Q1 2022 Cipher Mining Inc Earnings Call
Hello, and welcome to the site for mining first quarter 2022 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.
I ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
It is now my pleasure to introduce Louis Berger Investor Relations.
Good morning, ladies and gentlemen, thank you for joining us on this conference call to discuss siphoned Mining's first quarter 2022 business update joining me on the call today.
Executive Officer.
Chief Financial Officer. Please note that you May also review our press release and presentation, which may be found on the Investor Relations section of the website and investors at sites where mining dotcom.
Please note that this call will be simultaneously webcast.
The relations section of the company's corporate website.
This call is the property of slides for mining and taping or other reproduction is expressly prohibited without prior written consent.
Nor are 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 Cypress financial outlook business plans and objectives and other future events and developments, including statements about the Microsoft Chinchillas, our business operations potential comp.
And our goals and strategy.
The forward looking statements in this in this conference call, including responses to your questions are based on current expectations as of today and play for assumes no obligation to update or.
And whether it's new.
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 reconciled non-GAAP measures to the most directly comparable GAAP measure and you are encouraged to examine these reconciliations which are found in our earnings release issued earlier this morning.
I'll turn the call over to pilot Ireland.
Thank you Laurie.
Hello. This is Tyler page the CEO of site for mining.
Thank you for joining our first 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 and equipment power and operations. We brought our first bitcoin mining operations online in February and we have significant build out plans for 2022.
<unk> in 2023.
Notably, we have a business position to withstand cyclicality in bitcoin mining profitability.
We do this by focusing on the main cost drivers of both Capex and Opex in the business.
And bitcoin mining Capex is dominated by the cost of your fleet of mining rigs and the Opex is largely the cost of power.
We've stayed very focused on maintaining cost discipline. Despite the inflationary environment. The entire world has faced recently that focus positions safer very well for potentially lower bitcoin prices because with comparatively lower costs, we should be able to keep our machines running profitably when competitors with higher <unk>.
<unk> faced challenges.
We are expecting to bring approximately 7.5 exit hash per second of hash rate online by early 2023.
This is an increase in forecasted hash rate from our last business update due to an improved mix of machines under contract with micro V T.
With this improved mix of machines. We also now have a more efficient fleet of mining rigs on order with an average machine efficiency of about $32, one joules per terabyte.
Our average price paid for our rigs is now forecast to be $45.01 per <unk> per second.
We have a portfolio of long term power purchase agreements with a compelling weighted average price of $2 seven per kilowatt hour. We believe this price is extremely competitive versus our peers.
Our operations team is now readying power and infrastructure at four separate data centers and we expect to have 275 megawatts available to accept our mining rigs by year end.
We anticipate the Capex cost for these sites outside of the cost of the mining rigs to be about $450000 per megawatt.
Let's discuss the milestones flavor has achieved since our last call first our first quarter shipments of rigs from <unk> have been installed on time at our <unk> data center and are now hashing.
Our hash rate build will accelerate throughout the year shipments get larger and we anticipate the growth in hatch rate will pick up meaningfully in the coming quarters as I will discuss in greater detail later in our deck.
Next we have now increased our hash rate forecast to 7.5 exit hash per second as we recently upgraded our machine purchase contract with micro BT to include a more efficient mix of higher performing rigs.
This new mix of machines in our fleet will add an additional 400 <unk> per second to our previous forecast.
Lastly, we recently closed our first equipment financing at our Al Bores data center joint venture with block five where about $47 million.
The proceeds from this financing will go towards previously incurred cost for the main machines on order for the <unk> site.
We are excited to partner with block buy on the first of what we anticipate will be multiple debt deals for the company in the near future.
Now, let's turn to our implementation plan and strategy.
On slide six we show an updated forecast for power and infrastructure readiness by site.
Our operations team is currently hard at work deploying our first four data centers with an expected to begin later this year.
You will notice that our updated forecast reflects the fact that we have pushed out the anticipated start date for their phase II and chief phase two to 2023.
Our updated end of your forecast for power and infrastructure availability is for a total build a 345 megawatts with 275 of those megawatts belonging to cyber and the remainder belonging to our JV partners.
This is more than enough power to accommodate installation of all the rigs we have on order.
On slide seven we overlay our data center readiness schedule with our quarterly mining rig shipment schedule.
You can see that we forecast to have sites ready to accept machines as they arise throughout the year and plan to have an excess capacity as well should we find opportunities to purchase additional machines at attractive prices.
