Q4 2022 Iris Energy Ltd Earnings Call
Good afternoon to those of you in North America, and good morning to those of you in Australia and welcome to the Iris Energy earnings Conference call for the fiscal year ended June 32022. My name is Lincoln Times Senior manager of corporate Finance and with me on the call today is Daniel Robert.
Founder and co CEO Lindsay Ward, President and but then there is a floor at Chief Financial Officer before we begin. Please note. This call is being webcast live within the accompanying presentation. There will also be an opportunity for some Q&A. Following the main presentation I would like to remind you that certain statements that we make during this conference call.
Paul May constitute forward looking statements and Rs energy cautions listeners that forward looking information and statements are based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of the company listeners should not place undue reliance on forward looking information or statements. Please refer to the disclaimer on slide two with.
The accompanying presentation. Thank you and I will now turn the call over to Dan Roberts Dan.
Thanks, Lynn and good morning, good afternoon, everyone.
Thanks for joining us for our inaugural annual earnings call. We've done a couple of quarters. These already but this is the fifth annual and I appreciate everyone's support and time to Darlene Tonight I'm very excited to go through a quick update on the business, where we're at where we're going and go through some of the day.
Outside without further Ado.
Oh, that's worth recapping at the top of the presentation.
Why are we here and really it comes down to three fundamental.
One is we believe is attained the bitcoin is here to stay.
If it's here to stay is that only $21 million you can't stop it.
And it feels like you're likely to go up in value over time and be proven as a store of value asset.
The second thing is we believe between mining can be done BSO b.
B claim money has evolved rapidly over the 11 use bitcoins being around it's evolved from hobbyists don't make computers and laptops for each of graphics cards.
Due to the staff of the assay here to where we are today, which is hitting a level of maturity, where we've caught traditional confusing in terms of efficiency levels and really as we all know the game is now more about that large scale energy data center infrastructure whereabouts. Good access to the same technology, it's really about.
The energy component now and how you access energy markets and how you do that you know.
Socially responsible way.
And then finally, we believe the claim mining can be done vishal.
As you said, it's evolved hobbyists enthusiasts at high them on their laptops computers too early morning files with shipping containers, all warehouses and now we are really starting to see the emergence of an institutional asset class last year aligned 'twenty 'twenty 115 billion U S dollars revenue loss.
The sector is growing it's growing really rapidly and it's maturing and evolving accordingly.
So we've really set this business up over the last four years focused on doing it the right way really not taking shortcuts building, an institutional grade platform, where we're really building an asset base for the long term.
We haven't held any coins, that's not because we're not bullish because we're very bullish bitcoin.
We just don't believe its in the best interest of our shareholders for us as a business to be holding bitcoin. We believe you double down on risk I E. When bitcoins going up happy dice. It when bitcoin guys down you're getting she's one of your P&L as was seen at the moment and Youll give me Heath on your balance sheet as well.
If you think eat off against those balance sheets coins, then we can see the issues that quickly Eros.
For us the ultimate strategy is to liquidate daily locking in those profits as you can see there were mining bitcoin at $8000 of coin locking that profitability and then make a capital allocation decision with that profitability left dialogue.
Today, even in the current market be quite mining these profitable incremental returns on capex are profitable.
Why would you hold it be quite on balance sheet. If you had the ability to reinvest that bitcoin in additional infrastructure and computing capacity to generate additional bitcoin every 12 to 15 months I understand that not every business can do that but when we see it at that business as a growth platform with a substantial number of development thoughts.
It does continue to appear to be the optimal strategy from that perspective.
The second point, we've delivered we really pride ourselves on doing what we say, we're going to do and we have.
We without preempting, an announcement a little bit later on we are pleased to.
Report that we continue to hit them all steins, a we said $3 seven ex ash by the end of September we will hit 3.7 extra hashed by the end of September every milestone along the way we've at least match if not exceeded in terms of time frame.
Not only that but the facilities that we're building.
Highly efficient and we've been saying this for a year, we don't do shipping containers, we don't take shortcuts with temporary facilities, we don't retrofitted all warehouses, we build own and operate our own proprietary data center infrastructure, where we have now invested for years in optimizing ventilation air flight networking design in.
Infrastructure.
To really house these chips and the optimal operating environment and that's now proven results.
We're in a very good balance sheet position as of 30 June at 110 million U S dollars of cash on the balance sheet.
No corporate debt.
Again, we've got some hardware financing that is limited to asset level again.
A key differentiator without at least a defense we have not given parent company guarantees we do not have cross defaults, we do not have cross collateralization.
Those financing a limited recourse specifically to the individual computers in the S. P visa held them.
And I should add that to our recent announcement as a result of negotiations we beat mine we're pleased.
To have six takes a hash locked and loaded we've got the hardware. It's all in the process of being on the ground operating or being delivered and work sources about installing that over the coming years.
Low operating costs again this comes down to the benefit of what area energy strategy has been since day one.
<unk> low cost access renewables.
Almost by definition, the cheapest power out there as module cost renewables there is no feedstock cost theres no commodity input.
If there is either built renewables the module cost that how fundamentally is lowest cost power and we're really now starting to see the benefits of that play out given what's happening in the macro environment.
[laughter].
So I mentioned the efficiency guidance and he has a chart that seeks to really highlight that what this chart shows is how many bitcoin.
We are mining for eggs hash all be installed capacity over the course of this year.
It's a very simple metric one exact with the computers have any bitcoin did you produce from that one extra cash and again, there's a lot of good mine is there's a lot of different people doing different strategies different approaches, but we're very pleased and pride ourselves on being number one in that list.
And for US. This has two benefits one is the obvious operating cash flow benefit.
Along with the Capex efficiency benefit I E. We're obviously generating a better return.
On the investment as a result of generating that additional bitcoin bet for off asset loss asset integrity.
