Third Quarter 2026 Business Update Conference Call - CIPHER DIGITAL INC

Financial Performance:

• Q3 2026 revenue was $27 million, up from $25 million in Q2, marking the first recognition of HPC lease revenue at Black Pearl.
• GAAP net income swung to $32 million compared to a $268 million GAAP net loss in Q2, driven primarily by a $127 million non-cash gain on warrant liability (vs. $151 million loss in Q2).
• Adjusted EBITDA loss narrowed to $10 million from $30 million in Q2.
• Interest expense declined to $59 million (from $67 million in Q2) while capitalized interest rose to $37 million due to accelerated construction spend.
• The company sold 632 BTC for $45.5 million in proceeds, realizing a $0.5 million gain compared to a $24 million loss in Q2.
• Total assets reached $7.7 billion; restricted cash decreased by $1.5 billion to $2.2 billion, while property and equipment increased by $1.8 billion to $3.9 billion.
• Deferred revenue grew to $46 million, reflecting tenant prepayments and change orders.
• Debt structure includes ~$6.7 billion total debt ($4.5 billion project-level secured notes, $2.2 billion parent convertible notes, nearly all at 0% coupon); net debt is ~$3 billion.

Guidance and Future Outlook:

• Pipeline capacity totals ~6.8 gigawatts, including contracted, operating, and future development sites; immediate near-term opportunities stand at ~5.9 gigawatts.
• First capacity delivered at Black Pearl; additional capacity across Black Pearl, Barber Lake, and Stingray expected to come online in phases through Q1 2027.
• Final PCLR (Prioritized Critical Load Region) classifications expected for Colchis (1 GW site) in December following the data center audit.
• Lateral natural gas pipelines for on-site generation (supporting up to 2.5 GW) are under development, with potential to bring first power online as early as late 2027.
• Management anticipates continued supply chain and labor inflation through 2027 but expects to mitigate risks through improved design alignment and cost-sharing mechanisms.
• Long-term goal is to convert scarce power opportunities into long-duration contracted cash flows rather than pursuing growth for growth's sake.

Business Segments and Product Lines:

• Barber Lake: Lease amended to extend term from 10 to 20 years, increasing total contracted revenue to $9.1 billion ($5.2 billion incremental). Tenant reimburses ~$50 million of change orders; Cypher invests $359 million of equity for improved economics.
• Black Pearl & Stingray: Black Pearl delivered 18 MW of critical IT capacity ahead of schedule; Stingray steel erection and shell construction progressing.
• Odessa: Bitcoin mining site produced ~296 BTC in Q3; actively evaluating monetization as an HPC development site leveraging existing infrastructure and PPAs.
• Site Acquisition: Acquired 685 acres adjacent to Barber Lake and 256 acres at Black Pearl for future expansion; acquired Horizon (70 MW) in Texas, expected to energize in 2029.
• New Structures: Executing construction reimbursement agreements and cost-sharing mechanisms to align tenant interests and protect margins against scope evolution.

Market and Competitive Landscape:

• Tenant demand remains exceptionally strong, with heightened interest from leading hyperscalers and AI labs for the company's scarce power portfolio.
• Company's project bonds are among the three tightest trading bonds in the AI infrastructure high-yield market, outperforming peers due to creditworthy tenants.
• PCLR designations (e.g., Mekeska, Apollo, Stingray expansion) allow full power draw ahead of transmission upgrades, providing a competitive "time-to-power" advantage.
• Market scarcity of power sites and interconnection constraints has significantly increased land valuation and entry costs for competitors, favoring Cypher's early acquisition strategy.

Risks and Challenges:

• Inflation and Supply Chain: Rising labor costs and equipment long-lead times (turbines, engines) pose risks to construction costs and schedules.
• Regulatory Uncertainty: Evolving ERCOT regulations and data center audit processes create timing risks for interconnection; PCLR curtailment terms remain subject to final clarification.
• Change Orders: Early project dynamics (e.g., rapid design evolution) led to significant change orders and cost inflation, though future leases utilize 30-60% completed designs to mitigate this.
• Concentration: Significant exposure to Texas; while management views regulatory risks as manageable, geographic concentration remains a factor.

Management Commentary and Tone:

• Tone is confident and resilient, emphasizing that the company was "built for this market" despite regulatory headlines and volatility.
• Management highlighted a strategic shift from speed-to-market (early HPC transition) to "deliberate design" to ensure cost certainty and protect yield-on-cost margins.
• CEO emphasized the "expressway" analogy: building long-duration infrastructure to collect tolls (recurring revenue) for decades, positioning the firm as an infrastructure play rather than a neocloud provider.
• CFO highlighted the success of the capital stack evolution, specifically the $850 million zero-coupon convertible note issuance which provided liquidity without dilution (offset by a cap call).

Analyst Questions and Answers:

• CapEx & Margins: Management expects inflationary pressures to continue in 2027 but anticipates tenants will agree to rent increases and cost-sharing structures to offset rising build costs.
• Odessa Monetization: Odessa remains a strong HPC opportunity due to existing "time-to-power" assets; management expects to earn a return via unlocking tenant interest without injecting new equity.
• Geographic Diversification: While open to new locations (e.g., Ohio), Texas remains the primary focus due to favorable speed-to-market compared to other regions facing multi-year interconnection queues and high deposit requirements.
• On-Site Generation: Lateral pipelines are being developed to support ~1 GW of on-site generation leases; tenants prefer sites with grid backup but value the speed of behind-the-meter generation. Yields on cost for on-site generation are expected to be comparable to grid-connected projects.
• Barber Lake Cost Structure: Cost increases ($13M/IT MW vs. original $10.4M) were driven by change orders and scope evolution; the lease amendment mitigated this by improving yield-on-cost back to ~15% through extended terms and additional revenue.
• PCLR & Batteries: PCLR designation is viewed as a significant competitive moat; battery storage is under evaluation but the primary value driver remains the "time-to-power" advantage of PCLR sites.

Other Key Points:

• Management contributed $10 million (combined with Fluidstack and Anthropic) to repair Colorado City's water infrastructure.
• The company successfully completed three project-level financings for its campuses, achieving lower funding costs with each successive project.
• The capital structure is described as "ring-fenced," with project debt serviced by long-term contracted rent from investment-grade counterparties.
• Management reiterated that they are not a "neocloud" provider, focusing strictly on core shell and power infrastructure rather than owning chips or compute hardware.