Q2 2022 Core Scientific Inc Earnings Call
Keith.
Good afternoon, ladies and gentlemen, and welcome to core scientific second quarter fiscal year 2022 earnings call. This is Steven Gitlin Senior Vice President Investor Relations for core scientific.
At this time all participants are in a listen only mode. We will conduct a question and answer session. After managements remarks.
As a reminder, this conference is being recorded for replay purposes before we begin. Please note that on this call certain information presented contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 to 95 forward.
Forward looking statements include without limitation any statement that may predict forecast indicate or imply future results performance or achievements and may contain words, such as believe anticipate expect estimate intend project plan or words or phrases with similar meaning.
Forward looking statements are based on current expectations forecasts and assumptions that involve risks and uncertainties, including but not limited to economic.
<unk> governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward looking statements.
For further information on these risks we encourage you to review the risk factors discussed in core scientific periodic reports on Form 10-K, and Form 10-Q filed with the SEC and the form 8-K filed today with the SEC along with the associated earnings release, and the Safe Harbor statement contained therein.
This after this afternoon. We're also filing a slide presentation with our earnings release, and we're posting the presentation on our website at core scientific dot com in the events and presentations section. The content of this conference call contains time sensitive information that is only accurate as of today August 11, 2022, the company undertakes no obligation.
<unk>.
To make any revision to any forward looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring. After this conference call. Joining me today from core scientific our Chief Executive Officer, Mr. Michael <unk>, and Chief Financial Officer, Ms. Denise Sterling, we will begin with remarks from Mike Mike. Thank you Steve.
Behalf of our entire team welcome to today's second quarter 2022 earnings Conference call.
On today's call will provide highlights from our second quarter discuss our financial performance.
Comment on current market conditions and provide thoughts on how we are structuring our company for long term success.
Core scientific operates more bitcoin mining servers in our facilities than any other public company in the United States.
We have eight data centers operating in five states and expect to be in operation on a ninth data center in Oklahoma within the next few quarters. Our purpose built company owned data centers now hold over 200000 servers and approximately 800000 square feet by year end, we expect to be operating approximate.
300000 servers of which more than half will be for our own self mining operations in over 1 million square feet I will discuss our future plans in more detail later in this call, but first I'd like to introduce my colleague and our CFO Denise too.
To discuss our financial highlights.
Thank you Mike and good afternoon, I will review four I will review results for second quarter as compared to the same period one year.
Total revenue consisting of self mining hosting and equipment sales increased by 118% to 164 million from $75 3 million.
Primarily by an increase in our self mining revenue.
Total number of bitcoin produced in the second quarter was 3365 compared to 180 for the three months ended June 32021. The average price of Bitcoin was 32.5 thousand a decrease of 30% as compared to 46 5000 for three months ended June 30 of 2021.
Total hosting revenue increased by 110% to $38 9 million equipment sales for the quarter decreased by 90% to $38 5 million as the majority of our hosting customers now purchase their miners directly from manufacturers for deployments in our data centers.
Cost of revenue increased by $100 5 million to $151 3 million. The increase was primarily attributable to an increase in our number of self mining and hosted servers operating in our facilities.
Power consumption increased by $45 9 million depreciation rose by $46 3 million and personnel and related expenses and facilities costs increased by $25 8 million related expenses included stock based compensation of $16 9 million.
The increases were offset by a decline on equipment sales of $17 6 million.
Cost of revenue for the three months ended June 30th 2022 included depreciation expense of $49 1 million of which $46 5 million was from the self mining segment for.
For the three months ended June 30th 2021 cost of revenue included depreciation expense of $2 8 million of which <unk> 9 million was for self mining segment.
With increases in energy prices generally we expect our average power price for the year to now come in at about five to five five.
For kilowatt hour.
Prices do move around seasonally and the extreme heat across the south has impacted our pricing for the second quarter and we will continue to do so in the third quarter.
Gain from the sales of our digital assets was $11 8 million for the three months ended June 30th 2022, resulting from a total sales price of our digital assets sold of $265 8 million versus the carrying value of 254.0 million.
Consistent with prior quarters, we recorded several noncash accounting entries in the second quarter of 2019.
Including the impairment of digital assets impairment of goodwill a fair value adjustment to our convertible notes and stock based compensation.
