Q2 2025 Cipher Mining Inc Earnings Call

Speaker #2: Good day and thank you standing by. Welcome to the Cypher Mining Second Quarter 2025 Business Update Conference call. At this time, all participants are in a listen-only mode.

Speaker #2: Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press star one one on our telephone and wait for your name to be announced.

Speaker #2: To withdraw your estion, please press star one one again. I would now like to hand the conference over to your speaker today, Courtney Knight, Head of Investor Relations.

Speaker #3: Good morning and thank you for joining us on this conference call to address Cypher Mining's business update the second quarter of 2025. Joining me on this call today are Tyler Page, Chief Executive Officer, and Edward Farrell, Chief Financial Officer.

Speaker #3: Please note that our press release and presentation can be found on the Investor Relations section the company's website. For this conference call, we'll also be simultaneously webcast.

Speaker #3: I'd like to remind you that the following discussion, as well as our press release and presentation, contain forward-looking statements. These statements include, but are not limited to, Cypher's financial outlook, business plans and objectives, and other future events and developments.

Speaker #3: Including statements about the market potential of our business operations, potential competition, and our goals and strategies. Forward-looking statements and risks in this conference call, including responses your questions, are based on current expectations as of today.

Speaker #3: And Cypher assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Additionally, the following discussion may contain non-GAAP financial measures.

Speaker #3: We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the most directly comparable GAAP measures.

Speaker #3: And you are encouraged to examine those reconciliations, which are filed at the end of our earnings release, issued earlier this morning. I will now turn the call over to our CEO, Tyler Page.

Speaker #3: Tyler?

Speaker #4: Thanks, Courtney. Good morning, everyone, and thank you for joining us today. I'm Tyler Page, CEO of Cypher Mining, and I'm pleased to welcome you to our second quarter 2025 business update call.

Speaker #4: In the second quarter, Cypher delivered on all previously outlined plans at Black Pearl Phase One. An importantly exceeded our prior growth guidance. Building on that momentum and now supported by even stronger cash flows, we've made several strategic decisions to continue to position the company for the evolution of the data center landscape.

Speaker #4: I'll provide more details those decisions later in the call, but first, I would like to highlight a few key metrics that speak to today's themes.

Speaker #4: Consistent execution, thoughtful investment, and purposeful growth. In the second quarter, we grew our Bitcoin holdings from $1,034 to $1,063 Bitcoin. In addition to growing our inventory, we paid off all short-term borrowings, which Ed will discuss later on the call.

Speaker #4: We are incredibly proud to have energized and commenced Bitcoin mining at our Black Pearl data center ahead of schedule this quarter. As a reminder, we plugged in legacy rigs from our Odessa upgrade at our new site, while we await the latest generation rigs scheduled to arrive in batches before the end of the third quarter.

Speaker #4: Our initial projections targeted 16 exahash per second by the end of the second quarter, and 23.1 exahash per second by the end of the third quarter.

Speaker #4: We exceeded that guidance, finishing the second quarter at 16.8 exahash per second. Today, we are pleased to report that we are on track to once again outpace expectations from previous guidance and reach 23.5 exahash per second by the end of the third quarter.

Speaker #4: All of our fully funded latest generation Bitmain rigs are scheduled for delivery to the site in batches by the end of the third quarter.

Speaker #4: Also, in the second quarter, we executed an order with Canon to purchase a small batch of miners. This new order, coupled with our Bitmain order, will allow us to achieve this growth while also improving efficiency.

Speaker #4: At the end of the second quarter, with legacy rigs plugged in at Black Pearl, our fleet efficiency stood at 20.8 joules per terahash. Once our new fleet is fully deployed, we expect efficiency to improve to an impressive 16.8 joules per terahash, making us once again among the most efficient miners in the industry.

Speaker #4: While our growth is impressive, I'd ike to take a moment to briefly revisit a few of our core metrics and foundational strengths. Our projected all-in weighted average power cost remains highly competitive at just 3.1 cents per kilowatt hour.

Speaker #4: The slight increase can be attributed to Black Pearl Phase One, a 150 megawatt front-of-the-meter site coming online. Given our deep power expertise and the ability to dynamically curtail our data centers, including during the summer 4CP months, we expect to be able to maintain this low cost of power even at our front-of-the-meter sites.

Speaker #4: Our proprietary software has proven to be a critical advantage in optimizing for profitability, maintaining low power prices, and monetizing older rigs. Across our sites that operated for the entire second quarter, including Odessa, Alborz, Bear, and Chief, we paid an average all-in electricity cost of approximately $27,324 per Bitcoin produced at our data centers.

Speaker #4: 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 #4: To summarize, we will soon be running some of the industry's lowest cost power through an even more efficient fleet. A powerful combination that will continue to drive exceptional unit economics.

Speaker #4: This strong operational foundation will remain a key advantage as we continue to grow and scale. With the addition of Black Pearl Phase One, Cypher's current operating capacity stands at 477 megawatts, with potential pipeline capacity expansion of up to 2.6 gigawatts in the coming years.

Speaker #4: We'll discuss our impressive pipeline in further depth later on the call, so I'd like to shift focus to our second quarter growth highlights across key verticals and our outlook the path ahead.

Speaker #4: During the second quarter, we delivered on Phase One of Black Pearl, the first 150 megawatts of our 300-megawatt data center, which is now mining at 6.9 exahash per second and on track to exceed prior guidance by the end of the third quarter.

