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Welcome back to the Block Space Podcast presented by CleanSpark.

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This week, Texas Governor Greg Abbott mandated a data center audit for all of the interconnection requests in Batch Zero, ERCOT's latest batch of large load interconnection requests under new rules to manage the influx of data centers coming into the state.

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For today's bonus episode, we welcome Asher Gnutt, CEO of Hut 8, to discuss how this new audit could affect its Beacon Point data center, plus its AI expansion plans beyond Beacon Point and River Bend, and how it plans to finance these massive builds.

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Hope you enjoy. Asher. Asher, welcome to the show. How's it going, guys? How you doing? Pretty good, man. Thank you for joining. Uh, obviously super busy couple weeks for you, coming fresh off of Q2 earnings this week.

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We really appreciate you taking the time. Of course.

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And I would love to start with the question that you've probably gotten 100 times this week and was a feature of most of the calls this week for, uh, the cohort of Bitcoin miners turned AI companies, and that's expe- explicitly how does the new audit from Greg Abbott and the delay to Batch Zero affect Hut 8 specifically as it relates to the Beacon Point data center?

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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.

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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 gonna come and take everyone's water and ener- and increase energy bills and so forth.

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I think what we're seeing a lot across the country is that, like, this misinformation has spread and really got into people's heads.

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And for a data center developer, it's harder to get there and say, "Hey look, we don't do these things."

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Because they think, "Okay, well, you are biased in saying that because you're trying to invest into th- this project, and obviously you're gonna say y- the data centers are fine and not gonna consume water and so forth."

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So I actually think what Governor Abbott did was extremely smart because there's so much investment in data centers going into Texas.

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It is 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.

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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.

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And frankly, that questionnaire was many of the same things that Governor Abbott and, and his office, uh, released.

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And so overall, we're gonna 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.

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We're gonna do a moratorium. No more data centers."

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He said, "We're going to do an audit process and 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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This is kind of off the cuff for me, but going back to the, the PUC survey, if I recall correctly, it was like 26 companies out of over 100 that actually ended up- Yeah, like 28 of- -or projects that actually ended up responding -300.

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Yeah. Um, three... Yeah. Thank you, Charlie.

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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.

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Um, so j- to, to, 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 ADP Texas, correct? Correct.

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So- We already have an interconnection agreement in place.

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So, a- and, and it seems from what we've seen from Morgan Stanley that, uh, there's a high chance, and I, I'm not gonna try to get you to say this with certainty- Sure...

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I understand that, but there's a high chance that Hut 8 will be considered base load for this Batch Zero and that it should smooth over the process.

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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 Yeah.

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Before the extension happened, obviously today was when they were supposed to really- Yeah. [laughs]...

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when we felt very confident and, and, and such, and I think at the end of the day, like, the criteria doesn't change, right?

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The amount of developments doesn't, don't change, and I think all of the questions that Governor Abbott had asked, um, in his, uh, audit are things that we've already answered publicly through the Pew's, PUC survey.

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And so we think that this is net positive, and it's net helpful. Obviously, it's creating some volatility into the ecosystem, volatility into the Hut 8 stock today.

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But overall, like, we are proud of the projects that we're building because, uh, like I'll, I'll give you an example, and I, I, I spoke about this to our team the other day.

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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, 'cause it had a 50 megawatt substation, into a Bitcoin data center.

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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?

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It helped employ a lot of folks, it was... People thought fondly of the, the, the factory.

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And I think data centers should have that similar impact on communities they go into, whether it be the, by the folks they employ, whether it be by the technologies that they can teach people, right?

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We're looking at different things where we can lo- 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.

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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, um, different kind of stakeholder groups.

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But at the end of the day, what should come out is the truth versus what's real and what's not.

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And any process that helps verify what's real and what no- what's not I think should be welcome because it's hard to fight against things that are, that are not real. It's much easier to just say, "You know what?

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These things we don't do. We do not consume water because we have a closed-loop water system. We pay for our energy infrastructure operators and our supply. We're not driving price up.

