Iris Energy Ltd

NASDAQ:IREN

Thank you for standing by, and welcome to the IREN Second Quarter Fiscal Year 2025 Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Lincoln Tan, Director of Investor Relations. Please go ahead, sir.

Good afternoon to those joining us from North America, and good morning to our listeners in Australia. Welcome to IREN's second quarter FY '25 results presentation. My name is Lincoln Tan, Director of Investor Relations, and I'm pleased to be joined today by Daniel Roberts, Co-Founder and Co-CEO; Belinda Nucifora, CFO; and Kent Draper, Chief Commercial Officer.

Before we begin, please note that this call is being webcast live, accompanied by a presentation. I'd also like to remind you that some statements made during this call may constitute forward-looking statements. These are based on certain assumptions and subject to risks that could cause actual results to differ materially from our expectations. Listeners should not place undue reliance on these statements. Please refer to the disclaimer on Slide 2 of the accompanying presentation for further details.

With that, let's get started. Over to you, Dan.

Thanks, Lincoln. Good afternoon, everyone, and thank you for dialing in to our Q2 FY '25 results presentation. So straight into the highlights. A record result in Q2, underpinned by some pretty rapid growth over the last 6 months, 12 months, and low-cost Bitcoin production. So the investments we've made in scale and efficiency over the past 12 months, as you can see, are starting to flow through to our earnings. $18.9 million of NPAT recorded last quarter. We expect this continued earnings momentum in tandem with that growth profile, noting that the 31 exahash of energized capacity was only achieved at the end of the second quarter. And you can see that the average operating hash rate for the prior quarter was substantially lower than that. So as we continue into ramping up to 50 exahash by the middle of this year, we expect to see those numbers to continue to grow in parallel.

Final point on this is to note that, yes, every miner's strategy and financials are slightly different, but these financials are not impacted by any Bitcoin revaluations. We don't hold Bitcoin on our balance sheet. There's no fluctuations in the value of those up or down, sideways. And consequently, our results reflect the pure profitability of our underlying operations.

On the growth front, 3 key initiatives which we'd like to highlight today. So firstly, we're excited to announce Horizon 1. Horizon 1 is our new 75-megawatt liquid-cooled AI data center to be delivered at Childress this year. 75 megawatts of capacity translates to around about 50 megawatts of IT load. And what we've seen, particularly coming into the start of this year, it's increasingly clear that there is a strong market opportunity for us to capitalize on the shortage of liquid-cooled data center capacity.

So as many of you would know, the liquid-cooled Blackwell GPUs from NVIDIA are in the process of coming to market, and the required rack densities are continuing to escalate with this generation and subsequent generations of GPUs. So we are future-proofing this deployment. We're designing and building for densities of up to 200 kilowatts per rack, well beyond the 120-, 130-kilowatt rack density required just for the Blackwell GPUs. So we're excited. There appears to be a real scarcity of liquid-cooled data center capacity, and we feel that we're in a relatively unique market position to deliver this type of capacity in a relatively short timeframe.

Secondly, we're excited to announce the development of Sweetwater 2, a new 600-megawatt site that will further strengthen our position in West Texas, situated around 28 miles from the 1.4-gigawatt Sweetwater 1 project and about 39 miles from Abilene. This expansion would create a 2-gigawatt data center hub at Sweetwater, with design work already underway for a direct fiber loop between the 2 sites. We've secured over 500 acres of land and are in the process of finalizing a 600-megawatt grid connection agreement with a target energization date of around 2028.

Now one important caveat. We always talk about 1s and 0s with grid connection agreements. We do not have one yet. So at the moment, this is a hypothetical project. However, we've chosen to disclose the details today for 2 key reasons. One, this project is in late-stage development, and we're getting closer to the execution of binding agreements. But secondly, the 2-gigawatt data center hub it potentially creates with Sweetwater 1 is material to the market opportunity we are seeing in West Texas. So while this is still a project under development, Sweetwater 2 would provide yet another organic growth pathway for our AI and mining business. However, more importantly, expands upon the potential value of the single site AI opportunity at Sweetwater, something that we'll come to a little bit further on in the presentation.

Finally, let's not forget about the rapid expansion of our Bitcoin mining business, our operations from 31 exahash today to 52 exahash this year. We're dedicating 75 megawatts of Childress Phase 6 to Horizon 1, and as a result, this adjusts our prior expansion plans from Bitcoin mining from 57 down to 52 exahash. But to reiterate, we remain on track to hit that 50 exahash target by mid this year. The 500-plus site team at Childress continues to be well positioned to deliver 50 megawatts every month of data centers.

