IREN - Q4 2024

Transcript

Operator (participant)

Good day, and welcome to IREN's Fiscal Year two thousand and twenty-four Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Lincoln Tan, Director of Investor Relations. Please go ahead.

Lincoln Tan (Director of Investor Relations)

Good afternoon to all of our North American participants, and good morning to those joining us from Australia. Welcome to IREN's FY twenty-four Results Conference Call. I'm Lincoln Tan, Director of Investor Relations, and I'm joined today by Daniel Roberts, Co-founder and Co-CEO, and Belinda Nucifora, CFO. Please note that certain statements that we make during this call may constitute forward-looking statements. These statements are based on certain assumptions and risk factors that could cause actual results to differ materially from our expectations. Listeners should not place undue reliance on forward-looking information or statements. For further details, please refer to the disclaimer on slide two of the accompanying presentation. Thank you for joining us. I'll now hand the call over to Dan Roberts.

Daniel Roberts (Co-CEO)

Thank you, Lincoln. Welcome, everyone, and good afternoon. Moving through the presentation, obviously, this is our full-year results. We have a year-end of 30 June, so very pleased to report on what's been an exciting 12 months for IREN and its shareholders, and obviously an exciting outlook over the coming months and years. Jumping straight into it. Disclaimer. Please all read it. It's very important. Then into a quick overview of where we are as a business, right here, right now. We're pleased to announce that we have increased our installed capacity Bitcoin mining to 15 exahash.

So the last reported update was 10.5, and we reiterate our original unchanged guidance that we will hit 20 exahash by the end of next month and 30 exahash by the end of this year. So in about three and a half months' time. Three months' time, time's flying. So that's exciting. We're on track, and the team's doing an absolutely tremendous job. On the AI cloud service front, we continue to build good, strong momentum there, month-on-month revenue growth. Our fleet continues to be fully utilized, and the pipeline looks promising to further expand that business, and we'll get into that in a little bit more detail.

In terms of our data centers that are underpinning this growth, we're up to 300 megawatts now of energized, commissioned, and now operating data centers, and that's from a target of 510 megawatts by the end of December. Again, unchanged, reiterating that guidance, we continue on the trajectory of where we said we would be, so all very good, all very positive, and, again, huge effort from the team, but everything proceeding according to the original plan, and then finally, a quick overview of our current power and land portfolio. As most of you would be aware, we have 2,310 megawatts of secure, grid-connected capacity, and the land to go with that.

In addition, we've got over a gigawatt of additional development sites around the world, which we continue to progress with even more vigor over the last few months, given the scarcity around power and land and the demand for that to underpin not only our own growth ambitions, but also potentially to leverage into, I guess, others' growth, which we'll get onto shortly. So jumping ahead to expand a little bit more on the Bitcoin mining side of the business. So again, a little bit of a recap of where we've been. It was only the beginning of last year. We were operating with 1.7 exahash.

Doesn't sound super impressive today, given the numbers that we're talking, but it is good to reflect, and for us, for me, for Will, to congratulate the internal team on the tremendous amount of growth and execution that they've achieved in that relatively short time period. So to hit fifteen exahash today and to continue on a trajectory to double that again over the coming three months is super exciting. We also pleased to announce that we've purchased an additional ten exahash of latest generation Bitmain miners, the S21 XPs. Their efficiency is thirteen and a half joules per terahash, and that will drop our overall fleet efficiency, based on the thirty exahash, to fifteen joules per terahash.

So again, very positive, positions us very well, as a low-cost miner, particularly combined with some updates on our power strategy, which I'll come to in Texas in a minute. So again, just reiterating, we have retained the current twenty exahash of miner options, which are exercisable in two thousand and twenty-five, which provides us a pathway to expand to fifty exahash next year. So again, thirty exahash by the end of December and fifty exahash next year. So these miners, they require data centers and real-world construction, and again, the team continues to perform extremely well on that front. You can see the growth since our IPO. In two thousand and twenty-one, obviously, it was a challenging period early on, IPO-ing in November 2021, and where the markets went shortly thereafter.

But as the markets have recovered, we've been able to capitalize on a lot of the work that we've done and the investment in land, planning, grid connections, et cetera, to really build some strong cadence and momentum into the end of this year and beyond. The team has done a fantastic job in continually trying to challenge how we procure items, how we build, how do we design, and that's resulting in us achieving significant efficiencies. The first efficiency is we're now building 25-megawatt data centers rather than 20-megawatt data centers, and we're now targeting 2 of those every month. So 50 megawatts of additional data center capacity every month is what we're targeting internally, and that's driving significantly rapid expansion as we're seeing illustrated in these charts.

