Cipher Mining, Inc. (CIFR) CEO Tyler Page on Q4 2021 Results – Earnings Call Transcript

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Cipher Mining, Inc. (NASDAQ:CIFR) This fall 2021 Earnings Convention Name March 4, 2022 8:00 AM ET

Firm Individuals

Lori Barker – Investor Relations

Tyler Web page – Chief Government Officer

Ed Farrell – Chief Monetary Officer

Convention Name Individuals

Kevin Dede – H.C. Wainwright

Aaron Rakers – Wells Fargo

Operator

Good morning. Thanks for standing by and welcome to the Cipher Mining, Inc. Fourth Quarter 2021 Enterprise Replace Convention Name. Please be suggested at the moment’s convention is being recorded and a replay will likely be obtainable on the corporate’s web site after the decision.

I might now like handy the convention over to Lori Barker, Investor Relations.

Lori Barker

Good morning, girls and gents. Thanks for becoming a member of us on this convention name to debate Cipher Mining’s fourth quarter 2021 enterprise replace. Becoming a member of me on the decision at the moment are Tyler Web page, Chief Government Officer; and Ed Farrell, Chief Monetary Officer. Please observe that you could be additionally overview our press launch and presentation, which may be discovered on the Investor Relations part of the web site at traders.ciphermining.com Please observe that this name will likely be concurrently webcast on the Investor Relations part of the corporate’s company web site. This convention name is the property of Cipher Mining and any taping or different copy is expressly prohibited with out prior written consent.

Earlier than we begin, I would wish to remind you that the next dialogue in addition to our press launch and presentation include forward-looking statements, together with, however not restricted to, Cipher’s monetary outlook, enterprise plans and goals and different future occasions and developments, together with statements concerning the market potential of our enterprise operations, potential competitors in our objectives and techniques. These forward-looking statements contain dangers and uncertainties which will trigger precise outcomes to vary materially from these mentioned right here. Extra elements that would trigger precise outcomes to vary from forward-looking statements may be present in Cipher’s periodic and different SEC filings. The forward-looking statements and dangers on this convention name, together with responses to your questions, are based mostly on present expectations as of at the moment, and Cipher assumes no obligation to replace or revise them, whether or not on account of new developments or in any other case, besides as required by legislation. Moreover, the next dialogue might include non-GAAP monetary measures. We might use non-GAAP measures to explain the best way wherein we handle and function our enterprise. We reconcile non-GAAP measures to essentially the most straight comparable GAAP measure, and you might be inspired to look at these reconciliations, that are discovered on the finish of our earnings launch issued earlier this morning.

Now, I’ll flip the decision over to Tyler. Tyler?

Tyler Web page

Howdy. That is Tyler Web page, the CEO of Cipher Mining. Let me say thanks for becoming a member of our fourth quarter earnings name, and I sit up for offering a enterprise replace. Let’s begin with an outline of Cipher Mining. We’re a U.S.-based large-scale Bitcoin miner with key aggressive benefits in energy, gear and operations.

After going public within the third quarter of final yr as a greenfield firm, we have now made nice progress. We commenced our Bitcoin mining operations in February of 2022, and we have now important build-out plans for 2022 and 2023. Notably, we have now a enterprise positioned to face up to the cyclicality in Bitcoin mining profitability. We do that by specializing in the principle value drivers of OpEx and CapEx within the enterprise. In Bitcoin mining, OpEx is dominated by the price of energy and CapEx is basically the price of mining rigs. We have now a portfolio of long-term energy buy agreements with a compelling weighted common worth of $0.073 per kilowatt hour. And we have now a collection of mining rig buy contracts the place our common worth is $42.81 per terahash. We imagine these prices are extraordinarily aggressive versus our friends.

As we glance ahead, we imagine Cipher Mining would be the most well-liked platform for the U.S. energy business to entry Bitcoin mining. And I’m excited to debate some time period sheets for brand new potential information heart offers that we have now signed since our final enterprise replace.

Let’s talk about some milestones Cipher has achieved since our final name. Most significantly, we’re not a pre-revenue firm. We started mining Bitcoin at our Alborz information heart in late February. Our Alborz information heart is anticipated to proceed to obtain our preliminary shipments of mining rigs for the primary 5 months of the yr. The January cargo arrived and was put in on time. The February cargo has shipped on time, and we anticipate the machines will likely be put in this month. Alborz is 100% powered by wind. Moreover, we have now been very busy arranging offers for our future pipeline of information facilities. I’ll concentrate on two offers for which we not too long ago executed time period sheets. First, we signed a three way partnership time period sheet with a personal investor group for a brand new 80-megawatt grid-connected web site in Texas, the place Cipher will personal 51% of the economics. Assuming we shut the deal, we anticipate that the positioning will likely be prepared from an influence and infrastructure perspective to just accept mining rigs later in 2022.

