Q3 2024 Core Scientific Inc Earnings Call
Greetings and welcome to the core scientific third quarter fiscal year 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded its now my pleasure to introduce you to your host Steve Welling Senior Vice.
Speaker Change: President Director of Investor Relations. Thank you, Steve you may begin.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to course Scientifics third quarter fiscal year 2024 earnings call. This is Steven Gitlin Senior Vice President of Investor relationships of course answers.
At this time all participants are in a listen only mode. We will conduct a question and answer session. After management's 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 safe Harbor provisions of the private Securities Litigation Reform Act.
Speaker Change: 295 forward looking statements include without limitation any statements other than historical or current facts that predict or indicate future events or trends forecast performance or achievements and may contain words, such as believe anticipate expect estimate intend project plan or warrants or phrases that similarly.
Speaker Change: Forward looking statements are based on current expectations forecasts and assumptions that involve risks and uncertainties that may cause actual results to differ materially.
Speaker Change: Further information on these risks and uncertainties. We encourage you to review the risk factors discussed in the company's annual report on Form 10-K filed with the Securities Exchange Commission and the special note regarding forward looking statements contained in the company's current report on form 8-K filed today and the earnings release and slide presentation contain there.
Speaker Change: Today's presentation is available on our website of course scientific dot com in the events and presentations section. The content of this conference call contains information that is accurate only as of today November six 2024. The company undertakes no obligation to update the statements made today to reflect events or circumstances occurring after today.
Speaker Change: Joining me today from core scientific our CEO, Mr. Adam Sullivan and Chief Financial Officer. This is Denise we will now begin with remarks from Ed insulin.
Speaker Change: Thank you, Steve and good afternoon.
Ed: Last quarter I summarize the progress we've made during this transformational year for core scientific.
Speaker Change: This quarter I'm delighted to report that our progress continues.
Speaker Change: We have substantial momentum going into the remainder of the year with our improved positioning for growth and value creation, and we see favorable market fundamentals driving strong demand for high power data center infrastructure I'll.
Speaker Change: I'll begin today's call with a summary of our recent achievements before briefly highlighting our third quarter financial performance.
Speaker Change: Denise will then review our third quarter financials, providing more details on the significant improvement in our capital structure before I describe our plans for the balance of the year and beyond we will then take your questions.
Speaker Change: Our progress during and after the third quarter as highlighted on slide four.
Speaker Change: Notably core we've exercised its final two options for an additional 232 megawatts contractually committing to all 500 megawatts of critical I T load, we offered and achieving the first of our $3 2024 catalysts. We described last quarter. Additionally, we made meaningful progress to expand our capacity through new.
Speaker Change: Site acquisition and existing site expansions.
Speaker Change: With a core cumin secured I'm happy to announce that we have allocated an additional 100 megawatts of our infrastructure that was previously designated for bitcoin mining to HBC, increasing our total capacity for HBC hosting to approximately 570 megawatts of critical load.
Speaker Change: With respect to new site acquisitions, we leased with an option to buy an existing data center in Alabama with 11 megawatts of critical I T led.
Speaker Change: This site has the potential to support an additional 55 megawatts of critical eye to it.
Speaker Change: To consolidate in shrinking or bitcoin mining business, we completed a 100 megawatt expansion at our Pecos, Texas Bitcoin mining data center to house our miners.
Speaker Change: We also completed significant minor migrations and began partial demolition at two of our data centers tap for H P C hosting during the quarter.
Speaker Change: From a capital structure perspective, we completed a successful $460 million convertible note offering that enabled us to refinance our debt increased cash on the balance sheet and effectively put our chapter 11 debt structure behind us.
Speaker Change: Slide five summarizes our revised allocation of infrastructure with the addition of the new Alabama datacenter.
Speaker Change: Slide six highlights our strategic operational and financial results in the third quarter.
Speaker Change: Starting with strategic updates are $460 million convertible note offering in August enabled us to improve our capital structure significantly by paying off debt, eliminating restrictions and covenants and reducing our interest rate.
Speaker Change: The offering also gave us the ability to add cash to our balance sheet to finance operations and support the acquisition of new sites to expand our H B C O seen capacity.
Speaker Change: On the operational front, we earned 1115 big win in the third quarter and generated total revenue of $95 million.
Speaker Change: Our diversification to HBC hosting showed positive momentum at third quarter revenue included $10.3 million from that segment.
Speaker Change: Gross loss was 0.2 million in the quarter and operating loss was $41 million, reflecting lower post having half price and higher operating expenses.
Speaker Change: On financials are $455 million net loss was driven mainly by the significant quarter over quarter appreciation in share and warrant prices that required us to make mark to market adjustments to the value of our equity and adjusted EBITDA was $10 million in the third quarter, Denise will explain these in more detail shortly.
Speaker Change: To summarize our third quarter, we made great progress on our H B C hosting business and strengthen our balance sheet, even as we faced challenging bitcoin mining economics in the first full quarter since April happen.
Speaker Change: We are excited to build on this momentum.
Speaker Change: We are expanding our portfolio of powered digital infrastructure as illustrated on slide seven which reflects our updated data centers, including our Austin and Alabama sites.
Speaker Change: We also include the contracted gross capacity of each site, which adds up to more than 1200 megawatts.
Speaker Change: Now I'd like to turn the call over to Denise Sterling, our CFO for more details on our financial performance and positioning Denise.
Denise Sterling: Thank you Adam our third quarter operational execution was strong while our financial performance reflected the challenging post having harsh price.
Denise Sterling: Total third quarter revenue of $95 4 million consisted of $68 1 million in digital asset self mining revenue.
Speaker Change: $16 9 million from digital asset hosted myeloma, and $10 3 million from H P C hosting that Adam highlighted earlier.
Speaker Change: Digital asset self mining revenue decreased by $14 9 million or 18% year over year, primarily from a 62% decrease in the number of bitcoin earned during the quarter.
Speaker Change: Result of the April having and a 61% increase in the network hash rate.
