Q4 2024 Core Scientific Inc Earnings Call
Speaker Change: Greetings and welcome to the Core Scientific fourth quarter fiscal year 2024 earnings conference call. At this time all participants are in listen-only mode. If anyone should require operator assistance please press star zero on your telephone keypad.
Speaker Change: 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 of 1995.
Speaker Change: 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.
Speaker Change: Intend project plan or words or phrases with similar meaning.
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 for further information on these risks and uncertainties. We encourage you to review the risk factors discussed in the company's annual report.
Speaker Change: 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 their today's presentation is it.
Speaker Change: Payable on our website at core scientific dotcom and the events and presentation section. The content of this conference call contains information that is accurate only as of today February 26, 2025, the company undertakes no obligation to update statements.
Speaker Change: Made today to reflect events or circumstances occurring after today joining me today from core scientific are our CEO, Adam Sullivan and their CFO, Denise Sterling with that we will now begin with remarks from Adam.
Adam Sullivan: Good afternoon, and thank you all for joining us today.
Adam Sullivan: I'll begin today's call by looking back at our key achievements from the quarter and fiscal year before handing it over to Denise who will review our financials.
Adam Sullivan: I will then highlight our growth strategy and the meaningful value creation opportunities. We see ahead for core scientific we will then take your questions.
Adam Sullivan: 24 was guided by the three growth catalysts, we identified on our second quarter earnings call.
Adam Sullivan: Contract the remaining HBC hosting capacity expand infrastructure capacity and diversify our customer base.
Adam Sullivan: Starting with HBC, we began by signing a 16 megawatt agreement with core we've in Austin, which we delivered 30 days ahead of schedule.
Adam Sullivan: We then moved quickly to fully contract. The original 500 megawatts of HBC capacity through a series of new 12 year agreements with core we have there.
Adam Sullivan: It still carries a total revenue potential of $8 $7 billion over the contract term.
Adam Sullivan: Quick one to about $725 million per year once fully online.
Adam Sullivan: Put that in perspective, our total revenue in 2024 was just over 500 million.
Adam Sullivan: Mostly from a bitcoin mining operations securing this landmark HBC contract marks a pivotal step in our evolution into a leading data center business.
Adam Sullivan: Next we made significant progress expanding our each PC infrastructure capacity in 2024 by reallocating resources from a bitcoin mining operations enlarging existing sites and acquiring new sites. As a result, we ended the year with over 1300 megawatts of contracted power.
Adam Sullivan: In the fourth quarter, we secured approval to expand gross capacity at our attention site by nearly 100 megawatts equating to approximately 70 megawatts of critical load.
Adam Sullivan: Dallas remains one of the fastest growing data center markets in the United States and we believe our Denton facility is on track to host one of the largest gpus supercomputers in North America.
Adam Sullivan: Separately on the last earnings call, we discussed our expansion into Auburn, Alabama, where we signed a lease to buy agreement at the Opex facility.
Adam Sullivan: This site currently has 11 megawatts of critical load and we are actively working with Alabama power just carrying much larger power agreement.
Adam Sullivan: Due to power constraints in the nearby Atlanta market and given the Auburn strategic location. This site has the potential to be a major development for the company.
Adam Sullivan: We are deferring significant capital deployment until negotiations with prospective customers are finalized ensuring our investment is optimally aligned with demand.
Adam Sullivan: Briefly on organic customer diversification, while we did not sign another large HBC hosting customer last year. We are in active discussions and remain confident in our ability to diversify our HBC customer base.
Adam Sullivan: Shifting to our capital structure I would let Denise cover the details, but we significantly improved our balance sheet in 2024, which leaves us well positioned to execute on our growth strategy this year and beyond.
Adam Sullivan: Finally, I want to take a moment to emphasize how proud I am of the strategic hires we've made across the business last year we.
Adam Sullivan: We brought on top tier data center professionals, who have a proven track record of successfully executing large scale projects.
Adam Sullivan: This has significantly strengthened our leadership and execution capabilities and we believe this expanded talent pool underscores our commitment to growth and innovation as we continue our evolution into a premier datacenter provider.
Adam Sullivan: With that I would like to hand over to Denise who will take a deeper dive into our financials Denise.
Denise Sterling: Thank you Adam I am pleased with our financial performance in 2024, especially given the operational hurdles, we navigated, namely the bitcoin having in April and the deliberate shutdown of several active mining sites to accommodate our major H P C hosting contract with core reasons.
Denise Sterling: Securing that contract was a major milestone for the company offering a robust foundation for our continued pivot towards H P. C diff.
Denise Sterling: Despite these transitions we delivered financial results that underscore our operational expertise and significantly strengthened our balance sheet positioning us for a productive 2025.
Denise Sterling: With that I will begin with an overview of our fourth quarter financial results.
