Toromont Industries Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 11 speakers on the call.

Operator

and welcome to the Core Scientific Second Quarter Fiscal Year 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Gitlin, Senior Vice President, Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Good afternoon, ladies and gentlemen, and welcome to Core Scientific's Q2 fiscal year 2024 earnings call. This is Stephen Gitlin, Senior Vice President of Investor Relations for Core Scientific. At this time, all participants are in a listen only mode. We will conduct a question and answer session after management's remarks. As a reminder, this conference is being recorded for replay purposes.

Speaker 1

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 of 1995. Forward looking statements include without limitation any statement other than historical or current facts that predict or indicate future events or trends, forecasts, performance or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan or words or phrases with similar meaning. Forward looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties 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 on Form 10 ks filed with the Securities and Exchange Commission and the special note regarding forward looking statements contained in the company's current report on Form 8 ks filed today and the earnings release and slide presentation contained therein. Today's presentation is available on our website at corescientific dotcom in the Events and Presentations section.

Speaker 1

The content of this conference call contains information that is accurate only as of today, August 7, 2024. The company undertakes no obligation to update statements made today to reflect events or circumstances occurring after today. Joining me today from Core Scientific are Chief Executive Officer, Mr. Adam Sullivan and Chief Financial Officer, Mrs. Denise Sturdling.

Speaker 1

We will now begin with remarks from Adam Sullivan. Adam?

Speaker 2

Thanks, Steve. Today, I'll summarize the incredible progress we've made this year before quickly highlighting our Q2 financial performance. Denise will then review our Q2 financials before I discuss what distinguishes Core Scientific from other companies in our industry and provide a look ahead at the key catalysts and milestones that will demonstrate continued progress towards achieving our goals. We will then take your questions. We have achieved exciting milestones this year illustrated on Slide 4.

Speaker 2

We announced a contract with Correv to lease a 16 megawatt data center in Austin for HPC hosting and we delivered that data center more than 30 days ahead of schedule and began generating revenue from it in the Q2. We successfully executed our plans for the April halving, maintaining strong operational performance and favorable cash cost to mine. We have now signed HPC hosting contracts with Correv for a total of 3 82 megawatts and aggregate total potential revenue of $6,700,000,000 over the 12 years beginning in 20252026. We completed 72 megawatts of partially built infrastructure at our Denton, Texas site, bringing our total to about 8 30 megawatts of operational infrastructure highlighted on Slide 5. We began build out a partially completed 100 Megawatt facility in Pecos, Texas.

Speaker 2

Stock price appreciation triggered mandatory conversion of secured convertible notes, eliminating $260,000,000 in debt from our balance sheet. We signed an agreement with Block to procure 15 exahash of their new 3 nanometer ASIC chip to refresh and expand our self mining fleet beyond 2024. Stock price appreciation triggered the ability to exercise our tranche to warrants and we are now preparing some of our sites for HPC hosting, migrating miners from HPC designated sites and redeploying them to Bitcoin mining sites. Our ability to achieve all of this is a testament to the dedication and tenacity of our best in class team. We are executing on our strategy and remain focused on making continued progress while creating a new category in the digital infrastructure industry.

Speaker 2

While we expand our hosting business for HPC, we remain one of the largest and most efficient Bitcoin mining companies as illustrated on Slide 6. Our Bitcoin mining business continues to produce operating cash flow and will become even stronger as we migrate our miners to dedicated sites with more favorable power pricing. Slide 7 highlights our strategic, operational and financial achievements in the 2nd quarter. Note that for the first time we are now reporting HPC hosting as a separate segment in our financial statements to provide greater visibility to this growth driver for our business. We earned 16.80 bitcoin in the 2nd quarter and generated total revenue of $141,000,000 including $5,500,000 in HPC hosting revenue from our Austin data center.

Speaker 2

Gross profit of $39,000,000 increased by 5%, while operating income of $7,000,000 declined by 31%. Our $805,000,000 net loss was mainly driven 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. Denise will explain this in more detail shortly. Adjusted EBITDA of $46,000,000 in the 2nd quarter increased by 2% over the prior year and reflects continued strong cash generation from our core business. Our team has worked exceptionally hard to deliver these strong results And while we are proud of what we have done, we are just getting started.

Speaker 2

Now I'd like to turn the call over to Denise Sterling, our CFO, for more details on our financial performance and positioning. Denise?

Speaker 3

Thank you, Adam. We are pleased with our 2nd quarter operational execution and financial performance, particularly given the having. As Adam mentioned a moment ago, total second quarter revenue was $141,000,000 consisting of $111,000,000 in digital asset self mining revenue, $25,000,000 from digital asset hosted mining, and $5,500,000 from HPC Hosting. Digital asset self mining gross profit for the quarter was $30,700,000 Self mining revenue increased by $13,700,000 or 14% year over year primarily from 134% increase in the price of Bitcoin and an increase of 28% in our self mining hash rate, which was due to the deployment of approximately 19,000 additional new generation self mining units. Although our self mining hash rate increased 28%, the April 20 24 having and a 68% increase in the network hash rate led to a 52% decrease in the number of Bitcoin earned during the quarter.

