Q2 2024 Applied Digital Corp Earnings Call
Good morning, and welcome to apply digital fiscal second quarter 'twenty 'twenty for a conference call. My name is Sherry and I will be your operator today before this call apply digital issued its financial results for the fiscal second quarter ended November 30th.
2023 in the press release, a copy of which will be furnished in a report on.
On a farm.
8-K filed with the FCC and will be available in the Investor Relations section of the company's website joining us on today's call are applied to Jones, Chairman and CEO West Cummings and CFO David Reds. Following their remarks, we will open the call for questions before we begin Alex Ko.
Speaker Change: Chen from Gateway group will make a brief interest introductory statement.
Croteau: Mr. Croteau. Please proceed.
Thank you operator, good morning, everyone and welcome to apply digital to physical <unk> second quarter 2024 conference call.
Croteau: Before management begins their formal remarks, we would like to remind everyone that some statements we're making today.
Croteau: To be considered forward looking statements under securities laws and involve a number of risks and uncertainties.
Croteau: As a result, we caution you that there are a number of factors many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward looking statements.
Croteau: For more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and public filings made with the Securities Exchange Commission we.
We disclaim any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. These statements are made except as required by law.
Croteau: We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you can see these metrics.
Croteau: We refer you to our filings with the Securities and Exchange Commission for a detailed disclosures and descriptions of our business as well as uncertainties and other variables circumstances, including but not limited to risks and uncertainties identified under the caption risk factors in our quarterly report on Form 10-Q.
Croteau: You may get apply digital Securities and Exchange Commission filings for pre buy.
Croteau: By visiting the SEC website at Www Dot S E C Dot Gov.
Croteau: I would also like to remind everyone that this call is being recorded and will be made available for replay via a link available.
Croteau: In the Investor Relations section to apply digital website.
Croteau: Now I will turn the call over to apply digital as chairman and CEO, Wes Cummins with <unk>.
Thanks, Alex and good morning, everyone. Thank you for joining our physical second quarter 2024 conference call I want to start by thanking our employees for their ongoing hard work and service and supporting our mission of providing digital infrastructure solutions to the rapidly growing high performance computing industry before turning the call over to our CFO David Ranch for a detailed read.
David Ranch: You have our financial results I'd like to discuss some recent developments across our business.
David Ranch: Let's start with our data center hosting operations are 100 megawatt Jamestown facility continues to perform as expected and operated at full capacity with consistent uptime throughout the quarter. This marks the fifth consecutive quarter in which the Jamestown facility has operated at full capacity.
David Ranch: Our 180 megawatts Allendale facility in North Dakota also operated at full capacity with consistent uptime during the quarter, bringing our total hosting capacity to 280 megawatts across our North Dakota facilities. Both facilities are contracted out to customers on multiyear terms.
David Ranch: During the quarter, we announced the initial energy station of our 200 megawatt Garden City facility in Texas. This is a significant milestone and apply digital as ongoing efforts to meet the growing demand for low cost scalable digital infrastructure.
David Ranch: The Garden City facility had a small contribution to our results. This quarter and is currently operating at approximately 132 megawatts with the remainder of the capacity expected to come online in the next several months as we brought on the facility. We realized there were additional infrastructure improvements needed for the grid. We expect these improvements to be made no later than April or.
David Ranch: Customers continue to send miners to the facility and we are actively installing them with the increase in the cost of bitcoin, we're seeing demand increase significantly for hosting services.
David Ranch: A reminder, our garden city facility is fully contracted with fixed prices. So we are not exposed to volatility in the crypto markets heading into the having event this year.
David Ranch: Once our garden city facility becomes fully energized, we will have approximately 500 megawatts of hosting capacity across our three data center hosting facilities, we expect our three sites to deliver up to $300 million in revenue and $100 million of adjusted EBITDA on an annualized basis.
David Ranch: Operating cash flow from data center hosting services will ramp up significantly in March as the majority of our prepayments burn off in February.
David Ranch: Let's move on to cloud services, which provide high performance computing power for primarily AI applications. It continues to grow quickly as we progress further and supporting our existing contracts and pursue additional opportunities in our pipeline.
David Ranch: Since our last earnings announcement, we have added an additional cloud customer, which brings our total annual contract value of cloud service contracts.
At full capacity to approximately $398 million.
David Ranch: We tailor our agreements to our customers so that they as they raise money we can exercise the options embedded in the contract to deploy Gpus and ramp post ramp up hosting capacity overtime.
Well the typical customers for our cloud service have been private VC backed companies. We are now also seeing strong demand from the enterprise market for large amounts of GPU compute capacity, we're excited to see demand increasing from this important segment of the market and have plans to hire sales talent to enhance our outreach efforts.
David Ranch: We continue to secure access to Gpus. However, there have been some delays in installations attributable to pending deliveries of networking components.
David Ranch: We believe it's prudent to receive GPU deliveries only when all associated equipment is on site and ready for installation, which is how we structure our client deposits.
Additionally, we continue to actively explore vendor financing and other tailored financing options to support the capital requirements for the 34008 100 Gpus, we have on order to support our current customer demand.