Denise Sterling: Total revenue was $94 9 million down 33% year over year, and adjusted EBITDA was $13 3 million.
Denise Sterling: In terms of our segment results digital asset self mining revenue was $79 9 million a decline of 29%.
Denise Sterling: This was largely driven by 974 bitcoin earned in the fourth quarter versus 3042 in the same period, a year ago, partially offset by the 130% year over year increase in the price of bitcoin.
Denise Sterling: As of December 31st 2024, we operated approximately a 164000 self mining units or 96% of our total mining fleet with the remaining 4% representing hosted mining units.
Denise Sterling: Digital asset hosted mining revenue was $6 5 million down from $30 million in the fourth quarter of 2023, as we sunset our hosted mining contracts a trend we expect to continue this year.
Denise Sterling: Finally, we generated $8 5 million in H P. C hosting revenue during the quarter and as expected exited the year with 16.5 megawatts of critical I T load, which includes an additional half a megawatt contracted in the fourth quarter.
Denise Sterling: Shifting now to costs, our 2020 for average annual fleet wide power rate of four cents per kilowatt hour beat our 2024 target guidance of between 4.2 cents and 4.4 cents per kilowatt hour.
Denise Sterling: Our average fleet wide power rate for the fourth quarter was $3.07 per kilowatt hour.
Denise Sterling: A summary of our segment mining I can netback economics can be found on slide seven.
Denise Sterling: Gross margins for the quarter were 2%, 36% and 9% respectively for digital asset self mining digital asset hosting and H P C hosting.
Denise Sterling: For our APC hosting segment, we also measure our performance utilizing a non-GAAP cash gross margin, which excludes the direct pass through of power costs as well as noncash items, including stock based compensation and depreciation.
Denise Sterling: For the fourth quarter of 2024, our non-GAAP cash gross margin was 16%.
Denise Sterling: Operating expenses for the fourth quarter of 2024 totaled $43 6 million as compared to 30 million for the same period in the prior year.
Denise Sterling: Net loss for the fourth quarter of 2024 with $265 million as compared to a net loss of $195 7 million at the same period in the prior year.
Denise Sterling: On slide eight our direct cash costs to self mine a bitcoin in the fourth quarter was $51035 and our total cash base cash cost in the fourth quarter was approximately 3.3 cents per tower of hash.
Denise Sterling: Next I'd like to walk you through the balance sheet starting on slide nine.
Denise Sterling: Exiting 2023, our total debt balance was approximately $1 billion.
Denise Sterling: During 2024 as part of chapter 11 debt restructuring, we lowered total debt by $270 million. Subsequently, we equity raised our secured convertible notes for $260 million largely through mandatory conversion.
Denise Sterling: This was shortly followed by the $460 million convertible note offering in August, which allowed us to pay off $260 million in existing senior debt eliminate restrictions and covenants and substantially reduce our interest rates on the notes from as high as over 12% to 3%.
Denise Sterling: More recently in December we completed a $625 million convertible note offering at a very attractive zero percent interest rate.
Denise Sterling: All told we entered 2025 with an unlevered balance sheet outside of our convertible notes and over $830 million in cash, which we believe positions us well to execute on our growth strategy.
Denise Sterling: With regard to H P C capacity.
Denise Sterling: Any contracted expansion, whether tied to additional power allocations at existing sites or entirely new locations may require our own capital expenditures.
Denise Sterling: We will provide further details on any necessary outlays once we announce new customer contracts and finalize additional capacity requirements.
Denise Sterling: Given our focus on growing our H P. C hosting business, we do not expect to increase or refresh our bitcoin mining fleets until we procure the new block ASIC chips in the second half of 2020 five.
Denise Sterling: We are not planning any further capex this year associated with our bitcoin mining business.
Denise Sterling: Our pro forma fully diluted share count as of February 20th was approximately 501 million shares as summarized on slide 10.
Speaker Change: We are currently modeling a statutory effective tax rate of 22% in 2025, we also have more than $300 million and net operating loss carry forwards, which will reduce future cash taxes and with that I'll turn the call back to Adam Adam.
Adam Sullivan: As we look ahead to 2025, we will continue to capitalize on our strength for building attractive large scale infrastructure and the key focus areas. This year include one diversifying our customer base by adding new HBC customers to successfully executing on the EPC contracts we have in place.
Adam Sullivan: And three continuing to expand our capacity organically and through strategic M&A.
Adam Sullivan: Starting with diversifying our customer base. This is the top priority for the company. This year and the goal is to find enough contracts. So that Cory represents less than 50% of critical IP load by the end of 2028.
Adam Sullivan: We are in active discussions with dozens of new customers, including the vast majority of hyperscale providers in several large enterprise companies.
Adam Sullivan: Demand remains strong, but we're seeing considerably more due diligence compared to the first half of 2024.