We are looking after their assets the electrical infrastructure the computing infrastructure, we're not living at either hate we're not living dust getting there we're not living in humidity. These chips theyre extremely profitable we are looking after them for the long term and managing those assets for the long term.
I did say that I didn't want to preempt some news that Lindsay was going to address that this chart basically does I'm, sorry, Lindsay we energized 50 megawatts at Prince George literally in the last hour.
It's a fantastic milestone for the business and really rounds out that $3 seven eggs hash.
Objective or stated guidance to the market that we've had for a long time now.
Another week or two for the individual sections to be leased up the monitoring installed.
But that takes us to $3 seven X a hash and one of the largest listed be coin miners already which.
Which is very pleasing and relatively short period of time from reaching 0.7.
About a year a guy now.
And we look forward to obviously continuing to grow that not only into the <unk> that we've got secured that were building out, but obviously beyond as well.
Okay.
So again this just shows the track record of delivery and the great pathway that we've been on and also the neat term graph growth pathway that we got in the market towards as you can see it was only 12 or so months of Guy that were a point for 0.7 eggs hash.
We've continued to deliver these projects and Lindsay will go into more detail around our operational and execution.
Excellent, but fundamentally it comes down to attain with substantial experience in building very similar data center energy renewable energy assets.
Just to recap we were asking in terms of balance sheet and profitability and.
This is on the right hand side, if I stop right to left.
Geez, I matrix or a title that many of you will be familiar with and it contains a link to an online website, where you can validate this firsthand and the beauty of Bitcoin mining you said, it's very objective, it's very mathematical in terms of how the profitability and the revenues work.
And as you can see we're obviously leveraged to the bitcoin cross we understand that.
But we were asking tens of six X a hash of capacity and over $100 million of annualized mining profit based on that <unk>, we feel like we're in a very good position from its P&L perspective.
And then balance sheet, absolutely critical to manage particularly when you are exposed to a volatile exponential asset such as bitcoin.
$110 million of cash as I mentioned at the outset.
And importantly from that 110.
Our expected spend post June 30 to deliver the six X a hash of operating capacity is around $76 million. So around 76 of that 110.
Expect it to be utilized to leave out the full six six a hash of capacity, which leads to the profitability metrics.
On the right in terms of net assets 462 million of net assets on balance sheet.
Our market cap is slightly below that today.
As I've mentioned a couple of times, we are building multi decade institutional grade infrastructure. We are here for the long term we believe in bitcoin. We believe it's here to stay we believe in the value of our underlying asset base locking up that low cost excess renewable energy building.
The electrical infrastructure.
Building out industry, leading data centers and monetizing that into the digital exponential age.
In terms of where thoughts recapping, where we're at today that 160 megawatts across British Columbia as off an hour ago. He's now Atlanta, just the computing capacity will be coming online progressively the 30 megawatts at Mackenzie is obviously, a Q4 exercise the 50 megawatts at Prince George.
This morning, now has energy that will take us up to around 4.7 ex ash by the end of Q4 this year up from the 3.7.
Expected at the end of this quarter and the quarter ended September with an additional 1.3 extra has to be installed at childress.
Next year.
I've mentioned management team a few times again just to recap yeah. We do this as a very large team. We've got about 100 people globally I'm always substantial experience in associated sectors around data center electrical engineering.
Construction energy et cetera.
Many of them are construction contractors, but we've got a fantastic KOL group with substantial experience. Many of those who are on this slide we'll hear from Lindsay in a moment, who will really drive through a lot of what we've done around the operations and the execution and why we've been able to deliver what we've been out to deliver.
We will also hear from Belinda around the financials at the.
Last third of the presentation.
Finally, our alignment.
Incentives.
Around a quarter of the business designed by us.
Were all laser focused we're really committed to the business. We treat every dollar of that Ryan.
We believe you where we're going in the business we're extremely proud of.
All the infrastructure, we've built the team we work, we that's a fantastic environment.
We very much appreciate all that third party investment and support of our business and internally feel like we're very well aligned to the future of this business.
So on that note I'll pass over to Lindsay who will now go through have you been operational update on the business. Thank you Lindsay.
Yes.
Okay. Thanks, Dan.
I just wanted to start to die to talk about operational excellence is a key factor.
Access is it.
A company we have consciously building.
Operational culture that is extremely high standards, that's the only way to be successful so far goes I'm not sure you're cheap.
Recruiting is a key part of that getting the right team in place allows us to achieve excellence in everything we do from safety.
You can see environment community governance operations maintenance asset management construction and financial controls so that equal once you get to the point of getting these buildings under what.
We recently welcomed him in the mills as our vice President of people culture and community.
He has got Ceos out engineering manager limit bulk check as a construction manager down and sugars and mountain So laskey as Alexey manager recently joined the RF chain.
Having a motivated flexible and focused team is the key to success at <unk> and has continued to outperform our competitor. This is as Dan went through on that slide and that that's not a fluke.
Yeah, Hum very focused R&D trial in Iraq, and really learn from M. A sites.
Constant focus to build out excellent infra.
Infrastructure.
We are confident that our operating performance will.
We'll continue.
We are continuing to build out so we've got the 30 megawatts at Mckinsey to come online by the end of the year and that spread fishing well.
Then they will have a full 0.7 X Ashland lawn, but at the end of the.
Yeah.
Supply chain management of it certainly remains a challenge.
But I think we've found the right formula to minimize the risk, particularly to Mackenzie. We we ordered the long laid on some mackenzie well in advance of construction really well in advance of final design.
And that really is a key strength as we understand their data centers. We've done all the engineering, we understand what we need and we can order ahead of funnel does on that make sure we get a hit as acute.
Our construction team.
<unk> construction team.
P subcontractors, who would move and progressively now that we're at Mckinsey went end of Prince George hitting back to Mackenzie in the little set supplement out show the same and that's really important for us not only does it help us with that procurement because we know what we need when we need it and where to go and get it but it also gives us a high level of certainty.