Speaker #4: As previously discussed, we will fill Phase One of Black Pearl with a majority of Bitmain S21 XPs, supplemented by our new purchase of approximately 1.5 exahash per second of Canon A15 Pros.

Speaker #4: Importantly, both of these orders were fully funded through a combination of balance sheet cash and proceeds from our first convertible senior notes offering. As we've discussed in the past, we are focused on thoughtfully evaluating funding options that support growth while minimizing dilution.

Speaker #4: Through this successful convertible offering in the second quarter, we raised approximately $168 million in net proceeds. With this convertible offering, we were able to take advantage favorable market conditions, expand our institutional investor base, and lower our cost of capital, while completing Black Pearl Phase One in a capital-efficient manner.

Speaker #4: We are also participating in ERCOT's ancillary services market at Black Pearl. This participation not only supports grid stability and reliability, but also creates an additional revenue stream for the site with minimal impact to uptime.

Speaker #4: Our participation is seamlessly integrated into our proprietary software, and we expect to scale our ation in the coming quarters. As we have made thoughtful investments to position our Bitcoin mining operations for the future, we have also been extremely focused on investing strategically to ensure the company is well prepared for the broader evolution of our industry on the HPC side.

Speaker #4: Given Barber Lake's 300 megawatts of energized capacity and ideal site characteristics, we believe Barber Lake is one of the most compelling HPC development opportunities in the US today.

Speaker #4: Market dynamics and ongoing dialogue potential tenants continue to confirm both a growing demand for power and a tightening supply. Against this backdrop, we're more confident than ever in the site's long-term value and are actively engaged in advanced discussions to secure the best possible deal for Cypher and our shareholders.

Speaker #4: We're encouraged by recent momentum and look forward to sharing further updates as progress continues. Let's now turn to Black Pearl Phase Two, which presents another compelling HPC opportunity.

Speaker #4: As a reminder, Black Pearl is our 300 megawatt data center in Wink, Texas, that energized this quarter. Phase One, the first 150 megawatts, is currently hashing.

Speaker #4: Phase Two is the second 150 megawatts of powered land. Over the past few quarters, we've thoughtfully evaluated various paths for Phase Two, with a focus on driving the best possible outcome for our shareholders.

Speaker #4: Today, we're excited to share a new strategic plan for the site, one that positions Cypher to capitalize on near-term Bitcoin economics if desired, while maintaining the flexibility to transition to HPC as demand for every available megawatt continues to rapidly accelerate.

Speaker #4: We're excited to announce today that we are moving forward with the construction of Black Pearl Phase Two, which envisions 150 megawatts of infrastructure that is designed to support both hydro Bitcoin mining and HPC compute applications simultaneously.

Speaker #4: This infrastructure will be built from inception to be able to seamlessly convert to Tier One, Two, or Three utilizations in response to tenant demand.

Speaker #4: Before I dive into specifics, I want to first outline a few guiding principles that shaped our decision to move forward with a flexible build-out for Bitcoin mining or HPC workloads.

Speaker #4: We firmly believe that energy availability is rapidly becoming the defining constraint for the future of HPC compute. This view is increasingly echoed by industry leaders.

Speaker #4: During a Senate hearing in May, Sam Altman remarked, "The cost of AI will converge to the cost of energy." The abundance of it will be limited by the abundance of energy.

Speaker #4: In July, Anthropic released a policy report titled, "Build AI in America," highlighting the growing energy demands of advanced AI systems. The report stated, "As AI systems grow more capable, the energy and computational requirements to train and deploy frontier AI are surging." And cited estimates suggesting that the US AI sector is on track to require at least 50 gigawatts electrical capacity by 2028.

Speaker #4: Notably, the report stated that training workloads alone are expected to account for 20 to 25 gigawatts of that demand. These statements and many others like them highlight a rapidly emerging paradigm driven by larger models, larger data sets, and exponentially increasing compute requirements, all of which are fundamentally dependent on an ever-growing need for energy.

Speaker #4: Beyond simply articulating the need for energy, hyperscalers are reinforcing it through their capital plans. Just two weeks ago, Alphabet shared that it now expects to invest approximately $85 billion in CapEx in 2025 with a further increase in CapEx in 2026 due to the demand it has seen from customers.

Speaker #4: Similarly, Meta recently said it expects 2025 capital expenditures to land between $66 and $72 billion. In anticipation of another year of similarly significant CapEx dollar growth in 2026, as it aggressively pursues opportunities to bring additional capacity online to meet the needs of AI efforts.

Speaker #4: Against this backdrop, we reaffirm our thesis that near-term power is a scarce and strategic resource, and that large-scale interconnections available in the next few years are exceedingly valuable assets.

Speaker #4: For these reasons, we are aggressively positioning the company to take advantage of anticipated demand and ensure we're fully prepared to support tenants when, inevitably, every available megawatt is absorbed by HPC workloads.

Speaker #4: Black Pearl Phase Two will be built around a proprietary basis of design that bridges the needs of both hydro Bitcoin mining and AI compute.

Speaker #4: This approach will align with current industry standards while maintaining the flexibility to support evolving hardware requirements, such as higher density racks, variable inlet temperatures, and diverse cooling preferences to ensure seamless integration as technology continues to advance.

