Prepared remarks
Greetings, and welcome to the Core Scientific Third Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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. Thank you, Steve. You may begin.
Good afternoon, ladies and gentlemen, and welcome to Core Scientific’s third quarter fiscal year 2024 earnings call. This is Steven 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. 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, forecast, 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-K 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-K filed today and the earnings release and slide presentation contained therein. Today’s presentation is available on our website at corescientific.com in the Events and Presentations section. The content of this conference call contains information that is accurate only as of today, November 6, 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 CEO, Mr. Adam Sullivan; and Chief Financial Officer, Ms. Denise Sterling. We will now begin with remarks from Adam Sullivan.
Thank you, Steve, and good afternoon. Last quarter, I summarized the progress we have made during this transformational year for Core Scientific. This quarter, I'm delighted to report that our progress continues. We have substantial momentum going into the remainder of the year with our improved position for growth and value creation, and we see favorable market fundamentals driving strong demand for high-powered data center infrastructure. I'll begin today's call with a summary of our recent achievements, before briefly highlighting our third-quarter financial performance. Denise will then review our third-quarter financials, providing more details on the significant improvement in our capital structure, before I describe our plans for the balance of the year and beyond. We will then take your questions. Our progress during and after the third quarter is highlighted on Slide 4. Notably, CoreWeave exercised its final two options from additional 232 megawatts, contractually committing to all 500 megawatts of critical IT load we offered and achieving the first of our three 2024 catalysts we described last quarter.
Additionally, we made meaningful progress to expand our capacity through new site acquisition and existing site expansions. With the CoreWeave commitment secured, I'm happy to announce that we have allocated an additional 100 megawatts of our infrastructure that was previously designated for Bitcoin mining to HPC, increasing our total capacity for HPC hosting to approximately 570 megawatts of critical IT load. With respect to new site acquisitions, we leased with an option to buy an existing data center in Alabama with 11 megawatts of critical IT load. This site has the potential to support an additional 55 megawatts of critical IT load. To consolidate and strengthen our Bitcoin mining business, we completed a 100-megawatt expansion at our Pecos, Texas Bitcoin mining data center to house our miners. We also completed significant miner migrations and began partial demolition at two of our data centers tapped for HPC hosting during the quarter.
From a capital structure perspective, we completed a successful $460 million convertible note offering that enabled us to refinance our debt, increase cash on the balance sheet and effectively put our Chapter 11 debt structure behind us. Slide 5 summarizes our revised allocation of infrastructure with the addition of the new Alabama data center. Slide 6 highlights our strategic operational and financial results in the third quarter. Starting with strategic updates, our $460 million convertible note offering in August enabled us to improve our capital structure significantly by paying off debt, eliminating restrictions and covenants and reducing our interest rate. The offering also gave us the ability to add cash to our balance sheet to finance operations and support the acquisition of new sites to expand our HPC hosting capacity. On the operational front, we earned 1,115 Bitcoin in the third quarter and generated total revenue of $95 million.
Our diversification into HPC hosting showed positive momentum as third-quarter revenue included $10.3 million from that segment. Gross loss of $0.2 million in the quarter and operating loss was $41 million, reflecting lower post-halving hash price and higher operating expenses. And on financials. Our $455 million net loss was driven mainly by the significant quarter-over-quarter appreciation in share and warrant prices that required us to make mark-to-market adjustments to the value of our equity, and adjusted EBITDA was $10 million in the third quarter. Denise will explain these in more detail shortly. To summarize our third quarter, we made great progress on our HPC hosting business and strengthened our balance sheet even as we faced challenging Bitcoin mining economics in the first full quarter since the April halving. We are excited to build on this momentum. We are expanding our portfolio of powered digital infrastructure as illustrated on Slide 7, which reflects our updated data centers, including our Austin and Alabama sites. We also include the contracted gross capacity of each site, which adds up to more than 1,200 megawatts.
Thank you, Adam. Our third quarter operational execution was strong, while our financial performance reflected a challenging post-halving hash price. Total third quarter revenue of $95.4 million consisted of $68.1 million in digital asset self-mining revenue, $16.9 million from digital asset hosted mining, and $10.3 million from HPC hosting that Adam highlighted earlier. Digital asset self-mining revenue decreased by $14.9 million or 18% year-over-year, primarily from a 62% decrease in the number of Bitcoin earned during the quarter as a result of the April halving and a 61% increase in the network hash rate. This was partially offset by a 117% increase in the price of Bitcoin as well as an increase of 36% in our self-mining hash rate, which resulted from the deployment of approximately 31,000 additional new generation self-mining units that was completed in the first half of 2024. Digital asset self-mining cost of revenue increased by $2 million for the fiscal third quarter of 2024.