Adam Sullivan: Heightened scrutiny reflects the influx of new market entrants, making ambitious capacity promises yet lack the tangible power agreements to back them up much like the recent situation, where a hyperscale or canceled contracts with companies that overstated that are available power.
Adam Sullivan: Our proven track record and secured power agreement set us apart in this environment and we won't be expanding our footprint unless we had a high degree of confidence in our ability to deliver for additional customers.
Adam Sullivan: Moving onto our second priority executing on the EPC contracts, we already have in place.
Adam Sullivan: Today, we announced a significant expansion of our relationship with core we've had our Denton facility, which will bring that site to full capacity.
Adam Sullivan: This new agreement adds approximately 70 megawatts of critical it load and represents approximately $1 $2 billion in additional contracted revenue over a 12 year term.
Adam Sullivan: With this latest expansion our total contracted value would call you've now exceeds $10 billion in the mountains.
Adam Sullivan: Our Austin, Texas agreement.
Adam Sullivan: And covers roughly 590 megawatts of critical load once fully online.
Adam Sullivan: Of that total just over 570 megawatts reflect capacity, we're converting at existing sites to HBC, where we expect 75% to 80% cash gross profit margins.
Adam Sullivan: We view this as one of the largest HBC deployments in the United States and quarters continued demand already outpaces their supply, which we see as a strong signal of better business health and growth potential.
Adam Sullivan: Under this newest agreement for the additional 70 megawatts, we will fund $1 5 million in capital expenditures per megawatt, whereas in prior agreements or we've covered those costs in.
Adam Sullivan: In return, we will benefit from full rental payments during the first two years of the contract because there will be no capex credit associated with this new agreement.
Adam Sullivan: Looking ahead, we now expect to have delivered approximately 250 megawatts of EPC capacity to Cory by the end of this year with the full 590 megawatts coming online in early 2027.
Adam Sullivan: This represents a shift from our previous timeline and reflects both the size and complexity of the project.
Adam Sullivan: Particularly the addition of an incremental 70 megawatts of critical load.
Adam Sullivan: These factors introduced several permanent challenges, which we resolved in collaboration with <unk>.
Adam Sullivan: As part of that process, we implemented design enhancements to further optimize GPU performance and mutually agreed upon new delivery timelines.
While these steps have extended our schedule somewhat we believe it ultimately position us to provide a more robust and efficient infrastructure that meet our customers' evolving needs.
Adam Sullivan: Our third priority is to continue expanding our EPC capacity, both organically and through strategic M&A.
Adam Sullivan: Building on the recently announced 70 megawatt expansion Denton, we believe we can add another 300 megawatts of capacity across our existing sites by the end of 2027.
Adam Sullivan: It is an increase from the previous quarter.
Adam Sullivan: We also see significant greenfield opportunities and aim to add approximately 400 megawatts of new capacity over the next three years.
Adam Sullivan: On the M&A front, we're actively pursuing opportunities in our current markets and carefully evaluating expansions into new ones.
Adam Sullivan: This includes acquiring stabilized datacenter assets or book, but not build projects that come with strategic customer contracts offering greater revenue predictability.
Adam Sullivan: This approach aligns well with our broader objective of reducing our largest customer to below 50% of total critical load by the end of 2028.
Adam Sullivan: In closing I'm more excited than ever about the momentum we've carried into this year. Our team is fully energized and confident in our ability to execute on our growth strategy, which we believe will drive significant value creation for all our stakeholders.
Adam Sullivan: I want to extend my sincere gratitude to our clients industry partners, and especially our dedicated teammates for their ongoing efforts and support.
Adam Sullivan: Also want to personally thank our existing shareholders your confidence in our vision has been critical in bringing us to this point and we wouldn't be here without you with that we will now take your questions.
Adam Sullivan: Okay.
Adam Sullivan: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad as a reminder.
Adam Sullivan: Ask you please limit yourself to one question and one follow up once again Thats star one to be placed in the question queue and start to if you'd like to remove yourself from the Q1 moment. Please while we poll for questions.
Darren: First question is coming from Darren <unk> from Roth Capital Partners. Your line is now live.
Darren: Hey, guys. Thanks for taking my questions and didn't.
Darren: Didn't see expansion on the on the capacity.
Darren: Two if I may 1st can you just talk about them a little bit more detail about the permitting process and maybe what's.
Darren: Long getting that timeline and then secondarily.
Darren: On the Alabama site.
Speaker Change: I know you guys said youre not going to kind of commit too much capital until negotiations with prospects or more finalized.
Speaker Change: Alabama power I guess like where are you with them is as a feasibility study then done like how quickly can those kind of the ball just going to have any more insight on that would be helpful. Thanks.
Speaker Change: Yes of course I appreciate the questions. Darren So you were talking about the Permian process that was really.
Speaker Change: One of our sites in particular and as we were looking at the expansion of that site.
