Cipher Digital Inc. Q4 FY2023 earnings call

Financial Performance in Q4 2023

• Mined 1,327 bitcoin in Q4 2023, a 252% Y/Y increase, with revenues of $43M and GAAP net earnings of $11M. Adjusted earnings were $28M, up over $50M Y/Y.

Power and Cost Advantages

• ~96% of portfolio energized via fixed price power at ~$0.027/kWh, low electricity cost is a key driver of unit economics.

Expansions and Hash Rate

• Self-mining hash rate grew to 7.4 exahash per second; plans to complete 30 MW expansions at Bear and Chief in Q2 2024, add 1.25 exahash per second; optimize existing fleet for 0.62 exahash per second by end of Q3 2024; aim to energize Black Pearl site in Q2 2025.

Accounting Standard

• Early adopted new accounting standard, including mark-to-market gains on bitcoin inventory.

Bitfury Share Distribution

• Bitfury plans to distribute majority of Cipher shares, reducing ownership concentration to increase free float.

Transaction Fees

• Saw spikes in transaction fees, which can add significant value to mining operations.

Cipher Mining's segments showed strong performance. The Odessa facility was the most significant, representing approximately 90% of bitcoin production in Q4 2023. It mined 635 bitcoin through Feb 29, 2023, with a hash rate of 6.4 exahash per second using ~207 MW. The Alborz data center, 100% powered by wind, had a 40 MW capacity, ~1.3 exahash per second, and mined ~88 bitcoin YTD through Feb 29, 2023, with ~50% belonging to Cipher. The Bear and Chief data centers combined had 20 MW capacity, ~0.7 exahash per second, and mined ~1.1 bitcoin per day in current market conditions.

Halving Impact

• Believes low-cost production will be more advantageous post-halving.

Expansions

• Expect to complete 30 MW expansions at Bear and Chief in Q2 2024, add 1.25 exahash per second; optimize existing fleet for 0.62 exahash per second by end of Q3 2024; aim to energize Black Pearl site in Q2 2025.

M&A Activity

• Actively reviewing acquisition opportunities, seeking cyclically low prices.

• Network Hash Rate: Steady climb in overall bitcoin network hash rate suppresses miner economics.
• Regulatory and Market Risks: Potential regulatory changes or market fluctuations affecting power costs and mining operations.
• Halving Impact: Industry-wide pain from halving, but Cipher positioned to thrive with disciplined planning.

Q: John Todaro asks about G&A leverage and Bitfury share distribution.

A: Ed Farrell says G&A expected to be flat; Tyler Page talks about Bitfury distribution process.

Q: Reginald Smith asks about swapping rigs at Odessa and tuck-in acquisitions.

A: Tyler Page discusses rig plans and M&A discipline.

Q: Joseph Vafi asks about bitcoin price impact on strategy and transaction fees.

A: Tyler Page talks about Black Pearl timeline and transaction fee potential.

Q: Gregory Lewis asks about Alborz grid connection.

A: Tyler Page discusses grid connection progress.

Q: Josh Siegler asks about CapEx and Black Pearl spending.

A: Tyler Page talks about CapEx projections for Black Pearl.

Q: Bill Papanastasiou asks about industry consolidation and M&A appetite.

A: Tyler Page talks about M&A strategy and differentiators.

Q: Joe Flynn asks about PPA renegotiation.

A: Tyler Page discusses PPA negotiations and power management.

Q: Mike Colonnese asks about cost per MW for M&A.

A: Tyler Page talks about M&A cost evaluation discipline.