Impairment of digital assets increased by $150 2 million for the second quarter as a result of a decline in our pricing in the price of bitcoin and impairment is recorded when the carrying value of our digital assets exceeded their fair value based on current market pricing.
We recorded a goodwill impairment of approximately 840 million due to a revaluation of our assets.
Resulting from the sustained decline in bitcoin rice the decline in the market capitalization of public bitcoin mining companies, including core scientific and the uncertain outlook for our industry.
We recorded a favorable noncash fair value adjustment to our convertible notes of $195 million due to an increase a decrease in their value, resulting from the decline in our stock price, we will continue to mark to market our convertible notes each quarter.
Total operating expenses increased by $106 9 million to $115 9 million. This increase was primarily driven by 92 million of stock based compensation, representing 86% of the total increase this resulted from the removal of the IPO transaction trigger from outstand.
<unk> Awards that had previously met the time vesting requirements.
In order to ensure we are well positioned to achieve our objectives. We have taken a disciplined approach to reducing operating expense growth. We have eliminated the majority of our discretionary expenses reduced head count by 10% renegotiated vendor contracts and rightsize the organization to focus on our core business.
We now expect our operating expenses in the second half of the year to be 25% lower compared to the first half of the year.
Net loss of $861 $7 million decreased by $858 3 million from a net loss of $3 4 million. The increase in net loss was primarily driven by the noncash items I spoke about earlier.
Adjusted EBITDA increased by $38 3 million to $59 1 million. The increase was driven primarily by increased revenue of $88 7 million offset by higher cost of revenue, excluding depreciation and stock based compensation of $37 3 million and increased operating expenses.
$13 million, excluding stock stock based compensation.
Adjusted EPS for the quarter ended June 32022 was <unk> 18 per share.
Our total cash position at June 32022, including cash cash equivalents and restricted cash was $140 5 million a year to date increase of approximately $8 $8 million. The primary drivers of this change included inflows from operations of $151 9 million and proceeds from.
Borrowing of $415 1 million. These sources of cash were partially offset by cash outflows for infrastructure costs to build our purpose built data centers of $238 5 million payments to vendors for our ASIC servers of $217 7 million interest and principal payments on our outstanding.
Debt of $72 $7 million and payment of tax obligations for vesting of employee Rs used of $29 3 million by net settling our shoes, we reduced our outstanding share count by approximately 14 million shares.
In order to better understand our self mining business cost structure and breakeven price for producing bitcoin, we are introducing a metric that we call cash to mine.
It produces a view of the marginal cash cost to mine a single bitcoin and represents the cash based components of cost of revenue divided by the number of bitcoin mined for the period. There are two cash based components of this calculation. The first is our power cost which is based on price per kill.
What our the second is our data center cash based operating costs, which include the expenses required to operate maintain secure and secure our data centers, including personnel and related expenses and facilities cost.
These two components are included as part of our total cost of revenue as.
As the metric is cash base. It does not include expenses, such as stock based compensation or depreciation for.
For the first half of 2022, our power cost per bitcoin was approximately 8500 and our data center operating costs were approximately 1700 and as such are caught our cash to mine a bitcoin for the first half of 2022 with approximately $10200 we expect.
Our cash to mine, a bitcoin to vary quarter by quarter, primarily based on fluctuations in power cost and global hash right now I would like to turn the call back over to Mike. Thank you Denise.
Our previous earnings call.
I explained that approximately two thirds of our 2022 growth.
It occur in the second half of the year.
We're now in the second half and we remain confident that will be the case as we stand here today.
We operate eight data centers in five states with approximately 800000 operating square feet by year end, we continue.
You would expect to have developed a totaled over 1 million square feet of operating facilities.
We operate approximately 125000 self mining servers.
And expect to increase that number to approximately 170000 by year end.
We operate 86000 servers for our co location customers and expect to increase that number to approximately 125000 by year end.
We deployed 14000 servers in the months of July and have already deployed more than 17000 servers in the first 10 days of August .
We are currently mining over 40 bitcoin per day on average and yesterday, we mined a record $45 seven bitcoin in a single day likely the most bitcoin ever self mind in a day by a public company.
As the market and economic environment deteriorated in the second quarter, we took a number of actions to ensure that our business remains well positioned to navigate these difficult times, we conducted a full review of our businesses our costs and our balance sheet.
I will address our balance sheet.