In terms of the corporate and funding update, we're pleased to confirm that U.S. domestic issuer status and U.S. GAAP reporting will commence from half 2 2025. Our balance sheet remains robust. We closed our oversubscribed convertible note at the end of 2024 and recently put in place a $1 billion ATM facility to provide flexibility to fund growth initiatives. However, market conditions, as we've all seen, are very dynamic, and we are always looking for ways to optimize our capital structure, and we remain continuing to evaluate alternative funding options.

Finally, in terms of investor distributions, as you can see from this result, there is significant operating free cash flow being generated. However, from a capital management perspective, we've made a decision to accelerate our investment into the strategic initiatives that I've outlined and as a result, are deferring the consideration of potential investor distributions.

So into a little bit more detail about Horizon 1. As mentioned, we are planning to deliver a 75-megawatt liquid-cooled AI data center within Childress Phase 6, targeting completion in the second half of this year. That will support a 50-megawatt IT load and include the installation of backup generators and UPS systems for power redundancy. Building this as part of Childress Phase 6, you can see on the map in the blue overlay. It is designed to support 200-kilowatt rack density, well beyond what's required for the NVIDIA Blackwell GPUs and consequently with an eye to be able to accommodate future increases in rack density architecture. We've been working with a leading global EPC firm to deliver this project and leveraging our existing data center footprint with an estimated build cost of $6 million to $7 million per IT megawatt.

So why are we doing this? Well, liquid cooling is a key priority for large-scale customers. And what we've observed is a very limited availability of liquid cooled data center capacity able to come online in 2025. Meanwhile, the liquid-cooled NVIDIA Blackwell GPUs are expected to ship in more meaningful quantities in the second half of this year. IREN is uniquely positioned to address this growing market demand, leveraging our immediate access to power and our existing infrastructure on site. 50 megawatts of IT load is a size that appeals to both smaller as well as larger customers and also caters to NVIDIA's reference architecture, allowing a single cluster of up to 16,000 Blackwell GPUs.

We have a unique opportunity to move fast in a market which is changing quickly. Horizon 1 will enhance delivery certainty for customers, i.e., it helps them cut through the chicken and egg dilemma by showing them more concrete plans around design and delivery. Initially, we're focused on Childress and building out a multitenant site there. We're engaged in meaningful 2-way dialog with a variety of prospective customers, noting that, again, Childress will be prioritized for multitenant colocation in respective AI data centers, preserving the Sweetwater Data Center Hub and Sweetwater 1 site for more single-site opportunities, which I'll come to later in the presentation.

So uniquely, we have this opportunity to continue to scale this approach across our entire portfolio, something which we are actively looking at, noting, of course, that the critical piece, access to the grid connection, the power and the land is already secured. With grid connections already secured, we're seeing it's 4 to 7 years to bring these projects from origination into the real world. The data center buildings are already in place. All we need to do is to continue to install liquid cooling and power redundancy to scale up this side of the business into the market demand.

So the 2 gigawatt Sweetwater Data Center Hub. We're very excited to announce our new 600-megawatt Sweetwater 2 development. We're in the process of finalizing the grid connection agreement. As mentioned earlier, it's situated on over 500 acres of land, 28 miles from Sweetwater and approximately 39 miles from Abilene.

Design work has already commenced on a direct fiber loop between the 2 data center campuses to support network connectivity and create this 2-gigawatt data center hub. We expect it to energize around 2028. And again, I'll caveat this, it's not signed yet, so there's absolutely still risk around this development. But the development process has been in the works for some time. We feel it's getting closer to a potential outcome. Importantly, in the context of our strategy, how we're thinking about Sweetwater 1 and the single site, this 2-gigawatt data center hub it potentially creates with Sweetwater 1, is material to the market opportunity we are seeing in West Texas.

In terms of the existing 1.4 gigawatt Sweetwater 1 project, it's full steam ahead towards energization in 14 months. Procurement is well underway to support energization of the full 1.4 gigawatt bulk substation and additional primary substations all by April next year. As mentioned earlier, we're working with a leading EPC contractor with experience on hyperscale deployments, general site and civil works to support construction are commencing shortly. Clearly, with the recent market announcements, there's an increasing level of focus and interest on West Texas as a data center market. Accordingly, this is a very exciting opportunity for IREN to build one of the largest data center sites and maybe hubs in the world. I'll touch a little bit more on how we're thinking about this site strategically later on in the presentation.

Large-scale, low-cost Bitcoin mining. So 2 key pieces I'd like to reiterate today: one is the scale of our operations, 31 exahash installed. It was on time as we said it would be. We're on track for 50 exahash in 5 months and then 52 exahash shortly thereafter. This delivers economies of scale today and will continue as we continue to expand. We've got a demonstrated track record around operations, our uptime, and ability to deliver projects on time.

