Iris Energy (IREN) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q2 FY 2026 was $184.7 million, a decrease of 23% compared to the previous quarter, primarily due to lower Bitcoin mining revenue [19] - Adjusted EBITDA declined mainly due to reduced Bitcoin mining revenue, partially offset by lower payroll tax accruals and power costs [20] - The company recorded $31.8 million in mining hardware impairment associated with the transition to AI cloud, compared to $16 million in the prior period [20] Business Line Data and Key Metrics Changes - AI cloud revenue is accelerating as deployments ramp up, with a significant portion of revenue now coming from AI workloads [19] - The company expects to deliver 140,000 GPUs by the end of 2026, positioning for an annualized run rate revenue of $3.4 billion [5][17] - Approximately $2.3 billion of annualized revenue run rate is under contract, including around $0.4 billion at the Prince George site [16] Market Data and Key Metrics Changes - The company has secured underwriting commitments for $3.6 billion of GPU financing at an interest rate of less than 6%, covering 95% of GPU-related CapEx [4][22] - Demand for AI cloud services remains strong, with multiple advanced negotiations underway for larger scale deployments [5][16] - The company has secured over 4.5 GW of power, with a new 1.6 GW site in Oklahoma, enhancing its competitive position in a power-constrained market [6][14] Company Strategy and Development Direction - The company focuses on a vertically integrated model, controlling its own data centers and operations to manage costs and service quality [11] - The strategy revolves around the "three Cs": capacity, customers, and capital, which reinforce each other to support growth [8][26] - The company aims to scale into one of the world's largest AI cloud platforms, leveraging its secured power and customer demand [10][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transition to AI cloud, expecting subsequent quarters to reflect a growing contribution from AI cloud revenues [21] - The company highlighted that demand is not a limiting factor for reaching its $3.4 billion ARR target by the end of 2026, with significant runway for growth beyond that [17][27] - Management emphasized the importance of selecting the right long-term partnerships to create lasting value [17] Other Important Information - The company has a strong cash position of $2.8 billion and has secured $9.2 billion from various financing sources to support growth [23][24] - The company is actively monitoring the colocation market but sees AI cloud as a more valuable opportunity at present [32][36] Q&A Session Summary Question: Update on ERCOT and its impact on Sweetwater - Management indicated that Sweetwater is likely to be included in the batching process, securing the full 2 GW of power [30] Question: Economics on colocation versus AI cloud - Management noted that AI cloud offers higher value compared to colocation, with better dollar-per-megawatt returns [32][35] Question: Energization dates for Sweetwater - Sweetwater 1 is on track to energize in Q2, with customer engagement expected to improve due to the batching process [51][52] Question: ARR recognition timeline - Revenue from the Microsoft contract is expected to commence progressively over the year, starting in Q2 [54] Question: Pricing environment for cloud deals - Management reported strong ongoing demand and a willingness from customers for longer contract tenors, indicating a favorable pricing environment [59]