CORZ - NASDAQ

Greetings. And welcome to the Core Scientific Fourth 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. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. It is now my pleasure to turn the floor to Jon Charbonneau, Vice President, Investor Relations at Core Scientific. Jon, please go ahead.

Good afternoon, ladies and gentlemen. And welcome to Core Scientific’s fourth quarter fiscal year 2024 earnings call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after management’s remarks. 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, February 26, 2025. 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 our CEO, Adam Sullivan and Chief Financial Officer, Denise Sterling. We will now begin with remarks from Adam.

Good afternoon, and thank you all for joining us today. I'll begin today's call by looking back at our key achievements from the quarter and fiscal year before handing it over to Denise, who will review our financials. I'll then highlight our growth strategy and the meaningful value creation opportunities we see ahead for Core Scientific. We will then take your questions. 2024 was guided by the three growth catalysts we identified on our second quarter earnings call. Contract the remaining HPC hosting capacity, expand infrastructure capacity, and diversify our customer base. Starting with HPC, we began by signing a 16-megawatt agreement with CoreWeave in Austin, which we delivered 30 days ahead of schedule. We then moved quickly to fully contract the original 500 megawatts of HPC capacity through a series of new 12-year agreements with CoreWeave. This deal carries a total revenue potential of $8.7 billion over the contract term, equivalent to about $725 million per year once fully online. To put that in perspective, our total revenue in 2024 was just over $500 million, mostly from our Bitcoin mining operations. Securing this landmark HPC contract marks a pivotal step in our evolution into a leading data center business. Next, we made significant progress expanding our HPC infrastructure capacity in 2024 by reallocating resources from our Bitcoin mining operations, enlarging existing sites, and acquiring new sites. As a result, we ended the year with over 1,300 megawatts of contracted power. In the fourth quarter, we secure approval to expand gross capacity at our Denton site by nearly 100 megawatts, equating to approximately 70 megawatts of critical IT load. Dallas remains one of the fastest-growing data center markets in the United States, and we believe our Denton facility is on track to host one of the largest GPU supercomputers in North America. Separately, on the last earnings call, we discussed our expansion into Auburn, Alabama, where we signed a lease-to-buy agreement at the Aubix facility. This site currently has 11 megawatts of critical IT load, and we are actively working with Alabama Power to secure a much larger power agreement. Due to power constraints in the nearby Atlanta market and given Auburn's strategic location, this site has the potential to be a major development for the company. We are deferring significant capital deployment until negotiations with prospective customers are finalized, ensuring our investment is optimally aligned with demand. Briefly, on organic customer diversification, while we did not sign another large HPC hosting customer last year, we are in active discussions and remain confident in our ability to diversify our HPC customer base. Shifting to our capital structure, I will let Denise cover the details, but we significantly improved our balance sheet in 2024, which leaves us well-positioned to execute on our growth strategy this year and beyond. Finally, I want to take a moment to emphasize how proud I am of the strategic hires we've made across the business last year. We've brought on top-tier data center professionals who have a proven track record of successfully executing large-scale projects. This has significantly strengthened our leadership and execution capabilities, and we believe this expanded talent pool underscores our commitment to growth and innovation as we continue our evolution into a premier data center provider. With that, I'd like to hand it over to Denise, who will take a deeper dive into our financials. Denise?

