Good morning and welcome to Cipher Mining Inc.'s Fourth Quarter and Full Year 2022 Business Update. All participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Josh Kane with Investor Relations. Thank you. Please, go ahead.

Good morning. Thank you for joining us on this conference call to discuss Cipher Mining's fourth quarter and full year 2022 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 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 measure 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?

Hi. This is Tyler Page, CEO of Cipher Mining. Thank you very much for joining our fourth quarter and full year 2022 business update call. Let me start with some key developments since our last call. As we moved towards completion of our four initial data centers, we began publishing monthly production reports. Page three gives a snapshot of our business, as of our most recent production report. At the end of February 2023, we reported 5.2 exahash per second of self mining operations across all of our sites. This is well on the way to our initial build-out of 6 exahash per second of self-mining capacity across the portfolio. And later in this presentation I will detail how we have the potential to expand to up to 8.2 exahash per second at our existing sites by year-end 2023, if we choose to pursue expansion. We have over 48,000 rigs operating and anticipate an additional 11,000 miners to be energized in the near future. In total, Cipher has now purchased and paid for over 59,000 machines, including 7,700 rigs that we announced in December 2022. As we mentioned at the time of that announcement, we were able to purchase these new rigs with minimal cash outlay, an important example of our focus on cost discipline and our ability to manage the cyclicality of prices in the Bitcoin Mining marketplace. The philosophy of managing through the cycle is one you'll hear me talk about a lot, because it is a fundamental part of the way we run every aspect of our business. In terms of production, you can see that we ended the month of February with the ability to mine over 15.5 bitcoin per day and that we held 465 bitcoin in reserve. Later on in the presentation, we will…

Thank you, Tyler, and hello to everyone on the call. Our flagship data center, Odessa was energized in November. For the period from November 22, 2022 through December 31, we mined 180 Bitcoin at an average price of approximately $17,000 resulting in Cipher reporting $3 million in revenue for the year. With the ramp-up of Odessa in 2023, we look forward to providing the market with greater detail on our operations, which we believe will eliminate our best-in-class unit economics. Again, we have no burden from debt, and we are funding our operations with our current Bitcoin production. If you recall, we have recorded a derivative asset on our balance sheet in the third quarter driven by our Luminant Power agreement. The change in fair value of this derivative asset was $73.5 million for the year ended December 31, 2022. The $73.5 million includes $83.6 million of income recognized for the initial derivative asset fair value on July 1, 2022 offset by $11.8 million of expense recorded related to a decrease in fair value of the power agreement as of December 31, 2022. The change in fair value of the derivative asset in 2022 also included $1.7 million for our sales of electricity facilitated by Luminant. For this year, and future periods the change in fair value of this contract will flow through our GAAP earnings, and will exclude the impact for non-GAAP reporting. Other significant assets, include liquidity of $18.2 million. This includes cash of $11.9 million, and Bitcoin of $6.3 million. Property and equipment of $191.8 million, primarily related to our Odessa site, which includes miners of $80 million; lease hold improvements of $95 million, and construction process of $20 million, offset by $4.2 million of depreciation. Deposits on equipment of $73 million is primarily related to miners,…

[Operator Instructions] Thank you. Our first question comes from Josh Siegler from Cantor Fitzgerald. Please go ahead, your line is open.

Good morning. Thanks for taking my question today. First off, how are you thinking about the CapEx spend needed to expand at Bear and Chief? And do you plan on funding this expansion through your operations? Thank you.

Thanks Josh. I think it remains to be seen. I think the reason why we highlight the sort of opportunistic flexibility that we have in our model is that these are choppy markets, right? And so at any given point in time, if you think about the levers we could easily tap for financing, we could look for debt financing, which I mentioned we've seen offers on some of our data centers, we could theoretically sell equity to fund it, or we could sell our Bitcoin effectively via operations. It kind of depends on market conditions and point in time. And so I can't give you a specific answer for this is the lever we're going to pull for those particular expansions. But that will be a question that will come more to the forefront in the coming months.