On the asset side of our balance sheet.
We've invested in excess of $1 billion in our infrastructure and our servers since the company's inception.
Our approximate half billion dollar investment to develop world class blockchain computing data centers will generate returns for years to come.
No other company in the United States has invested as heavily are built as significantly infrastructure to support the production of bitcoin.
Other search for infrastructure to support their business, we own control and operate our own by.
By developing purpose built facilities, we have the ability to employ immersion or any other process that we believe will improve our productivity.
We're currently running immersion pilot tests in a number of our data centers.
Our half a billion dollars plus investment in servers will also generate returns for years to come.
Our service should be mining bitcoin well beyond their depreciable life.
We have built and maintained significant liquidity through these volatile times, we think it is prudent and we think it is wise, we have chosen to create liquidity by selling our digital assets in the current environment. We do not believe it is sensible to increase our debt.
We have total debt of approximately $960 million, excluding accounting reserve adjustments totaling just less than $200 million as illustrated on slide 12.
Slightly more than $500 million of our debt is our privately placed convertible notes.
Those notes mature approximately three years from now in April of 2025.
They have little cash impact in the interim because they bear interest in cash at a rate of 4%.
They have a noncash 6% pay in time feature and no principal payments required until maturity.
We're very comfortable with our maturity in 2025, and the likelihood that our stock will be hopefully soon at a level, where there is that converts to equity.
B Riley approximately $57 million payable monthly over the course of the next 11 months alone was originally $75 million, but we have paid down $18 million already this year again, we are very comfortable with our obligations to B Riley.
Okay.
As for our equipment financing out of the 170000 or so self mining servers, we plan to operate by the end of the year. Approximately 86000 are currently encumbered by debt or leases.
Equipment debt and leases total approximately 3300 $30 million today.
Through the end of July we have paid approximately 70.
In principle Amherst amortization this year and are comfortable with our ability to continue to service our equipment debt.
We have multiple options for creating and maintaining liquidity, we have and will continue to sell our bitcoin.
Our current midpoint production provides us the unique ability to replenish our digital assets rapidly.
As we've previously discussed we have also entered into a $100 million equity line of credit we can tap that line anytime over the next two years.
Environments like this demand focus and require critical decisions.
Since core scientific was founded we have focused the majority of our time and capital investments on site selection development and technological innovation to facilitate the deployment and management of our infrastructure and mining servers.
We are a developer and operator blockchain computing data centers, we own and operate more infrastructure in servers than any other company in the United States that is what we do and who we are.
That is our focus building reliable geographically distributed data centers that enable the deployment and efficient operation of mining servers is the biggest challenge faced by the digital asset mining ecosystem.
This infrastructure did not always existed in the United States and that is why core scientific accepted the challenge to build enterprise enterprise grade digital asset mining data centers five years ago.
We have paired our business back to concentrate on what we do best developed data centers and operate Asics and our purpose built facilities. We have moved out of any business not central to our mission and are focusing our resources on continuing to build our core business to that end, we have discontinued our blue.
<unk> chain technologies development business, we are taking cost out of our corporate activities and are continuing to develop ways to execute our business more efficiently.
To date, we have eliminated approximately 10% of our work workforce, none of whom are involved in our data center activities.
While taking steps to become leaner and more efficient we remain focused on growing our business and improving profitability.
The current market turmoil and difficulties facing other companies attempting to develop infrastructure have enabled us to work with our vendor partners to reduce expenses and build more efficiently.
As such we believe our near term data Center development development expenses over the next six months will be significantly less than what we had previously anticipated.
We have paid for all but approximately $10 million of the cost of the remaining 50000 self mining servers to be deployed.
We are confident that all 170000 of our servers will be up and running by year end.
We hope to expand our self mining fleet beyond the 170000, but have not yet committed to purchase additional servers. We continue to make discounted offers for stranded new miners.
We took a long hard look at our hosting business historically the business delivered low profitability.
We will no longer take on hosting business that is not sufficiently profitable from day, one we have restructured our pricing to improve margins over time, including refinements to price per kilowatt hour contract term infrastructure and configuration fees and prepayment terms, we want our customers to make a profit.
But we also want to ensure that our business is making money too.
We fully expect our hosting business to be profitable and cash generative going forward into 2023.
Over time, we think the hosting business should be a 20% to 30% EBITDA margin business.
