Good day and welcome to the Cipher Mining second quarter business update conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Joshua Kane, Head of Investor Relations. Please go ahead.

Good morning and thank you for joining us on this conference call to address Cipher Mining’s second quarter 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 and 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 Tyler Page.

Thanks, Josh. Hello, this is Tyler Page, CEO of Cipher Mining. Thank you very much for joining our second quarter 2024 business update call. Let me begin the call with a few key metrics for Cipher as of the end of July 2024. The upcoming growth of our business is the major theme of the call today, and Cipher’s growth and expansion continued throughout the second quarter. We have now grown to 8.7 exahash per second of self mining capacity with a current fleet efficiency of 28.7 joules per terahash. As we look to the rest of 2024, we plan a significant upgrade of mining rigs at our largest data center at Odessa that will bring our self mining capacity to 13.5 exahash per second and improve our fleet-wide efficiency to 18.6 joules per terahash by year end. Those upgraded rigs are scheduled to ship in the third quarter, and we will install them as they arrive because the site is already prepared to take them. Our growth is then expected to accelerate considerably in 2025 with the addition of our new 300 megawatt Black Pearl data center reaching completion. We expect that the data center will expand our self mining capacity to 35 exahash per second and improve our fleet-wide efficiency to 15.3 joules per terahash. Cipher has continued to build its Bitcoin inventory, and as of the end of July held 2,270 Bitcoin. As a reminder for those that are newer to the story, Cipher is probably best known in the industry for its very competitive all-in weighted average power price of 2.7 cents per kilowatt hour. Electricity represents the large majority of our operating costs, and our low price is a key driver of our best-in-class unit economics. I mentioned that our focus will largely be on Cipher’s upcoming growth, and today I am very excited to provide early details of the extensive work we have been doing to build our pipeline of attractive new data center sites for future development. We have consistently said that owning our own infrastructure is vital to our success. Cipher has always sourced, owned, and operated its own data centers. Historically, we have acquired sites that have already received interconnection approvals, but we recently expanded our scope and signed a letter of intent for an option to acquire three new sites in North America that are adjacent to transmission assets and in the final stages of approval for interconnection with a 500 megawatt targeted capacity per site. By getting involved earlier in the development timeline, we can avoid broader bidding competitions and source valuable sites that most of our competitors cannot, while improving the long term visibility for our supply chain and construction functions. Our ultimate purchase price for the sites under our agreement will be very attractive and based on the number of megawatts approved for interconnection, limiting our downside risk. In addition to this purchase option, we are moving forward with a front-of-the-meter site in Texas called Reveille that has already been approved for 70 megawatts, and we believe can be expanded to 200 megawatts by the time it energizes in Q1 2027. For future development after Black Pearl, we now have a potential pipeline of up to 1.7 gigawatts of capacity across four new sites. Notably, all of these future data center sites sit at the center of the major trends we see impacting the data center space in the coming years: the continued adoption of the Bitcoin network and related value of Bitcoin mining as a flexible load, as well as the meteoric growth of AI-related HPC data centers. We believe large scale interconnections that can be used in a variety of ways will become more valuable over time. The four sites we intend to develop all have the necessary characteristics for the 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, which is exactly where we like to be positioned, in front of trends with the potential for massive growth. In connection with the updates on our pipeline of new sites, I am also pleased to announce the launch of our HPC infrastructure business. Given the requirements for success in the HPC infrastructure business and the relative strength of Cipher Mining, we believe we will be a market leader in this space. In recent months, we have devoted considerable focus to the evolving HPC data center marketplace and have identified three specific advantages we have over competitors. A successful provider of HPC infrastructure needs to have access to the right data center sites, an experienced construction and operations team, and the capital to finance the necessary build-out. Cipher is well positioned in all three areas. Our pipeline sites all have access to adequate land and fiber necessary to service HPC customers. The existing construction and operations team at Cipher has extensive experience building and operating Tier 3 data centers at firms like Google, Vantage, and Meta. As an example of the team’s excellence being recognized, the Uptime Institute recently awarded our Odessa data center the management and operations stamp of approval. The Uptime Institute sets industry standards in the data center industry and has historically focused exclusively on traditional data centers. This is their first instance of branching out to the Bitcoin mining industry. Our team literally sets the standard for operational excellence in our industry. When it comes to financing expansion, our management team has deep Wall Street experience with a proven track record of raising capital. Over the last few months, we have been inundated with requests from HPC lenders and investors managing billions of dollars dedicated to the space, asking for information about our data center sites, our