Denise Sterling: This was partially offset by 117% increase in the price of bitcoin as well as an increase of 36% and our self mining hash rate, which resulted from the deployment of approximately 31000 additional new generation self mining units that was completed in the first half of 2024.
Denise Sterling: Digital asset self mining cost of revenue increased by 2 million fiscal third quarter of 2020 for.
Denise Sterling: This was primarily driven by an increase in depreciation expense, resulting from the deployment of our new self mining units, an increase in payroll and benefits costs associated with merit and market adjustments made during the quarter and higher stock based compensation.
Denise Sterling: Really offset by a decrease in power cost.
Denise Sterling: Segment gross margin was negative 9% in the quarter.
Denise Sterling: H P C hosting revenue of $10 3 million, which includes a base license fee as well as direct pass through our power cost to our clients with no margin added.
Denise Sterling: Exceeded H P C hosting cost of revenue of $9 million for the fiscal third quarter of 2024 by $1 3 million or a GAAP gross margin of 13%.
Denise Sterling: For the fiscal third quarter of 2024, H P. C hosting revenue and cost of revenue included a one time adjustment related to delivering the datacenter capacity within 30 days ahead of schedule.
Denise Sterling: At our Austin datacenter H P. C hosting cost consist primarily of lease expense that.
Denise Sterling: Direct pass through of power cost.
Denise Sterling: And indirect facilities operations expenses, including personnel and benefit costs and stock based compensation.
Denise Sterling: The non-GAAP gross margin for the fiscal third quarter of 2024, excluding the direct pass through in power cost is 17%.
Denise Sterling: non-GAAP non-GAAP gross margin, excluding direct pass through of power costs and noncash expenses such as stock based compensation is 27%.
Denise Sterling: During the third quarter of 'twenty 'twenty four we continued to refine the methodology used to allocate our cost of revenue to our segments.
Denise Sterling: Including direct and indirect facilities operations cost.
Denise Sterling: This resulted in a portion of these costs being allocated to our H P C hosting segment.
Denise Sterling: We expect our margins to improve over time as we increase our critical I T load without incurring additional operating cost.
Denise Sterling: It is important to remind you that the terms of our hosting contract for our Austin datacenter, which is leased from a third party vary significantly from those of our larger H H P. C hosting contracts, where we are modifying our own infrastructure and therefore do not concurrently lease expenses.
Denise Sterling: A summary of our segment economics can be found on slide eight.
Denise Sterling: Margins for the quarter were negative, 9%, 29% and 13%, respectively, our digital asset self mining digital asset hosting and H P C hosting.
Denise Sterling: Power costs were favorable in the quarter declining to three eight cents from four five cents per kilowatt hour for the same period in the prior year.
Denise Sterling: Operating expenses for the fiscal third quarter of 'twenty 'twenty four totaled $40 3 million as compared to $26 8 million at the same period in the prior year.
Denise Sterling: The $13 5 million dollar increase was primarily attributable to a $4 2 million dollar increase in personnel and related expenses.
Denise Sterling: And $3 $7 million of H P. C hosting segment site startup costs incurred during the period, which represents the cost of modifying our sites over the next two years to deliver H P C hosting services and generate the associated revenue.
Denise Sterling: Other contributors to the increase include stock based compensation of $2 5 million and $1 9 million in bankruptcy advisory cost.
Denise Sterling: Net loss for the fiscal third quarter of 2024 was $455 3 million as compared to a net loss of $41 1 million at the same period in the prior year.
Denise Sterling: The increase in net loss of $414 $1 million was primarily due to a net $408 $5 million noncash mark to market adjustment to our warrants and contingent value right liabilities required as a result of significant quarter over quarter increases in the value of our equity.
Denise Sterling: And also a $4 $9 million increase in interest expense, partially offset by a $28 3 million dollar decrease and reorganization items net with no comparable activity in the same period in fiscal 2024.
Denise Sterling: non-GAAP adjusted EBITDA for the fiscal third quarter of 2024, with $10 1 million or 11% of revenue a year over year decrease of 18 million that included several offsetting adjustments.
Denise Sterling: Our power contracts vary in price and terms as I mentioned previously our fleet wide power cost averaged 3.8 cents per kilowatt hour in the fiscal third quarter.
Denise Sterling: We continue to expect average power cost in 2024 to be between 4.2 cents and 4.4 cents per kilowatt hour.
Denise Sterling: As of September 30th 'twenty 'twenty four we operated approximately a 175000 miners and our self mining fleet and did not procure any new miners during the quarter.
Denise Sterling: Our self mining to hosted mining mix was 89% to 11% respectively.
Denise Sterling: Our hosted mining contracts continue to Sunset. This year, we expect our hosted mining percentage to decline to a single digit percentage of our fleet, creating capacity for self mining and for our H P C hosting business.
Denise Sterling: Now I would like to discuss our balance sheet starting on slide nine.
Denise Sterling: At the beginning of the quarter stock price appreciation triggered the mandatory conversion of our secured convertible notes, resulting in the acquisition of the remaining $233 6 million.
Speaker Change: As Adam mentioned, we completed a successful $460 million convertible note offering in early August that strengthened our balance sheet.
Denise Sterling: <unk> raised in this offering enabled us to pay off all of the $150 million of secured notes.
Denise Sterling: $49 million and minor equipment loans, and the entire 61 million exit facility plus accrued interest all of which eliminated restrictions and covenants such as the 10 day hold on self mining self mine bitcoin and also reduced our interest rate from as much as 12, 5% to 3% for the new notes.
Denise Sterling: The new convertible note terms of which can be found on slide 18 have a conversion price of $11, representing an additional share count of approximately 41 8 million shares at full conversion.
Denise Sterling: At the end of the third quarter, our total debt was $512 million.
Denise Sterling: October we paid off an additional $6 4 million and minor equipment financing.
Denise Sterling: With the additional cash generated from our convertible notes offering we enhanced our liquidity in the quarter ending with $253 million in cash and cash equivalents up from $50 million at the end of 2023.
Denise Sterling: Slide 10 summarizes our total pro forma diluted share count.
Denise Sterling: As of October 31, 2024 share count was approximately $279 million.