Speaker 3

Digital asset self mining cost of revenue increased by $13,200,000 for the fiscal Q2 of 2024. The increase 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. Segment gross margin was 28% in the quarter. HPC hosting revenue of 5,500,000 exceeded HPC Hosting cost of revenue of $4,900,000 for the fiscal Q2 of 2024 by $600,000 for a GAAP gross margin of 11%. Revenue at the Austin site ramped up over the course of the quarter based on the original delivery schedule, while GAAP lease expenses were accelerated as a result of delivering the data center capacity more than 30 days ahead of schedule.

Speaker 3

As a reminder, the HPC hosting cost for the Austin data center consists primarily of lease and power expenses. Our power expenses are a direct pass through to our client with no added margin. Overall, this resulted in a lower than anticipated GAAP margin in the quarter of operations. We anticipate the Austin data center margin to improve over time to between 35% and 40%, excluding power pass through as the additional lease expense associated with the acceleration of HPC capacity will be fully recognized by the first half of twenty twenty five, resulting in more normalized margins. It is important to note that the terms of our hosting contract for our Austin data center, which is leased from a third party, vary significantly from those of our larger HPC hosting contracts where we are modifying our owned infrastructure and therefore do not incur lease expenses.

Speaker 3

A summary of our segment economics can be found on Slide 8. Gross margins in the quarter were 28%, 30% and 11% respectively for digital asset self mining, digital asset hosting and HPC hosting. Our power costs were favorable in the quarter declining to $0.402 from $0.045 per kilowatt hour for the same period in the prior year. Operating expenses for the fiscal Q2 of 2024 totaled $31,400,000 as compared to $27,100,000 for the same period in the prior year. The increase of $4,300,000 was primarily attributable to $7,200,000 increase in personnel and related expenses and $4,600,000 of HPC hosting segment startup costs incurred during the current period, partially offset by lower stock based compensation of $6,500,000 due to cancellations and forfeitures of equity based awards and a decrease of $1,600,000 in bankruptcy advisory costs.

Speaker 3

Net loss for the fiscal Q2 of 2024 was $804,900,000 as compared to a net loss of $9,300,000 for the same period in the prior year. The increase in net loss of $795,600,000 was primarily due to a net $796,000,000 non cash mark to market adjustments to our warrants and contingent value right liabilities required as a result of significant quarter over quarter increase in the value of our equity. Also contributing to the increase in net loss was a $14,800,000 increase in interest expense, partially offset by $18,500,000 decrease in reorganization items net with no comparable activity for the same period in fiscal 2024 due to the company's emergence from bankruptcy during the Q1. Non GAAP adjusted EBITDA for the 2nd fiscal quarter of 2024 was $46,000,000 or 33 percent of revenue, a year over year increase of $1,000,000 that included several offsetting adjustments. Our power contracts vary in price and terms.

Speaker 3

As I mentioned previously, our fleet ride power cost averaged $0.402 per kilowatt hour in the fiscal Q2. We now expect average cost in 2024 to be between $0.042 $0.044 per kilowatt hour. At the end of the second quarter, our self mined to hosted mining mix was 79% to 21% respectively. As our hosted mining contracts sunset this year and we expand our self mining fleet, we expect our hosted mining percentage to decline. As of June 30, approximately 163,500 minuteers in our self mining fleet.

Speaker 3

We have included the composition of our self mining fleet including the model mix and efficiency on Slide 9. And now I'd like to discuss actions we are taking to strengthen our balance sheet. We've enhanced our liquidity in the quarter ending with $96,000,000 in cash and cash equivalents, up from $50,000,000 at the end of 2023. As illustrated on slide 10, during the Q2, our debt decreased by an additional $56,000,000 to 552,000,000 This decrease was primarily driven by a reduction of $26,400,000 in secured convertible notes that were voluntarily converted and the payment of approximately $19,200,000 for a mechanics lien related to the additional 72 megawatts of infrastructure completed at our Denton, Texas data center. And shortly after the end of the second quarter, stock price appreciation triggered the mandatory conversion of our secured convertible notes, resulting in the equitization of the remaining $233,600,000 which resulted in a further decrease in our debt to $318,000,000 The average interest rate of our remaining debt after mandatory conversion of the secured convertible notes is approximately 12%.

Speaker 3

We continue to evaluate potential options that would further reduce our debt service and strengthen our balance sheet. Now I'll turn to our CapEx plans. We plan to acquire an additional 10,000 to 15,000 Bitcoin miners in 2024 to continue refreshing our self mining fleet and to achieve our 21.8 exahash self mining hash rate goal. We anticipate the CapEx for this purchase would range between $13,000,000 $19,000,000 which is included in our 2024 CapEx plan. We also anticipate investing $13,000,000 on the 100 megawatt expansion of our Pecos, Texas site, which is also included in our CapEx plan.