In addition, the other efficiency we're seeing is cost savings, which is always very welcome. Previously, many of you would recall we've been guiding towards $750,000 per megawatt. As a result of all these optimizations that we're running, we're happy to report that we're now running at around $650,000 per megawatt. So again, the guys have reviewed all elements of the building design to optimize for both speed and cost without compromising quality. We've worked closely and continuing to deepen our relationships with the supplier network and reduce those lead times, reduce bottlenecks, and again, improving speed and flexibility through construction, through internally developed, and IP designs around miner racking, filter banks, et cetera. So again, we're continuing to challenge how we do things. We're not sitting here complacent.

We want to continue to get better, and we're going to continue to try and do faster and better than what we're doing today. So that underpins a significant growth pathway. But if you haven't got the power and land, then it's very difficult to grow, which is a great segue onto my next slide. We have single-site expansion at Childress, which we continue to build into. As you can see on the left-hand side, it's been a fantastic trajectory to date. On the top left, that is a picture, an image from August last year. A lot of empty space there, and if you scroll down to the bottom left-hand side, you can see considerable amount of construction and data center progress.

If we look at the image on the right, it shows you a larger perspective of our overall land holding in Childress, available for us to expand into. Based on the current 750 megawatts available at Childress, you can see the little green area that we're utilizing for our 350 megawatts, which is being built and commissioned over the next four months into the end of December. Then we have a rough guide as to where the next 400 megawatts will be located. At the moment, the initial plan is for that to be continued to be built for Bitcoin mining as the primary use case, but equally, there's more opportunities arising on the AI side, potential co-location, potential cloud, which I'll come to shortly. An update on our pricing and power strategy for Childress.

So as many of you are aware, in July, our power costs were high. It was a result of a hedge contract that we had in place, and historically, we have had to hedge. We have had no choice, and a lot of that is down to retailers being very nervous historically around allowing Bitcoin miners to take spot power. The risk with that, for them and for the miner, is that their curtailment systems fail and do not work when power prices are high. So for example, ERCOT can be very volatile. We can see $5,000 per megawatt hour pricing. If you are operating during that, then you're accruing a considerable liability. So the history of miners in this sector has resulted in retailers being very nervous about that. The good thing about July is it brought it to a head.

It allowed us to have those conversations on a very assertive basis and point to the demonstrated track record of our curtailment systems, the scale of who we are now, and our ability to curtail automatically multiple levels of fail-safe and successfully negotiate a contract that allows us to take direct spot pricing from the market from August 1st. So very exciting for us. It's been something in our pipeline ever since we launched at Childress. But finally now, off the back of the events in July, off of the back of our demonstrated track record systems, we've been able to successfully negotiate that. So the benefit of spot pricing is it allows us to optimize our power costs in real time and simply avoid the high-price time periods without incurring the costs and risks associated with entering into near-term hedges.

So there's a one-off cost of around $7 million to close out the existing hedges. So that is done. That will be booked as a one-off cost in the accounts. And for August month to date, at the time of this presentation, our power price has been 3.1 cents, all in at Childress, which equates roughly to about $23,000 per Bitcoin, in terms of cost per Bitcoin mined. So on the right-hand side, you can see our power prices, the average monthly cost since inception. On the left-hand side, that bar chart shows the 4.3 cents, which is our average historically, actually. So that encompasses all the hedging costs. On the right-hand side, the 3.5 cents is illustrative of what power price we would have achieved if there was no hedge.

So simply, if all we did was operate on the same profile with the same curtailment and took spot market power, $0.035 would have been the resultant price. So it's a material cost saving going forward. It gives us material flexibility to adjust to market conditions going forward. At the moment, we're able to set our parameters dynamically around where we want to trade power. So if Bitcoin mining profitability increases, we're able to increase that threshold to divert more of our electrons into the Bitcoin network. If, on the other hand, Bitcoin mining profitability falls, we're able to sell more power back into the ERCOT market, because at that point it's gonna be more profitable to do so. So the profit maximization opportunity is only enhanced through this change in our contracting structure.

Very positive development, something we're excited about, particularly as we now start to hit real scale at Childress and get momentum, building a significant amount of additional capacity there over the coming months. On to a quick update around our AI cloud service. We continue to service multiple customers with our 816 NVIDIA H100s. As you can see on the right-hand side, it's been a really good experience, year to date since we launched in February. Month-on-month revenue growth, month-on-month growth in the number of customers that we are serving, which is equally as important. The opportunity to get exposure to more players in the industry, more companies doing different applications, approaching their systems, their operations in different ways, has been fantastic opportunity for us and the team to service them and continue to build our profile through the industry.

We're now launching our GPU pilot at Childress, in the second half of this year, which is really exciting, the opportunity to see the flexibility across different jurisdictions, different climates. So we look forward to reporting back on the results of how that goes. Poolside recently extended their contract again. That's now expected to roll off at the end of August. They're looking to consolidate their cluster or clusters into a more larger cluster, and the pathway they're going down is, for strategic reasons. Confidentiality, we're not able to say too much more, and they haven't told us too much more, but it has been clear that they remain very positive on Iren.

