Q4 2021 Cipher Mining Inc Earnings Call
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Yeah.
Good morning, Thank you for standing by.
Fourth quarter 2021.
Update conference call.
Today's conference is being recorded and a replay will be.
Available on the company's website after the call.
I'd now like to hand, the conference over to Lori Barker Investor Relations.
Good morning, ladies and gentlemen, thank you for joining us on this conference call to discuss cipher Mining's fourth quarter 2021 business update joining me on the call today are Tyler page Chief Executive.
<unk> Officer, and Ed Farrell, Chief Financial Officer. Please note that he May also review our press release and presentation, which can be found on the Investor Relations section of the website at investors that say for mining Dot com.
Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.
This conference call is the property is safer mining and any taping or other reproduction is expressly prohibited without prior written 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 ciphers financial outlook.
<unk> plans and objectives and other future events and developments.
Including statements about the market potential of our business operation potential competition in our goals and strategies.
These forward looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
It could cause actual results to differ from forward looking statements can be found in Cyprus periodic and other SEC filings.
The forward looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and safer 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 reconciling non-GAAP measures to the most directly comparable GAAP measure and you are encouraged to examine those reconciliations which are found at the end of our earnings release.
Issued earlier this morning.
I will turn the call over to Tyler.
Tyler.
Hello. This is Tyler page the CEO of a site for mining.
Let me say, thank you for joining our fourth quarter earnings call and I look forward to providing a business update.
Let's start with an overview of site for mining.
We are a U S based large scale bitcoin miner with key competitive advantages in power equipment and operations.
After going public in the third quarter of last year as a Greenfield company, we have made great progress.
We commenced our bitcoin mining operations in February of 2022, and we had significant build out plans for 2022 and 2023.
Notably, we have a business positioned to withstand cyclicality and bitcoin mining profitability.
We do this by focusing on the main cost drivers of Opex and Capex in the business.
And bitcoin mining Opex is dominated by the cost of power and Capex is largely the cost of mining rigs.
Yeah.
We have a portfolio of long term power purchase agreements with a compelling weighted average price of $2 73 per kilowatt hour.
And we have a series of mining rig purchase contracts, where our average price is $42.81 per <unk>.
We believe these costs are extremely competitive versus our peers.
As we look forward, we believe site for mining will be the preferred platform for the U S power industry to access bitcoin mining and I'm excited to discuss some term sheets for new potential data center deals that we have signed since our last business update.
Okay.
Let's discuss some milestone sniper has achieved since our last call.
Most importantly, we are no longer a pre revenue company.
We began mining bitcoin at our al bores datacenter in late February .
Al Bores data center is expected to continue to receive our initial shipments of mining rigs for the first five months of the year.
The January shipment arrived and was installed on time. The February shipment has shipped on time and we anticipate the machines will be installed this month.
Al Bores is 100% powered by wind.
Additionally, we had been very busy arranging deals for our future pipeline of data centers I will focus on two deals for which we recently executed term sheets first we signed a joint venture term sheet with a private investor group for a new 80 megawatt grid connected site in Texas, where sapre will own 51% of the economics.
Assuming we close the deal we anticipate that the site will be ready from a power and infrastructure perspective to accept mining rigs later in 2022.
Second we signed a term sheet for a new power purchase agreement with illuminate which is an affiliate of bistro for a 200 megawatt facility that will draw power sourced from solar and will be supplemented by a grid connection.
This will be our second deal with limited and will feature both a longer term 15 year power purchase agreement as well as unique features that allow us to align our incentives with the power provider.
Perhaps most excitingly. This project will be a prime example of how the economics of bitcoin mining can provide the necessary incentives to unlock the construction of new renewables facilities.
We continue to be innovative in our deal structuring so that we can get a more closely aligned relationship with our power providers and ultimately be positioned as the preferred provider in the market for accessing bitcoin mining.
Let's take a moment to discuss the evolving bitcoin mining landscape.
There are many changes happening in this industry and we are positioning cipher to take advantage of the way, we think the market will evolve.
Let's start with the somewhat obvious observation that there are tremendous advantages to having economies of scale and bitcoin mining primarily related to negotiating better pricing for power and mining rigs.
Given that we have observed a mining companies going public to access larger pools of capital sniper help lead this trend going public last year.
The main focus for much of the industry in 2021 was securing mining rigs in a world dominated by chip shortages.
Today, we see the main challenge for the industry as being infrastructure execution and deployment when it comes to execution, we anticipate that safer will be well positioned as we continue to scale up our infrastructure at sites throughout the year.
What we see developing in the market today is an increasing level of interest from the U S power industry as they would like to benefit from the economics of Bitcoin mine. We believe that this trend will continue and are positioning <unk> to be the preferred partner for power providers.
