IREN - H1 2022

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Iris Energy earnings call, first half financial year 2022. I would now like to hand the conference over to Mr. Daniel Roberts, co-founder and co-CEO. Please go ahead.

Daniel Roberts (Co-Founder and Co-CEO)

Hi everyone, and welcome. We're sitting here today and thrilled to engage in our inaugural earnings call. Thank you for dialing in and we look forward to the discussion. First things first, as a matter of housekeeping and to keep the lawyers happy, I'll just draw attention to the disclaimer. I'm not going to propose to read it out in full, but there will be forward-looking statements, non-IFRS financial measures, industry and statistical data. Encourage you to read and review that in your own time. Onto the business. Who are we and what do we do? We're a sustainable Bitcoin miner.

We build, own and operate our own proprietary data centers, and we've really been focused on not just using excess renewable energy since inception, but also really focused on ensuring that we enter markets where we are solving problems, delivering positive externalities. Today, the structure will be, I'll give an overview, a little bit more of who we are and what we do, just given it's our inaugural call, a bit of a refresher for those that do know us. I'll then look to pass over to our president, Lindsay Ward, who will take you through some of the specific sites under construction, give you an update on progress, operations, and the like. Then finally, I'll pass then to Anne Hayes, who will run through the numbers and our record results.

Without further ado, I'll move on to a little bit more about who we are and what we do. I think where we'd like to start this is to really set the scene in a sector that is often hard to understand, and we found it difficult at first as well. Crypto, Bitcoin, the sector more generally, there's a lot of narratives, there's a lot of information, and sometimes it's difficult for investors to really understand and get their head around what is important. For us, we've operated out of a framework of the four M's. I think back to when we started this business three or four years ago and sitting in Will's apartment in Surry Hills, Sydney, and saying, "What's important?" At that point, we said it on the triple M.

We didn't really have the fourth M being management. It comes down to miners, megawatts, money and management. They are the key ingredients to build and operate a successful Bitcoin miner. To step through each of them, the miners, the computers. Really simple. You buy these computers, you plug them in, they crunch this algorithm. Every day they generate Bitcoin, which in our instance, we liquidate today. It's really simple. Plug them in, sync them into the network, generate Bitcoin, and that's the model for your revenue line. You then need power. You need access to energy. They're energy intensive, as we all know. How do you secure that power? How do you ensure that it's sustainable? Not just renewable and green, but also long-term, and that you've got security over your power. The third M, money. It takes money to bring all that together.

You need money to build out substations, money to pay for the electricity, and money, importantly, to procure the mining machines. Then the fourth M is management. In order to ensure that you can build at scale, build with risk in mind, and build a long-term business, you need a management team who's experienced and can bring those three key ingredients of miners, megawatts, and money together. That's a framework that we'd really like to communicate today, and I'll spend a little bit more time on each of those M's in the hope of educating a little bit more on how we're approaching this sector and our business more generally. Moving on to miners. Again, these are your revenue generators. Can you get the chips? Can you install them? And can you operate them?

To date, we've secured 15 exahash of computing capacity. Some of that is operating, the rest of it is under construction at our sites across British Columbia and Texas, which I'll get to. The majority of that capacity is with Bitmain. We have an average price of circa $40 a terahash, so circa $600 million in totality. Obviously, that compares favorably to current market conditions, where we're seeing somewhere $60-$80 a terahash, and we're obviously pleased to be in this position. In terms of deliveries of those miners, they remain on track, on schedule. Every month, we are receiving the hardware from Bitmain. It's being shipped on time. We're often asked about COVID logistics issues, shipping. It is impacting. Not gonna.

We, we've just got to deal with the world that we're in today. Shipping costs are up. We are paying a bit extra for it. It does take a few extra days to clear the ports and get to site. The most important thing is the chips continue to be shipped, we continue to receive them, and we continue to build out our platform. If we move to the next slide, we'll talk about megawatts. Where are we going to plug in these machines, and what does that look like? Canal Flats, our flagship site, has been operating for a few years now. It had an initial capacity expected of around 0.7 exahash or 700 petahash.