This was primarily driven by an increase in depreciation expense resulting from the deployment of our new self-mining units, an increase in payroll and benefits costs associated with merit and market adjustments made during the quarter, and higher stock-based compensation, partially offset by a decrease in power cost. Segment gross margin was negative 9% in the quarter. HPC hosting revenue of $10.3 million, which includes a base license fee as well as direct pass-through of power cost to our client with no margin added, exceeded HPC hosting cost of revenue of $9 million for the fiscal third quarter of 2024 by $1.3 million for a GAAP gross margin of 13%. For the fiscal third quarter of 2024, HPC hosting revenue and cost of revenue include a one-time adjustment related to delivering the data center capacity more than 30 days ahead of schedule. At our Austin data center, HPC hosting costs consist primarily of lease expense, the direct pass-through of power cost, direct and indirect facilities operations expenses, including personnel and benefit costs, and stock-based compensation.
The non-GAAP gross margin for the fiscal third quarter of 2024, excluding the direct pass-through of power cost, is 17%. Non-GAAP gross margin, excluding direct pass-through of power costs and non-cash expenses such as stock-based compensation, is 27%. During the third quarter of 2024, we continued to refine the methodology used to allocate our cost of revenue to our segments, including direct and indirect facilities operations costs. This resulted in a portion of these costs being allocated to our HPC hosting segment. We expect our margins to improve over time as we increase our critical IT load without incurring additional operating costs. It is important to remind you 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.
A summary of our segment economics can be found on Slide 8. Gross margins for the quarter were negative 9%, 29%, and 13%, respectively, for digital asset self-mining, digital asset hosting, and HPC hosting. Power costs were favorable in the quarter, declining to $0.038 from $0.045 per kilowatt-hour for the same period in the prior year. Operating expenses for the fiscal third quarter of 2024 totaled $40.3 million as compared to $26.8 million for the same period in the prior year. The $13.5 million increase was primarily attributable to a $4.2 million increase in personnel and related expenses and $3.7 million of HPC hosting segment site start-up costs incurred during the period, which represents the cost of modifying our sites over the next two years to deliver HPC hosting services and generate the associated revenue. Other contributors to the increase include stock-based compensation of $2.5 million and $1.9 million in bankruptcy advisory costs.
Net loss for the fiscal third quarter of 2024 was $455.3 million as compared to a net loss of $41.1 million for the same period in the prior year. The increase in net loss of $414.1 million was primarily due to a net $408.5 million non-cash mark-to-market adjustment to our warrants and contingent value right liabilities required as a result of significant quarter-over-quarter increases in the value of our equity and also a $4.9 million increase in interest expense, partially offset by a $28.3 million decrease in reorganization items net with no comparable activity in the same period in fiscal 2024. Non-GAAP adjusted EBITDA for the fiscal third quarter of 2024 was $10.1 million or 11% of revenue, a year-over-year decrease of $18 million that included several offsetting adjustments. Our power contracts vary in pricing terms. As I mentioned previously, our fleet-wide power cost averaged $0.038 per kilowatt-hour in the fiscal third quarter.
We continue to expect average power cost in 2024 to be between $0.042 and $0.044 per kilowatt-hour. As of September 30, 2024, we operated approximately 175,000 miners in our self-mining fleet and did not procure any new miners during the quarter. Our self-mining to hosted mining mix was 89% to 11%, respectively. As our hosted mining contracts continue to sunset this year, we expect our hosted mining percentage to decline to a single-digit percentage of our fleet, creating capacity for self-mining and for our HPC hosting business. Now I would like to discuss our balance sheet, starting on slide 9. At the beginning of the quarter, stock price appreciation triggered the mandatory conversion of our secured convertible notes, resulting in the equitization of the remaining $233.6 million. As Adam mentioned, we completed a successful $460 million convertible note offering in early August that strengthened our balance sheet.
Funds raised in this offering enabled us to pay off all of the $150 million of secured notes, $49 million in minor equipment loans, and the entire $61 million exit facility plus accrued interest, all of which eliminated restrictions and covenants such as the 10-day hold on self-miner Bitcoin and also reduced our interest rate from as much as 12.5% to 3% for the new notes. The new convertible note terms, of which can be found on slide 18, have a conversion price of $11, representing an additional share count of approximately 41.8 million shares at full conversion. At the end of the third quarter, our total debt was $512 million. In October, we paid off an additional $6.4 million in minor equipment financing. With the additional cash generated from our convertible notes offering, we enhanced our liquidity in the quarter, ending with $253 million in cash and cash equivalents, up from $50 million at the end of 2023.