Speaker #4: Through upfront design and infrastructure prepositioning, we will be able to efficiently convert to Tier One, Two, or Three design specifications in response to tenant leasing preferences or Cypher's evolving proprietary compute applications.

Speaker #4: This conversion scope is designed to minimize disruption to multi-tenant operations, allowing us to convert easily in segments over time. It is also designed to maximize speed to market with current design and supply chain plans enabling a turnaround for conversions in less than six months.

Speaker #4: In short, Black Pearl Phase Two's infrastructure will enable us to monetize power immediately and maintain seamless and expeditious optionality to pivot as the HPC market continues to scale into every available megawatt.

Speaker #4: This innovative Although this will likely decrease significantly as production at Black Pearl Phase One ramps up. As of June, the current operating hash rate at the site is approximately 11.3 exahash per second, using approximately 207 megawatts.

Speaker #4: Odessa's fleet efficiency stands at approximately 17.6 joules per terahash. On this page, we also provide the observed all-in electricity cost per Bitcoin at the site over the quarter, which was roughly $24,696.

Speaker #4: As a reminder, 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 and operational strength.

Speaker #4: On slide eight, we provide a combined overview of our joint venture data centers of Alborz, Bear, and Chief. The three sites have a total power capacity of 120 megawatts and can generate approximately 4.4 exahash per second.

Speaker #4: We own 49% of the JV sites and our portion recently generated roughly 13% of our overall Bitcoin production in the second quarter. On this page, we also provide the combined all-in electricity cost per Bitcoin at the three sites in the second quarter, which was roughly $44,594.

Speaker #4: As a reminder, both Bear and Chief operate as front-of-the-meter sites, so there are expected seasonal fluctuations with their electricity costs. It is worth noting that Black Pearl Phase One is not included in this section, as it was not operational for the full quarter and therefore contributed only 2% of total production in the second quarter.

Speaker #4: However, the site has since ramped meaningfully, accounting for approximately 24% of production in July, and is expected to continue growing its contribution going forward.

Speaker #4: We look forward to showcasing Black Pearl's full impact in future updates as the site scales. Let's now shift to an update on our development portfolio.

Speaker #4: We've organized the pipeline into near-term growth opportunities at Black Pearl and Barber Lake and longer-term expansion in 2026 and beyond. At Black Pearl in Wink, Texas, the first 150 megawatt phase is now live and hashing and will continue to scale as new rigs are delivered and old rigs are swapped out.

Speaker #4: The second 150 megawatt development phase will soon be under construction and will be designed to offer future optionality for HPC hosting or Bitcoin mining.

Speaker #4: The photos here highlight the best-in-class infrastructure at Phase One, purpose-built for Bitcoin mining and showcase team's outstanding execution in delivering the site safely and rapidly in just 16 months.

Speaker #4: We're confident that this same level of excellence, innovation, and dedication will drive the successful build-out of Phase Two. Slide 11 gives an overview of our Barber Lake site.

Speaker #4: With its immediately available capacity of 300 megawatts and 587 acres of surrounding land, along with the potential for future expansion, we are more confident than ever in the commercial potential at the site.

Speaker #4: Complex HPC lease deals take time to come together, but the team has been working diligently to evaluate the various proposals we have received and finalize the best possible deal for Cypher.

Speaker #4: Slide 12 outlines our expected growth in 2026 and highlights our latest site acquisition in Andrews County, Texas, called Stingray. The site features 100 megawatts of front-of-the-meter capacity, all necessary regulatory approvals, and 250 acres of land adjacent to the transmission assets.

Speaker #4: This quarter, we initiated development of the substation the site and secured long lead time items, including transformers and high-voltage breakers. The site is on track to energize in the third quarter of 2026.

Speaker #4: Slide 13 outlines our expected future growth across four sites with 1.6 gigawatts of potential power capacity. Our revelry site in Cotulla, Texas, is on track to energize in Q2 2027, the site is fully approved for 70 megawatts, and we have initiated development of the substation.

Speaker #4: Our 3Ms, Mikesca, Millsing, and McLennan, are currently undergoing final interconnection approval processes, including the completion load studies at all three sites with decisions expected later this year.

Speaker #4: We're targeting up to 500 megawatts of capacity at each of these sites. 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 #4: These sites are located further east than our current portfolio and are positioned 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 #4: Backed by our $2.6 gigawatt pipeline, a strong track record of consistent execution, and a focused strategy to position the company for the equipped to become a leading developer of HPC data centers, while continuing to set the standard in Bitcoin mining.

Speaker #4: I will now turn it to our CFO, Ed Farrell, for a review of our second quarter financials.

Speaker #5: Thank you, Tyler, and hello to everyone on the call. I'd like remind everyone that today, I will be discussing our performance for the second quarter of 2025 which ended on June 30th.

Speaker #5: Before I dive into our financial results, I'd like to highlight this quarter was not only one of strong execution but of also of disciplined capital deployment to achieve that execution.

Speaker #5: In the second quarter, we successfully leveraged our first-ever convertible offering to complete Black Pearl Phase One in a thoughtful manner. We strategically sized this transaction in parallel with commercial discussions with our rig provider.

Speaker #5: To ensure we had a direct use of the proceeds, that would be a creative to company. Of the 172.5 million dollars of gross proceeds from the offering, 108 was used primarily to purchase the latest generation of miners to be installed at Black Pearl.

