Iris Energy (IREN) - 2024 Q4 - Annual Report

Financial Reporting and Currency - The company's consolidated financial statements are presented in U.S. dollars, covering the fiscal years ended June 30, 2024, 2023, and 2022, prepared in accordance with IFRS[11] - Iris Energy Limited (d/b/a IREN) changed its presentation currency from Australian dollars to U.S. dollars effective July 1, 2021, with retrospective application[18] - The company's fiscal year ends on June 30, with references to fiscal years such as 2024, 2023, and 2022 corresponding to the year ended on June 30 of that calendar year[12] Non-IFRS Measures and Financial Metrics - The company uses non-IFRS measures such as EBITDA, Adjusted EBITDA, and net electricity costs to complement IFRS measures, providing additional insights into its operations[13] - Adjusted EBITDA definition was updated in fiscal year 2024 to exclude unrealized fair value gains/losses on financial instruments and gains on disposal of subsidiaries[14] - Net electricity costs are defined as the sum of electricity charges, realized gain/(loss) on financial assets, ERS revenue, and ERS fees, excluding REC purchases[14] Business Operations and Market Position - The company's Ordinary shares are listed on Nasdaq under the trading ticker "IREN," and it commenced doing business as "IREN" on February 15, 2024[12] - The company's registered office is located at Level 13, 664 Collins Street, Docklands VIC 3008, Australia, and its principal place of business is at Level 12, 44 Market Street, Sydney NSW 2000, Australia[12] - The company's market share and market leader references are based on global revenues in the referenced market, derived from third-party industry and research sources[17] Risks and Uncertainties - The company's forward-looking statements involve risks and uncertainties, including Bitcoin price fluctuations, foreign currency exchange rate changes, and the ability to secure renewable energy and power capacity[20] - The company faces challenges in obtaining additional capital on commercially reasonable terms to meet capital needs and facilitate expansion plans[21] - The company's ability to diversify and expand into the HPC solutions market, including AI Cloud Services, is critical for future growth[21] - The company's profitability and viability depend on the public perception and security of the Bitcoin network and its HPC solutions, including AI Cloud Services[21] - The company's ability to secure hardware for Bitcoin mining and HPC solutions on commercially reasonable terms is a key operational risk[23] - The company's future success is highly dependent on the price of Bitcoin, which is subject to significant volatility[39] - The company's business is highly reliant on a small number of equipment suppliers, and any failure in supply could materially impact operations[40] - The company may face material impacts from electricity outages, non-supply, or increased electricity costs[40] - The company is vulnerable to climate change, severe weather, and natural disasters, which could disrupt operations[41] - The potential transition of the Bitcoin network from proof-of-work to proof-of-stake could significantly impact the value of the company's capital expenditures[42] - The regulatory environment for digital assets and mining is evolving, and changes could limit the company's ability to operate[46] - Bitcoin mining and HPC activities are energy-intensive, potentially restricting operations to locations with renewable energy sources, and may face regulatory restrictions on electricity supply[47] Financial Performance and Losses - The company reported a loss after income tax expense of $29.0 million for the year ended June 30, 2024, compared to $171.9 million in 2023[49] - The company's net losses after income taxes were $29.0 million, $171.9 million, and $419.8 million for the fiscal years ended June 30, 2024, 2023, and 2022, respectively[84] - As of June 30, 2024, the company had accumulated losses of $683.2 million[84] Bitcoin Market and Price Volatility - The price of Bitcoin fluctuated from a low of approximately $25,600 in September 2023 to a high of approximately $71,500 in March 2024[77] - The company's ability to generate revenue is highly dependent on the price of Bitcoin, which is subject to significant volatility and market factors beyond its control[76] - The company's future success depends on its ability to expand and diversify revenue sources, including potential expansion into HPC solutions and AI Cloud Services[76] - Bitcoin's price volatility and limited retail/commercial acceptance could adversely affect its value and the company's business[199][200] HPC Solutions and AI Cloud Services - The company is increasing its focus on diversifying into HPC solutions, including AI Cloud Services, to expand revenue sources into new markets[53] - Limited experience in developing and offering HPC solutions (including AI Cloud Services) may result in excessive R&D expenses, delays, or failure to deliver competitive offerings[54] - The market for HPC solutions (including AI Cloud Services) is highly competitive, with increasing