Core Scientific, Inc. (CORZ) Earnings Call Transcript & Summary

So I'd like to welcome everybody here. Glad you made it. I'm not from Texas. It's a big state and distances are really, really long. So understand why it took a little bit longer to get things going. But it's good to have everybody here. I also want to note that we have an audio webcast simultaneously right now. So people are logging in through the web, and they can hear us through the audio webcast and see the slides that we're presenting. So we may have been quiet, but we've been very busy for all this time. It's good to be engaged with all of you today. In addition to -- I want to mention also for people on webcast that a copy of our presentation is available on our website in the Investor Relations section. You should be able to see it on the webcast screen itself. But if you want an extra copy, you can find it there. All right. So let's go to the next slide. So I'm Steve Gitlin, Senior is President, Investor Relations with Core Scientific. Very good to be with you. This is our legal disclaimer. Please review it. Today, we are going to be updating you on how we think about our business. We've had an opportunity to reflect as Adam will speak to during the course of the presentation, and you'll have an opportunity to hear from our leadership about what we've been up to, how we're thinking about the future and the path we charted for ourselves. We will take questions at the end, and for those listening on the webcast, you can also submit questions through the Q&A panel -- Q&A pane on webcast interface. At this point, I have the pleasure of introducing Adam Sullivan, our CEO; Denise Sterling, our CFO; and Matt Brown, our Executive Vice President Data Center Operations. You'll hear from all of them today, and I would like to turn the call over -- turn the presentation over to Adam?