They look forward to continuing the dialogue as their growth continues, and most importantly, they continue to be one of our best salespeople in the market. So the number of testimonials, the number of direct customer referrals that they are providing to us, is really helping us continuing to grow that business. So again, it's a testament to the internal team, the systems, the product that we've launched, the ability to look after every customer that comes through our clusters, and drive that market awareness, word of mouth, to ensure that we're recognized as a good operator in this space. Our pipeline remains strong. So at the end of August, we look forward to redeploying our capacity that will be freed up from Poolside. There's a number of active conversations going on there.

We would expect that capacity to be redeployed in relatively swift order, but it may take a little bit of time. Following that, we will continue to assess the opportunity to grow that fleet, but we're very mindful of the capital intensity of growing out our GPU fleet. They are expensive, and that's not to say that we won't, but equally, we're now very focused on things like customer creditworthiness, the amount of prepayments, the tenor of contracts. We've proven the concept, we've grown the business from a standing start six months ago, and now really it's about optimizing the capital allocation to this business, and we look forward to growing it sustainably and prudently into the future. Power and land. So a quick update, and a recap, perhaps to start on what we have when it comes to power and land.

We've got 510 megawatts of operating data centers that will be built and online by the end of December this year. That is part of a 2.3 gigawatt overall portfolio of secured grid-connected power. Again, grid-connected being very important. You're directly connected into these large-scale transmission lines and get access to wholesale markets. We're not behind the meter, we're not reliant on counterparties, we have our destiny in our own hands. We're connected into public infrastructure and have access to wholesale markets. Very important in terms of risk management. In addition, we continue to develop our 1 gigawatt global development pipeline. We're progressing connection agreements, land options, design, planning, approval for a variety of sites around the world. We look forward to providing further updates on these-...

In due course, but this power and land really underwrites our ability to continue that hypergrowth profile that we outlined earlier, and the growth that we've experienced over the last eighteen months, to continue building, to continue to deliver shareholder value. A quick update on other opportunities to monetize this portfolio. So last month, July, we announced that we had appointed Morgan Stanley to evaluate AI data center opportunities for our one point four gigawatt West Texas site. That process continues to play out. We're signing NDAs, we're providing information and data room access to interested parties. So that's exciting. It's a process that will take some time, but equally, the traction that we're getting early on, the early conversations, the engagement, looks promising that there will be robust conversations around opportunities for that site.

Where it ends up, I don't know, but it's exciting to go through the process and the fact that we're engaged with some of the largest companies in the world. Active in this space is optimistic for the asset base that we've built and the opportunity set that lies ahead. In addition, these conversations, in conjunction with existing relationships that we have, are also opening up additional conversation around our existing sites in Canada, in Childress, where a range of structures are being discussed with potential partners around AI cloud services, around colocation, and a variety of other options. And again, to recap, the attractiveness of these existing sites is they have grid-connected power right now. We have the ability to retrofit additional generation and batteries. We have the ability to retrofit liquid cooling if that's required and suitable for customer clusters. And finally, the latency.

We've got sub-10 milliseconds from our Texas sites into major hubs. There are 1,000 milliseconds in a second. We've got 10 milliseconds, so latency is great. It should support a vast variety of applications and really not be a constraining factor. In Canada, 20 milliseconds. Still more than sufficient for the majority of the applications that we're seeing. So we look forward to providing further updates on all this in due course and to some Q&A at the end, but in the meantime, I'll pass over to Belinda to give us an update on the numbers. Thanks, Belinda.

Belinda Nucifora (CFO)

Thank you, Dan, and good morning to those in Sydney, and good afternoon to those in North America. Thank you for joining us for our full year earnings update, and I'm pleased to report for the year ended thirty June 2024, the adjusted EBITDA is $54.7 million, being a significant year-on-year increase of $53.3 million and the highest recorded EBITDA for the company. With Bitcoin mining revenue increasing from $75 million to $184 million as the average operating hash rate increased from 5.6 exahash to 9.4, resulting in 9,491 Bitcoin mined at an average realized price of $44K, being an 89% increase in price year on year.

During the financial year, as Dan mentioned, we commenced our AI cloud services business, and we recorded revenue in relation to that business of $3.1 million. Average net electricity costs per Bitcoin mined increased from $11K to $18.1K, primarily due to the increase in global hash rate and the impact of the halving event in April 2024. Our other costs increased from $38 million to $56 million. These include employee benefit expenses of $22 million, site expenses of $8.7 million, and these include the procurement of RECs, which is consistent with our commitment to utilizing 100% renewable energy. We had insurance costs of $7 million, professional fees of $6 million, and we also had our provision for Canadian non-refundable sales tax of $6.3 million, which is an ongoing CRA audit.