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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.

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All of these things a responsible developer should do, and that's how we're gonna allow us to go and compete against other countries in this AI race.

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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 gonna be hard to actually develop responsibly. Yeah.

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It-- That, 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 often ca- oftentimes are overblown in the media and in the, uh, cultural conscience.

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On, on the note of expansion, Asher, HUD8's got five point four gigawatts under due diligence, eleven sites across six states. Can you provide any insight into where y'all are at with the timeline for some of these?

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And specifically, can you give us an update on Batavia, Illinois, and what y'all are thinking in terms of prioritizing these sites going forward? Sure. We have sites across the whole US today.

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Um, we have, uh, I think over ten different states that we're operating within, uh, and, and looking at different projects within. Those sites range from end of '27, '28, '29, um, and some in tw- 2030. That kind of...

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And some of the sites ramp up per year as well. And so, uh, it- it's a whole slew. The-- You'll see that number continue to increase. We're spending heavy investment on growing that pipeline.

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That pipeline does not include all of the M&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.

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Um, and Batavia is, is, is a relatively small site of ours. It's fifty megawatts, right? That's out of Chicago.

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Uh, that, that site is going through a restudy process with ComEd 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. Sure.

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But it seems like the Fluid Stack right of first re- uh, right of first offer on the one gigawatt expansion at Riverbend is excluded from the stated development pipeline. If- That's right.

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We don't include, uh, we don't include expansion at Riverbend today. Okay. Um, what, uh... Could you give us an update on what the timeline for that decision is?

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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 moved through to a deal? Sure.

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We, we have, uh, interesting timelines that Entergy, the utility, has provided, and then we have some other kinda go fast solutions on behind-the-meter generation on that campus as well.

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And we have multiple folks that are interested in that capacity, uh, whether the ROFO is executed or not. Thanks for the update on that. Um, a few questions on financing here, uh- Sure... Asher.

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So, um, with the Coatue convertible note, uh, converted to equity in May, there's no general recourse debt now sitting at the parent level.

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So I'm just curious if that is the strategy going forward, if HUD8 will continue to try to pursue deals where there is no recourse at the parent level, and if we should expect investment grade notes like the ones we've seen for Beacon Point and Riverbend to kinda become the standard for the, for the financing stack going forward.

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Because y'all closed, like, what? Seven point five billion dollars in these- Yeah... in these deals throughout the quarter.

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Is that the template we should expect, or, uh, are there other avenues for fundraising that HUD8 would, uh, you know, uh, look at in the future for these builds?

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So today, we have zero debt at the HUD8 le- parent level, as you had mentioned, and that was done very purposefully.

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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.

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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 the longer term loan that you put in place.

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I think the reason why we've done both of those things is the markets are volatile, as we see today, [chuckles] right?

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Um, HUD8's down 22% this week because of some letter that was posted that we actually think is good for the market.

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[chuckles] Um, and so as a result, like, the market is volatile and we've lived through that volatility, especially in the Bitcoin world.

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And what we've learned is it's actually really good to be in a place of strength when the markets are not strong.

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And so having a re- a really strong balance sheet and having no refinancing needs allow us actually to be a buyer in markets where things are cheap.

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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.

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Um, and so that, that's how we think about strategy and how we think about growth for the company. Asher, I've got two more questions before I kick it to Charlie.

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This one kind of builds on what Brandon was saying about the batch zero process potentially leading to some projects just bailing entirely.

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Do you expect that to lead to potential M&A opportunities in the Texas region specifically? Like, is that something y'all are actively thinking about? We have a team that covers ERCOT and SPP.

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Uh, we have a lot of inbound, uh, opportunities. Even when the kind of requirements for the 50,000th megawatt were being posted, we had a lot of inbounds. I, I think at the end of the day,

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sites and power is valuable, as everyone knows, but equally as valuable is the execution strategy in delivering built capacity. And so I think there are opportunities where developers say, "You know what?

