Cipher Mining Inc. (NASDAQ:CIFR) Q4 2024 Earnings Call Transcript

Cipher Mining Inc. (NASDAQ:CIFR) Q4 2024 Earnings Call Transcript February 25, 2025

Cipher Mining Inc. beats earnings expectations. Reported EPS is $0.06, expectations were $-0.1.

Operator: Good day and welcome to Cipher Mining Fourth Quarter and Full Year 2024 Business Update Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call may be recorded. I would like to turn the call over to Courtney Knight, Head of Investor Relations. Please go ahead.

Courtney Knight: Good morning and thank you for joining us on this conference call to address Cipher Mining’s fourth quarter and full year 2024 business update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Edward Farrell, Chief Financial Officer. Please note that you may also review our press release and presentation, which can be found on the Investor Relations’ section of the company’s website. Please note that this call will also be simultaneously webcast on the Investor Relations section of the company’s website, and this conference call is the property of Cipher Mining. Any taping or other reproduction is expressly prohibited without prior consent. Before we start, I’d like to remind you that the following discussion, as well as our press release and presentation contain forward-looking statements, including but not limited to Cipher’s financial outlook, business plans and objectives, and other future events and developments including statements about the market potential of our business operations, potential competition, and our goals and strategies.

Forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cipher assumes no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law. Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the mostly directly comparable GAAP measures, and you are encouraged to examine those reconciliations, which are filed at the end of our earnings release issued earlier this morning. I will now turn the call over to our CEO. Tyler Page. Tyler?

Tyler Page: Thanks Courtney. Hello, this is Tyler Page, CEO of Cipher Mining. Thank you very much for joining our fourth quarter and full year 2024 business update call. We had an extremely productive fourth quarter at Cipher as we continued the on-time execution of the growth and expansion plans discussed on previous calls. I like to begin by substantiating that growth with some key indicators that underscore our immense progress and reflect the successful execution of previously discussed strategic initiatives. In the fourth quarter we produced revenues of $42 million and GAAP net earnings of $18 million. Our adjusted earnings were even stronger. We produced adjusted earnings of $51 million for the quarter, up $54 million from the prior quarter.

We are very proud of our fourth quarter numbers as they demonstrate our success in executing on our vision of being a low-cost producer of Bitcoin. We believe that the relative advantages of being a low-cost producer of Bitcoin will only increase going forward. Our key growth achievement in the fourth quarter was the successful upgrade of our Odessa fleet which grew our total self-mining hashrate to 13.5 EH/s. We expect to continue to build on this growth in 2025, with our hashrate projected to reach at least 23 EH per second in the third quarter of this year. This acceleration in 2025 will be driven by the completion of phase one of our 300-megawatt Black Pearl data center, which we will discuss in further detail shortly. Phase 1 completion at Black Pearl will substantially expand our current operating capacity of 327 megawatts and continue to improve our already impressive fleet wide efficiency of 18.9 J/TH.

Lastly, for those newer to the Cipher story, we are widely recognized for our highly competitive all in weighted average power price of just $0.027/kWh. As electricity accounts for the large majority of our operating costs, our low price is a key driver of our strong and sustainable unit economics. Ed will give a more detailed breakdown of our numbers during his portion of the call, so I’d like to shift the focus now to an update on our anticipated growth in the coming months and years. Over the last two quarters our business model has rapidly evolved from being solely a Bitcoin miner to being a developer of HPC data centers with a natural built-in offtake via Bitcoin mining for prospective sites. Our current primary intent for our pipeline of sites is to develop them as HPC data centers.

We believe that large scale interconnects available in the next few years are exceedingly rare and valuable and against that backdrop we have continued to acquire assets and focus more time on this business. We are excited to announce today that last week we acquired 337 more acres of land at our Barber Lake site and also signed a memorandum of understanding to potentially expand the scope of the facility.This expansion would include the build out of an additional 500-megawatt data center adjacent to the current 300-megawatt site. This would result in a total potential capacity of 800-megawatts at Barber Lake with the additional 500 megawatts of capacity expected to be available in 2029. With these deals we believe the Barber Lake site development opportunity has grown much larger than we previously believed and our discussions with potential tenants and financing partners are evolving to reflect this much larger opportunity and as we work to finalize the best possible deal for Cipher.

While HPC is our focus at new sites, we are confident that we can also use our proven expertise in managing power curtailment and producing best in class electricity costs to put the sites to profitable use as Bitcoin mining sites. As an alternative, our Bitcoin mining business remains robust and we have continued to work around the clock to develop Phase 1 of Black Pearl, which remains on track to energize in the second quarter of this year. We continue to evaluate our options for the remaining 150-megawatts of capacity at the site, including the potential to develop Phase 2 for HPC hosting or Bitcoin mining. We believe that we have found a truly unique niche by opportunistically investing in greenfield development sites, knowing that we can build and operate HPC data centers or if a high quality HPC tenant fails to materialize, we can continue to expand our Bitcoin mining footprint and put the sites to profitable use.

