Q1 2025 Iris Energy Ltd Earnings Call
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Lincoln Tan: Thank you, Operator. Good afternoon to those of you in North America and good morning to those of you in Australia and welcome to IRINN's first quarter FY25 results presentation. My name is Lincoln Tan, Director of Investor Relations and joining me on the call today are Daniel Roberts, Co-founder and Co-CEO, Belinda Nucifora, CFO and Kent Draper.
Lincoln Tan: Chief Commercial Officer. Before we begin, please note that this call is being webcast live with an accompanying presentation. For those of you that have dialed in via phone, you can elect to ask a question via the moderator after our presentation.
Lincoln Tan: I would like to remind you that certain statements that we made during this call may constitute forward-looking statements, and IRINN cautions listeners that forward-looking information and statements are based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of the company. Listeners should not place undue reliance on forward-looking information or statements. Please refer to the disclaimer on slide 2 within the accompanying presentation.
Speaker Change: Thank you, and I will now turn the call over to Dan Roberts.
Thanks, Lincoln. Good afternoon, everyone, and welcome.
Dan Roberts: to our quarterly earnings call. Thank you for dialing in. It's an interesting time in the market and we're pleased to have the opportunity to present both our results from the prior quarter, but also importantly, step you through how we're thinking about the short term as well as the medium and long term. So it's an exciting time for us, exciting time for the industry. So let's dive into it. So jumping straight through to slide three.
Make sure everyone's read the disclaimer on slide two.
Dan Roberts: So, I think it's fair to say that the Bitcoin mining sector is reaching an inflection point. It's a very dynamic time in the market and we fielded a number of questions around why miners are underperforming the price of Bitcoin over the recent months.
Dan Roberts: and what we're seeing is institutional interest returning to the space but the question around why isn't miners necessarily or why aren't they necessarily moving Bitcoin given it's meant to be some sort of proxy exposure what's different this cycle?
Dan Roberts: So, from our perspective, we are seeing that the sector has matured. There are more ways for investors to express interest in Bitcoin.
Dan Roberts: Miners that built their business around a hodl strategy now have more competition than ever for that business model.
you'll see an institutional grade self-custody solution.
Dan Roberts: you're seeing the emergence of the ETFs, you're seeing companies like MicroStrategy accumulate Bitcoin through capital market products. In contrast, we're positioned as a low-cost commodity producer, focused on cash-on-cash returns for our investors and producing Bitcoin at low cash cost.
Dan Roberts: circa $29,000 per Bitcoin as we'll see in the coming slides.
Dan Roberts: So mining business models are under scrutiny, this is an environment in which we expect a low cost, strong cash flow business to thrive.
Dan Roberts: So as you can see there on the right hand side, business fundamentals, they're coming into focus. Production costs.
Dan Roberts: operational focus, capital allocation and the outlook for growth. We believe we're well positioned for market leadership in every aspect of those and ultimately we view Bitcoin mining as gold mining 2.0. Could I just ask that other speakers on the line from outside go on mute please, there's a bit of background noise. Thank you.
Dan Roberts: It's also an inflection point for our business. 31X a hash is weeks away.
Dan Roberts: In fact, I believe that the last miner is going to be delivered in the next seven days.
Dan Roberts: installation, commissioning will take a little bit longer than that but the 31x hash is now weeks away making us one of the largest listed miners just as Bitcoin is hitting an all-time high however those that know us we're not stopping there
Dan Roberts: We are also pleased to announce that we are accelerating our expansion to 50 exahash into the first half of next year. Previously, it was the second half. So we've been able to bring all that forward and continuing to invest to generate more Bitcoin at an expected cash cost of $29,000 per coin.
Dan Roberts: The fundamentals of our business model have allowed us to continue to accelerate growth at low cost. Our strategy, focusing on large scale projects, continuing to provide a lower execution risk and a rapid platform to expand.
Dan Roberts: Years of planning and procuring long-lead items to mitigate supply chain risks. And finally, our management capability to deliver. If we have set a target in the market, we hit it, and we will continue to do that.
Dan Roberts: This is a business model now, and this is a business in iron, where we believe we've hit that inflection point, we've hit the economies of scale now.
Dan Roberts: While we will talk more on unit economics over the coming slides, at 31 Exahash we expect to be producing Bitcoin at an all-in-cash cost of $29,000 per coin. With those economics and those unit economics only to improve as we scale, as power costs and operating leverage really start to kick in.
Thank you. Thank you.
Dan Roberts: In relation to AI and HPC, we've got almost 2,000 GPUs now operating, a combination of H100s, H200s, both NVIDIA generations. We're focused on contracting out this capacity and looking for opportunities to grow in a measured way, based on robust contractual arrangements and demands that we're seeing in the market.
Dan Roberts: In respect to AI co-location and other monetization opportunities, they're also being progressed in parallel. We have high-quality assets that we believe will remain valuable in a power-constrained market with increasing competition from both Bitcoin mining and AI for this land and power.
Dan Roberts: We will continue not to provide guidance on specific terms or timing given the uncertainties, given the nature that we are dealing with counterparties. It is not all within our control. However, we continue to progress negotiations with some very large counterparties and hyperscalers.