Initial customer acceptance, including our recently announced agreements for 75 megawatts of co location capacity validate our new strategy. Even during this challenging digital asset market customers are eager to co locate their servers or core scientific because of the value they see in our offering.
Now, let's talk a little bit about the future.
We continue to expect to achieve an operating cash rate of between 30% and 32, Axa hashes and one gigawatt of power by the end of 2022.
This is based on the continued expansion of our server fleet to approximately 300000 units approximately 170000 of which will be dedicated to self mining.
And continued progress in our data Center project in Texas, Texas, and Oklahoma as well as continued demand from co location customers.
Based on an end of 2022 network cash rate assumption of 250, <unk>, we expect to be producing or self mining approximately 2000 bitcoins are months by the end of 2022 or.
Our self mining fleet is new and efficient consisting of S. 19th at 19 Pros and S. 19 expertise, we are well positioned for years of productive mining.
Yes.
Yes.
Our company designed developed populated and now manages the largest blockchain computer data center business for self mining and co location services in North America.
As we disclosed in last weeks July update press release, we operated a total cash rate of 19, three exit hatches, including $10 Nymex hedges and our self mining business as of July 31.
We have built our leadership position in the blockchain infrastructure market by investing a totaled more than $1 billion in.
Infrastructure and servers since the inception of our business, we have strategically located and develop data centers in diverse geographic areas. While we continue to curtail our growing operations in Texas and response to grid operator needs. The majority of our data centers are located in other states, reducing the impact of.
Texas specific events on our overall bitcoin production.
Within Texas, we are working with ERCOT on the CLR program and aim to deploy our minder software to help provide automatic demand response to the grid.
Our track record of innovation and growth in our niche industry speaks for itself.
Denise introduced today, our new cash to mind metric.
Given the environment, we are pleased with a cash cost of slightly in excess of $10000 to mine a single bit coin in the first half of 2022.
We believe this is an important way to assess our efficiency and future profitability.
We offer a unique and powerful business model that represents a compelling equity investment in blockchain data centers and at a minimum a levered investment to the price of bitcoin.
All said despite the difficulties our industry has endured this year, assuming a constant bitcoin price and modest growth in the global hash rate, we are on pace to generate in excess of $700 million in revenue and approximately $300 million in EBITDA.
Thank you to our amazing team, who continue to focus on executing our plans during a very challenging time. Thank.
Thank you to our customers for continuing to rely on core scientific.
And thank you to our shareholders.
Remained committed to the long term opportunity. This company and this team are working to realize.
Steve will now take questions. Thanks.
Thanks, Mike.
We will now begin the question and answer session. If you have a question. Please press star and then the number one and you touched on phone if you wish to be removed from the queue press the pound or hash key.
If youre using a speakerphone you may need to pick up your handset first before pressing the numbers once again to ask a question. Please press star and then one on your Touchtone phone.
Our first question comes from Lucas pipes at B Riley.
Hi, Lucas.
Okay.
Thank you very much Steve good afternoon, everyone.
Mike I want to thank you for the disclosures. This is really really terrific detail.
Both in the release the presentation and all.
Okay Mark.
Thank you thanks.
And all my colleagues.
Yes.
Yes.
Really good good work.
And.
I wanted to.
Follow up on that on the power price a bit I think you mentioned a five five cents.
Tomorrow.
As mentioned.
Wanted to confirm that and then if you.
Maybe speak.
Maybe pushing power prices up and down.
Obviously, there are inflationary pressures on the power side, but then you're also expanding in Texas, So wondering how kind of our hospitals.
The next six to 12 months. Thank you very much for your color.
Sure. So so we think that all things considered.
Heat waves pressure on energy prices macroeconomics et cetera.
A reasonable full year assumption is in that five to five five range.
There are a number of things that move it around one is certainly seasonality.
So our power prices are probably net a bit higher in these warm months, especially when you get.
50 days of 100 degree temperatures across the south, including Texas that has an impact.
And there is also sort of a less well known aspect of developing in Texas.
Which is that generally speaking the power prices are a bit higher.
As you develop a facility and then as the facility scales those prices come down considerably.
And so it's fair to say we think.
That our pricing.
The in the fall and winter wheel will probably come down from where it is this summer.
It's also I think fair to assume that as we have our Texas facilities fully scaled going into next year that on average our power pricing overall should come down a bit.