David Ranch: To date, we have four 1024 clusters installed and are planning to ship an additional four in the next two weeks.
David Ranch: These clusters as they're currently configured would put us in an elite class of next generation supercomputers in terms of raw compute power or petaflops for the most demanding AI applications, we expect to reach a minimum of 10 before the end of the fiscal year with the Jamestown cluster, representing the opportunity to put us.
David Ranch: In the top 10 supercomputers for AI workloads.
David Ranch: The fully commission clusters are expected to generate over $200 million of annualized revenue.
David Ranch: Lastly, let me provide an update on our purpose built HPT data centers during the quarter. We broke ground on our first 100 megawatt high performance compute facility in Allendale North Dakota. This facility will offer low cost high efficiency liquid cooled infrastructure designed for HPT applications construction.
David Ranch: Construction is proceeding as expected.
David Ranch: Our unique proprietary architecture and design implementation together with the strategic placement of the Allendale facility near sources of abundant and renewable power will offer scalable infrastructure for these workloads that will offer a significant cost reduction for our customers and deliver best in class performance that maximizes high power density compute.
David Ranch: We believe the disadvantage is sustainable in this emerging market for data Center data center is specialized in running AI workloads.
David Ranch: Our contracted power in adjoining land at our facilities will become valuable assets over the next 18 months. We believe there will be a significant supply constraint for power in the data center market.
David Ranch: We have already seen the robust demand for our data centers, which driven by.
David Ranch: Which driven by the burgeoning AI landscape has exceeded our initial expectations.
David Ranch: We believe we'll be in a strong competitive position to support this demand as a reminder, we have 400 megawatts of capacity in development across North Dakota in Utah. This does not include the current nine megawatts of capacity, we have at our Standalone facility in Jamestown to support cloud service tumors.
David Ranch: As we entered the second half of fiscal 2024, we are well positioned to capitalize on the demand we're seeing across both our cloud service and <unk> data Center business and we will continue to allocate our capital appropriately to the highest risk adjusted returns to maximize shareholder value.
David Ranch: With that I now turn the call over to our CFO, David Ranch to walk you through our financials and provide an update on guidance David.
Thanks, Les and good morning, everyone revenues for the fiscal second quarter of 2024 were $42 2 million compared to $12 3 million for the fiscal second quarter of 2023. The increase was driven primarily by the full quarter of revenue generation from the Allendale facility. The Garden City facility beginning revenue generation during the fiscal second quarter.
David Ranch: Order of fiscal year 2024.
Les: And additional revenue from the Jamestown facility due to increased uptime.
Les: In addition, the company recognized a full quarter of revenue from the first cloud service contract during the fiscal second quarter of 2024.
Cost of revenues for the fiscal second quarter of 2024 was $29 2 million compared to $11 8 million for the fiscal second quarter of 2023. The increase in cost of revenues was attributable to higher energy costs used to generate hosting revenues depreciation and amortization expense and additional.
Les: Personnel expenses, driven by the growth of the business as more facilities we're energized.
Les: Selling general and administrative expenses.
Les: For the fiscal second quarter of 2024 were $21 1 million compared to $27 2 million in the prior year comparable period. The decrease was primarily due to lower stock based compensation expense and was partially offset by increases in depreciation amortization and personnel costs.
Les: Net loss for the fiscal second quarter of 2024 was $10 5 million or a loss of <unk> 10 per 10 cents per basic and diluted share based on a weighted average share count during the quarter of approximately $109 7 million. This compares to a net loss of $26 8 million or a loss.
Les: A 28 per basic and diluted share in the fiscal second quarter of 2023 based on a weighted average share count during the quarter were approximately $93 4 million adjusted net loss a non-GAAP measure for the fiscal second quarter of 2024 was $5 2 million or adjusted net loss per basic and diluted share of <unk> <unk> based on.
Les: On a weighted average share count during the quarter of approximately $109 7 million. This compares to an adjusted net loss of $3 8 million or four cents per basic and diluted share for the fiscal second quarter of 2023 based on a weighted average share count of approximately $93 4 million during the quarter.
Les: A significant headwind we faced during the fiscal second quarter of 2024 was amortization and occupancy charges for leases of computing equipment and datacenter space that have been assessed.
Les: Access by the company, but are not yet supporting revenue the lease expense for the co location sites nice not supporting revenue totaled $1 5 million and were not added back to into adjusted EBITDA or adjusted earnings amortization of Gpus, not supporting revenue was $3 7 million and was not added back to adjusted earnings.
Les: We expect this impact to decrease in the future quarters as we resolve supply chain delays and are able to stand up full computing clusters that support revenue.
Les: Adjusted EBITDA, a non-GAAP measure for the fiscal second quarter of 2024 was $10 6 million compared to an adjusted EBITDA loss for the fiscal second quarter of 2023 of $2 2 million.
Les: Lastly on our balance sheet, we ended the fiscal second quarter with $34 6 million in cash equivalents cash cash equivalents and restricted cash and $42 8 million in.