Good morning, everyone. Appreciate you all for joining in. I know as Steve mentioned, we've been a little silent over the course of the past 4 months. Obviously, we've been continuing with our filings and our monthly updates. We feel like now is a great time, given how close we are to our emergence to finally start telling you guys a bit more about what we've been up to. The good news is, we've been up to a lot of very good things. To start some of the highlights. Just over the past 3 months, we've closed our Celsius transaction, which actually brought $14 million of cash into the business where it leaves us with over $300 million in claims. We also secured emergence plan with Bitmain for a $54 million investment. That included 27,000 machines coming to us. That virtually helps us, not only increase the efficiency of our fleet, but also to fill in some additional spots that we have available. We've also mined over 11,600 Bitcoin in our facilities year-to-date. That puts us 18% above our nearest competitor. And lastly, on the software side, which is something we're actually going to talk about a bit more, so we've rolled out low power mode and ultra low power mode availability to our machines, which gives us the opportunity not only to extend the life cycle of our machines, but also prepare us in a scenario where we have downtime volatility to rapidly increase the efficiency of our fleet [Indiscernible]. So with that, I'd like to introduce myself. I'm Adam Sullivan, I'm the CEO of Core Scientific. I've spent the last decade in Financial Services, most recently run the investment banking team, focused on this industry in particular, helping the company's craft their strategies and raise capital for their businesses. My vision for this company aligned well with what our Board of Directors is looking forward in this company, and I'm very thankful for the opportunity that this Board has given me to lead this company. So I thought it would be most helpful for us to start with what brought us here, what brought us to Chapter 11. We'll talk about at the outset. Coming down to the focus. Our focus since inception is helping us grow. We did it better than anyone else to improve 724 megawatts of availability of infrastructure with the ability to build another 370 megawatts of [ partially ] of infrastructure. That hyper growth mindset, came at deep cost to our company. That included an overlapped balance sheet as well as building out infrastructure at multiple locations and purchasing large groups of machines at a single time, which present at a very capital-constrained environment. And so for us, the combination of having large debt service, coupled with large commitments on both the infrastructure and machine side, but is in a very precarious situation when we had a bitcoin downturn and a power price increase at the same time. For us, that's 2 areas that we need to spend more time focusing on. And so when we think about the transition of this company from pre-Chapter 11 to today. It really comes down to a transition. And for us, that transition is a transition focus and sets a focus from hyper growth to a focus on operational efficiency and capital efficiency and capital allocation. So for those 2 items, we'll flip to the next slide here, we've really broken it down to 4 categories. Those 4 categories that shown here on page, but it all starts with managing our costs. Costs are in 2 areas for us: expenses and capital expenditures. So on a cost side, we went through a full bottoms-up review of every dollar that we spend in this company. That's led us to what we've seen in the Q3 results, which is a 40% reduction in year-over-year cash operating expenses, a significant reduction for our company. On a capital expenditure side, we've taken a review of all of the projects that we have at the end. So that includes small projects and large projects as well as our minor purchases. We actually put them against each other to determine what is our most optimal use of cash at any given point in time. We need some strong capital allocators, for people who want to invest in our footprint. And that's what we've done so far. On managing risk, this is another two parter. This comes down to the balance sheet as well as our Bitcoin and power risk. On the balance sheet side, we're going to have a significant focus on paying down our debt post emergence. We'll talk about this later in the deck when we talk about our emerging plan. But paying down debt is going to be a major focus for our company to help derisk our business and reduce our credit risk. That gives us an opportunity for equity to perform better, the less credit risk we have in our company. The second point here is managing the power and Bitcoin risk, led us -- partially led us into Chapter 11, given the structure of the company that we had previously. But this is going to be a major focus for the business going forward. We're finding tremendous opportunities on the power side for us to increase the -- for us and maximize the profitability of our machine fleet at each of our facility. That's related not only to hedging opportunities that we have at the sites, but also in the new programs that we're discovering by communicating more deeply at all of our power providers. The next point here is developing team. This is really important aspect for us. We are a team of about 280 employees today. And what we did about 4 months ago was went to full organization internally of our company. We need to structure this company to prepare for our future. And so we'll actually talk about this bit more on this next point, which is aligning technology. As part of this reorganization process that we went through, we actually pull our technology team out from our recent operations team and put a greater focus on our technology. That technology team is split up into 3 different groups. It's our internal software and data analytics team to a third-party management of our software. And the last part is our R&D team led by our CTO. Each of those teams represent significant opportunities for us. On the software data analytics side, we're capturing a significant amount of data across our data centers. We operate over 700,000 issuance in our facilities, and we're working continuously to find ways to optimize each of those facilities. And management of third-party software, this is another area, coupled with finance and our technology teams we've actually been able to push our following process much more quickly, more recently following our Q3 5-day ahead of scheduling. And so all of these items have led us to a point in time where we wanted to improve not only our operations and make business as usual, feel like business as usual, but also we've been looking more deeply inside the company to really get to a point where we feel like, we know who we are as business. And so as part of that process, we went through a full, I would say, review of everything that we've been up to, what all of our capabilities are, has really led us to what I would call our new vision statement. So at our core, we transform energy into high-value compute with superior efficiency at scale. Here we can break this down kind of point by point here, what is high value compute? That specialized compute that generates high-value for our stakeholders and clients. Now superior efficiency and scale, that last point there. It's better to start with scale. Scale is going to come into play. You can see of the number of bitcoins the people have compared to our competitors. And when you think about it from a power perspective, 724 megawatts of operational infrastructure puts us on par with AWS in terms of power consumed in North America. And efficiency is a clear one. As this metric continues to become more competitive over time, the efficiency is going to become a much bigger deal. In a time period where we haven't had the opportunity to continue growth, we focus our attention on improving our efficiency, improving our facilities and identifying all the projects that will allow us to improve the efficiency over time. And so for us, it's given us -- it's a really interesting opportunity to look at not only what we're doing on the Bitcoin mining side, but also look back at some of the things that we've done historically as a company. Historically, we've operated in a number of internal workloads in our facilities. We actually operated in a 6-megawatt data center in one our locations that does GPU workloads for AI and video rendering. So we think about our business. We think about ASIC in a little bit of a different way. Obviously, everyone knows ASIC, application-specific integrated circuit. They're in every one of our -- every one of our bitcoin miners in our facilities, they're also in things like your toothbrush, but that's an ASIC. The way we think about ASICs is application-specific infrastructure configurations because what we're building is infrastructure dedicated to certain high-value [ speed ] applications and it provides us a unique opportunity given our background, coming from traditional data center operations, coming from the hardware and the technology space to continue to develop in the new areas, and we're going to continue to evaluate those opportunities over time. So let's talk about where core is today. Today, core operates 145,000 machines for ourselves, just under 200,000 in total, which include our hosting clients. All of them posted in 724 megawatts infrastructure. We've mined over 16,000 Bitcoins in our facilities this year. That's including our hosting customers and our self-mined. We currently operate about 15 exahash, which will be adding on to 39,600 machines that are coming between the end of this year and early parts of 2024. So let's talk about what 724 megawatts actually looks like. So here on the slide, what you see is our 7 facilities across 5 states. It gave a significant amount of experience in developing infrastructure. We see both greenfield and brownfield operations incorporated here. Here for us operating 700,000 machines has given us the significant amount of learnings over the course of the last 6 years in the business. Each of these facilities represent advancements that we've made in our facilities improving our infrastructure, improving our capabilities in terms of capturing variables in our data centers to improve the efficiency of our machines. And so when we think about what we've been developing, we're really excited not only about the opportunities that we have in our system data centers to improve the efficiency. When we think about our 2 Texas data centers, Denton and Cottonwood. At those 2 locations, we have a total partially developed infrastructure of [ 370 ] megawatts. That's fully approved and greenlit by ERCOT and we have most of the infrastructure already here. So when you think about the [ 372 ] megawatts, that comes at a very discounted cost compared to what our peers have looked like when they're trying to build new infrastructure. Because we already have the high voltage, we have many buildings already in place, and the average build-out cost, megawatts, that makes 370 megawatts about 200,000 megawatt, and that's all inclusive. So obviously, right now, we're very focused. Once we emerge our growth in Texas, it doesn't mean we're taking away the focus from continuing to optimize and get as many quite as possible out of our Texas facilities. So let's talk about -- a little bit about the industry quickly. What you see here is the growth in hashrate, which is seen grow significantly over the course of the past few years. The top single line is actually in the hashprice. And then what you're seeing below is the gray bar at the bottom represents publicly traded miners hash rate. And then you see in the blue, it's the rest of the network. Now this represents a significant growing competition from outside of just our public-traded mining peers. And it shows that the market is continuing to grow even in the face of a relatively flat hashprice. Even given this growth in hash rate, we've actually been able to stay very competitive in the markets. I mentioned earlier, we mined at 11,631 bitcoins, that's 18% greater than our nearest competitor. And we'll continue to build ROE as we move into 2024. But I want to make sure something is clear when you look at this chart. Market leadership is not necessarily our focus. Our focus is being of -- the most efficient and also great capital allocators. And so for us, we believe if we execute on those 2 things, the growth will continue to come, and we'll be able to continue to hold the market leadership position if we focus on those 2 areas. On the next slide, we talk a bit more about our efficiency here. As we've gone through this process, we've had the opportunity to reflect on our existing facilities, look at operations not only or look at efficiency, not only in the operations side but also on the technology side. What you're seeing here is the results of that focus. We've continue to start pulling away from our peers in terms of Bitcoin produce per exahash capacity. So for us, we look to continue to increase our lead over our peer set, so we can continue to produce more Bitcoin for exahash than any of our peers. So what really enables all of the efficiency gains, comes down to our proprietary technology and our technology team. It starts with our software. We've built our other than fleet management software, our own [ proprietary ] management software and our own firm market. Having the opportunity to operate all 3 parts into software stack, provide us unique capabilities, especially given the fact that we don't have to rely on third parties for any of the software that's utilized to operate our data centers. And we also talk a little bit about hardware here. It's another important point. We're adding sensors on all of our data centers to collect more variables. Because there are correlations between wind speeds, temperature, all these different things that are incorporated. When we're able to add sensors, we're able to improve the efficiency of our machines and choose the most optimal state the machine should operate in. It's also given us the opportunity to look back and reallocate our machines amongst our facilities to ensure that we have those machines in a location where they have the best chance of being profitable in a downside scenario. Because that's what we really want to protect forward, we're going to protect our margins and protect our free cash flow. Now all this cannot be enabled without our fantastic team. And we have a few of our key members here that you'll hear from shortly. Our team comes from all different backgrounds, whether it be data center operations, software, hardware, financial services. This entire team has come together from outside sectors of mining industry to produce the best Bitcoin mining company, operate and scale with efficiency. And so with that, I'll introduce our CFO, Denise Sterling, to talk a little bit about our revenue.