Across the bottom of the slide you can see the hash rate associated with the mining rigs being shipped build by quarter.
We forecast, having roughly seven five <unk> per second up and running in early 2023.
Here are some updated pictures at our Albert's data center, which is nearing completion the.
The data center is currently operating the rigs we received in the first quarter and we will continue to add machines that they arrive in the second quarter until the full 40 megawatts is operational.
As you can see from the turbines in the distance al bores as 100% powered by wind.
Slide nine features pictures of progress at Behr and cheap.
Once all the machines have been installed at al doors. The next months.
<unk> will be headed to bear and chief where the sites will be ready to install them.
You can see the early infrastructure deployment.
And our container foundations being set in these pictures from a few weeks ago.
Slide 10 shows construction progress and our largest data center in Odessa.
The upper left hand corner has a picture of the site being initially cleared which I showed off a few months ago.
It is a huge 54 acre site.
The other picture showed the substitution as well as foundations being placed along with trenching and electrical work being done.
We're thrilled with the progress here already thanks to our best in class construction and operations teams.
And look forward to more exciting and fast paced construction at ADESA over the coming months.
Slide 11 shows some up-close pictures of conduit being put down at ADESA as well as the helical piles, we use as foundations for containers.
Lastly, let me reiterate some key Buildout statistics to note about <unk> as we continue to scale.
We have an anticipated weighted average cost for mining rigs of roughly $45.01 Portera hash per second.
Our average rig efficiency is anticipated to be about 32.1 joules per term.
We have an anticipated average weighted power price across our portfolio of about $2.07 per kilowatt hour.
And we anticipate our non minor infrastructure capex cost per megawatt to be roughly $450000.
As the pictures I've shown suggest we've been extremely busy here at Ciber building out our four sites in Texas, We've made significant progress in the past few months executing to schedule. During a time, where many are finding it challenging to lineup power and equipment.
We're happy to have our first machines installed in hatching and we're excited to get our next machine deliveries soon and ramp up our production.
Particularly in the second half of this year.
Now I will pass it off to snipers CFO Ed Farrell.
Thank you Tyler and Hello to everyone on the call.
As evidenced in the photos that Tyler presented you can see that we've made significant progress in building out our data centers in the first quarter 2022.
This resulted in fulfilling the commitments, we previously announced relating to purchasing binding rig <unk>.
Electrical infrastructure security deposits for a power purchase agreement and corporate related expenses to support our business.
During the quarter, we made scheduled payments relating to mining rig of approximately $97 million, bringing our total deposits of $207 million, which is recorded as deposits on equipment on the balance sheet.
In addition, we made progress payments for property and equipment, which includes transformers and switch gears of $6 $5 billion.
On March 31, 2022, we had cash of approximately $99 $5 million.
Since then have continued investing capital as our planned progression.
If we look at our GAAP operating results for the quarter ending March 31, 2022, we had a net loss of approximately $17 $5 million, resulting in a net loss per share of <unk>. The.
The primary drivers of this loss include stock based compensation of $9 5 million corporate related expenses of approximately $8 million, which include insurance professional fees employee compensation and benefits and other public company expenses.
I'd like to highlight that although we did my bitcoin. This quarter. Please note that this occurred within our JV Al Board, which cipher owns 49% and as such our economic interests will be accounted for under the equity method, which geographically on our income statement as a component of other income.
The bitcoin reward we received is disclosed as a current asset on the balance sheet.
We believe non-GAAP financial measures are also helpful to investors and comparing our performance across reporting periods on a consistent basis.
Our non-GAAP P&L and non-GAAP diluted earnings per share exclude the impact of certain noncash recurring items, which include depreciation of fixed assets chain.
Change in fair value warrant liability and stock compensation expense.
These measures are not a substitute for our GAAP results, but management will use these non-GAAP financial measures internally to help understand manage and evaluate business performance and helped us make operating decisions.
So for the three months ended March 31st our non-GAAP loss is approximately $7 $9 million.
<unk> in a non-GAAP loss per share of <unk>.
We have provided a reconciliation of our GAAP versus non-GAAP results.
Finally, we achieved several key milestones in the first quarter and we look forward to reporting our progress in future periods as we continue to scale Cypress operations.
I will stop there and Tyler and I are happy to take your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask a question. Please press star one.
And our first question comes from the line of Kevin Dede with H C. Wainwright.
Good morning, Tyler Ed Thanks for holding the call and thanks for having me on it.
Quick question on the.
