Applied Blockchain Inc

NASDAQ:APLD

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, and welcome to Applied Digital's Fiscal Third Quarter 2024 Conference Call. My name is Doug, and I will be your operator today.

Before this call, Applied Digital issued its financial results for the fiscal third quarter ended February 29, 2024, in a press release, a copy of which will be furnished in a report on Form 8-K 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 Digital's Chairman and CEO, Wes Cummins, and CFO, David Rench. Following their remarks, we will open the call for questions. Before we begin, Alex Kovtun from Gateway Group will make a brief introductory statement. Mr. Kovtun, please proceed.

[Alex Kovtun]

Great. Thank you, operator. Good afternoon, everyone, and welcome to Applied Digital's Fiscal Third Quarter 2024 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 laws 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 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 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 statement, except as required by law.

We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the 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 annual report on Form 10-K and our quarterly report on Form 10-Q. You may get Applied Digital's Securities and Exchange Commission filings for free by visiting the SEC website at www.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 the Applied Digital website. Now I will turn the call over to Applied Digital's Chairman and CEO and Wes Cummins. Wes?

[Wesley Cummins, executive]

Thanks, Alex, and good afternoon, everyone. Thank you for joining our fiscal third quarter 2024 conference call. I want to start by thanking our employees for their ongoing hard work and service in supporting our mission of providing purpose-built infrastructure to the rapidly growing high-performance computing industry. Before turning over the call over to our CFO, David Rench for a detailed review of our financial results, I'd like to share some recent developments across our business.

During the quarter, we encountered several challenges that impacted our financial performance due to facility power outages in our data center hosting business. Despite these short-term setbacks, the company has made significant progress with our key growth initiatives in the development of our cloud services business and the establishment of our special purpose built 100-megawatt HPC data center in Ellendale. Our achievements include welcoming our newest cloud service customer, Together AI, and the strategic decision to divest our Garden City facility.

We are also pleased to announce that we have entered into exclusivity and executed an LOI with a U.S.-based hyperscaler for 400 megawatts of capacity at our Ellendale campus, inclusive of our current 100-megawatt facility and 2 forthcoming buildings. We're in discussions for product level financing for this investment-grade tenant, and we hope to have construction financing in place coinciding with the signed lease. We also significantly strengthened our balance sheet after the quarter closed with $160 million of announced asset sales and financing transactions.

Now I will provide an update on each of our business units. Let's begin by discussing our data center hosting business. Our 100-megawatt Jamestown facility has consistently met expectations, operating at full capacity with uninterrupted uptime throughout the quarter. This achievement marks the sixth consecutive quarter of full capacity operation for the Jamestown facility. While we are pleased with Jamestown's performance, we encountered challenges at our other facilities. As previously disclosed, our 180-megawatt Ellendale facility in North Dakota experienced a power outage starting in January. In response to these challenges, our utility provider installed additional equipment to enable us to selectively power down the affected portions of our site. Upon reenergization we have determined that the failures were due to transformers not meeting industry standards. We have now successfully procured replacement transformers and related components from North American industry-leading manufacturers.

As of today, the Ellendale facility has been reenergized to approximately 14% of its full capacity or 25 megawatts. Additionally, we anticipate that as the new transformers are received and installed, the Ellendale facility will be operating at 65% to 75% of full capacity by the end of May 2024. The company is also pursuing remedies to recoup lost revenues and additional costs incurred to identify and rectify the outages. Furthermore, we made the strategic decision to sell Garden City, as it was not compatible with our HPC growth strategy.

This divestment enables us to redirect financial and operational resources towards our strategic sites in North Dakota, bolstering our growth initiatives in HPC and cloud service applications. The decision to sell this facility underscores our commitment to optimizing our asset portfolio while focusing on our core growth areas.

As a result of this sale, we will maintain 280 megawatts of data center hosting capacity across our 2 fully contracted locations in North Dakota. This positions us to be insulated from volatility in the crypto markets leading up to the happening event.

Let's move on to our Cloud Services business, which provides high-performance computing power of AI applications. Despite a lack of significant sequential revenue growth due to delays in clusters entering revenue generation, this segment continues to experience rapid growth as we advance in fulfilling our existing contracts and exploring new opportunities in our pipeline.

