IREN Limited (IREN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to IREN FY 2026 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Mike Power, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to IREN's FY 2026 results presentation. I am Mike Power, VP of Investor Relations. And with me on the call today are Daniel Roberts, Co-Founder and Co-CEO; Anthony Lewis, CFO; and Kent Draper, Chief Commercial Officer. Before we begin, please note that this call is being webcast live with a presentation for those dialed in by phone. You can elect to ask a question through the moderator after our prepared remarks. I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. Those statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to Slide 2 of the accompanying presentation and our SEC filings for more information in that regard. With that, I will turn the call over to Daniel Roberts.

Thanks, Mike, and thanks, everyone, for joining us. So Will and I started this business on a pretty simple observation. The digital world scales almost instantly the physical world does not. Power, land, data centers, these things take years to permit, finance and build. And this was the year, stopped being a thesis and became the defining constraint of the whole industry. So if we look at the chart on the screen, across 8 models tracked by OpenRouter, weekly token usage across large language models increased nearly 17x in 8 months. Every one of those tokens runs on physical infrastructure. It is very difficult to serve demand shape like that with infrastructure on 3-year lead times and this is the start of the cycle, not the end. Cheaper compute doesn't make existing things more efficient. It makes new things economic, infrastructure enables applications, applications create demand for more infrastructure. Every build-out in history has worked this way. And that's the structural disconnect and it's only getting wider. So let me walk through how we're set up against that backdrop. So we operate across 3 layers from the bottom up. So first of all, the data centers, the land, the power, the substations, the cooling. Arguably the hardest layer to build, and that's where the shortage begins. Then the compute, the GPUs, storage, networking that go inside the data centers. And then finally, software on top, to Managed Services and Enterprise Support. That's where Mirantis lives for us. And just today, Mirantis was named an inaugural NVIDIA-certified hypervisor. So we've now got NVIDIA validation at the software layer as well as the hardware. Why own or free? Because each layer makes the one underneath it worth more. A grid connection is worth more with a data center on it. worth more again with GPUs inside, more again with services wrapped around the customer. Most of this market rents at least one of those layers, we own the entire stack. So here's how the year went. Let's move on to highlights. Please, operator. Thank you. Four things to take away from this update, and I'll be quick because there's more detail coming a little bit later. So firstly, customers, new multiyear cloud contracts, including [ Cohere, Prometheus, Perplexity, Figure AI, [indiscernible] AI, Kingsfield AI ] and separately, a leading Frontier AI lab whose name we're not able to disclose just yet. Revenue, $4 billion of ARR is now contracted for our 2026 capacity and $1 billion of that is operating today. This does not include revenue expected to ramp in 2027, such as the $700 million of ARR associated with our NVIDIA cloud contract. Delivering Horizon 1 was delivered to Microsoft this month, the first of 4 50-megawatt deployments with Horizon 2 through 4 targeted for the December quarter. And finally, funded, $6.5 billion of GPU financing now in the past 3 months, with prepayments, that's more than 100% of the associated GPU CapEx funded. And $2.8 billion of it needed no investment-grade offtake and still priced in the single digits. So let me start with customers because everything else follows from them. Our 2026 capacity is largely sold out. So the questions we get now are all about 2027 and 2028. We're continuing to contract future capacity deliberately. Every contract opportunity gets weighed on 3 things. Firstly, who and what does this counterparty add to the platform, the strategic merit, not just the revenue. Second, what are the economics, price, prepayment, term, et cetera. And thirdly, what might it open up longer term for managed services and software. We've been saying this for a while now. Signing deals is not the bottleneck in this market, bringing GPUs online is. We also don't need an investment-grade offtake to fund GPUs anymore. So we're not chasing headline announcements, we're making long-term decisions about where we want this business to be and when we'll sign, we'll tell you. We're in late-stage discussions with a range of new customers over a significant portion of 2027 capacity and 2028 conversations are well underway to bolt-on customers, and financing. Longer term, we want to keep building a deep, diversified base of customers across the AI ecosystem, all who have master service agreements with IREN. Every megawatt we build is scarce. Before every new cluster switches on, we want it in demand from both existing customers and new ones. So not dependent on any one customer, any one negotiation or any one point in a pricing cycle. And here's who's on the platform today. So as I mentioned earlier, the headline is the new multiyear contract with a leading Frontier AI lab. And to be clear, this is a new contract. It's separate from [ Prometheus ], who we can now name as the unnamed AI developer from our July announcement. The most sophisticated buyers of AI infrastructure in the world keep choosing us. It also shows the strategy is working. We started concentrated because big customers with immediate demand with the fastest path to scale. As the platform has grown, we've deliberately broadened hyperscalers, enterprises, AI developers, now frontier labs across both training and inference. But honestly, the part we care about most is the third bullet point. Existing customers keep coming back, [ Together AI and Bioworks AI ] have both renewed and expanded. New logos are proving demand, whereas renewals continue to improve ongoing delivery and ongoing execution. Once we've deployed with the customer, we grow with them across sites, GPU generations and service levels. And in terms of who we sign in and growing with us, [ Prometheus and Figure ] are building products for the physical world, robotics, real-world automation and they're contracting our compute to do it. AI is moving well beyond chat. This is the thing we keep telling