I think it's two O seven that you referenced dead.
Positive for equipment now is that the entire <unk>.
7.5 extra hash.
I'll conclude all the financing you need for that including the full deployment of what almost 350 megawatts.
That that's a component of that Kevin.
We're still making payments with regard to the full build out.
And that has all been self funded with the cash that we had from the proceeds of the proceeds of the deal.
Okay, Hey, Kevin its good.
So yeah. So I mean, I think you saw we announced recently our first equipment finance deal.
For about $47 million in total.
We are confident at this point based on the continuing discussions we're having that that is not our last deal we will be announcing.
Obviously, the market is moving around a lot and so until they're done they're not done, but we feel confident right now that we will fund the entire build out based on the conversations we're having right now.
Can you give me a ballpark on how.
How close you are to that 100% financing for.
What.
What goals you set for the year.
I think it's challenging to give you an exact number and I'll tell you why we are scaling and obviously from a greenfield company starting from zero.
And bringing things online and so to answer that I would have to get answers about what does future bitcoin price look like what does future hatch rate looked like because we've got payments that will be going out as bitcoin mining is happening and sort of coming in as revenue. We also have.
Some other pieces that would need to be finalized on that spend so for example.
Half the micro BT machine contract is based on a floating price mechanism, we're actually reporting.
Price per Terra ash with a mid point there if prices were to stay where they are significantly less cash would have to be spent.
It's hard to answer that question exactly Kevin we've given the numbers if you want to try to sort of make a forecast on what we have to spend per megawatt and the machine payment terms.
Are all publicly filed so you can see the month by month payments, but I think the overall takeaway should be based on the conversations we're having right now we're very confident that we will be able to fund the entire buildup.
Okay, well to your point right.
Market certain state of flux right and.
Lots of pressure on bitcoin lately, so I yeah.
I appreciate the color.
I noted a lot of your conversation setting around micro BT there.
<unk> is a new entrant.
Other main suppliers and I know you do have relationships with others can you just refresh.
My memory, please on where you stand there and what you might have or might be considering in terms of alternate suppliers between the main too.
Sure. So just to reiterate what we have under contract currently has 27000 rigs from bit, Maine, and 60000 rigs from micro V T.
Roughly those get adjusted plus minus.
Small amounts.
That's the way those contracts work for everyone, but that's the number of machines under contract.
We are having conversations it's fair to say with every potential manufacturer of equipment in the world.
Because we do have a pretty big pipeline for 2023, we have begun having conversations about securing significant.
Allocations from both the well known big providers, but also some smaller names and we are certainly exploring new entrants having discussions with.
The Intel folks as well as other manufacturers that are out there.
But it remains to be seen what we have under contract currently as the 87000 rigs for micro <unk>.
So Tyler you mentioned a push.
The rate on the phase II developments for <unk>.
But you didn't really offer a rationale.
Do you mind talking to that a little bit and maybe give me some insight on what you think the new timing might be aside from shares when he joined three.
Sure.
So at.
Bear and chief are.
Sites, where we have a front of the meter.
Power setup.
And so as a result.
We work with the transmission and distribution service provider.
On.
Substation infrastructure.
And so we.
Have to work with that transmission and distribution service provider and they informed us and our JV partner that the substation modifications that need to happen need to get pushed out.
Until 2023, and mid 2023 is the forecast, but I think.
That's what we've been told.
Very good I appreciate it thanks for taking my questions gentlemen.
Thanks, Kevin.
Thank you.
Reminder, ladies and gentlemen, if you have a question. Please press star one on your telephone that star one.
Our next question comes from the line of Chris <unk> with D. A Davidson.
Hey, Tyler good morning, congratulations on the progress here.
I wanted to ask on the equipment financing transaction.
We're seeing a lot of buyers looking for these types of transactions My question is.
Obviously with the volatile market conditions.
The lenders maybe be a little bit more nervous how much does bitcoin price and the cost of power play into those.
Financing deals or are they more based on the rig prices themselves in a more direct basis.
That's a great question, Chris So I think.
I can put myself into the shoes of lenders and try to give you. The answer I think it's kind of a blend of many factors and I think we look pretty favorable versus our competitors because if you think about our lenders' risk.
Yes, theyre going to focus pretty heavily on what you paid for the machines.
They're thinking about their loan to value risk and so if I.
I think it's fair to say that given the marketplace, we've seen loan to values the ratios get a little more conservative from lenders over the past few months and our conversations I think that serves us very well with we generally have one of the lowest costs per terra ash per second of compute of any miner.