We've managed to bump that up to 800 petahash or 0.8 through a combination of more efficient hardware and optimizing our operating conditions on site. As mentioned in that table, it's complete, it's been operating, and it's going extremely well. It's also provided the basis upon which we've iterated our proprietary data center design over the last few years. As we'll get onto a little bit later, we don't do shipping containers, we don't do old warehouses. We build our own proprietary data centers, where we've invested a lot of time and energy in optimizing the ventilation and the infrastructure to ensure that we're building out long-term infrastructure and chasing those operational efficiencies. In terms of the next sites, we've announced three. Mackenzie, Prince George, both in British Columbia, Canada, and another site in the Panhandle in Texas. To go through each of those.

Mackenzie has a total capacity of 50 MW. We expect all of that will be online by the end of Q3. The first 9 MW we expect to be online by early second quarter. The reason we can bring that 9 MW on a little bit earlier is because we've been able to tap into the distribution line, so the lower voltage transmission line, to get some initial capacity up and running. We expect that will come online, as I said, early Q2. Prince George has a total capacity of 85, of which 50 we expect to be available and operating sometime in Q3 as well. Construction, Lindsay will go through in a little bit more detail and an additional 35 MW in 2023. The final site that we've announced is a 600 MW site in the Panhandle.

We have signed the connection agreement and construction has commenced on the substation there. Again, Lindsy will give you more detail. Where that leaves us in totality is line of sight on clearly installing the 15 exahash that we've contracted for, as well as excess capacity of around 7 exahash, where we have the option to go and procure additional hardware in due course and install it at that site. It's also really important to note that we still have an additional growth pipeline of over 1 gigawatt beyond this 765 MW across Canada, the U.S., and Asia Pacific. We've got a development team internally. They continue to engage in new markets, talk with utilities, work with local government regulators, and energy companies to work out where we can continue to grow and support these energy markets.

Sorry, navigating slides. Moving on to money. The third M. Capital is what makes all of this able to happen and to facilitate it. We're obviously delighted to be, you know, the first Bitcoin mining IPO led by the Bulge Bracket banks. I think we had 9 banks and/or advisors listed on that page support us through that IPO. You know, they've continued to be extremely supportive thereafter, and really happy with where we got to. We've raised around $500 million to date, of which around 90%, about $450 million through equity and about $50 million through hardware financing. We've had a few questions around fully funding the 15 exahash. Will you need to come back to market? Are you going to need to dilute?

Do you need equity? Our position to date is and remains, we do not expect to come back to the equity markets to raise any additional capital to fully fund that 15 exahash. We expect to fund that through additional non-dilutive funding options such as hardware financing and corporate debt. We'll give more detail in due course. As always, we'd rather tell you what we've done rather than what we plan to do per se in detail, but the intention is to provide a pathway to being fully funded in the near term and communicate that to the market. Hardware financing structures are common for those that are new to the sector. These arrangements, which we've secured $50 million to date, generally involve financing of the computers themselves.

Often it will be lending into a special purpose vehicle where the lender will take security of those machines and lend an amount of capital against those machines. In some instances, the loan to value ratios can approach 60%-80%. We don't expect any issues there. We've got time. This is a 12-15-month CapEx profile. We'll continue to update the market as we make progress in that regard. If we move to the next slide. The fourth M is management. A little bit about us, and some of you would have heard this before, but my background, PwC, then Macquarie across Sydney and London, developing infrastructure and renewable energy projects. I was then involved in establishing an infrastructure funds management business about a decade ago called Palisade. Look, right place, right time.