people, you cannot size this market of today's usage. And that is exactly why the market keeps getting caught structurally short of compute. Now let's move on to pricing. So pricing has moved a lot. 3-year contract pricing is up about 125% since November. Five year is up about 70. Recent 3-year contracts are pricing in excess of $20 million per megawatt of IT load paying back the compute investment in around 2 years while active discussions are now at around $25 million per megawatt. Recent customer prepayments are funding 45% to 55% of the GPU CapEx. What's behind that? The market's tightened, no question, but it's also who we're signing, how the deals are structured and what we attach on top in Managed Services, which Mirantis keeps expanding. Shorter duration and on-demand sit above that is further upside in due course. Revenue per megawatt is shorthand, by the way, we look at the whole return, price, term, prepayment utilization, customer quality and expansion opportunity. And to be clear about what we're not doing, we're not sitting on capacity to time a spot price. We allocate capacity to build the customer base and the platform as we see fit, the pricing follows that. Okay. So from customer to what we're building. The targets roughly 300 megawatts of IT load delivered in 2026 and another 0.5 gigawatt in 2027. That will take the platform to around 1.2 gigawatts in 2027 of gross capacity, and we're continuing to build across Texas, British Columbia, Oklahoma, South Australia and Spain. And right now today, there are more than 4,000 people mobilized across our active sites. The best example of that today is Horizon 1. So as we announced earlier, Horizon 1 was delivered to Microsoft. First of 4 50-megawatt liquid cool deployments at Childress and it achieved NVIDIA exemplar cloud status on GB300 NVL72, which matters because it proves we can integrate and operate the full platform. Hardware, networking and software, not just build the shell. The delivery matters, but the template matters more. Every Horizon uses the same design. The same supply chain, the same site team and each phase carries the lessons of the last. Horizon 2 is in the process of working towards commissioning. 3 and 4 are in late construction. So all 3 are targeting delivery in the December quarter. And that approach is running at every site. So quickly on 2026. At Childress, retrofit work and GPU installs are running in parallel on the air cold calls. At Mackenzie, GPUs are being racked across the first 2 buildings. At Prince George, the air cord fleet is now fully commissioned and liquid cooled installation is underway. All of that remaining capacity is targeted for the December quarter. In 2027, Sweetwater 1 is in full swing now. First building is going up. The primary substation is progressing. At Mirantis, Horizons 5 and 6 civils are now moving and underway and another 250 megawatts of vehicle conversion progressing. And it's also worth mentioning in terms of canal flats, we've now decided to convert all of that to liquid cooling for [ GB 300s ], and that will deliver more value from power and a site we already own. But beyond that, the pipeline steps up again. 2028, Sweetwater 2 and [indiscernible] in the U.S., funding in South Australia and [indiscernible] in Spain roughly 300 megawatts and the flagship of the Nostrum portfolio of sites we closed during the quarter. All up more than 5 gigawatts announced with a multi-gigawatt development pipeline behind it, including more Texas power were a tighter interconnection process should favor real and well-capitalized projects. And then a quick word on design because it answers the question, we're starting to get a lot. So the bear case we hear on this industry is that AI data centers get rebuilt in 10 years. We've spent this year making sure that ours don't. Sweetwater 1 is becoming the reference design for Sweetwater 2, Kiowa, [ Bundy ] and what follows after those. Common layouts, common equipment, more modularization and prefer. Each project is inherited in the last one's lessons instead of starting from zero and the design is built for successive GPU generations evolving calling, including 800-volt DC, all of which has been developed in collaboration with NVIDIA. So we know compute change is faster than buildings and ours have been designed to adapt to that. But we're also getting more out of what we already own. Our existing sites have spare power beyond current deployment plans. That headroom can support more GPUs and more revenue without the need for any new grid capacity. And new group capacity is the scarcest input in this entire industry. So revenue that doesn't need is about the highest quality growth there is. First up, new liquid called installs at Mackenzie, Canal Flats in Prince George in 2027. And over time, tools like NVIDIA MAX LPS which smooths GPU power draw, let us simply run more compute inside the same electrical envelope. But none of this happens without people. Our head count nearly tripled in FY '26, including hundreds of colleagues who joined through Mirantis and Nostrum, and we expect similar growth again in FY '27. 5 C-suite appointments across development, product, marketing, innovation and information security, people from NVIDIA, AWS, Oracle, Google, and other leading dots into operators. So building our organization ahead of the revenue is obviously deliberate. It costs money before it makes money, but this is where we're going. One last piece before I pass off to Anthony is how we're funding this growth. So GPU financing first because now the model is proven at both ends of the credit spectrum. For the Microsoft contract, we raised $3.6 billion of investment-grade GPU financing at a weighted average of about 6%. With customer prepayments that funded about 96% of the associated GPU CapEx. Now here's where it gets really interesting for non-investment-grade deployments, so the rest of the AI ecosystem we just closed $2.8 billion of equipment financing. That includes $2.4 billion at a 9% fixed rate for Mackenzie led by [ Blue Hour ] and funds managed by [ Kimco ] a delayed draw term loan alongside senior secured notes, funding 90% of that GPU CapEx. Ad prepayments of 45% to 55% in on recent deals and total funding well exceeds the cost of the underlying GPUs, which is good because that excess is now helping to support data center CapEx on those same and future deployments. And to date, talking about data center CapEx, we have deliberately kept 100% of our data centers unencumbered which is a growing asset base, we can finance when the timing is right. So on that note, Anthony will take you how that funds the plan and the results. Thank you, Anthony.

