Applied Digital Corporation

Good afternoon and welcome to Applied Blockchain's first fiscal quarter 2023 conference call. My name is Paul and I will be your operator today. Before this call, Applied Blockchain issued its financial results for the first quarter of fiscal 2023 and did August 31st, 2022 in a press release, a copy of which will be furnished in a report on Form 10Q filed with the SEC and will be available in the investor relations section of the company's website. Joining us on today's call are Applied Blockchain's Chairman and CEO, Wes Cummins, and CFO, David Wrench. Following their remarks, we will open the call for questions. Before we begin, Jeff Gramp from Gateway Group will make a brief introductory statement. Mr. Gramp, please proceed.

Thank you, Operator. Good afternoon, everyone, and welcome to Applied Blockchain's Fiscal First Quarter 2023 Conference Call. Before management begins their formal remarks, we would like to remind everyone that some statements we're making today may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption risk factors in our IPO prospectus. You may get applied blockchain securities and exchange commissions filings for free by visiting the SEC website at sec.gov. I would also like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of Applied Blockchain's website. Now I will turn the call over to Applied Blockchain's chairman and CEO, Wes Cummins. Wes?

Thanks, Jeff, and good afternoon, everyone. Thank you for joining us for our first quarter fiscal 2023 conference call. Our results for the quarter were solid, with revenue of $6.9 million coming in at the high end of our guidance range of $6.5 to $6.9 million, and adjusted EBITDA coming in at a loss of $1.9 million, which compares favorably with our guidance of adjusted EBITDA of $1.8 to $2.2 million loss. Our financial performance relative to our guidance reflects our steady execution and the consistency and predictability of our hosting-only business model, which provides shareholders with revenue that is contracted out on a multi-year basis. We expect these dynamics to drive long-term, high-margin, sustainable cash flow generation for our company. Also, I want to remind everyone that when evaluating our first fiscal quarter results, it is important to keep in mind that our 100-megawatt Jamestown, North Dakota data center operated at only 50% capacity during most of July and August due to the previously disclosed unexpected equipment failure at the substation powering the facility. Therefore, our first fiscal quarter results ended August 31st, 2022, do not reflect a full quarter of contribution for our Jamestown facility. Since repairs were made in August, the facility has been operating as expected. Outside of our currently operating Jamestown site, we remain laser focused on executing the build out of our next generation data center sites. a 200-megawatt facility in Garden City, Texas, and a 180-megawatt facility in Ellendale, North Dakota. These two facilities are expected to energize between now and mid-2023, which will bring our total hosting capacity to almost 500 megawatts. All this capacity is already contracted out on multi-year agreements, and once fully online, we expect to be at a run rate, annualized adjusted EBITDA of about $100 million, which we think is quite compelling in the context of our current enterprise value. I would like to highlight what I believe to be the largest risk factors to the timing of energization, which is regulatory approvals and weather. We're working through the regulatory approval process in Texas and North Dakota. Weather in North Dakota has been good to date, but we need to pour all concrete prior to extremely cold weather arriving. Our crews are working diligently to make this happen. I want to commend the entire applied team and especially the operations personnel for executing so well amidst an overall difficult operating environment with supply chain challenges and persistent inflation. Our team has stayed ahead of the curve by ordering certain long lead time items well in advance to avoid any meaningful delays related to construction. Since our entry into the high-performance computing hosting industry, we have prided ourselves on the capabilities and experience of our team, so I'm pleased that we've been able to execute so well in an industry that has unfortunately been challenged to meet timelines. I will now turn the call over to our CFO, David Rentsch, to walk you through our financials before providing my closing remarks. David.