The increase in the OpEx reflects a larger business today than FY 2023, including the expansion of our Childress site and the commencement of the AI cloud service businesses, as we recruit resources to support that growth, which has delivered significant growth during the financial year, and we project that growth to continue over coming years. We also have increased costs in relation to expanded risk compliance and reporting obligations, which come with being a listed NASDAQ company. Depreciation increased from $30.9 million to $51 million due to the commissioning of assets at Childress, as well as accelerated depreciation for the S19j Pro miners, scheduled to be sold in quarter one of FY 2025 due to our recent fleet upgrade. So I might now turn to our cash flows for the year.

We had very strong cash flows with a net increase of $336 million, which resulted in a closing cash position of $404.6 million. That increase in net cash came from primarily operating activities, resulting in net cash of $53 million and included $184 million of receipts from our daily liquidation of our Bitcoin mined. These positive operating cash flows highlight the quality of our underlying operations and are reinvested to support our ongoing expansion plans. The increase in net cash used in investing activities was $499 million, and is due to the expansion of the Childress data center, as well as our purchase of the Bitcoin-- Sorry, the Bitmain S21 Pro and T21 miners, as part of our pathway to 30 exahash in 2024 and 40 exahash beyond.

As well as our purchase of the NVIDIA H100 GPUs of 816. Our increase in cash from financing activities was $782 million, with the sale of 108.1 million shares sold under the ATM and 12.9 million shares sold under the ELOC facility. We might move on to now our balance sheet, and as mentioned in our cash flows, we have a very strong closing cash at 30 June of $404.6 million. We continue to have no external debt, so no debt facilities, and we have strong operating cash flows, as discussed on the previous slide.

Our total equity increased to $1 billion, with gross proceeds of $823 million from the sale of 121 million shares sold under the ATM and the ELOC. This excludes 463,000 shares settled in early July, which raised a further $5.2 million of cash proceeds. Effective today, we have a remaining $223 million on our ATM facility. We have a strong balance sheet with total assets of $1.2 billion, which provides flexibility to fund our future growth. So that's a highlight of the key earnings highlights for the FY 2024 year against FY 2023. I think now we're gonna turn to Q&A.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. One moment while we compile the Q&A roster. Our first question comes from the line of Joseph Vafi with Canaccord Genuity. Your line is open.

Joseph Vafi (Analyst)

Hey, everyone. Good morning. Thanks for all the updates here. You know, very thorough. Just, you know, maybe we'll start off, Dan, you know, you did a New York analyst update for us all a few weeks ago. Anything kinda material since then or incremental to add in the, you know, I guess in both strategies? And, you know, what's your latest thoughts here on, you know, attractiveness in Bitcoin mining versus, you know, perhaps putting more CapEx into the hosting side shorter term? And then I'll follow up.

Daniel Roberts (Co-CEO)

Yeah. Hi, Joe. A few short weeks ago in New York, it was a really good event, and appreciate you and the hundred others in the room taking the time. Look, things continue to evolve. Like, every day, every week, Will and I are learning more of the team and continue to iterate our thinking. It doesn't result in materially different decisions, but at the margins, it does start to refine your thinking. What I will say about Bitcoin mining is we are in control. We're the masters of our own destiny. With two point three gigawatts of power, we can plan to build a lot of Bitcoin mining capacity over the coming few years. So that's a fantastic position to be in, particularly when we can do that accretively, particularly when capital markets are rewarding for that growth.

So that's really exciting because it's something that we can control and plan for. On the AI side, so the non-Bitcoin applications, frankly, the challenge there is you're dealing with partners, you're dealing with counterparties, and that takes more time. There's more complexity, there's more nuance. The cloud service is essentially a commodity in the sense that you're selling GPU hours online. So we provide a VPN, people log in, they use the GPUs for their own purpose, and the contracting structure is relatively simple. When it comes to larger scale deals, whether it's on the AI cloud, or co-location, or perhaps leasing a site, perhaps us selling a site, if we got the right price, obviously, you're dealing with a different scale and a different set of complexities involving counterparties.

So when we talk to partners, or prospective partners I should say, around potentially building them out, data center facilities for them to host their own GPUs in, there's a whole variety of considerations around what those data centers need to look like. The technical specs, things around backup generation, things around chillers, things around how the rack density looks and the internal networking, the software. So there's a lot to it, and it means that in a few weeks, there's not a material update on that because these things take time. But the best thing for us, that gives us so much excitement about this business is we are the masters of our own destiny, where Bitcoin can continue to underwrite significant growth in this business. And this was the plan. Six years ago, when we set the business up, Bitcoin bootstraps the business.

We build multifunctional data centers, and then we can leverage into other applications. Once we have the opportunity to sign the right type of contract to grow the business in the right way on non-Bitcoin applications, absolutely, we're going to do it. But equally, it's not like we sit here feeling pressure to do a deal that's suboptimal. We're able to really control and throttle both sides of the business in a way that makes sense.