Thanks, Adam. So good afternoon, everyone. Nice to be with you here today. And I'm going to actually start by giving you a little bit of background about myself. We'll then talk about historical revenue performance. And then I'll give you guys a peak into the future. So let me go ahead and get started. I started my career in public accounting. I then spent 20-plus years at Visa, where I held roles in tax and finance and strategy as well as enterprise risk management. And I then got the opportunity to go to work from a mission-based fintech organization with the responsibility of building out a company finance organization and ultimately, participated in taking the company public. In the last 2.5 years, I've been here before, and I have the pleasure of meeting the fabulous finance organization. And I'm excited to be here with you today. So let's go ahead and get started. So I'm going to begin, as I mentioned, with historical revenue performance. As you can see, over the last 8 quarters, we've continued to see volatility and continued industry -- over the past 8 quarters, we've continued to see the industry as well as our business evolve. We've seen a mix -- change in our -- shift in our mix of hosting revenue as well as -- we've experienced a shift in our revenue mix the elimination of our equipment sales business. They now go -- our hosting customers now go direct to the manufacturers for deployment of their miners in our facilities. We've also seen a rotation in hosting -- our hosting segment. We really are focused on much fewer and also more profitable plans. This actually led to the termination as well as the decommissioning of several of our hosting clients that were among those our less profitable [ clients ]. We also entered into proceed-sharing arrangements where we actually share the mining proceeds, once the actual bitcoin costs are covered. We also have taken kind a bit -- as we heard from Adam, we've actually seen a significant increase in the overall network hashprice and our self-mining income has been directly impacted not only by -- ability to actually see the volatility of the Bitcoin rate, but also the impact of the change in the -- sorry, the rising difficult to change in the [cost]. The positive thing is that we actually did see year-over-year, a 15% increase in our self-mining rate from 13 to 15 exahash. So it did profited a bit but we did see a significant increase, in fact the network hash rate overall has increased significantly. So now let's take a look at the future. So what I thought I would start with is in the last few minutes, we actually did update our business plans. And I thought that what we might do is take a few minutes of this group just to highlight the reasons [ of finance ]. So first, we extended our business plans through 2027. We also decreased our hash price for $0.08, to $0.07, more in line with what we see today. And that's for the entirety of the forecast periods from 2024 through 2027. We also changed the timing a bit around our capacity expansion as well as our miner deployments to actually take capacity that was originally slotted for the first half of our planning period and really hash rate disburse that more equally across the period. We also increased the number of refresh layers to align with our available capacity. So let me tell you little bit more about where the business plan is today. We've shown continued growth in our self-mining revenue. As you can see there, it's impacted not only by our expansion, but also by increasing efficiency as well as productivity, by looking at upgrading our miners. The plan actually included, as Adam suggested, the plan included 372 megawatts of additional capacity. The beauty of this is that based on previous investments, we're actually able to complete that expansion at a much lower marginal cost. We're also increasing efficiency as well as productivity of our miner fleet and doing that through acquisition of the next-generation mining equipment, such as S19, XPs as well as S21. You can see there that over time, we continue to have a flat trend in our hosting revenue, and that represents about 5 to 10 hosting customers as well as about a fleet about [60,000] miners. So let me -- the other thing that I wanted to actually spend a few minutes on is what's not on this slide that I think is absolutely critical is that we're continuing, as Adam suggested, we're continuing to manage costs. This is a heightened focus from a management perspective. We are actually participating in power programs to reduce the overall cost volatility of our power. We're also highly scrutinizing, looking -- Matt and the team to take a look on a daily basis of what our total data is going to cost, our facilities operation cost per megawatt and looking to find out ways to continue to reduce those costs over time, increasing our profitability. So all that to say, we're actually very, very pleased with where we landed from an overall growth perspective. It's really driven by efficiency, building out expansion in addition to increasing productivity and overall cost discipline. We really are excited about the fact that we're going to be able to build our balance sheet as part of this process and also be able to fund our growth for operating cash flow. So with that, I will turn it over to Matt, who will take you through operations.