Thank you, Wes, and good afternoon, everyone. Before I begin my remarks, I would like to note that like last quarter's call, since we did not have operations in the year-ago comparable period, we will not be providing any year-over-year comparisons. Revenues in the fiscal first quarter were $6.9 million, which, as Wes mentioned, was at the high end of our guidance range of $6.5 million to $6.9 million. Hosting revenues were generated entirely from our first hosting facility in Jamestown, North Dakota, which was brought online in phases between the third and fourth fiscal quarters of fiscal year 2022. Note that the Jamestown facility operated only at about 50% capacity during a meaningful part of the quarter due to an unexpected equipment failure at the substation powering the facility. Repairs were made in August and the facility has been operating as expected since the event. Cost of revenues in the fiscal first quarter were $6.1 million, consisting of $4.9 million of energy costs to generate our hosting revenues, $800,000 of depreciation and amortization expense, and $400,000 of personnel expenses for the employees directly working at our Jamestown hosting facility. Operating expenses for the fiscal first quarter of 2023 were $5 million, which included $4.1 million in selling, general, and administrative costs, $600,000 of stock-based compensation, and $300,000 in depreciation and amortization expenses. Adjusted net loss from continuing operations for the fiscal first quarter of 2023 was $3.4 million, or a loss of $0.04 per basic and diluted share based on a weighted average basic and fully diluted share count during the quarter of $93.1 million. Net loss attributable to applied blockchain for the fiscal first quarter of 2023 was $4.5 million, or a loss of $0.05 per basic and diluted share based on a weighted average share count during the quarter of $93.1 million. Adjusted gross profit, a non-GAAP measure for the fiscal first quarter of 2023 was $1.7 million, which equates to 25% of revenue. Adjusted EBITDA, a non-GAAP measure for the fiscal first quarter of 2023 was a loss of $1.9 million, which compares favorably to our guidance range for an adjusted EBITDA loss of $1.8 million to $2.2 million. Lastly, on our balance sheet, we ended the fiscal first quarter of 2023 with $40.8 million in cash and equivalents and $14.7 million in debt. During the first fiscal quarter of 2023, we received $4.6 million in net customer deposits and $15.3 million in net deferred revenue, which collectively amounted to almost $20 million in cash inflow due to the structure of our commercial arrangements with our customers that incorporate upfront deposits and prepayments. In certain contracts, the prepayments are amortized back to the customer over the first year of their contract with no impact to revenue recognition, but the timing of cash flow with upfront cash to us is a major benefit for the company in that it helps our CapEx funding needs as we build our data centers. We also ended the quarter with approximately 92.8 million shares outstanding. And as a reminder, we fully converted all our outstanding preferred stock to common stock concurrent with our IPO in April 2022. Now turning to guidance, we have decided not to give an explicit range for guidance as we have in the past for the next two quarters. due to the uncertainty around timing of energization of our new facilities. This timing can have a dramatic impact on revenue and EBITDA for our quarter. We do, however, want to be transparent with our expectations. For our fiscal second quarter of 2023, end of November, we expect our Jamestown site to generate approximately $12 million of revenue, assuming it remains at full capacity during the quarter, which is our expectation. Any other capacity that is energized will generate revenue at a rate of about 1.2 times the amount of Jamestown on a per megawatt basis. We will announce when megawatts are energized. We do expect to resume quarterly guidance in the future, possibly as soon as Q4 of this fiscal year. That completes my financial summary. Now I will turn the call over to Wes for closing remarks.