Speaker 3

CapEx associated with our contracted 3 82 megawatts of infrastructure to host high performance computing is funded by our existing HPC client with the exception of the portion we will repay through CapEx credits and therefore is not included in our plan. I'll now turn to our review of our mining economics summarized on Slide 11. Our direct cash cost to self mine a bitcoin in the 2nd quarter was $29,879 This consists of power cost of $24,533 and direct cash based facilities operations cost of $5,346 allocated based on the 79% of our fleet dedicated to self mining and divided by total Bitcoin self mined in the Q2 of 16.80. Another way to evaluate our mining cost is by calculating the cash based hash cost of these same items, which represents the same cost expressed as a cost per terahash per day. Our total cash based hash cost in the 2nd quarter was $0.03 per terahash.

Speaker 3

On Slide 12, we provide an updated illustrative financial view of our HPC contracts with our existing clients. Based on the total 3 82 megawatts now contracted for HPC hosting, we project aggregate total revenue over the 12 year contracts of approximately $6,700,000,000 with a profit margin of up to 80%. Power and utilities costs are direct pass through to our client and will be grossed up and included in both revenue and cost of revenue. As a reminder, our client is paying for all CapEx and we are responsible for repaying $1,500,000 per HPC megawatt through a CapEx credit once the data center is energized. Slide 13 illustrates the flow of CapEx related to the HPC data center build out cost and their impact to our financial statements over time.

Speaker 3

Funds are deposited by CorWeave in a joint escrow account to pay for build out costs as they are incurred. During construction, expenses incurred to develop the HPC data centers will be recorded in construction in progress. Once the data center is placed into service, the cost will be reclassified to property plant and equipment and begin to depreciate. And now I'd like to share a few modeling details. We continue to model a statutory effective tax rate of 23% for 2024.

Speaker 3

We also retain more than $300,000,000 in net operating loss carry forwards, which will reduce future cash taxes. Our share count was approximately 183,000,000 shares as of June 30, 2024 and approximately 258,000,000 shares as of August 2, 2024. Note that approximately 40,000,000 shares associated with the mandatory conversion of our convertible notes have now been issued along with approximately 35,000,000 shares from exercise warrants. Our updated share count will be reflected in our Q3 filings. And now, I'll turn the call back to Adam.

Speaker 3

Adam?

Speaker 2

Thanks, Denise. Core Scientific is a leader digital infrastructure for Bitcoin Mining and HPC Hosting. We now have approximately 8 30 megawatts of operational infrastructure within our total contracted power of 1200 megawatts. This contracted power represents power that is ready for us to use when we complete the associated data center infrastructure. Our significant portfolio of contracted power is only part of what differentiates Core Scientific and positions us to become one of the largest publicly traded data center companies in the United States.

Speaker 2

Core Scientific is creating a new category in digital infrastructure and we are executing on our vision for the future of application specific data centers. We understand the differing requirements between GPUs and Bitcoin miners because our team has considerable experience in managing both as well as deep industry expertise across the design, development and operation of data centers. Now that we have the potential to generate $6,700,000,000 in cumulative revenue over the next 12 years from HPC hosting, viewing us as a data center company is more aligned with the future of our business. As we convert a portion of our digital infrastructure to HPC hosting, we expect more investors to value this growing part of our business using data center multiples. We'll value our Bitcoin mining business using mining industry multiples.

Speaker 2

We believe that this approach will yield a more accurate representation of the true value we are creating. Now I'd like to discuss the main value creation catalyst for the remainder of this year described on Slide 14. Executing on our remaining option agreement, expanding our power portfolio and diversifying our HPC hosting client base. 1st, yesterday, we announced another HPC hosting option under our contract with Corweave for an additional 112 Megawatts, increasing our total contracted infrastructure for HPC hosting to 3 82 megawatts. We are in discussion with CoreWeave and a number of other potential clients to contract the remaining 118 megawatts of our infrastructure available to support additional HPC hosting.

Speaker 2

Our clients option for additional infrastructure extends through the beginning of September providing the ability to contract additional capacity at the original contract terms. 2nd, we are also building a pipeline of opportunities for new assets to expand our infrastructure capacity. These opportunities range from 25 megawatts to several 100 megawatts including brownfield and greenfield projects and extend over a large geographic area. We have developed specific site selection criteria to guide our efforts and optimize our resources as we seek to expand our site portfolio for HPC hosting and Bitcoin mining. 3rd, we seek to diversify our client base and are working to achieve that either with the remaining 118 megawatts or with new asset opportunities.

Speaker 2

Of course, delivering the completed infrastructure to our client is what will trigger revenue generation. We are now at the early stage of the process. Modifying our sites to accommodate HPC hosting involves developing detailed designs, performing selective demolition and construction, installing new equipment and supporting infrastructure, and delivering the completed site to our client. We will provide updates over time as we progress through this modification process. We remain on track to deliver the associated HPC hosting infrastructure for the first 200 megawatts in the first half of twenty twenty five, the next 70 megawatts in the second half of twenty twenty five and deliver the latest 112 Megawatts in the first half of twenty twenty six as illustrated on Slide 15.