Les: And that during the first two quarters of 2024 received $81 8 million in customer payments due to the structure of our commercial arrangements with our customers that incorporate upfront deposits and prepayments and certain contracts. The prepayments are credited back to the customers over the term of the contract. This has no impact on revenue recognition.
Les: But the upfront cash flow is a major benefit for the company as it helps with our Capex funding as we build out our data centers since the quarter closed we have received an additional $11 1 million in customer prepayments and $23, one and net proceeds from the ATM offering the ATM offering is now complete.
Les: Now turning to guidance due to the delayed delivery of certain networking components for our GPU clusters, we now expect our revenue and EBITDA to be below the low end of our previously guided range for the fiscal year 2024 network component deliveries improved in recent weeks, but did have a significant impact on the timing of commissioning clusters.
Les: And our revenue and EBITDA, we now expect to exit the fiscal year 2024, and an annual revenue run rate of approximately $500 million in an annualized adjusted EBITDA run rate of $250 million.
Les: Now I turn the call over to Wes for closing remarks.
Thank you, David we are well positioned to capitalize on the growing opportunities across our business and look forward to continuing our momentum in the second half of the year I'd like to thank all of our team members for their dedication in making applied what it is today and our shareholders for your continued trust in our mission and execution.
Speaker Change: We are now happy to take questions operator.
Thank you if he would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.
Speaker Change: Pressing the start he is.
Speaker Change: Our first question is from Lucas pipes with B Riley Securities. Please proceed.
Lucas Pipes: Thank you very much operator, good morning, everyone.
Lucas Pipes: My first question is on the HBC hosting site in the conditional agreement that you announced in.
Lucas Pipes: Few ones.
First in terms of the.
Lucas Pipes: Total value site, there should we kind of think of $220 million of revenue per year, and then are your margin expectations for this segment is still around 40% and and on the capital cost side.
Speaker Change: I've been working with a $5 million per megawatt assumption and wondering if that's still a good number to use. Thank thank you very much for but for your details.
Speaker Change: Yeah.
Speaker Change: Good morning, Lucas. Thank Yo the so there's there's not a lot more detail that I can give versus what we announced but let's talk about the cost I think we talked about in our in our.
Speaker Change: A shareholder.
Speaker Change: At Analyst day, and the shareholder day that that cost moving towards $6 million to $7 million per megawatt versus the $5 million as we've as we've worked through the new designs of the five was.
For the previous design and this is the three story design that we're working for them. So that's that's what we're looking at but.
As far as economics this fits in the economics that we've talked about.
Speaker Change: Previously right, which is about the 2 million per megawatt in revenue and a million of EBITDA per megawatt.
Speaker Change: Got it that's that's very helpful. Thank you for that and.
Speaker Change: Turning turning to guidance.
Speaker Change: In a moment in terms of the components that have been delayed what.
Speaker Change: What exactly has been the bottleneck could could you.
Speaker Change: Had a little bit more color on that and then I think previously you provided some some color on Gpus on lineup for the average in fiscal Q3 and Q4 I think you mentioned it in your prepared remarks, but I'm just trying to take notes and I couldn't quite keep up so so if you have maybe a.
Speaker Change: Expectation around kind of Q3 Q4 Gpus would appreciate the color around all of this thank you sure. So so that the components that are the issue for delivery, it's not the gpus themselves. It's specific networking components related to the Infiniband a networking piece.
Speaker Change: The cluster.
Speaker Change: And I've talked about this several times.
Speaker Change: Already in and this has been the bottleneck I would say for the last kind of three or four months, we are getting delivery of those it is a matter of making sure you get delivery of every component because you need all of the components to standup the cluster commission it and get it operating for customers.
So.
Speaker Change: We're seeing improvement in the delivery of the Infiniband, it's been specifically on the transceiver side of the Infiniband deployments. So we had one cluster up and running last quarter. We have four deployed now as I said in my prepared remarks, we expect another to receive another four and on the cluster just as a reminder, Lucas the cluster for.
Speaker Change: Us.
Speaker Change: I know it can be a little bit confusing, but its 1024 Gpus per cluster is how we refer to it.
Speaker Change: So we will receive another four in the next two weeks is our expectation and so also think of.
Speaker Change: Where pricing has gone for us on these clusters, you should think about.
Speaker Change: $28 million of annual revenue per cluster deployed.
Speaker Change: So that is the difficulty we have is just you.
Speaker Change: A few weeks because right now I'd say, we're running about.
Speaker Change: Eight weeks behind our original expectation, but when you think about the revenue ramp in the revenue generation on a week by week basis. We go from one clusters, we're generating $20 million of revenue per year for that cluster to our business goes to four clusters, which is $80 million of revenue per year and then.
Speaker Change: <unk>.
Speaker Change: In a few weeks our business goes to eight clusters, which is 160 million revenue per year.
When we look at our guidance right. We're just.
We're assuming.
Speaker Change: 10 clusters deployed.
Speaker Change: By the end of the our fiscal year, which is made about four and a half months away and so that 10 clusters plus or <unk>.
Speaker Change: Blockchain hosting solutions that gets us to that $500 million run rate.