Speaker #5: By paying upfront, we were able to negotiate for an expedited rig delivery schedule to avoid broader tariff impact. In addition, we received a 10% reduction in our outstanding obligation on the rigs as well as incremental value from Bitcoin linked call options.

Speaker #5: We now expect the full order to be delivered in hashing by the end of the third quarter. We look forward to seeing the full impact from these new rigs captured in production and revenue numbers next quarter and we are proud to have achieved this growth in a capital-efficient manner.

Speaker #5: Let's now turn to a review of our financials beginning with our sequential and year-over-year financial performance outlined on slides 15 and 16. In the second quarter, we reported $44 million in revenue, down 10% from $49 million in the first quarter of this year.

Speaker #5: While the late June energization of Black Pearl contributed positively to revenue, rising network hash rate and rising summer power prices in Texas, which increased curtailment, led to a slight dip in top line.

Speaker #5: Increased curtailment allowed company to avoid 4CP penalties and maintain its positions of having some of the lowest power costs in industry. In addition, insights from earlier summer months will inform further requirements to curtailment model for remainder of the summer.

Speaker #5: Moving down the slide for the quarter, we reported a gap net loss of $46 million or a net loss of $0.12 per share. Bottom line results were largely impacted by a decrease in fair value of our power purchase agreement at Odessa.

Speaker #5: The expected but substantial fluctuations in fair value are influenced by prevailing forward power prices and the time value for the remaining term of the contract ending July 2027.

Speaker #5: As I've discussed previously, the true value of the contract lies in the provision of low-cost fixed-price power at our Odessa site. Excluding that and other non-cash expenses, such as the impact of depreciation and amortization, deferred income tax expense, the change in fair value of the warrant liability, share-based compensation, and non-recurring losses, we reported second quarter adjusted earnings of $30 million or $0.08 per share up roughly 400% from $6 million last quarter.

Speaker #5: Moving to slide 16, in the second quarter 2025, we achieved $7 million increase in revenue compared to the second quarter of 2024. This result reflects the upgrade to our Odessa rigs in Q4 of last year as well as the production increase from bringing Black Pearl online at the end of the quarter which partially offset the pre-having portion of this quarter last year.

Speaker #5: We continue to take pride in our ability navigate the post-having environment driven by a low-cost power and operational efficiency. As noted earlier, due to the expected fluctuations in the value of our power purchase agreement at Odessa, we saw a decrease in gap earnings year-over-year.

Speaker #5: This quarter, we reported a gap net loss of $46 million or a loss of $0.12 per share compared to a net loss of $15 million or $0.05 per share in the second quarter of prior year.

Speaker #5: In addition to PPA fluctuations, we also changed our depreciation schedule for the useful lives of miners from five years to three years in Q2 of last year.

Speaker #5: That plus the increase in number of miners we are now depreciating given the upgraded Odessa meant this quarter's gap earnings saw a significantly higher impact from depreciation than the same quarter of the prior year.

Speaker #5: Our adjusted earnings, which exclude these non-cash expenses, increased significantly from a loss of $3 million or $0.01 per share to earnings of $30 million or $0.08 per share.

Speaker #5: Let's move on to slide 17 and take a deeper look at the results of our operations. For the quarter, we mined 434 Bitcoin at Odessa, and 10 Bitcoin at Black Pearl.

Speaker #5: Bringing our production to 444 Bitcoin mined in total across our wholly owned sites. This production generated $44 million in revenue at an average price of roughly $99,700 per Bitcoin.

Speaker #5: This compares to $524 Bitcoin mined in Q1 2025 at an average price of $93,500 per Bitcoin, resulting in $49 million in revenue. While we began to see some contribution from Black Pearl this quarter, equivalent to about $1 million or 2% of quarterly revenue, it is important to note that the site came online near the end of the quarter.

Speaker #5: As a result, we expect significantly greater impact next quarter when we'll benefit from a full quarter of production. Our consistent low-cost power remains a critical factor in maintaining attractive unit economics and our cost of revenue remain relatively flat quarter-over-quarter and year-over-year.

Speaker #5: Now let's shift our focus to operating expenses. Compensation and efits decreased year-over-year reflecting the efficiencies gained through scale without the need for significant changes to staffing.

Speaker #5: The lack of significant staffing changes aligns with our continued confidence that we have the right team in place to support our ongoing growth. General administrative expenses which include IT, corporate insurance, professional fees, occupancy, and other public company costs remain flat quarter-over-quarter and year-over-year.

Speaker #5: For the quarter, depreciation and amortization expense totaled around $44 million. Representing a 2% increase from the prior quarter and $120% increase year-over-year. Year-over-year increases are primarily driven by our Q4 upgrade at Odessa, which brought online over 36,000 new mining rigs.

Speaker #5: As discussed previously, we also changed our counting policy in Q2 of last year for mining rig depreciation decreasing the estimated useful life of miners from five years to three years.

Speaker #5: This change coupled with the increased number of mining rigs in operation explains the significant year-over-year increase. The oldest rigs in our fleet will cease depreciating in the fourth quarter of this year, but I'd like to note even when these older rigs are fully depreciated, they can still generate strong returns when deployed strategically.

Speaker #5: This was demonstrated at Black Pearl Phase One where we profitably deployed old rigs while awaiting new miner deliveries. Moving down the page, equity and losses of equity investees for the quarter was $2 million down $5 million in the previous quarter.