Building out at least the structure on schedule.
I don't think it's just worth talking about a recent example of how focused we are on procurement, we had an issue and it's around looking at the small items within a larger package often sub contract will come to you will you place an order and the supply was sale of long lead item is X weeks, but it's not every compare.
Within that package that is alone laid on in what you've got to do is get behind the package look at each individual item and track each individual order not the longest item because it gets a bit lost in the overall challenge of meeting deadlines, and so we would tell by supply.
There was a part that we needed and it was only a small part.
It isn't quite low cost couldn't be found and we managed choke to an electrical contractor in children, who went to a small supplier in Utah. We then flew down they put it in a suit case and brought it back up to Prince George candidate through the service provider and get ourselves on track, it's just that focus and then attack.
We had a passion for winning this really is inherent in the way in which we go about building at our facilities.
And I think just touching again, we leave this construction if it <unk>, we don't have an APC or an EPC in sitting between us and the sub contractor, who got one fully integrated team really focused on that puts my QTS happens safely log cost and it's really exciting when you see the sub.
Contract has come on board its not a contractual relationship at all it's a it's a relationship to succeed in building out their data centers on time and ahead of budget.
And that is definitely one of the things I've really enjoyed watching is teams with different motivations different outcomes coming together. The bid is good getting us on track.
As supply chain management and idled.
In terms of technology. So, we're very focused on improving our systems and processes through technology.
There's a lot of work going on in the background looking at how we can do it as quick as smaller more efficiently cheap.
How we really enable technology to improve that business who's got a rise in house at <unk>.
But dennis.
Chief Technology Officer, and then monitor every aspect about L. A operations, it's amazing the amount of data points that we gather in data from.
Air temperatures.
The dust English chip temperatures energy usage.
Efficiency of each miner and much much more and what's exciting is the guys on the ground, who really make the difference to how efficient we are.
Hungry for this data you see it up in the on the Ram.
Large screens in their offices, we see that in the field on their ipads. They really looking for that 0.1 X. It has every die have to lease we just add a little bit more what can we changed it much more efficient and that's all data led and the heavy sought saying thats interested in the data and absorbing that data is really exciting.
Testament to the culture that we're building across the organization.
Community community is at the heart of everything we do.
We are generally upright in smaller communities, where our presence makes a real difference that's really the luckily employment that we create and through the expenditure that we do within those local communities and Thats, giving you employ locals.
It allows you to quickly getting tough for the community and so they know what the community needs I know, where the community gaps and quite quickly we can get involved and help contribute to great community outcomes. I recently was in Mckenzie attended the committee the lunch and so the successful Greg.
Appetite debt because we ended at about $70000 and it really makes a difference in a small community and the feedback has been positive and we're not a chip variety organization, we get involved with the community. We had kickoff lunch regularly touch base with each of the community groups see how the guy and see where our money is brain.
See how else we can offer for the support and look at longer term relationships with some of these community organization. So that they can really plan for the future. So it's really at the heart of what we do.
Excitingly. We're also starting a scholarship program, we've got our first successful co tenants are the.
Female Princess has gone off to finish those studies financially it wasn't possible for her to do that and without assistance you can finish the citizen for these studies and then I'll come back to work.
For that caused that.
Scholarship opportunities. So I think that's another thing we wanted to do more of and look at how do we get more.
Females into the electrical space into engineering.
Community grants in children.
And quite well they know Claus will all be there in a couple of weeks' time ensures that again will have a luncheon with the successful participants it's a great opportunity for me to better understand community what things, we can do differently and how it can better be better community sits and then so that's a really important part of my travels went on North America.
And I'm.
Equally around flat so other operating center, we sponsored a number of local charities sporting events, and we will kick off our community gas program and Prince George in 2000 Twenty's right.
Yeah.
Okay.
So just like to touch on our operating operating centers are first of all most can now flats, it's been it's ramped up.
Yeah quite impressively, it's all Friday consistently above nameplate and Thats a testament to the guys on site, who are very focused on improving the performance Tonight flats is a center of excellence. We've got a majority of our <unk> team by Steve. We've also got a fabrication shop it sitting here.
Yes.
Tyson shops, which makes it really easy to try new ideas and concepts because they're engineers today, we can engineer on the run we can manufacture on the run.
And we're not relying on third party Sue on incentivized to try things and most of the states.
What we do day rolls out to other data centers as we progressively build the math, but also small operational tweaks and then rolled out progressively to the other source and what's key is that core group of April where we started this business great culture, great partnership of our synergy we utilize them.
We have to initiate the production teams at each of the sites. So we can keep embedding that culture as we progressively build out of that business and the tube. The same also get involved in the construction Dan Mckenzie.
Prince George and they'll also be involved in the construction down at some children as well. So we're just getting that consistently consistency of approach certainty of approach by sharing their workforce.
Excuse me more broadly across the business.
In terms of Mackenzie.
Pretty exciting.
I went there when we just had a bit of a patch of dirt in.
Slide seven I've got 50 megawatts up and running and another 30 megawatts under construction at the moment, we switch that facility on an August .
Since then it's set at 50 megawatts.
<unk> consistently from day, one a great effort by the <unk> team to get all that commissions and tested ahead of ramping up we really have not had any issues at all inside of the Atwood just run consistently from day, one has been fantastic and we will have two five it has built assets mckinsey by the end of this.
This calendar year.
Teams in place.
Oh local set of.
In other industries in the local area of being able to attract them to our business and we're really happy and excited that we'd go to brand new industries, and Mckinsey thats contributing to the community contributing to the economy and with the.
Certainly for the next 20 or 30 years and at 80 megawatts by the end of the it's going to be a really significant facility.
Prince George is absurd operating solid again up in British Columbia.
It is now the home of an additional 50 megawatts of what Floyd <unk> has across three data center buildings.
The construction is all completed as Dan mentioned, the end of the jaws I shouldn't happen to about four minutes to seven Australia in time.
