Cipher Mining Inc

NASDAQ:CIFR

Q1-2025 Earnings Call

[Operator]

Good day, and thank you for standing by. Welcome to the Cipher Mining First Quarter 2025 Business Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.



I would like to hand the conference over to your speaker today, Courtney Knight, Head of Investor Relations. Please go ahead.

[Courtney Knight, executive]

Good morning, and thank you for joining us on this conference call to address Cipher Mining's business update for the first quarter of 2025. Joining me on the call today are Tyler Page, Chief Executive Officer; and Edward Farrell, Chief Financial Officer.



Please note that our press release and presentation can be found on the Investor Relations section of the company's website where this conference call will also be simultaneously webcast. Please also note that this conference call is the property of Cipher Mining, and any taping or other reproduction is expressly prohibited without prior consent.



Before we start, I'd like to remind you that the following discussion as well as our press release and presentation contain forward-looking statements. These statements include but are not limited to Cipher's financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our business operations, potential competition and our goals and strategies. Forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cipher assumes no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law.



Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the mostly directly comparable GAAP measures, and you are encouraged to examine these reconciliations, which were filed at the end of our earnings release issued earlier this morning.



I will now turn the call over to CEO, Tyler Page. Tyler?

[Rodney Page, executive]

Thanks, Courtney. Good morning, everyone, and thank you for joining us today. I'm Tyler Page, CEO of Cipher Mining, and I'm pleased to welcome you to our first quarter 2025 business update call. Q1 was a quarter of steady progress as we advanced our 2025 expansion plans. I'll provide more detail on those plans later in the call, but first, I want to highlight a few key metrics that speak to today's themes: consistent execution, disciplined operations and strategic growth. Against a turbulent macro backdrop, our flexible and disciplined approach continues to give me confidence in our ongoing success.



In the first quarter, we mined 602 Bitcoin in total across our four operating sites, up 3% from the 585 Bitcoin mined in the fourth quarter. Excluding Bitcoin mined through our joint ventures, we mined 524 Bitcoin at our wholly owned Odessa data center, generating $49 million in revenue. This compares to the 492 Bitcoin mined in Q4 2024, which resulted in $42 million in revenue, reflecting a 6.5% increase in production at Odessa and a 16% increase in revenue. As you may recall, we successfully completed our Odessa mining rig upgrade in the fourth quarter of last year, and we are continuing to see the benefits of that investment with solid and consistent production.



For those less familiar with the Cipher story, I'd like to briefly revisit a few of Cipher's core operational metrics and strengths, which allow us to achieve our top line numbers. Our fleet continues to operate with remarkable efficiency, currently standing at an impressive 18.9 joules per terahash, and our all-in weighted average power cost remains highly competitive at just 2.7 cents per kilowatt hour. Simply put, we are running some of the industry's lowest cost power through one of its most efficient fleets to deliver exceptional unit economics.



Across our sites in the first quarter, we paid an average all-in electricity cost of roughly $23,379 per Bitcoin produced at our data centers. This is a highly competitive figure as it reflects the total cost to deliver electricity to our mining rigs, including all taxes, transmission and other charges. Our operating metrics underpin the strength and durability of our business, enabling us to remain adaptive and competitive across market cycles. Our strong operational foundation will remain a key advantage as we continue to grow and scale. Cipher's current operating capacity stands at 327 megawatts, with expected pipeline capacity expansion of approximately 2.8 gigawatts in the coming years.



We'll discuss our impressive pipeline in further depth later on the call, so I'd like to shift focus to our first quarter growth highlights across key verticals and our outlook for the path ahead amid market uncertainty. In the first quarter, we made significant progress on the construction of Phase I of our 300-megawatt Black Pearl data center, meeting construction milestones we will discuss in greater detail later in the call. This accelerated progress and expected energization in May created a unique opportunity to accelerate our deployment timeline and bring hash rate online ahead of schedule. We're pleased to report that we have made the strategic decision to immediately deploy rigs from inventory at the newly constructed site while we await the arrival of new rigs expected later this summer.



We have now begun the process of relocating legacy rigs from our Odessa upgrade to the Black Pearl site for redeployment. We are confident that we can have these rigs plugged in ahead of energization, enabling us to bring approximately 2.5 exahashes per second online in the second quarter. This decision makes efficient use of idle assets at no additional capital expenditure for the company.



The Cipher business was intentionally designed for this kind of operational flexibility. Our deep expertise in power curtailment and our ability to consistently produce best-in-class electricity costs allows us to effectively monetize older rigs, an advantage we expect to continue to benefit from over time. This redeployment will bring Cipher's total self-mining hash rate to around 16 exahash per second by the end of the second quarter, and we expect to scale to approximately 23.1 exahash per second by the end of the third quarter as the company continues to monitor the tariff landscape and new rig delivery schedules come into focus. We have engaged in constructive commercial discussions with rig providers on mitigating tariff impact and remain confident that we are firmly on track to meet our previously announced projections and timeline.



Another way we've proactively structured our business to preserve optionality at sites is our evolution from being solely a Bitcoin miner to being a developer of HPC data centers. We have been encouraged by the continued momentum in tenant interest across our sites with approximately half a dozen potential tenants currently under NDA and in data rooms, alongside a series of recent site visits. In parallel, we've seen strong and sustained interest from an even broader group of financing partners eager to collaborate on the development of next-generation data centers.



