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Cipher Digital Profit Is a Warrant Gain: Rapid Earnings Reaction

The Motley Fool · 6d ago

Key Points

  • Bitcoin mining revenue fell 71%, and the first $5.9 million of HPC rent covers only a fraction of what was lost.

  • Borrowings of about $5.6 billion pushed quarterly interest expense to $59 million, arriving before data halls earn full rent.

Cipher Digital (NASDAQ:CIFR) reported third-quarter net income of $31.6 million, but a $127.2 million non-cash warrant gain produced it. Shares slipped about 0.3% in pre-market trading. The operating business moved the other way: revenue fell 63% and adjusted EBITDA turned negative. The first HPC rent has arrived, but it covers little of the revenue lost from bitcoin mining.

Key Numbers

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  • Total revenue: $26.7 million, down 63% from $71.7 million.
  • HPC leasing revenue: $5.9 million, the first recognized.
  • Adjusted EBITDA: negative $10.0 million, versus positive $40.8 million.
  • Interest expense: $59.0 million, versus $1.3 million.

What It Means

Net income came from a warrant gain, not operations. Warrant liabilities are revalued each quarter, so the gain is non-cash and can reverse. Strip it out and the quarter was a loss of about $96 million.

Mining is shrinking faster than HPC rent is arriving. Bitcoin mining revenue fell 71%. Rent starts only as each data hall is delivered, so early quarters earn a fraction of what full halls will.

Construction is running on borrowed money. Borrowings total about $5.6 billion, and interest costs arrive before the halls earn full rent. The expanded Barber Lake lease adds contracted revenue, but it pays only if halls are delivered on schedule.

What to Watch Next

Watch whether the Black Pearl and Barber Lake data halls come online by year-end, as scheduled, because adjusted EBITDA stays negative until more rent arrives. Also track Stingray's shell, expected to finish in the fourth quarter.

David Kretzmann has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.