Cipher Digital (CIFR) Q3 2026 Earnings Call: Barber Lake Reaches $9.1 Billion

Key Takeaways

• Q3 2026 revenue rose to $27 million from $25 million in Q2, including Cipher Digital’s first HPC lease revenue following initial capacity delivery at Black Pearl.
• GAAP net income was $32 million, compared with a $268 million net loss in Q2. The change primarily reflected a $127 million noncash warrant liability gain versus a $151 million loss in the prior quarter.
• Adjusted EBITDA improved to a $10 million loss from a $30 million loss in Q2.
• Three contracted data center campuses totaling 700 gross megawatts represent $16.6 billion of contracted revenue and approximately $864 million of projected average annualized NOI. Their weighted-average lease term is 17.3 years.
• The Barber Lake amendment extended the base lease from 10 to 20 years and increased contracted revenue to approximately $9.1 billion, adding $5.2 billion of rent. Management said the transaction restored the project’s average yield on cost to approximately 15%.
• Cipher’s portfolio totals approximately 6.8 gigawatts, including potential on-site generation. The company has started developing lateral natural gas pipelines capable of supporting up to 2.5 gigawatts and is in early commercial discussions for approximately 1 gigawatt of related data center leases.

Core Financial Data

Business and Operating Performance

Cipher’s contracted HPC portfolio consists of Barber Lake, Black Pearl and Stingray. The three campuses are under construction and leased to investment-grade counterparties. Contracted revenue could reach approximately $28.4 billion if all extension options are exercised.

At Barber Lake, the amended lease increased contracted revenue to approximately $9.1 billion. Cipher agreed to fund $359 million of approximately $409 million in tenant-related change orders, with the tenant reimbursing about $50 million. Higher construction costs are being shared equally, with the tenant’s share recovered through rent at a contracted return.

Cipher’s cost at Barber Lake increased to approximately $13 million per IT megawatt. However, the additional rent restored the average yield on cost to roughly 15%, compared with approximately 13% without the amendment. Management also said the transaction improved net present value and MOIC.

Barber Lake’s tenant has begun deploying compute, and Cipher said it delivered a readiness-for-service notice for the first 51 megawatts of critical IT capacity. The company has also acquired 685 adjacent acres for possible expansion.

At Black Pearl, Cipher delivered initial capacity in August ahead of schedule and recognized its first HPC lease revenue. It has delivered 18 megawatts of critical IT capacity, while the remaining Phase 1 data halls are undergoing mechanical, electrical and plumbing fit-out. The company acquired another 256 adjacent acres to support potential growth.

At Stingray, earthwork, grading and pad preparation were nearing completion. Steel erection was progressing, with shell construction expected to be completed in Q4 2026.

Odessa, Cipher’s remaining operating Bitcoin mining site, produced approximately 296 Bitcoin during Q3. Management continues to evaluate monetizing the site for HPC development, citing its existing infrastructure, long-lead equipment and remaining power purchase agreement term.

Cipher’s total portfolio now stands at approximately 6.8 gigawatts. Its near-term opportunity pipeline is approximately 5.9 gigawatts. The company added Horizon, a 70-megawatt Texas site with an executed interconnection agreement and expected energization in 2029.

Management Guidance

Management expects Barber Lake data halls to be delivered in phases from Q4 2026 through Q1 2027. The final data hall at the grid-connected facility is expected in Q1 2027.

Cipher expects final ERCOT classifications for Colchis in December 2026 after completion of the data center audit. The 1-gigawatt site has received a conditional baseload designation, and management described tenant interest as strong.

The company said its lateral natural gas pipelines could make on-site power available as early as late 2027. Management expects yields on cost for on-site generation projects to be broadly in line with grid-connected projects, based on current lease discussions.

Management expects supply-chain constraints and labor inflation to continue through 2027. For future leases, Cipher plans to complete approximately 30% to 60% of design work before signing, procure selected critical equipment earlier and consider tenant construction reimbursement agreements.

Risks and Key Watch Items

• Construction costs remain exposed to labor inflation, scope changes, supply-chain constraints and lower productivity caused by evolving tenant requirements.
• Higher capital costs could pressure project economics. Cipher said it is seeking rents that preserve the spread between project yield on cost and financing costs.
• ERCOT classifications, curtailment terms and interconnection approvals remain important dependencies for several Texas pipeline sites.
• On-site generation depends on access to scarce turbines and reciprocating engines. Cipher plans to have creditworthy independent power producers contract directly with tenants for equipment and power supply.
• Tenant-driven design changes can affect schedules and costs. Management is attempting to reduce this risk by advancing engineering and design before lease execution.
• Parent-level convertible financing could create dilution, although Cipher’s capped call is designed to economically offset dilution up to $28.35 per share.

Analyst Q&A Highlights

Analysts focused on rising construction costs and whether rental rates can keep pace. Management said tenants recognize higher build and financing costs and have so far shown willingness to support higher rents. Cipher is also discussing upfront CapEx reimbursement structures to protect schedules and secure long-lead equipment.

On financing access, CFO Greg Mumford said three of Cipher’s four project bonds were among the tightest-trading bonds by spread within a group of roughly 20 to 25 high-yield construction financings. Management attributed that performance to investment-grade tenants and financeable lease structures.

Regarding Odessa, management said discussions to monetize the site for HPC remain active. Cipher does not currently expect to inject equity if negotiations progress as anticipated, instead seeking a return from the site’s infrastructure and speed-to-power advantages.

On geographic concentration, management acknowledged Cipher’s significant Texas exposure but said it continues to view the state as competitive with other US markets. The company is evaluating sites elsewhere, while noting that other regions may involve longer power timelines and larger interconnection deposits.