Our site sourcing team remained Busy in the fourth quarter acquiring Stingray, a 100-megawatt data center site in West Texas, which we will discuss in more depth later on the call. Cipher can maximize the value of our now 2.8-gigawatt development pipeline with the deep expertise of our construction and operations team. Our construction team built over 600-megawatts of Hyperscaler data centers before joining Cypher, has deep connections throughout the supply chain and can innovate as the data center industry continues to evolve rapidly. We are extremely proud of our team which is built for scale and provides a huge competitive advantage. In our ongoing discussions with potential tenants. On slide 5, we provide a portfolio breakdown of our existing megawatt capacity and the expected timeline for scaling our pipeline of managed power capacity.

This pipeline is the culmination of the extensive work we have done to source attractive new data center sites for future development. Based on feedback from ongoing conversations with Hyperscaler, we are confident that our pipeline, with access to adequate land and fiber necessary to service HPC customers, will allow us to be a market leader in the space. As a reminder, we have historically acquired sites that have already received interconnection approvals, but we recently expanded our scope by getting involved earlier in the development timeline. We avoid broader bidding competitions and source valuable sites that most of our competitors cannot while improving long term visibility for our supply chain and construction functions Our options to acquire the Mikeska, Milsing, McLennan sites upon interconnection approval are prime examples of this approach and we anticipate those sites being ready to energize in 2027.

In addition to those purchase options, we also own a 70-megawatt site called Reveille, scheduled to energize in 2027 with the possibility for expansion. The capacity of these four 2027 sites plus our nearer term energizations of Black Pearl, Barber Lake and Stingray are all reflected in the chart. Notably, all of our sites sit at the center of the major trends we see influencing the data center space in the coming years. The meteoric growth of increasingly larger AI related HPC data centers and continued adoption of the Bitcoin network and related value of Bitcoin mining as a flexible load that helps balance power grids. Again, we believe large scale interconnections available in the next three years are exceedingly rare assets and we are aggressively positioning the company to take advantage of anticipated demand.

All of our pipeline sites have the necessary characteristics for development of HPC data centers, but also sit in locations with demand response programs that would allow us to monetize the flexibility of curtailment used in Bitcoin mining operations. With these sites we have a lot of optionality, especially given their staggered energizations, which is exactly where we like to be positioned; in front of trends with the potential for massive growth. While it is too early to predict the exact mix of our business lines across sites, Bitcoin mining and HPC infrastructure are complementary in that they have different risk and payoff profiles and even have the potential to converge. With our robust pipeline, we think Cypher is uniquely positioned to be best-in-class in both verticals and our strategy will be guided by our intent to maximize shareholder value over time as we develop our future data centers at these sites.

While our development pipeline reflects exciting growth opportunities, our existing operations continue to serve as a strong foundation for our success. Across our sites, in 2024 we paid an average all in electricity cost of roughly $20,281 per Bitcoin produced at our data centers. We are very proud of this number. Please note that when we talk about all in electricity costs, we mean the total cost to deliver electricity to our mining rigs, so our numbers include all taxes, transmission and other charges and our low numbers dramatically demonstrate our competitive advantage. On the left side of the slide, we show an overview of our production split across Odessa and our JV data centers along with our all in electricity cost per Bitcoin at the sites in 2024.

The chart on the right side of the slide illustrates our rapid expansion in mining capacity recently and going forward. As you can see, we expanded from 9.3 EH/s in the third quarter of 2024 to 13.5 EH/s today and currently expect to produce at least 23 EH/s in the second half of 2025, when we bring Phase 1 of Black Pearl online. Next, we will review production by site. Slide 8 has a production summary for our Odessa facility. Odessa is the most significant part of our portfolio as it currently represents approximately 87% of our Bitcoin production in January. As we’ve noted before, Odessa set a new industry benchmark as the first Bitcoin mining data center to receive the Uptime Institute’s stamp of approval for management and operations. This wholly owned facility operates under a five-year fixed price power purchase agreement, securing some of the most competitive electricity rates in the industry and reinforcing our cost advantage and operational strength.

As we mentioned earlier in the call, we are very proud of the successful and on time completion of our fleet upgrade at Odessa, which raised our operating hash rate, improved our fleet efficiency and further strengthened our track record of delivering on previously outlined plans. As of January, the current operating hash rate at the site is 11.3 EH/s, up from 7.1 EH/s before the upgrade, using the same approximately 207 megawatts post upgrade, Odessa’s fleet efficiency stands at 17.6 joules per thash. On this page we also provide the observed all in electricity cost per Bitcoin at the site in January, which was roughly $20,298. This low-cost number illustrates the value of the fleet upgrade as it reflects our first electricity bill for the operations post upgrade.

As we’ve mentioned many times on past calls, it is extremely valuable for Cypher to have a cheap fixed price of power available on such a large portion of our portfolio. On slide 9 we highlight our joint venture data centers of Alborz, Bear & Chief with the 2024 expansions at each of Bear and Chief. The sites have a total power capacity of 120megawatts and generate approximately 4.4 EH/s. We own 49% of the JV sites and our portion recently generated roughly 13% of our overall Bitcoin production. On this page we also provide the observed all in electricity cost per Bitcoin at the sites in the fourth quarter which was roughly $34,542. As a reminder, both Bear and Chief operate as front of the meter sites so there are expected seasonal fluctuations with their electricity costs.