development pipeline, and our level of interest in being a provider of HPC infrastructure. We have also had deep technical discussions with potential tenants and we are confident in our ability to build powered shelves that will be very attractive to hyperscalers and other large tenants. Given our site portfolio, our unique strengths in construction and operations, and the level of investment capital available, we are excited to embark on a new major line of business for the company. We are also still very excited about Bitcoin mining and the potential for managing the associated curtailment. While it is too early to predict the exact mix of our business lines over time, Bitcoin mining and HPC infrastructure are complementary lines of business with different risk and payoff profiles, and even have the potential to converge. We think Cipher 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. Now let’s turn to the next data centers we are building. Slides 6 and 7 show a rendering of the completed data center at Black Pearl and photos from the current site work. We are scheduled to energize the site in the second quarter of 2025. Our O&M building is taking shape at the site and steel erection, concrete foundations, and underground electrical work are progressing on schedule. Our design envisions 250 megawatts of air-cooled and 50 megawatts of liquid-cooled Bitcoin mining. We have had hyperscalers inquire about our willingness to repurpose a portion of the data center for HPC infrastructure, and while we haven’t completely ruled it out, our current intent is to dedicate the full 300 megawatts to Bitcoin mining. At full capacity, the site is anticipated to produce roughly 21.5 exahash per second of hash rate. Slide 8 shows an overview of the Reveille data center site. The site is located in Cotulla, Texas in Load Zone South, which is a different area of ERCOT from Odessa and Black Pearl, which are located in Load Zone West. It has been approved for 70 megawatts, but based on early discussions with the transmission and distribution service provider, we believe we can expand the site to 200 megawatts in 2027. Given that the timeline to energize this site aligns with the necessary timeline to manage the supply chain and build a Tier 3 data center, we have focused our initial planning and discussions for Reveille on HPC infrastructure. It is still too early to determine the exact plan for the site, but we have had a high level of interest from capital providers and potential tenants, and our baseline plan now is to proceed with building a powered shell data center for HPC and securing a long term lease from a high quality tenant. Now let’s move to a review of our current operations. On Slide 10, we give a portfolio overview of our existing data centers and a near term timeline for expected scaling of our data centers and expansion in our self mining hash rate. Year to date, we’ve paid an average all-in electricity cost of $15,004 per Bitcoin produced at our data centers. We are very proud of this number, and it drives our best-in-class unit economics. Please note that when some of our competitors talk about these costs, they only include electricity and not transmission and other charges. In contrast, 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 transmission and other charges, and our low numbers dramatically demonstrate our competitive advantage. On the left side of this slide, you have an overview of our four current data centers along with our all-in electricity cost per Bitcoin at the sites year to date. The charts on the right side of the slide give you a graphic illustration of the number of megawatts we manage related to our self mining operations and the hash rate produced by those operations, as well as the additional growth opportunities in the coming year and a half. As you can see, we expect to manage 566 megawatts of self mining across our five data centers in 2025, and we expect those data centers to produce 35 exahash per second of hash rate. At this point, we will turn to production by site. On Slide 11, you can see a picture of our Odessa facility. Odessa is the most significant part of our portfolio as it represents approximately 86% of our Bitcoin production in July. Recently Odessa became the first Bitcoin mining data center to be awarded the Uptime Institute’s stamp of approval for management and operations. Odessa is a wholly owned facility with a five-year fixed price power purchase agreement and some of the lowest cost power in the industry. We currently generate approximately 6.9 exahash per second at the site utilizing approximately 207 megawatts. Those same 207 megawatts will generate roughly 11.3 exahash per second with the pending rig upgrade expected in the coming months. We have mined roughly 1,622 Bitcoin at the site year-to-date through the end of July. On this page, we also provide the observed all-in electricity cost per Bitcoin at the site post halving, which was $23,563. Even after the recent halving reduced the number of new Bitcoin paid to miners, you can see how valuable it is for Cipher to have a cheap fixed price of power available on such a large portion of our portfolio. On Slide 12, we highlight our joint venture data centers of Alborz, Bear and Chief. With the recent expansions at each of Bear and Chief, the sites now have a total power capacity of 120 megawatts and currently generate approximately 3.7 exahash per second. We own 49% of the JV sites, and they now generate roughly 14% of our overall Bitcoin production. On this page, we also provide the observed all-in electricity cost per Bitcoin at the sites post halving, which was $28,784. As a reminder, both Bear and Chief operate as front of the meter sites, so there will be some expected seasonal fluctuations with their electricity costs and summer months tend to be higher. As we turn towards the rest of 2024, we look forward to our continued growth in both our Bitcoin mining business and our new HPC infrastructure vertical. At this point, I’ll turn it over to our Chief Financial Officer, Ed Farrell.