Joseph Vafi (Analyst)

Sure. Thanks for that color, Dan. And then, you know, you've got a pretty big portfolio now, but you're still kind of in site acquisition mode with a big pipeline. You know, I just kind of, again, talk about your thought process of, you know, further site acquisition, given how large your portfolio is now, and, you know, CapEx for more site acquisition versus CapEx for site build-out. Thanks a lot, guys.

Daniel Roberts (Co-CEO)

Yeah, absolutely. I mean, things change so quickly, and this is part of the original thesis. The scarcity that we see coming over the next five, ten, twenty years, for power and land as the world continues to be digitized. And look, it was probably only six months that we had analysts very skeptical of our ability to ever build out 600 megawatts at Childress. But the world changes really quickly, and it comes back to the original thesis six years ago, when Will and I set up this business, which is the dislocation between the digital world and the real world. The real world cannot and will not keep up because the digital world moves in these exponential functions. You've got adoption curves that go vertical, this insatiable demand for things that pop up, in relative terms, overnight.

Bitcoin, AI, we don't know what's next, but the point is, those demand drivers are exponential, whereas the ability to service that in the real world, it's hard and it takes a long time, and it takes longer and harder the bigger that digital world gets. Because the low-hanging fruit gets taken early, and then it gets harder and harder, and the order of magnitude grows to get more power, more land, navigate supply chains, build stuff in the real world, and that's the vision for the business originally, and that's the thesis that's playing out. So we're not gonna stop. Absolutely not. I want gigawatts more of power because I fundamentally believe in 10 years, the scarcity dynamic that we're seeing in the market now is nothing compared to what's probably going to come. And we talk about CapEx. It doesn't really involve CapEx.

Like, you're signing land options for $20,000 here, $30,000 there. Yes, we've got a big team internally that costs us a little bit of overheads to go and do that, but most of it is time, relatively small amounts of money, and building up this incredible optionality on a future that we still fundamentally believe in.

Joseph Vafi (Analyst)

Great. A lot to look forward to. Thanks a lot for those comments, Dan.

Daniel Roberts (Co-CEO)

Thanks, Joe.

Operator (participant)

Thank you. One moment for our next question, and that will come from the line of Lucas Pipes with B. Riley Securities. Your line is open.

Nicholas Giles (Analyst)

Thank you very much, operator. This is Nick Giles on for Lucas Pipes. You've made some key hires related to HPC here recently, and so I was wondering if you could expand on, you know, what these teams are focused on today. Should we see this as a read-through for more substantial GPU purchases in the near term? Thank you very much.

Daniel Roberts (Co-CEO)

Potentially, if we get the right structure. I mean, my appetite to go and dilute shareholders and take on debt to spend hundreds of millions of dollars on spec to build out an AI cloud service business is frankly quite low. The market should speak to that, and we should be able to negotiate contracts that, in our minds, have the right risk-return. If we never do another contract because the risk-return doesn't make sense, then I'm cool with that as well. We're not gonna pursue it just for the sake of pursuing it.

But as we prove out our credentials, we prove out our operating performance data, and we provide those metrics to customers, and we have an increasing amount of current and past customers providing those referrals, those testimonials. I'm optimistic that we're in a really good position to grow that business. So it's something we're really optimistic on, but equally, I'm not gonna sit here and just grow for the sake of growing. The investment in people and platform within our business is really important, and we've always said we need to invest ahead of the curve. You don't grow a business by focusing on every dollar of your expense line when you're growing in a hypergrowth manner. I mean, we're 10X-ing our Bitcoin mining capacity from 18-20 months ago, right?

We've grown an AI cloud service business that was zero six months ago, that's now doing annualized revenue of $15 million, servicing half a dozen customers, and the ability to continue investing in people, systems, processes, given the optionality in the business that we've created with all that power and land, the data center design and the existing team. It's a really valuable investment for us, and it covers a whole span of different capabilities, from network engineers to AI sales, to general commercial, investment banking, funds management backgrounds, helping us negotiate prospective structures and large-scale transactions, all the way through to people that have had development experience with batteries, wind, solar. As I said in response to Joe's question, we're not stopping.

We're gonna continue pursuing this hypergrowth because we fundamentally believe that the growth and demand for renewable energy power compute is not only not going away, it's really just started the exponential growth curve.

Nicholas Giles (Analyst)

Dan, I really appreciate all that color. My follow-up would be, do you have any target levels of prepayments in mind, target contract duration, and then maybe any additional color you could add around the GPU pilot at Childress? The capital spend there, how many incremental GPUs you would add? Thank you very much.