For Colchis, prospective tenants are advancing diligence, lease frameworks and design work. Management said a final lease would likely require the interconnection to be secured or include that approval as a condition precedent.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Courtney Knight

Good morning, and thank you for joining us on this conference call to address Cipher Digital's business update for the third quarter of 2026. Joining me on the call today are Tyler Page, Chief Executive Officer; and Greg Mumford, Chief Financial Officer.

Please note that our press release and presentation can be found on the Investor Relations section of the company's website, where this conference call will also be simultaneously webcast. Please also note that this conference call is the property of Cipher Digital, and any taping or other reproduction is expressly prohibited without prior consent.

Before we start, I'd like to remind you that the following discussion as well as our press release and presentation contain forward-looking statements. These statements include, but are not limited to, Cipher's financial outlook, business plans and objectives and other future events and developments, including statements about the market potential of our business operations, potential competition and our goals and strategies.

Forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cipher assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law.

Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the most directly comparable GAAP measures, and you are encouraged to examine those reconciliations, which are filed at the end of our earnings release issued earlier this morning.

I will now turn the call over to our CEO, Tyler Page. Tyler?

Rodney Page

Thanks, Courtney. Good morning, everyone, and thank you for joining us today. I'm Tyler Page, CEO of Cipher Digital, and I'm pleased to welcome you to our third quarter 2026 business update call.

The past few months have tested our industry, but I want to be clear from the outset that Cipher was built for this market. Recent regulatory developments and market volatility have generated headlines questioning the industry's trajectory. But the underlying fundamentals, such as demand for compute are only improving.

Today, tenant demand across our pipeline has never been stronger and our strategy, which can be easy to overlook in calmer markets, will continue to prove its value. The decisions we made early on about who we partner with, how we structure our projects, how we navigate a dynamic regulatory environment and how we engage with our communities were made with exactly these conditions in mind.

Against the shifting landscape of more discerning financing markets and rising building costs, we have evolved our approach to match. I will walk through each of these points in more detail today. But first, I want to take a moment at the top to remind everyone who we are and what we do.

At its core, Cipher identifies underappreciated powered land sites and applies capital, expertise and execution to unlock their value through leasing and development. Put simply, Cipher creates value by turning scarce power into long-term contracted infrastructure. Our model is built on six pillars.

We originate sites by identifying and acquiring land and power contracts creatively and cheaply. We lease those sites by signing long-term contracted cash flow agreements with the highest credit quality HPC tenants with whom we have continued to strengthen our relationships.

We finance the deals, which Greg will discuss in more depth by pioneering capital market solutions that support sustainable growth. We have successfully completed three project-level financings, achieving cheaper funding with each successive project. We then use that capital to develop and deliver mission-critical infrastructure, building campuses designed around dynamic tenant requirements with expert in-house teams across engineering, procurement and construction.

We own and operate the sites while generating recurring long-duration cash flow. And finally, our financing structures allow us to unlock project equity from stabilized sites, pull that capital back to the parent and reinvest in future development. Greg has described that flywheel on prior calls, and it is central to how we compound value over time.

On our first HPC data centers, we have proven the model. We were among the first in our sector to secure leases, and we worked closely with each tenant to refine their basis of design, which deepened our construction expertise and strengthened our customer relationships. Those efforts have translated into three data center campuses totaling 700 gross megawatts, all nearing completion and leased to some of the most sophisticated technology companies in the world.

Together, they now represent $16.6 billion of contracted revenue over the next two decades, equating to approximately $864 million of projected average annualized NOI. All three projects are in construction phases with first capacity already delivered at Black Pearl and additional capacity across all three sites expected to come online in phases over the coming months.

As our first HPC data centers near construction completion, we are building on the decisions that have served us well and are refining our approach going forward. I want to walk through a few of those points now.

First and foremost, we have always focused on partnering with the most creditworthy customers whose strength supports our ability to finance each project. We continue to deepen those relationships as well as engage in conversations with every leading hyperscaler and AI lab regarding our robust pipeline of sites.

Second, we remain disciplined about pursuing leases that make sense on a risk-adjusted return basis. This means staying firmly focused on our long-term colocation model. We are not a Neo cloud. Neo cloud providers offer customers access to chips directly. That model can generate a larger headline revenue opportunity but comes with meaningful increase in risk and financing obligations.

Revenue visibility is lower, risk exposure is higher and margins are highly sensitive to changes in the cost of capital and spot pricing for compute. As a long-term colocation provider, we deliver turnkey data center capacity that our tenants fit out themselves. Our capital is focused on the data center, not the chips inside it.

In return, we signed long-term contracts with creditworthy counterparties that give us strong revenue visibility and a more limited risk profile. In a market where capital may become harder to come by, that distinction matters. Lenders and investors are placing a premium on predictable contracted cash flows, and that is exactly what our model is designed to produce.

We believe this positions Cipher to deliver among the most attractive risk-adjusted returns in the sector, and we intend to stay focused on that strategy. Now where have we evolved? The first change is in how we think about pricing new leases. We evaluate every project on a yield on cost basis, the stabilized annual income a site generates relative to the total cost to build it.

As the market-wide cost of capital has risen, we are focused on ensuring our returns on new leases keep pace, and we believe that is achievable given sustained demand growth and the scarcity of available power in the coming years. The spread between our yield on cost and our cost of capital is one of the ways we create value for shareholders, and we are focused on protecting that spread.

In addition, we are now investing more development capital at the earliest stages of each project. In the beginning of our transition to HPC data center development, both we and our tenants were willing to sign leases before a basis of design was fully defined in order to prioritize speed.