Now let’s turn to an update on our development portfolio. We have segmented the development pipeline into near term growth across Black Pearl and Barber Lake and longer-term growth across 2026 and 2027. We are thrilled to share that the construction of Phase 1 of Black Pearl remains on track to energize in the second quarter of this year. Phase 1 will feature 150-megawatts of air cooled rigs expected to produce over 9.5 EH/s of hash rate. We continue to evaluate our options for the remaining 150-megawatts of capacity at the site, including the potential to repurpose Phase 2 of the data center for HPC hosting. Ultimately, our final design at the site will depend on what we think will produce the best outcome for our shareholders. As you can see, delivering such a large data center construction project on time requires coordination of hundreds of workers around the clock.

In the last few months, we made significant advancements at the site including the commencement of point of interconnection construction, the successful manufacture of the first substation transformer for the site, and the near completion of the phase one building spanning over 100,000 square feet. We couldn’t be prouder of our team’s ongoing commitment and execution. Slide 13 gives an overview of our Barber Lake site which we acquired in Q3 of last year. The site has enormous potential for HPC given its immediately available capacity of 300 megawatts and now 587 acres of surrounding land plus its already energized substation. As I mentioned earlier in the call, we recently signed a memorandum of understanding to potentially expand the scope of the facility to include an additional 500-megawatt data center adjacent to the current 300-megawatt site.

This would result in a total potential capacity of 800-megawatts at Barber Lake. The additional 500 megawatts of capacity is expected to be available in 2029. We have already been in discussions for months with multiple potential tenants who are interested in the site given its optimal setup and timeline to availability. We have also been discussing financing options with potential financing partners who are excited to work with us on building an enormous next generation data center at the site. Given our recent work to expand the scope of the data center, we anticipate these discussions will continue to evolve favorably. The opportunity for Cypher’s HPC business has gotten much larger in the last few days and while it will take time to finalize our path for Barber Lake’s development, we have never been more excited about the commercial potential at the site.

Slide 14 outlines our expected growth in 2026 and highlights our new site acquisition in Andrews County, Texas. Called Stingray, the site, purchased in November, features 100 megawatts of front of the meter capacity, all necessary regulatory approvals, and 250 acres of land adjacent to the transmission assets. The site is expected to energize in the second quarter of 2026, which complements our 2025 and 2027 energizations. Slide 15 outlines our expected massive growth in 2027 across four sites with 1.6-gigawatt power capacity. Our Reveille site, located in Cotulla, Texas is scheduled to energize in 2027. As mentioned, it has been approved for 70 megawatts and we have submitted a request for additional capacity. Based on early discussions with the transmission service provider, we are optimistic that we can expand the site capacity by the time the site is energized.

Mikeska, Milsing, McLennan, or what we call the 3Ms. For short, are pending final approvals for interconnection. We expect the results of approval processes for the sites to be finalized this year. We are targeting approvals for up to 500 megawatts at each site. In addition to the interconnections, our purchase Options on the 3Ms also cover substantial parcels of land at each site. The 3Ms. Have all the necessary characteristics for development of HPC data centers. All of our sites expected to energize in 2027 are located further east than our current sites and some sit closer to major metropolitan areas. We have already received early interest in the sites in our conversations with potential tenants and anticipate that the sites will be in high demand as the calendar continues to roll forward.

With our 2.8-gigawatt pipeline and proven track record of execution, we remain confident in our vision of becoming a best in class data center developer for HPC infrastructure while remaining best in class in Bitcoin mining. We’ve consistently demonstrated success in originating the best sites and power deals in Bitcoin mining and we look forward to bringing that expertise to the traditional large scale data center market. Now for a review of our financials, I will turn it over to our CFO Ed Ferrell.

Edward Farrell: Thank you, Tyler and hello, to everyone on the call. Before I dive into our financial results, I’d like to remind everyone that today I will be discussing our performance for the 3-month and 12-month periods ending December 31, 2024. 2024 was another successful year for Cypher as we continue to lay the foundation for future growth. We once again demonstrated our ability to execute at a high level, highlighted by our minor fleet upgrade at Odessa, the ongoing construction at Black Pearl, the acquisition of Barber Lake, and as Tyler referenced, continuing to make progress on our HPC initiatives. We also expanded our pipeline of sites securing new opportunities to support long term strategy. Additionally, we strengthened our operational controls, enhanced liquidity management and advance key infrastructure projects.

These efforts position us for an exciting and impactful 2025 as we continue to scale and optimize our operations. Before I get into the details, I want to take a moment to address a significant milestone for Cipher our recent pipe investment from Softbank. As a reminder in Q1 of this year, SoftBank invested $50 million in Cyphers through the purchase of approximately $10.4 million shares of our common stock. This investment strengthens our ability to expand our data center development business. We’re excited to welcome Softbank as an investor and look forward to leveraging this relationship to accelerate growth. Slides 17 and 18 give a snapshot in which we provide every quarter of some of our financial metrics on both a sequential and year-over-year basis.

First, on Slide 17, as Tyler stated earlier, we had a strong fourth quarter as our top-line revenue grew 75% quarter-over-quarter, increasing from $24 million in Q3 to $42 million in Q4. This strong performance was driven by a couple of key factors including the successful completion of our Odessa mining rig Upgrade completed in Q4 and the continued price appreciation of Bitcoin in the quarter. Again, we reported GAAP net earnings at $18 million or $0.05 per share in Q4 while adjusted earnings came in at $51 million or $0.14 per share. We’re extremely proud of these results, which we see as a direct result of our team’s hard work and our execution, particularly in expanding our self-mining hash rate during the fourth quarter. Moving to Slide 18 in the fiscal year we achieved a $24 million increase in revenue compared to 2023.