Thank you, Tyler, and hello to everyone on the call. As I’ve done on previous calls, I’d like to start by providing some high level observations on the quarter, and then we’ll go through the key line items in detail. For anyone tracking Bitcoin and the miners, it should come as no surprise that revenues were down in the first full quarter after the halving. From the outset, Tyler and I have emphasized designing a business that we drive through the entire cycle. Despite the anticipated drop in revenues, we are very encouraged by the business performance and the company’s growth profile as we move past the recent halving. Low cost fixed price power and a strong balance sheet remain key strengths of our financial position. Slides 14 and 15 give a snapshot which we provide every quarter on some of our financial metrics on both a sequential and year-over-year basis. Let’s move onto Slide 16 and delve into the numbers in more detail. In the second quarter, we faced significant industry-wide headwinds, including a drop in revenues driven by the halving as well as a drop of more than 50% in the hash price over the cost of the quarter. For the quarter, we had a GAAP net loss of $15 million, a sequential decrease of 138% and a 16% decrease from the prior quarter, when we reported a net loss of $13 million. In the current quarter, we mined 563 Bitcoin, generating revenues of $37 million at an average price per Bitcoin of $65,000 compared to 924 Bitcoin in the first quarter of ’24 at an average price of $52,000 for $48 million in revenues, a sequential decrease of 24%. Year over year, our revenues increased 18% primarily driven by the increase in Bitcoin price partially offset by the halving in April. As I mentioned at the outset, our fixed price power is a critical contributor to our attractive unit economics. In the current quarter, the cost of revenues declined 4% sequentially. When comparing revenues in the current quarter versus the same quarter in the prior year, you can see that the cost of power on a percentage basis was down significantly by our growth over the past year. This is primarily attributable to our fixed price PPA at Odessa, which we’ve talked about in previous quarters. The value of that contract increased by $22 million this quarter alone, underscoring the inherent value of the power arrangement. I should point out that as the value of the PPA is in large part driven by the time remaining on the contract and the expected future energy prices, which are seasonal and volatile, it would not be surprising to see a decrease from quarter to quarter in periods going forward. Moving on, as you recall, we adopted the new crypto fair value accounting standard in 2023, and with the drop in Bitcoin price in the quarter, we recorded a loss of $21 million of the fair value of our Bitcoin holdings; however, this mark to market loss was offset by $5 million of realized gains from the sale of Bitcoin in the period. Our philosophy towards the growth of our Bitcoin inventory and approach to treasury management has not changed. We remain optimistic about the long-term outlook for Bitcoin and believe there are significant advantages to growing our Bitcoin inventory beyond mere price appreciation. We’ve discussed this in previous quarters, but it’s worth reiterating: we maintain an opportunistic approach, continually assessing various funding avenues for our growth initiatives. While we generally aim to increase the size of our Bitcoin inventory over time, our decisions are guided by the markets and our overarching capital allocation strategy. We constantly assess the markets to find the most attractive forms of capital available, weighing the pros and cons of different funding methods to support our business and expansion plans efficiently. This might include using our cash reserves, Bitcoin holdings, or issuing equity. Through this ongoing evaluation process, we determine our estimated cost of capital and manage our treasury dynamically. At June 30, we held 2,200 Bitcoin in treasury. As in previous quarters, I’d like to spend a minute on our G&A expenses and our philosophy for managing these costs. Last quarter, we began reporting compensation and benefits as a separate line item on the face of the income statement. Compensation and benefits increased $3 million sequentially to $16 million, primarily driven by share-based compensation. Current quarter versus prior year quarter increased by 29% primarily due to an increase in headcount and share-based compensation. Now onto general administrative expenses, which include IT, corporate insurance, professional fees, occupancy, and other public company expenses. These costs increased by $2 million driven by professional fees and public company expenses primarily related to Sarbanes-Oxley compliance. Current year quarter versus prior year quarter, these expenses were down 3%. As we have stated previously, building our team and technology stack are pivotal to maintaining the competitive edge, and as such, we have significant investments in both personnel and technology, anticipating that our model will scale effectively as we increase the total megawatts under management. We expect these investments to drive future top line growth, thereby positively impacting our bottom line. Depreciation and amortization expense totaled $20 million, an increase of $3 million or 17% from the prior quarter and a 41% rise compared to the second quarter of 2023. The sequential increase was driven by our change in depreciation schedule for our miners. Previously, we accounted for the depreciation of miners over a five-year period; however, given our recent fleet upgrade and the rapid efficiency gains with next-generation miners, we now believe that a three-year depreciation schedule is more appropriate. Our expectations for upgrade cycles and our ability to purchase and install much more efficient machines have evolved, and we believe this should be reflected in our accounting treatment for the entire fleet. We made this change effective June 1 and accounted for it prospectively. When comparing current quarter versus prior year quarter, the increase primarily relates to additional assets placed into service in late 2023 to complete Odessa. Now let’s turn to our non-GAAP measures slide we use to reconcile adjusted earnings. As always, I will remind you that adjusted earnings exclude the impact of depreciation and amortization, the non-cash change in the fair value of our derivative assets, deferred income tax expense, the non-cash change in fair value of the warrant liability, and share-based compensation. These supplemental financial measures are not measurements of financial performance in accordance with U.S. 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 performance and to facilitate our operational decisions. When adjusting our second quarter GAAP net loss, we add $12 million for the items I just listed. This brings us to an adjusted net loss of $3 million for the quarter compared to an adjusted net income of $63 million in the prior quarter and $8 million in the second quarter of last year. Now let’s turn our attention to the balance sheet at June 30. Our total current assets amounted to $309 million, an increase of $154 million from the end of 2023. Our cash position grew to $123 million, an increase of $36 million at the close of 2023. Our current liquidity position was $211 million, comprised of $71 million in cash and $140 million worth of Bitcoin. The decrease in our cash position subsequent to June 30 was primarily driven by deposits related to miners we contracted to purchase and capital expenditures related to the build-out of our Black Pearl data center. I’ll now cover quickly some of our balance sheet line items at June 30. Prepaid expenses amounted to $4 million, flat from year end. This balance is primarily related to corporate insurance. We recorded a Bitcoin balance of $138 million, reflecting the 2,200 Bitcoin held in treasury. This figure marked an increase from the 780 Bitcoin held at year end valued at $33 million. In the second quarter, we liquidated 153 Bitcoin worth $10 million. Now I’d like to shift our focus to the value of our Odessa power contract, which we record as a derivative asset. We’ve discussed in the past the significant competitive advantage provided by this contract, enabling us to be a low cost producer of Bitcoin. As a reminder, we began reporting third party mark for this agreement in the third quarter of 2022. This mark is reflected as a derivative asset on our balance sheet and is subject to revaluation each reporting period. Essentially, it represents the in-the-money value of the contract relative to the time value and prevailing forward power prices at our Odessa facility. As of June 30, this asset was valued at $123 million, reflecting a $22 million increase in the second quarter and an increase of $29 million from year end. This change is recorded as a gain on our statement of operations. As always, fluctuations in the fair value of this contract will impact our GAAP earnings, but we exclude it from adjusted earnings. Other significant assets include property and equipment totaling $239 million, primarily attributed to our Odessa facility. Within this category, mining rigs and related equipment accounted for $177 million, leasehold improvements are valued at $137 million and construction in progress at $20 million. These figures are net of $95 million in accumulated depreciation. Deposits on equipment of $58 million primarily consist of progress payments we’ve made in accordance with previously announced miner purchases. Additionally, we hold intangible assets totaling $9 million with $7 million attributed to the Black Pearl site and its associated ERCOT approval, and the remaining $2 million related to capitalized software. At the end of the first quarter, our equity investee interest in Alborz, Bear, and Chief JVs stand at $50 million, and we had operating lease obligations of $10 million. We had security deposits totaling $22 million, which includes the $13 million of collateral posted at our Odessa power provider and $6 million deposit to Encore related to the construction of our new Black Pearl data center. There were no significant changes to the liability side of the balance sheet from year end, and as we reported in the past, we have no debt that hinders our capital structure. As always, we look forward to updating you in greater detail on our growth plans over the coming quarters. I will pause now, and Tyler and I are happy to answer your questions.