Today, we are taking a more deliberate approach, aligning with tenants on design requirements in advance of signing a lease to reduce the risk of significant change orders and schedule impacts as construction progresses. Across our near-term pipeline, we have been working diligently to advance design sets to between 30% and 60% complete ahead of lease execution.

This advanced engineering and design work gives us clearer visibility into supply chain and construction costs before we commit to lease economics. We are pairing that work with a selective, proactive approach to procurement, securing critical equipment early to protect our development schedules and insulate Cipher from supply chain availability challenges and cost inflation. In addition, we are evaluating a variety of new structures for future leases, including executing construction reimbursement agreements with tenants ahead of final lease execution.

In summary, the fundamentals of our business have not changed. We remain focused on creditworthy tenants, long-term colocation leases and returns that justify the capital we deploy. What has evolved is the rigor we bring to every new project from how we price leases to how early we lock in design and procurement. We believe that evolving approach positions Cipher to grow with confidence as we execute on a pipeline of approximately 5.9 gigawatts of near-term opportunities.

Now let's turn to our three contracted campuses. Across these leases, we have partnered with leading tenants on lease agreements with a weighted average term of 17.3 years, representing approximately $16.6 billion of contracted revenue and approximately $28.4 billion of contracted revenue, assuming all extension options are exercised.

These cash flows are long term, highly visible and backed by investment-grade credit. With capacity already online at Black Pearl and initial data halls coming online at Barber Lake, those projected cash flows are increasingly becoming realized revenue.

Let's now zoom out and look at the full scope of what we've built. Across our operating contracted and future pipeline developments, including both grid-connected as well as on-site generation opportunities, the portfolio now totals approximately 6.8 gigawatts of capacity.

A portion of that capacity reflects our already contracted HPC capacity as well as our legacy Bitcoin mining capacity at Odessa. But the overwhelming majority of it sits in our pipeline, representing substantial growth beyond existing contracts. We are positioned exceptionally well for multiple levers of future growth via continued site acquisition and existing site expansion as well as the addition of on-site generation for which our sites are particularly well suited.

Turning to Slide 7. I want to highlight several key developments from the quarter. First and most importantly, we amended and expanded our lease at Barber Lake. The new lease brings an additional 10-year term and total contracted revenue at the site to $9.1 billion. We also established a phased delivery schedule with individual data halls coming online from the fourth quarter of 2026 through the first quarter of 2027.

Second, we are pleased to report that we recognized our first HPC lease revenue at Black Pearl in Q3, driven in part by the capacity we delivered ahead of schedule at our tenants request. Revenue will continue to scale as we deliver additional capacity at Black Pearl, Barber Lake and Stingray over the coming months.

Third, we made meaningful progress on our Texas pipeline, receiving bat zero classifications across several pipeline sites, including a conditional baseload classification for 1 gigawatt at Colchis. We expect final classifications in December after the data center audit is complete.

Fourth, we commenced development of lateral pipelines capable of supporting up to 2.5 gigawatts of on-site generation. These pipelines will connect multiple sites to natural gas supplies, which could make power available as early as late 2027. This on-site generation strategy gives us another path to power in addition to the grid and allows us to expand the capacity available at existing sites.

Finally, we are proud to support the communities where we operate. Together with FluidStack and Anthropic, we committed a combined $10 million to repair and upgrade Colorado City's water infrastructure. These funds will go toward municipal infrastructure upgrades identified by the city to improve water availability for residents following last summer's shortages.

Turning to Slide 8. I'd like to spend some time on our recent lease expansion at Barber Lake, why we pursued it and why it was a great development for Cipher and our shareholders. First, the numbers. The amendment doubles the base lease from 10 to 20 years and increases contracted revenue to approximately $9.1 billion, adding $5.2 billion of incremental rent.

Importantly, every key project metric at Barber Lake, including IRR, MOIC and net present value improved materially even after accounting for the incremental capital investment it required. As meaningful as those improved economics are, our budding direct relationship with one of the world's leading AI labs is the most valuable part of the transaction.

We expect this tenant to be the most significant colocation tenant in the world in the years ahead, and our goal is to develop many data centers for them over time. The changing nature of the lease also demonstrates that AI Labs long-term commitment to this particular site, which we see as a strong candidate for future expansion.

Positioning Barber Lake to grow alongside this tenant is central to our long-term ambitions for the site. Importantly, the amendment also establishes a phased delivery framework aligned with our tenants compute deployment, and we remain on track against that schedule. Data halls will be delivered in the fourth quarter of 2026 through the first quarter of 2027, and our tenant is actively deploying compute right now.

Before I walk through our portfolio and pipeline, I'd like to hand it over to our CFO, Greg Mumford, to provide more perspective on our expanding opportunity at Barber Lake.

Greg Mumford

Thanks, Tyler. This transaction was a significant commercial success at Barber Lake. We increased revenue by $5.2 billion, extended the lease term by 10 years directly facing a leading AI lab and implemented a cost-sharing mechanism resulting in approximately $500 million of incremental revenue over the 20-year term.

In exchange for those improved economics, Cipher elected to invest additional capital in the project. There were two principal components to that investment. The first component was change orders. Our tenants requirements evolved in real time during construction, resulting in approximately $409 million in change orders.

Under the lease, those costs would have been the tenant's responsibility and reimbursable to Cipher. As part of the amendment, the tenant will reimburse approximately $50 million, while Cipher agreed to invest the remaining $359 million in exchange for the 10-year lease extension and the significant incremental revenue that comes with it. We view that as an attractive exchange of near-term reimbursement for substantially greater long-term asset value.

The second component was higher construction costs driven by scope evolution, inflation and rising labor costs. Under the amendment, we are sharing these costs equally with our tenant and recovering our tenant share through rentalization at a contracted rate of return over the life of the lease.