pricing pressure and uncertain demand growth[55] - Regulatory scrutiny, such as the EU's Artificial Intelligence Act, may impact the company's ability to provide and improve AI/ML-based solutions, increasing compliance costs[58] - The company may face challenges in procuring GPUs and other components for HPC solutions due to limited suppliers and high demand[54] - Expansion plans for Bitcoin mining and HPC solutions may be delayed or more expensive than anticipated due to market conditions and technological developments[64] - The company may need to raise additional capital to fund operations, hardware purchases, and growth strategies, potentially diluting shareholder interests[66] Equipment and Supply Chain Risks - The company is highly dependent on a small number of equipment suppliers, particularly Bitmain for digital asset mining machines, and faces risks if suppliers fail to perform or if equipment is unavailable on acceptable terms[86][87] - Demand for Nvidia GPU chipsets and networking equipment for HPC solutions (including AI Cloud Services) far exceeds supply, impacting availability and pricing[88] - Bitcoin mining equipment prices are linked to Bitcoin's market price, and higher Bitcoin prices increase demand and costs for mining hardware[92] - Equipment shortages and delays in delivery from suppliers could adversely affect the company's expansion plans and financial performance[87][89] - Supply chain disruptions, including semiconductor chip shortages, could delay equipment delivery and increase costs, impacting expansion plans[121] - Logistical challenges, such as freight constraints and equipment damage during transit, could hinder the company's expansion plans[122] - Public health crises, political instability, and climate change could cause supply chain disruptions, delaying equipment delivery and impacting operations[124] Electricity Costs and Supply - The company's electricity costs in British Columbia increased by approximately 2% due to regulatory adjustments in 2023, with further rate changes possible in the future[96] - In Texas, electricity prices are volatile due to factors like fossil fuel prices and high demand, with potential for material increases in future costs[97] - The company faces risks from potential political or regulatory restrictions on electricity supply, such as the 18-month suspension on new BC Hydro connections for cryptocurrency mining projects[98] - A substantial increase in electricity costs could render Bitcoin mining or HPC solutions ineffective or unviable, as power prices are unpredictable and subject to fluctuations due to factors like climate change and fuel costs[154][155] Internet and Connectivity Risks - Internet outages or limitations could severely impact the company's ability to validate Bitcoin transactions and offer HPC solutions, leading to financial losses[99][100] - Internet connectivity disruptions could severely impact the company's operations, potentially leading to decreased revenue and increased operational costs[101] Equipment and Operational Risks - High voltage circuit breakers at all sites have a lead time of 15 to 113 weeks for replacement, posing a significant risk of site non-operationality[104] - Serial defects in ASICs, GPUs, and other equipment could result in material outages or underperformance, reducing Bitcoin mining rewards and revenue[106] - Custom firmware adoption for the mining fleet may lead to hashrate decreases, impacting Bitcoin mining rewards and revenue[107] - Third-party service provider disruptions could harm the company's business, financial condition, and operating results[108] - Mining hardware suppliers' operations in China are subject to economic, political, and legal risks, which could adversely affect the company's business[111] - Bitcoin mining hardware lead times range from 1 to 12 months, with potential delays exceeding 12 months during favorable mining conditions[120] Expansion and Diversification Challenges - Expansion and diversification of revenue sources into additional markets, including HPC solutions (AI Cloud Services), leveraging data center capacity and power access[126] - Challenges in integrating new equipment into existing infrastructure, potential cost overruns, and the need for retrofits or custom solutions for HPC operations[126] - Difficulty in finding suitable data center sites with renewable energy, electrical infrastructure, and regulatory compliance at viable prices[127] - Potential delays or failures in securing power connection agreements, permits, and licenses, as seen with the 18-month suspension on BC Hydro connection requests for cryptocurrency mining[128] - Risks of development delays, cost overruns, and environmental constraints impacting expansion plans and financial performance[129] - Intense competition in Bitcoin mining and HPC solutions, with competitors having advantages in hardware efficiency, power access, and financial resources[133] - Potential adverse effects of public health crises, such as COVID-19, on operations, workforce health, and global economic conditions[136] - Challenges in attracting and retaining skilled