Speaker Change: I think we can do better than that but that's the number that I think is a very conservative number for us to hit by the end of the year.
Speaker Change: That's very helpful. Thank thank you westfall the for all the color one quick one the.
Speaker Change: $45 8 million in property equipment and other assets that have been purchased year to date.
Speaker Change: Are you able to provide a breakdown between HBC and Gpus and that number. Thank you.
Speaker Change: I'm, sorry, Lucas, which number was that the purchase here today.
Lucas Pipes: Yes, that's the that's the number.
<unk> <unk>.
Lucas Pipes: Property and equipment, that's been purchased to date year to date.
Lucas Pipes: So that.
Lucas Pipes: That the majority of that goes into H P. C. So when you look on our balance sheet. So as you as you look at our balance sheet.
Lucas Pipes: Where the Gpus are showing up because of how we're financing. The gpus is the the lease asset the right to use asset.
Lucas Pipes: Okay.
And then we'll have it and then on the.
Lucas Pipes: On the liability side, you'll see a capital lease one of the things I would call out with with this.
Lucas Pipes: Yes.
D.
Lucas Pipes: On the leases, we deploy the Gpus you the entire right to use asset goes into long term assets, whereas on the lease liability, it's split about half and half between long term liability in short term liabilities.
Lucas Pipes: So when you look through the balance sheet the leases right now because we are doing.
Lucas Pipes: What I always refer to as equipment finance senior capital leases, that's how we're financing Gpus. So when you look through Capex. The vast majority of what Youll see is as Capex on equipment is the HBC facility. The data center and then on the on the lease right to use and the capital leases and the liabilities is where you'll see the gpus.
Speaker Change: That is very helpful. Thank you Wes for all the color and best of luck.
Speaker Change: Yep. Thanks Lucas.
Speaker Change: Our next question is from George Sutton with Craig Hallum Capital Group. Please proceed.
George Frederick Sutton: Thank you it's great to see the conditional agreement I just wondered if you could walk us through the the project level financing side of this and sort of how do these ultimately come together in your mind is it a combination of construction loan financing and project financing and any sense of the market dynamics there.
George Frederick Sutton: There that we should know about.
George Frederick Sutton: Yes.
Speaker Change: Thanks, George the so.
Speaker Change: I've talked about this publicly before it so the way these agreements so we've been marketing this.
Speaker Change: Since mid September and then when you think about this.
Speaker Change: You should think about marketing people do.
Our potential customers do a lot of due diligence on the site.
Speaker Change: Answer a significant number of questions site visits all of those things that you would expect in the due diligence and then Youll typically go into a <unk>.
Speaker Change: ROE for a period of right of first refusal period, where someone gets exclusivity that you won't sell it outside of any one and I'm not talking about our specific agreement now I'm just talking about the way that we've experienced this working.
Speaker Change: And then you work to get to a contract and then post the contract you go to project level finance.
Speaker Change: We are engaged with multiple parties on the project level finance side, we have been for a while we haven't we're not waiting we weren't waiting for an agreement to go to project level finance bid on the project level finance side, you'll get in the neighborhood of.
Speaker Change: Your 65% to 80% loan to cost at the project level. So this won't go to the corporate level that goes down at the site level just like we've done with all of our bitcoin sites.
Speaker Change: And then there's what we call the equity component.
Speaker Change: Which I always look at is.
Speaker Change: As we work through this as more of them people would refer to in our industry is like Mezz debt.
Speaker Change: So you have the construction finance.
Speaker Change: That that that runs kind of in the seven 5% to 8% type cost range and then you'll have the mezz piece the equity piece.
Speaker Change: And then you have our contribution to it and our contribution we can have continued construction. We broke ground continued construction on the site in Allendale and we've put a significant amount of money into that already so I think we're close to where we will need to be on the equity portion of that.
Speaker Change: And the remainder will come in from from <unk>.
Speaker Change: Project level financing in the Mezz debt piece, where typically someone will get kind of a high.
Speaker Change: Mid to high teens return on their capital and it's generally first money out and then maybe retains a small piece of ownership call. It <unk>.
Speaker Change: 45%.
Speaker Change: Three 5% in the site itself and so that's the process there right now.
Speaker Change: So I wondered if you could walk through the 400 megawatts that you're ultimately marketing, obviously 100 megawatts now effectively spoken for just you know, it's very clear to us that the demand.
Speaker Change: Demand side of the equation here is going to be pretty significant I'm. Just curious what youre seeing is youre going to market with the other 300 megawatts of opportunity.
Speaker Change: Yeah, so yeah.
Speaker Change: You know demand was robust we had two parties.
Speaker Change: Very deep in diligence last year.
Speaker Change: As of the thing that we have seen which has been interesting and in January as we kicked the year off we've had several more parties show up three more in the last week.
Speaker Change: And it feels.
Speaker Change: It feels almost like.
Kind of.
Speaker Change: Panic looking for capacity just in the last couple of weeks so.
Speaker Change: We're seeing a lot of interest and the parties that are involved.
Speaker Change: Would easily take more than than the capacity that we have so it's nice to get the first one.
Speaker Change: Close to over the finish line, but.