Thank you, Adam. I am pleased with our financial performance in 2024, especially given the operational hurdles we navigated, namely the Bitcoin halving in April and the deliberate shutdown of several active mining sites to accommodate our major HPC hosting contract with CoreWeave. Securing that contract was a major milestone for the company, offering a robust foundation for our continued pivot towards HPC. Despite these transitions, we delivered financial results that underscore our operational expertise and significantly strengthened our balance sheet, positioning us for a productive 2025. With that, I will begin with an overview of our fourth quarter financial results. Total revenue was $94.9 million, down 33% year-over-year, and adjusted EBITDA was $13.3 million. In terms of our segment results, digital asset self-mining revenue was $79.9 million, a decline of 29%. This was largely driven by 974 Bitcoin earned in the fourth quarter versus 3,042 in the same period a year ago, partially offset by the 130% year-over-year increase in the price of Bitcoin. As of December 31, 2024, we operated approximately 164,000 self-mining units, or 96% of our total mining fleet, with the remaining 4% representing hosted mining units. Digital asset hosted mining revenue was $6.5 million, down from $30 million in the fourth quarter of 2023, as we sunset our hosted mining contracts, a trend we expect to continue this year. Finally, we generated $8.5 million in HPC hosting revenue during the quarter and, as expected, exited the year with 16.5 megawatts of critical IT load, which includes an additional half a megawatt contracted in the fourth quarter. Shifting now to costs, our 2024 average annual fleet-wide power rate of $0.04 per kilowatt hour beat our 2024 target guidance of between $0.042 and $0.044 per kilowatt hour. Our average fleet-wide power rate for the fourth quarter was $0.037 per kilowatt hour. A summary of our segment mining economics can be found on slide 7. Gross margins for the quarter were 2%, 36%, and 9% respectively for digital asset self-mining, digital asset hosting, and HPC hosting. For our HPC hosting segment, we also measure performance utilizing a non-GAAP cash gross margin, which excludes the direct pass-through of power costs, as well as non-cash items, including stock-based compensation and depreciation. For the fourth quarter of 2024, our non-GAAP cash gross margin was 16%. Operating expenses for the fourth quarter of 2024 totaled $43.6 million, as compared to $30 million for the same period in the prior year. A net loss for the fourth quarter of 2024 was $265 million, as compared to a net loss of $195.7 million for the same period in the prior year. On slide 8, our direct cash cost to self-mine a Bitcoin in the fourth quarter was $51,035, and our total cash-based hash cost in the fourth quarter was approximately $0.033 per tera hash. Next, I'd like to walk you through the balance sheet, starting on slide 9. Exiting 2023, our total debt balance was approximately $1 billion. During 2024, as part of Chapter 11 debt restructuring, we lowered total debt by $270 million. Subsequently, we equitized our secured convertible notes for $260 million, largely through mandatory conversion. This was shortly followed by the $460 million convertible note offering in August, which allowed us to pay off $260 million in existing senior debt, eliminate restrictions and covenants, and substantially reduce our interest rates on the notes from as high as over 12% to 3%. More recently, in December, we completed a $625 million convertible note offering at a very attractive 0% interest rate. All told, we entered 2025 with an unlevered balance sheet outside of our convertible notes and over $830 million in cash, which we believe positions us well to execute on our growth strategy. With regard to HPC capacity, any uncontracted expansion, whether tied to additional power allocations at existing sites or entirely new locations, may require our own capital expenditures. We will provide further details on any necessary outlays once we announce new customer contracts and finalize additional capacity requirements. 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. We are not planning any further CapEx this year associated with our Bitcoin mining business. Our pro forma, fully diluted share count as of February 20th was approximately 501 million shares, as summarized on slide 10. We are currently modeling a statutory effective tax rate of 22% in 2025. We also have more than $300 million in net operating loss carry-forwards, which will reduce future cash taxes. And with that, I'll turn the call back to Adam. Adam?

