Q4 2023 Cipher Mining Inc Earnings Call and Business Update

Okay.

Operator: Good morning, and thank you for standing by. Welcome to Cipher Mining Inc.'s fourth quarter and full year 2023 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. To ask a question during the session, you will need to press * 1 on your telephone.

Good morning, and thank you for standing by.

I'm, just I'm reminding Inc, fourth quarter and full year 2023 business update conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session. Just a question during the session you will need to press star one one on your telephone you well done.

Operator: You will then hear an automatic message device in your hand. Please note that today's conference is being recorded. I will now hand the conference over to you. Josh Kane, Head of Investigations. Josh, please go ahead.

And automatic message I'll hand, this to me.

Please note that today's conference is being recorded.

I will now hand, the conference over to your Speaker host, Josh Kane head of Investor Relations. Josh. Please go ahead.

Okay.

Joshua Kane: Good morning, and thank you for joining us on this conference call to discuss Cipher Mining's fourth quarter and full year-end 2023 business update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Ed Farrell, Chief Financial Officer. Please note that you may also review our press release and presentation, which can be found in the investor relations section of the company's website. Please note that this call will also be simultaneously webcast on the Investor Relations section of the company's website. This conference call is the property of Cipher Mining, and any taping or other reproduction is expressly prohibited without prior consent.

Good morning, and thank you for joining us on this conference call to discuss <unk> fourth quarter and full year 2023 business update joining.

Joining me on the call today are Tyler page, Chief Executive Officer, and Ed Farrell, Chief Financial Officer.

Please note that you May also review our press release and presentation, which can be found on the Investor Relations section of the company's website.

Please note that this call will also be simultaneously webcast on the Investor Relations section of the company's website.

This conference call is the property of site for mining and any taping or other reproduction is expressly prohibited without prior consent.

Joshua Kane: Before we start, I'd like to remind you that the following discussion, as well as our press release and presentation, contain forward-looking statements, including, but not limited to, Cipher's financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our business operations, potential competition, and our goals and strategies. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cipher 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 we manage and operate our business. We reconcile non-GAAP measures to the most directly comparable GAAP measures, and you are encouraged to examine those reconciliations, which are found at the end of our earnings release issued earlier this morning. I will now turn the call over to Tyler Page. Tyler?

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 Cypress financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our business operations.

Potential competition, and our goals and strategies.

Forward looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and <unk> 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 reconciled non-GAAP measures to the most directly comparable GAAP measures and you are encouraged to examine those reconciliations.

Your file at the end of our earnings release issued earlier this morning.

I will now turn the call over to Tyler page Tyler.

Rodney Tyler Page: Thanks, Josh. Hi, this is Tyler Page, CEO of Cipher. Thank you very much for joining our fourth quarter 2023 business update. Let me begin the call with a few summary financial statistics from our outstanding fourth quarter of 2020. Ed will give a full breakdown of our numbers during his portion of the call, but I wanted to highlight our performance during the fourth quarter of 2023 up front because it was the first quarter we have had since going public that featured completed operations at our original four data centers for the full quarter. In this sense, it provides the most accurate view of the progress we have made toward our vision of Cipher's full capabilities as a low-cost producer of. Our progress has been By mining 1,327 Bitcoin in the quarter, a production increase of 252% year over year, we produced revenues of $43 million and GAAP net earnings of $11 million.

Thanks, Josh.

Hi, This is Tyler page CEO of safer mining thank.

So very much for joining our fourth quarter 2023 business update call.

Let me begin the call with a few summary financial statistics from our outstanding fourth quarter of 2023.

Ed will give a full breakdown of our numbers during his portion of the call, but I wanted to highlight our performance during the fourth quarter of 2023 upfront because it was the first quarter. We've had since going public that featured completed operations at our original four data centers for the full quarter.

In this sense. It provides the most accurate view of the progress we have made toward our vision of ciphers full capabilities as a low cost producer of bitcoin.

Our progress has been immense.

By mining 1327, bitcoin in the quarter, a production increase of 252% year over year.

We produced revenues of $43 million and GAAP net earnings of $11 million.

Rodney Tyler Page: We early adopted the new accounting standard in 2020, and these numbers include mark to market gains on our Bitcoin. But I think it is important to highlight that even under the previous accounting treatment for, Cipher also would have produced positive gap net earnings. This is not something most of our competitors can do. Our Adjusted Earnings were even stronger. We produced Adjusted Earnings of $28 million for the, which represents massive progress and an improvement of over $50 million a year. We are very proud of these milestones as they demonstrate our relative strength and outperformance versus competitors. And with the upcoming halving on the horizon, we believe that the relative advantages of being a low-cost producer of Bitcoin will only increase going forward. As of the end of February, Cipher held 1,433 Bitcoin in inventory and $69 million of cash, while our total self-mining hash rate has grown to 7.4 exahash.

We early adopted the new accounting standard in 2023, and these numbers include mark to market gains on our bitcoin inventory, but.

But I think it is important to highlight that even under the previous accounting treatment for Bitcoin cipher also would have produced positive GAAP net earnings for the quarter.

This is not something most of our competitors can say.

Our adjusted earnings were even stronger we produced adjusted earnings of $28 million for the quarter, which represents massive progress and an improvement of over $50 million year over year.

We are very proud of these milestones as they demonstrate our relative strength and outperformance versus competitors and with the upcoming having on the horizon. We believe that the relative advantages of being a low cost producer of bitcoin will only increase going forward.

As of the end of February cipher held 1433, bitcoin and inventory and $69 million of cash while our total self mining hash rate has grown to 7.4 <unk> per second.

Rodney Tyler Page: For those that follow the Bitcoin mining space, you already know that the halving is nearly upon us. We have spoken repeatedly about how Cipher is built to thrive in all markets, and while the cut in new Bitcoin supply from the halving is painful for the industry, it can reward thoughtful miners while exposing those miners who have not been disciplined in their strategic decisions. Cipher has been very disciplined while planning for the halving for years.

For those that follow the bitcoin mining space you already know that they're having is nearly upon us we've spoken repeatedly about how cipher is built to thrive throughout market cycles.

While the cut in new bitcoin supply from the having is painful for the industry. It can reward thoughtful miners, while exposing those miners who have not been disciplined in their strategic decision making.

Seifer has been very disciplined while planning for the having four years, we are built to succeed with approximately 96% of our portfolio energized through fixed price power at an industry low cost of electricity of roughly 2.7 cents per kilowatt hour.

Rodney Tyler Page: We are built to succeed with approximately 96% of our portfolio energized through fixed price power at an industry-low cost of electricity of roughly 2.7 cents per kilowatt hour. As a reminder, electricity represents the large majority of our operating costs. And our low price is a key driver of our best-in-class unit economy. Furthermore, as we complete our expansions at bear and chief and complete the full black pearl site, our overall rig fleet efficiency will improve from 29.9 joules per tera hash currently. 22 joules per terahat

As a reminder, electricity represents the large majority of our operating costs and our low price as a key driver of our best in class unit economics.

Furthermore, as we complete our expansions at bear in Chief and complete the full black Pearl site. Our overall rig fleet efficiency will improve from $29 nine joules per Taro has currently to 'twenty two jewels for terahertz.

Rodney Tyler Page: Turning to our growth, we expect to complete 30 megawatt expansions at each of our bear and chief joint venture data centers in the second quarter of this year, and for those expansions to add 1.25 exa-hash per second of self-mining capacity to our production. We also expect to add an incremental 0.62 exa-hash per second of self-mining capacity via hardware and software optimization of our existing fleet, which we expect to be fully online by the end of the third quarter. Lastly, we are most excited about the enormous potential of Black Pearl, our 300 megawatt site in West Virginia. We recently commenced construction activity and aim to energize the site in the second quarter of 2021.

Turning to our growth plans, we expect to complete 30 megawatt expansions at each of our Barron Chief joint venture data centers in the second quarter of this year and for those expansions to add 1.25 <unk> per second of self mining capacity to our production.

We also expect to add an incremental 0.6 to exit hash per second of self mining capacity via hardware and software optimization of our existing fleet that we expect to be fully online by the end of the third quarter.

Lastly, we are most excited about the enormous potential of black Pearl our 300 megawatt site in West, Texas. We recently commenced construction activity and aimed to energize the site in the second quarter of 2025.

Rodney Tyler Page: Slide five is a high-level overview of a Bitcoin mining business that we like to include each quarter to remind everyone how our business model works. We operate the box in the middle of the drawing that says Mining Equipment, which represents our data centers and mining rigs. As I discussed earlier, the majority of our operations... and Electrification, which our data centers convert into computing. Unlike traditional data centers, which operate a similar model and sell their computing output to enterprise clients for dollars. Cipher sells its computing output, called Hashrate, to the Bitcoin network for Bitcoin.

Slide five is a high level overview of bitcoin mining business that we like to include each quarter to remind everyone. How our business model works.

We operate the box in the middle of the drawing that says mining equipment, which represents our datacenters in mining rigs.

As I discussed earlier, the majority of our operating expenses as electricity.

Which are data centers convert into computing output.

Unlike traditional data centers, which operate a similar model and sell their computing output to enterprise clients for dollars cipher sells its computing output called hatch rate to the Bitcoin network four bitcoins.

Rodney Tyler Page: To make this model operate profitably, a Bitcoin mining company needs to control both its electricity costs and the capital it spends to build new data sets, including mining equipment. Controlling these costs enables a miner to be a lower cost producer, and our focus at Cipher has always been on controlling these specific costs, producing the best possible unit. That illustration hopefully gives you a good sense of the straightforward Bitcoin mining process.

To make this model operate profitably a bitcoin mining company needs to control both its electricity costs.

And the capital expense to build new data centers, including mining equipment.

Controlling these costs enables a minor to be a lower cost producer and our focus at seifer has always been on controlling these specific costs to produce the best possible unit economics.

That illustration hopefully gives you a good sense of a straightforward bitcoin mining business.

Rodney Tyler Page: Cipher, however, does have an additional element in our business that is incredibly valuable. We have the ability to sell power back to the grid at our Odessa facility. The Power Purchase Agreement gives us a combination of downside risk protection as well as upside optionality to our revenue streams that doesn't exist for most Bitcoin miners. Let's now turn to page six and look at some recent Bitcoin market events. Since our last business update, we've seen many positive headlines impacting Bitcoin miners. The SEC's approval of Bitcoin ETFs in January has dominated the headlines.

<unk>. However, does have an additional element to our business that is incredibly valuable.

We have the ability to sell power back to the grid at our Odessa facility or.

Our power purchase agreement gives us a combination of downside risk protection as well as upside optionality to our revenue streams that doesn't exist for most bitcoin miners.

Let's now turn to page six and look at some recent bitcoin market events.

Since our last business update we've seen many positive headlines impacting bitcoin miners.

The SEC approval of the Bitcoin Etfs in January has dominated the headlines and the price of bitcoin has positively reacted to the better than expected early inflows into the products.

Rodney Tyler Page: And the price of Bitcoin has positively reacted to the better than expected early inflows into the product. We believe this is a massively positive development for the space as it will pull additional investment dollars into the ecosystem. In addition to the new U.S. ETFs, in the past few months, we have also seen elevated periods of transaction fees paid to miners, as well as a new accounting standard that provides investors transparency into the mark-to-market value of Bitcoin held on balance sheets.

We believe this is a massively positive development for the space as it will pull additional investment dollars into the ecosystem.

In addition to the new U S. Etfs in the past few months. We have also seen elevated periods of transaction fees paid to miners as well as a new accounting standard that provides investors transparency into the mark to market value of bitcoin held on balance sheet.

Rodney Tyler Page: While both of these good developments have provided additional tailwinds to the sector, we have also seen a counterbalancing steady climb to an all-time high in overall Bitcoin network hash rate, which suppresses miner economics. Perhaps most noteworthy for Cipher shareholders and prospective investors, on February 26, 2016. Thank you.

While both of these good developments have provided additional tailwind to the sector.

We have also seen a counterbalancing steady climb to an all time high in overall bitcoin network cash rate, which suppresses minor economics.