Denise Sterling: A total of 98 million tranche, one warrants 27 million tranche, two warrants 23 million restricted stock units and approximately 5 million other reserves share remained on exercised.
Denise Sterling: Full exercise of these items I, just mentioned plus the conversion of the approximately 42 million shares related to the new convertible note would result in a total pro forma diluted share count of approximately 474 million shares.
Denise Sterling: And now I'll turn to our Capex plans.
Denise Sterling: As a reminder, the capex associated with converting our infrastructure to 500 megawatts of critical load for H P. C hosting is paid by corn wheat.
Denise Sterling: Therefore, we do not expect any out of pocket capex for these contracts.
Denise Sterling: Any additional capacity that is not currently contracted whether from incremental power allocations at our existing sites or entirely new sites may require our funding of capex at least in part once we announce a customer contract we will be in a position to comment on any capex investments associated with incremental capacity given our.
Denise Sterling: Because on growing our H P C hosting business, we do not expect it to increase or refresh our bitcoin mining fleet until we procure the new block ASIC chips in the second half of 2025.
Denise Sterling: Now that we have completed the 100 megawatt expansion of our Pecos, Texas Bitcoin mining datacenter, we anticipate no further capex this year associated with our bitcoin mining business.
Denise Sterling: And now I'll turn to a review of our mining economic summarized on slide 11.
Denise Sterling: Our direct cash costs to mine a bit claim in the third quarter was $42351.
Denise Sterling: This consists of power cost of $33946 and direct cash based facilities operations cost of $8405 allocated based on the 84% of our fleet dedicated yourself mining and divided by total Bitcoin mine in the third quarter of 1000.
Denise Sterling: 115.
Denise Sterling: Another way to evaluate our mining cost is by calculating the cash based cash costs of these same items, which represent the same costs expressed as a cost per terabyte per day.
Denise Sterling: Our total cash base cash cost in the third quarter was approximately three cents per tower a hash.
Denise Sterling: Cash cost to mine a bit claim increased year over year by $24314 driven primarily by a 62% decrease in the number of bitcoin earned during the quarter as a result of the April 2020 for having.
Denise Sterling: A 61% increase in the network hash rate and a higher allocation of costs to self mining from hosting as we sunset several of our digital asset hosting contracts.
Denise Sterling: The increase was partially offset by a decrease in power and facilities operations costs year over year.
Denise Sterling: Now that we have contracted the full 500 megawatts of critical load to core we've I will provide an updated overview of the contract found on slide 12.
Denise Sterling: Based on the full contract we project aggregate total potential revenue over the 12 year contracts of approximately $8 7 billion.
Denise Sterling: Average annual revenue of 725 million and non-GAAP profit margin of 75% to 80%.
Denise Sterling: And utilities costs are passed through to our client and will be included in both revenue and cost of revenue.
Denise Sterling: Given that most of our costs associated with the growth of our H B C. Hosting business are included in cost of revenue, we expect operating expenses to increase only slightly as we grow this business.
Denise Sterling: And now I'd like to share some modeling details.
Denise Sterling: We continue to model, our statutory effective tax rate of approximately 23% for 2024.
Denise Sterling: We also retain more than $300 million and net operating loss carry forwards, which will reduce future cash taxes.
Denise Sterling: And now I'll turn the call back to Adam.
Adam Sullivan: Thank you Denise.
Adam Sullivan: We are applying our expertise from the data center and bitcoin mining industries, and our large asset portfolio to accelerate time to power for clients such as core <unk>.
Adam Sullivan: We believe this expansion of our business will deliver more than $500 million in annual GAAP gross profit for the initial 500 megawatts of contracted critical IP load at full run rate, creating significant value for our shareholders.
Adam Sullivan: We are building a data center business with core we've as our anchor tenant in our ambitions extend well beyond the initial 500 megawatts of critical load.
Adam Sullivan: In fact, with our recent reallocation of infrastructure to HBC, and our new Alabama site with its growth plan. We now have another approximately 130 megawatts of critical it load to offer to clients.
Denise Sterling: Beyond our existing infrastructure.
Denise Sterling: Plan to grow our portfolio for <unk> in two ways.
Denise Sterling: First we are actively pursuing the expansion of certain of our data centers by securing more power from local grid partners. We believe that we can capture as much as an additional 300 megawatts of critical load at existing sites from our power suppliers.
Denise Sterling: We believe that we will secure some of this additional power allocation before the end of 2024, representing the quickest path to capacity growth.
Denise Sterling: Second we are working to secure additional sites to expand our <unk> capacity.
Denise Sterling: These sites fall into one of the following categories.
Denise Sterling: Hey, distress conventional data centers that are either lost their tenants or had been pruned from larger data Center company portfolios.
Denise Sterling: These sites typically have backup generators and may have chillers already installed and also have options for additional power allocations from their power providers, including completed load studies.
Denise Sterling: Brownfield sites that we believe we can convert to EPC data centers and see greenfield sites with access to significant power allocations.
Denise Sterling: Our new lease site in Alabama offers 11 megawatts of critical load to contract now to clients, who we'd like to grow with this site to as much as approximately 66 megawatts of critical load.
Denise Sterling: We are currently in discussion with potential new clients about contracting this site for <unk>.
Denise Sterling: This is one example of how we intend to diversify our customer base by securing new customers for these new sites.
Denise Sterling: As depicted on slide 13, we believe that by expanding our portfolio based on growing existing sites and securing new sites. We have line of sight to total HBC hosting capacity of more than one gigawatt of critical it load by the end of 2027.
Denise Sterling: Key to the success of our datacenter business is the conversion of existing sites to <unk>.
Denise Sterling: This is a massive and complex project that requires considerable coordination.
Denise Sterling: The area with the most potential to affect our timing remains the supply chain and we are actively working to identify creative solutions as bottlenecks appear.
Denise Sterling: These solutions include developing alternative configurations for components working with third parties to secure supply and securing temporary items until others are available to us right.
Denise Sterling: Right now we are closely tracking switchboards sadek transfer switches and generators.
