Q2 2024 Cipher Mining Inc Earnings Call

[music].

Operator: Good day, and welcome to the Cipher Mining 2nd Quarter Business Update Conference Call. At this time, all participants are in listen-only mode.

Good day and welcome to the site for mining second quarter business update conference call. At this time, all participants are in listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Joshua Kane, Head of Investor Relations. Please go ahead.

After the Speakers' presentation there'll be a question and answer session instructions will be given at that time.

As a reminder, this call maybe recorded.

To turn the call over to Joshua Kane head of Investor Relations. Please go ahead.

Joshua Kane: Good morning, and thank you for joining us on this conference called to discuss Cipher Mining's Second Corps, 2024 Business Update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Edward 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. And, this conference call is the property of Cipher Mining, and any caping or other reproduction is expressly prohibited without prior consent.

Joshua Kane: Good morning, and thank you for joining us on this conference call to discuss cycle mining second quarter 2020 for business update.

Speaker Change: Joining me on the call today are Charlie page, Chief Executive Officer, with Carroll Chief Financial Officer.

Speaker Change: 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.

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

Speaker Change: This conference call at the property of cycle 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. 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.

Speaker Change: 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.

Speaker Change: 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 FICO assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law. Additionally.

Joshua Kane: Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the most directly comparable GAAP measures, and you are encouraged to examine those reconciliations, which were filed at the end of our earnings release issued earlier this morning. I will now turn the call over to Tyler Page.

Speaker Change: 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, who reconciles non-GAAP measures to the most directly comparable GAAP measures and you are encouraged to examine those reconciliations which are filed at the end of our earnings release issued earlier this week.

Tyler Page: Thanks, Josh. Hello, this is Tyler Page, CEO of Cipher. Thank you very much for joining our second quarter 2024 business. Let me begin the call with a few key metrics for Cipher as of the end of July.

Speaker Change: I will now turn the call over entitled Page Tyler.

Tyler Page: The upcoming growth of our business is the major theme of the call [inaudible] And Cipher's growth and expansion continued throughout the second half of the 20th century. We've now grown to 8.7 ex a hash per second of self-mining capacity, with a current fleet efficiency of 27.8 joules per terrah hash. As we look to the rest of 2024, we plan a significant upgrade of mining rigs at our largest data center at Odessa that will bring our self-mining capacity to 13.5 exahash per second, and improve our fleet-wide efficiency to 18.6 joules per terahash by year-end. Those upgraded rigs are scheduled to ship in the third quarter, and we will install them as they arrive because the site is already prepared to take them.

Speaker Change: Thanks, Josh Hello. This is Tyler page CEO of site for mining. Thank you very much for joining our second quarter 2024 business update call.

Tyler Page: Our growth is then expected to accelerate considerably in 2025 with the addition of our new 300 megawatt Black Pearl data center reaching completion. We expect that the data center will expand our self-mining capacity to 35 exa-hash per second, and improve our fleet-wide efficiency to 15.3 joules per terahash. Cipher has continued to build its Bitcoin inventory, and as of the end of July, held 2,270 Bitcoins.

Tyler Page: Let me begin the call with a few key metrics for safer as of the end of July 2024.

Tyler Page: The upcoming growth of our business as the major theme of the call today and Cypress growth and expansion continued throughout the second quarter.

Tyler Page: We've now grown to $8 seven exit has per second a self mining capacity with our current fleet efficiency of 27, eight Jules Portera hash.

Tyler Page: As we look to the rest of 2024, we plan a significant upgrade of mining rigs at our largest data center at Odessa that will bring our self mining capacity to 13, five <unk> per second.

Tyler Page: And to prove our fleetwide efficiency to 18, six joules per Terra hashed by year end.

Tyler Page: Those upgraded rigs are scheduled to ship in the third quarter, and we will install them as they arrived because the site is already prepared to take them.

Tyler Page: Our growth is then expected to accelerate considerably in 2025 with the addition of our new 300 megawatt black Pearl datacenter, reaching completion.

We expect that the data center will expand our self mining capacity to 35 exit hash per second and improve our fleet wide efficiency to 15, three jewels portera hash.

Tyler Page: Safer has continued to build its bitcoin inventory and as of the end of July <unk> 2270 Bitcoin.

Tyler Page: And as a reminder for those that are newer to the story, Cipher is probably best known in the industry for its very competitive all-in weighted average power price of 2.7 cents per kilowatt hour. Electricity represents the large majority of our operating costs. And our low price is a key driver of our best-in-class unit. I mentioned that our focus would largely be on Cipher's upcoming growth, and today, I am very excited to provide early details of the extensive work we have been doing to build our pipeline of attractive new data center sites for future development.

Speaker Change: And as a reminder for those that are newer to the story safer is probably best known in the industry for its very competitive all in weighted average power price of $2.07 per kilowatt hour.

Speaker Change: Electricity represents the large majority of our operating costs and our low price as a key driver of our best in class unit economics.

Speaker Change: I mentioned that our focus will largely be on Cyprus upcoming growth and today I am very excited to provide early details of the extensive work we have been doing to build our pipeline of attractive new data center sites for future development.

Speaker Change: We have consistently said that owning our own infrastructure is vital to our success.

Speaker Change: <unk> has always sourced owned and operated its own data centers.

Tyler Page: Historically, we have acquired sites that have already received interconnection. But we recently expanded our scope and signed a letter of intent for an option to acquire three new sites in North America that are adjacent to transmission assets and in the final stages of approval for interconnection with a 500 megawatt targeted capacity per. By getting involved earlier in the development timeline, we can avoid broader bidding competitions and source valuable sites that most of our competitors cannot, while improving the long-term visibility for our supply chain and construction.

Speaker Change: Historically, we have acquired sites that have already received interconnection approvals, but we recently expanded our scope and signed a letter of intent for an option to acquire three new sites in North America that are adjacent to transmission assets and in the final stages of approval for interconnection with a 500 megawatt targeted capacity.

Per site.

Speaker Change: By getting involved earlier in the development timeline, we can avoid broader bidding competitions and source of valuable sites that most of our competitors cannot while improving the long term visibility for our supply chain and construction functions.

Tyler Page: Our ultimate purchase price for the sites under our agreement will be very attractive, based on the number of megawatts approved for inter- limiting our downside. In addition to this purchase option, we are moving forward with a front-of-the-meter site in Texas called Revali, that has already been approved for 70 MW, and we believe can be expanded to 200 MW by the [inaudible] So, for future development after Black Pearl, we now have a potential pipeline of up to 1.7 gigawatts of capacity across four new sites.

Speaker Change: Our ultimate purchase price for the sites under our agreement will be very attractive and based on the number of megawatts approved for interconnection limiting our downside risk.

Speaker Change: In addition to this purchase option, we are moving forward with a front of the meter site in Texas called the Reveille that has already been approved for 70 megawatts and we believe can be expanded to 200 megawatts by the time it energizes in Q1 2027.

Speaker Change: So for future development after black Pearl we now have a potential pipeline of up to one seven gigawatts of capacity across four new sites.

Tyler Page: Notably, all of these future data center sites sit at the center of the major trends we see impacting the data center space in the coming years, continued adoption of the Bitcoin network and related value of Bitcoin mining as a flexible load, as well as the meteoric growth of AI-related HPC data. We believe large-scale interconnections that can be used in a variety of ways will become more valuable over time.

Notably all of these future data center sites sit at the center of the major trends, we see impacting the datacenter space in the coming years.

Speaker Change: The continued adoption of the bitcoin network and related value of Bitcoin mining is a flexible load as well as the meteoric growth of AI related <unk> data centers.

Speaker Change: We believe large scale interconnections that can be used in a variety of ways will become more valuable over time.

Tyler Page: The four sites we intend to develop all have the necessary characteristics for development of HPC data centers, but also sit in locations with demand response programs that would allow us to monetize the flexibility of curtailment used in Bitcoin mining operations. With these sites, we have a lot of optionality, which is exactly where we like to be positioned in front of trends with the potential for massive growth. In connection with the updates on our pipeline of new sites, I am also pleased to announce the launch of our HPC infrastructure business.

Speaker Change: The four sites, we intend to develop all have the necessary characteristics for development of HBC Datacenters, but also sit in locations with demand response programs that would allow us to monetize the flexibility of curtailment used in bitcoin mining operations.

Speaker Change: With these sites, we have a lot of Optionality, which is exactly where we like to be positioned in front of trends with the potential for massive growth.

Speaker Change: In connection with the updates on our pipeline of new sites I am also pleased to announce the launch of our HPE infrastructure business.

Tyler Page: Given the requirements for success in the HPC infrastructure business and the relative strengths of Cipher Mining, we believe we will be a market leader in this space. In recent months, we have devoted considerable focus to the evolving HPC data center marketplace and have identified three specific advantages we have over competitors. A successful provider of HPC infrastructure needs to have access to the right data center sites and experienced construction and operations, and the capital to finance the necessary building. Cipher is well positioned in all three areas.

Speaker Change: Given the requirements for success in the HTC infrastructure business and the relative strengths of safer mining. We believe we will be a market leader in this space.

Speaker Change: In recent months, we have devoted considerable focus to the evolving HTC datacenter marketplace and have identified three specific advantages we have over competitors.

Speaker Change: Our successful provider of HBC infrastructure needs to have access to the right data center sites and experienced construction and operations team and the capital to finance the necessary build out.

Speaker Change: <unk> is well positioned in all three areas.

Tyler Page: Our pipeline sites all have access to adequate land and fiber necessary to service HPC customers. The existing construction and operations team at Cipher has extensive experience building and operating Tier 3 data centers at firms like Google, Vantage, and Meta. As an example of the team's excellence being recognized, the Uptime Institute recently awarded our Odessa Data Center the Management and Operations Stamp of Approval. The Uptime Institute sets industry standards in the data center industry and has historically focused exclusively on traditional data centers.

Our pipeline sites, all have access to adequate land in fiber necessary to service HBC customers.

Speaker Change: The existing construction and operations team at safer has extensive experience building and operating tier three data centers at firms like Google Vantage and meta.

Speaker Change: As an example of the team's excellence being recognized the Uptime Institute recently awarded our adjusted data Center, the management and operation stamp of approval.

Speaker Change: The Uptime Institute sets industry standards in the data center industry and has historically focused exclusively on traditional data centers. This is their first instance of branching out to the bitcoin mining industry.

Tyler Page: This is their first instance of branching out to the Bitcoin Mining Inn. Our team literally sets the standard for operational excellence in our industry. When it comes to financing expansion, our management team has deep wall street experience with a proven track record of raising cap, Over the last few months, we have been inundated with requests from HPC lenders and investors managing billions of dollars dedicated to... Asking for information about our data center sites, our development pipeline, and our level of interest in being a provider of HPC information.

Speaker Change: Our team literally sets the standard for operational excellence in our industry.

Speaker Change: When it comes to financing expansion our management team has deep wall Street experience with a proven track record of raising capital.

Speaker Change: Over the last few months, we have been inundated with requests from HTC lenders and investors managing billions of dollars dedicated to the space asking for information about our data center sites, our development pipeline and our level of interest in being a provider of HBC infrastructure.

Tyler Page: We have also had deep technical discussions with potential tenants and we are confident in our ability to build powered shells that will be very attractive to hyperscalers and other large tenants [inaudible] Given our site portfolio, our unique strengths in construction and operations, and the level of investment capital available, We are excited to embark on a new major line of business for the company. We are also still very excited about Bitcoin mining and the potential for managing the associated, While it is too early to predict the exact mix of our business lines over time, Bitcoin mining and HPC infrastructure are complementary lines of business with different risk and payoff profiles, and even have the potential to converge. We think Cipher is uniquely positioned to be best in class in both verticals.

Speaker Change: We have also had deep technical discussions with potential tenants and we are confident in our ability to build powered shells that will be very attractive to hyper scaler and other large tenants.

Speaker Change: Given our site portfolio, our unique strengths and construction and operations and the level of investment capital available. We are excited to embark on a new major line of business for the company.

Speaker Change: We are also still very excited about bitcoin mining and the potential for managing the associated curtailment.

Speaker Change: While it is too early to predict the exact mix of our business lines over time, bitcoin mining and HBC infrastructure are complementary lines of business with different risk and pay off profiles and even have the potential to converge.

Speaker Change: We think cipher is uniquely positioned to be best in class in both verticals and our strategy will be guided by our intent to maximize shareholder value over time as we develop our future datacenters.

Tyler Page: And our strategy will be guided by our intent to maximize shareholder value over time as we develop our. Now let's turn to the next data centers we are building. Slides 6 and 7 show a rendering of the completed data center at Black Pearl and photos from the current site work. We are scheduled to energize the site in the second quarter of 2020. Our O&M building is taking shape at the site, and steel erection, concrete foundations, and underground electrical work is progressing on schedule.

Speaker Change: Now, let's turn to the next data centers, we are building.

Speaker Change: Slide six and seven show a rendering of the completed data center at Black Pearl and photos from the current site work.

Speaker Change: We are scheduled to energize the site in the second quarter of 2025.

Speaker Change: Our O&M building is taking shape at the site and steel erection concrete foundations and underground electrical work is progressing on schedule.

Tyler Page: Our design envisions 250 megawatts of air-cooled and 50 megawatts of liquid-cooled Bitcoin mining. We have had hyperscalers inquire about our willingness to repurpose a portion of the data center for HPC infrastructure. And while we haven't completely ruled it out, our current intent is to dedicate the full 300 megawatts to Bitcoin mining. At full capacity, the site is anticipated to produce roughly 21.5 exahash per second of hash. Slide 8 shows an overview of the Reveille data center. This site is located in Cthulhu, Texas, in Load Zone South, which is a different area of ERCOT from Odessa and Black Pearl, which are located in Load Zone West.

Speaker Change: Our design envisions 250 megawatts of air cooled and 50 megawatts of liquid cooled bitcoin mining.

Speaker Change: We have had hyperscale or inquire about our willingness to repurpose a portion of the data center for HBC infrastructure and while we haven't completely ruled it out.

Speaker Change: Current intent is to dedicate the full 300 megawatts to bitcoin mining.

Speaker Change: At full capacity the site is anticipated to produce roughly 21, five <unk> per second of hash rate.

Speaker Change: Slide eight shows an overview of the <unk> data Center site.

Speaker Change: The site is located in Cotulla, Texas in load zone itself, which is a different area of ERCOT from Odessa, and Black Pearl which are located in load zone west.

Tyler Page: It has been approved for 70 megawatts, but based on early discussions with the transmission and distribution service provider, we believe we can expand the site to 200 megawatts in 2020. Given that the timeline to energize this site aligns with the necessary timeline to manage the supply chain and build a Tier 3 data, We have focused our initial planning and discussions for Reveley on HPC infrastructure. It is still too early to determine the exact plan for the site, but we have had a high level of interest from capital providers and potential tenants, and our baseline plan now is to proceed with building a powered shell data center for HBC and securing a long-term lease from a high-quality, Now let's move to a review of our current operation.

Speaker Change: It has been approved for 70 megawatts, but based on early discussions with the transmission and distribution service provider. We believe we can expand the sites 200 megawatts in 2027.

Speaker Change: Given that the timeline to energize this site aligns with the necessary timeline to manage the supply chain and build a tier three data center, we have focused our initial planning and discussions for readily on HPE infrastructure.

Speaker Change: It is still too early to determine the exact plan for the site, but we have had a high level of interest from capital providers and potential tenants and our baseline plan. Now is to proceed with building a powered shell data center for HBC and securing a long term lease from a high quality tenant.

Tyler Page: On slide 10, we give a portfolio overview of our existing data centers and a near-term timeline for expected scaling of our data centers and expansion in our self-mining hashrate. Year-to-date, we paid an average all-in electricity cost of $15,004 per bitcoin produced at our data center.

Speaker Change: Now, let's move to a review of our current operations.

Speaker Change: On slide 10, we give a portfolio overview of our existing data centers and our near term timeline for expected scaling of our data centers and expansion in our self mining hash rate.

Speaker Change: Year to date, we paid an average all in electricity cost of $15004 per bitcoin produced at our data centers. We are very proud of this number and it drives our best in class unit economics.

Tyler Page: 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, they only include electricity and not transmission and other charges. In contrast, when we talk about all in electricity costs, we mean the total cost to deliver electricity to our mining rigs. So our numbers include all transmission and other charges, and our low numbers dramatically demonstrate our competitive advantage.

Speaker Change: Please note that when some of our competitors talk about these costs. They only include electricity and not transmission and other charges.

Speaker Change: In contrast, when we talk about all in electricity cost, we mean, the total cost to deliver electricity to our mining rigs. So our numbers include all transmission and other charges and our low numbers dramatically demonstrate our competitive advantage.

Tyler Page: On the left side of this slide, you have an overview of our four current data centers, along with our all-in electricity cost per Bitcoin for the site year-to-date. The charts on the right side of the slide give you a graphic illustration of the number of megawatts we manage related to our self-mining operations and the hash rate produced by those operations, as well as the additional growth opportunities in the coming year and a half. As you can see, we expect to manage 566 megawatts of self-mining across our five data centers in 2025.

Speaker Change: On the left side of this slide you have an overview of our four current data centers along with our all in electricity cost per bitcoin at the sites year to date.

The charts on the right side of this slide gives you a graphic illustration of the number of megawatts, we manage related to our self mining operations.

Speaker Change: The highest rate produced by those operations as well as the additional growth opportunities in the coming year and a half.

Speaker Change: As you can see we expect to manage 566 megawatts of self mining across our five data centers in 2025.

Speaker Change: And we expect those datacenters to produce 35 <unk> per second of hash rate.

Tyler Page: And we expect those data centers to produce 35 ExaHash per second of hash rate. At this point, we will turn to production by, On slide 11, you can see a picture of our Odessa facility. Odessa is the most significant part of our portfolio as it represents approximately 86% of our Bitcoin production in July. Recently, Odessa became the first Bitcoin mining data center to be awarded the Uptime Institute stamp of approval for management and operation.

Speaker Change: At this point, we will turn to production by site.

Speaker Change: On Slide 11, you can see a picture of our Odessa facility.

Speaker Change: Yes. It is the most significant part of our portfolio as it represents approximately 86% of our bitcoin production in July.

Speaker Change: Recently Odessa became the first bitcoin mining data center to be awarded the Uptime Institute stamp of approval for management and operations.

Tyler Page: Odessa is a wholly owned facility with a five-year fixed-priced power purchase agreement and some of the lowest cost power in the industry. We currently generate approximately 6.9 exahash per second at the site, utilizing approximately 207 megawatts.

Speaker Change: Oh definitely is a wholly owned facility with a five year fixed price power purchase agreement and some of the lowest cost power in the industry.

Speaker Change: We currently generate approximately $6 nine <unk> per second at the site utilizing approximately 207 megawatts.

Tyler Page: Those same 207 megawatts will generate roughly 11.3 exahash per second with the pending rig upgrade expected in the coming months. We have mined roughly 1,622 Bitcoin at the site year to date through the end of July. On this page, we also provide the observed all-in electricity cost per bitcoin at the site post-halving, which was $23,563.