Daniel Roberts (Co-CEO)

The hard thing about giving guidance on contract structure, like, it's a great question, and it's really relevant. The hard thing is every situation is slightly different. As a base case, we'd love a reasonable proportion of prepayment. We'd love contract terms one to three years. And that's got to be the base case target. But equally, every circumstance is different. Every customer is different. There are strategic reasons why you might do something different. For example, it might be a trial, it might be a small opportunity to give them a small cluster, seeing that they've got large growth ambitions, and there could be a larger cluster coming thereafter once you've proved yourself. It's really hard to give specific guidance, but I think we're talking 10-12 months plus, ideally, and perhaps a bit longer.

You know, several months of prepayments, if not a little bit more. But again, like, please don't hold me to that because we want to remain flexible and make the right decisions, and circumstances are always unique when it comes to these decisions.

Nicholas Giles (Analyst)

Dan, I certainly won't hold you to it, but congratulations to you and the team so far, and continued best of luck.

Daniel Roberts (Co-CEO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. And that will come from the line of Paul Golding with Macquarie. Your line is open.

Paul Golding (Analyst)

Thanks so much. Just a couple from me. First, on the Poolside capacity, that sounds like you're going back to market with to find a client for it. Could you speak a bit to how you're deciding between going back to a single customer to take a significant swath of this capacity versus putting it on the market for on-demand customers to use? How do you think about that equation now that this will become available at the end of the month?

Daniel Roberts (Co-CEO)

Yeah, it's a great question, and we think about this a lot, Paul, and the short answer is, we want to do all of it and retain flexibility. And it's kinda funny, like, you know, Poolside extended the contract again that was due. So they've, they've doubled down and extended a couple of times now, but the last one to roll off was earlier this month, and they extended again to the end of August. And then they said, "Oh, we're, we're consolidating elsewhere," and gave us a little bit of color. But essentially, it makes sense from their side. And initially, our reaction was, "Oh, that's, that's pretty disappointing." We've enjoyed working with Poolside. They're a great name. They've been a great thing for launching this business.

But the funny thing is, now having that available capacity immediately is opening up all the opportunity to pursue other avenues, and provide people the opportunity to use a small amount of these 500 GPUs that become available as a segue and hopeful pathway to deploy in larger scale capacity with us. So it's ended up being, you know, a bit of positivity coming out of it. And then in terms of long-term contracts versus spot and on-demand, we're pursuing both. So we're developing additional on-demand software capabilities internally. We're looking to provide some of that into the market at the moment, but equally in parallel, we're pursuing longer-term contracts. So it's just getting that mix right and retaining the flexibility.

Do I envisage having thousands of GPUs operating on an on-demand basis in the near term, where we've got customers cycling through on a lifetime basis and not a huge contract, bank for it? No, but do we want to continue building the flip capability, continuing servicing that market, learning about the depth of that market and what it might look like in the future? Absolutely.

Paul Golding (Analyst)

Thanks, Dan. And then, just one more on the data centers themselves, the structures. It sounds like, you've iterated on the design, in Texas. You're now down to a $650,000 per megawatt cost, and you've got an extra five megawatts per structure. Could you, give some extra color around what is, enabling that extra five megawatts? Is that something where you can go retroactively to the six or so buildings that you've already constructed and flow that through there as well on a like-for-like basis, or is this more of just a go forward? Thank you.

Daniel Roberts (Co-CEO)

Yeah, sure. No, it's just a go forward. I mean, all these existing 20-megawatt buildings were designed for 20 megawatts. So, the form factor, the size, the low voltage electricals, the network cables, et cetera, so they're optimized for 20 megawatts. So simply, the 25-megawatt design is just a bigger version of the 20 megawatts, with some increases in density, efficiency, et cetera, and the way that we do it. But really, it's a, it's a go-forward thing that's allowed us to save a material amount of CapEx on the data centers and also build out megawatts, on a faster basis.

Paul Golding (Analyst)

Great. Is even larger than 25 megawatts on the table, or is 25 what we should expect for the foreseeable future?

Daniel Roberts (Co-CEO)

Everything's always on the table, Paul. So we're looking at that and a lot of other options. But for now, we're pretty happy with 25 megawatts. We'll keep punching them out and grow into it. But there's absolutely a lot of innovation challenge ideas being worked on in the background, so I would expect us not to sit still and just be sitting on that one design for the long term.

Operator (participant)

Great. Thanks so much, and congratulations.

Daniel Roberts (Co-CEO)

Thanks, Bob.

Operator (participant)

Thank you. One moment for our next question. And that will come from the line of Mike Colonnese with H.C. Wainwright. Your line is open.

Michael Colonnese (Analyst)

Hi, good morning, Dan and team, and congrats on all the progress at Childress. First one for me, you know, Dan, you, you guys always have a really great perspective on some of these market dynamics, so it'd be great to get your outlook for hash prices here, which as we know, have been really trending around all-time lows. Do you think we've bottomed out here, and when do you think we can reasonably see a breakout above this four and a half cents per terahash range?

