Q1 2025 Cipher Mining Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Cipher Mining First Quarter 2025 Business Update Conference School.
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Speaker Change: Oh, now I'd like to hand the conference over your speaker today. Courtney Knight, head of investor relations. Please go ahead.
Speaker Change: Good morning, and thank you for joining us on this conference call to address Cipher Mining's business update for the fourth quarter of 2025.
Speaker Change: Joining me on the call today are Tyler Page, Chief Executive Officer, and Edward Farrell, Chief Financial Officer.
Speaker Change: Please note that our press release and presentation can be found on the Investor Relations section of the company's website, where this conference call will also be simultaneously webcast.
Speaker Change: Please also note that this conference call is the property of Cipher Mining and any taping or other reproduction is expressly prohibited without prior consent.
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.
Speaker Change: These statements include what are not limited to, cyber financial outlook, business plans and objectives, and other future events and developments, including statements about the work of potential of our business operations, potential competition, and our goals and strategies.
Speaker Change: For 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: 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.
Speaker Change: We reconcile non-gotten measures to the most directly comparable gout measures, and you are encouraged to examine these reconcilations, which are filed at the end of our earnings release issued earlier this morning.
Speaker Change: I will now turn the call over to our CEO , Tyler Page, Tyler.
Speaker Change: Thanks, Courtney. Good morning everyone and thank you for joining us today. I'm Tyler Page, CEO of Cipher Mining, and I'm pleased to welcome you to our first quarter 2025 business update call.
Speaker Change: Q1 was a quarter of steady progress as we advanced our 2025 expansion plans.
Speaker Change: I'll provide more detail on those plans later in the call, but first I want to highlight a few key metrics that speak to today's themes. Consistent execution, disciplined operations, and strategic growth.
Speaker Change: Against a turbulent macro backdrop, our flexible and disciplined approach continues to give me confidence in our ongoing success.
Speaker Change: In the first quarter, we mined 602 bitcoin in total across our four operating sites, up 3% from the 585 bitcoin mined in the fourth quarter.
Speaker Change: Excluding Bitcoin mine through our joint ventures, we mined 524 Bitcoin at our wholly owned Odessa at Data Center, generating $49 million in revenue.
Speaker Change: This compares to the 492 Bitcoin Mind in Q4 2024, which resulted in $42 million in revenue, reflecting a 6.5% increase in production at Odessa, and a 16% increase in revenue.
Speaker Change: As you may recall, we successfully completed our Odessa mining rig upgrade in the fourth quarter of last year, and we are continuing to see the benefits of that investment with solid and consistent production.
Speaker Change: For those less familiar with the Cipher story, I'd like to briefly revisit a few of Cipher's core operational metrics and strengths, which allow us to achieve our top line numbers.
Speaker Change: Our fleet continues to operate with remarkable efficiency, currently standing at an impressive 18.9 joules per tarot hash, and our all-in weighted average power cost remains highly competitive at just 2.7 cents per kilowatt hour.
Speaker Change: Simply put, we are running some of the industry's lowest cost power through one of its most efficient fleets to deliver exceptional unit economics.
Speaker Change: Across our sites in the first quarter, we paid an average all-in electricity cost of roughly $23,379 per bitcoin produced at our data centers. This is a highly competitive figure as it reflects the total cost to deliver electricity to our mining rigs, including all taxes, transmission, and other charges.
Speaker Change: Our operating metrics underpin the strength and durability of our business, enabling us to remain adaptive and competitive across market cycles.
Speaker Change: Our strong operational foundation will remain a key advantage as we continue to grow in scale.
Speaker Change: Cipher's current operating capacity stands at 327 MW, with expected pipeline capacity expansion of approximately 2.8 gigawatts in the coming years.
Speaker Change: We'll discuss our impressive pipeline in further depth later on the call. So I'd like to shift focus to our first quarter growth highlights across key verticals and our outlook for the path ahead amid market uncertainty.
Speaker Change: In the first quarter, we made significant progress on the construction of Phase I of our 300 Megawatt Black Pearl Data Center, meeting construction milestones we will discuss in greater detail later in the call.
Speaker Change: This accelerated progress and expected energization in May created a unique opportunity to accelerate our deployment timeline and bring Hasherate online ahead of schedule.
Speaker Change: We're pleased to report that we have made the strategic decision to immediately deploy rigs from inventory at the newly constructed site, while we await the arrival of new rigs expected later this summer.
Speaker Change: We have now begun the process of relocating legacy rigs from our Odessa upgrade to the Black Pearl site for redeployment.
Speaker Change: We are confident that we can have these rigs plugged in ahead of energization enabling us to bring approximately 2.5 with exit hatches per second online in the second quarter.
Speaker Change: This decision makes efficient use of idle assets at no additional capital expenditure for the company.
Speaker Change: The Cypher Business was intentionally designed for this kind of operational flexibility. [inaudible]
Speaker Change: Our deep expertise in power curtailment and our ability to consistently produce best-in-class electricity costs allows us to effectively monetize older rigs and advantage we expect to continue to benefit from over time.
Speaker Change: This redeployment will bring Cypher's total self-mining hash rate to around 16 exahash per second by the end of the second quarter, and we expect to scale to approximately 23.1 exahash per second by the end of the third quarter as the company continues to monitor the tariff landscape and new rig delivery schedules come into focus.
Speaker Change: We have engaged in constructive commercial discussions with rig providers on mitigating tariff impact and remain confident that we are firmly on track to meet our previously announced projections and timeline [inaudible]
Speaker Change: Another way we've proactively structured our business to preserve optionality at sites is our evolution from being solely a bitcoin miner to being a developer of HPC data centers.
Speaker Change: We have been encouraged by the continued momentum and tenant interest across our sites with approximately half a dozen potential tenants currently under NDA and in data rooms alongside a series of recent site visits.
Speaker Change: In parallel, we've seen strong and sustained interest from an even broader group of financing partners eager to collaborate on the development of next-generation data centers.