We've recently seen positive developments, including the enrollment of clients like Together AI, and we have exited this quarter with positive momentum. The newly deployed clusters were turned over to customers late in the quarter, which will provide a significant positive inflection to revenue and EBITDA in our fiscal fourth quarter.

Lastly, let me Lastly, let me provide an update on our purpose-built HPC data stores. We currently have 400 megawatts of capacity in development across North Dakota, not including the 9 megawatts of capacity we have at our HPC facility in Jamestown to support cloud service customers.

During the quarter, we continued to make significant strides in the construction of our 100-megawatt high-performance computing facility in Ellendale, North Dakota. This state-of-the-art facility will feature cost-effective, highly efficient liquid cooled infrastructure, specifically designed for the most demanding HPC applications. Construction is proceeding as expected, and we are proud of the progress to date. We encourage you to visit our social media channels for some recent images of the facility. As previously mentioned, we have entered into exclusivity and executed a letter of intent with a U.S.-based hyperscaler for a 400-megawatt capacity lease and are progressing with project level financing tailored for this investment-grade tenant.

In summary, we are encouraged by the positive trends we are witnessing across our business and remain confident in our growth trajectory. We are excited about the numerous potential catalysts on the horizon, we'll continue to allocate our capital strategically to achieve the highest risk-adjusted returns and maximize shareholder value.

With that, I will now turn the call over to our CFO, David Rench, to walk you through our financials and provide an update on guidance. David?

[David Rench, executive]

Thanks, Wes, and good afternoon, everyone. Let me begin by addressing the complexity of this quarter's financial reporting, although we reported an adjusted EBITDA loss of approximately $2.3 million, several onetime items significantly impacted our financial performance and comparability to prior quarters. Notably, we missed out on a substantial revenue opportunities in our cloud service business due to the difference of timing between hardware delivery and final configuration and customer access. We incurred onetime professional service expenses primarily related to our capital-raising initiatives, financial analysis for data center financing and strategic transactions.

Additionally, unexpected expenses arose from addressing power outages at our Ellendale data center hosting facility, which alone had an estimated $4.5 million impact on operating loss during the quarter. We also incurred a $21.7 million loss on held-for-sale classification related to the Garden City transaction and $4.2 million of accelerated depreciation and amortization related to the disposal of the damaged equipment of the Ellendale facility, which further impacted our financials. We are pursuing all available remedies to recoup lost revenues and the additional costs incurred to identify and rectify these outages.

With these items in mind, let's move to our results for the quarter. Revenues for the fiscal third quarter of 2024 were $43.3 million compared to $14.1 million for the fiscal third quarter of 2023. The increases -- the increase was driven primarily by increased capacity across data center hosting facilities and the contribution of revenue from the Cloud Services contracts. Our data center hosting segment generated $37.7 million in revenue, while our Cloud Services segment generated $5.6 million of revenue.

Cost of revenues for the fiscal third quarter of '24 was $47.1 million compared to $10.5 million for the fiscal third quarter of 2023. The increase in cost of revenues was attributable to higher energy costs due to higher number of megawatts used to generate hosting revenues as well as increases in depreciation and amortization expense and personnel expenses driven by the growth of the business as more facilities were energized.

Selling, general and administrative expenses for the fiscal third quarter of 2024 were $30.4 million compared to $10.5 million in the prior year comparable period. The increase was primarily due to a start-up cost -- due to start-up costs as we ramp the Cloud Services business, including increases in depreciation, amortization and lease costs on assets not yet supporting revenue as well as personnel costs to support the overall growth of the business.

Net loss for the fiscal third quarter of 2024 was $62.8 million or $0.52 per basic and diluted share based on a weighted average share count during the quarter of approximately $121.4 million. This compares to a net loss of $7 million or $0.07 per basic and diluted share in the fiscal third quarter of 2023 based on a weighted average share count during the quarter of approximately $94.1 million. Notably, our Cloud Services business reported a 21.6% operating loss this quarter, inclusive of $16.5 million in depreciation and amortization expenses alone. We expect these losses to decrease as we deploy more clusters over the next 6 months.