Thank you, David. Before we open it to Q&A, I want to cover a couple of the key goals and initiatives for our company. First, we are focused on standing up and energizing the remaining two of our first three data centers, which would give us hosting capacity of almost 500 megawatts, all of which is contracted out on multi-year agreements. Once operational, this capacity should put us at about 100 million annualized EBITDA run rate. Achievement of this goal over the next several quarters would be a major milestone for the company that only a year ago had no revenue. To achieve this, we simply need to execute the same business model we've been executing during calendar 2022. We already have the customers lined up and are constructing the facilities as we speak. The next key objective for the company relates to our recent proposed name change to Applied Digital, which shareholders will vote on at our annual general meeting on November 10th of this year. Our name change will more accurately reflect our services and broader business offerings that serve customers that require large computing power applications. While these large computing power applications can include Bitcoin miners, which compromise our current customer base, we see a much larger market opportunity pertaining to high-performance computing applications relating to image processing, graphics rendering, artificial intelligence, and machine learning. While we continue to see robust demand from Bitcoin miners, we believe there is value in diversifying our revenue base to adjacent industries that can still leverage our expertise and capabilities in building and operating next-generation data centers. We are having active discussions with numerous potential customers that are in various stages with power needs ranging from only a few megawatts to potentially hundreds of megawatts, all within the broader HPC landscape. Ultimately, we are committed to providing white-glove service and best-in-class digital infrastructure to any customers that have high-performance computing needs and require access to reliable power. I spend a significant amount of time contemplating the highest and best use case of our company's assets. And when I think about what our assets are and what we can provide, I keep returning to our low-cost power contracts and our cold locations in North Dakota. These sites can be leveraged to build ultra-low-cost, high-efficiency digital infrastructure for high-performance computing applications. The first application is Bitcoin mining, but it won't stop there. We have found what I believe will be our second large application in the machine learning area, and I expect we will have a pilot program running with a customer as early as this month. If all goes well, we could be in a position to scale this application early next year. This will be the first of what we believe will be many applications that will allow us to grow a non-crypto HPC business to complement our base business. To close, it's clearly an extremely difficult time for our industry. We're in a strong position to not only survive the turmoil, but possibly take advantage of it. I'm more excited for the future of our company than I've ever been and would like to thank all of our team members for the dedication and hard work.

We're now happy to take your questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for questions. Thank you. Our first question is from Lucas Pipes with B Reilly Securities.

Please proceed with your question.

Thank you very much, operator, and good afternoon, everyone. Thanks for taking my question. I first wanted to touch on a bit on the near-term outlook, and I appreciate there are some lack of full visibility with the guidance. Can you touch a bit on the possible regulatory delays in Texas? What exactly is holding things up on the regulatory front there? Is it ERCOT related? Is it state related? I would appreciate additional color on that. And then you mentioned the pouring of concrete in North Dakota with the weather turning cold. How many days of concrete pouring do you have left, and when does it get too cold to continue? work on concrete. Thank you very much for your color on these two topics.

Yep. Hey, thanks, Lucas. I appreciate the question. So on the first, we're one of the first companies, I think, to go through the large flexible load program in Texas. So there's multiple things going on in Texas and multiple parties that we're dealing with. You know, we've been We started on this back actually in February. We've made a lot of progress. We've had a few roadblocks come up more recently, kind of in the September timeframe, but I think we're in a good position to get past those. So you have, we have kind of three parties in this, and it's ERCOT, it's Encore, and it's an entity called WETT, W-E-T-T, which is where we interconnect in West Texas, and we're working with all of these parties. In fact, we have in-person meetings with two of them this month. I'm feeling pretty optimistic about getting close to the end there, but I don't know if you've seen in certain publications, I think maybe it was in Coindesk, and I've seen it in other areas, but there's something in the neighborhood of almost 40 gigawatts of applications in Texas, and so that has kind of delayed, I think, a lot of people, because realistically, I think maybe one or two gigawatts of that is going to come online. But you have to separate yourself from those other projects that are just, you know, people kind of throwing something against the wall to see if they can sell it to maybe a company like ours. So I think we're quite a ways through that. You know, if I were to handicap this, I think we could get through and get things turned on anywhere from early November to an absolute worst case at the first part of February. If it does get delayed out, what I would say about that is we'll be in a position instead of kind of staged turn-ons to really energize the full site when we get approvals to do so. So it's still a moving target. I don't want to give a huge amount of details. I think I gave quite a bit right there, but we are in discussions and having meaningful discussions with all of the regulatory bodies that we need to. In the state of North Dakota, So we're on the same schedule really that we were last year. And last year we were able, you know, we completed pouring concrete, but we could go until about November 15th. I think October 31st is always what I've been told from natives there is kind of a good to try to be finished by and so we're pouring now and generally this goes really fast once we start but I did want to flag it as that's one of the gating factors if we don't get that poured if we get only 10 of the pads poured then we won't be able to pour again probably until March or April and so then you would slide out maybe until June I don't think that's going to be the case for us but that's definitely one of the issues to deal with in North Dakota it's just We love that cold weather, but it is a problem for construction in the winter.