Thanks, Denise. As we look ahead to 2025, we will continue to capitalize on our strength for building attractive, large-scale infrastructure, and the key focus areas this year include, one, diversifying our customer base by adding new HPC customers, two, successfully executing on the HPC contracts we have in place, and three, continuing to expand our capacity organically and through strategic M&A. Starting with diversifying our customer base, this is the top priority for the company this year, and the goal is to sign enough contracts so that CoreWeave represents less than 50% of critical IT load by the end of 2028. We are in active discussions with dozens of new customers, including the vast majority of hyperscale providers in several large enterprise companies. Demand remains strong, but we're seeing considerably more due diligence compared to the first half of 2024. This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises, yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power. Our proven track record and secured power agreements set us apart in this environment, and we won't be expanding our footprint unless we have a high degree of confidence in our ability to deliver for additional customers. Moving on to our second priority, executing on the HPC contracts we already have in place. Today we announced a significant expansion of our relationship with CoreWeave at our Denton facility, which will bring that site to full capacity. This new agreement adds approximately 70 megawatts of critical IT load and represents approximately $1.2 billion in additional contracted revenue over a 12-year term. With this latest expansion, our total contracted value with CoreWeave now exceeds $10 billion, an amount that includes our Austin, Texas agreement, and covers roughly 590 megawatts of critical IT load once fully online. Of that total, just over 570 megawatts reflect capacity we're converting at existing sites to HPC, where we expect 75% to 80% cash gross profit margins. We view this as one of the largest HPC deployments in the United States, and CoreWeave's continued demand already outpaces their supply, which we see as a strong signal of their business health and growth potential. Under this newest agreement for the additional 70 megawatts, we will fund $1.5 million in capital expenditures per megawatt, whereas in prior agreements, CoreWeave covered those costs. In return, we will benefit from full rental payments during the first two years of the contract because there will be no CapEx credit associated with this new agreement. Looking ahead, we now expect to have delivered approximately 250 megawatts of HPC capacity to CoreWeave by the end of this year, with the full 590 megawatts coming online in early 2027. This represents a shift from our previous timeline and reflects both the size and complexity of the project, particularly the addition of an incremental 70 megawatts of critical IT load. These factors introduce several permanent challenges, which we resolved in collaboration with CoreWeave. As part of that process, we implemented design enhancements to further optimize GPU performance and mutually agreed upon new delivery timelines. While these steps have extended our schedule somewhat, we believe they ultimately position us to provide a more robust and efficient infrastructure that meets our customers' evolving HPC needs. Our third priority is to continue expanding our HPC capacity both organically and through strategic M&A. Building on the recently announced 70-megawatt expansion in Denton, we believe we can add another 300 megawatts of capacity across our existing sites by the end of 2027, which is an increase from the previous quarter. We also see significant greenfield opportunities and aim to add approximately 400 megawatts of new capacity over the next three years. On the M&A front, we're actively pursuing opportunities in our current markets and carefully evaluating expansions into new ones. This includes acquiring stabilized data center assets or book-but-not-built projects that come with strategic customer contracts, offering greater revenue predictability. This approach aligns well with our broader objective of reducing our largest customer to below 50% of total critical IT load by the end of 2028. In closing, I'm more excited than ever about the momentum we've carried into this year. Our team is fully energized and confident in our ability to execute on our growth strategy, which we believe will drive significant value creation for all our stakeholders. I want to extend my sincere gratitude to our clients, industry partners, and especially our dedicated teammates for their ongoing efforts and support. I also want to personally thank our existing shareholders. Your confidence in our vision has been critical in bringing us to this point, and we wouldn't be here without you. With that, we will now take your questions.

[Operator Instructions] Our first question is coming from Darren Aftahi from Roth Capital Partners.

Hey, guys. Thanks for taking my questions, and it's good to see an expansion on the capacity. Two, if I may, first, can you just talk, Adam, a little bit more detail about the permitting process and maybe what's elongating that timeline? And then, secondarily, on the Alabama site, I know you guys said you're not going to kind of commit too much capital until negotiations with prospects are more finalized. With Alabama Power, I guess, like, where are you with them? Has a feasibility study been done? Like, how quickly can this kind of evolve? Just kind of any more insight on that would be helpful. Thanks.