We grew to around $6 billion in assets, ports, airports, wind farms, solar farms, majority greenfield construction assets. My brother and co-founder, Will, he was also at Macquarie, doing structured products into traditional mining businesses. In fact, was involved in setting up their digital asset team back in 2017, 2018. As part of that, they were engaged with the CME futures, and they actually invested balance sheet in Bitcoin mining. Then it was around early to mid-2018 that we saw the opportunity and jumped out to form Iris. We've been delighted to partner with a number of really experienced, successful people as part of this business. David Bartholomew, just to mention a couple on the page, built a listed energy and infrastructure business in Australia called DUET.

He was CEO for 10 years, is now Independent Chair of Iris. Sold that business for about $5 billion in 2017. Brian Fehr and Brian Fry, worth flagging as our essentially founding shareholders in British Columbia. Brian Fehr, Canadian industrialist, really experienced business builder across the construction, fabrication, and energy industries. He has the Order of British Columbia, which was actually given to him for his work in regional communities. It's been a very good partnership with Brian. We expect that to continue. Brian Fry actually co-founded a company called RackForce in the early 2000s, which grew to be Canada's largest cloud computing center platform before he sold out about five or six years ago to a listed company.

That data center construction DNA was in the business early, complemented Will and I and our backgrounds early on and really allowed us to develop and iterate these data center designs, which I'll get onto. The final person I'll mention here is Lindsay Ward, who will be talking in a few minutes. I've known Lindsay for a decade. We worked together at Palisade. He ran and operated the majority of the infrastructure businesses. Extremely seasoned infrastructure operator and builder. Delighted to have him join the business last year, having worked with him for the majority of the past decade, and it's been fantastic to have him alongside Will and I in delivering upon the plan in front of us. Moving on.

We have had a number of broker reports initiated on the business, as you can see from below. Encourage you to reach out if you have relationships with these advisors. You know, some of the reports are extremely well done, detailed, and analytical. Again, encourage you to reach out to those names listed below if you'd like to read them. If you don't have those relationships, don't hesitate to reach out and we'll see what we can do to help facilitate. Now, a couple other things just before we pass off to Lindsay to talk about the specific sites. Few things about our philosophy. Why do we own our infrastructure? Why have we made such a big point of owning and controlling the land, the substation, the grid connection infrastructure, the power contracts, our own data center design?

We own and operate the computers. Really, it all comes down to risk. Like, we have backgrounds in long-term infrastructure, where we're used to thinking 10, 20, 30 years. Asset management plans, locking down risk, delivering long-term stable cash flows. Now, obviously, the stable cash flows in this sector are subject to a commodity price, being Bitcoin, that is not so stable. That philosophy still resonates through build out long-term infrastructure, manage your operations, and structure it the right way. By ensuring that we own and control the whole stack, we give ourselves a lot of certainty around the future. Because we own and power our own data centers, we don't need to rely on short-term contracts, lease agreements, hosting agreements, rolling over, the risk that we aren't able to roll them over and aren't able to secure that capacity, the risk that the terms changed.

It also gives us a lot of operational efficiencies. Because we own and control the whole stack, we're highly incentivized to optimize that bottom line. There's no misalignments of interests between the infrastructure owner and the computer owner. This is starting to come through, and I'll show you on the next slide some of the efficiency data that's now being published by some of the analysts. The final thing is, when you own and control everything, it gives you enormous flexibility. We've mentioned power price flexibility in the bottom row, because when we control that interface with the energy market, we can respond to pricing signals. We saw another deep freeze in Texas recently. When the wind blows, the sun shines, we can mop up all that cheap surplus power.

when there's a weather event, a network outage, some other reason that power prices peak, we directly interface with the market and can respond to that and dial back the energy consumption on these chips. The other aspect of flexibility, which isn't actually flagged in this slide, is capital structure flexibility. When you own and control the whole stack, it opens up incredible options. Hardware financing, traditional project finance, corporate facilities. When you only own some or part of it, then you may be a little bit more limited in the options that you can pursue. capital structure flexibility and pursuing different capital market opportunities is certainly a focus over the next three to six months. as I've mentioned a few times, we build, own, and operate our own proprietary data centers.

