Cipher Digital Inc.

Morning, and thank you for standing by. Welcome to Cyber Mining Inc. fourth quarter and full year 2023 business update conference call. 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 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Josh Kane, Head of Investor Relations. Josh, please go ahead.

Good morning, and thank you for joining us on this conference call to discuss CipherMining's fourth quarter and full year-end 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 Cypher 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, CIFR'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 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 measures, and you are encouraged to examine those reconciliations, which are found at the end of our earnings release issued earlier this morning. I will now turn the call over to Tyler Page. Tyler?

Thanks, Josh. Hi, this is Tyler Page, CEO of Cypher Mining. Thank you very much for joining our fourth quarter 2023 business update call. Let me begin the call with a few summary financial statistics from our outstanding fourth quarter of 2023. Ed will give a full breakdown of our numbers during his portion of the call. but I wanted to highlight our performance during the fourth quarter of 2023 upfront because it was the first quarter we have had since going public that featured completed operations at our original four data centers for the full quarter. In this sense, it provides the most accurate view of the progress we have made toward our vision of Cypher's full capabilities as a low cost producer of Bitcoin. Our progress has been immense. By mining 1,327 Bitcoin in the quarter, a production increase of 252% year over year, we produced revenues of $43 million and gap net earnings of $11 million. We early adopted the new accounting standard in 2023, and these numbers include mark-to-market gains on our Bitcoin inventory. But I think it is important to highlight that even under the previous accounting treatment for Bitcoin, Cipher also would have produced positive gap net earnings for the quarter. This is not something most of our competitors can say. Our adjusted earnings were even stronger. We produced adjusted earnings of $28 million for the quarter, which represents massive progress and an improvement of over $50 million year over year. We are very proud of these milestones as they demonstrate our relative strength and outperformance versus competitors. And with the upcoming halving on the horizon, we believe that the relative advantages of being a low-cost producer of Bitcoin will only increase going forward. As of the end of February, Cypher held 1,433 Bitcoin in inventory and $69 million of cash, while our total self-mining hash rate has grown to 7.4 exahash per second. For those that follow the Bitcoin mining space, You already know that the halving is nearly upon us. We have spoken repeatedly about how Cypher is built to thrive throughout market cycles. While the cut in new Bitcoin supply from the halving is painful for the industry, it can reward thoughtful miners while exposing those miners who have not been disciplined in their strategic decision making. Cypher has been very disciplined while planning for the halving for years. We are built to succeed with approximately 96% of our portfolio energized through fixed price power at an industry low cost of electricity of roughly 2.7 cents per kilowatt hour. As a reminder, electricity represents the large majority of our operating costs, and our low price is a key driver of our best-in-class unit economics. Furthermore, as we complete our expansions at Bear and Chief and complete the full Black Pearl site, our overall rig fleet efficiency will improve from 29.9 joules per terahash currently to 22 joules per terahash. Turning to our growth plans, we expect to complete 30 megawatt expansions at each of our Bear and Chief joint venture data centers in the second quarter of this year. and for those expansions to add 1.25 exahash per second of self-mining capacity to our production. We also expect to add an incremental 0.62 exahash per second of self-mining capacity via hardware and software optimization of our existing fleet that we expect to be fully online by the end of the third quarter. Lastly, we are most excited about the enormous potential of Black Pearl. our 300 megawatt site in West Texas. We recently commenced construction activity and aim to energize the site in the second quarter of 2025. Slide five is a high-level overview of a Bitcoin mining business that 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, the majority of our operating expenses is 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 hashrate, 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 new data centers, including mining equipment. Controlling these costs enables a miner to be a lower cost producer, and our focus at Cypher has always been on controlling these specific costs to produce the best possible unit economics. That illustration hopefully gives you a good sense of a straightforward Bitcoin mining business. Cypher, however, does have an additional element to our business that is incredibly valuable. we have the ability to sell power back to the grid at our Odessa facility. Our