Perhaps most noteworthy for cypress shareholders and prospective investors on February 26th our majority shareholder <unk> announced plans to distribute the majority of its cipher shares and breakup, it's concentrated position on our cap table.

Rodney Tyler Page: Our majority shareholder, Bithury, announced plans to distribute the majority of its Cipher shares and break up its concentrated position on our cap. We believe greatly reducing our largest investor's ownership concentration. As we head toward the halving next month, Cipher is focused on executing the expansion and build-out of datasets, optimizing the production from our current and selectively looking for new growth opportunities. We have reviewed many acquisition opportunities over the past several months, and expect the opportunities to improve as we go through the halving process. We will evaluate these opportunities with the same disciplined approach as always and hopefully find expansion options at cyclically low prices. On slide 7, we give a portfolio overview of our existing data centers and a timeline for expected expansion in our self-mining hash.

We believe greatly reducing our largest investors ownership concentration increases our free float and creates a positive liquidity environment for our shares overall as we move forward.

As we head toward the having next month cipher is focused on executing the expansion and build out of data centers optimizing the production from our current fleet.

And selectively looking for new growth opportunities.

We have reviewed many acquisition opportunities over the past several months.

And expect the opportunities to improve as we go through the habit.

We will evaluate these opportunities with the same disciplined approach is always and hopefully find expansion options at cyclically low prices.

On slide seven we give a portfolio overview of our existing data centers and a timeline for expected expansion in our self mining hash rate.

Rodney Tyler Page: In 2023, we paid an average all-in electricity cost of $8,626 per bitcoin produced at our data center. We are very proud of this number, and it drives our best-in-class unit economy. Please note that when some of our competitors talk about these costs, they only include electricity and not transmission and other charges. In contrast, when we talk about all-in electricity costs,

In 2023, we paid an average all in electricity cost of $8626 per bitcoin produced at our data centers we.

We are very proud of this number and it drives our best in class unit economics.

Please note that when some of our competitors talk about these costs.

Only include electricity and not transmission and other charges and.

In contrast, when we talk about all in electricity costs, we mean, the total cost to deliver electricity to our mining rigs.

Rodney Tyler Page: We mean the total cost to deliver electricity to our mining rig. So our numbers include all transmission and other charges, and our low numbers dramatically demonstrate our competitive advantage. On the left side of the slide, you have a snapshot of our four current data centers, along with our all-in electricity cost per bitcoin at the respective sites for the year 2020. The chart on the right of the slide gives you a graphic illustration of the current Cipher hash rate, as well as the additional growth opportunities in the coming year and a half. At this point, we will turn to production. On slide 8, you can see a picture of our fully operational Odessa facility. Odessa is the most significant part of our portfolio as it represents approximately 90% of our Bitcoin production. Odessa is a wholly owned facility with a five-year fixed price power purchase agreement and some of the lowest cost power in the industry.

So our numbers include all transmission and other charges and our low numbers dramatically demonstrate our competitive advantage.

On the left side of the slide you have a snapshot of our four current data centers along with our all in electricity cost per bitcoin at their respective sites for the year 2023.

The chart on the right of this slide gives you a graphic illustration of the current cipher hash rate as well as the additional growth opportunities in the coming year and a half.

At this point, we will turn to production by site on.

On slide eight you can see a picture of our fully operational Odessa facility.

Odessa is the most significant part of our portfolio as it represents approximately 90% of our bitcoin production.

Odessa is a wholly owned facility with a five year fixed price power purchase agreement and some of the lowest cost power in the industry.

Rodney Tyler Page: In the third quarter of 2022, we began reporting a third-party independent valuation to give investors a sense of how much value is represented in the power contract alone. As always, Ed will talk more about that in his remarks. We currently generate approximately 6.4 exit hash per second at the site, utilizing approximately 207 megawatts. We have mined roughly 635 Bitcoin at the site through February 29th, and had a recent maximum daily mining capacity of approximately 10.8 Bitcoin per day. On slide 9, we show a picture and highlights from our Alborz Data Center, which we believe is a truly unique site. Alborz is 100% powered by wind and is a joint venture that we share with our energy provider. It currently has a total operating capacity of 40 megawatts when the wind blows.

In the third quarter of 2022, we began reporting a third party independent valuation to give investors a sense of how much value is represented in the power contract alone.

As always Ed will talk more about it in his remarks.

We currently generate approximately $6 four exit has per second at the site utilizing approximately 207 megawatts.

We have mined roughly 635 bitcoin at the site through February 29th and had a recent maximum daily mining capacity of approximately $10 eight bitcoin per day.

On slide nine we show a picture and highlights from our Albert's data Center, which we believe is a truly unique site.

<unk> is 100% powered by wind and as a joint venture that we share with our energy provider.

It currently has a total operating capacity of 40 megawatts when the wind blows.

Rodney Tyler Page: That 40 megawatts powers roughly 1.3 ExaHash per second of rig. IBORS can mine a maximum of roughly 2.2 Bitcoin per day, and year-to-date, the site has mined approximately 88 Bitcoin through February 29. Roughly half of that total capacity and site production belonged to Cipher. We are working to supplement the wind production at Alborz with a grid, which would allow us to increase our uptime and generate more Bitcoin with the existing equipment at the site, and we remain confident that we will have that arrangement in place later this year. Slide 10 shows operational highlights from our Baron Chief Data. Combined, the sites operate 20 megawatts, generate approximately 0.7 ExaHash per second, and can generate roughly 1.1 Bitcoin per day in current market conditions. Bear and Chief are also structured as joint ventures and feature shared economics similar to, Unlike our other sites, which have behind-the-meter power arrays, Barron Chief is set up in front of the meter at a location in Texas that typically features attractive market prices.

That 40 megawatts Power's roughly one three <unk> per second of rigs.

Albert can mine a maximum of roughly $2 two big claim per day and year to date. The site is mined approximately 88 bitcoin through February 29th.

Roughly half of that total capacity and site production along decipher.

We are working to supplement the wind production at al bores with a grid connection which would allow us to increase our uptime and generate more bitcoin with the existing equipment at the site and we remain confident that we will have that arrangement in place later this year.

Slide 10 shows operational highlights from our Barron chief data centers.

And buying the sites operate 20 megawatts, which can generate approximately 0.7 exit has per second and can generate roughly $1, one bitcoin per day and current market conditions.

Bear in Chief are also structured as joint ventures and features shared economics similar to our board.

Unlike our other sites, which have behind the meter power arrangements Barron chief are set up in front of the meter at a location in Texas that typically features attractive market prices.

Rodney Tyler Page: Finally, I will close with a few pictures of the expansion work underway at Cipher. We are very busy every day working to expand our mining capacity in the coming months, and we look forward to providing future updates on our progress. Now, I'll turn it over to our Chief Financial Officer, Ed Farrell. Thank you, Tyler, and hello to everyone on the call.

Finally, I will close with a few pictures of the expansion work underway at <unk>. We are very busy every day working to expand our mining capacity in the coming months.

And we look forward to providing future updates on our progress.

Now I'll turn it over to our Chief Financial Officer.

Ed Farrell.

Thank you Tyler and Hello to everyone on the call.

Edward John Farrell: As a reminder for those following our webcast presentation, I'll be referring to our results for the 3 months and 12 months ending December 31st, 2023. I will discuss some of the key financial metrics for Q4. I'll provide some additional fourth-quarter color as well as walk through our full year results. This quarter marked our first quarter of operations since inception, with all four of our data centers being fully deployed, and it's a testament to the dedication of our entire team and the strength of our company that we were able to deliver positive gap earnings for the quarter, even before adopting the new accounting standard related to the fair value of Bitcoin. As observed across the industry, top line growth doesn't always translate into bottom line earnings. However, at Cipher, this quarter showcased strong top line growth that also positively impacted our bottom line. In the quarter, we mined 1,195 Bitcoin, which resulted in revenues of $43.4 million, an achievement we all take great pride in. Yet upon closer examination, these numbers become even more impressive.

As a reminder for those following the webcast presentation I'll be referring to our results for the three months and 12 months ending December 31 2023.

I will discuss some of the key financial metrics for Q4, I'll provide some additional fourth quarter color as well as walk through our full year results.

This quarter marked our first quarter of operation since inception, with all four of our data centers being fully deployed and it's a testament to the dedication of our entire team and the strength of our company that we were able to deliver positive GAAP earnings for the quarter, even before adopting a new accounting standard related to the fair value of bitcoin.

As observed across the industry top line growth doesn't always translated to bottom line earnings.

However, I think for this quarter showcase strong top line growth that also positively impact our bottom line.

In the quarter, we mined 1195, bitcoin, which resulted in revenues of $43 $4 million and achievement, we all take great pride in.

Yet upon closer examination these numbers become even more impressive.

Edward John Farrell: While our revenues were up 43% sequentially, the cost of power to generate those revenues was only up 2%, underscoring the value we get from our fixed price PPA at Odessa. We will talk about it later, but the value of that PPA also increased by over $13 million in the quarter. Again, a testament to the capabilities of our power and origination team. However, despite substantial top-line growth in Q4, at $22.5 million, G&A expenses were down 6% from the prior period.

While our revenues were up 43% sequentially the cost of power to generate those revenues was only up 2% underscoring the value we get from our fixed price PPA at Odessa.

We will talk about it later, but the value of that PPA also increased by over $13 million in the quarter again Testament to the capabilities of our power and origination team.

Despite substantial top line growth in Q4 at $22 $5 million G&A expenses were down 6% from the prior period.

Edward John Farrell: This emphasizes the significant potential for operational leverage within our business model. Looking ahead, we're excited about our prospects as we scale up operations significantly over the course of this year in 2025. We anticipate encountering industry headwinds such as the upcoming halving and rising network cash rates, which are challenges that all of our competitors face. However, we firmly believe that Cipher is well positioned to navigate these obstacles and emerge as a leader through this next cycle.

This emphasizes the significant potential for operational leverage within our business model.

Looking ahead, we are excited about our prospects as we scale up operations significantly over the course of this year in 2025.

We anticipate encountering.

Industry headwinds such as the upcoming having in rising network cash rates, which are challenges that all of our competitors face.

However, we firmly believe that <unk> is well positioned to navigate these obstacles and emerge as a leader through this next cycle.

Edward John Farrell: In our third quarter business update, we talked about the challenging operating environment. Transitioning to the fourth quarter, we experienced much more favorable conditions marked by a rally in the Bitcoin price and a significant increase in our production as we fully energized Odessa. As a result, our fourth quarter was characterized by strong top-line free cash flow.

And our third quarter business update we talked about the challenging operating environment transitioning.

Transitioning to the fourth quarter, we experienced much more favorable conditions marked by a rally in bitcoin price and a significant increase in our production as we fully energized the deficit.

As a result, our fourth quarter was characterized by strong top line free cash flow.

Edward John Farrell: These conditions, combined with our ability to draw on our ATM, led to a substantial improvement in our liquidity position. I would also like to take a moment to talk about the new accounting standard, which requires entities that hold crypto assets to measure them at fair value. We believe this is an important step forward for the industry and a positive development for institutions looking to invest in the space. In December, FASB released new rules mandating companies to adopt a new accounting standard for the fiscal year after December 15, 2024.

These conditions combined with our ability to draw on our ATM led to a substantial improvement in our liquidity position.

I would also like to take a moment to talk about the new accounting standard, which requires entities that whole crypto assets to measure them at fair value.

We believe this is an important step forward for the industry and positive development for institutions looking to invest in the space.

In December <unk>.

New rules mandating companies to adopt the new standard for the fiscal year. After December 15 2024.

Edward John Farrell: Additionally, FASB provided companies the option to early adopt IFRS, a choice we made for the 2023 fiscal year. We underwent a rigorous process to transition this to this new standard and assess our realized and unrealized gains and losses, as well as the impact of previously reported Bitcoin impairment. The fair value adjustment for the fourth quarter compared to the prior accounting guidance resulted in a net earnings impact of $3 million.

Additionally, <unk> be provided companies the option to early adopt a choice we made for the 2023 fiscal year.

We underwent a rigorous process to transition to this new standard and assessed our realized and unrealized gains and losses as well as the impact of previously reported bitcoin impairments.

