Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Iris Energy Ltd (IREN, Financial) increased its installed Bitcoin mining capacity to 15 exahash, with plans to reach 20 exahash by the end of next month and 30 exahash by the end of the year.
- The company reported significant year-on-year growth in adjusted EBITDA, reaching $54.7 million, the highest recorded EBITDA for the company.
- Iris Energy Ltd (IREN) has expanded its data center capacity to 300 megawatts, with a target of 510 megawatts by the end of December.
- The AI cloud service business is showing strong momentum with month-on-month revenue growth and a fully utilized fleet.
- The company has a strong balance sheet with $404.6 million in cash and no external debt, providing flexibility for future growth.
Negative Points
- Average net electricity cost per Bitcoin mined increased from $11,000 to $18,100, primarily due to the increase in global hash rate and the impact of the halving event in April 2024.
- Operating expenses increased from $38 million to $56 million, reflecting a larger business and expanded risk compliance and reporting obligations.
- Depreciation costs rose from $30.9 million to $51 million due to the commissioning of new assets and accelerated depreciation for older miners.
- The company incurred a one-off cost of around $7 million to close out existing power hedges.
- There were performance issues with the T21 miners, affecting approximately 1.5 exahash of capacity, which are being replaced.
Q & A Highlights
Q: You did a New York Analyst Update for us all a few weeks ago. Anything kind of material science that are incremental to add in the, I guess, in both strategies? And how, what's your latest thoughts here on attractiveness and Bitcoin mining versus perhaps putting more CapEx into the hosting side, shorter term and I have a follow-up.
A: Things continue to evolve every day. Bitcoin mining remains attractive as we control our destiny with 2.3 gigawatts of power. On the AI side, dealing with partners takes more time and complexity. We are optimistic about both sides but will not pursue suboptimal deals.
Q: You've got a pretty big portfolio now, but you're still kind of inside acquisition mode with a big pipeline. Can you talk about your thought process of further site acquisition given how large your portfolio is now and CapEx for more site acquisition versus CapEx for a site build-out?
A: We believe in the scarcity of power and land over the next 5-10 years. We will continue to acquire more power and land as it’s relatively low cost and builds incredible optionality for the future.
Q: You've made some key hires related to HPC recently. Can you expand on what these teams are focused on today? Should we see this as a read-through for more substantial GPU purchases in the near term?
A: We are optimistic about growing the AI cloud service business but will not pursue it just for the sake of growth. The investment in people and platform is crucial for our hyper-growth strategy.
Q: Do you have any target levels of prepayments in mind, target contract duration? And any additional color around the GPU pilot at Childress, the capital spend there, how many incremental GPUs you would add?
A: Ideally, we target 1-3 year contracts with several months of prepayments. The GPU pilot at Childress is small, around 16 GPUs, costing under $1 million, and we expect to start utilizing it imminently.
Q: Could you speak a bit to how you're deciding between going back to a single customer to take a significant swath of this capacity versus putting it on the market for on-demand customers to use?
A: We want to do both and retain flexibility. We are developing additional on-demand software capabilities while pursuing longer-term contracts.
Q: Could you give some extra color around what is enabling the extra 5 megawatts per structure? Is this something where you can go retroactively to the buildings already constructed?
A: The 25 megawatt design is a bigger version of the 20 megawatts with increased density and efficiency. It’s a go-forward strategy and not retroactive.
Q: Do you think we've bottomed out here and what do you think we can reasonably see a breakout above this $0.045 per (inaudible) hash range?
A: The key driver is the price of bitcoin. If bitcoin price increases, hash price will follow. We are positioned to survive extended periods of low bitcoin prices and capitalize when it rises.
Q: You cited in your July production update that there were some T21 miner performance issues. Can you specify what those issues were and how much extra hash is being replaced?
A: There were manufacturing defects around heat sinks and assembly quality. Bitmain has been responsive, and around 1.5 extra hash of capacity is being replaced over the coming months.
Q: Can you provide some color on what actually is on-site at the 1.4 gigawatt West Texas site?
A: It’s a greenfield site currently in the design and planning phase. We are working through the process for procuring high-voltage transformers and key lead items.
Q: Have you seen valuations from dollar per megawatt basis start to improve in areas like West Texas?
A: The market is dynamic, and valuations are evolving. We are looking at every opportunity on its face to ensure the risk-return makes sense for allocating capital.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