Speaker #5: In Q2, we recognized a $17 million unrealized gain on the fair value of Bitcoin inventory compared an unrealized loss of $20 million in Q1.

Speaker #5: Unrealized gains and losses on Bitcoin reflect the mark-to-market accounting of our holdings. The spot price of Bitcoin at quarter-end increased compared to the end of Q1, as did our Bitcoin and Treasury, which ended the second quarter at $1,046 Bitcoin held.

Speaker #5: Now let's turn to our non-gap measures slide, where we reconcile our adjusted earnings. When adjusting our second quarter gap net loss of $46 million, we added back $76 million for the items listed.

Speaker #5: Resulted in adjusted net earnings of $30 million for the quarter. This compares to an adjusted net gain of $6 million in the previous quarter and a loss of $3 million in the previous year.

Speaker #5: Now let's turn our attention to the balance sheet. On slide 19, our total current assets at quarter-end were $220 million. A large portion of that balance was Bitcoin held totaling $112 million.

Speaker #5: In addition, our cash position increased from $23 million in March to $63 million in June. An increase of $40 million from the previous quarter.

Speaker #5: The increase in cash primarily reflects the remaining proceeds from our convertible offering along with opportunistic Bitcoin sales. As we discussed in depth on our last earnings call, we actively manage our Treasury via the selling or holding every Bitcoin mined and remain disciplined in our approach to capital management.

Speaker #5: I'll quickly cover some additional balance sheet line items as of June 30th. Our prepaid expenses and other current assets amounted to $7 million. This balance primarily reflects call options granted to us by our rig provider as part of the negotiated transaction to lower the cost of the latest generation miners being installed at Black Pearl Phase One and to mitigate tariff exposure.

Speaker #5: As discussed, our Odessa power contract is reflected as a derivative asset on our balance sheet. Over the quarter, we had a mark-to-market loss of our PPA driven by a decrease in time value of contract as well as declines in the forward curve for power prices.

Speaker #5: The PPA ended the quarter valued at $78 million down from $93 million prior quarter. While there are expected substantial fluctuations in the reported value quarter-over-quarter, the true value of this contract lies in its provision low-cost fixed-price power at our Odessa site.

Speaker #5: Other significant assets include property and equipment totaling $474 million. Deposits on equipment of $183 million primarily consist of deposits for mining rig purchases. As a reminder, our Bitmain and Canon rig orders are fully funded and we expect to have all new machines delivered at hashing by the end of this quarter.

Speaker #5: We look forward to seeing the production benefit of this investment. Additionally, we hold intangible assets totaling $10 million with $7 million attributable to ERCOT approval at Black Pearl and $3 million related to capitalized software.

Speaker #5: These balances are net of $1 million and accumulated amortization. At the end of the second quarter, our equity investee interest in Alborz, Bear, and Chief JV stands at $46 million and we had operating lease assets of $12 million.

Speaker #5: We had security deposits totaling $14 million down from $20 million last quarter due to our receipt of the Barber Lake Encore deposits. The remaining balance primarily represents Encore deposits for construction of interconnects at various data centers in our pipeline.

Speaker #5: Current liabilities declined significantly quarter-over-quarter decreasing from $139 million in Q1 to $53 million at the end of Q2, a 62% reduction. This was primarily driven by lower construction-related liabilities following the completion of Black Pearl as well as decrease in accrued expenses tied to the final payment submission for our previous rig order.

Speaker #5: Our accounts payable decreased to $15 million from $30 million and our accrued expenses decreased to $30 million from $66 million. Lastly, and importantly, I want to highlight for this quarter we reduced our short-term borrowings from $35 million to zero.

Speaker #5: We've always taken a disciplined approach to Treasury management, ensuring we're well-prepared for any capital needs. At times, that includes borrowing against our Bitcoin holdings to provide near-term liquidity while preserving inventory.

Speaker #5: We're selling production forward. However, given the strength of our current cash position, we made the decision this quarter to fully pay down our short-term debt and fulfill our deliverable forward obligation fully.

Speaker #5: We're proud to have no remaining near-term obligations on the balance sheet and we will continue to manage our Treasury with discipline and flexibility. Before we conclude, I'd like thank everyone for joining today's call.

Speaker #5: We're proud of the progress we've made this quarter and the growth achieved. And we remain focused on disciplined execution and capital efficiency going forward.

Speaker #5: Thank you for our continued support and we look forward to updating you on our progress next quarter. At this time, I will pause and Tyler and I would be pleased to take your questions.

Speaker #4: Thank you. As a reminder to ask a question, please press star one, one on your telephone and wait for your name to be announced.

Speaker #4: To withdraw your question, please press star one, one again. One moment for questions. Our first question comes from Bill Papanazzo with KBW. You may proceed.

Speaker #6: Good morning. Gentlemen and thanks taking my estions. I was hoping we could first chat on the Phase Two strategic plan that was mentioned earlier in call.

Speaker #6: Are you able to quantify the time to convert from hydro Bitcoin mining to AI HPC compute and maybe just for comparative purposes, you know, how would that compare if you were to start from ground zero today?

Speaker #6: Going from nothing to essentially AI HPC compute. Thanks.

Speaker #4: Sure. Thanks, Bill. So you know I think of Phase Two at Black Pearl as almost being like a Tier One half, data center. So, a little bit, let's call it upscale from a typical Bitcoin mining build.