The right side of the slide shows why we believe this was the right capital allocation decision. When Barber Lake was originally underwritten, our guidance was $9 million to $11 million per IT megawatt. We ultimately financed the project at $10.4 million per IT megawatt, supporting an average yield on cost of roughly 15%.

Without the amendment, the combination of reimbursed tenant-directed change orders paired with general scope evolution and inflationary pressures would have resulted in cost to Cipher of $12.3 million per IT megawatt and reduced our average yield on cost to approximately 13%.

Instead, we made the decision to invest additional capital to cover a portion of the reimbursable change orders and the additional cost to complete in exchange for improved lease economics and a stronger relationship with the end user compute at our site. With the transaction, the cost to Cipher increased to approximately $13 million per IT megawatt, but the additional rent restored the project's average yield on cost to approximately 15%.

At the same time, we added 10 years with an improved credit, approximately $5.2 billion of contracted revenue and improved the project's NPV and MOIC. This was not simply additional capital required to complete the project. It was an incremental investment made in exchange for a materially more valuable contract. We believe the additional long-term value we secured at Barber Lake significantly exceeds the incremental equity we invested to obtain it.

With that, I'll turn it back to Tyler to walk through our current portfolio and pipeline.

Rodney Page

Thanks, Greg. Let's turn to our current portfolio.

Starting with Barber Lake. Construction remains on schedule, and our tenant has begun deploying compute throughout the facility. We look forward to sharing further progress as we deliver the initial data halls in the coming months with the final data hall at the grid-connected facility expected to be delivered in the first quarter of 2027. Over the past several months, we have acquired 685 acres of adjacent land to support expansion opportunities at the campus.

Moving to Black Pearl and Stingray. At Black Pearl, we delivered first capacity in August ahead of schedule at our tenant's request and recognized our first HPC lease revenue. To date, we have delivered 18 megawatts of critical IT capacity and the remaining Phase 1 data halls are progressing through MEP fit-out.

On Phase 2, foundations and building steel are completed and electrical work is underway. In close coordination with our tenant, we are aligning on a phased delivery schedule that matches their compute deployment plans and construction is progressing in line with those dates. In addition, we acquired 256 acres of adjacent land to support future growth at the campus.

We next turn to Stingray, where earthwork, grading and pad preparation are nearing completion and steel erection is progressing with shell construction expected to be complete in the fourth quarter. We are also continuing site grading that could support future site expansion project phases and look forward to providing updates on Stingray's progress as construction ramps over the coming quarters.

Odessa, our last operating Bitcoin mining site, performed well in the third quarter, producing approximately 296 Bitcoin. We continue to evaluate monetizing Odessa's speed to power value as an HPC development site, which comes from two sources: our long lead time equipment and on-site infrastructure and the remaining term of our PPA. Together, these offer a significant time to power advantage to any future developer. We look forward to sharing updates as those conversations progress.

Let's now shift to an update on our development pipeline. Reveley and Ulysses are both fully approved for interconnection and outside of ERCOT's batch process. Demand for sites available in 2027 is exceptionally strong, but we are focused on securing the right leases for Cipher, not simply the first ones available.

As I mentioned earlier, we are working with prospective tenants to progress design elements upfront, which will reduce the risk of cost and schedule impacts from change orders once construction begins. We believe this deliberate approach is the right one in a market facing inflation and supply chain challenges and that taking more time on design and tenant alignment pre-lease execution will create more value for shareholders over the long run.

Looking to 2028, we received a conditional baseload designation for our 1 gigawatt site Colchis. We have fully complied with the data center audit and expect final classification in December. Given its scale and interconnection status, we view Colchis as a cornerstone of our future portfolio and interest in the site has been exceptionally strong.

We are in discussions with multiple top quality counterparties and consistent with our approach across the pipeline, we are investing in engineering and design upfront. We have expanded the site to 622 acres so that Colchis is well positioned for a lease once final classification is received.

Several other sites in our portfolio received valuable PCLR designations within the study blood category, and we expect updates on those next year. But I want to spend a moment on on-site generation, which we see as the next major value driver for Cipher over the near term.

In Q3, we began developing lateral pipelines capable of supporting up to 2.5 gigawatts of generation with the potential to bring first power online as early as 2027. That time line makes this capacity highly sought after across both our contracted and pipeline sites, and we are currently in early but active commercial discussions for approximately 1 gigawatt of data center leases powered by on-site generation.

Slide 16 shows the full picture of our portfolio today, including new additions from the quarter. I won't walk through every element, but I want to highlight a few. During the quarter, we acquired Horizon, a 70-megawatt site in Texas. Horizon has an executed interconnection agreement with the utility and is expected to energize in 2029. Our site acquisition team is continually building out our pipeline, and Horizon is a good example of the opportunities they uncover. A site we acquired at an attractive price where we believe our expertise can unlock significant value as an HPC campus.

I also want to call out the PCLR designations at Mikeska, Apollo and the Stingray expansion. These were three of only 11 initial sites to receive this designation out of roughly 150 conditional studied load sites. PCLR status allows these sites to draw full power ahead of local transmission upgrades, meaning we expect to receive the full megawatts we requested on our submitted time lines with a portion subject to curtailment.

We expect more clarity on the curtailment terms next year, but we see multiple ways to engineer backup generation for that portion, which would allow us to commercialize these sites even before local transmission upgrades firm up full power. Including the potential 2.5 gigawatts of on-site generation capacity from our investments in lateral pipelines, our full portfolio today stands at 6.8 gigawatts.