Dan Roberts: We will update the market as appropriate and as we have news.
Dan Roberts: In terms of what is within our control, as we know the majority of the new generation black wells from NVIDIA, those GPUs will require liquid cooling. So notwithstanding successful testing of our GPU clusters in free cooling environments,
Dan Roberts: including at Childress, we will also be installing our liquid cooling infrastructure at both our Prince George and Childress data centers in the coming months to ensure we are ready to support this next generation of GPUs.
Dan Roberts: This creates opportunities for the business both across our cloud platform as well as our co-location pathway.
in terms of corporate and funding initiatives.
Dan Roberts: So, in terms of funding, it's clear to say market conditions have improved materially over recent months. More funding options are emerging beyond the ATM.
Dan Roberts: We are focused, very focused, on alternative funding instruments as part of funding our upcoming growth plans, for example convertibles, and we will continue to progress that over the coming months.
Dan Roberts: In terms of becoming a U.S. domestic issuer, we intend to transition to this status in 2025, reporting on a U.S. gap basis.
Dan Roberts: We have also been working on potential inclusion in major US indices, for example the Russell 2000, in the near term, given the majority of our assets are in the US.
Dan Roberts: Finally, our increased scale at 31x a hash, and not long after that, 50x a hash, combined with our non-hodl approach, i.e. we don't hold Bitcoin on our balance sheet, we mine at an expected all-in-cash cost of $29,000.
Dan Roberts: It's anticipated to generate very substantial operating cash flows in the near term. As such, we believe this will support potential investor distributions in 2025. We're working through specific details around what that might look like. However, we wish to again signal our commitment and our focus on prudent capital management and generating strong cash-on-cash shareholder returns.
So, moving along...
to slide 6.
A little bit more about Bitcoin mining.
Dan Roberts: So where we're at, we have been delivering consistent growth over the last couple of years. If we set a target, we have met it. We're now at 21 exahash, above the 20 exahash previously guided, and 31 exahash is just weeks away as I mentioned earlier. We're not stopping there. We are continuing 50 exahash in the first six months of next year.
Dan Roberts: So we are committed to hitting these targets. We will maintain our disciplined approach to delivery, our focus on costs, our focus on safety.
Dan Roberts: It's supported by our single site expansion at Childress where we have over 400 people on site who will continue the cadence of building out 50 megawatts of data centres every month. No M&A is required, it's all organic growth at cost.
Dan Roberts: The land in Childress cost us a few million dollars, that is it, everything has been self-developed internally by our team.
Dan Roberts: Proven people, proven delivery processes, and a strategy to focus on large-scale projects continues to provide lower execution risk, more certainty, and a platform that allows us to rapidly expand at low cost.
Dan Roberts: On the mining hardware side, you will recall that we previously secured miner purchase options for S21 Pro miners at a fixed price of $18.90. These options were struck when Bitcoin was $65,000.
Dan Roberts: It's taken the last six years to get our platform up to this stage.
Dan Roberts: The vision to accumulate organic development of large-scale sites, building a team and know-how, raising capital, we've now hit that inflection point just as we are seeing the real world really start to lag the digital world.
Dan Roberts: There is significant megawatts, significant miners, significant capital, and management expertise required from this point for the network, i.e. the hash rate, at a global level to scale in parallel with the Bitcoin price.
Dan Roberts: Against this backdrop, there's now increasing competition for a number of those inputs. Transformers, Land, Power, with the AI traditional data center world now also competing for exactly the same core inputs.
Dan Roberts: to play this out with a simple thought exercise. What happens if Bitcoin moves up to 150,000?
Dan Roberts: 50%. All of a sudden you need another 7,000 megawatts of additional capacity. Another $9 billion in CapEx.
Dan Roberts: transformers, long lead items, cables, networking, concrete, steel, all these things that take time, that are fraught with risk. All of it to bring into the real world, real projects, real data centers, the ASICs. You cannot plug an ASIC into a high voltage transmission line. It just doesn't work.
Dan Roberts: So, we've set ourselves up to really become a leading force in Bitcoin mining.
Dan Roberts: On slide 7, to really drill into this $29,000 cash cost per Bitcoin.
Dan Roberts: We have driven it down. It is happening. Best-in-class efficiency at 15 joules per terahash from 22 in the recent September quarter. Expansion at low power cost.
Childress: Childress. Our average power cost is a tick over three cents since moving to spot price with our automated curtailment algorithm a few months ago.
Childress: That is becoming a larger and larger proportion of our portfolio, driving down our average power cost accordingly.
and then overheads.
Childress: non-power costs but all-in cost of our business, we're really starting to see the benefits of operating leverage come through. We'll talk more to this on coming slides but it's effectively spreading our corporate cost base across a much larger number of extra hash, a much larger number of expected Bitcoin mined.
Childress: So finally, in terms of operating efficiency, we believe in building high-quality data centres that optimise operating conditions for our miners. It's really important to us that we maintain the highest levels of uptime and look after that fleet to maximise profitability.
Moving on to slide eight.