Slide 10 summarizes our total pro forma diluted share count. As of October 31, 2024, share count was approximately 279 million. A total of 98 million Tranche 1 Warrants, 27 million Tranche 2 Warrants, 23 million restricted stock units, and approximately 5 million other reserve shares remained unexercised. Full exercise of these items I just mentioned, plus the conversion of the approximately 42 million shares related to the new convertible note, would result in a total pro forma diluted share count of approximately 474 million shares. And now I'll turn to our CapEx plans. As a reminder, the CapEx associated with converting our infrastructure to 500 megawatts of critical IT load for HPC hosting is paid by CoreWeave. Therefore, we do not expect any out-of-pocket CapEx for these contracts. Any additional capacity that is not currently contracted, whether from incremental power allocations at our existing sites or entirely new sites, may require our funding of CapEx, at least in part.
Once we announce a customer contract, we will be in a position to comment on any CapEx investments associated with incremental capacity. Given our focus on growing our HPC hosting business, we do not expect to increase or refresh our Bitcoin mining fleet until we procure the new block ASIC chips in the second half of 2025. Now that we have completed the 100-megawatt expansion of our Pecos, Texas Bitcoin mining data center, we anticipate no further CapEx this year associated with our Bitcoin mining business. And now I'll turn to a review of our mining economics summarized on Slide 11. Our direct cash cost to mine a Bitcoin in the third quarter was $42,351. This consists of power cost of $33,946 and direct cash-based facilities operations cost of $8,405, allocated based on the 84% of our fleet dedicated to self-mining and divided by total Bitcoin mined in the third quarter of $1,115. Another way to evaluate our mining cost is by calculating the cash-based hash cost of these same items, which represent the same cost expressed as a cost per terahash per day.
Our total cash-based hash cost in the third quarter was approximately $0.03 per terahash. Cash cost to mine a Bitcoin increased year-over-year by $24,314, driven primarily by a 62% decrease in the number of Bitcoin earned during the quarter as a result of the April 2024 halving, a 61% increase in the network hash rate, and a higher allocation of cost to self-mining from hosting as we sunset several of our digital asset hosting contracts. The increase was partially offset by a decrease in power and facilities operations costs year-over-year. Now that we have contracted the full 500 megawatts of critical IT load to CoreWeave, I will provide an updated overview of the contract found on Slide 12. Based on the full contract, we project aggregate total potential revenue over the 12-year contracts of approximately $8.7 billion, average annual revenue of $725 million and non-GAAP profit margin of 75% to 80%.
Power and utilities costs are passed through to our clients and will be included in both revenue and cost of revenue. Given that most of our costs associated with the growth of our HPC hosting business are included in cost of revenue, we expect operating expenses to increase only slightly as we grow this business. And now I'd like to share some modeling details. We continue to model a statutory effective tax rate of approximately 23% for 2024. We also retain more than $300 million in net operating loss carryforwards, which will reduce future cash taxes. And now I'll turn the call back to Adam.
Thank you, Denise. We are applying our expertise from the data center and Bitcoin mining industries and our large asset portfolio to accelerate time to power for clients such as CoreWeave. We believe this expansion of our business will deliver more than $500 million in annual GAAP gross profit for the initial 500 megawatts of contracted critical IT load at full run rate, creating significant value for our shareholders. We are building a data center business with CoreWeave as our anchor tenant and our ambitions extend well beyond the initial 500 megawatts of critical IT load. In fact, with our recent reallocation of infrastructure to HPC and our new Alabama site with its growth plan, we now have another approximately 130 megawatts of critical IT load to offer to clients. Beyond our existing infrastructure, we plan to grow our portfolio for HPC hosting in two ways. First, we are actively pursuing the expansion of certain of our data centers by securing more power from local grid partners.
We believe that we can capture as much as an additional 300 megawatts of critical IT load at existing sites from our power suppliers. We believe that we will secure some of this additional power allocation before the end of 2024, representing the quickest path to capacity growth. Second, we are working to secure additional sites to expand our HPC hosting capacity. These sites fall into one of the following categories: a, distressed conventional data centers that have either lost their tenants or have been pruned from larger data center company portfolios. These sites typically have backup generators and may have chillers already installed and also have options for additional power allocations from their power providers, including completed load studies. B, brownfield sites that we believe we can convert to HPC data centers; and c, greenfield sites with access to significant power allocations.