From from where we expect it to be full year. This year because we are.
To our detriment, we're ramping Texas this year, it's not fully up to scale by the end of this year our facilities in Texas will be fully scale. So it's going to move around a bit from this year to next year, but we expect that to be a positive movement.
As opposed to a negative movement.
Does that answer your question Lucas.
They're very helpful really.
Really appreciate the color.
And then staying.
Staying on the topic of cost.
I think it was also mentioned in the prepared remarks that you expect operating expenses to decline by about 25% and I'm wondering what.
First did I hear that right and then what are some of the drivers that bring those costs down. Thank you very much.
Yes, no. Thank you so much for the question.
Consistent with what you are what we commented on earlier.
Did take a disciplined approach quite frankly, it was more surgical than suggesting that we were going to take across the board reductions.
And so as we suggested the really the cost savings were around.
Personnel and or areas of our organization that were not necessarily part of that core business as Mike had suggested that we were really doubling down on and going to focus on in addition to taking a look at some of our project related professional fees and things of that nature, where we said look we have the ability to control.
These and the timing and if they were not if they were discretionary that we literally took.
Took a position that they were going to be eliminated.
Don't think that this has.
A significant impact on our ability to meet our objectives and as Mike had suggested we did not impact anybody from a data center perspective.
Thank you. Thank you.
I'll try to squeeze one.
Last one go ahead.
Possible.
Sorry, sorry about that.
Just.
Okay.
I was hoping it might be possible to quantify the backlog on that.
Hosting the hosting side.
To hear a lot about shortages.
You mentioned.
One of your peers haven't yes, so securing data data center space. So how are you.
Can you frame that up.
So I think it's fair to say that what we hear from prospective customers.
Anecdotally is that there continues to be a lack of availability of up and running now or in the near term infrastructure.
There are a number of folks have been.
Highly disappointed with.
The delays that have occurred.
We are.
We announce are.
Now make a habit of any significance announcing any significant hosting agreements as they occur in order to provide as much transparency in that regard as we can.
It continues to be the case that we are in dialogue.
With.
With demand that exceeds our capacity this year.
Generally speaking it does take some time to get to agreement.
<unk>.
We think that will have some additional announcements this quarter with regard to hosting but there is no guarantee of that alright.
Of course strengthen bitcoin pricing helps.
But the other aspect of it is a lot of folks that don't.
Have a home for their mining equipment also don't have capital.
And as we stated in our prior earnings call.
We are only interested in working with.
Co location customers that have the ability to make prepayments.
And our very very credit worthy as such.
And so we're not talking to everybody that's got rigs on the ground in warehouses.
We are talking to the folks that have capital and rigs on the ground.
And.
That said the pipeline is very strong.
But we're also quite sincere.
Making sure that our hosting business is a profitable business.
In the call it the good old days.
We used to be a reseller of <unk>.
Servers, and there was margin in that and we could look at the margin in that and combine that with our hosting agreements.
And look at the overall profitability.
Now that we really don't have a.
Very vibrant reece reseller business, because most folks are going direct to the manufacturers are hosting business needs to stand on its own two feet without the benefit of margin coming from equipment sales.
And so for some folks that say.
That's a bigger hill to climb, but as demonstrated by the 70 megawatts of agreements that we recently announced.
There are folks that are well capitalized and recognize the value in terms of the up times the efficiency the.
Life of the servers and the technology overlay they recognize the value.
But but without the benefit of those resale margins.
We had to take a good hard look at the hosting business and re constructed a little bit to make sure that we're getting paid for the investment we've made in infrastructure and technology and the capabilities that we offer.
Alright, Thank you very much.
<unk> Entertainment.
Good luck.
Thank you thanks.
Thanks Lucas.
Our next question comes from Chris <unk> at D. A Davidson good afternoon, Chris.
Thanks, a lot for taking my question and congratulations on the results and really.
<unk>.
Comments earlier about the disclosure very very helpful. Thank you so much.
Along those lines.
Really enjoy it hearing more details about your power costs and the outlook for that that's been a key question that a lot of us on the outside have been wrestling with.
If you can maybe talk to.
Some specifics if you can.
Certainly I think there's been some challenges in Georgia, just getting sort of a contract to line in Texas.
Are you currently able to sell power back to the grid and take advantage of these.