That's very helpful. Really appreciate it. A follow-up question on the Texas side. Are you continuing development construction while you're awaiting this regulatory approval?

Yeah, the regulatory approval, we've been through a lot of it. I feel really confident in it. I don't think there's any issue that we wouldn't get the approval. It's just a matter of timing. It's a process to work through. We're largely through the process. And so we have, I mean, we're, I would say, 90% complete on the site. So we'll be ready to energize basically the minute that we're approved.

Got it. And then my – very helpful. Thank you. And then my second question is on – call it kind of counterparty risk. It's obviously a topic in the industry given the stress out there. Can you speak a bit about who your counterparties are today, maybe your three, four largest counterparties, and how you go about evaluating counterparty risk in the current environment? Thank you. Thank you very much for that.

Yeah, I think that's a really relevant question. So our largest customer that's operating right now is Bitmain, and that's in the North Dakota site. There's some other companies that are investors in the company, so that's been disclosed, so I don't mind saying. F2 Pool, which is one of the largest Bitcoin mining pools in the world, is one of our customers in North Dakota. Then GMR is one of our customers, of course, in North Dakota. I feel confident in all of those counterparties. I think the other large one, obviously, that we've announced is Marathon. And, Lucas, you can have your own opinion about this, and I'm certain that you do and all the other analysts on the call do as well. But I think Marathon is one of the best counterparties, if not the best, of the publicly traded miners in the industry. They have a relatively clean balance sheet. They have really the one piece of debt outstanding that I don't think is due for over four years now. And they have a, you know, I think they have access to, you know, better capital access as far as capital markets or anything than almost any company in the industry. Where a lot of the others, you know, what's plaguing a lot of the public miners is, you know, really especially equipment financing, which has a lot of, you know, very fast amortizations. At this time last year, it didn't look like it would be a problem given the Bitcoin price, but it's turned into a massive problem, I think, all over the industry. So that's the primary exposures that we have, and I feel really good about them, but it's something that we monitor, I mean, almost on a daily basis because there's a lot of companies that are struggling in the industry.

Very helpful. Wes, really appreciate your color and best of luck. Thanks.

Thank you. Our next question is from Chris Brendler with DA Davidson. Please proceed with your question.

Hi, thanks. Good afternoon. Just a little bit of a follow-up on some of Lucas's questions, just on the overall competitive environment. Just given some of the recent news, hosting business, there may be some even more demand amid constrained supplies. So I'm just curious, you know, I think you mentioned some opportunity to take advantage of the challenging conditions. It should be a little more color on the demand side and where you sit in terms of, you know, parsing out your additional capacity.

So thanks for the question. We don't have any additional capacity right now really to offer. So we're not actively seeking other customers for capacity. We're still in the market for additional sites. We're looking for good power locations, the same stuff we always do, good power location, good site. And, of course, we're looking at there's some really well-publicized sites that are out there that, you know, there's our one competitor, you know, filed for bankruptcy. I think there's other, there's many, many other distressed properties in the market. And we're looking at all of those. I haven't found anything that, you know, that we're moving to take advantage of just yet. But there's a lot of that that's out there. I will say, again, here, you know, I've talked about this a lot, and I'll reiterate, we spend a lot of time, you know, focused on the power side. And that's, the biggest part of our business, right? We're purchasing power, that's our biggest cost. And then the customer side, we're contracting, we're offering the lease with basically the spread in the middle. I think last year, a lot of companies went out and signed variable rate contracts or didn't sign contracts or whatever it might be. And so I'm seeing some assets that just, they're hosting sites kind of in remote locations that don't have very good power contracts. And so I don't know that those are worth very much. But we're still looking, we're still looking, but there is a lot of distressed assets that we're seeing and we'll continue to look. And I think we're in a pretty good position to take advantage of that. You see the balance sheet at the end of the quarter. I think especially in our industry, we've kept ourselves fairly clean on the balance sheet side.