Our new leased site in Alabama offers 11 megawatts of critical IT load to contract now to clients who would like to grow with this site to as much as approximately 66 megawatts of critical IT load. We are currently in discussion with potential new clients about contracting this site for HPC hosting. This is one example of how we intend to diversify our customer base by securing new customers for these new sites. As depicted on slide 13, we believe that by expanding our portfolio based on growing existing sites and securing new sites, we have line of sight to total HPC hosting capacity of more than 1-gigawatt of critical IT load by the end of 2027. Key to the success of our data center business is the conversion of existing sites to HPC hosting. This is a massive and complex project that requires considerable coordination. The area with the most potential to affect our timing remains the supply chain, and we are actively working to identify creative solutions as bottlenecks appear.
These solutions include developing alternative configurations for components, working with third parties to secure supply, and securing temporary items until others are available to us. Right now, we are closely tracking switchboards, static transfer switches, and generators. At this time, we expect to begin delivery of powered infrastructure for HPC hosting by the end of the first half of 2025 as we previously communicated. Fortunately, there is no better team in the industry than ours, and we are expanding it with industry experts while also having secured some of the most experienced data center contractors to help us execute this program. When the conversion of our existing sites to support HPC hosting is complete, we will be one of the largest data center operators in the United States. With the tremendous value creation opportunity in HPC hosting, we are also focused on optimizing the operation of our Bitcoin mining business within the 400 megawatts of infrastructure now available to it.
By consolidating Bitcoin mining at Pecos, Texas, and one other data center, we believe that we can leverage the lowest power prices and implement power strategies to enhance our financial performance. Further, our planned refresh next year using the new block ASIC chips represents a significant opportunity to continue improving our fleet efficiency and increase our hash rate. We believe that these actions will position our Bitcoin mining business favorably, preparing us to benefit from an increase in Bitcoin price. To summarize our revised guidance for 2024 highlighted on slide 14, we expect 16 megawatts critical IT load of revenue-generating HPC hosting infrastructure and average fleet power price for active Bitcoin mining data centers of $0.042 to $0.044 per kilowatt-hour. Now I'd like to update you on our 2024 catalysts, which we introduced last quarter and are summarized on slide 15.
We set out to contract all 500 megawatts of critical IT load and have now done so. We sought out to secure a new site to begin expanding our capacity, and we secured a new site in Alabama, while we continue to focus on pursuing additional new site opportunities, and we seek to diversify our client base by gaining new clients for new sites. We remain actively engaged in discussions with multiple potential clients regarding our newly available capacity and our growth plans. These potential clients include hyperscalers and AI cloud providers. Core Scientific's transformation into a leader in digital infrastructure for next-generation compute continues to build momentum. We now have HPC hosting contracts with CoreWeave valued at up to $8.7 billion in revenue over their 12-year terms. We have an additional approximately 130 megawatts of critical IT load to contract to new clients from our existing portfolio and have the opportunity to expand our infrastructure at existing sites as well as through new site acquisitions, and our Bitcoin mining franchise is very well-positioned to benefit when hash price rises.
As I mentioned at the beginning of this call, our momentum and progress continue, and our positioning for growth and value creation is only improving. Thank you for your continued interest, and thank you to our clients, industry partners, and all our teammates for your ongoing efforts and support. We will now take your questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of John Todaro with Needham & Company.
Hey guys, thanks for taking my question. Congrats on the results here. I have one, and then I'll use one of my follow-ups, if I can. First one being to the 100 megawatts that you're going to allocate away from Bitcoin mining to HPC, are we already in conversation with potential customers there? And then I know you can't give specific CapEx, as you mentioned. But should we just still be thinking that $5 million to $8 million to retrofit that site? And then I have my follow-up.
Yeah. Thanks, John. Yeah, those conversations actually began earlier in the year, looking at the site in particular. We go back to what we mentioned on the previous earnings call, it really comes down to whether a site be Bitcoin mining or HPC, it comes down to really power, environmentals, and latency. Based on conversations we are having with some potential clients, we went back and solved the power issue that we need to solve in order to convert that site. And so these conversations have been ongoing for quite some time, and it's looking like a competitive process for those 70 megawatts. Sorry, Joe, I'll just comment quickly too on your megawatt question. Yes, we're looking at really that $5 million to $8 million per megawatt for the retrofit.
Got it. Okay. And then just a follow-up. So to the HPC revenue, it looks like it came in a little bit higher than we at least expected. I think if it's just the 16 megawatts I'm seeing, that implies almost $2.5 million per megawatt annualized on a revenue basis. Not sure if we're missing something. I guess, in other words, I think we're thinking more like $5 million to $6 million, and it came in at $10 million for the quarter.
Thanks for the question. As we mentioned in our prepared remarks, the increase was primarily due to a one-time adjustment from pulling forward the delivery by 30 days. This resulted in an extra month of revenue, which explains the difference in Q3.