Yes, of course, and I appreciate the questions, Darren. So talking about the permitting process, that was really one of our sites in particular. And as we were looking at the expansion of that site, we had to go through additional permitting processes just related to the expansion and related to a pretty major design adjustment that was made in that process. And that's really around optimizing for efficiency and optimizing for the scale of that asset. And so we're past that process today. And we feel very confident given that at that site we have construction, we have contractors, we have the boots on the ground to know that the process is moving along with the existing schedule that we have in front of us. To the second question related to Alabama, right now we're in a place where we have high confidence in the ability to gain additional megawatts at that site. And once we get those commitments, that's going to be a time when we will begin placing additional capital into that site. Now, you have to think about the delineation between having a secured customer and us preparing to have that customer. And so obviously, a significant amount of capital will be deployed once that new customer contract is secured. But up until that point, there will be limited CapEx albeit some related to bringing that site to more of a pad-ready status.

Next question is coming from Jon Petersen from Jefferies.

Great. Congratulations on the expansion with CoreWeave. Maybe if you could talk about the economics. I know you guys mentioned on the call that you're going to pay the $1.5 million up front instead of a CapEx credit. Should we think about the rents other than that? Should we think about the rents on this deal as the same as what you had before?

Yes, exactly. Everything's exactly the same. And so after about just over two years, those contracts will look identical from a rate perspective.

Okay. And then I appreciate the goal of wanting to bring CoreWeave down to less than 50% of revenue by the end of 2028. I think that would require you to procure a lot more power this year in addition to signing on additional customers. So maybe just talk through the milestones that you need to hit throughout this year to be on track to do that.

Yes. And that's really about getting them below 50% of critical IT load by 2028. And we're working through that process today. We talk about the ability to continue to expand at existing sites. And that's a competitive process because we are getting direction in terms of how much additional power, we're going to be able to achieve at some of our existing sites and then some of our new sites as well. Very attractive locations. Our focus today is on building blue-chip assets. And we want to have those blue-chip assets with blue-chip clients. And so that's where our focus is today. And we're going to continue to execute and acquire more sites to bring more capacity online to secure more contracts and achieve our goal of getting them below 50% by 2028.

Next question is coming from Joe Flynn from Compass Point Research.

I'll maybe get some more color on the push out of capacity this year and the finalization of ultimately kind of data center designs. Like, what has been the biggest challenge, whether that be changing architectures, supply chain, and ultimately, as you wrap up capacity in the future, I mean, are you going to be designing to spec to support GB300 or Rubin architectures as well? Thanks.

Yes, of course. And you're absolutely right on that last point there. As we are evaluating the infrastructure development for the GB200 and the GB300, there are some incremental design changes that are required as part of that process. And as we've gone -- as we went through really Q4 of last year, there was some incremental permitting challenges. Some of that was driven by the increase in complexity and size. Other parts were for other -- for other sites, we had to go back and just reconfirm permitting based on the fact that supply chains are constrained as you look out into 2026. And one of the things that we wanted to ensure that we achieved was that we had the right equipment on the right schedules for the site plans that we had. And so, that required us to change some of the designs to fit for the equipment that was available to deliver on the timelines that we set forward. And so, there was just some incremental delays there. But overall, we have high confidence in where the delivery schedules that we've put forward today. And we believe we're going to be able to hit those timelines.

And, I mean, also just to address like maybe concerns about related to Microsoft pulling back potential capacity with Core Scientific, which we don't think the contracts are structured that way. But ultimately, let's just say there is a risk that CoreWeave's contract revenues goes down. I think what -- from your sense how would you guys, you might maybe like explain that impact and is there ability for CoreWeave to ultimately kind of go forward with or without Microsoft for, and maybe just any comment on demand there?

Yes. I mean, I can't comment specifically on any relationship between CoreWeave and Microsoft other than what they've spoken about publicly. But, I mean, CoreWeave's continuing to expand. You're seeing it not only with Core Scientific, but really across the globe and internationally. So from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so we're excited about continuing to expand with them at Denton. And Denton is going to be one of the largest supercomputers in the United States and it's going to be a flagship asset for CoreWeave. And so, we're really excited about continuing to expand our relationship with them.