Again, it's been all about optimizing operating performance and ensuring asset life. We don't put these in shipping containers. We don't let them overheat. We don't let them get dusty. These chips, as we all know, are extremely valuable. They're extremely profitable. Look after them. They will last a long time, but not if you let the humidity get into them, not if they get dusty. As mentioned earlier, you can see down the bottom, one of the analysts on Twitter, Anthony Power, has been collating mining efficiency across different Bitcoin miners. We're pleased to say that I think we've been number one for four or five months in a row now. To explain what that means is how efficient are you or how many Bitcoin do you produce each month based on the amount of computing power you have installed.

Hypothetically, if your facility was down half the month, then you're only going to operate at 50% of nameplate capacity. We're pleased to say that the market's starting to recognize the quality of our data centers and, it's a design that we're continuing to roll out into the new sites. Sorry, just making sure I've got the right slide order. As I mentioned before, we've been really focused on not just using renewables. For us, that's a non-negotiable. Like, we've been 100% renewables since inception. For us, that's like the minimum required. It's all about how do you actually get that social license to operate? How do you integrate into these local energy markets, into communities, and bring them along with you for the journey?

You're coming into these markets, you're using other people's land, other people's infrastructure, power, you need to give back. It's just the world we live in, and particularly with an industry that we operate in, where not everyone understands it's really important to give back. We do this in a couple of different ways. We've got the energy market, and the next slide we'll get onto the local communities, but two distinct ways that we're helping energy markets today. There's a regulated market, such as British Columbia, where essentially they've got too much hydro. They're still building large-scale hydro facilities in the north of the province, Site C, in the face of decline in manufacturing industrial loads, namely the pulp and paper industry that's declined over the last decade.

Now, an oversupply of power, normally you say, "Well, why don't prices go down?" The difference here is it's a regulated market, and under a regulated model, power prices actually have to go up in order for the utility, BC Hydro, to earn the regulated return on the investment they've made in that generation and transmission infrastructure. The less customers that are in the energy mix, the more they have to pay to ensure that BC Hydro earns their return. We come into that market, mop up a lot of that excess spare hydro, give BC Hydro an alternative revenue line, and therefore contribute to keeping power prices down for the rest of industry and households in that province. In deregulated markets such as Texas, this is probably a more common example that you've seen elsewhere. It's all about this heavy penetration of renewables.

Over the last decade, we've seen a lot of Western markets experience the perfect storm of declining manufacturing industrial loads, the build-out of residential rooftop PV, contributing to a net reduction in demand in the market. You've had supply-side decarbonization policies basically forcing wind and solar onto these grids in the absence of a market price signal. Not only do these markets need load to support the generation assets that are in place, they also need to solve the system flexibility issue. When the wind blows, the sun shines, there's plenty of power and prices are often negative, and in some instances, curtailed entirely. The energy is spilled or the generators are turned off. You get these small number of time periods each year where the market has lost that resilience.

They don't have the same base load capability, and they're trying to solve for these 1%-2% time intervals, whether it's a weather event, a network outage. The big freeze in Texas is a key example where you need backup gas generating power, you need lithium-ion batteries or you need Bitcoin mining. Bitcoin mining comes in, mops up that surplus power, and then can provide that system flexibility when the market needs it. In terms of local communities, we've partnered with the local First Nations for our first site in Canal Flats, a CAD 500,000 a year grants program where we're working closely with four of the First Nations communities there. We're also engaged in a number of other initiatives around Canal Flats and the broader region. Again, it's something that we'll look to continue to do in the future.