The second point I'd like to make is we are a low-cost producer. It supports strong unit economics and ultimately, earnings for shareholders. Since announcing our plans in May last year to expand, all of the investments we have been making are starting to flow through to operating efficiency and earnings. We have best-in-class efficiency at 15 joules per terahash. Our spot pricing strategy has delivered actual power prices of $0.03 a kilowatt-hour, where the majority of our operations are today at Childress. Finally, you've seen this to start to show in our quarterly earnings, but also in our monthly updates. Our hardware profit margin is over 75% now as we've scaled over that 31 exahash mark.

So the expansion to 52 exahash. As we've discussed, allocating 75 megawatts of Childress Phase 6 to support Horizon 1, adjusts our prior mining expansion plan from 57 to 52 exahash. To reiterate again, our 50 exahash target remains on track to be delivered in whole in the next 5 months, continuing to build 50 megawatts per month of data centers at Childress. The efficiencies that we have with large single-site expansions, 500 people on the site, effectively copy pasting every single of our building. As you can see on the right-hand side, the schematic diagram, that reflects our data center construction status. To the extent you're interested, you can continue to track our progress in our monthly updates. Our mining economics remain strong. We've seen the material step-up in earnings and cash flow generations as we scale up. And on the left-hand side of the page, you can see some illustrative economics that reflect where we are today and where we expect to go.

So the escalating power shortage and escalating seems to be the only word that we can use given what we're seeing in the market. Clearly, it's been a very interesting couple of weeks with Stargate and DeepSeek. However, if we look through some of this volatility, nothing has changed for us. If anything, we've seen an uptick in observed interest in cloud and colocation services. AI doesn't live in a vacuum. Humans crave more and more, particularly if it gets cheaper over time. And I think the Wikipedia page for Jevons Paradox has never seen so many hits over the last 2 weeks.

So on this slide, we illustrate 2 market dynamics that are relatively well documented. The first is hyperscale CapEx continuously being revised upwards. The second is the power scarcity dynamic, looking at a 36-gigawatt shortage in data center capacity across the U.S. With over 2 gigawatts of secured grid-connected power and land, this creates a compelling opportunity for IREN. This 2 gigawatts, 2.3 gigawatts to be precise, is not hypothetical potential megawatts. This is power that is either flowing today or is secured by binding interconnection agreements with utilities being delivered by April next year.

This slide essentially summarizes the macro backdrop of the opportunity for us here at IREN. Picks and shovels for the digital age. So just to change tack for a moment and share a bit about our history, why we are in this position and ultimately set the scene for my final slide where I'll discuss our strategic focus. Will and I have been setting this platform and gearing up for this market backdrop since day 1. There's been no pivot. This has been a deliberate strategy. It can be traced back to our earliest investor presentation, as you can see on the right-hand side, in 2020, a vision which has remained unchanged.

The value then and the value now is in access to large-scale renewable energy required to power the future of supercomputing, whether that be Bitcoin mining, whether that be AI, 2 super trends that are front of mind right now, as well as whatever comes tomorrow. We have delivered on our strategy to bootstrap a large-scale and profitable business with Bitcoin mining and continuing to leverage that asset base into new, higher value and new, increasingly interesting use cases such as AI. Our team's depth of experience in energy infrastructure, data centers have allowed us to organically develop a leading data center platform from the ground up. And our ability to continue to find and incubate greenfield opportunities and then execute upon them is a very important differentiating factor and an enormous opportunity for us in this power constrained and constantly evolving market.

Finally, we've covered a lot over the past 20 minutes. So to try and tie it all together and highlight how Will and I are thinking about our strategic priorities. The market context, as we've covered, presents significant opportunities for IREN. The escalating demand for power and liquid-cooled data center capacity, as long with the increasing institutional adoption of Bitcoin. If we start with our existing data centers in British Columbia, they continue to mine Bitcoin profitably and generate positive free cash flow. But how are we thinking strategically about British Columbia? Well, firstly, we continue to grow our AI cloud services business in a sensible way, currently operating side-by-side with Bitcoin mining. As many of you would have seen, in our Prince George data center, we have Bitcoin mining ASICs securing the Bitcoin network, operating right next to latest generation NVIDIA H100 and H200 GPUs, providing cloud services to AI clients.

This is something that we will continue to explore, and it's been pleasing to see even an uptick in observed demand post DeepSeek. In addition to that, we're continuing to explore AI colocation opportunities at these sites. Again, that strategy of bootstrapping sites with Bitcoin mining and then as higher and better value use cases come along, looking to insert them on our infrastructure base.

At Childress, fair to say it's a very exciting data center campus today and a hive of activity. We're growing Bitcoin mining capacity to 52 exahash this year and continuing to generate, again, significant operating cash flows and profitability from these operations. However, we are also really excited about delivering Horizon 1, our 75-megawatt liquid-cooled data center to be brought online this year.