We're thrilled to announce today that we have signed a term sheet with Fortress Credit Advisors LLC to be our financing partner at Barber Lake. Fortress Investment Group is a leading global alternative asset manager and one of the most active investors in single tenant build-to-suit projects, having funded the development of over 43 million square feet in build-to-suit transactions. They will not only bring extensive experience in data center development, but also a strong network of relationships with hyperscalers that complements our active discussions. We are thrilled to be working with a best-in-class financing partner, given Barber Lake's enormous potential for HPC with its 300 megawatts of already energized capacity. And now when we speak to tenants, we can represent that the entire construction cost of the data center is backstopped by deep pockets.



As a reminder, our current primary intent for our 2.8 gigawatt pipeline of sites is to develop them as HPC data centers whenever possible. Our pipeline is the culmination of the extensive work our team has done to source attractive new data center sites with access to adequate land and the fiber necessary to service HPC customers. We continue to believe that large-scale interconnects available in the next few years are exceedingly rare and valuable and will be in high demand.



As macro and equity markets have been particularly turbulent recently, it's a good time to discuss our active treasury management strategy and how it plays a critical role in managing risk, preserving optionality and supporting long-term growth. Our treasury management strategy has always been guided by a disciplined and balanced approach. We do not hold every Bitcoin or sell every Bitcoin to manage our treasury. Instead, we manage our treasury like a seasoned commodities producer, systematically selling a portion of our daily Bitcoin production to cover operating expenses such as electricity, strategically holding a portion based on our long-term belief in Bitcoin's value and appreciation potential, and executing opportunistic sales and hedges when market conditions present accretive opportunities for the business. In Q1, our strategy outperformed simply holding Bitcoin by 16% and outperformed daily liquidation by 2%.



In addition to managing inventory levels, we also typically hedge approximately 10% of our holdings to mitigate downside risk, often using costless three-way structures. This percentage is dynamically adjusted based on market conditions and macroeconomic events. For example, we may increase our hedged exposure around key risk events such as FOMC meetings or major economic data releases. Our hedging strategy is actively managed and continuously recalibrated based on market movements, our outlook on Bitcoin spot prices, and the evolving risk environment. Last quarter, strong OTC hedge performance and well-timed deliverable forwards improved our effective spot price to nearly $96,000 per Bitcoin.



As we've discussed previously, we remain focused on thoughtfully evaluating funding options that support growth while minimizing dilution. In addition to OTC hedges, we have used innovative first-to-market structured Bitcoin deliverable forwards as well as negotiated Bitcoin-backed loan facilities. As a result of our active treasury management in the last quarter, we unlocked $90 million in liquidity, capital that directly supported the continued growth and expansion of the business without diluting shareholders. In this way, our industry-leading treasury management aligns our capital strategy to support sustainable risk-adjusted growth.



Let's now turn to a review of our current operations, which continue to serve as a strong foundation for our success. Slide 7 has a production summary for our Odessa facility. Odessa is the most significant part of our portfolio, representing approximately 86% of our Bitcoin production in April. As we've noted in the past, Odessa set a new industry benchmark as the first Bitcoin mining data center to receive the Uptime Institute's Stamp of Approval for management and operations. As of April, the current operating hash rate at the site is 11.3 exahashes per second, using approximately 207 megawatts. Odessa's fleet efficiency stands at 17.6 joules per terahash.



On this page, we also provide the observed all-in electricity cost per Bitcoin at the site over the quarter, which was roughly $20,899. Odessa is a wholly owned facility operating under a 5-year fixed price power purchase agreement, securing some of the most competitive electricity rates in the industry and reinforcing our cost advantage and operational strengths.



On Slide 8, we provide a combined overview of our joint venture data centers of Alborz, Bear and Chief. With the 2024 expansions at Bear and Chief, the 3 sites have a total power capacity of 120 megawatts and can generate approximately 4.4 exahash per second. We own 49% of the JV sites, and our portion recently generated roughly 14% of our overall Bitcoin production. On this page, we also provide the observed all-in electricity cost per Bitcoin at the 3 sites in the first quarter, which was roughly $39,988. As a reminder, both Bear and Chief operate as front-of-the-meter sites, so there are expected seasonal fluctuations with their electricity costs.



Let's now shift to an update on our development portfolio. We've organized the pipeline into near-term growth opportunities at Black Pearl and Barber Lake and longer-term expansion in 2026 and 2027. Black Pearl is our 300-megawatt data center in Wink, Texas, that is expected to energize in the second quarter. Phase I is currently under construction and will feature 150 megawatts of air-cooled Bitcoin mining rigs. We continue to evaluate our options for the remaining 150 megawatts of capacity at the site, including the potential to build Phase II of the data center for HPC hosting. Ultimately, our final design at the site will depend on what we think will produce the best outcome for our shareholders.



On the right of the slide, we've included two photos of the substation infrastructure at our Black Pearl site. In the last few months, we made significant advancements on Phase I, including receipt of all 4 substation transformers, which arrived ahead of schedule. All substation transformers will be ready to serve the full 300 megawatts capacity in Q2.



Excitingly, we are also nearing completion of the core and shell of Phase 1 and are ready to deploy rigs in the near term. We intend to have the rigs arrive in May and be ready to hash by the end of June. These 4 photos clearly illustrate the tremendous progress we have made in safely and rapidly building a best-in-class data center. We couldn't be prouder of our team's ongoing commitment and execution.