Our next question comes from the line of Jon Petersen with Jefferies. Please proceed.
I just wanted to follow up on the 100-megawatt transition. Regarding the cost, is your plan to proceed with construction and then sign a lease during the process, or will you sign a lease before you start incurring expenses for that transition?
Yes. Thanks, Jon. Right now, the way we're viewing it is we're hopeful to get to a client and a final contract in short enough time period where we know exactly what they want to build. We know exactly the sizing and the requirements that they're looking for. And so from our perspective, we're not looking to spend capital prior to having that contract in hand.
Got it. And then maybe I'm slightly getting ahead of myself, but I guess my follow-up is what kind of financing structures would you be looking at for future deals? Is the CoreWeave model repeatable? Or would we see more of a traditional data center financing type structure with a construction loan and you spending all the capital upfront?
Yes. The way we see it right now and where the market is moving to is clients are coming around to spending some portion of the CapEx to help buy down their rate. We are seeing higher rental rates right now. And so really, the way we're looking at it is that 20% to 30% that's generally spent by data center companies as the equity check, the rest is funded on a debt basis on a project financing level. We're looking at many of these clients looking to really cover that portion of the equity check, and we would look to project finance the rest of the build-out.
Thank you. Our next question comes from the line of Joseph Vafi with Canaccord Genuity. Please proceed.
Hey guys, good afternoon. It's great to see all the incremental progress here. Do you have any updates on your plans to expand your power capacity at some of your existing HPC sites? Can you provide more details on the progress related to CoreWeave and going above the 500? I also have a quick follow-up.
Yes, definitely. Thank you for the question, Joe. Right now, we are exploring the possibility of adding over 300 additional megawatts at our existing HPC sites. Those discussions are still in progress, and we believe this is the quickest way to enhance our capacity at each of those locations. We are particularly enthusiastic about this process, as it could lead to a substantial increase in megawatts at our current sites.
Yes, that would be really good progress for sure, Adam. And then, I mean, obviously, we have a Presidential Election here and Bitcoin is up. Obviously, that's good kind of for all miners. But any other further thoughts here on the results of the election and implications broadly for the Bitcoin mining industry and maybe anything more specific for Core? Thanks a lot, guys.
Yes, absolutely. I believe that Trump has previously shown strong support for Bitcoin, energy production, and US leadership in Artificial Intelligence. These are all positive factors. His three priorities align well with our business and future goals.
Thank you. Our next question comes from the line of Joe Flynn with Compass Point Research. Please proceed.
Hi. I was hoping you can give some more color into the potential deal structures of these new sites and just new customers in general. Should we expect like kind of in the similar collocation range of the CoreWeave deal? Or do you see this like changing on a site-by-site basis, like some being build-to-suit, some being collocation? Any color you could provide there would be great.
We are primarily focusing on single tenant buildings for our new sites. We're looking at various build-to-suit options for potential clients. The demand from clients is for as much power as they can get at each site. As we assess our sites, we engage in thorough discussions between our design engineering teams and those of our potential clients, reviewing their needs to ensure we can meet their requirements and timelines. To finalize a contract, we must have a complete design and also evaluate our position in the supply chain to meet the agreed timelines.
Thank you for the question. We've noticed several stories about CoreWeave lately. Could you share more about your recent discussions regarding diversification? Furthermore, as companies continue to scale their operations and build data centers, do you believe there is an opportunity to re-enter the cloud market? Thank you.
Yes, we have a lot of respect for the CoreWeave team and their accomplishments. What we're seeing in the news is very impressive in terms of their work. We are continuing our conversations with both CoreWeave and other cloud providers because we see this as a significant growth opportunity in the market. The development of GPU cloud services is expected to capture a substantial portion of the compute market in the coming years, and we aim to take advantage of the positive momentum this creates.
Thank you. Our next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please proceed.
Hi, guys. Thanks for taking my question and congrats on filling out the remaining capacity with the CoreWeave. Adam, maybe just it's now been, call it, five, six months since you first announced the initial CoreWeave deal. What do you think has happened to the market in terms of rental rates or lease rates or however you want to kind of quantify it? Have they gone up since that deal? Just how should we think about where the market is at now for maybe new capacity coming online?
Thank you, Brett. The key aspect of the CoreWeave deal is that it covers 100% of the capital expenditure. This has allowed them to significantly reduce their rates. Looking ahead, the situation for 2025 appears quite exceptional. If you can provide capacity in 2025 and 2026 at this moment, we are observing lease rates that are much higher than anticipated, particularly since many clients are willing to contribute to some of the capital expenses for the build-out. We are optimistic about the trajectory of lease rates and believe we will be able to derive significant value from the demand we are currently experiencing in the coming years.