The fair value adjustment for the fourth quarter compared to the prior accounting guidance resulted in net earnings impact $3 million.

Edward John Farrell: Now let's turn our attention to the Full Year Consolidated Balance Sheet and Statement of Operations. As of December 31st, our total current assets stood at $155 million, up from $48 million at year-end 2022. Our accounts receivable were $622,000 versus $98,000 the previous year, and our prepaid expenses were $3.7 million versus $7.3 million in the prior year.

Now, let's turn our attention to the full year consolidated balance sheet and statement of operations.

As of December 31, our total current assets stood at $155 million up from 48 million at year end 2022.

Our accounts receivable was 622000 versus 98000, the previous year and our prepaid expenses were $3 7 million versus $7 3 million in the prior year.

Edward John Farrell: I should note that those prepaid expenses are primarily due to corporate insurance, which is worth highlighting because we were able to reduce our D&O premium significantly this year. We recorded a Bitcoin balance of $33 million, representing the 780 Bitcoin we had in Treasury on December 31. That number is up from the 399 Bitcoin we had at year end 2022, which was valued at $6.3 million net of impairment. As always, I'd like to dedicate a few minutes to the value of our progressive PPA derivative asset. We have previously highlighted the significant competitive advantage provided by our power contract in Odessa.

I should note that those prepaid expenses are primarily due to corporate insurance, which is worth highlighting because we were able to reduce our D&O premium significantly this year.

We recorded a bitcoin balance of $33 million, representing the 780 Bitcoin we had in Treasury on December 31.

That number is up from 399 Bitcoin we had at year end 2022, which was then valued at $6 3 million net of impairment.

As always I'd like to dedicate a few minutes to the value of our <unk> PPA derivative asset.

We have previously highlighted the significant competitive advantage provided by our power contract kind of test it.

Edward John Farrell: As a reminder, we began publishing a third-party mark for this agreement in the third quarter of 2022. That mark is represented as a derivative asset on our balance sheet that gets revalued each reporting period. Essentially, it reflects the in-the-money value of the contract relative to the current forward prices at our Odessa facility.

As a reminder, we began publishing third party Mark for this agreement in the third quarter of 2022.

That Mark is represented as a derivative asset on our balance sheet that gets revalued each reporting period.

Essentially it reflects the in the money value of the contract relative to the current forward prices at our Odessa facility.

Edward John Farrell: As of December 31st, this asset was valued at $93.6 million, which represents an increase of $26.9 million year-over-year. This change is recorded as a gain on our income statement. It is important to note that this asset is in two components on the balance sheet, $31.9 million as a current asset and $61.7 million as a non-current asset. The change in fair value of this contract will affect our gap earnings, but we exclude it from our non-gap reporting.

As of December 31.

Yes, it was valued at $93 6 million, which represents an increase of $26 9 million year over year.

This change is recorded as a gain on our income statement.

It is important to note that this asset is in two components on the balance sheet.

<unk> $31 9 million as a current asset and $61 7 million as a non current asset.

Change in fair value of this contract will affect our GAAP earnings, but we excluded from our non-GAAP reporting.

Edward John Farrell: Our other significant assets include property and equipment of $243.8 million, primarily attributed to our Codessa facility. This figure includes miner and related equipment of $163.5 million as well as leasehold improvements valued at $139 million. These items are offset by $59.1 million of accumulated depreciation.

Our other significant assets include property and equipment of $243 $8 million, primarily attributed to our Odessa facility.

This figure includes miners and related equipment of $163 5 million as well as leasehold improvements valued at $139 million.

These items are offset by $59 $1 million of accumulated depreciation.

Edward John Farrell: In addition, we hold intangible assets at $8.1 million, which includes $7 million designated for the payment of the Black Pearl site and its related ERCOT approval. The remaining $1.1 million relates to capitalized software. At year end, our equity investing interest in Alborz Baird Chief stands at $35.3 million.

In addition, we hold intangible assets of $8 1 million, which includes $7 million designated for the payment of Black Pearl site and its related per carton approval there.

The remaining $1 1 million relates to capitalized software.

At yearend, our equity Investor interest in Alberta Bear Chief stands at $35 $3 million.

Edward John Farrell: Our operating lease of $7.1 million is primarily related to real estate leases. Additionally, deposits of $23.9 million include the previously reported luminance security deposit of $12.5 million and a $6.3 million deposit to ENCQOR related to Black Pearl Data Center. I would like to report that our current liquidity position on February 29th is $158 million, comprised of 69 million in cash and $89 million worth of Bitcoin, assuming a $62,000 price per Bitcoin. Now, let's look at our GAAP operating results. Before delving into our full-year numbers, I'd like to provide more detail on the fourth quarter results, considering this marks our first full quarter of operations with all four of our data centers at full capacity. In the fourth quarter, we mined 1195 Bitcoin, resulting in $43.4 million in mining revenues versus the prior quarter when we mined 1078 Bitcoin, producing $30.3 million in revenue. We are particularly proud that despite significantly higher operating revenue, our operating expenses, including G&A and depreciation and amortization, remain relatively flat quarter over quarter. As I mentioned earlier, G&A totaled $22.5 million, a decrease of 6% from the previous quarter. Appreciation and amortization came in at $16.8 million, a slight increase from the $16.2 million in the previous quarter.

Our operating lease of seven one is primarily related to real estate leases. Additionally deposits of $23 9 million includes the previously reported permanent security deposit of $12 5 million and $6 3 million deposit to encore related to black Pearl data Center.

I would like to report that our current liquidity position on February 29th is $158 million.

Rise to $69 million in cash and $89 million worth of bitcoin, assuming a 62000.

Dollar price per bitcoin.

Okay.

Now, let's look at our GAAP operating results.

Delving into our full year numbers I'd like to provide more detail on the fourth quarter results. Considering this marks our first full quarter of operations with all four of our data centers at full capacity.

In the fourth quarter, we mined 1100, 95 big point, resulting in 43.4.

$4 million in mining revenues versus the prior quarter, we mined 1078, bitcoin producing $33 million in revenue.

We are particularly proud that despite significantly higher operating revenue operating expenses, including G&A and depreciation and amortization remained relatively flat quarter over quarter.

As I mentioned earlier G&A totaled $22 5 million a decrease of 6% from the previous quarter.

Depreciation and amortization came in at $16 8 million a slight increase from the $16 two in the previous quarter.

Cost of revenue was $13 $3 million, which includes our power indirect expenses relating to Odessa, a 2% increase over last quarter.

Now, let me turn to our full year results, which we can see on slide 15.

Edward John Farrell: The cost of revenue was $13.3 million, which includes our power and direct expenses relating to Odessa, a 2% increase over last quarter. Now, let me turn to our full-year results, which we can see on slide 15. For the full year 2023, we mined 4350 Bitcoin, resulting in 126.8 million in revenues generated entirely from our DESA facility. Cost of revenue for the year was $50.3 million versus $748,000 in the prior year.

For the full year 2023, we mined 4350, bitcoin, resulting in $126 8 million of revenues generated entirely from our debt facility.

The cost of revenue for the year was $53 million versus $748000 in the prior year.

G&A expenses came in at $85 2 million in 'twenty three versus $78 million in 'twenty two.

Increase of $14 4 million was primarily driven by compensation and benefits as we invest in building out our team increasing our head count from 22 employees to 36 employees.

Depreciation and amortization for the year was $59 1 million versus $4 4 million in the prior year.

Edward John Farrell: G&A expenses came in at $85.2 million in 2023 versus $70.8 million in 2022. The increase of $14.4 million was primarily driven by compensation and benefits as we invested in building out our team, increasing our headcount from 22 employees to 36 employees. Amortization and amortization for the year was $59.1 million versus $4.4 million in the prior year.

This increase was primarily due to miners in equipment and leasehold improvements at Odessa being in service for a full year compared to only two months in the previous year.

As we mentioned earlier, we recorded a positive change in the fair value of our derivative assets of $26 $8 million year over year.

Power sales amounted to $9 9 million in 2023 versus 500000, the previous year, reflecting the ramp up at Odessa over the course of 2023.

For our JV sites the line item titled equity in losses of equity Investees was $2 5 million in 2023 compared to $37 million in 2022.

Edward John Farrell: This increase was primarily due to miners and equipment and leasehold improvements at Odessa being in service for a full year compared to only two months in the previous year. As we mentioned earlier, we recorded a positive change in the fair value of our derivative asset of $26.8 million year over year. Power sales amounted to $9.9 million in 2023 versus $500,000 in the previous year, reflecting the ramp-up at Odessa over the course of 2023. For our JV sites, the line item titled Equity and Losses of Equity Investees was $2.5 million in 2023 compared to $37 million in 2022.

It is worth noting that the losses in 2022 were primarily from the fair value contribution of miners to our Jv's at the time would minor prices were much higher.

Okay.

Let's now turn to our slide on our non-GAAP measures used to reconcile our adjusted earnings.

Allow me to remind everyone that adjusted earnings exclude the impact of depreciation of fixed assets.

Change in the fair value of our derivative assets.

Income tax expense the change in fair value warrant liability stock compensation expense and other nonrecurring gains and losses.

These supplemental financial measures are not measurement of financial performance in accordance with U S GAAP and as such they may not be comparable to similarly titled measures of other companies.

Edward John Farrell: It is worth noting that the losses in 2022 were primarily from the fair value contribution of miners to our JVs at a time when miner prices were much higher. Let's now turn to our slide on our non-GAAP measures used to reconcile our adjusted earnings. Allow me to remind everyone that adjusted earnings exclude the impact of depreciation of fixed assets, Change in the Fair Value of our Derivative Asset, Deferred Income Tax Expense, the Change in Fair Value of Mart Liability, Stock Compensation Expense, and other non-recurring gains and losses. These supplemental financial measures are not measurements of financial performance in accordance with U.S. GAAP, and as such, they may not be comparable to similarly titled measures of other companies.

We believe that these non-GAAP measures may be useful to investors in comparing our performance across reporting periods on a consistent basis Matt.

Management uses these non-GAAP financial measures internally to help understand manage and evaluate our business performance to help make operating decisions.

When we adjust our fourth quarter GAAP results.

GAAP net income of $10 6 million, we had $17 2 million for those items I just listed.

That brings us to adjusted net income of $27 8 million for the quarter.

$2 3 million in the previous quarter.

For the full year, our adjusted GAAP results yields an adjusted earnings gain of $46 2 million for an adjusted earnings loss of $64 9 million in the previous year.

Edward John Farrell: We believe that these non-GAAP financial measures may be useful to investors in comparing our performance across reporting periods on a consistent basis. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance to help make operating decisions. When we adjust our fourth-quarter gap results to the gap net income of $10.6 million, we add $17.2 million for those items I just listed. That brings us to an adjusted net income of $27.8 million for the quarter compared to $2.3 million in the previous quarter. For the full year, our adjusted gap results yielded an adjusted earnings gain of $46.2 million versus an adjusted earnings loss of $64.9 million in the previous year.

I will conclude my remarks by saying we are extremely pleased with our financial performance in Q4 and throughout the entirety of 2023.

Our philosophy continues to be that to be a leader in the mining space, we need to focus relentlessly on having best in class unit economics.

We firmly believe 2023 validated our ability to deliver on our stated objective by successfully bringing online our initial four data centers.

We are excited about the next stage of growth to Tyler outlined and with our current financial position free cash flow generation lack of debt and best in class unit Economics, We believe we should be well positioned to be a leader through the next cycle.

We look forward to updating you in greater detail on our expansion plans when we report for the first quarter.

Operator: I will conclude my remarks by saying we are extremely pleased with our financial performance in Q4 and throughout the entirety of 2023. Our philosophy continues to be that to be a leader in the mining space, we need to focus relentlessly on having best-in-class unit economics. We firmly believe 2023 validated our ability to deliver on our stated objective by successfully bringing online our initial four data centers. We are excited about the next stage of growth that Tyler outlined, and with our current financial position, free cash flow generation, lack of debt, and best in class unit economics, we believe we should be well positioned to be a leader through the next cycle. We look forward to updating you in greater detail on our expansion plans when we report for the first quarter. I will pause now, and Tyler and I are happy to answer your questions. Ladies and gentlemen, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced.