Illustrative Money Economics
Childress: Some of you would have seen this on Twitter previously, but one exahash of operating capacity costs IRINN approximately $30 million to deliver, against a market backdrop where capital markets are valuing that at almost four times that valuation, $120 million. If you have the ability to deliver at $30 million, to have something valued at $120 million, then in my simple mind that makes a lot of sense to continue pursuing.
Childress: We see investing in additional capacity as highly accretive. It's a really simple framework for thinking about this.
Childress: The unit economics, to cross-check that in terms of cash flow, $13 million of net illustrative adjusted EBITDA on a $30 million CapEx, it's around a two-year payback. Again, making a lot of sense.
Childress: So as we look at all the costs to produce, you'll notice on the right hand side a step up in Renewable Energy Certificate costs as we continue expanding at Childress.
This highlights our commitment to 100% renewable energy.
Childress: We're seeing the sustainability focus really come to the fore. There are lots of different claims out in the market around supporting renewables.
Childress: At Childress, notwithstanding 80% of the network in that area is renewable, you need the certificates. If you do not have certificates, you are not operating with renewable energy.
Childress: At the moment, a wind farm or a solar farm evacuates power into the grid, the commodity is bifurcated into two components. One is the electron that trades alongside black and brown power. The other is the certificate. If you do not buy those certificates, you are not renewable because someone else will own those certificates and will be double counting it.
Speaker Change: So this has absolutely been a critical part of our strategy We've bought it for every electron since day one and we will continue to do that
Speaker Change: A key part of how we are also thinking about growth is accretion on a per share basis. How do we drive value for every shareholder in our business?
One example of how we're thinking about this...
Speaker Change: is in the bottom right hand table. We've shown this analysis in terms of adjusted EBITDA per share which highlights very strong accretion metrics as we continue to scale from 31 to 50x ASH.
Speaker Change: We have also set out some illustrative share price levels at which equity is raised, whether that be through ordinary equity, convertibles or other alternative funding structures. We've seen a number of convertibles launched over recent months with creative strike prices and we'll continue to look at that as one of our pathways to raise additional capital.
Speaker Change: So, yes, growing from $400 million to $700 million of illustrative EBITDA in the top right-hand corner is super exciting, but more exciting for us is the accretive nature of this growth and our continued commitment to drive cash-on-cash shareholder returns.
Speaker Change: On that note, I'd like to pass over to Kent to talk about AI and HBC.
Thanks, Dan.
Kent Draper: With respect to our AI cloud service, commissioning of our recently acquired NVIDIA H200 GPUs at our Prince George data centre location is now complete.
Kent Draper: The transition from Bitcoin mining to GPUs was able to be completed in a matter of weeks, underscoring the multi-purpose nature of our data centres and ability to rapidly scale to support customer growth ambitions.
Kent Draper: Now that that capacity is installed, we're focused on contracting out the new capacity and currently have customer trials underway.
Kent Draper: To that point, we've also been increasing our activity with respect to marketing and go-to-market initiatives.
Kent Draper: As an example, in conjunction with the recent Super Compute Conference in Atlanta, we hosted roundtable events in San Francisco with commercial leaders in the AI sector and have more activity planned for the future.
Kent Draper: Our current fleet of NVIDIA H100 and H200 GPUs supports approximately 32 million of potential annualised hardware profits using less than 2.5 megawatts of data centre capacity.
Kent Draper: This is one of the elements that we particularly like about the cloud services offering. It's highly complimentary to our existing operations and doesn't cannibalize our data center capacity for other use cases such as AI co-location.
Kent Draper: Our strategy is to continue focusing on measured growth of our capacity in response to customer demand, backed by good contracts and solid utilisation of that capacity.
Kent Draper: In relation to colocation and other monetisation opportunities, we believe that we have high-quality assets which will become more and more valuable in an increasingly power-constrained market.
Speaker Change: and as Dan referred to earlier, there's increasing competition for sites to support both Bitcoin mining and AI.
Speaker Change: We expect competition for large-scale grid-connected power to intensify over the coming months.
Speaker Change: given some of the dynamics in the market including continued growth and adoption of AI, regulatory complexities with behind-the-meter solutions, so for example the recent FERC rejection of the AWS Talon interconnect at the Susquehanna nuclear plant in Pennsylvania.
Speaker Change: and also the timeline for new nuclear generation and other generation sources to come online.
Speaker Change: As a result, we're seeing West Texas sites increasingly coming into focus, and there have been several hyperscaler projects announced in the region in recent months, for example the Crusoe Data Center project in Abilene.
Speaker Change: With respect to our discussions underway, we continue to advance negotiations with interested parties on a range of structures for our sites, including powered land leases and built to suit contracts.
Speaker Change: As Dan mentioned, we aren't providing guidance on terms or timing at this stage, but as we've said previously, we're actively negotiating potential transactions with hyperscalers and we'll update the market on material developments as appropriate.
Speaker Change: Monetizing our data center platform into new verticals remains a key focus for management.
Speaker Change: We're committed to maximizing shareholder value, and any transaction must reflect the strategic value of our assets.