Second, we signed a time period sheet for a brand new energy buy settlement with Luminant, which is an affiliate of Vistra for a 200-megawatt facility that may draw energy sourced from photo voltaic and will likely be supplemented by a grid connection. This will likely be our second cope with Luminant and can characteristic each a longer-term 15-year energy buy settlement in addition to distinctive options that permit us to align our incentives with the facility supplier. Maybe most excitingly, this venture will likely be a main instance of how the economics of Bitcoin mining can present the mandatory incentives to unlock the development of latest renewables services. We proceed to be modern in our deal structuring in order that we are able to get a extra carefully aligned relationship with our energy suppliers and finally be positioned as the popular supplier out there for accessing Bitcoin mining.

Let’s take a second to debate the evolving Bitcoin mining panorama. There are a lot of modifications occurring on this business, and we’re positioning Cipher to benefit from the best way we predict the market will evolve. Let’s begin with the considerably apparent commentary that there are super benefits to having economies of scale in Bitcoin mining, primarily associated to negotiating higher pricing for energy and mining rigs.

On condition that we have now noticed mining firms going public to entry bigger swimming pools of capital. Cipher helped lead this pattern going public final yr. The primary focus for a lot of the business in 2021 was securing mining rigs in a world dominated by chip shortages. In the present day, we see the principle problem for the business as being infrastructure execution and deployment. In the case of execution, we anticipate that Cipher will likely be effectively positioned as we proceed to scale up our infrastructure at websites all year long. What we see growing out there at the moment is an rising stage of curiosity from the U.S. energy business as they wish to profit from the economics of Bitcoin mining. We imagine that this pattern will proceed and are positioning Cipher to be the popular associate for energy suppliers.

Our JV platform can present distinctive advantages and our flexibility in deal structuring continues to offer us a powerful pipeline of alternatives. We are attempting to be in entrance of what we predict is a major pattern. Lastly, we predict it’s possible that there will likely be higher downstream integration from miners to the broader crypto and monetary providers markets sooner or later.

We predict that Cipher Mining would be the B2B platform for the U.S. energy business. Along with the brand new three way partnership time period sheets I mentioned earlier, we have now a collection of joint ventures to deploy new information facilities with our associate WindHQ that will likely be coming on-line this yr and into the longer term. We additionally proceed to increase our relationship with Vistra with a brand new time period sheet that envisions an modern construction, which additional aligns our incentives at a second massive web site we’ll look to construct in 2023. Past these alternatives, we have now a major pipeline of potential offers we’re within the technique of negotiating.

Aligning incentives with a three way partnership construction or customized PPA options is smart to Cipher as a result of we are able to guarantee essentially the most aggressive costs for energy. These constructions make sense for the facility supplier as a result of we have now a turnkey JV mannequin that’s scalable and might handle the complexities of dealing with Bitcoin. This permits them to entry probably larger margins than merely promoting energy for a dollar-based markup. Over time, we imagine constructing connections to all kinds of energy companions will likely be a giant a part of our future success.

Subsequent, let’s discuss our up to date implementation plan and technique. First, let’s start with an total market replace. Since our final enterprise replace name, Bitcoin costs have been unstable and moved downward. Bitcoin costs have misplaced about 1/3 of their worth since touching all-time highs final November. In opposition to that backdrop, we have now additionally seen indications that deploying infrastructure appears to be a chokepoint for placing mining rigs to work with another mining firms. And we have now obtained inquiries about internet hosting miners for others at our websites as they’re deployed. Whereas we don’t at present have plans to supply internet hosting, this curiosity reconfirms the significance of our major concentrate on continued well timed deployment at our information facilities.

On the similar time, we’re seeing clear indicators that the mining rig market is evolving. New generations of miners are being launched from conventional gamers. And notably, Intel is broadly rumored to be launching its personal aggressive mining rig with the potential for fastened costs. If you mix that information with more and more aggressive pricing that we’re seeing within the rig secondary market, we imagine there’s the chance that we’re firstly of a brand new market setting. It’s onerous to foretell, however we imagine that sustaining flexibility will likely be of paramount significance going ahead. There could also be alternatives to buy rigs on a shorter-term supply schedule for decrease costs sooner or later, and we will likely be watching this growth carefully.