We believe there will be strong hyperscaler and AI lab demand for our pipeline sites, and we will be disciplined in how we bring each one to market, prioritizing creditworthy tenants, long-term contracts on attractive terms and returns that create lasting value for our shareholders.

With that, I'll turn the call over to Greg, who will walk you through our financing activities, capital structure and financial results for the third quarter.

Greg Mumford

Thanks, Tyler. As Tyler outlined, demand for our capacity remains robust, and we believe Cipher is well positioned for this market. One place that shows up clearly is in how our project level financings have performed. While access to capital has tightened across the industry, our project bonds have meaningfully outperformed peers, a direct result of the creditworthy tenants and financeable lease terms we have prioritized from the start. Central to our strategy is financing each project efficiently with flexible structures that allow us to recycle capital into new development over time.

We also recognize that how we fund our next phase of growth matters deeply to our shareholders, and we are approaching every financing decision with that in mind. Today, I'll walk through where our capital structure stands, the details of our recent convertible offering and how we are thinking about funding growth going forward.

I'll then review our third quarter financial results. First, let's take a look at our current capital structure and liquidity position. As discussed on previous earnings calls, each of our three contracted campuses is financed at the project level through a dedicated senior secured bond with the parent providing equity alongside.

That structure keeps project debt ring-fenced, serviced by long-term contracted rent from investment-grade counterparties and amortized over the base lease terms. Our pricing has steadily improved over time from 7.8% on Barber Lake to 6.8% on Black Pearl and 6% on Stingray.

I'd like to briefly highlight how these project bonds have performed in what has been a more challenging credit market. The broader AI infrastructure credit market has repriced materially over the last several months, while Cipher project bonds have held up considerably better. We think that relative performance is important because it validates decisions we made well before the market became more challenging.

From the outset, we have deliberately prioritized the most creditworthy tenants and lease terms that are built to be financed. In a stable market, those choices can be easy to overlook. In an environment like this one, they become a clear differentiator. We believe the relative outperformance of our bonds reflects the strength of our contracted cash flows, the quality of our counterparties and our growing track record of execution. That credit profile directly impacts both the availability and the cost of capital for our future projects.

Subsequent to quarter end, when we finalized the Barber Lake transaction and quantified the cost with a high degree of certainty, we issued $850 million of 0% convertible senior notes due 2032 with a conversion price of $15.31 and used a portion of the proceeds to fund our investment in the Barber Lake lease amendment.

We chose the convertible market because it allowed us to lock in six-year corporate capital at a 0% coupon and a 35% conversion premium. To further protect shareholders and in line with our growth expectations, we also invested approximately $90 million into a capped call, economically offsetting dilution up to $28.35 per share or 150% above the reference share price.

We simultaneously equitized approximately $166 million of our 1.75% convertible notes due in 2030 with common stock, retiring more than 90% of those notes and eliminating substantially all of the cash interest expense associated with that issuance. Altogether, total debt stands at approximately $6.7 billion. That includes $4.5 billion of nonrecourse project level secured notes and $2.2 billion of convertible notes at the parent, nearly all of which carry a 0% coupon.

Net of cash and cash equivalents, net debt is approximately $3 billion. Pro forma for the October offering and the Barber Lake funding, we have approximately $724 million of unrestricted cash and cash equivalents. Importantly, our contracted projects are funded through completion.

At Barber Lake, a portion of the convertible proceeds funded the incremental investment associated with the lease amendment, while the cost protections embedded in the Black Pearl and Stingray leases limit Cipher's exposure above agreed CapEx thresholds. We have sufficient working capital to navigate a challenging market backdrop while continuing to make proactive investments in our development pipeline. In summary, we have a capital structure that is well matched to our contracted cash flows, fully funded projects and a parent balance sheet with the flexibility to support our pipeline.

Now let's turn to a review of our financial results for the third quarter of 2026. Revenue for the third quarter was $27 million, up from $25 million in Q2. As Tyler discussed, this quarter includes our first HPC lease revenue and introduces segmented reporting. For the quarter, we reported GAAP net income of $32 million compared to a GAAP net loss of $268 million last quarter.

The swing was primarily driven by $127 million noncash gain on our warrant liability compared with a $151 million noncash loss in the prior quarter. Adjusted EBITDA also improved to a loss of $10 million from a loss of $30 million in Q2. Compensation and benefits decreased to $39 million, primarily reflecting lower stock-based comp.

General and administrative expense increased this quarter, driven by transaction-related consulting fees and the $3 million charitable contribution to Colorado City. In Q3, we sold 632 Bitcoin for cash proceeds of $45.5 million, resulting in a realized gain of $0.5 million compared with a $24 million realized loss in Q2 as this quarter's sales drew on lower cost 2026 production in a recovering market.

Moving below the operating line. Interest income was $33 million, down from $36 million as restricted cash was deployed into construction. Interest expense declined to $59 million from $67 million. Capitalized interest rose to $37 million from $16 million as construction spend accelerated across Barber Lake, Black Pearl and Stingray, which more than offset the first full quarter of interest on the Stingray notes.

Now let's turn to our balance sheet as of September 30, 2026. We closed the third quarter with total assets of $7.7 billion, up $3.4 billion from December 31 and roughly flat from June 30. In the third quarter, we put significant capital to work for our three projects. Restricted cash declined by $1.5 billion during the quarter to $2.2 billion.

Over the same period, property and equipment increased $1.8 billion to $3.9 billion, driven by ongoing construction at our sites. We also continue to invest in our pipeline. Intangible assets increased $48 million, driven by site acquisition activity and security deposits with utilities rose $62 million.

On the liability side, accounts payable, accrued expenses and other current liabilities continue to reflect normal construction billing and payment timing. Deferred revenue grew to $46 million, reflecting tenant prepayments and change orders billed ahead of recognition.