The way we think about Childress strategically is as follows: firstly, once again, underwritten by Bitcoin mining, as was the plan 5 years ago, as is the plan going forward. Then utilize the site for higher-value use cases as they emerge. We believe liquid-cooling AI data centers is likely to be one of those and are accelerating our investment into this space. Importantly, from a strategic standpoint, we view Childress as a focus for multitenant colocation, preserving Sweetwater, which I'll come to in a second, for a potential single-site deal and tenant.

Sweetwater, the Sweetwater Data Center Hub. So we have terminated the site sale process with Morgan Stanley. We're now working with a range of different advisors, brokers, and partners on a broader range of opportunities where almost all of those opportunities now involve us retaining long-term ownership of the site. Given the scale of the site and the market backdrop of hyperscalers chasing 1-gigawatt-plus single-site campuses, we are prioritizing Sweetwater 1 as well as the emerging Sweetwater Data Center Hub for a whole-of-site, single-tenant colocation opportunity. Sweetwater 2 and the potential creation of this 2-gigawatt data center hub in West Texas only goes to further strengthen the strategic opportunity in this area. In the meantime, as we continue to explore those conversations, we will retain flexibility to once again bootstrap this site with Bitcoin mining as we've done with the rest of our portfolio since day 1.

Belinda, over to you to cover the financials. Thank you.

Thank you, Dan. So good afternoon to those in Sydney -- sorry, actually, it's morning here. So good morning to those in Sydney. It's actually a beautiful day, and good afternoon to those in North America. Thank you for joining us for our Q2 FY '25 earnings update.

As Dan earlier mentioned, this was a record result. We delivered Bitcoin mining revenue of $113.5 million and operating cash flows of $53.7 million, and overall net profit after tax of $18.9 million. Adjusted EBITDA for the quarter increased by $60 million to $62.6 million. With the average operating hash rate increasing from 12.2 exahash to 22.6 exahash, and we mined 1,347 Bitcoin at an average realized price of $84,300. Sorry, I just noticed my camera may be out, so I'll try and adjust that if possible. Okay. I think that may be back on. Okay. Net electricity costs remained relatively flat for the quarter at $28.9 million, with the increased megawatt usage at Childress offset by lower cost per megawatt due to the transition to a spot pricing strategy in August 2024. As such, the average net electricity cost per Bitcoin mined decreased from $35,400 versus $21,400. Other costs of $25.1 million increased by $3.7 million, primarily due to additional purchase of renewable energy certificates at Childress for the increased megawatt usage, as well as construction insurance costs at this site. The cost base reflects a business today that is delivering significant growth and projecting continued expansion over the coming years.

So moving on to cash flows. Closing cash at bank at 31st of December 2024 was $427.3 million, with receipts from Bitcoin mining activities of $113.6 million and AI cloud services of $3.5 million. Increase in electricity payments of negative $3.5 million, reflecting continued expansion at Childress, with commission capacity increasing from 200 megawatts to 350 megawatts during the quarter. Decrease in net cash used in investing activities of $217 million due to a decrease of mining hardware, primarily due to significant milestones payments made in the previous quarter. There was an increase in net cash from financing activities of $372.3 million, with $311.7 million net proceeds from the convertible notes and $63.7 million increase in net ATM proceeds during the quarter. Since the balance date, a further $50.4 million of net ATM proceeds have been received, and the total current number of ordinary outstanding shares is approximately 219 million.

So now moving on to the balance sheet. During the quarter, total assets increased by approximately $500 million to $1.9 billion as at 31 December 2024, providing a strong balance sheet to support our future growth opportunities. On 6th of December 2024, we issued a $440 million convertible note with an annual interest rate of 3.25%, which is due to mature on June 15, 2023 (sic) [ 2030 ], unless earlier purchase redeemed or converted. Concurrently to the convertible note, we entered into a capped call transaction of $44 million and a prepaid forward of $73.7 million. As IREN currently reports under International Financial Reporting Standards, the convertible note, embedded derivatives, and financial assets have been brought to account at their fair value at inception and revalued at the reporting date at fair value through profit and loss.

As IREN transitions to U.S. GAAP reporting from 1 July 2025, the accounting for the convertible notes will be reassessed as well as the capped call transaction and prepaid forward in line with the applicable U.S. GAAP standards. Total equity increased to $1.3 billion with the sale of 25.3 billion shares during the quarter ending December 31, 2024.

I think now we're turning over back to Lincoln for the start of Q&A.

And we'll go with our first question. Our first question comes from the line of Joseph Vafi from Canaccord.