Speaker Change: We had to go through additional Permian processes, just related to the expansion and related to you know a pretty major design adjustment that was made in that process and that's really around optimizing for efficiency and optimizing for the scale of that asset and so we're past that process today and we feel very confident.
Speaker Change: Given that at that site, we have construction, we have contractors, we have boots on the ground to know that the process is moving along with the existing schedule that we have that we have in front of us.
Speaker Change: The second to the second question related to Alabama.
Speaker Change: Right now we're in a place where we have high confidence in the ability to gain additional megawatts at that site.
Speaker Change: And once we get those those commitments that's gonna be a time when we will begin placing additional capital into that site. Now you have to think about the delineation between having a secured customer and us preparing.
Speaker Change: To have that customer and so obviously a significant amount of capital will be deployed once that new customer contracts secured but up until that point there'll be limited capex, albeit some are related to bringing that site to more of a pad ready status.
Speaker Change: Thank you. Our next question is coming from Jon Petersen from Jefferies. Your line is now live.
Jon Petersen: Great Congratulations on the expansion with core we've maybe if you could talk about the economics I know you guys mentioned on the call that you are going to pay the one and a half million upfront instead of a capex credit should.
Jon Petersen: Should we think about the rents other than that should we think about the rents on this deal as a as the same as what you had before.
Jon Petersen: Yeah exactly everything is exactly the same and so after that after about two just over two years those contracts will look identical from a from a rate perspective.
Jon Petersen: Okay and then.
Speaker Change: I like the goal of you know and I appreciate the goal of wanting to bring core we've down to less than 50% of revenue by the end of 2028, I think that would require you to procure a lot more power. This year. In addition to signing on additional customers. So maybe just talk through the milestones that you need to hit them throughout this year to be on track to do that.
Jon Petersen: Yeah.
Speaker Change: Really about getting them below 50% of critical load by 2028, and you're working through that process. So that we talk about the ability to continue to expand at existing sites and that's that's a competitive process because we are getting direction direction in terms of how much additional power.
Speaker Change: We're going to be able to achieve at some of our existing sites and then some of our new sites as well are very attractive locations. Our focus today is on building blue chip assets and we want to have those blue chip assets with Blue chip clients and so that's where our focus is today and we're going to continue to execute and acquire more sites to bring more capacity on.
Speaker Change: A line to secure more contracts and achieve our goal of getting them below 50% by 2028.
Speaker Change: Thank you. Your next question is coming from Joe Flynn from Compass Point Research. Your line is my life.
Speaker Change: Maybe.
Speaker Change: Maybe get some more color on the.
Speaker Change: The push out of capacity this year and the Finalization of ultimately kind of data center designs like what has been the biggest challenge whether that'd be.
Speaker Change: Changing the architectures supply chain.
Speaker Change: And ultimately as you ramp up capacity in the future.
Speaker Change: It would be designed to snacks.
Reuben: GBP 300, there Reuben.
Speaker Change: Architectures as well thanks.
Speaker Change: Yeah of course, yeah, Youre, absolutely right on that last point. There you know as we are evaluating the infrastructure development for the GB to owners in the GB three hundreds you know there are some incremental design changes that are required as part of that process and you know as we've gone as we went through really Q4 of last year there was some.
Speaker Change: It'll permitting challenges.
Speaker Change: Challenges some of that was driven by the increasing complexity and size you know other parts were four others for other sites. We had to go back and just reconfirm permitting based on the fact that supply chains are constrained you know as you look out into 2026.
Speaker Change: And one of the things that we wanted to ensure that we achieved was that we had the right.
Speaker Change: Equipment on the rate schedules for the site plans that we had and so that required us to change some of the designs to fit for the equipment that was available to deliver on the timelines that we set forward and so there was just some some incremental delays there, but overall, we have high confidence in where the delivery schedules that we've put forward today and we believe.
Speaker Change: We're going to be able to hit those timelines.
Speaker Change: And.
Also just to address like maybe concerns about related related to Microsoft.
Speaker Change: Back potential capacity with quarterly of which we don't think the contracts are structured that way, but ultimately.
Speaker Change: I'll just say there is risks that corvid is contracted revenues goes down I.
Speaker Change: I think what.
Speaker Change: From your son.
Speaker Change: How would you guys.
Speaker Change: You, maybe like explain the impacts.
Speaker Change: And is there ability for correlated to ultimately kind of go forward with or without Microsoft for.
Speaker Change: And maybe just any comment on the demand there.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, I can't comment specifically on any relationship between core even Microsoft other than what they've spoken about publicly but I mean, Corey is continuing to expand youre seeing it not only with core scientific but really across across the globe and internationally. So from what we're seeing on Coreys demand side is significantly stronger.