Before we open the call for questions, I want to leave you with a few key takeaways. The Barber Lake amendment more than doubles contracted revenue at the site and improves the project's returns across every key measure. We raised long-dated capital at a 0% coupon, paired it with a cap call to protect shareholders from dilution. And today, our contracted projects are funded through completion with additional liquidity remaining at the parent.

And finally, the steps we're taking on design and procurement position us to bring greater cost and schedule certainty to every future lease. The market environment is more demanding today, and we think that plays to Cipher's strengths. We have a large pipeline of scarce power opportunities, deepening relationships with leading hyperscalers and AI labs and the capital flexibility to be selective about which opportunities we pursue. Our objective is not growth for growth's sake. It is to convert those opportunities into long-duration contracted cash flows and create durable value per share.

Thank you for your continued support. Tyler and I would be pleased to take your questions.

Operator

[Operator Instructions] Our first question is going to come from the line of Ryan Gravett with UBS.

Question-and-Answer Session

Ryan Gravett

Just given the update at Barber Lake and the broader inflation on build costs that the industry is seeing, I guess how should we think about future CapEx requirements and spending per megawatt going forward? And do you expect to be able to raise rental rates in line with the inflation in build costs on future projects and maintain development yields going forward?

Rodney Page

Thanks for the question. Let me take a stab at that first. And then, Greg, you can add some further color because you're probably more in the market day-to-day about where financing costs are.

I would say, in general, look, we've seen a supply chain challenged environment and an inflationary environment for labor. And I think we think 2027 will continue that trend. It's hard to answer your question with specificity because so much depends on the design requirements.

I think the color I would give is that tenants absolutely recognize that costs are going up. And they know that if they're working with someone like Cipher, we are going to turn around and finance the build on their behalf. So I'd say, thus far, what we've seen is a willingness to increase rent in line with increased financing costs. I think what we're also seeing is an evolution of structure.

And what I mean by that is tenants being increasingly willing to entertain things like CapEx reimbursement agreements ahead of time so that they are preserving schedule by putting forward dollars upfront to secure our long lead equipment with the ability to then finance it down the line.

So I also think tenants are looking at ways to perhaps strip costs out of their designs as really just everything evolves in the thinking around these data centers. So I would say what we're seeing right now is a willingness to react to that.

Greg, I don't know if you want to give further color on just what we're seeing in the financing markets.

Greg Mumford

Yes, sure. Thanks for the question, Ryan. Look, so we did hit on this a little bit in the actual prepared remarks of the call, but I think it's important to highlight again, there's about 20 to 25 high-yield issuances in the market that are financing construction for a whole variety of different tenants and various backstop arrangements and kind of across the whole spectrum.

Three of the four of the tightest trading bonds by spread in that group are our bonds. I think that is important because it speaks to what we've done historically, which is target the best quality counterparties. But it also is a focus on making sure that we have ongoing access to capital markets at an efficient rate.

So we are very focused on making sure that we have access to those capital markets. We believe that where our bonds are trading, we'll be able to go out and continue to finance our projects, assuming that we stick to our knitting and focus on really high-quality tenants.

Operator

Our next question will come from the line of Eric Luebchow with Wells Fargo.

Eric Luebchow

I wanted to touch on the Odessa project. I know that -- the Odessa site. I know New Era Energy had signed a PPA with Luminant for a separate project. And I wanted to see how, if at all, that changes the monetization opportunity at that site.

Rodney Page

Sure. So I think our opportunity at that site remains very strong to monetize it for HPC. I say that because we are familiar with that PPA that they signed. I mean that is a structure as a developer, we would not sign. We are looking to do behind-the-meter setups where our $1 trillion market cap tenants would be responsible for the very onerous requirements of any PPA. So they are taking that on.

However, any tenant interested in that site needs access to the site as quickly as possible and has a desire in general for hard to obtain long lead equipment. which we have. So we maintain -- we are in ongoing discussions. I think we are holding an extraordinarily valuable piece of unlocking that puzzle. I do not see us injecting any equity into that site if things continue the way that I expect them to. We will just earn a return from our ability to unlock tenant interest at that site. But those are in ongoing discussions, and we remain very confident.

Eric Luebchow

Great. And just one follow-up for me, Tyler, given your exposure to Texas and some of the associated regulatory complexities with ERCOT, how do you think longer term about geographic concentration versus looking at sites outside of Texas? I know you do have one site or one pipeline site in Ohio, but how do you think about that longer term? How concentrated do you want to be?

Rodney Page

Yes, sure. It's a great question. I think we've spent a ton of time thinking about this. I think the truth is that Texas and the evolving regulatory environment is pretty much in line with just about every other location for data centers in the United States in that there's just an evolving environment and whether that's around regulatory approvals, taxation, community engagement, et cetera.

I think it's drawing the most attention, obviously, because there is so much build-out scoped there. And obviously, we have a lot of exposure there. I think in the long run, the way we view this is that the building of data centers is key to the future of the United States economy. Right now, we're in an election cycle. There's a lot of noise.

In the long run, it doesn't matter who's in office. This is a key piece of the success of the country and the state of Texas. And so I think we don't view Texas, even though it's drawing a lot of scrutiny right now for -- from investors for what does this mean -- we don't really think it's materially different from a risk standpoint on those factors than other locations are. We'll have to see. We have been operating in ERCOT for a long time.

Generally, we think it's a really, really well-run system. We're excited to be building in Ohio. We're looking at sites in other locations. But I'd also highlight that across the board in other locations, you're seeing things like really long time lines to power availability as well as more onerous deposit requirements.