Denise Sterling: At this time, we expect to begin delivery of power and infrastructure for <unk> by the end of the first half of 2025 as we previously communicated.
Denise Sterling: Fortunately there is no better team in the industry than ours, and we're expanding it with industry experts, while also having secured some of the most experienced datacenter contractors to help us execute this program when the conversion of our existing sites to support HBC hosting is complete we will be one of the largest datacenter operators in the United States.
Denise Sterling: With a tremendous value creation opportunity in HBC housing. We are also focused on optimizing the operation of our bitcoin mining business within the 400 megawatts of infrastructure now available to it.
Denise Sterling: By consolidating bitcoin mining at Pecos, Texas and one on the data center, we believe that we can lever the lowest power prices and implement power strategies to enhance financial performance.
Denise Sterling: Further our planned refresh next year using the new block ASIC chips represents a significant opportunity to continue improving our fleet efficiency and increase our half for it.
Denise Sterling: We believe that these actions will position or bitcoin mining business favorably preparing us to benefit from an increase in bitcoin price.
Denise Sterling: To summarize our revised guidance for 2024 highlighted on slide 14, we expect 16 megawatts of critical load of revenue generating each PC hosting infrastructure.
Denise Sterling: An average fleet power price for active bitcoin mining data centers, a 4.2 to 4.4 cents per kilowatt hour.
Denise Sterling: Now I would like to update you on our 2024 catalysts, which we introduced last quarter and are summarized on slide 15.
Denise Sterling: We set out to contract or a 500 megawatts of critical load and have now done so.
Denise Sterling: We saw it out to secure a new site to begin expanding our capacity and we secured a new site in Alabama, while we continue to focus on pursuing additional new site opportunities.
Denise Sterling: And we seek to diversify our client base by gaining new clients for new sites.
Denise Sterling: We remain actively engaged in discussions with multiple potential clients regarding our newly available capacity and our growth plans.
Denise Sterling: These potential clients include hyper scaler in AI cloud providers.
Denise Sterling: Core scientifics transformation into a leader in digital infrastructure for next generation compute continues to build momentum.
Denise Sterling: We now have HBC hosting contracts with Corey valued at up to $8 $7 billion in revenue over their 12 year terms.
Denise Sterling: We have an additional approximately 130 megawatts of critical load to contract to new clients from our existing portfolio and have the opportunity to expand our infrastructure at existing sites as well as through new site acquisitions.
Denise Sterling: And our bitcoin mining franchise is very well positioned to benefit when half price rises.
Denise Sterling: As I mentioned at the beginning of this call our momentum and progress continue and our positioning for growth and value creation is only improving.
Denise Sterling: You for your continued interest and thank you to our clients industry partners in all of our teammates for your ongoing efforts and support we will now take your questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: So that we may address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up if you have additional questions you may re queue and time permitting those questions will be addressed one moment. Please while we poll for questions.
Denise Sterling: Okay.
Denise Sterling: Yes.
Denise Sterling: Okay.
Denise Sterling: Thank you.
Speaker Change: First question comes from the line of John <unk> with Needham and company. Please proceed.
John: Hey, guys. Thanks for taking my question and congrats on the results here I have one and then I'll I'll use one of my follow ups if I can.
Denise Sterling: First one being the 100 megawatt that youre going to allocate away from bitcoin mining too.
Denise Sterling: H P C.
Denise Sterling: We're already in conversation with potential customers. There and then I know you can't give kind of specific capex as you mentioned.
Denise Sterling: But should we just still be kind of thinking that $5 million to $8 million to retrofit that site and.
Denise Sterling: And then I have my follow up.
Speaker Change: Yes, Thanks, Sean.
Denise Sterling: Those conversations actually began as an <unk>.
Denise Sterling: Earlier earlier in the year looking at the site in particular, we go back to.
Denise Sterling: What we mentioned on our previous earnings call. It really comes down to whether it's site minor HBC comes out to really power of environmentalism latency.
Denise Sterling: Based on conversations we're having with some potential clients, we went back and solved the power issue that we need to solve in order to convert that.
Denise Sterling: Site and so these conversations have been ongoing for quite some time and it's looking like the competitive process.
Denise Sterling: Those 70 megawatts.
Denise Sterling: And then a great outcome.
Speaker Change: Ill comment quickly too on your megawatt question, Yes, we're looking at you really that five to 8 million per megawatt for the retrofit.
Speaker Change: Got it Okay, and then just a follow up so to the H B C revenue looks like it came in a little bit higher than we at least expected.
Speaker Change: I think it is it's just the 16 megawatt time, saying that implies almost $2 $5 million per megawatt annualized.
Speaker Change: On a revenue basis not sure if we're missing something but I guess in other words I think we're thinking more like $5 million to $6 million that came in at 10 million for the quarter.
Speaker Change: Yeah. So thanks for the question I think they are as we suggested in our prepared remarks that was really driven by a one time adjustment associated with the fact that you did actually pulled forward the delivery by 30 days and so you are seeing an additional month of.
Speaker Change: Of revenue, which is why there is a delta.
Speaker Change: In Q3.
Speaker Change: Thank you. Our next question comes from the line of Jon Petersen with Jefferies. Please proceed.
Jon Petersen: Yes, I could follow up on the 100 megawatt transition so.
Jon Petersen: Terms of the costs are you guys is your plan to go ahead with construction.
Jon Petersen: And then try to sign a lease along the way or are you going to sign a lease before you start spending capital on that transition.
Speaker Change: Yeah, Thanks, Sean right now the way we're viewing it is.
Speaker Change: We're hopeful to get to a client and a final contract.
Jon Petersen: In short enough time period, where.
Jon Petersen: We know exactly what they want to build we know exactly the sizing and the requirements that they're looking for and so from our perspective, we're not looking to spend capital prior to having that contract in hand.
Speaker Change: Got it.
Speaker Change: And then maybe I'm slightly getting ahead of myself, but I guess my follow up is.
Speaker Change: What kind of financing structures are you would you be looking at for future deals.
Speaker Change: As the core we've model repeatable or would we see more of a traditional data center financing type structure with a construction loan and you guys spending all the capital upfront.
