Cipher Digital Inc.

Good day and thank you for standing by. Welcome to the Cypher Mining first quarter 2024 business update 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Josh Kane, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on this conference call to discuss Site for Mining's first quarter 2024 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 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 filed at the end of our earnings release issued earlier this morning. I will now turn the call over to Tyler Page. Tyler?

Thanks, Josh. Hello. This is Tyler Page, CEO of Cypher Mining. Thank you very much for joining our first quarter 2024 business update call. Let me begin the call with a few summary financial statistics from our outstanding first quarter of 2024. Our CFO, Ed Farrell, will give a full breakdown of our numbers during his portion of the call, but I wanted to highlight our continued strong performance during the first quarter up front because it represents our second quarter of operating our full initial data center portfolio, and it is our second sequential quarter of growth in positive revenues, gap net earnings, and adjusted earnings. We continue to believe that the best way to evaluate the success of a public Bitcoin mining company is to look at the financials the company files with the SEC. There are important growth narratives and key performance indicators that are not always encapsulated in backward-looking numbers, but ultimately, it's the numbers that validate the story. Cypher's progress continues at full pace. Quarter over quarter, we improved revenues from $43 million to $48 million. Gap net earnings from $11 million to $40 million. and adjusted earnings from $28 million to $63 million. We are very proud of our continued record-breaking numbers and with the fourth Bitcoin halving now behind us, we believe that the relative advantages of being a low-cost producer of Bitcoin will only increase going forward. As of the end of April, Cypher held 2,033 Bitcoin in inventory and $96 million of cash. while our total self-mining hash rate has grown to 7.7 exahash per second. For the literary-minded among you, you will recall that T.S. Eliot shared that April is the cruelest month, and he may as well have been speaking about Bitcoin miners in 2024 as the halving reduced the block rewards of new Bitcoin to 3.125 Bitcoin per block. In order to address this known impact to Bitcoin revenues, Cyber is 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. As we bring online our planned site expansions at our bear-in-chief data centers, and complete the full Black Pearl site in 2025. We expect our overall rig fleet efficiency will improve from 29 joules per terahash currently to 22 joules per terahash. With a combination of cheap hedged power costs and an efficient fleet of rigs, BiFER has a sustainable business model that is positioned to survive downturns while benefiting from operational leverage in rising profitability environments. We have been very busy expanding our production capacity over the last few months. Slide 5 shows construction progress at our BEAR and CHIEF data centers. BEAR's infrastructure is now complete, and the first new rigs will be delivered onsite this week, with full completion of the expansion expected to be completed this month. CHIEF's infrastructure is expected to be completed in June, and we expect full energization and operations at the site by the end of June. These two on-time expansions will add a total of roughly 1.25 exit hash per second of self-mining to our portfolio. Once we are finished with the bear and sheep expansions, our full attention will be on Black Pearl. But before we begin a progress update of Black Pearl, I want to take a detour into our past with some pictures from the progress we made while constructing our Odessa data center. Odessa began life as 50 acres of dirt and mesquite in late 2021, and a year later, our team of construction experts transformed it into our flagship data center. Take a look at just how different a site can look and operate in a year's time. With that in mind, let's turn to Black Pearl. The next two slides show the beginning of work at Black Pearl and a rendering of what we expect a completed data center to look like. Remember that we are scheduled to energize the site in the second quarter of 2025. The time difference between now and our scheduled energization at Black Pearl is about the same as the time difference between the pictures on the previous slide of the Odessa Data Center construction. We have done this exercise before with the same team. Long lead time items are secured, and we fully intend and expect to continue our habit of on-time execution. Within the Bitcoin mining industry, Cypher has proven uniquely capable of identifying and negotiating the acquisition of greenfield sites, structuring optimal power arrangements, and then building best-in-class data centers all the way to completion. This process takes longer than simply signing a hosting agreement or buying a completed facility, but we believe it delivers the best return on investment in the long run. With an eye toward delivering