Speaker Change: We're thrilled to announce today that we have signed a Tom Sheet with Fortress Credit Advisors LLC to be our financing partner at Barbara Lake.
Speaker Change: Fortress Investment Group is a leading global alternative asset manager and one of the most active investors in single tenant build-to-suit projects having funded the development of over 43 million square feet in build-to-suit transactions.
Speaker Change: They will not only bring extensive experience in data center development but also a strong network of relationships with hyper-skillers that complements our active discussions.
Speaker Change: We are thrilled to be working with the best in class financing partner, given Barbara Lake's enormous potential for HPC, with its 300 megawatts of already energized capacity and now when we speak to tenants, we can represent that the entire construction cost of the data center is backstopped by key pockets. Thank you very much for your time.
Speaker Change: As a reminder, our current primary intent for our 2.8 gigawatt pipeline of sites is to develop them as HPC data centers whenever possible.
Speaker Change: Our pipeline is the culmination of the extensive work our team has done to source attractive new data center sites with access to adequate land in the fiber necessary to service HPC customers.
Speaker Change: We continue to believe that large-scale interconnects available in the next few years are exceedingly rare and valuable and will be in high demand.
Speaker Change: As macro and equity markets have been particularly turbulent recently, it's a good time to discuss our active treasury management strategy and how it plays a critical role in managing risk, preserving optionality and supporting long term growth.
Speaker Change: Our Treasury Management Strategy has always been guided by a disciplined and balanced approach.
Speaker Change: We do not hold every Bitcoin or sell every Bitcoin to manage our Treasury.
Speaker Change: Instead, we manage our treasury like a seasoned commodities producer, systematically selling a portion of our daily Bitcoin production to cover operating expenses such as electricity.
Speaker Change: Strategically holding a portion based on our long-term belief in Bitcoin's value in appreciation potential.
Speaker Change: and executing opportunistic sales and hedges when market conditions present a creative opportunities for the business.
Speaker Change: In Q1, our strategy outperformed simply holding Bitcoin by 16% and outperformed daily liquidation by 2%.
Speaker Change: In addition to managing inventory levels, we also typically hedge approximately 10% of our holdings to mitigate downside risk, often using costless three-way structures. This percentage is dynamically adjusted based on market conditions and macroeconomic events.
Speaker Change: For example, we may increase our hedged exposure around key risk events such as FOMC meetings or major economic data releases.
Speaker Change: Our hedging strategy is actively managed and continuously recalibrated based on market movements, our outlook on Bitcoin spot prices and the evolving risk environment.
Speaker Change: Last quarter, strong OTC hedge performance and well timed deliverable forwards improved our effective spot price to nearly $96,000 per Bitcoin.
Speaker Change: As we've discussed previously, we remain focused on thoughtfully evaluating funding options that support growth while minimizing delusion.
Speaker Change: In addition to OTC hedges, we have used innovative first-to-market structured Bitcoin deliverable forwards, as well as negotiated Bitcoin-backed loan facilities.
Speaker Change: As a result of our active treasury management in the last quarter, we unlocked $90 million in liquidity capital that directly supported the continued growth and expansion of the business without diluting shareholders
Speaker Change: In this way, our industry leading treasury management aligns our capital strategy to support sustainable, risk-adjusted growth.
Speaker Change: Let's now turn to a review of our current operations which continue to serve as a strong foundation for our success.
Speaker Change: Flight 7 has a production summary for our Odessa facility. Odessa is the most significant part of our portfolio representing approximately 86% of our Bitcoin production in April .
Speaker Change: As we've noted in the past, Odessa set a new industry benchmark as the first bitcoin mining data center to receive the Uptime Institute's stamp of approval for management and operations.
Speaker Change: As of April , the current operating hatch rate at the site is
11.3 exit hashes per second using approximately 207 megawatts [inaudible]
Odessa's fleet efficiency stands at 17.6 joules per terrah hash.
Speaker Change: On this page, we also provide the observed all-in electricity costs per Bitcoin at the site over the quarter.
which was roughly $20,899.
Speaker Change: Odessa is a wholly owned facility operating under a five-year fixed-price power purchase agreement, securing some of the most competitive electricity rates in the industry and reinforcing our cost advantage in operational strengths.
Speaker Change: On Slide 8, we provide a combined overview of our joint venture data centers of albours, fair and chief
Speaker Change: With the 2024 expansions at Baron Chief, the three sites have a total power capacity of 120 megawatts and can generate approximately 4.4 ex a hash per second.
Speaker Change: We own 49% of the JV sites, and our portion recently generated roughly 14% of our overall
Speaker Change: On this page, we also provide the observed all-in electricity cost per Bitcoin at the three sites in the first quarter, which was roughly $39,988.
Speaker Change: As a reminder, both bear in chief operate as front of the meter sites, so there are expected seasonal fluctuations with their electricity costs
Speaker Change: Let's now shift to an update on our development portfolio. We've organized the pipeline into near-term growth opportunities at Black Pearl and Barbara Lake and longer-term expansion in 2026 and 2027.
Speaker Change: Black Pearl is our 300 megawatt data center in Wink, Texas that is expected to energize in the second quarter.
Speaker Change: Phase One is currently under construction and will feature 150 megawatts of air-cooled bitcoin mining rigs.
Speaker Change: We continue to evaluate our options for the remaining 150 megawatts of capacity at the site.
Speaker Change: including the potential to build phase two of the data center for HPC hosting.
Speaker Change: Ultimately, our final design at the site will depend on what we think will produce the best outcome for our shareholders.
Speaker Change: On the right of the slide, we've included two photos of the substation infrastructure at our Black Pearl site. In the last few months, we made significant advancements on phase one, including receipt of all four substation transformers which arrived ahead of schedule.
Speaker Change: All substation transformers will be ready to serve the full 300 megawatts capacity in Q2.
Speaker Change: Excitingly, we are also nearing completion of the core and shell of Phase 1 and are ready to deploy rigs in the near term. We intend to have the rigs arrive in May and be ready to hash by the end of June .