Speaker Change: Those same 207 megawatts will generate roughly 11, three <unk> per second with the pending rig upgrade expected in the coming months.

Speaker Change: We have mined roughly 1622, bitcoin epicyte year to date through the end of July.

Speaker Change: On this page we also provide the observed all in electricity cost per bit coin at the site post having.

Speaker Change: Which was $23563.

Tyler Page: Even after the recent having reduced the number of new Bitcoin paid deminers, you can see how valuable it is for Cipher to have a cheap, fixed price of power available on such a large portion of our... On Slide 12, we highlight our joint venture data centers of the Alborer Spare and Chiefs. With the recent expansions, at each of Bear and Chief, the sites now have a total power capacity of 120 megawatts, and currently generate approximately 3.7 exahash per second.

Speaker Change: Even after the recent having reduced the number of new bitcoin paid to minors you can see how valuable it is for <unk> to have a cheap fixed price of power available on such a large portion of our portfolio.

Speaker Change: On slide 12, we highlight our joint venture data centers of Alberta, spare and chief with the recent expansions at each of Barron Chief the sites now have a total power capacity of 120 megawatts and currently generate approximately $3 seven <unk> per second.

Tyler Page: We own 49% of the JV sites, and they now generate roughly 14% of our overall Bitcoin production. On this page, we also provide the observed all-in electricity costs per bitcoin at the sites post-having, which was $28,784. As a reminder, both Bear and Chief operate as front-of-the-meters.

Speaker Change: We owned 49% of the JV sites and they now generate roughly 14% of our overall decline in production.

Speaker Change: On this page we also provide the observed all in electricity cost per bit coin at the sites post, having which was $28784.

Operator: Good day, and welcome to the Cipher Mining Second Quarter Business Update Conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there'll be a question and an intercession, and struck until we're given at that time. As a reminder, this call may be recorded.

Speaker Change: As a reminder, both bear and chief operate as front of the meter sites. So there will be some expected seasonal fluctuations with their electricity costs and summer months tend to be higher.

Tyler Page: So there will be some expected seasonal fluctuations in their electricity costs, and summer months tend to be higher. As we turn toward the rest of 2024, we look forward to continued growth in both our Bitcoin mining business and our new HPC infrastructure vertical. And at this point, I'll turn it over to our Chief Financial Officer, Ed Zurn. Thank you, Tyler, and hello to everyone on the call.

Speaker Change: As we turn toward the rest of 2024, we look forward to our continued growth in both our bitcoin mining business and our new HTC infrastructure vertical and at this point I will turn it over to our Chief Financial Officer, Ed Journal.

Joshua Kane: I would like to turn the call over to Joshua Kane, Head of Investor Relations. Please go ahead. Good morning, and thank you for joining us on this conference call to discuss Cipher Mining Second Quarter 2024 Business Update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Edward 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.

Joshua Kane: Please note that this call will also be simultaneously webcast on the Investor Relations section of the company's website. And this conference call is the property of Cipher Mining and any caping or other root production is expressly prohibited without prior consent.

Ed Journal: Thank you Tyler and Hello to everyone on the call.

Edward Farrell: As I've done on previous calls, I'd like to start by providing some high-level observations on the quarter, and then we'll go through the key line items in detail. For anyone tracking Bitcoin in the miners, it should come as no surprise that revenues are down in the first full quarter after having... From the outset, Tyler and I have emphasized designing a business that we can thrive through the entire cycle. Despite the anticipated drop in revenues, we are very encouraged by the business performance and the company's gross profile as we move past the recent habits.

Ed Journal: As I've done on previous calls I'd like to start by providing some high level observations on the quarter and then we'll go through the key line items in detail.

For anyone tracking bitcoin in the minors it should come as no surprise that revenues are down in the first full quarter after having.

From the outset, Tyler and I have emphasized designing a business that we can drive through the entire cycle.

Ed Journal: Spite the anticipated drop in revenues, we are very encouraged by the business performance and the company's growth profile as we move past the recent having.

Joshua Kane: Before we start, I'd like to remind you that the following discussion, as well as our press release and presentation, contained 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. Forward-looking statements in risk in this conference call, including responses to your questions, are based on current expectations as of today. Cipher seems no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law.

Edward Farrell: Low-cost fixed price power and a strong balance sheet remain key strengths of our financial, Slides 14 and 15 give a snapshot which we provide every quarter on some of our financial metrics on both the sequential and year-over-year basis. Let's move on to slide 16 and delve into the numbers in more detail. In the second quarter, we face significant industry-wide headwinds, including a drop in revenues driven by the halving, as well as a drop of more than 50% in hash price over the course of the quarter. For the quarter, we had a gap, net loss of $15 million, a sequential decrease of 138%, and a 16% decrease from the prior quarter when we reported the net loss of $13 million.

Ed Journal: Low cost fixed priced power and a strong balance sheet remains key strengths of our financial position.

Ed Journal: Slides 14, and 15 give a snapshot, which we provide every quarter on some of our financial metrics on both the sequential and year over year basis.

Ed Journal: Let's move on to slide 16, and delve into the numbers in more detail.

Ed Journal: In the second quarter, we faced significant industry wide headwinds, including a drop in revenues driven by the having as well as a drop of more than 50% hedge price over the course of the quarter.

Joshua Kane: Additionally, the following discussion may contain non-gap financial measures. We may use non-gap measures to describe the way in which we manage and operate our business. Who records our non-gap measures to the most directly comparable gap measures, and you are encouraged to examine those recommendations which are filed at the end of our own entry release issued earlier this morning.

Ed Journal: For the quarter, we had a GAAP.

Net loss of $15 million, a sequential decrease of 138% and a 16% decrease from the prior quarter. When we reported a net loss of $13 million in.

Edward Farrell: In the current quarter, we mined 563 Bitcoin generating revenues of $37 million at an average price per Bitcoin of $65,000 compared to 924 Bitcoin in the first quarter of $24 at an $28 million in revenue, sequential decrease of 24%. Year over year, our revenues increased 18%, primarily driven by the increase in Bitcoin price, partially offset by the halving in April. As I mentioned at the outset, our fixed price power is a critical contributor to our attractive unit economy. In the current quarter, the cost of revenues declined 4% sequentially.

Ed Journal: In the current quarter, we mined 563, bitcoin generating revenues of $37 million at an average price per bit kind of $65000 compared to 924 bitcoin in the first quarter of 24 at an average price of $52000 or <unk> $48 million in revenues a sequential decrease.

Tyler Page: I will now turn the call over to Tyler Page. Tyler? Thanks, Josh. Hello. This is Tyler Page, CEO of Cipher Mining. Thank you very much for joining our second quarter, 2024 Business Update call. Let me begin the call with a few key metrics for Cipher as of the end of July 2024. The upcoming growth of our business is the major theme of the call today, and Cipher's growth and expansion continued throughout the second quarter.

Speaker Change: It's a 24%.

Year over year, our revenues increased 18%, primarily driven by the increase in bitcoin price, partially offset by the having in April.

Speaker Change: As I mentioned at the outset, how fixed price power is a critical contributor to our attractive unit economics.

Tyler Page: We have now grown to 8.7 exa-hash per second of self-mining capacity with a current fleet efficiency of 27.8 joules per terrahash. As we look to the rest of 2024, we plan a significant upgrade of mining rigs at our largest data center at Odessa that will bring our self-mining capacity to 13.5 exa-hash per second and improve our fleet-wide efficiency to 18.6 joules per terrahash by year end. Those upgraded rigs are scheduled to ship in the third quarter, and we will install them as they arrive because the site is already prepared to take them.

Speaker Change: In the current quarter cost of revenues declined 4% sequentially.

Edward Farrell: When comparing revenues in the current quarter versus the same quarter in the prior year, you can see that the cost of power on a percentage basis was down significantly by our growth over the past year. This is primarily a trivial to our fixed-pice PPA at Odessa, which we've talked about in previous, The value of that contract increased by $22 million this quarter alone, underscoring the inherent value of the power range. I should point out that as the value of the PPA is in large part driven by the time remaining on the contract and the expected future energy price, Seasonal and Volatile, it would not be surprising to see a decrease from quarter to quarter in periods going forward.

Speaker Change: When comparing revenues in the current quarter versus the same quarter in the prior year you can see that the cost of power on a percentage basis was down significantly.

Speaker Change: Over the past year.

Speaker Change: This is primarily attributable to our fixed price PPA at Odessa, which we've talked about in previous quarters.

<unk> of that contract increased by $22 million this quarter alone underscoring the inherent value of the power arrangement.

Tyler Page: Our growth is then expected to accelerate considerably in 2025 with the addition of our new 300 megawatt Black Pearl data center reaching completion. We expect that the data center will expand our self-mining capacity to 35 exa-hash per second and improve our fleet-wide efficiency to 15.3 joules per terrahash. Cipher has continued to build its Bitcoin inventory, and as of the end of July held 2,270 Bitcoin. And as a reminder for those that are newer to the story, Cipher is probably best known in the industry for its very competitive all-in weighted average power price of 2.7 cents per kilowatt hour. Electricity represents the large majority of our operating costs, and our low price is a key driver of our best in class unit economics.

Speaker Change: I should point out that as the value of the PPA is in large part driven by the time remaining on the contract and the expected future energy prices, which is seasonal and volatile it would not be surprising to see a decrease from quarter to quarter and periods going forward.

Edward Farrell: Moving on, as you recall, we adopted the new crypto fair value accounting standard in 2023. And with the drop in Bitcoin price in the quarter, we recorded a loss of $21 million of the fair value of our Bitcoin hold. However, this mark-to-market loss was offset by $5 million of realized gains from the sale of Bitcoin in the period.

Speaker Change: Moving on as you recall, we adopted the new crypto fair value accounting standard in 2023.

Speaker Change: And with the drop in bitcoin price in the quarter, we recorded a loss of $21 million of the fair value of our Bitcoin holdings. However, this mark to market loss was offset by $5 million of realized gains from the sale of bitcoin in the period.

Edward Farrell: Our philosophy towards the growth of our Bitcoin inventory and approach to treasury management has not changed. We remain optimistic about the long-term outlook for Bitcoin and believe there are significant advantages to growing a Bitcoin inventory beyond near-price appreciation. We've discussed this in previous quarters, but it's worth reiterating. We maintain an opportunistic approach, continually assessing various funding avenues for our growth. While we generally aim to increase the size of our bitcoin inventory over time, our decisions are guided by the markets and our overarching capital allocation strategy.

Speaker Change: Our philosophy towards the growth of our bitcoin inventory and approach to Treasury management has not changed we remain optimistic about the long term outlook for bitcoin and believe there are significant advantages to growing a bitcoin inventory beyond price appreciation.

Tyler Page: I mentioned that our focus will largely be on Cipher's upcoming growth, and today I am very excited to provide early details of the extensive work we have been doing to build our pipeline of attractive new data center sites for future development. We have consistently said that owning our own infrastructure is vital to our success. Cipher has always sourced, owned, and operated its own data centers. Historically, we have acquired sites that have already received interconnection approvals, but we recently expanded our scope and signed a letter of intent for an option to acquire three new sites in North America that are adjacent to transmission assets and in the final stages of approval for interconnection.

Speaker Change: We've discussed this in previous quarters, but it's worth reiterating we maintain an opportunistic approach continually assessing various funding avenues for our growth initiatives.

Speaker Change: While we generally aim to increase the size of a bitcoin inventory over time, our decisions are guided by the markets and our over arching capital allocation strategy.

Edward Farrell: We constantly assess the markets to find the most attractive forms of capital available, weighing the pros and cons of different funding methods to support our business and expansion plans efficiently. This might include using our cash reserves, Bitcoin holdings, or issuing equities. Through this ongoing evaluation process, we determine our estimated cost of capital and manage our treasury dynamic. At June 30th, we held 2200 Bitcoin in Treasury. As in previous quarters, I'd like to spend a minute on our G&A expenses and our philosophy for managing these costs. Last quarter, we began reporting compensation benefits as a separate line item on the face of the income.

Speaker Change: We constantly assess the markets to find the most attractive forms of capital available weighing the pros and cons of different funding methods to support our business and expansion plans efficiently.

Speaker Change: This might include using our cash reserves bit quaint holdings or issuing equity.

Speaker Change: Through this ongoing evaluation process.

Tyler Page: With a 500 megawatt targeted capacity per site. By getting involved earlier in the development timeline, we can avoid broader bidding competitions and source valuable sites that most of our competitors cannot, while improving the long-term visibility for our supply chain and construction functions. Our ultimate purchase price for the sites under our agreement will be very attractive and based on the number of megawatts approved for interconnection, limiting our downside risk. In addition to this purchase option, we are moving forward with a front-of-the-meter site in Texas called Rebelly that has already been approved for 70 megawatts, and we believe can be expanded to 200 megawatts by the time it energizes in Q1-2027.

Determined our estimated cost of capital and manage our treasury dynamically.

Speaker Change: At June 30, we held 200 bitcoin and treasury.

Edward Farrell: Compensation benefits increased $3 million sequentially to $16 million, primarily driven by share-based compensation. Current quarter versus prior year quarter increased by 29% primarily due to an increase in headcount and share-based compensation. Now on to General Administrative Expenses, could IT, corporate insurance, professional fees, occupancy, and other public company expenses. These costs increased by $2 million, driven by professional fees and public company expenses primarily related to Sarbanes-Oxley compliance.

As in previous quarters, I'd like to spend a minute on our G&A expenses in our philosophy for managing these costs.

Last quarter, we began reporting compensation and benefits as a separate line item on the face of the income statement.

Compensation and benefits increased $3 million sequentially to $16 million, primarily driven by share based compensation.

Current quarter versus prior year quarter increased by 29%, primarily due to an increase in headcount and share based compensation.

Speaker Change: Now onto general administrative expenses, which include.

Tyler Page: So, for future development after Black Pearl, we now have a potential pipeline of up to 1.7 gigawatts of capacity across four new sites. Notably, all of these future data center sites sit at the center of the major trends we see impacting the data center space in the coming years. The continued adoption of the Bitcoin network and related value of Bitcoin mining as a flexible load, as well as the meteoric growth of AI-related HPC data centers.

Speaker Change: Corporate insurance professional fees occupancy and other public company expenses.

These costs increased by $2 million, driven by professional fees and public company expenses, primarily related to Sarbanes Oxley compliance.

Edward Farrell: Current year quarter versus prior year quarter, these expenses were down 3%. As we have stated previously, building our team and technology stack are pivotable to maintaining the competitive edge and as such, we have made significant investments in both personnel and technology. Participating that our model will scale effectively as we increase the total megawatts under management. We expect these investments to drive future top-line growth thereby positively impacting our bottom line. The depreciation and amortization expense totaled $20 million, an increase of $3 million, or 17% from the prior quarter, and a 41% rise compared to the second quarter of 2023. Sequential increase was driven by a change in depreciation schedule for our miners. Previously, we accounted for the depreciation of miners over a five-year period.

Speaker Change: Current year quarter versus prior year quarter. These expenses were down 3%.

Speaker Change: As we have stated previously building our team and technology stack are pivotal to maintaining the competitive edge and as such we have made significant investments in both personnel and technology anticipating.

Tyler Page: We believe large-scale interconnections that can be used in a variety of ways will become more valuable over time. The four sites we intend to develop all have the necessary characteristics for development of HPC data centers, but also sit in locations with demand response programs that would allow us to monetize the flexibility of curtailment used in Bitcoin mining operations. With these sites, we have a lot of optionality, which is exactly where we like to be positioned in front of trends with the potential for massive growth.

Speaker Change: Anticipating that our model will scale effectively as we increase the total megawatts under management.

We expect these investments to drive future topline growth, thereby positively impacting our bottom line.

Depreciation and amortization expense totaled $20 million, an increase of $3 million or 17% from the prior quarter and a 41% rise compared to the second quarter of 2023.

Speaker Change: The sequential increase was driven by a change in depreciation schedule for our miners.

Tyler Page: In connection with the updates on our pipeline of new sites, I am also pleased to announce the launch of our HPC infrastructure business. Given the requirements for success in the HPC infrastructure business and the relative strengths of site for my name, we believe we will be a market leader in this space. In recent months, we have devoted considerable focus to the evolving HPC Data Center Marketplace and have identified three specific advantages we have over competitors.

Speaker Change: Previously we accounted for the depreciation of miners over a five year period.

Edward Farrell: However, given our recent fleet upgrade and the rapid efficiency gains with next-generation miners, we now believe that a three-year depreciation schedule is more appropriate. Our expectations for upgrade cycles and our ability to purchase and install much more efficient machines have evolved, and we believe this should be reflected in our accounting treatment for the entire asset. We made this change effective June 1 and accounted for it prospectively. When comparing the current quarter versus the prior year quarter, the increase is primarily related to additional assets placed into service in late 2023 to complete ODESSA.

Speaker Change: However, given our recent fleet upgrade and the rapid efficiency gains with next generation miners. We now believe that three year depreciation schedule is more appropriate.

Speaker Change: Our expectations for upgrade cycles, and our ability to purchase and install much more efficient machines have evolved and we believe this should be reflected in our accounting treatment the entire fleet.

Tyler Page: A successful provider of HPC infrastructure needs to have access to the right data center sites and experienced construction and operations team and the capital to finance the necessary buildout. Cipher is well positioned in all three areas. Our pipeline sites all have access to adequate land and fiber necessary to service HPC customers. The existing construction and operations team at Cipher has extensive experience building and operating tier three data centers at firms like Google, Vantage, and Meta.

Speaker Change: We made this change effective June one and accounted for prospectively.

Speaker Change: When comparing current quarter versus prior year quarter. The increase was primarily relates to additional assets placed into service in late 2023 to complete Odessa.

Edward Farrell: Now let's turn to our non-GAAP measures slide we used to reconcile adjusted earnings. As always, I will remind you that adjusted earnings exclude the impact of depreciation and amortization, the non-cash change in the fair value of our derivative assets.

Speaker Change: Now, let's turn to our non-GAAP measures slide we used to reconcile adjusted earnings.

Speaker Change: As always I will remind you that adjusted earnings exclude the impact of depreciation and amortization.

Speaker Change: The noncash change in the fair value of our derivative asset.

Edward Farrell: The Non-Cash Change in Fair Value of the Warrant Liability and Share-Based Compensation These supplemental financial measures are not measurements of financial performance in accordance with U.S. GAAP. However, we believe that these non-GAAP measures may be useful to investors for comparing our performance across reporting periods consistently. Internally, management uses these non-GAAP financial measures to better understand, manage, and evaluate our business performance.

Speaker Change: Income tax expense the noncash change in fair value of the warrant liability and share based compensation.

Tyler Page: As an example of the team's excellence being recognized, the Uptime Institute recently awarded our Odessa data center the management and operation stamp of approval. The Uptime Institute sets industry standards that work in the data center industry and has historically focused exclusively on traditional data centers. This is their first instance of branching out to the Bitcoin mining industry. Our team literally sets the standard for operational excellence in our industry. When it comes to financing expansion, our management team has deep wall street experience with a proven track record of raising capital.

Speaker Change: These supplemental financial measures are not measurements of financial performance in accordance with U S. GAAP how.