Really great update. A lot of exciting things. Maybe we just start here on the update on Horizon 1. Sounds like a pretty exciting project, energizing or being ready later this year. I was wondering if you could talk about CapEx and where that stands at Horizon 1 and what you've learned, especially with this rack density that you're building there? And then I have a quick follow-up.

Kent, would you like to take this one?

Yes, happy to jump in there. So we had some guidance that Dan mentioned within the presentation itself around the CapEx levels that we're seeing. Importantly, on our side, we are able to utilize a lot of the existing data center architecture, which means that we believe we're able to deliver this liquid-cooled capacity at very effective cost per megawatt, but still with all of the key redundancy and other features that ultimate end users of that capacity would expect to see.

Also, it's worth noting, and we've discussed it in prior calls as well, already been ordering many of the long lead items associated with that buildout as well. So as we do with all of our buildout, whether it's on the Bitcoin mining side or on the AI data center side, making sure that we are well ahead of the curve in terms of ordering those long lead items.

Maybe we talk a little bit on Sweetwater. Clearly, a very ambitious project with the update that we heard here about adding Sweetwater 2 to Sweetwater 1 and the fiber loop interconnect. And I know, Dan, you also mentioned that the agreement you had with Morgan Stanley is now moving to the next phase where you're in different kinds of discussions. 2 gigawatts, quite of an ambitious big data center, which would probably be used for AI. And just -- I know you've had probably a lot of discussions with a lot of players in the space. At a high level, this would be massive. And so just trying to get a feel for demand out there amongst hyperscalers or other players around 2 gigawatts and what you're hearing at a high level.

Yes. No, thanks, Joe. Look, we were called far less polite terms than ambitious 6 years ago when we first suggested that the future of data centers may not all be in metropolitan areas because maybe there wouldn't be enough power there. So I think you fast-forward to today, suggesting that a 2-gigawatt data center hub may be viable in the context of the market backdrop, all the announcements being made, including people with objectives far greater than 2 gigawatts. I don't think it's ambitious. I think it's entirely realistic and reflective of where the market is today. We have been surprised coming into 2025, just over that Christmas holiday period, just the step-up in intensity in this sector. And I can't think of many, if any, hyperscalers that we're not talking to that aren't interested in 1-gigawatt-plus campuses that can be delivered in the next few years. The market absolutely seems to be there. We're in a lot of active conversations.

But again, I'm going to temper all of this because it's 1s and 0s. You either do a deal or you don't. And we've got the ultimate backstop of building out, bootstrapping with Bitcoin mining, and preserving that single site opportunity where the value of having clusters all contained geographically on one campus seems to be quite powerful from these hyperscalers' perspective. So it's interesting. I wouldn't call it ambitious. I can call it entirely realistic. Yes, there's risk around Sweetwater 2 in getting the final signatures and executing that and turning it into a real project rather than hypothetical. But we're working hard on that. And yes, I'm excited.

That's great. That's a great update. It's a great path forward. And thanks for the update.

And our next question comes from the line of Greg Lewis from BTIG.

I guess my first one, Daniel, was around the update at Sweetwater with the incremental 600 megawatts. I guess a couple of questions around that. And I guess the first one is you're looking to potentially reenergize or energize in 2028. When did we have to start getting in the queue to even be able to try to get on that track to [ 2028 ], realizing we don't have the approvals yet and there's still work to do, but I'm just curious, as you see that, to even be able to talk to the 600 megawatts. And then has that changed, i.e., if we were to get in the queue today, what would that look like?

A 1000%. It's actually extraordinary how hard this is. To give you some context, we received a draft connection agreement for that site following completion of the studies in July last year. So where are we? February. How many months is that trying to get signatures on a document? It is so different to how it was 12, 18 months ago. I don't know how all these megawatts are going to be developed going forward. We've obviously got our multi-gigawatt development pipeline, including sites in Texas as well as globally and broader in North America. The congestion, the difficulty in actually getting these projects over the line and crossing that 0 and 1 barrier to having a project that you can actually build out on, it's actually extraordinary with the way we're seeing it at the moment. So we'll continue to push. We almost didn't disclose Sweetwater 2 today, but we are getting close. We feel like we're getting close, and it is material to how we think about Sweetwater 1 in the context of the broader market dynamic we're seeing in West Texas. But absolutely, there's risk around any megawatts that aren't contracted, and we are living and breathing that every single day. I don't know, Kent, if you've got anything you'd like to add to that.

Yes. The only other thing I would add, as Dan mentioned, the process has taken a long time for that project, and that was connection requests that we submitted over a year ago now. For projects that have been submitted in more recent months, we know that there has been a massive increase in the number of applications to utilities and to ERCOT. And those utilities in ERCOT haven't substantially expanded their teams and the number of people that are looking at those connection requests. So anything that has been submitted in the very recent number of months is going to take incrementally longer than what we saw for that Sweetwater 2 site. So it is becoming increasingly difficult.