Understood. And it seems like you do have many levers and optionality around that. For my second question, I was wondering if you could discuss what prices you're currently seeing for rigs right now. And as you consider purchasing rigs earlier than the infrastructure is actually available to take advantage of the current low-prices?

Yeah. So it's a constantly shifting target. So it moves day-by-day. I think the thing to keep in mind is and candidly I haven't seen a price run since this Bitcoin rally began with the news this week, but hash price is still depressed, right? We've seen a huge growth in network cash rates. So the most recent prices I've seen -- I've seen quotes in the low double-digit dollars per terahash so kind of 12, 13 but that can move day-by day-and it depends on how many you order at a clip. I think it's fair to say that, it's certainly not a bad time to buy rigs. We don't believe, if you've got the capital. And we will be prioritizing that as we finish the build-out at Odessa, right? I think we have probably the greatest opportunity of any of the miners given that we've got this free option on available infrastructure at a very low-fixed price there. So rest assured, certainly philosophically, we are ready and excited to purchase rigs at prices that are seemingly potentially below cost of manufacturing for the rigs. But it's all about just being cautious as we finish the build -- finish the capital spend on Odessa to get the infrastructure in place and then, pivoting to purchase rigs. But I'm hoping we do that in the near future.

Thank you very much. Appreciate that.

Thanks Josh.

Our next question comes from Reggie Smith from JPMorgan. Please go ahead. Your line is open.

Hey. Good morning guys and congrats on the build-out. I had two quick questions. I guess one this is probably difficult to answer and such to the extent that you could kind of walk me through your thinking, I think it will be super helpful. But thinking about that $250 million shelf offering, how do you -- like what's the calculus or the math behind tapping that versus the dilutive impact of it? Like is there a rule of thumb that investors or you kind of look to in deciding this is a good time to use that. When does it make sense? And what do those conditions look like?

So tough to answer that question with specifics Reggie, it's a good one. We think about it a lot. I think as a framework for it, we would want to use it to do something accretive. Well, let me actually say in two ways. I view it as it's a nice thing to have in place just in choppy markets, right? It's just yet another lever, we could tap if we had to Bitcoin -- something terrible happens and Bitcoin drops to $8,000 and the market is stressed like it's just another lever we can pull. But I think we're more likely to think about using it opportunistically and the framework for that would be something accretive. So for example, if we could find an incredible price on rigs to immediately plug in at Odessa, we would view that as instantly accretive to shareholders. And so that's the kind of thing where we would think about it. Now, as I'm sure, you know there's, many dimensions to thinking about using it. Our liquidity is steadily building in the market. But of course, we want to be mindful of not impacting the stock in an adverse way while we do something accretive.

Understood. Would -- yeah, I guess I appreciate that you could be thought about it in a number of different ways. I think one way I was kind of thinking about it and tell me if this makes sense. If you were to think about exahash per share outstanding and kind of do the math that way. And as you did a shelf offering that would increase your shares outstanding, but it would also bring in exahash. Is that the right way to think about accretion?

Yeah, it's an interesting angle, I think…

Or is it too complicated? I don't know.

It starts to get a little challenging. I think we probably fall back on a dollars-based profitability to drive value to shareholders. So exahash per share is I guess as a proxy, but it sort of ignores the hash price element of things, right? Because if we the problem with that is what if network cash rate goes to 1,000 exahash or something like that like you have to sort of think of both of those things at the same time if it makes sense?

No, it does. It's a fascinating problem to solve. So we'll be watching there. I guess if I could sneak one more question in. Very impressive price -- energy price per Bitcoin numbers you guys posted just like the lowest I've seen among any of the Bitcoin miners so that's great and hats off to you for that. My question how do you think about kind of the unit economics below the energy line? And what are you driving the business to there? And I don't know if it's overhead for you what's the right way for investors to think about that too? Thank you.