Perfect. Helpful. Regarding the new site acquisitions, you mentioned three different options. On the distressed side, if it's a retrofit costing between $5 million and $8 million in an existing facility, what trends are you observing in the market on a megawatt basis for distressed data centers?
Yes. Brett, I want to clarify your question. Are you asking about retrofitting those facilities for the newest generation of computing?
Yes. Retrofit or what you have to pay to acquire the sites and then the additional CapEx needed to get them up and running?
Yes, absolutely. So what we're seeing today in the market, it depends on what type of load studies those facilities come along with. For instance, the site in Alabama coming alongside of a total of 100 gross megawatts available at the site. Really, what we're seeing is somewhere in the range between $3 million to $6 million per megawatt on the existing megawatts. And really on a retrofit basis, that could range from really $1 million to $3 million depending on the type of infrastructure that's currently in place and how much infrastructure needs to be acquired to accommodate the newest generation GPUs.
Thank you. Our next question comes from the line of Lucas Pipes with B. Riley Securities. Please proceed.
Thank you very much, operator. Good afternoon, everyone. Following on a similar theme to the prior question on the potential additional sites. Any desire to enter exclusivity? Or has that maybe already occurred on some of these sites? And could you speak a little bit to the competitive dynamics? How many other companies might be in the room, I would appreciate your thoughts on that. Thank you.
Yes. I would say where we're at right now is there is extraordinarily strong demand. There's frequent meetings on a number of clients, and I'll outline that. I mean, really, we're trying to focus on about 10 clients right now where we have consistent design engineering meetings between the teams, hosting site tours for many of these clients, and really trying to get to a deal here that makes sense for both parties. So there's definitely a competitive process on both the 70-megawatt site as well as the new site in Alabama. And so we have high confidence in our ability to execute on both of those sites.
That's helpful. Thank you. And then, Adam, taking a step back, you have an HPC AI business that is growing very quickly where you have a very robust pipeline and then a BTC business. And I imagine some sites overlap and do both. But does it make sense? Could it make sense to maybe separate these businesses either now or sometime down the road? Thank you very much for your perspective.
It’s quite challenging to predict the future. However, currently, we notice significant collaboration between our Bitcoin mining teams and our HPC teams, enhancing our capacity to manage high-power digital infrastructure. As we continue to assess each of our locations, we are confident that our Bitcoin mining business is very robust. Looking ahead to 2025, our capability to execute on that block transaction is expected to significantly boost our efficiency and allow us to further increase our hash rate. Thus, we operate two very strong businesses, and making predictions about future outcomes is not easy at this moment.
Thank you. Our next question comes from the line of Tyler DiMatteo with BTIG. Please proceed.
Great and thank you for the time, and appreciate you taking the question. Adam in terms of, I guess, the sourcing process of new customers on the HPC front, what do you think has changed now, now that you have the full CoreWeave contract? Is there anything notable on that front as you go to secure new customers now that the full 500 of capacity is contracted with CoreWeave and you kind of have that anchor customer?
Yes, things are definitely different. I appreciate the question, Tyler. The situation has changed significantly. We are in the process of developing one of the largest infrastructure bases for high-performance computing over the next two years. This effort certainly adds a considerable amount of credibility. In our discussions, we've found that we are regarded as thought leaders in the design and requirements needed to operate these GPUs. This positions us uniquely when engaging with hyperscalers and new cloud providers. We believe we are in a strong position in these discussions and are excited about onboarding new clients.
Okay, great. And then my follow-up here, I know you laid out some of the power cost forecast. But more broadly speaking, as you kind of look to next year and bringing on more HPC capacity and we have some of the new sites. I guess how do you kind of think about the power strategy as you're building some of these custom-built facilities for HPC customers? And kind of what does that look like across the footprint as you kind of look out into bringing some more capacity online?
Yes. So, the power expectations that we laid forward, that's really just on the Bitcoin mining part of the business. But one of the unique parts about our business and our data center business is that we have a power team in-house, a power team that has a very close relationship with the utilities in which we operate and many other utilities as well. That helps us significantly in our negotiations with potential clients, where we can walk them into the room with utilities who are excited about the new capacity coming online. So, as we think about power pricing, that's something that us at Core Scientific do handle on behalf of our clients. And so we're excited about the additional potential megawatts that we have at many of our sites. And I think not only Core, but other potential clients are very interested in that power as well.
Thank you. Our next question comes from the line of Paul Golding with Macquarie Capital. Please proceed.