And my other one was around just looking for color, and it's realized things are evolving on a daily basis. But you mentioned that $6 million to $7 million per megawatt. It's our understanding that a lot of the grid and the power equipment that's going to be needed to be sourced maybe comes from Mexico or definitely inside NAFTA. And so as we think about that $6 million to $7 million in the event that there are tariffs, I don't know how we can -- I don't know if you want to talk about maybe when we think about that $6 million to $7 million, is there any way to frame out how much of it's imported without getting specific price numbers, maybe how much of it is imported? And yes, I guess that's curious how that could be changing, at least over the next few quarters.

Yes, I'm happy to jump in there, Dan. So yes, it is obviously a very dynamic environment at the moment, changing on an almost daily basis. And yes, it's something that we continue to monitor going forward. There is the potential for higher construction costs. We do have a very diversified supply base. So not everything today is coming in from the countries that have been announced as potential targets for increased tariffs. So yes, we do feel like we're in a good position to handle it.

And of course, anything that does get implemented is likely to hit all other providers as well. So yes, I think it would be felt across the industry rather than something that is very specific to us. But yes, we have been working on diversification of our supply base for a long time to make sure that we always have alternate providers in place. And while we didn't obviously envisage these specific tariffs and things like that, it was very much with multiple different scenarios in mind.

And our next question comes from the line of Darren Aftahi from ROTH.

Nice job on the progress. Just 2, if I may. I know in the past, you guys have always talked about looking at ROIs from the lens of the cost to build an exahash with Bitcoin and the ascribed value the market gives you. I'm just curious what calculus you went through with Horizon 1 in terms of reducing the 5 exahash and deciding to build the 75-megawatt HPC endeavor. Was that more of just always planned, and now you're formally announcing it? Or did something changed in what you're seeing?

Yes. Hi, Darren. Appreciate all your support. Look, we deliberately didn't put numbers in the presentation because none of us know. This is unique. Like liquid-cooled data center capacity just doesn't really exist at scale, and there's no real market for it. What we do know and can see is traditional colocation rates and colocation rates for capacity that isn't necessarily liquid-cooled for 75 megawatts. And I think when you run those numbers against the backdrop of CapEx of $6 million to $7 million, the numbers potentially look quite compelling. But we're not here to estimate where we'll get to. We're in a series of very different customer conversations around utilizing that capacity. And I think the decision goes more broadly, and it's more strategic.

It's like, look, if you step back, you've got Bitcoin, we know where that's at, it's a great business. But we are so uniquely positioned from a strategic perspective to capitalize on this AI thematic and build out something that is relatively unique this year. Obviously, if AI fizzles out and becomes nothing, then the facility, we might have to repurpose it for Bitcoin mining or another use case. But I think the conviction we're seeing in AI at a macro level and the lack of ability of the current market and I guess those mini micro data centers in metropolitan areas to service these types of capacities, it just seems a really obvious opportunity for us where I would expect we will generate strong returns, not just from the 75 megawatts, but what it then unlocks strategically for our platform and how it helps us in the conversations that we're having around Sweetwater and the potential monetization pathway there. Because all of a sudden, we've now got a liquid-cooled AI data center design signed off by global engineering firms that we're building. It's real, it's happening. So I think the strategic value to the platform beyond the discrete economics from 75 megawatts of Horizon 1 is incredibly powerful.

And I think in addition to that, Darren, what we've really seen is the demand side of things crystallizing over recent times. Historically, obviously, Blackwells were announced and everybody had an eye towards liquid cooled data centers. But what we're seeing now is demand from a number of different customer segments, and in particular, customers that have already placed orders. And so they absolutely need liquid-cooled capacity in order to house those GPUs. And we're seeing, as I said, that range coming from a range of different customer types, whether it's large hyperscalers, the neoclouds, enterprise customers as well. And that, for us, has really helped crystallize our decision-making that the time is right to make that investment in this capacity.

Just one more, if I may. I know you mentioned there's some risk to getting it across the goal line. But what's the strategic benefit of you guys announcing Sweetwater 2? Is this more customer focused? Or is there something else, if you [ don't ] mind indulging us?

Yes. Look, it is very close, but I also think it's material for our investors to be aware that this project exists because, a, it provides context to our strategy with Sweetwater 1 and the single site opportunity that we're seeing. But b, it's material in the context of the broader market thematic and what's happening with this chase for multi-gigawatt data center campuses, particularly in West Texas, to build out these AI clusters. So yes, ordinarily, we don't disclose development details because there is risk. But given it is late stage, given its materiality connected to the rest of our business, we thought it appropriate to bring investors into the fold and share a little bit more about this specific site.