So just in time for this call, which was driving everyone said this exalted as to what's going on the wall.
<unk> come through but it is another big milestone for the business.
And again, we haven't done anything on that sort for that February of this year. So in seven months, we've gone from a pad a true and operating data center and we've done that very safely we've had no.
Major non material safety incidents, where really matter by the chain and that group of individuals time down from Mckinsey and then hitting back to Mckinsey. So again that consistency approach is really important to building great data centers.
Yes.
And then finally just onto Childress.
You can see a photo there of the earthworks are well advanced to advanced.
It's in the Panhandle region of Texas, There's a lot of excess renewables there will be other types of advantaged job. We're planning to build out an initial 40 megawatts development in 2023 that will house the additional one point.
The remaining one three ex ash of mind is that we received recently from mine.
And in 'twenty, three will be a six six ash business, which again is a fantastic achievement OLED.
Well the construction permits implies slips under why first data center building.
So with 20 megawatts is nearing completion with price Stoli required long lead time items, so with TT along their childress and certainly be glad to have a fourth operating saw it up and running in 2023.
And I think in.
Causing a slight to St.
<unk> obtained their amazing group of individuals to bring on 50 megawatts in August and another 50 in September .
LLL bills has played a great achievement and a great milestone for the business.
For the listing to make to that certainly happy to take any questions. After this around the operational side of the business, but I will now hand over to Bill Linda S. CFO to talk about that financial results. Thank you.
Hi.
Thank you Lindsay.
<unk> will be presenting our first full year results. Following our successful listing in November 2021.
As the graph shy with strong revenue and earnings.
Yeah, as a thought to become operational.
Year ended 30 June 2020 to remind 1398 claims.
Being a 420 <unk> increased year on year due to average operating cash riding pricing I, 611%.
<unk> generated 59 million revenue.
And 26 million adjusted EBITDA with an adjusted EBITDA margin of 44%.
Management uses adjusted EBIDTA as he was marked with significant adjustments as a result of the ipi and noncash expenses, which I will explain on the next slide.
Adjusted EBIDTA provides management, a better picture of our underlying operations and allow us comparison without peers.
Okay.
Adjusted EBITDA. So this is a reconciliation back to Atlas after income tax expense.
Milestone net loss after taxes.
$420 million.
It's important to call out the impact of nonrecurring and significant noncash item.
A hybrid financial instruments converted to equity just perhaps the ipi and resulted in noncash 419 million expense in the P&L.
The instruments have now converted and we'll have nice out of the P&L impact.
Share based payments expense, which all site is noncash.
When the Chi founded and other executives.
The co founders' shares which accounts. So 11 point for me Olympic spend is predominantly made up of options that have a strike price of $75.
Vesting condition of between 370 and 1860 per share.
Amortization take by the loss of the option and as such that will continue to be an expense taken to the P&L.
Formula one off expenses predominantly relates to the ipi <unk> during the period.
After these one off expenses and noncash items, the approaches and adjusted EBIDTA of 26 million being a margin of 44% and revenue of 59, Neil compared to adjusted EBITDA in 2021 of one full meal being a margin of 18% on revenue of seven.
9 million.
Yeah.
So looking at our consolidated statement of profit and loss.
This is our year ended 30 June 2020 financial statements and as mentioned the results were significantly impacted by noncash items, including the amortization of employee share plans and the conversion of the competitive convertible night.
The ipi.
As highlighted on the previous slide the noncash movements.
Relating to the options as well as sections at all night.
Yes.
Finally, we made under the statement of <unk>.
Financial position.
Which is a quick update on our balance sheet. We ended the year with $110 million of cash and cash equivalents of title assets of $570 million.
Our property plants and equipment increased by 230 chain billion and mining hardware prepayments by 83 million.
Increase in our assets were funded from an RPI cash reserves as well as an additional 71 million.
Financing deal with Nordic.
And that said each in 2020 chain, our current and non current borrowings increased to $71 million, which was 108 meal title.
So that's a brief summary of our financial statements and I'll now hand over to the operator Melanie.
Commence the Q&A.
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Your first question comes from Chase White with Compass point trading and research. Please go ahead.
Thank you.
So you guys are continuing to develop the children site. So.
How should we think about the timing just roughly to get into the 40 megawatts and then after that how much work is there to get to the original 100 megawatts phase one target like is there a time by which you need to make a decision on that or do you have flexibility.
That's my first question.
And Lindsay will answer.
And I'll ask the second half.
Absolutely no problems. Thanks, Chad I appreciate you are leaving good to see.
In terms of the first 40 megawatts, we're currently working through.
Our procurement processes, we previously advised that our original target for <unk>. All Childress was in early 2023, having now secured the hardware to fill out a reasonable portion of that thought or at least initial capacity.
The city of 40 megawatts, we're now working through.
What that time table it looks like to build the data center infrastructure and actually install and commission those computers, we haven't got any more specific guidance other than to say that it won't be prior to at the end of December Vichy. So we'll be at 2023 project, we will announce more speed.
<unk> as we gained additional confidence in our project timetable.
And just just to add to the answer the second part of the question.
The connection.
Being built by IEP and ATK is 600 megawatts.
That will be complete.
Completed in.
2023, as well and so that allows us to build out and a right to that choosing this limitation on time constraint against how we build out the.
Remaining megawatts set sugars.
I think that's a really important point.
Lindsay and one should really highlight is we've now got as a result of energizing that finished 40 megawatts at Childress access to 600 megawatts of power.
I need to go and do anything more to access that 600 megawatts in the network. So what that allows us to do is we essentially get to a much higher all the upfront time investment the work over that two year period to get that sort of up and running to build out.
Relatively swiftly and low marginal cost above the 40 megawatts as we grow into that full 600 megawatts avatar.
Got it that's helpful.
Then could you remind us.
When the power price in British Columbia is reset.