Despite some prices or is that still on the come thanks, so much.
So we have not fuel earned revenue.
Texas for curtailing, obviously, we think it benefits our power cost, but we are not in the in an earning revenue mode.
We are working as we mentioned today on implementation of the CLR program utilizing our our software and technology capabilities.
That's something that we hope to have in position some time.
This year.
But it probably will not be something thats in position by the time, the heatwave hopefully subsides.
Within the next.
Within the next few weeks.
But in the future, we very well may have the ability to in fact.
Have a a mutually beneficial economic relationship.
With the grid, operator, but we'll just have to see where that goes.
With regard to our facility in Georgia.
We've been working with the power provider there too.
To do so to the best day and we can.
They are that is the one place where we have the greatest.
<unk> exposure to the variability of natural gas pricing.
As possible.
And.
But it absolutely does impact our overall cost.
Right now and has and Thats you know thats part of what has driven.
Our us to raise our full year estimate for where power pricing is coming in has been kind of that facility that factor as it relates to that power provider.
Okay, Great and then a bigger picture question for you Mike.
As I've been talking to investors and sort of wrestling with the outlook here as prices have come down, but now stabilizing and thinking about the having an 18 months or so or a little more than that.
I think I'm really focused on companies that can take advantage of advanced power.
Relationships and or more efficient mining operations. So.
Let me hear your high level thoughts on.
Sort of behind the meter facilities that potentially would use renewables.
Or.
Fleet upgrades immersion technology have you or where do you stand on the on the XP is that there'll be a significant part of your portfolio by the end of next year. So some of those high level comments would be great. Thanks.
Sure.
No particular order.
One we mentioned that we've been we've been running <unk>.
Immersion testing in a number of our facilities.
And immersion to US is simply an economic question is can we get the efficiency and productivity that makes it worth the expense.
We've been testing.
Equipment from a number of immersion equipment providers.
To see what we like to see what is efficient.
What's worth the cost et cetera.
I would be <unk>.
Surprised if when that within the next 12 months, we're not operating some considerable portion of our self mining fleet in.
In an immersion setting.
So that's one two.
We are.
Trying to skew all of our development activity.
Two more and more efficient.
And predictable power provision.
Looking back clearly.
Perhaps the Georgia facility wasn't the best decision we ever made.
I wasn't in this seat at the time.
But we're trying to work that out with the power provider there.
That said.
We're going to be developing where we think we've got a really good handle on power.
And.
And as higher predictability as possible.
And that's true with our Texas sites, it's true with our Oklahoma site, we feel pretty good about those.
Those facilities.
And those facilities, probably buy into some point next year in the aggregate will will be a considerable percentage of our of our operating facilities.
We are actively engaged in conversations about alternative forms of power supplemental or other.
Behind the meter and otherwise I think that everybody in our industry is doing so because we would all like to get our power costs down.
Prior to.
Mid 2024.
And to be managing them as inexpensively and prudently as we possibly can.
There is nothing that we sitting here today can can tell you where can promise.
But we can say that we're working very hard.
On on all of that.
As we also mentioned about our facilities.
One of the nice things about having purpose built facility is is not only are they purpose built but they are repurpose a bowl.
And so the fact that our business is not really built on.
Steel containers, and an exposed environment, but rather in structures allows us a lot more flexibility.
And pivoting to more efficient <unk>.
Mining processes.
And so much of the detail what about the XP.
I don't think you place a huge order at the peak of the market. So that was probably this month.
I forgot about I forgot about that part of your question. The answer is yes, we do have xp's coming.
And as we mentioned.
We've.
But we're trying to be very very efficient buyers in this market.
There are.
A lot of stranded.
Servers.
That are here today and that are coming tomorrow.
And.
Again can't promise than any of our conversations will be fruitful.
But like.
Like you would expect we're trying to pick up some high quality equipment at.
Low prices.
I would say, yes, we will see how it plays out the next six months.
No.
Patients there can be well rewarded thanks, so much appreciate the comments and.
Okay. So later thanks.
Thanks for your questions. Thank you Chris once again to ask a question. Please press star and then one on your Touchtone phone.
And our next question is coming from Steven <unk> at Cowen.
Good afternoon Steven.
Hey, good afternoon, Steve. Thanks for the question I, just wanted to drill down a little bit more on the cost a bit more.