Adjusted net loss, a non-GAAP measure, for the fiscal third quarter of 2024 was $28.9 million or adjusted net loss per basic and diluted share of $0.24 based on a weighted average share count during the quarter of approximately $121.4 million. This compares to adjusted net loss of $1.4 million or $0.01 per basic and diluted share for the fiscal third quarter of 2023 based on a weighted average share count of approximately $94.1 million during the quarter. Adjusted EBITDA, a non-GAAP measure for the fiscal third quarter of 2024 was a loss of $2.3 million compared to adjusted EBITDA for the fiscal third quarter of 2023 of $0.9 million.

Moving to our balance sheet. We ended the fiscal third quarter with $41 million in cash, cash equivalents and restricted cash and $61.8 million in debt. We continue to work on improving our cash position, taking into account the sale of our Garden City location which includes maximum cash consideration of approximately $87.3 million.

While there are still ongoing elements in the sale of the Garden City assets, including a $25 million holdback on the $9 million in continued liabilities relating to final power approval in Texas we have observed an improvement in our balance sheet since the close of the quarter, including a $50 million convertible debenture that we recently announced. Despite the challenges, we incurred in the past quarter, we remain confident in the promising future of Applied Digital.

Now I'll turn the call over to Wes for closing remarks.

[Wesley Cummins, executive]

Thank you, David. I'd like to take a few minutes to discuss our capital formation strategy to fund the growth we expect in our business. Our 2 highest growth segments are capital-intensive businesses. To date, we have primarily been funding these initiatives from corporate-level financings. We are planning for this to change in the near future. Specifically to Cloud Services, we have been engaged in an engagement process since late last year to secure a large debt facility directly at our Cloud Services subsidiary to fund GPU purchases.

We have received indications from multiple parties and are proceeding forward with a goal to close the debt facility by the end of the current fiscal quarter. The debt facility has some attractive attributes relative to the leases we currently use to fund the deployments. First, it would change the amortization schedule for the GPUs from the current 2 years to approximately 5 years, which would align with the expected useful life. This would have a positive effect on our income statement in the near term as well as aligning the assets and liabilities on our balance sheet to better reflect reality. A significant portion of our lease financing is in current liabilities, while the entire asset of the GPUs is in long-term assets. This creates a growing negative working capital balance as we deploy more GPUs. If we're not successful in securing the debt facility, we will continue to have access to lease financing and have recently seen more attractive financing structures coming to the market.

Moving to our HPC data center financing. We have been funding the initial building of our the cost of our Ellendale facility with corporate level funds. We have been in the process of securing project level debt for this facility since late last year. We have multiple interested parties, the recent positive results from a feasibility study have pushed this process forward. We expect to have this financing in place with the execution of the lease on the current 100-megawatt building. Once these asset level financing vehicles are in place, it will leave the company in a positive free cash flow position due to the strategic financing in the different business segments.

In summary, we faced significant challenges this quarter, largely due to external factors, but we are fully dedicated to delivering strong long-term shareholder value. The robust demand for our products and services, coupled with our differentiated asset base and attractive valuation of our peers, strengthen our conviction.

We welcome your questions at this time. Operator?

[Operator]

[Operator Instructions]. Our first question comes from the line of Lucas Pipes with B. Riley.

[Lucas Pipes, analyst]

Wes, you described Ellendale and Jamestown as strategic. So I wanted to ask if fair to conclude from that comment that those assets would not be sold, specifically just the BTC piece of it.

[Wesley Cummins, executive]

Sure. Thanks, Lucas. So those assets are strategic to us in that they have really good fiber connectivity at those sites versus what we had in Texas and we have no plans of selling those in the immediate future.

[Lucas Pipes, analyst]

That's helpful. And then on Ellendale, you mentioned you have more than 600 megawatts of future capacity. And first, is this 600-megawatt inclusive of the current B2C business or incremental and then how is this power capacity secured? Obviously, there's a lot of interest for power assets out there with everything that you've been talking about for a very long time. So I wonder how investors should think about that?

[Wesley Cummins, executive]

Yes. So it's inclusive of the $180 million on the BTC. And right now, we've secured 535 megawatts at that site, but we believe it goes to 605.

[Lucas Pipes, analyst]

Got it. And what's the mechanism through down payments? Or could you expand on that a bit?

[Wesley Cummins, executive]

I'm sorry, the mechanisms for?

[Lucas Pipes, analyst]

The mechanisms through which this power is secured.

[Wesley Cummins, executive]

It's through signed ESAs.