Operating expenses in the current year increased $48 million, primarily driven by depreciation and amortization expense, which I will provide more detail later in my remarks. Thus, in 2024 we had a GAAP net loss of $45 billion for a loss per share of $0.14 versus a net loss of $26 million or net loss of $0.10 per share in the prior year, our adjusted earnings increased by $61 million to $107 million versus $46 million in the prior year. This growth drove our adjusted earnings per share from $0.17 in 2023 to $0.33 in 2024. A key driver of success was the significant hash rate expansion. Over the year, hashrate grew by 88% and 7.2 EH at the end of 2023 to 13.5 EH at the end of 2024. As I mentioned earlier, our hash rate growth was driven by a successful fleet upgrade at Odessa where we replaced over 36,000 new mining rigs.

This upgrade, as well as the Bitcoin appreciation during 2024 had a direct and meaningful impact on our revenue, underscoring our strong execution and our ability to scale efficiently. Let’s move on to slide 19 and take a deeper look at the Numbers. For the fourth quarter we recorded GAAP net income of $18 million compared to a net loss of $87 million in the prior quarter. As a reminder, last quarter’s results were impacted by a large mark to market loss on our PPA driven by a sharp downward shift in the forward curve in the ERCOT market, whereas this quarter we had a mark-to-market gain of $11 million. For the quarter we mined 492 Bitcoin at our wholly owned Odessa data center, generating $42 million in revenue at an average price of $84,000 per Bitcoin.

This compares to 396 Bitcoin mined in Q3 2024 at an average price of $61,000 per Bitcoin resulting in $24 million in revenue sequential increase of 75%. I would like to point out that our monthly production reports include production from not only Odessa but also our 49% share from our joint venture data centers. That is included in the equity and losses of equity investees line item and the Bitcoin equivalent from power sales. On a year-over-year basis, revenues increased 19%, primarily driven by Bitcoin price appreciation as well as the previously mentioned rig upgrades that fueled our hash rate expansion. Offset by the halving event earlier this year. Our fixed price power remains a critical factor in maintaining attractive unit economics.

However, in the current quarter our cost of revenues increased by 21% sequentially. This increase was primarily driven by our strategic decision to purchase power from the grid during periods when our power provider curtails our Odessa facility. When this occurs, our proprietary tech stack analyzes power cost and our unit economics to determine whether purchasing power at the current market rates would yield a net operating profit for the company. Excluding these instances of drawing power from the grid at higher costs, our cost of revenue remained flat quarter-over-quarter, supported by our fixed price PPA at Odessa. We’ll discuss the quarterly pricing of the PPA in more detail later, but its true value is evident in the low-cost fixed price power which is reflected in our cost of revenues.

Now let’s shift our focus to operating expenses. Quarter-over-quarter compensation and Benefits increased by $2 million, reaching $17 million in Q4 and totaling $61 million for 2024. This represents a 14% increase from the previous quarter and a 6% increase year-over-year. Throughout the year we made targeted investments in our team, adding five new employees in Q4 and nine in total for 2024. We remain committed to a strategic opportunistic approach to headcount expansion, ensuring that we have the right talent in place to support growth and operational efficiency. Turning to G&A, which includes IT, corporate insurance, professional fees, occupancy and other public company costs, we saw a 4% increase quarter-over-quarter. On a year-over-year basis.

G&A expenses rose by $5 million, reflecting a 17% increase primarily driven by higher professional fees and public company costs. The key contributors to this increase were Sarbanes Oxley compliance requirements and expenses related to strategic growth initiatives. Quarter-versus-quarter depreciation expense totaled $36 million, representing a 27% increase from the prior quarter and a 73% increase year-over-year. The quarter-over-quarter increase was primarily driven by a Q4 upgrade at Odessa where we replaced 36,000 mining rigs as previously mentioned. The year-over-year increase was driven by both the Odessa fleet upgrade and our change in accounting policy for mining rig depreciation. As a reminder, we previously depreciated our mining rigs over a five-year period.

However, given our 2024 fleet upgrades and the rapid efficiency gains of next generation rigs, we determined that a three-year depreciation schedule is now more appropriate. Our expectations around hardware upgrade cycles and our ability to acquire and install more efficient machines have evolved and we believe this should be reflected in the accounting treatment of the entire fleet. This change was implemented in Q2 and applied prospectively in Q4. We recognized a $14 million unrealized gain on the fair value of our Bitcoin inventory, compared to an unrealized loss of $22 million in Q3. Unrealized gains and losses on Bitcoin relate to the marking of inventory to market. We also recognized $26 million of realized gains on Bitcoin during the quarter compared to $20 million in the prior quarter from selling Bitcoin for the year.

Unrealized gains of $11 million for 2024 are related to the increase in our Bitcoin inventory throughout the year and the overall Bitcoin price appreciation. This compared to $3 million in the prior year. During 2024, we realized gains of $52 million on Bitcoin sales compared to $8 million in the prior year. The increase is driven primarily by our increased production of Bitcoin, with Odessa operating at full capacity for the entire year. Let’s now turn to our non-GAAP measures slide where we reconcile to adjusted earnings. As always, I’d like to remind you that adjusting earnings include the impact of depreciation and amortization, the non-cash changes in the fair value of our derivative asset, deferred income tax expense, the non-cash charge, and the fair value of the warrant liability share based compensation and non-recurring gains.