Speaker Change: Now the way, we see it right now and where the markets moving to as clients are coming around to spending some portion of the capex to help buy down their rate, we are seeing higher rental rates right now and so really the way. We're looking at it is that 20% to 30%. That's generally spent by data center companies as the equity check.
Speaker Change: And the rest is funded.
Speaker Change: On a debt basis on a project financing level. We're looking at many of these clients looking to really cover that portion of the equity check and we would look to project finance.
Speaker Change: The rest of the buildup.
Speaker Change: Thank you. Our next question comes from the line of Joseph Safi with.
Speaker Change: With Canaccord Genuity. Please proceed.
Joseph Safi: Hey, guys good afternoon nice.
Speaker Change: C all of the incremental progress here.
Speaker Change: Any updates on I know you know our previous discussions you were looking to expand your power capacity.
Speaker Change: Some of your existing H P C sites.
Speaker Change: Any more color to provide there on progress and going above the 500.
Speaker Change: For core where even though I have a quick follow up.
Speaker Change: Yeah, absolutely. Thanks for the question Joe what we're looking at right now is about 300 additional potentially above 300 additional megawatts across our existing HBC sites.
Speaker Change: Conversations are still ongoing and we really view this as our fastest path to getting additional megawatts at each of those sites. So we're we're especially excited about about that process. It could result in a very significant uplift in the number of megawatts at each of our existing sites.
Speaker Change: Yeah that would be that would be really good progress for sure Adam and then.
Speaker Change: And then you know I mean, obviously, we had a presidential election here and you know bitcoins.
Speaker Change: You know obviously, that's good for all miners, but any other further thoughts here on the results of the election and implications broadly for the bitcoin mining and is Korea, and maybe anything more specific.
Speaker Change: For core thanks, a lot guys.
Speaker Change: Yes of course.
Speaker Change: From.
Speaker Change: The trumpf in the past has expressed strong support for both bitcoin and energy production as well as U S leadership in artificial intelligence those are strong tailwind and I think his three priorities. They are really aligned well with our business and our future goals.
Speaker Change: Thank you. Our next question comes from the line of Joe Flynn with Compass Point Research. Please proceed.
Joe Flynn: Hi, I was hoping you could give some more color into.
Speaker Change: But pedro deal structures.
Speaker Change: These new <unk> sites, and just new customers in general.
Speaker Change: Should we expect.
Speaker Change: And the similar Colocation range of.
Speaker Change: This quarter, we have deal or.
Speaker Change: Do you see this like J&J side.
Speaker Change: Site by site basis, like some being built to suit some being co location any color you can provide there would be great.
Speaker Change: Yeah really for what were looking at for the new sites is really focused on.
Speaker Change: Single tenant buildings, so really we're doing a lot of.
Speaker Change: Looking at a lot of build to suit here for Prudential clients the size and scale of our clients are looking for.
Speaker Change: They are really looking for as many megawatts as they can possibly get it any individual site and so as we evaluate each of our sites. These are based on deep conversations between the design engineering teams of both companies, both our company and the potential clients.
Speaker Change: And really going through each of their requirements to ensure that we can meet exactly what theyre looking for in the timelines that theyre looking for so.
Speaker Change: Just to give a little bit more color on that too to get to a finalized contract.
Speaker Change: It really requires us not only to have a finalized design, but also for us to evaluate where we're at in the supply chain to ensure that we can meet the timelines that both sides agree upon.
Speaker Change: Great. Thanks.
Speaker Change: Yes.
Speaker Change: C N number of new stories about quality of recently.
Speaker Change: Hoping maybe you could provide color on your recent conversations.
Speaker Change: Thinking about diversifying but.
Speaker Change: Ultimately as you.
Speaker Change: Yes.
Speaker Change: Companies continue to do.
Speaker Change: To add megawatts build out data center do you see an opportunity to return cash to do that in the cloud.
Speaker Change: Cloud market.
Speaker Change: Thanks.
Speaker Change: Yeah, Yeah I mean.
Speaker Change: Obviously, we have a lot of respect for the <unk> team and what they've been able to accomplish.
Speaker Change: Really what we're seeing across the news is very impressive in terms of what they're working on.
Speaker Change: Were having continuing conversations with both Korea as well as other other cloud providers here.
Speaker Change: Because we view this as a big growth sector in the market. The GPU cloud development that we're seeing going on it's going to capture a significant amount of compute.
Speaker Change: And the overall compute market over the next few years and we look to continue to ride the tailwind that that provides.
Speaker Change: Thank you. Our next question comes from the line of Brett <unk> with Cantor Fitzgerald. Please proceed.
Brett: Hi, guys. Thanks for taking my question and congrats on filling out the remaining capacity with Korea.
Speaker Change: Adam maybe just you know it's now been call. It five six months since you first announced the initial core where you feel what do you think has happened to the market in terms of rental rates or at lease rates or however, you want to kind of quantify it or have they gone up since that deal.
Brett: How should we think about where the market is that now for maybe new capacity coming online.
Adam Sullivan: Yeah. Thanks, Brett I mean really the difference in the corporate deal is 100% funding of the Capex.
Adam Sullivan: They were able to significantly by down there.
Speaker Change: Rates I think as we look forward.
Speaker Change: No.
Speaker Change: What we're seeing for 2025 is frankly, rather unique if you are able to deliver capacity in 2025 and 2026 right now.
Speaker Change: We're definitely seeing those.
Speaker Change: Lease rates be much higher than we expected, especially given that many of these folks are willing to cover some portion of the capex of the Buildout. So we're excited about where lease rates are going.
Speaker Change: And we believe we'll be able to attract a significant amount of value.
Speaker Change: From the demand that we're currently seeing over the next few years.
Speaker Change: Perfect helpful.
Speaker Change: And then maybe just on the new site acquisitions I.
Speaker Change: I guess, you kind of outlined three different options on the distress side.
Speaker Change: If it's five to 8 million kind of retrofit an existing.
Speaker Change: Facility, what are you seeing in the market there on a megawatt basis on the distress datacenter side.
