Good day and thank you for standing by. Welcome to the Cipher Mining’s Second Quarter 2023 Business Update. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Joshua Kane, Head of Investor Relations.

Good morning. Thank you for joining us on this conference call to discuss Cipher Mining’s second quarter 2023 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 company’s website. Please note that this call will also be simultaneously webcast on the Investor Relations section of the company’s website. 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. 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 measures and you are encouraged to examine those reconciliations, which are found at the end of our earnings release issued earlier this morning. I will now turn the call over to Tyler. Tyler?

Thanks, Josh. Hi. This is Tyler Page, CEO of Cipher Mining. Thank you very much for joining our second quarter 2023 business update call. As we start the call, I’d like to take a moment to point out that this is our eighth public earnings call and I’m extremely proud of what we’ve accomplished over the past two years as a public company. Our philosophy from day one has been to invest in great people, operations and technology, with the goal of becoming the leading Bitcoin miner in the world. Over the past several quarters, we have made tremendous strides on the production front and like last quarter, we’re delighted to announce record production. In addition to discussing our ramp-up in production, I will also discuss the continued growth of the corporate side of the company and other areas of the business, which are important to the long-term success of the company. As you’ve seen from our monthly production reports and commentary, our team constantly works to drive operating improvements and cost savings. We have learned a great deal about improving efficiencies in our fleet even under the extreme weather conditions we have seen this summer in Texas. The halving is an event that happens every four years and refers to the reduction in supply of new Bitcoin awarded to miners. It’s an event that can be challenging for even the most disciplined companies in our space. We believe Cipher is very well positioned to be a winner on the other side of the upcoming halving. Slide three shows a number of our distinguishing characteristics, which we believe are critical to our long-term positioning. Our weighted average cost of power is approximately $2.7 per kilowatt hour and about 96% of our portfolio is energized through fixed price power. As a…

Thank you, Tyler, and hello to everyone on the call. Before I move on to my remarks on the quarter, I’d like to remind everyone that I will be referring to the reported financial results for the three months and six months ended June 30th. Our published does contain several slides, which refer to the updated data. Those numbers are footnoted and referenced as current as of July 31, 2023. Over the past several quarters, we have reported a steady ramp-up in production as we move toward the completion of our Odessa facility. Last quarter, we began to see those operational development flow through to the financials and we’re delighted to see the trend continue in the second quarter. The second quarter was characterized by further topline growth, greater free cash flow and improved liquidity. I’m happy to report for the three months ended June 30, 2023, that our Odessa facility mined 1,114 Bitcoin, resulting in Cipher reporting $31.2 million in revenue. And for the first half of 2023, Odessa mined 2,061 Bitcoin, resulting in $53.1 million in revenue. This coupled with the 143 Bitcoin we earned at our JV resulted in a total of 1,257 Bitcoin mined in the second quarter and for the six months, our JVs earned 341 Bitcoins for a total of 2,402 Bitcoin. Please note that the financial impact of the Bitcoin mined at our JVs is included in the equity investee account on the income statement. Tyler talked about the upcoming halving and the importance of the ability of the company to weather financial challenging markets. Our unit economics is a critical part of our ability not only to survive but come out of winter on the other side of the halving. Equally important is the health of our financial position. As we like…

Thank you. [Operator Instructions] And our first question comes from the line of Chase White with Compass Point Research.

Thanks. Good morning, guys. A couple, if I may. First of all, just on housekeeping. Can you give us a sense of what the EBITDA generated by the JVs was in the quarter?

Sure. I can do that, Chase. Nice to have -- good to have you on the call. The EBITDA for the JVs is about $7 million.

Got you. That’s helpful. And then it’d be great if you could walk us through the CapEx needs for the JV expansion and any color you can give us on potential time lines? Any details would be great.

I can provide some color on that. Hi, Chase. So I think with the JV expansion and consistent with the theme that we’ve been talking about for a while, we are weighing sort of cautious expansion and timelines versus halving a sort of economics in the space as hash rate builds and Bitcoin stays stagnant. So what we’ve done is, we’ve invested -- the JVs have invested a few million dollars in getting the longest lead time items, transformers and the necessary equipment sort of up to that point. We have not secured containers and miners yet, but the lead times on that is less. I think as I mentioned on the call, the thing we are keeping in mind here is that, we don’t have a deadline to expand or take or pay and so we can be, frankly, cautious as we think about allocating further capital. If we were to go tomorrow, I would still say that, probably, assuming everything stayed on track and things were delivered on time, that would be close to year-end would be my guess. But we haven’t made that decision yet to purchase the containers and miners that would be necessary and so that’s why we’re not specific on the timing of how we’re thinking about that.

Got it. That makes sense. And any color on kind of cost per megawatt for the infrastructure or anything like that, that you could give us?