These supplemental financial measures are not measurements of financial performance in accordance with US-GAAP. However, we believe that these non-GAAP measures may be useful to investors for comparing our performance across reporting periods consistently. Internally management uses these non-GAAP financial measures to better understand, manage and evaluate our business before performance and to facilitate operational decisions. When adjusting our fourth quarter GAAP net income of $18 million, we added back $33 million for the items I just listed, resulting in adjusted net earnings of $51 million for the quarter. This compares to an adjusted net loss of $3 million in the previous quarter. For the full year we reported a GAAP loss of $45 million, however adding back $152 million for the reconciling items primarily driven by depreciation and amortization.

Our reported 2024 non-GAAP or adjusted earnings was $107 million compared to $46 million in 2023. Now let’s turn our attention to the balance sheet. On slide 21, our total current assets at year-end were $168 million. Our cash position declined to $6 million, a decrease of $81 million from the previous year, primarily due to investments made during the year, including the $68 million purchase of Barbara Lake, $179 million in minor purchases and $82 million for the development of Black Pearl. Fortified by our Bitcoin holdings, a liquidity position as of December 31 remains strong at $98 million, consisting of $6 million in cash and $92 million in Bitcoin. I’ll quickly cover some additional balance sheet line Items. As of December 31, our prepaid expenses amounted to $3 million.

This balance is primarily related to corporate insurance. As noted earlier, we ended the year with Bitcoin balance of $93 million representing 994 Bitcoin held in Treasury. This marks an increase from the 780 Bitcoin held at the end of 2023 which was valued at $33 million. Our philosophy regarding Bitcoin inventory growth and treasury management remains unchanged. As we’ve highlighted in previous quarters, we take an opportunistic approach, continually evaluating various funding options to our growth initiatives, shifting focus to the value of our Odessa power contract. We account for this as a derivative asset. As we have highlighted in the past, this contract provides a meaningful competitive edge allowing us to operate as a low-cost Bitcoin producer.

We incorporate a third-party valuation for this agreement which is reflected as a derivative asset on our balance sheet and reassess each report period. In essence, it represents the in the money value of the contract influenced by time value and prevailing forward power prices at our Odessa facility. As we remind investors each quarter, seasonality and gradual expiry of the contract impact the asset’s pricing and leads to expected fluctuations in quarterly valuation. Given the unexpectedly mild summer we experience in Kaksa and the corresponding drop in forward power curve, we saw a significant decline in valuation last quarter with a $49 million loss on the asset. However, this quarter we saw $11 million gain as the power markets partially recovered.

While there is substantial fluctuations in reported value, these fluctuations in no way diminish the substantial value and competitive advantage the contract provides by securing low cost fixed power price at our Odessa facility. As of December 31, this asset was valued at $86 million compared to its valuation of $94 million at the end of 2023. As we progress toward the end of the contract In July of 2027, we expect the value to decline over time. As always, fluctuations in the fair value of this contract will impact our GAAP earnings, but we exclude it from our adjusted earnings. Other significant assets include property and equipment totaling $481 million primarily attributed to our Odessa facility. Within this category, mining rigs and related equipment account for $342 million.

Leasehold improvements are valued at $138 million, land of $49 million, infrastructure of $28 million and construction and progress of $82 million. At Black Pearl, these figures are net of $159 million in accumulated depreciation. Deposits on equipment of $39 million consist of progress payments we have made in accordance with previously announced mining rig purchases. Additionally, we hold intangible assets totaling $9 million, with $7 million attributed to ERCOT approval at Blackburn and the remaining $2 million related to capitalized software. At the end of the fourth quarter, our equity investee interest in Albor’s Bear and Chief JVs stand at $54 million and we had operating lease assets of $13 million. We had security deposits totaling $20 million which primarily represent the encore deposits related to the construction of the interconnects at various data centers.

Our liabilities increased from 2023 driven by our growth initiatives. Our accounts payable increased $23 million, primarily related to vendor payments for black curl construction. Our crude expenses increased to $70 million from $22 million in the prior year, primarily related to payments on miners related to our Odessa fleet upgrade. Short term borrowings of $32 million relate to borrowings done to provide liquidity in the near-term while preserving Bitcoin inventory. And as an example of our strategic capital management, I’d like to add that subsequent to 1231 we paid down $15 million of this loan. Finally, I’d like to thank everyone for participating on today’s call and as always, we look forward to continuously updating you on our growth plans and results over the coming quarters.

I will pause now and Tyler and I are happy to answer your questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Again, our first question comes from John Tadaro with Needham. Your line is open.

John Tadaro: Hey guys, thanks for taking my question and congrats on the quarter. Obviously. Always great to see net income going on. I guess so. First question on the HPC side. You know, from what I saw it looked like there was some exclusivity with softbank with the February 28 date. Just help us understand that a little bit better. And then as it relates to HPC, I know you said you’ve had some discussions going on for a couple months. Was it more so you had a lot of that hyperscale interest so then Softbank came around? Or are you seeing more hyperscaler interest since Softbank came in? And then I have a just a quick follow up on the Bitcoin side. Thanks.