Speaker Change: These four photos clearly illustrate the tremendous progress we have made in safely and rapidly building a best-in-class data center. We couldn't be prouder of our team's ongoing commitment and execution.
Speaker Change: Slide 12 gives an overview of our Barbara Lake site. We are thrilled to announce Fortress as our JV financing partner to develop a next-generation data center at the site.
Speaker Change: The site has enormous potential for HPC, given its immediately available capacity of 300 megawatts, and now 587 acres of surrounding land, plus it's already energized substation.
Speaker Change: Last quarter, we signed a memorandum of understanding to potentially expand the scope of the facility to include an additional 500 megawatt data center adjacent to the current 300 megawatt site.
Speaker Change: This would result in a total eventual capacity of 800 megawatts at Barbara Lake. The additional 500 megawatts of capacity are expected to come online by 2029.
Speaker Change: We are also pleased to share that this quarter we successfully drilled a test water well at the site and confirmed favorable flow rates, strengthening Barbara Lake's potential for evaporative cooling.
Speaker Change: These results enhance the site's ability to optimize PUE and strengthen its suitability for high performance computing applications.
Speaker Change: With the potential future expansion in the recent financing developments, we remain as confident as ever in a commercial potential at the site. These complex deals take time to come together, but the team is working diligently to finalize the best possible deal for Cipher.
Speaker Change: Y-13 outlines are expected growth in 2026 and highlights our latest site acquisition in Andrews County, Texas called Stingray.
Speaker Change: The site, purchased last November , features 100 megawatts in front of the meter capacity, all necessary regulatory approvals, and 250 acres of land adjacent to the transmission assets.
Speaker Change: The site is expected to energize in the third quarter of 2026, which complements our 2025 and 2027 energizations.
Speaker Change: Slide 14, outlines are expected growth in 2027 across four sites with 1.6 gigawatts of potential power capacity.
Speaker Change: Our Revoli site in Coutula, Texas is on track to energize in 2027. The site has already been approved for 70 megawatts and we've submitted a request for additional capacity.
Our three M's, Mckeska, Milsing, and McClendon.
Speaker Change: are currently undergoing Final Interconnection Approval Processes with decisions expected later this year.
while our focus is primarily on near-term sites.
Speaker Change: In addition to interconnection rights, our purchase options also include significant land parcels at each location, all of which are well suited for HPC data center development.
Speaker Change: The sites expected to energize in 2027 are located further east than our current portfolio and our position closer to major metropolitan areas. We've already seen early interest from potential tenants and believe these sites will be in high demand as development progresses.
Speaker Change: with a 2.8 gigawatt pipeline, a strong track record of production and execution.
Speaker Change: Industry leading treasury management and strategic flexibility were confident in our ability to become a leading data center developer for HPC infrastructure while continuing to be best in class in Bitcoin mining.
Speaker Change: I will now turn it over to our CFO , Ed Farrell, for a review of our first quarter financials.
Thank you, Tyler, and hello to everyone on the call.
Speaker Change: Before I dive into our financial results, I'd like to remind everyone that today I will be discussing our performance of the first quarter of 2025 which ended on March 31st.
Speaker Change: As Tyler highlighted, the first quarter reflected disciplined execution in steady production despite challenging market conditions.
Speaker Change: We believe this performance positioned Cipher well for continued growth in operational optimization in 2025.
Speaker Change: As always, I'd like to begin with a review of our sequential and year-over-year financial performance outlined on slide 16 and 17.
Speaker Change: Despite a challenging market environment, Cipher continued to execute our strategy driving top-line growth.
Speaker Change: As Tyler stated in the first quarter, we reported $49 million in revenue, up 16% from $42 million in the fourth quarter of last year.
Speaker Change: As you may recall, we successfully completed our Odessa Mining rig upgrade in Q4, placing over 36,000 rigs and we continue to see the benefits of that investment.
Speaker Change: Topline Revenue also benefited from higher average Bitcoin price, quarter over quarter, increasing from approximately $83,000 into $4,000 to approximately $93,000 in Q1.
Speaker Change: While the average Bitcoin price increased quarter over quarter, the spot price declined from approximately $93,000 at the end of Q4 to roughly $83,000 at the end of Q1, negatively impacting our bottom line through a $20 million unrealized market of loss on our Bitcoin holdings.
Speaker Change: For the quarter, we reported a cap net loss of $39 million, or net loss of $0.11 per share, and adjusted earnings of $0.6 million or $0.2 cents per share.
Speaker Change: Additionally, bottom line results were impacted by higher depreciation quarter over quarter.
Speaker Change: This was the first quarter in which we depreciated the full value of the new machines installed at Odessa in the fourth quarter of 2024.
Speaker Change: I will discuss this in more detail later in the call.
Speaker Change: By the volatile market environment, this court has performed underscores our ability to deliver consistent production and revenue despite external headwinds and reflects the operational discipline of our team.
Speaker Change: Moving to slide 17, in the first quarter of 2025, we achieved $1 million increase in revenue compared to the first quarter of 2024.
Speaker Change: This result reflects our ability to navigate post-having environment driven by a low-cost power and operational efficiency.
Speaker Change: As noted earlier, due to the decrease in Bitcoin price and increased depreciation, we saw a significant decrease in gap and non-GAAP earnings year over year.
Speaker Change: This quarter are gap net loss of $39 million or a loss per share of 11 cents compared to net income of 40 million or 13 cents per share in the first quarter of the prior year.
Speaker Change: In addition to being pre-having quarter, Q1 2024 also benefited from approximately $41 million dollars in unrealized gains on Bitcoin compared to $20 million unrealized loss to this quarter.
Speaker Change: As noted earlier, the change to our depreciation schedule implemented in Q2 of last year had a significant impact on our results as well.
Speaker Change: Let's move on to slide 18 and take a deep look at the results of our operations.