Speaker Change: With respect to liquid cooling, our team has extensive experience designing and operating data centres optimised for power dense compute and a demonstrated execution capability. We're leveraging that experience to best position our infrastructure for opportunities in the rapidly evolving AI sector.
Speaker Change: For instance, as many people would be aware, certain variants of the Blackwell generation of NVIDIA GPUs require liquid cooling.
Speaker Change: So notwithstanding the success and the successful testing of our GPU clusters in our current free air cooling environment, we will be installing liquid cooling infrastructure at both our Prince George and Childress sites.
Speaker Change: to ensure that we're ready to support the next generation of GPUs.
Speaker Change: We expect this to create additional opportunities for us across both the cloud services and co-location pathways.
Speaker Change: As we touched on in the previous slide and on slide 12 now, we see significant strategic value in our land and power portfolio and parties are turning their attention to power and capacity requirements for 2026 and beyond.
Speaker Change: Today, we're excited to announce the location of our 1.4 gigawatt Sweetwater Data Center project, which is immediately adjacent to the utility's high-voltage substation and approximately 60 miles from the regional hub, Abilene, in West Texas.
Speaker Change: During the quarter, we've continued to push forward with development activities, including securing an additional 800 acres of land adjacent to our existing freehold land, bringing our total landholding at the site to over 1,300 acres.
Speaker Change: We've also accelerated the timeline for upgrades and energisation of the utility substation from October 2026 to April 2026.
Speaker Change: Furthermore, we've commenced procurement to support the 1.4 gigawatt substation energization by April of 2026.
including procurement of transformers, circuit breakers and ancillary electrical equipment.
Speaker Change: At 1400 megawatts, this single site is larger than many entire data center markets in the U.S.
Speaker Change: and has the potential to be the largest Bitcoin mining facility or AI factory in the world capable of supporting over 90 exahash of Bitcoin mining or over 800,000 GPUs.
Speaker Change: On to slide 13. In relation to our powerful portfolio, we've spent years developing our current 2.3 gigawatts of contracted capacity.
Speaker Change: Our approach with respect to the market is only to announce sites where we have executed interconnection agreements.
Speaker Change: This means they're not potential future megawatts, these are genuine megawatts that are contracted today through binding interconnection agreements.
Speaker Change: We've observed firsthand within our own portfolio, some of the timeline delays in securing grid approvals. And as Dan mentioned, there are a number of risks associated with development and securing capacity, which underscores the strategic value of having these megawatts contracted today, and especially at large individual sites.
Speaker Change: Without signed interconnection agreements, the quantum of megawatts, timing and cost is highly uncertain.
Speaker Change: That is why on our calls we only highlight the 2.3 gigawatts of signed interconnections.
Speaker Change: However, we continue to develop our data center portfolio and hope to provide updates in due course on our pipeline of over a gigawatt of data center sites.
Speaker Change: if we are successful in signing additional interconnection agreements at those sites.
Speaker Change: Importantly, the interconnection agreements that we have executed provide for uninterruptible power. So that means no mandatory curtailment. Any curtailment that we do is entirely voluntary in order to reduce our power costs at those sites.
Speaker Change: Additionally, we've continued to invest internally in our development capability, including growing our commercial teams at our North American headquarters.
Speaker Change: and we'll continue to look to accelerate our development activities globally and add to our organic pipeline, which means less reliance on M&A transactions to support our future growth.
Speaker Change: Now, I'll pass over to Belinda, our CFO, to walk through the financial results.
Belinda Nucifora: Thank you Kent. Good morning to those in Sydney and good afternoon to those in North America. Thank you for joining us for our Q1 FY25 earnings update. As a start I'm going to highlight our operating leverage as we scale our children's operations.
Belinda Nucifora: Earlier in the presentation, Dan highlighted the illustrative mining economics on our Path to 50 Exahash.
Belinda Nucifora: As shown on the slide, as we scale from today's installed capacity of 21 exa-hash to 50 exa-hash, we see potential for significant improvement in our unit economics.
Belinda Nucifora: The key drivers to this being attractive power prices at Childress, with the transition to spot pricing made on 1 August 2024, a reduction in the energy costs for Bitcoin mined across the portfolio due to the increased mining contribution from Childress at a lower cents per kilowatt hour price, coupled with improved fleet efficiency to be industry leading at 15 joules per terahash.
Belinda Nucifora: Furthermore, as we scale, overheads are spread over a larger revenue base.
Belinda Nucifora: As such, overheads on a per exahash basis are expected to decrease by approximately 70% from Q1 FY25 as we scale to 50 exahash.
Belinda Nucifora: This contributes to a significant reduction in our all-in cash cost per Bitcoin of approximately $28,000 being the lowest in the industry.
Belinda Nucifora: As touched on earlier by Dan in the presentation, to finance this growth will be focused on alternative funding instruments. In addition, at scale the achievement of positive operating cash flows may support a potential for investor distribution in calendar year 2025.
Belinda Nucifora: Moving on to the next slide, further to the operating leverage we just discussed. This sets out the illustrative economics at various Bitcoin prices.