Any indications on where the rig could go in the next rate setting.
At CIT annually.
It's the same process for every electron 24, seven 365 days of the year.
And the White British Columbia power market works, it's a regulated market.
Where that price is set by the regulator and it's done with reference to a regulated pricing model and this goes to the heart of what our energy strategies vein, which is about chasing low cost ex this renewable energy around the world and British Columbia as we've outlined previously as an enormous over.
Supply of hydro power.
<unk> building large scale facilities in the North sea.
<unk> seen the removal of a closure down of a lot of the manufacturing and industrial base.
The issue in a regulated market as they need additional uses of that power otherwise power prices need to go up.
So it is somewhat counterintuitively the introduction of our load into the market after paying a market Prost BC hydro for that power, which now happens to be a very low market price relative to many of the market globally.
Additional revenue to BC hydro.
Actually puts a downward pressure on that power price.
In the sense that they're now receiving a greater amount of revenues on their asset base and they can afford to potentially lower prices for all the other uses of power.
In the province, we haven't had any guidance around where that process is likely to go historical.
Changes indicated that it's a relatively immaterial adjustment year on year.
Got it very helpful. Thanks, guys.
Thank you. Your next question comes from Jim Suva with Citi Research. Please go ahead.
Thank you very much and good morning to you there in Australia from Silicon Valley I just wanted to ask a question about your Capex plans given both labor costs material costs have been changing things like that can you maybe walk us through some of your Capex plans as we think about them.
And I'll, let Lindsey talk to labor cost material cost and how we've been managing that intensive capex planning.
Our advice is really clean.
<unk> a hash of capacity that's what we're committed to that's what we're building out.
Post June 30 that requires <unk>.
$76 million of incremental investment.
In reference to that and we've put a $110 million use of cash.
As at June 30, we feel that that's the right amount of capex to be committing to in the current environment has mentioned to chase just now by doing that and energizing. The first 40 megawatts at children that opens up.
An incredibly attractive scaling opportunity at Childress unlocking that 600 megawatts the opportunity to scale with relatively low marginal cost and time to continue building our capacity is at really attractive growth prospect.
In terms of committing to additional <unk>.
Capacity about that 40 megawatts that is just purely market dependent and access to capital markets debt equity.
Everything in between just working through when the right time used to take additional capital and to pursue those.
Additional growth.
Great and then my follow up claims of no.
Go ahead I'm sorry.
Besides.
A 32nd expedite some niobrara and capital cost we price.
At a high expense long lead items some of them 12 months ago. So we were in fixed pricing. So we've been pretty off delighted from some of the more recent increases in in <unk>.
Costs.
We are seeing cost increases in the overall.
Scheme with a build the manageable.
We always run with a little bit of contingency and certainly within that contingency, we're not saying difficulties in attracting labor, we had 85 people and saw that Prince George.
The oldest period in July period.
Again, we're not seeing major blowout in labor costs, So I think from our perspective.
Been fortunate in the YM width, which managed to build.
We're not having an EPC contractor sitting between us and the drip subcontractors I think it gives us much better price discovery and sources, we've been quite fortunate in and not <unk>.
Pricing a lot of the blow ups in other projects.
Thank you for the details and clarifications. Thank you that was greatly appreciate it.
Thank you. Your next question comes from Paul Beldin with Macquarie Capital. Please go ahead.
Thanks, so much.
Congrats on a great first year I wanted to ask about Childress with the 600 megawatts of capacity there any consideration to opening up some of that excess to hosting other miners and generating cash.
Cash through through that kind of a relationship and then secondly on Childress I was curious given the smaller initial footprint now how that impacts the power relationship in terms of rate setting I'm going forward.
Are we going to be facing a sort of a floating spot rate environment, how should we think about.
How is that capacity is going to sort of see a gross profit picture unfolds. Thanks, so much.
And youre on mute that.
Oh, Mike Cindy.
Yeah. Thank you great question, sorry intense of utilizing that excess 560 megawatts of capacity to do that.
Number one you said out loud.
Look all options are on the table, we've really prided ourselves on being a proprietary model and Arnie.
I fully vertically integrated stack would we rule out completely ever doing I've seen I don't think we'd rule. It out we don't rule anything out to be honest, it's probably a lower probability, but given the current market. If we kind of step back we've always positioned this business through the lens of the forums the king.
Ingredient.
Management minors megawatts and money.
And you've got to bring all that together to continue growing this business management I think we're well and truly demonstrated that we've got an industry, leading pain and platform now.
Megawatts, we've got 560 megawatts of potential spare capacity next year and then we still have over gigawatt of additional growth projects globally. We are not short megawatts honors we understand the market. After we have the relationships with the manufacturers we understand what models that we lock what models work.
It would be more cautious on we can procure the machines as we required in the current market.
Which really only leaves a fourth him money yeah.
It's a hard market, it's a hard market from a macro perspective, the broader digital asset spices come off yes, we're still mining bitcoin at $8000 of coin. It's still very good gross profit margins, even at 20000 dollar bitcoin, but in a market where money is a sole constraint.
On growth then, yes, we naturally going to consider.
Alternative options and pathways to continue building and monetizing all the work that we've done today.
To date now in terms of power procurement, we've just concluded a an RFP process to secure energy partners for.
Or childress.
That isn't concluded in terms of the negotiation so I won't comment on specifics, but it is part of that we will naturally be looking at the market structure and optimizing our power price. The demand response programs the ability to walk right in a flexible manner by again highlight the location of warehouse side is.
Civically in Texas, we are not down in the southeast we're not close to the big load centers and back to the way the opposite.
We're up in the Panhandle region, where there is around 32 gigawatts of renewable energy wind and solar and only around 12, Gigawatts all transmission line capacity to actually move that power down to the load centers. So again, our strategy has been around finding that low cost access renewables and.