Next question is coming from Brett Knoblauch with Cantor Fitzgerald.

Thanks, guys. Really appreciate it. Maybe just quickly on the delays, if you will, or the pushback in timing. Just want to make sure I heard you right. You're now expecting critical IT load this year to be 250 megawatts. Does that include the 16.5? And before, you guys were expecting, I think, 270 plus the 16.5.

Yes, thanks, Brett. Yes, that's correct. That's really a push out of just one 40-megawatt building out into early 2026. And you're absolutely right. That number does include the 16.5 megawatts.

Perfect. And then I think we've gotten a lot of questions following DeepSeek, which hit the space quite hard. What have you seen with customer conversations post-DeepSeek? Has it really changed anything or is demand just as good, if not greater, since then?

I would say from what we're seeing in all of our discussions is that people want to move faster. We've seen much more specific requests around locations in terms of developments and where they would like to build. But overall, the DeepSeek news for hitting the public markets rather hard from everything that we've seen on the actual demand side, demand continues to increase and those conversations continue to progress very well. So we think the DeepSeek was a little bit of a head fake for the broader markets, but overall hasn't changed the demand picture for us.

Next question is coming from Greg Lewis from BTIG.

Yes. Thank you and good afternoon and thanks for taking my question. Hey, Adam. Could you talk a little bit about you mentioned enterprise customers potentially. It's something that seems to be we're hearing more about beyond just the hyperscalers. As maybe you broaden out the customer base beyond just the hyperscalers, which it seems that latency is a big issue for them. Maybe scalability is a big issue for them. As you kind of look at potential enterprise customers, does that open up more sites that maybe in kind of a hype that -- does that open up more sites maybe in your portfolio and elsewhere that maybe under hyperscaler footprint wouldn’t work but through enterprise it might?

That's a great question. As we see those two different customer bases, hyperscale is obviously looking for a very specific set of criteria depending on the geography, oftentimes much, much larger than what's being looked at on the enterprise side. So yes, absolutely. Some smaller sites still with low latency capabilities are being evaluated for enterprises. But overall, one of the things that we're looking at is we want to have longevity in all of our assets. And so we're looking at having hyperscale at the very least as anchor, potentially a single tenant. And if they're serving as anchor, being able to fill out the rest of the capacity with enterprise clients as well. So the demand, does it open up more sites with enterprise? Absolutely. But we're focused on blue chip assets with blue chip clients, which includes both of those groups.

Next question is coming from George Sutton from Craig-Hallam

Thank you. Adam, you said two things that conflict a little. I just wanted to make sure I heard correctly. People are wanting to move faster on one hand, but you mentioned considerable increases in due diligence. Can you just sort of marry those two?

Yes, absolutely. The move faster is really about delivery timelines. Being able to complete the due diligence process is a different part of that equation. They talk about wanting to be able to deliver sites over a certain period of time, but that's also requiring folks to bring these sites closer to pad ready, closer to powered shell. And part of this is to weed out a lot of people who believe they're in the data center business because they have power and land. That doesn't make you a data center provider. And so that's really the difference here for Core Scientific. We have the power, we have the land, we have the team that can deliver those assets. And so that's what's bringing us into these conversations. And they want to move faster on delivery timelines. Once they have a signed contract, they want to have that firm delivery date. And so that's really the difference there. And I hope that married up that for you, George.

Makes sense. And then one other question on the $1.5 million per megawatt that you will be funding in this latest contract. My assumption is in a negotiation, given your balance sheet now, you can handle this pretty comfortably. Therefore, you'd rather have the revenue event when that occurs. That's correct?

Yes. That was definitely one of the considerations in it. Denton is a unique asset, incredible asset. And this is a great opportunity for us to continue to expand our relationship with CoreWeave. So we're very happy with where the economics landed on it.

