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Hut CEO Asher Genoot On Abbott's Data Center Audit, Q2 Results, Future AI Expansion
00:16:44
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- [00:02]
A
Welcome back to the Blockspace podcast presented by CleanSpark. This week, Texas Governor Greg Abbott mandated a data center audit for all of the interconnection requests in Batch 0, ERCOT's latest batch of large load interconnection requests under new rules to manage the influx of data centers coming into the state. For today's bonus episode, we welcome Asher Ganute, CEO of Hut 8, to discuss how this new audit could affect its BeaconPoint data center, plus its AI expansion plans beyond Beacon Point and Riverbend, and how it plans to finance these massive builds. Hope you enjoy.
- [00:43]
B
Welcome to the show.
- [00:44]
C
How's it going, guys? How you doing?
- [00:47]
A
Pretty good, man. Thank you for joining. Obviously, super busy couple weeks for you, coming fresh off of Q2 earnings this week. We really appreciate you taking the time, of course. And I would love to start with the question that you've probably gotten a hundred times this week and was a feature of most of the calls this week for the cohort of bitcoin miners turned AI companies. And that's explicitly how does the new audit from Greg Abbott and the delay to batch 0 affect hut 8 specifically as it relates to the Beacon Point data center?
- [01:18]
C
Overall, what I think Greg Abbott has done is extremely good for the ecosystem. And you actually saw even QTS came out and supported him. We need more people to give kind of local voters, constituents, community members comfort that data centers are not this big, scary thing. It's going to come and take everyone's water and increase energy bills and so forth. I think what we're seeing a lot across the country is that, like, this misinformation has spread and really gone to people's heads. And for a data center developer, it's harder to get there and say, hey, look, we don't do these things because they think, okay, well, you are biased in saying that because you're trying to invest into this project and obviously you're going to say the data centers are fine and not going to consume water and so forth. So I actually think what Governor Abbott did was extremely smart because there's so much investment in data centers going into Texas and it's better to get ahead of this and say we're going to make sure that this investment is done in a responsible way that helps build communities rather than let the fear become so large that it's hard to reverse later. And so, like, we're extremely supportive of the initiative. And also we were one of the few that actually responded to the PUC in their questionnaire that related to a lot of these topics and frankly, that questionnaire was many of the same things that Governor Abbott and his office released. And so overall, we're going to work through the process, but think this is good and healthy for the ecosystem because he also didn't take an extreme approach of, like, New York. They said, all right, we're going to do a moratorium, no more data centers. He said, we're going to do an audit process to make sure that these investments are good for the communities and don't have a negative impact. And I think that's. That's great.
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A
This is kind of off the cuff for me, but going back to the PUC survey, if I recall correctly, it was like, 26 companies out of over 100 that actually ended up. Or projects that actually ended up responding.
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B
300. Yeah.
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A
Three. Yeah. Thank you, Charlie. And I think that underscores what Brandon was talking about earlier, about the fact that what this is really about is chasing phantom load out of the equation is like, if you're not serious about building, you need to just get out of the queue and then let the people who actually have their ducks in a row kind of tackle this. So to dig in on that one just a little bit more, though, Asher, as I understand it, the second phase of Beacon Point already has the agreement with AEP Texas.
- [03:42]
B
Correct.
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C
So we already have an interconnection agreement in place.
- [03:45]
B
So.
- [03:46]
C
And.
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A
And it seems from what we've seen from Morgan Stanley that there's a high chance, and I'm not going to try to get you to say this with certainty, I understand that, but there's a high chance that Hut 8 will be considered baseload for this batch 0 and that it should smooth over the process. So you're generally confident about Hut 8's prospects, I would assume, going in even to this audit and into the extension of the Batch zero?
- [04:06]
C
Yeah. Before the extension happened, obviously today was when they were supposed to release those, and we felt very confident in such. And I think at the end of the day, the criteria doesn't change, the amount of developments don't change. And I think all of the questions that Governor Abbott had asked in his audit are things that we've already answered publicly through the PUC survey. And so we think that this is net positive and it's not helpful. Obviously, it's creating some volatility into the ecosystem volatile into the Hut 8 stock today. But overall, we are proud of the projects that we're building, because I'll give you an example, and I spoke about this to our team the other day. Our first site that we ever built back in the bitcoin days was a former DuPont sodium smelter. That was a brownfield site that we retrofitted because it had a 50 megawatt substation into a bitcoin data center. And when we were building that site, the subcontractors that were there were talking about how important that factory was for their parents and their grandparents. And it was like it was a center part of the community, right? It helped employ a lot of folks, people thought fondly of the factory. And I think data centers should have that similar impact on communities they go into, whether it be by the folks they employ, whether it be by the technologies that they can teach people. Right? We're looking at different things where we can work with local schools and teach them on the technologies, the infrastructure stack and so forth, or the different community projects that they invest into. And so overall, like there's too much negative sentiment on data centers out there. And I think what I've heard through kind of some folks is some of that is driven by foreign adversaries, some of that is driven by different kind of stakeholder groups. But at the end of the day, what should come out is the truth versus what's real and what's not. And any process that helps verify what's real and what's not I think should be welcomed because it's hard to find fight against things that are not real. It's much easier to just say, you know what, these things we don't do. We do not consume water because we have a closed loop water system. We pay for energy infrastructure outputs in our supply. We're not driving price up. We're actually helping the grid by increasing infrastructure. Right. We don't have big noise concerns because we've run all the noise and traffic studies. All of these things are responsible developers should do. And that's how we're going to allow us to go and compete with against other countries in this AI race. But like, we've got to get ahead of this, otherwise we're going to just be dealing with all of this FUD that is going to be hard to actually develop responsibly.
