IREN Ltd. Q1 FY2025 earnings call

• Bitcoin mining sector at inflection point, with IREN positioned as low-cost producer. Scaling to 31 exahash and accelerating to 50 exahash in 2025.
• AI and HPC: GPUs installed, customer trials ongoing, marketing activities like SuperCompute Conference events.
• Sweetwater project: 1.4 GW data center, 1,300+ acres land, substation upgrade accelerated.
• Focus on low-cost production, operating leverage with spread overheads, cash cost of $29,000/bitcoin.
• Funding: Focus on alternative instruments like convertibles, plan to transition to US GAAP reporting and US indices inclusion.
• Organic growth: Self-developed sites in Childress, no M&A needed, proven delivery processes.

Bitcoin Mining:

• Current installed capacity is 21 exahash, with 31 exahash nearly complete and 50 exahash planned for the first half of next year. Cash cost per bitcoin is circa $29,000. Organic growth at Childress with 50 MW of data centers built monthly. Secured miner purchase options for S21 Pro miners at fixed price.
• Financials: Q1 adjusted EBITDA $2.6 million, Bitcoin mining revenue $54.3 million, AI Cloud services revenue $3.2 million. Cash at 31 Oct 2024 $182.4 million, total assets $1.3 billion, no debt.

AI and HPC:

• Commissioning of NVIDIA H200 GPUs at Prince George data center complete, with customer trials underway. Marketing and go-to-market initiatives increased. Sweetwater Data Center project announced with 1.4 GW capacity, 1,300+ acres of land, substation upgrade to April 2026.

• Accelerate expansion to 50 exahash in first half of 2025.
• Consider alternative funding instruments beyond ATM.
• Potential investor distributions in 2025 based on operating cash flows.
• Continue development of Sweetwater project with long-lead item procurement.
• Measured approach to AI GPU investment due to market dynamics and new NVIDIA chip generations.

• Supply chain risks for miner deliveries and equipment.
• Market competition for power, land, and transformers from AI and traditional data centers.
• Uncertainty in AI business contract negotiations and terms.
• Volatility in Bitcoin price and network hash rate affecting mining profitability.

Q: Good day, everyone. My first question is on Sweetwater and how you think about the strategic process versus the organic opportunity at the site.

A: Thanks, Lucas. Nice to see you. Look, the short answer is there's no decision point right now beyond procuring -- procuring long-lead items around the electrical infrastructure, so transformers, substation components, et cetera. So we're in a position to prepare dual pathways both for Bitcoin Mining as well as AI-related opportunities on the colocation or otherwise. And so we're pursuing it in all parallel. And the reality is we're facing a number of different potential pathways and the opportunity is to compare each pathway to each other as an opportunity cost. And it's everything from building out Bitcoin Mining, and if we can continue to build at $30 million and have the market value that exahash at $120 million, then that sounds pretty good. All the way through to build-to-suit options where we might build an AI data center for a counterparty under a build-to-suit model and again internally deliver a component of that. There are structures like power and land leases in there as well. So at this stage, it's working through all the options in parallel and just playing them off against each other.

Q: I appreciate that. That's helpful. And my follow-up is on the capital intensity on the Bitcoin Mining business. Should we kind of think of that 30 million per exahash in a linear fashion up to 50? And if so, could you just remind us what the capital requirement is from where you are today to that 50 exahash, how much capital is needed? Thank you very much for the color.

A: Yes, for sure. So we haven't guided a specific number, partly because there's a number of moving parts around do we buy additional GPUs because there's a spike in demand and the customer would like that. We're buying long-lead items for Sweetwater. But if we're looking really high-level terms, we previously announced that we were fully funded to the 30 exahash since then, we've raised about $200 million-ish under the ATM. That gives a $400 million funding requirement to go from 30 to 50. Yes, we've had higher operating cash flows than expected because of the Bitcoin price action, but again, that's somewhat offset by other CapEx. So we haven't guided specific numbers, but in general terms, you can probably triangulate roughly what we need.

Q: Hi, everyone. Good morning. Nice to see all the progress on so many fronts. It's great. Just kind of starting with a theoretical one. We've got a much higher Bitcoin spot price than we did and you're now mentioning potential, it sounds like maybe a dividend or something like that next year. Just wondering at what Bitcoin level and kind of what level of exahash do you think at least the Bitcoin business can keep growing kind of more on a self-funded basis moving forward versus a balance sheet-related financing? And then I'll have a quick follow-up.

A: Yes, sure. So we think about operating cash flows a little bit separate to investing cash flows, where there are two separate decision points in our mind. So the first is operating cash profit. So how much are you generating from your operations as a going concern? And what do we do with that cash flow? The second is what is the decision around reinvestment of those cash flows? Now, I think it's fair to say that for quite some time, 100% of all the capital we raise is going into revenue-generating CapEx and using our operations to continue to support building out corporate overheads, our operating base, et cetera. And as you can see in the presentation, we're now hitting that inflection point where operating cash flows are going to be potentially substantial. So the decision to reinvest those cash flows as distinct from distributing those cash flows to investors is something that we'll work through. But when you look at the market today and you see a number of different companies accumulating Bitcoin on their balance sheet, paying market price or close thereof to it. And we've got the opportunity to generate Bitcoin and effectively acquire Bitcoin at a cost -- cash cost of $29,000 and distribute that Bitcoin/cash out to investors who can then sell custody. We're not that big of believers in third-party custody. We've been around Bitcoin since 2013, ridden Mt. Gox, FTX, et cetera. So I think the opportunity to generate $29,000 cash cost Bitcoin for investors and effectively distribute that coin out either through the physical coin. We'll have to look into that or as cash flow is pretty powerful. And I think it's important to keep that separate from investing cash flows and how we might fund that to continue to drive that cost potentially down even lower, but drive it in aggregate.