And so while we always like diversification in theory, if you're looking at a site where in order to get access to it, you've got to post hundreds of millions of dollars of deposit for five years to get an interconnect in the 2030s. That's just not quite as attractive. So look, on the one hand, we're always looking. We evaluate sites constantly. But we are still very confident in Texas, no matter sort of how that process evolves, frankly.

Operator

And -- our next question will come from the line of Greg Lewis with BTIG.

Gregory Lewis

Tyler, I was hoping you could talk a little bit more about the lateral NAT gas pipelines you guys are developing. I mean, clearly, speed to market for power looks like it's going to continue to be something that companies that have access to power can take advantage of over the next couple of years. As we think about that pipeline, like how do we have to also address the need of the equipment to convert that natural gas coming in on the pipelines to power?

Rodney Page

Thanks, Greg. It's a great question. I would say at a high level, what drives tenant interest in on-site generation opportunity is the time to power story. So in other words, grid power is easier in a whole bunch of ways operationally, but it is so valuable to get a data center up and running faster that if there are regulatory or other hurdles on the potential time line for grid-connected assets, tenants are willing to be creative.

I think what we have experienced is that tenants have a preference for a site where they can do their own generation, but also has a path to grid connection. And so our sites are very valuable. The way we are thinking about our laterals is that we have sites that are located near large pipelines. We have sites that are grid connected or will be grid connected in the short future.

And then that expansion capacity is potentially very enticing to a tenant to do very large build-outs. Now as it pertains to the equipment, that is one of the really hard things to secure. There just aren't enough turbines and reciprocating engines in the world. The way we are setting it up in our envisioned deals are that we would have an IPP, a very well-known, reputable creditworthy IPP work directly with our tenant to arrange for the equipment to be provided and operated and then the IPP would face the tenant on a power purchase agreement.

And so that at the end of the day, Cipher's role will be to finance and build a data center. We will have to scope out how we will build and operate that differently because the source of power is different than the grid. But the challenges around equipment and operating it are all related or are all between rather the tenant and the IPP.

That is one of the hard things about pulling that together. We are already in advanced discussions on about 1 gigawatt of deals. So we feel very well positioned there. We've got multiple interested tenants at multiple sites, and we are thinking about the long-term viability of just how big our sites can be over time.

Gregory Lewis

Okay. Super helpful. And then one for me on Horizon. The 70 megawatts site, I guess, one is, at that size, it's below 75, so I'm assuming that's outside of batch 0. And then does that also change how you think about potentially scaling that site longer term?

Rodney Page

Yes. So I think it does. I mean, look, what I'd say is I think the ERCOT regulations may evolve. It is currently not in that framework because you're right, it is smaller than the minimum threshold, but it wouldn't surprise me if those regulatory review elements evolve over time. So that does make it attractive today. We hope it stays attractive from that timing kind of maintaining that time line perspective. I think that sites like that, let me zoom way out.

I think what's very different about how Cipher operates and creates value compared to like a traditional data center developer is that so much equity value we ultimately will create comes from the valuation uplift in what we do to a site. So we have found sites that were in nontraditional areas. We got on extraordinarily cheap arrangements. And then there is a massive value uptick when we bring the site to market.

What's happened broadly to the market everywhere, sites -- now there is such a dearth of sites available that I think the valuation on tracks of dirt with an interconnect has just gone up massively everywhere. Furthermore, the regulatory requirements around deposits have made them very, very expensive.

So we are always looking for pockets where we might be able to create that outsized value creation. And I think it's fair to say that looking at sites like 70 megawatts in size have the potential to have a lot of value, and we can still acquire them on the cheap. The ROI analysis on those sites is extraordinarily attractive to us.

Operator

Our next question is going to come from the line of Brett Knoblauch with Cantor Fitzgerald.

Brett Knoblauch

I just want to dig in a bit to the additional cost for Barber Lake. I understand the change orders, but maybe on some of the supply inflation. When does a lot of that cost get locked in? I know you guys have been saying that the equipment has been secured. I guess it's my view that the labor cost is kind of locked in when you sign a GC. So maybe I'm just misunderstanding when all of the cost is kind of locked in on your end? And if you can elaborate on that and what drove that increase?

Rodney Page

Let me give a little color first, and then I'll pass it to Greg to speak to a few of the specifics. But I think at a very high level, the nature of the cost structure at all of our initial sites are related to the fact that we had tenants that were in a real rush, a real hurry to secure these sites. And look, we were in a real hurry to sign those leases because this is a complete recharacterization of cyber, right?

So I say that because the implication of moving very quickly was that we had design sets that were not very far advanced. And what that has meant and the tenants were willing to work with is that there have been more change orders, I think, over the last year than we would have expected. Now my priority is, I think we work with the very best long-term leasing tenants in the world.

And so we are trying to accommodate what the tenants want. But if they are making very substantial change orders, that has knock-on effects to cost and schedule. And when you are repricing those changes in an environment that's evolving, that's where the sort of thematically that exposure comes from.

So you may need to hire additional crews to deal with an adjusted schedule to accommodate something that changed in the tenant's design around the cooling infrastructure or something. And then that has cascading effects throughout the building process.

I highlight that before I pass it to Greg, just because now as we look to our next leases, we talked about this earlier on the call, now we're very confident that demand is there. This is a very different environment as we go through the sort of vertical ascent of transforming the company. And we can afford to be more deliberate with our next-generation leases.

On these next-generation leases, we will not -- we have held off on executing them until we have agreed 30% to 60% design set, that vastly narrows the scope of the variability of those costs. So structurally, that's where it came from. And look, the sites are evolving. I mean, I'll mention before I hand it to Greg, I found out this morning, we just delivered the RFS notice to Barber Lake for the first 51 megawatts of critical IT.