Speaker 2

I want to make it clear how integral our team and our experiences to the process of converting our sites to HPC hosting. Without a deep understanding of the entire process, we would not have been able to create this opportunity to expand our hosting business. This is an important differentiator favoring Core Scientific. Shifting now to our Bitcoin mining business, April marked the latest having event in which Bitcoin block rewards declined by 50%, which should have resulted in a 100% increase in our cash cost of mine assuming all other factors held constant. However, our cash cost of mine in the 2nd quarter was about $29,900 an increase of approximately 60% over the Q1.

Speaker 2

Lower power prices in the 2nd quarter mitigated the effects of the having as it carefully managing the operations of our self mining fleet relative to hash and power prices based on the detailed plans we developed well before the having. As Denise mentioned, we plan to procure 10,000 to 15,000 additional miners this year to achieve our fleet refresh and hatch rate goals. Beyond 2024, we expect to begin acquiring the new 3 nanometer block ASIC chips when they are available and deploying them in our own chassis to our dedicated Bitcoin mining sites to boost our hash rate and efficiency. When deployed and combined with our proprietary firmware, fleet management and energy management software, we expect to have greater operational control over these miners to respond more dynamically to changes in hash price, power price and environmental conditions. We expect the new block chips combined with our proprietary tech stack to improve our operating efficiency and profitability.

Speaker 2

We expect the majority of our Bitcoin hosting contracts to sunset this year, making way for us to focus on self mining and HPC hosting. To summarize our guidance for 2024, highlighted on Slide 16, we expect 21.8xash of self mining Hash rate, approximately 800 megawatts of total operational infrastructure, understanding that this number will vary significantly as we temporarily power down sites for HPC conversion and power up sites for Bitcoin mining. 16 megawatts of revenue generating HPC hosting infrastructure and average Bitcoin Mining fleet power price of 0.4 $2 to 0 $0.04 per kilowatt hour. We have been deliberate in our planning and communication, having established our strategy, described its evolution and now executing against it with significant HPC hosting contracts and progress in the conversion process. There is much work to do, but we are the best equipped team in our industry to succeed.

Speaker 2

We are confident that we are best positioned to translate that work into shareholder value. Thank you for your engagement and attention and thank you to all our clients, industry partners and all our teammates for your ongoing efforts and support. We will now take

Speaker 4

your questions.

Operator

Thank you. We'll now conduct the question and answer session. Please limit yourselves to 1 question and one follow-up question for each time that you queue. Please feel free to queue for additional Our first question comes from Greg Lewis with BTIG. Please state your question.

Speaker 5

Yes. Thank you and good afternoon and thanks for taking my questions everybody. Adam, clearly you continue to execute on transitioning your existing power to HPC. So congrats on that. I was hoping to get a little bit more color.

Speaker 5

Obviously, there's inherent value in the data center contracts. Kind of curious as we think about opportunities ahead to kind of site and source new locations whether for HPC or traditional Bitcoin mining, how you're thinking about funding that? And is there an opportunity to take advantage of these contract, 12 year contracts with Coreweave to help you kind of finance further growth?

Speaker 2

Yes. Thanks, Greg. On the capital process or capital structure process and how we're thinking about that going forward, the nice part, as you mentioned, related to our contracts, it does open up a number of different doors for us. Our credit story is rapidly improving as we move towards 2025. And that's really that's not only exciting to us, but also exciting to our shareholders.

Speaker 2

And I think something that's going to open the door on is our ability to continue to access different parts of the capital markets that we haven't been able to necessarily access more specifically as just a Bitcoin mining company. So right now our focus is on the site selection process targeting sites anywhere ranging from 25 megawatts to a few 100 megawatts And really we're targeting sites that aren't necessarily going through the traditional broker processes. And that will allow us to go after sites that are less expensive, but very attractive to us. And so right now, our plan is to continue to fund purchases out of either our operational cash flow, cash on balance sheet. And there are other methods for us to look at right now in the capital markets that could provide us a lot more optionality in terms of going out and acquiring sites.

Speaker 2

So we have a number of sites in our target range right now. And we're definitely hopeful, as we mentioned, to exercise on some of those over the course of 2024.

Speaker 5

Okay, great. And then just one more for me on the you kind of guide to that fleet average price of $0.04 to $0.04 dollars Just kind of curious, I don't believe we have been fixing any power. So as we think about that number, is that just based on forward curves or kind of like any kind of thoughts around how we're kind of focusing on that? That's a pretty narrow attractive power cost. So just kind of any color around that?

Speaker 2

Absolutely. The way we're looking at the rest of the remainder of this year is based on not only our fleet efficiency and machines that we'll be acquiring and placing at each of our sites, But that also takes into account the forward curve at certain facilities. When you look at our sites or our site portfolio today, we are operating in a number of regulated markets. And so we have much greater insight into where those power prices will come in at. And then in the deregulated markets such as Texas, those are based on our current efficiency, based on where the forward curve is, we feel very confident in our ability to execute on that $0.04 to $0.04

Speaker 5

Super helpful. Thank you for the time.