I will pause now and Tyler and I are happy to answer your questions.

Thank you.

Ladies and gentlemen to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question simply press Star One again, please standby, while we compile the Q&A roster.

And our first question coming from the line up.

Johnson <unk> with Needham <unk> Company. Your line is now open.

Great. Thanks for taking my question congrats on the quarter quarter guys.

It looks pretty solid despite the.

Without even the accounting rule changes.

Yes, two questions maybe one for each of you add when you talked about operational leverage boost.

So we noticed that as well as the DNA command, a little bit lower than where we actually estimate for Q4.

If you can grow ex ash to nine plus in G&A flat in 'twenty four it seems like another big boost there.

That how we should be expecting G&A to basically be flat over 2004.

Yes, good morning, John Thanks for the thanks for listening and thanks for the question.

I would look at G&A over the next two quarters as being relatively flat. We don't look as we've mentioned we built out the team I think we will get a lot of leverage from building out the team.

John Todaro: To withdraw your question, simply press star 1 1 again. Please stand by while we compile the Q&A roster. And our first question, coming from the line of... John Todaro with New Hammond Company. Your line is open. Great, thanks for taking my question. Congratulations on the quarter, guys.

As we bring on more eggs hash and we expand.

Our data centers, we should expect some additional depreciation depreciation and amortization, but when you neutralize that or the non-GAAP numbers I would expect that not to be too much.

Greater than we've been reporting in the fourth quarter.

23.

Is that helpful.

Edward John Farrell: Looks pretty solid, despite or maybe because of the accounting rule changes. I guess two questions, maybe one for each of you. Ed, when you talked about operational leverage, we noticed that as well, the DNA coming in a little bit lower than what we actually estimated for Q4. If you can grow exaHash to 9 plus in GNA flat in 24, seems like another big boost there. Is that how we should be expecting GNA to basically be flat over 24? Yeah, good morning, John.

Yes that is bank debt.

And then Tyler.

The <unk> side of things and I apologize if I missed it but can you just remind us how many shares very still has right now the timeline for that distribution.

And then I believe there is no more lockups is that correct.

Yes, Hey, John So let me, let me actually add one more piece of color to add to answer about SG&A, because I think it's important for context, and then I'll answer the question as well.

I know you asked sort of for specific near term, but I think it's important to think about SG&A, especially as we come into the having.

Edward John Farrell: Thanks for listening. And thanks for the question. I would look at G&A over the next two quarters as being relatively flat. We don't look, you know, as we mentioned, we built out the team. I think we'll get a lot of leverage from building out the team. As we bring on more ExaHash and we expand our data centers, we should expect some additional depreciation and amortization. But when you neutralize that for the non-GAAP numbers, I would expect that not to be too much greater than we've been reporting, you know, in the fourth quarter of 2023. Is that helpful? Yes, that is. Thanks, Ed.

The way, we look at SG&A I do think it's pretty differentiated from most other bitcoin miners.

Think about that that needs to be kept in mind as all the research analysts and investors in the space looking at what happens to these companies post having and so we often talk about the relentless search for cheap power because that drives the unit economics and look in a post having world as the world evolves and the sites get bigger there is really.

Kind of two ways to seek out that cheap power.

Some folks not not safer.

Rodney Tyler Page: And then, Tyler, on the BitFury side of things, and apologies if I missed this, but can you just remind us how many shares BitFury still has right now, the timeline for that distribution, and then I believe there are no more lockups. Is that correct? Yeah, hey John, so let me actually add one more piece of color to Ed's answer about SG&A. I know you asked. Thank you, about SG&A, especially as we come into the halving. The way we look at SG&A, I do think it's pretty differentiated from most others. And I think about that, that needs to be kept in mind as all the research analysts and investors in the space look at what happens to these companies post-habit.

I've gone to jurisdictions, where there maybe regulatory risk or other challenges that we find hard to underwrite and you get cheap power. So long as they don't raise the minor tax or the government comes after mining or something like that and maybe there are people that can underwrite that risk better than us.

Other way in a way that we really focus since day one on doing this is to go to a place like Texas, where you can monetize the curtail ability of these data centers and as we've talked about often.

Our data centers can can power up and they shut down within a minute.

Can do it very quickly they can respond to price signals and we talk a lot about the opportunities.

Rodney Tyler Page: And so we often talk about the relentless search for cheap power because that drives the Unidex. And look, in a post-having world, as the world evolves and these sites get bigger, there's really kind of two ways to seek out that cheap power. Some folks, not Cipher, have gone to jurisdictions where there may be regulatory risk or other challenges that we find hard to underwrite, and you get cheap power so long as they don't raise the miner tax or the government comes after mining or something like that, and maybe there are people that can underwrite that risk better than us.

To sort of be involved in.

Providing power back to the grid, making extra cash to do it.

And that being a real hidden ability of what we can do.

The thing is if you take what I'll call a more basic operating model for a minor where you just find a power cost and try to run your rigs 100% of the time.

That model is going to be more and more challenged and if you did that in Texas.

Average price in Texas is something like six cents a kilowatt hour.

And so to sort of manufacture your own lower electricity price you have to be able to curtail your data centers potentially participate in demand response programs et cetera.

Rodney Tyler Page: The other way, in the way that we've really focused since day one on doing this, is to go to a place like Texas, where you can monetize the curtailability of this data. And as we've talked about often, you know, our data centers can power up, and they shut down within a minute. They can do it very quickly.

Only way to do that is to build a stack of talented people across ops technology trading it's not easy and we're one of the only companies that really does that at scale and that will be an even bigger part of our story as we build black Pearl. So that's all by way of saying that.

Rodney Tyler Page: They can respond to price signals. And we talk a lot about the opportunities to be involved in providing power back to the grid, making extra cash to do it, and that being a real hidden ability of what we can do. And the thing is, if you take what I'll call a more basic operating model for a miner, where you just find a power cost and try to run your rigs 100% of the time, that model is going to be more and more challenged. And if you did that in Texas, the average price in Texas is something like 6 cents a kilowatt hour.

Our SG&A is building a different company with a different skill set of people and it scales very well, so, whereas I think now.

We're going to we're at half of less than half of the output will be from a megawatts perspective, Unlike a third less than a third of what will be.

Rodney Tyler Page: And so to sort of manufacture your own lower electricity price, you have to be able to curtail your data centers, potentially participate in demand response programs, etc. The only way to do that is to build a stack of talented people across operations, technology, and trading. It's not easy, and we're one of the only companies that really does that at scale, and that will be an even bigger part of our story as we build Black Pearl. So that's all by way of saying that when our SG&A is building a different company with a different skill set of people, and it scales very well. So whereas I think now, less than half of the output will be from a megawatts perspective and less than a third of what it will be from a hash rate perspective after we bring Black Pearl online, SG&A scales very, very well. It is not a linear scaling.

From a cash rate perspective, after we bring black Pearl online that SG&A scales, very very well it is not a linear scaling and so.

Your specific question was about the next quarter or two I think it is important to keep in mind that this will become one of our greatest relative strengths in the long term because we will bring on very large data centers with very little linear growth in SG&A. So we're sort of just getting start.

In some ways on the chassis that were building to continue to source and produce our own cheap power and control our own destiny. So I think thats important context for SG&A and just on a longer term not exactly your question and then to get to your specific question and thank you for indulging me on that.

Yes, so bit Fury is in the process of distributing those shares.

Rodney Tyler Page: And so, you know, Ed, your specific question was about the next quarter or two. I think it's important to keep in mind that this will become one of our greatest relative strengths in the long term because we will bring on very large data centers with very little linear growth in SG&A. So we're sort of just getting started in some ways on the chassis that we're building to continue to source and produce our own cheap power and control our own destiny. So I think that's an important context for SG&A, just on a longer term, not exactly your question. And then to get to your specific question, and thank you for indulging me in that.

<unk> put out a press release and they talked about this that they plan to end up with 50 million shares at <unk>.

And so that will be below 20% of our overall shares.

Have raised some money via the ATM, so will even be a little bit less than that on a percentage basis. That's in process right now I don't know exactly where they are in that process, because thats sort of outside of my conversations with them, but I know it's.

Sort of very short term they are in the process I expect it to be days for them to complete those distributions and so we will go from where we were not that long ago. When they were north of 80% of our cap table to decently below 20% and there are no more lockups on that so.

Rodney Tyler Page: Yeah, so BitFury is in the process of distributing those shares. They put out a press release, and they talked about this, that they plan to end up with 50 million shares at BitFury. And so that will be below 20% of our overall shares. We have raised some money via the ATM, so we'll even be a little bit less than that on a percentage basis. That's in the process right now. I don't know exactly where they are in that process because that's sort of outside of my conversations with them.

Those will be freely tradable shares as they are distributed.

I think it's good to give some context on this as well.

I've heard a lot from investors over the last year or so.

Hey, Tyler we love the safer business model, we love how you create your own cheap cost of power. This is very sustainable you have a clean balance sheet, we like everything about it.

Rodney Tyler Page: But I know it's sort of a very short term thing. They are in the process. I expect it to be days for them to complete those distributions, and so we will go from where we were not that long ago when they were north of 80% of our cap table to decently below 20%. And there are no more lockups on that, so those will be freely tradable shares as they're distributed. I think it's good to give some context on this as well.

But we are an institutional investor and we don't buy the stock up companies with an 82% shareholder.

And so this has been a central challenge for us to solve that we focus everyday on building a great business, but of course, we want to also have cypress stock be a great investment.

Thank the the very wonderful thing about this outcome is it if you think about what I would like to see on our cap table over time.

Rodney Tyler Page: I've heard a lot from investors over the last year or so. You know, hey, Tyler, we love the Cipher business model. We love how you create your own cheap cost of power. This is very sustainable. You have a clean balance sheet.

In a perfect world, we'd have a bunch of long term investors that understand bitcoin mining.

And so we sort of short circuits. The timeline here. These are shares that are being distributed that <unk> already owns so it's not adding new shares as your existing shares going to investors that have been invested in <unk> in bitcoin mining typically for a long time, sometimes longer than a decade, so I think from.

Rodney Tyler Page: We like everything about it, but we're an institutional investor, and we don't buy the stock of companies with an 82% share. And, so this has been a central challenge for us to solve that, you know, we focus every day on building a great business. But of course, we want Cypher stock to be a great investment. I think the very wonderful thing about this outcome is that if you think about what I would like to see on our cap table over time, you know, in a perfect world, we'd have a bunch of long-term investors that understand Bitcoin. And so we sort of short-circuit the timeline here. These are shares that are being distributed that BitFury already owns, so it's not adding new shares. These are existing shares going to investors that have been invested in BitFury and Bitcoin mining for a long time, sometimes longer than a decade.

Our perspective, it's safer we're really excited about this I think.

Just based on my conversations with investors I have heard we traded a discount to where our business model should be trading if we didn't have such a concentrated cap table and I believe that that discount will be removed and that frankly, I think we should trade at a premium.

Based on just the results we've put out so no lockups that distribution is in process and I expect it to be completed within days.

Okay.

Thanks, Amit next question.

And our next question coming from the lineup.

Rodney Tyler Page: So I think from our perspective at Cipher, we're really excited about this. I think, just based on my conversations with investors, I have heard we traded at a discount to where our business model should be trading if we didn't have such a concentrated cap table. And I believe that that discount will be removed and that, frankly, I think we should trade at a premium based on just the results we've put out. So no lockups, that distribution is in process, and I expect it to be completed within days. Thank you.

This is partly Morgan your line is open.

Hey, good morning, guys.

If you housekeeping questions.

In a second but I wanted to.

You guys announced a big purchase Maine.

Believers in December and included an option.

2024.

I look at your desk site and it has very impressive power costs.

But it's a pretty high <unk>.

My question is does it make sense to swap out machines at Odessa for maybe the $2 21.

Kind of how do you think about.

What's the calculus for doing that.

And I have a few follow ups. Thank you.

Sure So great question Reggie.