Speaker Change: <unk> than what we saw in 2024, you know theres a lot of things going on in the market today that we're seeing that's actually driving continued demand in flow into core we have and so we're excited about continuing to expand with them of Denton and Denton is going to be one of the largest supercomputers in the United States and it's going to be a flagship asset for core even so we're really excited about <unk>.
<unk> to expand our relationship with them.
Brett Knoblauch: Thank you next question is coming from Brett Knoblauch from Cantor Fitzgerald. Your line is now live.
Speaker Change: Okay.
Speaker Change: Thanks, guys really appreciate it.
Speaker Change: Maybe just quickly on the delays if you will or are they pushed back and timing just want make sure I heard you right you're now expecting.
Speaker Change: Crude by two of this year to be 250 megawatt.
Speaker Change: Does that include the <unk> 16, and a half.
Speaker Change: Before you guys were expecting I think 270 plus.
Speaker Change: Yeah.
Speaker Change: Yeah. Thanks, Brian Yeah, that's correct, that's really a push out of just a 140 megawatt building out into out into early 2026, and you are absolutely right that that number does include the 16 megawatts.
Perfect and then I think we've gotten a lot of questions following deep seek which hit this space quite hard.
Speaker Change: What have you seen with customer conversations post deep sea has it really changed anything or is demand just as good if not greater since then.
Speaker Change: I would say from what we're seeing in all of our discussions is that people want to move faster.
Speaker Change: We've seen much more specific requests surround locations in terms of developments and where they would like to build.
But overall the deep seek news for hitting the public markets are rather hard from everything that we've seen on the actual demand side demand continues to increase and those conversations continue to progress very well. So we think the deep seek was a little bit of a head fake for the broader markets but.
Speaker Change: Overall, hasnt changed the demand pork demand picture for us.
Thank you. Your next question is coming from Greg Lewis from <unk>. Your line is now live.
Greg Lewis: Yeah. Thank you and good afternoon, and thanks for taking my question Hey, Adam.
Speaker Change: Could you talk a little bit about.
Speaker Change: You mentioned enterprise customers potentially it's something that seems to be we're hearing more about beyond just the hyper scaler.
Speaker Change: As maybe you broaden out the customer base beyond just the hyper scaler, which it seems that latency is a big issue for them maybe scale ability is a big issue for them as you kind of look at potential enterprise customers does that open up more sites that may be.
Speaker Change: And kind of that.
Speaker Change: That does that open up more sites, maybe in your portfolio and elsewhere that may be under.
Speaker Change: There are hyper scaler footprint, what it work, but through an enterprise it might.
Yeah. That's a great question you know as we see those two different customer bases Hyperscale is obviously looking for a very specific set of criteria depending on the geography oftentimes much much larger than what's being looked at on the enterprise side. So yes, absolutely some smaller sites.
Speaker Change: Still with low latency capabilities are being evaluated for enterprises.
Speaker Change: But overall one of the things that we're looking at is we want to have longevity and all of our assets and so we're looking at having a hyperscale is at the very leases anchor potentially a single tenant and if theyre, serving as anchor being able to fill out the rest of the capacity with enterprise clients as well so the demand does it open up more.
Speaker Change: <unk>.
Speaker Change: With enterprise absolutely.
Speaker Change: But we're focused on new blue chip assets with Blue chip clients, which include both of those groups.
Speaker Change: Super helpful. Thank you very much.
Speaker Change: Mhm.
Speaker Change: Thank you next question is coming from George Sutton from Craig Hallum. Your line is now live.
George Sutton: Thank you Adam you said two things that conflicts a little I just wanted to make sure I heard correctly people are wanting to move faster on one hand, but you mentioned considerable increases in due diligence can you just sort of marry those two.
George Sutton: Yeah, absolutely you know that the move move faster is really about delivery timelines being able to complete the due diligence process is a different part of that equation.
George Sutton: They talk about wanting to be able to deliver sites over a certain period of time, but that's also requiring folks to bring these sites closer to pad ready closer to powered shell and part of this is to weed out a lot of people who believe they are in the datacenter business because they are power and land that doesn't make you a datacenter provider and so that's really the difference.
George Sutton: For core scientific we have the power we have the land we have the team that can deliver those assets and so that's what's bringing us into these conversations and they want to move faster on delivery timelines. Once they are assigned contract. They want to have that firm delivery date, and so that's really the difference there and I hope that married up that for you George.
George Sutton: Thanks, and then one other question on the one and a half a million dollars per megawatt that you will be funding in this latest contract my assumption is in a negotiation.
George Sutton: Given your balance sheet now you can handle this pretty comfortably therefore, you'd rather healthy.
George Sutton: The revenue event when that occurs.
Speaker Change: That's correct yes.
George Sutton: It's definitely one of the considerations in it.
George Sutton: Denton is a unique asset an incredible asset and you know this is a great opportunity for us to continue to expand our relationship with <unk>. So we're very happy with where the economics economics landed on it.