Tyler Page: Thanks John, appreciate the question. So it’s also public that we are under NDA with Softbank, so I’ll speak in broad terms but don’t know if I’ll be able to get every detail you’d like answered, given our setup. But it’s fair to say that there is a steady drumbeat of interest, particularly in Barber Lake. We have also seen interest at Black Pearl and ultimately the pipeline. I think the of the 3M sites, the ones that are the furthest east, at least in discussions, have seen a lot of interest. So that’s Milsing and McLennan. So generally, when we speak to a hyperscaler or or similarly situated potential tenant, they’d like to see our entire portfolio as they’re doing their own planning for sites and looking at the different variables they like to check at each potential site.

So there’s been a steady drumbeat of interest as far as the exclusivity question that you started with. We can have discussions with others. We can’t sign a deal with anyone but SoftBank. Again, this is all sort of publicly filed, but until that exclusivity expires, so we have been free to have discussions. And I’d say in addition to the potential tenants, a big part of what we’re trying to do is line up financing simultaneously with a tenant. So that there’s no question that, how are we going to pay for an expensive build? There are lots of big financial firms that are interested in getting more data center exposure. And then through some of those discussions, they often have interest or a relationship or a pre-approved lease template with Hyperscaler.

So that has also led to some interest as well.

John Tadaro: Great. Just to be clear on that, you can’t sign a lease with anyone else until I guess, basically, what, three days from now?

Tyler Page: Yeah, I think it ends the end of this week.

John Tadaro: End of this week. Okay, got it. And then, I mean, that’s interesting because it sounds like maybe something could be coming sooner than later, but I guess. And then just quickly on the Bitcoin side of things, and sorry if I missed this, there’s another one going on as well. The $0.027 fixed power, how much time do we have left on that one now? And then where do you think rates would go after that?

Tyler Page: Yeah, so great question. Our fixed price contract at Odessa runs till the end of July 2027. We got about two and a half years left on that. And I’ll mention something that was relevant to this quarter and you could see sort of analogous to some seasonality that we see in our front of the meter sites for pricing in Texas with the recent fleet upgrade at Odessa, we came into this last quarter. Let me zoom out. Recall that in our Odessa fixed price contract. We’ve traded a 5% curtailment option to our power provider annually. So we get a price that’s very close to our $0.027 portfolio average 95% of hours in the year. But they are allowed to claw back 5% of those hours, curtail us, and then sell power, typically on the open market or do maintenance or whatever.

We have recently added the ability that if with these new rigs we’ve added at Odessa, they produce a higher amount of revenue even with increasing competition on the network. I think recently I haven’t recalculated it this morning, but we made about $150 a megawatt hour of revenue with those machines. We now have the ability to also purchase power from the market if we are curtailed. So Even within that 5% of ours, we can go out if it’s profitable and we want to buy power for $50 or $75 or $100 on the open market. If we’re making $150 of revenue, it’s worth it. So that’s an interesting indicator as you then think to the answer of your question in two and a half years. We have had some preliminary discussions with Luminant, our power provider at the site, to potentially extend that lease at Odessa.

Remains to be seen what the pricing would look like or if we would even want a fixed price contract. I think at the time we signed it, fixed price looked great because the forward curve was lower for power prices looking five years forward. I think if we did it today, we would likely do it with something like front of the meter pricing. So four, floating pricing. And we would probably end up doing something about like we’ve encapsulated in that contract, which is curtailing our operations. The most expensive hours, call it roughly 5% of the time. I think if we did that in current floating price environments, you’d probably see in the low $0.03 — $0.03 to $0.035 /kWh or $30 to $35 megawatt hour. Obviously, if you ramp up and curtail even less, you can kind of fix that price where you want.

If you ran 100% of the time, you’re probably close to, I don’t know, it’s probably between $50 and $60 a megawatt hour right now. But it’ll depend on what power price, happens. So the pricing at Odessa, if that were to happen, would look more like we’ve got at Bear and Chief or what we will have at Black Pearl when it starts.

Operator: Thank you. Our next question comes from Mike Grondle with Northland Capital Markets. Your line is open.

Logan Hennen: Hey guys, this is Logan on for Mike. Congrats on the quarter. And we just had two questions for you guys on the HPC side today. First, can you provide some color around the evaluation process for phase two of the 150megawatts at black Print? Kind of what that process includes, what are you looking for and kind of what can we expect for the timing of that decision. Thanks.

Tyler Page: Thank you, Logan. That’s a great question actually. And it’s a daily analysis we’re running. So with Black Pearl, phase one is now on track for Bitcoin mining as we mentioned. That’ll be running this summer. It’ll be great. I was just in Texas last week at Black Pearl. I was on site at Barber Lake at Odessa. It was interesting to be in Texas during the coldest day they’ve had for a long time and happy to see that the grid worked very well and Bitcoin mining curtailment was a big part of that. So when we think about HPC for phase two at Black Pearl, it poses an interesting opportunity cost question because it’s going to energize in the second quarter. So if we take a long time, we’re missing out on an opportunity to do Bitcoin mining there at probably really nice profitable rates given that we’ve got locked in really cheap pricing on rigs with an option we can exercise with Canaan, if we wanted to do that, or even buy machines in the spot market depending on where pricing is, or even move our old machines from inventory out there given that it’s front of the meter setup.