And so I think lenders.
Our and we will continue to be comfortable with our model to your point.
Thinking about bitcoin price and power cost that's very important when they think about forecasting debt service coverage forward and so the fact that we also have cheap power prices.
Allows us to maintain that profitability when they do their scenario forecasting so pigment pricing is very important but fair to say if you're a lender.
No matter, where the bitcoin prices, you're going to be focused on the negative scenarios.
What happens if the co.
<unk> dropped a lot.
Your definition of a lot.
Where are we dropped yesterday or 20000 or pick your bad scenario, but that's generally as you would imagine our lender thinks about it and so again, we look I think very favorable versus the competitive landscape because of that cost discipline, we've always focused on.
Does that answer.
Yeah. It does it makes sense actually.
A follow up question did you disclose the interest rate that you're paying on that new block by facility.
We did not.
That contract given that it actually faces the JV.
That we owned 49% of and given the overall size of it.
We did not have to file the contract and so that's competitive secret sauce, but happy to say that we think we got extremely competitive rates based on what we've seen in the marketplace.
Those pet those kind of I was thinking given your your power footprint and.
There are metrics that you disclosed here you should be towards the lower end. So it's good to hear.
Unrelated question.
Power contracts.
I think they're they're great to have a year or so ago, but now what's happened to energy prices they seem like they're even more valuable.
Could you give us a sense of.
See where energy costs are today, how much sort of in the money or below market. Those coast contracts are essentially how valuable they are.
Yes, I think that's a great question I think it's hard to put an exact quantum on it but.
Fair to say prices are much higher than 2.7 cents per kilowatt hour. These days now I think we have a very creative and market leading power structuring team and so we continue to work with our power providers on our future sites that we're negotiating.
For future deployment.
Looking for creative ways to monetize.
<unk> and demand response, ancillary services et cetera to make sure we keep a competitive power price, but yes like for example, but the contract that we have at Odessa, which is a fixed price contract for five years is definitely cheaper than what you would get today by a a decent.
It's hard to say the exact quantum but.
It is clearly in the money to use the words you used.
Great.
Last one then is just.
I may have missed it but I think you mentioned that your hash rate targeted has actually gone up which is really impressive and especially in this environment. What was the source of the increase.
Relative to the last forecast.
Yeah, Great question so.
We have worked closely with micro V T. The way the machine rig contracts work at large scale and it's not just for US I think it is for everyone that thats entering large scale contracts is.
You get.
You put under contract a blend of machine efficiencies and I think that sometimes because up the chain. The rig manufacturers don't know the exact makeup of the efficiency of the chips theyre going to get.
When they get a particular batch of wafers and so.
We stay in pretty constant contact with <unk> and micro <unk> in this case with the Maine or pardon me with micro Bts.
We talk to them and worked with them about increasing the mix of machines under contract. So it is an updated version of the mix of the 60000, we will be receiving and it's a more efficient mix and so we're very excited about that obviously to basically.
<unk> be building the same infrastructure, but now be expecting to install a larger amount of cash right.
And as an investment we have a very favorable pricing arrangement under that contract and so this was effectively.
<unk> way to improve AD hash rate, but also improve the efficiency of the machines that we are receiving and installing and the sort of added benefit of that is that that is likely to extend the useful life of those machines right. We are getting essentially fewer of the less efficient Ms.
<unk> and more of the top end machines.
Yes, it was a very positive development for us and we're very excited about it.
Yeah, Chris that's great as well, what a great way to increase your hazard forecasts are pretty easy.
Not that expensive okay, great. Thanks, so much for my questions and hopefully Oh, let's call the update we see some better market conditions and our fingers crossed.
From your lips to God's ears, Chris Thank you. Thank.
Thanks Todd.
Thank you.
Question. Please press star one on your telephone.
And I'm showing no further questions so with that I'll turn the call back over to <unk>, Chief Executive Officer of Sypher mining Tyler page for any closing remarks.
Thanks again for joining us this morning, we're making tremendous progress at seifer, we're very busy everyday executing our plan.
And I think despite the sort of day to day ups and downs of the market.
We remain very positive about our long term outlook, we have built a business with long term advantages.
Our relentless focus on that cost discipline.
As well as maintaining discipline in our execution and hitting milestones and deadlines.
Is serving us very well in a tough environment.
And we think we will continue to do that and look forward to giving you more continued positive updates on progress and execution in the future. Thank you again for your time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
[music].