And our next question comes from the line of Brett Knoblauch from Cantor Fitzgerald.

Congrats on the print. I guess the whole sector sold off following DeepSeek. I think in your prepared remarks, you talked about maybe interest or demand picking up post that. Does that factor into maybe why you guys are announcing Horizon 1 after maybe just only recently upping your hash guidance from 52 to 57 by end of the year?

Yes. I think, as Dan mentioned earlier, that's right. And we've seen it both on the cloud and the colocation side. So it's not just one area that it's limited to. But yes, it absolutely does factor into the thinking. And as I mentioned, we have seen a large uptick in demand for liquid-cooled capacity and the timelines that people are wanting that demand on are something that we feel very well prepared to deliver upon and that we have a competitive advantage in because we don't think there are many others that are going to be able to deliver liquid cooled capacity on that same timeline. So particularly 2025, but even into the early parts of 2026, still seeing a shortage of supply going out that far.

And then is one way you're thinking of Horizon as it's almost like a model home showcasing who would be the big tenants at Sweetwater, like what you can build and design and kind of giving them confidence for doing that same but on a much larger scale?

Yes. I think that's certainly part of the benefit of it. If you look at our executive management team and Board, we've got a very long delivery success -- history, sorry, of successful delivery of large infrastructure projects in the many billions of dollars.

So we certainly have the expertise and capability internally. I think we've proven that out to a large extent with the buildout of the Bitcoin mining side of the business. And as I've discussed in previous calls, the fact that we're building out 50 megawatts of data centers a month is to many people that we talk to in the industry, a massive surprise. But we've been doing that for many months now and continue to deliver at that clip, albeit acknowledging that, that is a different type of infrastructure to liquid-cooled.

So I think the fact that we're able to build out Horizon 1 at the Childress site is just a further demonstration of our internal capabilities. So yes, I think it absolutely assists with all of those conversations. And many of those are, as Dan alluded to earlier, taking more of the path of us having an ongoing ownership interest in the infrastructure itself. And so, further demonstration of our capabilities is certainly useful.

And our next question comes from the line of Stephen Glagola from JonesTrading.

My question relates to investor concerns around potential HPC monetization of Sweetwater 1. I think there are 2 large ones: one, the site's suitability for inference compute; and two, single tenants like hyperscalers' willingness to do a deal with a Bitcoin miner given this perception that there's more balance sheet risk. Could you address the validity of these concerns in your view? And has your desire to retain ownership of the land potentially adversely impacted conversations with hyperscalers for a deal at the site?

Stephen, good to see you. Frankly, I think the world's moved past both of those 2 issues, and I'm surprised that we're still talking about. The suitability of West Texas for AI training and inference, yes, I get it. People asked questions 6, 12 months ago, and we continued to put forward the fundamentals and actually break down the narrative that was being promoted. But I think we fast-forward to today, and you're seeing the announcements in the market, the intentions of all these trillion-dollar companies and people spending hundreds of billions of dollars, the question as to whether you can run inference for AI out of West Texas, yes, I don't think it's really worth addressing, to be frank.

The question around whether people will engage a Bitcoin miner to build out AI data center capacity. Again, I feel like we're going over old ground. Let's go back 5 years ago. We're not a Bitcoin mining company. We've never done sea cans, shipping containers, stitching together projects in the middle of the desert to mine Bitcoin and not think about what's tomorrow. Our data centers have been purpose-built since day 1 for multi-tenancy, different applications. Again, I feel like a broken record. We have been operating for 12 months now, NVIDIA GPUs right next to Bitcoin miners in the same data centers we have ever built and owned at all of our facilities. So honestly, I don't hear these investor concerns. I feel like we've addressed them pretty comprehensively. And we'll just focus on the next steps, which is monetizing the portfolio.

And our next question comes from the line of Joe Flynn from Compass Point Research.

I guess since the last business update 3 weeks ago, what would you say is the biggest factor that led to the decision to build out the remaining capacity at Childress for AI HPC? Would you characterize that more as a spec build? Or do you have any maybe soft commitments or interests to ultimately sign that capacity to customers?

Kent, would you like to talk to this one?

Yes, sure. So I touched on earlier, we're seeing this dynamic where the demand side is really starting to coalesce in terms of the requirement for liquid-cooled data centers. So that is a part of it. As Dan mentioned earlier as well, the return side of it looks very attractive given where we're able to deliver that capacity in terms of a CapEx basis. In terms of the conversations that we're having, we are having multiple conversations around the capacity. I think a lot of what you see with these customer conversations is there are people talking about liquid-cooled capacity and having the ability to deliver it, but they don't have long lead items on order. They're not advanced with their designs. They haven't started making any plans for construction. And so, we think by actually catalyzing the construction and announcing this to the market and demonstrating the tangible path towards delivering this capacity, that will help with a lot of the customer conversations that we're having. So it's certainly not just an on-spec build. But again, we don't want to get people overexcited that there's a customer contract about to land a week or 2 away, but there are a lot of good conversations that we're having and seeing interest from a lot of different customer segments for this type of capacity.