Thank you, Denise. So a little bit about myself, those who yet don't know me from the previous events. Matt Brown, EVP, Data Center Operations, which also includes design construction these days. My background, 10 years at Hewlett Packard, building, operating, engineering data centers, data center infrastructure. Few years at Equinix. So IBX Operations for North America and Capacity Engineering, Global Lead Principle. So pretty long tenured in the space in terms of building compute, infrastructure and scale, right? And -- so talking a little bit about our data center footprints and kind of what this means to us. First off, all those data centers, all those miners we have 200,000-plus miners in our portfolio between ours and our customers are supported by 105 data center technicians across those team. So our technicians do an amazing job, supporting fleet of that size. Geographically diverse data centers, has -- we have a few advantages here, one of which is equipment and market risk, right. Minimizes risk, data disasters, fleet disruption, environmental -- other environmental factors that come into play when it comes to our production and performance of our data centers. And then give us some leverage that is unique to us or certainly a large advantage for us. So one of which is we have all these data centers. And we understand the between the analytics, the data that we collect on each one. We collect [ analytics ] of a regional miners. We know what the operations performance characteristics of every data center. Every building within each data center campus, right? And what that allows us to do is look at all the optimization opportunities, what model miners should go to which facility. Every facility has different utility rates. Some facilities we participate internal power program, some of them don't. Some have better performance of time than others, right, at different parts of the year, right? So these are old variables that we can leverage to our advantage and understanding what is the global optimization in terms of how we position role mostly by miner efficiency, model types, et cetera, et cetera. So we expected a tremendous amount of data, and we use that, and we use our distributed fleet as really as an operational advantage, right, for the entire company, and we can move [Technical Difficulty]. All that's not possible without our regards for our team. A lot of these team members, both at the L1, L2 level are able to drag with me over the years from what Packard and Equinix days here in the Core. And so if there's any team in the industry that is how to take energy convert it, high-value compute at scale, it's the team. It's the team and I'm fortunate to have a team that I have. The functions here that are represented by these individuals, team leaders, mining operations, sales and engineering, construction, data center reliability and safety where we have a big focus on that function, supply chain operations and sort of our deployment and logistics teams are the best in the world, I guarantee. Having said that, our generation Core data center lines, which you'll get a chance to see in-person are some of the, I think, we are one of the best facilities in the industry today. We look at our advantages here, our all [Indiscernible] clients are using active methodology today, right? When you figure the representation of a [worse favoritism ], and we're always looking to improve our design and looking how we're going to optimize for the best performance at those possible costs, right? All of our designs, our generation 4 designs are encapsulated fully -- encapsulate ability. Today, the bitcoin crisis in a [indiscernible] converter. We want to make sure we protect assets and then our assets -- and that the data center we provide really optimize for reliability, performance, right? And again, I think we're the best to do it as far as the industry is concerned, right? And on the power side, in our Gen 4 facility [indiscernible] upfront we own and operate our substations. They can manage for us to do that, right? While they take high voltage directly from the grid, right, which lowers our costs, lowers our cost of power and improves our reliability taking distribution voltage, step down voltage directly from a utility provider is often very unreliable, right? It's difficult often to transform the usage before that -- deployed that scale, right? So we're in a situation where we build and own and operate and manage the substations. Okay. Then with security side. We take security very, very, seriously. [Indiscernible] around-the-clock, all facilities that monitors are based on operation center located in Austin, 24 hours a day, 7 days a week. That operation center, speaking of is -- plays a huge role for us when it comes to grid response. We monitor real-time prices -- real-time transaction from ERCOT. We look at grid volatility across all of our grid partners. And that team knows when they need to pull out, when they need to execute on a grid response signal from our utility providers or will it be we just need to dedicate an improved profitability by [ toggling ] miners and different operators. And we can do that with a push of a button. The services -- the data operations teams provide for us and for our customers is unparalleled. We have our own in-house, hashboard repair teams. We do chip level and trade level work on all key [indiscernible] right? Hashboard goes down to one of our facilities. We send it all to our central repair facilities located in Dalton, Georgia. That team repairs it, sends it back to us. We put it back in operation, right? If we were just -- if that team was just in the business of doing hashboard repairs, it will be one of the large hashboard repair centers in North America. This year alone, the team did 30,000 hashboard repairs, which probably represented more than 100,000 chip repairs, on a average 3 chips for hashboards and probably [Indiscernible], right? It's a huge, huge, huge advantage to us to have the team. By the way, that team is only 20 technicians by the way, doing that repairs, amazing efficiency, amazing efficiency. So -- and then our support activity, our data center teams are top-notch. More than 100,000 support activities between our self-mining suite and our customers. Always use that we keep hashrate online, and we're really good at it, right? And then I want to just point out real quickly our rapid deployment, which is it's capabilities. 2 years ago I came here, we have to build, we had to figure out how do we scale deployment as an infrastructure, how we build 700 megawatts in 2 years? How do we deploy how many miners as we have deployed in 2 years. I didn't come without having the engineer like logistics and supply chain in a deployment function that can move quickly. And so this team and in the processes of their capabilities we build in-house. We are consistent, we're wisely deploying 30,000 miners a month, every month in and out for as long as we need to on a sustained basis, that we had, right? No one else could do that. I can say they can do that. And matter of fact, it's probably a lot more than 30, I'm being super conservative here. So then our supply chain operation like none of those works. We can't keep hashrate aligned, we can't perform for 30,000 hashboard level repairs. We can't execute on 100,000 support activities. If we don't have supply chain that will be able to happen, right? So our selecting function whether they were [indiscernible] ensure that we have continuous raw materials always just in time. We never keep too much inventory. We never have too little. We understand what our lead times and what our availability of every single component from a [ suspicious transport]. We always have perfect line of sight, on every single component and network that means to us, that always means we're always ahead. And I have sort of a mantra that every site manager knows. Thous shalt not [Indiscernible] parts, right? So the golden rule. Then last, but not least. As Adam said, we've been quiet. We've been busy. So 200,000 miners and 500 technicians certainly 1 data center technician for each 2,000 miners, roughly. Our performance, Q4, 95% miner up time and our 94% hash rate utilization. All this is telling you that hash rate utilization is an efficiency metric that we track it early, right? Out of our energized hash rate, how much of that is actually generated you can see, right, which is the number we report on, right? In addition, in contrast to how many miners for were up hash rate versus their operational hash rate. So we look at those 2 things separately. They don't always correlate, they don't always correlate. But when they do, our goal has always had kind of unity between those 2 metrics, right? We want to see them hit inside the correlate. When they diverge, there's a problem. There's a problem. There's a problem with operational efficiency as they diverge too much, right? Then we look at of course -- September operating safety for incorrect hash, as Adam was pointing earlier like mining efficiency is a big focus for us. And we'll continue improving our mining efficiency over time. But that number, 64 exahash in September at the top of infrastructure for sure, right? Then FY '23 impact is the quiet facility which -- we deployed 60,000 miners this year in '23 between our customers and our mine fleet, right? That's not including -- but including -- was not mentioned here, are 3,000 miners of fleet compensation we executed on in the last 2 quarters, meaning repositioning our fleet to maximize profitability or somebody fleet, right. At that point, over 100,000 miners in FY '23 operates seems they'll execute on, 130 gigawatt hours of grid support activity. It's how much energy returned on to the grid. And '23 across a little more than 400 support events across our fleet. We're getting very, very, very good -- battery support. Very good, very proficient. And by the way, every risk for hold we've received from our utility partners, we've hit 100% of the time one site. And there's a lot of -- there's constraints around timing, how fast you can execute, how fast you can bring down load, how fast can you bring up load. Right now, we're batting COVID. And then our support teams, we keep hash rate online. We had 9.6 at hash rat support activity in '23, right? All this means is that we're really, really good at keeping as much hash rate on the line as we can rightly possibly can. And again, this is not possible without really our rock star team and rock star organization, motivated employees. And we did all of this while we were chartered up, still, right? They had some research about our teams, our internal motivation wanting to take the company forward. If we can do this under the stress and the constraints of Chapter 11, right, imagine, what we'll be able to do when we emerge in '23, right? So it's sky going for us. So I'll stop there, and kind of hand it back to Adam Sullivan.