the best returns to our shareholders, I am pleased to share that we have accelerated our building plans at the site and plan to energize in 2025 not only the first half of our total capacity at Black Pearl, but the full 300 megawatts available. Slide eight shows a 3D rendering of the data center we expect to see at Black Pearl in 2025. Slide 9 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, Cipher 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 mining equipment. Controlling these costs enables a miner to be a lower cost producer, and our focus at Cipher 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 10 and look at some recent Bitcoin market events. A lot has happened since our last business update. We have seen all-time highs in both Bitcoin price and network cash rate, as well as the halving and a brief period of skyrocketing transaction fees related to the launch of the Bruins protocol thereafter. Now that the halving has passed, we are seeing the anticipated squeeze on minor economics. and we at Cipher are witnessing firsthand the benefits of being a large, low-cost producer in real time. We believe that the supply and demand dynamics of Bitcoin, given the halving of new supply coming to market, will likely eventually produce Bitcoin price appreciation as seen in previous halvings. We have also been encouraged by the enthusiasm for the US Bitcoin ETFs thus far as a driver of potential new demand. With the squeeze on minor economics, we have seen a pickup in acquisition discussions over the last several weeks, and we are engaged in several ongoing reviews of opportunities. We continue to have a disciplined focus on potential return on investment in our evaluations, and we are looking for opportunities where Cypher's unique strengths can unlock extra value. As we move forward, Cypher is focused on finishing the expansions at bear and sheep while ramping up the build-out of Black Pearl. and selectively looking for new growth opportunities via acquisition. On slide 11, we give a portfolio overview of our existing data centers and a timeline for expected scaling of our data centers and expansion in our self-mining hash rate. In the first quarter, we paid an average all-in electricity cost of $11,912 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 this slide, you have an overview of our four current data centers, along with our all-in electricity cost per Bitcoin at the respective sites for the first quarter. The charts on the right side of the slide give you a graphic illustration of the amount of megawatts we manage related to our self-mining operations and the hash rate produced by those operations, as well as the additional growth opportunities in the coming year and a half. As discussed, In 2025, we anticipate bringing on the full capacity of the Black Pearl site. At this point, we will turn to production by site. On slide 12, you can see a picture of our 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 We report a third-party independent valuation to give investors a sense of how much value is represented in the fixed-price power contract alone, and that contract continues to be valuable and differentiating for us. As always, Ed will talk more about it in his remarks. We currently generate approximately 6.7 exahash per second at the site, utilizing approximately 207 megawatts. We have mined roughly 1,183 bitcoins at the site year to date through April 30th. On slide 13, 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 has mined approximately 168 Bitcoin year to date through April 30th. Roughly half of that total capacity and site production belong to Cypher. We expect to supplement the wind production at Alborz with a grid connection by the end of the second quarter. This grid connection will allow us to bring our uptime at Alborz in line with Bear and Chief, and most importantly, generate more Bitcoin with the existing equipment at the site. We currently target roughly 75% uptime at the site, and with the supplemental grid connection, we anticipate our uptime will be closer to roughly 95%. Slide 14 shows operational highlights from our Bear and Chief data centers. Combined, the sites operate 20 megawatts, which can generate approximately 0.7 exahash per second. 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. And we are excited to report on their production next quarter when they will each be four times their current size. As you can see, we are extremely busy at Cypher as always. We have been a company focused on long-term success since day one, and our disciplined approach to strategic decision-making continues to differentiate us. In the post-having environment, the value of our low-cost producer model is clear. We believe our ability to identify attractive electrical interconnection opportunities at greenfield location and manage their evolution all the way to the state-of-the-art data centers we operate makes us unique. We are thrilled to have two consecutive quarters of GAAP profits. And the way we are going to celebrate is to keep investing in the expansion of the business. At this point, I'll turn it over to our Chief Financial Officer, Ed Ferrell.