- [06:37]
A
Yeah, that's a good point. I think with regards to making sure that the process is buttoned up so that we can address some of these concerns that oftentimes are overblown in the media and in the cultural conscience. On the note of expansion, Asher Hut 8's got 5.4 gigawatts under due diligence. Eleven sites across six states can you provide any insight into where you are at with the timeline for some of these? Specifically, can you give us an update on Batavia, Illinois and what you all are thinking in terms of prioritizing these sites going forward?
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C
Sure. We have sites across the whole US today. We have I think over 10 different states that we're operating within and looking at different projects within those sites range from end of 27, 28, 29 and some in 2030. That kind of. And some of the sites ramp up per year as well. And so it's a whole slew. You'll see that number continue to increase. We're spending heavy investment on growing that pipeline. That pipeline does not include all of the M and A opportunities that we're exploring right now as well. We have a whole team that explores those opportunities or behind the meter generation opportunities where we can bring generation and power, where there's a lot of opportunities there as well. And Batavia is a relatively small side of ours. It's 50 megawatts right outside of Chicago. That site is going through a restudy process with comment now. And when it goes through that process, there's ample demand there, but it's a relatively small project in our whole portfolio.
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A
Quick question on the development pipeline, Asher, and if I'm misunderstanding something, please correct me here, but it seems like the Fluid stack write a first right of first offer on the 1 GW expansion at Riverbend is excluded from the stated development pipeline.
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C
That's right. We don't include, we don't include expansion at Riverbend today.
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A
Okay. Could you give us an update on what the timeline for that decision is? And if fluid stack passes, will that capacity be earmarked for a new tenant? Does it revert to the general development pipeline? Like what's the process there for getting that move through to a deal?
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C
Sure, we have interesting timelines that entity, the utility has provided and then we have some other kind of go fast solutions on behind the meter generation on that campus as well. And we have multiple folks that are interested in that capacity whether the ROFLO is executed or not.
- [08:53]
A
Thanks for the update on that. A few questions on financing here, Hasher. So with the coat to convertible note converted to equity in May, there's no general recourse debt now sitting at the parent level. So I'm just curious if that is the strategy going forward. If Hut 8 will continue to try to pursue deals where there is no recourse at the parent level and if we should expect investment grade notes for like the ones we've seen for Beacon Point and Riverbend to kind of become the standard for the, for the financing stack going forward. Because y' all closed like what, $7.5 billion in these, in these deals throughout the quarter. Is that the template we should expect or are there other avenues for fundraising that Hut 8 would, you know, look at in the future for these builds?
- [09:39]
C
So today we have zero debt at the Hut 8 parent level, as you had mentioned, and that was done very purposefully. And also the financings that we did at the project level are all 16 and a half year investment grade bonds. So there's no refinancing obligation. A lot of the construction loans that you see once you build it, you have to go refinance in the market and you have to raise capital to pay off the loan and then have a longer term loan that you put in place. I think the reason why we've done both of those things is the markets are volatile as we see today, right? Hut 8's down 22% this week because of some letter that was posted that we actually think is good for the market. And so as a result, the market is volatile. And we've lived through that volatility, especially in the bitcoin world. And what we've learned is it's actually really good to be in a place of strength when the markets are not strong. And so I have a really strong balance sheet and having no refinancing needs allow us actually to be a buyer in markets where things are cheap. Because I think when things are good, I think that's when you bolster the balance sheet and when things are bad, that's when you deploy. And so that's how we think about strategy and how we think about growth for the company.
- [10:47]
A
Asher, I've got two more questions before I kick it to Charlie. This one kind of builds on what Brandon was saying about the batch zero process potentially leading to some projects just bailing entirely. Do you expect that to lead to potential M and A opportunities in the Texas region specifically? Like, is that something y' all are actively thinking about?