George Sutton: Okay.
Speaker Change: Thank you. Your next question today is coming from Stephen quite hold off from Jones trading. Your line is now live.
Speaker Change: Hi, Adam and Denise Thanks for the question Mike.
Speaker Change: My question pertains to <unk> and the long term health of the AI Neo cloud business model.
Speaker Change: I think following D. C. There was some arguably uncertainty on the impact to GPU rental pricing power long term, if AI models, where to get increasingly commoditize proliferate and open source. Maybe you just provide your thoughts on that and then two any color to the extent you can on your confidence around the security of the core <unk> contracts in the business.
Speaker Change: Long term thank you.
Speaker Change: Sure I'll cover.
Speaker Change: Your first question and then we can go back to your second.
Speaker Change: From what we're seeing in terms of the demand for Coreys business. They were able to sign long term contracts, which as you know something that's fair. It's a very strong signal for the demand of the existing or the newest generation of Gpus that are coming out.
Speaker Change: If it was an entirely an hourly based system for our core we are in terms of the business model there.
Speaker Change: There are businesses out there that are like that and there are much less valuable than quarterly this and so we believe based on their know how.
Speaker Change: They are structuring their contracts and we have high confidence in their continue our continued ability to deliver I'd love for you to ask your second question, just because I hope I covered your first one clearly.
Speaker Change: That was great. Thank you I just secondly, just again speaking.
Speaker Change: I guess, you know again to your confidence in these contracts long time, I mean, you kind of just spoke on that and just the AI Neil club business model in general long term.
Speaker Change: That'd be great.
Speaker Change: Yeah, absolutely there are definitely going to be winners and they're definitely going to be losers in this situation.
Speaker Change: It's a growing business today, we're continuing to see further adoption, we're seeing each of these neo cloud providers continue to grow there that are contracted revenue.
Speaker Change: It's definitely an exciting time in the industry and I think the folks who signed large contracts with large enterprise customers are going to be the winners here long term and you know I think that's what we're seeing amongst a few of these neo cloud providers, but I think there will be a only only a few winners in this industry.
Speaker Change: Thank you. Our next question is coming from Johnson <unk> from Needham <unk> Company. Your line is now live.
Johnson: Great. Thanks, Hey, Adam.
Speaker Change: Grant's on another lease that's that's great to see.
Speaker Change: Question and a follow up first one as it relates to up your expanding tension with core we've discussed.
Speaker Change: Discussions with other Hyperscale or is it just core we are and then I have a follow up on the pushout part.
Speaker Change: Sure Neal Denton was a site that we were we were really slating for core. We've we did have conversations with some other hyperscale and other clients on that on those megawatts you know as we talked about the 300 megawatts potential at other existing sites. We're in conversations today with other potential customers around.
Speaker Change: On that.
Speaker Change: And there's really no guarantee that anything like that would go to court because what we do want to do now is really focused on continuing to diversify our client base and our existing sites, our great campuses for us to do that.
Speaker Change: Great understood and then I just wanted to make sure I have it on the push outs I understand there's 140 megawatt building that got pushed out to 'twenty. Six so are we still targeting that 200 megawatts by Q2 'twenty five that was in the initial press release or I guess, just you know kind of that for those first couple of hundred megawatts when should we expect.
Speaker Change: Those would be operational.
Speaker Change: We're targeting really for the year end number I would say there was push out throughout this schedule due to the due to those delays and that was really one of our major campuses. So this is something that the timeline is elongated.
Speaker Change: By a few months here, so I would say the expectation is that the.
Speaker Change: The timeline for each of the megawatts to come on in the ramp schedule for these megawatts to come on there's a little bit later than was originally.
Speaker Change: Originally thought to happen.
Speaker Change: Thank you. Your next question today is coming from Kevin <unk> from H C. Wainwright. Your line is now live.
Kevin: Hi, Adam Thanks for having me on.
Speaker Change: Just to just to go back to what John was talking about on your rollout here can you characterize it.
Kevin: I guess, how much of the influence was.
With permitting or equipment.
Adam Sullivan: It's still a little unclear to me apologies, Adam what's really the key issue.
Adam Sullivan: Yeah No I appreciate the question, Kevin I would say you know as part of the process of expanding that site. What we had to do was ensure that we had ample amount of equipment on the timelines that we're trying to deliver that required us to source different types of equipment for certain for certain parts of the buildout.
Adam Sullivan: Which complicated the process for us to go through permitting just because there was a multitude of different pieces of.
Adam Sullivan: Equipment that had to be ordered in order for us to be able to fulfill this additional capacity at that site. So it's a combination of supply chain and permitting that all really come together.
Adam Sullivan: And so you know that was part of that was really in aggregate.
Adam Sullivan: What resulted in these delays.