Let’s take a look at our at present forecasted schedule for web site readiness. Recall that we consider web site readiness in three phases: energy readiness, infrastructure readiness and mining rig availability. Here’s a bar chart displaying our forecast for energy and infrastructure availability at our information facilities and the related megawatts being obtainable. There are just a few modifications since our final replace. We have now added the anticipated 80-megawatt JV for which we not too long ago signed a time period sheet within the fourth quarter, and we have now made some small tweaks on sizing at expansions for Bear and Chief. Notice that we’re additionally now anticipating a change in our time line to deploy at our first web site with Customary Energy. We at present anticipate that we are going to goal deployment at our first web site with them in 2023. Alborz is now up and working with its first rigs, and we anticipate Bear and Chief will likely be prepared from an influence and infrastructure perspective by month finish. Odessa’s deployment at present stays on observe for the third quarter. In a market that appears to be considerably wanting high quality websites prepared to just accept rigs, we’re constructing a powerful portfolio of websites with compelling economics.

Let’s discuss our anticipated minor supply schedule. We have now positioned a concentrate on value self-discipline in terms of buying machines and at present have an anticipated weighted common value of $42.81 per terahash throughout our portfolio. That positions us effectively within the evolving market for mining rigs, and we need to be as versatile as doable to benefit from potential alternatives which will come up. Recall that we have now contractual relationships with three completely different suppliers of mining rigs, Bitmain, MicroBT and Bitfury. Our Bitfury contract is structured as a 7-year association that gives flexibility on condition that we have now a proper of first refusal on machines and a most favored nation pricing association within the contract. Thus, when rigs are in excessive demand and onerous to supply, we have now the potential to safe them from Bitfury at a aggressive worth.

When {the marketplace} has a lot of rigs obtainable and there’s not as a lot of a premium on securing provide, we are able to optimize throughout different suppliers, and Bitfury has the potential to promote their rigs to others at market costs. Given our perception that upcoming market situations might warrant a premium on flexibility, we have now determined to proceed to push ahead with our Bitmain and MicroBT contracts, however not Bitfury’s rigs for 2022 supply. This reduces the baseline quantity of hash charge that we at present are anticipated to obtain in 2022 to 7.2 exahash, however permits us the pliability to be nimble and probably seize alternatives in a fast-moving market. If the mining rig market gives alternatives for us to amass machines later this yr at engaging costs, we anticipate having the capability at our websites in 2022 to accommodate machines with the potential to generate a further 1.9 exahash to Cipher.

Let me share some photos of our deployment progress. Listed below are some photos of our information heart web site at Alborz that’s now mining Bitcoin. You may see the massive wind generators within the background. Listed below are another views on our containers at Alborz.

This is an image of the recent facet of considered one of our containers in addition to our Chief Building Officer, onerous at work racking and stacking the preliminary rigs at Alborz. This is an thrilling image, that is the now cleared space the place our information heart will likely be situated at Odessa. You may see the facility era facility within the background. To provide some perspective, this web site has had about 54 acres cleared and three,000 dump truck a great deal of filth eliminated. We have now new containers being fabricated and our work streams are at present monitoring in the direction of an on-time deployment.

Lastly, let me reiterate some key statistics to notice about Cipher. Our anticipated weighted common value for mining rigs is $42.81 per terahash. Our anticipated weighted common mining rig effectivity is 33.8 joules per terahash. Our anticipated weighted common energy worth is $0.0273 per kilowatt hour. And our anticipated infrastructure CapEx value per megawatt, excluding mining rigs, is $450,000.

Now, I’ll move it off to Cipher’s CFO, Ed Farrell.

Ed Farrell

Thanks, Tyler, and hey to everybody on the decision. As Tyler said, within the fourth quarter of 2021, we made important progress in our deployment plan of constructing out our information facilities. This resulted in fulfilling the commitments we beforehand introduced relating to buying mining rigs, electrical infrastructure, safety deposits for our energy agreements and corporate-related bills to help our enterprise.

We closed on the merger again in August 2021 and instantly, we commenced our deployment plan. This included making scheduled funds referring to mining rigs of roughly $115 million that’s recorded as deposits on machines on our stability sheet. We made progress funds for property and gear, which incorporates transformers and change gears of $5 million; safety and collateral deposits of $10 million to considered one of our power suppliers and $16 million for corporate-related pay as you go bills.

On December 31, 2021, we had money of roughly $210 million. And since then, we have now continued investing capital as our plan progresses. If we have a look at our GAAP working outcomes to the 11 months ended December 31, we had a web lack of roughly $72.1 million. The first drivers of this loss embrace roughly $63.8 million of stock-based compensation, corporate-related bills of roughly $8.3 million; which embrace insurance coverage, skilled charges and worker compensation and advantages.