Thanks, Dan, and good evening, everyone. Over the past 12 months, we have secured circa $19 billion in funding nearly $16 billion across customer prepayments, GPU financing and convertible notes alongside equity of approximately $3 billion. The vast majority of this funding is either in cash or yet to be drawn down, giving us significant capacity. For FY '27, we're guiding CapEx of approximately $25 billion to $30 billion. Included in that estimate is delivery of the contracted Microsoft capacity, the other deployments to deliver on 2026 ARR and GPU and data center CapEx for air [ call ] deployments scheduled across calendar year 2027. We will also support new liquid-cooled data center capacity at Childress and Sweetwater 1 for delivery in the second half of calendar year 2027 as well as earlier stage investment for 2028 and beyond. Of course, the actual CapEx for the year will depend on a range of factors, including final costings, construction schedules, delivery time lines for GPUs and long lead items the overall contracting environment and the overall fundraising environment. Within that CapEx estimate, we expect data center and CapEx GPU requirements to be up approximately 15% to 20% for on going and new deployments with revenue increases expected to ultimately outpace those increases. In respect to the funding plan, as noted earlier, we have a strong starting position, approximately $14 billion of existing cash and committed GPU financing and prepayments. That includes $7.6 billion of cash on the balance sheet at 30 June, of which $1.7 billion is restricted with most of that $1.7 billion set aside to fund Microsoft GPU CapEx. We're targeting roughly an additional $8 billion of GPU financing and prepayments in support of GPU CapEx requirements, noting the healthy prepayments that we are seeing in recent contracting and the growing market for GPU financing that Dan has spoken to. The balance of the requirement we expect to meet through data center financing, operating cash flows and corporate sources. On data center financing, as Dan has spoken to, our entire data center portfolio is unencumbered today, including Horizons 1 through 4. So there is obviously a significant and growing asset base to raise asset finance against. Alongside the growing market for GPU financing, attractive customer prepayments, we feel well placed to scale our fundraising efforts to support the rapid growth of the platform. Now turning to the quarter 4 results and outlook. The quarter's results continue to reflect the ongoing transition to AI Cloud. For the June quarter, revenue was $137.2 million, including AI Cloud revenue of $70.5 million. This was down $7.6 million compared to the prior quarter as we decommissioned mining hardware ahead of GPU installations, partially offset by AI Cloud growth. Cost of revenue also fell $6.6 million, mainly as a result of lower electricity usage from reduced mining activities. Net loss was $684 million for the quarter, largely driven by noncash impairments of $450.4 million, mostly on account of decommissioning mining hardware, plus a $102.1 million decrease in fair value of mining hardware held for sale. Both reflecting costs of transitioning our existing sites to AI Cloud. We currently expect mining operations to be effectively decommissioned by the end of December 2026. We expect first quarter cash SG&A to increase approximately $40 million to $50 million sequentially as we continue to invest for growth across sales and marketing R&D, development, size and cloud operations and other functions ahead of significant revenue growth over the coming periods, which brings me to ARR. We exited Q4 at roughly $0.5 billion of ARR. It's $1 billion today following acceptance of Horizon 1 by Microsoft, and that will carry through to the end of the September quarter. And we expect more than $4 billion of ARR by the end of the December quarter, which is already under contract and includes delivery of Horizons 2 through 4. A significant amount of the December capacity is expected to come on late in the quarter, so we will see the reported revenue effect come through predominantly in the March quarter. With that, I'll hand back to Dan.