Monetizing that in a way that supports these energy markets and again, a reason for choosing that northern part of West, Texas was because of the congestion that we've now seen in West, Texas is a lot more complexity around the interconnections the market structure. When you go West West, Texas as can.
Pit to the north where our children source is located yes power prices in that market currently elevated but there's still substantial opportunity to optimize power crossing and have a very profitable.
Project, there is a long term.
Okay.
Thanks, Dan.
Just a quick follow up on them.
Vertically integrated mining with this excess capacity if for a.
Bitcoin price or capital markets were to unlock do you see yourself I guess any color on lead time would also be valuable do you see yourself going back to bit to order a machines, depending on lead time or how do you see the the the market. Unfortunately.
In terms of.
The ethics that or there may be available state side already thanks, so much.
That's another good question.
So clearly we're not here for <unk>, we're a growth business, we've invested for years building a growth platform to really take on this industry.
And we believe we're doing it the right way.
But we are beholden to market conditions as you should suggest should those capital markets open up.
In terms of hardware procurement, we are manufacturer agnostic. We're independent we have no exclusivity we have no restrictions we talk to all the manufacturers.
[noise] abuse every manufacturers has their ups and downs over the journey, but.
But we'll continue to keep optionality on that.
We'd never touch secondhand hardware I find that difficult to think that we would why take the risk and again nice business all comes down to managing risk. The most likely outcome is to deal with the main by virtue of the 83 million U S dollars, we still have as payments again.
That <unk> hash contract so again for everyone's benefit to recap, we unlocked one seven of that Phoenix hash by making that circa 6 million payment to name a couple of months ago.
We monetized around $47 million of the previous $130 million of prepayments. We had made to them I know, there's a lot of numbers in there, but I believe following.
Which now means that we've got $83 million.
Deposits paid against the residual amount of capacity being eight three ex cash that's around $10. A terror hash now clearly we are making payments under that 10 X ash contract as we've continued to tell the market we speak to be mined regularly.
Our hope would be that.
We raised additional capital and we can seek to deal.
Deal with beat mine and come to a an appropriate resolution.
Around that existing contract that remains on foot.
Great. Thanks, so much for the color.
Thank you.
Our next question comes from Steven <unk> with Cowen. Please go ahead.
Hi, Thanks for the question.
Then I just wanted to drill in more on your overhead cost structure ending the calendar quarter here.
It appears the corporate overhead expense increased pretty significantly quarter over quarter I just.
I wanted to ask what was the driver of that one and then two on site overheads are you at sufficient head count here at Mackenzie and Prince George.
How should we expect.
Site overhead costs on childress over the over the second half of the year and that ramp. Thanks.
Thanks, David.
The word corporate overheads is probably a bit misleading to be Frank in the sense that everything.
It gets bundled into that bucket and we've got a lot of construction.
Development and other activities, which are being captured in that line item and the question often pops up in the context of if you are in the state of the <unk> Ash business, what would you arrive a headline look.
Look lock because to look back and look at 12 months, where we've grown.
Five six exceeding capacity we've listed on the NASDAQ.
We can get back on all these growth activities in many respects.
I wouldn't suggest that that corporate overhead line as its classified would be indicative of what our business corporate I've had long would root clock from this point.
There are challenges around accounting them.
Audits and whatnot around reclassifying corporate overheads into construction and development.
Development cost.
Costs.
Also some large costs are associated with insurance et cetera that we're working on.
But in terms of that status quo business really decide either hits, which Lindsey can talk too intensive way we're out there with people Resourcing et cetera, and then you need us more centralized corporate function to.
To pay invoices monetize the bitcoin et cetera, really a large part of that corporate overheads line is both related to construction activities as well as the fact that we are a growth business and still committed to.
Growth in this industry subject to those market conditions obviously.
Okay.
We can also if at all.
Yeah.
Yes.
In terms of about <unk> 10, so it's got a well established operational and engineering team that I talked about FX being a center of excellence and certainly well supported by Orion fabrication shop.
Mckinsey, we've got operational team in place we've got.
Yes.
Maximum 12 faithful we required for operations, we think that probably in Tom get that dance 10, and that won't change whether we've got the 80 megawatts 50 megawatts, we're very focused on their operational efficiency and the number of people that we need.
Equally print showed to be sort of a 10 to 12 person operation.
<unk> down in a flat sorry in children.
Again around that number.
It will be bus operations and construction and so we try and into the construction and the operational team. We got double up we took people can manage both as we progress. So you bring minus one but certainly we don't expect having large workforces and even when we get to 600.
Megawatts at Childress.
We see probably around 56 people as all that we'll need at that song.
I appreciate the color Lindsey and thanks, Dan.
Thank you. Your next question comes from Reggie Smith with Jpmorgan. Please go ahead.
Hey, good morning, gentlemen.
Thanks for taking the question head too.
Quick ones.
I appreciate the disclosure on Childress Mike.
My question is I guess you guys have called out you know a 40 megawatt I guess kind of initial build out is its 40 megawatts kind of like your minimum effective dose.
<unk> will go for a build out at children's for incremental.
Spansion and what.
I'm not sure. If you guys have shared this in the past, but how should we think about the I guess incremental capex.
Needed. It so just as you expand beyond 40 like is there some rule of thumb that we can kind of look.
Look too and I have a follow up thank you.
Yeah.
Lindsay join them.
This was largely too.
Look I think.
We're comfortable building out 20 megawatts.
Equally comfortable building out 40.
The changes to get that connected.
Has the switch yard built that gives us the flexibility to sky up to that 600 over time.
And so we are building 20, we then move into 40 and then we'll just see how we go from there as to what we do.
Further out to 100 megawatts over time, I'll say incrementally capital wise I'm not sure we've disclosed down to that level of detail before but certainly the majority of the capital is going into the collection facility.
Incremental build out of each of the data centers. The capital required is quite modest, particularly when we've already secured the 1.3.
Excess cash from Big mine at really competitive pricing to fill up that first 40 megawatts set some sugars.
