Good morning. Thank you for standing by and welcome to the Cipher Mining, Inc. Fourth Quarter 2021 Business Update Conference Call. Please be advised today's conference is being recorded and a replay will be available on the company's website after the call. I would now like to hand the conference over to Lori Barker, Investor Relations..

Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss Cipher Mining's fourth quarter 2021 business update. Joining me on the call today are Tyler Page, Chief Executive Officer; and Ed 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 website at investors.ciphermining.com Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.

This conference call is the property of Cipher Mining and any taping or other reproduction is expressly prohibited without prior written 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 in our goals and strategies.

These forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional factors that could cause actual results to differ from forward-looking statements can be found in Cipher's periodic and other SEC filings.

The 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 most directly comparable GAAP measure, and you are encouraged to examine those reconciliations, which are found at the end of our earnings release issued earlier this morning. Now, I will turn the call over to Tyler.

Tyler?.

power readiness, infrastructure readiness and mining rig availability. Here is a bar chart showing our forecast for power and infrastructure availability at our data centers and the associated megawatts being available. There are a few changes since our last update.

We have added the anticipated 80-megawatt JV for which we recently signed a term sheet in the fourth quarter, and we have made some small tweaks on sizing at expansions for Bear and Chief. Note that we are also now expecting a change in our time line to deploy at our first site with Standard Power.

We currently anticipate that we will target deployment at our first site with them in 2023. Alborz is now up and running with its first rigs, and we anticipate Bear and Chief will be ready from a power and infrastructure perspective by month end. Odessa's deployment currently remains on track for the third quarter.

In a marketplace that seems to be somewhat short of quality sites ready to accept rigs, we are building a strong portfolio of sites with compelling economics. Let's talk about our anticipated minor delivery schedule.

We have placed a focus on cost discipline when it comes to purchasing machines and currently have an anticipated weighted average cost of $42.81 per terahash across our portfolio.

That positions us well in the evolving marketplace for mining rigs, and we are looking to be as flexible as possible to take advantage of potential opportunities that may arise. Recall that we have contractual relationships with three different providers of mining rigs, Bitmain, MicroBT and Bitfury.

Our Bitfury contract is structured as a 7-year arrangement that provides flexibility given that we have a right of first refusal on machines and a most favored nation pricing arrangement in the contract. Thus, when rigs are in high demand and hard to source, we have the potential to secure them from Bitfury at a competitive price.

When the marketplace has lots of rigs available and there is not as much of a premium on securing supply, we can optimize across other suppliers, and Bitfury has the potential to sell their rigs to others at market prices.

Given our belief that upcoming market conditions may warrant a premium on flexibility, we have decided to continue to push forward with our Bitmain and MicroBT contracts, but not Bitfury's rigs for 2022 delivery.

This reduces the baseline amount of hash rate that we currently are expected to receive in 2022 to 7.2 exahash, but allows us the flexibility to be nimble and potentially capture opportunities in a fast-moving market.

If the mining rig market provides opportunities for us to acquire machines later this year at attractive prices, we anticipate having the capacity at our sites in 2022 to accommodate machines with the potential to generate an additional 1.9 exahash to Cipher. Let me share some pictures of our deployment progress.

Here are some pictures of our data center site at Alborz that is now mining Bitcoin. You can see the big wind turbines in the background. Here are some other perspectives on our containers at Alborz.

Here's a picture of the hot side of one of our containers as well as our Chief Construction Officer, hard at work racking and stacking the initial rigs at Alborz. Here's an exciting picture, this is the now cleared area where our data center will be located at Odessa. You can see the power generation facility in the background.

To give some perspective, this site has had about 54 acres cleared and 3,000 dump truck loads of dirt removed. We have new containers being fabricated and our work streams are currently tracking towards an on-time deployment. Lastly, let me reiterate some key statistics to note about Cipher.

Our anticipated weighted average cost for mining rigs is $42.81 per terahash. Our anticipated weighted average mining rig efficiency is 33.8 joules per terahash. Our anticipated weighted average power price is $0.0273 per kilowatt hour. And our anticipated infrastructure CapEx cost per megawatt, excluding mining rigs, is $450,000.

Now, I will pass it off to Cipher's CFO, Ed Farrell..