Speaker 6

Thanks, Frank.

Operator

Our next question comes from Lucas Pipes with B. Riley Securities. Please state your question.

Speaker 4

Thank you very much, operator. Good afternoon, everyone. Adam and team, great job on the execution this year. My first question is also on the expansion of the HPC site portfolio. And I wondered, Adam, if you could maybe comment just on the general kind of competitive dynamics in that market today after what you have done.

Speaker 4

Who is competing with you in this in the site selection? And in terms of like the next couple of sites, how quickly do you think you might be able to execute something? Thank you very much for your perspective.

Speaker 2

Yes. Thanks, Lucas. Thank you for joining. As we go through processes on some of the larger sites and some of the broker processes, the folks that we're competing with are the likes of Equinix, Digital Realty, etcetera. And so those processes can get expensive at certain times and that's really why we're focused on I would call it a different set of assets.

Speaker 2

What we're focused on are both greenfield and brownfield opportunities for certain data center companies that are not interested in touching brownfield opportunities. We have experienced converting brownfield opportunities not only from a data center perspective, but also a Bitcoin mining You look at our portfolio today, we have 3 sites in there that are brownfield conversions. So we have the experience and we believe we are carving out a niche in the site selection process that will provide our company very interesting opportunities. And those opportunities aren't only great for us, but these are opportunities that are very interesting to the potential clients that we're speaking with.

Speaker 4

Thank you very much. My second question is regarding leverage. Adam, Denise, how do you think about kind of the proper leverage ratio of this business after what happened? You touched on it a little bit earlier, but I would appreciate how you think about that. And then is there any sense of urgency to make changes to the balance sheet as it stands today?

Speaker 4

I would appreciate your thoughts. Thank you.

Speaker 2

Absolutely. Our objective with our capital structure is to create something that balances the risk of the business with the future growth of the business. Right now, we essentially have Bitcoin credit risk. And as we look forward to 2025, it's a much more stable credit risk business. And so we feel very confident that there will be opportunities for us.

Speaker 2

Obviously, that $260,000,000 conversion to convertible notes, that's an incredible milestone for us as a company. And we've almost cut our debt in half since emergence and we've cut our debt by over 60% since the beginning of the year. So we're in a process right now of making sure we are going to have the right securities on our balance sheet. There's not urgency around that. We feel very comfortable with where we're at from a capital structure perspective today.

Speaker 2

But as we look forward, that perspective obviously changes. And so we're evaluating all opportunities that are available to us. And those opportunities are going to continue to expand as we start to see more of our sites come online.

Operator

Our next question comes from Joe Flynn with Compass Point Research. Please state your question.

Speaker 7

Hi, guys. Thanks for the question. I was hoping you could comment on the remaining options for the 112 megawatts of data center capacity. Just like what ultimately has to be achieved to get those signed, whether it be like finalizing designs or securing items in the supply chain? And could you maybe just comment on continuing conversations with diversified and the customer base?

Speaker 7

Thanks.

Speaker 2

Thanks for the question, Joe. What we're looking at today, and the one point I'll make a note on first is, we're obviously very close discussions with Corweave just recently executing the 118 megawatts this week, which is another great milestone for us as a company. The next 112 working through finalized designs, working through all the necessary items related to that. And we're still in discussions with other clients and I think that's really a key point here is that all of the work we're doing to prepare and negotiate with Correv on these last 118 megawatts, that all directly relates to the same type of design and diligence that would be required for us to sell that site to somebody else as well. I think on the client diversification point, that's really important.

Speaker 2

That's really why we're so focused on our site selection right now. We want to be able to make an offering to a number of clients who have differing needs, differing size needs, differing location needs. And those and part of what we're going through right now is ensuring that we are building a portfolio that is attractive to these end clients. And so that's why we're very aggressively pursuing sites today. And that's going to provide us a really interesting opportunity for the remainder of this year to diversify our client base, which is one of our key catalysts.

Speaker 7

Thanks. That's helpful. And I was wondering if you could comment on reports about delays in Blackwell shipments. And ultimately, it sounds like the contract starts on delivery of the datacenter, but if that could ultimately impact kind of timing of deliveries? Thanks.

Speaker 2

We're obviously keeping a pulse on where Blackwell pods are in the delivery process. This is something that we're working very closely with our end clients and even potential clients on to ensure that we have we're delivering facilities alongside of schedules of when there's going to be the deliveries of those GPUs. So it's hard to comment today about where the deliveries will end up in 20252026 And really right now, we're focused on continuing to execute and deliver these facilities as quickly as we possibly can for our end clients to have the optionality to turn on as quickly as those GPs are delivered.

Speaker 7

Thanks for all the color.

Speaker 6

Thanks, Jeff.

Operator

Our next question comes from Brett Knoblauch with Cantor Fitzgerald. Please state your question.

Speaker 6

Hi, guys. Thanks for taking my question. Maybe to start on sourcing new sites and locations.