Adam Sullivan: So more specifically regarding equipment is at UPC Gen sets b two hundreds the networking connectivity that you need.
Adam Sullivan: It's not related to the Gpus themselves, it's all related to the.
Adam Sullivan: Some of it's in the electrical equipment some of its in the broader design and so it's not one item to pin down here. It's a it's really a plethora of across the board.
George Sutton: Got it thanks Adam.
Speaker Change: Thank you Kevin.
Speaker Change: Thank you. Your next question is coming from Nick Giles from B Riley. Your line is now live.
Speaker Change: Okay.
Speaker Change: Thank you operator.
Speaker Change: Afternoon, everyone. Congratulations Adam on this on another contract with <unk>. So appreciate your target the Korea represents less than 50% of critical I T.
Speaker Change: That implies that you cited at least the same amount amount with other customers, but you do have 700 megawatts that you've outlined between existing and new sites by 2027. So should we assume that the delta would be new customers as well or could that kind of $1 30 would be split between new customer and maybe one more tranche with quarterly.
Speaker Change: Yeah.
Speaker Change: Yeah. So we've outlined the 304 hundred number that's critical <unk> megawatts. So about 700 megawatts you know as we look forward. If we have $5 90 of of core we have contracts. The 700 available available to US is really where our focus is going to be on executing new clients. So.
Speaker Change: You know that's part of our goal to get them below 50% is to have enough capacity available.
Speaker Change: Saleable for us to be able to bring them down to that level.
Speaker Change: Yeah.
Speaker Change: Got it that's very helpful. And then maybe just any other color on how we should think about magnitude and cadence of these incremental customer contracts between now and then.
Speaker Change: Yeah.
Speaker Change: Yes, I mean right now we're in discussions with the majority of the Hyperscale or in conversations with large enterprises near those really represent some of the larger buckets of.
Speaker Change: Scalable capacity and our ability to begin bringing them down below that 50% number much more quickly there are other customer.
Speaker Change: Other customers that we're looking at those would be more contracts that we would use if a hyperscale or large enterprise didn't take a whole campus, but served more as an anchor tenant to a campus.
Speaker Change: But those customer conversations are continuing to evolve over the course of the early part of this year, we're very excited about being able to sell additional capacity and we believe we're going to be able to execute on a more customer contracts this year with new customers.
Speaker Change: Okay.
Speaker Change: Thank you. Your next question is coming from Joseph <unk> from Canaccord Genuity. Your line is now live.
Joseph: Hey, Adam Hey, Denise.
Joseph: I'll add my congrats on the expansion of that and maybe you could kind of tell us compare and contrast, the trade off between you know.
Speaker Change: Thank everybody understands revenue diversification is good but it does seem like with core we've got you now.
Speaker Change: Potentially a lot less capital intensity on newbuild versus what.
Speaker Change: Maybe some other players in the sector. So how do you look at the tradeoff between potentially more capex.
Speaker Change: New contracts versus.
Speaker Change: No more revenue with core weak and then I'll have a quick follow up.
Speaker Change: Yeah no. Thank you for the question.
Speaker Change: We think about this business on the long term, we think about this is not a five year business. It's a 2030 40 year business and so as we think about growing this.
Speaker Change: This enterprise over the course of the next few years, you're bringing revenue diversification from other clients is only going to help us not only from a credit rating perspective, and a high capex industry to begin putting ourselves in a position.
Speaker Change: To target, becoming investment grade over the course of the next three years to five years, but also really we're thinking about this business to be a much more stable free cash flowing business that all of our investors can understand today with a majority of our revenue coming from core with.
Speaker Change: That's something that we need to continue to work on to ensure that we have a business three years from now four years from now.
Speaker Change: It's coming from multiple different sources and investment grade Counterparties that can really show how strong of a company we have.
Speaker Change: Okay.
Speaker Change: Sure Thanks for that color and then.
Speaker Change: We still haven't seen a ton of contraction sector yet.
Speaker Change: It sounds like the <unk>.
Speaker Change: So discussions with providers.
Speaker Change: Providers and you know those looking to procure continue that kind of expand you know even at this early stage.
Speaker Change: Has there been any change in pricing discussions with customers, even though we don't really have kind of.
Speaker Change: Our firm landscape, yet at least from our view of where pricing is at this point. Thanks a lot.
Speaker Change: Yeah, I mean pricing is something that is very geographic specific and also proximity specifics. So how strong of an asset we have and so you have to think about it in a few different ways. There are definitely certain markets that demand premium pricing across across the industry.
Speaker Change: Those are some of the tier one markets and then on top of that it also relates directly to you what is the latency what its proximity to that major metropolitan market and so there is a little bit of price discovery. There was a lot of price discovery in 2020 for price discovery is becoming.