Speaker Change: The expectation for me is that.
Speaker Change: Over the next month or two months. So we're going to have the full 400 booked out.
Speaker Change: As a reminder, I I think I think when we think about this.
The biggest issue that.
Speaker Change: We face, which is a high quality issue is.
Speaker Change: How much do we carve out for ourselves because we want to carve some of this out for ourselves for our own cloud solution and I think that's really the question Mark you know, what's the highest and best value for these for our assets because we want to carve somehow for ourselves, but we have a massive amount of demand for the capacity that we have in Georgia. The reason we have that.
Speaker Change: That demand is there.
Speaker Change: The 400 megawatts that we have is 400 megawatts that could come online over the next 18 months, great powers available to land as their permitting.
Speaker Change: We're in a we're in a really good position in a market that is already short capacity and I think it's going to get worse over the next few months.
Speaker Change: So last question for me on the side computing side, obviously, we understand the supply chain challenge.
Speaker Change: Looking past that I'm, just curious on the demand side. So you mentioned you've got another four clusters that could ship here. Soon is there any demand challenge that youre seeing or has anything changed there or is it really just a limitation on the supply chain side.
So on the demand side, the only thing that has changed on the demand side is we're seeing a new group come into the market.
Speaker Change: As I mentioned in my prepared remarks, so the demand remains extremely robust on the kind of the VC backed startup companies.
But what we're seeing in the market is what we're referring to as enterprise customers. So these.
Speaker Change: And just so I can define enterprise customers. These are companies that generally are very large companies typically publically traded typically north of $50 billion type.
Speaker Change: Type of market cap that have a business are they already have there.
Our business and now to me what it feels like as they have.
Speaker Change: Been working on their AI strategy. They have landed on what they plan to do with their age.
Speaker Change: And AI and now Theyre looking for significant amounts of GPU capacity. So that's a new element for us.
Speaker Change: Hum.
We have one of those customers that we've been working with for about.
Speaker Change: About two months now and they've moved into what we call or we'll call. It a proof of concept, which is basically a test drive of our infrastructure and I think we could get that customer into contracting here in the next two to three weeks, but that's been the only the only change which is an increased demand but from a different segment of the market the way I've looked at this market.
Speaker Change: Ah is a bit of a barbell right. It's on one side you have the hyperscale or so this was last year you have the hyperscale or is on one side.
Speaker Change: And then you have the VC startups on the other side and then kind of there was nothing in the middle and now we're seeing that piece in the middle or start to show up.
Speaker Change: Perfect. Thank.
Speaker Change: Thank you for the details.
Speaker Change: Absolutely Thanks George.
Speaker Change: Our next question is from Darren <unk> with Roth and you can please proceed.
Darren: Hey, good morning, Thanks for taking my questions just.
Darren: Two if I may.
Darren: I heard you correctly pricings kind of gone up on the GPU side, I think west maybe you said on an annualized basis with the.
10000, you'd be over 200 million.
Darren: Curious I think at the analyst day, which is not too long ago, you talked about a million and a half monthly run rate I guess, what's changed and then on the GPU side. I know you are targeting 10000 by the end of.
Darren: Your fiscal year I guess, given there are some uncontrollable on components, what's your level of confidence in that 10000 number.
Speaker Change: Sure. So yeah, Darren Youre right the pricing has gone up some so where we're seeing.
Speaker Change: The number I gave before is with.
Speaker Change: One of our largest customers and we were pricing that.
Speaker Change: At around two Bucks an hour on the GPU capacity in our reserve contract.
Speaker Change: What we're seeing now is.
Speaker Change: For most of our customers.
Speaker Change: Signing contracts and what it looks like in the marketplace is kind of in the 220 to 25 range.
Speaker Change: For two year reserve contracts and somewhere between 20 and 30% prepayments on the contracts. So that's that's the color on the kind of the update on pricing and then on the on the 10000, that's a number.
Speaker Change: We took that down from the 26. So the original for US was 26, we had a co location and capacity for 26.
Speaker Change: And where we are now is just with the slowness on the components side for Infiniband. The 10000 is a number that we feel really comfortable with hitting we feel really comfortable in multiple ways.
Speaker Change: Both on delivery of the Gpus.
Speaker Change: But also on.
Speaker Change: The financing of the Gpus without going outside to a larger debt piece that has been done by some of the players in the market. So we feel really comfortable on both sides of that but.
Speaker Change: That's the reason we gave that guidance however.
Speaker Change: What I would say about that is you know.
Speaker Change: I think there is more we can do on the GPU side. So we'll have the 4000 plus 4000 shortly so call it.
Speaker Change: Mid February eight.
Speaker Change: <unk> 8000 of those clusters of the 10000 that were guiding for so I think that leaves us plenty of room between there and the end of May.
Speaker Change: Oh boy, if I could squeeze one more in.
Speaker Change: On Garden City, just it looks like it obviously didn't ramp as fast as everyone expected with the grid components can you just maybe talk a little bit about maybe what.
Speaker Change: As needed how quickly those can get broke here and then I'm just kind of curious your propensity to continue to do business, maybe with the next site in somewhere like Texas.