Thank you, Matt. Let's talk next about our emergence and growth plan for going forward. So after some lengthy, challenging negotiation pursuing all of our creditors and stakeholders, we are pleased that finally announced a couple of weeks ago, our proposed restructuring complete. Now this proposed emergency plan considers a number of different items that I'm going to walk through here. So our planned emergence total enterprise value of $1.5 billion. That's including just over $720 million net debt. The key to this is, this gives us a pathway to being debt free. This is very unlike the company in the past in terms of our capital structure, where today, based on the strong performance, we have the opportunity to finally delever this business. Now when you look at this chart, you're looking at upon exercise and upon conversion of 2 different items. The first one is, when you see here when we get to the $1.65 billion TEV, you see that conversion, that's the optional conversion price for the new convert. So $260 million of the $720 million of proposed debt is the new convertible instrument. They have a mandatory conversion feature at $2.1 billion. Now the next item that you see in terms of the drop-off of the total debt on the company, is this large drop off will get to a point of about $1.875 billion. Now that's the strike price for the Tranche 1 warrant. So now existing equity is proposed to receive 2 warrants. Now the first one is an important one for us. It's a cash warrant of $1.875 billion. That cash warrant brings in just over $600 million cash to our business. It gives us the opportunity to move from a company with debt to having a positive net cash position in a way our company has not had in a very long time. This is a tremendous opportunities from our perspective, having the opportunity to not only derisk our balance sheet in a major way going forward is unique. And we also are very excited about the opportunity to actually give all of our creditors, in this scenario, they're not only -- they're investment-backed, but also return their investment. So when we talk about the time line from here to emergence, we accomplished a major milestone yesterday. We received preliminary approval of our disclosure statement of the plan. That's a very big milestone for us, and we consider our time line in trying to target an emergence of early January. We're very focused on pushing this case on an expedited basis. We're pushing hard, get to the point where we can emerge within the next 2 months. And so we believe the path that we're on right now as long as we can continue to hit our milestones provides us that opportunity. Now some big items here. The solicitation of the plan and the equity rights offering, we hope to begin at the end of this week. If we're able to do that, then yes, the plan the equity rights offering will continue that solicitation process until December 8. Right now, we have a confirmation hearing where our plan would be confirmed scheduled for December 22, after which it's about a 1- to 2-week process before we're effective and we would have the opportunity to [ relist ] at that time. As of today, we have plans to relist on the NASDAQ under our same ticker CORZ. So let's talk about what's next for our company post emergence. And this is a really important plan for us. What we see here is our self-mining fleet, our hosting fleet as well as the growth in infrastructure over time. This growth, as I mentioned earlier is mainly focused on our Denton and Cottonwood facility in an extremely low cost compared to our peers, given the infrastructure development costs that we've already put into these sites and into those facilities. We expect our hosting fleet rate relatively similar to what it looks like today. That's mainly driven by the fact that we expect to continue to maintain a relatively similar mix in terms of procedure in fixed rate -- fixed price closing agreements on a go-forward basis. And we expect to continue to invest in machines out of available free cash flow. That's a big item for us, if not overpromising on growth, making [ 2 ] large capital expenditure promises to create a delay between dollars going out of our company and those dollars coming back in. For us, over performance represents opportunities for us to pay down debt so that we can continue to perform better in the future because we're looking at this company not on a 1-year cycle or 3-year cycle. We're thinking about helping out now to 5-year to 10-year cycle so that we can plan for the future and not be caught up in the short-term raises that seem to occur between of the trade mining companies. We're hyper-focused on efficiency, hyper-focused on capital management and to do that, we need to ensure that we can derisk our company and part of that is delevering our balance sheet. So to summarize, our team today is very focused on operational efficiency as both Matt and Denise noted earlier, that not only on the operations side, but has also come down on the financial side, which touches both efficiency in terms of capital, but also thinking about how we're managing that capital. And so for us, we're managing the risk. We're managing the operations. We're managing our costs. We're doing all the items necessary to set this company best for success. With our plan that we just walked through, we finally have an opportunity to delever our balance sheet in a way that's meaningful and brings us into a net cash position as long as there's performance and execution and conversion of those 2 interims that I walked through earlier. For us, we're looking to be a much more transparent company going forward, but not only to our investors, the research analysts, also to our employees. This is a big area, ensuring that everyone involved in this company not on the same page, but where we're heading in the future. So from our perspective, Core Scientific is extremely well positioned for success upon emergence, and we couldn't be more excited about 2024. So with that, we're going to start the Q&A session of the presentation.