Slide 12 gives an overview of our Barber Lake site. We are thrilled to announce Fortress as our JV financing partner to develop a next-generation data center at the site. The site has enormous potential for HPC given its immediately available capacity of 300 megawatts and now 587 acres of surrounding land, plus its already energized substation. Last quarter, we signed a memorandum of understanding to potentially expand the scope of the facility to include an additional 500-megawatt data center adjacent to the current 300-megawatt site. This would result in a total eventual capacity of 800 megawatts at Barber Lake. The additional 500 megawatts of capacity are expected to come online by 2029.



We are also pleased to share that this quarter, we successfully drilled a test water well at the site and confirmed favorable flow rates, strengthening Barber Lake's potential for evaporative cooling. These results enhance the site's ability to optimize PUE and strengthen its suitability for high performance computing applications. With the potential future expansion and the recent financing developments, we remain as confident as ever in the commercial potential at the site. These complex deals take time to come together, but the team is working diligently to finalize the best possible deal for Cipher.



Slide 13 outlines our expected growth in 2026 and highlights our latest site acquisition in Andrews County, Texas called Stingray. The site, purchased last November, features 100 megawatts of front-of-the-meter capacity, all necessary regulatory approvals and 250 acres of land adjacent to the transmission assets. The site is expected to energize in the third quarter of 2026, which complements our 2025 and 2027 energizations.



Slide 14 outlines our expected growth in 2027 across 4 sites with 1.6 gigawatts of potential power capacity. Our Reveille site in Cotulla, Texas, is on track to energize in 2027. The site has already been approved for 70 megawatts, and we've submitted a request for additional capacity. Our 3 Ms -- Mikeska, Milsing and McLennan -- are currently undergoing final interconnection approval processes with decisions expected later this year. While our focus is primarily on near-term sites, this quarter, we acquired an additional 26 acres at McLennan, making the site more accessible for construction and development. We're targeting up to 500 megawatts of capacity at each of these sites. In addition to interconnection rights, our purchase options also include significant land parcels at each location, all of which are well suited for HPC data center development.



The sites expected to energize in 2027 are located further east than our current portfolio and are positioned closer to major metropolitan areas. We've already seen early interest from potential tenants and believe these sites will be in high demand as development progresses. With a 2.8-gigawatt pipeline, a strong track record of production and execution, industry-leading treasury management and strategic flexibility, we're confident in our ability to become a leading data center developer for HPC infrastructure while continuing to be best-in-class in Bitcoin mining.



I will now turn it over to our CFO, Ed Farrell, for a review of our first quarter financials.

[Edward Farrell, executive]

Thank you, Tyler, and hello to everyone on the call. Before I dive into our financial results, I'd like to remind everyone that today, I will be discussing our performance for the first quarter of 2025, which ended on March 31.



As Tyler highlighted, the first quarter reflected disciplined execution and steady production despite challenging market conditions. We believe this performance positions Cipher well for continued growth and operational optimization in 2025. As always, I'd like to begin with a review of our sequential and year-over-year financial performance outlined on Slides 16 and 17.



Despite a challenging market environment, Cipher continued to execute our strategy, driving top line growth. As Tyler stated, in the first quarter, we reported $49 million in revenue, up 16% from $42 million in the fourth quarter of last year. As you may recall, we successfully completed our Odessa mining rig upgrade in Q4, placing over 36,000 rigs, and we continue to see the benefits of that investment.



Top line revenue also benefited from higher average Bitcoin price quarter-over-quarter, increasing from approximately $83,000 in Q4 to approximately $93,000 in Q1. While the average Bitcoin price increased quarter-over-quarter, the spot price declined from approximately $93,000 at the end of Q4 to roughly $83,000 at the end of Q1, negatively impacting our bottom line through a $20 million unrealized mark-to-market loss on our Bitcoin holdings.



For the quarter, we reported a GAAP net loss of $39 million, or a net loss of $0.11 per share, and adjusted earnings of $6 million or $0.02 per share. Additionally, bottom line results were impacted by higher depreciation quarter-over-quarter. This was the first quarter in which we depreciated the full value of the new machines installed at Odessa in the fourth quarter of 2024. I will discuss this in more detail later in the call. Despite a volatile market environment, this quarter's performance underscores our ability to deliver consistent production and revenue despite external headwinds and reflects the operational discipline of our team.



Moving to Slide 17. In the first quarter of 2025, we achieved $1 million increase in revenue compared to the first quarter of 2024. This result reflects our ability to navigate post-halving environment driven by our low-cost power and operational efficiency.



As noted earlier, due to the decrease in Bitcoin price and increased depreciation, we saw a significant decrease in GAAP and non-GAAP earnings year-over-year. This quarter, our GAAP net loss of $39 million, or a loss per share of $0.11, compared to net income of $40 million or $0.13 per share in the first quarter of the prior year. Our adjusted earnings decreased from $63 million or $0.21 per share to $6 million or $0.02 per share. In addition to being pre-halving quarter, Q1 2024 also benefited from approximately $41 million in unrealized gains on Bitcoin compared to a $20 million unrealized loss this quarter. As noted earlier, the change to our depreciation schedule implemented in Q2 of last year had a significant impact on our results as well.