Speaker Change: However, we believe that these non-GAAP measures may be useful to investors for comparing our performance across reporting periods consistently.

Speaker Change: Internally management uses these non-GAAP financial measures to better understand manage and evaluate our business performance and to facilitate our operational decisions.

Edward Farrell: Facilitate our operational decision. When adjusting our second quarter gap net loss, we had $12 million for the items I just listed. This brings us to an adjusted net loss of $3 million for the quarter compared to an adjusted net income of $63 million in the prior quarter and $8 million in the second quarter of last year.

Speaker Change: When adjusting our second quarter GAAP net loss, we had $12 million for the items I just listed.

Tyler Page: Over the last few months, we have been inundated with requests from HPC Lenders. And investors managing billions of dollars dedicated to the space, asking for information about our data center sites, our development pipeline, and our level of interest in being a provider of HPC infrastructure. We have also had deep technical discussions with potential tenants and we are confident in our ability to build powered shells that will be very attractive to hyper scalers and other large tenants.

Speaker Change: This brings us to an adjusted net loss of $3 million for the quarter compared to an adjusted net income of $63 million in the prior quarter and $8 million in the second quarter of last year.

Edward Farrell: Now let's turn our attention to the balance sheet at June 30. Our total current assets amounted to $309 million, an increase of $154 million from the end of 2023. Our cash position grew to $123 million, an increase of $36 million at the close of 2023. Our current liquidity position is $211 million, comprised of $71 million in cash and $140 million [inaudible] The decrease in our cash position subsequent to June 30th was primarily driven by deposits related to miners we contracted to purchase.

Speaker Change: Now, let's turn our attention to the balance sheet at June 30.

Speaker Change: Our total current assets amounted to $309 million, an increase of $154 million from the end of 2023.

Tyler Page: Given our site portfolio, our unique strengths and construction and operations, and the level of investment capital available, we are excited to embark on a new major line of business for the company. We are also still very excited about Bitcoin mining and the potential for managing the associated curtailment. While it is too early to predict the exact mix of our business lines over time, Bitcoin mining and HPC infrastructure are complimentary lines of business with different risk and payoff profiles, and even have the potential to converge. We think Cypher is uniquely positioned to be best in class in both verticals, and our strategy will be guided by our intent to maximize shareholder value over time as we develop our future data centers.

Speaker Change: Our cash position grew to $123 million, an increase of $36 million at the close of 2023.

Speaker Change: Our current liquidity position $211 million comprised of $71 million in cash and $140 million worth of bitcoin.

Speaker Change: The decrease in our cash position subsequent to June 30 was primarily driven by deposits related to minus we contracted to purchase and capital expenditures related to the build out of our black Pearl data Center.

Edward Farrell: Capital Expenditures Related to the Buildout of our Black Pearl Data Center. I'll now cover quickly some of our balance sheet line items at June 30th. Prepaid expenses amounted to $4 million, black from year end.

Speaker Change: I'll now cover quickly some of our balance sheet line items at June 30.

Speaker Change: Prepaid expenses amounted to $4 million flat from year end.

Tyler Page: Now let's turn to the next data centers we are building. Slide 6 and 7 show a rendering of the completed data center at Black Pearl and photos from the current site work. We are scheduled to energize the site in the second quarter of 2025. Our ONM building is taking shape at the site and steel direction, concrete foundations, and underground electrical work is progressing on schedule. Our design envisions 250 megawatts of air cooled and 50 megawatts of liquid cooled Bitcoin mining.

Edward Farrell: This balance is primarily related to corporate insurance. We recorded a Bitcoin balance of $138 million, reflecting the 2200 Bitcoin held in treasury. This figure marks an increase from the 780 Bitcoin held at year-end valued at $33 million. In the second quarter, we liquidated 153 Bitcoin, or $10 million. Now I'd like to shift our focus to the value of our Odessa power contract, which we record as a derivative asset. We discussed in the past the significant competitive advantage provided by this contract enabling us to be a low-cost producer of Bitcoin. As a reminder, we began reporting third-party mark for this agreement in the third quarter of 2022. This mark is reflected as a derivative asset on a balance sheet and is subject to revaluation each reporting period.

Speaker Change: This balance is primarily related to corporate insurance.

Speaker Change: We recorded a bitcoin balance of $138 million, reflecting the 'twenty 200, bitcoin held in treasury.

Speaker Change: This figure marks an increase from the 780 bitcoin held at year end valued at $33 million.

Speaker Change: In the second quarter, we liquidated 153, big <unk> or $10 million.

Edward Farrell: Essentially, it represents the in-the-money value of the contract relative to the time value and prevailing forward power prices at our Odessa facility. As of June 30, this asset was valued at $123 million, reflecting a $22 million increase in the second quarter and an increase of $29 million from year end. This change is recorded as a gain on our statement of operation. As always, fluctuations in the fair value of this contract will impact our GAAP earnings, but we exclude it from adjusted earnings.

Now I'd like to shift our focus to the value of our Odessa power contract, which we record as a derivative asset.

Speaker Change: We discussed in the past the significant competitive advantage provided by this contract, enabling us to be a low cost producer of bitcoin.

Tyler Page: We have had hyperscalers inquire about our willingness to repurpose a portion of the data center for HPC in the.., infrastructure. And while we haven't completely ruled it out, our current intent is to dedicate the full 300 megawatts to Bitcoin mining. At full capacity, the site is anticipated to produce roughly 21.5 ex a hash per second of hash rate.

Speaker Change: As a reminder, we began reporting third party mark for disagreement in the third quarter of 2022.

Speaker Change: This mark is reflected as a derivative asset on our balance sheet and is subject to revaluation each reporting period.

Speaker Change: Essentially it represents the in the money value of the contract relative to the time value and prevailing forward power prices at our <unk> facility.

Tyler Page: Slide 8 shows an overview of the Revely Data Center site. The site is located in Coutula, Texas, in load zone south, which is a different area of ERCOT from Odessa and Black Pearl, which are located in load zone west. It has been approved for 70 megawatts, but based on early discussions with the transmission and distribution service provider, we believe we can expand the site to 200 megawatts in 2027. Given that the timeline to energize this site aligns with the necessary timeline to manage the supply chain and build a Tier 3 data center, we have focused our initial planning and discussions for Revely on HPC infrastructure.

Speaker Change: As of June 30, this asset was valued at $123 million, reflecting a $22 million increase in the second quarter and an increase of $29 million from year end.

Speaker Change: This change is recorded as a gain on our statement of operations as always fluctuations in the fair value of this contract will impact our GAAP earnings, but we excluded from adjusted earnings.

Edward Farrell: Other significant assets include property and equipment totaling $239 million primarily attributed to our DESA facility. Within this category, mining rigs and related equipment accounted for $177 million. Resale improvements are valued at $137 million, and construction and progress at $20 million. These figures are net of $95 million in accumulated depreciation.

Speaker Change: Other significant assets include property and equipment totaling $239 million.

Speaker Change: Primarily attributed to our desk the facility.

Speaker Change: Within this category mining rigs and related equipment accounted for $177 million.

Tyler Page: It is still too early to determine the exact plan for the site, but we have had a high level of interest from capital providers and potential tenants, and our baseline plan now is to proceed with building a Powered Shell Data Center for HPC and securing a long-term lease from a high-quality tenant.

Speaker Change: Sold improvements are valued at $137 million and construction in progress at $20 million.

Speaker Change: These figures are net of $95 million and accumulated depreciation.

Edward Farrell: Deposits on equipment of $58 million primarily consist of progress payments we've made in accordance with previously announced minor purchases. Additionally, we hold intangible assets totaling $9 million, with $7 million attributed to the Black Pearl site and its associated ERCOT approval, and the remaining $2 million related to capitalized software. At the end of the first quarter, our equity investee interest in Alborz Bear and Chief JVs stand at $50 million, and we had operating lease obligations of $10 million.

Speaker Change: Deposits on equipment of $58 million.

Tyler Page: Now let's move to a review of our current operations. On slide 10, we give a portfolio overview of our existing data centers and a near-term timeline for expected scaling of our data centers and expansion in our self-mining hash rate. Year-to-date, we paid an average all-in electricity cost of $15,000 and $4 per Bitcoin produced at our data centers. We are very proud of this number, and it drives our besting class unit economics.

Speaker Change: Primarily consist of of progress payments, we have made in accordance with previously announced minor purchases.

Speaker Change: Additionally, we hold intangible assets totaling $9 million with $7 million attributed to the black Pearl site and its associated ERCOT approval and the remaining $2 million related to capitalized software.

Speaker Change: At the end of the first quarter, our equity investor interest in Alberta, Barron Chief Jv's to end at $50 million and we had operating lease obligations of $10 million we.

Tyler Page: 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, we mean the total cost to deliver electricity to our mining rigs, so our numbers include all transmission and other charges and our low numbers dramatically demonstrate our competitive advantage. On the left side of this slide, you have an overview of our four current data centers, along with our all-in electricity cost per Bitcoin at the site's year-to-date.

Edward Farrell: We had security deposits totaling $22 million, which include the $13 million of collateral posted at our Odessa power provider and $6 million, Composite to ENCQOR related to the construction of our new Black Pearl data center. There were no significant changes to the liability side of the balance sheet from year end, and as we have reported in the past, we have no debt that hinders our capital structure.

Speaker Change: We had security deposits totaling $22 million, which includes the $13 million of collateral posted at our desert power provider and $6 million.

Speaker Change: Deposit to oncor related to the construction of our new Black Pearl data Center.

Speaker Change: There were no significant changes to the liability side of the balance sheet from year end and as we've reported in the past we have no debt that hinders the capital structure.

Edward Farrell: As always, we look forward to updating you in greater detail on our growth plans over the coming quarter. I'll pause now, and Tyler and I are happy to answer your questions. Thank you. If you'd like to ask a question, please press star 1. If your question has been answered, and you'd like to remove yourself from the queue... Please press star 1 1 again.

Speaker Change: As always we look forward to updating you in greater detail on our growth plans over the coming quarters.

Tyler Page: The charts on the right side of this slide give you a graphic illustration of the number of megawatts we manage related to our self-mining operations and the hash rate produced by those operations, as well as the additional growth opportunities in the coming year-and-a-half. As you can see, we expect to manage 566 megawatts of self-mining across our five data centers in 2025, and we expect those data centers to produce 35 exit hash per second of hash rate.

Speaker Change: I'll pause now and Tyler and I are happy to answer your questions.

Tyler Page: Thank you if you'd like to ask a question. Please press star one one.

Tyler Page: If your question has been answered and you'd like to remove yourself from the queue.

Tyler Page: Please press star one again.

Operator: One moment for questions. Our first question comes from Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Monmouth: Monmouth for questions.

Speaker Change: Our first question comes from Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Tyler Page: At this point, we will turn to production by site. On slide 11, you can see a picture of our Odessa facility. Odessa is the most significant part of our portfolio as it represents approximately 86% of our Bitcoin production in July. Recently, Odessa became the first Bitcoin Mining Data Center to be awarded the Uptime Institute's Stamp of Approval for Management and Editha is a wholly owned facility with a five-year fixed-price power purchase agreement and some of the lowest-cost power in the industry.

Brett Knoblauch: Hi, guys. Thanks for taking my question. And congrats on filling out the info pipeline. It's nice to see. Maybe this one's for Tyler.

Brett Knoblauch: Hi, guys. Thanks for taking my question and congrats on that and have been for pipeline.

Brett Knoblauch: Maybe this one's for Tyler first I think there's been some speculation about diaper being an acquisition target out there maybe you could provide any color comment on that and then secondly to that could you provide some additional color on the M&A landscape and how you view, maybe organic site acquisition versus inorganic opportunities out there.

Speaker Change: Specialty kind of post havoc. Thank you.

Brett Knoblauch: First, I think there's been some speculation about Cipher being an acquisition target out there. Maybe you could provide any color or comment on that? And then, secondly to that, can you provide some additional color on the M&A landscape and how you view maybe organic site acquisition versus inorganic opportunities out there, especially the kind of post-HABIT? Thank you.

Speaker Change: Sure Brett Thank you very much for the question.

Tyler Page: We currently generate approximately 6.9 ex-a-hash per second at the site, utilizing approximately 207 megawatts. Those same 207 megawatts will generate roughly 11.3 ex-a-hash per second, with the pending rig upgrade expected in the coming months. We have mined roughly 1,622 Bitcoin at the site, year-to-date, through the end of July. On this page, we also provide the observed all-in electricity cost per Bitcoin at the site, post-having, which was $23,563. Even after the recent having reduced the number of new Bitcoin paid to miners, you can see how valuable it is for Cipher to have a cheap, fixed price of power available on such a large portion of our portfolio.

Speaker Change: Yes. This has been a popular topic I think as far as market rumors about cipher I will stay consistent with what the company has been saying all along which is we.

Tyler Page: Thank you very much for the question. Yeah, this has been a popular topic. I think as far as market rumors about Cipher, I will stay consistent with what the company has been saying all along, which is we have no comment.

Tyler Page: I think it's not, it shouldn't surprise anyone that the press would speculate that we're a popular target given all the growth and opportunity we just talked about on the call. We're very bullish on our prospects, but the company has not put out anything, and we will continue to have no comment on market rumors. And that's for the press.

Speaker Change: We have no comment.

Speaker Change: I think it's not it shouldnt be surprising to anyone that depressed would speculate that were a popular target given all the growth and opportunity. We just talked about on the call.

Speaker Change: Very bullish on our prospects but.

Speaker Change: The company has not put out anything and we will continue to have no comment on market rumors.

That's for the press to handle I guess speaking then more broadly about because I've talked about M&A on the past calls.

Tyler Page: I guess, speaking then more broadly about, because I've talked about M&A on the past call. I think what we're seeing now is there is a fair amount of M&A in the industry. It's really the expected chaos that's been unleashed by the having.

Tyler Page: And I think it forces miners to sort of question what they are, right? If we see all-time low hash costs over the last quarter, you know, a miner has to decide to do kind of one of two things that they, they, they, excuse me, all-time low hash price over the last quarter. So a miner has to decide what they're going to do with their own hash costs so that the cost that they spend to produce a unit of compute. So let's see what we can do, you can kind of go in two directions. One is to basically strip out all the overhead you possibly can.

Speaker Change: I think what we're seeing now is there is a fair amount of M&A in the industry. Its really the expected chaos thats been unleashed by the having an eye.

Speaker Change: I think it forces miners to just sort of question what they are right. If we see all time low cash costs over the last quarter.

Tyler Page: On Slide 12, we highlight our joint venture data centers of Alboros, Bear, and Chief. With the recent expansions at each of Bear and Chief, the sites now have a total power capacity of 120 megawatts, and currently generate approximately 3.7 ex-a-hash per second. We own 49% of the JV sites, and they now generate roughly 14% of our overall Bitcoin production. On this page, we also provide the observed all-in electricity cost per Bitcoin at the site's post-having, which was $28,784. As a reminder, both Bear and Chief operate as front of the meter sites, so there will be some expected seasonal fluctuations with their electricity costs and summer months tend to be higher.

Speaker Change: A minor has to decide to do kind of one of two things.

Speaker Change: Excuse me, an all time low hatch price over the last quarter. So a minor has to decide what they're going to do with their own cash costs. The costs that they spend to produce a unit of compute you can kind of go in two directions. One is to basically strip out all the overhead you possibly can.

Tyler Page: To really just take it down to your power and basic operations costs so that you can continue to make a profit margin. Or alternatively, you lean into growth, you you get a more efficient fleet, you add top line hash rate, and and drive down your hash cost because you're spreading it across more tera hash and you're pumping that electricity through more efficient machines. That is definitely where we're going. I mean, to give a sense, our recent hash cost was about $43.

Speaker Change: To take it down to really just your power and basic operations costs. So that you can continue to make a profit margin.

Speaker Change: Or alternatively, you lean into growth.

Speaker Change: Get a more efficient fleet, you add topline hash rate and drive down.

Edward Farrell: As we turn toward the rest of 2024, we look forward to our continued growth in both our Bitcoin mining business and our new HPC infrastructure vertical, and at this point, I'll turn it over to our Chief Financial Officer, Ed Gernall. Thank you, Tyler, and hello to everyone on the call. As I've done previous calls, I'd like to start by providing some high-level observations on the quarter, and then we'll go through the key line items in detail.

Speaker Change: Your <unk> cost because youre spreading it across more tera hashed and youre pumping that electricity through more efficient machine that is definitely where we're going to give a sense. Our recent cash cost was about $43 <unk> per day.

Tyler Page: That breaks down roughly into like 19 or so dollars of power costs and $24 of ops and G&A. And I view that as like the $24 of overhead there is because we're a development company. We're adding these new sites.

Speaker Change: That breaks down roughly into like 19, or so dollars of power costs and $24 of ops and G&A.

Speaker Change: I view that as like the $24 of overhead there is because we're a development company. We're adding these new sites. We've got all of these expansions coming in the near term.

Edward Farrell: For anyone tracking Bitcoin and the miners, it should come as no surprise that revenues are down in the first full quarter after having. From the outset, Tyler and I have emphasized designing a business that we can thrive through the entire cycle. Despite the anticipated drop in revenues, we are very encouraged by the business performance and the company's growth profile as we move past the recent having. Low-cost fixed price power and a strong balance sheet remain key strengths of our financial position.

Tyler Page: We've got all these expansions coming in the near term, and that will drive down our costs significantly. Just looking at hash costs, like just post our Odessa upgrade, which is just a matter of rigs being delivered between now and year-end and us swapping out older rigs, just doing that will likely drive our hash costs to below $30 per petahash per day. And so if you have the opportunity with low power costs, now is a good time to buy equipment, invest in scale, and I think there's a lot of growth opportunity. I think the other thing you can do is try to strip out all the costs, and then you're really just a site that's trying to maximize your economics at a site. You're not a development.

Speaker Change: And that will drive down our cost significantly to give you a sense.

Speaker Change: Just looking at cash cost like just post our Odessa upgrade which is just a matter of rigs being delivered between now and year end and us swapping out older rigs just doing that will likely drive our hedge cost to below $30 per <unk> per day, and so if you. If you have the opportunity with low power costs.

Edward Farrell: Lides 14 and 15 give a snapshot, which we provide every quarter on some of our financial metrics on both a sequential and year-over-year basis. Let's move on to slide 16 and delve into the numbers in more detail.

Speaker Change: Now is a good time to buy equipment invest in scale and I think theres a lot of growth opportunity.

Speaker Change: I think the other thing you can do is try to strip out all the costs and then you're really just a site that's trying to maximize your economics at a site youre not a development company.

Edward Farrell: In the second quarter, we face significant industry-wide headwinds, including a drop in revenues driven by the having, as well as a drop of more than 50% in hash price over the cost of the quarter. For the quarter, we had a gap net loss of $15 million, a sequential decrease of 138%, and a 16% decrease from the prior quarter when we reported the net loss of $13 million. In the current quarter, we mined 563 Bitcoin generating revenues of $37 million at an average price per Bitcoin of $65,000 compared to 924 Bitcoin in the first quarter of $24 at an average price of $52,000 or $48 million in revenues, a sequential decrease of 24%.