Thank you. Our first question comes from Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Hi guys, thanks for taking my questions, and congrats on building up the infra pipeline, it’s nice to see. Maybe this one’s for Tyler. First, I think there’s been some speculation about Cipher being an acquisition target out there. Maybe you could provide any color or comment on that, and then secondly to that, could you provide some additional color on the M&A landscape and how you view maybe organic site acquisition versus inorganic opportunities out there, especially post halving? Thank you.

Thank you for the question, Brett. This has indeed been a popular topic. Regarding the market rumors about Cipher, our stance has remained consistent; we have no comment. It’s not surprising that the media speculates on us being a desirable target, given the growth and opportunities we've discussed. We are optimistic about our future, but we have not made any statements and will continue to refrain from commenting on market rumors, leaving that to the press. Speaking more broadly about M&A, we've noted a considerable amount of activity in the industry. This is a typical chaos triggered by the halving, which forces miners to rethink their strategies. With hash prices at an all-time low recently, miners face decisions regarding their hash costs. They can either reduce overhead to minimize costs and maintain profit margins or focus on growth by optimizing their operations to lower hash costs through enhanced efficiency. Currently, our hash cost is approximately $43 per petahash per day, which includes around $19 for power costs and $24 for operational expenses. The $24 reflects our status as a development company, as we're expanding and adding new sites, which will significantly lower our costs. Following our Odessa upgrade, we expect to reduce hash costs to below $30 per petahash per day as we replace older rigs. Investing in new equipment and scaling up during this period of low power costs presents a significant growth opportunity. Alternatively, some might try to minimize costs at existing sites, focusing solely on maximizing site economics rather than on development. In general, this drive for scaling and addressing gaps in their operations is what is fueling much of the M&A activity. We manage everything in-house, from sourcing sites to developing them into operating data centers, along with managing energy around those operations. This year, we've been very active in exploring M&A opportunities. However, we often find ourselves outbid for established sites, as we believe others may overpay. Companies lacking the capability to build their own sites may justify those prices, but we do not engage in bidding wars and often look for earlier-stage development opportunities, which give us the best returns on investment. Consequently, that focus has shaped where we allocate our resources and efforts, resulting in the new sites coming online.

Perfect, and then maybe just following up on the timing of new sites coming online, so Black Pearl, call it middle of next year. Can you provide an update on Cotulla and the new 1.5 gigs of sites that, I guess, you guys have kind of secured power for, or have options on, what’s the timing of those potentially being energized, and how should we think about maybe financial outlays for that and when that would occur?