Operator: One moment for our next question. And our next question, coming from the lineup, Reginald Smith, J.P. Morgan, your line is open. Good morning, guys.

The current plan is not to put the $2 21 from that large order you mentioned, which includes.

If you fully exercise the option up to $15 eight <unk> of <unk> 21, and that's at $14 of Terra hash, which is just an awesome price. If you look at the profitability of kind of where we are call. It and S 19, J pro efficiency right now.

Reginald Lawrence Smith: A few housekeeping questions, I'll get to those in a second, but I wanted to say, I think you guys announced a big purchase with Bitmain in December and included an option for 2024. I look at your Odessa site and it has, you know, very impressive power costs but still has a pretty high jewel per tier hat. The question is, does it make sense to swap out machines at Odessa for maybe the T21s? And you know, kind of how do you think about that like what's the calculus for doing that? And I have a few to follow, Sure.

It's hard to keep up with this but I think it's about a $165 or so per megawatt hour right now so getting more and more profitable and as everyone knows that generally drives the cost of rigs so having locked in $2014 is just an awesome price on that purchase.

Rodney Tyler Page: So great question, Reggie. The current plan is not to put the T21s from that large order you mentioned, which includes, you know, if you fully exercise the option, up to 15.8 exahash of T21s, and that's at $14 a terahash, which is just an awesome price. You know, if you look at the profitability of kind of where we are, call it S19J Pro efficiency right now. It's hard to keep up with this, but I think it's about $165 or so per megawatt hour right now.

Our current plan is not to use those at Odessa, we recall that we do have an order of one point to exit hash of F 'twenty ones.

That we are using that Odessa, both to swap out for machines are getting repaired and generally upgrade from the least efficient machines, we have that.

That replacement exercise gets us to a big part of the growth in hash rate that we projected for this year.

So we've got a projection of $8 seven <unk> in the second quarter and the nine three <unk> in the third quarter, that's largely the Barron chief expansions, but then also that's the swapping out and optimizing.

Rodney Tyler Page: So it's getting more and more profitable. And as everyone knows, that generally drives the cost of rigs. So having locked in $14 is just an awesome price on that purchase. Our current plan is not to use those at Odessa.

The lowest.

Efficiency rigs at that site and then one other thing I'd say is even at our current efficiency I think industry average is more like 34 35 dual that taro has so we're already decently more efficient than the industry average and as we mentioned by the time, we get all of these things plugged in we'll be at 22 jewels for Terra Hush, but that's the current plan.

Rodney Tyler Page: We recall that we do have an order of 1.2 ExaHash of S21s that we are using at Odessa, both to swap out for machines getting repaired and generally upgrade from the least efficient machines we have. That replacement exercise gets us to a big part of the growth in hash rate that we projected for this year. So, we've got a projection of 8.7 ExaHash in the second quarter and then 9.3 ExaHash in the third quarter. That's largely the bear and cheap expansions, but then also that's this swapping out and optimizing of the lowest efficiency rigs at that site. I mean, the one other thing I'd say is even at our current efficiency, I think the industry average is more like 34 or 35 joules a terahash.

We mentioned I mentioned in my prepared remarks that.

We are also working on various hardware and software optimizations obviously.

Over time, we learned a lot about operating these rigs and sort of environmental specifics and there are various software and hardware tricks of the trade that we also use to squeeze extra efficiencies out of those so even our least efficient machines are becoming more efficient just through minor upgrades that don't include like a full swapping out.

Okay and just.

Just to kind of clarify there so.

Main announcement in December it was a piece of it was <unk> 20 for 2025.

There was an option for 2024.

I guess based on what you kind of announced and disclosed so far.

Today in the last few weeks.

Are you.

Does that assume that any of that option is used for 2024 and if not.

Rodney Tyler Page: So we're already decently more efficient than the industry average, and as we mentioned, by the time we get all these things plugged in, we'll be at 25. Terahash, but that's the current plan. I also, we mentioned, I mentioned in my prepared remarks that we are also working on various hardware and software optimizations, obviously. Over time, we learn a lot about operating these rigs and sort of environmental specifics, and there are various software and hardware tricks of the trade that we also use to squeeze extra efficiency out of them, so even our least efficient machines are becoming more efficient just through minor upgrades that don't include like a full swap.

How are you thinking about that option.

Extended beyond 'twenty.

<unk> 24.

And then my last yes.

Right there is.

Got it and with it a lot what's the last one give me the last year.

And then last one whats your what is your appetite for tuck in acquisitions. This is my first question makes sense like I am trying to figure out like that.

Absolutely yes.

Has it has it been is it accounted for is it.

Spoken for and if not what is the plan for that yes.

Yes, so <unk>.

Sizing of that option is tied out with black Pearl. So we could build the full 300 megawatts of black Pearl.

Buying rig 220 ones for $14 at Taro House, and so it black Pearl.

Reginald Lawrence Smith: And just, just to kind of clarify there, so, for that Bitmain announcement in December, there was a piece that was for 2020, and there was an option for 2024. I guess, based on what you've, you know, kind of announced and disclosed so far in the last few weeks.

Which will be energized and the first half of 2025, we have the ability to basically build that full site. If you look at slide seven of our deck.

Walk out to $25 one exit hedges.

Assumes that we plug in all those $2 21 at that site and keep in mind that the option is exercisable in calendar year 2024, but when we exercise it. It takes a few months to deliver so here's how we're thinking about it at a baseline when we do Capex planning for Black Pearl We've law.

Reginald Lawrence Smith: Are you, you know, does that assume that any of that option is used for 2024? And if not, how are you thinking about that option? And can you extend it beyond 24? And then my last question, I threw a lot at you right there, is, you know, what's your appetite for tuck-in acquisitions? What's the last one? Give me the last one first.

Locked in the most important variable costs and capex that that cost per <unk> can go up 600%, we've locked it with that option and if we find nothing else to do with rigs beyond the expansions. We've already laid out we can exercise that full option and build the full black Pearl.

Rodney Tyler Page: Yeah, and the last one too is, what's your appetite for tuck-in acquisitions? Does my first question make sense? Like, I'm trying to figure out 100% that option. Yeah, like, has it, has it been, is it accounted for, spoken for? And if not, like, what is the plan for that? Yeah, so the sizing of that option is tied out with BlackPearl.

The great thing about this timeline that we've got is also to your answer your second question about tuck in acquisitions.

We are spending a lot of time looking at opportunities there is a lot for sale.

There are companies for sale there are ones that are well known there is private ones that are less well known there is domestic one is theres international ones. There are sites there are folks that want to get out of the hosting business.

Rodney Tyler Page: So we could build the full 300 megawatts of BlackPearl by buying RIG T21s for $14 a terahash. And so at BlackPearl, which will be operational in the first half of 2025, we have the ability to basically build that full site. If you look at slide seven of our deck, you know, the walkout to 25.1 exahashes assumes that we plug in all those T21s at that site. And keep in mind, the option is exercisable in calendar year 2024. But when we exercise it, it takes a few months to deliver results.

Folks that want to sell infrastructure. So we are looking at a lot.

Inc. A hallmark of our history has been an extremely disciplined focus on return on investment.

And so we're just not going to overpay for stuff because that's ultimately what produces things like positive GAAP earnings is the disciplined not to overpay for things. So my hope is that we will find amazing opportunities at very low prices that are available right away, we could exercise that option right away.

Rodney Tyler Page: So here's how we're thinking about it. At a baseline, when we do CAPEX planning for Black Pearl, we've locked in the most important variable cost in CAPEX. That cost per terahash can go up 600%. We've locked it in with that option.

To fill it fill whatever we buy with new rigs.

Rodney Tyler Page: And if we find nothing else to do with rigs beyond the expansions we've already laid out, we can exercise that full option and build the full Black Pearl. The sort of great thing about this timeline that we have is also to answer your second question about tuck-in acquisitions; we are spending a lot of time looking at opportunities. There is a lot for sale. There are companies for sale. There are some that are well-known.

And then we can source other rigs for sort of the back half of black Pearl, but at a minimum we can use the full option.

To build all of Black Pearl and then it truly has optionality, if we find a better way to use them faster does that makes sense.

That does that does that.

It does makes sense one last point of clarification on that so I assume that means the option piece of it can be exercised at any point in 'twenty, four and not necessarily at the end of 'twenty four.

Rodney Tyler Page: There are private ones that are less well-known. There are domestic ones. There are international ones. There are sites.

Correct, that's right got it.

Okay.

Thank you so much.

Of course.

Thank you.

Rodney Tyler Page: There are folks that wanna get out of the hosting business. There are folks that wanna sell infrastructure. So we are looking at a lot. I think a hallmark of our history has been an extremely disciplined focus on return on investment.

And our next question coming from the line of Joseph <unk> with Canaccord. Your line is open.

Hey, guys. Good morning, great to see the Q4 results and the adoption of new accounting standards.

Just I was just thinking here we've had this really nice run up here in bitcoin, that's been pretty rapid and precipitous just wondering how the higher bitcoin price.

Rodney Tyler Page: And so we're just not going to overpay for stuff because that's ultimately what produces things like positive gap earnings, the discipline not to overpay. So my hope is that we will find amazing opportunities at very low prices that are available right away. We could exercise that Bitmain option right away to fill whatever we buy with new rigs, and then we can source other rigs for sort of the back half of Black Pearl. But at a minimum, we can use the full option to build all of Black Pearl, and then it truly has optionality if we find a better way to use it faster. Does that make sense?

Is perhaps.

Having effect.

On your operating strategy build out strategy and the hottest strategy.

Could you move black Pearl forward faster now with <unk>.

Higher.

Average price.

Price per bit coin selling them or does it make sense to huddle or your cloud or less because the price is high.

It's kind of a high class problem, but just trying to see how it's affecting the business.

And maybe tweaking the strategy.

Thanks, Joe So good question.

Reginald Lawrence Smith: That does, that does, that does. One last point of clarification on that. So I assume that that means the option piece of it can be exercised at any point in 24 and not necessarily at the end of 24. Correct. That's right. Yeah. Thank you so much.

<unk>.

So first of all black Pearl.

It has an energized <unk> schedule, which is set for the second quarter of next year. So Unfortunately, we cannot move that up.

In addition to there just been a lot of logistics, we are clearing large 50 acre fields now.

Joseph Anthony Vafi: Course, Thank you. And our next question comes from the line of Joseph Vafi with Canaccord. Your line is open. Hey, guys. Good morning.

We have to install and build everything but really the timeline there even if we wanted to the challenge is there is a there is an <unk> timeline that we don't have optionality on what we do have optionality on is how much we built.

Rodney Tyler Page: Great to see the Q4 results and the adoption of the accounting standards. Just, you know, I was just thinking here, we've had this really nice run up here in Bitcoin that's been pretty rapid and precipitous. Just wondering how the higher Bitcoin price is perhaps having an effect on your operating strategy, the buildout strategy, and the hodl strategy. Could you move Black Pearl forward faster now with a higher average price per Bitcoin for selling them, or does it make sense to hodl, or do you hodl less because the price is high? It's kind of a high-class problem, but I'm just trying to see how it's affecting the business and maybe tweaking the strategy. Thanks, Joe.

We sort of publicly committed to building the first half of it we have an option to build the second half of it and the way I think of the increasing.

Economics of the business, frankly, which is tied to the higher bitcoin price. It makes it more likely that we could green light the full 300 megawatts as opposed to just the first half of it which we've committed to.

That we do have optionality on so I think of it in those terms and then speaking more broadly about treasury management.

Let me remind everyone that in general it's our goal to build a bitcoin treasury over time, we need to do that thoughtfully about different ways, we can tap capital.

Rodney Tyler Page: So, good question. First of all, Black Pearl has an energization schedule that is set for the second quarter of next year. So unfortunately, we cannot move that up. In addition to there just being a lot of logistics, we're clearing large 50-acre fields now. You know, we have to install and build everything.

It's been very favorable to build that treasury recently, but in addition to selling some bitcoin with regularity to pay our bills.

And holding an increasing number of bitcoin we all.