So we're now working with those tenants in a way that makes them happy and collecting rent from multiple sites, multiple tenants. But this first environment has just been dynamic as we've had to work with lots of change orders on one site, we were retrofitting a Bitcoin mining site. So it's just been a very dynamic operating environment in these first builds.

Greg, I don't know if you want to add any further color just or not but.

Greg Mumford

Yes. Yes. And thanks, Brett, for the question. I think it's important that you distinguish the two specific groups, one being change orders, which we were eligible for reimbursement for and the second being kind of cost inflation across a bunch of different verticals. So one of them we talk about is scope evolution. That is a kind of large catch-all basket.

But generally, it refers to there are things going on, on these sites, these massive infrastructure projects that can lead to less productivity than you were probably expecting before. And some of that can be due to the fact that tenant may show up with their racks and ships early and you want to accommodate them as best as you can and you find storage and then you set them up and you're still doing construction around that, so you lose some productivity.

Generally, inflation in OFE equipment was not one of the major drivers, though we did see some inflation and some longer lead times, which resulted in some crews kind of standing around waiting for the equipment to be delivered. But certainly, it's been a tight labor market. I mean I don't think we're the first people that you're going to hear that from or the last. It's something that we are well aware of and thinking about on the next build.

But 1.5 years ago, when we signed these deals, it was a very different market than it is now. So one of the things that we've talked about a lot is focusing more early on engineering, design and tenant alignment and making sure that we can go out and get risk transference on those labor costs with GC or subcontractors earlier. And just to come back to that. So without the deal that we did, if we were to be reimbursed for the change orders and if we were to pay for that additional, call it, $350 million to $400 million of general cost evolution, our costs would have been about $12.3 million per critical megawatt.

That's just outside of our range of $9 million to $11 million. And that doesn't take into account the fact that of that $350 million to $400 million, we probably could have spent more time trying to carve that up and allocate that. And that is -- that's the explanation for why there's a cost-sharing mechanism where 50% of that is being reimbursed to us plus a return of capital.

Brett Knoblauch

Awesome. Very helpful. And maybe just as one follow-up. December audits are expected to kind of be done. Are potential tenants or customers you're speaking to waiting for maybe the audit process to complete? Or if you do have conditional base load and you're kind of front of the queue and all things go on those sites, are those leasable even ahead of that audit? Or how should we think about the different classifications that you guys have received?

Rodney Page

I mean, I would say that Colchis really is a crown jewel because a 1 gigawatt front of the meter site is just an extraordinarily rare thing. We have several of the world's sort of most highly regarded tenants very interested in that site, and I anticipate it's going to be a real catalyst for an uplift in our valuation. I think that that site is so attractive.

People are advancing their diligence, looking at lease frameworks. They're getting 30% to 60% design sets, trying to figure out exactly what they want to do. I don't anticipate we will have a final signed lease in advance of getting an interconnect or if we did, it would certainly have a conditionality on receiving that interconnect.

So I kind of view it as you're getting the same result either way. If someone wants to move forward and we decide that we've got the right dance partner and the right structure set up, theoretically, we could move forward with a condition precedent. But my gut is that one way or another, you're going to need the interconnect in hand.

Operator

Our next question will come from the line of Michael Donovan with Compass Point.

Michael Donovan

Congrats on the progress. You mentioned PCLR sites and using on-site generation and support workloads during grid curtailments. Are you also considering batteries and do potential tenants have a preference?

Rodney Page

Yes. So we are looking at that as one idea. I think the PCLR designation is not fully appreciated by the market. I mean if I had to summarize the market right now, it's just everything is way too short term. And so that is a potential solution. But the point is that when we look at the focus on time to availability of power, I don't think that demand characteristic is going to change very much in the next few months. But hopefully, we are going to make progress through the ERCOT process.

And pretty soon, we're going to be talking about the studied load designation sites. And it may be into next spring. And then I think that PCLR designation is going to be a really big deal. So we'll see. It's our sense that as we watch tenant sort of building requirements evolve, uptime requirements evolve, cost considerations evolve, the idea that you could have a firm time line to power but might have to engineer around the ability to curtail or switch to on-site generation or whatever is something that is very interesting.

I don't think the market is fully appreciating just what a big deal those designations are. And then at a high level, how do you expect yields on cost for projects powered by on-site generation compared with grid-connected projects?

Greg, do you want to take that one?

Greg Mumford

Yes, I'll take a stab at it. So from our discussions and what we've been seeing to date, I don't expect it to be priced materially different. I think if the tenant has designated that site or that opportunity as something that's a high priority for them. We're seeing lease on cost -- or sorry, yield on cost discussions in these lease negotiations be relatively in line with our front-of-the-meter connected sites.

Rodney Page

I think more of those lease discussions will be focused on the SLA and just trying to match what each site is willing to accept just given the different generation source.

Operator

I'd like to hand the conference back over to Tyler Page for his closing remarks.

Rodney Page

Well, thank you, everyone, for dialing in. I just want to remind everyone that we are truly in the most vertical part of the Ascent here transforming the company. I know there's a lot of short-term pressure on the market given everything that's going on. But I want to encourage all of our investors to take the view that we are building expressways for AI to come to market, and we are charging a long-term toll.

So as we navigate the day-to-day headlines, everyone should keep in mind we are building massive sites that we are going to collect tolls on for multiple decades and then be left with a very valuable expressway. So all the most important fundamentals are there as we transform the company, we mentioned the headline that we are now collecting rent also at Barber Lake, a meaningful part of the site has now been delivered. And we are really excited about where we're going to go here in the coming months.

So thank you for your continued support. Cheers.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.