Let's move on to Slide 18 and take a deeper look at the results of our operations. As Tyler mentioned, for the quarter, we mined 524 Bitcoin at our wholly owned Odessa data center, generating $49 million in revenue at an average price of roughly $93,500 per Bitcoin. This compares to the 492 Bitcoin we mined in Q4 2024 at an average price of $83,000 per Bitcoin, resulting in $42 million in revenue, a sequential increase of 16% in revenue and a 6.5% increase in production.



Over the quarter, our cost of revenue decreased 18% sequentially. In the first quarter, we were curtailed less frequently and therefore did not need to purchase power as often as in the prior quarter. Year-over-year, the cost of revenue remained flat. Our low-cost fixed price power remains a critical factor in maintaining attractive unit economics.



Now let's shift our focus to operating expenses. Compensation and benefits declined sequentially related to a decline in stock-based compensation as well as a reduction of the bonus accrual. The increase of $1 million year-over-year is primarily related to an increase in headcount from the period last year. We now believe we have the right talent in place to support our continued growth.



Turning to general and administrative expenses, which include IT, corporate insurance, professional fees, occupancy and other public company costs, we saw a slight decrease quarter-over-quarter. On a year-over-year basis, G&A expenses rose by approximately $3 million, primarily driven by higher professional fees and public company costs. The key contributors to this increase were expenses related to strategic growth initiatives and Sarbanes-Oxley compliance.



For the quarter, depreciation and amortization expense totaled around $43 million, representing a 20% increase from the prior quarter and a 152% increase year-over-year. These increases are primarily driven by our Q4 upgrade at Odessa, which brought online over 36,000 new mining rigs. In addition, as previously reported, in Q2 last year, we changed our accounting policy for mining depreciation, decreasing the estimated useful life of miners from 5 years to 3 years. This change, coupled with the increased number of mining rigs in operation, explains the significant year-over-year increase. The oldest rigs in our fleet will cease depreciating in the fourth quarter of this year.



Equity and losses of equity investees for the quarter was $5 million. The impact in the current quarter primarily relates to a non-cash impairment charge identified by our Alborz JV related to their mining rigs.



In Q1, we recognized a $20 million unrealized loss on the fair value of our Bitcoin inventory compared to an unrealized gain of $14 million in Q4. Unrealized gains and losses on Bitcoin reflect the mark-to-market accounting of our holdings. While the average price of Bitcoin rose during the quarter, the spot price at quarter end declined meaningfully compared to the end of Q4. In the quarter, we recognized $12 million of realized gains on Bitcoin despite challenging market conditions. This compares to $26 million in realized gains from selling Bitcoin in the fourth quarter of last year. In Q1 of last year, we did not sell any Bitcoin outside of minor sales for transaction fees.



Now let's turn to our non-GAAP measures slide, where we reconcile our adjusted earnings. As always, I'd like to remind you that adjusted earnings exclude the impact of depreciation and amortization, the non-cash changes in the fair value of our derivative asset, deferred income tax expense, the non-cash charge in the fair value of the warrant liability, share-based compensation and the non-recurring gains. When adjusting our first quarter GAAP net loss of $39 million, we added back $45 million for the items I just listed, resulting in adjusted net earnings of $6 million for the quarter. This compares to an adjusted net gain of $51 million in the previous quarter and $63 million in the previous year.



Now let's turn our attention to the balance sheet. On Slide 20, our total current assets at year-end were $155 million. Our cash position increased from $6 million in December to $23 million in March, an increase of $18 million from the previous quarter. As you may remember, we received a PIPE investment from SoftBank in January in which SoftBank invested $50 million in Cipher through the purchase of approximately 10.4 million shares of our common stock. Over the quarter, we deployed capital towards the ongoing construction and buildout at Black Pearl, miner rig payments and routine operating expenses. As Tyler mentioned, we remain disciplined in our approach to capital management and growth, and as of March 31, our total liquidity was $75 million.



I'll quickly cover some additional balance sheet line items as of March 31. Our prepaid expenses amounted to $3 million. This balance is primarily related to corporate insurance and was flat quarter-over-quarter. Our Odessa power contract, which is reflected as a derivative asset on our balance sheet, represents the in-the-money value of the contract, influenced by the time value and prevailing forward power prices at our Odessa facility.



Over the quarter, we had a mark-to-market gain on our PPA, driven by an upward shift in the forward curve for relevant power prices. The PPA ended the quarter valued at $93 million, up 9% from the prior quarter. While there are substantial fluctuations in the reported value quarter-over-quarter, the true value of this contract lies in its provision of low-cost fixed price power at our Odessa site. This contract bolsters our competitive advantage now and over the life of the contract ending July 2027.



Other significant assets include property and equipment totaling $478 million, primarily attributed to our Odessa facility. Within this category, mining rigs and related equipment account for $340 million, leasehold improvements are valued at $138 million, land of $51 million, infrastructure of $28 million and construction in progress at $120 million. These balances are net of $200 million in accumulated depreciation.



Deposits on equipment of $121 million primarily consist of deposits for mining rig purchases. Additionally, we hold intangible assets totaling $10 million with $7 million attributed to ERCOT approval at Black Pearl and the remaining $3 million related to capitalized software. These balances are net of $1 million in accumulated amortization.



At the end of the first quarter, our equity investee in Alborz, Bear and Chief JVs stands at $48 million, and we had operating leases of $12 million. We had security deposits totaling $20 million, which primarily represent the encore deposits related to the construction of interconnects at the various data centers.