Speaker Change: And Bryan just want to make sure I clarify the question are you asking about the.
Speaker Change: To retrofit those facilities for newest generation compute.
Speaker Change: Yeah, retrofits or retrofit or what you would have to pay to acquire their sites and then the additional capex needed to get them up and running.
Speaker Change: Yeah, absolutely so what we.
Speaker Change: We're seeing today in the market.
Speaker Change: Depends on what type of load studies those facilities come along along with for instance, the site in Alabama.
Speaker Change: And alongside of a total of 100 gross megawatts available at the site.
Speaker Change: Really what we're seeing is somewhere in the range between $3 million to $6 million per megawatt on the existing megawatts.
Speaker Change: And really on a retrofit basis that could range from really one to.
Speaker Change: 3 million, depending on the type of infrastructure. That's currently in place and how much infrastructure needs to be acquired to accommodate the newest generation Gpus.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Lucas pipes with B Riley Securities. Please proceed.
Lucas Pipes: Thank you very much operator, good afternoon, everyone.
Lucas Pipes: Following on a on a similar theme to the prior question on the.
Speaker Change: Potential additional.
Speaker Change: <unk>.
Speaker Change: Any any desire to into exclusivity or has that maybe already occurred on some of these sites.
Speaker Change: Could you speak a little bit to the competitive dynamics.
Speaker Change: How many other companies might be might be in the room would appreciate your thoughts.
Speaker Change: Thoughts on that thank you.
Speaker Change: Yes, I would say where we're at right. Now is there is extraordinarily strong demand. There is frequent meetings on a number of clients and I'll kind of outlined anatomy really we're trying to focus on about 10 clients right now where we have consistent design engineering meetings between the teams hosting site tours for many of these clients and <unk>.
Speaker Change: Really trying to get to a deal here that makes sense for both parties. So.
Speaker Change: It's definitely a competitive process on both the 70 megawatt side as well as the new site in Alabama, and so we have high confidence in our ability to execute on both of those sites.
Speaker Change: Okay. That's that's helpful. Thank you and then Adam.
Adam Sullivan: Taking a step back you you have a.
Adam Sullivan: HBC AI business that is growing very quickly where you are.
Adam Sullivan: A very robust pipeline and then our DTC business.
Adam Sullivan: I imagine some some sites overlap and do both but.
Speaker Change: Does it makes sense could it make sense to maybe separate these businesses either now or sometime down the road. Thank you very much weighted perspective.
Speaker Change: Yes, it's really hard to speculate on the future, but really what we see right now is significant crossover between our bitcoin mining teams on our <unk> and our ability to operate high power digital infrastructure.
Speaker Change: And as we continue to evaluate each of our sites.
Speaker Change: We definitely feel strongly that we have a very strong bitcoin mining business and as we look towards 2025 and in our ability to execute on that block transaction represented a significant not only it is going to represent a significant increase not only in our efficiency, but also gives us the ability to continue to grow our half right. So we have two very strong businesses.
Speaker Change: And so for us to speculate on what may happen in the future is difficult today.
Speaker Change: Thank you. Our next question comes from the line of Tyler D. Matteo with BPI. Please.
Speaker Change: Please proceed.
Speaker Change: Great. Thank.
Speaker Change: Thank you for the time and I. Appreciate you taking the question Adam in terms of I guess, the sourcing process of new customers on the HBC front. What do you think has changed now it now that you have the full core we've contract or is there anything notable on that front as you go to secure new customers now that the full.
Speaker Change: 500 of capacity is contracted with core we've and you've kind of have that anchor customer.
Adam Sullivan: Yes things are things are definitely different I appreciate the question Tyler.
Adam Sullivan: You know things things look much differently, we're building out one of the largest infrastructure basis for high performance computing over the next two years.
Adam Sullivan: That definitely brings with it a significant amount of credibility.
Adam Sullivan: What we're seeing in conversations that we're having is with the thought leaders on the design and the requirements that are necessary to operate these gpus that puts us in a very unique position walking into the room with hyper scaler and with Neocart provider. So we feel like we have we're really in the driver seat here in these conversations we're excited about bringing new clients into the business.
Speaker Change: Okay, Great and then my follow up here I know you've laid out some of the power cost forecast, but.
Speaker Change: More broadly speaking as you kind of look to next year and bringing on more HBC capacity and we have some of the new sites I guess, how do you kind of think about the power strategy as Youre building. Some of these custom built facilities for HBC customers and kind of what does that look like across the footprint as you kind of look out.
Speaker Change: Bring in some more capacity online.
Speaker Change: Yes, so the power.
Speaker Change: The power expectations that we laid forward that's really just on the bitcoin mining part of the business, but one of the unique parts about our business in our datacenter business is that we have a power team in house with our team that has a very close relationship with the utilities in which we operate and many other utilities as well that helps us significantly in our.
Speaker Change: Patients with potential clients, where we can walk them into the room with utilities, who are excited about the new capacity coming online. So as we think about power pricing or that's something that Oh.
Adam Sullivan: Core scientific do handle on behalf of our clients and so.
Adam Sullivan: We're excited about this additional potential megawatts that we have at many of our sites.
Adam Sullivan: And I think not only.
Adam Sullivan: Corey, but other potential clients are very interested in the power as well.
Corey: Thank you.
Speaker Change: Our next question comes from the line of Paul Golding with Macquarie Capital. Please proceed.
Paul Golding: Thanks, so much.
Paul Golding: My first question is around the block chip delivery, given the timing and how that lines up with your progress around.
Paul Golding: The HBC infrastructure rollout and your conversion of 100 megawatts from BTC to H P. C was just wondering if those block chips, if you envision that there'll be predominantly.
Adam Sullivan: New capacity that you're going to find and build out or if it's going to be in part a fleet upgrade.
Adam Sullivan: Yes.
Speaker Change: Yes. Thanks for your question Paul those new block chips are really going to be focused on a refresh of the existing fleet, it's going to give us the opportunity to not only increase SaaS, but also increase our efficiency and so we're very excited about what the Atlanta and getting them up online in our facilities.