Yes, we are really excited about it, but it's important to recognize that this is a long-term opportunity. These sites will take about two and a half years to become operational. The good news is that, as we consider the HPC business, we have been engaging extensively with potential tenants and planning how to build a data center with either three nines or five nines of uptime, taking into account the supply chains necessary for such operations. These supply chains extend out for years. While there's a lot of excitement in the industry about HPC revenue, I want to emphasize that generating this revenue through providing infrastructure to a large tenant will take a long time to materialize. Thus, the opportunity for us lies beyond Black Pearl. We have a top-tier option here. We are interested in Bitcoin mining, as these sites would be excellent for that purpose. They are also large-scale and equipped with the essential components for HPC. We've seen a lot of interest in this area and have dedicated considerable time to outlining what would be needed to develop a data center with five nines of uptime from the ground up, which aligns with our timeline. Although these are long-term projects, we anticipate that over the coming years, the industry will value interconnectivity and data centers located in preferred areas that meet specific quality standards, positioning us as a leading option for both business avenues, which is an essential part of Cipher's long-term strategy.

Perfect, appreciate it. Thanks for all the color, guys.

Thank you. Our next question comes from Bill Papanastasiou with Stifel. Your line is open.

Hey, good morning gentlemen. Thank you for taking my questions. For the first one here, I was just hoping, Tyler, you’d be able to share your philosophy on the HPC AI opportunity and how you’re weighing the capital allocation strategy going forward. How might it look relative to Bitcoin mining now that you have these options in hand?

Sure, thanks Bill. First of all, we want to clarify our position in this market, as some of our competitors are taking varied approaches. We do not intend to purchase our own GPUs or engage in selling compute services, as that does not align with our skill set and involves significant risks and capital investments. Instead, our goal is to serve as a host for high-performance computing (HPC) infrastructure. We aim to develop sites and secure long-term leases with hyperscaler or other large, quality tenants. It’s still early in this process; I have been actively engaging with potential tenants and financiers, and there is significant interest in the market. It's important to note that the two business models operate in different markets and can be profitable at different times—either Bitcoin mining or selling HPC infrastructure. The appeal of the HPC opportunity lies in the long-term leases, which aren't tied to the fluctuations in Bitcoin pricing. Although the HPC business is capital-intensive, there is a well-established financing market with major lenders and investors ready to support this segment. If you focus on this part of the business, there's a strong demand for financing, including debt and equity to fund development projects, often covering a high percentage of costs at favorable interest rates. As we establish more sites, we can access various asset-backed financing options as they become operational and attract tenants. This model contrasts with Bitcoin mining, where lenders have been hesitant to invest over the past couple of years. While successful Bitcoin miners, including Cipher, have primarily relied on equity for financing their development, we're optimistic about the return on investment for our owned and operated sites. For example, our Black Pearl site shows potential returns ranging from a year and a half to three years, depending on market conditions. Moving forward, we are focused on launching our HPC business, which hinges on securing a high-quality tenant willing to enter into a lease at one of our sites. We’ve made significant progress with well-known companies, and our construction and operations team boast experience from companies like Google, Vantage, and Meta, having engaged in discussions with senior management from potential tenants. This positions our team competitively. If we can secure a lease soon, we can incorporate valuable design input from the tenant, and we can begin dedicating those sites, whether in Cotulla or new ones we have under consideration. Additionally, we expect a strong Bitcoin mining operation at Black Pearl next year, ideally complemented by a long-term HPC tenant contract. The sites we’re developing are also well-suited for Bitcoin mining, and the long-term outlook for HPC tenants is promising. Longer-term leases could potentially yield higher returns in later years than those produced by Bitcoin mining data centers, given that hash prices historically decline over extended periods. While we are optimistic about hash price growth in the coming year and a half, efficiency will be crucial in the long run. The revenue from HPC would likely be more favorable in the latter stages of leasing agreements, offering better financial returns.

Awesome, I appreciate that color. I recall visiting the sites over a year ago and was really impressed with the team there in Odessa. Just shifting gears here, Tyler, Cipher has been able to leapfrog a number of peers and is now a top five miner on account of scale with 35 exahash, so just focusing on the Bitcoin mining aspect of the business, I’m curious to hear how important it is for Cipher to maintain this level of network market share relative to peers going forward. How should we think about that?

Yes, I think that's a good way to look at it, but we don't really plan our capital based on market share. We consider it somewhat indirectly, but our main focus is on the expected hash price and our hash production costs. The difference between those two numbers is what drives our business. The key factor here, as I've mentioned in all our earnings calls, is low-cost power. That’s a fixed number that can’t be changed, and once it’s established, we can be strategic throughout the market cycle to enhance the efficiency of our miners. Compared to the last few years, we are still in a relatively low-cost period for acquiring new rigs, which means that improving efficiency can yield significant benefits for a smaller capital investment than historically required. We look at projections such as how to reduce our hash costs, what the capital needed for that would be, and what the payback period is. This naturally suggests that we will gain market share, and certainly, changes in the network hash rate will influence that share, but this is all incorporated in our forecasts for hash price. If Bitcoin prices rise, more network hash rate will emerge, leading to competition for market share, which could result in us holding less of it, but with higher Bitcoin prices. Essentially, we analyze the expected hash price against our projected hash costs.

Appreciate the color, Tyler, and congrats again on those HPC AI announcements.

Thank you. Our next question comes from John Todaro with Needham & Company. Your line is open.

