Cipher Digital Inc. Q3 FY2026 earnings call

• Barber Lease Expansion: Cipher amended and expanded its lease at Barber Lake, doubling the term to 20 years and increasing total contracted revenue to approximately $9.1 billion (adding $5.2 billion in incremental rent). The amendment includes a cost-sharing mechanism resulting in ~$500 million of incremental revenue over the term.
• Capital Allocation Strategy: To secure the extended lease and improved economics, Cipher invested an additional ~$359 million in reimbursable change orders and shared construction cost inflation. Despite higher per-megawatt costs ($13M vs. original guidance of $9-11M), the project's yield on cost remained stable at ~15%, while NPV and MOIC improved materially.
• Construction Progress:
  • Black Pearl: Delivered first capacity ahead of schedule in August, recognizing first HPC revenue. 18 MW delivered; Phase 2 electrical work underway.
  • Barber Lake: On schedule with initial data halls coming online Q4 26 through Q1 27.
  • Stingray: Earthwork nearing completion; shell construction expected Q4 26.
• Pipeline Development: The total portfolio stands at ~6.8 GW. Key additions include conditional base load designation for 1 GW Colchis site and PCLR designations for Mikeska, Apollo, and Stingray expansion, allowing full power draw ahead of transmission upgrades.
• On-Site Generation: Developed lateral natural gas pipelines capable of supporting up to 2.5 GW of generation, potentially bringing power online by late 2027. Active commercial discussions are underway for ~1 GW of leases powered by this on-site generation.
• Site Acquisition: Acquired Horizon (70 MW in Texas, energizing 2029) and adjacent land at Barber Lake (685 acres) and Black Pearl (256 acres) to support future expansion.
• Community Engagement: Committed $10 million alongside partners to upgrade Colorado City’s water infrastructure.

Cipher Digital introduced segmented reporting for the first time in Q3 26. The company reported total revenue of $27 million, an increase from $25 million in Q2. This revenue includes the first recognition of High-Performance Computing (HPC) lease revenue at Black Pearl. The remaining revenue is derived from legacy Bitcoin mining operations at Odessa, which sold 6.32 BTC for cash proceeds of $45.5 million. Specific absolute revenue figures and percentage contributions for individual HPC sites (Black Pearl, Barber Lake, Stingray) vs. Odessa were not broken out in the financial summary; however, the HPC segment represents the primary growth driver with $16.6 billion in contracted revenue across three campuses.

• Cost Per Megawatt: Management noted that without the Barber Lake amendment, costs would have risen to $12.3 million per IT megawatt due to change orders and inflation. With the amendment, costs settled at $13 million per IT megawatt, but yields were restored to ~15% via increased rental income.
• Yield on Cost: Management emphasized maintaining a spread between yield on cost and cost of capital. They expect to price new leases to ensure returns justify deployed capital, particularly as financing costs rise.
• Timeline for Power: Expects final ERCOT classifications for Colchis in December 26. On-site generation from lateral pipelines could be available as early as late 2027/2028.
• No Specific Financial Guidance: The call did not provide specific forward-looking GAAP net income or EPS guidance for subsequent quarters, focusing instead on operational milestones and long-term contracted revenue visibility.

• Inflationary Pressures: Rising labor costs and scope evolution during construction have significantly impacted CapEx. Change orders and productivity losses (e.g., installing racks amidst ongoing construction) drove costs above initial budgets.
• Supply Chain Constraints: Tight markets for critical equipment like turbines and reciprocating engines pose risks to on-site generation timelines. Labor shortages also contribute to delays and cost overruns.
• Regulatory Uncertainty: While confident in Texas, management acknowledges evolving regulatory environments regarding taxation, community engagement, and interconnection deposits. Other regions may require hundreds of millions in deposits for decades-long interconnect waits.
• Design Volatility: Early-stage projects suffered from less-defined design sets, leading to costly change orders. Management notes this risk is being mitigated by advancing designs to 30-60% completion before signing new leases.

Q: Mike Grondahl (UBS) asked about future CapEx requirements given industry-wide inflation and whether rental rates can rise to maintain yields. / A: Tyler Page stated tenants recognize rising costs and are willing to increase rents in line with financing costs. He highlighted an evolution toward structures like upfront CapEx reimbursement agreements to secure long-lead equipment. Gregory Mumford added that Cipher’s bonds trade among the tightest spreads in the high-yield market, validating their focus on creditworthy tenants and efficient capital access despite broader market repricing.

Q: Bill Papanastasiou (Wells Fargo) asked about geographic concentration risks in Texas versus other locations, noting regulatory complexities in ERCOT. / A: Tyler Page argued that while Texas draws scrutiny, it remains well-run and strategically vital. He noted that other US locations face equally challenging or worse hurdles, such as massive interconnection deposits and longer timelines. He expressed confidence in continuing to build in Texas while evaluating opportunities elsewhere, prioritizing speed-to-power.

Q: Gregory Lewis (BTIG) asked about the mechanics of on-site generation via lateral pipelines and how equipment procurement works. / A: Page explained that tenant interest is driven by 'time to power.' For on-site generation, Cipher will partner with reputable Independent Power Producers (IPPs) who directly arrange and operate the turbines with the tenant under a PPA. Cipher’s role remains financing and building the data center, avoiding direct exposure to complex equipment procurement challenges.

Q: Brett Knoblauch (Cantor Fitzgerald) inquired about the drivers of Barber Lake cost increases and when costs become locked in. / A: Page attributed costs primarily to dynamic change orders from rushed early-stage designs. He emphasized that future leases will mitigate this by locking in designs at 30-60% completion before execution. Mumford clarified that while equipment inflation was minor, labor productivity losses and scope evolution drove costs up. The lease amendment shared these costs with the tenant, restoring project economics.

Q: Michael Donovan (Compass Point) asked if batteries are considered for curtailment mitigation and how on-site generation yields compare to grid-connected projects. / A: Page noted they are exploring batteries but believe the PCLR designation (allowing full power draw with potential curtailment) is a significant, underappreciated advantage that makes curtailment manageable. Regarding yields, Mumford stated that on-site generation projects are expected to command yield-on-cost metrics relatively in line with front-of-the-meter grid-connected sites, assuming tenants view them as high-priority options.