Daniel Roberts (Co-CEO)

Thanks, Mike. Easy question. I mean, it's like, it's a big world out there, and there's lots of different miners, and all have got their own kind of cost structures, availability of capital, power, land, and it just gets fed into that equation. So the key driver is the price of Bitcoin, right? Bitcoin rallies, hash price skyrockets, and everyone's making money and everyone's scrambling to invest and, and bring online more capacity. So that is the absolute key driver. What the price of Bitcoin does day to day, I've got no idea. What it does long term, feels like it's inevitable it's going significantly higher. So the key for our business is positioning, that we can survive extended periods where the Bitcoin price isn't that exciting, and be really well positioned when it does, it does run.

So when you look at our cost per Bitcoin mined at Childress this month in the low $20s per coin mined, the increases in efficiency come in. We're on good gross profit margins. We're feeling good at the current Bitcoin price levels. Now, it's a good business. That's why we're continuing to put more capital in. It's accretive, it's generating significant cash flow, but not everyone can do it, and that's part of the hurdle, and I guess the moat that we've got and the, and the opportunity and challenge for others in this space. So ultimately, if that hash price wants to grow, then you need the price of Bitcoin to move, and then people will try and build into it, but the challenge is how you do that. So we're probably at, what?

20-25 gigawatts of power globally today dedicated to Bitcoin mining capacity, but that's no small feat. I think the global data center industry is maybe 25-30. I haven't seen the latest numbers, but that is a lot of power, and the whole thing comes back to that thing I keep repeating around the digital world, real world dislocation. You can't click your fingers and respond to these exponential functions that are moving in the digital world. And if you look at the price of Bitcoin today, if Bitcoin happens to double, over the coming period, then how do you possibly find 20-25 gigawatts of power in any timeframe that's in the short, medium term, to try and normalize mining profits or the hash price to where it is today, so that's the whole opportunity.

In saying that, expect the hash rate, the global network to grow, but it's getting harder to grow because of that access to power and land, and really, it's probably more going to be growing through a function of increased efficiency on the chip side, which again, is gonna be slow, again, is gonna require capital. Not all miners have access to that capital.

Michael Colonnese (Analyst)

Got it. Got it. I appreciate the color there. And you cited in your July production update that there were some T21 minor performance issues, which we've seen with a couple other miners as well. I'm just curious if you can specify what those issues were for you, and how much exahash is being replaced, and when Bitmain should get those replacements to you.

Daniel Roberts (Co-CEO)

Yeah. I'm not sure how granular we've been on the details, and Bitmain are a really good partner of ours, so I'm reluctant to speak too negatively about them because they've been fantastic for us over the long term. But there were some manufacturing defects around heat sinks and ability to operate in the higher temperatures, and just general construction, and assembly quality relative to their high standards that we see across other units. But again, testament to Bitmain, their response times and them accepting this issue and taking 100% responsibility for it has been fantastic. So again, everyone makes mistakes. I make mistakes all, all the time. There's always issues. It's how you respond, it's how you fix things, and Bitmain have been absolutely fantastic.

It's around about potentially one and a half exahash of capacity, and that is being replaced lifetime. So you would expect to see that resolved over the coming months.

Michael Colonnese (Analyst)

Great. Thanks for taking my questions, Dan.

Operator (participant)

One moment for our next question. And that will come from the line of Joe Flynn with Compass Point Research. Your line is open.

Joseph Flynn (Analyst)

Hi, thanks for the question. The question regarding the 1.4-gigawatt West Texas site, and you mentioned in the past, you know, you've been chipping away at the CapEx there, but can you provide some color on, like, what actually, you know, is on site, whether there be, you know, transformers, a substation, long-haul fiber, et cetera, and also if there's any remaining ERCOT approvals? Thanks.

Daniel Roberts (Co-CEO)

So there's nothing on site at the moment. It's a greenfield site. We're in the design planning phase around mapping out how we will build there. But part of us coming to market on that site with Morgan Stanley is we're at that decision point now, where energization isn't far away, and the utility is working on that energization. It's into an existing network substation. So in relative terms, it's not an overly complicated connection, so they're working through their construction and procurement processes. And then for us, it's really design at this stage, and coming to market now is because we need to crack on with it. We need to make decisions because the real world takes time, and there's long lead items. So we're thinking already and working through the process for procuring high voltage transformers and key lead items.

But there's nothing material to report at this particular juncture.

Joseph Flynn (Analyst)

And if I could just comment on that, like, you know, in your conversations with Morgan Stanley and potential, you know, customers or deal structures, I mean, have you seen kind of valuations, you know, from a just dollar per megawatt basis start to improve in areas like West Texas? And, just anything you could comment on there would be great.

Daniel Roberts (Co-CEO)

Yeah, I've got nothing to say. We're just not at that point with the Morgan Stanley process. We've had kind of indicative conversations around what co-location and AI cloud looks like, at a smaller scale, the 1.4 gigawatts. But the reality is, it's such a dynamic market. You look at how it's kind of evolved over the last six to nine months. Every month that goes by, the whole sector is thinking about, well, how real is this power and land scarcity dynamic? What are these things worth? What's the price that I'm willing to pay? So again, we've seen market benchmarks, and there's a couple of them out there which, you know, we can point to and others can point to, which are informative in these negotiations and discussions.