Belinda Nucifora: The first column on the table shows the illustrative economics at 31 exahash and 50 exahash with a bitcoin price of 90k and a current network hash rate of 732 exahash.
Belinda Nucifora: This results in an estimated adjusted EBITDA of $435 million and $714 million respectively.
Belinda Nucifora: The sensitivity analysis shown in the table sets out the illustrative economics associated with Bitcoin prices starting at $125k and scaling by 25k intervals to $200k at an implied network hash rate of 1000x a hash.
Belinda Nucifora: This results in adjusted EBITDA of $1.4 billion at a Bitcoin price of $200,000.
Belinda Nucifora: The estimated increase in overheads as we scale from $31 exa-hash to $50 exa-hash is approximately $23 million, primarily attributable to variable children's site-related costs, including property insurance and property county taxes.
Belinda Nucifora: Also mentioned earlier, we're 100% committed to renewable energy and our investment in renewable certificate costs increase as we scale from $9 million at $31 exa-hash to $16 million at $50 exa-hash.
Belinda Nucifora: Our overheads reflect a business contributing to deliver significant growth. We have onboarded technical and go-to-market resources for our AI business.
Belinda Nucifora: and have built internal site development expertise to scale our broader portfolio. This makes us less reliant on competitive M&A processes to scale our platform and we see this as a strategic advantage.
Belinda Nucifora: Moving on to the next slide, I'll touch on the quarterly results.
Belinda Nucifora: The average operating cash rate for the quarter increased from 9 exahash to 12.1 exahash and we mined 821 bitcoins at an average realised price of $66,000.
Belinda Nucifora: Net electricity costs for the quarter increased by $4.6 million to $28.7 million. This was primarily due to the increased children's megawatt usage as we scaled, as well as the children's energy procurement in July 2024, which was under a fixed-cost, fixed-quantity contract.
Belinda Nucifora: From 1 August 2024, Children's Procurement transitioned to a spot pricing strategy.
Belinda Nucifora: If that spot pricing strategy had been in place for the entire quarter, the cost of Bitcoin Mine would have been $26.7 versus the $35.4k.
Belinda Nucifora: As discussed in the previous slide, other costs of $21.4 million reflects a business today that is delivering significant growth and projected continued expansion over the coming years.
Belinda Nucifora: The primary driver of the quarter-on-quarter increase of $0.4 million is due to children's construction and operational insurance costs.
Now moving to our cash flows.
Belinda Nucifora: Closing cash at bank at 30 September is reported as $98.6 million, with strong receipts from Bitcoin mining activities of $49.6 million and AI cloud services of $3.7 million.
Belinda Nucifora: The increase in electricity payments made during the quarter includes a one-off liquidation payment of $7.2 million related to the Transition to Spot Pricing Strategy from 1 August 2024.
Belinda Nucifora: We increased our investing activities and spent a total of $387 million, which relates to expansion at Children's Data Centre, purchase of Bitmain S21 Pros and T21 Minors as part of the pathway to the 31 Exahash, and the purchase of NVIDIA H200 GPUs.
Belinda Nucifora: We raised $84 million of net ATM proceeds during the quarter and post that $142 million from net ATM proceeds.
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Belinda Nucifora: We'll now turn to the balance sheet. At 30 September 2024 we had total assets of $1.3 billion, no debt and a strong balance sheet providing flexibility to fund future growth.
Belinda Nucifora: Total equity increased to $1.1 billion with gross proceeds of $76 million from $9.1 million shares sold under the ATM.
Belinda Nucifora: As touched on earlier in the presentation by Dan, to finance future growth will be focused on alternative funding instruments, and in addition, at scale, the achievement of positive operating cash flows may support a potential for investor distribution in calendar year 2025. I'll now turn over for Q&A.
Speaker Change: Our first question comes from Lucas Pipes with B. Riley Securities. You may proceed.
Speaker Change: Thank you very much, Operator. Good day, everyone. My first question is on Sweetwater and how you think about the strategic process versus the organic opportunity at the site. Thank you very much for your perspective on that.
I'm
Thanks Lucas, nice to see you.
Speaker Change: The short answer is there's no decision point right now beyond procuring.
Speaker Change: procuring long lead items around the electrical infrastructure, so transformers, substation components.
Speaker Change: etc. So we're in a position to prepare dual pathways both for Bitcoin mining as well as
AI related opportunities on the co-location or otherwise.
Speaker Change: So we're pursuing it in all parallel. And the reality is we're facing a number of different potential pathways.
and the opportunities to compare each pathway.
Speaker Change: to each other as an opportunity cost. And it's everything from building out Bitcoin mining and if we can continue to build at $30 million and have the market value that exahash at $120, then that sounds pretty good. All the way through to build-to-suit options where we might build an AI data center for a counterparty under a build-to-suit model and again internally deliver a component of that. There's structures like power and land leases in there as well. So this stage is working through all the options in parallel and just playing them off against each other.
Speaker Change: I appreciate that, that's helpful. And my follow-up is on the capital intensity on the Bitcoin mining business. Should we kind of think of that 30 million per ExaHash in a linear fashion up to 50? And if so, could you just remind us what the capital requirement is from where you are today to that 50 ExaHash, how much capital is needed? Thank you very much for your comment.