Our liabilities increased slightly quarter-over-quarter, driven by our growth initiatives. Our accounts payable increased $30 million, primarily related to vendor payments for Black Pearl construction, and our accrued expenses decreased from $70 million to $66 million. Short-term borrowings of $35 million relate to borrowings done to provide liquidity in the near term while preserving Bitcoin liquidity and selling production upfront and is one example of the strategic capital management Tyler discussed.



Before we conclude, I'd like to thank everyone for joining today's call. We remain committed to providing regular updates on our strategic initiatives and growth plans in quarters to come. At this time, I will pause, and Tyler and I would be pleased to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Brett Knoblauch with Cantor Fitzgerald.

[Brett Knoblauch, analyst]

On the Fortress announcement, could you maybe provide a bit more color there? Does that mean Barber Lake would be going into a JV? And just, I guess, more clarity on the terms of that financing arrangement?

[Rodney Page, executive]

Sure. Thanks for the question. I will give you a sort of a high-level summary. I think we will wait to probably get into the exact blood and guts of sort of how waterfalls shake out and things like that as it will be somewhat linked to the success and how the lease from the particular tenant ultimately looks. But yes, at a high level, it will be a joint venture. They will be our financing partner. They unconditionally backstop the financing of a full data center build. That amount varies depending on the tenant and the specs that they want. That can vary quite a bit. A recent one was in the neighborhood of about $3.1 billion, $3.2 billion total. Our sort of share -- again, I won't get into sort of every specific because I want to wait until we have a finalized deal to be a little bit more specific. But high level, we have the right to own up to 49% of the JV. We would contribute our assets, so the land, substation, interconnect, et cetera, and have value for that, and then we could invest more cash if we wanted to. But at the end of the day, sort of how that shakes out for our returns will largely depend on the ultimate sort of lease rates and then exit and cap rates. If we were to exit several years into the future, that will depend a little bit on what the market for data centers looks like. We're very bullish in that. I think it's fair to say, roughly speaking, I would expect us to be about 40% of the economics in a good situation, and that is without contributing a dollar of capital.



So it's really the ability to go to potential tenants. And it's been our observation that while we get a lot of respect from potential tenants for our skill and expertise in construction and ops, it's not lost on us that if we're talking to a counterparty with a $1 trillion market cap and they're building a $3 billion asset, particularly in a volatile market, I think one of the drawbacks of the Bitcoin miners in general is that they say, wow, that's a big obligation for you guys to backstop for such an important investment for us. So in this case, the ability to partner with someone that has built data centers for hyperscalers, is obviously very well-known and very credentialed allows us, I think, to have a different kind of conversation to finalize a lease. So there will be some variability on exactly how the economics shake out because it depends a bit on who the tenant and what the lease terms are and then ultimately what the market looks like for data centers.

[Brett Knoblauch, analyst]

Perfect. That was very helpful. Maybe just high level on conversations maybe since tariff announcements in early April. Have you seen a pause, a step back? Have conversations kind of continued to progress without any bumps in the road? I guess, what are you seeing just from where conversations are?

[Rodney Page, executive]

Yes. So I would say the pace of conversations has not abated. If anything, they have increased. We've had more reverse inquiries from very large investors and tenants around the world. I was doing a mental checklist as we were going through the call. I think in the last few months, I've met personally somewhere around the world or on a Zoom with 3, 4 billionaire real estate developers that are very interested in what we've got going on. And they both can represent tenants and wanting to be an investor themselves. I think on strictly the tenant side, yes, we have had deeper discussions in the past couple of months. Nothing has abated on that from the tariffs. I will say on the sort of very well-known big name hyperscaler side, I would say it sort of continues at the same pace that it seems to always do, which is everything moves in a hurry for a stretch and then sometimes quiets down for a few weeks and then comes back to life. My understanding is that this is everyone's experience in general dealing with them. But high level, I have not seen any change in the level of interest since the tariff announcements.

[Operator]

Our next question comes from Joseph Vafi with Canaccord Genuity.

[Joseph Vafi, analyst]

Just maybe we drill down a little bit more, Tyler, on this -- your financing strategy approach here at Barber Lake with Fortress. Maybe it's a little bit different than what we've seen from some of the other Bitcoin miners. You threw out that you could own 40% without putting any more capital in. I was just wondering, if you look across your pipeline and what might be a strategy over the medium to longer term here, do you think that you'd -- do prefer that strategy of site acquisition and asset development on the acquisition side and then let somebody else do the CapEx? Or are you going to, I guess, look at deals one at a time or maybe somewhere in between? And then a quick follow-up.

[Rodney Page, executive]

Okay. Thanks, Joe. Great question. I would say we have a lot of optionality, and we're very excited about it. So high level, as I've said before, we are big believers in the value of large-scale interconnects over the next certainly 3 years, and maybe beyond, but with a particular premium on that. And so we really have positioned the company to take as much advantage as possible of finding opportunities in that window. So I view our partnership on Barber Lake as a first step to figure out sort of exactly how the model evolves over time. The most important thing from our perspective, I think, is just validating that we are serious and we can land a great tenant with a big lease. To me, once we do that at Barber Lake, suddenly, the market should be revaluing the rest of our tremendous pipeline. We expect to have several large-scale sites under development in the not-too-distant future. And I think getting credentialed and getting one in the boat, so to say, is the most important thing.