We're engaged with similar organizations in respect of our next sites, and we'll continue to work alongside communities in which we operate. G, governance. We've kind of done the E with the power and the renewables, the S, with the community. G, as mentioned before, we've been really focused on building an institutional-grade platform that goes to the quality of our infrastructure, our approach to risk when it comes to contracts, ownership of land, and controlling our own destiny, ensuring that we're never putting our destiny in other people's hands. It also goes to a transparent and accountable organizational structure. I mentioned David Bartholomew earlier. His experience for a decade building and leading a listed energy and infrastructure business in Australia. His experience is invaluable. Alongside Mike Alfred and Chris Kaczowski, also very seasoned investors, directors, and business builders.

We've got all the corporate governance documents you expect, policies, procedures, Audit and Risk Committee. At the end of the day, we are accountable to shareholders. We are custodians of our investors' money. We take that very seriously, and we'll continue to safeguard their funds and build out a business very much focused on the long term and through a risk lens. Now on to some of the HODL considerations. We had a few questions. Why don't you HODL Bitcoin? Why don't you keep the Bitcoin that you mine today on your balance sheet? We are extremely positive on Bitcoin. We don't build a business for 3, 4 years that is solely reliant on Bitcoin without being very optimistic, and most of us hold it personally.

The thing with the options for this business is that we have options. One of the things I'll draw your attention to straight away is about halfway down the first column on the left. The math is actually quite simple. If we mine a Bitcoin today, we have a decision. We say, "Hey, Lindsay, Will, should we keep that Bitcoin on balance sheet or do we sell that Bitcoin to pay for the 10 miners we've got on order that are going to generate a Bitcoin every seven months for us?" You know, we're very bullish on the long term of Bitcoin. I think we'd rather deliver a greater exposure to our investors in Bitcoin.

Today when we've got $40 a terahash in secured miners, while the return on investment is so high, it makes sense to reinvest that cash flow, generating more Bitcoin, more upside for our shareholders, rather than just hold a static asset on balance sheet. Now in the future, as and when we deliver substantial capacity, we'll look at that and say, "Does it make sense to continue reinvesting? Does it make sense to start holding Bitcoin on balance sheet? What does the market look like? Does it make sense to start paying distributions?" One of the things in Bitcoin is not your keys, not your Bitcoin. Are we better off distributing Bitcoin dividends to our investors rather than putting them with a corporate custodian and a centralized control of those keys?

There's lots of options, lots of consideration, and all we're saying is today, the return on investment as evidenced by that one Bitcoin every seven months, is such that it just makes sense to continue reinvesting in delivering first that 15 exahash and then evaluating where we are beyond that. In terms of financials, I've mentioned return on investment. As you can see, we've announced to the market our current contractual profile. To be clear, this is not a forecast. This does not account for any additional hardware orders. This is only what we have signed binding contracts for and/or have received and are operating today. We've announced that by early 2023 we'll have 10 exahash of that capacity installed, delivering a mining profit of around $550-$600 million on an annualized basis.

The 15 exahash, the last miner is due to be delivered September next year. Once that's all installed, based on the current market, it would be doing around $800 million-$900 million per annum in annualized mining profit. We've also attached some links to an online calculator there for those that are interested. The PowerPoint presentation is actually on our website. Feel free to download that. You can play with your own assumptions around global hash rate and Bitcoin price. We've then included a slide in this deck for ease of reference where we've actually done that.

At the end of the day, the two key drivers of mining profitability, once you've got this hash rate installed in terms of a revenue line, what is the Bitcoin price and essentially what share of that Bitcoin are you receiving every 10 minutes by virtue of that global hash rate? There's a matrix there with links through to a hyperlink on the calculator. Please reach out if you'd like to discuss and go through in more detail. On that note, I'd like to hand over to Lindsay, our President. As mentioned earlier, Lindsay and I have known each other for over a decade now. We've worked for the majority of that time, building Palisade, the infrastructure fund manager.

Fair to say it was an absolute thrill to have him join last year and work together on delivering a very exciting platform. On that note, Lindsay Ward, over to you.