Tyler Page: I think in general that's what is driving a lot of the M&A, is folks trying to get to scale and maybe address their own shortcomings in their ability to do some part of the entire value chain. We do that all in-house, so we source our own sites, we take it from dirt to an operating data center, and then we trade and manage curtailment and energy around the operations once it's done. So what has happened is, I talked about M&A, we've been very busy this year, we've been in a lot of data rooms looking at opportunities for sites, companies to acquire, etc.

Speaker Change: I think in general that's what is driving a lot of the M&A as folks trying to get to scale and maybe address their own shortcomings in their ability to do some part of the entire value chain. We do that all in house. So we source our own sites, we take it from there to an operating data center and then we trade and managed.

Speaker Change: Curtailment and energy around the operations once it's done.

Speaker Change: So what has happened is I talked about M&A, we've been very busy this year, we've been in a loss.

Speaker Change: Lot of data rooms, looking at opportunities for sites.

Speaker Change: Companies to acquire et cetera.

Tyler Page: What has generally happened is that we get outbid for built sites. Frankly, we think people overpay for built sites. And that may be rational for other companies because they don't have the capabilities to source their own sites and build their own sites. We do, so I think we tend not to pay a premium, and often we don't make it to the final bidding round.

Speaker Change: What has generally happened is.

Speaker Change: We get outbid for built sites frankly, we think people overpay for built sites and that may be rationale for other companies because they don't have the capabilities to build sourced their own sites and build their own sites.

Edward Farrell: Year over year, our revenues increased 18% primarily driven by the increase in Bitcoin price partially offset by the having in April. As I mentioned at the outset, how six-price power is a critical contributor to our attractive unit economics. In the current quarter, the cost of revenues declined 4% sequentially. When comparing revenues in the current quarter versus the same quarter in the prior year, you can see that the cost of power on a percentage basis was down significantly by our growth over the past year.

Speaker Change: We do so I think we tend not to pay a premium and often we don't make it to the final bidding round and what that's driven us towards is finding more sites earlier in the development chain, that's where we see the highest return on our investment and so from an M&A perspective.

Tyler Page: And what that's driven us towards is finding more sites earlier in the development chain. That's where we see the highest return on our investment. And so from an M&A perspective, that's where we've ended up allocating our time and efforts. And that's why you see the new sites that are coming. Perfect, and then maybe just kind of following up on the timing of new sites coming online. So Black Pearl, you know, called middle of next year.

Speaker Change: That's where we've ended up allocating our time and efforts and Thats why you see the new sites that are coming online.

Speaker Change: Perfect and then maybe.

Edward Farrell: This is primarily attributable to our six-price PPA at Odessa, which we've talked about in previous quarters. The value of that contract increased by $22 million is quarter alone, underscoring the inherent value of the power arrangement. I should point out that as the value of the PPA is in large part driven by the time remaining on the contract and the expected future energy prices, which are seasonal and volatile, it would not be surprising to see a decrease from quarter to quarter in periods going forward.

Speaker Change: Kind of following up on the timing of the new sites coming online for Black Pearl.

Tyler Page: Um, can you write an update on the Play Tua, um, and the new one and a half gigs of sites that I guess you guys have kind of secured powers for, um, or have options on. What, what's the timing of those potentially being energized, and how should we think about the maybe financial outweighs for that and when that would occur? Yeah, so look, we're really excited about it, but I think everyone needs to understand that this is a longer term opportunity. These sites are two and a half years away, basically from energizing.

All of next year.

Speaker Change: Can you provide update on <unk>.

Speaker Change: The new one five gigs of sites that I guess, you guys have kind of secured power for.

Speaker Change: Go ahead of options on what's the timing of those potentially being energized and how should we think about the maybe financial outlays for that and when that would occur.

Tyler Page: Now the good news about that, and I think as we think about the HPC business, we've spent a lot of time talking to potential tenants and thinking about how we would build a data center with three nines or five nines of uptime and the supply change you have to manage for that. Those supply chains go out years, so I think I know there's a lot of buzz in the industry about people, throwing in HPC revenue.

Speaker Change: Yeah. So look we're really excited about it but I think everyone needs to understand that this is a longer term opportunity. These sites are two and a half years away basically from energizing now the good news about that and I think as we think about the HBC business. We've spent a lot of time.

Edward Farrell: Moving on, as you recall, we adopted the new crypto fair value accounting standard in 2023. With the drop in Bitcoin price in the quarter, we recorded a loss of $21 million of the fair value of our Bitcoin holdings. However, this mark-to-market loss was offset by $5 million of realized gains from the sale of Bitcoin in the period. Our philosophy towards the growth of our Bitcoin inventory and approach to treasury management has not changed.

Speaker Change: Talking to potential tenants.

Speaker Change: Thinking about how we would build a data center with three nines five nines of uptime and the supply change you have to manage for that those supply chains go out years. So I think I know theres a lot of buzz in the industry about people.

Edward Farrell: We remain optimistic about the long-term outlook for Bitcoin and believe there are significant advantages to growing a Bitcoin inventory beyond near price appreciation. We've discussed this in previous quarters, but it's worth reiterating. We maintain an opportunistic approach, continually assessing various funding avenues for our growth initiatives. While we generally aim to increase the size of our Bitcoin inventory over time, our decisions are guided by the markets and our overarching capital allocation strategy.

Speaker Change: Growing in HBC revenue, all I'd say is if youre going to do it by providing infrastructure to a large tenant.

Tyler Page: All I'd say is if you're gonna do it by providing infrastructure to a large tenant, it takes a long time anyway before that revenue is gonna materialize. And so the opportunity set here for us is those are well beyond Black Pearl. And so we have really a best of option. We like Bitcoin mining. These sites would be great for Bitcoin mining.

It takes a long time anyway before that revenue is going to materialize and so the opportunity set here for US is those are well beyond black Pearl.

Speaker Change: And so we have a really a best of option.

Speaker Change: Like Bitcoin mining these sites would be great for bitcoin mining. They are also very large scale and have the necessary components for HTC.

Tyler Page: They are also very large scale and have the necessary components for HPC. We've had so much interest in that space, we've spent a lot of time mapping out what it would take to build a data center with five nines of uptime from scratch, and it lines up with that timeline. So these are longer-term projects, but I think where we see the industry going in the coming years is this value for interconnection, value for data centers that are in desired locations and have the desired qualities.

Edward Farrell: We constantly assess the markets to find the most attractive forms of capital available, weighing the pros and cons of different funding methods to support our business and expansion plans efficiently. This might include using our cash reserves, Bitcoin holdings, or issuing equity. Through this ongoing evaluation process, we determine our estimated cost of capital and manage our treasury dynamically. At June 30th, we held $2,200 Bitcoin in treasury. As in previous quarters, I'd like to spend a minute on our GNA expenses and our philosophy for managing these costs.

Speaker Change: We had so much interest in that space. We've spent a lot of time mapping out what it would take to build.

Speaker Change: A data center with five nines of uptime from scratch and it lines up with that timeline.

Speaker Change: So these are longer term projects, but I think where we see the industry going in the coming years.

Speaker Change: Is this value for interconnect.

Speaker Change: <unk> for data centers.

Speaker Change: That are in desired locations and have the desired qualities and we're like a best of option between the two businesses, but thats part of the long term positioning for safer.

Tyler Page: And we're like a best of option between the two businesses. But that's part of the long-term positioning for. Perfect. I appreciate it. Thanks a lot, Tyler, guys. Thank you. Our next question comes from Bill Papanastasiou. Defeatful, your line is open. Yeah, good morning, gentlemen.

Speaker Change: Perfect I appreciate it thanks for all the color guys.

Edward Farrell: Glass. Last quarter, we began reporting compensation benefits as a separate line item on the face of the income statement. Compensation of benefits increased $3 million sequentially to $16 million, primarily driven by share-based compensation. Current quarter versus prior year quarter increased by 29%, primarily due to an increase in headcount and share-based compensation. Now on to general administrative expenses, which include IT, corporate insurance, professional fees, occupancy, and other public company expenses. These costs increased by $2 million, driven by professional fees and public company expenses, primarily related to Sarbanes' oxy compliance.

Speaker Change: Yeah.

Bill <unk>: Thank you. Our next question comes from Bill <unk> with Stifel. Your line is open.

Bill Papanastasiou: Thank you for taking my questions. For the first one here, I was just hoping Tyler, you'd be able to kind of share your philosophy on the HPC AI opportunity and how you're weighing the capital allocation strategy going forward. How might it look relative to Bitcoin mining, now that you have these options in hand? Sure, thanks Bill.

Bill <unk>: Yes, good morning, gentlemen, and thank you for taking my questions for the first one here I was just hoping Tyler you would be able to kind of share your philosophy on the HPE AI opportunity and how you're weighing the capital allocation strategy going forward, how might it look relative to bitcoin mining.

Speaker Change: Now that you have these options to enhance.

Tyler Page: So, I guess, first of all, since there's, I guess some of our competitors are taking different approaches in this space, so let me distinguish what we're interested, We do not plan to buy our own GPUs and be a seller of... That is not a business we think is very complementary to our skill sets, and it has its own risks and enormous capital outlays associated with it, and so that is not our goal. Our plan is to be effectively a host for HPC infrastructure.

Tyler Page: Sure. Thanks, Bill So I guess first of all since there's I guess some of our competitors are taking different approaches in this space. So let me distinguish what we're interested in.

Speaker Change: We do not plan to buy our own Gpus and be a seller of compute that is not a business. We think is very complementary to our skill sets and it has its own risks and enormous capital outlays associated with it and so that is not our plan.

Edward Farrell: Current year quarter versus prior year quarter, these expenses were down 3%. As we have stated previously, building our team and technology stack are pivotable to maintaining the competitive edge and as such we have made significant investments in both personnel and technology, anticipating that our model will scale effectively as we increase the total megawatts under management. We expect these investments to drive future top-line growth thereby positively impacting our bottom line. Depreciation and ammarization expense total $20 million, an increase of $3 million was 17% from the prior quarter and a 41% rise compared to the second quarter of 2023.

Speaker Change: Our plan is to be effectively a host for HBC infrastructure and so what we hope to do is build out sites and have hyper scaler or other large high.

Tyler Page: And so what we hope to do is build out sites and have hyperscalers or other large, high-quality tenants to sign long-term leases. Now, it's still a little early. I have been very busy speaking to both potential tenants and a lot of financiers.

Speaker Change: High quality tenants.

Speaker Change: I'm a long term lease now.

Speaker Change: It's still a little early.

Speaker Change: We have I have been very busy speaking to both the potential tenants and a lot of finance here as the market is extremely busy and interested in this the thing to keep in mind, that's very different about the two businesses is there is there is different markets and different times, where we may make more money bitcoin mining or we may make more money.

Tyler Page: The market is extremely busy and interested in this. The thing to keep in mind that's very different about the two businesses is there are different markets and different times when we may make more money mining Bitcoin, or we may make more money selling HPC infrastructure. The attractiveness of the HPC infrastructure opportunity is that those tend to be long-term leases and obviously are not correlated with the ups and downs of the Bitcoin price.

Edward Farrell: The sequential increase was driven by a change in depreciation schedule for our miners. Previously we accounted for the depreciation of miners over a five-year period. However, given our recent fleet upgrade and the rapid efficiency gains with next generation miners, we now believe that a three-year depreciation schedule is more appropriate. Our expectations for upgrade cycles and our ability to purchase and install much more efficient machines have evolved and we believe this should be reflected in our accounting treatment the entire fleet. We made this change effective June 1 and accounted for it prospectively. When comparing current quarter versus prior year quarter, the increases primary relates to additional assets placed into service and late 2023 to complete Odessa.

Speaker Change: <unk>.

Speaker Change: And selling HBC infrastructure, the attractiveness of the HPE infrastructure opportunity as that those tend to be long term leases and obviously are not correlated with the ups and downs of bitcoin price. The other thing is even though that's a much more capital intensive business. There is quite a developed financing market with some of the <unk>.

Tyler Page: The other thing is, even though that's a much more capital intensive business, there is quite a developed financing market with some of the biggest lenders and investors in the world. And if you're focusing on the piece of the business that we are, there's a lot of appetite to finance, debt and even equity. If you set up a development company to do very high LTC loans, 90% of the cost might be loaned if you have a hyperscaler tenant at a very reasonable interest rate.

Speaker Change: Lenders and investors in the world.

Speaker Change: And if you are focusing on the piece of the business that we are theres a lot of appetite to finance.

Speaker Change: That and even equity if you set up a development company.

Speaker Change: To do very high LTC loans, 90% of the cost might be loaned if you have a hyperscale or tenant at a very reasonable interest rate.

Edward Farrell: Now let's turn to our non-GAP measures slide we used to reconcile adjusted earnings. As always, I will remind you that adjusted earnings exclude the impact of depreciation and ammarization, the non-CASH change and the fair value of our derivative assets, deferred income tax expense, the non-CASH change and fair value of the warrant liability and share-based compensation. These supplemental financial measures are not measurements of financial performance in accordance with US GAP. However, we believe that these non-GAP measures may be useful to investors for comparing our performance across reporting periods consistently.

Tyler Page: And then as you develop more and more sites, you have the opportunity, as they mature and have active tenants, there's a whole asset-backed securities financing market that's available. And so it is a very different business in how it operates compared to Bitcoin mining where lenders have shied away from Bitcoin mining for the past two plus years. Maybe that doesn't stay that way forever, but the successful Bitcoin miners, including Cipher, have pretty much entirely funded the buildouts with equity.

Speaker Change: And then as you develop more and more sites you have the opportunity as they mature and have active tenants. There's a whole asset backed securities financing market, that's available and so it is a very different business and how it operates compared to bitcoin mining where lenders have shied away from bitcoin mining for the patch.

Speaker Change: Two plus years, maybe that doesn't stay that way forever, but the successful bitcoin miners, including safer have pretty much entirely funded the build outs with equity now.

Tyler Page: Now, I think we can see really good ROI potentials on sites that you own and operate. If we look at BlackPearl, of course, everything is going to depend on what happens to hash price and Bitcoin price going forward. But we look at ROIs on BlackPearl of a year and a half to three years, depending on what happens on the market. And that's great.

Speaker Change: I think we can see really good ROI potentials on on sites that you own and operate and if we look at black Pearl.

Edward Farrell: Internally, management uses these non-GAP financial measures to better understand, manage and evaluate our business performance and to facilitate our operational decisions. When adjusting our second quarter GAP net loss, we had $12 million for the items I just listed, listed. This brings us to an adjusted net loss of $3 million for the quarter compared to an adjusted net income of $63 million in the prior quarter and $8 million in the second quarter of last year.

Speaker Change: Of course, everything is going to depend on what happens to hash price and bitcoin price going forward, but we look at rois on black for all of our year and a half to three years, depending on what happens on the market.

Tyler Page: So, I think going forward we do have time. We're going to launch the HPC business. I think it starts with getting a really high-quality tenant that wants to sign up for a lease at one of these sites.

Speaker Change: And that's great.

Speaker Change: So I think going forward, we do have time, we're going to launch the <unk> business I think it starts with getting a really high quality tenant that wants to sign up for a lease at one of these sites. We have had a lot of time with some of those big names are construction and ops team and I know you know this bill because we went over.

Tyler Page: We have had a lot of time with some of those big names, our construction and ops team. And I know you know this, Bill, because we went over it recently. But, you know, we've got a lot of people that are ex-Google Vantage, meta, have operated hyperscaler data centers. We've had all-day meetings with technical teams, senior management, with hyperscaler potential. I think our team is very well situated.

Edward Farrell: Now let's turn our attention to the balance sheet at June 30th. Our total current assets amounted to $309 million, an increase of $154 million from the end of 2023. Our cash position grew to $123 million, an increase of $36 million at the close of 2023. Our current liquidity position is $211 million in price of $71 million in cash and $140 million worth of Bitcoin. The decrease in our cash position, subsequent to June 30th, was primarily driven by deposits related to minors we contracted to purchase and capital expenditures related to the build out of our Black Pearl data center.

Speaker Change: Recently, but.

Speaker Change: We've got a lot of people that are ex Google vantage meta have have operated hyperscale data centers.

Speaker Change: We've had all day meetings with technical teams senior management with.

Speaker Change: With hyperscale or potential tenants.

Speaker Change: I think our team is very well situated this as a big competitive advantage for us. So if that helps us secure a lease in the near term where a lot of design input can come from the potential tenant.

Tyler Page: This is a big competitive advantage for us. So if that helps us secure a lease in the near term, where a lot of design input can come from the potential tenant, you know, pretty soon we would be dedicating those sites, whether it's the site in Ketula or the future sites under option, and then seeing where that business goes. Again, Black Pearl, you know, we expect to have a very, very robust Bitcoin mining business next year. I think in a perfect world, we would offset it with, you know, a very nice long-term HPC tenant contract. And then we'll see how it goes.

Speaker Change: Pretty soon we would be dedicating those sites, whether it's the site in cotulla.

Speaker Change: Or the future sites under option.

Speaker Change: And then seeing where that business goes again black Pearl we expect to have a very very robust bitcoin mining business next year.

Edward Farrell: I'll now cover quickly some of our balance sheet line items at June 30th. Prepaid expenses amounted to $4 million, Black from your end. This balance is primarily related to corporate insurance. We recorded a Bitcoin balance of $138 million reflecting the $2,200 Bitcoin held in Treasury. This figure marks an increase from the $780 Bitcoin held at year end valued at $33 million. In the second quarter, we liquidated $153 Bitcoin or $10 million.

Speaker Change: In a perfect world, we will offset it with.

Speaker Change: A very nice long term HBC tenant contract and then we will see as it goes through the great thing about those sites that we've got in the pipeline as they would also be wonderful for bitcoin mining.

Tyler Page: And the great thing about those sites that we've got in the pipeline is they'd also be wonderful for Bitcoin mining. I think the long-term prospects for an HPC tenant are kind of nice if you look at the longer term leases. They probably in the back years of those contracts will exceed, what Bitcoin mining data centers are likely to produce because hash price over long time periods tends to go down. There's a cyclical nature around halvings.

Speaker Change: I think the long term prospects for an HTC tenant or kind of nice if you look at the longer term leases.

Speaker Change: They probably in the back years of those contracts will exceed.

Speaker Change: What bitcoin mining data centers are likely to produce because hash price over long time periods tends to go down there is a cyclical nature around having.

Edward Farrell: Now I'd like to shift our focus to the value of our Odessa power contract, which we record as a derivative asset. We discussed in the past the significant competitive advantage provided by this contract enabling us to be a low-cost producer of Bitcoin. As a reminder, we began reporting third-party mark for this agreement in the third quarter of 2022. This mark is reflected as a derivative asset on our balance sheet and is subject to revaluation each reporting period.

Speaker Change: Bullish over the next year.

Tyler Page: You know, we're very bullish over the next, year-and-a-half for hash price expansion, but the long-term trend is that you've got to get more efficient. And so the great thing about HPC revenue would be the sort of back end of a potential lease where the numbers are likely to be higher in dollar terms that you're being paid for producing that or providing that. Awesome. I appreciate that color.