Next question today is coming from Stephen Glagola from JonesTrading.

Hi, Adam and Denise. Thanks for the question. My question pertains to CoreWeave and the long-term health of the AI Neocloud business model. I think following DeepSeek, there was some arguably uncertainty on the impact to GPU rental pricing power long term if AI models were to get increasingly commoditized or proliferate in open source. Maybe you just provide your thoughts, one, on that, and two, any color to the extent you can on your confidence around the security of the CoreWeave contracts and the business model long term. Thank you.

Sure. I'll cover your first question, and then we can go back to your second. From what we're seeing in terms of the demand for CoreWeave's business, they're able to sign long-term contracts, which is something that's a very strong signal for the demand of the existing or the newest generation of GPUs that are coming out. If it was an entirely an hourly-based system for CoreWeave in terms of the business model, there are businesses out there that are like that, and they're much less valuable than CoreWeave is. And so we believe, based on how they're structuring their contracts, we have high confidence in their continued ability to deliver. I'd love for you to ask your second question, just because I hope I covered your first one clearly.

That was great. Thank you. The second was just, again, speaking, I guess, again your confidence in these contracts long term. I mean, you kind of just spoke on that and just the AI Neocloud business model in general long term. That'd be great, yes.

Yes, absolutely. They're definitely going to be winners, and they're definitely going to be losers in this situation. It's a growing business today. We're continuing to see further adoption. We're seeing each of these Neocloud providers continue to grow their contracted revenue. It's definitely an exciting time in the industry. And I think the folks who sign large contracts with large enterprise customers are going to be the winners here long term. I think that's what we're seeing amongst a few of these Neocloud providers, but I think there will be only a few winners in this industry.

Our next question is coming from John Todaro from Needham & Company.

Great. Thanks. Hey, Adam. Congrats on another lease. That's great to see. Question and a follow-up. First one as it relates to expanding tension with CoreWeave, was there discussions with other hyperscalers, or is it just CoreWeave? Then I have a follow-up on the push-out part.

Sure. Denton was a site that we were really slating for CoreWeave. We did have conversations with some other hyperscalers and other clients on those megawatts. As we talked about the 300 megawatts potential at other existing sites, we're in conversations today with other potential customers around that. There's really no guarantee that anything like that would go to CoreWeave, because what we do want to do now is really focus on continuing to diversify our client base, and our existing sites are great campuses for us to do that.

Great. Understood. And then I just want to make sure I have it on the push-out. So, I understand there's one 40-megawatt building that got pushed out to ‘26. So, are we still targeting the 200 megawatts by Q2 2025 that was in the initial press release, or I guess just kind of those first couple hundred megawatts, when should we expect those to be operational?

We're targeting really for the yearend number. I would say there was push-out throughout the schedule due to those delays, and that was really at one of our major campuses. So this is something that the timeline is elongating by a few months here. So, I would say the expectation is that the timeline for each of the megawatts to come on, the ramp schedule for these megawatts to come on, is a little bit later than was originally thought to happen.

Our next question today is coming from Kevin Dede from H.C. Wainwright.

Hi, Adam, Denise. Thanks for having me on. Just to go back to what John was talking about on your rollout here, can you characterize, I guess, how much the influence was permitting or equipment? It's still a little unclear to me. Apologies, Adam. What's really the key issue?

Yes, no, I appreciate the question, Kevin. I would say as part of the process of expanding that site, what we had to do was ensure that we had ample amount of equipment on the timelines that we were trying to deliver. That required us to source different types of equipment for certain parts of the buildout, which complicated the process for us to go through permitting, just because there was a multitude of different pieces of equipment that had to be ordered in order for us to be able to fulfill this additional capacity at that site. So it's a combination of supply chain and permitting that all really come together. And so that was part of -- that was really in aggregate what resulted in these delays.

So, more specifically regarding equipment, is it UPC, gensets, B200, the networking connectivity that you need?