Lindsay Ward (President)

Okay. Thanks very much, Dan. I thought I'd just start with a little bit of background about me and Dan sort of touched on a little bit of that, but I joined Iris in October last year as President, and my clear accountability is to take the business from its single current operating site through to a multi-site ten exahash business by early 2023. I'm really impressed with the team that's been assembled. Their drive and passion permeates throughout the whole business. We're actively recruiting to ensure we have an operating team that can achieve excellence in everything we do, starting with safety, and that's our primary focus. We move on to ensuring that we're very good at environment, community, governance, operations, maintenance, construction, and financial control.

By way of background, and Dan's touched a little bit on this, I have 35 years in frontline business leadership positions in a range of industries, including traditional mining, baseload power generation, renewables, both solar and wind, as well as having extensive experience in leading multiple infrastructure businesses. I've been involved in a number of infrastructure acquisitions, the majority of those actually working alongside Dan, focusing on commercial and operational due diligence, and I've led teams that have built wind and solar farms, mineral processing plants, shiploaders, mines, and power stations. As Dan mentioned, I worked previously with him at Palisade for about seven years, where I led the operational side of that fund management business.

I strongly believe that along with Will Roberts, our other co-founder and co-CEO, that we've really got an enviable leadership team and capability that will really drive great success for shareholders going forward. In terms of our Canal Flats facility up in British Columbia in Canada, it continues to outperform. It's been the number one most efficient miner for the last three months, according to a number of various analysts. It is 100% powered by renewables, and it continues to pump out solid cash flows and growing cash flows as we move forward with that operation. Interestingly, we've just had a real cold spell up in British Columbia back in December, minus 30 degrees, and the specialized data center didn't miss a beat.

Importantly, it's also operated in temperatures last year when we had a heatwave of 40 degrees Celsius, and again, functioned beautifully through that period. It's down to our unique airflow system and our recirculation design, which really takes advantage of the heat generated by the miners, and it also importantly helps minimize our environmental footprint as we have no need for secondary heating or air conditioning. The design at Canal Flats has been optimized. We're continuing to learn, and we build those learnings into the designs that we're currently rolling out across our development sites at Mackenzie, Prince George, and in the Panhandle region of Texas. Onto our first development site, which is under construction at Mackenzie in British Columbia, Canada. As Dan mentioned, it is ahead of schedule. We've got nine MW there ready for delivery in early Q2 2022.

I must admit, it's been pretty impressive to watch the pace in which we've moved from first breaking of ground through to construction and fit-out. It's really important that we lead that construction effort ourselves. We're supported by a great bunch of contractors who have really embraced the Iris Energy approach to safety, our sense of urgency, and our cost focus. It's this seamless team that we are really building good quality long-term infrastructure that'll be producing strong cash flows for the next 30+ years. We've commenced recruitment. We're drawing people from the local community, and our presence in Mackenzie is generating significant economic benefit for both the town and the community surrounding Mackenzie.

We're already a significant contributor to a number of sporting clubs and service industries, and that will only grow as we implement a community grants program to ensure the whole broader community benefits from our presence. The additional 41 megawatts for Mackenzie will come online in Q3 2022. That site will then be at 1.5 exahash capability. Soon thereafter, we'll turn our minds to how can we improve the efficiency of that site. What opportunities have we identified elsewhere that can be implemented here. What are our expansion opportunities. Our second site in Canada is Prince George that's being built at the moment. We broke ground in January.

Our first slab will be poured in the next coming weeks, and we'll be rolling the Mackenzie construction team progressively through to Prince George, which brings significant cost synergies and construction learnings. We're very confident that the first 50 MW will be commissioned in Q3, and then there's a further 35 MW coming online in 2023. Again, we'll be employing locally. We're sourcing locally. It's a real focus of what we do, and there'll be significant flow on economic benefits to the Prince George community. I think I'd just like to add that directly managing the various construction companies and having our own internal construction management design and engineering capability is really a fundamental part of our strategy of building, owning, and operating our own specialized data centers.