Yeah, for sure. So...
Speaker Change: We haven't guided a specific number, partly because there's a number of moving parts around do we buy additional GPUs because there's a spike in demand and a customer would like that. We're buying long lead items for Sweetwater. But if we look in really high level terms, we previously announced that we were fully funded to the 30x hash.
uh
Speaker Change: The ATM, that gives a $400 million funding requirement to go from 30 to 50. Yes, we've had higher operating cash flows than expected because of the Bitcoin price action. But again, that's somewhat offset by other CapEx. So we haven't got a specific numbers, but in general terms, you can probably triangulate roughly what we need.
Speaker Change: Dan and team, I really appreciate all the color and wish you best of luck. Thank you.
Thank you.
Speaker Change: Our next question comes from Joseph Baffi with Canaccord Genuity. You may proceed.
Joseph Baffi: Hey everyone, good morning. Nice to see all the progress on so many fronts. It's great. Just kind of starting with a theoretical one, you know, we've got a much higher Bitcoin spot price than we did and you're now mentioning, you know, potential, it sounds like maybe a dividend or something like that next year. Just wondering, you know, at what Bitcoin level and, you know, kind of what level of do you think at least the Bitcoin business can keep growing, kind of more on a self-funded basis moving forward, you know, versus, you know, balance sheet related financing and then I'll have a quick follow-up.
Speaker Change: We think about operating cash flows a little bit separate to investing cash flows. There are two separate decision points in our mind. The first is operating cash profits.
Speaker Change: Are you generating from your operations as a going concern, and what do we do with that cash flow? The second is, what is the decision around reinvestment of those cash flows?
Speaker Change: Now, I think it's fair to say that for quite some time, 100% of all the capital we raise is going into revenue-generating CapEx.
and Eugene L.
Speaker Change: operations to continue to support building our corporate overheads our operating base etc and as you can see in the presentation we're now hitting that inflection point we're operating cash flows
Speaker Change: are going to be potentially substantial. So the decision to reinvest those cash flows as distinct from distributing those cash flows to investors is something that we'll work through. But when you look at the market today and you see a number of different companies accumulating Bitcoin on their balance sheet, paying market price or close thereof to it,
Speaker Change: And we've got the opportunity to generate Bitcoin and effectively acquire Bitcoin at a cash cost of $29,000.
and distribute that Bitcoin slash cash out to investors.
Speaker Change: who can then self-custody. We're not that big of believers in third-party custody. We've been around Bitcoin since 2013, ridden Mt. Gox, FTX, et cetera. So I think the opportunity to generate $29,000 cash cost Bitcoin for investors and effectively distribute that coin out either through the physical coin, we'll have to look into that, or as cashflow is pretty powerful. And I think it's important to keep that separate from investing cash flows and how we might fund that to continue to drive that cost potentially down even lower, but drive it in aggregate.
Speaker Change: That's great, Culler. Thanks, Dan. And, you know, potentially exciting there in actually distributing the underlying Bitcoin instead of cash. And then just congrats on being able to announce the Sweetwater site. That's nice progress. Just, you know, I know you started to talk about some long lead time items there. Are you going to try to get all, you know, enough long lead time items for the full 1.4 gigawatts, or do you think that there's...
Speaker Change: a step progress there and then any update on fiber and if you're going to have to invest on fiber interconnect for that site. Thanks a lot.
Dan, I'm happy to jump in and type that one.
Speaker Change: So, with respect to the full capacity there on the data centre side, it will take some time to build it out. As Dan referred to earlier, we're currently at Childress able to build out about 50 megawatts a month.
Speaker Change: in terms of data centre capacity, so to build out a site the size of the Sweetwater.
Speaker Change: is enabling the full capacity on the high-voltage substation. So this is the substation that allows you to connect into the high-voltage utility grid. And then we will build out the remaining site substations and data centre capacity on a progressive basis.
Speaker Change: But the long-lead procurement is set up in a way to enable us to energise the entire bulk high-voltage substation to the full capacity on that April 2026 timeline.
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Speaker Change: Great, thanks Kent. And then any update on fiber at Sweetwater? Thanks a lot guys.
Speaker Change: Yes, and in terms of fibre, there are multiple Tier 1 carriers in the area, including right up to the existing utility substation, so access to fibre is not an issue. In terms of latency, because these are Tier 1 providers, the latency to all major hyperscaler hubs is very good as well, so sub-20 milliseconds latency and sub-10 milliseconds in an hour. There are a number of cases, so the fibre position at that site is suitable for almost all AI applications.
as well as Bitcoin mining, obviously.
Sure, that's all positive news. Thanks for that caller, Kent.
Speaker Change: Our next question comes from Darren Aftahi with Roth. You may proceed.