Speaker Change: As Tyler mentioned, for the quarter, we mined 524 Bitcoin at our wholly owned Odessa Data Center, generating $49 million in revenue at an average price of roughly $93,500 per Bitcoin.
Speaker Change: This compares to the 492 Bitcoin we mined at Q4 2024 at an average price of $83,000 per Bitcoin, resulting in $42 million in revenue.
Speaker Change: Dequential Increase of 16% Revenue, and a 6.5% Increase in production. .
Speaker Change: Over the quarter, our cost of revenue decreased 18% sequentially. In the first quarter, we were curtailed less frequently and therefore did not need to purchase power as often as in the prior quarter.
Year over year, the cost of revenue remained flat
Speaker Change: Our low-cost fixed-price power remains a critical factor in maintaining attractive unit economics.
Now let's shift our focus to operating expenses.
John
Speaker Change: Compensation benefits the client sequentially related to a decline in stockpaste compensation as well as a reduction of the bonus accrual.
Speaker Change: The increase of 1 million year-over-years primarily related to an increase in head count from the period last year
Speaker Change: We now believe we have the right count in place to support our continued growth.
Speaker Change: Turning to General Administrative Expenses, which include IT, corporate insurance, professional fees, occupancy and other public company costs, we serve slight decrease quarter over quarter.
Speaker Change: On a year-over-year basis, G&A expenses rose by approximately $3 million, primarily driven by higher professional fees and public company costs.
Speaker Change: The key contributors to this increase were expenses related to strategic growth initiatives and sorbinds actually compliance.
Speaker Change: For the quarter, depreciation and amortization expense totaled around $43 million, representing a 20% increase from the prior quarter, and 152% increase year-over-year.
Speaker Change: These increases are primarily driven by a Q4 upgraded Odessa, which brought online over 36,000 new Mining
Speaker Change: In addition, as previously reported, in Q2 last year, we changed our accounting policy for mining with depreciation, decreasing the estimated useful life of miners from five years to three years.
Speaker Change: This change coupled with the increased number of mining rigs in operation explains a significant year-over-year increase.
Speaker Change: The oldest rigs in our fleet will cease depreciating in the fourth quarter of this year.
Speaker Change: The impact in the current quarter primarily relates to a non-cash and impairment charge identified by our Alboors JV related to their mining rigs.
Speaker Change: In Q1, we recognize the $20 million unrealized loss on the fair value of our Bitcoin inventory compared to an unrealized gain of $14 million in Q4.
Speaker Change: Unrealized gains and losses on Bitcoin reflect the mark to market accounting of our holdings.
Speaker Change: While the average price of Bitcoin rose during the quarter, the spot price at quarter red declined meaningfully compared to the end of Q4.
Speaker Change: In the quarter, we recognized $12 million of realized gains on Bitcoin by challenging market conditions.
Speaker Change: This compares to $26 million in realized gains from selling Bitcoin in the fourth quarter of last year.
Speaker Change: In Q1 of last year, we did not sell any Bitcoin outside of minor sales for transaction fees.
Speaker Change: Now let's turn to a non-GAAP measures slide where we reconcile our adjusted earnings.
Speaker Change: As always, I'd like to remind you that adjusted earnings exclude the impact of depreciation and amortization, the non-cash changes in the fair value of our derivative asset, deferred income tax expense, the non-cash charge and the fair value of the warrant liability.
Chair-based compensation and a non-recurring game.
Speaker Change: When adjusting our first quarter gap net loss at $39 million, we added back $45 million for the items I just listed, resulting in adjusted net earnings of $6 million for the quarter.
Speaker Change: This compares to an adjusted net gain of $51 million in the previous quarter and $63 million in the previous year.
Now let's turn our attention to the balance sheet.
and Slide 20, a total current asset fit. [inaudible]
Speaker Change: Earhead were $155 million. Our cash position increased from $6 million in December to $23 million in March, an increase of 18 million from the previous quarter.
Speaker Change: As you may remember, we received a pipe investment from Softbank in January , in which Softbank invested $50 million in Cypher through the purchase of approximately 10.4 million shares of our common stock.
Speaker Change: Over the quarter, we deployed capital towards the ongoing construction of build-out of Black Pearl, Linear Rig Payments and Routine Operating Expenses.
Speaker Change: As Tyler mentioned, we remain disciplined in our approach to capital management and growth, and as of March 31st, our total liquidity was $75 million.
Speaker Change: I'll quickly cover some additional balance sheet line items as of March 31st.
Speaker Change: How a prepaid expense is amounted to $3 million. This balance is primarily related to corporate insurance and was flat quarter over quarter.
Speaker Change: Power Odessa Power Contract, which is reflected as a derivative asset on a balance sheet, represents the in-the-money value of the contract, influenced by the time value and prevailing forward power prices at our Odessa facility.
Speaker Change: Over the quarter, we had a marked market gain on our PPA driven by an upward shift in the forward curve for relevant power prices.
Speaker Change: The PPA ended the quarter valued at $93 million, up 9% from the prior quarter.
while there are substantial fluctuations in the room. [inaudible]
Speaker Change: In the reported value quarter over quarter, the true value of this contract lies in its provision of low cost fixed price power at outward death of sight.
Speaker Change: This contract bolsters our competitive advantage, Nail, and over the life of the contract ending July 20, 20-7.
Speaker Change: Other significant assets include property and equipment, totaling $478 million, primarily fully attributed to our deaths of facility.
Speaker Change: Within this category, Mining Rigs and Related Equipment Account for $340 million, we sole improvements are valued $138,000,000.
Speaker Change: Land of 51 million, Infrastructure of 28 million, and Construction and Progress at 120 million
These balances are neck of $200 million in accumulated depreciation. [inaudible]
Speaker Change: The deposits on equipment of $121 million primarily consist of the deposits for mining rig purchases.
Speaker Change: Additionally, we hold intangible assets totaling $10 million, with $7 million attributed to Hercott Approval at Black Pearl, and the remaining $3 million related to capitalized software.