Our JV platform can provide unique benefits and our flexibility and deal structuring continues to give us a strong pipeline of opportunities. We are trying to be in front of what we think is a significant trend.
Lastly, we think it is likely that there will be greater downstream integration for miners to the broader crypto and financial services markets in the future.
We think that's super mining will be the b to B platform for the U S power industry. In addition to the new joint venture term sheets I discussed earlier, we have a series of joint ventures to deploy new data centers with our partner Wind Beach Q that will be coming online this year and into the future.
We also continue to extend our relationship with bistro with a new term sheet that envisions an innovative structure, which further aligns our incentives at a second large site, we will look to build in 2023.
Beyond these opportunities we have a significant pipeline of potential deals we are in the process of negotiating.
Aligning incentives with a joint venture structure, where accustomed PPA features makes sense decipher because we can ensure the most competitive prices for power.
These structures make sense, where the power provider because we have a turnkey JV model that is scalable and can address the complexities of handling bitcoin.
This allows them to access potentially higher margins than simply selling power for a dollar based markup.
Overtime, we believe building connections to a wide variety of power partners will be a big part of our future success.
Next let's talk about our updated implementation plan and strategy.
First let's begin with an overall market update.
Since our last business update call bitcoin prices have been volatile and moved to downward.
Bitcoin prices have lost about a third of their value since touching all time highs last November .
Against that backdrop, we have also seen indications that deploying infrastructure seems to be a chokepoint for putting mining rigs to work with some other mining companies and we.
We have received inquiries about hosting miners for others at our sites as they are deployed.
While we do not currently have plans to offer hosting this interest reconfirms the importance of our primary focus on continued timely deployment at our data centers.
At the same time, we are seeing clear signs that the mining rig market is evolving.
New generations of miners are being launched from traditional players and notably Intel is broadly rumored to be launching its own competitive mining rig with the possibility of fixed prices.
When you combine that news with increasingly competitive pricing that we are seeing in the rig secondary market. We believe there is the possibility that we are at the beginning of a new market environment.
It is hard to predict but we believe that maintaining flexibility will be of paramount importance going forward.
There may be opportunities to purchase rigs on a shorter term delivery schedule for lower prices in the future.
And we will be watching this development closely.
Let's look at our currently forecasted schedule for site readiness.
Paul that we think of site readiness in three phases, how our readiness.
Infrastructure readiness and mining rig availability.
He was a bar chart, showing our forecast for power and infrastructure availability at our data centers and the associated megawatts being available.
There are a few changes since our last update.
We have added the anticipated 80 megawatt JV for which we recently signed a term sheet in the fourth quarter.
And we have made some small tweaks on sizing at expansion for bear and cheap.
Note that we are also now expecting a change in our timeline to deploy at our first site with standard power.
We currently anticipate that we will target deployment at our first site with them in 2023.
Al <unk> is now up and running with its first rigs and we anticipate bear in cheap, we'll be ready from a power and infrastructure perspective by month end.
Oh, just as deployment currently remains on track for the third quarter.
In a marketplace that seems to be somewhat short of quality sites ready to accept rigs. We are building a strong portfolio of sites with compelling economics.
Let's talk about our anticipated minor delivery schedule.
We have placed a focus on cost discipline when it comes to purchasing machines and currently have any anticipated weighted average cost of $42 81 per <unk> across our portfolio.
That positions us well in the evolving marketplace for mining rigs and we are looking to be as flexible as possible to take advantage of potential opportunities that may arise.
Recall that we have contractual relationships with three different providers of mining rigs.
Micro BT and bit Fury.
Are you re contract is structured as a seven year arrangement that provides flexibility given that we have a right of first refusal on machines and a most favored nation pricing arrangement in the contract.
Thus when rigs are in high demand and hard to source, we have the potential to secure them from bip theory at a competitive price.
When the marketplace has lots of rigs available and there is not as much of a premium on securing supply we can optimize across other suppliers and bit theory.
Has the potential to sell their rigs to others at market prices.
Given our belief that upcoming market conditions may warrant a premium on flexibility, we have decided to continue to push forward with our <unk> and micro <unk> contracts.
Not bit purees rigs for 2022 delivery.
This reduces the baseline amount of hash rig that we currently are expected to receive in 2022 to seven point to exit cash, but allows us the flexibility to be nimble and potentially capture opportunities in a fast moving market.
If the mining rig market provides opportunities for us to acquire machines. Later this year at attractive prices, we anticipate having the capacity at our sites in 2022 to accommodate machines with the potential to generate an additional 1.9 exit hash to cipher.
Let me share some pictures of our deployment progress.
Here are some pictures of our datacenter site in Alberta that is now mining big point.
You can see the big wind turbines in the background.
Here are some other perspectives on our containers at Al <unk>.
Here's a picture of the hot side of one of our containers as well as our chief construction office are hard at work racking and stacking the initial rigs at out worse.