No, it's been a breath of fresh air for sure. Just a little bit confused, like, So you talk about HPC, is that different capacity? And I guess my question was, I think last time we talked, the opportunities in the economics in the Bitcoin hosting space were much larger, bigger chunks than there is in HPC space. So maybe is HPC sort of like a way of getting your toe in some of the contacts you're seeing now, not as big as the Bitcoin ones?

So I view it this way. So Bitcoin has given us the opportunity to go and build these sites out. And like I said, we spent a lot of time focused on getting what I think are really attractive sites with really attractive power contracts in good locations. And then I think a lot about how do we leverage that? So obviously, we've got this big beachhead, 500 megawatts that we're building in Bitcoin. We expect to continue to grow. But if there's other applications I think about highest best use case of our assets at all times. If there's other applications for our sites that are not just Bitcoin, one, I think diversification is attractive for me, myself, as the largest shareholder it is, but I think for all of our shareholders. And then two, when I look on a per megawatt basis, some of the HPC applications we're seeing you know, the revenue is five plus times per megawatt. The EBITDA is five plus times per megawatt. So, you know, that maybe is something that's more attractive from an economic perspective. But I expect to see a blend as we go forward. But I think one of the key takeaways here is, you know, we do have a GPU-based machine learning application that we expect to be running a pilot as early as this month. and then we'll expand that if it goes well later this year, and then maybe be in a position. I think this one application is an extremely large market, but be in a position to scale that in 23 and 24, and I wouldn't say the sky's the limit, but it's definitely a really attractive potential for us. And so we're spending a significant amount of time on that, honestly. But when you think about these sites, low-cost power, cold location, if we can figure out the application to run ultra-low-cost infrastructure, we're going to be running the same NVIDIA or AMD GPUs, we're going to be running the same Intel-based or AMD-based servers. So No one's going to have necessarily some kind of equipment advantage on us. It's really we're focused on the ultra-low-cost digital infrastructure for HPC. Hopefully that's helpful, Chris.

No, it's super helpful. Thanks for the color. Just one quick numbers question. The non-GAAP gross profit margin came in higher than expected. It's also really nice to see, given the power costs that a lot of your mining peers are struggling with. My question was, given the reduced capacity this quarter, was that impacted by that? Should that go higher from here, or is 24% a good run rate?

It can fluctuate quarter to quarter. Our power month to month can change a little bit at the Jamestown site, but over a year, it stays roughly the same. The thing I would point out for Last quarter, the one that we just reported, you know, we were fully staffed. We didn't go and lay people off. And so there was some definite inefficiency in the gross margin line with the staff because we, you know, basically that same amount of staff will run 12 million of revenue versus the 6.9.

So there's some leverage there. Great. Thanks so much. Thank you.

Our next question is from John Todaro with Needham & Company. Please proceed with your question.

Great. Thanks for taking my question. Are there regulatory issues in Texas? Is that kind of saying that the Texas market, from your guys' viewpoint, is going to be closed for new sites moving forward? I guess it's kind of how big are those concerns, or is it something you can kind of continue to push through?

No, I don't think that Texas, I think there was a bit of a pause and then trying to work through. And from our perspective, the machine is moving. So I don't think in any way Texas is closed to new sites moving forward. I mean, the governor here has been very supportive. Everyone has been very supportive. But also Texas has had some very You know, widely publicized issues, really, was that February of 21, I think, was the last big issue for Texas on the grid. So, you know, I think the regulatory body there at ERCOT just wants to make sure that there's, you know, definitely that the grid is stable and these are large loads being added. But I think the machine is moving. I don't think that Texas is closed to new sites.

Okay, gotcha. And just to confirm, so that facility where already 15, 16 buildings are constructed, There's not really any possibility that permitting doesn't go through. It really just comes down to that delay in energizing, right?

It's just time working through the process.

Okay, great. And then turning over just to the new facility, the second one in the Dakotas there. I've noticed it looks like this facility might cost a little bit additional per megawatt versus some of the past ones. Is it because those are being outfitted with HPC capability or is that facility completely contracted for Bitcoin mining? And just more broadly, could you give a little bit more context into the cost related to HPC versus the Bitcoin mining facilities?