Speaker Change: Like how would you kind of grade that in terms of wanting to do business in a place like Texas. Thanks.
Speaker Change: Yeah I mean.
Speaker Change: I live in Texas.
Speaker Change: Love It there so.
So I don't want to say anything bad about Texas, So I'll leave that but.
Speaker Change: The sites, we're doing in the future right now, our North Dakota and Utah.
Speaker Change: So those are the two areas working on we've I think we've talked about this in the past we were out looking for more capacity because of the demand we see in the market.
Speaker Change: We have a pipeline of additional capacity, that's north of a gigawatt.
Speaker Change: So we're working through that and then.
Speaker Change: Specific to the Texas side, there's some improvements.
Speaker Change: I'm going to Butcher this a little bit, but I think we need a little resiliency, which is a capacitor bank put in.
Not specifically at our location, but a substation that is in the area to get.
Speaker Change: Fully up to the 200 Theres two ways to go there.
Speaker Change: There is.
Speaker Change: Getting approved for wind plus grid is one route and the other is this.
Speaker Change: It's a capacitor bank that needs to be installed.
Speaker Change: Not a huge expense on that by the way.
Speaker Change: But the we've been working on that.
Speaker Change: Since the <unk>.
Either late November or December and the guidance that we gave is the what we view as the worst case scenario.
Speaker Change: Which would be the April timeframe for that the remainder of that to come on so we're you know we're basically waiting for the last 65 megawatts to come on there.
Speaker Change: Great. Thank you.
Speaker Change: Our next question is from Rob Brown with Lake Street Capital markets. Please proceed.
Rob Brown: Hi, good morning.
Rob Brown: Good morning robot.
Rob Brown: Just following up on the new anchor customer could you give us a sense of sort of what vertical that customers and I think you mentioned, I guess enterprise or <unk> or the VC backed side, which sort of group is that customer.
So we can't do that but what I can what I can tell you is the customer set that we are seeing of all the people that are looking at the site.
Rob Brown: They're there.
Rob Brown: There's not a lot of companies that.
Rob Brown: That exist in the world that are going to take down.
Rob Brown: <unk> hundred megawatts 200 megawatts to 300 themselves.
Rob Brown: So it's a very small group and all of the companies that that are in the mix for us in North Dakota are names that everyone would easily recognize theyre looking for high.
Rob Brown: High power density.
Rob Brown: Hosting high power density data center capacity.
Rob Brown: But it is all companies that.
Rob Brown: You would recognize the name instantly.
Speaker Change: Okay. Okay. Thank you and then I just wanted to follow up on the GPU discussion around you know I guess do you still have commitments to buy at a 26000 Gpus and then deploy them. After after may or is that still to be determined on contract activity.
Speaker Change: Those orders are still valid.
Speaker Change: Even up to the 34000 and so we just expect to continue by the way Rob just just to clarify on those orders.
Speaker Change: 34000, right now for each 100, we can still change those orders whether its for H 200, a G. H 200, right. These are fluid for us so as the market evolves, we're able to react to that but we still have those in Q and the ability to to bring those win win all of the.
They are available.
Speaker Change: The issue in the quarter, we had just now as David mentioned in his prepared remarks, just to give clarity on that so we took delivery of a second cluster during.
Speaker Change: During the quarter, we were paying for that cluster.
Speaker Change: Those were the expenses in.
Speaker Change: In total were just under $4 million, so paying for that cluster without that cluster of generating revenue.
Speaker Change: We didn't have the infiniband components to fully commission that cluster and turn it over to our customer.
Speaker Change: So we.
Speaker Change: We basically pause the GPU deliveries ourselves because.
Speaker Change: We don't want to be paying for the Gpus, while we can't.
Speaker Change: For them to our customers and generate revenue for them. So that's that's really what's happened for us, but we still have all those orders in place and expect to deploy those.
Speaker Change: We just need to be.
Speaker Change: More careful I guess about when when we expect those to be deployed.
Speaker Change: Got it great. Thank you for the color I'll turn it over.
Speaker Change: Yep.
Speaker Change: Our next question is from John <unk> with Needham <unk> Company. Please proceed.
Great. Thanks for taking my question.
John: Tier one so you called out before I think he was supposed to be 20000 Gpus.
December 23, I remember on the last call or the analyst day, maybe you did you did talk about.
John: Impossible game plays in the Infiniband.
Speaker Change: Just kind of curious.
Speaker Change: It did did that situation get worse than you expected or where those delays kind of on your mind and maybe you guys just.
Speaker Change: Mis kind of annualize that.
Speaker Change: So.
Speaker Change: John specifically on those.
Speaker Change: We're getting delivery of certain.
The vast majority of the networking equipment that we needed there was one particular component, but you'd you'd need that component to make it work. So you know when it is since were in.
Speaker Change: In one one of our clusters right we have.
Speaker Change: The entire incentive band setup besides.
Speaker Change: 28, Transceivers just as an example.
Speaker Change: But you you can't fully commission that cluster and generate revenue. So it's been just squeezing in those transceivers is specifically what it is so.