[Lucas Pipes, analyst]

Very helpful. And then I'll try to squeeze one more in. Just in terms of the debt facility that you had mentioned for the GPUs, what potential size could we think about for that?

[Wesley Cummins, executive]

I'm hesitant to say the size but somewhere in the multi-hundred million, maybe $500 million to roughly $1 billion range.

[Operator]

Our next question comes from the line of George Sutton with Craig Hallum.

[George Sutton, analyst]

Wes, obviously, the big news on this call is the 400-megawatt hyperscaler contract. Can we just talk about that relative to the 100-megawatt that you had previously announced? Where does that original 100 megawatts sit and would this be in addition to or a completely new move on your part with respect to what you have out there for sale?

[Wesley Cummins, executive]

Yes. So the 400 megawatts is inclusive of the 100. So we'll take that. The previous customer didn't go forward. As I've mentioned on our call, last call in January, we have had a significant amount of interest at that site. And I think I feel like we're moving forward with the best party for us to move forward with, which is effectively for the entire site.

[George Sutton, analyst]

Okay. Great. So the original customer in talking to some of the infrastructure investors that we talked to was suggestive of a little bit more challenging to finance a 10-year contract. This hyperscaler customer definitionally would be a very high creditworthy customer. And therefore, I assume the ability to get that finance would be substantially easier. Is that a reasonable scenario?

[Wesley Cummins, executive]

Yes. That's the correct way to think about that.

[George Sutton, analyst]

So when you announced the 100-megawatt deal, you gave some -- a sense of a 10-year contract term of about $2.2 billion. Would this be suggestive of an $8 billion plus 10-year deal? Is that kind of how I'm -- to read that?

[Wesley Cummins, executive]

Yes. I don't want to get into too many of the details because there's a ways to go here. But this -- we're looking at is more like 15-year commitments. But it sticks close to what we've talked about in the past, the economics per megawatt we expect.

[George Sutton, analyst]

Okay. And then finally, on the GPU side, could you just give us a quick update on sort of where your orders sit, where the supply of GPUs, how well that's coming in, inclusive of InfiniBand? And just any sense on an example of sort of once you get a cluster built, how long it takes to get to revenue recognition. So just sort of clear on that?

[Wesley Cummins, executive]

Yes, sure. So a couple of things on that. We feel good on the supply. We're seeing shipments, including everything. One of the blocks we hit a little bit in the quarter as we've been hiring more people because there is a significant amount of work to put these together to commission them and turn them over to customers and we have a limited team. And so we've been adding to that team. I think it's tens of thousands of cables that need to be connected. The cabling takes a long time and then the commissioning, but there's a lot of work involved. So hopefully, we'll shorten that with experience and with more bodies in the future. But the right now, you should be thinking about 8 weeks from when we receive all components on site to the clusters being turned over to customers.

[Operator]

Our next question comes from the line of Rob Brown with Lake Street.

[Robert Brown, analyst]

Good afternoon. On the large potential new contract, could you give us a sense of the steps that go into that? Is it contingent on financing? Or are there details to negotiating contracts and then you go out and get financing? Just a sense of the steps and timing on how that plays out.

[Wesley Cummins, executive]

Sure. So I'm not worried about financing on this one. There's just a process, the steps you go through from where we are now, some diligence, a lot of things that we have to provide, and there's a lot of work to be done from a legal contracting perspective. And then I would expect this to be kind of a 60- to 90-day process from when we started.

[Robert Brown, analyst]

Okay. Good. Good. And I guess on the transformer that you're trying -- or transformers, you're trying to procure and getting put in place, you have some timing on May, but what's the time line for the rest of the transformers and getting that site up to full speed?

[Wesley Cummins, executive]

So we've procured all the transformers. They'll all be on site within the next few weeks. And then it will just be the work connecting these. There's -- I don't have to get into the weeds too much, but there's been a certain connector component that actually has been the delay and not the transformers on connecting and energizing these. But we've already installed several of them, and they should just continue daily as we ramp this back up. All indications from a performance perspective is the new transformers we procured are working extraordinarily well. And so we expect that to proceed fairly smoothly.

But it was -- procuring transformers in this market is not easy. We were really happy with the team able to find the amount of transformers we found and the time frame we found them. And like I said, already shipped to site. It's painful for us with that type being down just from an economic perspective, so the faster -- and for our customer, by the way. So the faster we can get that back online, the better for all of us.

