Cipher Digital Inc. Q1 FY2024 earnings call

• Strong first quarter financials with revenues growing from $43 million to $48 million quarter-over-quarter, GAAP net earnings from $11 million to $40 million, and adjusted earnings from $28 million to $63 million.
• Progress on Bear & Chief expansions: Bear's infrastructure complete with first rigs delivered this week and full completion expected this month; Chief's infrastructure expected to be completed in June with full energization by end of June, adding ~1.25 EH/s.
• Accelerated build-out of Black Pearl with plans to energize the full 300 megawatts by 2025, leveraging unique strengths in identifying greenfield sites, structuring power arrangements, and building data centers.
• Unique ability to sell power back to the grid at Odessa, providing downside risk protection and upside optionality to revenue streams.
• Disciplined focus on unit economics with industry-low cost of electricity (~$0.027 per kilowatt hour) and plans to improve rig fleet efficiency from 29 J/TH to 22 J/TH.

Cipher Mining's segments include various data centers. Odessa is the most significant, representing approximately 90% of bitcoin production. It has a hash rate of approximately 6.7 EH/s, utilizes ~207 megawatts, and has mined roughly 1,183 bitcoins year-to-date through April 30 with an all-in electricity cost per bitcoin of $11,912. Alborz is 100% powered by wind, has a total operating capacity of 40 megawatts (powering ~1.3 EH/s of rigs) and has mined approximately 168 bitcoins year-to-date, with half belonging to Cipher. Bear & Chief Data Centers combined operate 20 megawatts, generating approximately 0.7 EH/s, and are structured as joint ventures, with plans to expand to 4x their current size next quarter.

• Accelerated build-out of Black Pearl to energize the full 300 megawatts by 2025.
• Continue to focus on finishing expansions at Bear & Chief and ramping up build-out of Black Pearl.
• Selectively look for new growth opportunities via acquisition, confident in liquidity with over $200 million in cash and Bitcoin Holdings as of quarter end, and ability to tap equity or debt markets if needed.

• Post-halving squeeze on miner economics, with hash price potentially squeezing cash flow for many miners.
• Potential for hash rate reduction in the coming months, especially with difficulty adjustments and summer months affecting Texas-based hash rate.
• Competition in rig pricing, with older generation rigs potentially having lower demand and prices.
• Market volatility affecting Bitcoin price and network cash rate, impacting miner revenues.
• Geopolitical and regulatory risks in other jurisdictions if expanding beyond Texas.

Q: Comment on post-halving dynamics and deal presentations A: Rodney Page noted post-halving has squeezed miner economics, with hash price touching all-time lows, but Cipher remains positive. Saw pickup in acquisition discussions, and expects potential for more as some miners face cash flow issues.

Q: Thoughts on raising capital for Black Pearl and selling Bitcoin A: Black Pearl has an estimated cost of ~$420 million. Liquidity is strong with ~$226 million, and they feel comfortable funding through cash flow, Bitcoin holdings, or equity/debt markets. Treasury management is opportunistic, with potential to sell Bitcoin if it provides optimal capital sourcing.

Q: Decision to fully build out Black Pearl and rig purchases A: Rodney Page explained Black Pearl leverages Cipher's strengths in greenfield site development. Purchase contract with Bitmain for T21 rigs is in the money, with optionality to exercise based on market dynamics and opportunities to use rigs for other acquisitions or site upgrades.

Q: G&A expenses and hash rate A: Ed Farrell said G&A expenses are broken out for transparency, expected to remain relatively constant. Rodney Page discussed hash rate dynamics, noting next difficulty adjustment in 2 weeks will be telling for miner reactions, and summer months could lead to further hash rate moderation.

Q: Rig pricing and M&A opportunities A: Rodney Page noted rig pricing for newer generation is up ~15% per terahash. M&A opportunities include greenfield sites where developers face challenges and existing sites with older rigs needing upgrades. Black Pearl timeline could be affected by attractive M&A opportunities, but base case is proceeding with planned build-out.

Q: AI investment wave impact and Black Pearl power strategy A: Rodney Page said AI impact is early to assess, but Cipher sees opportunities in Texas's power dynamics. Black Pearl is expected to have power similar to Bear & Chief, with active management to participate in ancillary services and drive power costs down.

Q: M&A opportunities and Texas focus A: Rodney Page stated Texas is a strong focus with unique power dynamics, but Cipher looks to expand to other geographies, considering power dynamics, demand response, and regulatory risks in other jurisdictions