Thanks, Anthony. So just one slide to close on. 2026 is largely sold out with the $4 billion of ARR now contracted. 2027 and beyond is deliver a runway for us. So this is capacity we're continuing to convert into a broader customer base and, of course, a richer service mix. Revenue per megawatt is rising, both on structural demand as well as site optimization, and that $4 billion comes from less than 10% of our 5 gigawatt plus portfolio of group secured grid connections. So 8 years ago, we set out sold the gap between digital demand and physical supply. I think it's fair to say the gap is here. We own the power, we own the land, we own the data centers, we own the compute, we own the people -- the software, and we have the people to service it. So for Will and I, this is only the beginning. But operator, let's open the line for questions, please.

[Operator Instructions] And this question comes from the line of Mike Ng from Goldman Sachs.

I just have 2 questions. First, I was just wondering if you could talk a little bit more about Mirantis and how it helps facilitate the commercialization of your compute was Mirantis used or helped to enable any of the signed or in negotiation deals today do you think you'll eventually use Mirantis to help sell some capacity into market aggregators like open router? And then I have a quick follow-up.

Yes. Happy to jump in there and thanks for the question. In terms of the Mirantis service offering, I think there's a few elements to that help with our business today. Firstly, as you identified, it opens up effectively new customer classes to us. As we've spoken about at length previously very large hyperscaler or frontier AI lab customers generally like to take compute on a bare metal basis. but smaller AI developers, labs, enterprise customers value having an orchestration layout offered over the top of bare metal compute. And so the Mirantis service offering as it relates to that orchestration layer can help open up that part of the market to us. In addition to that, it does give us the ability to provide compute in a different manner. So not only can we provide reserved managed services clusters but it also opens up the potential for us to provide on-demand compute as an example. In addition to the orchestration layer itself, Mirantis has a long track record of servicing enterprise customers in the cloud computing space, and they bring a number of other areas of expertise, including enterprise support, monitoring and deployment capabilities that can help us monetize our platform more quickly and continue to provide very high levels of customer service. So those are a few of the areas where Mirantis adds to our existing platform.

Sorry, maybe just to add to that. I think we're now the only NEO cloud-certified hypervisor from NVIDIA as a result of today's announcement. So that kind of vertical integration that full stack is playing out lifetime.

Thank you, Daniel. And I just wanted to follow up on the CapEx outlook for next year, $25 billion to $30 billion, is that all to support the 800 megawatts that you expect to contract next year? Or is it beyond next year? And then could you maybe just talk about the financing plan beyond the $14 billion of cash, GPU prepayment and other debt financing that I think you talked about?