We imagine non-GAAP monetary measures are additionally useful to traders in evaluating our efficiency throughout reporting intervals on a constant foundation. Our non-GAAP P&L and non-GAAP diluted earnings per share excludes the affect of sure noncash recurring gadgets, which embrace depreciation of fastened property, change in honest worth of warrant legal responsibility and inventory compensation expense. These measures are usually not an alternative to our GAAP outcomes, however administration will use these non-GAAP monetary measures internally to assist perceive, handle and consider our enterprise efficiency and to assist us make working choices.

So for the 11 months ended December 31, our non-GAAP loss was roughly $8.4 million. We have now supplied a reconciliation of our GAAP versus non-GAAP outcomes. Lastly, we’re more than happy with the progress we have now made executing our plan and sit up for proceed constructing our enterprise and reporting our progress and successes within the first quarter associated to our Bitcoin mining operation.

I am going to cease there. Tyler and I are glad to take your questions.

Query-and-Reply Session

Operator

[Operator Instructions] Our first query is from Kevin Dede with H.C. Wainwright. Your line is open.

Kevin Dede

Good morning, Tyler and Ed. Thanks a lot for taking my query. Would you thoughts simply spending somewhat bit extra time on the Bitfury scenario, in the event you might — might you simply peel again the onion somewhat bit, give us your learn on their chipset growth and once you suppose they may have rigs to enter the market?

Tyler Web page

Certain. Hey, Kevin, how are you? So I feel you recognize we’re below a 7-year contract with them to have choices to buy their rigs. And with the 2022 allocation, we have now a preorder association that I do know is filed with the SEC, so it is public, and that envisioned supply within the second half of 2022. As we talked about on the decision, we’re exercising our proper to be versatile and never transfer ahead on that 2022 buy, however they’ve obtained their chips from Samsung. And so far as I do know, they’re on observe to deploy these machines within the second half of 2022 as we had contracted for.

Kevin Dede

And Alborz, I once more, apologies, Tyler, as a result of I do know you have held my arms by way of this earlier than, however Alborz is clearly pushed by wind. There’s received to be a grid connection as effectively.

Tyler Web page

No, there’s not. There’s truly a back-to-back PPA there the place Alborz solely purchases energy from the wind farm. And let me let you know, I feel I do know the query behind the query, which is considering — how do you try this? What if the wind shouldn’t be blowing? There’s actually two steps there; the primary is that the wind farm itself is way bigger than our information heart. It is about 165 megawatt wind farm. Our information heart is sized appropriately at 40 megawatts. After which on an ongoing foundation, we anticipate there will likely be much less uptime there than there could be at our typical web site with energy availability on a regular basis. And so what we have executed there’s have a look at the historic wind manufacturing and used that in our sizing of each the dimensions of the info heart in addition to the modeled uptime.

And once you have a look at the general value construction at Alborz it is a unbelievable alternative as a result of mainly being a wind web site, there is a mid-voltage connection level there. And so the wants for the price of a substation are usually not current reducing the CapEx. And in addition, we have now a superb worth on energy there. And in order we give it some thought, we mannequin about 75% uptime there.

Kevin Dede

Is there a possibility to promote entry to the grid?

Tyler Web page

In that specific alternative, it is somewhat little bit of a posh setup. So we are able to solely draw energy and we shouldn’t have a grid connection. So it is received a back-to-back PPA since you’re in a regulated space of Texas. And so we are able to solely draw energy from the wind farm.

Kevin Dede

Okay. After which thanks loads for together with the images of the positioning. That is very, very useful. The Odessa one consists of the facility plant. Might you simply give us somewhat extra coloration on that sort of energy plant?

Tyler Web page

Sure. It is a pure fuel facility and that is with our associate, Luminant. And so we have the elements being fabricated. All main type of work streams are monitoring in the direction of deployment there. It is clearly a big web site. That is, as I discussed, it is about 54 acres in that image and so there’s plenty of containers going there. However in the event you have a look at our supply schedule, the present anticipated plan is to place our MicroBT deliveries there. And so we will likely be successfully phasing in that web site because the machines arrive. So 7.2 [ph] coming to full measurement by over the course of the remainder of the yr, beginning within the second half.

Kevin Dede

Proper, proper. That one chart you supplied very useful. The 7.2% goal this yr, might you give us a tough concept in your renewable combine in whole power consumption for 2022, at yr finish?