Yeah. So that's a great question and I'm optimistic that in the future when we are operating at full scale throughout a quarter, we'll be able to drill down with more specificity on that. So with electricity, it's pretty straightforward, right? We can take a monthly bill and we can look at how many Bitcoin we produced and it's division. On operations, I'll tell you how we think about it overall at the company level. We try to leverage technology to drive efficiency. And this is one of the great benefits we had of -- rather than sort of incrementally scaling up as a minor, we sort of came public with a big plan to build scale. And so starting from a blank sheet of paper, we've architected a firm that generally has fewer people and fewer better people and leverages technology. And so I think what you'll see is in the future parallel with our low energy costs, you'll see low overall OpEx costs to match with that. But keep in mind electricity is sort of in my mind the big variable. Even if we are the most efficient at the other OpEx the thing that really drives the overall cost economics is the electricity price.

Understood. That’s good color. Thank you.

Thanks, Regi.

Our next question comes from John Todaro from Needham. Please go ahead. Your line is open.

Great. Thanks for taking my question. Congrats on the quarter. First question, so with Odessa getting a little bit further built out here, is the G&A spend is that kind of already in place? Should we be taking that Q4 number and thinking it holds at least for the first half of 2023?

I can take that. Hi, John. How are you? Yes, we -- as Tyler said, we -- from a personnel perspective, I think, at this point in time, we don't see a tremendous increase in headcount for 2023. And some of our early company expenses, I think have been put behind us and just starting to level out more. So I think if you look at the last two quarters, you could use that as a reasonable run rate into 2023.

Got it. Okay. Great. And then…

Is that helpful?

Yes, that is. I appreciate that. And then the second question. So, on the potential Alborz expansion, I believe that's the lowest power cost in the portfolio. Any expansion there? Could you just give us some more color on what those power contracts would look like today?

So, it's a little bit early. I think we wanted to put it on there to include it, because it is within the portfolio, but you will note that we don't have any of that marked for 2023. What we are exploring there is adding a grid connection. And so recall that Alborz operates as an off-the-grid wind farm only. And so when the wind blows, we mine and you can see why it's so attractive, because the electricity price is so low there. But of course, when the wind doesn't blow, our machines are not hashing. And also it is a 40-megawatt facility from a data center perspective, but it is co-located with 165-megawatt wind farm. And so theoretically, we can go get a grid connection. There are some structuring hurdles and some things we need to go through. We need to map out the approvals process, et cetera. But what we would be doing then is adding the potential for 100% uptime there and also expansion. Now from a cost perspective, we would be buying that power front of the meter, right? We'd be buying it from the grid. So that would be the market price unless we opportunistically put in place a financial hedge. So, hard to forecast, but the point is it would be a floating price at least in as much as we're buying from the grid directly.

Got it. Okay. So just to make partially would be still wind and then part of it would be from the grid there. Okay. Correct. Still bring your average cost down. Quite a bit I would imagine?

It's hard to forecast right, because we have the exact same price, when the wind is blowing. But when the wind stops we would be tapping the power prices that we could get. So it probably would look something like a mix of the Bear and Chief power price plus the Alborz's power price, if that makes sense. So think about one-third the Alborz cost and about two-third of the Bear and Chief costs. But keep in mind, the Bear and Chief cost we put in the deck but that can vary right because it's front of the meter. So if market prices go way up that could change, or conversely if they go down same thing.

Okay. Got it. Understood. Thank you guys. Appreciate it.

Our next question comes from Mike Colonnese from H.C. Wainwright. Please go ahead. Your line is open.

Good morning guys. Thank you for taking my question this morning. First one for me. So in your slide presentation that you have 2.2 exahash and self-owned expandable capacity at three of your four sites so does Bear and Chief that you call out specific for 2023. How long would it take you guys to build out the additional capacity when you decide to do so? Really just trying to get a better sense on the timeline to scale organically during this calendar year?