power purchase agreement gives us a combination of downside risk protection as well as upside optionality to our revenue streams that doesn't exist for most Bitcoin miners. Let's now turn to page six and look at some recent Bitcoin market events. Since our last business update, we've seen many positive headlines impacting Bitcoin miners. The SEC's approval of the Bitcoin ETFs in January has dominated the headlines, and the price of Bitcoin has positively reacted to the better-than-expected early inflows into the products. We believe this is a massively positive development for the space, as it will pull additional investment dollars into the ecosystem. In addition to the new U.S. ETFs, in the past few months, we have also seen elevated periods of transaction fees paid to miners. as well as a new accounting standard that provides investors transparency into the mark-to-market value of Bitcoin held on balance sheet. While both of these good developments have provided additional tailwinds to the sector, we have also seen a counterbalancing steady climb to an all-time high in overall Bitcoin network cash rate, which suppresses minor economics. Perhaps most noteworthy for Cypher shareholders and prospective investors, On February 26th, our majority shareholder Bitfury announced plans to distribute the majority of its Cypher shares and break up its concentrated position on our cap table. We believe greatly reducing our largest investors' ownership concentration increases our free float and creates a positive liquidity environment for our shares overall as we move forward. As we head toward the halving next month, Cipher is focused on executing the expansion and build out of data centers, optimizing the production from our current fleet, and selectively looking for new growth opportunities. We have reviewed many acquisition opportunities over the past several months and expect the opportunities to improve as we go through the halving. We will evaluate these opportunities with the same disciplined approach as always, and hopefully find expansion options at cyclically low prices. On slide seven, we give a portfolio overview of our existing data centers and a timeline for expected expansion in our self-mining hash rate. In 2023, we paid an average all-in electricity cost of $8,626 per Bitcoin produced at our data centers. We are very proud of this number and it drives our best in class unit economics. Please note that when some of our competitors talk about these costs, they only include electricity and not transmission and other charges. In contrast, when we talk about all in electricity costs, we mean the total cost to deliver electricity to our mining rigs. So our numbers include all transmission and other charges, and our low numbers dramatically demonstrate our competitive advantage. On the left side of the slide, you have a snapshot of our four current data centers, along with our all-in electricity cost per Bitcoin at the respective sites for the year 2023. The chart on the right of the slide gives you a graphic illustration of the current Cypher hash rate, as well as the additional growth opportunities in the coming year and a half. At this point, we will turn to production by site. On slide eight, you can see a picture of our fully operational Odessa facility. Odessa is 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 power purchase agreement and some of the lowest cost power in the industry. In the third quarter of 2022, we began reporting a third-party independent valuation to give investors a sense of how much value is represented in the power contract alone. As always, Ed will talk more about it in his remarks. We currently generate approximately 6.4 exahash per second at the site, utilizing approximately 207 megawatts. We have mined roughly 635 Bitcoin at the site through February 29th, and had a recent maximum daily mining capacity of approximately 10.8 Bitcoin per day. On slide nine, we show a picture and highlights from our Alborz data center, which we believe is a truly unique site. 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 of 40 megawatts when the wind blows. That 40 megawatts powers roughly 1.3 exahash per second of rigs. Alborz can mine a maximum of roughly 2.2 Bitcoin per day. And year to date, the site has mined approximately 88 Bitcoin through February 29th. Roughly half of that total capacity and site production belong to Cypher. 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, and we remain confident that we will have that arrangement in place later this year. Slide 10 shows operational highlights from our bear-in-chief data centers. Combined, the sites operate 20 megawatts, which can generate approximately 0.7 exahash per second and can generate roughly 1.1 Bitcoin per day in current market conditions. Bear and Chief are also structured as joint ventures and feature shared economics similar to Albor's. 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. Finally, I will close with a few pictures of the expansion work underway at Cypher. We are very busy every day working to expand our mining capacity in the coming months, and we look forward to providing future updates on our progress. Now, I'll turn it over to our Chief Financial Officer, Ed Ferrell.