Speaker 4

I guess, can you maybe

Speaker 6

just provide some color on the supply and demand imbalances out there for energy? And I guess what you're seeing in terms of not competition for the same sites, but going out and adding additional sites, you have to have a view that HPC demand is only going to continue to increase. So I guess how tight is the market out there? I don't know if you can quantify it or anything qualitative would be helpful, but I guess how tight is the market out there for power?

Speaker 2

Thanks, Brett. The market right now is tight and it's requiring, I would say, expertise in the site selection process. The interesting part about the process we've gone through over the past 7 years locating sites for Bitcoin mining is we're using a very similar criteria in terms of what we're looking for on the HPC side. So we've been able to locate sites and we're in the process of working through those negotiations on sites that will provide us or that are, I would say, a more interesting opportunity for us from a pricing perspective because it is competitive. On these large sites, even on behind the meter, that's another part that is extraordinarily competitive today amongst the hyperscalers.

Speaker 2

And so those are some processes that we're involved in, but isn't necessarily the main focus for our site selection. We're looking at a range of different sites, a range of different states of those sites. And I think that's really going to provide us the most amount of value here. And that's really just given our experience working with utilities, working with local governments and all of those things over the past 7 years that we've worked through on the Bitcoin mine side are leading us greatly in this process that we're going through on the HPC side.

Speaker 6

Perfect. That's helpful. And then I guess when you talk about different locations and regions across the U. S, are you looking at a site with I guess thinking the site could be used for training or the site could be used for inferencing or is it all one of the same for you guys? Are you like primarily looking at maybe like very low 1, 2 millisecond latency sites?

Speaker 2

Our focus is mainly on low latency sites. What we're seeing right now is a pretty major shift or we believe there's going to be a major shift going on in training versus inference over the next few years. And so when we are locating sites, we want to ensure that they have the opportunity to do both. We think that's important not only for the longevity of the site, but also for the longevity of the client's health as well, having the optionality to switch between either application that they're utilizing the site for.

Speaker 6

Awesome. Perfect. Thank you, guys. Really appreciate it.

Speaker 2

Thanks, Brett.

Operator

Our next question comes from Joseph Vafi with Canaccord Genuity. Please state your question.

Speaker 8

Hi, everyone. Good afternoon. Nice to see all the progress and thanks for taking my questions. I guess first one is, on Austin, you're generating HPC related revenue there now. I know it's still early days in this journey, but interesting if you could share some of your learnings to date out of that facility in this new line of business and potentially what and how it may be kind of helping you plan and get ready for larger deployments?

Speaker 8

And then I'll have a quick follow-up.

Speaker 2

Perfect. Thanks, Joe. The interesting part about the about our team is many of our team members actually sat in this facility when they worked for HP. This exact facility sit in very similar places in the office. So we have high familiarity with this site.

Speaker 2

Some of the learnings that we're going through, I would say, both on the client side as well as on the newest generation of GPUs that are coming out. Some of those requirements are different than the historical data centers that have been developed over the course of the past 20 years. And we've been integral in the design process and working with not only our end client but also NVIDIA on what the design is of these facilities. And that's eating us in the process as we work through the designs on the future conversions that we're working on today, the next 3 82 megawatts. So you're absolutely right.

Speaker 2

There are learnings with this newest generation of GPUs, both from a cooling perspective as well as a latency perspective. And all of those things are going to aid us in this conversion process going forward.

Speaker 8

Great. That's good color. And then if you also I know it's early days here on these block 3 nanometer chipsets, But maybe you could remind us here on why you find these attractive. I mean, there's clearly a lot of good minor solutions in the market and maybe a quick hint into how you see them performing relative to the rest of your fleet when they're deployed? Thanks a lot.

Speaker 2

Our objective is to build our future facilities with lower CapEx, have lower maintenance costs, and we're really focused on developing the next generation of Bitcoin mining infrastructure. And so as we were evaluating the type of opportunities that were in the market, we realized it was much easier to design a facility around a hash board than it was to design a facility around a machine. And so as we look forward to what the future of Bitcoin mining looks like, we recognize that form factors were going to continue to evolve over time and we're going to be at the forefront of that evolution. And that's something very unique to Core Scientific. We've operated over 16 different manufacturers in our facilities, over 700,000 machines.

Speaker 2

That provides us very unique insight into not only the operational process for machines, but also the repair process. Our repair center would be one of the largest repair centers in the country if we were just a repair business. And so that's something that's very unique to our business. We have a very unique insight and we're trying to be on the forefront of this industry. And I think people are going to be fast followers to where we're going right now.

Speaker 8

Great. Thanks for those comments, Adam.

Speaker 6

Thanks, Joe.

Operator

Our next question comes from Darren Aftahi with ROTH Capital Partners. Please state your question.

Speaker 5

Yes, thanks for taking my questions. First, I guess, just diving into site selection a little bit more. Can you talk

Speaker 1

a little bit about your source of referrals? I know you said local

Speaker 5

governments and utilities, but I'm curious about that. And then would you guys ever look at maybe subscale legacy data centers as an option? And then I'm also curious if this is primarily

Speaker 1

domestic exercise or

Speaker 5

if you guys would look international as well?