Great, thanks for taking my questions. I have two of them, I guess first on the Bitcoin business and then the down the road HPC business. Tyler, how do you think about allocating costs and investing in the business, and I guess another way to put it is how should investors be thinking about? Is it on more so a Bitcoin cost basis in this post-halving environment, or that cost on a hash basis as you’ve mentioned a few times here?

That’s a good question, John. As investors become more knowledgeable about the sector, I believe the best approach is to consider hash price versus hash cost, since this takes into account various factors, especially when projecting into the future. I don’t think it’s effective to project on a cost per Bitcoin basis. However, we often receive this question from institutional investors who are new to the space, and they typically start by asking about the cost per Bitcoin, as most people follow Bitcoin’s price. It’s easier to think of it that way. Looking back, I’m comfortable providing that information because we don’t need to consider changes in network hash rates. If we focus on the period after the halving, I can say that our power cost to produce a Bitcoin is about $24,000, and our total cash costs are below $50,000. This reflects the expected challenging environment following the halving, where the market tends to pressure miners. We anticipate this rough patch, as it’s a known factor during halving periods. In hindsight, our cash cost to produce a Bitcoin was under $50,000, which includes our commitment to growth. We believe trends in data centers and Bitcoin mining adoption will be significant. As hash price or Bitcoin price increases, those extra dollars per Bitcoin come directly to our bottom line. While we are focused on expanding, a part of our cash expenditures is indeed an investment in growth and scale. By year-end, we expect these numbers to improve significantly with a more efficient fleet and a higher top line hash rate due to upgrades at Odessa. In 2025, we’re projecting about 15.5 joules per terahash efficiency across the entire fleet, which could potentially triple our top line. The investments we make today in developing these sites and building high-quality data centers will be spread across a smaller, less efficient fleet for now. We are very much pursuing a growth philosophy aimed at reducing hash costs, which subsequently translates to Bitcoin. However, during the anticipated challenging months post-halving, we’re incurring less than $50,000 in cash costs, which includes our investments in future business expansion and the actual costs for electricity and Bitcoin mining.

Got it. Thanks for that. Then just my other one, real quickly on HPC, we spent a lot of time due diligencing different sites and locations. In Texas, there is a little bit of a concern around curtailment. Do you guys envision this site, if it is for HPC, say the full 200 megawatts for HPC which it sounds like is what you guys are leaning towards, do you envision curtailment at that site, and especially as you think about the broader 1.5 gigs, does that actually impact ERCOT approval? Have there been questions about that piece, any kind of color on that?

At a high level, I would differentiate even within ERCOT. You can apply to be either a flexible or inflexible load. Part of the approval process for our Bitcoin mining data centers involves obtaining the large flexible load approval, which is crucial for mapping out curtailment as it plays a significant role in balancing the grid in specific transmission and distribution areas. The HPC opportunity, as you know, allows for the availability of power 100% of the time. The site at Reveille, located in Cotulla, Texas, is designed to be a front-of-the-meter site, and if we pursue Bitcoin mining there, we will certainly manage curtailment. By doing so, we can eliminate the highest prices we would typically have to pay for power, potentially halving our overall average power costs by removing about 5% of the most expensive hours. HPC operates quite differently; here, we are compensated for that constant uptime, and a significant portion of capital expenses is dedicated to ensuring that reliability. For context, when we mention three nines of uptime—99.9%—and contrast it with five nines, which is more common for hyperscalers at 99.999%, the costs increase significantly. Achieving three nines may require spending $3 to $4 million per megawatt on infrastructure, while five nines could cost $10 million or more, depending on location. This investment is generally made under the assumption that we are not managing curtailment. I previously touched on this; it’s worth noting that this market is very dynamic. Just a year ago, hyperscalers were primarily focused on locations like the Dulles corridor and insisted on five nines of uptime, with hundreds of specific requirements for redundancy and technical design. However, there’s now an increased demand for megawatts, and the urgency has shifted. Megawatts that are available more quickly are often seen as more valuable. We've observed greater flexibility from potential tenants, which could suggest that in the future, curtailment might be acceptable in HPC scenarios. They might consider, for example, that reducing costs could justify sacrificing a small percentage of uptime. This is purely speculative at this point, but we are well-positioned should such market shifts occur, especially given how fundamental this is to our business. Based on other compromises related to location and technical necessities, I wouldn’t be surprised to see the HPC market continue to evolve with changing requirements.

Appreciate that, thanks Tyler.

Thank you.

Thank you. Our next question comes from Mike Colonnese with HC Wainwright. Your line is open.

Hi, good morning guys, and congrats on all the recent deals. Definitely a lot in the works right now for Cipher. I know it’s still early days, but how should investors think about the revenue model and the economics for this upcoming HPC business, based on your planned go-to-market strategy which sounds like you’re going to take more of a co-location approach here?

