Cipher Mining, Inc. (NASDAQ:CIFR) Q4 2021 Earnings Conference Call March 4, 2022 8:00 AM ET
Lori Barker – Investor Relations
Tyler Page – Chief Executive Officer
Ed Farrell – Chief Financial Officer
Conference Call Participants
Kevin Dede – H.C. Wainwright
Aaron Rakers – Wells Fargo
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?
Hello. This is Tyler Page, the CEO of Cipher Mining. Let me say thank you for joining our fourth quarter earnings call, and I look forward to providing a business update. Let’s start with an overview of Cipher Mining. We are a U.S.-based large-scale Bitcoin miner with key competitive advantages in power, equipment and operations.
After going public in the third quarter of last year as a greenfield company, we have made great progress. We commenced our Bitcoin mining operations in February of 2022, and we have significant build-out plans for 2022 and 2023. Notably, we have a business positioned to withstand the cyclicality in Bitcoin mining profitability. We do this by focusing on the main cost drivers of OpEx and CapEx in the business. In Bitcoin mining, OpEx is dominated by the cost of power and CapEx is largely the cost of mining rigs. We have a portfolio of long-term power purchase agreements with a compelling weighted average price of $0.073 per kilowatt hour. And we have a series of mining rig purchase contracts where our average price is $42.81 per terahash. We believe these costs are extremely competitive versus our peers.
As we look forward, we believe Cipher Mining will be the preferred platform for the U.S. power industry to access Bitcoin mining. And I am excited to discuss some term sheets for new potential data center deals that we have signed since our last business update.
Let’s discuss some milestones Cipher has achieved since our last call. Most importantly, we are no longer a pre-revenue company. We began mining Bitcoin at our Alborz data center in late February. Our Alborz data center is expected to continue to receive our initial shipments of mining rigs for the first five months of the year. The January shipment arrived and was installed on time. The February shipment has shipped on time, and we anticipate the machines will be installed this month. Alborz is 100% powered by wind. Additionally, we have been very busy arranging deals for our future pipeline of data centers. I will focus on two deals for which we recently executed term sheets. First, we signed a joint venture term sheet with a private investor group for a new 80-megawatt grid-connected site in Texas, where Cipher will own 51% of the economics. Assuming we close the deal, we anticipate that the site will be ready from a power and infrastructure perspective to accept mining rigs later in 2022.
Second, we signed a term sheet for a new power purchase agreement with Luminant, which is an affiliate of Vistra for a 200-megawatt facility that will draw power sourced from solar and will be supplemented by a grid connection. This will be our second deal with Luminant and will feature both a longer-term 15-year power purchase agreement as well as unique features that allow us to align our incentives with the power provider. Perhaps most excitingly, this project will be a prime example of how the economics of Bitcoin mining can provide the necessary incentives to unlock the construction of new renewables facilities. We continue to be innovative in our deal structuring so that we can get a more closely aligned relationship with our power providers and ultimately be positioned as the preferred provider in the market for accessing Bitcoin mining.
Let’s take a moment to discuss the evolving Bitcoin mining landscape. There are many changes happening in this industry, and we are positioning Cipher to take advantage of the way we think the market will evolve. Let’s start with the somewhat obvious observation that there are tremendous advantages to having economies of scale in Bitcoin mining, primarily related to negotiating better pricing for power and mining rigs.
Given that we have observed mining companies going public to access larger pools of capital. Cipher helped lead this trend going public last year. The main focus for much of the industry in 2021 was securing mining rigs in a world dominated by chip shortages. Today, we see the main challenge for the industry as being infrastructure execution and deployment. When it comes to execution, we anticipate that Cipher will be well positioned as we continue to scale up our infrastructure at sites throughout the year. What we see developing in the market today is an increasing level of interest from the U.S. power industry as they would like to benefit from the economics of Bitcoin mining. We believe that this trend will continue and are positioning Cipher to be the preferred partner for power providers.
Our JV platform can provide unique benefits and our flexibility in deal structuring continues to give us a strong pipeline of opportunities. We are trying to be in front of what we think is a significant trend. Lastly, we think it is likely that there will be greater downstream integration from miners to the broader crypto and financial services markets in the future.
We think that Cipher Mining will be the B2B platform for the U.S. power industry. In addition to the new joint venture term sheets I discussed earlier, we have a series of joint ventures to deploy new data centers with our partner WindHQ that will be coming online this year and into the future. We also continue to extend our relationship with Vistra with a new term sheet that envisions an innovative structure, which further aligns our incentives at a second large site we will look to build in 2023. Beyond these opportunities, we have a significant pipeline of potential deals we are in the process of negotiating.
Aligning incentives with a joint venture structure or custom PPA features makes sense to Cipher because we can ensure the most competitive prices for power. These structures make sense for the power provider because we have a turnkey JV model that is scalable and can address the complexities of handling Bitcoin. This allows them to access potentially higher margins than simply selling power for a dollar-based markup. Over time, we believe building connections to a wide variety of power partners will be a big part of our future success.
Next, let’s talk about our updated implementation plan and strategy. First, let’s begin with an overall market update. Since our last business update call, Bitcoin prices have been volatile and moved downward. Bitcoin prices have lost about 1/3 of their value since touching all-time highs last November. Against that backdrop, we have also seen indications that deploying infrastructure seems to be a chokepoint for putting mining rigs to work with some other mining companies. And we have received inquiries about hosting miners for others at our sites as they are deployed. While we do not currently have plans to offer hosting, this interest reconfirms the importance of our primary focus on continued timely deployment at our data centers.
At the same time, we are seeing clear signs that the mining rig market is evolving. New generations of miners are being launched from traditional players. And notably, Intel is broadly rumored to…