Speaker #4: But not a fully kitted out, ready-to-do HPC data center day one. to get the whole 150 megawatts there, we expect that'll be ready, back half of next year.

Speaker #4: the idea being here that we'll be in a position to have Bitcoin mining, and there could be megawatts that are available, you ow, that would be completion of it, but there could be megawatts ailable in advance of that.

Speaker #4: But call it back half of next year. in our discussions with potential tenants, we have heard a few times that, ou know, the challenge that some of them face, if they think of some of the neoclouds in particular, that they get a client that that wants to deploy reasonably quickly.

Speaker #4: we're pretty confident that in the next 50 years, this data center will end up in HPC data center. So the goal here is to have a flexible design that's ready to accommodate fast requests.

Speaker #4: and by fast, meaning, you know, in a couple of ths, the ability to spin up HPC. you ow, we're also cognizant of the fact that we've got really good Bitcoin mining economics available to us there.

Speaker #4: And so either way, we want the second half to not be dirt with a long building schedule, but to be ready to go in either direction.

Speaker #4: I think the timing for the breakdown between HPC and Bitcoin will really come down to the level of tenant interest and how quickly it aligns with the completion of the construction.

Speaker #4: You know, based on the discussions we've been having, we do have interested clients in smaller chunks megawatts. There is a a stratification of that HPC market we've seen where where obviously we are showing Black Pearl to the types of clients that can take down 300 megawatts on a gross basis.

Speaker #4: there's a whole different segment of the market that's not prepared to take down that much, but is very ested in smaller chunks. and we are let's say very excited about the potential, for Black Pearl.

Speaker #4: So the idea would be that we complete the construction of this flexible build, in next year, and then it is ready to quickly jump, to HPC from that Tier One half design.

Speaker #4: Now, how quickly it goes will depend a little bit on whether or not the client wants to take it to Tier One, Tier Two, Tier Three, how much redundancy do they need, etc.

Speaker #4: but the idea is to be ready to go quickly because as an overarching theme, we don't see demand going in the wrong direction, frankly, in the near term.

Speaker #4: and so we want to be able to capitalize on that quickly.

Speaker #6: Appreciate that, or. and then just digging deeper into your remarks about hyperscaler participation, I'm curious to hear you know what what you think would trigger them to to choose an operator in our peer set to to be a dance partner.

Speaker #6: You know, how far are we from seeing that happen? What are you seeing from, you know, boots on the ground perspective? And, are you are you getting a sense that they're more open to, to dealing with players in the peer set following, the the recent deals by Quarry even Core 42?

Speaker #4: So yes, I do see them as more willing to take our peer set and us, more seriously. I would say that interest waxes and wanes and, you ow, I know I'm not the only, builder of data centers that thinks this, but if I had to generalize the market color, I I'd say, April, May, June, was a little quieter than it had been earlier in the year.

Speaker #4: I'd say July, the level of interest across the industry really came back to life. We had a lot of inbounds in July from hyperscalers that we had had previous discussions with that had kind of been quiet for a while.

Speaker #4: come to life with requests for, you know, emergency Friday evening meetings, to get ready for a big review they had Monday, afternoon. you know, as it relates to our own discussions, you know, as you've seen, with everyone across the industry and and we understand well, also, you know, you don't have a signed deal until you have a fully signed deal.

Speaker #4: and and given that, you know, if the phone rings, we'll pick it up and and, line up. interest for the site. We are reasonably far along with, someone we would like to be the tenant at the site.

Speaker #4: but until we have a deal, we don't have a deal, and I'd say just as general market color, the last month or so has been a very, big step up in the level of interest.

Speaker #4: So to answer your question directly, I do think that those hyperscaler names are coming to this sector if, you know, for the people that can deliver what they need.

Speaker #6: Appreciate the colors. Thank you.

Speaker #4: Thank you. Our next question comes from Justin Penn with Clear Street. You may proceed.

Speaker #7: Hi. This is Justin L. from Brian Dobson. exciting hybrid strategy for, Black Pearl Phase Two. I was wondering if you could talk about any potential differences in costs affiliated with the hybrid model compared to pure mining or a pure Bitcoin site.

Speaker #7: And then, and is it something you consider for future sites in the development pipeline? Thanks.

Speaker #4: Thanks, Justin. Those are actually very good questions. so the way we've looked at it, it will be about 1.5 million dollars per megawatt. for this again, kind of Tier One half, style build that we envision that is very, modular and ready to move quickly.

Speaker #4: so on 150 megawatts, you know, that'll take us up to 200, you know, 30 million dollars or so, in infrastructure costs. from there, it will depend on the requirements of the tenant.

Speaker #4: Where, you know, if they're pping all the way up to Tier Three, it will be in line with typical building costs for a Tier Three data center.

Speaker #4: It might be other, you know, $8 million or so on top of that. It's going depend on the levels of, redundancy effectively that they're ing to ed.

Speaker #4: I I think what we've heard, you know, the reason for for that thinking, is that we've had some discussions with folks that, you ow, again, are looking for smaller, chunks of megawatts than 300 megawatts at a single clip.

Speaker #4: And one of the concerns they have, and this is really kind of on that that neocloud side, is that the GPU upgrade cycle is moving so quickly.