Got it and so if I'm hearing you right you can do as little as 20 megawatts.
The incremental cost once you.
Set the initial switch.
It's pretty loves that because that would I think that what I heard.
Yes, I think without wanting to disguise absolute numbers.
The incremental build out of each 20 megawatt facilities I would say modest in the overall scheme of things 20 megawatts makes sense, that's one building.
So it just makes sense to build out a full a full building thereabout.
500, 300 meters long and so we build them incrementally side by side, we predictably do the Earth works. So each building as effectively as self consigned edition and doing it in 20 megawatts.
<unk> make sense and Thats at 40 megawatts matches, the additional monitors that were able to achieve through negotiation with big months.
Then deployable in mind is that we have.
Sure and then I guess.
<unk> seen that.
So I'm a bit and I know I'm not asking for any.
Any details on how that works, but I'm curious.
The $1 seven that you guys negotiated.
Well you guys are living faster than that and I could you had secured more have you had more capacity.
You follow my question.
Yes.
Yes, we are capital, what's the limiting factor given the current market and their.
And our ability to continue making all the milestone payments under that contract was challenging given those market conditions.
The conversations with mine.
I've, obviously been very constructive we've already had one result on that contract and really as capital markets continue to improve and access to capital.
Improves that.
Will certainly help.
The conversations with benign from here as well.
Got it and I guess I'm not.
Right in there.
The math works out to like a low $30.
Price per per prepare has that.
About like kind of what that is exactly right.
Yeah that that's where the pricing was that we negotiated we we'd be mined and that's one of the unique things about this industry, where your capex is partially hedged when bitcoin rips you're paying more for the computers.
But you're still earning a fantastic return on investment and equally when bitcoin has a draw down lyke-wake seen at the moment you see hardware prices dropping from what a peak of $70 <unk>.
Down to that data point, you just referenced.
In the large cities.
It does raise interesting questions around the ability to grow through the cycle.
In terms of the theory and the return on investment it actually looks reasonable, but it's more about access to absolute dollars and the capital to build that out and turn that theory into reality.
Perfect. Thank you.
Thank you. Your next question comes from Joseph <unk> with Canaccord.
Please go ahead.
Hey, guys good morning.
The extra half shrimp, continuing just one you know a lot of questions have been asked already maybe you know if you look at you know energy prices globally.
And some of the cheap power that you have coming online are children.
You know at what point does the optionality around.
Using that power for other uses come into play versus just mining bitcoin. Thanks, a lot guys.
Thanks, Josh.
Look we're always thinking of it.
We've done work internally on mapping out what green hydrogen looks like we signed an Mou with Dell computing.
A couple of years ago about bringing their customers and hardware out 12 first saw it and can now flats at the time.
Things like data analytics machine learning.
Rendering for augmented reality.
Et cetera, the reality is up until now its been.
Yes, Salt focus [noise] Bitcoin, you know escape resources time as in the day, we just have to focus and that focus is obviously delivered us today in a really really good position.
In terms of going forward as I continue to eat right, where we're not a status quo business when all he for the six X at Ash we are he.
To continue growing.
Not only do we believe bitcoins key to stay and it's bitcoin has a draw down for a period of time, then we're big believers in these digital.
Transition and technology transition that the world is going through we're all going online.
Demand for renewable energy and electricity and monetizing that into the new World. We don't believe he's going away and if we step back and look at that business through a macro lens. What we're really good at is identifying where these low cost access to renewable energy use how to get access to quality saw.
<unk> navigated the grid connection the connection requests the negotiations with the utilities build out high quality institutional grade infrastructure, and then all that infrastructure, whether we're monetizing bitcoin or whether we are tapping into one of these other exponential demand drivers to monetize that asset base in <unk>.
Some respects, we're agnostic sitting here today, we still believe there's a lot of interesting.
Going on outside the profitability is still good when you money in the 8-K, a coin and the current market price is still over 20 of.
Those gross profit margins are really attractive so it's not really fast tracking per se I drive into those adjacent revenue streams, but equally it's something in their minds that we're monitoring closely and may accelerate at some point in time.
Thank you <unk>.
Next question comes from Josh <unk> with Kenneth Cantor Fitzgerald. Please go ahead.
Yes, hi, Thanks for taking my question with over 100 million of cash on the balance sheet as of June 30th how are you feeling about your cash position given your current expansion plans and are there any near term plans for shifting capital allocation strategy.
I'm feeling pretty good.
<unk> 10 million of cash as we outlined in the presentation 76 million.
Of expected expenditure since that date.
To deliver the six X a hash that feels like a really good allocation of capital that gets the balance between both growth and ensuring that we're managing for the rainy day that excludes operating cash flow as well from the analysis. It also excludes debt service on some of the machines for the hardware.
Yeah.
It seems that hopefully gives you a high level feel for what our balance sheet.
Look sock and again, we're continuing to have conversations with various market participants around leveraging that strong.
Chase, but doing it in a prudent way we were looking at risk first written.
10 seconds.
If we are able to secure an attractive instrument of some sorts attractive source of capital and then the growth opportunity is still there I've heard the conversation with Richie a couple of minutes ago, when you've got a natural hedge in your industry economic model with hardware process full broadly in line with bitcoin prostate.
Lousy to continue reinvesting through the cycle at relatively attractive.
Returns.
If you don't have the capital you don't have the dollars you can have all the good excel spreadsheets and theoretical return on investment that you lock the catalogs it so well.
That's still a focus for the business will continue working through that but we're certainly not going to do anything brass sure Tycho on any form of financing that we think detracts from the business proposition and risk profile long term.
Understood. Thank you I'd also appreciate some more color on the ongoing optimization of your supply chain, specifically do you expect the supply chain improvement to help accelerate some of your infrastructure targets. Thank you.
We are very comfortable with they see.
Obviously, Prince George Energize to die, so new supply chain risks it in <unk>.