personnel, particularly in specialized fields like HPC solutions and AI Cloud Services[139] - Risks associated with acquisitions, including integration challenges, unanticipated costs, and potential dilution of equity securities[143] - Exploration of asset monetization opportunities, including the 1,400MW West Texas development site, to expand HPC capabilities[146] Climate Change and Environmental Risks - The company is vulnerable to climate change, severe weather conditions, and natural/man-made disasters, which could disrupt operations and adversely affect financial results[147][148] - Climate change may lead to increased frequency of natural disasters, such as the 2023 British Columbia wildfires, which burned a record-breaking land area, and Texas power outages due to severe storms and hurricanes[148] - The reliability and efficiency of the company's ASICs, GPUs, and other equipment are linked to weather conditions, and failure to manage climatic conditions could result in reduced efficiency, increased failure rates, and higher maintenance costs[149] - The company's current insurance policies do not include sufficient business interruption insurance to cover lost profits from operational disruptions, which could have a material adverse effect on the business[150] Technological and Market Risks - The company may fail to anticipate or adapt to rapid technological changes in the digital asset, data center, and HPC solutions markets, including AI/ML, which could result in decreased revenue and market share[156][157] - A potential transition of the Bitcoin network from proof-of-work to proof-of-stake validation could significantly impact the value of the company's capital expenditures and investments, making it less competitive[159][160] - Increased Bitcoin mining capacity from competitors could raise the global hashrate, decrease the company's effective market share, and reduce its share of block rewards and transaction fees[161][162] - Bitcoin's first-to-market advantage may be eroded if another digital asset gains significant market share, which could have a material adverse effect on the company's business[165] - If a malicious actor or botnet gains control of more than 50% of the Bitcoin network's processing power, it could manipulate the network and adversely affect the company's operations and investments[167] Bitcoin Network and Transaction Risks - Bitcoin transaction fees averaged $7.1 per transaction for the fiscal year ended June 30, 2024[174] - The collective assets under management of BTC ETFs reached $52.1 billion as of June 30, 2024, with net inflows of $14.5 billion[190] - Certain mining pools may have exceeded the 50% threshold of processing power on the Bitcoin network, increasing the risk of transaction validation control[170] - Overcapacity in the Bitcoin network could lead to increased transaction fees and settlement times, potentially reducing demand for Bitcoin[174] - The Bitcoin Cash and Bitcoin Cash SV network split in November 2018 resulted in "replay" attacks, causing significant losses to digital asset trading platforms[177] - FTX, one of the largest digital asset trading platforms, became insolvent in November 2022 due to misuse of customer assets[182] - The SEC charged Kraken, a platform used by the company, with operating as an unregistered securities exchange in November 2023[183] - Spot Ether exchange-traded funds were approved for trading in the U.S. in July 2024, following the approval of BTC ETFs in Q1 2024[190] - The global market for Bitcoin is characterized by supply constraints, with some digital assets having a predetermined limited supply[189] - The company relies on third-party mining pools, which could adversely impact its business if pool operators fail to distribute rewards fairly[191] - Antpool and Foundry are the company's main mining pool service providers, with F2Pool identified as a backup provider[193] - The company may face adverse impacts on mining revenue if Antpool, Foundry, or other pool operators experience downtime or cease operations[194] - Genesis Global's bankruptcy in January 2023 is not expected to materially affect the company's business, despite its ownership by Digital Currency Group, which also owns Foundry[195] - Bitcoin block rewards are expected to halve to 3.125 Bitcoin in April 2024 and further to 1.5625 Bitcoin in 2028, potentially impacting mining revenue[197] - The total number of Bitcoin issued to date is approximately 19.7 million, with a maximum supply of 21 million expected by 2140[197] - The company may face risks from regulatory actions in countries like India, Russia, and China, which could restrict Bitcoin usage[202] - Bitcoin transactions and wallets are vulnerable to hacking, fraud, and operational glitches, which could erode user confidence and impact the company's revenue[203][204] - Loss or destruction of private keys required to access digital assets could result in irreversible financial loss and reputational harm[205][206] - Large-scale sales or distributions by major Bitcoin holders could disproportionately affect the Bitcoin market and the company's share price[207][208]