Cipher Digital Inc.

Good day and thank you for standing by. Welcome to the Cypher Mining third quarter 2024 business update conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today. Josh Cain, head of investor relations, please go ahead.

Good morning, and thank you for joining us on this conference call to address CyberMiner's third quarter 2024 business update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Edward Farrell, Chief Financial Officer. Please note 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 In this conference call, it's 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 Cipher's financial outlook, business plans and objectives, and other future events and developments, including statements about 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 sends 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 our CEO, Tyler Page. Tyler?

Thanks, Josh. Hello, this is Tyler Page, CEO of Cypher Mining. Thank you very much for joining our third quarter 2024 business update call. We've had an extremely busy few weeks recently at Cypher, and our business model has rapidly evolved from being just a Bitcoin miner to being a developer of HPC data centers with a natural built-in offtake via Bitcoin mining for prospective sites. We believe that we have found a truly unique niche by opportunistically investing in greenfield development sites, knowing that we can build and operate an HPC site for a tenant, or if a high-quality HPC tenant fails to materialize, we can always continue to expand our Bitcoin mining footprint and put the sites to profitable use. We have closed five such deals to acquire Greenfield data center development sites in the last two months. Our current primary intent for these sites is to develop them as HPC data centers. but all five sites are located in Texas and would also be excellent sites for Bitcoin mining as we can always use our proven ability to manage power curtailment and produce our own best in class electricity costs. Cypher combines expertise in site origination at the front end of the development funnel with an experienced team of construction and operations professionals that joined us from the hyperscalers. Our team has built some of the most high tech data centers in the world and continues to innovate in both the HPC and Bitcoin mining space. Further downstream, we believe Cypher's talents in operating the technology and trading needed to manage energy prices and the curtailment process will bear fruit as the entire data center industry evolves. According to a recent research piece from JLL, data center industry demand is forecast to grow at a 23% compound annual growth rate through 2030. The demand for large-scale data centers driven by the rise of large language models and AI is seemingly growing even faster, and those sites are increasingly hard to find. Regulators and system operators are now suggesting hyperscalers match requests for new power interconnections with new generation development in order to receive required approvals. This trend will further extend waiting times for large interconnects. And this situation is juxtaposed against an environment where the chief executives of the hyperscalers are ramping up their CapEx spend in the race to be the winner in AI. It is against this backdrop that we launched our HPC vertical. We believe that large-scale interconnects available in the next few years are exceedingly rare and valuable, and I am excited to tell you more about our progress today. Before I talk about our new development portfolio, Let me begin the call by updating some key metrics for Cypher as of the end of September, 2024. While we have major growth coming in the near future with our new sites, we are also in the middle of a significant expansion of our Bitcoin mining business right now. We operated 9.3 exahash per second of self mining capacity at quarter end. And as of this morning are in the middle of installing our Odessa upgrade, and have grown to 10.5 exahash per second. By the end of the year, we expect our self-mining capacity to grow to 13.5 exahash per second with a fleet-wide efficiency of 18.9 joules per terahash. Cypher continues to manage a significant Bitcoin inventory, holding 1,508 as of the end of the third quarter. And we are probably best known in the Bitcoin mining industry for our 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 outstanding unit economics. In the next two months, as we complete the Odessa rig upgrade, we will be pumping the industry's cheapest electricity through one of its most efficient fleets. Now let's move to a review of our current operations. On slide six, we give a portfolio overview of our existing data centers and a near-term timeline for expected scaling of our managed power capacity. Year to date, we paid an average all-in electricity cost of roughly $18,162 per Bitcoin produced at our data centers. We are very proud of this number. Please note that 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 taxes, transmission, and other charges, and our low numbers dramatically demonstrate our competitive advantage. On the left side of the slide, we show an overview of our production split across Odessa and our JV data centers, along with our all-in electricity cost per Bitcoin at the sites year to date. The chart on the right side of this slide gives you a graphic illustration of the number of megawatts we currently manage, as well as the projected growth for the coming year. As you can see, we currently expect to manage 927 megawatts across six data centers in 2025 when we bring Black Pearl and Barber Lake online. At this point, we will turn to production by site. Slide 7 has a production summary of our Odessa facility. Odessa is the most significant part of our portfolio as it represented approximately 83% of our Bitcoin production in September. Recently, Odessa became the first Bitcoin mining data center to be awarded the Uptime Institute's stamp of approval for management and operations. Odessa is a wholly owned facility in the middle of a five-year fixed price power purchase agreement and pays some of the lowest prices for power in the industry. As of quarter end, we generated approximately 7.1 exahash per second at the site using approximately 207 megawatts. Those same 207 megawatts will generate roughly 11.3 exahash per second with the rig upgrade we are in the middle of executing now. On this page, we also provide the observed all-in electricity cost per Bitcoin at the site post-halving, which was roughly $25,488. Even after the April halving reduced the number of new Bitcoin paid to miners, you can see how valuable it is for Cypher to have a cheap fixed price of power available on such a large portion of our portfolio. On slide 8, we highlight our joint venture data centers of Alborz, Bear, and Chief. With the recent expansions at each of Bear and Chief, the sites now have a total power capacity of 120 megawatts and generate approximately 4.4 exahash per second. We own 49% of the JB sites, and our portion recently generated roughly 17% of our overall Bitcoin production. On this page, we also provide the observed all-in electricity cost for Bitcoin at the sites post-halving, which was roughly $34,160. 