Here is an exciting picture. This is the now cleared area, where our data center will be located at Odessa.
You can see the power generation facility in the background.
To give some perspective. This site has had about 54 acres cleared and 3000 dump truck loads are removed, we have new containers being fabricated and our work streams are currently tracking toward then on time deployment.
Okay.
Lastly, let.
Let me reiterate some key statistics to note about cyber.
Our anticipated weighted average cost for mining rigs was $42 81 per Terre Haute.
Our anticipated weighted average mining rig efficiency is 33.8 jewels for Terra ash.
Our anticipated weighted average power price is $2 73 per kilowatt hour.
And our anticipated infrastructure capex cost per megawatt excluding mining rigs is $450000.
Okay.
Now I will pass it off to Cyprus C F O Ed Farrell.
Okay.
Thank you Tyler and Hello to everyone on the call.
His tireless aided in the fourth quarter of 2021, we made significant progress in our deployment plan of building out our data centers.
This resulted in fulfilling the commitments, we previously announced relating to purchasing mining rates electrical infrastructure.
He already deposits for our power agreements and corporate related expenses to support our business.
We closed on the merger back in August 2021, and immediately we commenced our deployment plan.
This included making scheduled payments relating to mining rigs of approximately $115 billion that is recorded as deposits on machines on our balance sheet.
We made progress payments for property and equipment, which includes transformers and switch gears a $5 billion.
Security and collateral deposits of $10 million to one of our energy providers and 16 million for corporate related prepaid expenses.
On December 31, 2021, we had cash of approximately $210 million and since then we have continued investing capital as our plan progresses.
If we look at our GAAP operating results to the 11 months ended December 31, we had a net loss of approximately $72 $1 billion.
The primary drivers of this loss in food approximately $63 8 million of stock based compensation.
Corporate related expenses of approximately $8 3 million, which includes insurance professional fees and employee compensation and benefits.
We believe non-GAAP financial measures are also helpful to investors and comparing our performance across reporting periods.
Consistent basis.
Our non-GAAP P&L and non-GAAP diluted earnings per share excludes the impact of certain noncash recurring items, which include depreciation of fixed assets change in fair value warrant liability and stock compensation expense.
These measures are not a substitute for our GAAP results management will use these non-GAAP financial measures internally to help understand manage and evaluate our business performance and to help us make operating decisions.
So the 11 months ended December 31.
Our non-GAAP loss was approximately $8 $4 million.
We've provided a reconciliation of our GAAP versus non-GAAP results.
Finally, we are very pleased with the progress we've made executing our plan and look forward to continue building, our business and reporting our progress and successes in the first quarter related to a bitcoin mining operations.
I'll stop there Tyler and I'm happy to take your questions.
Thank you as a reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question is from Kevin Dede with H C. Wainwright Your line is open.
Good morning, Tyler and Ed. Thanks, So much for taking my question.
Would you mind, just spending a little bit more time on the bit curious situation.
If you.
If you could could you just peel back the onion, a little bit give us are you.
I'll read on their chipset development and when you think they might have rigs to enter the market.
Sure Hey, Kevin how are you.
So I think you know we are under a seven year contract with them to have options to purchase their rigs and with the 2022.
Allocation we have.
Our preorder arrangement that I know has filed with the SEC. So it's public and that envisioned a delivery in the second half of 2022 as.
As we mentioned on the call we are exercising our rights to to be flexible and not move forward on that 2022 purchase but they have received their chips from Samsung.
And as far as I know.
They are on track to deploy those machines in the second half of 2022 as we had contracted for.
Our borders.
Again apologies Tyler because I know you've held my hand through this before.
But Albert it's obviously driven by when there's gotta be a grid connection as well.
No theres not theres actually a back to back PPA there were al bores only purchases power from the wind farm and let me tell you I think I know the question behind the question, which is thinking about how do you do that what if the wind's not blowing theres really two steps there.
The first is that the wind farm itself is much larger than our data center, it's about 165 megawatt wind farm.
Our data center is sized appropriately at.
At 40 megawatts.
And then on an ongoing basis, we anticipate there will be less uptime, there than there would be at our typical site with power availability all the time.
And so what we've done there is look at the historical wind production and use that in our sizing of both the.
The size of the data center as well as the modeled uptime.
And when you look at the overall cost structure.
At Al bores.
It's a fantastic opportunity because basically being a wind site.
There's a mid voltage connection point there.
And so the the needs for the cost of a substation or not present lowering the capex.
And also we have a fabulous price on power there.
And so as we think about it we model about 75% uptime there.
Is there an opportunity to to sell access to the grid.
In that particular opportunity, it's it's a little bit of a complex set up so we can only draw power and we do not have a grid connection.
So it's got a back to back PPA, because you're in a regulated area of Texas and so we can only draw power from the wind farm.
Okay.