But again, it's so dynamic that really from our perspective, it's just looking at every opportunity on its face and saying, "Well, does the risk return make sense if we're allocating capital? If we're not allocating capital, what's the opportunity cost of giving up that power and land?" Recognizing we've got a lot of it, we've got a lot more coming with our development pipeline. So again, it's, you know... I wish I could give more color, but it's nuanced, it's dynamic, and until we get to that actual decision point, it's really hard to give firm guidance because whatever I say will be wrong. Like, that's the reality. Everything's just so dynamic.

Joseph Flynn (Analyst)

Understood. Thanks for the questions.

Operator (participant)

Thank you. One moment for our next question. And that will come from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Brett Knoblauch (Analyst)

Hey, guys. Thanks for taking my question, and congrats on the quarter, and thanks for all the updates. Maybe starting with the new 10 Exahash of Bitmain mining machines. Should we have those machines being plugged in this year, or those machines being plugged in next year?

Daniel Roberts (Co-CEO)

Hey, Brett. This year. So key part of that negotiation was trying to ensure that they'll be delivered this year. Some of it might be a little bit tight going into December, but that's a good challenge for us. But the whole idea of that additional purchase was to bring it forward into this year, given that we're making the investment decision to go to 30 Exahash. We're fully funded to do so. And then the ability to roll the existing optionality, the existing 20 Exahash of options into next year, and I guess kick the can on that decision point, was a key part of that decision for us.

Brett Knoblauch (Analyst)

Awesome. Appreciate that. And then on the AI HPC pilot at Childress that you're expecting to finish in the second half of this year, could you maybe just first broadly talk about what type of kind of returns you're seeing from what you're doing right now in BC? How much did you spend on the GPUs? And, you know, I guess just talk through the return dynamics of that business. And, maybe just another follow-up on the size of this pilot. Should we expect something similar in size to what you guys are doing in BC?

Daniel Roberts (Co-CEO)

Yeah, and apologies to Nick. He actually asked me about this earlier from B. Riley, and I forgot to answer it. So, the size of the pilot in BC is small, like it's about 16 GPUs, I think, so just under $1 million worth. And look, we're looking to start training and utilizing it imminently. So that's happening. So that's exciting. We'll learn a lot very quickly around that. But in terms of the return decision, again, it's pretty much unchanged from prior guidance, in the sense that you're looking at roughly two-year paybacks on these GPUs. Maybe it's extended a little bit to 24-30 months for the H100 as the Blackwells, the H200 start to come to market.

So you're seeing that impact of better technology coming through. But again, it's gonna. You've got to weigh up that break-even point in terms of the CapEx against how much capital are we putting to work, i.e., is there other prepayments at work? What's the contract tenor? What's the level of risk behind that contract? Et cetera. So like, prima facie, it looks like a great business, the near-term paybacks, but you've got to get the contracting structure right, you've got to be mindful of the demand, and, you know, it, it's an uncertain world so far as AI training and the demand for these GPUs over the coming years.

It all sounds and looks really exciting, and we think we're on that exponential curve, and we probably are inevitably at some point, but there's always bumps in the road, so we don't want to be caught out there, and then on the supply side, the impact of new technology coming to market, the iteration and the efficiency of these GPUs. Again, you just don't want to get caught holding a whole bunch of older GPUs, where the revenue profile of those GPUs falls a little bit faster than what you're expecting.

Brett Knoblauch (Analyst)

Perfect. Thanks, guys. Really appreciate it.

Operator (participant)

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Co-founder and Co-CEO, Mr. Dan Roberts.

Daniel Roberts (Co-CEO)

Thank you. I feel like I've done a lot of talking, and sorry, Link and Belinda. But thanks, everyone, for dialing in. It's been a great 12 months behind us, but probably a more exciting three to six months plus ahead of us. We feel like we're in a really good position. You know, $1 billion plus of equity on the balance sheet, $400 million of cash, zero debt, so a really robust base platform, and we continue to prove our ability to grow significantly. I mean, we've grown our Bitcoin mining capacity 8X since the start of last year. We've built it 2.5X since the start of this year, and we're going another 2X again in the next four months, all fully funded.

So to go from 1.7 exahash, start of last year, to 30 exahash at the end of this year, it's just great. Like, we're super excited about it. But for us, 2025 is not far away, and the world doesn't end on 31 December. So the opportunity to grow substantially into next year and beyond, both on Bitcoin mining and the AI side of the business, is something we're really excited about. So appreciate everyone's support. Thanks for dialing in, and have a good evening, all.

Operator (participant)

This concludes-