Could you walk through a little bit of the CapEx for targets?

Yes.

$58 million as it's about equally between building out Cottonwood and Denton. As you can see there, we basically are going to be focused first on Denton. With 72 megawatts in 2024. And then we are really moving the next 100 megawatts to Denton in 2025. And like I say, I mean, a few years as Adam suggested and I mentioned, previous investments in Denton actually infrastructure and allowing us to actually build out all 372 megawatts already...

Then you go to some of the cost reduction headcount, where have you found the [ most ] opportunities so far? And where do you think there could be additional opportunity?

Yes. I think it's across the board. It's a great question. It's across the board. As I mentioned we're not only looking at our cost of revenue where we're highly focused on power. And as I mentioned, participating in this power program, one of which we have already done, which is hedging. But then really partnering with Matt and as well as the rest of the management team to really scrutinize every dollar that we're spending. So we obviously have a business plan that it actually spans 4-year period, but we are in the process right now of developing our Cottonwood operating plan. And as my peers can attest, we really are truly doing what I'll refer to as zero-based pledging and going back and looking at all of the -- all of the costs across the organization so that they can actually outperform the plan as we're confessing in front of you. So certainly on the plant side, we continue to find efficiencies, but really focused just as much from a profit revenue standpoint.

And I'll add on to that by saying, like we are intently focused on cash flow to the timing of the expenditures. So even if we had budget to extend our project, we want to make sure that the timing, cash flow, that is something that we pay attention to, which is something we've all been working together on making sure that we have the right controls and processes and the visibility across the board, which is something we weren't good at from a previous center level.

And to add even further to that, as Adam mentioned, I mean, I think we all view the last year in sort of an interesting way as we get. It's allowed us to really put more process in place, to put committees in place to actually look at capital allocation, to not allow some prioritization within silos, but we need to look across the entity. And everything from adding new headcount it's going to be put on an investment with. But we really are truly scrutinizing each dollar expense just to ensure that we're actually allocating that capital to the right investment. And that we have the ability to even have some tension at the top, so that we know that we're prioritizing so many things that are going to drive possibility.