Paul: Thanks, Adam and then a quick follow up around power with.
Paul Golding: With this conversion and maybe other conversations are having to expand site capacity from a power perspective, how are your conversations going with utilities.
Paul: You may have demand response enrollment with and I'm not sure. If you are on enrolling.
Paul: Or if you know as you approach these conversations it's.
Paul: Not interruptible capacity, how does the tone of those conversations is evolving and any impact that might be having on spot rate that you're that you're talking through with these utilities. Thank you.
Paul: Yes, and that's really a bifurcated question between regulated and nonregulated markets and regulated markets. Those were voluntary programs that were participating in to reduce our power costs. There were some power programs that we will be exiting as these sites begin to convert to high performance computing and then.
Paul: In the deregulated markets those R&D ppas that we will be looking to sign that will be on a different rate structure. Then the rate structure. We are on for bitcoin mining. So that's a well trodden process and we feel very very strongly that we have execution.
Paul: Capability here with our utilities.
Speaker Change: Thank you as a reminder, if you have any follow up questions. Please press star one at this time.
Speaker Change: Our next question comes from the line of Kevin Dede with H C. Wainwright. Please proceed.
Kevin Dede: Thanks, Hi, Adam Thanks for having me on.
Kevin Dede: Yeah.
Kevin Dede: <unk>.
Speaker Change: You mentioned three components that you see locked in supply issue I was wondering if you could just add a little more color to that.
Kevin Dede: You said that you thought you could find workarounds I don't see that happening with Gen sets and I was wondering how you can size that up against me.
Kevin Dede: Meeting your.
Kevin Dede: No.
Speaker Change: I think end of first half target for the core we've deal which appears to be static. So congrats on that just maybe.
Kevin Dede: So will relieve a little.
Kevin Dede: Of the unknowns regarding the supply chain.
Kevin Dede: Okay.
Kevin Dede: Yeah. Thanks, Kevin.
Speaker Change: I think as we look at 2025, we have high confidence in the supply chain locked up for those deliveries.
Kevin Dede: Parts of 2026, those are things that we're still working on but.
Kevin Dede: Even on Gen sets for example.
Kevin Dede: That was us.
Kevin Dede: These are things that.
Speaker Change: The traditional gen sets that are used in data center development. There are different sized gen sets that we're evaluating to help alleviate some of those traditional design choices that had been utilized over the past 10 to 20 years. So we are also coming up with methods and looking at potential rental of certain equipment to.
Speaker Change: To help really bridge the gap in areas, where we might need to bridge some of those gaps. So we have high confidence in our ability to execute on the supply chain, even with the complexities that are presented due to the high demand for this for this equipment.
Speaker Change: Okay, and with regard to the block machines.
Speaker Change: You imagine those are water cooled or immersion and would you think that you'd have to retrofit it.
Speaker Change: Existing bitcoin mining facilities to manage those.
Speaker Change: Yes, I mean, if you look across our infrastructure base today, we become we are the leading experts and really <unk> facilities and so for this deal with the new block shifts we are designing a new form factor Thats really focus.
Speaker Change: On an air cool design that we can maximize we've mentioned pecos in particular that can maximize the production of these the production coming out of these chips even at high temperature ranges. So no significant refresh in terms of the infrastructure inside those bitcoin mining facilities. So we believe it's going to be.
Speaker Change: A very strong processor easier process for us to install all of these machines.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from the line of Rosemary Sisson with Odeon. Please proceed.
Rosemary Sisson: Yes. Good afternoon, everyone. Thank you for taking the call.
Speaker Change: The 100 megawatts it that you've identified them to.
Speaker Change: To convert from Bitcoin now to H B C that you hadn't done identified prior to this.
Speaker Change: What was it about this that changed or did your view changed about what you could do how did the what was the thought process. There and is there the possibility of of that same thought process being applied to other megawatts that you have currently employed in bitcoin.
Speaker Change: Thanks Rosemarie.
Speaker Change: It really calls back to the three points that I laid out so power environmental and wait and see.
Speaker Change: This site in particular was something that we are very focused on the power aspect ensuring that we could.
Speaker Change: Create a contract with our utility that would be amenable to both sides.
Speaker Change: We've gotten to that point today, so that's what really led to the conversion.
Speaker Change: Of thinking this site what is going to be specifically utilized for bitcoin mining and undergoing a process too.
Speaker Change: Convert that to HBC.
Speaker Change: As we evaluate the rest of our sites there are definitely points out we would need to continue to evaluate on both the power of environmental and latency side and it's hard for us to speculate now about where we'll end up in each of those processes, but right now we feel that we have high confidence in our ability to continue to hire sites and.
Speaker Change: And bring more critical load megawatts to market.
Speaker Change: Okay. Thank you and then the.
Speaker Change: The new site in Alabama, that's currently powered at 11 megawatts.
Speaker Change: But can go to 66 what.
Speaker Change: What has to happen for that to actually get to 66, and what would the timeframe be.
Speaker Change: Yes. This is this is one of the sites that really it goes back to the distress data centers that come with come with low studies and additional approved power. So.
Speaker Change: On Alabama in particular, that's what really excited us about that site 11 megawatts and traditional data center terms would be a significant amount of megawatts, but given that ability to expand while also bringing on capacity in 2025 is extremely attractive to potential clients, which is why I'd say its one of our target areas for finding new capacity.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Darren <unk> with Roth and Ken. Please proceed.
Darren: Thanks for taking my questions just two if I may 1st on the process.
Speaker Change: For securing additional power with the 300 megawatts of existing site you guys have the deck is that kind of like a can you just talk about the processes that weeks months and years and just how concentrated is that by site.
Speaker Change: And then.
Speaker Change: When it comes to additional kind of expansion on H P. C. Like how do you balance a customer concentration versus economics, and what I mean by that is.
Speaker Change: The 100 to seven megawatts you have available today, it's a quote quota was wanted to strike a similar deal when you take those economics ever wanted to diversify to a traditional customer. Thanks.
Speaker Change: Thanks, Darren so far to the additional power at existing sites and that process is different for each utility some of them require additional load studies.