Thank you, Tyler, and hello to everyone on the call. As Tyler stated, in the fourth quarter of 2021, we made significant progress in our deployment plan of building out our data centers.

This resulted in fulfilling the commitments we previously announced relating to purchasing mining rigs, electrical infrastructure, security deposits for our power agreements and corporate-related expenses to support our business. We closed on the merger back in August 2021 and immediately, we commenced our deployment plan.

This included making scheduled payments relating to mining rigs of approximately $115 million that is recorded as deposits on machines on our balance sheet.

We made progress payments for property and equipment, which includes transformers and switch gears of $5 million; security and collateral deposits of $10 million to one of our energy providers and $16 million for corporate-related prepaid expenses. On December 31, 2021, we had cash of approximately $210 million.

And since then, we have continued investing capital as our plan progresses. If we look at our GAAP operating results to the 11 months ended December 31, we had a net loss of approximately $72.1 million.

The primary drivers of this loss include approximately $63.8 million of stock-based compensation, corporate-related expenses of approximately $8.3 million; which include insurance, professional fees and employee compensation and benefits.

We believe non-GAAP financial measures are also helpful to investors in comparing our performance across reporting periods on a consistent basis.

Our non-GAAP P&L and non-GAAP diluted earnings per share excludes the impact of certain noncash recurring items, which include depreciation of fixed assets, change in fair value of warrant liability and stock compensation expense.

These measures are not a substitute for our GAAP results, but management will use these non-GAAP financial measures internally to help understand, manage and evaluate our business performance and to help us make operating decisions. So for the 11 months ended December 31, our non-GAAP loss was approximately $8.4 million.

We have provided a reconciliation of our GAAP versus non-GAAP results. Finally, we are very pleased with the progress we have made executing our plan and look forward to continue building our business and reporting our progress and successes in the first quarter related to our Bitcoin mining operation. I'll stop there.

Tyler and I are happy to take your questions..

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

Good morning, Tyler and Ed. Thanks so much for taking my question.

Would you mind just spending a little bit more time on the Bitfury situation, if you could -- could you just peel back the onion a little bit, give us your read on their chipset development and when you think they might have rigs to enter the market?.

Sure. Hey, Kevin, how are you? So I think you know we are under a 7-year contract with them to have options to purchase their rigs. And with the 2022 allocation, we have a preorder arrangement that I know is filed with the SEC, so it's public, and that envisioned delivery in the second half of 2022.

As we mentioned on the call, we are exercising our right to be flexible and not move forward on that 2022 purchase, but they have received their chips from Samsung. And as far as I know, they are on track to deploy those machines in the second half of 2022 as we had contracted for..

And Alborz, I again, apologies, Tyler, because I know you've held my hands through this before, but Alborz is obviously driven by wind. There's got to be a grid connection as well..

No, there's not. There's actually a back-to-back PPA there where Alborz only purchases power from the wind farm.

And let me tell you, I think I know the question behind the question, which is thinking about -- how do you do that? What if the wind is not blowing? There's really two steps there; the first is that the wind farm itself is much larger than our data center. It's about 165 megawatt wind farm. Our data center is sized appropriately at 40 megawatts.

And then on an ongoing basis, we anticipate there will be less uptime there than there would be at our typical site with power availability all the time. And so what we've done there is look at the historical wind production and used that in our sizing of both the size of the data center as well as the modeled uptime.

And when you look at the overall cost structure at Alborz it's a fantastic opportunity because basically being a wind site, there's a mid-voltage connection point there. And so the needs for the cost of a substation are not present lowering the CapEx. And also, we have a fabulous price on power there.

And so as we think about it, we model about 75% uptime there..

Is there an opportunity to sell access to the grid?.

In that particular opportunity, it's a little bit of a complex setup. So we can only draw power and we do not have a grid connection. So it's got a back-to-back PPA because you're in a regulated area of Texas. And so we can only draw power from the wind farm..

Okay. And then thanks a lot for including the pictures of the site. That's very, very helpful. The Odessa one includes the power plant.

Could you just give us a little more color on that type of power plant?.

Yes. It's a natural gas facility and that's with our partner, Luminant. And so we've got the components being fabricated. All major sort of work streams are tracking towards deployment there. It's obviously a large site. That's, as I mentioned, it's about 54 acres in that picture and so there's a lot of containers going there.