Sure. Just in terms of the -- and thanks for the question. Just in terms of the first question, so the $25 billion to $30 billion is obviously in the -- covering the financial year to June '27. So that covers all the CapEx requirements for the 2026 deployment to -- that contributed towards the $4 billion ARR target. It covers expected data center CapEx and GPU CapEx for sort of air cooled -- the balance of the cooled deployments expected to come over the course of 2027 calendar year. And it also covers a significant portion of the -- of CapEx required for the liquid cool deployments in the second half of 2027 calendar year. It doesn't include CapEx requirements for the GPU compute for those new liquid cooled facilities, which will be part of the following year's capital plan. In terms of financing, obviously, we spoke to the $14 billion, so that's secured. I also spoke to $8 billion estimated additional GPU related CapEx. So that will be supporting the GPU deployments included in that $25 billion to $30 billion, obviously, we've seen a very strong fundraising prepayment environment which obviously contributes to that $8 billion number. And we've seen strong conditions, obviously, in GPU financing. Obviously, Dan spoke to the results that we have seen in the recent transactions, but there's obviously also been other transactions in the market, both for investment grade and sub-investment grade clients. We've also had the recent announcement by NVIDIA alongside 6 of the biggest capital allocators in the world announcing JVs partnerships to support further financing of AI compute as an asset class. In addition to that, we obviously have 1 to 4 substantially built and being delivered over the course of the year. That's obviously uncovered as well as other opportunities we're looking at both asset-backed and other group level initiatives as well.

And our next question comes from Paul Golding from Macquarie.

Congrats on all the tremendous progress. I wanted to first ask about the British Columbia liquid cooling pivot. And wondering if you could unpack that decisioning process a bit. It sounds like there's excess power available and there's obviously a revenue opportunity. But I was wondering how you were thinking about the relative return there? And if that was organic or from demand that you've seen or speculative? And then I have a follow-up.

Primarily, Paul, it's driven by demand that we're seeing. And we do have a design that is very effective for the conditions that we see in British Columbia for liquid cooling. It is something that increasingly as customers are looking towards future workloads. We do see the vast majority of customers over time looking towards liquid cooled GPUs. And so we are certainly reflecting that in terms of the mix within our portfolio.

Great. And then Anthony mentioned that the compute costs that are rising are being more than covered by revenue increases. I was wondering if given the continued march upwards of compute cost, what the calculus is and your thought process and strategy around taking some of the excess liquidity from prepayments and the financing that you've done and allocating that towards data center build-out versus maybe longer-dated compute purchasing given -- and maybe on a speculative basis, given that price trajectory we've seen in compute.

Yes. I think in short, we're doing both. So as Dan mentioned, this is -- you need all the layers in the stack in order to be able to sell compute. You have to have the data center capacity. And we continue to see extremely strong demand within the industry and a lack of capacity available to satisfy that demand. And so we will continue to build out data center space. We will continue to make compute purchases over time and continue to add that software layer over the top to be able to expand our addressable market and secure better economics over time. So we expect to see a mix of purchases on spec as well as some purchases that may be tied to customer contracts. But as Dan said, the contracts are not the driver in this industry. It's getting the compute online. And so that is what we are heavily focused on, on the execution side of the business.

Paul, I might also just add to your CapEx question around that revenue. It adds a little bit more to what Anthony said earlier. So if we step back and look at this revenue CapEx trade-off, the contracts that we're announcing now and the pricing per megawatt relates to GPUs that were ordered quite some time ago. So arguably, they're reflective of natural price increases beyond CapEx inflation on those GPUs. Now future generations of GPUs and costs are going up, but we didn't have to pay the cost increases on the revenue per megawatt that we've announced today necessarily because they're the older generations, if that makes sense. But there's also a bit more nuance to our CapEx needs. So yes, we've guided total CapEx of $25 billion to $30 billion for FY '27. But that we deliberately don't split it in or attribute that to a specific number of megawatts of IT load coming online because the reality is that data center CapEx is running a year or 2 ahead of delivery, but that's the nature of substations and steel. So the mix in any given year is really a function of what we're delivering that year versus what we're building for the next one. So I think we are working on how we stagger data center CapEx and how we finance data center CapEx, as we mentioned during the presentation, 100% of our data center portfolio today is unencumbered, which creates a future opportunity. And when we're receiving prepayments equivalent to 50% of the GPUs that's roughly equivalent to 100% of the data centers because GPUs are roughly 2/3 of your fully loaded cost for the data centers plus the GPUs. And if you're financing the GPUs at 90% gearing already, then you can see how you've got this funding flywheel that's emerging that requires a little equity over time to finance it. But we think going to overlay our ambitions are growing, we're building at a higher cadence to what we've done in the past, so those funding needs continue to grow. But we've got flexibility around growth based on optimizing the funding that's available to us at any point in time.