So Adam, you mentioned that the hearing was approved November 14, right? And that's by the [Indiscernible]?

Yes. So our plan initially, our statement were traditionally approved yesterday.

Okay. So does that mean that your creditors have agreed to the structure and I guess, the way that you're handling their claims.

Yes. So today, we have all of the creditors except one group on board existing plans we have, we'll utilize the next 1 or 2 weeks to get to an agreement through the UCC, the unsecured creditors group. As part of this, we would look to get them on board during the solicitation process so that they can vote on a plan as well. But today, we have all of our other creditor groups, signed on to the existing plan that was conditionally approved yesterday eventually.

So for each creditor, there -- are they willing to accept preferred and the warrants? I mean can we just kind of go through it, and how the allocation of warrants and the preferred breaks down?

Of course. So -- and we mentioned, one group of warrants, but not -- yes. So our existing equity will start there. Our existing equity is receiving 1 tranche or a tranche 1 warrant and a tranche 2 warrant. The tranche 1 warrant is a cash warrant and exercises that $1.875 billion. There's a second warrant given to existing equity. That is -- in warrant there is a strike price of $2.5 billion. We had accretive plan that protected 2 ways and protected the convertible note holders up to their downside and protected the equity holders as to ensure that -- they received an adequate amount of value that protected them to the upside, which is where you see warrants come to play. So for every share you get one tranche 1 and one tranche 2. It's a percentage of a warrant, that percentage of the warrant will be dictated by the TEV, sort of TEV is at $1.5 billion. And then the number of warrants is dictated a bit based on allocations between miner equipment vendors and a few other parties in terms of whether they accept equity as part of the plan or whether they have to take back that. And so you know that TEV is fixed, the enterprise value -- sorry, you know that the enterprise value is fixed, the actual percentage of a warrant that you receive in return is a little bit different.

And who's going to buy that convertible.

That convertible -- they are usually debt holders. So the existing convertible debt holders reach represented just over $700 million in claims. They are taking 3 different instruments. So they're taking equity in the existing business. They're taking a term loan and they are taking a convertible note. So we're not selling new convertible notes to the market. It's part of the 3-part structure that were provided to convertible note holders.

I have another question, if I can ask.

Sure.

You first. Go ahead. Give us a snapshot maybe it's better for any of your peers, snapshot the balance sheet and emergence. Just off the top of your head.

They've penciled this a zillion times, I'd say.

I mean...

Yes. So it's just over $720 million in debt. That's going to be comprised of adding emergence, roughly $60 million of excess facility financing.

What's that?

So that's the convertible note holder group is actually providing an exit financing facility. So $60 million drawn with an additional $20 million. It's an $80 million total facility, so $20 million of available capacity on it.

Okay. So that means you can take $80 million more.

We can -- beyond that, we can take $20 million more. So still beyond emergence and $20 million will be available post.

Okay. And what's your debt equity ratio as you figured, warrants included warrants not included?

I'm going to need to come back to you on that one. So the rest of the tax act beyond that, there's $150 million senior secured term loan that Adam mentioned to the ad hoc Convertible group. There's $260 million of convertible debt. There's going to be equipment miner financing that is structured depending on, they have a couple of different options as to what they want to take.

Is that the new main deal?

No, that's totally separate. So it's our existing equipment mining [ financing ] is it's about $250 million in total debt. There's options for them to take. Portions of that in equity. All of it and take back debt. So that will be somewhere around, call it, just under $200 million.

Then there's reinstated debt, on top of that.

I think that's everything.

This is -- but this information is all available, all on the disclosure statement, everything that was filed yesterday. So that can be found on our website.

And we can help point you to exactly where to is.

Those docs are like 880.

Understand. We can help point you to.

Sorry. We've got a total of 720.

Roughly. Yes.

Okay. At about what interest rate?

It varies by tranche there. So call it kind of high single digits to low double digits, depending upon what it is.

We're going to take questions from Q&A. So first question is -- question is Adam, how will we navigate the having?

Of course. So we continue to have it as -- we've been prepared to having throughout the entire year 2023. So having a new stance, we have to take care of the company, to prepare constantly for a downside scenario. And having to represent a single downside scenario, that's a known event. That's going to occur next year. But for us, part of the machine rotation that Matt Brown talked about, allocating our machines amongst all of our facilities, that brings down our average or breakeven hash price each from our sites. That's a major component for us just to start off. The second one is evaluating all of the power programs that we have availability to enter into that would provide additional intermittency to lower our average power cost to ensure our sites. So we've been working on each of those items in parallel with advancing our software development, to roll out low power mode -- and most of low-power mode, which can instantaneously lower our efficiency or increase our efficiency to lower our fuels [ compare ] across our entire fleeting moments. Those 3 areas provide us a significantly what our competitors are working on today. They don't have the software -- the software teams to be able to build out in ultra low power mode, they don't have multiple facilities to be able to get new and allocate machines accordingly to bring down the average hash price for each of the facilities. And for us, it's about optionality, and it's about resiliency. We need resiliency to protect all of our key facilities and optionality is if we go into a significant downside scenario. We want to ensure that all of our facilities are operational because this market is volatile because it's not always going to be volatile, always going to be, but if we're want to have the best opportunity to keep all of our machines online, so that if markets change, we can very quickly alter our course for how those machines are operating to be very reflexive in terms of how quickly we can ramp up our [ terahash ]. Potentially increasing efficiency for ramp up our [ terahas ] in order to produce some massive amount of profit availability.