But if you look at our delivery schedule, the current anticipated plan is to put our MicroBT deliveries there. And so we will be effectively phasing in that site as the machines arrive. So 7.2 [ph] coming to full size by over the course of the rest of the year, starting in the second half..

Right, right. That one chart you offered very helpful.

The 7.2% target this year, could you give us a rough idea on your renewable mix in total energy consumption for 2022, at year end?.

Yes. So I know we've shifted some pieces around in terms of the deployment time line. So overall, I think if you're thinking about an emissions let me step back. Recall that our approach to ESG is that we've got on our road map to target carbon neutrality via offsets by the end of 2023.

We don't work with coal facilities and largely our output of emissions in 2022, depending on timing will be driven by the natural gas facility at Odessa. And so if you look at kind of an anticipated mix of what we've got from an emissions perspective, we come in at about half the typical emissions per megawatt hour in the United States.

So we're starting from a place we think is pretty strong, and then we're targeting offsets by the end of 2023 to have neutrality. It's wind power at Alborz, it's a grid connection at Bear and Chief, Odessa is natural gas and the new PBJ site that is under term sheet at this point is a grid connection..

Thank you very much, Tyler. Congrats on all the progress..

Thank you, Kevin. Thank you very much..

Thank you. [Operator Instructions] Our next question comes from Aaron Rakers with Wells Fargo. Your line is open..

Yes. Thanks, Tyler for taking the question. I guess I just want to go back to kind of the rig deployment, just so I can be clear, it looks like what you've done is just kind of taken out the Bitfury contributions to the model.

Has there been any change as far as the timing or the allocation or supply for that matter of the Bitmain and MicroBT system deployments at this point?.

No. Those are the first two shipments from Bitmain are on track and no alterations to that schedule. So currently under contract to purchase 87,000 rigs, 27,000 from Bitmain and 60,000 for MicroBT and there's been no change to those plans..

And then, I noticed -- and I know it's a small change, but your average anticipated weighted average cost of mining rigs has gone up, it looks like about 10% or 11% relative to back in November.

Given your contractual commitments, can you help us understand, are you seeing or inflationary pricing on some costs of deployment?.

No, that's just -- that is the actual downside as we weigh the pros and cons, that is the downside of removing the Bitfury rigs. And so we have a most favored nation pricing arrangement with the team at Bitfury.

And so by choosing the path of flexibility and focusing to move forward with the other two providers, the effect on the portfolio is that you are removing that number of more cheaply priced machines. But again, as we think about it, the flexibility was the most important thing to us..

And I know this is probably a tough question to answer.

But I'm just curious, like as you look at the industry dynamics, how are you thinking about -- has there been any changes? What are you kind of watching from a regulatory perspective at this point? Anything we should be keeping our eyes on?.

Sure. Well let me give overall context that we've got a shifting landscape on a geopolitical front, a macroeconomic front and somewhat on an industry front, right? So just the heavy caveat that lots of events happen every day, right? I think currently, from a regulatory standpoint, we feel good about where we are. It feels very stable to me.

That's coming from a perspective of having worked in crypto for over five years now.

And the reason why I say that is geopolitical and macroeconomic events are going to bring crypto to the highest levels of discussion and debate from a legislative perspective, but I think what I see and I was watching Chairman Powell's testimony yesterday and I watched a lot of the congressional testimony over the last few months, there does seem to be a growing acknowledgment that Bitcoin, in particular, is part of the landscape now.

And the fact that, that seems to be conceded with regulators, even as they have a broader debate about regulating the space and how do they target bad actors, etcetera, to me, feels very good. So we do not anticipate changes on that front but it was a volatile place..

Thank you..

Yes..

Thank you. [Operator Instructions] And I'm currently showing no further questions at this time, I'd like to turn the call back over to Tyler Page for closing remarks..

Okay. Well, thank you to everyone who could join the call. We are very excited about our continuing execution. And I think that, frankly, the volatile conditions and the shifting landscape in the world really reinforces our approach to have cost discipline as the most important way to manage our way forward.

And I think our long-term strategy is distinguishable from the rest of the marketplace and plays to our unique strengths. So we're very excited to keep our heads down and continue executing and thank you for your time today..

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..