Does that answer your question?

Yes, sorry. And on the financing component, you originally were going to use the ATM to build out the remaining capacity at Childress. Do you think there's opportunities to debt finance this at the project level?

Yes. So at a more general level, as Dan mentioned earlier, we are looking to multiple different sources of financing. We do have the ATM in place. There are other avenues available to us at a corporate level that we continue to explore. We are very conscious of making sure that we are having the right mix of debt and equity at a corporate level overall. But one of the things we do like about the potential colocation side of the business is the ability to project finance it and attract different forms of financing. So once you catalyze a customer contracts, they generally take the nature of 5-, 10-, 15-year, so very long-term contracts that lend themselves very well to project debt financing. So that absolutely is a possibility going forward in terms of the way that we finance this sort of buildout.

Sorry. And one more. What would you guys estimate the remaining CapEx to complete the 1.4 gigawatt substation by April? And I guess, longer term, in regards to your conversations, are you considering maybe partnering with a financing provider or doing a JV or anything like that?

Yes. In terms of the specific CapEx for the substation, we haven't disclosed, but substations are generally in the tens of millions, so well and truly covered by existing sources of capital, operating cash flow, as we've discussed. In terms of financing partners, look, ultimately, these deals come down to the customer side, the revenue line. Get that, the financing will fall into place. Will and I are pretty skeptical of JVs and partnerships, et cetera, because my view, and it's been a long-term held view across a variety of businesses is that all you're doing is kicking the can on difficult decisions, because a JV partnership, a co-owned vehicle, all you're doing is saying, we don't know how to make decisions today, so therefore, we're going to have a governance arrangement to make those decisions down the track.

And as you'd see throughout our business history, it's all about controlling our own destiny and being able to move quickly and nimbly to take advantage of the opportunity. So do we ever bring in an equity investor into a project company? Never say never, but our bias is always going to be to control the financing structures and governance of the underlying projects.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Dan Roberts, CEO, for any further remarks.

Thank you. Maybe just to spend 2 minutes addressing a couple of questions on Twitter or now X, as we've got a bit of a community there that I'd like to give a shout-out to, and the level of analysis there is pretty healthy. So just to run through a couple of their questions.

Agrippa Investments, could you provide more detail on the financing strategy for Horizon 1, ATM versus debt? As Kent mentioned, the financing strategy is flexible. The $1 billion ATM obviously underwrites certainty in our ability to deliver these, but the opportunity to layer in debt and project finance into AI data centers against customer contracts is real. Equally, we continue to look at the convertible note market. We continue to look at other forms of capital. So the expectation should absolutely not be that, that ATM is the sole source in our focus of financing going forward, but it does provide something that we can count on to underwrite these growth ambitions.

Could you please clarify the unrealized gain loss on financial instrument in the P&L, the $12.9 million? That's just change in fair value of the convertible notes. A couple more.

Why not HODL some of the mined Bitcoin? From @HODL15Capital. We've outlined this before. We don't believe in diluting shareholders to put Bitcoin on our balance sheet. You guys can buy it yourselves. Will we convert to a REIT, as suggested by [ Wolf ] and someone else? Not at this stage. We see value creation more in the data center development and operations rather than being a landlord.

How long is the sale process from start to onboarding a client into a data center? Depends how long is a piece of string. Sorry, [ James ]. It depends on the client and the situation. Why did Morgan Stanley step out of the sale process? They didn't step out. They were terminated. We believe our opportunity is best served by dealing elsewhere. What's the best place to get food near Childress? The Plaza has fantastic Mexican. So anyway, let's wrap that up.

Thanks for all the support on Twitter. To wrap up our Q2 2025 earnings call, thank you for listening in. We're really excited. The 3 key initiatives: one, continuing to expand our Bitcoin mining, which we're seeing flow through to robust earnings and operating cash flow; two, the development of our Sweetwater data center project and hopefully, the projects in forming a potential 2-gigawatt data center hub in West Texas, the opportunity to pursue a single site tenant for that facility, but ultimately underwrite through Bitcoin mining in the meantime. And then finally, our expansion into liquid-cooled AI data center capacity with the announcement of Horizon 1, which we're really excited to deliver on this year. So thank you, everyone, for dialing in. Have a good evening.

Thank you, ladies and gentlemen, for your participation in today's conference.