Speaker Change: Some of them are in negotiations about where and when we will have our ramp up in terms of megawatts I think our ability to capture additional megawatts of existing sites really comes down to our proof of execution. It comes down to what we showed them on the bitcoin mining side and now in the movement to HBC. These utilities are.
Speaker Change: About working on growing our relationship with us. So it can in some instances be a lengthy process, but you know as it comes down to our negotiations with potential clients related to some of these additional megawatts.
Speaker Change: They understand time is of the essence, and they're helping and working alongside of us to get to a final answer which is why we said.
Speaker Change: There is potential for some of these megawatts to be approved inside of 2024.
Speaker Change: Now looking are now talking about your second question related to customer concentration and how we're thinking about that related to economics, obviously that quarterly deal is extraordinarily attractive.
Speaker Change: Has the potential to be the best data center deal ever signed in the history of data centers. So.
Speaker Change: Obviously, we would like to continue to expand our relationship with <unk>, but we do think for the long term.
Speaker Change: It's necessary for us to diversify our client base spurring other large tech companies into before.
Speaker Change: And really create a business that we believe is extraordinarily stable over the next 50.
Speaker Change: 15 to 25 years, and that's really what gets US excited and we think we have tremendous growth opportunities with new clients and also with poorly.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Lucas pipes with B Riley Securities. Please proceed.
Lucas Pipes: Thank you so much for taking my follow up question I, just wanted to Uh huh.
Lucas Pipes: Back to the Alabama opportunity Adam could you speak a little bit about the timeframe from when you first.
Lucas Pipes: Recognize that tied to today, how long does that take.
Speaker Change: And any indication on on consideration for this asset.
Speaker Change: Is it is it cash how much an earn out profit share and anything you could share would be helpful. Thank you so much.
Speaker Change: Thanks Lucas.
Speaker Change: I would.
Speaker Change: Ah qualify this site as you know.
Speaker Change: It takes probably low to mid single digit months in order to get really get to a finalized deal here because we haven't seen it come on at a time now to really perform all of our due diligence and a lot of that due diligence is not only on the infrastructure side, but it's also spending a lot of time with those utilities, we want to ensure that we're going to have a strong working.
Speaker Change: Chip and also find a pathway to growth as we evaluated that site 100 megawatts.
Speaker Change: Fantastic and we also want to figure out ways to continue to grow with the utilities youre seeing it today it across a number of our sites, where we have the potential to potentially expand the number of megawatts and thats very important to us strong working relationships with the utilities.
Speaker Change: Now relates to the consideration.
Speaker Change: This is a.
Speaker Change: Elyse site that we have the option to buy so we're we want to put ourselves in a position, where we don't necessarily have to buy the site immediately but having the option to buy provides us a lot of optionality and it's at a fixed price so regardless of the upgrades that we do and perform and any additional power that accrues to the site those accrue tower.
Speaker Change: And just to add Lucas. This is Steve there is a bit of a bit additional description of that deal in our 10-Q that should be filed later today by tomorrow.
Lucas Pipes: Really really appreciate it super helpful. Adam to you and the team continued best of luck.
Speaker Change: Thanks Lucas.
Speaker Change: Thank you. Our next question comes from the line of Kevin Dede with H C. Wainwright. Please proceed.
Kevin Dede: Adam you clearly delivered on adding new sites and you did highlight three avenues to continue to expand your portfolio.
Kevin Dede: Maybe you could give us a little bit more insight on that pipeline, specifically I know you are speaking to.
Kevin Dede: Some pretty large numbers I'm just wondering how.
Kevin Dede: You see that market and core's ability to compete given huge demand for power and access.
Speaker Change: Yeah, absolutely and thanks, Kevin.
Speaker Change: The.
Speaker Change: There are a lot of sites outstanding right now there's a lot of power available in the United States, which is our focus area right now and we're finding the most attractive sites to be ones that arent being run through broker processes and so that means where we have with many boots on the ground speaking with utilities.
Speaker Change: Speaking with landowners and finding sites that are much more esoteric and the traditional ones being run through broker processes. So we're finding ourselves with a strong ability to compete we've evaluated over 15 Gigawatts worth of site.
Speaker Change: Over the course of the past I'll call it six to eight months.
Kevin Dede: It's putting us in a strong position to find unique deals in the market.
Speaker Change: And we're excited about our ability to continue to execute on.
Speaker Change: On deals coming forward. So Alabama is really the first one here that we've executed on but we look forward to 2025 and 2026 to continue to grow.
Speaker Change: Our critical load megawatts.
Speaker Change: Okay.
Speaker Change: Thanks, Adam.
Speaker Change: While youre still there maybe you could speak a little bit to the <unk>.
Speaker Change: Blocked.
Speaker Change: Chip deployment timeline I know you mentioned second half next year.
Speaker Change: I am kind of wondering whether or not that is what you initially expected or was there some wiggle room in there.
Speaker Change: Do you suspect you'll be able to find all the components you need to make the full unit.
Speaker Change: Yes, thanks, Kevin.
Speaker Change: This is something that our our research and development team has been working closely with the block team on for a long period of time. This isn't something where we had only been working with them for months.
Speaker Change: Is something that we've been working on with their team for a much longer time periods. So we have all of the manufacturing setup we have.
Speaker Change: Our our entire game plan in terms of our rollout in terms of our execution.
Speaker Change: Already already put into our schedule. So this this timeline is exactly aligned with what we expected and we're excited about being able to get these up and running and continue to reduce our I'll say increase our efficiency and also increase our ex ash exposure.
Speaker Change: Okay.
Speaker Change: Thank you that concludes our question and answer session I would like to pass the call back over to Steve for any closing remarks.
Steve Welling: Thank you very much Alicia with no further questions at this time, we thank you for your attention and 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 and a joyful holiday season, and we look forward to speaking with you again following next quarters.
Steve Welling: Results.
Speaker Change: Thank you this does conclude today's teleconference.
Speaker Change: Thank you for your participation.
Speaker Change: Please disconnect your lines at this time.
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