Is there something specific, John, that you're seeing on that? I don't think it's going to be any more per megawatt for the 180 that is all Bitcoin. Maybe you're seeing some news items that talk about kind of $100 million. That wraps in a lot of other spending, just so you know. But the construction cost should come in in line with the other areas. In fact, we're seeing some equipment show up on the secondary market that we, we recently purchased, um, some, some switch gear transformers for a pretty significant discount, uh, versus what we have been. So I think, I think we'll be able to run that, you know, in line, if not lower.

Ah, gotcha. Okay. Yes. Yes. In relation to some of those media articles. Um, uh, okay, great. And then, um, I guess just to be clear, so far nothing has been contracted on the HPC side. There's that pilot program that could be done this month, and that's the furthest along on that side.

So to take that a step further, we do a pilot program. What you really need to focus on is What can we do with this low-cost infrastructure for applications that can tolerate a somewhat higher latency environment? We'll still have very good fiber connectivity, but it will be a higher latency environment than other, you know, like Tier 4 data centers have. And so we're working through that with our partner, but it's very exciting, the work we're doing or will be doing with them. because it has the potential to bring down the cost to a lot of people of machine learning significantly. So it's early, but very excited about it. And so hopefully have the pilot up as early as this month, and then we'll have a pretty good idea. We'll move that to a little bit larger scale later this year. And then in 23, really hopefully scale that up. I'm pretty excited with the potential.

Got it. Understood. Thank you, guys, for taking my questions, and congrats on the quarter.

Thanks, John.

Thank you. Our next question is from Mike Grondahl with Northland Securities. Please proceed with your question.

Hey, guys, just a couple of clarifying questions. In North Dakota, as of today, how many more days do you have of concrete to pour, or what do you think the end day is if everything goes well from today?

We're shooting right now for the end of October.

I mean, here's what you're dealing with, construction outside, right? There could be rain days. There could be things like that. But we're shooting for, if all goes well, maybe the end of October.

Got it. So you've got a little bit of cushion depending on the weather. I got it.

Yeah, a ton of the groundwork, and a lot of that's been done. I mean, we're in a position to start to really, once we start going, generally our experience with the crews knocked this out pretty quickly.

Sounds good, sounds good. In Texas, if there were not these regulatory delays, headaches, when would you have been able to sort of energize Texas?

We would have been able to energize pretty close to now, between now and the 1st of November. So if we can work through these, what I will say, though, is those would be staged ramps, right? It would be like we did in Jamestown, where you're trying to bring online about 12 and a half megawatts per week, every week. So, like I said, if we can start sooner, that's what it'll look like. And if we have to start later, we should have everything racked and ready to go by the time we get approval.

Fair. No, that's good. I mean, it sounds like ready to go, except for this regulatory stuff. And then, You guys have a lot on your plate, but I know you're looking for number four, too. Is it too early to talk about the fourth site, the fourth project, the incremental 100 megawatts, or what does that look like?

It is a little bit early. Like I said, we're looking at everything. We want to make sure we find a very attractive site. Again, stable, low-cost power, good location for us. And maybe one of those is a site that someone else has that's already up. Like I said, I'm seeing a lot of assets that are being shown to us. So it might take that form instead.

Got it. Got it. Okay. Hey, thanks, guys. Thanks.

Thank you. Our next question is from George Sutton with Craig Hallam. Please proceed with your question.

Hey, great. This is Adam on for George. Thanks for taking my questions. Wes, I thought it was really encouraging your commentary on the HTC pipeline of a few megawatts to 100 megawatts. I was hoping you could provide a little more detail there about the types of companies that are making up that pipeline in addition to how you're approaching the go-to-market and how you're building that pipeline.