Speaker Change: We're starting to find pricing are really a pricing foundation across a number of different markets and so I would say pricing is really stabilizing over the course of 2025 and the expectation is by the time, we get to 2026, we'll have a much firmer footing in terms of where that lands.
Speaker Change: Thank you. Your next question is coming from Bill <unk> from Stifel. Your line is that life.
Speaker Change: Good evening that Adam and Dave Thanks for taking my questions. There was mentioned on the call about heightened scrutiny given the influx of low quality data center operators coming into play.
Speaker Change: Can you add some more color in terms of what the existing supply demand dynamic looks like and are you getting a sense that the hyperscale are storing more of their weight around.
Speaker Change: Going forward and how that could impact our terms that are secured with with these counterparties.
Speaker Change: You know I think one of the things that we've seen is as the landscape has developed over the course of 2024 and a number of new folks entered the industry are really a lot of these hyperscale guys are looking at certain sites from their perspective, they would rather just buy them from people, who don't have the experience to actually develop them and take them over the goal line.
Speaker Change: They're finding obviously other partners to work with them on construction design et cetera.
Speaker Change: But from from where we sit today I would say hyperscale orders are not necessarily throwing their weight around in that regard what theyre doing is making sure that they're completing all the steps in the due diligence given what you saw happened at the end of last year related to some contracts with Hyperscale orders that ended up getting canceled.
Speaker Change: Really about ensuring that those those folks are putting like hyperscale are putting their capital in places where they feel confident I think there is such a mad rush in 2024 in the especially in the early parts where people were just trying to grasp as much power as they possibly could.
Speaker Change: And you know today, where we sit it looks a little bit different you know these folks want to make sure that they're building assets in the right locations and that they have the right exposure to the demand picture that they have for that location.
Speaker Change: Thanks for that color and for my follow up are you seeing any changes in demand across in for instance training workloads on the back of deep seek and other recent headline news.
Speaker Change: Just wanted to hear your perspective on how this may impact your future site acquisition plans. Thanks.
Speaker Change: Yeah, absolutely I mean really from what we're seeing now is a lot less focus on some of these larger scale training sites and much more focused on a locations that have it.
Speaker Change: A lower or better proximity to major metropolitan areas. So I would say the demand or what we're looking at from a site evaluation perspective is much more targeted and much more focus to sites that are closer to major metropolitan areas.
Speaker Change:
Speaker Change: Some points last year, where we definitely were evaluating certain sites that were further away, but had a greater power capacity.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is coming from Rosemary Sisson from Odeon Capital. Your line is now live.
Speaker Change: Thank you just to follow up on that.
Speaker Change: Comment that you made Adam about proximity to major metro areas would that mean that you're potentially looking at expanding out of the markets that you're in right now.
Speaker Change: Possibly into the east coast or the West coast.
Speaker Change: As those opportunities present themselves.
Speaker Change: Yeah, absolutely. Thank you for the question Rosemarie I mean, we are building one of the larger data centers on the East coast right now and so we have we have a lot of confidence in our ability to continue to expand into new markets.
Speaker Change: No. This is this is something where we're going to be one of the larger providers in the Dallas market, We believe something similar.
Speaker Change: The Atlanta market as well so we're definitely looking at continuing to enter into new cities.
Speaker Change: But you know, albeit that looks a little bit different because we might have less familiarity with the utilities in that location.
Speaker Change: On that as we currently operate with seven utilities, we're continuing to expand our relationships across that base and so we're taking a very diligent process of utility first process. When we're evaluating entering new locations to ensure that we have a strong partnership and relationship with that utility. So that we know that we have that firm power available when we go take them to a <unk>.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Interesting, Okay, and then just a follow up.
Speaker Change: A lot of cash on your balance sheet right now that you can use to fund the upfront investment for for some of these data centers as you say you will be dealing with this denton expansion do you see that.
Speaker Change: How do you look at that and you mentioned also that you want to be an investment grade rated so I assume that at some point you may be raising debt.
Speaker Change: Debt to fund some of that how do you look at that.
Speaker Change: Capital allocation decision.
Speaker Change: Yeah. So I mean, I would say as we look at contracts going forward, there's going to be a need for additional capital deployment as we continue to grow this business over time. This business is going to mature and much look much more like.
Speaker Change: Some of the other public peers in the data center industry.
Speaker Change: We're targeting leverage ratios as we're targeting you know a number of different metrics that are important to.
Speaker Change: The data center industry.
Speaker Change: Our company is going to go through a period of maturation, where we're going to begin to look much more like them from that from a capital structure perspective, and so that's really the comment there is that we are going to have to deploy capital on on future deals we know that.
Speaker Change: And we want to make sure that we put ourselves in the right position in a high capex industry to ensure that we're achieving the lowest cost of capital that we possibly can.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Thank you everyone for joining the call today and look forward to speaking with everybody in the coming weeks and months. Thank you. Thank you so much take care.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.