Speaker Change: We like I said, we could have taken delivery of a lot more gpus, but I see no point in I think it's detrimental to us to take delivery and not be able to generate revenue and pay for the Gpus.
Speaker Change: We just held that off we made that decision in December we could've taken a significant number of Gpus in December but.
Speaker Change: Again, no no no reason to do that so as those come available.
Speaker Change: I think that you could see a speed that up against significantly and we've started to see that you know loosen up in the marketplace in late December and January.
Speaker Change: But.
Speaker Change: I'm not ready to say that we'll be able to speed that up to meet kind of the 20020 6030 4000 deployment.
Speaker Change: Got it Okay and then that's helpful.
Speaker Change: Other question I had so you had mentioned with this new customer contract and the psych acute side enterprise customer how you did move to a proof of concept and start delivering on that contract. Shortly just curious with the delay wouldnt. The previously existing contract come before this one or.
Speaker Change: Did anything change with those contracts.
Speaker Change: No nothing has changed with those contracts, but and just just to clarify John we don't have a contract with the enterprise customer. It's in proof of concept and then we'd be moving to contracting so.
Speaker Change: Just want to be clear on that.
Speaker Change: Nothing has changed with our previous customers, but.
Speaker Change: It's exciting to see.
Speaker Change: An entire new group show up in the marketplace looking for significant smell significant amount of GPU compute and these are established companies that make money and have a product and its just I was just calling out that that's a that's kind of a new area of the market that we've seen develop over the last.
Speaker Change: It really started kind of in late November.
Speaker Change: Okay got it and just just to clarify, though so even with the delays, though customers are still kind of lining.
Speaker Change: Lining up knocking down doors it sounded like you.
Speaker Change: Yeah.
Speaker Change: We have had no issue with that.
Speaker Change: Okay got it thanks.
Speaker Change: I would say and.
I said this earlier, John but I would say we've seen with the entrance of the enterprise customer I would say that overall, we've seen demand increase from our last conference call.
Speaker Change:
Speaker Change: You know, we haven't seen anything slow down we've seen it increase.
Speaker Change: Got it. Thank you appreciate it.
Yeah.
Speaker Change: As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from Mike Grondahl with Northland Securities. Please proceed.
Mike Grondahl: Hey, guys.
What is a rough estimate.
Mike Grondahl: Of applied.
Contribution to complete financing.
Mike Grondahl: The construction just the project side of it for the anchor tenant.
Speaker Change: What do you guys have to pitch in to that roughly just a number.
Speaker Change: Yeah, how long have you so.
Speaker Change: So far.
Speaker Change: So a good good question, Mike. So when you think about so if we say it's you know seven 7 million megawatt, let's go to the high end of that.
Speaker Change: So it's seven rate, we were going to land anywhere from 65% to 85% sorry, 65% to 80% on a construction finance on project level Finance and then what we expect to have and what we and the industry. We call an equity partner. However, as I explained earlier that generally looks more like.
Speaker Change: Mezz debt.
Speaker Change: And so at the end you know youre looking at US our expectation is that we'll contribute somewhere between five and 10% of <unk>.
Speaker Change: The project in cash for.
Speaker Change: For the equity portion of that and we've already spud.
Speaker Change: <unk> north of $5 million at 2025 are on that currently for Allendale.
And then and then Mike when we look at that too I think David mentioned this in his prepared remarks.
Is for us on the cash flow for the company I think it's important to note that when we hit March one the.
Speaker Change: The cash flow from our bitcoin datacenters improves dramatically right. We've burned through the vast majority of the prepayments at that point and so the cash flow from that portion of our business improves dramatically.
Speaker Change: Got it got it that's helpful and.
I'm, assuming that the anchor tenant will be supplying the gpus.
Speaker Change: Could you clarify there.
Speaker Change: Yeah. So.
Speaker Change: On the data center business, we're just providing space think of this as an equinix or <unk> or DLR style business, we're providing the space they.
Speaker Change: Select the equipment and they they buy the equipment and then we're just hosting very very similar to what we do on the pinpoint side.
Speaker Change: Got it got it.
Speaker Change: And roughly.
Speaker Change: When would you begin to recognize revenue with this anchor customer.
Speaker Change: And I'm.
Speaker Change: I'm not going to hold you to it but roughly as this plays out when would you expect that revenue to start.
Speaker Change: So that right.
Speaker Change: Right now the expectation is the <unk>.
Speaker Change: Our revenue would be the very early part of the second half of this calendar year.
Speaker Change: So like July August would be kind of.
Okay Yep.
Speaker Change: Great and then just.
Speaker Change: One last question.
Speaker Change: The bitcoin hosting business.
Speaker Change: Any contract renewals or extensions.
Any updated kind of terms or is everything kind of locked down in that business.
Speaker Change: Yes.
Locked down.
The things of note are our largest customer there we have.
Speaker Change: Four years, maybe a little over four years on most of the capacity for our largest customer there on the contract. The only thing of note is in.
Speaker Change: And this probably shouldnt surprise, you, but we're seeing you know we're getting a lot more calls about hosting capacity.