- [11:07]
C
We have a team that covers ERCOT and spp. We have a lot of inbound opportunities. Even when the requirements for the 50,000 and megawatt were being posted. We had a lot of inbounds. I think at the end of the day, sites and power is valuable, as everyone knows, but equally as valuable as the execution strategy in delivering built capacity. I think there are opportunities where developers say, you know what, we don't have the financial wherewithal or we don't have the execution capabilities to go and build this. Can we pay? Can, can we sell this to you and potentially get a piece of the upside if you just take it to the finish line? I think the more and more Hut executes, the more and more people have confidence on Huddy. Can you just please come do this for us? And we're looking at those opportunities as well. At the end of the day, it's also a matter of bandwidth, right? What opportunities are we spending the time with that drive the best return for our shareholders? Because we can't do everything.
- [12:01]
A
Think about this all the time when I'm going through these, the qualitative updates on these earnings. And I think about, you know, like, here's a site that we're looking at and here's a site that we're looking at, not just Hut 8, but any of these companies. And I just can't imagine the level of work to due diligence it and to actually try to move it forward to getting a deal signed. It just seems herculean to me.
- [12:21]
C
And how do you scale with like the same quality of rigor and talent? Right? And so I've told the team, I said our reputation is what matters most, our ability to deliver and continuing delivering. Have people trust us in that delivery. Because in some of these deals, like the third deal we did, we were able to get that deal done in like a week with a couple phone calls, right? Because the trust was there, the contractual structure was there. Everything was relatively simple. And so that's paramount. And as we think about growth, I'm 31 years old today, we're going to be running this business for a very long time. And so it's like growing in a sustainable way and not sprinting so fast that you end up falling on top of yourself. Because once you lose your credibility and your reputation, like that's very, very hard to build back. And so we have measured growth. We want to grow aggressively, but we also want to be measured to maintain quality and execution.
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A
Asher, I've got one last question for you, and it involves abtc, specifically the Vegas site. I have to wonder, as the constraints for power become more apparent as deal flow continues to come through and demand is knocking at yalls door, at what point would Hut 8 consider utilizing the 205 megawatts at Vega or looking at Salt Creek, Medicine Hatter Alpha for AI and HPC builds, is that totally off the table or is that something that you would consider given the right conditions?
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C
No, I think everything is on the table and there's actually really interesting models that are Net positive to Hut 8 and APTC in a world like that.
- [13:58]
B
So I'll chime in here. Asher. Last time you were on, we talked a bit about data center aesthetics. There's a bit of a curveball, and I think you said something to the effect of like, we want people to drive by and them look like museums, want to spend a little bit more money on making them aesthetic. And I look at a lot of the community pushback, and I'm in the Facebook groups, and they. They hate how these things look. And I feel like if that were to change or if they were to feel that this day, these data centers, which is going to these giant construction projects in their community, if they were to be a little easier on the eyes, people would feel way better. Hey, tell me about your mindset and just the company's mindset about how you design how a data center looks and feels.
- [14:45]
C
So we're actually in the process of doing that today. And I would say we'd have two parallel paths. We have the existing data centers that we're building. And it's interesting because when we want to go redesign because buildings, there's a structure like right now, structural steel is a long lead time item. Right. And so if now you go change the structural scale of the building because you want to design it differently, that's going to impact timelines. And so what we're looking at on existing buildings that we're doing is actually putting a wrapper around the building afterwards and designing basically the aesthetics on top of the building. So then you're able to still hit timelines for tenants, but also focus on that community element. At the same time, we're looking at our standard design and how do we build these buildings from day one with this aesthetic kind of mindset in mind. And one thing that we're spending time thinking about as well is different communities also perceive beauty differently as well. How do you think about what types of buildings are interesting and look cool based on different environments that you build in as well? So the team is having fun doing that. We have a kind of team focus on that, and they're having a good time doing it, but we're focused on what that's going to look like. And we have a couple cool renderings. Next time, I want to have the team share with you guys, and we can share. We've got a couple cool ideas we're working on.
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B
Looking forward to seeing renderings. Yeah, yeah.
- [15:58]
A
What the design team's cooking up. Asher, appreciate you taking the time, man. Best of luck with the rest of the year and looking forward to seeing what y' all have cooking for the rest.
- [16:08]
C
Thanks for having me on, guys.
- [16:10]
B
Cheers. Thank you. Cheers.
- [16:11]
C
Bye.
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B
Always a great interview. Sharp guy. I'm excited to see some renderings I want to do. I want to do, like, a data center aesthetic, like, tier list.
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A
Data center aesthetic, tier list.
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B
Yeah. Yeah.
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A
What would we put, like the chicken shack miners is at the bottom depending somewhere in the ans tier.
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B
In some communities, the chicken shack would be the Revere design. Who knows?
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A
Return to tradition, Charlie.
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B
Exactly. I'm from Oklahoma, man. We kind of is a nostalgic. Okay.