Q: Hi, guys, good morning, good afternoon. Thanks for taking my questions. Two, if I may. First, I'm just curious strategically, can you walk through just the mindset of accelerating the 50 exahash in the context of maybe looking at opportunity costs relative to other opportunities? And then my second question on your balance sheet, the $275 million of prepayment on the cash flow, what is that exactly related to in terms of payments? I assume it's all for the acceleration to 50 exahash and I guess like what portion of that CapEx is already paid for? Thanks.

A: I'll pass over to Belinda for the balance sheet question in a minute. But to address the first question around opportunity cost, I mean, we continue to have conversations with very large counterparties about the prospects of doing a deal at Childress. But the reality is you've got to make a decision at some point and the decision is rightly second, the preference is to build out Bitcoin mining. The opportunity cost is comparing each pathway to another, yes, we've received multiple offers for capacity there. But in our opinion, at this stage, the prospects and the risk return proposition of building all of that out at Bitcoin makes sense. Equally, there's still some optionality there. We haven't exercised all those minor options. We've got some time to do that. So if those contractual negotiations with other parties went to a slightly different direction or improved, then I mean, we reserve the right to change our mind and pivot. But by definition, it needs to be better than the alternative, which we can control, which is building our Bitcoin mining at $30 million and having the market seemingly value that at $120 million.

Q: Hi, good evening. Thanks for taking the question or good morning rather out in Australia. You had a really interesting quote in your press release and you actually mentioned it again during the call. Some is the effect of making sure that a deal reflected the value of your assets -- strategic value of your assets, I think was the exact quote. I'm not asking for a number, but I'm curious how you guys go about appraising the value of that, like how you think about it? We've tried to take some stabs at it, but I'm just curious how you think about that? And I have a follow-up. Thank you.

A: Yes. Thanks, Reggie. To be honest, it's a bit of art and science, both hand-in-hand. The science element is putting the numbers down and modelling out the various pathways and scenarios. You've got Bitcoin mining and then you've got various AI co-location structures that all result essentially in an NPV valuation to the business today. So that's the science. Notwithstanding, you've got to put assumptions into those spreadsheets, but those assumptions are informed largely by reality. When it comes to Bitcoin mining, its CapEx, its returns, Bitcoin price network hash rate. When it comes to AI transactions, it's plugging in contractual terms that are under negotiation. So it's quite easy in terms of working out any point in time what the preference might be. Notwithstanding there's assumptions that go into that, including discount rates, cost of capital, market valuation of different types of revenue streams. So all of that goes into the bucket. The art element is saying, well, where are we at in the market, what are the conversations we're having with market participants all the way from hyperscalers to data centers to the banks to real estate companies and triangulating all that information to try and form some sort of directional view on where the market is at. And I think it's fair to say that the market is still in transition. You've gone from the old world of effectively available capital, available data center capacity to increase the number of GPUs and meet this AI demand. All of a sudden you seem to have hit this point in the market where, hang on, we are short potentially substantially amounts -- substantial amounts of power to meet this. I think it's absolutely fair to say there's a transition period where every counterparty is going on their own journey around how scarce is power, how real is the current demand on the AI side and what does this mean in terms of capacity to pay an interest in transacting in a specific valuation point. And as time goes on, what we're seeing, again, this is anecdotes is people are now starting to realize the one and zero difference between having an interconnection agreement and talking about this made-up pipeline of megawatts. I mean, we have been in development for decades, renewable energy projects through to other infrastructure to now developing power for data centers as we've done in IREN. It is a one-and-zero business you could have whatever made-up pipeline of megawatts you want, but unless you get to the finish line and you get that signed connection agreement, it is worth zero, absolutely nothing. In sporting terms, the analogy is going through a home and away season, undefeated, not losing a game, being the hot price favorite, you then get to the final, you have a few injuries, the weather changes, something else goes wrong, and you don't win the final or you've lost. It's a zero. The season counts for nothing and you go on to the next season. It is exactly the same in this. And我think the market is now starting to realize the value of that.

Q: Hi guys. Thanks for taking my questions and congrats on the quarter. Maybe to start, I think a big news event that happened in the quarter was the FERC announcement. Have you seen like a material increase in demand post that announcement given it kind of used Texas assets much more favorably?

A: Yes. I mean, I've got not a lot to add as a follow-up to answering the previous questions. I think, yes, like we are seeing more perceived demand coming through. But again, I'll use the sporting analogy. All these conversations are great, but unless you close a deal, it's ones and zeros. We're just not in the business of speculating and telling everyone -- every step of the way how good these negotiations are because unless you get a signature on a piece of paper that delivers a transaction that delivers value for shareholders, then it's worth a zero. It's the same in development, it's the same in AI deals. And we can -- we can't really control the timelines of each. You've got to continue to progress. Things will go wrong, things will go right, but get the signature and then you create a proper tangible value for your shareholders.

Q: Maybe if I could just squeeze in one more. There's been a lot of news over the past couple of weeks surrounding Bitmain and I know you guys have a big purchase order in place. I guess, are you guys concerned that those shipments could potentially not be delivered or held up at customs, or just any thoughts or comments on that?

A: Yes. I mean, for six years, we've had people throw concerns at around Bitmain and us continue to say exactly the same thing. We have never had anything but a fantastic experience with Bitmain. The purchase process, the post-market, sorry, the aftermarket. In terms of supply-chain hiccups, we deal with it every day. It's the consequence of dealing with a real-world business and million-in-one moving parts, but we've had no material issues. And as I mentioned on the call, I think the last of the 31 exahash in miners will be delivered in the next few maybe seven days.