[Operator]

Our next question comes from the line of Mike Grondahl with Northland Securities.

[Mike Grondahl, analyst]

Wes, you said that the contract with the hyperscaler, the 400 megawatts was like 60 to 90 days from when you started. When roughly did those discussions start? Just trying to figure out that start date.

[Wesley Cummins, executive]

It's -- I'm trying to think on it, but it's been going for maybe 3 or 4 weeks on the discussions. And just to make it clear, it's not -- there's no contract. There's a letter of intent, which is kind of the standard process here.

[Mike Grondahl, analyst]

Got it. But I think you're saying from when you started 3 or 4 weeks ago, 60 to 90 days from that time, you might have a contract and financing in place?

[Wesley Cummins, executive]

Yes, I think that's the right way to think about it.

[Mike Grondahl, analyst]

Okay. And then on the Cloud Services GPU side, how many GPUs did you own at the end of February? And how many were generating revenue? And then what's your kind of estimate for the same, how many you'll own and will be generating revenue at the end of May?

[Wesley Cummins, executive]

Yes. So we owned, I believe, 5,000 or 5,120, the H100 class GPUs. So there's 4,000 -- I'm having turned the math in my head to round it to the exact number, but so rounded to 4,000. There's 4,000 in revenue generation now. And then there's 2,000 that are being brought up to that stage, and we should have more before the end of the quarter.

[Mike Grondahl, analyst]

Got it. So 4,000 as of today are generating revenue and another 2,000 to 4,000 by the end of May?

[Wesley Cummins, executive]

Yes. That's our goal.

[Mike Grondahl, analyst]

Okay. Okay. And roughly, how much did the transformers cost that you need to put in to Ellendale the new ones?

[Wesley Cummins, executive]

I have David here, $300,000 (sic) [ $200,000 ] apiece? Yes.

[Mike Grondahl, analyst]

And how many total did you need?

[Wesley Cummins, executive]

We needed about 45 of those. We -- there are some of the ones that the other model that we have that are still working technically, but we're replacing all of them.

[Mike Grondahl, analyst]

Got it. Okay. And last question for me. Do you guys have a rough kind of committed CapEx number for the rest of calendar '24?

[Wesley Cummins, executive]

Well, we have -- we have 7 more weeks of -- oh, calendar '24, I'm sorry. Let me come back to you on that, Mike. I don't have that in front of me. We didn't have it here for the call.

Mike, I did want to make a point on the GPU business. We've been adding people. We've been accelerating or working to accelerate from receiving to revenue-generating. But there's one piece that I mentioned on the last call, and we're much more focused on it now, which is we started seeing demand from enterprise customers and large enterprise customers, which we've really been focused on. And so pushing, we can continue to deploy with the current customer base kind of as aggressively as we want to. But we really like to transition up to the enterprise customers and we're close. I think we have a few of those in process right now, but that's one of the reasons that there's some slowness in the deployment through the end of May, just because I like to diversify our customer base outside of just the startups. I love our customers there, but we would like to diversify the customer base. We're working pretty hard on that.

[Operator]

Our next question comes from the line of Darren Aftahi with Roth.

[Darren Aftahi, analyst]

Wes, if I could follow up on that last comment you made. So I think in the prior call you guys guided to 10,000 as a bogey for GPU number exiting May. Can you sort of speak to that goal, if it's still one and then embedded in that, your comment about slowing down to diversify away from more VC-backed clients. Is the achievement of getting that 10,000 less important, but more important to be diversified going into fiscal '25?

[Wesley Cummins, executive]

Yes. I think you hit it right on the second one, types of customers diversifying away from the group of -- they're all doing different things, obviously, different products for the start-up. So it's diversified through those customers. But it's all similar in that they're all start-ups and mostly VC-backed. And so I think it's more important for us just to think about diversification in that business over the longer term instead of kind of rushing to make a single date. And I just -- outside of that, I wanted to make a correction, $200,000 on the transformers, not $300,000 on the prior question.

[Darren Aftahi, analyst]

Got it. And then maybe one on the data center piece. So the hyperscaler LOI, is there a financing negotiation period like you had with your prior LOI?

[Wesley Cummins, executive]

[ No ].

[Darren Aftahi, analyst]

Okay. And does that LOI include a ROFR on additional capacity beyond the 400 megawatts?

