all-in electricity cost per Bitcoin at Alborz was approximately $6,312, demonstrating our resilient, low-cost structure. We are working to supplement the wind production at Alborz with a grid connection which would allow us to increase our uptime and generate more Bitcoin with the existing equipment at the site. We are also looking at a potential 10 megawatt expansion of the site in the coming quarters with potential larger expansion up to 165 megawatts in the future. Slide 10 shows operational highlights from our bear and chief data centers. Combined, the sites operate 20 megawatts, which power approximately 0.65 exahash per second and can generate roughly 1.58 bitcoins per day in current market conditions. Bear and Chief are also structured as joint ventures with similar shared economics to Alborz. Unlike our other sites, which have behind-the-meter power arrangements, Bear and Chief are set up in front of the meter at a location in Texas that typically features attractive market prices. Our year-to-date all-in electricity cost for Bitcoin at the combined sites was approximately $6,511. As I mentioned earlier, Bear and Chief each have the potential for 30 megawatt expansions in the coming quarters, and we have been acquiring long lead time infrastructure like Transformers to ensure that we will be able to expand when we choose to do so. We are continuing to monitor the market for favorable machine purchases, and being thoughtful and deliberate as we consider the upcoming having. The wonderful advantage of our expansions at these sites is that we have no deadline to start drawing power. That is, we have no take or pay obligations. Thus, we can continue to be opportunistic and expand at our own pace. As a final note before I turn the call over to Ed, I'd like to share one more important announcement. We are adding Rob Flatley to our board of directors. Rob is the CEO of TS Imagine and has deep experience in electronic trading. He has founded and led multiple companies specializing in data analytics and securities trading and has pioneered efforts to bring traditional financial trading infrastructure to crypto. As we enter our next phase of growth, We believe that utilizing the immense data sets we collect and analyze while operating our data centers and treasury will be key to successfully expanding Cipher beyond being just another Bitcoin miner. And look forward to his advice and assistance in the coming years. Welcome, Rob. Now, I'll turn it over to our Chief Financial Officer, Ed Farrell.