Yes, thanks Mike. I’d say, listen, first off I’ll try to give you a sense for what we’ve seen in preliminary discussions, but it’s very clear to us that deals we would strike are pretty bespoke, so I don’t know that the deals we’ve seen would necessarily be indicative. But I think what we’re seeing is gross margins in that business of 80%, and then financing quite a bit of that capex, depending on the stage you are, who the lender would be. Anecdotally, I can tell you there’s quite a few investors that are out there, that are interested in earlier stage financing, maybe when you’re just building a data center or you have, say, a letter of intent from a large high quality tenant. There is a much more developed market if you’ve got a lease from a high quality tenant that is, like, bank financing, and much more reasonably priced. These are all kind of dynamics we’re looking at. Suffice to say investors are very interested in just the overall breadth of our portfolio and the potential capacity to do 1.7 gigawatts in the coming years has a lot of people excited. I think it’s really hard for us to size specifics because we’re just doing lots and lots of meetings on this right now, trying to move quickly. For what it’s worth, that’s what we’ve seen on the type of business we’re looking at, and we’ll probably have more details as specific conversations advance.

Got it. Thanks for that. Just curious what made you guys decide to go with the liquid cooled infrastructure for 50 of the total megawatts over at Black Pearl versus going air cooled for the full site, and how are you guys estimating out the capex-related costs for liquid cooled versus what you would otherwise see for the air cooled? Thanks.

Yes, that's a great question. We've been testing various operating strategies in the kitchen for some time now. Managing heat and efficiency in Texas, where it's quite hot, is a key part of our analysis. Generally, air cooling is the least expensive in terms of capital expenditures, and while operating expenses are also low, it may result in reduced efficiency and production. The challenge is determining the point at which a substantial upfront investment becomes worthwhile. For us, implementing 50 out of the 300 megawatts in hydro would involve an additional cost of around $20 million. It's crucial for us to create a setup and system that are top-notch and justify this extra expenditure when we start operating. Additionally, having a data center that we can showcase, particularly one utilizing hydro, is significant for our high-performance computing pursuits. For this initial large-scale effort, we decided to start with 50 megawatts. We have a solid understanding of air cooling, and through our energy trading strategy and curtailment, we can successfully operate in Texas using air-cooled systems. Thus, 50 megawatts seemed to be the perfect fit—large but not overly burdensome in terms of capital expenditures with this new operating method. We expect to learn and adapt as we progress, but this captures the reasoning behind our decision for the 50 megawatts of hydro.

Great, thanks for taking my questions, Tyler.

Thanks Mike.

Thank you. Our next question comes from Tyler DiMatteo with BTIG. Your line is open.

Yes, hi guys, good morning. Thanks for taking the question here. Tyler, I’m curious - on the HPC opportunity and the sites, I guess at a high level, can you just add some color in terms of the actual sourcing process and your strategy for that, maybe who you’re bidding against, how early does the process have to start? I guess what I’m wondering, you hear a lot about HPC, I’m curious is there a sweet spot for megawatts? I know it’s early days for customers, but is there a sweet spot as well? Any thoughts there broadly?

Sure, I’ll address your questions in reverse order, Tyler. The largest tenants, often referred to as hyperscalers, are likely looking for more than 100 megawatts and typically prefer 200 megawatts or more. Earlier in the call, I mentioned that we’ve received numerous inquiries about Black Pearl, specifically whether it could be utilized for high-performance computing instead of our Bitcoin mining plans. Our response has been no. The most appealing aspect of the portfolio of sites we’ve sourced is our expectation that they will be approved for 500 megawatts of interconnect, although that process is ongoing. We're optimistic, and the good news is that we’ve developed a pricing framework where we only pay for the megawatts that receive approval. We hope that even if the sites don’t reach 500 megawatts each, they will still amount to several hundred and remain quite attractive. I anticipate providing more detail on this in the coming months. I hesitate to specify exact timing since approval processes can be lengthy, but we should have more updates soon regarding what gets approved. Regarding your first question about sourcing, this is something our team takes great pride in, and I’m very proud of their efforts. It’s widely known that it’s an extremely competitive market for sourcing opportunities. Additionally, in Bitcoin mining, there is a very active mergers and acquisitions environment with many assets and companies for sale. While anyone can acquire a finished product, we often see that our competitors tend to overspend, driven by overly optimistic assumptions about Bitcoin’s future, leading to justifications for higher costs. We take a more cautious approach in our forecasting to mitigate potential downsides. It’s not a reflection of what we believe will happen but rather a measured strategy. We’ve noticed that there aren’t many competitors in this space, particularly with high-performance computing, as even hyperscalers often lack expertise in navigating local regulations for site approvals. Consequently, we’ve found fewer players in that market segment. All our sites have been sourced as undeveloped areas, which remains consistent, as demonstrated by Black Pearl. We secured a valuable 300-megawatt opportunity at Black Pearl for $7 million. While the downside is that these sites may not be ready as quickly, some critics may argue that we proceed too slowly. However, we are committed to building the best company in this field, understanding that quality takes time.

Okay, great. Thanks for answering the questions there, Tyler, really appreciate it. I’ll turn it back to the queue here.

Thank you. Our next question comes from Reggie Smith with JP Morgan. Your line is open.