Tyler Web page

Sure. So I do know we have shifted some items round when it comes to the deployment time line. So total, I feel in the event you’re interested by an emissions let me step again. Recall that our strategy to ESG is that we have got on our highway map to focus on carbon neutrality by way of offsets by the tip of 2023. We do not work with coal services and largely our output of emissions in 2022, relying on timing will likely be pushed by the pure fuel facility at Odessa. And so in the event you have a look at sort of an anticipated mixture of what we have from an emissions perspective, we are available in at about half the standard emissions per megawatt hour in america. So we’re ranging from a spot we predict is fairly sturdy, after which we’re focusing on offsets by the tip of 2023 to have neutrality. It is wind energy at Alborz, it is a grid connection at Bear and Chief, Odessa is pure fuel and the brand new PBJ web site that’s below time period sheet at this level is a grid connection.

Kevin Dede

Thanks very a lot, Tyler. Congrats on all of the progress.

Tyler Web page

Thanks, Kevin. Thanks very a lot.

Operator

Thanks. [Operator Instructions] Our subsequent query comes from Aaron Rakers with Wells Fargo. Your line is open.

Aaron Rakers

Sure. Thanks, Tyler for taking the query. I suppose I simply need to return to sort of the rig deployment, simply so I may be clear, it seems to be like what you have executed is simply sort of taken out the Bitfury contributions to the mannequin. Has there been any change so far as the timing or the allocation or provide for that matter of the Bitmain and MicroBT system deployments at this level?

Tyler Web page

No. These are the primary two shipments from Bitmain are on observe and no alterations to that schedule. So at present below contract to buy 87,000 rigs, 27,000 from Bitmain and 60,000 for MicroBT and there is been no change to these plans.

Aaron Rakers

After which, I seen — and I do know it is a small change, however your common anticipated weighted common value of mining rigs has gone up, it seems to be like about 10% or 11% relative to again in November. Given your contractual commitments, are you able to assist us perceive, are you seeing or inflationary pricing on some prices of deployment?

Tyler Web page

No, that is simply — that’s the precise draw back as we weigh the professionals and cons, that’s the draw back of eradicating the Bitfury rigs. And so we have now a most favored nation pricing association with the crew at Bitfury. And so by selecting the trail of flexibility and focusing to maneuver ahead with the opposite two suppliers, the impact on the portfolio is that you’re eradicating that variety of extra cheaply priced machines. However once more, as we give it some thought, the pliability was crucial factor to us.

Aaron Rakers

And I do know that is in all probability a troublesome query to reply. However I am simply curious, like as you have a look at the business dynamics, how are you interested by — has there been any modifications? What are you sort of watching from a regulatory perspective at this level? Something we ought to be conserving our eyes on?

Tyler Web page

Certain. Properly let me give total context that we have got a shifting panorama on a geopolitical entrance, a macroeconomic entrance and considerably on an business entrance, proper? So simply the heavy caveat that a lot of occasions occur every single day, proper? I feel at present, from a regulatory standpoint, we be ok with the place we’re. It feels very secure to me. That is coming from a perspective of getting labored in crypto for over 5 years now. And the explanation why I say that’s geopolitical and macroeconomic occasions are going to deliver crypto to the very best ranges of debate and debate from a legislative perspective, however I feel what I see and I used to be watching Chairman Powell’s testimony yesterday and I watched plenty of the congressional testimony over the previous couple of months, there does appear to be a rising acknowledgment that Bitcoin, particularly, is a part of the panorama now.

And the truth that, that appears to be conceded with regulators, whilst they’ve a broader debate about regulating the area and the way do they aim dangerous actors, etcetera, to me, feels excellent. So we don’t anticipate modifications on that entrance nevertheless it was a unstable place.

Aaron Rakers

Thanks.

Tyler Web page

Sure.

Operator

Thanks. [Operator Instructions] And I am at present displaying no additional questions right now, I would like to show the decision again over to Tyler Web page for closing remarks.

Tyler Web page

Okay. Properly, thanks to everybody who might be part of the decision. We’re very enthusiastic about our persevering with execution. And I feel that, frankly, the unstable situations and the shifting panorama on the planet actually reinforces our strategy to have value self-discipline as crucial approach to handle our approach ahead. And I feel our long-term technique is distinguishable from the remainder of {the marketplace} and performs to our distinctive strengths. So we’re very excited to maintain our heads down and proceed executing and thanks to your time at the moment.

Operator

Thanks. This concludes at the moment’s convention name. Thanks for collaborating. You could now disconnect.

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