Speaker Change: Year, and a half for hashed price expansion, but the long term trend is that you've got to get more efficient and so the great thing about <unk>.

Speaker Change: <unk> revenue would be the sort of back end of a potential lease where the numbers are likely to be higher in dollar terms that you are being paid for producing that.

Edward Farrell: Essentially, it represents the in-the-money value of the contract relative to the time value and prevailing forward power prices at our Odessa facility. As of June 30th, this asset was valued at $123 million reflecting a $22 million increase in the second quarter and an increase of $29 million from your end. This change is recorded as a gain on our statement of operations. As always, fluctuations in the fair value of this contract will impact our gap earnings, but we excluded from adjusted earnings.

Speaker Change: <unk> that data center.

Tyler Page: I recall visiting the sites, you know, over a year ago and I was really impressed with the team there in Odessa. Just shifting gears here Tyler, you know, Cipher has been able to lead for a number of peers and is now a top five minor on account of scale with 35 ex a hash. So just focusing on the Bitcoin mining aspect of the business. I'm curious to hear how important it is for Cipher to maintain this level of network marketing.

Speaker Change: Awesome I appreciate that color I recall visiting the sites.

Speaker Change: Over a year ago, and I was really impressed with the team there in Odessa.

Speaker Change: Just shifting gears here Tyler Cypress has been able to leapfrog a number of peers and is now a top five minor on account of scale with 35 exit hash. So just focusing on the bitcoin mining acts.

Speaker Change: Aspect of the business.

Speaker Change: I'm curious to hear how important it is for site for to maintain this level of network market share relative to peers going forward, how should we think about that.

Tyler Page: If you want to share relative to peers going forward, how should we think about that? Yeah, I mean, I think that's a good proxy for what we want to do, but we don't really do capital planning in terms of like, what's our market share? I guess we do it as kind of a derivative of the way we think about it.

Edward Farrell: Other significant assets include property and equipment totaling $239 million primarily attributed to our Odessa facility. Within this category, mining rigs and related equipment accounted for $177 million. These sole improvements are valued at $137 million and construction and progress at $20 million. These figures are net of $95 million in accumulated depreciation. The deposits on equipment of $58 million primarily consist of progress payments we've made in accordance with previously announced miners, purchases. Additionally, we hold intangible assets totaling $9 million with $7 million attributed to the Black Pearl site and its associated ERCOT approval and the remaining two million related to capitalized software.

Speaker Change: Yes.

Speaker Change: That's a good proxy for what we want to do but we don't really do capital planning in terms of like what's our market share I guess, we do as kind of a derivative of the way we think about it but we're really focused on what's likely to happen to hash price and what will be our hash cost to produce.

Speaker Change: Dash and.

Speaker Change: And that margin that spread between those two numbers is really the business.

Tyler Page: But we're really focused on what's likely to happen to hash price, and what will be our hash cost to produce the hash. And that margin, that spread between those two numbers is really the business. And so, you know, listen, the foundation of that, as I harp on on every one of our earnings calls, is the low cost power that that drives, you know, that's the number you cannot change or, And so, once you lock that in... You can then be opportunistic through the cycle to do things like improve the efficiency of your minors.

Speaker Change: And so listen the foundation of that as I harp on every one of our earnings calls is the low cost power.

Speaker Change: That drive that's the number you cannot <unk>.

Speaker Change: Change or tweak.

Speaker Change: And so once you lock that in you can then be opportunistic through the cycle to do things like improve the efficiency of your miners. So I would say versus the last couple of years, we're still in a relatively cheap pricing period to acquire new rigs and so the pick.

Edward Farrell: At the end of the first quarter, our equity investing interest in Albor's bear and chief JV's, they ended $50 million and we had operating lease obligations of $10 million. We had security deposits totaling $22 million which include the $13 million of collateral posted at our desipowel provider and $6 million deposit to Encore related to the construction of our new Black Pearl data center.

Tyler Page: So, you know, I would say, versus the last couple of years, we're still in a relatively cheap pricing period to acquire new rigs. And so, the pickup in efficiency can be very large for what is at least compared to historical numbers, a smaller capital outlay. We tend to look at projections on, you know.., can we lower, how much do we lower our hash cost? What's the capital outlay to produce that? What's the payback period?

Speaker Change: Up inefficiency it can be very large for what is at least compared to historical numbers are smaller capital outlay.

Speaker Change: We tend to look at projections on.

Can we lower how much do we lower our hash cost what's the capital outlay to produce that what's the payback period now I guess the knock on effect of that is it implies we will take market share and certainly thinking about.

Edward Farrell: There were no significant changes to the liability side of the balance sheet from year end and as we reported in the past, we have no debt that hinders our capital structure. As always, we look forward to updating you in greater detail on our growth plans over the coming quarters.

Tyler Page: Now, I guess the knock-on effect of that is it implies we will take market share and certainly thinking about what happens to network hash rate will determine the market share, but that's all kind of accounted in the forecasting for hash price. So like, if Bitcoin prices go up, there'll be more network hash rate, you'll be fighting for market share and you might have less of it, but of course, Bitcoin prices will be higher. So really the dynamic we look at is this forecasted hash price versus what our hash cost. Appreciate the color Tyler and congrats again on those HPCAI announcements.

Speaker Change: What happens to network cash rate will determine the market share, but thats all kind of accounted in the forecasting for half price. So like if bitcoin prices go up there'll be more network cash rate you'll be fighting for.

Operator: I will pause now and Tyler and I are happy to answer your questions. Thank you. If you'd like to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again. One moment for questions.

Speaker Change: Market share than you might have less of it but of course bitcoin prices will be higher so really the <unk>.

Speaker Change: Dynamic we look at is this forecasted hashed price versus what our hedge costs will be.

Speaker Change: I appreciate the color Tyler and congrats again on those issues.

Tyler Page: Today, I announced wins.

Brett Knoblauch: Our first question comes from Brett Noblach with Cantifidstural. Your line is open. Hi guys. Thanks for taking my question and congrats on so don't have to vent for pipeline. It's nice to see. Maybe this one's for Tyler. First, I think there's been some speculation about Cypher being in acquisition target out there. Maybe you could provide any color comment on that and then secondly to that, could you provide some additional color on the M&A landscape and how you view maybe organic site acquisition versus inorganic opportunities out there, especially post-tabic? Thank you. Sure, Brett. Thank you very much for the question. This has been a popular topic.

Bill <unk>: Thanks Bill.

Tyler Page: Thank you. Our next call, our next question comes from John Todaro with Needham & Company. Your line is open.

Speaker Change: Thank you our next call. Our next question comes from John <unk> with Needham <unk> Company. Your line is open.

John Todaro: Great, thanks for taking my question. I have two of them, I guess, first on the Bitcoin business, and then the down the road HPC business. Tyler, how do you think about allocating costs and investing in the business? And I guess another way to put it is, how should investors be thinking about it? Is it on a more so pro-Bitcoin cost basis in this post-heavy environment, or that cost on a hash basis, as you've mentioned a few times here? That's a good question, John.

John: Great. Thanks for taking my question.

John: Two of them I guess first on the bitcoin business in EMEA.

Tyler Page: As far as market rumors about Cypher, I will stay consistent with what the company has been saying all along, which is we have no comment. I think it shouldn't be surprising to anyone that the press would speculate that we're a popular target given all the growth and opportunity we just talked about on the call. We're very bullish on our prospects, but the company has not put out anything and we will continue to have no comment on market rumors that that's for the press to handle.

Tyler Page: The down the road HBC business Tyler.

Speaker Change: How do we think about allocating costs and investing in the business and I guess another way to play.

Speaker Change: How should investors be thinking about it is it more so a per bitcoin cost basis, and as opposed to having environment or that cost on a SaaS basis.

Speaker Change: And a few things.

Tyler Page: I mean, I think this is as investors get more savvy in the sector, I generally think the better way to think about things is hash price versus hash cost, because it accounts for the kind of multiple variables, especially if you're projecting forward, I don't think the right thing to do is project forward on a cost per Bitcoin basis. That said, we get this question in almost every big institutional investor that's maybe newer to the space, they always start with a framework of what's your cost for Bitcoin, right? Because everyone follows the Bitcoin price.

Speaker Change: That's a good question John I mean, I think this is as investors get more savvy in the sector I generally think the better way to think about things is cash price versus hash costs because it accounts for the kind of multiple variables, especially if you're projecting forward I don't think the right thing to do is project forward on a.

Speaker Change: Cost per bitcoin basis that said.

Speaker Change: We get this question in almost every big institutional Investor that's maybe newer to the space. They always start with a framework of what's your cost per bitcoin right because everyone follows the bitcoin price, it's easier to think of in that sense and I guess like on a backward looking basis I'm comfortable doing that because you don't have to think about well what.

Tyler Page: It's easier to think of in that sense. And I guess, on a backward basis, I'm comfortable doing that because you don't have to think about, well, what happens to the network cash rate? So like, if we just look post-having, if I translate our hash cost and hash price, you know, hash cost numbers rather, and I'm backwards looking, just post-having because that's what's most relevant.

Tyler Page: I guess speaking then more broadly about, because I've talked about M&A on the past calls, I think what we're seeing now is there is a fair amount of M&A in the industry. It's really the expected chaos that's been unleashed by the having and I think it forces miners to sort of question what they are, right? If we see all-time low hash costs over the last quarter, a miner has to decide to do kind of one of two things that they, excuse me, all-time low hash price over the last quarter.

Speaker Change: It happens to network cash right so like if.

Speaker Change: We just look post having if I if I translate our hash cost in <unk> <unk>.

Speaker Change: Cash cost numbers rather.

Speaker Change: Backwards looking just post having because that's what's most relevant.

Tyler Page: You know, our power cost to produce a Bitcoin is about $24,000 a Bitcoin. And for our all-in cash costs. It's sub $50,000.

Speaker Change: Our power cost to produce a bitcoin.

Speaker Change: <unk> is about $24000 of bitcoin and for our all in cash costs.

Speaker Change: Sub $50000.

Tyler Page: And that's post-having in what we expect is, you know, the expected bad environment post-having. This is supposed to be the market that squeezes miners. This is a known unknown when you go through the halving, that you're going to have a rough period. And so I think, backwards looking, I can tell you that cash costs to produce a Bitcoin were sub $50,000.

Speaker Change: And that's post having and what we expect is.

Tyler Page: A miner has to decide what they're going to do with their own hash costs, so that the cost that they spend to produce a unit of compute, you can kind of go in two directions. One is to basically strip out all the overhead you possibly can, to take it down to really just your power and basic operations cost so that you can continue to make a profit margin. Or, alternatively, you lean into growth, you get a more efficient fleet, you add top line hash rate and drive down your hash cost because you're spreading it across more terrahash and you're pumping that electricity through more efficient machines.

Speaker Change: We expected bad environment post, having this sort of supposed to be the market that squeezes miners. This is a known unknown. When you go through the having that youre going to have a rough period, and so I think <unk>.

Speaker Change: Backwards looking I can tell you cash cost to produce a bitcoin was sub $50000 and and Thats with this idea that again.

Tyler Page: And that's with this idea that, again, We are completely focused on growth. We think these trends around data centers and Bitcoin mining, or rather Bitcoin network adoption, are likely to be really big. And I know you know this, and most of our investors know this, but like, you know, as as hash price goes up, or as Bitcoin price goes up, you know, in the moment, those additional dollars per Bitcoin dropped to our bottom line.

Speaker Change: We are completely focused on growth, we think these trends around data centers and bitcoin mining rather bitcoin network adoption.

Speaker Change: Are likely to be really big and I know you know this and most of our investors know this but like.

Speaker Change: As cash price goes up or bitcoin price goes up.

Tyler Page: That is definitely where we're going. I mean, to give a sense, our recent hash cost was about $43 per peta hash per day. That breaks down roughly into like $19 or so dollars of power cost and $24 of ops and GNA. And I view that as like the $24 of overhead there is because we're a development company, we're adding these new sites, we've got all these expansions coming in the near term.

Tyler Page: And that will drive down our costs significantly to give you a sense, just looking at hash cost, like just post RODESA upgrade, which is just a matter of rigs being delivered between now and your end and us swapping out older rigs, just doing that will likely drive our hash costs to below $30 per peta hash per day. And so, if you have the opportunity with low power costs, now's a good time to buy equipment, invest in scale, and I think there's a lot of growth opportunity.

Speaker Change: In the moment those additional dollars per bitcoin dropped to our bottom line.

Speaker Change: So we're very focused on expansion, but like you know half the cash costs were spending.

Tyler Page: You know, we're very focused on expansion, but like, you know, half the cash costs we're spending I view as an investment in scale and expansion. And so those numbers will get better and better by year end when we have a fleet that is much more efficient and has a bigger top line hash rate because of the upgrade at Odessa. And then in 2025, you know, we're projecting about 15 and a half joules per terahash efficiency across the entire fleet and potentially, you know, nearly tripling the top line.

Speaker Change: The view as an investment in scale and expansion.

Speaker Change: And so those numbers will get better and better by year end. When we have a fleet that is much more efficient and has a bigger top line hash rate because of the upgraded Odessa.

Speaker Change: And then in 2025.

We're projecting about a $15 five joules per terra hash efficiency across the entire fleet and potentially nearly tripling the topline so.

Tyler Page: So that investment today that we sort of make in the people that originate these sites and build these high quality data centers, that's now defrayed over a smaller, less efficient fleet. We are very much on the growth side of growth philosophy of driving down that cash cost, and then that translates to Bitcoin. But for like a metric in the ugly months post having, which are expected to be ugly, we're spending less than $50,000 of cash.

Speaker Change: That investment today that we sort of make and the people that originate these sites and build these high quality data centers, that's now defrayed over a smaller less efficient fleet.

Speaker Change: We are very much on the growth side.

Speaker Change: <unk> philosophy of driving down that cash cost and then that translates to bitcoin, but for like a metric in the ugly months post, having which are expected to be ugly, we're spending less than $50000 of cash and that includes what I'll call. This investment in the forward nature of the business and expansion as well as the cash cost.

Tyler Page: I think the other thing you can do is try to strip out all the costs and then you're really just a site that's trying to maximize your economics at a site, you're not a development company. I think in general, that's what is driving a lot of the M&A is folks trying to get to scale and maybe address their own shortcomings and their ability to do some part of the entire value chain.

Tyler Page: And that includes what I'll call this investment in the forward nature of the business and expansion, as well as the cash costs to actually pay for electricity. Got it. Thanks for that. And then just my other one real quickly on HPC.

Speaker Change: To actually pay for electricity in mind the bitcoin.

Tyler Page: We do that all in-house, so we source our own sites, we take it from dirt to an operating data center, and then we trade and manage curtailment and energy around the operations once it's done. So, what has happened is, I talked about M&A, we've been very busy this year, we've been in a lot of data rooms looking at opportunities for sites, companies to acquire, etc. What has generally happened is we get outbid for built sites, frankly we think people overpay for built sites, and that may be rational for other companies because they don't have the capabilities to build source their own sites and build their own sites.

Speaker Change: Got it thanks for that and then just my other one real quickly on HPT.

Tyler Page: You know, we spend a lot of time due diligence in different sites and locations. In Texas, there is a little bit of a concern around curtailment. I guess, do you guys envision this site, if it is for HPC, say the full 200 megawatts HPC, which it sounds like is what you guys are leaning towards, do you envision curtailment at that site? And especially if you think about the broader 1.5 gig, does that actually impact ERCOT approval? Has there been questions about that piece? Any kind of color on that?

Speaker Change: We spent a lot of time due diligence ing different sites and locations.

Tyler Page: We do, so I think we tend not to pay a premium and often we don't make it to the final bidding round. And what that's driven us towards is finding more sites earlier in the development chain, that's where we see the highest return on our investment. And so from an M&A perspective, that's where we've ended up allocating our time and efforts, and that's why you see the new sites that are coming online.

Speaker Change: There is a little bit of a concern around curtailment.

Speaker Change: I guess do you guys envision this site if it is for HPT I'll say, the full 200 megawatt CPC.

Speaker Change: What it sounds like you guys are leaning towards.

Speaker Change: Do you envision curtailment at that site.

Speaker Change: Especially as you think about the broader one five gig does that actually impact ERCOT approval there've been questions about that piece any kind of color on that.

Tyler Page: Yeah, I mean, a high level, I'd separate it even within ERCOT, you apply to be a flexible load, or an inflexible load when you're approved, you know, part of the approval to do what we do at our Bitcoin mining data centers, is getting what's called the LFL approval, the Large Flexible Load Approval, where sort of mapping out curtailment is a big part of how they think about balancing the grid down there and the particular areas, The HPC opportunity, no, these have availability to, you know, power 100% of the world, and even the site at Reveille, the site in Petula, Texas, you know, that's set up as a front-of-the-meter site, where, again, for Bitcoin mining, if we were to do Bitcoin mining there, we would absolutely manage curtailment because, you know, when we manage curtailment, we're stripping out the highest prices we would be paying for power and cutting our overall average power cost nearly in half by stripping out maybe 5% of the most expensive hours. HPC is a very different business. You're being paid for that 100% uptime.

Speaker Change: Yes, I mean high level.

Speaker Change: Separated even within ERCOT, you apply to be a flexible load or flexible load when Europe part of the approval to do what we do at our Bitcoin mining data centers is getting what's called the <unk> approval the large flexible load approval.

Speaker Change: We're sort of mapping out curtailments is a big part of how they think about balancing the grid down there in particular.

Tyler Page: Perfect, and then maybe just kind of following up on the timing of new sites coming online, for Black Pearl, middle of next year. To be right up, they all play two left, and the new one and a half gigs of sites that I guess you guys have secured powers for, or have options on. What's the timing of those potentially being energized, and how should we think about the financial outweighs for that and when that would occur?

Speaker Change: Areas of transmission and distribution.

Speaker Change: The <unk> opportunity I know these have availability to power 100% of the time.

Speaker Change: And even the site at reveille, the citing for two with Texas.

Speaker Change: That set up as a front of the meter site, where again for bitcoin mining. If we were to do bitcoin mining there we would absolutely manage curtailment because your strict when we manage curtailment, we're stripping out the highest prices, we would be paying for power and cutting our overall average power cost nearly in half by stripping out maybe.

Tyler Page: Yeah, so look, we're really excited about it, but I think everyone needs to understand that this is a longer term opportunity. These sites are two and a half years away, basically, from energizing. Now the good news about that, and I think as we think about the HPC business, we've spent a lot of time talking to potential tenants and thinking about how we would build a data center with three nines or five nines of uptime and the supply change you have to manage for that.

5% of the most expensive hours HBC is a very different business you are being paid for that 100% uptime and really most of the capex goes into that additional reliability of uptime I mean to give you a sense. When we say three nines of uptime of course, I'm sure everyone knows but youre thinking about <unk>.

Tyler Page: And really, most of the CapEx goes into that additional reliability of uptime. I mean, to give you a sense, you know, when we say three nines of uptime, of course, I'm sure everyone knows, but you're thinking about 99.9% uptime. And then going out to five nines, which is more typical for, say, a hyperscaler, so 99.999% of uptime, the cost goes up dramatically, right? You might be spending $3 to $4 million per megawatt for infrastructure to get three nines of uptime, where you could be up to $10 million or even more depending on the real estate location for five nines of uptime.