Yeah. So, I mean, this is really early days, but discussions from anywhere from uh, educational institutions to, you know, top five hyperscalers in the world. So it's, it's a really broad range, uh, and it's, you know, it's kind of to be seen how that comes together. But, you know, like I was, I was talking about, uh, Adam is that if, you know, if we can get these applications to work and I'm, I'm very encouraged that we can, you know, I don't, I don't think it will be hard for anyone to compete with us on the price that we can offer for the infrastructure in the locations that we're in. Just some of the stuff that we've been going through. When you look at some of these data centers, and if you're doing high performance compute, a significant amount of the power is electricity. And we're still working through those numbers, and we haven't operated these, but 40 plus percent to run these would be electricity. And then out of that, you kind of split that half and half, or 40-60 to actually running the equipment versus running climate control or AC. And so if we can do this with low-cost power and then also in cold climates where we can use a lot of air cool, if not all air cool, then I think it would just be hard for anyone to compete with the cost basis that we can provide for HPC.

Oh, that's great. And in terms of this opportunity and your strategic thinking going forward with site construction, Is there any change there on how you're going to approach building site four, five, six with this opportunity?

There could be. There's time spent right now on the additional – because it's going to cost – in the buildings that we have, if you've looked at these, there can be steel structures. So in those, the modifications that would be needed if you decided to switch over to GPU applications – And then also new build sites, if we have it specifically for this, the team's working on what that would look like right now. But I think it's pretty early to talk about what exactly that's going to look like. Let's get through the pilot. Let's scale the pilot up a little bit and make sure this works. And then we'll be focused and much more ready to talk about what new sites look like.

Great. Thanks, guys. Thank you.

Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Good afternoon. I just want to talk about the expected CapEx to complete the remaining two sites. What do you expect you need to put into them at this point?

I'll let David you have that.

Yeah, so we'll use a combination of cash on the balance sheet, some

community bank loans and the prepayments from customers that we're collecting and we'll have the required capital to finish the capex and and I'll add in there so Texas is you know 90% complete at this point for capital and then the experience is I always like to point this out that we've had is so we have a construction loan that's barely we've started we haven't started to draw that yet in Texas and And so that's about $15 million for that site. But the experience that we've had, Rob, is that in Jamestown, we had $7.5 million from the same bank for the construction. And then once the site was up and operational, there was another $15 million. We were able to expand that to $15 million. So in Texas, given it's double the size, we're starting at $15 million. And then once operational, we should be able to go to 30. So we haven't used any of that yet. So as far as build goes, when you think about the cash on the balance sheet, plus 30 coming in at the Texas site, and eventually 27-ish to come in on the debt side for the Ellendale site, plus customer prepays, we think we're in a good position for that.

Okay, just to be clear, you feel like you've got most of the Texas capex spent, but the North Dakota capex, you've got pretty much the whole facility capex to go on that one? Okay.

You know, you're like, there's actually, it's a fair amount that has been spent there, right? The procurement of the transformers, the switchgear, a fair amount of the building procurement has been done, so you probably have 20% spent there right now.

Okay, okay, good. And then I think you depressively said the North Dakota power contract is now signed. Could you give us a sense of what's the length of that contract? How is it compared to some of your other contracts there?

We don't ever talk about pricing, but it's very attractive pricing, and it's a five-year deal.

Okay, thank you. I'll turn it over. Thank you.

Our next question is from Kevin Dede with HC Wainwright. Please proceed with your question.

Hi, guys. Nick with HC Wainwright here on behalf of Kevin Deedy. Would you be able to quickly confirm expected energization timeline for Garden City and Ellendale?

Nick, we went through those a little bit earlier in the call. But, you know, we expect things to start to energize any time, you know, basically between now and mid next year. The big timing issues for us right now in Texas are regulatory approval. I went through the three components there. But we have some in-person meetings this month, and I feel like the machine is moving well there. And then in North Dakota, it's very much weather-related. So if we get all of our concrete forward this month to have all the pads done, And we're targeting early 23 for North Dakota, but hopefully we can pull that one ahead a little bit. We started the same time in North Dakota last year as we started this one, and we energized – the first energization was in late January.

Got it. Thank you, guys. I'll turn it over. Yep.

Thank you. This concludes our question and answer session. I would now like to turn the call back over to Wes Cummins for any closing comments.

Thank you, Operator. Thanks for everyone for your interest and participation, and look forward to speaking to you next quarter.

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