Thanks, Mike. So the 2.2 we mentioned across Odessa, Bear and Chief are all theoretically possible within the calendar year. So that would be -- there is the early work going on at Bear and Chief. We need to go acquire rigs. They need to get delivered. We need to build the infrastructure et cetera, but we estimate that we would be able to bring that up by year end. And certainly at Odessa that's just a matter of acquiring the rigs after we finish the build-out and the build-out will be finished in the next quarter.

Got it. Got it. That's helpful. Thank you, Tyler. And then the next one for me. You mentioned, you're seeing a lot of acquisition opportunities right now. What type of deals would get you more excited to engage in M&A versus expanding organically?

We try to stay very disciplined on modeling costs and profitability and ROI. And so the truth is we would evaluate an M&A opportunity or an asset purchase just like we would expansion. Now obviously there's some extra risks that you mix in with M&A that we also have to somehow put a call it a risk price on. So -- but we really just have to compare what the opportunity is. I think it's fair to say, I can't imagine there is possibly an M&A opportunity as good as the expansion at Odessa right? We have a fixed lowest cost that I'm aware of in the industry just waiting for rigs there. So I don't think anything from an ROI perspective can possibly beat that unless someone I guess was in real distress. But beyond that what I'd say is there are questions as we get closer to the having and now we're only about a year or 13 months out a lot of miners with sort of different approaches to costs are going to get under more and more stress and we think we're going to be -- the belle of the ball. I think that people are going to be very interested in partnering with us. So we will look for whatever the best opportunity is to grow thoughtfully and produce the best shareholder returns.

Make sense. Thank you for taking my question.

Thanks, Mike.

Our next question comes from Joseph Vafi from Canaccord. Please go ahead. Your line is open.

Hi, guys. Good morning and nice update. Nice progress. I thought we'd -- I know you mentioned the Bear and Chief locations and expanding there and I know it's front of the meter. How do you think about, kind of, price volatility of power in those sites and how that is incorporated, I guess, into your thoughts on expansion there? And then I have a quick follow-up.

Sure. Thanks, Joe. So Bear and Chief are located in very favorable front-of-the-meter locations. So if you look at the prices in that geographical location of the ERCOT grid, you can find a very low front-of-the-meter prices because there's an abundance of supply. Historically, although it does bounce around of course with the weather and other conditions. The other thing is they're favorably located to minimize the various associated transmission and distribution charges. So, what I'd say is, you saw the prices we've paid with the floating prices which are in the deck. And so that gives an indication of how favorable those locations are. What I would also say is, we always evaluate what we could find as a hedge. So, it is possible to get a financial hedge that we would put in place, but both Bear and Chief are in load zone west and that has a particularly low transmission and distribution tariff. So we always look for a hedge and think about locking a price, but the floating price is pretty favorable right now. So it could go either way. It's sort of market dependent.

Sure. Fair enough. And then, as you expand out Odessa and it sounds like, you're using your funds from operations really to expand that, could you just get a -- give us a feel for kind of the rate at which you can expand versus your intention to perhaps keep some Bitcoin as hovel [ph] while you're expanding just kind of I guess the mix of operational funds that goes back to the balance sheet as hovel and then what's being deployed to continue to grow exahash? Thanks a lot guys.

Sure. So that's -- it's also a tough one to answer, because it's a little bit of a dynamic -- there's a dynamic element to managing it. So, what I mean by that is, March will be a decent chunk of CapEx we will spend to complete the infrastructure at Odessa and then that will tail off into April and there may be some cleanup final payments subsequent to that, but it's tailing off. And then at the same time, we will be thinking about opportunistically buying machines, right? So, if we were to purely fund the machines out of operations, very rough back of the envelope, we will have -- when we stop using funds to pay for CapEx expansion, we would have a couple of million dollars a month that we could think about spending on machines. Now, when you think about the overall Bitcoin inventory that we want to build over time, I think of that on more of a long-term time frame. So, if we saw again an amazing opportunity to do something accretive, we could theoretically go sell the Bitcoin inventory, because it would be in the pursuit of rapidly increasing our rate of Bitcoin production. So, there's no hard and fast rules other than the philosophy around the Bitcoin inventory is to build it slow and steady over long time frame and think about tapping it. Obviously, we use it to spend -- we liquidate our Bitcoin to pay for OpEx as we go. And then, what gets held and what goes to CapEx and investment is somewhat dynamic and market dependent.