Denise.
You listed where.
Where the 25% Opex is coming out of.
Does that exclude noncash items.
It does.
Okay.
Thank you.
And also Mike I, just wanted to get more color on the decision to amend the performance condition that allowed for the Rs used to us. If you can just provide any color on that that'd be great.
Sure It wasn't a performance condition.
Without.
Throwing any lawyers under a bus.
The way the <unk> program was drafted way back when.
As opposed to being drafted saying that.
There was a.
Event condition, which would be a sale of the company or going public.
It set up sale of the company, if you will or technically an IPO.
And it just inadvertently frankly missed that you can go public through a stack.
And so those RF use were all already time vested it represented frankly five years.
Of RF used for our people.
And.
So what our board was was doing.
Was.
Fulfilling what had been the intention.
And which makes a lot of sense right, that's how companies usually work.
<unk> got time vesting and then of course, you've got when you. When you go public plus when you tie invest for whatever reason the way. It was drafted required our board to take action or.
The Rx use would've.
So even though we're public.
Who would ever get there are huge.
And I.
I don't know about my colleagues, but if I was never going to get my stock Im not sure I want to state right.
So it really was to correct.
Something that just wasn't in my view drafted properly when it was originally set up years ago.
But to be clear, we didnt accelerate.
Antibodies are issues every one of those RF use and the IRR is used vest over four years, it's not like it's a short vesting period or anything like that.
All of those RF use had met the time vesting requirement.
So it was a very technical issue.
That that occurred now we did elect to do a a net settlement and frankly, the reason was and it looks like it was a pretty smart trade now was that our stock price at the time was.
So low that by net settling we could effectively.
Paul.
What was.
4% to 5% of our Outstandings out at.
Prices, well below where the stocks trading today.
Did that answer your question those.
Yeah, No that was very helpful. Thank you and if I can just ask one more follow up here on the.
The June update I believe you said approximately 90% of the rigs were already paid for.
Was there a downward market price adjustment on that 90% and if so could you quantify it and then additionally, like what is the remaining capex if any on the infrastructure spend thank you.
So the answer is yes.
As I think we've said in the past.
Our agreements have the the market price adjustment mechanism in them.
And yes, our manufacturer was.
Did the right thing.
And was kind enough to agree that a market price adjustment was warranted.
And that certainly significantly reduced our obligation.
As it related to those machines and because we had already paid in so much because there is such a near term deliveries.
It's more or less took away my.
Most of what we owed.
At the time.
So so it was yes, it was principally related to.
The adjustment I don't remember the exact magnitude frankly.
What we what we had left versus what they reduced at that time.
But it was in the tens of millions of dollars.
Order magnitude, what two or 3 million Bucks it was.
Yes, it was.
I think was in that 20% to 30 range, but I don't remember precisely.
So so that did have a very beneficial impact.
For us what was the second half of the question.
Yes, just was just on the remaining infrastructure capex.
If there was.
What's remaining there thank you.
So.
We are currently sitting at about 600 megawatts operating.
And to get to.
Where we need to get to that kind of plus or minus a gig.
Which takes care of our miners and our contracted.
Hosting.
That's in the order of magnitude of $50 million to $75 million.
To get that up.
Up and running.
Fully.
Okay. Thank you very much I appreciate it.
Yes, and the reason I give you a little bit of a range is.
I should've. Thank also our vendors at the end of my thank yous.
Because the folks we work with in developing our infrastructure have been great partners in.
In this time frame as well.
Which were appreciative of.
As you know a lot of folks have.
<unk> had two.
Cancel or with on orders for everything not just miners its also transformers.
And I think our partners appreciate that we're still.
In there and making our payments, but in turn they've also been good partners to us.
And we benefited from some price reductions on some of the development activities, we've got going on.
Thanks.
Thank you Steven.
Our next question comes from Kevin <unk> at H C Wainwright Hi, Kevin.
Thanks, Steve Hi, Mike Thanks for having me on.
Congrats Kevin everything you've done.
Yes.
Thank you and the team.
Super aggressive in site selection and build out I was wondering if you could just sort of at a high level kind of kick off the.
The primary.
The primary attributes of each site as you work into them.
Just sort of based on your experience in Georgia.
Kind of wondering how you shifted.
Core's approach.
Fair question and a good question.