Speaker 2

The way we look at it right now is there's really 2 avenues for growth. 1 is brownfield and greenfield opportunities. The second is something that you mentioned the sub scale data centers. I'm going to touch on the second one first here. We have been looking at a number of different existing data center opportunities similar to the deal that we did in Hibbett's.

Speaker 2

I think going forward, one of the things that we're looking at more closely is acquiring those sites and finding data centers that have access megawatt capacity on the substation that will allow us to continue to increase the capacity of that facility. Just given that power densities have increased so rapidly, we have an opportunity to bring a lot more megawatts into a traditional data center. And so that's something that's very attractive to us right now given our experience already retrofitting existing data centers. When we talk about working closely with utilities, local governments, that's just something that we've done over the past 7 years in the Bitcoin mining side and we've formed very close relationships with all of our utilities and we think that's really important. I would say over the past 7 years, Bitcoin mining has come in and out of favor with governments, with local communities.

Speaker 2

And really one of the things that we've tried to highlight is that we try to be great community citizens in every jurisdiction that we operate in. We try to be great partners to our utility companies. And all that has paid dividends as we've started to make the shift into HPC and we look towards expansion. That's something that's opened a lot of doors for us just given how good of an operator and how good of a community Slide

Speaker 5

15, I'm just kind of curious, obviously, you laid out on Slide 15, I'm just kind of curious, obviously, you laid it out there, so you feel confident in it. But if there was to be slippage in that, is there any penalty to core Scientific if you

Speaker 6

don't hit those bogeys? Thanks.

Speaker 2

This is something where we work very closely with CoreWeave on the timelines. We share

Speaker 4

in our execution risk in terms of getting

Speaker 2

the facilities and the materials So it's less of an issue So it's less of an issue from a perspective of penalties. It's more of an issue of us ensuring that working together with Corie, we're able to source all of the necessary items. But we've worked really hard to ensure that we not only have our plan A and supply chain, but also a plan B and a plan C. And so we have all of those lined up and we're I think we're excited and confident in the timelines that we've laid out today.

Speaker 6

Thanks.

Speaker 2

Thanks,

Operator

Our next question comes from Rosemarie Sison with Odeon Capital. Please state your question.

Speaker 9

Yes. Hello, everyone, and thank you for taking the calls. Just had one thought on your expansion, which sounds really The question comes

Speaker 3

to mind is that

Speaker 4

I'm just curious as to what

Speaker 9

The question comes to mind is that I'm just curious as to whether you feel that you have enough infrastructure in your current state to be able to support that. It sounds like it would take a lot of people with expertise in order to effectuate that kind of a strategy. And I don't know, think the other caller asked something about whether you might be thinking about going globally or not. You didn't address that, so I'm assuming no. But just the question arises, can you first of all, expertise in the house is very important to keep and to keep happy, but also how do you look at expanding that in order to facilitate your growth?

Speaker 2

Thanks for the question, Rosemarie. And just to go back, we are looking at international opportunities as well, if not just domestically. But as we look at our team today, we're set up to execute on additional projects in 20252026 above what is currently contracted. So we feel very confident in that. Now that doesn't mean that we're not looking to add very specific talent to our bench.

Speaker 2

And so that's a process that we're going through today. And what we've been very lucky in is the fact that we have a great story right now. We're on the leading edge of both Bitcoin Mining and HPC Infrastructure, 2 of the highest growth industries in America right now. And so we've been very fortunate to be able to attract talent to our company who want to be a part of our story. And so that's something that we've been finding, I would say, easier to attract talent to the company.

Speaker 2

And it's something that really excites us is the fact that we've been able to add additional bench strength even over the course of the past 3 months just help aid in the execution process, not only in the first three eighty two, but also in the future sites that we're looking to acquire.

Speaker 9

That's great. Thank you. And internationally, where would you think about expanding?

Speaker 2

Our objective right now is to work with the potential clients that we're negotiating with domestically to locate in areas where they'll find or they have attractive opportunities for themselves with their end customers. So it's hard to speculate on where we may go, but we are looking at a number of international markets that we think will be very attractive long term, not only for existing potential clients that we were in discussions with, but also attracting and finding new potential clients as well.

Operator

Our next question comes from Kevin Dede with H. C. Wainwright. Please state your question.

Speaker 10

Hi, Adam. Thanks for having me. Hi, Denise. I'm not sure that you really peeled back the onion on the locations that you're working to convert. And I understand the first well, actually, it's a second 200 Megawatt extension with Core.

Speaker 10

You committed 80 Megawatts to power that. I was wondering if you could offer a little detail on location and additional power you might need in support of HPC?

Speaker 2

Thanks, Kevin. One of the points I want to emphasize first is, there's competitive advantage for us right now. We're leading the market in terms of contract signed this year for HPC for AI and we're looking at potential expansion opportunities at some of our sites as well. So where we believe we have a competitive advantage, we're not necessarily trying to give that edge away. And so we're working diligently with local utilities.

