Cipher Digital Inc.

Good day and welcome to the Cipher Mining Second Quarter 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. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Joshua Kane, Head of Investor Relations. Please go ahead.

Good morning. and thank you for joining us on this conference call to address cycle mining second quarter 2024 business update. Joining me on the call today are Tyler Page, Chief Executive Officer and Edward 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, 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. 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 were 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 second quarter 2024 business update call. Let me begin the call with a few key metrics for Cipher as of the end of July 2024. The upcoming growth of our business is the major theme of the call today, and Cipher's growth and expansion continued throughout the second quarter. We have now grown to 8.7 exahash per second of self-mining capacity, with a current fleet efficiency of 27.8 joules per terahash. As we look to the rest of 2024, we plan a significant upgrade of mining rigs at our largest data center at Odessa that will bring our self-mining capacity to 13.5 exahash per second and improve our fleet-wide efficiency to 18.6 joules per terahash by year-end. Those upgraded rigs are scheduled to ship in the third quarter, and we will install them as they arrive because the site is already prepared to take them. Our growth is then expected to accelerate considerably in 2025 with the addition of our new 300-megawatt Black Pearl data center reaching completion. We expect that the data center will expand our self-mining capacity to 35 exahash per second and improve our fleet-wide efficiency to 15.3 joules per terahash. Cypher has continued to build its Bitcoin inventory and as of the end of July held 2,270 Bitcoins. and as a reminder for those that are newer to the story, Cipher is probably best known in the industry for its very competitive all-in weighted average power price of 2.7 cents per kilowatt hour. Electricity represents the large majority of our operating costs and our low price is a key driver of our best-in-class unit economics. I mentioned that our focus will largely be on Cipher's upcoming growth. and today I am very excited to provide early details of the extensive work we have been doing to build our pipeline of attractive new data center sites for future development. We have consistently said that owning our own infrastructure is vital to our success. Cypher has always sourced, owned and operated its own data centers. Historically, we have acquired sites that have already received interconnection approvals. But we recently expanded our scope and signed a letter of intent for an option to acquire three new sites in North America that are adjacent to transmission assets and in the final stages of approval for interconnection with a 500 megawatt targeted capacity per site. By getting involved earlier in the development timeline, we can avoid broader bidding competitions and source valuable sites that most of our competitors cannot. while improving the long-term visibility for our supply chain and construction functions. Our ultimate purchase price for the sites under our agreement will be very attractive and based on the number of megawatts approved for interconnection, limiting our downside risk. In addition to this purchase option, we are moving forward with a front of the meter site in Texas called Reveille that has already been approved for 70 megawatts, and we believe can be expanded to 200 megawatts by the time it energizes in Q1, 2027. So for future development after Black Pearl, we now have a potential pipeline of up to 1.7 gigawatts of capacity across four new sites. Notably, all of these future data center sites sit at the center of the major trends we see impacting the data center space in the coming years. The continued adoption of the Bitcoin network and related value of Bitcoin mining as a flexible load, as well as the meteoric growth of AI-related HPC data centers. We believe large-scale interconnections that can be used in a variety of ways will become more valuable over time. The four sites we intend to develop all have the necessary characteristics for development of HPC data centers, but also sit in locations with demand response programs that would allow us to monetize the flexibility of curtailment used in Bitcoin mining operations. With these sites we have a lot of optionality, which is exactly where we like to be positioned in front of trends with the potential for massive growth. In connection with the updates on our pipeline of new sites, I am also pleased to announce the launch of our HPC infrastructure business. Given the requirements for success in the HPC infrastructure business and the relative strengths of cipher mining, we believe we will be a market leader in this space. In recent months, we have devoted considerable focus to the evolving HPC data center marketplace and have identified three specific advantages we have over competitors. A successful provider of HPC infrastructure needs to have access to the right data center sites, an experienced construction and operations team, and the capital to finance the necessary build out. Cypher is well positioned in all three areas. Our pipeline sites all have access to adequate land and fiber necessary to service HPC customers. The existing construction and operations team at Cypher has extensive experience building and operating tier three data centers at firms like Google, Vantage and Meta. As an example of the team's excellence being recognized, the Uptime Institute recently awarded our Odessa Data Center the Management and Operations Stamp of Approval. The Uptime Institute sets industry standards in the data center industry and has historically focused exclusively on traditional data centers. This is their first