Thanks so much. My first question is around the block chip delivery. Given the timing and how that lines up with your progress around the HPC infrastructure rollout and your conversion of 100 megawatts from BTC to HPC. I was just wondering if those block chips, if you envision that they'll be predominantly net new capacity that you're going to find and build out or if it's going to be in part fleet upgrade. Thanks.
Yeah. Thanks for your question, Paul. Those new block chips are really going to be focused on a refresh of existing fleet. It's going to give us the opportunity to not only increase exahash but also increase our efficiency and so we're very excited about once those land, getting them up online in our facilities.
Thanks, Adam. I have a quick follow-up regarding power. With the conversion and other discussions you're having to increase site capacity from a power perspective, how are the conversations going with the utilities you may have demand response enrollment with? Are you considering unenrolling, or as you engage in these discussions, is the focus on non-interruptible capacity? How is the tone of those conversations changing, and is there any impact on the spot rate you're discussing with these utilities? Thank you.
Yeah. And that's really a bifurcated question between regulated and non-regulated markets. In regulated markets, those were voluntary programs that we are participating in to reduce our power costs. Those are some power programs that we will be exiting as these sites begin to convert to high-performance computing. And then in the deregulated markets, those are new PPAs that we'll be looking to sign that will be on a different rate structure than the rate structure we are on for Bitcoin mining. So that's a well-trodden process. And we feel very, very strongly that we have execution capability here with our utilities.
Thank you. Our next question comes from the line of Kevin Dede with H.C. Wainwright. Please proceed.
Thanks. Hi Adam. Thanks for having me on. You mentioned three components that you see locked in supply issue. I was wondering if you could just add a little more color to that. You said that you thought you could find workarounds. I don't see that happening with gensets. And I was wondering how you could size that up against meeting your, I think, end of first half target for the CoreWeave deal, which appears to be static, so congrats on that. Just maybe sort of relieve a little of the unknowns regarding the supply chain.
Thanks, Kevin. As we look ahead to 2025, we are very confident in our supply chain for those deliveries. For parts of 2026, we're still working on it. Regarding gensets, which are traditionally used in data center development, we are evaluating various sizes to help address some of the design choices made over the last 10 to 20 years. We're also exploring potential rentals of certain equipment to help fill gaps where needed. We are confident in our ability to manage the supply chain, despite the complexities arising from high demand for this equipment.
Okay. And with regard to the block machines, do you imagine those are water cooled or immersion? And would you think that you'd have to retrofit existing Bitcoin mining facilities to manage those?
We have become the leading experts in air-cooled facilities. For our deal with the new block chips, we are designing a new form factor that focuses on air-cooled design to maximize production from these chips, even at high temperature ranges. There won’t be any significant refresh needed for the infrastructure in the Bitcoin mining facilities. Therefore, we believe it will be a straightforward process to install all of these machines.
Thank you. Our next question comes from the line of Rosemarie Sison with Odeon. Please proceed.
Good afternoon, everyone. Thank you for joining the call. Regarding the 100 megawatts that you've now decided to convert from Bitcoin to HPC, what led to this change in strategy? Did your perspective shift about what you could achieve? Can you elaborate on the thought process behind this decision? Additionally, could the same reasoning be applied to other megawatts currently used for Bitcoin?
Yes. Thanks, Rosemarie. It really calls back to the three points that I laid out. So power, environmentals, and latency. This site, in particular, was something that we were very focused on the power aspect, ensuring that we could create a contract with our utility that would be amenable to both sides. We've gotten to that point today. So that's what really led to the conversion of thinking this site was going to be specifically utilized for Bitcoin mining and undergoing a process to convert that to HPC. As we evaluate the rest of our sites, there are definitely points that we would need to continue to evaluate on both the power, environmentals, and latency side. And it's hard for us to speculate now about where we'll end up in each of those processes. But right now, we feel we have high confidence in our ability to continue to acquire sites and bring more critical IT load megawatts to market.
Okay. Thank you. And then the new site in Alabama that's currently powered at 11 megawatts, but can go to 66. What has to happen for that to actually get to 66 and what would the time frame be?
Yes. This site is particularly appealing due to its distressed data centers, which come with load studies and additional approved power. In Alabama, the capacity of 11 megawatts in traditional data center terms is quite significant. The potential for expansion while also adding capacity in 2025 is very attractive to potential clients, making it one of our focus areas for identifying new capacity.
Thank you. Our next question comes from the line of Darren Aftahi with Roth MKM. Please proceed.
Thank you for taking my question. I have two inquiries, if that's alright. First, could you explain the process for securing the additional 300 megawatts at your existing site? How long does this typically take—weeks, months, or years? How site-specific is this process? Secondly, regarding further expansion on HPC, how do you manage customer concentration in relation to economics? For instance, with the 100 megawatts currently available, if CoreWeave wanted to pursue a comparable deal, would you consider the economic terms, or would you prefer to diversify by adding another customer? Thank you.