It's really important that we control what we're building, so we've got infrastructure that's gonna be there for the next 30 years. Moving away from Canada and British Columbia, we're now down in Texas. We recently announced the signing of what is really a transformational binding connection agreement with AEP, 600 MW or 7-17 exahash of capacity. We'll be building that in the renewables-rich Panhandle region of Texas. This will allow us to deliver on our 10 exahash by Q1 of 2023 and will leave a significant upside capacity as we move forward with further miner purchases. As many of you will be aware, the Panhandle region in Texas is renewables rich. Really amazing statistic.

There's 32 GW of installed capacity, another 6 GW planned, but there's only 12 GW of installed transmission lines down to the major load centers in Houston and Texas. So there's a massive excess renewable capacity that we can certainly take advantage of. It's a 300-acre site. It's massive. It's 100% owned by us. It's in a great location. It's got dual fiber access to the gate. It's got water access to the gate. We've got direct highway access, no near neighbors, and I think certainly it's a great opportunity for us to take our installed MW capacity from 165 MW through to 765 MW. We're working with key suppliers, design engineers, construction companies, and we'll have the first buildings built by the end of 2022. A key aspect is project delivery.

When you have the knowledge that we have within our business, the knowledge that we've got from building Canal Flats, Mackenzie and Prince George, the project delivery risk with the team that we have assembled is greatly reduced. In closing, just touching on future development. We've talked about West Texas, where we're now at 765 MW of installed capacity. We're not done there. We're looking at further growth opportunities. We've got a very agile and capable project development team focused on identifying new opportunities in British Columbia, Texas, other American states and the Asia Pacific. We've got more than 1 GW of projects under investigation at the moment. We're really excited about these global diversification opportunities, the flexibility and the optionality that they give by having multiple grid connected sites.

They'll provide great flexibility and optionality for us in the future. Thank you for the opportunity to talk today about the operating side of the business. I'll now hand over to Anne Hayes, who will go through our financial performance. Thank you.

Anne Hayes (VP of Finance)

Thanks, Lindsay. I'm very pleased to be able to present the financial results of Iris Energy for the first period post the successful IPO in November. As we see on this slide, we've seen significant growth over the period with our operating hash rate increasing 97% in the December quarter, resulting in 364 Bitcoin mined, an increase of 51% on a global hash rate, which increased in the quarter by 36%. Pleasingly, our mining Bitcoin mining revenue increased by 93% attributable to higher average Bitcoin prices, and our adjusted EBITDA increased by 156%. We've shown adjusted EBITDA, which is a measure that's used by management, as the half was marked by non-recurring items as a result of the IPO and non-cash expenses, which I'll explain on the next slide.

Whilst our net profit after tax for the six months was a loss of $419 million, it's important to call out the impact of non-recurring and/or significant non-cash items. The hybrid financial instruments converted to equity just prior to the IPO and resulted in a non-cash $419 million expense in the profit and loss account. This is caused by the increase in value of Iris shares since the notes were first issued. The converted instruments are recorded as issued capital at fair value. Any increase in that fair value from the last time it was recorded is treated as a non-cash fair value loss in the profit and loss account. All of these instruments have now been converted, and it will have no further profit and loss impact to the accounts.

The share-based payments expense, which is also a non-cash, is split between the founders and the other executives. The founders' shares have a strike price of $75 and vesting conditions of between $370 and $1,850 per share. Amortization of these share-based payments takes place over the life of them, so will continue to be a non-cash expense that is taken to the profit and loss account. We also had one-off expenses on the IPO of $3 million, which were incurred in the period. After these non-recurring and non-cash items, the six months produced an adjusted EBITDA of $20 million, a margin of 66% on revenue of $30 million. Two-thirds of this revenue was earned in the December quarter alone, with the margin earned in that quarter rising to 72%.