It's not related to the GPUs themselves. It's all related to the, some of it's in the electrical equipment, some of it's in the broader design. So it's not one item to pin down here. It's really a plethora across the board.

Next question is coming from Nick Giles from B Riley.

Thank you, operator. Good afternoon, everyone. Congratulations, Adam, on another contract with CoreWeave. So, appreciate your target that CoreWeave represents less than 50% of critical IT, but that implies that you sign at least the same amount with other customers, but you do have 700 megawatts that you've outlined between existing and new sites by 2027. So, should we assume that the delta would be new customers as well, or could that kind of 130 be split between a new customer and maybe one more tranche with CoreWeave?

Yes. So we've outlined the 300 and the 400 number that's critical IT load megawatts, so about 700 megawatts. As we look forward if we have 590 of CoreWeave contracts the 700 available to us is really where our focus is going to be on executing new clients. So that's part of our goal to get them below 50%, to have enough capacity available and saleable for us to be able to bring them down to that level.

Got it. That's very helpful. And then maybe just any other color on how we should think about magnitude and cadence of these incremental customer contracts between now and then?

Yes, I mean, right now we're in discussions with a majority of the hyperscalers in conversations with large enterprises. Those really represent some of the larger buckets of saleable capacity and our ability to begin bringing them down below that 50% number much more quickly. There are other customers that we're looking at those would be more contracts that we would use if a hyperscaler or large enterprise didn't take a whole campus, but served more as an anchor tenant to a campus. But those customer conversations are continuing to evolve over the course of the early part of this year. We're very excited about being able to sell additional capacity, and we believe we're going to be able to execute on more customer contracts this year with new customers.

Next question is coming from Joseph Vafi from Canaccord Genuity.

Hey, Adam. Hey, Dinese. I'll add my congrats on the expansion at Denton. Maybe you could kind of tell us, compare and contrast the tradeoff between I think everybody understands revenue diversification is good, but it does seem like with CoreWeave, you've got potentially a lot less capital intensity on new bills than versus with maybe some other players in the sector. So how do you look at the tradeoff between potentially more CapEx on new contracts versus more revenue with CoreWeave? And then I'll have a quick follow up.

Yes, no, thank you for the question. We think about this business on the long term. We think about this as not a five-year business. It's a 20, 30, 40-year business. And so as we think about growing this enterprise over the course of the next few years, bringing revenue diversification from other clients is only going to help us, not only from a credit rating perspective in a high CapEx industry, to begin putting ourselves in a position to target becoming an investment grade over the course of the next three to five years. But also, really, we're thinking about this business to be a much more stable, free cash flowing business that all of our investors can understand. Today, with a majority of our revenue coming from CoreWeave that's something that we need to continue to work on to ensure that we have a business three years from now, four years from now, that's coming from multiple different sources and investment grade counterparties that can really show how strong of a company we have.

Sure, thanks for that color. And then we still haven't seen a ton of contracts in the sector yet. It sounds like the pace of discussions with providers and those looking to procure continue to kind of expand. Even at this early stage, has there been any change in pricing discussions with customers, even though we don't really have kind of a firm landscape yet, at least from our view of where pricing is at this point? Thanks a lot.

Yes, I mean, pricing is something that is very geographic specific and also proximity specific. So how strong of an asset we have. And so you have to think about it in a few different ways. There are definitely certain markets that demand premium pricing across the industry. Those are some of the tier one markets. And then on top of that, it also relates directly to what is the latency? What is the proximity to that major metropolitan market? And so there is a little bit of price discovery. There was a lot of price discovery in 2024. Price discovery is becoming, we're starting to find pricing, really a pricing foundation across a number of different markets. And so I would say pricing is really stabilizing over the course of 2025. And the expectation is by the time we get to 2026 we'll have a much firmer footing in terms of where that lands.

Next question is coming from Bill Papanastasiou from Stifel.