Speaker Change: These balances are net of $1 million in accumulated amortization.
Speaker Change: At the end of the first quarter, our equity investee in Albor's bear and chief J.V. stands at $48 million and we had operating leases of 12 million.
Speaker Change: We had security deposits of totaling 20 million, which primarily represent the on-cord deposits related to the construction of interconnects at the various data centers.
Speaker Change: How liabilities increased slightly quarter-over-quarter driven by our growth initiatives.
Speaker Change: Truet term borrowings of $35 billion relate to borrowing is done to provide liquidity in the near term, while preserving bitcoin liquidity and selling production upfront and is one example of the strategic capital management Tyler discussed.
Tyler Page: Before we conclude, I'd like to thank everyone for joining today's call. We remain committed to providing regular updates on a strategic initiative in growth plans in quarters to come.
Speaker Change: At this time, I will pause and Tyler and I would be pleased to take your questions.
Speaker Change: As a reminder to ask the question, please press star 1-1 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1-1, again.
Please stand by while we compile the Q&A roster.
and our first question comes from
Brett Knoblauch, Woods, Kendra Fitzgerald, your line is open.
Speaker Change: Hi guys, thanks for taking my questions. On the, the fortress announcement, could you maybe try a bit more color there? Does that mean Barbara Lake would be going into AJAZ and just, I guess, more clarity on the terms of that financing arrangement?
Speaker Change: Sure, thanks for the question. I will give you sort of a high-level summary. I think we will wait to probably get into the exact
Speaker Change: Blood and Guts of how waterfalls shake out and things like that as it will be somewhat linked to the success and how the lease from the particular tenant ultimately looks but yes at a high level it would be a joint venture. They will be our financing partner they unconditionally.
Backstop, the Finance and Buffold, Data Center Build.
Speaker Change: That amount varies depending on the tenant and the specs that they want, that can vary quite a bit. A recent one was in the neighborhood of about $3.13.2 billion total.
Um...
Speaker Change: We would contribute our assets, so, you know, the land, substation, interconnect, etc., and have value for that, and then...
We could invest more cash if we wanted to, but…
Speaker Change: at the end of the day, sort of how that shakes out for our returns will largely depend on-
The Ultimate...
Speaker Change: sort of lease rates and then exit and, you know, cap rates that if...
Speaker Change: If we were to exit several years into the future, that will depend a little bit on what the market for data centers looks like. We're very bullish in that. I think it's fair to say.
Speaker Change: You know, roughly speaking, I would expect us to be about 40% of the economics in a good situation and that is without contributing a dollar of capital.
So it's really the ability to go to potential tenants.
Speaker Change: and you know, it's been our observation that while we get a lot of respect from potential tenants for our skill and expertise and construction and ops
Thank you.
Speaker Change: It's not lost on us that if we're talking to a counter-party with a trillion dollar market cap...
Speaker Change: and they're building a $3 billion asset, particularly in a volatile market. I think one of the drawbacks of the Bitcoin miners in general is that they say, wow, that's a...
Speaker Change: Big obligation for you guys to backstop for such an important investment for us. So in this case the ability to partner with someone that has built data centers.
Four hyperscalers is obviously very well known and very credentialed.
Speaker Change: You know, allows us, I think, to have a different kind of conversation to finalize a lease. So, there will be some variability on exactly how the economic shake out because it depends a bit on who the tenant and what the lease terms are and then ultimately what the market looks like for data centers.
Speaker Change: Perfect, thank you. That was very helpful. Maybe just a high level on conversations, maybe since character announcements in early April . Have you seen a pause, a step back, kept conversations kind of continued to progress without any bumps in the road? I guess what are you seeing just from where conversations are?
Speaker Change: Yeah, so I would say the pace of conversations has not abated if anything they have increased.
Speaker Change: We've had more reverse inquiries from very large investors and tenants around the world. I was doing a mental checklist as we were going through the call.
Speaker Change: I think in the last few months, I've met personally somewhere around the world who are on a Zoom with three, four billionaire real estate developers that are very interested in what we've got going on and they both can represent tenants and wanting to be an investor themselves.
Speaker Change: I think on the strictly the tenet side, yes, we have had deeper discussions in the past couple months. Nothing has abated on that from the tariffs. I will say on the sort of very well known big name hyperscaler side. Thank you.
Speaker Change: I would say it sort of continues at the same pace that it seems to always do, which is everything moves in a hurry for a stretch and then sometimes quiet down for a few weeks and then comes back to life.
Speaker Change: My understanding is that this is everyone's experience in general, dealing with them. So, but high level, I have not seen any change in the level of interest since the tariff announcement.
Michael Grondahl, John
Perfect. Thank you guys. Really appreciate it.
Thank you.
Speaker Change: Thank you. Our next question comes from Joseph Vafi with Canacorn Genuity. Your line is now open.
Joseph Voffy: Hey guys, good morning. Thanks for the opportunity to ask a question here. Just...
Joseph Voffy: Maybe we drill down a little bit more, Tyler, on this, your financing strategy approach here.
at Barmer Lake with Fortress. Maybe it's a little bit different than what we've seen from some of the other Bitcoin miners.
Joseph Voffy: You know, you threw out that, you know, 40, you could own 40% without...
Speaker Change: I'm not putting any more capital in. I was just wondering if you look across your pipeline and what might be a strategy over the medium to longer term, or do you think that you'd...
Speaker Change: You prefer that strategy of site acquisition and asset development on the acquisition side and then let somebody else do the cap-axe
Speaker Change: or I guess look at feels one at a time, or maybe somewhere in between, and then a quick follow-up.
Speaker Change: Okay, thanks Joe, great question. I would say we have a lot of optionality and we're very excited about it. So high level as I've said before.
Speaker Change: We are big believers in the value of large scale interconnects over the next.
Speaker Change: You know, certainly three years and maybe beyond, but with a particular premium on that and so we really have positioned the company to take as much advantage as possible of finding opportunities in that window.