Speaker 2

We're also looking at potential expansions within the markets we're currently in as well, given the existing relationships that we have. So we feel like we're in a very good position. And when the time is right, it's hard to speculate on when, but we will be announcing the locations of the places that we are converting from Bitcoin Mining to HPC.

Speaker 10

And the power required to supplement the additional contract extensions that you've announced since the second one, I guess, the best way to phrase it, Adam. Is there any more detail on that you could offer?

Speaker 2

Kevin, I just want to make sure I understand the question. You're just saying what the total power necessary to service the additional 112 and the additional 70?

Speaker 4

Exactly, yes. I would assume

Speaker 10

that the 16 is all in Austin is all set, you don't need additional power there. But in developing these other locations, obviously, you're going to need the power to support them.

Speaker 2

Yes. A great way to think about that is when we talked about in our Investor Day about the 700 megawatts needed to service the 500 megawatts to the GPUs. So a great way to think about it is about a 1.35 to 1.4 PoE that's necessary above what's contracted from a GPU megawatts perspective. And so if you're trying to calculate kind of back the envelope map in terms of what the total megawatt need is, that's a great metric to use, kind of multiplying the number by 1.35 to 1.4 depending on the location.

Speaker 10

Okay, fair enough. Thank you.

Speaker 2

Could Denise or yourself help me with understanding the cash generated from the warrant conversion? What sort of trends have

Speaker 10

you seen and what are what would be fair to expect?

Speaker 3

Yes, Kevin so thank you for the question, Kevin. We saw a very minimal impact to Q2 from the actual exercise of our tranche 1 warrants. And so you'll actually be able to see that coming through from a balance sheet perspective. But we actually have we've actually in the last several weeks seen the conversion of about $35,000,000 of our tranche 2 warrants and as you'll remember those are penny shares. So no significant cash flow.

Speaker 3

So we really haven't seen the $670,000,000 that we talked about associated with our tranche 1 warrants to date. But we do have some movement and we will continue to see some of those roll in, but they're not significant as of yet.

Speaker 10

Okay. Okay.

Speaker 2

You mentioned $30,000,000

Speaker 10

$35,000,000 added to the share

Speaker 4

count on Tiffany?

Speaker 3

Yes. Just to kind of put things in perspective, Kevin, we ended the quarter with about 183,000,000 shares. Where we sit today as of the end of last week is at 258,000,000 shares as we mentioned in our prepared remarks. And that's primarily driven by conversion of our convertible notes for the mandatory piece that was about 40,000,000 shares. And as I mentioned, the exercise of our tranche 2 warrants added about 35,000,000 shares.

Operator

Thank you. Our next question comes from Jack Chan with Imperial Capital. Please state your question.

Speaker 4

Thanks for taking the question. I wanted to ask on the expansion opportunities. Will you be looking to do deals with these future customers at the same economics as your Correvive deal or could there are different structures being contemplated and if so what those could look like?

Speaker 2

And thanks, Jack, for the question. The contracts is something that's actually something that we're working through today in terms of how do we structure these and have the right give and take between the buy down of CapEx versus the rate that they pay. And so we're working through that based on both the credit risk of the potential customer as well as what the length and tenor is of that end contract. So we're working through that today. So obviously the Coral Reef deal was extraordinarily unique.

Speaker 2

It was something that completely changed the data center industry from a terms perspective. So we're obviously using that as starting point. But I would say we're expecting the contracts to change based on where we are going forward, our ability to access the capital markets in different ways to make the potential new contracts that we're signing more efficient. And so there's a number of opportunities for us and we're exploring all of them.

Speaker 4

Thank you.

Operator

Our next question comes from Lucas Pipes with B. Riley Securities. Please state your question.

Speaker 4

Thank you very much, operator. Thank you for taking my follow-up question. Just really quickly on Slide 15, you show application specific data centers, kind of 1, 2, 3, 4, 5. Would those be all at different sites or might there be an overlap and should we think of those as kind of, call it, ASDC-one and 80 Megawatt cluster at one of the facilities. Just wanted to clarify that.

Speaker 4

Thank you very much.

Speaker 2

Yes. Thanks Lucas. A great way to think about this is more on a facility level basis, not necessarily on a site level basis. So it doesn't necessarily mean that it's spread across all different sites. It could potentially be across different facilities at specific sites.

Speaker 4

Okay. So essentially, it's a different 1, 2, 3, 4, 5 is at different sites, but it may not be within one building, it might be several buildings.

Speaker 2

Yes, you're absolutely right. And we do have multiple sites at some of our sites. And so it's a great way to think about it's more on a facility level basis, those AFDCs.

Speaker 4

I appreciate the clarification. Again, best of luck.

Speaker 2

Thanks so much, Lucas.

Operator

Thank you. And there are no further questions at this time. I'll turn the floor back over to Steve Gitlin for closing comments.

Speaker 1

Thank you, Diego, and thanks everybody for your questions and for your attention today. In an archived version of this call, all SEC filings and relevant company and industry news can be found on our website, courtscientific.com. We wish you a good day, and we look forward to speaking with you again following next quarter's results.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time.

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