Second question, are the tranche 1 and 2 warrants for current shareholders only? Or does it include future shareholders, i.e., note holders and GUC.

The tranche 1 and tranche 2 are for only for existing shareholders, the plan of record date...

So your calculation of '24, '25, '26 technology very specific, how would you exactly calculate that, hash rate time...

It's actually manage through hash price. This takes into consideration, obviously, difficulty as well as efficiency price. And as I mentioned, the entirety of that your plan is based on the [indiscernible] hash rate.

Times the number of machines. Then your...

Yes. So number of machines, obviously, efficiency from terahash standpoint.

So that's lot of variable.

We kind of cleansing deck yesterday that's got a bunch of the details around the structure, number of machines...

It's indicate 2 important ones out of equation, we can see price is difficult because...

Yes.

What's your view on that please, on the global hash rate, right.

Your first start was spot on, right? You can hash price the tech. But you haven't seen a contrary to write to [Satoshi] paper contrary to that, you haven't seen the hash rate for the network side. right? So in my mind, that means there's a -- I guess it's a certain amount of capital changing this market and is absolutely incentive.

So call in a question, your $0.07 twofold for Adam, Adam on network hash program and also improvement we're seeing as machine efficiency improvements, operators can afford to chase a lower hash price. So how do you rationalize all those. It's probably pretty...

No. We'll start, of course, with the improvement in machines. We don't incorporate improvements in machines on a go-forward basis into our forecast. So we're utilizing XP as our go-forward machine in our forecast period. So you're absolutely right when you think about hash price declining as you increase the efficiency of machine, you're receiving similar rewards with a more efficient machine at lower hash prices because you're adding additional terahash with a similar power drop. And so you're actually receiving a similar amount of revenue in compared to the cost. So that's one item. The second item is actually it's helpful to go back to late 2020. So when you think about this instrument in late 2020, it was the first time the bitcoin miners were not only developing institutional-grade infrastructure for bitcoin mine. The capital availability became widely available to everyone not only public miners, but private miners as well. That lasted until the summer of 2022 when we saw capital dry up overnight. What occurred then was, and it's actually helpful to go back, up earlier into that charge because what you see is actually a strong correlation between when capital dried up and when hash rate for publicly traded miners actually stopped increasing, and it's actually at a time that you would not expect. So it's the slide. So what you see is, in peak, on Page 12, in May of 2023. So when capital dried up in the summer of 2022, people have made purchase orders and paper machines that were going to deliver for 12 months. So what we see is those machines continue to use that lever. The comment is what you see here is that hash rate doesn't continue to increase anymore. That's mainly because by the time we got to Q2 of 2023, publicly traded mining companies and client mining companies had a decision to make. They either had to continue and build out their infrastructure or finish paying for rest their machines. So what we saw was people chasing infrastructure at all costs because they had to replace machine somewhere. Many of these companies needed free revenue. They took those issues, inserted changing infrastructure at higher cost. And we hadn't seen since 2021 in terms of hosting rates. And so what we expect to see -- obviously, we're seeing a massive ramp up today. That's partially driven by not only XPs that are coming online but it's also what we attract to be other manufacturers producing machines and bringing their machines online as well. So we think this hash rate growth will continue, especially when you think about the [ 34 ] is going to turn off and being replaced by XPs. We expect that to continue to happen in the curve just within the existing infrastructure footprint, but there's not a significant amount of infrastructure still being developed outside of many smaller sites that are being developed internationally today. So do we expect terahash to increase, number of difficulties continue to decrease it? Absolutely. But will some of that be more constrained by the fact that infrastructure is necessarily being built out of by megasites anymore. Yes But the new growth in terahash difficulty is going to come from refreshes in it's entire existing infrastructure. So some of this is based on machine slots that are available in facilities where people are replacing 100 terahash machines with 200 terahash. By the end of 2024 we'll have a 250 terahash machine, that's sitting in the same power slot that was available from before. And so terahash will continue to increase. We do expect to see a significant amount of terahash come off the networks at having present at...

Adam, we are at the end. I just want to try to squeeze in 2 more questions from this. Real quick ones. Number one, how will common stock conversions be treated?

This information will be coming up in the coming days as the plan gets...

So stay tuned for more information. Number two, how many shares of stock do you plan to offer when you come out of Chapter 11?

Is this question reflective to the equity rights offering.

It doesn't say more than that.

More information. Any more information on the equity component will be coming. We are going to be doing an equity rights offering of up to $55 million. That time will -- that equity rights offering will begin solicitation hopefully, later this week, and more information will be coming out. That will be available to all existing equity holders.

Great. We're at time. We thank everybody for joining us in-person. We thank everybody for joining us virtually. Information is available at all times on our website. You can contact Investor Relations with any follow-up questions. Thank you all very much for joining us today.