Speaker Change: as a first step to figure out exactly how the model evolves over time. The most important thing from our perspective, I think, is just validating that we are serious and we can land a great tenant with a big lease.
Speaker Change: To me, once we do that at Barbara Lake, suddenly the market should be re-valuing the rest of our tremendous pipeline. We expect to have several large scale sites under development in the not-too-distant future.
Speaker Change: and I think getting credentialed and getting one in the boat, so to say...
is the most important thing.
Speaker Change: So when you think about the challenges to land the first one,
I think it's obvious to everyone that
Speaker Change: You know, a Bitcoin minor has an expensive cost of capital to do Bitcoin mining and you don't want to fund the biggest most expensive build you've ever done. It's the traditional Bitcoin mining cost of capital. [inaudible]
Speaker Change: Hence bringing in a partner to basically speak for all of the capital being there.
Speaker Change: We think is huge in landing that first tenet. Now, it's also extremely attractive we think on the ultimate economics because we do believe you will be developing the data center. We have a team that can develop and we expect that to be a revenue line item for us.
and then ultimately, Lee.
Speaker Change: The ability to not finance at our Bitcoin mining cost of capital, a huge piece of the ultimate economics in a market that we're very bullish on, we think is going to be awesome.
I think then, you know, really the question...
Speaker Change: becomes, how do you think about the subsequent sites and how you finance it?
Speaker Change: and a little bit of that depends on how the market evolves to view us. If they view us as a developer of HPC data centers and we have access to capital in ways that are more favorable than Bitcoin mining,
Speaker Change: We would love to own more of the economics when possible, we sort of are strictly driven by the math and how can we get the best share return so it's a bit of a balance. So let's go ahead and see what we can do.
Speaker Change: I think we're blessed to have such a robust pipeline in the future and so we want to over time capture as much of the economics as possible for Cipher and our shareholders. Then there's a separate question that sort of in your question, which I'll take a stab at which is. I'll take a stab at which I'll take a stab at which I'll take a stab at which is.
Over time, how do you think of this business? [inaudible]
Speaker Change: I will say that I think our greatest edge when I think about Cipher's value to an investor is identifying great opportunities for green field development in the data center space.
Speaker Change: and so logically, I think the most likely way we evolve is that we will capture the most value in the early stage development section of ultimately the life.
Speaker Change: of an HPC data center. So, without committing because it's years away, but if we have a 15 or 20 year lease on this site...
Speaker Change: and it is up and fully operational and we're several years into it.
Speaker Change: There's a good chance that we would regularly sort of recycle that capital to potentially exit to then deploy the profits we make back in the earlier stages of development where we think we generate the most value [inaudible]
Speaker Change: You know, no commitment because it might be nice to just hold a stream of cash flows over time but probably we would manage this portfolio where we're holding some of these developments and recycling capital from other ones.
Greg Lewis: Thank you. And our next question comes from Greg Lewis with BTIG. Your line is now over.
Greg Lewis: Yes, thank you, and good morning, and thanks for taking my questions.
and Tyler, you know, realizing that.
Speaker Change: Texas has really become an epicenter for data centers, Bitcoin miners.
Speaker Change: You know, as we look at the Barber Lake, I mean, you sign the MOU for the additional 500 megawatts, not that I need to get a comment specifically on that in Barber Lake, but as you look at across our cot .
Speaker Change: Like, have things been getting more streamlined, where once we have slights in place and we move forward to, you know...
Speaker Change: You know, look for additional power capacity. Has that been getting more streamlined than in kind of your broader viewers? Is that the same or is it becoming more challenging and any kind of color around that? Yeah, that's it.
Speaker Change: Sure, so I think right now there is a bill being finalized in the legislature in Texas.
that will tweak
Speaker Change: How folks enter the queue for interconnection in Texas, which we think is a good thing. It will force developers, speculators to put some skin in the game which we think will actually bring some reality and truthfulness to the interconnection queue because right now there's not much of a penalty to be a... [inaudible]
Speaker Change: sort of duplicate speculator on multiple sites where you don't have much money put down. And so people that's part of the reason why the queue is so big. There's also some ongoing discussions about thinking how to charge behind the meter.
Speaker Change: Facilities, you know, to make sure that they are paying an appropriate rate for transmission and so forth. And so there isn't evolving landscape down there. I would say as a broad generalization.
Speaker Change: You know, we are vulnerable as an industry and I mean all the data centers [inaudible]
Speaker Change: by having kind of what sounds like a runaway, enormous interconnection queue because it allows people to...
at the public due to the growing industry. So,
Speaker Change: Probably trimming the cue and making it look a little bit more realistic is generally a good thing. I will say if anything
Speaker Change: You know, I do think those various regulations will make it a little bit more challenging you would presume to get an interconnect. So, if anything, I think that makes our portfolio very valuable because we've got large interconnect.
Speaker Change: with a very hearty interest, but I think what will happen with regulations will be that it will probably get incrementally.
and more scrutinized with the new legislation.
Speaker Change: Okay, great. And then just one for me on the fleet performance. You mentioned the two and a half extra aditions from the idle fleet. You know, I guess I'll just ask everything I want.
Speaker Change: Can you provide kind of the efficiency of that and then just, as we look at Odessa clearly, that's like a market leading type efficiency? As we kind of go down to the JV sites, the efficiency of those rigs,
Speaker Change: The rigs at the JV sites and what needs to happen for that to kind of move forward.
Speaker Change: Yeah, so great question. So let me start with the first question. I think with the two-and-a-half ex-a-hash that we would plug in.
Speaker Change: Initially, right when that's plugged in, but before new rigs arrive, that probably takes our efficiency a little bit worse and takes it to about 20 or 21.
Speaker Change: Joules-Pertair Ash, but that's temporary because we've got a big order of new rigs arriving and ultimately once we get to the full 23 exit hash we'll be more close to 17 Joules-Pertair Ash when that is all plugged in.