Also hedge we did see a noticeable pickup in hedging over the last few months and that's because we've had these big sort of known binary events right things like the ETF approval date, when everyone was coming into that week. For example, we put several costless collars around.

Rodney Tyler Page: But really, the timeline there, even if we wanted to, the challenge is there's an energization timeline that we don't have optionality on. Now, what we do have optionality on is how much we build. We sort of publicly committed to building the first half of it.

Round Bitcoin, we held in inventory, where we protected the downside in case, we got a piece of bad news on that inventory and also we didn't pay anything for it other than giving up upside that was well above the market price sort of where sell either selling at a better price than was in the market.

Rodney Tyler Page: We have an option to build the second half of it. And the way I think of the increasing economics of the business, which is tied to the higher Bitcoin price, it makes it more likely that we could green light the full 300 megawatts as opposed to just the first half of it. That, we do have an option.

It's a buy downside insurance.

Rodney Tyler Page: So I think of it in those terms. And then speaking more broadly about treasury management, let me remind everyone that, in general, it's our goal to build a Bitcoin treasury over time. We need to do that thoughtfully about, you know, different ways we can tap capital. It's been very favorable to build that treasury recently, but in addition to selling some Bitcoin with, you know, regularity to pay our fiat bills, and holding an increasing number of Bitcoin.

We continue to do that as well as look at other ways to think about hedging. We're following the hash rate derivatives market very closely to look at ideas. We've got other known events coming up like.

Having but also things like Theres timelines on the east ETF approval, which may have an impact on this space. It wouldn't surprise me. If we continue to do things like Costless collars of course that also comes down to an analysis of the relative economics, we want to do that when the option map is very favorable and we can keep a lot of upside to protect downside.

Rodney Tyler Page: We also hedge. We did see a noticeable pickup in hedging over the last few months. And that's because we've had these big, sort of known binary events, right? Things like the ETF approval date when everyone was coming into that week.

So it's not just we put this much in this bucket and this much in that bucket it's dynamic.

But listen the rising bitcoin prices certainly very helpful for our Optionality.

Rodney Tyler Page: For example, we put several costless collars around Bitcoin we held in inventory where we protected the downside in case we got a piece of bad news on that inventory. And we didn't pay anything for it other than giving up the upside that was well above the then market price. So sort of we're selling either at a better price than was in the market to buy downside insurance. We continue to do that as well as look at other ways to think about hedging. We're following the hash rate derivatives market very closely to look at ideas. We've got other known events coming up, like the halving, but also things like there are timelines for ETF approval, which may have an impact on the space. It wouldn't surprise me if we continue to do things like costless collars.

Not only on sort of building the full black Pearl, but look when we look at acquisition opportunities. It certainly is nice to have that going up.

Sure Doug.

Great color. Thanks Tyler.

I was just wondering transaction fees have been kind of in the news and I know you mentioned it.

Material was that.

In the quarter on <unk> relative to <unk>.

Overall revenue and.

I was just trying to think about post having transaction fees.

You got any thoughts on that thanks a lot.

Sure. So I think it's a really important thing to keep in mind, if you evaluate investing in a bitcoin miner and again, we sort of have this extraordinary moment in the history of this space, where you have the having upon us which we think is going to expose the less disciplined models in the space.

Youre going to have to have a better nuanced understanding of power going forward and a clean balance sheet, but also with Etfs available I think a lot of the investors in this space historically have been.

Joseph Anthony Vafi: Of course, that also comes down to an analysis of the relative economics. We want to do that when the option map is very favorable, and we can keep a lot of upside to protect downside. So it's not just a, you know, we put this much in this bucket and this much in that bucket; it's dynamic. But listen, the rising Bitcoin price is certainly very helpful for our optionality, not only in sort of building the full black pearl, but when we look at acquisition opportunities, it certainly is nice to have that. Sure. That's a great caller.

Short timeframe investors looked.

Looking to trade bitcoin moves and these were the companies that had balances of bitcoin and obviously there was GBT see out there historically, but now flash forward, you've got Etfs as an option.

And the same investors certainly seem to like micro strategy quite a bit and I think that draws a lot of the eyeballs that we're trading these bitcoin mining companies really for there.

Quaint balance so I think you need to break out the balance from the mining business, because theres sort of options to investors have other options and thats why its so important that in this last quarter, we were profitable without marking the bitcoin held in treasury to market.

Joseph Anthony Vafi: Thanks, Tyler. I was just wondering, transaction fees have been kind of in the news, and I know you mentioned it, but how material was that in the quarter relative to overall revenue? And I'm just trying to think about, you know, post-having transaction fees, if you've got any thoughts on that. Thanks a lot.

From a GAAP basis. It was it's very important I mean that means not only are we a treasury balance where an operating business that is solid and now to get to your question about transaction fees, what's so important and attractive about that non treasury piece of the business. The operating mining business is that.

Rodney Tyler Page: Sure. So I think it's a really important thing to keep in mind if you are considering investing in a Bitcoin miner. And again, we sort of have this extraordinary moment in the history of the space where you have the burden of having upon us, which we think is going to expose the less disciplined models in the space. You're going to have to have a better nuanced understanding of power going forward with a clean balance sheet. But also, you know, with ETFs available, I think a lot of the investors in the space historically have been, you know, short-term investors looking to trade Bitcoin moves. And these were the companies that had balances of Bitcoin, and obviously, there was GBTC out there historically, but now, flash forward, you've got ETFs as an option.

In the fourth quarter, we did see these spikes in transaction fees.

They're not always sustained sometimes there is you know are hot.

<unk> 'twenty token.

Typically from Asian investors, I think sometimes we're trying to figure out like what's driving the fees today.

And we saw periods, we had days, where we more than doubled our coinbase rewards from the transaction fees. So it is a massive potential upside we continue to see developments in the use of block space as being valuable and so I think the thing that's important to remember like why would you buy a bitcoin mining.

Rodney Tyler Page: And those same investors certainly seem to like the micro strategy quite a bit. And I think that attracts a lot of the eyeballs that were trading these Bitcoin mining companies really for their Bitcoin balance. So I think you need to break out the balance from the mining business because there's sort of options for investors who have other options. And that's why it's so important that in this last quarter, we were profitable without marking the Bitcoin held in Treasury to market that from a gap basis, it was, you know, very important.

If theres an ETF out there.

Not only are you buying this this sort of level operationally leveraged.

Operating business, but youre long a call option on transaction fees.

And so if we see those fees spike or theyre more sustainable.

That's extra basically that you get from this business and that has the potential.

Rodney Tyler Page: I mean, that means not only are we a Treasury balance, but we're an operating business that is solid. And now to get to your question about transaction fees. What's so important and attractive about that non-Treasury piece of the business, the operating mining business, is that in the fourth quarter, we did see these spikes in transaction fees. But they're not always sustained.

To spike rapidly, we will see what happens with the spike in demand is generally we continue to see more investors come to this space and demand Spike traditionally that makes transaction fees go up also we've got these other uses for block space that we saw really last quarter.

And then on the magnitude I don't know off the top of my head the magnitude for the whole quarter. What it was in the aggregate, but we definitely had sustained days, where it was 50% to 100% of.

Rodney Tyler Page: Sometimes there's a hot BRC-20 token, typically from Asian investors. I think sometimes we're trying to figure out things like what's driving the fees today. And we saw periods where we had days where we more than doubled our coinbase rewards from the transaction. So there is a massive potential upside. We continue to see developments in the use of block space as being valuable.

The rewards we were getting from the coinbase reward.

Got it.

That's a good color much appreciate it Tyler.

Yep.

Thank you.

And our next question coming from the line of Greg Lewis with <unk>. Your line is now open.

Yes, hi, thank you.

And good morning, and thanks for taking my question.

Rodney Tyler Page: And so I think the thing that's important to remember, like why would you buy a Bitcoin mining company if there's an ETF out there? Not only are you buying this sort of levered, operationally leveraged operating business, but you're long a call option on the transaction. And so if we see those fees spike, or they're more sustainable, that's extra money basically that you get from this business. And that has the potential to spike rapidly. We'll see what happens with the spike in demand. Generally, we continue to see more investors come to the space, and demand spikes. Traditionally, that makes transaction fees go up. Also, we've got these other uses for block space that we saw really last quarter. And on the magnitude, I don't know off the top of my head, the magnitude for the whole quarter, what it was in the aggregate, but we definitely had sustained days where it was 50 to 100% of the rewards we were getting from Coinbase.

Tyler I was hoping for a little bit of an update on our board.

Where the status is.

Getting grid connected to there in any kind of timelines.

It's around what else needs to happen in terms of spending to make that happen.

Sure. Thanks for the question so.

We still think that it is in the near term I think we could see it as soon as the next quarter. The only reason I haven't given a specific date is that it's basically negotiating contracts those contracts are all in motion.

Some of the contracts the types of entities involved to do things like set up a grid connection don't necessarily move as quick as the other.

Contractual negotiations and so that's the only reason we haven't been as specific because I just I can't hard to underwrite that exact timeline that said it's in process. So.

Joseph Anthony Vafi: Got it. Thanks. That's a good color.

My optimistic goal would be in the second quarter and.

Gregory Robert Lewis: Much appreciated, Tyler. Thank you. And our next question comes from the line of Greg Lewis with BTIG, Elenis Elpin. Yeah, hi, thank you. And good morning.

And I think Thats achievable and then I'll remind everyone that we also have technically a 50 megawatt PPA. There. So we would have potential for another 10 megawatts of expansion. It outwards should we choose to do that.

Rodney Tyler Page: And thanks for taking my mic. Um, Tyler, I was hoping for a little bit of an update on Alborz and where the status is of, you know, getting the grid connected there and any kind of timelines and thoughts around, you know, what else needs to happen in terms of spending to make that happen. Sure. Thanks for the question. So, I still think that it is in the near term. I think we could see it as soon as the next quarter.

The grid connection you would think would add.

Roughly 20% or so of uptime to the machines that are already there.

So it would be.

Meaningful it's not going to move the entire shift, but its an excellent way to squeeze more out of what we already have.

Rodney Tyler Page: The only reason I haven't given a specific date is that it's basically negotiating contracts. Those contracts are all in motion. Some of the contracts, the types of entities involved to do things like set up a grid connection don't necessarily move as quickly as other contractual negotiations. And so that's the only reason we haven't been as specific because I just, I can't, it's hard to underwrite that exact timeline.

Okay, Great and then just as we think about that then obviously the electricity costs there.

Probably best in class.

May be that with the with the grid connection made maybe it's sort of trends up somewhere and more in line realizing that electricity pricing.

You mentioned, the PPA, but maybe it looks a little bit more like Odessa, So maybe thinking more.

I guess, what I'm wondering is it the utilization improvement.

Probably far outstrips the.

Yes.

I guess higher marginal cost of electricity is that kind of.

Rodney Tyler Page: That said, it's in the process. So my optimistic goal would be in the second quarter. And I think that's achievable. And then I'll remind everyone that we also have, technically, a 50 megawatt PPA there. So we would have the potential for another 10 megawatts of expansion at Alborz should we choose to do that. The grid connection, you would think, would add roughly 20% or so of uptime to the machines that are already there. So it would be, you know, meaningful; it's not going to move the entire ship, but it's an excellent way to squeeze more out of what we already have. Okay, great.

I mean, I think of it this way right. So power tentative first of all our cheapest power in the portfolio as we show in the deck is that al bores and so it's great when the winds blowing that is the strongest.

The strongest economics, we have.

Obviously, when the wind blows.

That's great when it doesn't blow we're not currently drawing power.

In Texas, obviously, when the wind blows typically the grid market price is also lower so I do think it will be higher than we pay when we're drawing from the grid, but what we will do as we do it all the front of the meter sites, we will manage that sort of curtailment right. So we will avoid the most expensive.

Gregory Robert Lewis: And then just as we think about that, then, obviously, the electricity costs there are probably the best in class, you know, maybe that, with the grid connection, maybe it sort of trends up somewhere more in line, realizing that electricity pricing, you know, you mentioned the PPA, but maybe it looks a little bit more like Odessa. So maybe thinking more in, you know, Yeah, I guess what I'm wondering is, you know, the utilization improvement probably far outstrips the, you know, I guess, higher marginal cost of electricity. Is that kind of... That's right.