Darren Aftahi: Hi guys, good morning, good afternoon, thanks for taking my questions. Two, if I may, first, I'm just curious, strategically, can you walk through just the mindset of
Darren Aftahi: accelerating the 50 EXA hash in the context of maybe looking at opportunity costs relative to other opportunities. And then my second question on your balance sheet, the $275 million of prepayment on the cash flow, what is that exactly related to in terms of payments? I assume it's all for the acceleration to 50 EXA hash and I guess like what portion of of that CAPEX is already paid for. Thanks.
Speaker Change: I'll pass over to Belinda for the balance sheet question in a minute but to address the first question around opportunity cost, I mean we continue to have conversations with very large counterparties about the prospects of doing a deal at Childress.
Bye.
Speaker Change: The reality is you've got to make a decision at some point and the decision is right this second the preference is to build out Bitcoin mining the opportunity cost is
comparing each pathway.
Speaker Change: to another. Yes, we've received multiple offers for capacity there, but in our opinion at this stage, the prospects and the risk return proposition of building all of that out at Bitcoin makes sense. Equally, there's still some optionality there. We haven't exercised all those minor options. We've got some time to do that. So if those contractual negotiations with other parties
Speaker Change: went a slightly different direction or improved then, I mean, we reserve the right to change our mind and pivot. But, by definition, it needs to be better than the alternative which we can control, which is building our Bitcoin mining at $30 million and having the market seemingly value that at $120.
The New York Times
Thank you, Jack.
Speaker Change: In relation to the prepayments, so we've got mining hardware prepayments of $122 million as well as on the GPUs $8.1 million. We also, in our Childress new contract, we have to keep some collateral on board, so we have some prepayments in relation to the electricity contract in Childress.
Great. Appreciate all the insight. Thank you.
Thank you.
Speaker Change: Our next question comes from Reggie Smith with J.P. Morgan. You may proceed.
Speaker Change: Hey, good evening. Thanks for taking the question. Or good morning, rather, in Australia. You had a really interesting quote in your press release, and you actually mentioned it again during the call. What was the effect of making sure that, you know, a deal reflected the—
Speaker Change: the value of your assets, strategic value of the assets, I think was the exact quote. I'm not asking for a number, but I'm curious how you guys go about appraising the value of that, like how you think about it. We've tried to take some stabs at it, but I'm just curious how you think about that and have a follow-up. Thank you.
Speaker Change: Yeah, thanks Reggie. To be honest, it's a bit of art and science, both hand in hand. The science element is putting the numbers down and modelling out the various pathways and scenarios. You've got Bitcoin mining and then you've got various AI co-location structures that all result essentially in an NPV valuation to the business today. So that's the science. Notwithstanding, you've got to put assumptions into those.
Speaker Change: spreadsheets, but those assumptions are informed largely by reality. When it comes to Bitcoin mining, it's CapEx, it's returns.
Speaker Change: Bitcoin price, network hashrate. When it comes to AI transactions, it's plugging in contractual terms that are under negotiation. So it's quite easy in terms of working out at any point in time what the preference might be.
Speaker Change: notwithstanding there's assumptions that go into that, including discount rates, cost of capital, market valuation of different types of revenue streams. So all of that goes into the bucket.
Speaker Change: The art element is saying, well, where are we at in the market?
Speaker Change: What are the conversations we're having with market participants all the way from hyperscalers to data centers to the banks to
Speaker Change: And I think it's fair to say that the market's still in transition. You've gone from the old world of effectively available capital, available data centre capacity,
Speaker Change: to increase the number of GPUs and meet this AI demand, all of a sudden you seem to have hit this point in the market where, hang on, we are short potentially substantial amounts of power.
Speaker Change: As time goes on, what we're seeing again, this is anecdotes, is people are now starting to realise the one and zero difference between having an interconnection agreement and talking about this made-up pipeline of megawatts.
Speaker Change: I mean we have been in development for decades. Renewable energy projects through to other infrastructure to now developing power for data centers as we've done in iron. It is a one and zero business.
Speaker Change: You can have whatever made-up pipeline of megawatts you want, but unless you get to the finish line and you get that signed connection agreement, it is worth a zero. Absolutely nothing. In sporting terms, the analogy is going through a home-and-away season undefeated, not losing a game, being the hot prize favorite, you then get to the final.
Speaker Change: You have a few injuries, the weather changes, something else goes wrong, and you don't win the final. Well, you've lost. It's a zero. The season counts for nothing, and you go on to the next season. It is exactly the same in this. And I think the market is now starting to realise the value of that.
Thank you.
Speaker Change: That's good. It actually leads right into my next question. It was going to be about kind of the urgency that you were sensing, and it sounds like you're starting to get that urgency. One of the things that I've noticed is that, you know, a lot of these, not a lot, but several of these big tech companies have announced long-range projects that deliver in 2029, 2030, haven't really seen, outside of CoreWe, a deal that's like for more immediate capacity.
Speaker Change: Sounds like there's more urgency, maybe can you talk a little bit about how conversations have changed and whether there is more urgency on the, you know, front end, post end of kind of capacity and opportunities, how that's changing. Thanks.
Thank you.
Speaker Change: Yeah, I mean two hours ago we got an email from a trillion dollar hyperscaler that said they weren't interested in sweet water and now they are. I mean that's one data point and there's lots of little anecdotes.