Speaker #4: and construction timelines take a while that there's this fear that they build a data center that is, by the time it's completed, is sort of built for older GPU technology.

Speaker #4: You know, what what happens if we get crazy increases in rack density, in, you know, ou've got one megawatt racks in a few years, how are you going to make your site ready for that?

Speaker #4: And so that's really informed the thinking behind what we're trying to do here, which is to say, we will make this, modular and very ready accommodate upgrades that are industry-wide.

Speaker #4: I I ink we, you know, we're sort of fascinated with, Elon Musk's building of the Colossus data center so quickly. And that really leveraged this modular concept.

Speaker #4: and so you know I think we're trying to echo that. Then as far as future sites, your second question, yes, I I think it will depend a little bit on how our tenant negotiations go at Black Pearl.

Speaker #4: But I would anticipate a similar approach at Stingray, at this point, which again will will get a premium because it's going to be megawatts available in 2026.

Speaker #4: We're doing the substation work there now. and so it would be our plan to continue forward with this build spec that has optionality built into it.

Speaker #7: Got it. That's helpful. Thanks much.

Speaker #4: Thank you.

Speaker #6: Thank you. Our next question comes from John Todaro with Needham. You may proceed.

But that's the color I can give as far as Phase 2, um, you know, the the discussions we have had and the backs stop for the cost of the full build in Visions, just the phase 1.

That said I would be very surprised if they didn't want to participate in a phase 2 expansion down the line. And I would imagine there would. If for some reason they didn't, it would not be hard to find financing partners. That would be very attractive for that. Phase 2.

Got it okay, that's helpful. Yep. And that was what I was looking for and then just going back to that question. Um, the the gentleman from Clear Street asked. So, um, you know, if I added up, I'm still getting to like, 9.5 million per megawatt if we just assume the same redundancy needs as as saying, like, core weave needs with applied digital. Are you kind of back into that 11 to 13 million per megawatt? Uh, for a green field, build or, or is there cost savings on the flexible? Uh, model? I mean, there should be some cost savings versus those numbers. Oh, I don't know if I'd call them savings, but keep in mind. We've already acquired the land. The interconnect built the substation, right? So there's already some sunk costs. If we were to spread them across all 300 megawatts,

um, so I don't think that ballpark is off if you think about total cost to the same building spec and considered the sort of uh proportional costs of the shared infrastructure at the data center,

It's in line.

Got it. Okay, that's helpful. Thank you so much. I appreciate it. Yep.

Thank you.

Our next question comes from Brad. Novak with K David Sherrill. Give me a proceed.

Hi guys. Thanks for for taking my question, on the Bitcoin, mining side, 23 and a half by the end of the third quarter. Could we be expecting anything else, or would that really be or anything else after that or would that be really dependent on? Um, what you guys initially decided to do in the second phase of Black Pearl. And it sounds like that is a 2026 timing.

The completion of black pearl. So that's a really strong positioning for from my perspective. I think beyond that. It's going to defend a little bit on the pace of tenant negotiations. Fair to say, we're going to fill Black Pearl Phase 2 with HPC tenants, if we can. Um I I think the idea is depending on the pace of those negotiations. Uh and the attractiveness of mining will be ready to to you know, it Hydro Bitcoin mining would fit in very easily at Phase 2 uh but we don't have any specific plans for that. I think the other thing to keep in mind there is

Given the kind of tariff landscape and and how quickly things seem to move on that front.

Um, you know, the way I think about that is we'd probably be more likely to buy Hydro machines in the spot Market that maybe aren't the latest and greatest Generation, because we can manage to a cheap we can manage curtailment to a cheap power cost there.

And, you know, I think I don't know how other companies are thinking about it, but let's just say, long-term Futures purchase contracts of the latest and greatest machines, where you? Wait 6 months for machines to get delivered from Asia?

We're just not as appealing to us right now. So I do think it'd be, um, just trying to give some extra color. We'd probably look to do a cheaper build with hydro and Phase 2, depending on how those client negotiations go. And yes, that would be coming online in the back half of next year.

Perfect. Appreciate it, guys.

Yep.

Thank you.

Our next question comes from Mike grandahl with Northland, you may receive

Hey guys, thank you. Um, just try to understand what sites would you say, are being actively marketed for HPC right now is, is it basically Barber Lake and maybe Phase 2 Pearl?

How would you characterize what you're actively marketing today for HPC? Sure. So um, great question I I, I'd say everywhere. So you're right, I mean, Black Pearl.

uh, pardon me, Barber Lake is our primary focus, but again, what we're envisioning there is a single tenant

So that's a small pool of potential tenants, um, the sort of separate part of the market then that we're actively marketing to is Black Pearl Phase 2, but also Stingray and Rey. Uh, we have, um, we have 1 discussion going on where, um, you know, we have a potential tenant that's looking at Black Pearl but also has San Antonio as a target market.

And they are the type of tenant where 70 megawatts would be about the right amount. And candidly as the calendar rolls forward, you start to get within the construction timeline, that is logical for Revy. So I'd say that's where, um, the primary marketing of like, live tenant discussions are, I'll also say the hyperscalers ask questions about the 3 M's. Um, on Milling, I do expect we'll be moving towards an interconnect this year.

Um, that has generated a fair amount of interest because it's close to the Houston Market and its 500 megawatts. So we don't have the interconnect yet. I expect that we will uh, this year and I think at that point, some of those exploratory discussions with the larger end of the tenants Spectrum will become more tangible.