So when you think about the challenges to land the first one, I think it's obvious to everyone that a Bitcoin miner has an expensive cost of capital to do Bitcoin mining. And you don't want to fund the biggest, most expensive build you've ever done at the traditional Bitcoin mining cost of capital. Hence, bringing in a partner to basically speak for all of the capital being there we think is huge in landing that first tenant. Now it's also extremely attractive, we think, on the ultimate economics because we do believe -- we'll be developing the data center, we have a team that can develop and we expect that to be a revenue line item for us. And then ultimately, the ability to not finance at our Bitcoin mining cost of capital, a huge piece of the ultimate economics in a market that we're very bullish on, we think is going to be awesome.



I think then really the question becomes, how do you think about the subsequent sites and how you finance it? And a little bit of that depends on how the market evolves to view us. If they view us as a developer of HPC data centers and we have access to capital in ways that are more favorable than Bitcoin mining, we would love to own more of the economics when possible. We sort of are strictly driven by the math and how can we get the best share return. So it's a bit of a balance. I think we're blessed to have such a robust pipeline in the future. And so we want to, over time, capture as much of the economics as possible for Cipher and our shareholders. Then there's a separate question that sort of in your question, which I'll take a stab at, which is over time, how do you think of this business? I will say that I think our greatest edge when I think about Cipher's value to an investor is identifying great opportunities for greenfield development in the data center space. And so logically, I think the most likely way we evolve is that we will capture the most value in the early stage development section of ultimately the life of an HPC data center. So without committing because it's years away, but if we have a 15- or 20-year lease on this site, and it is up and fully operational and we're several years into it, there's a good chance that we would regularly sort of recycle that capital to potentially exit to then deploy the profits we make back in the earlier stages of development where we think we generate the most value. So I would expect there is a very robust refinancing market for data centers, and no commitment because it might be nice to just hold a stream of cash flows over time, but probably we would manage this portfolio where we're holding some of these developments and recycling capital from other ones.

[Operator]

And our next question comes from Greg Lewis with BTIG.

[Gregory Lewis, analyst]

Tyler, realizing that Texas has really become an epicenter for data centers, Bitcoin miners, as we look at the Barber Lake, I mean, you signed the MOU for the additional 500 megawatts. Not that I need you to comment specifically on that in Barber Lake. But as you look at across ERCOT, have things been getting more streamlined where once we have sites in place and we move forward to look for additional power capacity, has that been getting more streamlined in kind of your broader view? Or is that the same, or is it becoming more challenging? Any kind of color around that?

[Rodney Page, executive]

Sure. So I think right now, there is a bill being finalized in the legislature in Texas that will tweak how folks enter the queue for interconnection in Texas, which we think is a good thing. It will force developers, speculators to put some skin in the game, which we think will actually bring some reality and truthfulness to the interconnection queue, because right now, there's not much of a penalty to be a sort of duplicate speculator on multiple sites where you don't have much money put down. And so people -- that's part of the reason why the queue is so big. There's also some ongoing discussions about thinking how to charge behind-the-meter facilities to make sure that they are paying an appropriate rate for transmission and so forth. And so there is an evolving landscape down there. I would say as a broad generalization, we think mostly what's being debated down there is probably good in general for the marketplace to bring a little bit more reality and transparency to it. Because I think we are vulnerable as an industry, and I mean all the data centers, by having kind of what sounds like a runaway enormous interconnection queue because it allows people to hurl a lot of negative pictures of the future at the public due to the growing industry. So probably trimming the queue and making it look a little bit more realistic is generally a good thing.



I will say, if anything, I do think those various regulations will make it a little bit more challenging, you would presume, to get an interconnect. So if anything, I think that makes our portfolio very valuable because we've got large interconnects already. So in general, I would say on the commercial side, yes, it is harder to find spots because there have been a lot of big headlines about data centers in Texas, and so if anything, that market remains with a very hearty interest. But I think what will happen with regulations will be that it will probably get incrementally more scrutinized with the new legislation.

[Gregory Lewis, analyst]

Okay. Great. And then just one for me on the fleet performance. You mentioned the 2.5 exahash additions from the idle fleet. I guess I'll just ask everything at once. Any kind of -- can you provide kind of the efficiency of that? And then just as we look at Odessa, clearly, that's like a market-leading type efficiency. As we kind of go down to the JV sites, the efficiency of those rigs is, hey, they've been there for a while. They're a little bit longer. Is there any thoughts about upgrading the rigs at the JV sites? And what needs to happen for that to kind of move forward?

[Rodney Page, executive]

Yes. So great question. So let me start with the first question. I think with the 2.5 exahash that we would plug in, initially, right when that's plugged in but before new rigs arrive, that probably takes our efficiency a little bit worse and takes it to about 20 or 21 joules per terahash. But that's temporary because we've got a big order of new rigs arriving, and ultimately, once we get to the full 23 exahash, we'll be more close to 17 joules per terahash when that is all plugged in. I think from our perspective, given that Black Pearl was ahead of schedule and getting ready, we started looking at the opportunity of having -- while we wait for ultimately the delivery of rigs, quick questions of course around -- again, I don't anticipate any challenges, but we live in an interesting tariff environment. But we had an opportunity to say, look, if we just get these rigs plugged in, just in the third quarter, we can probably make another $15 million of revenue just from not having this stuff idle while we wait. And if we get the rigs on time or ahead of schedule and everything is going well, the new ones will move even quicker to that more efficient top line number.