[Wesley Cummins, executive]

[ No ].

[Darren Aftahi, analyst]

Got it. And just last one for me. Any change on AI cloud pricing since the last call has it stayed stable, moved up?

[Wesley Cummins, executive]

Yes, it's been stable. I think if I talked about this on the last call, that we've kind of seen that pricing level out. I hate giving pricing talk on public split, kind of where the prepayment percentage and the price per hour on GPUs has been pretty steady for us since the last quarter.

[Operator]

Our next question comes from the line of John Todaro with Needham & Company.

[John Todaro, analyst]

Just kind of summarizing it here. So first on the GPU piece. You mentioned, I think it's 4,000 generating revenue now. 2,000 to 4,000 brought online end of May. So kind of as we think about that exiting May 1 run rate, fair to say about 8,000 generating revenue?

[Wesley Cummins, executive]

Could be close to 8,000, somewhere between 6,000 and 8,000 is the right number to think about.

[John Todaro, analyst]

Okay. And then on the -- so the enterprise customers that you'd want to diversify into, so those still aren't signs. But the slowdown is you still would need to go out and sign those or kind of, I guess, just where are we in that process?

[Wesley Cummins, executive]

Yes. So it's advanced since the last quarter. I think I mentioned we're in proof of concept with some, and there's more -- it's moved to contract negotiation. So that's definitely made an advancement. Those take -- they just take longer. I haven't talked -- I don't know -- I think I've talked about this publicly, but like our first customer contract we signed, I think it was 2 weeks from initial conversation to signing, so it was pretty fast. The enterprise has a much longer process for qualification. But we're -- I'm happy where we are in that process.

[John Todaro, analyst]

Got it. And then just lastly, so on the 100 megawatts site, kind of how much now is built on a percentage basis? And how much financing additionally needs to do to get it 100% done?

[Wesley Cummins, executive]

Yes. So we have about a little over $100 million into that site at this point and where we're negotiating now on financing, we expect the LTC somewhere in the 80% to 85% range. So we've put a lot of the money in that we're going to need to put in on the equity side.

[Operator]

[Operator Instructions]. Our next question comes from the line of Kevin Dede with H.C. Wainwright.

[Kevin Dede, analyst]

Can you give me a ballpark on how many AI customers you have now that are running off of like the Nevada, Colorado, Minnesota and on Ellendale -- sorry, Jamestown sites?

[Wesley Cummins, executive]

Yes. We have -- primarily, we have some smaller, but we primarily have 2 larger customers that are deployed. And we expect to deploy more with the new clusters that we're bringing up.

[David Rench, executive]

So yes, the 4,000 that are in service is split primarily between 2 customers.

[Kevin Dede, analyst]

Are you thinking that you'll be able to dump those colocation sites and move what you have there to Ellendale in the next quarter?

[Wesley Cummins, executive]

So Ellendale is going to go, we won't have capacity for our AI cloud at Ellendale as it's currently structured. The potential customer there is taking all of that capacity. And I think that's the right decision for the company on long-term contract and just where to best place our dollars. The colocation sites, I think, are going to prove to be extraordinarily valuable. The demand we see from enterprise and even some customers that are larger than Enterprise is pretty large. And I think we're not going to have a problem filling those up. I would never cut those loose because it's extraordinarily hard to find in the market.

[Kevin Dede, analyst]

Okay. Can you help me understand the difference between the transformers you had at Ellendale versus the ones at Jamestown and why the Ellendale ones failed on you?

[Wesley Cummins, executive]

Yes. So the -- I don't want to get into too many of the specifics here because as we said, we're going to be pursuing all remedies to recoup our costs there. But the Ellendale -- or the Jamestown transformers are from a U.S.-based, 1 manufacturer actually based in Texas, and then when we went to Ellendale, we had a speed of delivery. We bought some non-Americas-based company. And they're a well-recognized company in the industry, but we've made that change, and they just haven't lived up to spec as far as I'm concerned.

[Kevin Dede, analyst]

Understood. I appreciate the color. You mentioned that you were okay on equipment source. But if I remember, you did see some problems getting the InfiniBand product. Is that no longer an issue? I know you mentioned it earlier this evening. But I just want to make sure I understood it.

[Wesley Cummins, executive]

Yes, no longer an issue.