That's great color, Dan. Maybe just a quick housekeeping question on the back of that, if I can sneak this one in. Just on the 2/3 compute versus data center CapEx, is that shifting at all with the increased cost of compute? Or is the labor market being tight and other inputs on the data center construction side keeping that equation relatively stable?

No. It's staying pretty stable. I mean we're seeing inflation and costs across various components continue to dig up. So at a material level, I would assume that ratio stays relatively consistent.

We will now move to our next question. And our next question comes from Brett Knoblauch from Cantor Fitzgerald.

Congrats in the quarter, great to see kind of demand around '26 and certainly '27 and '28. I'm curious kind of following into Horizon 1 build-out. We've seen a lot of deals recently with maybe lower PUEs, are you seeing any design changes that might allow for lower [ PUDs ] at other sites that you guys have coming online or other buildings coming online in '27 and '28 or should we kind of think of that [indiscernible] with the Microsoft deal being somewhat static?

I mean PUEs are never entirely static, but they are largely driven by the nature of the ambient conditions in which your data centers are operating. We've spoken before that we use a highly efficient, closed-loop liquid cooling system. And that means we have very effective PUEs relative to the broader industry. We do see some continued improvements over time and part of that is driven by items like infers, DSX, reference architecture, where they have looked at how you can operate chips at higher temperatures without giving up any performance on the computing side, but allowing you to direct more of your overall megawatts towards the IT load and away from cooling. But those are around the edges rather than being really material drivers of decreases over time.

I think just to add, we've been deliberately conservative on the headline PUEs that we've advertised. We even had a slide dedicated into the deck to this thematic, which is we have spare power beyond our current deployment plans and some relates to optimizing this PUE over time. The reality is the average PUE for a year is substantially below the maximum PUE that you require. So there's a few little tweaks that you can make that free up quite a lot of power capacity alone. We've then got the NVIDIA DSX MAX LPS opportunity and we're aware others are using power management tools to oversubscribe megawatts as well. There's a lot of flexibility within that envelope. And to date, we've kept it simple. 200 megawatts of IT load for 300 megawatts of gross capacity, but we are also making it clear today that there is a reasonably sized opportunity in the portfolio to free up some of that spare power.

Awesome. Maybe I could just follow up on some of the pricing commentary that came across quite strong, I think, in prepared remarks and the release, kind of $20 million deals or what you've signed now, it's kind of somewhere around $25 million. Is that -- over what duration could you clarify? And is that more one-off? Or do you think like that is kind of like the ballpark of maybe the average you're seeing across all the conversations you're having with customers?

No. We are seeing that consistently across live conversations with customers at the moment. And there are a variety of things that go into it. As Dan mentioned, we look at term length prepayments, nature of the customer likely growth requirements over time. But the pricing that we're seeing is relatively consistent at the moment. It continues to show an upward trend. We're seeing very strong competitive tension for near-term megawatts so we certainly think that those numbers that we put out are indicative of where the market is currently at with upward pressure over time.

And to be clear, there's 3 to 5-year deals, not 2 year, not spot capacity. There is a substantial opportunity if you wanted to optimize near-term quarterly P&L to go and sell spot on demand. And that is something that we might entertain as part of the portfolio approach over time. But today, we are loving us building the customer base, diversifying across the AI ecosystem having longer-term contracts, getting really accretive financing back in those contracts. And over time, that will buy us a license to double more into on-demand, shorter-term contracts introduce software leveraging Mirantis and other capabilities for higher revenue profiles.

Thank you. We will now take our next question from Michael Donovan from Compass Point.