Then.
Thanks, a lot for including the pictures of the sites are very very helpful. The ADESA one.
The power plant could you just give us a little more color on that type of power plant.
Yeah, no it's a natural gas facility.
And that's with our partner our aluminum.
And so you know we've got the components are being fabricated.
Major or sort of work streams are tracking towards deployment. There. It's obviously a large site. That's as I mentioned, it's about 54 acres in that picture.
And so there's a lot of containers going there, but if you look at our delivery schedule that the current anticipated plan is to put our micro btu deliveries there.
And so we will be effectively phasing in that site as the machines arrive.
So in southern point coming to a full size, but you know over the course of the rest of the year starting in the second half.
Right right right.
That one chart you offered very helpful. The seven point to target. This year could you give us a rough idea on your renewable mix in total.
Energy consumption for 2022.
At year end, so I know we've shifted some pieces around in terms of the deployment timelines. So.
Overall, I think if youre thinking about in emissions first of all let me step back our recall that our E. Our approach to ESG is that we've got on our roadmap to target a carbon neutrality via offsets by the end of 2023, we don't work with coal facilities and largely are.
Output of emissions.
In 2022, depending on timing will be driven by the natural gas.
<unk> facility at Odessa, and so if you look at kind of an anticipated mix of what we've got from an emissions perspective, we come in at about half the typical emissions per megawatt hour in the United States. So we're starting from a place. We think is pretty strong and then we're targeting.
Offsets by the end of 2023 to have neutrality.
You know its wind power at Al Bors, It's a grid connection at bear and chief.
Odessa is natural gas and the new P. B J site that is under term sheet at this point is a grid connection.
Thank you very much Tyler.
Congrats on all the Sabra.
Thank you very much.
Thank you as a reminder to ask a question at this time. Please press Star then one on you touched on the telephone.
Our next question comes from Aaron Rakers with Wells Fargo. Your line is open.
Yeah. Thanks, Thanks, Tyler for taking the question.
I guess I just wanted to go back to kind of the rig deployment, just so I can be clear.
It looks like what you've done is just kind of taken out the bit Fury.
Contributions to the model has there been any change as far as the timing or the allocation of supply for that matter.
The main and micro BC system deployments at this point no. Those are those are the first two shipments from Bip may and are on track and no alterations to that schedule. So currently under contract to purchase 87000 rigs 27000 from Bip, Maine and 60000.
For microbial T and Theres been no change to those plans.
And then I noticed I don't know, it's a small small change, but your average anticipated weighted average cost of mining rigs have gone up it looks like about 10 or 11% relative to back in November .
You know given your contractual commitments can you help us understand are you are you seeing or inflationary pricing.
No that's your appointment.
That is the actual downside.
As we weigh the pros and cons that is the downside of removing the bit Fury rigs and so we have our most favorite nation pricing arrangement with them with the team at fifth Fury, and so by choosing the path of flexibility and focusing them to move forward with the other two providers.
The effect on the portfolio is that you are removing that number of more cheaply priced machines.
But again it all.
Yeah, as we think about it the flexibility.
The most important thing to us.
And I know this is probably a tough question to answer but I'm just curious like as you look at the industry dynamics.
How are you thinking about you know has there been any changes what are you kind of watching from a regulatory perspective at this point to anything we should be keeping our eyes on.
Sure will.
Let me give overall context that.
We've got a shifting landscape on a geopolitical front of macroeconomic front end and somewhat on an industry front right. So I just the heavy caveat that.
Lots of events happening every day right I think currently from a regulatory standpoint.
We feel good about where we are it feels very stable to me, but that's coming from a perspective of having worked in crypto for over five years now and the reason why I say that is.
Geopolitical and macroeconomic events are going to bring crypto to the highest levels of discussion and debate.
From a legislative perspective, but I think what I see and you know I was watching chairman Powell testimony yesterday and watched a lot of the congressional testimony over the last few months there does seem to be a growing acknowledgment that you know.
Bitcoin in particular is part of the landscape now and the fact that that seems to be conceded them with regulators, even if they have a broader debate about regulating the space and how do they target bad actors etcetera.
To me.
Feels very good so we do not anticipate changes on that front.
Yes.
But okay clouds, a volatile place.
Thank you.
Yep.
Thank you once again, if you wish to ask a question at this please press Star then one are you touched on the telephone.
And I'm currently showing no further questions at this time I'd like to turn the call back over to Tyler pays for closing remarks.
Okay, well, thank you to everyone who could join the call.
We are very excited about our continuing execution and I think that frankly, the volatile conditions in the shifting landscape in the world really reinforces our approach.
To have cost discipline as the most important way.
To manage our way forward and I think our long term strategy is distinguishable from the rest of the marketplace and plays to our unique strengths. So we're very excited to keep our heads down and continue executing and thank you for your time today.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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