Tyler Page: Those supply chains go out years, so I think I know there's a lot of buzz in the industry about people throwing an HPC revenue. All I'd say is if you're going to do it by providing infrastructure to a large tenant, it takes a long time anyway before that revenue is going to materialize. And so the opportunity set here for us is those are well beyond black pearl. And so we have a really a best of option.

Speaker Change: 99, 9% uptime, and then going out to five nines, which is more typical for say a hyperscale orders of 90, 999% of uptime.

Speaker Change: The cost goes up dramatically right, you might be spending $3 million to $4 million per megawatt for infrastructure to get three nines of uptime.

Speaker Change: Whereas you could be up to $10 million or even more depending on the real estate location for five nines of uptime, but the point is that is generally all built around the idea that you are not managing curtailment now what I'll say I did allude to this earlier on the call.

Tyler Page: We like Bitcoin mining. These sites would be great for Bitcoin mining. They are also very large scale and have the necessary components for HPC. We had so much interest in that space. We spent a lot of time mapping out what it would take to build a data center with five nines of uptime from scratch, and it lines up with that timeline. So these are longer term projects, but I think where we see the industry going in the coming years is this value for interconnect value for data centers that are in desired locations and have the desired qualities. And we're like a best of option between the two businesses, but that's part of the long term positioning for Cypher. Perfect. Appreciate it. Thanks for all the fellow guys.

Tyler Page: But the point is that is generally all built around the idea that you are not managing curtailment. Now, what I'll say, I did allude to this earlier on the call. This is a very dynamic market, a year ago, you know, I think, hyperscalers would only maybe look at real estate in a place like the Dulles Corridor and want five nines of uptime. And if you talk to them, they may have 300 line items that they require for redundancy and very specific technical design requirements.

Speaker Change: This is a very dynamic market.

Speaker Change: Thank you.

A year ago.

Speaker Change: Thank you.

Speaker Change: <unk> would only maybe look at real estate in a place like the Dulles corridor and one five nines of uptime and if you talk to them. They may have 300 line items that they require for.

Speaker Change: For redundancy and very specific technical design requirements.

Tyler Page: What we've seen is there's now such a drive for megawatts, and it's kind of dynamic. Megawatts that are available sooner are even more valuable. You've seen a lot more flexibility on the side of the potential tenants. I think playing that out, what that means and could be interesting over time is... Maybe that trend continues. And in the future, curtailment becomes part of HPC. Maybe they say, hey, if you could drive down our costs, maybe we'd be willing to give up a couple percent of the uptime. All remains to be seen.

Speaker Change: What we've seen is there is now such a drive for megawatts and it's kind of a dynamic megawatts that are available sooner or even more valuable you've seen a lot more flexibility on the side of the potential tenants and so.

Bill Papanastasiou: Thank you. Our next question comes from Bill Papa Nostasou with Steve. Your line is open. Good morning, gentlemen. Thank you for taking my questions.

Speaker Change: I think playing that out what that means and could be interesting over time is.

Speaker Change: Maybe that trend continues and in the future.

Tyler Page: For the first one here, I was just hoping Tyler you'd be able to kind of share your philosophy on the HPC AI opportunity and how you're you're weighing the capital allocation strategy going forward. No, how might it look relative to Bitcoin mining? Now that you have these options in hand. Sure. Thanks, Bill. So I guess first of all, since there's I guess some of our competitors are taking different approaches in this space.

Speaker Change: Curtailment becomes part of HBC, maybe they say hey, if you can drive down our cost maybe we'd be willing to give up a couple percent of the uptime. All remains to be seen that's pure speculation I think we're really well positioned if that is what happens to the market, but given just how much of that is our core business.

Tyler Page: That's pure speculation. I think we're really well positioned if that is what happens to the market, given just how much of that is our core business. We'll see, but based on, let's call it the other compromises on location and some of the other, sort of technical requirements. It wouldn't surprise me if we see a market that continues to evolve on the HPC side in terms of what's required. Appreciate that, thanks, Byron. Thank you. Our next question comes from Mike Colonnese with HC Wainwright. Your line is open.

Speaker Change: We'll see but based on let's call. It the other compromises on location and some of the other.

Tyler Page: So let me distinguish what we're interested in. We do not plan to buy our own GPUs and be a seller of compute that is not a business we think is very complimentary to our skill sets and it has its own risks and enormous capital outlays associated with it. And so that is not our plan. Our plan is to be effectively a host for HPC infrastructure. And so what we hope to do is build out sites and have hyperscale or other large high quality tenants to sign a long term lease.

Speaker Change: Sort of technical requirements. It wouldn't surprise me if we see a market that continues to evolve on the HPE side in terms of what's required.

Speaker Change: I appreciate that thanks.

Speaker Change: Thank you.

Thank you. Our next question comes from Mike colonies with H C. Wainwright Your line is open.

Mike Colonnese: Good morning, guys, and congrats on all the recent deals. Definitely a lot in the works right now for Cipher. So I know it's still early days, but how should investors think about the revenue model and the economics for this upcoming HPC business, based on your planned go to market strategy, which sounds like you're going to take more of a co-location approach here? Yeah, thanks, Mike. I'd say, listen... First off, I'll try to give you a sense for what we've seen in preliminary discussions, but it's very clear to us that deals we would strike are pretty bespoke.

Mike Colonies: Hi, Good morning, guys and congrats on all the recent deals definitely a lot in the works right now for safer. So I know, it's still early days, but how should investors think about the revenue model and the economics for this upcoming HTC business based on your plan to go to market strategy, which sounds like you're going to take more of a co location approach here.

Tyler Page: Now, it's still a little early. We have I have been very busy speaking to both the potential tenants and a lot of financiers, the market is extremely busy and interested in this. The thing to keep in mind that's very different about the two businesses is there's there's different markets and different times where we may make more money Bitcoin mining or we may make more money in selling HPC infrastructure. The attractiveness of the HPC infrastructure opportunity is that those tend to be long term leases and obviously are not correlated with the ups and downs of Bitcoin price.

Speaker Change: Yes, Thanks, Mike I'd say listen.

Speaker Change: First off I'll try to give you a sense for what we've seen in preliminary discussions, but it's very clear to us that deals. We would strike are pretty bespoke. So I don't know that the deals we've seen would necessarily be indicative, but I mean, I think what we're seeing is.

Mike Colonnese: So I don't know that the deals we've seen would necessarily be indicative. But I mean, I think what we're seeing is, you know, gross margins in that business of 80%, and then, you know, financing quite a bit of that CAPEX depending on the stage you are who the lender would be. I mean, anecdotally, I can tell you there's quite a few investors that are out there that are interested in earlier stage financing, maybe when you're just building a data center or you have say a letter of intent from a large high quality tenant, there's a much more developed market if you've got a lease from a high quality tenant that is like, you know, bank financing and much more reasonably priced. These are all kind of dynamics we're looking at.

Speaker Change: Gross margins in that business of 80%.

Tyler Page: The other thing is, even though that's a much more capital intensive business, there is quite a developed financing market with some of the biggest lenders and investors in the world. And if you're focusing on the piece of the business that we are, there's a lot of appetite to finance, debt and even equity if you set up a development company to do very high LTC loans, you know, 90% of the cost might be loaned if you have a hyper-skiller tenant at a very reasonable interest rate.

And then on it.

Speaker Change: Financing quite a bit of that capex, depending on the stage you are who the lender would be I mean anecdotally I can tell you there's quite a few investors that are out there that are interested in earlier stage financing maybe when Youre just building a data center or you have say a letter of intent from a large high quality tenant there's a much more developed.

Speaker Change: Market, if you've got a lease from a high quality tenant that has like bank financing.

Speaker Change: And much more reasonably priced.

Tyler Page: Suffice to say investors are very interested in just the overall breadth of our portfolio and the potential capacity to do, you know, 1.7 gigawatts in the coming years has a lot of people excited. I think it's really hard for us to size specifics because we're just doing lots and lots of meetings on this right now trying to move quickly, but that's, you know, for what it's worth, that's what we've seen on the type of business we're looking at and we'll probably have more details. Got it, got it.

Speaker Change: These are all kind of dynamics, we're looking at suffice to say investors are very interested in just the overall breadth of our portfolio and the potential capacity to do one.

Tyler Page: And then as you develop more and more sites, you have the opportunity, you know, as they mature and have active tenants, there's a whole asset-backed securities financing market that's available. And so it is a very different business and how it operates compared to Bitcoin Mining where lenders have shied away from Bitcoin Mining for the past two plus years. Maybe that doesn't stay that way forever, but the successful Bitcoin miners, including Cipher, have pretty much entirely funded the buildouts with equity.

Speaker Change: One seven gigawatts in the coming years.

Speaker Change: There's a lot of people excited I think it's really hard for us to size specifics because we're just doing lots and lots of meetings on this right now trying to move quickly but that's.

Speaker Change: For what it's worth that's what we've seen on the type of business, where we're looking at and we'll probably have more details as specific conversations with banks.

Tyler Page: Now, you know, I think we can see really good ROI potentials on sites that you own and operate. You know, if we look at Black Pearl, of course, everything is going to depend on what happens to hash price and Bitcoin price going forward. But, you know, we look at ROI's on Black Pearl of a year and a half to three years, depending on what happens on the market. And that's great. So I think going forward, we do have time.

Tyler Page: Thanks for that. And just curious, what made you guys decide to go with the liquid cooled infrastructure for 50 of the total megawatts over at Black Pearl versus going air cooled for the full site? And how are you guys estimating out the CapEx related costs for liquid cooled versus what you would otherwise see for the air cooled? Thanks.

Speaker Change: Got it got it thanks for that and just curious what made you guys decide to go with the liquid cooled infrastructure for 50 of the.

Eric Hausler: Total megawatts over at Black Pearl versus going Eric Hausler for the full site and how are you guys estimating out the capex related cost for liquid cooled versus what you would otherwise see for the air cooled. Thanks.

Tyler Page: Yeah, great question. So look, we've been modeling a lot of different operating strategies in the test kitchen for a while now. Obviously, Texas is hot.

Eric Hausler: Yeah.

Eric Hausler: Great question, So look we've been.

Tyler Page: We're going to launch the HPC business. I think it starts with getting a really high quality tenant that wants to sign up for a lease at one of these sites. We have had a lot of time with some of those big names, our construction and ops team. And I know you know this bill because we went over recently, but, you know, we've got a lot of people that our ex-Google Vantage meta have operated hyper-scaler data centers.

Speaker Change: Modeling and a lot of different.

Speaker Change: Operating strategies in the test kitchen for Awhile now, obviously, Texas is hot.

Tyler Page: And so managing that heat and efficiency and all the various ways you can you can underclock and try to optimize your performance are all part of the analysis at a high level. You know, air-cooled tends to be the cheapest CapEx. And then the question is, you know, also the OPX is low, but you're probably going to have worse efficiency in production. The question is sort of where do you cross over to make a bigger upfront investment worth it? You know, for us to do 50 of the 300 megawatts in Hydro, you're talking about an incremental spend of probably close to $20 million. Use round numbers.

Speaker Change: So managing that heat and efficiency and all the various ways. You can you can under clock and try to optimize your performance are all part of the analysis at a high level.

Speaker Change: Eric will tends to be the cheapest capex.

Tyler Page: We've had all day meetings with technical team senior management with hyper-scaler potential tenants. I think our team is very well situated. This is a big competitive advantage for us. So, if that helps us secure a lease in the near term, where a lot of design input can come from the potential tenant, you know, pretty soon we would be dedicating those sites, whether it's the site in Catula or the future sites under option.

Speaker Change: And then the question is.

Speaker Change: Also the Opex is low, but you're probably going to have.

Speaker Change: Worse efficiency in production.

Speaker Change: <unk> is sort of where do you crossover to make a bigger upfront investment worth it for.

Speaker Change: For us to do 50 of the 300 megawatts hydro youre talking about an incremental spend of probably close to $20 million use round numbers.

Tyler Page: I think what's important to us is, number one, we think we've arrived at a setup in a system that's going to be best in class and will easily justify the incremental spend when we operate there. I think the other thing is, it's important for us to have a data center that, frankly, we can show off where we're doing hydro, because there's implications of that for HPC, obviously. I think, as part of a large-scale first step, we wanted to do 50. That said, we know air cooling pretty well. We know, with our curtailment and energy trading strategy, we can operate well in Texas with air cooled.

Speaker Change: I think what's important to us is number one.

Speaker Change: We think we've arrived at a setup in a system that's going to be best in class and will easily justify the incremental spend.

Tyler Page: And then seeing where that business goes. Again, Black Pearl, you know, we expect to have a very, very robust Bitcoin mining business next year. I think in a perfect world, we will offset it with, you know, a very nice long term HPC tenant contract. And then we'll see as it goes, the great thing about those sites that we've got in the pipeline is they'd also be wonderful for Bitcoin mining. I think the long term prospects for an HPC tenant are kind of nice if you look at the longer term leases.

Speaker Change: When we when we operate there I think the other thing is it's important for us to have a data center that frankly, we can show off.

Speaker Change: Where we're doing hydro.

Speaker Change: There's implications of that for HBC obviously.

Speaker Change: And I think as part of a large scale first step.

Speaker Change: We wanted to do 50 now that said.

Tyler Page: They probably in the back years of those contracts will exceed what Bitcoin mining data centers are likely to produce because hash price over long time periods tends to go down. There's a cyclical nature around having, you know, we're very bullish over the next year and a half for hash price expansion, but the long term trend is that you've got to get more efficient. And so the great thing about, you know, HPC revenue would be the sort of back end of a potential lease, where the numbers are likely to be higher in dollar terms that you're being paid for producing that providing, at Data Center.

Speaker Change: We know air cooling pretty well, we know with our curtailment in energy trading strategy, we can operate well in Texas with air cooled and so 50 megawatts ended up being the kind of goldilocks just right amount that its large scale.

Tyler Page: 50 megawatts ended up being the Goldilocks, just right amount that it's large-scale, but it's not like... Increasing CapEx in a crazy way with a new way of operating where I'm sure as good as we are, we'll certainly stub our toe and learn some lessons along the way. But overall, that's kind of the incremental pickup for the 50 megawatts of hydro that we're going to be using. Thank you. Great. Thanks for taking my questions, Tyler. Thanks.

Speaker Change: But it's not like.

Speaker Change: Increasing capex in a crazy way with new.

Speaker Change: New new way of operating where I'm sure as good as we are we will certainly stub our toe and learned some lessons along the way.

Speaker Change: But overall, that's kind of the incremental pick up for the 50 megawatts of hydro that we're going to do there.

Tyler Page: Awesome. I appreciate that color. I recall visiting the sites, you know, over a year ago and I was really impressed with the team there in Odessa.

Speaker Change: Great. Thanks for taking my questions Tyler.

Thanks, Mike.

Tyler Page: Thank you. Our next question comes from Tyler DiMatteo with BTIG. Your line is open.

Speaker Change: Thank you. Our next question comes from Tyler <unk> with <unk>. Your line is open.

Tyler Page: Just shifting gears here, Tyler, you know, Cipher has been able to lead Frog a number of peers and is now a top five minor on account of scale with 35X a hash. So just focusing on the Bitcoin mining aspect of the business. I'm curious to hear how important it is for Cipher to maintain this level of network market share relative to peers going forward. How should we think about that? Yeah, I mean, I think that's a good proxy for what we want to do, but we don't really do capital planning in terms of like what's our market share.

Tyler DiMatteo: Yeah. Hi, guys. Good morning.

Speaker Change: Yes, hi, guys. Good morning, Thanks for taking the question here Tyler I'm curious only only HBC opportunity and the sites I guess at a high level can you just kind of add some color in terms of the actual sourcing process.

Tyler DiMatteo: Thanks for taking the question here. Tyler, I'm curious about the HBC opportunity and the sites. I guess, at a high level, can you just kind of add some color in terms of the actual sourcing process and, you know, your strategy for that? Maybe, you know who you're bidding against? How early does the process have to start?

Speaker Change: Your strategy for that maybe who you're bidding again, how early is the process has to start.

Tyler Page: I guess what I'm wondering is, you know, you hear a lot about HBC. I'm curious, just, you know, is there a sweet spot for megawatts? I know it's early days for customers, but I guess is there a sweet spot as well? Any thoughts there broadly? Sure, so I'll go in reverse order on those questions, Tyler, thanks, you know, the largest tenants, let's call it hyperscalers, are probably not looking sub-100 and really would prefer like 200 plus megawatts.

I'm wondering if you hear a lot about HBC Im curious just is there a sweet spot for megawatt.

Speaker Change: I know, it's early days for customers, but I guess is there a sweet spot as well any thoughts there broadly.

Tyler Page: I guess we do as kind of a derivative of the way we think about it, but we're really focused on what's likely to happen to hash price and what will be our hash cost to produce the hash and that margin that's spread between those two numbers is really the business. And so, you know, listen, the foundation of that as I harp on on every one of our earnings calls is the low cost power.

Speaker Change: Sure. So I'll go in reverse order on those questions Tyler thanks.

Speaker Change: The largest tenants let's call it hyper scaler are.

Speaker Change: Probably not looking sub 100, and really would prefer like 200 plus megawatts.

Tyler Page: You know, I did mention on earlier on the call, we've had a lot of people ring us up and ask about Black Pearl and hey, could we take that for HPC and ditch your Bitcoin mining plans? And you know, the answer has been no.

Speaker Change:

Speaker Change: I did mention earlier on the call.

Speaker Change: We've had a lot of people ring us up and ask about black Pearl and pay could.

Tyler Page: That drive, you know, that's the number you cannot change or tweak. And so, once you lock that in, you can then be opportunistic through the cycle to do things like improve the efficiency of your miners. So, you know, I would say versus the last couple of years, we're still in a relatively cheap pricing period to acquire new rigs. And so, the pickup in efficiency can be very large for what is at least compared to historical numbers, a smaller capital outlay.

Speaker Change: Could we take that for HBC and ditch your bitcoin mining plans and the answer has been no.

Tyler Page: So, I think, you know, from a scale perspective, that's the most attractive thing about this portfolio of sites we've sourced is that, you know, we're hoping they are all approved for 500 megawatts of interconnect. That process is not done, but we're very constructive on it, and I think the good news is we came up with a pricing framework that we're only paying for the amount of megawatts that get approved. So, you know, our hope is that even if they don't get to 500 each, they are several hundred and in the ballpark, and they're all going to be very attractive. I expect to have more color on those in the coming months.

Speaker Change: So.

I think from a scale perspective, that's the most attractive thing about this portfolio of sites, we've sourced as that.

Speaker Change: We're hoping they're all approved for 500 megawatts of interconnect.

Speaker Change: That process is not done, but we're very constructive on it and I think the good news is we came up with a pricing framework that.