[Kevin Dede, analyst]

Okay. So what would keep you from reaching that 8,000 goal that you have for May?

[David Rench, executive]

I don't think there will be anything that keeps us from reaching that. Like I said, we're in process. As soon as we secure some of these other customers that we have been pursuing. I think you'll see us accelerate which is, like I said, why we're augmenting the team for deployment and so that we can move quickly with that. So I don't see anything from a supply chain side that will stop us.

[Kevin Dede, analyst]

Based on, I think you alluded to, what, $160 million, I think that includes the sale of Garden City that you have in your hands. How far does that get you? And does that mean the Jamestown HPC site is fully paid for and you're just work and build the 400 now?

[Wesley Cummins, executive]

Yes, Jamestown is paid for. It gets us out a ways. It's just a matter of how much we spend on construction in Ellendale between now and site level financing. So hopefully, that's 6 to 8 weeks away because that's where the vast majority of our funds are going. And if we -- if something went awry and that got delayed or pushed, could we pause there? Yes, we could. But that's where the vast majority of our CapEx is going at this point.

[Kevin Dede, analyst]

And just apologies for not being the sharpest tool in the shed, Wes, but just to make sure, the -- the site level financing is a function of turning that LOI to a contract?

[Wesley Cummins, executive]

Correct.

[Operator]

[Operator Instructions]. Our next question comes from the line from Lucas Pipes with B. Riley.

[Lucas Pipes, analyst]

Wes, I wondered if you could maybe talk a little bit about the cadence of how the LOI came about. You had a contingent financing agreement up until recently. Did you decide to walk away from that? Did that agreement expire? Was the hyperscaler kind of always in the wings? Was the discussion with the same hyperscaler before you entered into this prior agreement? Just looking for additional color.

[Wesley Cummins, executive]

Sure. So Lucas, we've constantly had discussions. Once we went into the agreement on the 100 megawatts, we stopped having discussions on that because there was that exclusivity, but we had additional capacity that we're marketing both at Ellendale and other markets. And so we were in constant discussions with other parties. As I mentioned on the call in January, we were seeing a lot of demand and on our additional capacity, we were -- we've been in discussions with 3 different hyperscalers and then 2 parts that I don't know if I would classify as that. So that's -- it's kind of a constant that we continue to market the capacity we have available. And so that's how, I don't know if that's how those discussions came about, but yes, that we're constantly doing that.

[Lucas Pipes, analyst]

And that is helpful.

[Wesley Cummins, executive]

I don't -- I think I don't recall if I mentioned this in the call, but we have a pipeline of roughly 1.6 gigawatts that we're working. And so it's beyond just the Ellendale site.

[Lucas Pipes, analyst]

Wes, can you expand on that pipeline a bit? Is that all -- I'm sorry to harp on this, but again, my view is power is going to be constrained. So that pipeline is that power that you have committed to you?

[Wesley Cummins, executive]

Sure. So we have -- I don't want to give states, Lucas, because we haven't signed these fully yet, but we're here in the process of probably over the next few months, but we have a pipeline of sites, a lot of it in the call it the Midwest. So you have a site for 300 megawatts in the Midwest that would come online in '25, one for 500 that would come online in '25, one that's in the northern part not in North Dakota, but in that area that we kind of in that area that we work now for 200 that would be available for '25 and then a few other sites that are -- we have obviously the Utah site for 100 that we've mentioned publicly before. So that's just a few.

[Lucas Pipes, analyst]

I appreciate that. And I'd assume the power would be kind of similar cost structure as to what you have in Ellendale and Jamestown.

[David Rench, executive]

Yes. It's an attractive price for the HPC application for sure.

[Lucas Pipes, analyst]

Very helpful. Then a follow-up on the recourse thinking of $8 million or so. So is the primary potential source of recourse going back to the supplier? Or is there business interruption insurance and potentially other sources?

[Wesley Cummins, executive]

It's every source available for us. But yes, there's obviously -- it should be warranty obligations here and other sources of recourse for us.

[Operator]

There are no further questions in the queue. I'd like to hand it back to Wes Cummins for closing remarks.

[Wesley Cummins, executive]

Thanks, everyone, for joining. Looking forward to catching up on our next quarterly call. I want to thank all of our employees for their hard work and our shareholders for their patience with us and looking forward to speaking to you soon.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.