We already are sitting on 120 megawatts or so of machines that are older but you know you can run them very profitably with lower uptime and we could spend nothing on rigs for the second half of the site. And so that’s all a revenue opportunity that would be available to us later this year. Right. And late starting in the late summer. However, we have seen a fair amount of inquiry about taking 150 megawatts and making that available for HPC. So right now we’re prioritizing that because we have a pretty substantial level of interest in financing such a build. If we had a Tenant for the 150megawatts, we have a bunch of options where our cash out would be pretty minimal and we could have participation in those economics. So that’s really attractive to us.

I think the other long-term thing that’s really interesting is this site is really impressive. I think anyone from the more traditional data center space that takes a visit at Black Pearl and I hope we’re going to be doing an investor day kind of late this year out there, anyone from the traditional data center space is going to be really impressed with the construction quality at Black Pearl. And so we would love to have a site that is literally on one side it’s 150 megawatts of Bitcoin mining and on the other side it’s 150megawatts of HPC. And I think we really have this theory that maybe that’s where data centers end up going given the way that Bitcoin mining can soak up extra power, et cetera. There’s all kinds of PUE and backup generation, optimization, curtailment questions and theories that people in the space have that we would love to have a live test case for.

So we’re running through conversations on HPC. We’re lining up the ability to basically not have to put a lot of cash out to do a deal there and talking to potential tenants. That said, I’d say after a few months, if we’re not solidly on track with a tenant lined up, we’ll probably proceed with Bitcoin mining because that was our original plan for the site. It’s an awesome site for Bitcoin mining and there’s just a pretty big revenue opportunity sitting there for us right away to build that out. So that opportunity cost is really what we’re weighing every day against our ongoing discussions. And I would expect we’ll have direction on that probably by the next earnings call.

Logan Hennen: Perfect. Thank you. Yeah, that was very good color. Then one last one from us. Can you additionally kind of expand on the MOU for the additional 500-megawatt data center and the incremental 337 acres. What that means for Cypher and what’s the ideal timeline and trajectory for Barber Lake given these recent announcements?

Tyler Page: Sure. So Barber Lake is an awesome site. So they’re two separate things. So we closed on the purchase of 337 acres. That’s just Cipher’s new acreage. That is next to the plot we had right next to the substation that’s already energized. It already had pretty substantial land. But we’re pretty bullish on the opportunity at Barber Lake. You know, no matter what the market is doing day to day in Terms of fluctuations, guessing about the future of large-scale data centers. That does not line up with the discussions we are having, which is pretty consistent level of interest from lots of parties in such an opportunity. So we went ahead and bought more land and we own it now. 587 acres. And again, in live discussions on how we will set up an HPC tenant at Barber Lake, separately we announced an mou.

We now have an exclusivity for two months discussing with our friends at Priority Power an opportunity that they have that is adjacent to our site. So they literally have a draft for interconnection that is available on land next door. And given the way these discussions around large data centers seem to be progressing, that there is extra value in larger size where you’ve got potentially networked data centers across frankly close areas. This opportunity seemed amazing that, we’ve seen some other folks out there talking about stretching data centers, dozens of miles apart and trying to link them. This was an opportunity where literally there’s 500 megawatts potentially available right next door. And so we are now in discussions with Priority to come up with a way to build a 500 megawatt data center that is immediately adjacent to our 300 megawatt data center and hopefully be talking to an end user looking for 800 megawatts of data centers located next to each other and in a very attractive location.

Operator: Thank you. Our next question comes from Reggie Spring with JPMorgan. Your line is open.

Charlie Peguero: Hey, good morning team. This is Charlie on Reggie. Thanks for taking my question. Tyler, you just touched on this a little bit in the previous question. But thinking about applications for future site for data centers, have you seen any change in the type of workloads counterparties want to do at your sites? Specifically, kind of thinking about demand to use data centers for model training versus inference applications since deep seq. And then kind of as a follow up, does the type of workload a counterparty is doing change anything in negotiations or site capex or funding costs? Thanks.

Tyler Page: Thanks Charlie. That’s a great question. So I would say at the level of discussions we’re having with the types of counterparties we are speaking to, they have a lot of interest in capacity across different use cases. So we haven’t seen necessarily people say, oh well this is for inference. So the lease is going to be set up Differently than we had been discussing, I think what is impacting it more? There is definitely, I think interest in the availability of a data center to do all things and sort of if you’re solving for the hardest thing that’s going to be inference given the need for low latency. And so I’d say that does drive the level of interest in the sites. So while I mentioned we do have interest in Black Pearl, for example, Black Pearl is certainly a little bit more remote than some of the 3M sites, the 20, 27 sites we’ve got on.

And that drives. Not necessarily everyone is as interested in Black Pearl Pearl and I’m sort of reading the tea leaves, but my interpretation there is they’re underwriting to inference and sort of what the best stats possible would be and then figuring out where in their own organization to purpose it. Like I said, we still have interest in Black Pearl. So that doesn’t necessarily drive every discussion. I think there’s interest across several uses. It is hard for me from my seat to read through on like what’s the future amount of demand for training versus inference? I’m probably in no better position than anyone else following the industry.