And in no particular order.
One is as power provision and predictability of that power provision related to that is being closer to the actual provider of power.
One of the issues that we face in Georgia, and the folks in Georgia.
Good folks, okay, and I like them and we're all trying to be constructive and work through the issues, but they are generally a buyer. It's utility company Theyre generally buyer of power and then a provider of that power as opposed to a producer of power.
We want to be closer to the production.
As opposed to simply the provision.
<unk> one.
Call it less.
Les and learned attribute that we're very focused on.
Second has to do.
With some of these.
Grid and.
Whether in our relationships.
Alright.
We love our sites in Texas, and we like the folks in Texas, and we're based in Texas.
And I recognize that this is an unprecedented heatwave.
But it's still not very fun to be curtailing.
Yeah.
Four to five hours a day when it's a 104 degrees.
That has implications for our productivity.
And so we need to be very careful about what percentage of our operations.
Reside where you can have that kind of an issue.
Alright.
<unk>.
Third is certainly.
Our ability to two two.
To get closer to renewable resources.
And kind of the behind the meter aspects that that we were asked about.
Fourth has to do with availability of talent.
And what is a hard to hire environment.
We need good people good maintenance techs that we can train.
In our facilities. So we are running big high powered facilities with.
On average more than 30000 servers in each we're running them 24 seven so.
You need that.
I think early on we got the gig to make sure we were coming to places where we are welcome where we're invited where they want us.
Where they are glad to have us.
And so I think our local relationships have all been very very good.
We really havent had.
Any sort of governmental political kind of issues.
And.
Scalability.
I think early on we were trying to make sure. We could we could rate facilities that are up were 100 150 megawatts.
Think we're leaning more into 200 megawatt plus.
Type sites now.
We believe it's important to be geographically diversified for all sorts of reasons I've talked about in the past some of which have been demonstrated this summer.
I don't know, Kevin Thats kind of my off the top of my head list I am sure that yes.
Yes.
Infrastructure would have more.
No.
All sensible points.
Thanks for Indulging me and please don't take offense. So I'm just super curious about the prospects in Georgia will be three and vocal for coming on.
I'd expect that could change.
Pricing and Im just kind of wondering.
No.
What your people at <unk>.
There might be any sort of benefit to that.
Yes.
I don't I don't I don't think they're related.
Really okay.
Doing.
Given our where we are it's just different different different plan.
Right Okay.
Circling back on immersion you mentioned a couple of tests I was wondering if you could speak to any of the data that youre seeing.
Sure.
Where you push the envelope too.
How what kind of performance improvement Youre seeing.
And any sort of initial feedback on these initial tests.
No. It's still too early to probably too early to comment I don't want to speculate sorry.
No no no no apologies understood fair.
Do you think that.
Any of the Texas.
Issues could be mitigated through that technology or is it really more of an aircraft. We ask you to consider.
Yes.
It's really it's really more of a grid.
Curtailment issue than it is.
Inability to operate the equipment in a passive air environment.
No.
When when the grid gets down to.
Kind of.
Under 10, Gigawatts, probably under six gigs of excess capacity.
We get phone calls.
Yes.
Even though the entire industry, probably isn't one gig in the state yet.
Yeah.
<unk>.
We can represent call it 20% of the excess capacity.
We're less they were less than one 5% of the total capacity, but we're 20% of the excess capacity when they're trying to run up four to five gig access.
Right right.
So.
I know you've been question on this already so I.
Apologies again, Mike but.
Can you talk to the length of time it might take.
Before you are able to leverage your PPA.
The sale agreement.
No.
Look we are having a really constructive conversations with the folks at Aercap.
Good people.
But we're trying to be a good citizen right. We want to do what's right for our company, we want to do what's right for Texas.
And so it just it's just too early to talk about how thats going to going to come out.
Kevin we really appreciate it.
The questions in the interest of schedule, we're going to have to call. It here.
Well. Thank you everybody probably later stood Steve I just I.
I just wanted to thank you all for.
We are entertaining the questions really really great to speak to you again.
You too thanks, Kevin.
And at this point that we thank you all for your attention and for your interest in core scientific and archived version of this call all SEC filings and relevant company and industry news can be found on our website core scientific dot com. We wish you a good day. Good afternoon. Good evening and we look forward to speaking with you again following next quarter's results.
Yeah.