Sure. Fair enough. Yes, lots of options always watching the opportunistic opportunities. I get it. Thanks a lot guys.

Thanks, Joe.

Our next question comes from Bill Papanastasiou from Stifel. Please go ahead. Your line is open.

Hi, good morning, everyone. Thank you for taking my questions. Just looking at the big point right here, it looks like mining economics are improving, so that's a great start to the day as well. My first question is in regards to fleet efficiency. We continue to see a premium for the latest generation of mining equipment, which seems to be largely as a result of mining operators that have exposure to higher electricity prices than companies like Cipher, looking for equipment that provide the highest implied breakeven cost of electricity. Given that Cipher is operating at 31 joules per terahash, curious to hear whether your team has any targeted fleet efficiency profiles, as we look at the having coming up later this year or later in 2024 rather and how that might look as you guys potentially pursue growth to 8.2 exahash? Thank you.

That's a great question. We usually wouldn't look at that in a vacuum like having a goal specifically for fleet efficiency. It's really part of a mosaic when we look at the return on investment for a site meaning and you highlighted this, more efficient machines are going to be really a requirement for miners that have higher electricity costs. We are spoiled for choice. And so what we end up doing is, when we look at the potential to buy rigs, we will look at whether the premium you have to pay for the latest and greatest and most efficient machines is sort of worth it from an overall ROI perspective. I think a lot of miners are handcuffed and certainly will be more so when the having comes with having no choice that basically they will have to pay the premium, because they have to pay their higher cost of operations. For us, it is a little bit opportunistic and dynamic. I could see a situation where perhaps, the let's call it, the S-19 generation prices or the M30S++ generations drop enough that we make a better overall forecasted return than paying the premium that has generally been a little bit too high for us in the past. That's why we have not purchased the kind of XP generation of machines. But I do think that's something that is going to squeeze the higher-cost producers. And it sort of highlights -- while I don't -- we don't have a target, certainly we recognize that over time your fleet efficiency needs to keep up. We are set up to have a lot of optionality with our power costs. : Great. I really appreciate that color. Yes, I mean we all know that bitcoin mining is a relative game, so we have to see kind of how the other players continue to expand or contract our operations. So at least, Cipher has the flexibility there to potentially look at cheaper models that provide a better ROI profile. My next question is in regards to the US Treasury Department's proposal recently for a 30% excise tax on the total cost of electricity used for digital mining. Wondering what the company's thoughts are there? And it seems a little bit ridiculous in some sense that there would be the -- also the inclusion to apply the excise tax to firms that are producing the acquired power off grid. What are your thoughts to that?

So, it's a really interesting development. I'm not sure that our thoughts are fully baked at this point. I'd say, first of all, it's a proposal that our advisers have told me is unlikely to pass and people can get deep on thinking about taxing certain uses of energy. There's certainly a part as an element seemingly to that that I hope we avoid as it makes its way through the legislative process. What I'd say overall though is that, it always comes back to the same answer that it's good to pay the lowest electricity prices. So if that were to happen, we're still at the lower end of the cost spectrum. And given the competitive dynamics of the way network hash rate works, we would be better equipped to handle it than anyone else. But everything, I have heard and read is that, it's probably unlikely to materialize. We'll see.

Thank you. Really appreciate the color.

Thank you.

[Operator Instructions] We have no further questions in queue. I would like to turn the call back over to Tyler Page for closing remarks.

Thank you everyone for your time today. It's always exciting to update you guys on our progress, and we look forward to the next one. Thank you for your support, and we'll talk to you soon.

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