And then on the JVs, I think that given that those are either very cheap behind-the-meter in the case of Alborz or front-of-the meter at Bear and Chief, more likely, we are probably going to run those fleets and just manage curtailment. So we don't have as much uptime, but we can stretch out the value further and further on the useful life of those rigs by just dialing down the uptime. And ultimately, I'll say, if you look way forward in Bitcoin mining, this is a massive advantage Cipher has over most of our competitors in that we have regularly managed uptime and curtailment in the ERCOT market for years and been best-in-class. Ultimately, when you look forward several years, if we keep getting growing hash rate, you've got another halving. The idea that you're just going to upgrade with the most expensive rigs every 2 years is not a great model, in our opinion. We think probably what happens is you are managing a longer life out of your assets and managing curtailment and only buying when power is cheap at places like our JVs. So I would argue they're a little bit of a view into probably what the future of mining looks like several years into the future, but for now, they're not a priority for upgrading.

[Operator]

Our next question comes from Paul Golding with Macquarie.

[Paul Golding, analyst]

Tyler, just wanted to ask as you field all this interest on the HPC front and now have financing in place for one of the sites, how are you thinking about long lead time item purchases and how that relates -- or how that may or may not relate to some of the diligence being done by these prospective tenants and how they're considering signing with you for some of this HPC capacity that you have on offer, particularly the energized capacity already in place? And then a follow-up for me.

[Rodney Page, executive]

Okay. So I'd say in general, we prioritize getting substations on order and built. We have a substation on order for Stingray so that it will be ready. If anything, that's sort of just a general site improvement item, so we manage that. I think substations are always the priority because they are generally a long lead time item, and they're often a gating item in due diligence. It's sort of the first question a lot of people have. I think beyond that, when we look down further in the chain, we leverage a set of global vendor partners. I would say in general, we secure really good lead times on items and market that to tenants. So the way these discussions typically go is it's very iterative. We will produce design specs for a particular potential tenant's particular design requirements. And so then we will typically go and source quotes to produce the time line that we give them. I'd say in general, we have really good partner relationships, often looking to folks with inventory so we can optimize speed to market. But we are not kind of building on spec at this point. The design requirements vary broadly between different tenants. And so we don't want to start spending tons of CapEx without the tenant locked in.

[Paul Golding, analyst]

Understood. And then the follow-up from me is on SoftBank and that relationship. Just wanted to understand the extent of their involvement now that you're a few months into the $50 million investment and how that relationship is potentially evolving around the HPC processes underway or if their contribution is coming through in other ways or if it was simply just the capital at this point?

[Rodney Page, executive]

Yes. So look, I couldn't be happier about having probably the most forward-thinking investor on the planet invested on us -- I mean in us in this space. I would say what we have to juxtapose that relationship against is the value of the timeliness of our assets to shareholders. And so my goal very clearly is to get a high-quality tenant signed to a long-term lease as quickly as possible to Barber Lake. There is a lot of time value in Barber Lake because it is ready and energized and with a substation, ready to design to spec with plenty of land and water and fiber. So it is a great site. I really hope we sign a deal with SoftBank tomorrow to have them as our tenant because they were -- well, now an investor in us for a while. That would be fantastic. At the same time, in advance of them being ready to commit to anything, we have to open up the marketing of that site. They had the site under exclusivity back in February. We have not signed a lease with anyone yet, and so we've opened up the competition. And as I mentioned on the call, we've had lots of interested tenants and certainly financiers, and I'm very happy to say I think we picked the best dance partner on the financier side. Now we just need to finalize the tenant. I hope it's SoftBank. It could easily be someone else if they don't move quickly because I think we have to monetize the timeliness of that. But that said, listen, really excited about their continued interest in the space, and obviously, it's one of the proud professional moments of my life getting to say that we got them on our cap table.

[Operator]

Our next question comes from Mike Grondahl with Northland.

[Mike Grondahl, analyst]

And Tyler, I really liked your comment about getting one in the boat as you have a really nice runway set up. And in relation to that, what are the next milestones we should be looking for at Barber Lake? And then secondly, on Stingray and Reveille, could you speak to the interest in those 2 locations?

[Rodney Page, executive]

Sure. Thanks for the question, Mike. So first, at Barber Lake, I would say the next step, I hope to tell the world that we have a lease with a great tenant there. At this point, we are in advanced discussions with multiple counterparties. As I mentioned, we've got several under NDA. Multiple have made site visits. We've done design specs for different potential tenants. We have negotiated what potential rates would be and structures. We just need to finalize it. So it's literally getting to lease.



On Stingray and Reveille, so actually, interestingly, we have recently received interest in potential for HPC at Stingray. That's an interesting site because I think it's -- it's in West Texas. We think it's very attractive. We have less invested in that site than we do in Barber Lake. So I think we're open to a bunch of ideas. Given that it's 100 megawatts, it's actually created an interesting pocket of potential tenants that we had not previously been speaking to. So we had really focused our discussions with potential tenants that could take an entire 300-megawatt lease. As a generalization, the hyperscalers are not as interested in a site that's only 100 megawatts. But there are several enterprise-type clients that are interested in that site. And it's actually a completely different group than we had previously been talking to. So we do have some early interest. I'll see if we get it there. That would be another site where probably we'd be looking for a financial partner. We have had some ask about it, and like I said, we've had some potential tenants ask about it kind of in a different category. So I think that gives us an interesting opportunity to maybe play a different part of the market there.



