Core Scientific, Inc./tx Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Completed a $460 million convertible note offering which improved the capital structure, paid off debt, and increased cash on the balance sheet.
• CoreWeave exercised final two options, contracting all 500 megawatts of critical IT load.
• Leased an existing data center in Alabama with 11 megawatts of critical IT load, potentially supporting 55 more megawatts.
• Expanded the Pecos, Texas Bitcoin mining data center by 100 megawatts.
• Earned 1,115 Bitcoin in the third quarter and generated total revenue of $95 million.
• Net loss for the third quarter was $455.3 million, but adjusted EBITDA was $10.1 million.
• Secured additional 100 megawatts of infrastructure from Bitcoin mining to HPC hosting, increasing HPC hosting capacity to ~570 megawatts.

Segment Performance:

• Digital Asset Self-Mining: Generated $68.1 million in revenue with a segment gross margin of negative 9%.
• Digital Asset Hosted Mining: Generated $16.9 million in revenue with a segment gross margin of 29%.
• HPC Hosting: Generated $10.3 million in revenue. GAAP gross margin was 13%. Non-GAAP gross margin excluding direct pass-through of power cost was 17%, and excluding direct pass-through of power costs and non-cash expenses like stock-based compensation was 27%.

Guidance:

• Expect 16 megawatts of critical IT load of revenue-generating HPC hosting infrastructure in 2024.
• Average fleet power price for active Bitcoin mining data centers to be between $0.042 and $0.044 per kilowatt hour in 2024.
• Project aggregate total potential revenue over 12-year CoreWeave contract to be approximately $8.7 billion, with average annual revenue of $725 million and non-GAAP profit margin of 75% to 80%.

Risks:

• Supply chain bottlenecks could affect the timing of HPC infrastructure conversion.
• Fluctuations in market fundamentals for Bitcoin mining and HPC hosting could impact financial performance.
• Regulatory uncertainties may pose challenges to operations.

Q: 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.

A: 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 [ph], 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.

Q: 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.

A: Yes. So thanks for the question. I think the -- as we suggested in our prepared remarks, that was really driven by a onetime adjustment associated with the fact that we had actually pulled forward the delivery by 30 days. And so you are seeing an additional month of revenue, which is why there is a delta in Q3.

Q: Yeah, just a follow-up on the 100-megawatt transition. So in terms of the cost, are you guys -- is your plan to go ahead with construction and then try to sign a lease along the way? Or are you going to sign a lease before you start spending capital on that transition?

A: 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.

Q: Got it. And then maybe I'm slightly getting ahead of myself, but I guess my follow-up is what kind of financing structures are you -- 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 guys spending all the capital upfront?

A: 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.