Operator: Thank you. We have time for one more question. And that question comes from Bill Papanasis with KBW. Your line is open.

Bill Papanastasiou: Good morning gentlemen. Thanks for taking my questions and congrats on another strong quarter with continued progress on your AI HPC strategy. Tyler, for my first question, you mentioned earlier in your responses that you’re making $150 per megawatt from Bitcoin mining at Odessa. That’s pretty attractive and right in line with the core science, core weave deal. So how should we think about the terms that you’re comfortable to secure with a hyperscaler counterparty given the robust revenue that you’re earning from Bitcoin mining? Thanks.

Tyler Page: So, they’re very different and complementary businesses. I think the biggest thing about Bitcoin mining that every investor should understand is that there’s both, let’s call it a medium term cyclicality to the industry in terms of returns typically. And there’s also a long term trend typically. So we do have a cycle that’s roughly based around the halvings where we tend to see hash price expansion for a stretch after a halving, then you get a peak market and then after a halving you’re typically going to see a pretty, pretty big reduction in hash price, which is what us miners get paid for Bitcoin mining. And so while there’s a cyclicality and you want to get yourself exposed early in the halving cycle like we have done with Odessa and we’re doing with Black Pearl.

You also need to be aware that while there’s a cyclicality across four years, across much longer time periods, that hash price tends to decline. And so there’s a couple things that are very attractive about having an HPC tenant. One of them is that certainly in the conversations we are having, I guess not everyone is orienting themselves this way, but we are looking at long term leases. Think 15 years if you’re making a payment that is about what you make in Bitcoin mining or even a little bit less than that. Having a very credit worthy counterparty that is obligated to pay you that for over a decade has a lot of long-term value because hash price over that time period probably declines. And as an operator of self-mining you probably have to do some capex upgrades along the way.

So that stream of revenues is diversifying and from a payoff profile you’re not going to have necessarily the peaks you might have if we get a broad Bitcoin adoption period. But over long periods it probably outperforms the Bitcoin mining revenue production towards the tail end of the contract. The other thing is that at least at this point in time, HPC is highly financeable. If you have a lease with a very credit worthy counterparty, you can go get bank debt financing at a very cheap rate and finance get 80% of the money borrowed for the build. Bitcoin mining certainly on the rigs side there really is no debt financing market right now. And even on the infrastructure often there’s not as much interest, certainly not like HPC. And so that ability to finance is the other thing.

It’s very hard to overcome that advantage even if your sort of cash revenue returns looks similar on the Bitcoin mining side. You know, that said, Bitcoin mining is great too because you do have the peaks and it’s a little bit more volatile. But we’re certainly very bullish on Bitcoin mining as well, particularly where we are within that typically four-year cycle.

Bill Papanastasiou: Thanks Tyler. And then just lastly for me and apologies if you touched on this in the call, but how should we think about capital expenditures in 2025 going into 2026? Thanks.

Tyler Page: Sure. So, I know we published obviously our financials as of year-end. We took in the softbank investment in January. I think we put out monthly production numbers. So we had at the end of January 1091 Bitcoin in inventory and about $60 million in cash. You know that. And then we’ve continued to spend it throughout February on bills and things like that. But if we look at the remaining spend on phase one of Black Pearl is about $200 million that we’ll be paying over the next, I don’t know, 6ish months to finish phase one. That’s about $50 million for the infrastructure and about $150 million for the rigs, roughly still to spend. So between cash on hand and our positive cash flows, we get out of production, we have an easy path to all the money we need to spend for our currently committed expansion.

On a more opportunistic side, if we were to move to say, hey, Bitcoin mining looks great, we’re going to spend and build out all of Black Pearl Phase 2, that probably looks more like that would be about another $260 million or so. And for that we, we’ll have to watch how Bitcoin pricing goes and how much revenue we’re making. We obviously have lots of capacity if we wanted to sell equity or raise debt, we have not diluted like a lot of our competitors. We haven’t done a convert, we haven’t done any of that stuff. If we had a lot of conviction in Bitcoin mining and building phase two in a few months, that’s probably the path we would look to fund that and that would be the spending we would expect. I mean, I think what’s interesting is when you look at the effects of just having a new fleet, it’s pretty stark because your cash hash cost starts to scale.

If you look at our point in time hash cost right now it’s about $29 per PETA hash per second per day. And that’s against current has cost. Bitcoin is off this morning a little bit, but I think the market’s about $53. And so like, if I translate that to a cash cost per Bitcoin, for us, it’s about 49 and a half thousand dollars. And those numbers, the kind of overhead, cash numbers scale really nicely with adding more. So we’re excited about phase one at black per, and then phase two, if we decide to finance that for Bitcoin mining, is sort of easily achievable with a very high return on that investment. So good situation if in fact we don’t end up moving forward with HHPC on phase two.

Operator: This concludes the question-and-answer session. I’d like to turn the call back over to CEO Tyler Page for any closing remarks.

Tyler Page: Thank you very much for joining our call. We are very excited about everything going on in our portfolio and remain excited about all the opportunities we’ve got in front of us on both the HPC and the Bitcoin mining side. And we look forward to updating you with more concrete updates in the future. Thank you very much.

Operator: Thank you for your participation. This does conclude the program and you may now disconnect. Everyone. Have a great day.