Good evening, Adam and Denise. Thanks for taking my questions. There was mention on the call about heightened scrutiny given the influx of low-quality data center operators coming into play. Can you add some more color in terms of what the existing supply-demand dynamic could look like? And are you getting a sense that we could see hyperscalers throwing more of their weight around going forward and how that could impact terms that are secured with these counterparties?

I think one of the things that we've seen is as the landscape's developed over the course of 2024 and a number of new folks enter the industry, really a lot of these hyperscalers are looking at certain sites from the perspective of they would rather just buy them from people who don't have the experience to actually develop them and take them over the goal line. They're finding, obviously, other partners to work with them on construction, design, et cetera. But from where we sit today, I would say hyperscalers are not necessarily throwing their weight around in that regard. What they're doing is making sure that they're completing all the steps and the due diligence. Given what we saw happen at the end of last year related to some contracts with hyperscalers that ended up getting canceled, it's really about ensuring that those folks are putting, like hyperscalers, are putting their capital in places where they feel confident. I think there was such a mad rush in 2024, especially in the early parts, where people were just trying to grasp as much power as they possibly could. And today, where we sit, it looks a little bit different. These folks want to make sure that they're building assets in the right locations and that they have the right exposure for the demand picture that they have for that location.

Thanks for that color. And for my follow-up, are you seeing any changes in demand across inference and training workloads on the back of DeepSeek and other recent headline news? I just wanted to hear your perspective on how this may impact your future site acquisition plans. Thanks.

Yes, absolutely. I mean, really from what we're seeing now is a lot less focus on some of these larger scale training sites and much more focused on locations that have both a lower, a better proximity to major metropolitan areas. So I would say the demand, or what we're looking at from a site evaluation perspective is much more targeted and much more focused to sites that are closer to major metropolitan areas than at some points last year where we definitely were evaluating certain sites that were further away but had greater power capacity.

Our next question is coming from Rosemarie Sison from Odeon Capital.

Thank you. Just to follow up on that comment that you made, Adam, about proximity to major metro areas. Would that mean that you're potentially looking at expanding out of the markets that you're in right now possibly into the East Coast or the West Coast as those opportunities present themselves?

Yes, absolutely. Thank you for the question, Rosemarie. I mean, we are building one of the larger data centers on the East Coast right now. And so we have we have a lot of confidence in our ability to continue to expand in new markets. This is something where we're going to be one of the larger providers in the Dallas market. We believe something similar in the Atlanta market as well. So we're definitely looking at continuing to enter into new cities. But albeit that looks a little bit different because we might have less familiarity with the utilities in that location. A point on that is we currently operate with seven utilities. We're continuing to expand our relationships across that base. And so we're taking a very diligent process, a utility first process, when we're evaluating entering new locations to ensure that we have a strong partnership and relationship with that utility so that we know that we have that firm power available when we go take them to a client.

Interesting. Okay. And then just to follow up, you have a lot of cash on your balance sheet right now that you can use to fund the upfront investment for some of these data centers as you say you will be doing with this Denton expansion. Do you see that, how do you look at that? And you mentioned also that you want to be investment grade rated. So, I assume that at some point you may be raising debt to fund some of that. How do you look at that capital allocation decision?

Yes. So, I mean, I would say as we look at contracts going forward, there's going to be a need for additional capital deployment. As we continue to grow this business over time this business is going to mature and look much more like some of our other public peers in the data center industry as we're targeting leverage ratios, as we're targeting a number of different metrics that are important to the data center industry. Our company is going to go through a period of maturation where we're going to begin to look much more like them from a capital structure perspective. And so that's really the comment there is that we are going to have to avoid capital on future deals. We know that. And we want to make sure that we put ourselves in the right position in a high CapEx industry to ensure that we're achieving the lowest cost of capital that we possibly can.

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Thank you everyone for joining the call today. And look forward to speaking with everybody in the coming weeks and months. Thank you. Thank you so much. Take care.