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We don't have the financial wherewithal, or we don't have the execution capabilities to go and build this. Can we pay...

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Can we, can we sell this to you and potentially get a piece of the upside if you just take it to the finish line?"

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And I think the more and more HUD8 executes, the more and more people have confidence on, "HUD8, can you just, just please come do this for us?" And, and we- we're looking at those opportunities as well.

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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? Um, 'cause we can't do everything.

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Think about this all the time when I'm going through these, the, the qualitative updates on these earnings.

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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 Hutt8, but any of these companies.

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And I, 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. Yeah. It just seems Herculean to me.

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Um- And how do you scale with like qual- the same quality of rigor and talent, right? Yeah. And so I, I've told the team, I said,

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"Our reputation is what matters most, our ability to deliver and continuing delivering and have people trust us in that delivery."

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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?

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Because the trust was there, the contractual structure was there, everything was relatively simple, and so that's paramount.

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And as we think about growth, I'm 31 years old today, we're gonna 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 a- a- on top, top of yourself.

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Because once you lose your credibility and your reputation, like that's very, very hard to build back. Um, and so, uh, we have measured growth.

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We wanna grow aggressively, but we also wanna be measured to maintain quality and execution. Asher, I've got one last question for you, and it involves, uh, ABTC, specifically the Vegas site.

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I have to wonder, as the constraints for power become more apparent, as deal flow continues to come through and demand is knocking at y'all's door, at, at what point would Hutt8 consider utilizing the 205 megawatts at Vega, or looking at Salt Creek, Medicine Hat, or Alpha for AI and HPC builds?

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Is that totally off the table, or is that something that you would consider given the right conditions?

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No, I think everything's on the table, and there's actually really interesting models that are net positive to Hutt8 and ABTC in a world like that. So I'll chime in here, Asher.

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Um, last time you were on, we talked a bit about data center aesthetics. It was a bit of a curve ball. And I think you said something to the effect of, like, we want people to drive by and th- them look like museums.

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We wanna 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.

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And I feel like [laughs] if that were to change, or if they were to feel that this da- these data centers are just gonna...

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These giant construction projects in their community, if they were to be a little easier on the eyes, people would feel way better.

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Can you tell me about your mindset and just the company's mindset about how you design how a data center looks and feels?

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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 went to go redesign...

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'Cause the buildings, there's a struct- like, right now structural steel is a long lead time item, right?

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And so if now you go change the structural steel of the building 'cause you wanna design it differently, that's gonna impact timelines.

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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.

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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 that, in, in mind.

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And, and one thing that we're, we're, we're spending time thinking about as well is different communities also perceive beauty differently as well, right?

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Now how do you think about what types of buildings are interesting and look cool based on different environments that you build in as well? Um, so the team is having fun doing that.

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We have a, we have a kind of team focus on that, and th- they're having a good time doing it. But, uh, we're, we're focused on kind of what that's gonna look like, and we have a couple cool renderings.

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Next time I'm on I'll have the team share with you guys, and we, we can share. We've got a couple cool ideas we're working on. Looking forward to seeing- Love to see some renderings.

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Yeah Yeah, what the design team's cooking up. Yeah. Asher, appreciate you taking the time, man.

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Uh, best of luck with the rest of the year, and, uh, looking forward to seeing what y'all have cooking for the rest of the year. Thanks for having me on, guys. Cheers. Thank you. Cheers. Bye. Always a great interview.

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Sharp guy. I'm excited to see some renderings. I wanna do a, I wanna do like a data center aesthetic, uh, like tier list or something. Data center aesthetic tier list, yeah. Yeah.

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[laughs] What would we put, like the chicken shack miners at the bottom? Well- And then- Depending, in some-... like Hutt8 and TeraFab somewhere in the A and S tier perhaps...

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in some communities, the chicken shack would be the revered design. Who knows? [laughs] Return to tradition, Charlie. Exactly. I'm from Oklahoma, man. We kinda- [laughs]... it's nostalgic. [laughs] Okay, uh-