instance of branching out to the Bitcoin mining industry. Our team literally sets the standard for operational excellence in our industry. When it comes to financing expansion, our management team has deep Wall Street experience with a proven track record of raising capital. Over the last few months, we have been inundated with requests from HPC lenders and investors managing billions of dollars dedicated to the space, asking for information about our data center sites, our development pipeline, and our level of interest in being a provider of HPC infrastructure. We have also had deep technical discussions with potential tenants and we are confident in our ability to build powered shells that will be very attractive to hyperscalers and other large tenants. Given our site portfolio, our unique strengths in construction and operations, and the level of investment capital available, we are excited to embark on a new major line of business for the company. We are also still very excited about Bitcoin mining and the potential for managing the associated curtailment. While it is too early to predict the exact mix of our business lines over time, Bitcoin mining and HPC infrastructure are complementary lines of business with different risk and payoff profiles, and even have the potential to converge. We think Cipher is uniquely positioned to be best in class in both verticals, and our strategy will be guided by our intent to maximize shareholder value over time as we develop our future data centers. Now let's turn to the next data centers we are building. Slide six and seven show a rendering of the completed data center at Black Pearl and photos from the current site work. We are scheduled to energize the site in the second quarter of 2025. Our O&M building is taking shape at the site and steel erection, concrete foundations, and underground electrical work is progressing on schedule. Our design envisions 250 megawatts of air-cooled and 50 megawatts of liquid-cooled Bitcoin mining. We have had hyperscalers inquire about our willingness to repurpose a portion of the data center for HPC infrastructure. And while we haven't completely ruled it out, our current intent is to dedicate the full 300 megawatts to Bitcoin mining. At full capacity, the site is anticipated to produce roughly 21.5 exahash per second of hash rate. Slide 8 shows an overview of the Reveille Data Center site. The site is located in Cotulla, Texas, in Load Zone South, which is a different area of ERCOT from Odessa and Black Pearl, which are located in Load Zone West. It has been approved for 70 megawatts, but based on early discussions with the transmission and distribution service provider, we believe we can expand the site to 200 megawatts in 2027. Given that the timeline to energize this site aligns with the necessary timeline to manage the supply chain and build a Tier 3 data center, we have focused our initial planning and discussions for Reveille on HPC infrastructure. It is still too early to determine the exact plan for the site, but we have had a high level of interest from capital providers and potential tenants and our baseline plan now is to proceed with building a powered shell data center for HBC and securing a long-term lease from a high quality tenant. Now let's move to a review of our current operations. On slide 10, we give a portfolio overview of our existing data centers and a near-term timeline for expected scaling of our data centers and expansion in our self-mining hash rate. Year to date, we paid an average all-in electricity cost of $15,004 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 sites year to date. The charts on the right side of the slide give you a graphic illustration of the number 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 you can see, we expect to manage 566 megawatts of self-mining across our five data centers in 2025, and we expect those data centers to produce 35 exahash per second of hash rate. At this point, we will turn to production by site. On slide 11, you can see a picture of our Odessa facility. Odessa is the most significant part of our portfolio as it represents approximately 86% of our Bitcoin production in July. Recently, Odessa became the first Bitcoin mining data center to be awarded the Uptime Institute stamp of approval for management and operations. 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. We currently generate approximately 6.9 exahash per second at the site utilizing approximately 207 megawatts. Those same 207 megawatts will generate roughly 11.3 exahash per second with the pending rig upgrade expected in the coming months. We have mined roughly 1,622 Bitcoin at the site year-to-date through the end of July. On this page, we also provide the observed all-in electricity cost per Bitcoin at the site post-halving, which was $23,563. Even after the recent halving reduced the number of new Bitcoin paid to miners, you can see how valuable it is for Cipher to have a cheap fixed price of power on such a large portion of our portfolio. On slide 12, we highlight our joint venture data centers of Alborz, Bayer, and Chief. With the recent expansions at each of Bayer and Chief, the sites now have a total power capacity of 120 megawatts and currently generate approximately 3.7 exahash per second. We own 49% of the JV sites, and they now generate roughly 14% of our overall Bitcoin production. On this page, we also provide the observed all-in electricity cost per Bitcoin at the sites post-halving, which was $28,784. As a reminder, both Bear and Chief operate as front-of-the-meter sites, so there will be some expected seasonal fluctuations with their electricity costs, and Summer months tend to be higher. As we turn toward the rest of 2024, we look forward to our continued growth in both our Bitcoin mining business and our new HPC infrastructure vertical. And at this point, I'll turn it over to our Chief Financial Officer, Ed Thurman.