Speaker Change: We are never out marketing because we don't have any to offer but we're getting a lot more calls about hosting capacity over the last you know.
Speaker Change: Call. It six weeks eight weeks as the price of Bitcoin has went up significantly.
Speaker Change: Got it Okay, hey, thank you.
Speaker Change: Absolutely.
Speaker Change: Our next question is from Kevin Dede with H C. Wainwright. Please proceed.
Kevin Dede: Okay question.
Kevin Dede: Curious about the.
Kevin Dede: The number of facilities that youre running or leasing to supply power you need for your cloud service at the moment.
Sure. So we are we have third party facilities in Denver, and Minnesota and in Salt Lake City.
And then we have our own Jamestown facility.
Kevin Dede: In Jamestown North Dakota.
Speaker Change: Yeah in Jamestown, you have maxed out at eight megawatts, if I understand correctly.
Speaker Change: So so Jamestown will hold 5000 Gpus for us.
Speaker Change: So if I can do it on megawatts I can tell you on the GPU capacity. However, you prefer.
Speaker Change: Oh, whatever you're used to is fine.
Speaker Change: I'm, just I guess the.
Speaker Change: Real Genesis of the question is and meeting our cloud build out.
Speaker Change: Right.
Speaker Change: The amount of just given the market is really tight.
Speaker Change: Yeah, how are you securing the power that you need to meet your customer demands on the cloud service side.
Speaker Change: Yeah. So so we secured this power back in the summer of last year, So middle of the year last year, we secured the these power sites.
Speaker Change: We saw the demand and we ran out and grabbed their capacity to be able to service it.
Speaker Change: So we secure that at that point and so we have the capacity both from third party and our own facilities for the 26000 Gpus that we talked about.
Speaker Change: And then as we go beyond that our expectation is that it will go into our own facilities.
Speaker Change: Post that 26000, as we continue to grow.
Speaker Change: Right. So 20 to 30 for that Delta go instead of Allendale facility, that's under construction now.
Yeah.
Speaker Change: Okay.
Speaker Change: Think I correctly heard.
Speaker Change: You mentioned, the marketing initiatives and I was wondering if you could be more specific about the direction that youre going to take that do you think that goes towards that enterprise market that you're seeing starting to develop.
Speaker Change: Yeah. It's so it's specifically for the enterprise market. So you know as a reminder.
Speaker Change: Kevin I think we've talked about this before but we've never had a.
Speaker Change: A single sales person at our company and we hired our first salesperson a few months ago.
Speaker Change: And we're going to add more to that capability specifically to go after this enterprise market that we see developing now.
Speaker Change: So so that that's our expectation, but previous to that we've never had a sales person.
Speaker Change: We've had no sales force whatsoever in the company.
Speaker Change: Understood and congrats on that I guess.
Speaker Change: I'm, just still a little shaky and how you see that market developing.
Speaker Change: And then I.
Speaker Change: I guess sort of your competitive positioning and if demand is so strong why would a marketing initiative be necessary at all.
Speaker Change: So.
Speaker Change: That was.
Speaker Change: We've hired one salesperson, maybe we'll hire another one but there's an idea about it.
Speaker Change: Going out and making sure people know who we are and then what we do because we've never done that before in the history of the company. So that that's really the idea. So you know I don't think you should be thinking that we're hiring 20 salespeople.
Speaker Change: But I do think it's prudent to get a few salespeople on onboard develop that sales organization and the idea here.
Speaker Change: We've discussed a lot internally is we don't need it now, but we don't want to wait until we need it to build it.
Speaker Change: That makes sense okay. Thanks.
Speaker Change: Do you need any.
Speaker Change: Offensive.
Speaker Change: Looking for clarification. Thanks, a lot I don't know that that that that.
Speaker Change: So, but yes, we would.
Speaker Change: No Kevin.
Speaker Change: We're discussing it on the call here, but we've debated a lot internally, where there's a group of people, saying why wouldn't you have salespeople, we don't have anything to sell.
Speaker Change: And another side because you know that thinks that we should develop this before we need it and I landed in the latter camp, which is I think it's a good idea to develop a sales team before you actually need it.
Speaker Change: I don't disagree.
Speaker Change: All.
Speaker Change: Right marketing makes it all happen.
Speaker Change: Congrats again on the results of us. Thank you very much for taking my questions.
Thanks, Kevin.
Speaker Change: As a reminder to star one on your telephone keypad, if he would like to ask a question we will pause for a brief moment to see if there's any final questions.
Speaker Change: And there are no further questions at this time I would like to hand the conference.
Speaker Change: Over to Wes for some closing comments.
Wes Cummins: Thanks, and thanks, everyone for joining in and my last comment is just I want to say, thank you to the to the team in Allendale as we're sitting here in January its not the most pleasant.
Wes Cummins: Climate for them to be continuing construction on our site. So really appreciate our team and everyone, who who makes it happen for us and I look forward to speaking to you next quarter.
Thank you that will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Wes Cummins: Yeah.
Wes Cummins: [music].
Speaker Change: Uh huh.
Speaker Change: [noise].