And then Reveille also has a lot of potential given that it energizes in 2027. And again, the size is a little smaller, 70 megawatts. I think we have a lot of flexibility there. If we have developed or we are working on developing 2 or 3 data centers for large tenants in advance of that, that site has a lot of flexibility. We could work with one of those smaller enterprise-type clients. We could potentially, at that size, in the future self-finance or finance differently on more of the economics. Or -- I mean, I don't know if we will do this, but certainly one of the things we'll consider if we continue to make progress is, is that a site that we take on responsibility to manage colocation, and we could have multiple tenants that we manage directly. There's -- it could be interesting. So I think there's a lot of flexibility at that site. And across those future sites, we have different ways to play the market. The 3 Ms are all very large, so they're more likely to be the types of potential tenants we've been talking to at Barber Lake. Looking down the line at those other sites, it's kind of a broader category. So we certainly hope that the trend continues to be very positive on Texas and West Texas in particular, and we'll just have to see, but we're excited about the potential.

[Operator]

Our final question comes from Chris Brendler with Rosenblatt Securities.

[Christopher Brendler, analyst]

I wanted to ask on the Fortress facility. Sort of, can you give us an indication of when that was signed? And given the obvious questions around signing Cipher to a $1 trillion company or something like that, it requires a lot of faith in your ability to continue. So does the Fortress facility, has that changed the pace of negotiations at all since you were able to agree to terms on that deal? And then what are the next steps on the Fortress facility in terms of actually getting a contract signed? Will it require an HPC deal to be signed? Or can that happen beforehand to further encourage an HPC tenant to partner up with you?

[Rodney Page, executive]

Yes. Thanks, Chris. Great question. So we just signed it recently, like in the last few days coming into the weekend. And so as I've mentioned, we've been in a bit of a beauty contest with a lot of big name financiers that had interest in the site. We spent a lot of time. The team's been very busy on looking at the myriad of structures and different ways we could play it to try to get the best returns for us. So we signed that deal in the hopes that it greatly speeds up and advances the finalization of the discussions we are having. And certainly based on our -- the market color we have received, we think it's going to help a lot. It will trigger at the signing of a lease. So we are committed to work with them to finalize this lease. And so we are joint marketing and doing lease negotiations with tenants right now. Again, they have some existing relationships. There's a lot of overlap in those existing relationships with some of the folks we're currently talking to. They know the tenants we are talking to and are happy with those names. So it's really just a matter of getting to lease, at which point the structure would trigger.

[Christopher Brendler, analyst]

Okay, great. And congratulations on getting it done before the earnings call. I mean that's probably a nice target to get it wrapped up beforehand, so congrats on that. And I just want to ask a question on the mining business. Really impressive cost of revenue and gross margins that are coming out of that. I just wanted to ask, I know you mentioned higher uptime, but I'm seeing a pretty significant drop in your hash costs from quarter-to-quarter and the power cost didn't really drop. So is it all uptime? Or was there anything else that improved from previous quarters to drive these really impressive results on cost of revenue?

[Rodney Page, executive]

Yes. I mean, I think we had a hash cost of right around $0.03, which we're happy with a hash cost of $0.03. That's mostly driven by power, truthfully. Keep in mind, we completed an upgrade of the fleet, of course, in the fourth quarter. So this was the first full quarter of firing with the new fleet efficiency. So that helped a lot. And I mean, the really good news there is that the benefits of scale we haven't even realized yet. So when we add another 9.5 exahash of efficient machines in the next quarter, certainly, we don't expect the cost of revenue to scale with that. If anything, it's going to stay close to flat and so -- we would expect. And so those numbers should get better and better, and we finally get to see the true benefits of our scale combined with our power prices and management.

[Christopher Brendler, analyst]

Yes. Actually, [indiscernible] on the new machines. You mentioned the tariffs and the uncertainty there. What's the current thinking on what the impact might be for those new deliveries?

[Rodney Page, executive]

So I'm going to give lots of caveats to this. It's been a shifting marketplace. For one day, we had a 36% tariff, and we were having some serious discussions with our mining counterparties about how we would proceed. The good news is our deliveries are scheduled for the near term. We are finalizing some discussions we're having with the mining rig manufacturers where I'm going to -- hopefully, if we get this to where I think we're going to get it, we should be announcing some really good news related to tariffs as we think about how we schedule payments and how we bear the burden of those. But certainly right now, in the delivery schedules we anticipate, we anticipate the 10% sort of universal non-China tariff that's out there. And like I said, I'm excited. I'm tentatively excited about what we will be able to announce hopefully in the next month or so just about the benefits of being a large and important customer as we deal with that. But hard to say. I mean, we could get a tweet tomorrow. Navigating that uncertainty is not easy. But obviously, we feel confident enough to give the projections we're giving for next quarter, so I think it's going to end up being fine for Cipher.

[Operator]

This concludes the question-and-answer session. I would now like to turn it back to Tyler Page for closing remarks.

[Rodney Page, executive]

Thank you, everyone, for joining our update call. We look forward to delivering more positive updates in the near future. Have a great day.

[Operator]

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