Tyler Page: We tend to look at projections on, you know, how much do we lower our hash cost? What's the capital outlay to produce that? What's the payback period? Now, I guess the knock on effect of that is it implies we will take market share and certainly thinking about what happens to network hash rate will determine the market share, but that's all kind of accounted in the forecasting for hash price. So, like, if Bitcoin prices go up, there'll be more network hash rate, you'll be fighting for market share and you might have less of it, but of course, Bitcoin prices will be higher. So, really, you know, the dynamic we look at is this forecasted hash price versus what our hash cost will be. I appreciate the color of that.

Speaker Change: We're only paying for the amount of megawatts that get approved so our hope is that even if they don't get to 500 each.

Operator: Thank you.

Speaker Change: There are several hundred and in the ballpark and Theyre, all going to be very attractive.

Speaker Change: <unk> to have more color on those in the coming months I expect well.

Tyler Page: You know, I expect, well, I, you know, hesitate to give exact timing because sometimes, you know, approvals processes take a while, but in the coming months, I think we will have more color on some of that as far as what gets approved. To take your first question on sourcing overall, I think this is something we take a great deal of pride in and I'm very proud of our team. This is in, it's no secret to everyone on the call.

Speaker Change: Hesitate to give exact timing because sometimes.

Speaker Change: Those processes take a while but in the coming months I think we will have more color on some of that as far as what gets approved.

Speaker Change: Your first question on sourcing overall I think this is something we take a great deal of pride in and I'm very proud of our team.

Speaker Change: This is and it's no secret to everyone on the call.

Tyler Page: It's an extraordinarily hot market to source opportunities. You add on top of that, that in Bitcoin mining specifically, it's a very active M&A environment, lots of assets are for sale, companies are for sale, etc. I think anyone can go buy a finished product.

Speaker Change: It's an extraordinarily hot market to source opportunities.

Speaker Change: You add on top of that that in bitcoin mining specifically, it's a very active M&A environment lots of assets are for sale companies or for sale et cetera.

John Todaro: Our next call. Our next question comes from John Tadaro with Needham and Company. Your line is open. Great. Thanks for taking my question. I have two of them. I guess first on the Bitcoin business and then the down the road HPC business. How do you think about allocating costs and investing in the business? How should investors be thinking about it? Is it on a more sort of Bitcoin cost basis in this post-heavy environment or that cost on a hash basis as you mentioned a few times?

Speaker Change: I think anyone can go buy a finished product and what you see is like I mentioned.

Tyler Page: And what you see is, like I mentioned, People overspend, in our opinion, I think, you know, Bitcoin miners are optimists. And so, you know, when you're looking at an asset, you can price it with rosier assumptions about what's gonna happen to Bitcoin and justify a higher cost, we tend to be a little bit more bearish in our forecasting just to protect the downside. It's not what we actually think's gonna happen in the real world.

Speaker Change: People overspend and are in our opinion I think.

Speaker Change: Bitcoin miners are optimists and so when.

Speaker Change: When youre looking at an asset you can price it with rosier assumptions about what's going to happen to bitcoin and justify a higher cost.

Speaker Change: We tend to be a little bit more bearish in our in our forecasting just to protect the downside. It's not what we actually think is going to happen in the real world.

Tyler Page: What we've observed is there are not very many of our competitors, and even this is true on the HPC side, like the hyperscalers have departments of people sourcing opportunities, but they're not necessarily experts in all the local rules for getting a site approved for interconnect. And so what we found is there's just not as many people fishing in that pond.

Speaker Change: What we've observed is there are not very many of our competitors and even this is true on the HPE side like the Hyperscale or has have departments of people sourcing opportunities, but they're not necessarily experts in all the local rules for getting a site approved for interconnect and so what we.

John Todaro: That's a good question, John. I mean, I think this is as investors get more savvy in the sector, I generally think the better way to think about things is hash price versus hash costs because it accounts for the kind of multiple variables, especially if you're projecting forward. I don't think the right thing to do is project forward on a cost per Bitcoin basis. That said, we get this question in almost every big institutional investor that's maybe newer to the space.

Speaker Change: Found is.

Speaker Change: There's just not as many people fishing in that pond.

Tyler Page: And we've been pretty consistent on that, right? All of our sites.., were sourced as like unbuilt dirt patches. And that's continued, and you've seen that with Black Pearl.

Speaker Change: And we've been pretty consistent on that rate well all of our sites.

John Todaro: They always start with a framework of what's your cost per Bitcoin, right? Because everyone follows the Bitcoin price, it's easier to think of in that sense. And I guess like on a backward-looking basis, I'm comfortable doing that because you don't have to think about, well, what happens then that we're cash rates. So like, if we just look post-having, if I translate our hash cost and hash price, you know, hash cost numbers, rather, and I'm backwards looking just post-having because that's what's most relevant, you know, our power cost to produce a Bitcoin is about $24,000 a Bitcoin, and for our all-in cash costs, it's sub $50,000, and that's post-having in what we expect is, you know, the expected bad environment post-having.

Speaker Change: Our source as like unbuilt dirt patches.

Speaker Change: And Thats continued and you've seen that with black Pearl I mean, we we got a great 300 megawatt opportunity at black Pearl for $7 million.

Tyler Page: I mean, we got a great 300-megawatt opportunity at Black Pearl for $7 million. Now, the downside to that is they're not ready as soon. Sometimes, our Twitter antagonists say we move too slowly. I think we're just moving very deliberately to build what is ultimately the best company in the space. It's just that good things take time.

Speaker Change: So we just now the downside to that is theyre not ready as soon.

Speaker Change: Sometimes I know are.

Speaker Change: Twitter antagonist say, we moved too slowly.

Speaker Change: I think we're just moving very deliberately to build what is ultimately the best company in the space. It's just a good things take time.

Tyler Page: Okay, great. Thanks for answering the questions there, Tyler. I really appreciate it. I'll turn it back to the queue here.

Speaker Change: Okay, great. Thanks for answering the question there Tyler really appreciate it I'll turn it back to the queue here.

Reginald Smith: Thank you. Our next question comes from Reggie Smith with JPM. Your line is open.

Speaker Change: Thank you. Our next question comes from Reggie Smith with J P. M. Your line is open.

Reginald Smith: Hey, HR, thanks for taking the question. So first, I wanted to give you guys credit for managing operating expenses. It's not lost on us that you guys are holding the line there pretty well. I guess, based on the last answer, it sounds like your M&A team is the real MVP.

John Todaro: This is supposed to be the market that squeezes miners. This is unknown, unknown, when you go through the having that you're going to have a rough period. And so, I think, you know, backwards looking, I can tell you, cash cost to produce a Bitcoin was sub $50,000. And that's with this idea that, again, we are completely focused on growth. We think these trends around data centers and Bitcoin mining, or rather Bitcoin network adoption, are likely to be really big.

Reggie Smith: Hey, Tyler Thanks for taking the question. So first I wanted to give you guys credit for managing operating expenses is not lost on US that you guys are holding the line here.

Speaker Change: Pretty well.

Speaker Change: Based on the last answer it sounds like the M&A too.

Speaker Change: <unk> do you guys need to make sure they don't leave and go to the hyper scaler, but my question.

Tyler Page: You guys need to make sure that they don't leave and go to the hyperscaler. But my question, I wanted to ask you, thinking about what you've announced today, I'm trying to, I guess, frame the CapEx requirement for that. I think if I look at the 1.5, 1.8 gigawatts you guys have announced today, if you were to build that as a miner, my math is that it could cost roughly $3 billion to build out. Thinking about HPC's wealth math, I think for every 100 megawatts, you're looking at maybe $1 billion or $2 billion in just infrastructure build out. One, I want to see if those numbers are correct.

Speaker Change: Thinking about what you've announced today and I'm trying to I guess frame the capex requirement for that I think.

John Todaro: And I know you know this, and most of our investors know this, but like, you know, as hash price goes up, or as Bitcoin price goes up, you know, in the moment, those additional dollars per Bitcoin drop to our bottom line. You know, so we're very focused on expansion, but like, you know, half the cash costs we're spending, I view as an investment in scale and expansion. And so, those numbers will get better and better by year end, when we have a fleet that is much more efficient and has a bigger top line hash rate because of the upgraded Odessa.

Speaker Change: If I look at the 1518.

Speaker Change: What do you guys have announced today.

Speaker Change: If you were to build that.

Speaker Change: Minor.

Speaker Change: Is it at a cost of roughly $3 billion to build outs.

Speaker Change: Thinking about <unk>.

Speaker Change: Rough math I think for every 100 megawatts.

Looking at maybe 1 billion to $2 billion is just infrastructure build out one I wanted to see if those numbers are correct and then two.

Tyler Page: And then two, with that as kind of a bad job, how do you think about balancing CapEx and returning capital to investors or rather, you know, holding cash or whatever it is? You know, like, it seems like there's a heavy period of investment that we're kind of looking at, and I'm curious how you balance that. The question is, are those numbers accurate?

Speaker Change: With that as kind of a bottoms up how do you think about balancing capex and.

And returning capital to.

John Todaro: And then in 2025, you know, we're projecting about a 15 and a half fuels per terrah hash efficiency across the entire fleet. And potentially, you know, nearly tripling the top line. So, that investment today that we sort of make in the people that originate these sites and build these high quality data centers, that's now defrared over a smaller, less efficient fleet. We are very much on the growth side of growth philosophy of driving down that hash cost and then that translates to Bitcoin, but for like a metric in the ugly months post having, which are expected to be ugly, we're spending less than $50,000 a cash and that includes what I'll call this investment in the forward nature of the business and expansion, as well as the cash cost to actually pay for electricity in mind the Bitcoin.

Speaker Change: So investors are rather holding back or whatever it is like it seems like there is a heavy.

Speaker Change: Heavy period of investment that we're kind of looking at and I'm curious how you balance that the question is are those numbers accurate and then two how do you balance.

Tyler Page: Got it. Thanks for that.

Speaker Change: It means the capex.

Speaker Change: Sure.

Speaker Change: Returning calls or towards generating free cash flow.

Tyler Page: And then two, how do you balance the need for CapEx with the need for returning cash or generating free cash flow? Sure. Thanks, Reggie. Let me say before I answer your questions that, you know, I'm very blessed. I have a lot of MVPs here.

Speaker Change: Sure. Thanks, Rajeev, let me say before I answer your questions.

Tyler Page: I have about the easiest job in the world because I have really good people in sourcing sites, but also we've got MVPs in building the sites, operating the sites, trading and hedging, etc. All I have to do is.., watch our great people do great work, so, of an all-star team, that I get to just coach. You know, that said, quick math on your numbers. Yeah, I'd say on the HPC side, that sounds ballpark correct.

Speaker Change: I'm very blessed to have a lot of mvp's here I have about the easiest job in the world because I have really good people in sourcing sites, but also we've got mvps and building the sites operating the sites trading and hedging et cetera.

Speaker Change: All I have to do is watch our great people do great work. So we're sort of an all star team here that I get to just coach.

Speaker Change: That said.

Speaker Change: Quick math on your numbers I would say on the HPE side Thats sounds ballpark correct.

Tyler Page: And then just my other one real quickly on HPC. You know, we spent a lot of time due diligence in different sites and in locations. In Texas, there is a little bit of a concern around curtailment. I guess you guys envision this site, if it is for HPC, say the full 200 megabytes HPC, which it sounds like is what you guys are leaning towards. Do you envision curtailment at that site, and especially do you think about the broader 1.5 gig?

Tyler Page: It is a very capital-intensive business. And that's why, you know, when it comes to thinking about investment returns, it's really driven by the funding there. That's why we mentioned this as one of the legs of the stool. You've got to have the sites.

Speaker Change: Very capital intensive business and Thats why when it comes to thinking about investment returns, it's really driven by the funding. There. That's why we mentioned this is one of the legs of the stool you've got to have the sites you've got to have the team that can do it again, we've already got the sites. We've got the team already hired we don't need to go out and hire people that.

Tyler Page: You've got to have the team that can do it. Again, we've already got the sites. We've got the team already hired.

Tyler Page: We don't need to go out and hire people that know how to build and develop HPC data centers. The third piece is the capital, and it's early on that. I'd say we're comfortable talking about this business at such an early stage because of just the amount of interest from very high-quality lenders and investors that have been all over us for this business. So yes, the capital outlay is enormous. If you think about a 1.7 gigawatt-type portfolio, but the only way that will be built by Cypher is if lots of it is financed, debt-financed.

Speaker Change: Know how to build and develop HBC data centers.

Tyler Page: Does that actually impact Burkot approval? Has there been questions about that piece? Any kind of color on that? Yeah, I mean, a high level, I'd separated, even within Irkot, you apply to be a flexible load for an inflexible load when you're, you know, part of the approval to do what we do at our Bitcoin mining data centers, is getting what's called the LFL approval, the large flexible load approval, where sort of mapping out curtailments is a big part of how they think about balancing the grid down there and the particular areas of transmission and distribution.

Speaker Change: The third piece is the capital and it's early on that I'd say, we're comfortable talking about this business at such an early stage because of just the amount of interest from very high quality lenders and investors that have been all over us for this business. So yes, the capital out.

Les: Les is enormous if you think about <unk>.

Les: One seven gigawatt type portfolio, but the only way that will be built by site or is it lots of it is financed debt financed.

Tyler Page: And that could include, you know, we've got multiple proposals for setting up, you know, devcos that would finance separately from the Bitcoin mining business. There's a lot of structuring analysis and optimization that needs to be done. And none of that is finalized.

Les: And that could include we've we've got multiple proposals for setting up.

Tyler Page: The HPC opportunity, no, these have availability to, you know, power 100%, of the time. And even the site at Rebelly, the site in Patula, Texas, that setup is in front of the meter site where, again, for Bitcoin mining, if we were to do Bitcoin mining there, we would absolutely manage curtailment because when we manage curtailment, we're stripping out the highest prices we would be paying for power and cutting our overall average power cost nearly in half by stripping out maybe 5% of the most expensive hours.

Les: Dev COSE that would finance separately from the bitcoin mining business Theres, a lot of structuring analysis and optimization that needs to be done.

Tyler Page: So you're highlighting one of the main challenges is just like, wow, that's a lot of capital if you're gonna do that all for HPC. And you would definitely not finance that business the way we finance Bitcoin mining. Now, separately, running the numbers on, I'll try to, without.., thinking about, I don't know that I can do the math on the fly on what Bitcoin mining would likely to be on 1.7 gigawatts.

Speaker Change: And none of that is finalized so youre highlighting one of the main challenges is just like Wow. That's a lot of capital if youre going to do that all for HBC and you would definitely not finance that business the way, we finance bitcoin mining.

Les: Now separately.

Les: Running the numbers on it.

Speaker Change: I'll try to.

Speaker Change: Without.

Speaker Change: Thinking about I don't know that I can do the math on the fly on what bitcoin mining would likely to be on one seven gigawatts.

Tyler Page: HPC is a very different business. You're being paid for that 100% up time. And really, most of the CAPEX goes into that additional reliability of up time. I mean, to give you a sense, when we say three nines of up time, of course, I'm sure everyone knows, but you're thinking about 99.9% up time and then going out to five nines, which is more typical for say a hyper scaler, so 99.99% of up time.

Tyler Page: I think, let me give you some framework for how we think about return on Black Pearl. We look at the build costs, and that obviously includes where you're locking in rig prices as a massive part of the cost there. We look at ROIs under various forward hash price scenarios.

Speaker Change: I think let me give you some framework for how we think about return on Black Pearl We look at the build costs and that includes obviously, where you are locking in rig prices is a massive part of the cost there.

Speaker Change: We look at Rois under various forward hash price scenarios and.

Tyler Page: And again, we look at ROIs that we're targeting a year and a half to three years payback period on Black Pearl. So that's going to be a similar framework for how we decide what to do with any data center for Bitcoin mining. Now, what becomes different is if we're thinking about these sites that are maybe two, three years how we finance them. You know, I hope that someday reasonably priced debt financing becomes available for Bitcoin mining. I think it will.

Speaker Change: And again, we look at Rois that we are targeting a year and a half to three years payback period on black Pearl. So that's that's going to be a similar framework for how we decide what to do with any <unk>.

Tyler Page: The cost goes up dramatically, right? You might be spending three to four million dollars per megawatt for infrastructure to get three nines of up time. Whereas you could be up to, you know, ten million dollars or even more depending on the real estate location for five nines of up time. But the point is that is generally all built around the idea that you are not managing curtailment. Now, what I'll say, I did allude to this earlier on the call.

Speaker Change: Datacenter for Bitcoin mining now.

Speaker Change: It becomes different is if we're thinking about these sites that are maybe two or three years off.

Speaker Change: How we finance them.

Tyler Page: This is a very dynamic market. A year ago, you know, I think hyper scalers would only maybe look at real estate in a place like the dollars corridor and want five nines of up time. And if you talk to them, they may have 300 line items that they require for redundancy and very specific technical design requirements. What we've seen is there's now such a drive for megawatts and it's kind of dynamic, megawatts that are available sooner are even more valuable.

Speaker Change: I hope that someday reasonably priced debt financing becomes available for bitcoin mining I think it will you need bitcoin to be more generally accepted maybe we've got broader acceptance across the investing universe here continued growth of the Etfs and embraced by politicians et.

Tyler Page: You need Bitcoin to be more generally accepted. Maybe we've got, you know, broader acceptance across the investing universe here, continued growth of the ETFs and embraced by politicians, etc. And then you can debt finance more of it and it's less of just a equity financed game. You know, that said, we'll have to see what the market looks like. I know there's lots of avenues available to us to finance Bitcoin mining, but it's hard to project on the entire portfolio.

Speaker Change: Cetera, and then you can debt finance more of it and it's less of just a equity financed game.

Speaker Change: That said, we will have to see what the market looks like I know, there's lots of avenues available to us.

Speaker Change: To finance bitcoin mining, but it's hard to project on the entire portfolio.

Tyler Page: You've seen a lot more flexibility on the side of the potential tenants. And so I think playing that out, what that means and could be interesting over time is maybe that trend continues. And in the future curtailment becomes part of HPC. Maybe they say, hey, if you could drive down our cost, maybe we'd be willing to give up a couple percent of the up time. All remains to be seen. That's pure speculation.

Tyler Page: You know, that's a lot of capital. That's why I'm pretty comfortable saying a decent portion of that is highly likely to, Perfect, thank you. Thank you. Our next question comes from Mike Grondahl with Northland. Your line is open.

Speaker Change: A lot of capital.

Speaker Change: Pretty comfortable saying a decent portion of that is highly likely to be H P. C.

Speaker Change: Perfect. Thank you.

Speaker Change: Thank you. Our next question comes from Mike Grondahl with Northland. Your line is open.

Mike Grondahl: Hey Tyler and Ed, thank you. You know, over the last 90 days, it sounds like you had a lot of discussions with hyperscalers and finance partners. What was sort of the biggest learnings for you? and maybe what do you see as sort of the biggest challenge kind of going forward? So it's a good question, Mike.

Mike Grondahl: Hey, Tyler Thank you.

Speaker Change: Over the last 90 days it sounds like you had a lot of discussions with hyper scaler and finance partners.

Tyler Page: I think we're really well positioned if that is what happens to the market given, you know, just how much of that is our core business. We'll see, but based on, let's call it the other compromises on location and some of the other sort of technical requirements, it wouldn't surprise me if we see a market that continues to evolve on the HPC side in terms of what's required. Appreciate that.