This slide shows our statutory financial profit and loss account, again recorded in U.S. dollars, where we've also highlighted on the slide the one-off and non-cash items impacting our results for the six months so that it's clear. Our balance sheet. The financial position of the group has seen significant strengthening over the six-month period as a result of the convertible notes issue, the IPO and strong operational results delivering cash flow. Plant and equipment and mining hardware prepayments have increased, supporting the rapid expansion in computing power. Total assets increased from $135 million to $495 million, and total liabilities decreased significantly from $184 million to $49 million, mainly as the result of the conversion of the hybrid instruments. This leaves the group in a strong financial position.

That is the end of the financial part of the presentation, and I will now hand you back to Dan to wrap up today's briefing.

Daniel Roberts (Co-Founder and Co-CEO)

Thanks, Anne, and thank you, Lindsay. And thank you for everyone that dialed in today for our inaugural call. A couple of quick things that we would've been nice if I'd touched on earlier in the presentation. First one's around the power certainty or the access to the electrons in both British Columbia and Texas. We've had a few questions over the last,

Little while around what that looks like, what the price is, et cetera. In British Columbia, as a regulated market, once you're connected into that grid, or you've got your connection agreement, you've got a regulated right or a legislative right to receive power and export power from the grid. The price you pay is the same price per kWh, 24/7. It's a set price every year. It's an industrial rate. It's on the BC Hydro website. It's equivalent to around $0.049-$0.05 per kWh, all-in, 98% renewable content, and then we're topping up with 2% RECs as an additional purchase to round out the 100% renewable. That's quite straightforward. In Texas, the key is the connection agreement.

The key is working with the utility to find parts on the network where there is substantial availability of power in that part of the network. Once you connect into that network, it's then just a function of what the market price of power is. Working with AEP, signing that 600 MW connection agreement, that was all done on the basis of analyzing that part of the network and understanding that there was 600 megawatts worth of electrons available for us to take from the network. In terms of the specific power price, we'll obviously look to contract that in closer to operational start date rather than paying for expensive hedges and contracts up front.

The guidance we can give is, and it's all publicly available information, is ERCOT around that area is around 3-3.5 cents/kWh baseload, but the key is the demand response, the ancillary services. As I mentioned earlier, it's those 1-2% time intervals each year. It's when the power price really spikes, you know, above $1,000/MWh. If you've got a manufacturing business or a load and the ability to turn off during those time periods, that 3-3.5 cents/kWh power price drops substantially because a substantial portion of that 3-3.5 cents each year is accounted for by these 1% time intervals where the power price goes up significantly.

Chopping out 1%-2% of the time intervals would drop our all-in power cost down into the twos. If Texas introduces the demand response programs, ancillary revenue programs that are under discussion, all of a sudden, not just you don't just avoid paying that $1,000/MWh, there are programs whereby the market may actually pay you that $1,000/MWh on top. If that's the case, all of a sudden, your power price can drop heavily into the ones. The key, again, is the operational flexibility. If power price ever becomes an issue because we own and control all the infrastructure, the power connections, the data centers, then we can adjust our operational profile, turn down during higher time price periods and operate at a lower power price.

There are markets around the world that have seen such heavy penetration of wind and solar, where there are feasible models where you can connect in and operate for a large part of the year, where you've actually got two revenue lines. One, you're paid to mine Bitcoin or take the power, so you're paid by the network to take the power 'cause it's negative price. Two, you're then paid to monetize that into Bitcoin. There's a lot of operational flexibility in there, but hopefully that clears up a little bit around the power price. As we've said all along, we're guiding the market towards an average power cost of $0.02-$0.04. Where we ultimately fit within that will depend on our operational profile and also the composition of sites across different markets.

For the next quarterly earnings, we will look to implement a Q&A function and have a little bit more interaction. We'll look to get that up for the next one. Thank you for dialing in. The greatest takeaway, I hope, is that we've got 15 exahash secured. We've got the land and power secured. We've got a team who are ably led by Lindsay, Will, and myself is executing, continuing to deliver, and we appreciate all your support. Again, thank you for your time in dialing in today. Thank you.