Terms of the extra 30 megawatts at Mckinsey, we remain very confident that we will have that online by the end of the year, we've de risked that supply China exposure today.
There are some challenges childress and we're working through that.
<unk> done before it's often the little thing within a bigger package that you've got to focus on and what we've been doing is identifying those smaller items and putting small focus groups together.
<unk>.
Again, interestingly they are often low cost and so we will actually run parallel sourcing streams such that we will be.
Wind up buying two of them that will arise in the future, but the cost of them is relatively modest and so.
I think there are some challenges for childress.
That we are working through each day, we seem to have a win and then another issue comes up and we just get on and deal with that one.
Got some great sort of partners around chilled versus well a couple of smaller.
Local Texas firms that are working with us and we're just finding it's great that they had to sell in the jaws to get the supply chain problems solved so I'd say.
We're not seeing any massive blowouts in schedule.
We've set some internal goals.
There's probably going to be challenging, but we keep looking at alternate ways to now.
Laura does timelines.
Great. Thank you very much for the color.
Thank you.
No further phone questions at this time I'll now hand, the call back to Lincoln.
Yeah.
Thanks, just conscious we're running a bit of a time I think with with the remaining time lastly might just go through a couple of questions that have come through.
Through the pre submission center listening on this call.
First question to Dan when can we expect new investments in Australia.
And so always pre I'm going to answer this without answering it I'm sorry.
Apologize upfront for that we've previously announced that we've got over a gigawatt of development thoughts spanning North America and Asia Pacific that remains the case that's unchanged in fact, we continue to move all along.
Infrastructure and energy infrastructure development.
He is actually a game or a process that takes a long time to go from site acquisition negotiating option agreements with pharma is grid connection requests.
Connection negotiations can take many years in many jurisdictions.
But the best thing about it is just time expenditures relatively low it's just people.
And consultant costs and moving that ball along so in some ways. This quiet period in the market just allows us to push on in the background and continue developing all those thoughts and retaining enormous optionality to monetize those thoughts.
At a future point in time.
To answer the specific more the question more specifically, we've advised Asia Pacific where Australia.
At some point in time, you would expect us to be looking closely at Australia.
Thanks, Dana next question.
All of the public miners are priced slight decline is going to zero what.
The biggest thing Wall Street is missing or doesn't understand about this business.
Oh look it's the <unk>.
Market to market Rod, it's been paying a bit of a perfect storm Fortunately or unfortunately, we IPO Ed at the top of the market last November .
The vast majority in fact, most of our book with institutional investments. So we've never really had a retail.
Presence in that but if you look at the macro.
I think that's obviously changing over time, we're seeing fantastic engagement across our socials, but I think if you step back you've same risk off the fed do its work crypto has its own unique challenges, where the broader digital asset space. Yeah, There's some pretty questionable goings on when you're saying business is go on to IV.
Leverage et cetera, the nasdaq's come off.
And I think we as be coin miners get thrown in the basket where.
It's off risk its still crypt alleyways and I beat coins.
Yes, we might be fundamentally different asset cost all this other stuff.
Moving on and then you look at what we're building is a real asset business with building proprietary data centers build out energy infrastructure looking at low cost renewable energy yesterday metallocene that needs to be coined thought to real asset base generating real cash flows yeah I'm sure the market will sort itself out over time.
The other thing is there's probably 20 different listed bitcoin miners.
Today, Yeah, and everyone's got their own strategy their own tight doing things different why.
It just takes time for the market to work out what their preferences over time.
Thanks, Dan.
<unk>.
The next question is just about the asset purchase contracts and how much money is outstanding regarding the purchase order contracts around Asics and what credits if any is a bit named provided against the remaining payments.
So if we step back.
Is that <unk> contracted behind that they had a headline cost store cross cap of 40.
<unk> 400 million.
<unk>.
We paid 130 out of that 400 before the market turned south and we stopped making additional payments.
We've converted 46 $47 million all of that 130 into additional miners, which was part of that one seven that's been shipped so there's still $83 million of payments, we have made against that contract, which is sitting with beat mine.
In terms of what that looks like longer term the uncertainty brought the contracts on food. We continue to talk to beat mine extremely regularly.
At the end of the day, we want to buy chips.
Gonna make chips the relationship is good.
Equally there's a high degree of uncertainty as to how that plays out.
Over time.
I can't really say more than that it is what it is.
We secure additional capital in.
We're working on that but doing it the right way then over the next three 612 months.
We anticipate speaking very closely with pit mine on even more detail around accessing more machines.
Thanks, Dan I think just conscious we're running over time Thats, probably all we have time for Dan I, just want to make a couple of closing remarks before we end the call.
Show up very happy to Lincoln.
So I think thanks, everyone for dialing in obviously another fantastic attendance look less than 12 months ago.
David Bartholomew that chairman and offsetting in front of many of you at.
At the IPO.
We outlined our vision and plan for the business and we've delivered and as you've heard today Lindsey has made an enormous part of that.
<unk> not spent most of the past decade working.
To get up and have to get our managed and operated what's now billions of dollars in energy infrastructure assets.
To take that relationship to take the systems processes learning many of the tightened people and then do it in this emerging sector, it's been really exciting.
Our standards are incredibly high we solve problems and we challenge we challenge ourselves we continually challenge our partners is always a bit of why there's always a way to improve where high performance culture and.
And we are one way, we take enormous pride in what we do having already growing to be one of the largest listed modest globally with additional growth and capacity on our doorstep.
That's an incredible journey that we're on and we're really grateful grateful for the dedication of all our people are the.
The communities and the support from them, which we operate and for all of your ongoing support and again to have so many quality analysts on this call asking such detailed questions is another testament to that sorry.
Everyone I appreciate your support enjoy your evening here in North America, and you will die in Australia. Thank you.
Okay.
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Okay.
Yeah.
Okay.
Yeah.
Yeah.
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