Free market hours will increase the utilization and I think of it as you know.

Three quarters of the time, it will be that cheap price at <unk> in one quarter of the time it'll be closer to bear and chief.

Super helpful. Thank you for the time.

Yes.

Thank you.

And our next question coming from the line of Joseph <unk> with Cantor Fitzgerald. Your line is open.

Yeah, Hi, Thanks for taking my question guys.

First of all I know, it's still early stages by love to understand kind of how youre thinking about the pace of capex spending and the rollout of that spending as we head into the Black Pearl Energy Center Division. Thank you.

Sure.

So it's early days and we're still at the point, where we're testing different design decisions at Black per also we're looking at air cooling we're looking at hydro.

Rodney Tyler Page: I mean, I think of it this way, right? So power tends to, first of all, our cheapest power in the portfolio, as we show on the deck, is at Alborz. And so it's great when the wind's blowing. That is the strongest, you know, the strongest economics we have. Obviously, when the wind blows, that's great.

I would say, maybe we havent completely ruled out immersion, but we're not favoring in its more likely to be hydro or air cooled.

As we look at cost projections at that site, it's running in line roughly with Odessa. So Odessa, we came in just above $500000 per megawatt for the non rig infrastructure. We're tracking towards the same thing at black Pearl I'll say, one difference, though at black.

Rodney Tyler Page: When it doesn't blow, we're not currently drawing power. You know, in Texas. Obviously, when the wind blows, the grid market price is also lower. So I do think it will be higher than we pay when we're drawing from the grid. But what we will do, as we do at all the front of the meter sites, we will manage that sort of curtailment, right? So we will avoid the most expensive free market hours, and we will increase utilization. And I think of it as, you know, 3 quarters of the time it will be that cheap price at Alborz, and 1 quarter of the time it will be closer to Barron. Super helpful; thank you for your time.

Technically we're building and owning the substation there for a 300 megawatt site. So if you include that as well that would take the average cost again, it's early we like to build in contingencies et cetera, but we're forecasting 650000 to 700000 per megawatt.

For the non rig infrastructure and then of course should we choose to put all the T 20 ones. There we've got that prices fixed and partially paid already so we've paid.

Joshua Michael Siegler: Yep. Thank you. And our next question comes from the line of Josh Siegler with Cantha Fitzgerald. The line is open.

Rodney Tyler Page: Yeah, hi, thanks for taking my question, guys. First of all, I know it's still early stages, but I'd love to understand kind of how you're thinking about the pace of CapEx spending and, you know, the rollout of that spending as we head into the Black Pearl energization. Thank you.

I think in the course of that process of that Capex.

We've paid 20 something million so far.

Low 20 millions.

And then.

Between the Mark to market, our bitcoin today, we've got about $165 million or so or I should say at the end of February if you look at the numbers that we reported between cash and bitcoin. Thus far March has been a strong month, obviously with bitcoin value. So between the cash on hand, and what we expect to be.

Rodney Tyler Page: Sure, so it's early days, and we're still at the point where we're testing different design decisions at Black Pearl. So we're looking at air cooling, and we're looking at hydro. I would say maybe we haven't completely ruled out immersion, but we're not favoring it.

Rodney Tyler Page: It's more likely to be hydro or air-cooled. You know, as we look at cost projections at that site, it's running in line, roughly, with Odessa. So, Odessa, we came in just above $500,000 per megawatt for the non-rig infrastructure. We're tracking towards the same thing at Black Pearl. I'll say one difference, though, at Black Pearl, technically, we're building and owning the substation there for a 300-megawatt site. So, if you include that as well, that would take – the average cost, again, it's early.

Ongoing operating cash flows were very comfortable certainly with the first half of black Pearl and as we.

Can you to watch the market dynamic.

I'm, hoping that will push forward to try to do the full 300 from day one.

Yeah understood. Thanks, Tyler public color and look.

In your presentation, you broke down your energy cost by site on an all in basis and I think it's very helpful really point the operating leverage inherent in this business I'm curious black Pearl comes online how are you thinking about.

Rodney Tyler Page: We like to build in contingencies, et cetera, but we're forecasting $650,000 to $700,000 per megawatt for the non-rig infrastructure. And then, of course, should we choose to put all the T21s there, we've got the prices fixed and partially paid already. So we've paid, you know, I think in the course of that process of that CapEx, paid 20 something million so far, below 20

Impact on your all in energy cost her bitcoin mine.

Sure.

So let me give some color on how we're thinking about it it's hard to project exactly so black Pearl is a front of the meter site.

But it is.

So what we will do is manage curtailment and we plan to participate in demand response programs in Texas, So things like ancillary services. So to give some color I mentioned, if you were what I'll call up a basic model bitcoin miner that just flips on machines and runs them 100% of the time.

Joshua Michael Siegler: And then, you know, between the fee mark-up to market our Bitcoin today, we've got about 165 million or so, or I should say at the end of February, if you look at the numbers that we reported between cash and Bitcoin, thus far, March has been a strong month, obviously, with Bitcoin values. So between the cash on hand and what we expect to be ongoing operating cash flows, we're very comfortable, certainly with the first half of Black Pearl. And as we continue to watch the market dynamics, you know, I'm hoping that we'll push forward to try to do the full 300 from day one. Yeah, I understand. Thanks, Tyler. That's a helpful color.

The cost in a spot like that in Texas would be something like six cents per kilowatt hour.

Which is not that attractive to us much much higher than the rest of our portfolio. If you then sort of manually operate and trade and curtail.

To basically mirror, what we've traded in curtailment at Odessa, but there we've got it.

Baked into the contract is a fixed price.

So in other words think about we shut off the 5% most expensive times for floating prices in the market, which is basically what we have to do at Odessa that would take that six cent price somewhere down to like the mid <unk>, three three and a half cents.

Joshua Michael Siegler: And look, you know, in your presentation, you broke down your energy costs by size on an all-in basis. And I think it's very helpful, really points to, you know, the operating leverage inherent in this business. I'm curious, you know, as Black Pearl comes online, how are you thinking about, you know, its impact on your all-in energy costs per Bitcoin mine? By the way, so let me give you some color on how we're thinking about it. It's hard to project exactly what they will do.

Something like that if you then sort of make all of the trading decisions around power optimization, so things like participating in the ancillary ancillary services market looking at real time versus day ahead markets thinking about other things like congestion trading and other things we can optimize it.

If you did it perfectly with which we will not but we will aim for we think you could get the price actually on a net basis below two cents per kilowatt hour.

Rodney Tyler Page: So Black Pearl is a front-of-the-meter site. But it is, you know, so what we will do is manage curtailment, and we plan to participate in demand response programs in Texas. So things like ancillary services. So to give some color, I mentioned that if you were what I'll call a basic model Bitcoin miner that just flips on machines and runs them 100% of the time, the cost in a spot like that in Texas would be something like six cents per kilowatt hour, which is not that attractive to us, much, much higher than the rest of our portfolio.

So in reality the way, we will operate a fully scaled up site I.

I would currently forecast to be somewhere between let's call it two and three and a half cents.

On a net basis.

And so depending on how that ends up that's right on top of our portfolio basically.

Yeah understood. Thank you.

Thank you.

One moment for our next question.

And our next question coming from the line of Bill.

About the nestea with Stifel. Your line is open.

Yes, good morning, guys and congrats on the pendant. Thank you for taking my questions I just have one here Tyler.

Rodney Tyler Page: If you then sort of manually operate and trade and curtail to basically mirror what we've traded in curtailment at Odessa, but there we've got it baked into the contract as a fixed price. So in other words, think about it. We shut off the 5% most expensive times for floating prices in the market, which is basically what we have to do at Odessa. That would take that six cent price somewhere down to like the mid-three cents, three and a half cents, something like that.

Hoping you could share your thoughts on how you see the industry evolving over time with respect to consolidation.

If we look at the universe of public of the coin miners.

It's evident that operators, who focus purely on bitcoin mining have achieved arguably superior financial performance and scale.

And a number of these players are building massive data centers.

So what's your take on the appetite to acquire subscale peers is not diminished at all.

Thanks for the question.

I'd say, we look at everything we're always looking for an opportunity.

I think you know.

Often sites are for sale or sellers are distressed for a reason.

Rodney Tyler Page: If you then sort of make all the trading decisions around power optimization, so things like participating in the ancillary services market, looking at real time versus day ahead markets, thinking about other things like congestion trading and other things we can optimize, if you did it perfectly, which we will not, but we will aim for, we think you could get the price, actually, on a net basis, below two cents per kilowatt hour. So in reality, the way we will operate the fully scaled-up site, I would currently forecast it to be somewhere between, let's call it, two and three and a half, on a net basis. And so depending on how that ends up, that's right on top of our portfolio, basically. I understand. Thank you. Thank you.

Sometimes I'd say, most typically we screen things out because we're just not interested in power prices that we don't think are sustainable through a bull and bear cycle.

The competitors the competitive landscape is getting larger and larger scale.

It does make sense that the large scale players are going to do better on a going forward basis, I think being a registered company in the U S gives people great access to capital markets.

To fund expansion and also gives you scale to negotiate.

Lower capex et cetera.

I think there are folks out there that are basically to your point.

Maybe bitcoin mining is not working that well in the shiny new toy is something like AI.

Bill Papanosiup: One moment for our next question, and our next question comes from the line of Bill Papanosiup with Stiefel Yolanisopoulos. Yeah, good morning, guys. And congratulations on the pyramid. Thank you for taking my questions. I just have one here.

We've looked at all kinds of AI proposals, an eyeball that that is not currently on our roadmap. We are much more interested in opportunities to sort of integrate upward into the power industry.

And so we'll continue to look at that but I think going forward to your question.

Rodney Tyler Page: Tyler. I was hoping you could share your thoughts on how you see the industry evolving over time with respect to consolidation. If we look at the universe of public Bitcoin mining, it's evident that operators who focus purely on Bitcoin have achieved arguably secure financial performance and scale, and a number of these players are building massive data centers. So what's your take on the appetite to acquire subscale? Why is that diminished at all?

It is a dynamic I mean bitcoin prices are going up so fast right now who knows what the price is going to be at the having maybe bitcoin price bills. Some of the less efficient guys out, but if you assume we go forward with <unk>.

Very large network cash rate growth in non completely parabolic bitcoin price increases.

Rodney Tyler Page: Thanks for the question. Um, I'd say we look at everything. We're always looking for an opportunity. I think, you know, often sites are for sale or sellers are distressed for a reason.

Think youre going to see.

A dispersion among the miners I think people are going to stop looking at these companies as the same thing and seeing them trading all in line and as I mentioned earlier.

Rodney Tyler Page: Sometimes I'd say typically we screen things out because we're just not interested in power prices that we don't think are sustainable through a bull and bear cycle. The competitors, the competitive landscape is getting larger and larger. It does make sense that the large-scale players are going to do better on a going forward basis. I think being a registered company in the U.S. gives people great access to capital markets to fund expansion and also gives them scale to negotiate lower capex, etc.

Case, we think the ability to have a team a company operations technology that can effectively produce its own cheap power from the free market and the way we interact with the grid, particularly in places like Texas.

It's just going to make us more sustainable so from an M&A perspective, the challenge is.

You know I don't we don't love the hosting business really in either direction around are having with new chipsets coming out.

I think that business is going to be challenged and so we're less interested in general and insights that are for sale that have hosted clients with contracts or maybe have obligations on the power side that they can't necessarily pass through to clients. There are challenges like that sometimes make things for sale.

Rodney Tyler Page: I think there are folks out there that basically, to your point, maybe Bitcoin mining is not working that well, and the shiny new toy is something like AI. We've looked at all kinds of AI proposals and eyeballed them. That is not currently on our roadmap. We are much more interested in opportunities to sort of integrate upward into the power industry. And so we'll continue to look at that, but I think I will go forward to your question. It's dynamic.

Overall, I think the differentiator for US is are there companies that look at safer and say Wow. Those are the best in class unit economics, and they have large scale and expansion and a clean balance sheet. So we'd love to effectively aggregate with them to become a very large player I think that could be something.