Speaker Change: I think from our perspective, given that Black Pearl was ahead of schedule and getting ready, we started looking at the opportunity of having what while we wait for ultimately the delivery of rigs [inaudible]
Speaker Change: You know, quick questions, of course, surround. Again, I don't anticipate any challenges, but we live in an interesting tariff environment, but we had an opportunity to say, look, if we just get these rigs plugged in. Let's get started.
Speaker Change: Just in the third quarter, we can probably make another $15 million of revenue just from not having this stuff idle while we wait and if we get the ricks on time or ahead of schedule and everything's going well that the new ones you know will move even quicker to that more efficient top line number. [inaudible]
Speaker Change: and then on the JVs, I think that given that those are either very cheap behind the meter in the case of albours, or front of the meter at Baron Chief,
Speaker Change: More likely we are probably going to run those fleets and just manage curtailment so we don't have as much uptime but we can stretch out the value further and further on the useful life of those rigs by just dialing down the uptime [inaudible]
Speaker Change: This is a massive advantage Cipher has over most of our competitors in that
Speaker Change: We have regularly managed uptime and curtailment in the ERCOP market for years and been best in class.
Speaker Change: Ultimately, when you look forward several years, if we keep getting growing hash rate, you've got another having...
Speaker Change: You know the idea that you're just going to upgrade with the most expensive rigs every two years is not a great model in our opinion. You know what I'm talking about?
Speaker Change: We think probably what happens is you are managing a longer life out of your assets and managing curtailment and only buying when power is cheap at places like our JV so I would argue they're a little bit of a view into probably with the future of mining looks like several years into the future but for now they're not a priority for upgrading.
They're super helpful. Thank you very much.
Thank you.
Speaker Change: Thank you. Our next question comes from Paul Golding with McCory. Your line is open.
Speaker Change: Thanks so much. Tyler just wanted to ask as you field all this interest on the HPC front and now have financing in place for one of the sites.
Speaker Change: How are you thinking about long lead time item purchases and how that may or may not relate to some of the diligence being done?
Speaker Change: by these prospective tenants and how they're considering signing with you for some of this HPC capacity that you have on offer, particularly the energized capacity already in place, and then a follow from me. Thanks.
Speaker Change: Okay, so I'd say in general, we prioritize getting substations on order and built, you know, we have a substation on order for stingray so that it will be ready if anything that's sort of just a general site improvement item, so we've managed that.
Speaker Change: I think substations are always the priority because they are generally a long lead time item and they're often a gating item in due diligence. It's sort of the first question a lot of people have. I think
Speaker Change: Beyond that, when we look down further in the chain, we leverage a set of global vendor partners, I would say in general
Speaker Change: We secure really good lead times on items and market that to tenants. So, you know, the way these discussions typically go is it's very iterative. We will produce design specs. [inaudible]
for a particular potential tenets.
Speaker Change: Particular design requirements. And so then we will typically go and source quotes to produce the timeline that we give them.
Speaker Change: I'd say in general we have really good partner relationships often looking to folks with inventory so we can optimize speed to market but we are not kind of building on spec.
Speaker Change: at this point. The design requirements vary broadly between different tenants and so we don't want to start spending tons of CapEx without the tenant locked in.
Understood, and then... Hello.
Speaker Change: The follow-up from me is on soft bank and that relationship. Just wanted to understand the extent of their involvement now that you're a few months into the $50 million investment and how that relationship is potentially evolving around the HPC processes underway or if their contribution is coming through in other ways or if it was simply just a capital at this point. Thanks.
Speaker Change: Yeah, so look, I couldn't be happier about having probably the most forward-thinking investor on the planet invested on us, I mean in us in this space.
Speaker Change: is the value of the timeliness of our assets to shareholders. And so, my goal very clearly is to get a high quality tenant signed to a long term lease as quickly as possible to Barbara Lake.
Speaker Change: There is a lot of time value in Barbara Lake because it is ready and energized and with a substation ready to design to spec with plenty of land and water.
and Fiber. So it is a great site.
Speaker Change: I really hope we sign a deal with Softbank tomorrow to have them as our tenant because they were now an investor in us for a while. That would be fantastic. At the same time.
Speaker Change: In advance of them being ready to commit to anything, we have to open up the marketing of that site. They had the site under exclusivity.
back in February .
Speaker Change: You know, we have not signed a lease with anyone yet and so we've opened up the competition and as I mentioned on the call
Speaker Change: We've had lots of interested tenants and certainly financiers and I'm very happy to say I think we picked the best dance partner on the financier side. Now we just need to finalize the tenant. I hope it's soft bank. It could easily be someone else if they don't move quickly because I think we have to monetize the timeliness of that. [inaudible]
But that said, listen. [inaudible]
Speaker Change: I'm really excited about their continued interest in the space and obviously it's you know one of the proud professional moments of my life getting to say that we got them on our cap table.
Thank you so much.
Speaker Change: Thank you. Our next question comes from Mike Grondahl with Northland. Your line is open.
Mike Grondahl: Hey, thanks guys. Um, and Tyler, I really liked your comment about getting one in the boat as you have a really nice runway set up.
Mike Grondahl: and in relation to that, what are the next milestones we should be looking for at Barber Lake?
and then secondly, please.
on Stingray in Ravallee. [inaudible]
Can you speak to the interest in those two locations? [inaudible]
Michael Grondahl, Michael Grondahl, John Todaro, John Todaro
So,
Mike Grondahl: First at Barbara Lake, I mean I would say the next step, I hope to tell the world that we have a lease with a great tenant there.
Mike Grondahl: We have negotiated what potential rates would be and structures. We just need to finalize it, so it's literally getting to lease.
Mike Grondahl: on Stingray and Rebelly. So actually, interestingly, we have recently received interest in potential for HPC at Stingray.
That's an interesting site, because I think it's...
Mike Grondahl: You know, it's in West Texas. We think it's very attractive. We have less invested in that site than we do in Barbara Lake.