Got it and then maybe just as a follow-up. Any specific comments on Stingray? How are you feeling there? What kind of color?

Yeah, I mean, I I think again we've been encouraged by the discussions. We've had with what I'll call this middle tier of the market where there's a fair amount of interest from folks that maybe at lower tier data center requirements with smaller megawatt interests. And so, you know, the truth is, if you're a hyperscaler and you're making a massive investment, of course, you want the megawatts sooner, but you also want to be closer to a major Metro because the

Use case for that data center, then fits into all their different buckets. Is this cloud services? Is this training? Is this inference?

If you're a high frequency trading firm that wants 10 megawatts to train your model, you'd be happy to ship it to somewhere more remote.

Uh and and even though I mean listen, the inference stats aren't bad at Stingray. We think it's sub 10 milliseconds to Dallas. Um, you know, I I think what we've found is that

being, um, but we'll know more as our tenant discussions progress at Black Pearl, Phase 2

Got it. Hey, thank you.

Yep.

Thank you.

Our next question comes from Chris brendler with rosenblat Securities. You may proceed.

Hi, thanks. Good morning my questions. Um,

Tyler. I wanted to ask a question on another follow-up on on, uh, Barbara Lake and just sort of from a Cadence standpoint and um, the timeline here, you know, it felt like last quarter with the uh 4 Choice announcement that you know, things were making progress. And I know from other folks that have talked to, in the space that these things do EB and flow. You've had, you know, I think certain companies have had, uh, serious discussions and then had them fall apart had similar experiences where you've had, you know, made a lot of progress and think you're getting close and have folks walk away as or has been more of a steady progress towards a contract and, um, just maybe take your temperature on your optimism of getting something done before. You're in for Barber, life would be would be great.

Sure. I, um, I would say it's an, unfortunately, our experience has been very similar to others in the space. That, uh, there's a lot of hurry up. Uh, we need to get a site visit next week. We're sending over terms because this is now a giant priority. Uh, and then silence, uh, for a month. Uh, you know, without getting into the really gory details, we definitely have had

Um some opportunities very close to being finished that, you know, have ebbed and flowed. Uh, that said um,

I am very confident that we will have a deal done. I anticipate it'll be this year. Uh the progress is not a steady drum beat progress. It's more like a crab walks across a beach. It's sort of a few steps forward. A few steps sideways, a few steps back, a few steps forward. Uh, but we are only more confident based on what we've seen, especially over the last month.

Um, lots of inbound interest, which just reaffirms that. Um, this Market is there and the current discussions we have going on, will get to the Finish Line. It's really hard to call the timing. I I think the real message that I want to give to our shareholders is

We're not necessarily going to do the fastest deal.

There have been deals that we were uninterested in. We are trying to do the right deal, that sets us on the path where we want the company to be.

Um, I know there's a lot of short-term trading mentality investors in this space that want any deal tomorrow.

You know, just candidly while I appreciate their support, that's not who we're managing the company. For, we're going to build, we're going to get the right deal. The right deal takes time, we're very confident uh, in the pocket, aces that we're holding, and we're going to play them appropriately.

Nice ton of sense. I love the crowd technology. Um, is there any timeline on the on the Fortress agreement that you have that you have to abide by and get something done by or is it pretty open-ended?

Yeah. I mean, there is a a Timeline under which its exclusive. I don't think of that as any kind of timeline on which we need to get a deal done, I think they'd be happy to extend that I'm assuming and if not, we have other financiers that have been knocking on the door. So I don't think of that timing as necessarily anything, that would impact our discussions. But yeah, technically we are exclusive with them as a financing partner for another month or so

Okay. Um, I'm going to ask a a Bitcoin mining question. Um okay we love those um yeah, exactly. Um so this is a bit nuanced but um, I know you, you know, you mentioned it or it's clear on the slide deck that the average power cost, ticked up this quarter, um, you know, 2.7% or 3.1 is um, and there's also the impact of of black pearl but um the cost of Revenue only an increased very slightly sequentially. Um, so my model is like having trouble balancing, that cost of power increase with the relatively stable sequential change in um cost of revenues. So is there anything?

And then anything impacting those numbers that uh you know makes that math a little wonky know, let me explain that math. So the 3.1 Cent headline number is an estimate over a large time, sample of what we will pay.

Uh, that's completely the impact of Black Pearl.

So 2.7 cents, uh, which we have always had historically was really anchored by our PPA at Odessa which is right around that level. And that's also when um sites like Alborz which has our cheapest power where a larger portion of our um, production

Heard Black Pearl will be a huge part of our production. That's merely an estimate, because it's a front of the meter site. Uh, I think what we're using in there for large sample sizes, about 3 and a half cents. Um, on average, I actually hope we'll do better than that. But so that's the reason for the change is that if you're looking at numbers on a backwards, looking basis that hasn't had much impact yet,

The 3.1 cents is expectation across a a cycle with everything running.

Makes no sense. Thanks so much and best of luck for.

Thank you.

Thank you. I would now like to turn the call back over to Tyler page for any closing. Remarks.

Thanks again, for joining our business update call, and we hope to have exciting updates for you in the not too distant future. Cheers.

Thank you, this concludes the conference. Thank you for your participation. You may now disconnect