Thank you, Darren. The process for adding power at our current sites varies by utility. Some require additional load studies, while others are negotiating the timing and amount of megawatts. Our ability to secure more megawatts at existing locations primarily depends on our execution proof. Our activities in Bitcoin mining and the transition to high-performance computing have generated enthusiasm among utilities to strengthen their partnerships with us. This process can sometimes take a while, but our discussions with potential clients regarding additional megawatts emphasize the importance of timeliness, and these utilities are collaborating with us to reach a final decision. This collaboration suggests that some of these megawatts could be approved by 2024. Regarding your second question about customer concentration and its economic implications, the deal with CoreWeave is exceptionally appealing and could become the best data center agreement ever made. We aim to deepen our relationship with CoreWeave, but we recognize the importance of diversifying our client base in the long run. Our goal is to attract other large tech companies to create a stable business over the next 15 to 25 years, which excites us. We see significant growth potential not only with new clients but also with CoreWeave.
Thank you. Our next question comes from the line of Lucas Pipes with B. Riley Securities. Please proceed.
Thank you so much for taking my follow-up question. I just wanted to go back to the Alabama opportunity. Adam, could you speak a little bit about the time frame from when you first recognized that site to today? How long does that take? And any indication on consideration for this asset? Is it cash? How much an earnout, profit share? And anything you could share would be helpful. Thank you so much.
Thank you, Lucas. I would say that finalizing a deal for this site typically takes a few months. We have ample time to conduct thorough due diligence, which includes examining the infrastructure and collaborating closely with utilities. It's important for us to establish a strong working relationship and identify growth opportunities. The 100 megawatts capacity is excellent, and we aim to find ways to expand our collaboration with the utilities. We have the potential to increase our megawatt capacity at several sites, which is crucial for us. Regarding the financial aspect, this is a lease site with an option to purchase. We intend to position ourselves so that an immediate purchase isn't necessary, but having the option gives us significant flexibility. The price is fixed, so any upgrades and the additional power generated will enhance our value.
And just to add, Lucas, this is Steve. There is a bit additional description of that deal in our 10-Q that should be filed later today or tomorrow.
Really appreciated it. Super helpful, Adam, to you and the team continue best of luck.
Thanks, Lucas.
Thank you. Our next question comes from the line of Kevin Dede with H.C. Wainwright. Please proceed.
Hey, Adam, you clearly delivered on adding new sites, and you did highlight three avenues to continue to expand your portfolio. But maybe you could give us a little bit more insight on that pipeline specifically. I know you're speaking to some pretty large numbers. I'm just wondering how you see that market and Core's ability to compete given huge demand for power and access.
Yes, absolutely. Thanks, Kevin. There are a lot of sites outstanding right now. There's a lot of power available in the United States, which is our focus area right now. And we're finding the most attractive sites to be ones that aren't being run through broker processes. And so that means we have many boots on the ground, speaking with utilities, speaking with landowners and finding sites that are much more esoteric than the traditional ones being run through broker processes. So we're finding ourselves with a strong ability to compete. We've evaluated over 15 gigawatts worth of sites over the course of the past, I'll call it, six to eight months, putting us in a strong position to find unique deals in the market. And we're excited about our ability to continue to execute on deals coming forward. So, Alabama is really the first one here that we've executed on, but we look forward to 2025 and 2026 to continue to grow our critical IT load megawatts.
Thanks, Adam. While you're still there, maybe you could speak a little bit to the block chip deployment timeline. I know you mentioned the second half of next year. I'm kind of wondering whether or not that is what you initially expected? Or was there some wiggle room in there? And do you suspect you'll be able to find all the components you need to make the full unit?
Yes. Thanks, Kevin. This is something that our research and development team has been working closely with the Block team on for a long period of time. This isn't something where we had only been working with them for months. This is something that we've been working on with their team for a much longer time period. So, we have all of the manufacturing set up. We have our entire game plan in terms of our rollout, in terms of our execution already put into our schedule. So, this timeline is exactly aligned with what we expected, and we're excited about being able to get these up and running and continue to reduce, I would say, increase our efficiency and also increase our exahash exposure.
Thank you. That concludes our question-and-answer session. I would like to pass the call back over to Steve for any closing remarks.
Thank you very much, Alicia. With no further questions at this time, we thank you for your attention and your interest in Core Scientific. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website, corescientific.com. We wish you a good day and a joyful holiday season, and we look forward to speaking with you again following next quarter's results.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.