So I think we're open to...
A bunch of ideas, given that it's a hundred megawatts,
Mike Grondahl: It's actually created an interesting pocket of potential tenants that we had not previously been speaking to so we had really focused our discussions with potential tenants that could take an entire 300 megawatt lease.
Mike Grondahl: as a generalization, the hyper-skillers are not as interested in a site that's only 100 megawatts.
Mike Grondahl: But there are several enterprise-type clients that are interested in that site and it's actually a completely different group.
Mike Grondahl: than we had previously been talking to. So we do have some early interest. I'll see if we get it there. I mean, that would be another site where probably we'd be looking for a financial partner.
Mike Grondahl: We have had some ask about it and like I said we've had some potential tenants ask about it kind of in a different category so I think that gives us an interesting opportunity to maybe play a different part of the market there.
Mike Grondahl: and then Rebelly also has a lot of potential given that it energizes in 27 and again the size is a little smaller, 70 MW.
Mike Grondahl: I think we have a lot of flexibility there. If we have developed or we are working on developing two or three data centers for large tenants in advance of that, that site has a lot of flexibility. We could work.
Mike Grondahl: with one of those smaller enterprise-type clients. We could potentially, at that size,
Mike Grondahl: and we could have multiple tenants that we manage directly. It could be interesting. So I think there's a lot of flexibility at that site and across those future sites.
Mike Grondahl: We have different ways to play the market. The three M's are all very large, so they're more likely to be the types of potential tenants we've been talking to at Barbara Lake.
Mike Grondahl: Looking down the line at those other sites it's kind of a broader category so we certainly hope that the trend continues to be very positive on Texas and West Texas in particular and we'll just have to see but we're excited about the potential. [inaudible]
Hey, thanks for that color.
Thanks Mike.
Speaker Change: Thank you. Our final question comes from Chris Brindler with Rosenblatt Securities. Your line is open.
Chris Brendler: Hey, thanks, and good morning, guys. I wanted to ask on the Fortress facility, can you give us an indication of, like, when? What's going on?
That was signed and given the obvious.
Chris Brendler: Questions around, you know, signing Cipher to a trillion dollar of confidence like that, you know, it requires it.
Chris Brendler: A lot of faith and your ability to continue. So, does the fortress facility, does that change the pace of negotiations at all since you were able to agree to terms on that deal? And then we're the next steps on the fortress facility in terms of
Chris Brendler: actually getting a contract signed, would it require a HPC deal to be signed, or can that happen beforehand to further encourage an HPC tenant to partner with you?
Chris Brendler: Yeah, thanks Chris, great question. So we just signed it recently, like in the last few days coming into the weekend. And so
Chris Brendler: As I mentioned, we've been in a bit of a beauty contest with a lot of big-name financiers that had interest in the site. We spent a lot of time, the team's been very busy on looking at the myriad of structures and different ways we could play it to try to get the best returns for us.
So...
Chris Brendler: We signed that deal in the hopes that it greatly speeds up and advances the finalization of the discussions we are having.
Chris Brendler: and certainly based on the market color we have received, we think it's going to help a lot.
Chris Brendler: It will trigger at the signing of a lease. So we are committed to work with them to finalize this lease.
Chris Brendler: and so will your joint marketing and doing least negotiations with tenants right now.
Chris Brendler: Again, they have some existing relationships. There's a lot of overlap in those existing relationships with some of the folks we're currently talking to. They know the tenants we are talking to and are happy with those names, so it's really just a matter of getting to lease at which point the structure would trigger.
Speaker Change: Okay, great, and congratulations on getting it done before the earnings call. I know that's probably a nice target to get it wrapped up beforehand. So, congrats on that. And I just want to ask a question on the mining business. You know, really impressive cost of revenue and gross margins that are coming out of it.
Speaker Change: I just wanted to ask that you mentioned higher up time, but you have a pretty significant drop in your hash cost from quarter to quarter and the power cost didn't drop so it's at all all of the time was there anything else that improved from previous quarters to drive these really impressive results on cost of revenue?
Speaker Change: That's mostly driven by power, truthfully. Keep in mind, we completed an upgrade of the fleet, of course, in the fourth quarter. So this was the first full quarter of firing with the new fleet efficiency. So that helped a lot. And I mean, the really good news there is that
Speaker Change: The benefits of scale, we haven't even realized yet, right? So when we add another nine and a half exa-hash [inaudible]
of Efficient Machines in the next quarter.
Speaker Change: You know, certainly we don't expect the cost of revenue to scale with that, right? If anything, it's going to stay close to flat and so we would expect and so those numbers should get better and better and we finally get to see the true benefits of our scale combined with our with our power.
Power Prices and Management.
Speaker Change: Yeah, but actually it was pretty much the worst study ever on the new machines.
Speaker Change: You mentioned the tariff and the answer to that. What's the current thinking? [inaudible]
on what would be the impact.
Mike B., for those new deliveries. [inaudible]
Speaker Change: The good news is our deliveries are scheduled for the near term. We are finalizing some discussions we're having with the mining rig manufacturers where I'm going to...
and like I said, I'm excited, I'm tentatively excited about...
Speaker Change: What we will be able to announce hopefully in the next month or so, just about the benefits of being
Speaker Change: a large and important customer as we deal with that. But hard to say, I mean, we could get a tweet tomorrow, it's, you know, there's navigating that uncertainty is not easy, but obviously we feel confident enough to give the projections we're giving for next quarter. So I think it's going to end up being fine for Cipher. [inaudible]
Speaker Change: Okay, we'll wait for that. Thanks so much, Tyler, appreciate it.
Speaker Change: Thank you. This concludes the Question and Answer session. I would now like to turn it back to Tyler Page for closing remarks.
Tyler Page: Thank you everyone for joining our update call. We look forward to delivering more positive updates in the near future. Have a great day.
Tyler Page: This concludes today's conference call. Thank you for participating. You may not be allowed to speak.