I think it’s ballpark, typically about half the cost per megawatt is in the miners themselves and so I think, historically, we have spent about $500,000 on non-mining rig infrastructure per megawatt. So if you just use that, you figure whatever the going rate for rigs is, we’ll make up on top of that within that half that is the infrastructure transformers are a meaningful but not a majority of it. So that’s not specific, I realize, but there’s still, I would say, the majority of cost per megawatt has not been spent yet.

Got it. That’s helpful. Thank you.

One moment for our next question, please. And it comes from the line of John Todaro with Needham & Company.

Great. Thanks for taking the questions, guys. Two for you here if I could get a both in. First, trying to understand the uptick in cost of revenue. So it sounds like energy maybe was around $8 million to $9 million. It looks like that maintenance expense must have been up a little bit. Can we just talk a little bit about the drivers there? Any commentary on that?

Sure, John. Hi. It’s Ed. Yeah. I can give you some color there. The drivers for the cost of revenue, yes, we have -- part of that is our team that’s down there monitoring and maintaining the facilities. And yes, with the increase at Odessa, we have increased the staff there. So that’s somewhat the driver of it. The actual cost of revenue in that number for the current period, there was an accounting adjustment of about $2.7 million. That’s offset by the power sales equal and offset. So there’s no impact. There was just a catch-up adjustment based upon some data -- new data that we received. Again, it doesn’t have an impact to the bottomline. So if you’re looking at that current quarter number, that’s probably -- that is overstated by about $2.7 million as is the cost of the power sales number that we had. Does that make sense?

Yes. Okay. That’s helpful. Thanks for that. And then my next question, a little bit different. But the power sales increase kind of makes sense with the weather here. Any expectations for the remainder of the year, kind of what we should expect for power sales?

I think that’s hard to answer, John, because…

Yeah.

I think this year has been a bit of a learning experiment for everyone dealing with power in Texas. I think as everyone knows, we’ve had record temperatures across the state, record power demand. But simultaneously, while that has led to some higher prices, people are also aware of that. There are more curtailable loads available, and generally, it’s hard to predict sort of prices around the market. It’s not as simple sort of linear exercise where you say it is hotter. Therefore, people want more air conditioning, therefore prices will go up, because more power is also available. And so there’s a bit of a game theory for sort of what people are selling ahead, what’s available in real time, et cetera. When we think about opportunistic power sales, first things first, we, as you know, offer 5% of our hours as curtailment to our power provider at Odessa and they generally use those pretty well around the highest price moments. They have used over 50 -- decent amount over 50% of their curtailable hours year-to-date. And so I think if we see conditions persist, you could see more opportunistic power sales from us depending on how that curtailment budget gets spent by our counterparty. So it’s very hard to predict. I mean, I think, what I would say, if you compare us to other miners that are front of the meter and may have power sales from participating in ancillary services, keep in mind that a lot of the value we’ve got is baked into our $0.027 price across the portfolio. That sort of keeps in mind this curtailment that is meant to pick up some of those big spikes in power. So on the opportunistic side, while I think we will continue to have power sales, it has mostly been where we have had excess power available to us, because we have not had all the equipment plugged in yet. As far as capturing the spike, like I know we talked about in previous quarters, that can happen, but it’s very hard to predict, because there’s a lot of dynamics that go into pricing and also calculating how our curtailment budget gets used.

Got it. Thanks, guys. Appreciate it.

Thank you. One moment for our next question, please. And it comes from the line of Josh Siegler with Cantor Fitzgerald.

Yeah. Hi, guys. Good morning. Thanks for taking my questions today. So, first of all, as we’re heading into the halving, how are you thinking about your growth strategy. Most importantly, what would cause you to take a more aggressive approach to scaling or a more conservative approach?

Thanks, Josh. I think it’s around level of comfort for projecting the economics. I think if you look at a hash rate on the network that has continued to build, while we’ve had this range-bound Bitcoin. If you project that into the future and look at the modeling, as everyone knows, the revenue numbers for all miners will drop off a cliff towards the end of next April. Probably, if we were to have market conditions similar to today, that would cause quite a shakeout in the industry and Cipher would be very well positioned. I think we’re cognizant of not trying to get overextended with that expansion. Even if we can cash flow positive in that environment, we want to be careful about how we fund such growth at the JVs. So it’s impossible to say exactly, but if we all come back after the end of the summer and it feels like we’re not so range-bound, maybe Bitcoin breaks out and we have reasons to believe that, that will be a sustainable breakout. That could lead us to have more confidence to push forward with ordering rigs that would accommodate our expansions at Bear and Chief. But it’s hard to say, there’s not one thing. I think we’re taking advantage of the fact that we don’t have a take-or-pay deadline and so we can afford to be flexible. We think we are really the best positioned minor when we get through the halving. We just want to be cautious not to sort of push -- not have that advantage, because we were too aggressive. So we’re just being deliberate.