Rodney Tyler Page: I mean, Bitcoin prices are going up so fast right now. Who knows what the price is going to be at the halving? Maybe Bitcoin's price bails some of the less efficient guys out. But if you assume we go forward with very large network hash rate growth and non-completely parabolic Bitcoin price increases. I think you're going to see a dispersion among the miners. I think people are going to stop looking at these companies as the same thing and see them trading all in line. And as I mentioned earlier, in our case, we think the ability to have a team, a company, and operations technology that can effectively produce its own cheap power from the free market in the way we interact with the grid, particularly in places like Texas, that's just going to make us more sustainable.

That becomes interesting to us there is an interesting valuation gap in our opinion between us and some of the biggest miners, where we think we're running a better company frankly.

So if there are opportunities that we think are very good price and very accretive to shareholders. We're certainly looking.

Great.

That's amazing color I think through the strategy makes sense just given their superior unit economics.

The lowest cost producer for commodity swarms.

All the questions I have.

Thank you and.

Ladies and gentlemen, as we are nearing the end of the call. We ask you. Please limit yourself to only one question.

Next question coming from the line of Joe Flynn with Compass point Your line is open.

Hi, guys. Most of my questions were asked but.

And maybe just ask about one thing that was brought up earlier.

Yeah.

Rodney Tyler Page: So from an M&A perspective, the challenge is, you know, I don't, we don't love the hosting business really in either direction around new chipsets coming out. I think that business is going to be challenged. And so we're less interested in general and in sites that are for sale that have hosted clients with contracts or maybe have obligations on the power side that they can't necessarily pass through to clients.

At some point.

Fix year PPA.

Like.

It's I think it's a five year deal.

But can you walk us through maybe the process of renegotiating that.

Clearly demonstrated that.

Okay.

Best in class economics.

Ultimately the risk there.

And.

Regarding that.

Those kind of deals still out there for <unk>.

Hi.

Newer miners that have demonstrated a track record yet.

Thanks.

So thanks for the question I think from our perspective part of the reason that contract was set up as fixed price is the market was a little bit cheap on a forward basis, and we could lock those prices over five years and so we chose to do that as you mentioned, we've got three and a half this year.

Rodney Tyler Page: There are challenges like that that sometimes make things for sale. You know, overall, I think the differentiator for us is whether there are companies that look at Cipher and say, wow, those are the best in class unit economics, and they have large scale and expansion and a clean balance sheet. So we'd love to effectively aggregate with them to become a very large player. I think that could be something that becomes interesting to us.

Or is left on that contract we're in constant negotiations and it's sort of.

It is a symbiotic relationship with our power provider there because there.

Given us curtailment notices were managing curtailment, we provide a lot of data.

We work we're in constant contact with them, so listen even with that amazingly cheap price over the life of that contract, we're going to pay something like a quarter billion dollars to our power provider. So I think theres every commercial incentive for us to keep working we are co located with their datacenter and warrant cost.

Rodney Tyler Page: There is an interesting valuation gap, in our opinion, between us and some of the biggest miners where we think we're running a better company, frankly. And so if there are opportunities that we think are very good prices and very accretive to shareholders, we're certainly looking. Great. That's, that's, that's an amazing color.

Current negotiations about.

Things that happen beyond that five years, but also expansion opportunities other opportunities potentially at sites with them and other places et cetera. So I'm optimistic that over time will extend or alternatively, if if there are amazing sites down the street, we certainly have that capability now with four larger <unk>.

Bill Papanosiup: I think I think the strategy makes sense, just given your superior unit economics. No, the lowest cost producer of a commodity, all of these. That's all the questions I have. Thank you. And ladies and gentlemen, as we are nearing the end of the call, we ask that you please limit yourself to only one question. And the next question comes from the line of Joe Flynn with Compass Point. Your line is open. Uh, hi guys, most of my questions were asked... or maybe just ask, is the one thing that was brought up earlier. At some point, you know... 5, there. Subs by www.zeoranger.co.uk. So thanks for the question.

Data centers in Texas, and hopefully more in the pipeline as they come available.

We'll find whatever the best outcome is for shareholders, but we've got a few years I think.

You asked if those opportunities are available to new miners I would say they weren't even available to old miners.

Rodney Tyler Page: I think, you know, from our perspective, part of the reason that the contract was set up as fixed prices was that the market was a little bit cheap on a forward basis, and we could lock those prices for five years. And so we chose to do that. As you mentioned, we've got three and a half-ish years left on that contract. We're in constant negotiations, and it's sort of a symbiotic relationship with our power provider there because they're giving us curtailment notices, we're managing curtailment, we provide a lot of data, we're in constant contact with them. So listen, even with that amazingly cheap price, over the life of that contract, we're going to pay something like a quarter billion dollars to our power provider. So I think there's every commercial incentive for us to keep working.

Because like that that counterparty for example gave anecdotes about how lots of miners had knocked on their door for an opportunity and you know from a counterparty perspective, we showed very professionally we could post double digit million dollars of collateral to support the contract et cetera. So I think it's hard to go through the counterparty analysis.

Even if you have built space.

Right now as far as doing new deals like that I mentioned, the economics that we can effectively replicate from how we curtail at Odessa to take our front of the meter floating price site and more or less through the tech ops and trading stack, we've built manufacturer our own results from the flu.

Rodney Tyler Page: We are co-located with their data center, and we're in constant negotiations about things that happen beyond that five years, but also expansion opportunities, other opportunities potentially at sites with them and other places, et cetera. So I'm optimistic that over time we'll extend, or alternatively, if there are amazing sites down the street, we certainly have that capability. Now with four larger data centers in Texas and hopefully more in the pipeline as they become available, we'll find whatever the best outcome is for shareholders, but we've got a few years. I think, you know, you asked if those opportunities were available to new miners. I would say they weren't even available to old miners because, like that counterparty, for example, gave anecdotes about how lots of miners had knocked on their door for an opportunity.

<unk> price.

I think that means that right now floating price is more attractive than what we've seen for market hedges, which is why right now we haven't been doing as many fixed price deals.

That will change over the course of years cycles happen. So right now I think the best way to do it is to try to manage curtailment manually and participate in those demand response programs, whether you or us or anyone else I think the difference is we've invested years and a lot of money in a team of tech stack in in operations.

Hum.

Set of procedures and people that can manually operate and take advantage of produce those economics I think it's very hard to do at smaller scale or with a different team.

Thank you.

And then last question in queue coming from the line of.

Rodney Tyler Page: And, you know, from a counterparty perspective, we showed very professionally that we could post, you know, double digit millions of dollars of collateral to support the contract, et cetera. So I think it's hard to go through the counterparty analysis, even if you have built a space. Right now, as far as doing new deals like that, I mentioned the economics that we can effectively replicate from how we curtail at Odessa to take a front-of-the-meter floating price site and, more or less, through the tech ops and trading stack we've built, manufacture our own results from the floating price. I think that means that right now, floating prices are more attractive than what we've seen for market hedges, which is why right now, we haven't been doing as many fixed price deals.

Mike I'll Miss it with H C. Wainwright your line is now open.

Hi, Good morning, guys, great quarter and thank you for taking my question. This morning, I'm curious to what price range, you would consider on a cost per megawatt basis to acquire infrastructure as you evaluate some of these M&A opportunities out there.

Thanks, Mike.

I'd say, it's dynamic like everything else right I mean, the bitcoin prices going up enthusiasm is going up.

I don't think anyone's ever going to get the price we got for Black Pearl we paid $7 million for a 300 megawatt ERCOT.

ERCOT approved site. So now it's not built but but having the sort of approval and capacity to go to 300 megawatts.

<unk> price and far far less than I've seen anyone achieve.

Rodney Tyler Page: That will change over the course of years; cycles happen. So right now, I think the best way to do it is to try to manage curtailment manually and participate in those demand response programs, whether you're us or anyone else. I think the difference is we've invested years and a lot of money in a team, a tech stack, an operations set of procedures, and people that can manually operate and take advantage of produce those economics. I think that's very hard to do at a smaller scale or with different.

I think it's dynamic it's really safe by say it depends on what youre buying what the power contract is what are the opportunities to do things like manage your curtailment and be paid for that so that you can sort of again manufacture your own cheaper prices.

And then if there's hardware there what's the state of the hardware and we're doing diligence on some sites.

Some sites the hardware is pristine it at other places, it's not and so coming up with a secondary market value for things like if there are rigs there substations transformers et cetera is it a building containerized et cetera. So I'd say every situation is a little bit different but where we always start as you know.

Rodney Tyler Page: Thank you. Now, the last question in queue coming from the line out. Michael Colonnese with HC1 Regulon is open.

Michael Anthony Colonnese: Hi, good morning, guys. Great quarter. And thank you for taking my question this morning. I'm curious about what price range you'd consider on a cost per megawatt basis to acquire infrastructure as you evaluate some of these M&A opportunities out there. Thanks. Thanks, Mike.

We typically look for a minimum of scale, we screen out things most often below 50 megawatts unless there's a compelling reason to look at them next thing. We look at is the power how sustainable is the power what are the risks that the power could change or there whats the regime like et cetera.

And then beyond that it's kind of a market price evaluation of what equipment might be there. So it's hard to give a stock answer to that other other than.

Rodney Tyler Page: I'd say it's dynamic, like everything else, right? I mean, the Bitcoin price is going up, and enthusiasm is going up. I don't think anyone's ever going to get the price we got for Black Pearl. You know, we paid $7 million for a 300 megawatt ERCOT-approved site. So now it's not built, but having the sort of approval and capacity to go to 300 megawatts is an amazing price and far, far less than I've seen anyone else. I think it's dynamic. It's really site by site. It depends on what you're buying, what the power contract is, and what are the opportunities to do things like manage your curtailment and be paid for that so that you can sort of, again, manufacture your own cheaper prices.

Basically anything we do with capital at the company starts with a return on investment calculation.

And thats, whether we're buying rigs buying power or buying a site and so all I can say is we will remain very disciplined and try to make investments that we think are going to have a fantastic return for shareholders.

Thank you and that's all the time, we have our Q&A session I will now turn the call back over to Mr. <unk> for any closing remarks.

Well look thank you very much to everyone that participated on the call. We are really excited we have been thinking about.

Having for years, when we built this business and even this earnings call getting excited.

To talk about where we would be positioned going into this really transits transformational peer.

Rodney Tyler Page: And then if there's hardware there, you know, what's the state of the hardware? Again, we're doing diligence on some sites. Some sites, the hardware is pristine; at other places, it's not. And so coming up with a secondary market value for things like if there are rigs there, substations, transformers, etc., is it a containerized building, etc. So I'd say every situation is a little bit different.

Period in this space. So thank you for your time and we're very excited to give you further updates in the coming months.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

Okay.

[music].

Yeah.

Okay.

Rodney Tyler Page: But where we always start is, you know, we typically look for a minimum of scale; we screen out things most often below 50 megawatts unless there's a compelling reason to look at them. The next thing we look at is the power, you know, how sustainable is the power? What are the risks that the power could change?

[music].

Okay.

[music].

Rodney Tyler Page: Or they're, you know, what the regime is like, etc. And then, beyond that, it's kind of a market price evaluation of what equipment might be there. So it's hard to give a stock answer to that other than basically anything we do with capital at the company starts with a return on investment calculation. And that's whether we're buying rigs, buying power, or buying a site. And so all I can say is that we will remain very disciplined and try to make investments that we think are going to have a fantastic return for shareholders. Thank you. And that's all the time we have for our Q&A session.

So.

[music].

Yeah.

[music].

Okay.

[music].

Okay.

Hmm.

Rodney Tyler Page: I will now turn the call back over to Mr. Tyler Page for any closing remarks. Well, look, thank you very much to everyone that participated in the call. We are really excited. We have been thinking about it for years when we built this business and even on this earnings call, getting excited to talk about where we would be positioned going into this really transformational period in the space. So thank you for your time, and we're very excited to give you further updates in the coming months. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. For more information, visit www.fema.gov.

Okay.

[music].

Yeah.

[music].

No.

[music].