Mike Grondahl: What was sort of the biggest learnings for you and maybe what do you see as sort of the biggest challenge kind of going forward with that H P. C effort.

Operator: Thank you.

Speaker Change: So it's a good question, Mike and I think you actually alluded to what at least what I think the biggest challenges is that you are pulling together two pieces to make it work right, but you need to figure out a path for financing for any of these large scale builds and you need to figure out a high credit quality tenant side. So.

Tyler Page: And I think you actually alluded to what, at least what I think the biggest challenge is, is that you're pulling together two pieces to make it work, right? You need to figure out a path for financing for any of these large-scale builds, and you need to figure out a high credit quality tenant side. So we're running both in parallel.

Mike Colonnese: Our next question comes from Mike Colonies with HC Waynewright. Your line is open. Good morning, guys. Congrats on all the recent deals. Definitely a lot in the works right now for Cypher. So I know it's still early days, but how should investors think about the revenue model and the economics for this upcoming HPC business based on your plan, go to market strategy, which sounds like you're going to take more of a co-location approach here.

Speaker Change: We're running both in parallel we've learned quite a bit I would say on the tenant side. It's a lot of it is around the technical requirements. So our team as I often highlight has spent a lot of time at places like Google they've built hyperscale data centers.

Tyler Page: We've learned quite a bit. I'd say on the tenant side, a lot of it is around the technical requirements. So our team, as I often highlight, has spent a lot of time at places like Google. They've built hyperscaler data centers.

Tyler Page: The market a few years ago, before they were at Cipher, was a little bit different in that I think a hyperscaler tenant might be a lot more set in their ways about what their technical requirements might be. And to be specific, some of these potential tenants, imagine like a... Hundreds of requirements on an endless spreadsheet for all the technical details of the build.

Speaker Change: Market a few years ago before they were at Cypher was a little bit different in that.

Mike Colonnese: Yeah, thanks, Mike. I'd say listen. First off, I'll try to give you a sense for what we've seen in preliminary discussions, but it's very clear to us that deals we would strike are pretty bespoke. So I don't know that the deals we've seen would necessarily be indicative. But I mean, I think what we're seeing is, you know, gross margins in that business of 80%. Quite a bit of that capex, depending on the stage you are, who the lender would be.

Speaker Change: A hyperscale or tenant might be a lot lot more set in their ways about what their technical requirements might be and to be specific.

Speaker Change: Some of these potential tenants imagine like a.

Speaker Change: Hundreds of requirements on enlist spreadsheet for all the technical details of the build.

Tyler Page: You know, it's not to say they're compromising any of what they want, it's more that there's some flexibility because I think there's such a desire for large-scale sites. And so I think what's been interesting is learning just how flexible some tenants have become and what they're willing to accept. So the most obvious first step of that is like, sure, we'd love a data center somewhere in West Texas, you know, like what about... I told you, we got some inquiries about Black Pearl, you know, but that's because.

Speaker Change: It's not to say they are compromising any of what they want its more that there is some flexibility because I think there is such a desire for large scale sites and so I think what's been interesting is learning just how flexible some tenants have become and what they are willing to accept.

Mike Colonnese: I mean, anecdotally, I can tell you there's quite a few investors that are out there that are interested in earlier stage financing. Maybe when you're just building a data center or you have say a letter of intent from a large high quality tenant. There's a much more developed market if you've got a lease from a high quality tenant that is like bank financing and much more reasonably priced. These are all kind of dynamics we're looking at suffice to say investors are very interested in just the overall breadth of our portfolio and the potential capacity to do, you know, 1.7 gigawatts in the coming years.

Speaker Change: So the most obvious first step of that is like sure we'd be we'd love a data center somewhere in west, Texas like what about <unk>.

I told you we got some inquiries about black Pearl.

Speaker Change: But that's because.

Tyler Page: Fiber networks continue to get built out, you know, starts to become questions of like, what's nice to have versus must have as folks build out? this massive need for capacity. I think on the financing side, you know, still a learning process. I think it's learning about, I think both how mature the financing market is for like a full-on lease from a high-quality tenant. I'm not sure I realize how quite fully developed and broadly acceptable by the biggest banks in the world that marketplace is.

Speaker Change: Fiber networks continue to get built out.

Speaker Change: It starts to become questions of like what's nice to have versus must have is as folks build out.

Speaker Change: This massive need for capacity I think on the financing side.

Speaker Change: Still a learning process I think it's.

Mike Colonnese: It has a lot of people excited. I think it's really hard for us to size specifics because we're just doing lots and lots of meetings on this right now trying to move quickly. But that's, you know, for what it's worth. That's what we've seen on the type of business we're looking at and we'll probably have more details as specific conversations. Got it. Thanks for that.

Speaker Change: Learning about I think both how mature the financing market is for like a full on lease from our high quality tenant.

Speaker Change: Sure I realized how quite fully developed broadly acceptable by the biggest banks in the world that marketplace is I think we're still learning kind of then if you go earlier in the financing and construction financing stages like what the market places like in what people are willing to learn.

Tyler Page: I think we're still learning kind of then if you go earlier in the financing and construction financing stages, like what the marketplace is like and what people are willing to loan for in the pre-lease stages. And that's also highly variable. So it's an ongoing learning experience. I mean, I think, you know, my calendar is chock-a-block full of meetings with people. And there's a pretty wide variety, actually, on, what people will finance and how anxious they are to get in the business.

Tyler Page: And just curious what made you guys decide to go with the liquid cooled infrastructure for 50 of the total megawatts over at Black Pearl versus going air cooled for the full site. And how are you guys estimating out the capex related costs for liquid cooled versus what you would otherwise see for the air cooled. Thanks. Yeah, great question. So look, we've been modeling a lot of different operating strategies in the test kitchen for a while now.

Speaker Change: One.

Speaker Change: For in the pre lease stages and that's also highly variable. So it's an ongoing learning experience I mean, I think my calendar is chockablock full of meetings with people and there's a pretty wide variety actually on.

Speaker Change: What people will finance and how anxious they are to get in the business. So I think that the number one taken I think the hardest thing is lining up the two pieces simultaneously because they are very much connected right you want to get to a place where you have a full on lease.

Tyler Page: So I think that the number one takeaway, I think the hardest thing is lining up the two pieces simultaneously, because they're very much connected, right? You want to get to a place where you have a full-on lease, because that's going to give you the broadest, cheapest financing option, on the financing side, it's also just how bespoke it is, and I think it's indicative of a market that's just frenzied to find large-scale sites.

Tyler Page: Obviously, Texas is hot. And so managing that heat and efficiency and all the various ways you can, you can underclock and try to optimize your performance are all part of the analysis at a high level. You know, air cooled tends to be the cheapest capex. And then the question is, you know, also the op x is low, but you're probably going to have worse efficiency and production. The question is sort of where do you cross over to make a bigger upfront investment worth it, you know, for us to do 50 of the 300 megawatts in hydro, you're talking about an incremental spend of probably close to $20 million.

Speaker Change: Because that's going to give you the broadest cheapest financing options.

Speaker Change: On the financing side. It's also just how bespoke it is and I think it's indicative of a market. That's just frenzied to find large scale sites that work.

Tyler Page: Got it. Hey, that's helpful and best of luck. Thank you. That's all the time we have for questions.

Speaker Change: Got it.

Speaker Change: That's helpful and best of luck.

Speaker Change #100: Thank you.

Tyler Page: I'd like to turn the call back over to Tyler Page for any closing remarks. Thank you everyone for taking time this morning to join us. We're at the cusp of a lot of growth and scale coming to Cipher and we're really excited about where we're positioned. So look forward to giving future updates as everything builds out. Thank you again. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day. Thanks for watching!

Speaker Change #100: Thank you that's all the time, we have for questions I'd like to turn the call back over to Tyler page for any closing remarks.

Well. Thank you everyone for taking time this morning to join US we're at the cusp of a lot of growth and scale coming to cipher and we're really excited about where we're positioned so look forward to giving future updates as everything builds out. Thank you again.

Tyler Page: Use round numbers. I think what's important to us is number one, we think we've arrived at a set up in a system that's going to be best in class and will easily justify the incremental spend when we operate there. I think the other thing is it's important for us to have a data center that frankly, we can show off where we're doing hydro because there's implications of that for HPC, obviously. And I think as part of a large scale first step, we wanted to do 50 now that said, you know, we know air cooling pretty well.

Speaker Change #101: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

Speaker Change #101: Okay.

Speaker Change #101: [music].

Speaker Change #101: Okay.

Speaker Change #101: Yeah.

Speaker Change #101: [music].

Speaker Change #101: Okay.

Speaker Change #101: [music].

Tyler Page: We know with our curtailment and energy trading strategy, we can operate well in Texas with air cooled. And so, you know, 50 megawatts ended up being the kind of Goldilocks just right amount that it's large scale. But it's not like, and increasing CapEx in a crazy way with new way of operating where I'm sure as good as we are, we'll certainly stub our toe and learn some lessons along the way. But overall, that's kind of the incremental pickup for the 50 megawatts of hydro that we're going to do there. Great. Thanks for taking my questions, Tyler. Thanks, Mike. Thank you.

Tyler DiMatteo: Our next question comes from Tyler DiMatteo with BTIG. Your line is open. Yeah. Hi guys. Good morning. Thanks for taking the question here. Tyler, I'm curious only, only HPC opportunity and the sites.

Tyler Page: I guess at a high level, can you just kind of add some color in terms of the actual sourcing process and your strategy for that, maybe who you're bidding against, how early is the process at the start. I guess what I'm wondering is, you know, you hear a lot about HPC. I'm curious, is there a sweet spot for megawatts? I know it's early days for customers, but I guess is there a sweet spot as well? Any thoughts there broadly?

Tyler Page: Sure. So I'll go in reverse order on those questions, Tyler. Thanks. You know, the largest tenants, let's call it hyperscalers, are probably not looking sub 100 and really would prefer like 200 plus megawatts. You know, I did mention on earlier on the call, we've had a lot of people ring us up and ask about Black Pearl and hey, could we take that for HPC and ditch your Bitcoin lane plans and, you know, the answer has been no.

Tyler Page: So I think, you know, from a scale perspective, that's the most attractive thing about this portfolio of sites we've sourced is that, you know, we're hoping they are all approved for 500 megawatts of interconnect. That process is not done, but we're very constructive on it, and I think the good news is we came up with a pricing framework that we're only paying for the amount of megawatts that get approved. So, you know, our hope is that even if they don't get to 500 each, they are several hundred and in the ballpark and they're all going to be very attractive.

Tyler Page: I expect to have more color on those in the coming months, you know, I expect. Well, I, you know, hesitate to give exact timing because sometimes, you know, approval process is take a while, but in the coming months, I think we will have more color on some of that as far as what gets approved.

Tyler Page: To take your first question on sourcing, overall, I think this is something we take a great deal of pride in and I'm very proud of our team. This is in, it's no secret to everyone on the call. It's an extraordinarily hot market to source opportunities. You add on top of that that in Bitcoin mining specifically, it's a very active M&A environment, lots of assets or for sale, companies or for sale, etc.

Tyler Page: I think anyone can go by a finished product and what you see is, like I mentioned, people overspend in our, in our opinion. I think, you know, Bitcoin miners are optimists and so, you know, when you're looking at an asset, you, you can price it with rosier assumptions about what's going to happen to Bitcoin and justify our higher cost. We tend to be a little bit more bearish in our forecasting just to protect the downside.

Tyler Page: It's not what we actually think is going to happen in the real world. What we've observed is there are not very many of our competitors and even this is true on the HPC side like the hyperscalers have departments of people sourcing opportunities but they're not necessarily experts in all the local rules for getting a site approved for interconnect. And so what we found is there's just not as many people fishing in that pond and we've been pretty consistent on that, right?

Tyler Page: All of our sites were sourced as like unbuilt dirt patches and that's continued and you've seen that with Black Pearl. I mean, we we got a great 300 megawatt opportunity at Black Pearl for $7 million. So we just now the downside to that is they're not ready as soon. Sometimes I know our Twitter antagonists say we move too slowly. I think we're just moving very deliberately to build what is ultimately the best company in the space. It's just a good things take time.

Tyler Page: Okay, great. Thanks for answering the questions. They're tired. I really appreciate it.

Operator: I'll turn it back to the Q here. Thank you.

Reggie Smith: Our next question comes from Reggie Smith with JPM. Your line is open. Okay, a dollar. Thanks for taking the question. So first I wanted to give you guys credit for managing operating expenses. It's not lost on us that you guys are holding the line there. Pretty well. I guess just look this list based on the last answer. It sounds like you're in an 18 is the real MVP. You guys need to make sure they don't leave and go to the hyperscaler.

Reggie Smith: But my question. I wanted to ask you think about what you've announced today. I'm trying to, I guess, frame the Catholics requirements for that. I think if I look at the 1.5, 1.8 gigawatts, you guys have announced today, if you would have built that as a as a minor, my math is that it could cost roughly $3 billion to build out. Thinking about HPC wealth math, I think for every 100 megawatts, you're looking at maybe a billion, a $2 billion, just infrastructure build out. One, I want to see if those numbers are correct.

Tyler Page: And then two, with that as kind of a bad job, how do you think about balancing ethics and returning capital to investors or rather, you know, holding cash or whatever it is. You know, like it seems like there's a heavy period of investment they were kind of looking at. I'm sure it's how you balance that. The question is, are those numbers accurate and then see how do you balance the news for Catholics with the news for returning cash or generating free cash.

Tyler Page: Thanks. Sure. Thanks, Reggie. Let me say before I answer your questions that, you know, I'm very blessed to have a lot of MVP here. I have about the easiest job in the world because I have really good people in sourcing sites, but also we've got MVP's in building the sites, operating the sites, trading and hedging, etc. All I have to do is watch our great people do great work. So We're sort of an all star team here that I get to just coach.

Tyler Page: You know, that said, quick math on your numbers. Yeah, I'd say on the HPC side, that sounds ballpark correct. It is a very capital intensive business. And that's why, you know, when it comes to thinking about investment returns, it's really driven by the funding there. That's why we mentioned this is one of the legs of the stool. You've got to have the sights. You've got to have the team that can do it.

Tyler Page: Again, we've already got the sights. We've got the team already hired. We don't need to go out and hire people that know how to build and develop HPC data centers. The third piece is the capital. And it's early on that I'd say we're comfortable talking about this business at such an early stage because of just the amount of interest from very high quality lenders and investors that have been all over us for this business.

Tyler Page: So yes, the capital outlay is enormous. If you want to think about a 1.7 gigawatt type portfolio, but the only way that will be built by Cypher is if lots of it is financed and debt financed. And that could include, you know, we've got multiple proposals for setting up, you know, dev codes that would finance separately from the Bitcoin mining business. There's a lot of structuring analysis and optimization that needs to be done.

Tyler Page: And none of that is finalized. So you're highlighting one of the main challenges is just like, wow, that's a lot of capital. If you're going to do that all for HPC and you would definitely not finance that business the way we finance Bitcoin mining. Now separately running the numbers on I'll try to without thinking about I don't know that I can do the math on the fly on what Bitcoin mining would likely to be on 1.7 gigawatts.

Tyler Page: I think let me give you some framework for how we think about return on black pearl. We look at the build costs and that includes obviously where you're locking in rigged prices is a massive part of the cost there. We look at ROIs under various forward hash price scenarios. And again, we look at ROIs that we're targeting a year and a half to three years payback period on black pearl. So that's going to be a similar framework for how we decide what to do with any data center for Bitcoin mining.

Tyler Page: Now what becomes different is if we're thinking about these sites that are maybe, you know, two, three years off, how we finance them, you know, I hope that someday reasonably priced debt financing becomes available for Bitcoin mining. I think it will you need Bitcoin to be more generally accepted. Maybe we've got, you know, broader acceptance across the investing universe here continued growth of the ETFs and embraced by politicians, et cetera. And then you can get finance more of it and it's less of just a equity finance game.

Tyler Page: You know, that said, we'll have to see what the market looks like. I know there's lots of avenues available to us to finance Bitcoin mining, but it's hard to project on the entire portfolio. SPC. Perfect. Thank you.

Mike Grondahl: Our next question comes from Mike Grondahl with Northland. Your line is open. Hey Tyler Ned, thank you. You know, over the last 90 days, it sounds like you had a lot of discussions with hyperscalers and finance partners. What was sort of the biggest learnings for you? And maybe what do you see as sort of the biggest challenge kind of going forward with that HPC effort? So it's a good question, Mike. And I think you actually alluded to what I really saw.

Mike Grondahl: I think the biggest challenges is that you're pulling together two pieces to make it work, right? You need to figure out a path for financing for any of these large scale builds. And you need to figure out a high credit quality tenant side. So we're running both in parallel. We've learned quite a bit. I say on the tenant side, it's a lot of it is around the technical requirements. So our team, as I often highlight has been a lot of time at places like Google, they've built hyperscaler data centers.

Mike Grondahl: The market a few years ago before they were at Cypher was a little bit different in that I think a hyperscaler tenant might be a lot more set in their ways about what their technical requirements might be. And to be specific, you know, some of these potential tenants, you know, imagine like a hundreds of requirements on an endless spreadsheet for all the technical details of the build. You know, it's not to say they're compromising any of what they want.

Mike Grondahl: It's more that there's some flexibility because I think there's such a desire for large scale sites. And so I think what's been interesting is learning just how flexible some tenants have become in what they're willing to accept. So the most obvious first step of that is like, sure, we'd love a data center somewhere in West Texas, you know, like what about I told you we got some inquiries about black pearl, you know, but that's because fiber networks continue to get built out, you know, it starts to become questions of like what's nice to have versus must have as folks build out this massive need for capacity.

Mike Grondahl: I think on the financing side, you know, still a learning process. I think it's learning about I think both how mature the financing market is for like a full on lease from a high quality tenant. I'm not sure I realized how quite fully developed and broadly acceptable by the biggest banks in the world that marketplace is. I think we're still learning kind of then if you go earlier in the financing and construction financing stages, like what the marketplace is like and what people are willing to loan for in the pre lease stages.

Mike Grondahl: And that's also highly variable. So it's an ongoing learning experience. I mean, I think, you know, my calendar is chocolate block full of meetings with people and there's a pretty wide variety actually on what people will finance and how anxious they are to get in the business.

Tyler Page: So I think that the number one take I think the hardest thing is lining up the two pieces, because they're very much connected, right? You want to get to a place where you have a full-on lease because that's going to give you the broadest, cheapest financing options. On the financing side, it's also just how bespoke it is. I think it's indicative of a market that's just frenzied to find large scale sites that work. Got it. Hey, that's helpful. Thank you.

Operator: That's all the time we have for questions.

Tyler Page: I'd like to turn the call back over to Tyler Page for any closing remarks. Well, thank you, everyone, for taking time this morning to join us. We're at the cusp of a lot of growth and scale coming to Cipher and we're really excited about where we're positioned. So look forward to giving future updates as everything builds out. Thank you again. Thank you for your participation.

Operator: This does include the program and you may now disconnect everyone. Have a great day.