Speaker Change: along the way. I'm kind of reluctant to go into too much detail at the risk of building expectations because at the end of the day a lot of this is outside of our control in terms of how counterparties think about value, their capacity to transact at terms that we will deem attractive. So it's just a matter of working through all that knowing that we control our own destiny, being a low-cost producer of Bitcoin and generating that strong cash on cash returns with this incredible optionality that we're super excited about around a large-scale AI HPC deal that might happen.
Speaker Change: That's fair. I appreciate that. Congrats on the quarter and good luck. Thank you.
and Bridget.
Thank you.
Speaker Change: Our next question comes from Brett Novak with Cantor Fitzgerald. You may proceed.
Speaker Change: Hi guys, thanks for taking my questions and congrats on the quarter. Maybe just start, I think, you know...
Speaker Change: Oh, big news event to happen in a quarter was the FERC announcement. Have you seen like a material increase in demand post that announcement given a kind of used Texas assets much more favorably?
Speaker Change: Yeah, I've got not a lot to add as a follow-up to answering the previous questions.
Speaker Change: Yeah, like we are seeing more perceived demand coming through, but again, I'll use the sporting analogy. All these conversations are great, but unless you close a deal, it's ones and zeros, and we're just not in the business of speculating.
Speaker Change: telling everyone every step of the way how good these negotiations are because unless you get a signature on a piece of paper that delivers a transaction that delivers value for shareholders, then
Speaker Change: It's worth a zero. It's the same in development, it's the same in AI deals, and you can't really control the timelines of each. You've got to continue to progress. Things will go wrong, things will go right, but get the signature and then you've got it.
create a proper, tangible value for your shareholders.
Speaker Change: Thank you. And then maybe just one more on the AI cloud business. I know you guys got it for year-end, it being 10% of profits. Obviously, Bitcoin is going up a lot since then. I guess, what's the plan beyond this year for that business? And how do you view that for CapEx on GPUs relative to maybe some of the Bitcoin mining CapEx, given what we've seen happening with Bitcoin over the last couple of weeks?
Speaker Change: Yeah, it's a great question and something we think a lot about. I think in the short term we're probably less...
Speaker Change: disposed to investing CapEx in the GPUs and that's for two reasons.
Speaker Change: use of funding and I think when you look at the Bitcoin opportunity, that's very very clear and tangible
Speaker Change: GPUs, you know, they are capital intensive. We have explored debt options. Do you want to lay in the business with debt at that point in time in the absence of having a long-term?
Speaker Change: Contract again things can change quickly. So I'm going to hedge my bets here, but sitting here right here right now with our cost of capital where it is
Speaker Change: And also what we're seeing is a slight weakening in demand in that market. It may be attributable to this change in generations of the NVIDIA chips. We're going from the H100, H200 generation to the Blackwells.
Speaker Change: being released next year, and that will be a reasonably material step up in compute, and I think it's fair to say that we're seeing end customers
Speaker Change: be a little bit cautious around that and maybe preferring shorter-term contracts on the H100 and H200s in anticipation of those new generations come out. So we just think it's prudent to just take a measured approach. If tonight we get a contract, a call for a longer-term contract and it's a big opportunity, absolutely, we're going to do it. But right here, right now, it feels like it's a little bit more measured and let's just wait and see how the next few months plays out.
Speaker Change: Awesome and maybe if I could just squeeze in one more, you know there's been a lot of news over the past couple of weeks surrounding Bitmain and I know you guys have a big purchase order in place. I guess are you guys concerned that those shipments could potentially not be delivered or held up at customs or just any thoughts or comments on that?
Speaker Change: Yeah, I mean for six years we've had people throw concerns around Bitmain, Bitmain add-up and I'll just continue to say exactly the same thing, we have never had anything but a fantastic experience with Bitmain. The purchase process, the post market.
sorry, the aftermarket.
Speaker Change: In terms of supply chain hiccups, we deal with it every day.
Speaker Change: consequence of dealing with a real world business and a million and one moving parts, but we've had no material issues. And as I mentioned on the call, I think the last of the 31X hatch in miners will be delivered in the next few, maybe seven days.
Awesome. I appreciate it guys. Thank you
Speaker Change: Thank you. I would now like to turn the call back over to Dan Roberts for any closing remarks.
Thank you, Operator.
Well, that rounds out our Q1 FY25 results call.
Speaker Change: We've enjoyed presenting our results, but also articulating our vision in terms of both funding side, looking at alternative structures beyond just the ATM to raise capital on potentially less dilutive terms.
but importantly the ability to...
invest that capital in accretive projects for our shareholders.
looking at per share metrics.
Speaker Change: for example adjusted EBITDA as outlined in our presentation and maintaining a prudent approach to capital allocation to generate those strong shareholder returns. It's a consequence of long-term planning in this business to get it to this point, years of developing sites organically, years of planning and procurement of long lead items and we feel that the mining sector as a whole as well as our business are at an inflection point and over the next three to six months we'll see that start to play out in even more tangible terms and we're excited to position ourselves as a market leader in this area. So thank you everyone for dialing in and have a good evening.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.