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. Now let's turn to an update on our development portfolio. Slides 10 and 11 show a rendering of the completed data center at Black Pearl and photos from the current site work underway. We are scheduled to energize the site in the second quarter of 2025. Everything for Phase 1, which is the first half of our building and the full 300 megawatt substation, is progressing on schedule. Our current design envisions 250 megawatts of air-cooled and 50 megawatts of liquid-cooled Bitcoin mining. At full capacity, the site is anticipated to produce roughly 21.5 exahash per second of hash rate. We have continued to receive inquiries on our willingness to repurpose a portion of the data center for HPC hosting. And ultimately, our final design at the site will depend on what we think will produce the best outcome for shareholders. Slide 12 gives an overview of our new Barber Lake site that we acquired last month. we immediately recognized the potential for Barber Lake when we first saw it. The site has an approved capacity of 300 megawatts, and we purchased 250 acres of surrounding land. Perhaps most importantly, the site already has an existing energized substation, so any data center will be immediately available for use upon completion of construction. When you also consider that it is located next to the major fiber line running along I-20, This site is ideal to host a large HPC tenant. Every potential tenant who has seen it thus far has expressed interest given its optimal setup. We look forward to updating the market in more detail as we progress in our various discussions. Slide 13 shows an overview of the Reveille site, which is the first site in our medium term pipeline as it is scheduled to energize in 2027. By the time we turn on Reveille, we will have already been managing our initial large HPC sites at Barber Lake and potentially Black Pearl. The site is located in Cotulla, Texas. It has been approved for 70 megawatts, but based on early discussions with the transmission service provider, we believe we can expand the site capacity to 200 megawatts by the time the site is energized. Given the timeline to energization, we have a lot of flexibility on Cypher's strategy for the site. We may choose to build a powered shell data center for a hyperscaler and secure a long-term lease from a high-quality tenant. But we also have the potential to expand our capabilities, and we'll review a variety of potential business models, including more of a multi-tenant model or even managing our own fleet of GPUs. We have some time to watch the market develop and evolve before we complete our strategic planning. Slides 14 to 16 give overviews of the three sites covered by the purchase options that we recently acquired, McKeska, Nielsen, and McLennan, or what we call the 3Ms for short. These sites are the furthest out in our development pipeline as they are pending final approval for interconnection, and we expect the results of approval processes for the sites to be finalized in the coming year. We hope to receive approval for up to 500 megawatts at each site. In addition to the interconnections, our purchase options also cover substantial parcels of land at each site. All three sites 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 if necessary. 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. As you can see, our evolution as a development company has occurred rapidly so far. We are building on our demonstrated success of originating the best sites and power deals in Bitcoin mining and bringing that expertise to the traditional large-scale data center market. As that market is evolving and forcing large tenants to go to non-traditional areas for the scale they need now, it feels like the entire market is moving towards us. As we finalize our plans for Black Pearl and Barber Lake, and define our long-term ambitions at the sites further out in the pipeline, we are extremely confident in our positioning. So why are we so confident in our positioning? While we don't yet have specifics to confirm today on our current HPC business negotiations, a simple review of current market conditions and the economics of operating GPUs demonstrates why there is so much interest in our sites. We have talked about the scarcity of overall capacity given the current and projected growth in the data center industry and the dearth of large-scale sites in particular. Against that backdrop, we have two of the largest suitable sites available that can be used as HPC data centers before the end of 2025. Hyperscalers that want their own large site have few options in the market if they want to operate within the next three years. And the general view among those companies is that they are in a race to win AI supremacy and need to accelerate development as quickly as possible. Mark Zuckerberg recently said that he would, quote, rather risk building capacity before it is needed rather than too late, given the long lead times for spinning up new infrastructure projects. Hyperscalers can currently generate tremendous revenue from investing in GPUs. This year, NVIDIA has estimated that companies can generate $5 to $7 of revenue over four years for every dollar spent on their GPUs. To our potential tenants, Cypher can offer two extra years of operations on up to 600 megawatts across our Black Pearl and Barber Lake sites at a critical point in the race compared to waiting for other sites to be ready. The additional potential profit for tenants from that time acceleration amounts to many billions of dollars. These are the exciting market dynamics that are currently driving interest in our data center sites and ultimately giving us great confidence in the success of our HPC business. We expect to sign a long-term lease with a high-quality tenant that will generate substantial returns to Cypher shareholders, and I look forward to updating everyone when we have more specific details to share. With that, I'll turn it over to our Chief Financial Officer, Ed Ferrell.