Understood. Thank you, Tyler. And I’d also like to talk a little bit about your halv [ph] balance. So as the Odessa expansion is nearing its end, you’ve clearly increased this halv balance over time. How are you thinking about balancing between tapping the halv and raising new capital to fund future growth?

Yeah. I’d say that’s a dynamic decision-making process that is pretty intensive between our treasury management team and management. I think, in general, the guidance we have given our investors is that, it is our goal over time to build the Bitcoin balance that we hold. We, of course, weigh that against how we use capital in the business and what we pay for day-to-day. So as a general guideline, we sell Bitcoin every day for dollars to cover our operational expenses and that’s kind of a baseline where we start. Beyond that, then we think about do we sell extra Bitcoin for capital? Do we potentially hedge some of that Bitcoin or try to generate some yield because we’re selling a futures position or an options position against Bitcoin, we hold in treasury? Or theoretically, we tap the -- our ATM to be able to sell equity. But that has to do with the dynamic between relatively where is the stock price trading to Bitcoin price and how we feel against the overall goal of building the balance over time. So it’s hard to give a specific formula other than the starting point, which is we want to guide people to understand that we pay for operational expenses with the Bitcoin we produce. Beyond that, we like to retain flexibility.

Understood. Thanks for taking my question.

Thank you. One moment for our next question, please. It comes from the line of Mike Colonnese with HCW.

Hi. Good morning, Tyler and Ed, and thank you for taking the questions this morning. First for me, can you provide a little more color on the 117 megawatts of new expansion opportunities in 2024 with WindHQ, your JV partner? And why it looks to go the JV route for expansion, especially given the success you’ve had with Odessa?

Sure. Thanks, Mike. So I think we’ve benefited from having a diversity in our approach to sites. WindHQ is a great partner and as I mentioned about the expansions in Bear and Chief sort of the wonderful thing about the arrangement at those sites is that there’s not a take-or-pay deadline where you have to have a site filled by this date or else you start paying for power. We can make a joint decision when we want to begin to draw power and then plan our capital expenditures around that. As far as the sites, the 117 megawatts go, we have a framework arrangement with WindHQ to scope out several sites for future joint ventures that operate in principle on the way that the first three do and they have a series of sites that they have scoped out and are working on interconnection and all the various approvals you would need to have ready. Currently, those are estimated to be ready to build a data center in 2024 and so it’s three sites specifically in Texas. As time goes by…

Okay.

… again, we’ll make progress on the sort of timelines for thinking about that as time goes by and then we will apply a similar framework to we do -- how we do with Bear and Chief with trying to target how we think about spending the capital for those expansions to line up when it’s ready.

Got it. That’s helpful. Appreciate that. And if you could just provide some more detail on the ERCOT approval of your grid connection at Alborz, what the time line looks like to complete that connection and operationally really what that entails?

Sure. So keep in mind that Alborz is in a regulated area in Texas. So there’s a little bit of complexity to setting up the specific arrangement there. For everyone’s benefit, as a reminder, at Alborz, we draw power directly. The power is generated in a co-located wind farm, because of the area of Texas it is located in that power from a contractual standpoint gets routed through a local co-op. We have a 50 megawatt PPA there. We have a 40-megawatt data center currently. And so currently, the data center operates with a targeted uptime of about 75% and that’s because the wind doesn’t always blow, and we’ve sized the data center to be somewhat smaller than the overall size of the wind farm. With the ERCOT approval for a grid connection, that would allow us to bring that uptime targeted from 75% to high 90%s because we would be using the wind farms power supplemented with -- when there is no wind, what we could draw from the grid. We do need to go through the rest of the steps beyond just an ERCOT approval, which would involve getting a contract set up with the co-op and so forth that go through the structure that is required in that area of Texas. Overall, it’s hard to predict an exact time line for that. But I would say, a few months is probably likely to make progress on that, and then, obviously, the first step would be we already have 40 megawatts there. So the day you can flip that on, the uptime on the existing 40 megawatts would go up. Beyond that, as I mentioned, the PPA is actually for 50 megawatts there. So we would have a 10-megawatt expansion available under the existing PPA. And then, ultimately, there would probably be more regulatory steps to get a full expansion, so it’s a longer time line, but there is a 165-megawatt wind farm there. So given that we could supplement the wind power with grid power, there’s no reason we would have to downsize the data center, theoretically, assuming we go through all the necessary regulatory approvals.

Great. Thanks, Tyler.

Thank you. And I will end the Q&A session now and I’ll pass it back to Tyler Page for final remarks.

Thank you very much for joining our business update call and I appreciate your time. If anyone would like to speak further about Cipher and what we’re doing, please reach out to our Investor Relations team and we look forward to updating you on our progress at our next call. Thank you very much.

And with that, we thank you all who participated. You may now disconnect.