Hey Tyler. Thanks for taking the questions. First, I wanted to give you guys credit for managing operating expenses. It’s not lost on us that you guys are holding the line there pretty well. I guess just based on the last answer, it sounds like your M&A team is the real MVP, and you guys need to make sure that they don’t leave and go to a hyperscaler. But my question I wanted to ask you, thinking about what you’ve announced today, and I’m trying to, I guess frame the capex requirements for that, I think if I looked at the 1.5, 1.8 gigawatts you guys have announced today, if you were to build that as a miner, my math is that it could cost roughly $3 billion to build out. Thinking about HPC, rough math, I think for every 100 megawatts, you’re looking at maybe a billion or $2 billion in just infrastructure build out. One, I wanted to see if those numbers are correct; and then two, with that as kind of a backdrop, how do you think about balancing capex and returning capital to investors, or holding cash or whatever it is? It seems like there’s a heavy period of investment that we’re kind of looking at, and I’m curious how you balance that, so the question is are those numbers accurate, and then two, how do you balance the need for capex with the need for returning cash or generating free cash? Thanks.

Sure, thanks Reggie. Before I address your questions, I want to express my gratitude for having such an incredible team here. My job is quite easy because I work with outstanding people in sourcing, site development, operations, trading, and hedging. I mainly get to oversee the excellent work they do, so I'm essentially coaching an all-star team. Now, regarding your figures, on the HPC side, they appear to be in the right ballpark. This business requires significant capital investment, and that's crucial when considering investment returns, which depend heavily on the financing involved. This is one of the critical components; you need the sites, and you need a capable team to operate them. Fortunately, we already have both the sites and the team in place, so we don't need to recruit anyone to develop and build HPC data centers. The third component is the capital, which is still in the early stages. We're open to discussing this venture despite its nascent stage due to the substantial interest we've received from top-tier lenders and investors. While the capital required for a 1.7-gigawatt portfolio is indeed substantial, Cipher can only build it through significant debt financing. We have several proposals for establishing development companies that would finance this separately from our Bitcoin mining operations. A lot of structuring and optimization work is still needed, and it's not finalized yet. You've pointed out a major challenge—it is a considerable amount of capital needed for HPC, and the financing approach will differ from that of Bitcoin mining. As for Bitcoin mining projections regarding the 1.7 gigawatts, I'm not sure I can calculate that on the spot. However, when assessing returns on Black Pearl, we examine build costs, including rig prices, which significantly impact overall costs. We target various ROI scenarios based on future hash prices, aiming for a payback period of between a year and a half to three years for Black Pearl. This approach will also inform our decisions for any Bitcoin mining data center. The situation changes somewhat for sites that may be two to three years away; financing them is a key consideration. I hope reasonably priced debt financing for Bitcoin mining becomes available someday. I believe it will, as Bitcoin gains broader acceptance, supported by the growth of ETFs and political endorsement, allowing for more debt financing rather than relying solely on equity. Nonetheless, we'll have to monitor market conditions closely. There are numerous financing options available for Bitcoin mining, but projecting for the entire portfolio is complex due to the substantial capital involved. Therefore, I feel confident in stating that a significant portion of that will likely be associated with HPC.

Perfect, thank you.

Thank you. Our next question comes from Mike Grondahl with Northland. Your line is open.

Hey Tyler and Ed, thank you. Over the last 90 days, it sounds like you had a lot of discussions with hyperscalers and finance partners. What was the biggest learning for you, and maybe what do you see as sort of the biggest challenge going forward with that HPC effort?

That’s a great question, Mike. I believe the main challenge is integrating two essential components: securing financing for large-scale developments and identifying high-quality tenants. We are working on both fronts simultaneously. We've gained valuable insights, especially regarding tenant requirements. Our team has significant experience from places like Google, where they built hyperscaler data centers. Historically, the market differed from what we see now; hyperscaler tenants tend to have well-defined technical specifications. Potential tenants often present extensive lists of specific technical needs, but there seems to be some flexibility due to the increasing demand for large sites. An example is our interest in opportunities in West Texas, which have emerged as fiber networks expand. The discussions now focus on distinguishing between nice-to-have features and essential requirements as the demand for capacity grows. On the financing front, we are still in the learning phase. We are discovering more about how advanced the financing market is for full leases with high-quality tenants, and I didn't realize how well-developed and broadly accepted this marketplace is among major banks. We are also exploring earlier financing and construction stages and understanding the variability of what lenders are willing to offer during pre-lease phases. My schedule is packed with meetings discussing various financing opportunities, and there is a wide range of interest from potential financiers. Ultimately, the biggest challenge remains coordinating both elements simultaneously, as they are closely linked. Achieving a full lease will lead to the best financing options. Additionally, the financing landscape is quite tailored, reflecting a competitive market eager to identify suitable large sites.

Got it, that’s helpful. Best of luck.

Thank you.

Thank you. That’s all the time we have for questions. I’d like to turn the call back over to Tyler Page for any closing remarks.

Well, thank you everyone for taking time this morning to join us. We’re at the cusp of a lot of growth and scale coming to Cipher, and we’re really excited about where we’re positioned, so look forward to giving future updates as everything builds out. Thank you again.

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